Denham Bros Ltd v W Freestone Leasing Pty Ltd [2002] QSC 307

SUPREME COURT OF QUEENSLAND CITATION: Denham Bros Limited v W Freestone Leasing Pty Ltd [2002] QSC 307 PARTIES: DENHAM BROS LIMITED ACN 009 658 075 (applicant) v W FREESTONE LEASING PTY LTD ACN 000 586 970 (respondent) W FREESTONE LEASING PTY LTD ACN 000 586 970 (applicant) v DENHAM BROS LIMITED ACN 009 658 075 (respondent) FILE NO/S: S4964 of 2002 S6857 of 2002 DIVISION: Trial Division DELIVERED ON: 7 October 2002 DELIVERED AT: Brisbane HEARING DATE: 8 August 2002 JUDGE: Mullins J ORDER: S4964 of 2002 The originating application filed on 31 May 2002 is dismissed. S6857 of 2002 It is declared that: 1. W Freestone Leasing Pty Ltd is entitled, as against Denham Bros Limited, to exercise the option contained in cl 33 of registered lease number 601075637. 2. W Freestone Leasing Pty Ltd has validly exercised the option in cl 33 of registered lease number 601075637 by notice in writing to Denham Bros Limited dated 26 July 2002. CATCHWORDS: LANDLORD AND TENANT – LEASE – ASSIGNMENT OF REVERSION – covenant giving lessor right to require lessee to purchase demised land, if lessee did not exercise right to renew lease – assignment of reversion effective to assign the benefit of the lessor’s option to require the lessee to purchase the demised land – no assignment of a burden involved in the assignment of the benefit of the lessor’s option to require the lessee to purchase the demised land -- 1 of 16 -- 2 LANDLORD AND TENANT – LEASE – CONSTRUCTION – whether deed which was an agreement for lease can be used to construe covenant in lease – no ambiguity in lease – not appropriate to consider terms of agreement for lease in construing the lease ASSIGNMENT – CHOSES IN ACTION – whether legal or equitable chose in action – existing right conferred by covenant giving lessor right to require lessee to purchase demised land – assignable as legal chose in action – Property Law Act 1974 (Q), s199 Property Law Act 1974 Calaby Pty Ltd v Ampol Pty Ltd (1990) 102 FLR 186 Carter v Hyde (1923) 33 CLR 115 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Davenport Central Service Station Ltd v O’Connell [1975] 1 NZLR 755 Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 Gallagher v Rainbow (1994) 179 CLR 624 Griffith v Pelton [1958] Ch 205 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 Price v Murray [1970] VR 782 Woodall v Clifton [1905] 2 Ch 257 COUNSEL: RIM Lilley for the applicant in S4964 of 2002 and the respondent in S6857 of 2002 BD O’Donnell QC for the respondent in S4964 of 2002 and the applicant in S6857 of 2002 SOLICITORS: Deacons for the applicant in S4964 of 2002 and the respondent in S6857 of 2002 McCullough Robertson for the respondent in S4964 of 2002 and the applicant in S6857 of 2002 [1] MULLINS J: Each of the parties has filed an originating application which raises the construction of cl 33 of registered lease number 601075637 (formerly C453624) (“the lease”), the original parties to which were State Government Insurance Office (Queensland) (“SGIO”) as lessor and Denham Bros Limited (“Denham”) as lessee. The lease is in respect of the land and improvements known as Clermont Plaza Shopping Centre. The current title descriptions of the land the subject of the lease are Lots 1 and 2 on RP 605162, Lot 2 on RP 605461, Lots 1 and 2 on RP 612138 and Lots 1 and 2 on RP 612376, all in the Parish of Clermont County of Clermont. The land the subject of the lease was transferred by SGIO to W Freestone Leasing -- 2 of 16 -- 3 Pty Ltd (“Freestone”) by transfer dated 14 February 1991 which was lodged for registration on 14 March 1991 and registered on 15 March 1991. [2] Denham in its originating application filed on 31 May 2002 seeks the following orders: “(a) an order declaring that upon the proper construction of registered lease number 601075637 formerly C453624 (“the lease”) entered into between the applicant, as lessee, and the State Government Insurance Office (Queensland), as lessor, in respect of the lands described as Lots 1 and 2 on Registered Plan 12138, Lots 1 and 2 on Registered Plan 12376, Subdivision 2 of Allotment 5 of Section 50 on Plan Cat. Number 5461 and Subdivisions 1 and 2 of Allotment 4 of Section 50 on Plan Cat. Number 5162 which said lands were transferred and assigned to the respondent on 15 March 1991 the provisions of clause 33 (“the option”) have no force or effect as between the applicant and the respondent; (b) an order declaring that the respondent’s purported exercise of the option dated 23 April 2002 is unenforceable; (c) an order declaring that the respondent has no right to require the applicant to acquire the said lands pursuant to clause 33 of the lease.” [3] The orders sought by Freestone in its originating application filed on 26 July 2002 are: “1. A declaration that W. Freestone Leasing Pty Ltd is entitled, as against Denham Bros Limited, to exercise the option contained in clause 33 of the Lease between State Government Insurance Office (Qld) and Denham Bros Limited dated 22 October 1982 (being exhibit GLM1 to the affidavit of GL Mann). 