New South Wales Supreme Court CITATION : McDonald's Australia Ltd v Rydal Serpan Pty Ltd & Ors [2009] NSWSC 241 HEARING DATE(S) : 26 March 2009 JUDGMENT DATE : 26 March 2009 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 26 March 2009 DECISION : Application for removal of caveat dismissed. CATCHWORDS : CAVEAT – Whether Plaintiff has arguable case for a caveatable interest. CATEGORY : Procedural and other rulings McDonald's Australia Limited (Plaintiff) Rydal Serpan Pty Ltd (First Defendant) PARTIES : Stuart David Webster (Second Defendant) Linda Jane Webster (Third Defendant) Yavenvale Pty Ltd a.t.f. Pearce Superannuation Fund (Fourth Defendant) FILE NUMBER(S) : SC 50047/09 N.C. Hutley SC, E.A. Hyde (Plaintiff) COUNSEL : M.A. Ashhurst SC, S.B. Docker (1st and 4th Defendants) Ms E.M. Picker (2nd and 3rd Defendants) SOLICITORS : Deacons (Plaintiff) RSM Bird Cameron (1st and 4th Defendants) 50047/09 McDonald's Australia Ltd v Rydal Serpan Pty Ltd & Ors JUDGMENT – Ex tempore 26 March, 2009 1 On 1 April 2002, Mr and Mrs Webster entered into a lease of certain properties in Wagga Wagga to the First Defendant, Rydal Serpan Pty Limited ("Rydal"). On 28 October 2002, Rydal entered into a sublease of the property to the Plaintiff, McDonald's Australia Ltd ("McDonald's"). The term of the sublease was co-extensive, less one day, with the term of the Head Lease. The Head Lease provided in clause 20.6 as follows: "If during the duration of this right of pre-emption the lessor desires to sell the premises:– a) the lessor shall serve on the lessee a written notice of its intention to sell the premises and offer to sell it to the lessee, indicating the price and the terms and conditions of sale and forwarding with the notice a contract for sale which the lessor is prepared to sign containing those terms and conditions; b) the lessor's offer to sell the premises to the lessee shall constitute an irrevocable offer which the lessee may accept within 21 days after service of the notice on the lessee; c) the lessee may accept the lessor's offer to sell the premises by delivering to the lessor the contract for sale duly executed by the lessee and a bank cheque for the deposit payable under the contract; d) upon acceptance of the lessor's offer by the lessee within 21 days, the parties are bound by an agreement for sale and purchase of the premises on the terms contained in the contract for sale; e) the lessor will deliver to the lessee within seven (7) days after receipt of the contract for sale a copy of that contract duly executed by the lessor; f) if the lessee does not accept the lessor's offer to sell the premises the lessor may dispose of the premises by gift or by sale within twelve (12) months after service of the lessor's notice under paragraph (a), and if by sale at a price which is not lower than the price at which the premises was offered to the lessee and on terms and conditions which are not less favourable than those contained in the contract for sale submitted to the lessee; g) if the premises is not disposed of by the lessor in accordance with paragraph (f) and subsequently the lessor desires to sell the premises the lessor shall comply with paragraphs (a)-(f) of this clause; h) this right of pre-emption shall not apply to the transfer of the property to any immediate family member of the Lessor or their descendant or any entity controlled by such person/persons and shall not apply to any sale by auction." 2 The sublease provided in clause 13.10(b) as follows: "(i) If the Landlord [i.e. Rydal] receives a notice under clause 20.6(a) of the Head Lease, the Landlord must give to the Tenant written notice offering to sell the Land and specifying the terms on which, including the sale price, on which the Landlord is prepared to sell which must be identical to those set out in the notice received by the Landlord. (ii) The Landlord must give the Tenant identical rights to purchase the Land as are given to the Landlord under clause 20 of the Head Lease." 3 On 17 February 2009 Mr and Mrs Webster served on Rydal a notice of their intention to sell the premises in accordance with clause 20.6 of the Head Lease. Rydal did not communicate that offer to McDonald's in accordance with clause 13.10(b) of the sublease. 4 Rydal says that on the true construction of clause 13.10(b) it was only required to give a notice to McDonald's if it intended itself to accept the offer made by Mr and Mrs Webster under clause 20.6 of the Head Lease. However, those words of qualification do not appear in clause 13.10 and I have difficulty seeing any reason why they ought to be implied. Because of clause 13.10(b), Rydal could never obtain the benefit of the right of pre-emption for itself unless McDonald's declined to exercise its rights under that clause. Nevertheless, for present purposes I will proceed on the basis that it is at least arguable that clause 13.10(b) should be read in the way that Rydal contends. 5 The time for acceptance of the offer from Mr and Mrs Webster under clause 20.6 of the Head Lease expired on 10 March 2009. However, at some time prior to that date, possibly around 27 February 2009, a company called Yavenvale Pty Limited entered into a contract with Mr and Mrs Webster for the purchase of the subject property. 6 The evidence shows, and it is not in dispute, that Yavenvale is a company whose directors are Mr and Mrs Pearce, who are also the directors and shareholders of Rydal. 