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The Trust Company (Australia) Ltd in its capacity as custodian of The Asia Pacific Data Centre Trust v NEXTDC Limited - [2018] NSWSC 1361 - NSWSC 2018 case summary — Zoe
Solicitors:
HFW - Plaintiff
Herbert Smith Freehills - Defendant
File Number(s): 2018/122670
[2]
Judgment
HIS HONOUR: This is a contest between a landlord and a tenant concerning the landlord's rights under provisions of leases between them, to have access to the premises.
The first plaintiff (the Landlord) is the trustee of a listed management investment scheme, known as the Asia Pacific Data Centre Limited Trust (the Trust). The second plaintiff is the responsible entity of the scheme.
By three separate leases, in identical terms, the Landlord leased to the defendant (the Tenant) premises in Macquarie Park, New South Wales, Port Melbourne, Victoria, and Malaga, Western Australia, from which the Tenant operates secure data facilities.
Each lease has a 15 year term, [1] with two options of 10 years and a further option of 5 years. The Tenant is a security holder in the Trust, holding a 29.2% interest in it.
Each lease contains the following relevant clauses:
1.2 Interpretation
(b) (Consent) In any case where the Tenant requires the Landlord's consent, that consent must be in writing and unless provided for in this Lease must not be unreasonably withheld or delayed by the Landlord.
(d) (Headings) Headings and subheadings are for ease of reference only and do not affect interpretation of this Lease
(j) (Rights of Landlord) Any right of the Landlord can also be exercised by an authorised agent, representative, employee or contractor of the Landlord.
8.2 Inspection by Landlord
(a) Subject to clause 12.4, at all reasonable times on reasonable prior written notice provided to the Tenant, the Landlord (and any person authorised by the Landlord) may, in the company of a representative of the Tenant, enter the Premises to view its condition. The Tenant must cause its representative to accompany the Landlord.
(b) The Landlord (and any person authorised by the Landlord) may serve a notice on the Tenant requiring the Tenant to repair, within a reasonable time, defects that are specified in the notice which are the obligations of the Tenant under this Lease.
12.1 Right of entry to effect works
Subject to clause 12.4, the Landlord reserves the right to enter the Premises (with contractors, workers and machinery) at all reasonable times and having first provided the Tenant with reasonable written notice (except in an emergency) to:
(a) comply with its obligations under this Lease;
(b) effect alternations or repairs to the Premises which may be required by Law;
provided that in exercising its rights under this clause:
(c) the Landlord must not interrupt or materially interfere with the Tenant's use and enjoyment of the Premises for the Permitted Use; and
(d) the Landlord must at all times take all reasonable steps to minimise any inconvenience or interference to the Tenant (including, where necessary, entering the Premises outside of usual business hours); and
(e) the Landlord follows all reasonable direction given by the Tenant whilst on the Premises.
12.2 Viewing
Subject to clause 12.4, the Landlord can at all reasonable times and on reasonable prior written notice:
(a) show prospective purchasers of the Building through the Premises at all reasonable times of the day; and
(b) show prospective tenants of the Premises through the Premises at any time during the 12 months immediately before the Expiry Date or at any other time with the prior written consent of the Tenant.
12.4 Restricted Access
The Landlord acknowledges and accepts that the Premises contain infrastructure and equipment which is commercially sensitive and critical to the Tenant's business. Notwithstanding any other provision of this Lease, the Landlord may not enter or access the Premises without the prior written agreement of the Tenant, which the Tenant shall be obliged to provide in circumstances where the Landlord (including its employees, agents, invitees or contractors physically accessing the Premises) pass the Tenant's and the Tenant's customers' security clearance procedures and such access is required in order for the Landlord to comply with:
(a) its obligations contained in this Lease; or
(b) a notice received by the Landlord from any Authority or in respect of any Law.
The Tenant or the Tenant's customers may impose such conditions on the Landlord's access to the Premises as the Tenant reasonably requires.
A brief summary of the factual background will suffice.
