Kastro Pty Ltd v ABD Holdings Pty Ltd [2008] NSWSC 1291 | Case summary

And the following relevant special conditions: 7 Exclusion of pre-contractual representations 7.1 This contract constitutes the entire agreement between the vendor and the purchaser relating to the sale of the property. 7.2 The parties have not entered into and are not bound by any collateral or other agreement apart from this contract. 7.3 Subject to section 52A of the Conveyancing Act 1919 and the Regulations under that Act, the parties are not bound by any warranty, representation, collateral agreement, or implied term under the general law or imposed legislation unless: (c) [sic] that warranty, representation, agreement or term is contained in the express terms of this contract; or (d) it is an implied term or warranty imposed by statute which is mandatory and cannot be excluded by the parties' agreement. 7.4 The purchaser acknowledges that the purchaser, when entering into this contract, relied exclusively on the following matters independently of any statements, inducements or representations made by or on behalf of the vendor (including by any estate agent acting on behalf of the vendor): (e) [sic] the inspection of and investigations relating to the land made by or on behalf of the purchaser; (f) the warranties and representations expressly contained in the contract; (g) the skill and judgment of the purchaser, its consultants and representatives; (h) opinions or advice obtained by the purchaser independently of the vendor's agents or employees. 7.5 The purchaser acknowledges that other than expressly contained in this Contract, no representations, inducements or warranties have been made by the vendor or its agents or representatives relating to the suitability of the property for the purposes of the purchaser or any contamination relating to, caused by, or affecting the property. ... 9 Deposit payable by instalments 9.1 At the request of the Purchaser, the Vendor has agreed to accept payment of the deposit by the Purchaser by instalments in accordance with this special condition. The Purchaser acknowledges that the deposit payable by the Purchaser pursuant to clause 2 of this contract is 10% of the price and is payable by instalments which must be paid as follows: (a) as to $125,000.00 on the date of this contract; (b) as to $125,000: (i) on completion of this contract; or (ii) if the Purchaser defaults in the observance or performance of any obligation under this contract which is or becomes essential, on the date of the default by the Purchaser. 10 Bank guarantee 10.1 In this contract "Bank Guarantee" means the bank guarantee issued to the Vendor in the form annexed and marked "A". 10.2 Subject to paragraphs 10.3 and 10.4, the delivery of the Bank Guarantee on or before the date of this contract, to the person nominated as the deposit holder will, to the extent of the amount guaranteed under the Bank Guarantee, be deemed for the purposes of this contract to be payment of the deposit in accordance with this contract. 10.3 The Purchaser will pay the amount stipulated in the Bank Guarantee to the Vendor in cash or by unendorsed bank cheque on completion of this contract or such other time as may be provided for the deposit to be accounted for to the Vendor. 10.4 If the Vendor serves on the Purchaser a notice in writing claiming to forfeit the deposit, then to the extent that the amount has not already been paid under the Bank Guarantee, the Purchaser will immediately pay the deposit (or so much of the deposit as had not been paid) to the deposit holder. 10.5 The Vendor acknowledges that payment under the Bank Guarantee will, to the extent of the amount paid, be in satisfaction of the Purchaser's obligation to pay the deposit under paragraph 10.4. 11 Leasing 11.1 Prior to completion the Vendor must remove from the title for the property the notation of terminated lease registered AD197778. 11.2 The purchaser acknowledges that the sale of the property constitutes the sale of a going concern and that the vendor is entitled to manage the property as it considers appropriate until the Completion Date and in particular it can: (a) deal with or consent to any variation, assignment, transfer or surrender of any lease; (b) deal with or consent to any sub-lease or sub-tenancy relating to any lease; (c) terminate any tenancy or exercise any right of forfeiture or re-entry or waive any breach of any term of any lease; (d) carry out any rent review under any lease; (e) allow any Tenant to hold over at the end of the term of its lease other than a tenant who at the date of the Contract is holding over under an expired lease; (f) grant or agree to grant any lease or any licence to occupy any premises which form part of the property. 11.3 The vendor must give the purchaser written notice of its intention to exercise any of its rights under special condition 11.2 and if within three business days of receipt of the vendor's notice, the purchaser does not provide written notice to the vendor of its objection to the vendor's exercise of its rights, the vendor can exercise its rights. The purchaser acknowledges that it cannot object to a grant of a lease of the premises which complies with clause 11.6. 11.4 If the purchaser objects to the vendor's exercise of its rights under clause 11.3, the purchaser indemnifies the vendor against any action, demand, claim, proceeding, claim, loss, cost or damage which the vendor may suffer, be liable for or incur as a result of it [sic] failure to exercise the rights to which the purchaser objected. 11.5 The purchaser must not unreasonably object to the vendor's exercise of its rights under clause 11.2. 