2. A declaration that W. Freestone Leasing Pty Ltd has validly exercised the option in clause 33 by notice in writing to Denham Bros Limited dated 26 July 2002.” Background [4] The term of the lease was 15 years which commenced on 22 October 1982. Following Freestone’s purchase of the land in February 1991, Denham has paid the rent under the lease directly to Freestone’s bank account. There were two options for renewal. The first option contained in cl 30A of the lease was exercised by Denham giving the relevant notice to Freestone. The first option period of 5 years will come to an end on 21 October 2002. The second option contained in cl 30B of the lease was not exercised as required on or before 21 October 2001. As a consequence of Denham not exercising the option to renew in cl 30B of the lease, Freestone has asserted the right to enforce cl 33 of the lease. [5] Clause 33 of the lease provides: “33. Should the Lessee not exercise its rights of renewal contained in Clauses 30A and 30B hereof THEN immediately upon the expiration of the original term hereby granted or the first option -- 3 of 16 -- 4 period hereby agreed to be granted whichever the case may be the Lessee shall purchase at the option of the Lessor the demised premises from the Lessor upon the same terms and conditions as is contained in Clause 14A and at the purchase price defined in Clause 31 hereof and in accordance with the terms and provisions hereof.” [6] Under cl 37 of the lease, except where the construction would be inconsistent with the context, “Lessor” is to be construed to mean SGIO, its successors and assigns and “Lessee” is to be construed to mean Denham and its successors and permitted assigns. [7] The parties referred in submissions to the option in cl 33 of the lease as a “put option”, in the sense of being an option that confers a power on one party to require the other to do something. [8] Solicitors acting for Freestone sent a letter dated 23 April 2002 to the solicitors for Denham giving notice pursuant to cl 33 of the lease that Freestone exercises its option requiring Denham to purchase the subject premises upon the terms and conditions contained in cl 14A of the lease and at the purchase price defined in cl 31 of the lease. This prompted the filing of originating application S4964 of 2002. [9] The contract of sale pursuant to which Freestone purchased the subject land from SGIO has not been located. It is not suggested that such a document did not exist. The transfer of the land from SGIO to Freestone is stamped “Duty Paid on Contract”. By deed dated 18 July 2002 SGIO (now known as Suncorp-Metway Insurance Limited) assigned absolutely to Freestone all the rights, title and interest of SGIO under the lease including the lessor’s option under cl 33 of the lease and Freestone accepted the assignment of SGIO’s right, title, estate, benefits and interests under the lease. The deed recited that by written contract of sale SGIO sold the subject land to Freestone, that Freestone became the registered proprietor of that land and at the date of the deed remains the registered proprietor of the land and that pursuant to the acquisition of the freehold to that land by Freestone from SGIO, the parties agreed to enter into the deed “to more perfectly give effect to the original contract between them by assigning the Lessor’s benefits under the said Lease”. [10] Freestone’s solicitors by letter dated 26 July 2002 addressed to Denham gave notice of the assignment by SGIO to Freestone under the deed dated 18 July 2002 of SGIO’s right, title and interest in the lease including the option under cl 33 of the lease and provided Denham with a copy of that deed. [11] Freestone’s solicitors also forwarded to Denham by letter dated 26 July 2002 a written notice on behalf of Freestone in respect of the exercise of the option conferred by cl 33 of the lease. [12] Freestone filed the originating application S6857 of 2002 on 26 July 2002. Evidence of indentures [13] At the hearing on 8 August 2002 Denham sought leave to read and file the affidavit of Ronald Graham Smyth sworn on 8 August 2002. That leave was given, subject to the objection made by Mr O’Donnell QC on behalf of Freestone on the ground of relevance. I reserved my ruling on that objection. -- 4 of 16 -- 5 [14] Mr Smyth was the managing director of Denham between 1979 and 1990. He deposes in general terms to the acquisition and leaseback arrangements that Denham had with SGIO and gives an explanation for why they were entered into by Denham. Mr Smyth exhibits copies of the indentures dated respectively 25 August and 22 October 1982 which were signed by him as one of the signatories for Denham and which relate to Clermont Plaza Shopping Centre. [15] Reference is made to these indentures in the lease, particularly in the calculation of the purchase price which applies to cl 33 of the lease. It is therefore relevant that the indentures be put in evidence on the hearing of this application. No other part of Mr Smyth’s affidavit is relevant to the issue of the construction of cl 33 of the lease. I therefore uphold the objection made on behalf of Freestone in respect of Mr Smyth’s affidavit, except to the extent that the affidavit exhibits the indentures. [16] I will deal with the extent to which any reference can be made to the indentures in construing cl 33 of the lease, when I deal with that question of construction. Issues [17] There were a number of arguments advanced by Mr Lilley of counsel on behalf of Denham as to why the option in cl 33 of the lease could not be enforced by Freestone: (a) s 117 of the Property Law Act 1974 (“PLA”) applies only to a covenant in a lease which touches and concerns the land and cl 33 is not such a covenant; (b) the benefit of the cl 33 option was personal to SGIO and could not be validly assigned to Freestone; (c) there was no privity of contract between Denham and Freestone; (d) there is uncertainty about the timing of when the deposit is payable and when the balance of purchase moneys are payable and the option in cl 33 is therefore uncertain in its operation and cannot be enforced; (e) the notice of exercise of option dated 26 July 2002 was ineffective, because the demand