Canberra International Airport Pty Ltd v Ansett Australia Ltd

Canberra International Airport Pty Ltd v Ansett Australia Ltd - [2002] FCA 329 - FCA 2002 case summary — Zoe

introduction 1 In May 1998, the Commonwealth of Australia transferred all rights, title and interest in the Canberra airport to Canberra International Airport Pty Limited ("the applicant"). The transfer included the rights and obligations under a lease to Ansett Australia Limited ("Ansett") as lessee over premises known as the Ansett Terminal ("the Terminal"). The second and third respondents are the administrators of Ansett and other companies in the Ansett Group, which went into voluntary administration on 12 September 2001. The respondents ("the administrators") were appointed the joint and several administrators on 17 September 2001 in the place of the administrators originally appointed. The administrators have declined to give possession of the Terminal to the applicant. 2 The circumstances relating to the appointment of the administrators are set out in the reasons for judgment of Goldberg J delivered on dates including 12 October 2001, 4 January 2002 and 12 February 2002. These proceedings were instituted whilst the negotiations between the administrators and Tesna Holdings Pty Ltd ("Tesna") were on foot. In early November 2001, the administrators had entered into a sale agreement with Tesna to purchase Ansett's mainline airline business. This agreement, which was subject to conditions precedent, initially made provision for settlement and completion by 31 January 2002. This date was subsequently extended to 28 February 2002. The sale was to include the assignments of various Ansett airport terminal leases, including at Canberra airport. As it turned out, however, the agreement did not ultimately proceed to completion. Once the outcome of the negotiations was known, a trial date for this proceeding was fixed. 3 The applicant has applied to the Court for leave to recover property pursuant to s 440C(b) of the Corporations Act 2001 (Cth) ("the Act"). By originating process dated 11 February 2001, the applicant seeks orders in the following terms: 1. An order that the applicant have leave to take possession of the premises known as the Ansett Terminal and the Ansett Terminal Extension, Canberra Airport in the Australian Capital Territory. 2. An order that the respondents pay the applicant's costs of this application. 3. Such further and other orders as this Honourable Court sees fit. 4 At the hearing, the applicant relied on affidavits sworn by its Managing Director, Stephen James Byron, on 11 February 2002 ("first affidavit"), 14 February 2002 ("second affidavit") and 15 March 2002 ("third affidavit"); and on two further affidavits, both sworn on 18 March 2002, by Malcolm Peter Brennan (solicitor) and Matthew Francis Brown (a Manager, Aeronautical Business). Messrs Byron and Brown were subject to cross-examination. 5 Affidavits in opposition to the application included affidavits sworn on 12 March 2002 by John Richard Langford (Manager, Real Estate Services, Ansett); on 18 March 2002 by Mark Anthony Korda (the third respondent); on 15 March 2002 and 18 March 2002 by Dany Merkel (solicitor); and 16 March 2002 by Stewart William Forsythe (Airport Services Standards Manager for Kendell Airlines).

[5]

factual background 6 It is necessary to sketch some of the circumstances in which this application is made in order to discuss the parties' submissions. The Leases 7 From about November 1968 (or earlier) Ansett leased part of the then existing terminal building which had been constructed by the Commonwealth of Australia at Canberra airport. In the period 1984-1986, Ansett constructed a substantial part of the present Terminal. At all material times during the construction, Ansett occupied the site and was in negotiation with the Department of Aviation for a site lease. By mid 1986 it seems to have been agreed in principle that Ansett should have a lease for a term expiring in June 1996. Rental for any extension that Ansett built was to be calculated on a site basis. No written lease was apparently executed, however, before the Federal Airports Corporation ("FAC") took over the airport in about 1989. There were further lease negotiations during the period 1990-1994. During this time, Ansett constructed further extensions to the Terminal, including two aerobridges. 8 The FAC executed a lease ("the 1995 lease"), which is undated, at some time in 1995. This granted Ansett a term of seven years commencing on 1 January 1990 with successive options for further terms (3 years, then 5 years, then 5 years) extending at the maximum until 31 December 2009. Ansett paid rent on a site basis for any building constructed by it. Ansett remained in possession under the 1995 lease until January 1997. On 28 May 1998, the FAC granted Ansett a further lease ("1998 lease") over the Terminal on terms and conditions that were virtually identical to the 1995 lease. The lease was for an initial term of three years commencing on 1 January 1997 (with 2 further 5 year options), again to 31 December 2009. 