From 28 November 2017, the Landlord commenced seeking access to the premises. An extensive exchange of correspondence between the parties' lawyers ensued. Rights to access under cll 8.2(a) and 12.2 were asserted by the Landlord and disputed by the Tenant. They took different positions on the proper construction and operation of the provisions of the leases. The Tenant took up the position that the Landlord needed, and it was entitled to withhold, its written agreement to access under cl 12.4 for entry or access. One field of discourse was whether the Tenant's prior written agreement, under cl 12.4, was needed at all; another was whether cl 12.4 gave the Tenant unfettered discretion to withhold its written agreement.
By 18 April 2018, the Landlord had not had access. This prompted the plaintiffs to commence these proceedings. They sued out a Summons seeking final relief in the form of a raft of declarations, including that the Tenant had, in breach of cl 12.2, refused to allow access to the premises.
By notice of motion filed on 8 May 2018, the plaintiffs sought an interlocutory injunction permitting a valuer to inspect the premises on such terms as are reasonably necessary to protect the interests of the Tenant, including any reasonable requirements concerning security having regard to cl 12.4.
On 18 May 2018, Parker J heard the application for interlocutory relief.
The plaintiffs advanced four grounds as to why a valuation was necessary: for the purposes of refinancing, to prepare a financial report for the year ended 30 June 2018, to comply with the obligation imposed on a responsible entity by s 601FC(1)(j) of the Corporations Act 2001 (Cth) to value scheme property at regular intervals, and to recommence the process of sale of the properties. At other times, it has apparently been contended by the Landlord that access by a valuer was necessary to assess any offer by a prospective purchaser, to make an offer to the Tenant as part of a first right of refusal (for which the lease provides) and to re-finance debts.
On 23 May 2018, Parker J dismissed the application: The Trust Company (Australia) Ltd v NEXTDC Ltd [2018] NSWSC 736.
On 4 May 2018, the proceedings were fixed to be heard on a final basis on 20 July 2018, but that hearing was vacated on 18 July 2018 at the plaintiffs' instance. It was re-fixed to commence on 27 August 2018 for two days.
On 9 August 2018, the Landlord made a request for access to the leased premises pursuant to cl 8.2(a), amongst other things, to assess whether the Tenant has kept the premises in good repair.
On 14 August 2018, the Tenant's lawyers wrote to the Landlord's lawyers that without prejudice to their client's rights under, and position in respect of, the leases, their client was prepared to allow a representative of the Landlord accompanied by valuers to access the premises.
Access was given (without incident, according to the Tenant) to the Macquarie Park premises on 15 August 2018, to the Port Melbourne premises on 17 August 2018 and to the Malaga premises on 20 August 2018.
In a letter dated 20 August 2018, from the Tenant's lawyers to the Landlord's lawyers, the Tenant took the position that, where it had received a proper notice under cl 8.2(a), it was prepared to provide access. It did not consider that there was any continuing dispute between them. The Tenant's position is that the question of whether it permits access to the premises is to be considered on a case by case basis and in response to specific requests from the Landlord.
Despite having had access, the Landlord nevertheless pressed on for declaratory relief.
When the hearing commenced before me on 27 August 2018, the Landlord, with leave, filed in Court a Second Further Amended Summons seeking a raft of declarations. Declarations in the following form were initially pressed:
1. A declaration that on the true construction of the Leases, under clause 8.2(a), any person authorised under clause 1.2(j) by the Landlord (authorised representative), at all reasonable times (meaning between the hours of 9.30 am and 4.30 pm on any given business day, Monday to Friday) on reasonable prior written notice given to the Tenant under clause 20.1 of the Leases (meaning written notice addressed and sent to the address or fax number provided in item 14 of the Leases two business days prior to a proposed entry), may, in the company of a representative of the Tenant enter the premises to view their condition, such that the contractual right conferred on the Landlord under clause 8.2(a) is separate and distinct from, and independent to, and is not qualified, limited, or constrained, in any way by, clause 12.4, with the effect that (a) the Landlord is not required by clause 12.4 to obtain the prior written agreement of the Tenant to view the condition of the premises, and (b) the Tenant may only impose conditions on access that it reasonably requires (if any) in good faith and only for the specific purpose of protecting any infrastructure and equipment on the Premises which is critical to its business.