to purchase could not be made until the expiration of the first option period. [18] For the purpose of these applications Mr O’Donnell conceded that the option in cl 33 of the lease was not a covenant which touched and concerned the land which means that Freestone cannot rely on s 117 of the PLA as giving it the power to enforce the option in cl 33 of the lease. Whether option could be assigned with reversion [19] No submissions were addressed expressly on the nature of the option conferred by cl 33 of the lease, by reference to the dichotomy of views that were discussed in Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 71-76 per Gibbs J (as he then was). It was implicit in the submissions that the parties accepted that the option in cl 33 of the lease should be construed as a contract to purchase the land by the lessee upon conditions that the lessee did not exercise a right of renewal of the lease and that the lessor gives the notice required by cl 33 of the lease. [20] Freestone relies on Griffith v Pelton [1958] Ch 205 (“Griffith”) to submit that the benefit of the option contained in cl 33 of the lease passed with the assignment of the reversion to Freestone. It was submitted on behalf of Denham that the decision -- 5 of 16 -- 6 in Griffith v Pelton could be distinguished on the facts and the decision in Woodall v Clifton [1905] 2 Ch 257 (“Woodall”) ought be followed. [21] Woodall concerned two leases for terms of 99 years which each contained a proviso giving the lessee or his assigns the option to purchase the fee simple of the lands the subject of the lease. An action was brought by the assignee of the lessee who had given notice of his desire to exercise the option against the assigns of the lessor to compel a conveyance of the subject lands. On appeal to the Court of Appeal, it was held that the plaintiff could not maintain the action against the defendants on the basis that the option did not come within the statute 32 Hen 8, c 34 (Grantees of Reversion Act 1540). The question that was posed by the Court of Appeal was “whether the statute was intended to cover, or can be construed as covering, such a covenant or proviso as we have now to consider, so as to make the liability to perform it run with the reversion”. The court concluded that that question must be answered in the negative on the basis that the proviso giving the option to purchase the land was not a covenant which directly affected or concerned the land, regarded as the subject matter of the lease, and therefore was not within the statute. [22] Griffith also concerned a lease which contained a proviso that conferred on the lessee an option to purchase the fee simple of the subject land. The expression “lessee” was defined in the lease to include the “lessee’s executors, administrators and assigns where the context so admits”. The named lessee, Miss Blaker, assigned to the plaintiff with the consent of the lessor the property comprised in and demised by the lease for the residue of the term. The assignment document contained no reference to the option. By a subsequent deed the original lessee gratuitously assigned the benefit of the option to the plaintiff, if and so far as not already vested in the plaintiff. The plaintiff gave notice to the personal representatives of the lessor exercising the option. [23] After dealing with the characteristics of an option in gross for the purchase of land describing it as “a conditional contract for such purchase by the grantee of the option from the grantor which the grantee is entitled to convert into a concluded contract of purchase”, the court in Griffith stated at 225: “An option contained in a lease for the lessee to purchase the freehold differs from an option in gross only in the respects that the grantor and the grantee stand in the relationship of landlord and tenant, and that the contract creating it is made part of the terms on which the lease is granted. But, albeit collateral to the lease, it is in itself a distinct contract possessing all the essential characteristics of an option in gross.” [24] As a matter of construction of the option provision in the lease, the court concluded that the original named lessee was entitled as a matter of contract to assign the benefit of the option contained in the lease to the plaintiff as her assignee of the term, so as to entitle the plaintiff to enforce it against the defendant who was the executrix of the original lessor and therefore bound by the lessor’s contract. The court took into account the reference to assignees in the definition of “lessee” and that the option provision must be construed as referring to the assigns of the term. The court held that “a mere assignment of the term” should operate as an assignment of the benefit of the option to the assignee of the term. The court also concluded that if the assignment of the term did not pass the benefit of the option to the plaintiff, the benefit of the option remained vested in Miss Blaker and the -- 6 of 16 -- 7 subsequent deed assigning the benefit of the option to the plaintiff would have constituted an effective assignment of the benefit of the option to the plaintiff, if the assignment of the term did not. [25] The Court of Appeal in Griffith held that there was nothing in Woodall to prevent them from holding that it was competent for the original named lessee to assign the benefit of the option to the plaintiff, so as to make it exercisable and enforceable against the defendant as executrix of the deceased original lessor. The court explained that in Woodall it was the assignment of the reversion which prevented the plaintiff in that case from