Thursday, 13 September 2012

In what circumstances can a liquidator of a landlord disclaim a lease?

The Victorian Court of Appeal handed down its decision in Re Willmott Forests [2012] VSCA 202 on 29 August 2012. 

The case concerned the purported termination of certain leases by liquidators of a landlord by disclaiming them under section 568 of the Corporations Act, 2001. The issue was whether the liquidators could, by disclaimer, not only terminate the tenant's contractual rights under the lease, but also their proprietary rights as tenants. 

In a joint judgment, Warren CJ and Sifris AJA summarised the issue at paragraph 1: 
'The critical question ... is whether a leasehold interest in land is extinguished by the disclaimer of the lease agreement by the liquidator of the lessor. 

In the joint judgment, their Honours held (at paragraph 25): 
By disclaiming the contract, [the landlord] no longer has any contractual rights or liabilities under the contract. It is no longer required to perform its part of the contractual bargain. It does not have to provide the lessee with possession and quiet enjoyment. It follows that the lessee, as the other contracting party, loses its rights and is no longer required to fulfil its obligations. This is because the rights and duties of [the landlord] as lessor and the lessee are reciprocal and interdependent. However, there is a qualification to the extent to which the other parties’ interests or property is affected. It is only affected to the extent necessary to release the company from liability.

In the joint judgment, their Honours held (at paragraph 32):
In our opinion, the continuing and prospective obligation to provide possession and quiet enjoyment is not a fully accrued obligation or liability that cannot be terminated.

The joint judgment held (at paragraph 37) that s568D(1) of the Corporations Act should be given the widest possible meaning and that it included the obligation to provide possession and quiet enjoyment. They reached this conclusion on the basis that:
The section is specifically designed to enable a liquidator 'to cease performing obligations ... to achieve a release of the company in liquidation from its obligations. If [the landlord] is to be relieved of its obligation to provide quiet enjoyment, clearly and in context a liability, the interest of the lessee so far as tenure is concerned is directly related to and underpins such liability. The tenure must go. It is necessary to affect the [tenants'] rights (tenure) in order to release [the landlord] from its liability (possession and quiet enjoyment).

The joint judgment decided (at paragraph 47) there was no reason in principle or policy that the consequences of disclaiming a contract of lease should be treated in a different way to the consequences for termination of a lease by way of acceptance of a repudiation. Their Honours concluded that in both cases, the lease agreement is at an end and what follows is a matter of law, namely termination of the leasehold interest that does not depend in any way on the reason for such termination. 

Their Honours also held that the leasehold interest could not survive the termination of the very document that created it and regulated the tenure of the tenant. At paragraph 58, they held: 
It is this tenure which creates, and is the basis of, the obligation or liability on the part of [the landlord] to provide quiet enjoyment. Section 586D(1) allows the liquidator to terminate this obligation or liability despite its intrusion into the property rights of an innocent party. The evident policy is to permit the loss of these rights in order to enable the company in liquidation to be free of obligations so that it can be wound up without delay for the benefit of its creditors. To compensate, the rights of the affected parties are transmuted into various statutory rights and claims.

Redlich JA agreed (at paragraph 82) that s568D ought to be construed widely. His Honour found:
Save where the terms of the lease provide otherwise, the landlord will ordinarily be obliged to meet various expenses arising from ownership of the freehold to ensure the tenant's undisturbed possession of the land. But 'liability' in the context of s 568D is not to be confined to a financial obligation or immediate financial detriment. There is nothing in s 568D or Div 7 A to suggest that the term liability is not so wide as to include 'a legal obligation or duty.' The term 'liability' has a broad meaning which covers executory obligations in relation to the quiet possession, use and enjoyment of the land into the future. To release the appellants from these obligations it is necessary that the respondents' estates or interests in the leased lands be extinguished at the same time as the contracts. 

This decision will obviously have far-reaching consequences for tenants of insolvent landlords who may suddenly find their business being ejected from premises that have been rented for many years, and in respect of which rent may have been paid in advance for an extended period. 

Whilst the case has been decided in the context of the very broad insolvency provisions of the Corporations Act it represents another example of the expansion of the contractual elements of tenancy law, at the expense of the accrued proprietary rights of tenants.

W G Stark

Hayden Starke Chambers

Wednesday, 12 September 2012

Are there any cases about the Personal Property Securities Act in 2012?

The Federal Court of Australia recently had to decide what to do about goods that had security interests recorded on the Personal Property Securities Register (PPSR), which were costing the administrators of the group in question substantial rent in order to continue to hold the property.

The decision, by Yates J in Carson, in the matter of Hastie Group Limited (No 3) (2012) APPSR ¶701-001; [2012] FCA 719, is
one of the first decided under the Personal Property Securities Act 2009 (Cth) (PPSA).  

The facts
The administrators were appointed to the 44 companies that comprise the Hastie Group on 28 May 2012.

The administrators’ investigations revealed that the Hastie Group held at the time of their appointment a large number of individual items of plant and equipment at 36 different locations. The estimated total auction value of this plant and equipment was $6.4 million. The maximum auction value of plant and equipment stored at any one location was no more than approximately $855,000. The administrators continued to exercise rights in relation to 19 sites by reason of the existence of plant and equipment at those sites. The costs associated with moving the plant and equipment would be significant. It was the administrators’ view that the cost would exceed the commercial value of the plant and equipment to the companies. From 13 July 2012 the total weekly rental payable with respect to the sites occupied solely by reason of the presence of that plant and equipment was going to be $61,134.26. Other plant and equipment had been consolidated and stored by Grays Auctions.