9 By a letter dated 24 September 1999, Ansett exercised its option for a further lease for a term of five years (expiring 31 December 2004). The applicant executed the new lease in September 1999. This was in substantially the same terms as the 1998 lease. Ansett did not execute this lease before the administration commenced on 12 September 2001. The respondents did not, however, dispute the applicant's submission that, at law, Ansett was holding over consequent upon the expiry of its term under the 1998 lease and, in equity, it was entitled to the grant of an identical lease (subject to pars 34.1(a), (b) and (c) of the 1998 lease) for a further term of five years expiring on 31 December 2004. 10 In early 2001, the applicant and Ansett reached agreement for the construction and lease of further premises adjacent to the Terminal ("Ansett Terminal Extension"). The Ansett Terminal Extension was to be leased to Ansett on the same terms and conditions as the then existing Terminal lease for a term to expire on 31 December 2004. The parties signed heads of agreement in March 2001, but they did not execute any formal instrument before Ansett was placed in administration. The agreement for the Terminal Extension was to be interdependent with the lease for the Terminal. The termination of one would automatically involve termination of the other. Termination of Ansett's tenancy 11 The applicant's case turned on the termination of Ansett's tenancy. A demolition notice was also given by it (see below). 12 By a letter from its solicitors to Ansett dated 12 September 2001 (the day Ansett went into administration), the applicant alleged that Ansett was in breach of the lease of the Terminal by reason of Ansett's failure to pay monies pursuant to the lease. On 12 December 2001, the applicant gave the administrators notices of default, specifying the defaults as breaches of covenants that the lessee: · carry on the lessee's business in a proper and efficient manner; · pay all debts as and when they fall due within the meaning of the Act; · keep the premises in good and tenantable repair; · keep the tenant's property and all fixtures and fittings, plant, furnishings and equipment in the premises clean and in good repair; · maintain and protect all lighting equipment and illuminated signs in or affixed to the premises; · inspect and where necessary promptly repair heating, lighting, air conditioning and other electrical equipment; and · redecorate the premises at least once during intervals of not more than five years. 13 The applicant also gave notice that the "rent reserved and other moneys payable by the Lessee to the Lessor under the Lease has been unpaid for the space of 14 days after any of the days on which they ought to have been paid in accordance with the covenants for payment contained in the Lease". 14 The defaults were not remedied, and the applicant gave the administrators notices of termination of the leases on 24 January 2002. A written demand for possession was made on 27 February 2002. 15 The applicant submitted that, as at the date on which this application was issued, namely 11 February 2002, by reason of the service of the notices of termination on 24 January 2002, Ansett's lease interests in the premises were forfeited and, save for the operation of s 440C of the Act, the applicant was entitled to immediate possession of the premises. Alternatively, the applicant was entitled immediately to exercise the rights of re-entry conferred on it under the leases, and did so by its solicitor's letter of 27 February 2002. 16 The respondents did not contest that, subject to s 440C, the applicant was entitled to possession, although they noted that the applicant had directed them to demolish the Terminal and the Terminal Extension (as discussed below). They also submitted that, if an application for relief against forfeiture was made, it had good prospects of success given the remedial nature of the alleged deficiencies in the condition of the Terminal. The applicant's direction to demolish 17 From about 21 February 2002, the parties and their solicitors entered into correspondence concerning the removal from the airport of Ansett's property. Ultimately, on 13 March 2002, the applicant's solicitors sent a letter to the respondents' solicitors which included the following: You client has failed to indicate whether it intends to remove the Tenant's Removable Property and/or the Works. It is our client's view that a reasonable time has elapsed for it to have done so since the termination of the leases. We are instructed to advise you that pursuant to clause 17.2 of the terminated Ansett Terminal Lease, our client accordingly requires your client to remove at its own costs all the Works at the premises known as the Ansett Terminal. … The cost of such removal is a cost of your client and a cost for which the administrators are personally liable under the Corporations Act. Our client requires the removal of the Works to be completed by 24 June 2002 … . The applicant also indicated that it required removal to occur "outside of normal Airport operating hours". 18 The respondents contended that the applicant could not properly require possession of the Terminal in order to make it available for other airlines or to renovate it whilst also directing the respondents to demolish the Terminal.