enforcing the option against the defendants as a matter of contract and that there was no holding that, if there had been no assignment of the reversion, the plaintiff as the assignee of the term could not as a matter of contract have enforced the option against the original lessor. The significance of the issue in Woodall being whether “the assignee of the lessor” could be compelled to transfer the land as a result of the exercise of the option to purchase in the lease by the assignee of the lessee was the matter of observation by Higgins J in Carter v Hyde (1923) 33 CLR 115, 131. [26] Griffith was followed in Price v Murray [1970] VR 782, even though the expression “the tenants” in the subject lease was not stated to include their executors, administrators, transferees or assigns. Anderson J concluded that the covenant in the lease granting an option to purchase to “the tenants” was not personal to the original named tenants and was validly assigned by them to assignees, whether under the deed of assignment in respect of the original named tenants’ interest in the lease or the separate deed whereby the original named tenants conveyed to the assignees all their right, title and interest to the option to purchase referred to in the agreement for lease. Although the defendant lessor in that case did not consent to the assignment of either the lease or the option to purchase, the defendant subsequently received rent tendered by the plaintiffs and had therefore acquiesced in the assignment. [27] Davenport Central Service Station Ltd v O’Connell [1975] 1 NZLR 755 also involved an option to purchase the fee simple in favour of a lessee and contained in the subject lease. Cooke J stated at 757 (omitting citations): “An option to purchase the fee simple is collateral to the relationship of landlord and tenant and does not run with the land … . But unless restricted to the original lessee it is assignable … . This does not mean that the burden of the option would pass to an assignee of the lessor … .” Cooke J held that the option to purchase was, as in Price v Murray, an integral part of the rights acquired by the original lessee and the assignment of the lessee’s interest as lessee included its interest as option holder. [28] Griffith was referred to with approval by Burt CJ in Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279, 282-283 who held that an option to purchase contained in a lease was assignable at law as a chose in action unless the terms of the grant of the option were such as to show that the option was personal to the grantee. [29] The nature of the option in cl 33 of the lease is such that it can only ever be exercised by the registered proprietor of the land, as the lessor can exercise the -- 7 of 16 -- 8 option only if it is able to convey the land which it requires the lessee to purchase pursuant to the terms of the option. The nature of the option to purchase which was considered in Griffith and the other cases which apply Griffith is that the lessee’s option to purchase is assignable to the world. Theoretically, provided there was no relevant prohibition in a lease, the lessee could assign the option to purchase which benefits the lessee separately from the lessee’s interests under the lease. Denham sought to rely on that distinction in the nature of the option conferred by cl 33 of the lease compared to that under consideration in Griffith and the other cases as a basis for submitting that Griffith should not be followed. That distinction is not critical to the reasoning in Griffith which is the basis of Freestone’s submissions in this matter and provides no valid basis for not following Griffith. [30] Each of the above cases (including Woodall) was concerned with an option to purchase which was for the benefit of the lessee. In contrast, the option in cl 33 of the lease is for the benefit of the lessor. There is no reason in contract why the authorities dealing with the assignability of an option to purchase which is for the benefit of the lessee cannot be applied by analogy to an option to purchase which is for the benefit of the lessor. [31] Although Denham relies on the fact that Woodall involved the assignment of the reversion, it is distinguishable, because it was a case where the burden of the option to purchase was sought to be enforced against the assignee of the reversion. It was not a case where the assignee of the reversion was seeking to enforce the benefit of a covenant. Woodall would have been relevant, if Freestone was seeking to enforce the benefit of the option to purchase in cl 33 of the lease against an assignee of Denham’s interest under the lease. Unless there was a novation, an assignment of Denham’s interest under the lease would not carry with it the burden of the option to purchase in cl 33 of the lease. As was stated by Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 103: “It is trite law that it is, in any event, impossible to assign ‘the contract’ as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation.” [32] A related argument advanced by Denham as an impediment to any assignment of the benefit of the option in cl 33 of the lease was that the assignment of such benefit would correspondingly involve the assumption of the obligation by the assignee of the reversion to convey the title to the land to the lessee, upon the option to require the lessee to purchase the land being exercised by the assignee to the reversion. It was submitted as the assignment of the benefit of the option under cl 13 must involve a transfer of that burden to convey the title, it was then not a case of an assignment of a mere benefit. Reference