Mirvac Funds Management Ltd v Value Lodging Pty Ltd

Summary of salient facts

1. There were no significant disputes as to matters of fact. A number of affidavits were read by each side, but none of the deponents were required for cross-examination.
2. I have already referred to how the hotels or headleases of the hotels were owned and leased as between the parties. Mr Stuart Symons, the General Counsel of the Mirvac Group, deposed that from about June 2020 it was the intention of the Mirvac Group to sell its interests in the properties, either by way of asset sale, or by way of a sale of units in the Tucker Box Hotel Trust and shares in Tucker Box Hotel Company Pty Ltd. By 14 August 2020, the relevant Boards within the Mirvac Group had passed resolutions approving the sale of the properties, whether by asset sale or sale of units and shares. Soon thereafter, Credit Suisse (Australia) Ltd, and McVay Real Estate were engaged in relation to the proposed transaction. The marketing campaign, which involved an expression of interest process, commenced on 14 October 2020. Information concerning the campaign was sent to Value Lodging and Toga Hotel Management.
3. On 28 October 2020, a Notice to Lessee of Intention to Sell, or a Notice to Sublessee of Intention to Assign Headlease, was served upon Value Lodging in respect of each hotel as applicable. No issues arise concerning the service of these notices or the form of these notices. However, it should be noted that each of the notices contained a statement that the Lessor or, as the case may be the Sublessor, intended to sell the Land or, as the case may be, assign the Headlease, to a bona fide arms length purchaser.
4. The expression of interest period ended on 19 November 2020. One of the expressions of interest came from Toga Hotel Management together with MA Investment Management Pty Ltd. However, on about 7 December 2020, Mirvac entered into an exclusivity agreement with Salter Brothers Hotel Fund Investment Manager II Pty Ltd. Eventually, on 23 July 2021, Mirvac entered into a contract for sale with Salter Brothers Asset Management Pty Ltd ("Salter Bros") in respect of the ten hotels (and another hotel that is not the subject of these proceedings). The total purchase price under the contract is $620 million. By cl 2.1 of the contract, the sale was subject to and conditional upon the satisfaction or waiver of various conditions precedent. The contract for sale is due for completion on the "Due Date". Due Date is defined, in respect of each individual property, as: the date that is 3 months after the date on which a Termination Notice has been issued and is deemed to have been received pursuant to the Hotel Tenancy for that Property.
5. Service of notices is dealt with in cll 24.1 and 24.2 of the leases, and the relevantly identical provisions of cll 25.1 and 25.2 of the sub-leases. Clauses 24.1 and 24.2 of the leases provide: 24.1 All Notices must be: (a) in legible writing and in English; (b) addressed to the recipient at the address or facsimile number set out in Item 10, Item 11 or Item 12 (as applicable) or such other address or facsimile number as a party may notify to the other; (c) signed by the party or, where the sender is a company, by an authorised officer or under the common seal of the sender; and (d) sent to the recipient by hand, prepaid post (airmail if to or from a place outside Australia) or facsimile, with a copy sent by electronic mail to the electronic mail address set out in Item 10, Item 11 or Item 12 (as applicable). 24.2 Without limiting any other means by which a party may be able to prove that a Notice has been received by another party, a Notice will be considered received: (a) if sent by hand, when left at the address of the recipient; (b) if sent by pre-paid post, 5 days (if posted within Australia to an address in Australia) or 10 days (if posted from one country to another) after the date of posting; or (c) if sent by facsimile, upon receipt by the sender of an acknowledgment or transmission report generated by the sender's machine indicating that the whole facsimile was sent to the recipient's facsimile number, (and provided a copy of the Notice has also been sent by electronic mail address [sic] set out in Item 10, Item 11 or Item I2 (as applicable)) but if a Notice is served by hand, or is received by facsimile on a day which is not a Business Day or after 5:00pm on a Business Day, that Notice will be considered received by the recipient at 9.00am on the next Business Day. Items 10, 11 and 12 respectively concern the Lessor's address for Notices, the Lessee's address for Notices, and the Guarantor's address for Notices. The applicable Item in respect of Notices of Termination is thus Item 11. Item 11 is in the following terms: Item 11: Lessee's address for Notices (clause 24.1) Address: Level 5, 45 Jones Street Ultimo NSW 2007 Attention: Chief Executive Officer, Value Lodging Pty Limited; and Managing Director Toga Group Facsimile No: (02) 9332 4813 Email: transactions@tfehotels.com