[6]

consideration of application 19 The administrators claimed the benefit of s 440C of the Act. The effect of this provision is that, during an administration, there is a moratorium on the power of a lessor to regain possession of property during an administration. A lessor cannot "take possession of the property or otherwise recover it" during an administration of its lessee except with the administrator's written consent or the leave of the Court. Section 440C specifically provides: During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except: (a) with the administrator's written consent; or (b) with the leave of the Court. 20 Section 440C falls within Pt 5.3A of Ch 5 of the Act. Chapter 5 of the Act deals with external administration. Part 5.3A provides for the administration of the company's affairs with a view to executing a deed of company arrangement. The object of Pt 5.3A is stated in s 435A of the Act as follows: The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of a company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company. A history and overview of Pt 5.3A is set out in CeliaHammond, "The Effect of Voluntary Administration upon Property Rights: Harmony or Discord?" (1995) Australian Property Law Journal 9. 21 As soon as practicable after the administration of a company begins, the administrator is required to investigate the company's business, property, affairs and financial circumstances and to form an opinion as to whether it would be in the best interests of the creditors to (i) execute a deed of arrangement; (ii) end the administration; or, (iii) have the company wound up: see s 438A. The purpose of the restraint imposed on a lessor by s 440C is to assist the company, in administration, to meet the objects of the administration, as set out in s 435A, always providing that the lessor may be released from the restraint if the administrator consents or the Court considers a grant of leave appropriate. Plainly enough, in considering an application for leave, the Court must consider the objects of Pt 5.3A, as set out in s 435A. 22 It is for the applicant for leave under s 440C to satisfy the Court that leave should be given: see Re Java 452 Pty Ltd (Administrator Appointed); Permanent Trustee Australia Limited (As Trustee) v Stout (1999) 32 ACSR 507 ("Re Java") at 517 per Byrne J and In Re Atlantic Computer Systems PLC [1992] Ch 505 ("Atlantic Computer") at 542 per Nicholls LJ (delivering the judgment of the English Court of Appeal in that case). 23 Besides the objects set out in s 435A, the Court will necessarily consider the interests of the parties in the circumstances of the case. If the lessor establishes that, in the circumstances of the case, a grant of leave to repossess is unlikely to inhibit the company in meeting the objects of the administration, then leave may very well be given: see Atlantic Computer at 542. As Byrne J said in Re Java at 517: It is clear … that it is for the lessor wishing to take possession to satisfy the court on an application under s 440C that this is the appropriate course. It may be appropriate where it is shown that the taking of possession will not in any practical way affect the availability of the options which the creditors must consider or their decision on those options. The applicant adopted this position in these proceedings. 24 The discretion conferred by s 440C is a broad one: see Re Ansett Australia Ltd (Administrator Appointed); Intrepid Aviation Partners VII LLC v Ansett Australia Ltd (Administrator Appointed) (2001) 39 ACSR 255 ("Intrepid") at 257 and Re Java at 516. Leave may be granted if the statutory restraint imposed on the lessor will occasion the lessor loss or detriment (financial or otherwise) of a relevant kind. The loss or detriment may be regarded as relevant to a grant of leave where the Court considers it is greater than any benefit or advantage that might enure to the creditors by reason of the statutory restraint. The outcome of a grant of leave may depend on the history of the administration, the conduct of the parties, and whether terms may practically be imposed on a grant or refusal of leave to protect competing interests. The administrators' position 25 In the present case, the administrators opposed the grant of leave because: (1) there remained, in their opinion, the possibility of finding a purchaser of the company's business, or part of it; (2) the creditors of the Ansett group were to meet, for the last time, on 27 March 2002 (i.e., in less than nine days' time) to resolve upon (i) a deed of company arrangement; (ii) winding up the company; or (iii) ending the administration; and (3) on 27 March 2002, the administrators were to propose to the creditors that they propound a deed of company arrangement which would continue a restraint on lessors such as the applicant. 26 At the commencement of the hearing, the evidence as to the possibility of another purchaser of the company's business was relatively slight. In his affidavit of 18 March 2002, the third respondent deposed that, after Tesna withdrew from the proposed purchase of the airline, the administrators recommenced discussions with other parties who might be interested in acquiring the assets of the Ansett Group, including interests in domestic terminal leases. He drew attention to the announcement by Virgin Blue and Patrick Corporation ("Patrick") on 12 March 2002 that, following the acquisition by Patrick of 50% of Virgin Blue's shareholding, Virgin Blue, together with Patrick, now has "the financial strength to actively pursue in its own right the opportunities arising from the Administration of Ansett". 27 On the second day of the hearing, however, Mr Leon Zwier, solicitor for the respondents, gave evidence that the administrators have grounds for a bona fide belief that Patrick was in real contention as a purchaser of some part of the Ansett business, including the use made of the Canberra airport. 