was made to the discussion by Angel J of whether an executory bilateral contract once equitably assigned for value is enforceable between the assignee and the other contracting party without novation in Calaby Pty Ltd v Ampol Pty Ltd (1990) 102 FLR 186, 201-206. This has been referred to as “the benefit and burden principle”: Gallagher v Rainbow (1994) 179 CLR 624, 647-648 per McHugh J. Its scope of operation, if any, is uncertain: NC Seddon & MP Ellinghaus Cheshire & Fifoot’s Law of Contract (7 th Aust ed) at para 8.53. -- 8 of 16 -- 9 [33] It is not necessary, however, to consider whether there is scope for the application of this benefit and burden principle, because no question of transferring a burden arises in this matter. [34] All that was conferred on each of the lessees in Griffith and the cases which followed Griffith was an option to purchase the reversion. In each of these cases that was considered a benefit which was assignable. There was no obligation on the lessee (or the assignee of the lessee) to exercise such right. If the assignee of the lessee did exercise such right, the assignee of the lessee had to pay the purchase price for the reversion, but there was no obligation to do so, absent the exercise of the option. The assignment of the option to purchase by the lessee therefore did not involve an assumption of a burden by the assignee of the lessee, as the assignee of the lessee had the right to elect whether to take the benefit of the option. [35] By analogy, the assignment to Freestone of the benefit of the option in cl 33 of the lease to require the lessee under the lease to purchase the subject land does not itself impose any burden on Freestone. It is only on electing to exercise the option that Freestone takes advantage of the benefit and conveys the title to the land in the process. [36] Subject to dealing with Denham’s arguments that the benefit of the option in cl 33 was personal to SGIO and that, if not, it was not a chose in action capable of being assigned, Griffith is authority for reading cl 33 of the lease as a promise by Denham to accept an exercise of the option to purchase either by SGIO or its assign, meaning the assignee of the reversion, as the assignment of the reversion carries with it the benefit of the option to require the lessee to purchase the land at the election of the lessor contained in cl 33 of the lease. Whether option was personal to SGIO [37] There are two aspects to Denham’s submissions in support of the argument that the option was personal to SGIO and therefore could not have been assigned to Freestone. First, Denham submits that as a matter of proper construction of the terms of the lease itself, particularly having regard to cl 14A of the lease, the benefit of the cl 33 option was personal to SGIO. Second, on the basis that it is relevant to consider the matrix of facts which resulted in the grant of the option to purchase in cl 33 of the lease, the terms of the indentures should be considered to assist in determining whether it was the intention of the parties to confine the benefit of the option in cl 33 of the lease to SGIO. [38] It is convenient to deal with the relevance of the indentures in the construction of cl 33 of the lease. [39] On the issue of construction, the nature of a registered lease is relevant. The lease was registered under the Real Property Act 1861 and, accordingly, encumbered the registered proprietor’s interest in the land with the burden of the lease and gave the registered lessee the corresponding interest in the land reflected by the terms of the lease. It is the lease itself which is the source of these rights and burdens. [40] Although it is apparent from the indentures that the lease was entered into as a result of the agreements relating to that lease embodied in the indentures, it does not follow that the terms of the indentures can assist in the construction of the lease, as a matter of course. It was stated by Mason CJ and Brennan, Deane and McHugh JJ -- 9 of 16 -- 10 in Chan v Cresdon Pty Ltd (1989) 168 CLR 242, 247 when dealing with a lease that was entered into pursuant to an agreement for lease: “The lease was entered into pursuant to the agreement for lease but in the absence of an ambiguity in the lease, there is no warrant for looking to the provisions of the agreement for the purpose of construing the lease.” [41] This conforms with the approach to the construction of a contract by reference to extrinsic evidence dealt with by Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347-353. Mason J stated at 352: “The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.” [42] It is therefore necessary to identify the ambiguity in the lease which can justify considering extrinsic evidence such as the indentures. The only ambiguity which Denham could submit existed was whether cl 33 was intended to apply to the assigns of SGIO, in addition to SGIO. [43] On the face of cl 33 there is nothing inconsistent in the context of that clause which requires “Lessor” to be read down from the extended meaning given by virtue of cl 37 of the lease and to be confined to a reference to SGIO. Clause 33 is applicable at the expiry of the original term or the expiry of the first option period which are respectively 15 years and 20 years after the commencement of the term of the lease. It would not be unexpected, if the land had been sold over that period of time. [44] Reference is made in cl 33 of the lease to cl 14A of the lease. Clause 14A of the lease deals with a prohibition on the assignment of the lessee’s interest in the lease and a prohibition on the subletting of that part of the subject