Yeshiva Synagogue Inc v Karimbla Properties

Judgment

1. McCOLL JA: I agree with Basten JA.
2. BASTEN JA: The applicants, Yeshiva Synagogue Inc, Sydney Talmudical College Association (STCA) and Rabbi Yosef Feldman claim a right to occupy premises at 36 and 36A Flood Street, Bondi in the eastern suburbs of Sydney. Until 19 December 2017 their rights of occupation arose under leases of specified parts of those premises. The lessor was the respondent, Karimbla Properties (No 10) Pty Ltd as trustee for the Harry Triguboff Foundation ("the Foundation"). The continued right of Yeshiva Synagogue and STCA to occupy the premises is said to arise from a term common to two deeds entered into by the respondent when it purchased the properties on 20 December 2012.
3. The claims of the applicants were originally determined by Darke J in the Equity Division in proceedings heard on 13 September 2017, judgment being delivered on 10 October 2017. The claims were dismissed, the judge making declarations in terms sought by the respondent. [1] The orders were entered on 3 November 2017. On 1 December 2017 the applicants filed a notice of appeal. As at that date, the leases remained on foot.
4. The consideration payable by the applicants under their respective leases was $1 in each case. Given the nominal consideration and the absence of any evidence demonstrating the value of the right of occupation, it was common ground that leave was required for the appeal. On 20 December 2017 the applicants filed a summons seeking leave to appeal. Subject to its submission that the proposed appeal was without merit, the respondent did not otherwise object to a grant of leave to appeal. As there has been a combined hearing of the application for leave and the proposed appeal, it is convenient to grant the applicant leave to appeal.
5. There is a further procedural issue, which only arose at the commencement of the hearing on 31 January 2018. The applicants raised at the outset a question as to whether the trial judge erred in granting relief in circumstances where not all the parties to the deed had been served with the proceedings. Counsel sought leave to raise that issue by way of an amendment to what was, in effect, a draft notice of appeal. For the reasons set out below, leave to amend should be refused, and the appeal should be dismissed. Subject to some further explanation of the procedural ground (which was not raised by the applicants before the primary judge) the reasons for dismissing the appeal can be succinctly stated, as they largely reflect the reasoning of the primary judge for coming to the same conclusion.