6. It seems that Mirvac wished to serve notices of termination in respect of the ten hotels on 30 March 2022, but one of the conditions precedent remained unsatisfied. Nevertheless, two law graduates employed by the plaintiffs' solicitors, Allens, went with notices of termination to Value Lodging's office in Ultimo at about 4:45pm. Each notice was contained in its own envelope. Each envelope had two labels affixed to it. The first label was in the following terms: BY HAND Attention: Chief Executive Officer, Value Lodging Pty Ltd Attention: Managing Director, Toga Group Value Lodging Pty Ltd (ACN 112 089 782) Level 5, 545 [sic] Jones Street Ultimo NSW 2007 The second label included the following terms: RE: Notice of Termination of Lease [or, where applicable, Sublease] - followed by a reference to the relevant property.
7. At 6:09pm on 30 March 2022, Salter Bros agreed to waive the outstanding condition precedent on certain terms. At 6:11pm, Mr Symons received confirmation, from another party with an interest in the Tucker Box Hotel Trust, that the terms of the waiver were acceptable. Mr Symons promptly gave instructions to an Associate at Allens to serve the termination notices. The Associate thereupon telephoned one of the law graduates (Ms Jackson) and said that the notices of termination should now be served. It seems that this telephone conversation occurred shortly prior to 6:15pm.
8. The law graduates had been waiting in the reception area of the office of Value Lodging and Toga Group at Level 5, 45 Jones Street, Ultimo. At about the time of the telephone call from the Allens Associate, Ms Jackson saw a man walk from the office area into the reception area, and then to the lobby or foyer area of the building. Ms Jackson ran after him and spoke to him in the lobby or foyer. Ms Jackson said that she had some documents to be delivered to Toga. She asked whether he would come back in and sign for them. The man agreed to do so.
9. The man was Mr Conor O'Toole. He is a Group Hotel Investment Manager employed by Toga Pty Ltd. Toga Pty Ltd is the parent company of the Toga Group of companies.
10. I note in passing that the defendants, Value Lodging and its parent company Toga Hotel Management, are part of what is described as the TFE Hotels Group, and are not strictly part of the Toga Group of companies. However, Toga Pty Ltd has a 50% interest in the unit trust the trustee of which owns all of the shares in Toga Hotel Management.
11. There are some differences between the accounts given on the one hand by Ms Jackson and Ms Tang (the other law graduate), and on the other hand by Mr O'Toole. I do not think that any of those differences are significant. It is clear that after Mr O'Toole returned to the reception area, he signed a document that contained the following terms: DATE: 30 March 2022 Chief Executive Officer, Value Lodging Pty Ltd Managing Director, Toga Group Value Lodging Pty Ltd Level 5, 45 Jones Street Ultimo NSW 2007 Notice of Termination - Hotel Leases Received from Allens the undermentioned documents: 1. Notice of Termination of Sublease (Bankstown). 2. Notice of Termination of Sublease (Blacktown). 3. Notice of Termination of Lease (Garden City). 4. Notice of Termination of Sublease (Macquarie). 5. Notice of Termination of Sublease (Manly). 6. Notice of Termination of Lease (Newcastle). 7. Notice of Termination of Lease (Perth). 8. Notice of Termination of Lease (Southbank). 9. Notice of Termination of Sublease (Sydney (Wentworth)). 10. Notice of Termination of Lease (Wynyard). In addition to his signature, Mr O'Toole handwrote his name and position (Group Hotel Investment Manager) at the foot of the document, and "6:15pm" to the left of the date at the top of the document.
12. I am satisfied that at the time of signing, Mr O'Toole was aware of the bundle of envelopes, each one of which contained a notice of termination. That is so whether they were at that point on a table in the reception area (as stated by Ms Jackson and Ms Tang) or being held by Ms Jackson (as stated by Mr O'Toole). It must have been obvious to Mr O'Toole that he was signing to acknowledge receipt of the documents contained within the envelopes, and that those documents were notices of termination. Indeed, it seems that Mr O'Toole appreciated that the documents concerned the sale of hotels by Mirvac.
13. Later on 30 March 2022 (at 9:00pm), Mr Symons sent the termination notices by email to the address: transactions@tfehotels.com