2. A declaration that on the true construction of the Leases, under clause 12.2, any person authorised under clause 1.2(j) by the Landlord (authorised representative), at all reasonable times (meaning between the hours of 9.30 am and 4.30 pm on any given business day, Monday to Friday) on reasonable prior written notice given to the Tenant under clause 20.1 of the Leases (meaning written notice addressed and sent to the address or fax number provided in item 14 of the Leases two business days prior to a proposed entry), may show a prospective purchaser of the building (meaning any Person within the meaning of clause 1.2(h) of the Leases who has expressed an interest in purchasing one or more of the properties the subject of the Leases ("Leased Properties"), has sought and obtained access to the electronic data room containing all information relevant to the sale of the Leased Properties ("Data Room") and has provided a confidentiality undertaking as part of gaining access to the Data Room) through the premises, such that the contractual right conferred on the Landlord under clause 12.2 is separate and distinct from, and independent to, and is not qualified, limited, or constrained, in any way by, clause 12.4, with the effect that (a) the Landlord is not required by clause 12.4 to obtain the prior written agreement of the Tenant to show a prospective purchaser through the building, and (b) the Tenant may only impose conditions on access that it reasonably requires (if any) in good faith and only for the specific purpose of protecting any infrastructure and equipment on the Premises which is critical to its business.
3. A declaration that on the true construction of the Leases, clause 12.4 confers a contractual right on the Landlord, any person authorised under clause 1.2(j) by the Landlord (authorised representative), which is separate and distinct from, and independent to, and is not qualified, limited, or constrained, in any way by, clauses 8.2(a), 12.1 and 12.2 of the Leases, whereby the Tenant must give its prior written agreement to the authorised representative accessing, and entering, the premises, provided that:
(a) the authorised representative passes the Tenant's and the Tenant's customers' security clearance procedures (which may only include such conditions on the authorised representative's access to the premises as the Tenant reasonably requires, and which may not include conditions which are capricious, arbitrary or unreasonable);
(b) the Tenant may only impose conditions that it reasonably requires (if any) in good faith and only for the specific purpose of protecting any infrastructure and equipment on the Premises which is critical to its business; and
(c) such access is required in order for the Landlord to comply with:
(i) the Landlord's obligations contained in the Leases; or
(ii) a notice received by the Landlord from any Authority within the meaning of clause 1.1 of the Leases; or
(iii) any Law.
It would be inappropriate for the Court to make such declarations.
They are purely theoretical and they are inutile. They seek to declare the meaning and operation of cll 8.2(a), 12.2 and 12.4 (read with other provisions of the leases) in a vacuum, without reference to any actual factual circumstance let alone any prevailing one. Making them will produce no foreseeable consequences for the parties. No breach of any provision of the leases by the Tenant is alleged. No assessment of the quality of the Tenant's conduct (or the Landlord's conduct for that matter), in the context of their legal relationship, is called for. To make them would not resolve or quell any dispute about access because there is no extant request for access to the premises and no denial of any request. The Landlord may never again properly ask for access and, if it does, the Tenant may give it. It is not a matter simply of the Court declining to exercise discretion to make declaratory orders. To do so here would not be directed to the determination of a particular legal controversy: University of New South Wales v Moorehouse (1975) 133 CLR 1 at 10, 24; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582, 596; Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 at [52]; Ian Huntly Philip v JPM Developments Pty Ltd [2015] NSWSC 495 at [8].
By the proposed declarations, the plaintiffs' seek, impermissibly, a legal advisory opinion: Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 at [47]-[49].
After some debate, senior counsel for the plaintiffs correctly conceded that declarations as sought were insupportable. The plaintiffs' submission, that the declarations will inhibit the parties from taking up future positions, serves merely to highlight their hypothetical nature.
Towards the end of the first day, there was discussion about whether some form of declaration (not then sought) could or should nevertheless be made. The plaintiffs took up an opportunity offered by the Court to consider the position overnight.
The next day they sought to amend by way of a proposed Third Further Amended Summons, seeking the following declarations:
1. A declaration that, on the true construction of clauses 8.2(a), 12.2 and 12.4 of the Leases, where the landlord gives prior written notice which complies with clause 8.2(a) or clause 12.2(a) of the Leases, in circumstances where the requirements of sub-clauses 12.4(a) and (b) are not met, it is an implied term of the Leases that prior written agreement of the tenant cannot be withheld other than in good faith, and reasonably.