28 The reason for the administrators' concern not to jeopardise any such prospect is plain enough. In particular, Ansett had invested a large sum of money on the Terminal at Canberra airport. A property portfolio valuation valued Ansett's Canberra Terminal as at 30 June 1997 (on a market value existing use basis) at $4.45 million with an insurance replacement cost of $12.275 million. This valuation included the Ansett Terminal Building, the Ansett Terminal Extension, the original Ansett Terminal Space (as refurbished by Ansett) and the small area of the lessor's building. A further property portfolio valuation valued the same terminal assets as at 30 June 2000 at $3.75 million with an increased insurance replacement cost of $12.752 million. An Asset Register prepared as at 25 August 2001 recorded an acquisition value for the Canberra terminal building constructed by Ansett plus plant and equipment of $7.786 million, comprising (a) Canberra terminal building $3.75 million (b) Plant and equipment $4.04 million The administrators are seeking to realise some value for the asset represented by the Terminal buildings, plant and equipment. 29 A meeting of creditors held under s 439A on 29 January 2002 had resolved to adjourn the meeting for up to sixty days, i.e., until 27 March 2002. This was the maximum period of adjournment permitted by s 439B(2) and, subject to s 447A, no further adjournment would be possible. Of course, if the creditors resolved on a winding up, then s 440C would cease to inhibit the applicant. If a deed of company arrangement were made which affected leasehold property, it would not affect the rights of the lessor over the property unless the lessor voted in favour of the deed (which in the applicant's case seems unlikely), or the Court so ordered under s 444F(4): see s 444D(3). If the administrators successfully proposed a deed of company arrangement to the creditors' meeting that imposed a restraint on lessors such as the applicant, then the deed administrator would be obliged to make further application under the Act. The applicant's case 30 The applicant's case has changed in the course of these proceedings. In his first and second affidavits, Mr Byron deposed to the harm suffered by the applicant and others using Canberra airport by the fact that the Ansett Terminal was not in use or available for use by anyone other than Kendell Airlines ("Kendell"). (Kendell is a subsidiary of Ansett.) Until Mr Byron's third affidavit, the applicant apparently based its claim for possession on this consideration; on a perceived need to improve conditions for passengers and others in the airport; and on a desire on the applicant's part to "renovate the terminal, including carrying out the repairs and redecorations which should have been done by Ansett": (first affidavit, par 27). In his third affidavit, however, he deposed: [T]he check-in arrangements for Virgin Blue through the regional check-in area in the Airport's joint user terminal … have proved generally to be satisfactory, even with the frequent queues for check-in extending onto the concourse. However, what continues to be unsatisfactory and of significant concern in respect of safety is the baggage handling for Virgin Blue. It continues to be manually handled for outgoing and incoming flights. In particular, incoming baggage continues to be presented for collection at the front of the terminal at the kerbside. The area is exposed to vehicle traffic and to the elements. With autumn and winter weather approaching, an outdoors collection for baggage is totally inappropriate for Canberra weather conditions. 31 That is, the only outstanding problem of restricted use that remained was Virgin Blue's lack of baggage handling facilities. The respondents met this by proffering an undertaking that the administrators would provide facilities to Virgin Blue on normal commercial terms on an interim basis. 32 At the hearing, the applicant did not seek to contend that any breach of the lease referred to in the notices of termination, either by itself or cumulatively, would justify the making of the order sought. This was an appropriate position to take. The breaches (which are referred to above) fell essentially into four categories. They were (1) failure to pay rent due as at 12 September 2001; (2) failure to conduct the company's business in a proper and efficient manner; (3) failure to keep the premises in good repair; and (4) failure to redecorate the premises. 33 As the respondents noted, the applicant will rank as an unsecured creditor for the rent owing as at 12 September 2001. In this respect, its position is no different to that of other unsecured creditors. The administrators have accepted their liability for payment of rent during the administration (see s 443A of the Act) and have met that liability. The parties disagreed about the condition of the Terminal and the costs of repairs. Mr Brown deposed that he had recently inspected the premises and taken photographs of it. They showed that the Terminal was in need of maintenance and repair. I do not think, however, that the evidence showed more than, as Mr Forsythe for the respondents said, "that the Ansett Domestic Terminal building … although a little tired, is generally in good condition". There were various quotes for the cost of repairs in evidence. Given the value of the Terminal, however, even the highest of these was comparatively modest (though it may not have covered all repair work). The deficiencies in the condition of the Terminal are, therefore, remediable, and the cost is not prohibitive. There was, as the respondents point out, no obligation to redecorate at the time the termination notices were given. 34 As to the failure to conduct business in a proper and efficient manner, there was evidence that Kendell was operating from the Ansett terminal at the level of about ten flights into and ten flights out of Canberra per day. Further, there was some force in the respondents' contention that the condition merely prohibited the respondents from running a business in a manner that was not proper and efficient and that it did not positively require a business to be run: cf EMS Quarries Pty Ltd v Beaumont [2001] NSWSC 355 at [15] to [22]. 