14. The notices of termination issued pursuant to the leases were in the following terms: To: Value Lodging Pty Ltd (ACN 112 089 782) of Level 5, 45 Jones Street Ultimo NSW 2007 (Lessee) Attention: Chief Executive Officer, Value Lodging Pty Ltd Attention: Managing Director, Toga Group Original by Hand Copy by email to: transactions@tfehotels.com From: The Trust Company Limited (ACN 004 027 749) as custodian and agent of Mirvac Funds Management Limited as trustee of the Tucker Box Hotel Trust of Level 18, 123 Pitt Street, Sydney, NSW 2000 (Lessor) Capitalised terms used in this notice have the same meaning given in the Lease (unless otherwise defined in the Reference Schedule or in this notice). TAKE NOTICE THAT: 1. Further to the Notice to Lessee of Intention to Sell dated 28 October 2020 (copy attached at Schedule 1) and pursuant to Exhibit A, Clause 18 of the Lease: a. the Lessor and a bona fide arm's length purchaser have exchanged the Contract of Sale; and b. the conditions precedent in the Contract of Sale triggering settlement in relation to the Land were satisfied on 30 March 2022. 2. In satisfaction of Exhibit A, Clause 18.3(c) of the Lease, we enclose: a. copies of the formal covering pages and execution pages and an extract of Schedule 2 of the Contract of Sale at Schedule 2 of this notice (confirming the party details); b. copies of the definition of "Property" and item 7 of Part A of Schedule 1 of the Contract of Sale (being the Land) at Schedule 2 of this notice (confirming the property); and c. a letter from the Lessor's solicitors confirming the proposed sale of the Land at Schedule 3 of this notice. 3. Pursuant to Exhibit A, Clause 18.3(d)(ii) of the Lease, the Lessee must deliver vacant possession of the Premises and the Hotel no later than 30 June 2022, being the date that is 3 months after the date that this notice is served, at which time: a. the Land will be transferred to the Purchaser; and b. the Lease will terminate, (the Termination Date). 4. In accordance with clause 18.2 of the Lease, the Lessor will pay to the Lessee the Termination Fee by way of bank cheque on the Termination Date. We kindly request acknowledgement of receipt of this notice as a matter of priority. Dated 30 March 2022
15. The notices of termination issued pursuant to the sub-leases were in the following terms: To: Value Lodging Pty Ltd (ACN 112 089 782) of Level 5, 45 Jones Street Ultimo NSW 2007 (Sublessee) Attention: Chief Executive Officer, Value Lodging Pty Ltd Attention: Managing Director, Toga Group Original by Hand Copy by email to: transactions@tfehotels.com From: The Trust Company Limited (ACN 004 027 749) as custodian and agent of Mirvac Funds Management Limited as trustee of the Tucker Box Hotel Trust of Level 18, 123 Pitt Street, Sydney, NSW 2000 (Sublessor) Capitalised terms used in this notice have the same meaning given in the Sublease (unless otherwise defined in the Reference Schedule or in this notice). TAKE NOTICE THAT: 1. Further to the Notice to Sublessee of Intention to Assign Headlease dated 28 October 2020 (copy attached at Schedule 1) and pursuant to Exhibit A, Clause 19 of the Sublease: a. the Sublessor and a bona fide arm's length purchaser have exchanged the Contract of Sale; and b. the conditions precedent in the Contract of Sale triggering settlement in relation to the Headlease were satisfied on 30 March 2022. 2. In satisfaction of Exhibit A, Clause 19.3(c) of the Sublease, we enclose: a. copies of the formal covering pages and execution pages and an extract of Schedule 2 of the Contract of Sale at Schedule 2 of this notice (confirming the party details); b. copies of the definition of "Property" and item 1 of Part A of Schedule 1 of the Contract of Sale (being the Headlease) at Schedule 2 of this notice (confirming the property); and c. a letter from the Sublessor's solicitors confirming the proposed assignment of the Headlease at Schedule 3 of this notice. 3. Pursuant to Exhibit A, Clause 19.3(d)(ii) of the Sublease, the Sublessee must deliver vacant possession of the Premises and the Hotel no later than 30 June 2022, being the date that is 3 months after the date that this notice is served, at which time: a. the Headlease will be assigned to the Purchaser; and b. the Sublease will terminate, (the Termination Date). 4. In accordance with clause 19.2 of the Sublease, the Sublessor will pay to the Sublessee the Termination Fee by way of bank cheque on the Termination Date. We kindly request acknowledgement of receipt of this notice as a matter of priority. Dated 30 March 2022
16. There is no issue that the various notices of termination were accompanied by the documents specified in cl 18.3(c) of the leases (or cl 19.3(c) of the sub-leases).
17. It seems that neither the email sent by Mr Symons, nor the envelopes containing the notices of termination, were in fact opened until the morning of 31 March 2022. Both 30 March 2022 and 31 March 2022 are Business Days for the purposes of the leases and sub-leases.

