Fazldeen & Anor v Niedoba [2002] QSC 81

SUPREME COURT OF QUEENSLAND CITATION: Fazldeen v Niedoba [2002] QSC 081 PARTIES: RAYMOND JOHN FAZLDEEN and RICHENDA ANNE FAZLDEEN (Applicants) ANDREAS HIENZ NIEDOBA (Respondent) FILE NO/S: 128 of 2001 DIVISION: Trial PROCEEDING: Application ORIGINATING COURT: Supreme Court, Cairns DELIVERED ON: 26 March, 2002 DELIVERED AT: Cairns HEARING DATE: 14 March, 2002 JUDGE: Jones J ORDER: 1. The specific performance of the contracts between the applicants and the respondent dated 20 August 2001 in respect of: (a) Lot 2 on RP 734818 title Reference 211111213 County Nares Parish Cairns (“Scott Street property”) and (b) Lot 2 on BUP 100516 Scheme Sea Star Apartments, Community Title Scheme 18127, Title Reference 50013731 County Nares Parish Smithfield (“the contracts”). 2. The said contracts be completed on a date to be agreed between the parties. 3. Each party shall have liberty to apply on two days notice to the other party. CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH – where two contracts in writing, each for the sale of a property, subject to and conditional upon contemporaneous completion – where one property subject to a registered 5 year lease – where a new tenant went into occupation between the date of contract and its completion – whether that occupancy created a new interest in the property – whether contract was lawfully terminated for fundamental breach or repudiation. COUNSEL: Mr. C. Ryall for the applicants -- 1 of 7 -- 2 Mr. A. Philip for the respondent SOLICITORS: MacDonnells solicitors for the applicants Williams Graham & Carman for the respondent [1] In this application the applicants seek, pursuant to s 70 of the Property Law Act 1974, an order declaring that the respondent has not lawfully terminated contracts for the sale of two separate parcels of land. In response to directions given, the parties have exchanged pleadings and have agreed to a determination on the pleadings, on exhibits tendered by consent and on the material contained in, and exhibited to, the affidavit of the second named applicant, Richenda Anne Fazldeen. Background facts [2] From this material the following narrative emerges. [3] The parties entered into two contracts in writing, each dated 20 August 2001. As all relevant subsequent events occurred within the year 2001, their timing will be identified simply by reference to day and month. [4] By the first contract, the applicants were to sell to the respondents a commercial property described as Lot 2 on RP 734818 Title Reference 211111215 County Nares Parish Cairns situated at Scott Street, Cairns. The land was subject to a registered five year lease, commencing 14 February 2000 to NISA Services Pty Ltd (NISA) which lease also included an option to renew for a further five years. NISA carried on the business of warehouse, wholesale and retail sales on these leased premises. The Standard Commercial Conditions applied to this contract. [5] By the second contract, the applicants were to purchase from the respondent a residential unit described as Lot 2 on BVP 100516, Community Title Scheme 18127 Title Reference 50013731 County Nares Parish Smithfield situated at 2/95 Moore Street, Trinity Beach. [6] The two contracts were subject to, and conditional upon, the contemporaneous completion of the other. [7] The completion date for both contracts was 2 October. [8] Between the date of the contract and the date for completion, NISA negotiated with T & I Pumps and Irrigation Pty Ltd (T&I Pumps) for the sale of its business conducted at the Scott Street premises. That sale required the assignment of the lease from NISA to T&I Pumps. [9] It is not clear when the sale of this business was first mooted, but it was certainly within the knowledge of the solicitors for the applicants prior to 26 September. The applicants’ solicitors had prepared documents relevant to the sale of the business, including a Deed for the Assignment of Lease. Somewhat surprisingly, neither the applicants nor their solicitor communicated to the respondent that the sale or the assignment was even proposed. -- 2 of 7 -- 3 [10] On 1 October the respondent visited the Scott Street premises and ascertained that the employees of T&I Pumps were in occupation. This discovery provoked a letter from the respondent’s solicitors which was transmitted by facsimile at 5.04 pm on 1 October. Its relevant terms read as follows:- “Our client has also ascertained that there is a new tenant in possession of the premises. Our client has spoken to a Peter Bainbrigge from T & I Industrial Pumps who has advised that they are the new tenant and are awaiting the lease documentation from your client. Could you please advise as a matter of urgency as to what the situation is so that we can take our client’s further instructions. If there is any relevant documentation in existence (ie. new lease, deed of assignment, etc) please provide the same. Our client has advised that he was not consulted about the changed leasing arrangements. We draw your attention to the requirements of Standard Condition 17.3.”1 [11] This letter drew a response from the applicants’ solicitors which was communicated by facsimile transmission at 8.11 am on 2 October. Its relevant terms are as follows:- “We were advised by the selling agent that your client was aware that the tenant had sold its business and that he would benefit from having new tenants who were based in Australia as opposed to Nisa Services Pty Ltd whose main business was in Papua New Guinea. The proposal is that there is to be an assignment of the current lease to T & I Pumps Irrigation together with a Deed of Covenant on Assignment and Directors Guarantees. We enclose copies of these documents and would be pleased if you would telephone the writer to discuss same as soon as possible.”2 [12] At 2.57 pm on 2 October the solicitors for the respondent purported to terminate the first contract and because of the necessity for contemporaneous completion the second contract also was terminated. The grounds upon which the respondent purported to terminate the contract are set out in that facsimile as follows:- “As you would be aware, this contract is subject to the Standard Commercial Conditions. We draw your attention to Clauses 17.3, 32.1(a) and 32.2 of the Standard Commercial Conditions. We also draw your attention to the particulars contained in the Lease Schedule. Our client discovered that there was a new tenant in possession when he conducted his pre-settlement inspection yesterday. Our client disputes the matters contained in the first paragraph of your first facsimile of 2 October 2001. 