11.6 The vendor discloses and the purchaser acknowledges that any lease granted by the vendor over the premises must be on terms which are: (a) reasonable and usual commercial terms for premises similar to the property; (b) the rental payable under any lease must be a reasonable market rental; (c) the lease may include incentive payments usual for such leases, such as a rent free period; (d) as the premises are retail premises, the term of lease must be for a period of not less than 5 years and the lease may include an option to renew the lease for a further period of 5 years. 11.7 If the vendor is in possession of the original or signed copy of any tenancy documents, certified copies of any registered leases or any other documents evidencing the tenancies then the vendor will provide those documents to the purchaser on completion. 3 The bank guarantee given by the National Australia Bank in the amount of $125,000 named ABD as beneficiary and contained the following relevant provisions: 2. Payment of the Amount or any part or parts of the Amount will be made by the Bank to the Beneficiary: a) upon the Bank receiving at its Outlet while this guarantee remains in force an unconditional written demand from the Beneficiary accompanied by this guarantee; and b) whether or not the Bank gives prior notice of the payment to the Customer; and c) despite any notice given to the Bank by the Customer not to pay the Beneficiary any moneys payable under this guarantee; and d) irrespective of the performance or non-performance by the Customer or the Beneficiary of the Agreement in any respect; and e) with no obligation on the Bank to enquire as to the performance or non-performance of the Agreement in any respect by the customer or the Beneficiary; and f) with no obligation on the Bank to enquire as to the correctness or validity of any demand pursuant to sub-clause 2(a) of this clause. … 8. This guarantee continues in force until the earliest of the following events occur: a) this guarantee is returned to the Bank at its Outlet (other than for a payment in accordance with clause 2(a)); b) notification in writing has been received by the Bank at its Outlet from the Beneficiary that this guarantee is no longer required; c) payment is made under clause 2 or 5 to the Beneficiary by the Bank of the whole of the Amount or the balance of the Amount remaining after any part payment or payments of the Amount, or such lesser amount as the Beneficiary requires; d) the close of business on the Termination Day (if any). 4 On 31 July 2008, Kastro communicated to ABD's agent an offer to purchase the property for $2.2 million on a walk in-walk out basis. Mr Fallshaw, ABD's agent, responded on 31 July 2008 as follows: I spoke to the owner and he confirmed that he has reached a heads of agreement and has received a deposit from a prospective tenant at $208,000 PA NET. ... The owner said he will also get another $50,000 PA from the tenant if he can use the outdoor seating that should be available ... . He said that the intending tenant was endeavouring to sign the lease by next week to start trading the week after next. He feels your offer of $2.2M WIWO is too low based on the rental amount and the asking price of $2.7M. He is happy to send me a copy of the HOG to forward on to you if you want. 5 Kastro replied on 31 July, requesting a copy of the heads of agreement. In due course, Kastro was provided with a copy of the heads of agreement on which the name of the lessee had been obliterated, apparently signed on behalf of the intended lessee on 31 July 2008, and bearing also a signature on behalf of the lessor, undated. The heads of agreement provided for an initial net rental of $208,000 per annum inclusive of GST; a lease term of five years commencing on 15 August 2008, with an option for five years; and, under the heading 'Rental Deposit': The Lessee agrees to pay a rental deposit equivalent to one month's outgoings + outgoings + GST ($20,349.90). In the event that the Lessee withdraws from this agreement, then the Lessor's fees shall be deducted and balance refunded. 6 On 5 August 2008, Kastro communicated to Mr Fallshaw an offer of $2,425,000 with a five per cent deposit and six month settlement, adding "the current Heads of Agreement between the Tenant and Vendor is to be negotiated with our party (once the contracts have been exchanged)". On 6 August, Mr Fallshaw forwarded a response from his principal to the effect that ABD would accept $2.55 million and a five per cent deposit with a two month settlement, and as to the negotiation of the heads of agreement: We have currently given offer and acceptance to one of the three parties we have been dealing with, although the other two parties are still interested and if the purchaser would like to negotiate further, this would be possible, but your client would have to exchange contracts first. As you can appreciate we can not slow down any potential lease execution. 7 It is worth observing at this stage that such further negotiation with the other parties would only be possible if there was not already a binding agreement with one of the interested parties. 8 Kastro responded, later on 6 August, proposing a three month settlement period and that they would like to exchange as soon as possible, and pressing "upon exchange we will negotiate the lease terms with the involved party". Mr Fallshaw sent an email to Matthews Solicitors (who acted for ABD) the same day, reporting on "successful negotiations on the sale of the above property" to Kastro, and setting out terms as to price, deposit, completion and exchange of contracts, adding "upon exchange the purchaser will negotiate the lease terms with the involved party". Mr Fallshaw also forwarded an email to Kastro indicating that the price should be $2.5 million plus GST, as "This is due to it being vacant possession". 