Macrocom v City West Centre

16 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J

5168/00 MACROCOM PTY LIMITED V CITY WEST CENTRE PTY LIMITED

Issue 1 The question for decision is whether certain equipment in a building of the defendant has become part of the building as a fixture and therefore part of the land, or whether that equipment comprises chattels. Facts 2 The defendant, City West Centre Pty Limited (City West) is the owner of a property known as 55 Pyrmont Bridge Road, Pyrmont. A purpose built building is constructed on that property for high technology communications purposes, for use as a telecommunications hub with particular features necessary for this. 3 On the roof of the building are certain satellite dishes, antennae and other transmitting and receiving equipment. Beneath the roof is a floor known as the "link hut". This houses special electronic equipment linking to the antennae. The floors beneath the link hut are leased to various tenants. Those floors house other equipment, generally processing equipment, which is connected to the link hut equipment by cable. 4 By lease dated 30 January 2000, City West leased to a company Planetel Pty Limited (Planetel) part of level one in the building for a term of seven years, commencing on 1 February 2000, with an option to renew for a further seven years. The lease defined infrastructure space as follows: "Infrastructure Space" means electrical, mechanical and storage areas in the ground floor car park area, basement or on the roof of the Building and as shall have been so identified by the Lessor and Lessee and agreed upon as constituting Infrastructure Space . 5 The lease also included the following clauses: 7.5 (a) The Lessor may require the Lessee at the expiration or earlier determination of the term of this lease to remove from the Demised Premises any or all alterations and additions made to the Demised Premises by or on behalf of the Lessee and all partitions, equipment fittings, fixtures, machinery and other belongings installed or placed in the Demised Premises by or on behalf of the Lessee and in that event the Lessee must do so and must make good all damage and disfigurement (apart from fair wear and tear) caused to the Demised Premises as may have been affected by any such installation alteration or addition or by the removal thereof and where the term of this Lease shall be determined prior to the termination date specified the Lessee shall effect such removal reinstatement and making good of damage within a reasonable time after such determination (b) The Lessee may at or prior to the expiration of the term of this lease remove from the Demised Premises any or all equipment fittings fixtures machinery and other Lessee's belongings installed or placed in the Demised Premises by or on behalf of the Lessee and in the nature of trade or tenant's fixtures provided the Lessee can do so without causing damage or disfigurement to the Demised Premises or with the consent of the Lessor provided the Lessee makes good all damage and disfigurement caused to the Demised Premises and if required by the Lessor lodges a bond or other acceptable security in respect thereof and pays the Lessor's costs of supervision of such removal. (c) If the Lessee shall not have completed such removal reinstatement and making good at the expiration of the term of this Lease (or in the case of the early determination of the term of this Lease within a reasonable time after such determination) then without affecting any other right of the Lessor , the Lessor may remove and store such partitions, alterations, additions, equipment, fittings, fixtures, machinery and other belongings as the Lessee shall have failed to remove and may reinstate and make good the Demised Premises and the Lessee shall pay on demand all costs and expenses incurred by the Lessor including but not limited to shipping and storage costs in so doing and the Lessor may alternatively elect not to effect or only in part to effect such removal reinstatement and making good in which case such partitions, fixtures, machinery and other belongings as have not be removed by the Lessee shall be treated as having been abandoned by the Lessee and forfeited to the Lessor . None of the Lessee's partitions, alternations, additions, equipment, fittings, fixtures, machinery and other belongings shall be treated as abandoned until after a period of ninety (90) days has expired from the expiration of the term of this Lease. … 18.1 In addition to the rent and other payments under this lease, the Lessee must pay to the Lessor an amount calculated at the rate of $250.00 per square metre plus GST as an allowance for the use of Infrastructure Space as identified and determined by agreement. The infrastructure rate of $250.00 per square metre is to be reviewed on the same date as the rent and in the same manner as the rent is determined in accordance with clause 4.3 of the Lease. Clause 4.3 shall apply mutatis mutandis. 6 The evidence is somewhat contradictory and uncertain, but it appears Planetel was placed under administration in October 2000 and under creditors' voluntary liquidation on 21 November 2000. Messrs. Sherman and Walker were appointed first as administrators and then as liquidators. It also seems to have been accepted that as a result of the administration, City West exercised its rights to terminate the lease, although how that was done was not established. 7 Macrocom Pty Limited (Macrocom) had been involved with Planetel over the design of its satellite system at Pyrmont. Macrocom is a wholesale telecommunications carrier. It provided services to Planetel and installed most of the equipment the subject of this action in the Pyrmont premises. After Planetel went into administration Macrocom purchased the equipment the subject of these proceedings from the administrators under an agreement which, although it recited Planetel was owner of the equipment, included a provision that neither the company nor the administrators gave any representation or warranty as to ownership of the assets or the right to sell them. Under the agreement the equipment is said to be encompassed in the first box of the following description of equipment sold and purchased under the sale agreement: 4.6 m Intelsat Satellite Dish, Relevant Anchoring Equipment to Roof: Cross Axis Waveguide Kit, Lightning Rod Kit etc (located at Building C 100 Bulwara Road, Pyrmont 65,000.00 Equipment located at: 190 City Road, South Melbourne; 530 Collins Street, Melbourne; Pitt Street, Sydney 90,000.00 4 communications racks removed from the Brisbane and Melbourne premises of the company @ $500 each 2,000.00 "Supernova" Techware PII 128Mb Ram, 8 GB HDD, CD Rom and Tape Drive 1,300.00 "Latex.Planet.net.au" Paragon P120 64 Mb Ram, 850 Mb HDD, Serial No. 116214 250.00 "Archie" Tecs Computer PII 256Mb Ram, 3 x 4 GB HDD, Serial No. B94248R 1,600.00