Determination

1. The resolution of the four issues identified earlier involves a number of questions of construction of the leases and sub-leases. The principles to be applied to those questions of construction of written commercial agreements are those stated in recent years by the High Court in cases such as Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52], and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. Accordingly, the meaning of the terms of a written commercial contract is to be determined objectively, by what a reasonable business person, placed in the position of the parties, would have understood the terms to mean.
2. As stated in Electricity Generation Corporation v Woodside Energy Ltd (supra) at [35], the Court is required to consider: …the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". (footnotes omitted).
3. It may be added that a commercial contract should be construed as a whole, and, if possible, so as to render its terms harmonious (see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109).
4. I will deal with each of the four issues in turn.

Issue 1 - what is the date of service of the notices of termination?

1. In order to answer this question, it is necessary to consider the facts concerning service that are summarised above, together with cll 24.1 and 24.2 of the leases or, as the case may be, cll 25.1 and 25.2 of the sub-leases.
2. The relevant provisions are set out above at [15].
3. There is no dispute that the notices comply with the requirements of cl 24.1 (or cl 25.1) and that copies were sent by electronic mail as required by cl 24.1(d) (or cl 25.1(d)). It should be noted, however, that cl 24.1(d) (and cl 25.1(d)) specifies only three modes of sending notices to the recipient, namely: by hand, prepaid post, or facsimile. In the present case, the notices were all sent by hand.
4. The focus of the debate between the parties is cl 24.2 (or cl 25.2). The opening words of the clause, up to the comma, indicate that a party might be able to prove by "other means" that a notice has been received by another party. "Other means" seems to me to refer to means other than those set out elsewhere in the clause; that is, means other than those referred to in paragraphs (a), (b) or (c). Each of those paragraphs identifies, for one of the permitted modes of sending a notice, a way in which a notice will be "considered received".
5. So, in the case of sending by hand, leaving the notice at the address of the recipient is sufficient for the notice to be considered received. In the case of sending by prepaid post, a notice will be considered received a certain number of days after the date of posting. Where a notice is sent by facsimile, it is considered received when the sender receives a report from its facsimile machine indicating that the whole facsimile was sent to the recipient's number. In each case the notice is considered received, even though there is no proof that the notice has in fact been received. These provisions are thus in the nature of deeming provisions.
6. There is no dispute, and it seems to me clear, that the proviso at the end of the clause (commencing with "but if…") operates in relation to those deeming provisions, or at least paragraphs (a) and (c). Accordingly, in the case of sending by hand, if the notice is left at the address of the recipient on a day that is not a Business Day or after 5pm on a Business Day, it is considered received by the recipient at 9:00am on the next Business Day. If a notice sent by facsimile is received on a day that is not a Business Day or after 5:00pm on a Business Day, it is considered received by the recipient at 9:00am on the next Business Day. I think that, in this regard, "received" should be taken to mean wholly received as indicated by the report from the sender's facsimile machine.
7. A more difficult question is whether the proviso at the end of the clause also operates in relation to the opening words of the clause. The question is whether the proviso operates where a party proves (by means other than those referred to in paragraphs (a), (b) or (c)) that a notice has in fact been received by another party. The defendants submit that it does, whereas the plaintiffs submit that it does not.