9 There were apparently further negotiations in this respect because, late on Friday, 8 August 2008, Matthews Solicitors forwarded to Christopher Nicholls & Associates Solicitors, who were acting for Kastro, an email noting that page 1 of the contract and Special Conditions had been amended: Page 1 of the contract has been amended to show that the sale of the property is the sale of a going concern. I have therefore reduced the price to $2,500,000.00 as there will be no GST payable. Special condition 10 has been amended to allow our client to lease the property and comply with the GST provisions relating to the sale of a going concern. 10 The contract, in its ultimate form, provided that the sale was with vacant possession but GST free because it was a going concern. 11 On 15 August 2008, Matthews Solicitors submitted to Christopher Nicholls & Associates a draft lease which was being submitted to the tenant, seeking any comments. That lease provided for a term of five years from 1 August 2008, and specified the tenant as Bob Kim, and the rent as $195,000 per annum (not the $208,000 that had been referred to in the Heads of Agreement; it transpired that Mr Kim had entered into heads of agreement with ABD, signed by him on 18 July but on behalf of ABD on 5 August, providing for a rent of $195,000 per annum). 12 Contracts were exchanged on 21 August 2008. On 22 August, Matthews Solicitors forwarded to Christopher Nicholls & Associates a list of documents that had been supplied to the tenant, together with the disclosure statement and draft lease. 13 On 26 September 2008, Matthews Solicitors wrote to Christopher Nicholls & Associates as follows: We enclose a list of inclusions that we consider are likely to be in the property at the completion date. In relation to the proposed lease to Kim, the tenant decided this week not to proceed with the lease. Our client is currently actively seeking a new tenant for the premises. We will advise you if a new tenant is found. 14 On 18 October 2008, Christopher Nicholls & Associates wrote to Matthews Solicitors, mentioning that settlement was due on 21 November 2008 and referring to Special Condition 11 and the provision that the sale was of a going concern and continuing: As you are aware for the sale to constitute a going concern there must be an enterprise operating at the time of settlement. Specifically, there must be a tenancy of the property. ... As such should a tenancy not be in place at the date of settlement we are informed that the vendor will exercise its rights to terminate the contract and request return of the bank guarantee. 15 Matthews Solicitors replied on 29 October 2008, denying that Kastro had any right to rescind or terminate for the reasons that had been advanced, asserting that the contract was not conditional upon the property being leased prior to completion, and setting out reasons for that position. 16 On 5 November 2008, Matthews Solicitors requested submission of a draft transfer. On 10 November 2008, new solicitors for Kastro, Herbert Geer, wrote to Matthews Solicitors, relevantly as follows: Our client hereby terminates the contract for breach by ABD of a term and condition of the contract. Kastro's motivation for entering into the contract was that of investor seeking a suitable return on its investment ... The email communications negotiating the price reflect that approach as the price was fixed by reference to the heads of agreement contract that ABD had achieved with the future tenant. In short, Kastro entered the contract on the basis that there was an enforceable agreement between ABD and the tenant to pay an annual rental of no less than $208,000. 17 The letter then invoked Special Condition 11 as protecting Kastro's position and asserted that ABD had allowed the heads of agreement to be terminated without giving the notice required by Special Condition 11.3, thus depriving Kastro of its protection on the basis of which it had entered into the contract - as a result of which it was said that Kastro was entitled to terminate and demand return of the bank guarantee. 18 On 11 November 2008, Matthews Solicitors, having since received notice of the order obtained ex parte from the Court on 10 November, wrote to Herbert Geer, noting that Kastro had purported to terminate the contract and asserting that it had thereby wrongly repudiated the contract, and purported to terminate the contract as a result of that repudiation. 19 At this stage, the only basis upon which the claim for relief has been put on behalf of Kastro is contractual. Although reference has been made to the possibility of a trade practices claim, it has not, at this stage, been argued that Kastro was entitled to rescind at law for misrepresentation, or that Kastro would be entitled to similar relief from the Court under s 87 of the (CTH) Trade Practices Act 1974. The case has been put solely on the basis of Special Condition 11. 20 On an application such as this for an interlocutory injunction, the question is whether there is a sufficiently seriously arguable case for a final injunction as to justify the grant of an interlocutory injunction having regard to the balance of convenience. One does not reach considerations of the balance of convenience unless an arguable case for final relief is established, although the strength of that case may be relevant to what is required on the balance of convenience, and correspondingly the balance of convenience may influence the strength of the requisite case for final relief. 