Total 160,150.00

GST Applicable 16,015.00

TOTAL AMOUNT DUE $ 176,165.00

8 The agreement is said to have been made on 24 November, but is dated 27 November. The administrators not the liquidators were vendors, but nothing is said to turn on that. The evidence is that about the time of the sale the administrators removed the modulator and demodulator equipment from the leased premises on level one and later handed these items over to the plaintiff. It is contended by the plaintiff that these items were part of the equipment sold to that company by the administrators. There were some discussions between Macrocom and City West about Macrocom taking up a lease or continuing to use the satellite dish and the equipment in the link hut area, but these discussions came to nothing as there were problems over the rent required. After City West refused to allow the plaintiff to remove the equipment from the link hut and the roof these proceedings were commenced. 9 The claim concerning the modulator and demodulator equipment removed by the administrator from the first floor, which is the subject of a cross-claim by the owner against Macrocom for return of the equipment or for damages for conversion, can be dealt with first. That equipment was housed in racks bolted to the floor. It was attached by hard wired cables to the equipment in the link hut. Once it was removed the system - which depended upon the modulator and the demodulator, the link hut and the satellite dish - was no longer operative. While for reasons I will explain when dealing with the link hut equipment, I would have considered the equipment to be properly described as chattels, for this part of the action it does not matter. If the equipment in question were properly determined to be fixtures then I could regard that equipment as tenant's fixtures with the tenant - namely Planetel - having the right to remove those fixtures. The tenant, through its administrator, did so and subsequently dealt with the equipment as part of the sale to the plaintiff. I can see no reason to consider the equipment would not have been property described as tenant's fixtures. Certain other equipment in much the same category was apparently moved by a company which had leased it to Planetel but whether or not that was under special arrangements the evidence does not show. It follows from this that the cross-claim fails. The equipment in the link hut and on the roof 10 This question is not so easily resolved. That part of the roof and that part of the link hut occupied by equipment of the plaintiff was not part of the leased premises. A separate fee was paid for the right to occupy this space, but it was no more than the right of a licensee, there being no right of exclusive possession. The right of a tenant to remove fixtures is, in general, an incident of the relationship between landlord and tenant and not otherwise. It follows, I think, that no such right could be asserted to this equipment, and as I understood it, that was accepted by counsel for the plaintiff. In any event a right to remove tenant's fixtures is a right in the tenant to do so. Whether or not it is a right capable of assignment is not really in consideration here, because it was not suggested that any such right was exercised. Assuming for a moment the items in question were fixtures, what Planetel, through its administrator, has done is to attempt to sell part of the land, namely that part which is comprised of the equipment. This is very different from the exercise involved in removing fixtures which are tenant's fixtures and then selling, or agreeing to sell those fixtures subject to a tenant's right of removal, which right may be lost if not exercised. See Lee v Gaskell [1876] 1 QB 700. 11 The equipment in question is described in the summons as follows: (a) VERTEX 1:1 LNB System, consisting of: (i) Redundant, KU-Band, 1:1 LNB System, including 1:1 redundant configuration plate assembly, two of Norsat LNB's model 1109C, 1:1 redundancy controller (serial/parallel I/O) and O&M Manual and Test Data (part no. BRK-1100)

(b) Andrew 4.6 metre Earth Station Antenna (Intelsat approved) (part no. ES46-124W), together with lightning rod kit.