land occupied by the lessee in the conduct of its supermarket business and provides for an option in favour of the lessor to require the lessee to purchase the land in certain circumstances arising out of these prohibitions. [45] Clause 14A of the lease, as originally registered, provides: “14A. IT IS ACKNOWLEDGED between the parties hereto that in accordance with the negotiations made between the Lessor and the Lessee leading up to the execution hereof that this Lease and the Lessee’s interest therein shall not be capable of being and shall not be assigned to any person or persons concern or corporation whatsoever during the term hereof nor shall the Lessee’s interest as Lessee in respect of part of the demised premises namely the supermarket premises occupied or to be occupied by the Lessee in the conduct of its business under the style or business name of “DENHAMS SUPERMARKET” or other name be capable of being sub-let to any person or persons concern or corporation whatsoever -- 10 of 16 -- 11 during the term hereof. This clause is HEREBY DECLARED to be a condition going to the root of the contract made between the Lessor and the Lessee and of this Lease and upon the Lessee assigning or attempting to assign this Lease in any manner whatsoever (the terms “assign” or “assignment” shall in this clause be deemed to mean either any purported assignment by the Lessee or any purported sub- letting of the said supermarket premises as the case may be) this Lease shall at the option of the Lessor thereupon determine and become void and of no effect and in any event any purported assignment by the Lessee shall not operate to pass any estate or interest in respect of this Lease or of the demised premises or any part thereof PROVIDED ALWAYS HOWEVER THAT: (a) If in relation to any assignment or attempted assignment by the Lessee of the demised premises the above provisions of this clause or their intention or effect are at any time interpreted or construed by any competent authority or Court having jurisdiction in the matter to be contrary to or subject to the provisions of Section 121 of the ‘Property Law Act 1974’; or (b) The Lessor shall be requested by the Lessee to consider the waiving of any of its strict legal rights under this clause then the Lessee shall be entitled at the option of the Lessor to purchase the demised premises from the Lessor in the same manner as if the Lessee had given to the Lessor notice in writing of its desire to purchase the demised premises on the date on which such interpretation or construction as mentioned in (a) above is finally adjudicated upon or on the date on which the Lessee requests the Lessor to consider the waiving of its rights hereunder or on the date on which the Lessee assigns or attempts to assign its interest hereunder (whichever date be the earlier and such earlier date is hereinafter called ‘the material date’) and as a consequence thereof the Lessee within fourteen (14) days after the material date shall deliver to the Lessor a bank cheque for the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) by way of deposit for the purchase by the Lessee of the demised premises as in this clause provided for and shall pay to the Lessor the balance of the ‘purchase price’ as hereinafter defined on the date which is forty-four (44) days after the material date in exchange for possession of the demised premises and the relevant title deed or deeds free of encumbrances (other than this Lease) and a Memorandum of Transfer in registrable form (subject to the stamping thereof by the Lessee at the Lessee’s own cost and expense) together with all other ancillary transfer documents reasonably required by the Lessee as purchaser or its solicitors all such documents to be prepared by and at the expense of the Lessee and to be delivered to the Lessor for execution within a reasonable time prior to the date for completion as -- 11 of 16 -- 12 herein provided for. Time shall in all cases and in every respect be deemed to be the essence of any obligation to purchase on the part of the Lessee prusuant (sic) to the terms of this clause. All of the Lessor’s costs of and incidental to the requirement by the Lessor that the Lessee shall purchase from the Lessor the demised premises as in this clause provided for and to the transfer to the Lessee as in this clause provided for shall be borne and paid by the Lessee. Forthwith on the completion of the Lessee’s purchase as in this clause provided for these presents and the term hereby granted shall determine without prejudice however to any of the rights of either of the parties hereto which may have arisen prior to the date of such determination or which are capable of taking effect or be binding on either of the parties hereto after such completion and determination. In this clause the term ‘purchase price’ shall mean the greater of the following: (i) the amount of the total capital outlay as herein defined calculated and measured in respect of the demised premises as at the material date; or (ii) the amount of the ‘purchase price’ as defined and determined in the manner in accordance with Clause 31 hereof as at the material date; whichever amount be the greater.” [46] An amendment to the lease was made between Freestone and Denham and registered under dealing number 701395938 on 2 October 1996. One of the amendments was to substitute cl 14A of the lease. The amendment made to cl 14A by that subsequent dealing is not relevant for the purposes of this application and it is sufficient to rely on the terms of cl 14A as originally incorporated in the lease in dealing with the construction argument. [47] The fact that