1 See ex RAF 22 the affidavit of Richenda Anne Fazldeen sworn 22 October 2001. 2 See ex 4 -- 3 of 7 -- 4 Our client has not yet received an application for his consent to the proposed assignment as required by Clause 17.3. However, it also appears that it is now too late for your client to request our client’s consent as:- (a) Your client has already consented to the proposed assignment; and (b) The assignment has already been perfected (the new tenant is actually in possession). Our client has a right to terminate the contract pursuant to Clause 32.2 as the tenant particulars in the Lease Schedule will not be true and correct at the time of completion as required by Clause 32.1(a). Accordingly, our client gives notice terminating the contract on the basis that:- (1) the assignment has been perfected and your client is in unremediable breach of Clause 17.3(c) (in that your client did not seek our client’s consent to the assignment of the lease prior to the same occurring) and (2) the particulars in the Lease Schedule cannot be true and correct at the date of completion as required by Clause 32.1(a).” [13] The respondent now concedes that the claim that the assignment had “been perfected” is factually incorrect. The respondent seeks to justify his termination of the contracts on the grounds that the applicants have breached Clauses 4(a) and 17.3(c) of the Standard Commercial Conditions of Contract which apply to the Scott Street transaction. [14] Clause 4(a) of the Standard Commercial Conditions simply provides that a vendor shall, on completion, provide vacant possession of the premises except for any lease. The relevant passages of clause 17 are as follows:- “17.2 From the date of this Contract until completion, the Vendor shall use best endeavours to administer the Property and properly enforce the Leases in accordance with the usual practice of the Vendor. Should any matter of circumstance arise which may materially affect the proper performance of the terms of any Lease by any party, the Vendor shall immediately notify the Purchaser in writing. 17.3 In addition to the obligations contained in clause 17.2, the Vendor shall not without the prior written consent of the Purchaser which shall not be unreasonably withheld: (a) Accept or agree to accept a surrender of any Lease; (b) Grant any Lease for any part of the Property which is vacant at the date of this Contract or which may become vacant prior to completion; (c) Consent to the variation of any Lease, proposed assignment or any other dealing concerning any Lease; or (d) Negotiate or set new Rent.” -- 4 of 7 -- 5 [15] Mr. Philp of Counsel for the respondent points to the extended definition of “Lease” as it appears in the Standard Commercial Conditions – 1.1 … (q) “Lease” means all leases, subleases, agreements for lease, agreements for sublease and tenancy agreements whether oral or in writing, and as the context admits, licences and rights to occupy, and which are set out in the Lease Schedule;” He argues that the occupancy of the premises by T & I Pumps created a lease within the broad terms of that definition and that, as such, it ought to have been notified to the respondent, as required by Clause 17.2, and to have been included as a variation to the Lease Schedule of the contract. The applicants’ failure to do so, he contends, results in vacant possession not being available on the date of completion. [16] The first step, therefore, must be to determine whether any new interest was created by the circumstances leading the occupancy by T & I Pumps of the Scott Street premises. [17] As has been conceded, there was no assignment of the lease itself, such a step requiring the written consent of the landlord.3 The material before me reveals that, the applicants had indicated a preparedness to consent to an assignment on terms. By 1 October, those terms had not been satisfied. As at the date of completion, the Deed of Assignment appears not to have been executed by T & I Pumps.4 [18] Consequently, NISA had not been released from its obligations under the lease. [19] One of the respondent’s arguments was that the tenant’s failure to obtain the landlord’s consent before assigning or sub-letting was a breach of one of the fundamental obligations listed in clause 11.07 of the lease. [20] On the material before me I am not satisfied that there is any such breach on the part of the tenant. I observe that the occupation of the premises by T & I Pumps prior to the consent of the landlord, was unusual in the circumstances. However both the tenant and T & I Pumps understood the risk in their so doing. This risk was pointed out by the tenant’s solicitors in their memorandum of 1 October exhibit 2. The occupation of the premises by T & I Pumps appears to have been done in anticipation of a successful exercise of the rights of NISA as a tenant regardless of who the landlord was at the time when the landlord’s consent was required. The landlord’s consent to the assignment could not “be reasonably refused”. As at the date of completion the change in the occupancy could have been reversed. Whether such a reversal would have exposed NISA to a claim in damages is not a matter for consideration here. [21] Another argument was that the lease, by clause 3, requires the tenant to carry on business “of warehouse, wholesale and retail sales”. The occupancy by T & I 3 “9.01 The tenant may assign the lease or sub-let or part with possession of the whole or part of the leased premises but only after obtaining the landlord’s written consent. The landlord’s consent will not be unreasonably refused. On and from the date of assignment of the lease the lessee Nisa Services Pty Ltd will be released from further liability under the lease.” 