21 Kastro argues that it was entitled to terminate upon the basis that there was a breach of condition, being the condition said to be contained in Special Condition 11.3. That clause obliged ABD to give Kastro "written notice of its intention to exercise any of its rights under Special Condition 11.2". That, therefore, directs attention to the rights of ABD as vendor under Special Condition 11.2. 22 Special Condition 11.2 was an acknowledgment by Kastro that the sale was one of a going concern, that ABD was entitled to manage the property as it considered appropriate until the completion date, and that ABD had certain rights - including, relevantly, to deal with or consent to any variation, assignment, transfer or surrender of any lease, and to terminate any tenancy, or exercise any right of forfeiture, or re-entry, or waive any breach of any term of any lease. 23 Special Condition 11.3 requires notice to be given to the purchaser of the vendor's intention to exercise any of its rights under Special Condition 11.2. However, it is not apparent that the vendor intended to exercise any right under Special Condition 11.2 at all. The proposed tenant, so the evidence before me indicates, decided not proceed with the lease. All the evidence discloses is what is contained in the letter of 26 September 2008, from Matthews Solicitors to Christopher Nicholls & Associates, that: In relation to the proposed lease to Kim, the tenant decided this week not to proceed with the lease. Our client is currently actively seeking a new tenant for the premises. 24 That does not suggest any surrender of any existing lease, nor any termination of any existing tenancy, nor any exercise of any right of forfeiture or re-entry. 25 Mr McKeand SC, who, with his customary determination, pressed the case as highly as it fairly could be for the purchaser, argued that the heads of agreement of 31 July 2008 at least arguably constituted an agreement for lease that would fall within the provisions of Special Condition 11.2, or an equitable lease capable of specific performance. 26 In the context of a commercial lease for a term exceeding three years - which, therefore, has to be registered for practical purposes - it is improbable that parties intended to be bound before the terms of the formal lease were settled by solicitors and exchanged, especially if the parties had in mind the preparation of a formal document. In that respect, consensus on the commercial terms in which a lease is given is not equivalent to an intention that the consensus should, without more, be legally binding [Gobblers Inc Pty Limited v Stevens (1993) NSW ConvR 55-665 (Cohen J); Kassabian & Rawstron Investments Pty Ltd v Lagonicos (1993) NSW ConvR 55-690 (McLelland CJ in Eq); Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606 (NSWCA); Blackburn Developments No 19 Pty Ltd v Downs Surgical (Australia) Pty Ltd (1974) 2 BPR 9141 (Helsham J); Landsmiths Pty Ltd v Hall [1999] NSWSC 735 ; (1999) 9 BPR 17,057 (Young J); Long v Piper [2001] NSWCA 342; [2002] ANZ ConvR 43; (2002) NSW ConvR 56-000, [51]-[55]; Hali Retail Stores Pty Ltd v Hafaz [2007] NSWSC 412, [17] (Brereton J)]. 27 A lease advice notice issued by a lessor or its agent to a potential lessee does not make a binding contract, even though a substantial holding deposit may be paid in connection with its issue [Sydney Harbour Casino Holdings Pty Ltd v NMBE Pty Ltd (1998) 9 BPR 16,679 (NSWCA); see also Kassabian & Rawstron Investments v Lagonicos; Hali Retail Stores v Hafaz, [18]]. 28 In the present case, significant indicia include that in the heads of agreement, paragraph 17 (Rental Deposit) already referred to expressly contemplates the possibility of the lessee withdrawing from the "agreement". Moreover, the circumstance that Kastro well understood that there was not yet a binding and enforceable lease is apparent from its insistence on being entitled to negotiate the lease terms with the "involved party" after exchange of contracts, and that the sale was expressed to be with vacant possession. 29 In my view, there is not an arguable case that there was any such lease in place as was contemplated by Special Condition 11.2 (a) or (c), nor that the vendor ABD intended to exercise any right referred to in clause 11.2 of which it was bound to give notice. In my view, there is no sufficiently arguable case that ABD was in breach of clause 11.3. 30 In those circumstances, it is unnecessary to consider the further reasons advanced - including that clause 11.3 may not have been a condition, breach of which would entitle the purchaser to terminate in any event. 31 For those reasons, although had it come to the balance of convenience, I have little doubt that the balance of convenience would have favoured the grant rather than the withholding of interlocutory relief, no sufficiently arguable case for final relief is made out to justify that course. 32 I, therefore, refuse the application for interlocutory relief with costs. 33 Although the case is a borderline one - because I have concluded that there is not a seriously arguable claim for final relief - I do not think that its prosecution is marked with sufficient delinquency to warrant an order for indemnity costs. I, therefore, decline to make an indemnity costs order. 34 I order that the proceedings continue on pleadings. 35 I direct that the plaintiff serve its Statement of Claim by 28 November 2008 and that pleading thereafter continue in accordance with the rules. 36 I adjourn the proceedings to Thursday, 18 December 2008, at 9.15am before the Registrar for further directions. **********

Kastro Pty Ltd v ABD Holdings Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Cases Cited (3)

Cited By (2)