(c) Radyne ComStream Redundant Ku-Bank Upconverter System, consisting of: (i) 1:1 Redundancy upconverter Protection Switch; (ii) 2 Off SPC 1450 Ku-Band Upconverters, 70 MHz input/14.00-14.5 GHz output; and (iii) Various cable assemblies and operation and maintenance manuals (d) VERTEX 1:1 100 Watt SSPA System consisting of: (i) PRK-11100/R 1:1 Redundant, Ku-Band 14.0-14.5 GHz, 100W rack-mountable indoor SSPA system including indoor switching assembly with offline dummy load and O&M manuals with test data (1 item). (ii) One 19" rack housing the above equipment. (iii) 1:1 System Option 2 Maintenance switch (allows selection of antenna or dummy load at system output) (1 item) (iv) SSPA Option 1 Rack-mount slide rails (2 items) (v) SSPA Option 2 SSPA front panel N-type input and output sample ports (2 items); 12 Item (b) - the 4.6 metre Earth Station Antenna - is the satellite dish. It is on the roof of the building. It is accepted that the lightning rod kit, if it were ever installed, is no longer in the building. The satellite dish is 4.6 metres in diameter and weighs about one tonne. It was hoisted onto the roof by crane. If it were removed, it would have to be taken off by crane operating from outside the building. It was necessary to construct a structural steel framework underneath the roof area placed to support he satellite dish. This is erected against the concrete ceiling of the link hut and bolted to it. The dish itself is mounted on a framework. It is bolted to the framework, which is bolted into the roof. Cabling runs from the link hut equipment through sealed holes in the roof to the dish. 13 The equipment in the link hut is placed in racks which are bolted or plugged to the floor. Component parts in the racks are held there by small screws or bolts which could easily be removed and the components parts then slid in and out of the racks subject to disconnection from the cables. Power to the racks and the equipment comes from hard wired connections - not plugs, - attached to the power source. 14 The evidence is that the satellite dish is useless without equipment such as that in the link hut and on the leased floor but that it does not require that particular equipment to make it operational. In the same way the link hut equipment is of no particular use on its own, but it can be used in combination with a satellite dish in another location. 15 Mr Burns, the radio access manager of Macrocom, is an electrical engineer well experienced in the telecommunications industry. In an affidavit he explained the work necessary to remove the link hut equipment. This involved disconnecting cable assemblies, unscrewing bolts, taking the parts out of the rack and other work, all of which he said would take up to two or three hours. This was not challenged. 16 A view was held and I inspected the satellite dish and link hut equipment on site. This is no ordinary fixture case and without inspection it would have been very difficult to understand the evidence. It is clear that everything from floor one to the hut to the roof is part of a continuous system. Equally the evidence makes it clear the particular components are not required for successful operation. These can be updated or substituted and the system will continue to operate. The dish, if moved to another situation, would operate efficiently; the transmit equipment could be used in connection with a different dish in a different location. 17 There was some conflicting evidence which went to the intention of the annexation. This must be considered in the context of the lease of seven years with an option for a further lease. Mr Blanks, the chief technology officer of Planetel, who was responsible for the installation, said in an affidavit that it was his intention the network equipment be capable of removal partly because there was consideration of a second satellite dish being brought into operation. Both dishes would need to be together and if they could not both be located at the Pyrmont Bridge Road premises, the equipment would have to be moved to a new building. He said that this was discussed with Mr Boulos of City West on a number of occasions between March and July 200. Mr Boulos denied this. He said he was not in the country from the beginning of February until the end of May. There is no doubt that there was discussion about obtaining extra space on the roof, however I am not satisfied that there was any serious intention or discussion about moving during the term of the lease. It is not likely that a tenant upon entry into a relatively long lease in a high tech building would be doing so on the basis it might decide to relocate within a short time of entering occupation. Nevertheless, I see no reason not to accept the evidence of Mr Blanks that he intended the equipment to be capable of removal, although as I understand the law it is the objective intention the court must find, (though subjective intention may perhaps go to the question of permanent or temporary connection.) 18 As I have earlier observed this is not the normal fixtures case. Such cases are more easily determined when a whole building is leased and the lessee has annexed certain equipment to the building which is erected on the lessor's land. In such a case one looks at the degree of annexation and integration of the contested items into a system and whether it appears from an objective point of view that it was intended to make the additions part of the building. However, while it is an easier task when a whole building is let, the same task can be performed when only part of the building is leased. 19 There is little point in embarking upon any detailed consideration of authority. The onus is on the plaintiff to establish the articles in question are chattels: Holland v Hodgson (1872) LR 7 CP 328. The general principles are established by Australian Provident Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700; N H Dunn Pty Ltd v L M Ericsson Pty Ltd (1979) 2 BPR 9241; Sanwa Australia Leasing Ltd v National Westminster Finance Australia (1989) NSW ConvR 55-437. Many of the authorities have been helpfully collected by Conti J in National Australia Bank Ltd v Blacker [2000] FCA 1458. 20 It is often stated when considering the purpose of annexation the court should look to see whether the attachment was for the better enjoyment of the property generally, (that is the item) or for the better enjoyment of the land or buildings to which the article is attached. These considerations tend to overlap. For instance, the evidence established that it was necessary to set the dish carefully so far as direction was concerned and at least when attached to the framework on top of the roof it was necessary to secure the dish by bolts. It could not have stood there unattached. On the other hand for the purpose of the lease being of any benefit to the lessee/plaintiff, it was necessary to have the dish attached to the premises which would otherwise have been useless from the lessee's point of view. This was a building erected and fitted for high technology satellite based communications; the leased premises were of no benefit without the dish and it was of no use unless fixed. 21 Had this been a case between landlord and tenant and the question to be determined whether or not the tenant was entitled to remove the satellite dish during the term, I would have found that as it was erected for the purposes of its trade the tenant could remove it, but that is not the question here. 22 I have come to the conclusion that the satellite is a fixture not a chattel. Its position on the roof, its weight, the fact that additional steel support to the roof was necessary prior to its installation and the way in which it is connected to the building, would lead any outside observer to consider it part of the building and to assume that was the intention. 23 I have, however, concluded that the transmit equipment components are properly described as chattels. The rack is not part of the claim. The components slide in and out of the rack; the degree of annexation with screw bolts is slight. The hard wired cabling is perhaps the strongest indication the other way, but while this is not as simple as a plug to power, to an electrician it presents no difficulty to hook up. The components can be used with a different satellite dish. 24 It is of course necessary to consider whether the transmit equipment is part of an integrated system comprising the satellite dish, the transmit equipment and the equipment which was on the first floor, including the modulator and demodulator equipment. Mr Blundell, in identifying the equipment claimed as the dish system, the modulator, the demodulator and the radio frequency equipment in the building then gave the following evidence: Q. Is that equipment that all works together to perform a particular function? A. Yes, it's all individual items that connect together to perform a function along with the satellite in the sky and equipment in the United States and equipment in Sydney and Melbourne which we link together by trunk circuits to make a total system.

