Yeshiva Synagogue Incorporated 9893834 v Karimbla Properties

The transactions of December 2012

In December 2012 36 Flood Street was owned by Chabad Lubavitch of Sydney Incorporated, and 36A Flood Street was owned by FCSC Ltd. That company was, it seems, associated with the Feldman family, who are prominent in the Chabad Lubavitch community in Sydney. The properties were subject to mortgages. There was a first mortgage to Load Unlimited Pty Ltd over 36A Flood Street, and a first mortgage to Provident Capital Ltd over 36 Flood Street. 36 Flood Street was also subject to a second mortgage in favour of a Californian company, BHCWB Housing LLC, a company which is associated in some way with Chabad Lubavitch.
It is common ground that Chabad Lubavitch of Sydney Incorporated was in financial difficulties in early 2012. Discussions were held between Rabbi Slavin as a representative of the Yeshiva Centre, and Mr Triguboff, the chairman of the Foundation, about a possible purchase of the properties as a means of alleviating the financial difficulties and allowing the Chabad Lubavitch activies to continue at the premises. These dicussions, or negotiations, took place intermittently over the course of much of the year. Rabbi Slavin was called as a witness, and was cross-examined about aspects of the negotiations. The negotiations ultimately led to the making of a number of agreements in December 2012.
On 20 December 2012 the Foundation entered into contracts to purchase 36 Flood Street (for $3.3 million) and 36A Flood Street (for $2.7 million). The Completion Date stipulated under both of those contracts was 20 December 2012. The evidence does not disclose when completion of the contracts actually occurred.
As mentioned earlier, the premises were sold subject to the existing tenancies. These leases, or at least those held by the plaintiffs, terminated on dates in either January or September 2014, but contained options to renew which, if exercised, would extend the tenancies to dates in either January or September 2020. The leases were varied in a number of respects as part of the transactions of December 2012, including by providing for them to expire on 19 December 2017 with no options to renew, and by reducing the rents to $1.00 per year. A new cl 27 was inserted into the leases in the following terms: 27 Notwithstanding anything herein before contained, the Lessor may terminate the Lease on giving 30 day's written prior notice to the Lessee that the Lessor has determined in its absolute discretion without obligation to provide reasons or justification for its decision that Yeshiva College Bondi Limited ACN 129 848 595 or its successor or assign is no longer a viable entity and on expiration of such notice, the term of this lease shall be at an end and the Lessee shall provide vacant possession to the Lessor.
Also on 20 December 2012, Deeds of Agreement were entered into in respect of each of the 36 Flood Street and 36A Flood Street properties. In each case the Deed of Agreement was entered into between the vendor of the property, the Foundation, Yeshiva College, and two groups of individuals described as the Former Directors and the Incoming Directors respectively. The entitlements asserted by the plaintiffs to the continued use and occupation of the premises are founded upon the provisions of these Deeds of Agreement.
Aside from differences attributable to matters which particularly pertain to the relevant property, and differences in the sequence of the clauses, the two Deeds of Agreement are in substantially identical terms. No party contended to the contrary.
