Ha Tinh Pty Ltd v Chin Yin Pty Ltd

This case concerned the proper construction of a lease for a retail shopping premises. The landlord had entered into a contract to lease the premises to the applicant, but now wished to offer a new lease of the premises to the existing tenant instead. The key issue was whether this was precluded by a clause requiring the landlord to use its “best endeavours” to obtain vacant possession. Justice Wilson held that it was. Her Honour also declined to rectify the contract, as sought by the landlord.

Wilson J

13 December 2022

Background

The respondent is the owner and landlord of a retail shop in the Inala Plaza Shopping Centre. [1]. In February 2021 it entered into a contract with the applicant to lease those premises. However, the respondent now wishes to enter into a new lease with the existing tenant, The Reject Shop. [1]. Previously, the applicant obtained an interim/interlocutory injunction restraining the respondent from entering into that new lease. [9]. The applicant now seeks to make that injunction permanent, and to obtain declarations which include that the respondent must use its best endeavours to provide it with vacant possession of the property. [11].

There were two main issues in dispute: first, the proper construction of the lease (particularly a clause requiring the respondent to use its best endeavours to provide the applicant with vacant possession); and second, whether the lease should be rectified to “reflect the true intention of the parties” (as sought and alleged by the respondent). [18].

In the result, the applicant was successful, with Wilson J indicating she would likely make orders and declarations consistent with those it had sought. [153].

The construction of the lease

The lease between the parties contains a clause which relevantly provides that (clause 30(a)):

“The landlord must use their best endeavours to obtain vacant possession of the Premises by the Sunset Date or any extended Sunset Date …”

Despite this, the respondent contended that the lease did not preclude it from entering into a new lease with the existing tenant. [13]. To support this submission, the respondent placed “significant weight” upon the fact that, during the course of negotiating the lease, it had explicitly rejected the inclusion of a clause sought by the applicant, namely that:

“The Landlord must not extend the expiry date of the existing tenant’s lease and must inform the Tenant of any anticipated delays within a reasonable time of being aware of such delay.” [“The rejected clause”.]

The rejected clause never made it into the final lease. The respondent suggests that, if this context is taken into account, it is evident that the parties never intended the lease to preclude it from entering into a new lease with the existing tenant.

However, Wilson J rejected this submission. Her Honour noted that the lease contained an entire agreement clause, which had the effect that the parties had promised each other that the lease “embodies the entire understanding of the parties and constitutes the entire terms agreed on between them in relation to the subject matter” (citing Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305). [47]. In that context, the extrinsic evidence of the negotiations (including as to the rejected clause) was admissible only to “understand the background to this contract, but not as an aid to its interpretation”. [73]. Further, it would be “necessary to identify ambiguity in the lease before consideration can be given to such evidence”. [73]. In this case no relevant ambiguity existed; it was clear that, under the lease, “the respondent must use its best endeavours to obtain vacant possession”. [81].

As to the meaning of the “best endeavours” obligation in clause 30 of the lease, her Honour quoted case authority to the effect that this is to be “understood as an obligation to do all that reasonably can be done in the circumstances to achieve the contractual obligation” and would be measured by what was reasonable in the circumstances (Altis PropCo2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403). [84]. It was clear that, in the circumstances of this case, the respondent pursuing a new lease with the existing tenant was “not consistent with its obligation to use their best endeavours to obtain vacant possession”. [111].

Whether the lease should be rectified

The respondent contended by counterclaim that the lease should be rectified “so as to reflect the intention of the parties” – to the effect that it was permitted to enter into a new lease with the existing tenant. [13].

Wilson J noted that the remedy of rectification is “designed to relieve against the mistaken expression of the true agreement between the parties”. [122]. The respondent submitted that the extrinsic evidence supported that being the case. [128]. However, Wilson J rejected that submission, finding that “[i]n all of the circumstances, there was no mistaken expression of the true intention of the parties”. [129]. Her Honour found that the evidence of the owner and manager of the applicant, as to the applicant’s intention when entering into the contract (which was inconsistent with the respondent’s allegations), was credible and “supported by the relatively contemporaneous advice given to them by their solicitor”. [151].

W Isdale