Q. The use of the antenna is to beam things up to the satellite and receive things from the satellite? A. That particular antenna, yes.

Q. And the other equipment is needed to allow the antenna to perform that function; is that correct? A. The other equipment drives the antenna and receives from the antenna and the modulators and demodulators convert those signals to data signals.

Q. Were you involved in the selection of the premises to lease? A. No. 25 Mr Blanks also gave evidence about this subject in cross-examination. The relevant part of the evidence appears from page 12 to the top of page 14 of the transcript as follows:- Q: …You would agree, would you not, that all of the equipment which Macrocom seeks in these proceedings is all designed to function together? A. They are components of a system, interchangeable components, yes. They are designed to function to deliver a satellite link up and down.

Q. When you say interchangeable, if you take away one SSPA you would need to replace it with another one? A. Yes you saw this morning that there was equipment from different manufacturers making up the components and it would be normal practice to replace the components with the same manufacturer's components.

Q. You would still need at least one of each of those components or at least in some cases a back up as well? A. That system you saw this morning was fully redundant.

Q. By that you don't mean that it was useless? A. No.

Q. You mean? A. It was backed up and duplicated.

Q. It had a fail safe element? A. Yes.

Q. That's regarded as necessary in the commercial context in which you are operating? A. It is necessary. Within that satellite link it is important to have redundancy wherever possible for components that can be duplicated. You can't duplicate the satellite transponders. We did have a fail safe network designed around both submarine fibre and satellite.

Q. And the dish by itself would be useless without the equipment in the link hut? A. Correct.

Q. It would be useless without a modulator and demodulator? A. Yes.

Q. And each of those items of equipment in the link hut does not do anything by itself? A. That's true.

Q. So that they have their use only as part of a system such as we saw this morning? A. Well, if the receiver components fail in the link hut, the thing can still transmit. It is a transmitter and receive beam but depending on which units fail, it would make it useless if one of them failed.

Q. If a unit involved in receiving fails, you are saying that the system continues to transmit? A. Correct.

Q. But that item which hypothetically we are saying has failed, it does not have a function apart from being part of this system; does it? A. I fail to understand your reasoning.