It is convenient to set out the salient provisions of the Deed of Agreement in respect of 36A Flood Street. It provides: INTRODUCTION The parties wish to record their agreement on the ownership and use of 36A Flood Street, Bondi NSW 2026 being Lot A in Deposited Plan 340445 being all the land in Folio Identifier A/340445 ("36A Flood Street"). NOW THE PARTIES COVENANT, UNDERTAKE AND AGREE AS FOLLOWS: The Foundation is to purchase and the Vendor is to sell 36A Flood Street at a purchase price of $3.3 million with settlement to take place simultaneously with settlement of the Foundation's purchase of the adjoining property at 36 Flood Street from Chabad Lubavitch of Sydney Inc. The Vendor is to sell to the Foundation 36A Flood Street subject to the current leases to: 2.1 Chabad Lubavitch of Sydney Inc (INC 9880891); 2.2 Yeshiva Synagogue Incorporated INC9893834; 2.3 Sydney Talmudical College Association ACN 000 364 269 trading as Yeshiva Godola Rabbinical College of Sydney; and 2.4 Yeshiva College Bondi Limited ACN 129 845 595 The leases will be varied in the following terms: Rental: a rental of $1.00 per month plus outgoings; Term: 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 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. The sale proceeds from the sale to the Foundation as envisaged in clause 1 hereof, will be utilised to discharge the first registered mortgage No. AG522237 to Load Unlimited Pty Limited in priority to any other debt. 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. 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 an 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. 7.1. The Former Directors of Yeshiva College will resign by 19 December 2012 and thereafter, they will not seek nor accept appointment as directors or managers of Yeshiva College. The Incoming Directors will be appointed the directors in accordance with the Yeshiva College Constitution. 7.2. The Former Directors warrant that there are no other debts owed by the Yeshiva College that would be liable to affect the viability of Yeshiva College which have not been fully disclosed to the Foundation and the Former Directors and the Incoming Directors acknowledge and agree that in the event that the Foundation in its absolute discretion determines that the Yeshiva College is no longer viable or there is a pre-existing debt which was not fully disclosed which would prevent the Yeshiva College being viable then the Foundation will have the right to sell 36A Flood Street. The decision on whether or not Yeshiva College is no longer viable or whether or not there is a pre-existing debt as aforesaid, shall be determined in the discretion absolutely of the Foundation without obligation to provide reasons or justification for its decision. 8. Rabbi Pinchus Feldman and the Former Directors hereby jointly and severally relinquish and abandon any right or entitlement or financial claim to 36A Flood Street. Rabbi Pinchus Feldman furthermore warrants that neither he, nor any member of his family, will pursue or hold any financial, administrative or other such involvement in Yeshiva College. 9.1. The Incoming Directors acknowledge that they will cause Yeshiva College to be conducted in accordance with its Constitution and to manage the business of Yeshiva College in accordance with its obligations pursuant to any lease agreement for 36A Flood Street or any part thereof. 9.2. Rabbi Pinchus Feldman may remain the spiritual leader of Yeshiva College.
The plaintiffs assert that their entitlements to continued use and occupation of the property derive from cl 5. The cognate provision of the Deed of Agreement in respect of 36 Flood Street is cl 6 which provides: 6. The Vendor and the Foundation agree and acknowledge that the Flood Street Property is to be used for Yeshiva College, Our Big Kitchen, Yeshiva Synagogue, Yeshiva Godola Rabbinical College of Sydney and Young Chabad and for associated purposes of the Chabad community in Sydney.