Documents and contextual framework

1. Prior to 20 December 2012 the Flood Street properties were owned by FCSC Ltd (36A Flood Street) and Chabad Lubavitch of Sydney Inc (36 Flood Street). 36 Flood Street was subject to a second mortgage in favour of a Californian corporation, BHCWB Housing LLC, which led to a deed of agreement ("the Californian deed") between it and the respondent. The primary purpose of the Californian deed was to allocate the proceeds of sale should 36 Flood Street be sold by the respondent at some future time.
2. The respondent also entered into separate deeds of agreement, both dated 20 December 2012, with the vendors of both 36 and 36A Flood Street. Subject to minor variations in relation to the identity of the lessees, those deeds were in common form. (There was some disparity in the numbering of the paragraphs, but it is sufficient to refer, as the parties did, to the deed of agreement with respect to 36A Flood Street.)
3. There were five parties to the deed, namely the vendor, the purchaser (the Foundation), one of the then current lessees of the property, namely Yeshiva College Bondi Ltd ("Yeshiva College") and, as separate groupings, the former directors of Yeshiva College (being four members of the Feldman family) and the incoming directors (being three individuals, including the current principal, Rabbi Dovid Slavin). There was a single recital, declaring that the parties wished to record their agreement "on the ownership and use" of the property.
4. Clause 1 noted the purchase price ($3.3 million) and that settlement would take place simultaneously with the settlement of the respondent's purchase of 36 Flood Street. Clause 3 noted that the proceeds of sale would be used to discharge a first registered mortgage in priority to any other debt.
5. Clause 2 stated that the sale was subject to four current leases, the lessees being the present applicants (Yeshiva Synagogue and Sydney Talmudical College), Yeshiva College (which was also a party to the deed) and Chabad Lubavitch of Sydney Inc, which was the vendor of the other property. Clause 2 also identified that the leases were to be varied in two respects. The first provided for a rental of "$1 per month plus outgoings". The second related to the term and was as follows: "Maximum term of five (5) years (inclusive of options) commencing from the date of settlement of the purchase by the Foundation, subject however to earlier termination of the leases by the Foundation upon the expiration of 14 days written notice in that regard to each respective lessee in the event that the Foundation decides that the Yeshiva College is no longer a viable entity, and such decision shall be determined in the discretion absolutely of the Foundation without obligation to provide reasons or justification for its decision. The leases may also be similarly terminated by the Foundation in the event of the sale by the Foundation of 36A Flood Street."
6. Although the primary judge stated that the evidence did not disclose when completion actually occurred, it was common ground on the appeal that the deeds were executed and completed on 20 December 2012 and the leases were varied on that date.
7. The central issue on the appeal turned on the effect of clause 5 of the deed, which must be read within its direct context, being clauses 4, 5 and 6. It will be convenient to set these clauses out in full shortly.
8. It is apparent from cl 2 that central to the Foundation's involvement was the continued operation of Yeshiva College. Clause 7 related to the resignation of the former directors of Yeshiva College, a warranty given by them as to the financial circumstances of the College and a relinquishment and abandonment of any right or entitlement or financial claim to 36A Flood Street. Clauses 9 and 10 dealt with the incoming directors' responsibilities and warranties. The incoming directors acknowledged that they would "manage the business of Yeshiva College in accordance with its obligations pursuant to any lease agreement for 36A Flood Street or any part thereof." [2]
9. Clauses 4, 5 and 6 read as follows: "4. The Foundation does not acquire 36A Flood Street for the purposes of being sold or leased for profit. The Foundation agrees that it will not sell 36A Flood Street while Yeshiva College remains a viable entity. The decision on whether or not Yeshiva College remains a viable entity shall be determined in the discretion absolutely of the Foundation without obligation to provide reasons or justification for its decision. 5. The Vendor and the Foundation agree and acknowledge that 36A Flood Street is to be used for Yeshiva College, Chabad Lubavitch of Sydney Inc, Yeshiva Synagogue, Yeshiva Godola Rabbinical College of Sydney and Young Chabad and for associated purposes of the Chabad community in Sydney. 6.1 Upon termination of the leases, the Foundation reserves the right to market and sell 36A Flood Street with vacant possession on the open market by public auction or private treaty. 6.2 36A Flood Street may be sold by the Foundation in conjunction with a sale by the Foundation of the adjoining property at 36 Flood Street. 6.3 If 36A Flood Street is not sold by the Foundation within 60 days of marketing, the Foundation is to have unrestricted right to deal with 36A Flood Street as it wishes including a right to sell 36A Flood Street to any entity related to Mr Harry Triguboff or his successors. 6.4 The Vendor hereby releases any equitable or other claim with respect to 36A Flood Street and undertakes never to lodge a Caveat or attempt to acquire any other security in respect of 36A Flood Street."
10. Shortly stated, the applicants' contention was that cl 5 of the deed conferred on them a right of occupation independently of their rights under the leases. As the leases terminated on 19 December 2017, they acknowledged that they had no other current basis for their claimed right of occupation.

Construing clause 5 of the Deed

1. To determine whether cl 5 granted a freestanding right of continued operation it is appropriate to have regard to (a) the language of the clause and its syntax, (b) its apparent purpose within the deed and (c) any inferences which may be drawn from the broader context of the dealings between the parties to the deed. Each of these considerations supports the conclusion that the applicants' approach must be rejected.

(a) language and syntax

1. In its terms, cl 5 does not purport to confer a right of occupation on any person, whether a party to the deed or not. It sets out an agreement between the vendor and the Foundation as to the use to which the property is to be put. Although it identifies four entities which were current lessees, it also refers to Young Chabad (which was not an entity, nor a lessee) and to "associated purposes of the Chabad community in Sydney." The property is to be used "for" the lessees and "for" other Chabad purposes and activities.
2. The various purposes identified in cl 5 appear to be listed conjunctively. Yet it would not make practical sense for a negative covenant to require that all purposes must continue to exist, nor that all purposes operate unabated or within the same areas of the premises. The final limb ("and for associated purposes of the Chabad Community") is clearly expansive of the earlier purposes and must be understood as permissive. However, that consideration highlights the fact that cl 5 involves no limitation on the powers of the Foundation to control and regulate the available uses of the building after the termination of the leases. That consideration is inconsistent with cl 5 involving any continued right of occupation on the part of the applicants.