8. Whilst both constructions are plainly arguable, and both gain some support from indications in the text, the better view is that where a party is able to prove actual receipt of a notice by another party, and thus does not need to rely upon the deeming provisions, the proviso has no operation. That is to say, if actual receipt is proven to have occurred after 5:00pm on a Business Day, that will be the date of service, not the next Business Day. Similarly, if actual receipt is proven to have occurred on a day that is not a Business Day, that will be the date of service, not the next Business Day. (It is clear from paragraph (b) that a notice may be received, or at least be considered received, on a day that is not a Business Day.)
9. Read as a whole, the clause (which consists of a single sentence) seems to me to deal with two different topics, being actual receipt in the opening words, and deemed receipt in the remainder. Where actual receipt of a notice is proven in accordance with the opening words, that is sufficient to establish when service occurred. Otherwise, the time of service is determined by when a notice is "considered received" in accordance with the deeming provisions. On this basis, although the language of the proviso is certainly capable of applying to all cases of service by hand, I do not think that reasonable businesspersons in the position of the parties would have understood it to apply where actual receipt is proven. Rather, they would understand it to qualify the deeming provisions in paragraphs (a) and (c) where notices are merely left at the premises or sent to a facsimile machine. Where that occurs on a day other than a Business Day or after 5:00pm on a Business Day, it is reasonable to think that the notices might not actually come to the attention of a party until some time on the next Business Day.
10. It is next necessary to consider whether Mirvac has proven that the notices of termination were actually received by Value Lodging for the purposes of the opening words of the clause. In my opinion, the evidence concerning service establishes that the notices of termination were served upon Value Lodging by hand at about 6:15pm on 30 March 2022, when Mr O'Toole signed the receipt for the notices.
11. By Item 11, the address for service of notices upon Value Lodging is Level 5, 45 Jones Street, Ultimo. Further, the notices are required to be marked to the attention of the Chief Executive Officer of Value Lodging and the Managing Director of Toga Group. That requirement is an indication by Value Lodging that notices to be given to it concern not only Value Lodging itself, but also the affairs of the Toga Group of companies.
12. That the notices have to be marked to the attention of the two stipulated office holders does not in my view entail a requirement that the notices be personally received by those persons, or either one of them, for service to be effective. In my view it is sufficient if the notices are personally received (at the address for service) by an employee of Value Lodging, or an employee of a company in the Toga Group, with authority to receive documents.
13. That is what occurred when Mr O'Toole, an employee of Toga Pty Ltd (the parent company of the Toga Group), signed the receipt for the notices. There can be no real doubt that Mr O'Toole had authority to receive documents such as those that concern the affairs of the Toga Group. He did not suggest in his affidavit that he did not have authority to receive the notices.
14. In these circumstances, I consider that Mirvac has proven that the notices of termination were actually received by Value Lodging for the purposes of the opening words of cl 24.2 of the leases (or cl 25.2 of the sub-leases). The notices were so received at about 6:15pm on 30 March 2022. 30 March 2022 should therefore be regarded as the date of service of the notices of termination.