The administrators were faced with 995 registrations recorded against the Hastie Group on the PPSR. 

They asked the secured parties (lenders, equipment lessors and suppliers of goods on retention of title terms) for further information to assist them to identify the property that was subject to the security interest being claimed. The court noted in its judgment (in paragraph 10):
 Given the level of generality of many of the registrations in the PPSR and the existence of many transitional security interests that are not registered, it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests.
In addition, the administrators placed advertisements in major Australian newspapers and emailed approximately 3,000 creditors, in each case requesting that creditors contact the administrator if they sought to claim an interest in any items currently possessed by the administrators.

A large number of secured parties failed to respond to the administrators. Of those that did respond, many of the responses were of little assistance as they still did not adequately particularise the equipment or the applicable security agreement. As a result, approximately 3,684 items (representing 77% of the items of equipment identified by the administrators) remained unclaimed.

The court granted the administrators' application for directions allowing them to dispose of the equipment, with the proceeds of disposal (after payment of the administrators’ costs of attending to the sale) to be retained for three months. The directions made also provided for the creditors to be notified again of the disposal of the equipment (to afford the creditors an opportunity to claim the proceeds) and, after the three-month period, any remaining proceeds would be distributed in the ordinary course of the administration (ie, the money would be paid to the secured creditors of Hastie Group).

This case is a timely reminder to secured creditors and suppliers who rely on retention of title clauses not only to maintain their secured interests on the PPSR, but to ensure that their contact details on the PPSR are accurate and up to date. The security interest in question should identify, in as much detail as possible, the personal property in which the security interest is claimed.

W G Stark

Hayden Starke Chambers

Tuesday, 11 September 2012

Can a vendor/developer extend the date for registration of a plan of subdivision?

On 2 August 2012, I posted about a developer's obligation to use its best endeavours to obtain registration of a plan of subdivision as decided in Joseph Street Pty Ltd v Tan [2102] VSCA 113

Recently, the Supreme Court of Victoria has considered another contract for an 'off-the-plan' sale in Allen & Ors v Harofam Pty Ltd; Scherman v Harofam Pty Ltd [2012] VSC 402

The facts in Allen and Scherman were that 2 separate purchasers bought a property each 'off-the-plan' in a development by contract of sale both dated 20 June 2010. Each contract was expressed to be conditional upon the registration of the plan of subdivision within 2 years and also conferred on the purchasers a right to avoid the contract if the plan was not registered on the relevant date.

Each contract was a prescribed contract within the meaning of s 9AE(2) of the Sale of Land Act 1962 (Vic) (“the Act”), which provides:

9AE. Rescission of prescribed contract

  • (2) 
    If the plan of subdivision is not registered within 18 months after the date of the prescribed contract of sale of a lot on that plan of subdivision, or, if the contract specifies another period, before the end of that specified period, the purchaser may, at any time after the expiration of that period but before the plan is so registered, rescind the contract.
Special condition 10.3 of each contract provided:

10.3 Time for Registration of the Plan of Subdivision

If the Plan of Subdivision is not registered within twenty-four (24) months of the Day of Sale or such further time, but such further time to not exceed 6 months, as the vendor may by notice in writing to the Purchaser require in the event that delays occur as a result of any act, matter or thing beyond the reasonable control of the Vendor which directly or indirectly causes the registration of the Plan to be delayed, either party may, at any time after the expiration of this period or such extended period, but before the Plan of Subdivision is registered, rescind the Contract by giving written notice to the other, in which case the deposit, any interest thereon and all other moneys paid by the Purchaser shall be refunded less any bank and government charges, GST and any legal fees for prior default.
As things turned out, the relevant plan of subdivision was not registered as at 19 June 2012 (being 24 months after the day of sale). 

On 19 June 2012, the vendor/developer informed both purchasers by notice that it was purporting to exercise its right to a six month extension to finalise registration of subdivision.

On 21 June 2012 Ms Scherman gave notice of rescission of her contract. 

On 22 June 2012, Ms Allen gave notice of rescission of her contract.

The only question before the court was whether the purchasers were entitled to rescind each contract in all the circumstances.

Warren CJ analysed the law based upon the decision of Bongiorno J in Clifford v Solid Investments Australia Pty Ltd [2009] VSC 223 and the Court of Appeal in Solid Investments Australia Pty Ltd v Clifford [2010] 27 VR 41.

Her Honour's conclusion (at paragraph 20) was that: 
The exercise of the right to nominate another plan registration date, even if limited by special condition 10.3 to a finite range of dates and occasions, does not constitute the nomination of a particular specified date that is, as considered by Bongiorno J in the Clifford matter, “fixed, definite and certain”.

And at paragraph 24, Her Honour noted: 

In my view the present case falls squarely within the principles set out in the decisions in the Clifford matter. In the hearing before me on 22 August 2012, concerning the Allen [purchasers], the [vendor/developer] effectively conceded that should no material distinction between this Condition and the one in the Clifford matter be found, then the purchaser would succeed.

In those circumstances, it is clear that the courts will be reluctant to allow a vendor/developer the opportunity to extend the date for registration of a plan of subdivision beyond the 'fixed, definite and certain' date that is specified in the original off-the-plan contract of sale.

W G Stark

Hayden Starke Chambers