(b) apparent purpose within deed

1. Within the context of the deed, there is a qualified right of occupation accorded to the applicants as lessees at the date of sale. That right arises by the agreement between the respondent and the vendor that the sale be subject to the current leases. The deed (cl 2) also provides that the leases will terminate at a specific date, if not earlier terminated because Yeshiva College is no longer viable. To derive an unqualified and indefinite right of occupation on unspecified terms from the language of cl 5 would be to create inconsistency with the deliberate restrictions on occupation imposed by the variation of the existing leases, including curtailing the period of the leases and the removal of the options to renew. To create inconsistency where, on an ordinary reading of the relevant provisions, none exists is to flout principles of contractual construction.
2. Clauses 4 and 6 should be read together; they do not improve the applicants' position. The first sentence of cl 4 is in the nature of a recital that the acquisition of the property by the Foundation was not for the purposes of sale or lease for profit. The second sentence is relied upon by the applicants as imposing a negative covenant precluding any form of sale "while Yeshiva College remains a viable entity." The applicants submitted that this constituted a negative covenant which extended beyond the term of the leases (including the lease to Yeshiva College).
3. That construction did not sit with cl 6.1, pursuant to which the Foundation reserved its right to sell with vacant possession "[u]pon termination of the leases". However, the applicants submitted that even if that were so, and the respondents could sell despite the termination of the leases and despite the fact that Yeshiva College remained a viable entity, nevertheless cl 5 continued to operate whilst the property was owned by the Foundation and the Foundation had not sought to exercise its right of sale on the open market. Clause 5 contained no express temporal limit and, even if some or all of the organisations other than Yeshiva College were to cease to carry on their activities, or cease to exist, the Foundation was nevertheless constrained from using the building for purposes other than those specified in cl 5.
4. The respondent submitted that not only was the proposed right of continued occupation inherently inconsistent with the requirement of the deed that the leases be varied so that they would terminate within five years, it was inconsistent with the terms of the leases. Those terms included powers of cancellation, [3] not limited to circumstances in which the (now nominal) rent was unpaid.
5. Finally, the respondent relied upon the vivid contrast between the carefully regulated rights and obligations conferred under the leases and the silence as to the terms of any putative right of occupation conferred by cl 5 of the deed. The contrast, the respondent submitted, was a powerful indicator that cl 5 was not intended to confer a right of occupation on the applicants. Any suggestion that the applicants were entitled to continue to occupy in accordance with the terms of the terminated leases, (a) could not be located in cl 5, and (b) would be inconsistent with the holding over provision in the lease, which required the lessor's consent. [4]
6. Finally, the applicants were not parties to the deed on which they sought to rely. That had a dual significance. First, as a matter of construction, it was unlikely that the deed was intended to confer rights on entities which were not parties to it. Secondly, their absence from the list of parties raised a question as to their standing to enforce the deed.
7. The applicants sought to meet the point of construction by noting that Yeshiva College was a party to the deed and that, if it obtained rights of occupation under cl 5, so must the other lessees. However, Yeshiva College was not a party to the proceedings and was not asserting that it enjoyed rights of occupation under cl 5. Arguably it did not. Clause 5 was in the form of a covenant between the vendor and the Foundation. Yeshiva College was a party because it gave warranties and was subject to obligations under cl 10 of the deed. The issue of standing will be considered further below.

(c) dealings between the parties to the deed

1. At the trial a significant volume of evidence was read as to the construction of the Yeshiva Centre, its history of financial travails and the activities currently carried on there. It appeared that steps were taken in 2003 and again in 2012 to save the properties from mortgagee sales. Rabbi Eliyohu Feldman noted that the intervention of the Foundation prevented the "flagship of the Rebbe's mission in New South Wales [being] sold and the Yeshiva Centre crippled." [5]
2. However, the social and financial context of the 2012 transactions did not demonstrate that the Foundation intended to retain ownership of the properties indefinitely, so long as they served their purposes current in 2012. Rather the context supports the conclusions reflected in the terms of the deeds that the Foundation's primary concern was protection of Yeshiva College, with all lessees having a five year window of rent free occupation, which would end no later than 19 December 2017.