Issue 2 - what is "3 Months from the date of service" within the meaning of cl 18.3(d)(ii) of the leases and cl 19.3(d)(ii) of the sub-leases?

1. Clause 1.4 of the leases, and cl 1.4 of the sub-leases, provides: If a period must be calculated from, after or before a day or the day of an act or event, it must be calculated excluding that day.
2. It is thus accepted that in calculating the period "3 Months from the date of service", the date of service, which in my view is 30 March 2022, is to be excluded. Accordingly, the period starts at the commencement of the following day, viz, 31 March 2022.
3. Section 181(1) of the Conveyancing Act relevantly provides: In all deeds, contracts, wills, orders and other instruments (whether relating to property or not)…unless the contrary intention appears: … (d) Month means calendar month.
4. By s 21 of the Interpretation Act 1987 (NSW), the expression "calendar month" where found in any Act is defined to mean: a period commencing at the beginning of a day of one of the 12 named months and ending - (a) immediately before the beginning of the corresponding day of the next named month, or (b) if there is no such corresponding day, at the end of the next named month.
5. However, as noted earlier, "Month" is defined in each of the leases and sub-leases to mean a named month. A question therefore arises as to whether the definition of "Month" evinces a contrary intention so as to displace the meaning of Month otherwise supplied by s 181(1)(d).
6. The plaintiffs submitted that no contrary intention appeared because named month within the lease and sub-lease definition has the same meaning as calendar month. Reference was made to Southern Han Breakfast Point Pty Ltd (in liquidation) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 at [10], where the High Court stated that a reference in a New South Wales statute to a "named month" was a reference to "a calendar month, according to the Gregorian calendar".
7. I do not accept the submission made by the plaintiffs that the lease and sub-lease definition of "Month" does not evince an intention contrary to s 181(1)(d). In my opinion, by choosing to define the meaning of Month as a named month (unless the context required otherwise), the parties evinced an intention to depart from the meaning of Month that would otherwise be supplied by s 181(1)(d). This is because the concept of a named month is not the same as the concept of a calendar month as found within s 181(1)(d).
8. A calendar month within s 181(1)(d) is a period of time that may commence at the beginning of any day of one of the 12 named months. The period will end immediately before the beginning of the corresponding day of the next named month unless there is no such corresponding day, in which case the period ends at the end of the next named month. The concept of a calendar month thereby includes the so-called "corresponding date rule" referred to by the House of Lords in Dodds v Walker [1981] 1 WLR 1027 (see Alexakis v Wan (2021) 20 BPR 41,243; [2021] NSWSC 367 at [50]-[53]). The notion of calendar month within s 181(1)(d) incorporates the Interpretation Act definition of "calendar month" which, in turn, includes references to named months. The concept of a named month is itself defined in the Interpretation Act to mean January, February, March etc.
9. It can be accepted that a named month may be described as a month that appears in a calendar, specifically the Gregorian calendar with its months from January to December. I think that this is how the statement in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (supra) should be understood. However, the concept of a named month is not the same concept as a calendar month as described above. A named month is simply one of the twelve months from January to December. A named month is a period defined by the duration of the named month itself. It is not a concept that includes the "corresponding date rule".
10. How then should the expression "3 Months from the date of service" within cl 18.3(d)(ii) of the leases and cl 19.3(d)(ii) of the sub-leases be understood? It seems to me that the definition of "Month" should be read into the expression, so that it becomes 3 named months from the date of service. So read, I accept the defendants' submission to the effect that if the date of service is 30 March 2022, and that date is excluded as required by cl 1.4, 3 named months from that date must include April, May and June 2022. That is how the expression would have been understood by a reasonable businessperson in the position of the parties. (The same result would follow if the date of service is 31 March 2022.)
11. I will add that this conclusion is reinforced by a number of other provisions of the leases and sub-leases that employ the defined term "Month". These provisions (for example, cl 3.3 of the leases and cl 4.3 of the sub-leases) indicate that the concept of a calendar month was not the intended meaning. I also note that in at least one place (cl 17.7 of the leases and cl 18.7 of the sub-leases) "months" is used, as opposed to "Months". In that instance, by not using the definition of "Month", the concept of a calendar month appears to have been retained.
12. For the above reasons, I think that the defendants' construction of the expression "3 Months from the date of service" should be accepted.
13. On that construction, vacant possession could not be required until 1 July 2022. It follows that, insofar as the notices of termination stated that vacant possession must be delivered no later than 30 June 2022, the notices called for vacant possession to occur one day too soon. The notices should have allowed all of 1 July 2022 for the delivery of vacant possession.