35 By the end of the hearing, the applicant's case was, first, that Ansett was precluded from selling its leasehold interest to any purchaser because (1) the lease over the Terminal had been terminated; (2) if the company entered into an arrangement with its creditors of the kind the administrators proposed, then an Event of Default would occur that could not be remedied; (3) in consequence, by virtue of cl 4.3 of the lease, Ansett was precluded from assigning its interest under the lease (even if it could obtain relief against forfeiture); and (4) the applicant's taking of possession could have no practical affect upon the availability of the options that the creditors might consider at the meeting on 27 March 2002. Secondly, the applicant contended that, even if cl 4.3 of the lease did not operate as an absolute bar to assignment, the applicant's repossession of the Terminal would make no material difference to the company's chance of success on an application for forfeiture and subsequent assignment (if that were possible). Finally, the applicant referred to the baggage handling concerns (discussed above), the need to effect repairs and maintain the Terminal building, the length of the administration, and its right to vindicate its proprietary interest, including its right to eliminate existing uncertainty as to its enjoyment of that interest. 36 In order to understand the applicant's submissions on the first ground, it is necessary to refer to some terms of the lease. Clauses 4.1 - 4.3 provided as follows: 4.1 Subject to the provisions of this clause 4 the Tenant shall not: (a) sublet or part with possession of the Premises; or (b) create or allow to come into existence an Encumbrance which affects the Tenant's estate or interests in the Premises or its rights and powers as the tenant under this lease; or (c) dispose of, deal with or, subject to clause 4.2, assign its estate or interests in the Premises or its rights and powers as tenant under this lease; or (d) subject to the Corporation's prior approval (not to be unreasonably withheld), give a franchise or concession in relation to any part of the Premises, which franchise or concession must be a Permitted Use. … 4.2 The Tenant may assign its estate and interests in the Premises and its rights and powers as tenant under this lease if the Tenant notifies the Corporation of its intention to assign and before the proposed assignment takes effect and if reasonably required by the Corporation: (a) … (b) the Tenant satisfies the Corporation (acting reasonably) that the business which the proposed assignee proposes to carry on from the Premises is a Permitted Use; and (c) the Tenant satisfies the Corporation (acting reasonably) that the proposed assignee is respectable and financially sound and reasonable capable of conducting a business of the kind referred to in clauses 4.2(b); and …. 4.3 Within 14 days of the Corporation being provided with all the information it reasonably requires in order to be able to make a decision, the Corporation shall notify the Tenant as to whether or not clause 4.2 has been complied with PROVIDED THAT at the expiry of that 14 day period the Tenant may serve a notice on the Corporation requiring the Corporation to notify the Tenant within a further seven (7) days (time of the essence) as to the compliance or otherwise with clause 4.2. … . Despite clause 4.2, the Tenant may not assign its estate or interests in the Premises or its rights and powers as tenant under this lease if an Event of Default has occurred and has not been remedied or waived. 37 Clauses 16.1 and 16.2 provided: 16.1 The covenants in clauses … 4.1 … are essential terms of this lease … . 16.2 If: (a) the Rent reserved or any part or any other moneys payable by the Tenant to the Corporation under this lease shall be unpaid for the space of 14 days after any of the days on which they ought to have been paid in accordance with the covenants for payment contained in this lease …; or (b) the Tenant commits or permits any breach or default to occur in the due and punctual observance and performance of any of the covenants obligations and provisions of this lease …; or … (g) the Tenant goes into liquidation or makes an assignment for the benefit of or enters into an arrangement or composition with its creditors or stops payment or is unable to pay its debts within the meaning of the Corporations Law ; or … … THEN and in any one or more of those events (in each case called an 'Event of Default') the Corporation shall … have the right to re-enter the Premises … . 38 For present purposes, I accept (without finally deciding) that a deed of arrangement made under Pt 5.3A of the Act would be "an arrangement … with … creditors" within the meaning of cl 16.2 of the lease, entry into which would be an "Event of Default". Would cl 4.3 operate to bar an assignment absolutely, as the applicant contends? Should this question be determined now? 39 For the reasons set out below, it is not appropriate to attempt to determine this question in this proceeding. Let me explain. 40 The applicant's submissions began with an assumption that, if the respondents applied for relief against forfeiture, they had some prospect of success. The respondents were anxious to maintain that such an application might be brought in the event that a creditworthy purchaser were found. Certainly, an application for relief against forfeiture could be made. Notwithstanding s 4(5)(e) of the Forfeiture and Validation of Leases Act 1905 (ACT) ("the Forfeiture Act"), an application for relief against forfeiture for non-payment of rent might apparently be made in the inherent jurisdiction of the Supreme Court of the Territory: see, e.g., Newbolt v Bingham (1895) 72 LT 852; Ellis v Allen [1914] 1 Ch 904 at 909 and Gill v Lewis [1956] 2 Ch 1. An application may be made pursuant to the Forfeiture Act for relief from forfeiture in respect of breaches of the other provisions relied on by the applicant to date. The Court has an absolute discretion in applications of this kind as to whether to grant or refuse relief: cf Hyman v Rose [1912] AC 623 at 631 and Australian Mutual Providence Society v 400 St Kilda Road Pty Ltd (1990) VR 646 at 669. As things stand, however, it is, I think, difficult to predict with any confidence what the outcome of an application for relief against forfeiture would be if it were made by Ansett or an assignee. 41 It is possible that an application by Ansett would fail on account of its financial state: see, e.g., Direct Food Supplies (Victoria) Pty Ltd [1975] 358 at 361. Much may depend on the company's financial position as shown in the evidence at the time the application is made. For example, a court may grant relief to a tenant who has entered into a scheme of arrangement to trade out of difficulties when the tenant's financial position is not hopeless: see, e.g., Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49 at 53 and Re Lomax Leisure Ltd [2000] Ch 502 at 521-2. 