the opening words of cl 14A of the lease indicate that the antecedent negotiations between SGIO and Denham resulted in the special provisions in cl 14A does not of itself make it necessary to consider the indentures (or the antecedent negotiations) in construing the lease, if cl 14A and related provisions of the lease are otherwise clearly expressed and leave no doubt as to their meaning. These opening words appear to be simply an explanation for why a covenant in such unusual terms as cl 14A appears in the lease. [48] The language of each of cls 14A and 33 of the lease is straightforward and the meaning of each clause according to the ordinary meaning of the words used is clear. There is nothing in the terms of cl 33, even when considered in conjunction with cl 14A of the lease which could support a conclusion that the context requires “Lessor” to be read down so that it is taken as a reference to SGIO only or a conclusion that there was any ambiguity about whether the definition of “Lessor” in cl 37 applies to that expression when used in cl 33 of the lease. I therefore consider that it is unnecessary to consider the terms of the indentures in construing the expression “Lessor” in cl 33 of the lease. -- 12 of 16 -- 13 [49] In dealing with whether or not there is an ambiguity in cl 33 of the lease, I have given a construction to cl 14A of the lease which, in effect, rejects the submission made on behalf of Denham that cl 14A also precludes an assignment of the reversion by SGIO. It was argued that the reference in the opening words of cl 14A to “this Lease and the Lessee’s interest therein shall not be capable of being and shall not be assigned” drew a distinction between the lease and the lessee’s interest under the lease and that therefore the reference to “this Lease” must be to the lessor’s interest under the lease. The words which follow these opening words in cl 14A are exclusively concerned with what happens when there has been an attempt to assign the lease by the lessee. If it were intended to be a prohibition relating to the lessor’s assigning the reversion, the clause would have been referring to an assignment of the reversion and would have dealt with the consequences of an attempted assignment of the reversion. On its terms, cl 14A deals only with an assignment of the lease by the lessee. [50] Although I have rejected the approach of referring to the indentures in construing the lease, arguments were put forward by Denham by reference to those indentures to submit that the option in cl 33 of the lease was intended to be personal to SGIO. In case I am found to be wrong and the indentures are able to be referred to in connection with the construction of cl 33 of the lease, I will deal with these arguments. [51] The indentures reveal that Denham procured SGIO to purchase the parcels of land that became the site for the Clermont Plaza Shopping Centre. The first indenture related to 5 parcels and the second indenture took account of the additional 2 parcels which make up the site. Under the indentures, SGIO then proceeded to finance the construction of the shopping centre to a specified sum and Denham agreed to lease the land from SGIO on the terms of the draft lease annexed to the second indenture which is substantially in the form of the lease. The indentures provided for Denham to pay to SGIO interest on all moneys expended under the indentures by SGIO from the date of expenditure up to the date of commencement of the lease. The indentures provided for a commencement date under the lease annexed to each indenture fixed by reference to the practical completion of the building works provided for by the indentures. [52] It was submitted on behalf of Denham that the indemnity in cl 13 of the indenture dated 22 October 1982 must be the basis for the option conferred by cl 33 of the lease being included in the lease and that upon SGIO’s selling the land, it was no longer entitled to the indemnity under cl 13 of the indenture and there was no longer the basis for cl 33 of the lease to operate. [53] The indentures regulated the relationship between SGIO and Denham arising out of the dealings provided for by the indentures until the commencement of the lease. Although the term “total capital outlay” where used in the lease refers to expenditures undertaken pursuant to the indentures, that is the only continuing relevance of the indentures. Upon the lease commencing, that was the contract that regulated the relationship between SGIO and Denham in respect of the leasing of the land by Denham. [54] It is likely that the terms of cl 33 of the lease had their genesis in the history of the dealings between SGIO and Denham. There is no reason on the face of the lease (or -- 13 of 16 -- 14 the indentures for that matter) to confine the operation of cl 33 of the lease to the original parties to the lease, when the terms of cl 33 of the lease indicate otherwise. [55] As a matter of construction of cl 33 of the lease, the option was not personal to SGIO. Whether the option to purchase is a legal chose in action [56] A legal chose in action is a right which can be enforced by action at law such as a debt: JG Starke Assignments of Choses in Action in Australia (Butterworths 1972) at para 7. [57] It is implicit in the finding which I have made that the option to purchase conferred by cl 33 of the lease could pass with the assignment of the reversion that the option was a legal chose in action. [58] As Mr Lilley made a separate submission dealing with the mode of assignment of the option based on it being an equitable chose in action, I will therefore deal specifically with the nature of