A third Deed of Agreement was entered into by the Foundation and BHCWB Housing LLC, the second mortgagee of 36 Flood Street. That deed ("the BHCWB Deed") relevantly provided: INTRODUCTION A. BHCWB holds a second mortgage ("the Second Mortgage") over the property known as 36 Flood Street, Bondi, New South Wales, Australia being Lot 1 in Deposited Plan 1094020 being all of the land in Folio Identifier 1/1094020 ("the Flood Street Property"). B. BHCWB advises that the second mortgage secures an obligation of up to AUD$3million plus CPI owed to BHCWB by the current registered owner of the Flood Street property, namely Chabad Lubavitch of Sydney Incorporated Inc. 9880891 ("Chabad Lubavitch"). C. The Flood Street property is leased by various tenants for use for associated purposes of the Chabad community in Sydney. D. The Foundation is to purchase the Flood Street Property with settlement to take place on the agreed date in a sale contract to be entered into between the Foundation and Chabad Lubavitch. E. The Foundation is duly established according to law in Australia as a Trust for certain public charitable purposes. F. The Foundation agrees not to re-sell the property while a tenant of the property, Yeshiva College Bondi Limited ACN 129 845 595 ("Yeshiva College"), remains a viable entity as determined in the absolute discretion of the Foundation. G. In the event of re-sale by the Foundation in the future, the Foundation and BHCWB have agreed on a basis for distribution of the sale proceeds. NOW THIS DEED WITNESSES AS FOLLOWS: The Foundation in its purchase from Chabad Lubavitch of the Flood Street Property does not acquire it for the purpose of being sold or leased for profit. The Foundation agrees it will not sell the Flood Street Property 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. The Foundation agrees and acknowledges that the Flood Street Property is to be used for Yeshiva College, Our Big Kitchen, Yeshiva Synagogue, Yeshiva Godola Rabbinical College of Sydney and Young Chabad and/or for associated purposes of the Chabad community in Sydney. The parties agree that the Foundation has no liability whatsoever under the Second Mortgage. 5.1 In the event of a decision pursuant to clause 2 that Yeshiva College no longer remains a viable entity, the Foundation shall take all reasonable steps to market and sell the Flood Street Property at a fair market value on the open market by public auction or private treaty. 5.2 The Flood Street Property may be marketed and sold by the Foundation in conjunction with a sale by the Foundation of the adjoining property at 36A Flood Street. 5.3 If the Flood Street Property is not sold within 60 days of marketing, the Foundation is to have unrestricted right to sell the Flood Street Property as it wishes at a fair market value including a right to sell the Flood Street Property to an entity related to Mr Harry Triguboff or his successors. 5.4 The sale proceeds of a sale of the Flood Street Property by the Foundation shall be distributed on settlement as follows: A. Firstly to the Foundation: Firstly, in payment to the Foundation of the following sums: AUD$2.7million increased in accordance with the increase in the CPI from the date of settlement of the Foundation's purchase from Chabad Lubavitch to the date of settlement of a future re-sale by the Foundation; plus Reimbursement to the Foundation of the reasonable cost of its expenses paid or payable of and incidental to the following expenses ("the expenses") for 36 Flood Street: Foundation's purchase and re-sale; and Renovations, maintenance and repairs; Such expenses to be increased in accordance with the increase in the CPI from the date the relevant expense was paid or payable to the date of settlement of such re-sale of 36 Flood Street. B. Secondly to Chabad Lubavitch Entity Secondly, in payment to a Chabad Lubavitch entity as nominated to the Foundation in writing by BHCWB and for the use of the Chabad Lubavitch community in Sydney in accordance with the Rules of the Chabad Lubavitch of Sydney Inc. of the sum (after payment in clause 5.4A above) being that part of the balance sale proceeds up to AUD $3 million increased in accordance with the increase in CPI from the date of settlement of the Foundation's purchase of 36 Flood Street to the date of settlement of the Foundation's re-sale. In the event BHCWB, within ninety (90) days of settlement of such re-sale, do not nominate a Chabad Lubavitch entity as aforesaid, then such payment shall be made as soon as reasonably practicable by the Foundation to BHCWB to be applied for the use by and benefit of a Chabad Lubavitch entity for the Chabad Lubavitch community purposes in Sydney, Australia.