4 See ex RAF 26 to affidavit of Richenda Anne Fazldeen indicated documents were only couriered to Western Australia on either 1 October or 2 October. -- 5 of 7 -- 6 Pumps was in breach of that condition. Consequently the applicant was in default, pursuant to clause 11.03 of the lease, namely, that a failure to observe or perform any other term of the lease, whether positive or negative. [22] On behalf of the applicants Mr. Ryall of Counsel argues that any such breach could, and most likely would, be remedied once the tenant received a notice to do so. Consequently there has been no breach of any fundamental obligation of the kind listed in clause 11.07 of the lease. He argues, further, that a breach of this kind by a tenant could arise at any time between the signing of a contract of sale and the date for its completion and that the Standard Commercial Conditions do not obligate a vendor at once to amend the relevant lease schedule in the contract of sale in each such instance. [23] There is nothing in the material to indicate that the applicants were even aware of, much less acquiescing in, the occupation of the subject premises by T & I Pumps. The applicants’ solicitor’s letter of 1 October to the tenant’s solicitors5 does no more than confirm the applicants’ willingness to assign the lease subject to terms. The applicants’ solicitor’s letter of 2 October6 referred only to the proposed sale of the business and makes no mention of any change in occupancy. If the occupancy by T & I Pumps was seen as a breach of the lease terms it remained within the applicants’ power to have it remedied. In any event, the giving of a notice to remedy would be required before more significant action could be taken.7 Clause 17.2 of the Standard Commercial Conditions is a “best endeavours” provision and does not require any guarantee of the performance of the lease, without breach, between date of contract and date of completion. In the circumstances there is no basis for holding that the occupation of the premises by T & I Pumps created a new interest, such as to fall within the extended definition of “Lease”, and there was no need in my view for any amendment to the lease schedule in the contract of sale. [24] The respondent relies upon Clause 32.2 of the Standard Commercial Conditions for its right to terminate the contract. That clause provides:- “32.2 Inaccurate statement If a statement contained in clause 32.1 is not accurate then the purchaser may terminate this contract by notice in writing to the vendor.” [25] My having found that the lease schedule is accurate, both at the time of the contract and at the date of completion, it follows that the respondent has no basis for relying on inaccuracy to terminate. The applicants in my view have, in all respects, complied with the obligations set out in clause 32 of the Standard Commercial Conditions. [26] There is no doubt that the circumstances of the proposed sale by the tenant was a matter “which may materially affect the proper performance of the terms of any lease by any party”. As such the applicants’ knowledge of the sale should have been notified to the respondent. The failure of the applicants’ solicitor to do so was sought to be excused by Mr. Ryall of Counsel on the basis that it was a case of a 5 Ex RAF 21 to affidavit of Richenda Anne Fazldeen sworn 22/11/2001 6 Ex RAF 23 to affidavit of Richenda Anne Fazldeen sworn 22/11/2001 7 See Property Law Act 1974 (Queensland) s 124 -- 6 of 7 -- 7 busy commercial solicitor having “jumped the gun in dealing with one party and having got the order wrong”. Whether the solicitor’s conduct can be excused as glibly as that might be a matter for further argument, but it is the impact of that conduct which needs to be considered. As no new interest affecting the subject land has been created as a consequence of the proposed sale of the tenant’s business and the preliminary negotiation for the landlord’s consent, there has been no adverse outcome for the respondent. On the date of completion the respondent would have had the same rights as the applicants with respect to the terms of the lease. It would have had the right to deal, to agree or disagree with the proposed assignment of the lease and to determine the terms of conditions it would seek to impose on that assignment. The prior negotiations on behalf of the applicants would not bind the respondent nor qualify his rights under the lease. Such conduct may have exposed the applicants to some liability but that is of no concern here. The conduct of the applicants or their solicitors does not suggest any repudiation of the terms of the contract, which repudiation would otherwise give the respondent the right to terminate the contracts. In these circumstances the contracts should be specifically performed. Orders [27] I order as follows:- 1. The specific performance of the contracts made between the applicants and the respondent dated 20 August 2001 in respect of:- (a) Lot 2 on RP 734818 title Reference 211111213 County Nares Parish Cairns (“Scott Street property”); and (b) Lot 2 on BUP 100516 Scheme Sea Star Apartments, Community Title Scheme 18127, Title Reference 50013731 County Nares Parish Smithfield (“the contracts”). 2. The said contracts be completed on a date to be agreed between the parties. 3. Each party shall have liberty to apply on two days notice to the other party. I adjourn for further submissions questions of interest and costs. -- 7 of 7 --