42 There is a question too whether even a creditworthy assignee would succeed in the face of cl 4.3 of the lease. The respondents contended that, if relief against forfeiture were granted for the breaches that had already arisen, then a default constituting an "Event of Default" in cl 4.3 would be "remedied" within the meaning of that provision. They referred in this connection to Dendy v Evans [1909] 2 KB 894 ("Dendy v Evans"), but this case does not, so it seems to me, stand as authority for the proposition the respondents advance. Dendy v Evans decided merely that the effect of an order for relief against forfeiture was to restore the lease as if it had never been forfeit: see Dendy v Evans at 900-901. Further, an order for forfeiture would not, it seems, prevent the lessor from relying upon a continuing breach or another breach (as, for example, an arrangement with creditors) as supporting another forfeiture under the lease: see Wrotham Park Settled Estates v Naylor [1991] 1 EGLR 274 at 277; Batson v London School Board (1904) 69 JP 9; and Woodfall's Law of Landlord and Tenant (London, 2001) Vol 1 at par 17,172. 43 The respondents relied on Solomon v Winkler [1922] SASR 428 ("Solomon v Winkler") as authority for the proposition that, in the circumstances of the case, a court would grant relief against forfeiture to an insolvent who had assigned a leasehold interest to a financially sound assignee, without detriment to the lessor. In essence, the respondents' argument was that an assignment to a financially sound assignee would result in the lessor getting what it bargained for. Again, I doubt that the case is authority for so broad a proposition. The statutory provision pursuant to which relief was sought in Solomon v Winkler specifically permitted relief against forfeiture "where the consent of the lessor has been vexatiously or capriciously withheld": see The Landlord and Tenant Act 1893 (SA), s 6. It was no large step in that case to order relief against forfeiture for the lessee's insolvency. Although the breach was not remediable, the lessor had suffered no damage by reason of the assignment to the financially sound assignee: see Solomon v Winkler at 432, 440-443. 44 There are the provisions of s 4(5)(c) of the Forfeiture Act to be considered. This provision apparently precludes a grant of relief under statute against breach of a non-assigning covenant. As the respondents pointed out, however, relief against forfeiture for breach of a provision against assignment may be obtainable in equity: see, e.g., Shiloh Spinners Ltd v Harding [1973] AC 691 per Lord Wilberforce at 721-725 and per Lord Simon of Glaisdale at 726-727 ("Shiloh"); Legione v Hately (1983) 152 CLR 406 at 424 and 447; and Minister for Lands and Forests v McPherson (1990) 22 NSWLR 687 at 691-693. 45 The position in equity is not entirely unclear, however, and, even assuming equitable jurisdiction to grant such relief, a court in equity might well decline to grant relief in the circumstances of the particular case. Although the discretion of the court is unfettered, a court may well decline relief where a breach on the assignee's part is deliberate, as where the assignee well knows the effect of a covenant against assigning: see, e.g., Shiloh at 725 and Ladies Sanctuary Pty Ltd v Parramatta Property Investments Ltd (1997) 7 BPR 15,156, BC 9700399 ("Ladies Sanctuary"). Equally, however, a court to which application was made may be persuaded to grant relief notwithstanding the assignee's knowledge, if the lessor suffered no loss and the assignee was willing and able to fulfil future obligations: cf Pioneer Gravels (Qld) Pty Ltd v T&T Mining Corp Pty Ltd [1975] QdR 151, but contrast Cherry Lane Fashion Group Limited v Jam Factory (1990) ANZ Conv R 120. Of course, in the event of forfeiture for breach of a non-assigning provision, the assignee will be the proper party to seek relief against forfeiture: see Old Grovebury Manor Farm Ltd v W Seymour Ltd [1979] 3 All ER 504 and Ladies Sanctuary. As there is as yet no prospective assignee, there is no prospective party to make an application for relief against forfeiture. 46 The operation of the non-assigning clause in the lease with which these proceedings are concerned (cl 4.3) has not been the subject of argument. A covenant against assigning may be "absolute", or "qualified" in the sense that it permits assigning with the lessor's consent (such consent usually being dependent upon the fulfilment of specified conditions). The covenant against assigning in this case contains characteristics of both an absolute and qualified covenant: compare cl 4.2 with cls 4.1 and 4.3. The effect of the non-assigning clause will depend upon its proper construction, and this may depend, in part, on other terms of the lease, including the remainder of cl 4. Bearing in mind that covenants of this kind are construed strictly and against the lessor, whether, in fact, cl 4.3 would preclude entry into any agreement between Ansett and any prospective purchaser with respect to any of Ansett's leasehold interests (including the Canberra Terminal) will depend upon all the circumstances, including the terms of any proposed agreement: cf Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646; Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 at 728; and Cook v Shoesmith [1951] 1 KB 752. There may be one or more possibilities open to Ansett that would permit its creditors to take the benefit of these interests without contravening the covenant against non-assigning. Much will depend upon the creditors' resolutions at the meeting on 27 March 2002. 47 Moreover, it may be borne in mind that, even if cl 4.3 of the lease is properly construed as an absolute covenant against assigning, in the event that there is a deed of arrangement with creditors, it remains open to the applicant as lessor to waive it. An assignment in contravention of a term of the lease is not void but voidable, in the sense that it renders the lease liable to forfeiture: see Massart v Blight (1951) 82 CLR 423 and Ladies Sanctuary. Although the applicant would not at present seem likely to contemplate waiver, it is to be borne in mind that its position has changed over the course of these proceedings and it may change again in altered circumstances, including the advent of a creditworthy prospective purchaser. 