Q. We have established that the dish won't do anything without the equipment below. I am suggesting to you that the items of equipment do not do anything useful except as part of the system? A. If you had a total failure of any of the receiving elements where it is not duplicated, the system would still function as a transmitter so that's why I am having difficulty answering your question. It is - there are spare components in the country that could be brought into play to repair an item but it does function if there is either a transmit and receive or transmit or receive.

Q. Speaking of replacement, it is true, isn't it, that it is more difficult to re-erect an antenna that has been pulled down and taken somewhere else than it is to erect it in the first place? A. No, not at all. It is quite simple to re-erect an antenna.

Q. When you re-erect them in the first place, I take it Planetel engaged a contractor to do that? A. Yes, we did.

Q. Did the contractor promise to get it working? A. No, the contractor erected the dish and the United States operator came in to commission the dish.

SIRTES: Q. In relation to the equipment and the utility of the equipment in relation to the satellite dish, can other pieces of equipment, not the equipment there, be installed and make the satellite dish effective? A. Absolutely, in fact it can be reconfigured to work in a receive only mode, a transmit only mode, varying the width of the beam, all things are possible. It has interchangeable components.

HIS HONOUR: Q. If you take the link hut equipment out of the building, can you use it anywhere else? A. Yes.

Q With another satellite dish? A. Yes. Mr Burns said that the components or similar components were necessary to make the system work. He estimated the life of the components to be not more than five to seven years. 26 Any high grade television type facilities in a building may require an aerial for their effective operation. That aerial may well be a fixture, but that does not necessarily make the television components fixtures, although together they may be thought of an integrated. There is no doubt that the dish will operate successfully with other transmission components. Had the equipment become redundant I have no doubt that the plaintiff was entitled to replace it with the most recent technology and to take the old component parts away. That, I consider, would not have depended upon some special rights to remove tenants' fixtures. These matters are a matter of degree, and usually little is gained by comparing the facts in one case with the facts in another. I find the transmit equipment not part of the building. 27 There was one matter raised during submissions, although perhaps it was a least flagged in paragraphs 20 to 22 of the affidavit of Mr Coxhead. The claim of Macrocom to the equipment was founded on its having purchased it from the administrators of Planetel. The contract for sale of the Sydney equipment described in the way I have set out. Even on a summons matter I do not think that the question of whether or not the equipment was sold to the plaintiff by the administrators was fairly raised as an issue, first because from the start both parties agreed that the issue was whether or not the items were fixtures, chattels or tenant's fixtures, and second because the purpose of the view was to assist in that decision and all the items in question were pointed out to me on that basis; and I should add that paragraph 16 of the affidavit of Mr Blundell, which stated that the plaintiff had bought all the equipment, was not denied. Whether or not there was some degree of ambush in all of this does not really matter. The question can be determined by deciding what on the true construction of the sales agreement the word "etc" means or includes. It must have included something and as there is ambiguity one can look at surrounding circumstances. The following evidence of Mr Blundell in his affidavit of 26 March 2001 in my view puts the matter beyond doubt. Paragraph 4 of that affidavit is as follows: 4. On or about 23 November 2000, I had a telephone conversation with Mr Sherman, which included words to the following effect: Blundell: "Steven, we would be willing to offer you $65,000 for all Planetel's satellite equipment at 55 Pyrmont Bridge Road." Sherman: "OK. I will add the Pyrmont Bridge Road equipment to the list of the equipment you are purchasing in Melbourne and Brisbane. I'm happy to accept $65,000 for the equipment at 55 Pyrmont Bridge Road. We'll send you an agreement and invoice for all the equipment in the next couple of days." Blundell: "Fine, we're happy to proceed on that basis." The telephone conversation ended shortly thereafter. In referring to 55 Pyrmont Bridge Road, I was referring to Planetel's premises, which are also described as Building C, 100 Bulwara Road, Pyrmont. In referring to Melbourne and Brisbane, I understood that Mr Sherman was referring to earlier conversations that I had had with him regarding the purchase of equipment formerly owned by Planetel in both Brisbane and Melbourne. I had not had any earlier conversation with Mr Sherman regarding Planetel's equipment at 55 Pyrmont Bridge Road, Pyrmont, so far as I can recall.

It is perfectly clear that the administrators included the transmit equipment in the sale. 28 As a result the plaintiff is entitled to a declaration in general terms as claimed in paragraph 1 of the summons, omitting the words "or in the alternative tenants fixtures" and omitting sub-paragraph (b). The plaintiff is also entitled to an order for access to remove the equipment. The cross claim should be dismissed with costs. The plaintiff has not been completely successful so that I will hear any argument on costs and then make final orders.

Last Modified: 06/06/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.