7 Yavenvale executed and returned to Mr and Mrs Webster the contract which had been sent to Rydal pursuant to clause 20.6, purporting itself to accept the offer made to Rydal. The Contract for Sale to Yavenvale is now due for settlement on 31 March 2009. On or about 18 March, McDonald's discovered that the property had been offered to Rydal and that a contract had been entered into for its purchase by Yavenvale. 8 On 23 March, McDonald's commenced proceedings to restrain Yavenvale from completing the purchase of the land. It also sought a declaration that Rydal had breached the terms of clause 13.10 of the sublease, and an order that Rydal specifically perform the obligations under that clause. 9 McDonald's lodged a caveat against the title to the property on the same day as these proceedings were commenced. The matter was stood over to today in the Duty Judge List. It was thought possible that, as the facts were not much in dispute, if at all, the proceedings could be heard on a final basis today, and it could be decided whether Rydal was in breach of its obligations under clause 13.10, whether Yavenvale ought to be restrained from completing the contract and registering itself as owner of the property absolutely, and whether Yavenvale ought to be compelled to execute a transfer of the land to McDonald's upon McDonald's complying with the terms of a contract in terms identical to those between Mr and Mrs Webster and Yavenvale. 10 When the matter was called on, Mr Hutley SC, who appears with Mr Hyde of Counsel for the Plaintiff, said that, having very recently been served with submissions from Rydal and Yavenvale, he was not in a position today to proceed with a final hearing. After some discussion between myself and Counsel, it was agreed that Mr Ashhurst SC, who appears with Mr Docker of Counsel for Rydal and Yavenvale, would proceed with an application for the removal of the caveat placed on the title by McDonald's, on the ground that it was beyond argument that McDonald's had no interest in the subject land sufficient to support a caveat. 11 In the course of discussion it was noticed that the determination of that issue alone may not resolve all the issues bearing upon the question whether or not the settlement of the contract with Yavenvale should proceed on 31 March. However, it was agreed between Counsel that we would proceed on the basis of hearing Mr Ashhurst's application for removal of the caveat first and then await whatever application Mr Hutley might make. The first question, therefore, is whether or not there is an arguable case that McDonald's has an interest in the land sufficient to support a caveat. 12 Mr Ashhurst concedes that Rydal may be in breach of its obligation under clause 13.10 of the sublease. However, he says that McDonald's remedy is only in damages as against Rydal for breach of Rydal's contract with McDonald's. That breach affords no interest in the land itself because the registered proprietors of the land, Mr and Mrs Webster, are not a party to the contract between Rydal and McDonald's. Further, he says that Rydal has no interest in the land. As matters presently stand, there is a Contract for Sale, but only with Yavenvale. That is a company which has common directors and shareholders with Rydal, but Yavenvale is a separate corporate entity and it has no contractual relationship with McDonald's. Accordingly, if McDonald's has any remedy at all for what has happened, Mr Ashhurst says, it is a remedy sounding only in damages for breach of contract as against Rydal. 13 I do not think that the matter is nearly as straightforward as Mr Ashhurst contends. It may be found at trial that by clause 13.10(b) of the sublease, Rydal contracted to exercise its rights under clause 20.6 of the Head Lease for the benefit of McDonald's and therefore stands in a fiduciary relationship to McDonald's in relation to the exercise of those rights. It may be found that Rydal has breached its fiduciary obligation to McDonald's and that Yavenvale has knowingly and dishonestly assisted in that breach so that it holds the benefit of the contract with Mr and Mrs Webster upon a constructive trust for McDonald's. 14 The day has long passed when the setting up of another corporate entity controlled by the same person can be used to defeat another's rights, contractual or equitable. I do not need to say more for the purposes of deciding this application than to observe that in my view it is entirely arguable that the equitable interest that Yavenvale presently holds in the subject land, pursuant to the contract for purchase, may be subject to equities in favour of McDonald's such as to support a caveatable interest. 15 I ought to say by way of completeness that even if I had come to the conclusion that McDonald's claim was not sufficient to support a caveat, I would have granted an injunction restraining Yavenvale from dealing with the land after settlement in any way inconsistent with the rights asserted by McDonald's, until it could be determined in these proceedings whether or not Yavenvale is compellable to transfer the land on to McDonald's. 16 In the result, the Contract for Sale may be completed only if the parties can agree on procedures to protect the position of McDonald's until final determination of the contest between McDonald's, Rydal and Yavenvale. 17 For the present, therefore, all I will do is dismiss the application to remove the caveat. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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