Issue 3 - if "3 Months from the date of service" is 1 July 2022 rather than 30 June 2022 as referred to in the notices, are the notices nonetheless valid notices pursuant to cl 18.3(d) of the leases or cl 19.3(d) of the sub-leases?

1. The plaintiffs submitted that in those circumstances the notices were nonetheless valid because they were effective in providing notice under cl 18 of the leases or cl 19 of the sub-leases, and provided for vacation of the premises to occur in accordance with cl 18.3(d)(ii) of the leases or, as the case may be, cl 19.3(d)(ii) of the sub-leases. The plaintiffs point to the references in the notices to the relevant provisions, and the statement in each notice that 30 June 2022 was the date that is 3 months after the date of service. The plaintiffs called in aid the speeches given in the House of Lords by the majority in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (supra), especially at 767-9 and 772-3 (Lord Steyn), 774-5 and 780 (Lord Hoffmann) and 782 (Lord Clyde). Applying the principles stated in that case, the plaintiffs submitted that it would have been clear to a reasonable recipient of the notices that Mirvac sought vacant possession in accordance with cl 18.3(d)(ii) or cl 19.3(d)(ii), even if it was mistaken about the actual date when vacant possession could be so required.
2. The defendants submitted that the relevant question is not so much the construction of the notices, but whether the notices comply with the requirements of cl 18.3 or cl 19.3, properly construed. The defendants contended that the erroneous date in the notices meant that Mirvac had failed to comply with one of the conditions for valid termination. It was submitted that the error was not an immaterial or technical error because, by the notices, Mirvac sought vacant possession in accordance with rights that did not exist under the leases or sub-leases. The defendants further submitted that the principles enunciated in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (supra) did not apply here because it is not a case of obvious error, or one where the error was conceded by the giver of the notice. It was also put that 30 June 2022 was a deliberately chosen date, and the notices (which referred to "3 months" rather than "3 Months") did not make clear what rights Mirvac was purporting to exercise. Finally, it was submitted that the terms of the leases and sub-leases required the notices to stipulate a date by which Value Lodging was required to give vacant possession.
3. It may be accepted that service of a valid notice of termination is a condition that must be satisfied before the leases or sub-leases may be terminated and vacant possession required. That is made plain by the terms of cl 18.3 of the leases and cl 19.3 of the sub-leases. By cl 18.3(c) (or cl 19.3(c)), such a notice is required to be given within a seven day window, and is to include certain information. There is no dispute that those requirements have been satisfied. By cl 18.3(d) (or cl 19.3(d)), the notice must also require vacant possession at a time that is calculated by reference to the date of service. However, it is not a requirement that the notice specify a time or a date so calculated. I do not accept the defendants' submission to the contrary. The inclusion in a notice of a specified time or date is surplus to requirements. In my view, the inclusion of an erroneous date upon or by which vacant possession is required does not in and of itself invalidate the notice.
4. The notices given in the present case clearly refer to the relevant provisions of the leases and sub-leases that are sought to be relied upon. A reasonable recipient would be in no doubt that the notices were intended to be notices of termination pursuant to cll 18.3(c) and (d) of the leases or cll 19.3(c) and (d) of the sub-leases, and that Mirvac intended to exercise the rights given by cl 18 or cl 19. Moreover, the third paragraph of each notice, which is directed to the question of vacant possession, specifically refers to either cl 18.3(d)(ii) or cl 19.3(d)(ii), as applicable. A date by which vacant possession is required (30 June 2022) is included in that paragraph, and the date is stated to be the date that is 3 months after the date the notice is served.
5. I do not think that a reasonable recipient would be at all misled by the inclusion of the date. Notwithstanding the inapt use of "months" instead of "Months", a reasonable recipient of the notice would read the third paragraph as calling for vacant possession to be given by the time calculated in accordance with cl 18.3(d)(ii) or cl 19.3(d)(ii). The notices make it quite clear that the vacant possession is required "pursuant to" cl 18.3(d)(ii) or cl 19.3(d)(ii), as the case may be. In my view, a reasonable recipient of the notice would read 30 June 2022 merely as Mirvac's proffered calculation of the time, not a statement that Mirvac intended to require vacant possession by that time even if its calculation was wrong. Of course, a reasonable recipient would understand that vacant possession was not required under cl 18.3(d)(ii) or cl 19.3(d)(ii) until three named months from the date of service. So, if service occurred on either 30 March 2022 or 31 March 2022, it would be appreciated that vacant possession could not be required until 1 July 2022, and that Mirvac's calculation was wrong. The reasonable recipient might therefore challenge Mirvac's calculation of when vacant possession could be required, but would be in no doubt that Mirvac, by its notice, was seeking vacant possession only in accordance with cl 18.3(d)(ii) or cl 19.3(d)(ii).
6. In these circumstances, it is my view that the notices of termination satisfy the requirements of cl 18.3(d)(ii) or cl 19.3(d)(ii), as applicable. The notices cannot be understood as assertions by Mirvac of rights that it did not have under the leases or sub-leases. I consider that it is appropriate to apply the principles enunciated in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (supra). The question whether the notices of termination are valid notices under the relevant provisions of the leases or sub-leases, and in particular the question whether the inclusion of the erroneous date of 30 June 2022 renders them invalid, are questions which at least in part depend upon how the notices would be understood by a reasonable recipient. That seems to me to be the case regardless of whether the error may be truly described as an obvious one, or whether the giver of the notice has conceded the error. The central point is that the notices would make it quite clear to a reasonable recipient that Mirvac was seeking vacant possession only in accordance with cl 18.3(d)(ii) or cl 19.3(d)(ii).
7. For the above reasons, I have concluded that the notices of termination are valid notices pursuant to cl 18.3(d) of the leases or cl 19.3(d) of the sub-leases, despite the inclusion in the notices of the erroneous date of 30 June 2022. That is to say, in respect of each of the ten hotels, the condition that a valid notice of termination be served has been satisfied. However, in accordance with my conclusion on Issue 2, it is not open to Mirvac to require vacant possession of the properties until 1 July 2022.

Issue 4 - Are the notices ineffective because of a failure to comply with the requirements of cl 18.3(b) of the leases or cl 19.3(b) of the sub-leases?