48 The evidence of Mr Byron, for the applicant, disclosed that the applicant would prefer a common user agreement over its airport to the exclusivity conferred by a lease. It is, however, to be borne in mind that a lessor is not entitled to refuse to consent to an assignment in order to receive a collateral advantage: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 at 519-521; Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019 and Australian Consumer and Competition Commission v Leelee Pty Ltd (2000) ATPR 41-742 (as to whether illegitimate conduct on the landlord's part could amount to unconscionable conduct of the kind prescribed by the Trade Practices Act 1974 (Cth)). 49 The foregoing discussion should, I think, make it apparent that the issues raised by the applicant's first submission (that the taking of possession would not, in any practical way affect the creditors' options at the meeting on 27 March 2002 because Ansett's leasehold interest (if any) is not capable of assignment without breaching cl 4.3 of the lease) are many and complex. None have been the subject of anything other than cursory examination in these proceedings. Indeed, the significance of the applicant's contention in this regard emerged only at the end of the hearing. Counsel for the applicant did not attempt to develop it until reply. Naturally enough, the respondents' observations on the point were brief and were made subsequent to the reply and in a short written document received after the hearing. 50 The applicant contended that the respondents were inviting the Court to continue to keep the applicant out of possession "on the footing that if what the respondents have said they want to do is impossible, then lawyers might find some way around the problem". This characterisation fails, in my view, to take account of the matters outlined above and of the fact that many of the relevant circumstances are not yet ascertained or ascertainable. That is, it is not yet known whether or not at the meeting of 27 March 2002, the creditors will approve a deed of arrangement in the terms presently proposed by the administrators, or in some other terms, or whether the creditors will vote in favour of winding up or the end of the administration (which seems to remote). That the administrators will make a proposal to recover in part the company's investment in Canberra airport is likely, but exactly what course will be adopted is unknown. In these circumstances, it is undesirable to attempt to predict the outcome for applications for relief against forfeiture or the approach of any prospective parties at this stage. 51 In support of the second limb of its case, the applicant gave undertakings that it would not demolish the Terminal for some twelve months after an order granting them leave was sought and, on an application for relief against forfeiture (whether by Ansett or an assignee), it would make no point of the fact that it taken physical possession of the premises. In the circumstances, it was bound to give these undertakings to make good its submission. 52 The second limb of the applicant's case depended, first, upon the proposition that a lessee's or assignee's right to apply for relief against forfeiture remained even after a lessor had entered into possession. This may be accepted: see Billson v Residential Apartments Ltd [1992] 1 AC 494 at 532-533, 536-538, 540-544. Nonetheless, a subsequent application for relief against forfeiture would be adversely affected if the applicant had, in the meantime, permitted third parties to acquire rights in respect of the premises formerly used by Ansett: see, e.g., On Demand Information PLC v Michael Gerson (Finance) PLC [2001] 1 WLR 155. 53 The applicant sought to overcome this objection by undertaking that it would ensure that as part of any arrangement it makes with third parties regarding the Ansett Terminal, the third parties will be put on notice of the possibility of a claim for relief against forfeiture by Ansett or an assignee of Ansett and, that if the claim succeeded, then any such arrangement would terminate and the third party would vacate any part of the premises occupied by it at short notice. There may be difficulties with such an undertaking. I doubt that it would be sufficient entirely to ensure that Ansett's or an assignee's rights on a relief against forfeiture application were unaffected by third party interests. 54 The second limb of the applicant's case also sought, by another route, to make out the proposition that the taking of possession would not, practically speaking, affect the options open to creditors at the forthcoming creditors' meeting. Bearing in mind (i) the possibility that third party interests may be created whilst the applicant is in possession pursuant to a Court order under s 440C; (ii) my doubts as to the efficacy of the applicant's undertaking in this regard; (iii) the matters mentioned above concerning the first limb of the applicant's case; and (iv) the imminence of the creditors' meeting. I am not satisfied that the Court should interfere with the status quo prior to this meeting. Whilst I accept that taking possession may not have an affect on creditors' options, I am not satisfied that it cannot do so. 55 The final basis upon which the creditors sought possession was that, taking into account Virgin Blue's baggage handling difficulties, the need for maintenance and repair, the length of the administration, and the applicant's proprietary interest and right to some certainty of enjoyment, the applicant should no longer be kept out of possession of its property. 56 As noted already, the administrators proffered an undertaking with respect to Virgin Blue's baggage handling difficulties. There was evidence that the administrators had at their own cost undertaken some repairs following storm damage, and that maintenance and repair while needed was not so urgent that it could not wait until after the creditors' meeting. The applicant did not, moreover, adduce evidence as to whether there were in fact other airlines that would use the Terminal if they were permitted. Finally, it did not show that it had suffered a detriment of any kind which would lead a court to intervene at this stage of the administration: contrast Intrepid at 258. 