Standing

1. So far as standing was concerned, the first and second applicants accepted that they had no standing to enforce cl 5 of the deed. They submitted that the third applicant (Yosef Feldman) had standing because he was a party to the deed, as a former director of Yeshiva College.
2. However, Rabbi Yosef Feldman was a party because, as one of the former directors of Yeshiva College, he relinquished any rights, entitlements or financial claims to the property (cl 8). It is not necessary to determine whether he had standing to enforce any right of occupation of the first and second applicants under cl 5, in circumstances where no such right arises.

Amended notice of appeal

1. At the hearing of the appeal the applicants sought leave to amend the appeal grounds to add a procedural complaint in the following terms: "9. His Honour erred by not taking into account that parties to the Deed who were not parties to the proceedings would not be bound by any declaration the Court were to make. Accordingly, his Honour erred by granting a declaration that would be of no effect to non-parties to the proceedings whom [sic] were parties to the Deed."
2. The respondent resisted the amendment.
3. In order to understand the thrust of the ground it is necessary to have regard to the form of the pleadings. The proceedings were commenced by a summons filed in the Equity Division, on 19 April 2017, by Yeshiva Synagogue Inc and Sydney Talmudical College Association (STCA), the first and second applicants in this Court. The only defendant was the Foundation, the present respondent. The summons sought relief with respect to notices purporting to terminate the applicants' leases, which were then on foot. On 12 May 2017 a statement of claim was filed in support of the same relief.
4. On 9 June 2017 the Foundation filed a defence, relying on the terms of the leases as sufficient authority for the notices of termination, and a cross-claim seeking orders for possession, based on the termination of the leases on 16 March 2017. The cross-claim noted that Yeshiva and STCA had, in the course of an interlocutory hearing, appeared to assert a right to remain in possession beyond the termination of the leases by effluxion of time on 19 December 2017. The cross-claim denied the existence of such a right. This was apparently an attempt to crystallise an inchoate and, at that stage, unpleaded claim. The claim was first formally articulated in a defence to the cross-claim filed on 20 July 2017, which referred to cll 2 and 5 of the 36A Flood Street deed (and the equivalent provisions in the 36 Flood Street deed).
5. On 18 August 2017 the applicants commenced a second cross-claim expressly pleading their rights under the deeds and seeking a declaration that the first and second applicants were each entitled to "the continued use and occupation of a reasonable part of" each property and seeking a restraining order to protect that right. The second cross-claim also joined the third applicant (Yosef Feldman) as a cross-claimant. Finally, the second cross-claim joined as further cross-defendants six individuals and three corporate entities, being the remaining parties to the deeds. These included the two vendors, each of which was described as being in liquidation. The third corporate entity was Yeshiva College Bondi Ltd.
6. The hearing of the trial commenced on 13 September 2017. In opening, Mr Braham SC, senior counsel for the present applicants, took the judge to the deeds. The judge immediately raised the question as to whether the persons, other than the Foundation, named as cross-defendants to the second cross-claim were before the Court. Mr Braham responded: [6] "No, they're not. They've been notified, but not formally served. One or two of them were in liquidation. At some point, your Honour, I will formally address the question of service. They have not been formally served. They've been notified. Those that are still in existence that have been notified have indicated no wish to participate in the proceedings, and at the appropriate time I'll ask your Honour to make orders either waiving any requirement for further service or making substituted service orders."
7. Following the tender of evidence and some brief cross-examination of Rabbi Slavin (called by the Foundation) oral submissions commenced. In the course of his submissions, Mr Braham handed up an affidavit of his instructing solicitor, Mr Austin, setting out the notice given to the nine new cross-defendants to the second cross-claim. Apart from one of the incoming directors, who was believed to live in Israel and with whom no contact had been made, Mr Austin had had contact with all the other named cross-defendants who had indicated they did not wish to be involved. Mr Braham then stated: [7] "The orders we seek don't concede [concern?] any of those people, none of them have chosen to be involved. All of them except one are aware of the proceedings. And in those circumstances, although they all might be said to be people jointly entitled to the orders that Yosef Feldman seeks, and so required to be joined - unless the Court otherwise orders pursuant to UCPR rule 6.20 - we've sought an otherwise order."