1. The issue here is whether Mirvac, when it served notices of intention to sell or assign on 28 October 2020, in fact had an intention to sell the hotels or assign the headleases.
2. The defendants submitted that Mirvac did not have such an intention at that time because it had an open mind about proceeding instead by way of a sale of units or shares. The relevant evidence in this regard is referred to at [12] above. The defendants further submitted that in those circumstances, Mirvac had not elected to sell the relevant hotels or assign the relevant headleases as provided for in cl 18.1 of the leases and cl 19.1 of the sub-leases, such that the termination clauses were not triggered.
3. The plaintiffs submitted that the evidence established, and that it is sufficient, that Mirvac intended to sell the hotels and assign the headleases in the event that there was a successful negotiation with an interested purchaser/assignee. It was submitted that an intention to sell is almost invariably qualified in some way, and the existence of such a qualification does not necessarily negate the intention to sell. The plaintiffs submitted that Mirvac held an intention to sell, albeit that it was also open to the notion of disposing of its interests in a different manner. Finally, it was submitted that the giving of the notices of intention to sell or assign was itself good evidence of Mirvac's state of mind at that time.
4. I generally accept the plaintiffs' submissions on this issue. In my opinion, Mirvac had an intention to sell within the meaning of cl 18.3(b) of the leases and an intention to assign within the meaning of cl 19.3(b) of the sub-leases when the notices of intention were served on 28 October 2020. By that time, the Mirvac Group, including Mirvac itself, had taken a number of steps towards a sale of the hotels and an assignment of the headleases. These steps included the passing of Board resolutions giving approval to the proposed transaction, the engagement of experts to assist in the process, and the commencement of a marketing campaign seeking expressions of interest. The intention to sell and assign was by no means unconditional or fixed. A final decision to sell or assign would no doubt not occur unless and until a commercial negotiation was concluded successfully.
5. However, I do not think that cl 18.3(b) of the leases, or cl 19.3(b) of the sub-leases, requires an unconditional or fixed intention. It is sufficient in my view that the properties are genuinely placed on the market for a sale or assignment to a bona fide arms length purchaser. Clause 18.3(b) and cl 19.3(b) each impose two conditions upon the exercise of the rights of termination given by cl 18.1 and cl 19.1. The first is that the relevant sale be to a bona fide arms length purchaser. The second is that the lessee is given not less than 6 Months notice of the intention to sell or assign, and all marketing materials (to the extent available) in connection with the proposed sale or assignment. It is contemplated that the notice of intention will be given well in advance of any actual sale or assignment, and in circumstances where there is merely a proposed sale or assignment of the relevant property. It is also evident that any marketing materials are to be provided to Value Lodging, no doubt to enable it, if it wished, to participate in the proposed sale or assignment process.
6. I do not think there is any doubt on the evidence that by 28 October 2020 the properties had been genuinely placed on the market by Mirvac for sale or assignment to a bona fide arms length purchaser. By that time, Mirvac had the necessary intention to sell for the purposes of cl 18.3(b) of the lease, and the necessary intention to assign for the purposes of cl 19.3(b) of the sub-leases, in order for it to be able to give the notices of intention to sell or assign. That intention is not negated by having an open mind that a disposition of its interests in the properties might occur in a different manner, or possibly not at all.
7. I doubt that electing to sell or electing to assign, as referred to in cl 18.1 of the leases and cl 19.1 of the sub-leases, should be regarded as "triggers" for the operation of the termination clauses. It seems to me that those expressions refer to an actual sale or an actual assignment to a bona fide arms length purchaser. The clauses refer to the completion of "such sale" or "such assignment". If, however, the election to sell or the election to assign are properly regarded as decisions to sell or assign that must be made before a notice of intention to sell or assign is given, I think that Mirvac should be held to have made those decisions. Again, I think it sufficient that Mirvac had genuinely decided to place the properties on the market for sale or assignment to a bona fide arms length purchaser.
8. It follows from the above that there has been no failure on the part of Mirvac to comply with the requirements of cl 18.3(b) of the leases, or cl 19.3(b) of the sub-leases, as alleged.

Relief

1. Declarations should be made in accordance with paragraphs 1(a) to 1(j) of the Amended Summons, that each of the notices of termination is valid and effective. The Court will also declare that, subject to the payment by the plaintiffs to the first defendant of the Termination Fee in accordance with cl 18 of the lease or cl 19 of the sub-lease, as applicable, the plaintiffs will be entitled to vacant possession of the Premises the subject of declarations 1(a) to 1(j) by midnight at the end of 1 July 2022.
2. It is also appropriate in the circumstances to order that, subject to the payment by the plaintiffs to the first defendant of the Termination Fee in accordance with cl 18 of the lease or cl 19 of the sub-lease, as applicable, the first defendant deliver vacant possession of the Premises the subject of declarations 1(a) to 1(j) by midnight at the end of 1 July 2022.
3. The Court will also order that the defendants pay the plaintiffs' costs of the proceedings.

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. Decision last updated: 16 June 2022