57 As already noted, the respondents relied on the demolition notice, which the applicant had given, in support of a submission that the applicant could not claim that it needed to recover possession of the building in order to repair it, or make it available to other parties. The notice had been given with cl 17.4 of the lease in mind, in order to avoid any hiatus that might have arisen were Ansett not to remove "the Works" and the applicant not to direct the company to do so. The relevant provisions of the lease were as follows: 17.1 The Tenant shall vacate the Premises in accordance with provisions of this clause 17 on the expiration or earlier determination of the Total Term. 17.2 At the expiration or earlier determination of the Total Term the Tenant may remove the Tenant's Removable Property and may, and shall if required by the Corporation (on at least 12 month's prior notice in writing other than in the case of termination of any holding over or termination before the Expiry Date in which case the Corporation shall only be obliged to give such notice as is reasonable), remove at its own cost all or part of the Works. Any requirement by the Corporation to remove part of the Works shall be reasonable having regard to the nature and character of the Works and the degree or partial removal required. 17.3 If pursuant to the provisions of this clause 17 the Tenant either elects to or is directed by the Corporation to remove all or part of the Works, the Tenant shall comply with the Corporation's reasonable requirements … . 17.4 If the Tenant elects to or is directed to remove all or part of the Works … and if the Tenant has not within the times referred to in clause 17.3 … completed the removal of all or part of the Works in accordance with its obligations under this clause 17 then at the election of the Corporation but only after having given 14 days notice to the tenant, either: (a) the Works erected, constructed or made upon the Premises by the Tenant become and remain the absolute property of the Corporation and the tenant shall have no claim for compensation and shall bring no proceedings against the Corporation as a result of ownership of the Works vesting in the Corporation; or (b) the Corporation may at the cost of the tenant effect such removal and all costs including the costs of restoring the premises in accordance with this clause 17 shall be recoverable by the Corporation from the Tenant. 58 The applicant contemplated that if Ansett did not comply with its direction to remove the works, then the applicant would acquire ownership of the works pursuant to cl 17.4. In this connection, Mr Byron deposed: It is my commercial judgment that the respondents are unlikely to effect demolition as required by the letter of 13 March 2002 by the date specified or at all. I have been advised by [a] builder … that his cost estimate to carry out the demolition including removal of debris and making good is approximately $545,000. I do not believe that there is a likelihood of a sufficient realisation from the demolition of the terminal to justify such expenditure. The applicant apparently gave the direction in the expectation that the administrators would not comply with it, although Mr Byron subsequently gave evidence that the applicant had planned to demolish the Terminal in some years' time and that, if the administrators did demolish it, then that would be a "good outcome". 59 As the respondents submitted, however, if the direction is not a sham (and neither party suggested that it was), it took effect according to its terms as required by cl 17.4. The applicant having given the direction, the administrators were obliged to comply with it (or accept the consequences set out in cl 17.4). The administrators were required by the applicant to demolish the Terminal by 24 June 2002. As it turned out, the applicant had sought the administrators' confirmation of intention by 27 March 2002. There could, therefore, be no certainty about the fate of the Terminal prior to 27 March 2002, which was of course the date of the second creditors' meeting. Equally, if the administrators determined to comply with the direction to demolish the Terminal (as the applicant has required), it would be difficult to say that repair and maintenance issues, or the position of third party users of the Terminal would have much significance. 60 I would reject the final basis upon which the applicant sought to take possession.

[7]

conclusion 61 If the applicant abstains from voting or votes against any deed of company arrangement proposed by the administrators and accepted by the creditors, it will be able, subject to the terms of the lease and any statutory provisions, to exercise its proprietary rights to re-enter the premises and recover possession as soon as the deed is executed, unless the deed administrator obtains a restraining order against the lessor under s 444F. It is difficult to see how an application under s 444F could succeed in the absence of a creditworthy third party and, in any event, the onus will shift from the present applicant to the administrator of the deed. In the event that the creditors choose a different course, the applicant will be free to take possession in any event. 62 If there were an application under s 444F(4), the material before the Court may be relevantly different from the present application. The terms of any deed would then be known. Further, the issues that the applicant raises in this proceeding would fall for more informed argument upon established facts. 63 The creditors should, so it seems to me, be allowed full opportunity to consider their options at the forthcoming creditors' meeting. The administrators have indicated that they intend to propose a deed of arrangement. That proposal should be considered by the creditors fully. As Byrne J said in Re Java at 517 "the imminence of the creditors' meeting and the prospect that they might be asked to consider a proposal for a deed of company arrangement" was "a powerful reason not to disturb the status quo". The intention of the legislation is that creditors be given a full opportunity to consider their options and that a lessor not be permitted to pre-empt that position by disturbing the company's possession of premises. The fact that the applicant may suffer some further delay in re-taking possession does not lead me to a contrary conclusion. 64 For the reasons given, I would dismiss the application. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (4)