Determination

The meaning of the terms of a commercial contract is to be determined objectively, by what a reasonable business person would have understood those terms to have meant. That determination requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract (see Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; 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 [47]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16]).
The defendant submitted that the right of possession or occupation contended for by the plaintiffs required the implication of a term into the Deeds of Agreement, citing Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [28]. The plaintiffs submitted that it was immaterial whether the issue was regarded as one of construction or implication. The distinction between the implication of terms and interpretation is not always clear cut and will sometimes be a question of degree rather than kind (see Morton v Elgin-Stuczynski (2008) 19 VR 294; [2008] VSCA 25 at [33] and [36]; Cushman & Wakefield (NSW) Pty Ltd v Farrell [2017] NSWCA 24 at [45]). In my view, the issues before the Court are more in the nature of construction than implication, and may be determined by the application of the principles referred to in the preceding paragraph.
The issues of construction in the present case concern the 36 Flood Street Deed and the 36A Flood Street Deed, in particular the meaning of the "use clauses" within them (cl 5 of the 36A Flood Street Deed and cl 6 of the 36 Flood Street Deed). The Deeds of Agreement themselves form part of a series of transactions embodied in the various agreements made on or about 20 December 2012. The agreements involved a number of elements, including: 1. the purchase of the properties by the defendant, subject to the existing leases; 2. the variation of those leases by: 1. reducing the rents to nominal amounts; 2. reducing their potential duration by providing for the terms to end on 19 December 2017 with no options to renew; and 3. inserting rights for the lessor to terminate on 30 days' notice if it determines in its absolute discretion that Yeshiva College is no longer a viable entity; and 1. the replacement of the existing directors of Yeshiva College with new directors.
The background to the transactions was the financial distress of the owners of the properties, and the prospect of mortgagee sales. The defendant, as trustee of the Foundation, acquired the properties on terms that removed that prospect. The purchase monies were sufficient to effect discharges of the first mortgages, and an agreement was reached with the second mortgagee of 36 Flood Street concerning the distribution of the proceeds of a future sale (at a fair market value) of 36 Flood Street.
Broadly speaking, it may be accepted that one of the objects of the series of transactions was to facilitate the continued operation of the Yeshiva Centre for the benefit of the Chabad Lubavitch community. However, the basis upon which that object was to be pursued finds expression in the particular terms of the various agreements, which were the product of some months of negotiation. It is the language employed in the agreements which is of primary importance.
The Introduction to each of the Deeds of Agreement refers to agreements reached concerning "ownership and use" of the respective properties. The terms of the Deeds of Agreement note that the Foundation is to purchase and the vendor is to sell the relevant property, subject to the current leases. It is then noted that the leases were to be varied, including by providing for a maximum term of 5 years from settlement of the purchase, and providing for earlier termination if the Foundation decides that Yeshiva College is no longer a viable entity.
Clause 4 of each Deed of Agreement records that the Foundation was not acquiring the property for the purposes of being sold or leased for profit. The clause then states that the Foundation agrees not to sell the property "while Yeshiva College remains a viable entity", a matter to be determined by the Foundation in its absolute discretion. Clause 4 has to be read together with the clauses which provide that, upon termination of the leases, the Foundation has the right to sell the property with vacant possession (cll 6.1 to 6.3 of the 36A Flood Street Deed, cll 5.1 to 5.3 of the 36 Flood Street Deed). In my opinion, the notion of "termination" is used here in the ordinary sense of coming to an end. Accordingly, the right arises once all of the leases over the relevant property have come to an end, regardless of the circumstances in which that occurs; that is to say, regardless of whether the leases terminate upon expiry of the lease term, or earlier pursuant to cl 27 or some other power of termination. Had it been intended that the right only arise if the leases were terminated in a particular fashion (such as pursuant to cl 27 of the leases) it is likely that the clause would have contained a qualification to that effect.
It follows that the restriction upon sale contained within cl 4 does not operate once all of the leases over the relevant property have come to an end and the right to sell with vacant possession has arisen. Until then, cl 4 operates to prevent Foundation from selling the property "while Yeshiva College remains a viable entity". I note that if the Foundation decides that Yeshiva College is no longer a viable entity it does not automatically follow that its lease (or any other lease over the property) terminates.
I have not overlooked the fact that whilst the BHCWB Deed contains provisions in substantially the same terms as cl 4, it does not include a provision conferring a right to sell with vacant possession upon termination of the leases. However, recital F to the BHCWB Deed arguably suggests that the restriction upon sale applies whilst Yeshiva College is a tenant. In any case, the immediate context within which cl 4 is found in the two Deeds of Agreement upon which the plaintiffs rely is of greater importance. The plaintiffs themselves submitted that the BHCWB Deed had "only contextual or tangential relevance".