8. The trial judge responded: "Subject to anything Mr Lawrance [counsel for the Foundation] may want to say about it, I think what you propose is probably appropriate. In any event, no relief is sought, which is against them - as it were - even if they might otherwise be proper parties."
9. At the end of his oral submissions, Mr Lawrance noted that Rabbi Yosef Feldman was asserting a right that was either a joint right or identical to that enjoyed by each of the other cross-defendants. He submitted that the relief sought therefore affected the others, but did not expressly take issue with the order sought. In reply, Mr Braham noted that Mr Austin's letter attaching the pleadings had advised the recipients to get their own legal advice. [8] Beyond that, nothing further was said and it appears that no formal order was made in the terms sought and tentatively approved by the trial judge.
10. With apparent inconsistency, the applicants sought to rely upon the absence of necessary parties as a basis for setting aside the orders in fact made at trial, while seeking to replace them with the orders they had claimed at trial, in circumstances where the same parties are absent from the appeal. The applicants explained that, while it was they who sought to join the other parties, the trial judge made orders sought by the Foundation, which had not sought to join all necessary parties. On that basis they submitted they were entitled to challenge the orders in fact made.
11. The point of distinction was specious. As a matter of principle, the orders sought by each side were the mirror image of those sought by the other. As a matter of fact, although the applicants did not put Mr Austin's affidavit of attempted service before this Court, the transcript, on which they did rely, indicated that the material provided to the absent parties included "the pleadings", not merely the second cross-claim. At no stage prior to the appeal hearing did the applicants take any point that the additional persons had not been joined by the Foundation in the first cross-claim. The point taken was that effective service for the purposes of the proceedings had not been completed. There was no procedural unfairness to the absent parties.
12. In the Uniform Civil Procedure Rules 2005 (NSW), r 6.20 deals with the requirement to join as parties "all persons jointly entitled to the same relief". The relevant parties had been joined; they had not been formally served. In substance what was required was an order under r 10.14(3) directing that the pleadings be taken to have been served. An alternative course, recognised by Mr Braham at trial, was to file an amended second cross-claim removing the additional parties. Given the approach adopted by the applicants at trial, it would be wrong to allow them to take the technical point on appeal; the proper course would be to make orders remedying any procedural default, if that were necessary.
13. So far as the Foundation is concerned, the additional parties were not necessary parties with respect to its claims, because it did not seek to impose liability on any of them. [9] The only parties whose rights would be directly infringed by the relief sought by the Foundation were the first and second applicants, who commenced the proceedings and who have been the active parties on the other side of the record at all stages.
14. In these circumstances, it is appropriate and sufficient to refuse the applicants leave to rely upon the amended notice of appeal. (As leave to appeal is required and has not yet been granted, the amended notice of appeal has not yet been filed.)

Conclusions

1. It follows that the challenge to the judgment and orders of Darke J must be dismissed. The Court should make the following orders: 1. Grant the applicants leave to appeal from the judgment of Darke J of 10 October 2017 and orders entered on 3 November 2017. 2. Direct that the notice of appeal filed on 1 December 2017 be treated as validly filed on that date. 3. Dismiss the appeal. 4. Order that the applicants pay the respondent's costs of the proceedings in this Court.
2. MACFARLAN JA: I agree with Basten JA.

Endnotes

1. Yeshiva Synagogue Incorporated 9893834 v Karimbla Properties (No 10) Pty Ltd [2017] NSWSC 1368.
2. Clause 9.1.
3. Lease to Yeshiva Synagogue, cl 19(3).
4. Lease to Yeshiva Synagogue, cl 4(3).
5. Affidavit, E Feldman, 11 August 2017 at par 18.
6. Tcpt, 13/09/17, p 5(38).
7. Tcpt, p 27(48).
8. Tcpt, p 39(22).
9. Cf UCPR, r 6.21. 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: 20 February 2018