the right. [59] Mr Lilley submitted that the right conferred by cl 33 of the option was future property and that therefore the right could be assigned only in equity, relying on Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 24. [60] Although at the date of the transfer of the reversion the right remained one that was exercisable in the future, it was an existing right. [61] There is no material difference between the right conferred on the lessor under cl 33 of the option and the right of a lessee to enforce an option to purchase the land the subject of a lease against the lessor. There is no question that the latter right is a legal chose in action: Griffith at 225, Price v Murray at 785 and Esther Investments Pty Ltd v Cherrywood Park Pty Ltd at 283. [62] As the right conferred by cl 33 of the lease is a legal chose in action, it was assigned either when the reversion was assigned by SGIO to Freestone or, if not, it has been assigned by the deed dated 18 July 2002. It is theoretically possible that a contract between SGIO and Freestone could have excluded the right granted under cl 33 of the lease from passing with the assignment of the reversion. Even though that is unlikely, it is indisputable that the benefit of the right conferred by cl 33 of the lease has passed from SGIO to Freestone, as a result of the deed dated 18 July 2002. The effect of s 199 of the PLA on the assignment of a legal chose in action is that there is privity of contract between Freestone and Denham in respect of the benefit in favour of the lessor under cl 33 of the lease. Uncertainty [63] It is argued on behalf of Denham that the purchase provided for upon the exercise of the option under cl 33 of the lease is not capable of performance, because of uncertainty as to how the purchase can proceed “upon the same terms and conditions as is contained in Clause 14A”. In particular, it is argued that under cl 14A of the lease time commences to run with the establishment of what is referred to in that clause as “the material date”, but there is no material date for the purpose of cl 33 of the option. -- 14 of 16 -- 15 [64] The parties intended that the terms and conditions in cl 14A would apply to the purchase under cl 33 of the lease. The trigger for the purchase under cl 33 of the lease in this case is the expiration of the first option period. The timing of the trigger for the purchase under cl 14A of the lease is called “the material date”. When the purchase under cl 33 of the lease relies on a trigger provided for in that clause, the timing of that trigger must be treated as the material date for the purpose of incorporating the terms and conditions contained in cl 14A of the lease for the purchase which proceeds as a result of cl 33 of the lease. There is therefore no substance in the submission of Denham that there is uncertainty about the timing of when the deposit is payable and the balance of the purchase moneys are payable in respect of the purchase proceeding, as a result of the exercise of the option in cl 33 of the lease. Timing of the exercise of option [65] Denham submits that cl 33 of the lease precludes Freestone from giving notice exercising the option until the expiration of the first option period (in view of the fact that Denham did not exercise the option to renew for the second option period). [66] Clause 33 does not expressly state when the lessor may exercise the option to purchase. The right, however, is conditioned upon the lessee not exercising its rights of renewal contained in cls 30A and 30B of the lease. Relevantly, Denham did not exercise the right of renewal contained in cl 30B of the lease. That became known when the last day for exercising that right of renewal passed on 21 October 2001. The first day on which the option to purchase could be exercised by the lessor was therefore fixed at 22 October 2001. [67] The timing of the purchase by the lessee, if required by the lessor, is fixed by cl 33 of the lease when it states “immediately upon the expiration of … the first option period … the Lessee shall purchase … the demised premises from the Lessor upon the same terms and conditions as is contained in Clause 14A”. The notice by the Lessor exercising the option under cl 33 of the lease therefore must be given prior to 21 October 2002, as cl 33 provides that the purchase is to take place upon the expiration of the first option period. [68] There is no warrant for the construction advanced by Denham that exercising the option cannot be done until the expiration of the first option period, when cl 33 of the lease provides for the purchase immediately upon the expiration of the first option period and, impliedly, for the exercise of the option to precede the purchase. Orders [69] It follows that Freestone is entitled to the declarations which it seeks in proceeding S6857 of 2002 and that Denham’s application for declarations should be dismissed. [70] The orders which I make are: S4964 of 2002 The originating application filed on 31 May 2002 is dismissed. S6857 of 2002 It is declared that: -- 15 of 16 -- 16 1. W Freestone Leasing Pty Ltd is entitled, as against Denham Bros Limited, to exercise the option contained in cl 33 of registered lease number 601075637. 2. W Freestone Leasing Pty Ltd has validly exercised the option in cl 33 of registered lease number 601075637 by notice in writing to Denham Bros Limited dated 26 July 2002. [71] As Freestone has been successful in its application and in opposing Denham’s application, it would follow that Denham should pay Freestone’s costs of both applications, subject to hearing submissions from the parties on costs. -- 16 of 16 --