For these reasons, I am unable to accept the plaintiffs' submission that the scheme envisaged by the Deeds of Agreement was that the defendant would own the Yeshiva Centre for so long as Yeshiva College remained viable, after which the property would be sold. It seems to me that the Deeds of Agreement recognise that upon termination of the leases the Foundation had the right to sell the premises with vacant possession, regardless of whether Yeshiva College remained a viable entity, as determined by the Foundation itself. Initially, the right is restricted to a sale "on the open market". If a sale is not achieved within 60 days of marketing, the right becomes unrestricted.
Similarly, the use clauses must be read together with the clauses which provide that, upon termination of the leases, the Foundation has the right to sell the property with vacant possession. It follows, in my view, that the use clauses should not be read as providing for any rights of possession following termination of the leases.
In any event, whilst I accept the plaintiffs' submission that the use clauses refer to various entities (including, in a shorthand fashion, the plaintiffs themselves), I do not think that the use clauses, properly construed, operate to confer positive rights of use or occupation upon those entities. Rather, I accept the submission of the defendant to the effect that the use clauses are in the nature of negative covenants which restrict the uses to which the defendant may put the premises. It seems to me that the clauses contain a promise by the Foundation that it will only permit the premises to be used for the purposes of the entities referred to therein (including, in the case of the second plaintiff, conducting Young Chabad activities) and for associated purposes of the Chabad community in Sydney. I further accept that the use clauses should be read as setting forth a range of permissible uses for the premises, as opposed to a list of uses to which the premises must be put. It would make little sense to construe the clauses as requiring the premises to always be used for all of the identified uses, including the associated purposes of the Chabad community in Sydney. I note that the plaintiffs seemed to accept that there would be no breach of the use clauses merely because one of the named entities ceased to exist or chose to no longer operate from the premises.
Construing the use clauses in the manner described above gives the clauses work to do. If, for some reason, one of the leases came to an end before the other leases, the formerly leased space would become available for use. The use clauses would prevent the defendant from using, or allowing the space to be used, for purposes outside the scope of the clauses. The plaintiffs accepted that the clauses would have work to do in those circumstances.
As submitted by the defendant, there are significant difficulties standing in the way of acceptance of the plaintiffs' construction of the use clauses.
First and foremost, the content of the rights of use and occupation said to be conferred upon the plaintiffs and the other named entities is not identified. The provisions are completely silent as to important matters such as liability for occupation fees, liability for outgoings, obligations concerning repairs, maintenance and insurance, and even the areas each entity is entitled to occupy. The plaintiffs' construction would give rise to promises that are too uncertain to be enforceable. It is no answer to this problem to suggest that the use clauses require the defendant to make "some reasonable accommodation" for each of the entities. Neither is it an answer that the asserted rights are not said to amount to rights of exclusive possession. The content of the asserted promises remains intolerably uncertain.
Secondly, the rights asserted by the plaintiffs would be inconsistent with the provisions of the leases whilst the leases were on foot, and thereafter with the holding over provisions (see cl 4(3) of Annexure A to the leases). The Deeds of Agreement explicitly recognise the existence of the leases (as varied), as well as the right of the Foundation to sell the premises with vacant possession "upon termination of the leases". Further, the rights asserted by the plaintiffs seem incongruent having regard to the evident intention of reducing the duration of the leases. It seems unlikely that the parties intended to shorten the terms of the leases yet create new (ill defined) rights of occupation after the expiry of the leases.
Thirdly, had the parties to the transactions intended, by the use clauses in the Deeds of Agreement, to create rights of use and occupation as asserted by the plaintiffs, it is very likely that the entities who would enjoy those rights would have been included as parties to the Deeds of Agreement. Those entities were, after all, parties to the variations of the leases that were effected at about the same time.
I am unable to accept that reasonable persons in the position of the parties to the Deeds of Agreement would have understood the use clauses to provide for the rights contended for by the plaintiffs. In my opinion, having regard to the language of the Deeds of Agreement as a whole, viewed in the context in which the Deeds of Agreement were made, reasonable persons in the position of the parties to the Deeds of Agreement would have understood the use clauses to impose restrictions upon the uses to which the defendant may put the premises, by setting forth a range of permissible uses.
It follows from the above that the Second Cross-Claim must be dismissed. It is not necessary to consider various other arguments advanced by the defendant as to why, in any event, the relief sought on the Second Cross-Claim either could not, or would not, be granted.
As for the Cross-Claim brought by the defendant, I do not think that a declaration should be made in the terms sought in prayer 5(b). Instead, it would be appropriate to make declarations to the effect that the use clauses do not confer upon the plaintiffs any rights of use or occupation of the premises.
I direct the parties to confer and attempt to seek agreement as to a form of orders to give effect to these reasons, and as to costs. I further direct that if agreement cannot be reached on these matters within 14 days, the respective parties serve and provide to my Associate within a further 7 days a proposed form of orders and brief written submissions. The Court will then proceed to settle the form of orders and determine any question of costs on the papers.

At a glance

Court

Decision date

Before

Source

Judgment (5 paragraphs)

Parties

Cases Cited (12)

Cited By (3)