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Norman, in the matter of Forest Enterprises Australia Limited (Administrators Appointed)

by Emma.Gleeson 4. February 2011 12:00

Facts

The Plaintiffs sought a declaration that FEAP, the First Defendant, was the lessee of the Third, Fourth and Fifth plaintiffs’ land and had repudiated or otherwise breached essential terms of the leases granted by these plaintiffs.  The Plaintiffs also sought a direction that they would be justified in accepting the First Defendant’s repudiation and terminating or forfeiting the leases.

 

Since oral evidence was contradictory, the court relied on written agreements to identify the lessee of Tasmanian Plantation. The court justified this reliance on written documents on the grounds that it was satisfied that:

  • the written agreements were not a sham;
  • the agreements were not executed by the parties in error; and
  • there had been no agreement that the Third Plaintiff would cease to be a lessee

 

It was held that the Fourth Plaintiff had leased land to the Third Plaintiff who subsequently sublet the land to the First Defendant. There was no evidence of the Fifth Defendant’s lessee.

 

The First Defendant did not indicate it would not perform its lease obligations.

 

The First Defendant claimed it had a right of set-off against the rent. It made this claim on the basis of a letter provided by Third Plaintiff, which enabled the First Defendant to meet its ASIC regulations regarding funding. The Third Plaintiff agreed to provide funding as requested. The agreement was terminable with one month’s notice. The First Defendant requested the funds.

 

The First Defendant’s consideration was continuing to trade: [37].

 

The ability to terminate the agreement without ASIC approval did not invalidate it. The Third Plaintiff was thus indebted to the First Defendant.

 

It is possible in equity to set off a cross demand against rent. However the equity must impeach the title to the legal demand, i.e. go to the very foundation of the landlord’s claim: [42].

 

Impeachment existed as the transactions were so closely related they could be seen as one. The letter enabled the First Defendant to meet its financial obligations including paying rent: [45].

 

A contract can exclude set-off by clear terms or implication: [46].

 

The lease provided rent was to be paid without any deductions whatsoever. “Deduction” does not include a set-off conferred by operation of the law: [48].

 

Outcome

The First Defendant has the right to set-off the amount due under the letter against the rent owed to the Third Plaintiff.

 

If incorrect about set-off, common law principles of termination for repudiation apply to leases. Mere non-payment of rent is rarely sufficient to found repudiation as it does not convey to the reasonable person the intent to disavow the lease: [51].

 

The lessor must establish that the lessee is wholly and finally disabled from performing the contract. In this case, there was no evidence of this.


If requested, the Court would declare that the Third Plaintiff is lessee of the Fourth Plaintiff’s land which was sublet to First Defendant.

 

There was no repudiation but the Court will direct that receivers are justified in causing the Third Plaintiff to exercise any right under leases based on First Defendant’s failure to pay rent.

 

Relevant paragraphs of Ford

[27.182]

 

Tags:

Ford's Principles of Corporations Law



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