2. In the alternative to paragraph 1 above a declaration that, on the true construction of clauses 8.2(a), 12.2 and 12.4 of the Leases, where the landlord gives prior written notice which complies with clause 8.2(a) or clause 12.2(a) of the Leases, in circumstances where the requirements of sub-clauses 12.4(a) and (b) are not met, it is an implied term of the Leases that:
(a) the tenant will do all that is necessary to enable the landlord to have the benefit of clauses 8.2(a) and 12.2 of the Leases;
(b) the prior written agreement of the tenant to the landlord's access to the premises cannot be unreasonably withheld by the tenant; and
(c) such conditions as the tenant imposes on the landlord's access to the premises, including the tenant's and tenant's customers' security clearance procedures, must be reasonably required for the purpose of protecting any infrastructure and equipment on the premises which is commercially sensitive and critical to the tenant's business.
3. A declaration that on the true construction of clauses 8.2(a) and 12.4 of the Leases, in the events where prior written notice was given by the landlord to the tenant under clause 8.2(a) of the Leases on 8 to 17 August 2018 (inclusive), and in the events which happened on 15 to 20 August 2018, the landlord, and the landlord's authorised representatives, were lawfully entitled under clauses 8.2(a) and 12.4 of the Leases to enter the Macquarie Park premises on 15 August 2018, the Port Melbourne on 17 August 2018, and the Western Australia premises on 20 August 2018, and the tenant was not lawfully entitled to refuse access to the landlord, and the landlord's authorised representatives, to enter the premises.
The Tenant did not oppose, and the Court permitted, the amendment of the Summons to include declarations 1 and 2.
The Tenant, however, opposed the inclusion of declaration 3 on the footing that it would be prejudiced because it would have adduced factual material concerning the 'events' to which the declaration makes reference. It would have challenged, it says, the existence of the necessary facts which would have entitled the Landlord to have made requests for access under cll 8.2(a) and 12.2 in the first place.
It also argued that the amendment is futile because the Court would not make declaration 3 anyway because it is of academic interest only. The Landlord has been let in.
The Landlord put that there is a real controversy because the Tenant let it in without prejudice to its rights under, and position in respect of, the leases. It put that this reflects a controversy about the true construction and operation of the leases. It puts that there is utility in making the declarations because it will inhibit the parties in future from taking up positions inconsistent with the terms of the declarations.
I reserved for determination in this judgment the question of whether leave to amend to seek declaration 3 should be given. I heard argument as to whether it should be made if leave were given.
Leave to amend should be refused.
First, to grant the amendment would cause unfair prejudice to the Tenant. It is late. It requires examination of factual circumstances, which examination is not fairly in play in the manner in which these proceedings have been conducted on both sides, that is, as a matter of construction based on documents in evidence without the necessity to resolve any factual controversy. [2] I accept that, had this relief been sought earlier, the Tenant may well have taken a different forensic course. At the lowest, to grant the amendment would entail denying it a fair opportunity to do so.
Second, the amendment is futile. The declaration does not quell any real existing dispute. It is about past history. The fact that the Tenant stated that the Landlord was let in without prejudice does not change this. It does not convert a dispute previously resolved into one presently existing.
Declarations 1 and 2 have the same difficulties as the declarations which were abandoned. They too are hypothetical, academic, inutile and seek a legal advisory opinion.
They declare the existence of implied terms of good faith and reasonableness.
There is not now, and there has not to date been, any assertion of conduct on behalf of the Tenant which has either been not in good faith or not reasonable.
Given my conclusion that the declarations in the form sought cannot properly be made, it would be inappropriate for the Court to embark upon a determination of whether the implied terms, to which they are directed, are to be implied.
The proceedings are dismissed.
I will hear the parties on costs if necessary.
The exhibits are to be returned.
[3]
Endnotes
The Macquarie Park lease commences 15 May 2013; the Port Melbourne lease commences 21 December 2012; and the Malaga lease commences 29 November 2013.
Apart from one irrelevant affidavit read by the Tenant, without objection, to which no reference was made in submissions, the evidence is completely documentary.
[4]
Amendments
05 September 2018 - Amended Jurisdiction
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Decision last updated: 05 September 2018
Parties
Applicant/Plaintiff:
The Trust Company (Australia) Ltd in its capacity as custodian of The Asia Pacific Data Centre Trust