New South Wales Supreme Court CITATION : St George Bank Limited v JB (Northbridge) Pty Ltd [2009] NSWSC 1347 HEARING DATE(S) : 26 November 2009 JUDGMENT DATE : 4 December 2009 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J DECISION : Option validly and effectively exercised by second plantiff. Assignment to third plaintiff effective in equity only. Purported exercise of option by third plaintiff ineffective. CATCHWORDS : LANDLORD AND TENANT – leases and tenancy agreements – whether second plaintiff/lessee disentitled from exercising option to renew by reason that it had not observed and performed covenants and agreements in lease – where there had been "insolvency events" which were deemed defaults under lease – where there was no covenant or agreement by lessee not to suffer an insolvency event – held, lessee not disentitled from exercising option - assignment– where information required to be given to the defendant in order to obtain consent not provided – where assignment in breach of covenant not to assign without consent – whether assignment effective to convey leasehold in equity to assignee – where assignee purports to exercise option – whether assignee "permitted assign" – whether equitable assignee entitled to exercise option – held, assignment effective in equity notwithstanding want of consent but assignee not "permitted assign" and not entitled as mere equitable assignee to exercise option. CORPORATIONS – external administration – receivership – where receiver of lessee pursuant to mortgage of lease purports to exercise option to renew lease after liquidator appointed – whether receiver able to exercise option and execute notice of exercise (CTH) Corporations Act 2001, s 420C(1) LEGISLATION CITED : (NSW) Conveyancing Act 1919, s 133F (NSW) Liquor Act 2007 CATEGORY : Principal judgment Amev-UDC Finance Ltd v Austin (1986) 162 CLR 170 Barter Card v Myallhurst [2000] QCA 445 Bridge v Campbell Discount Co Ltd [1962] AC 600 Cadogan Estates Ltd v McMahon [2000] 4 All ER 897 Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW ConvR 55-358 Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205 Gaskell v Gosling [1896] 1 QB 669 Gough's Garages Pty Ltd v Pugsley [1930] 1 KB 615 Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 WLR 377 In Re Apex Supply Co [1942] Ch 108 CASES CITED : Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Limited [2008] NSWCA 310 Ladies Sanctuary Pty Ltd v Parramatta Property Investment Ltd (1997) 7 BPR 15,156 Mercantile Credits Ltd v Atkins (1985) 1 NSWLR 670 Molina v Leask (1998) NSWSC Santow J, unreported O'Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Re Leslie Homes (Aust) Ltd (1984) 8 ACLR 1020 Re Yates, National Mutual Life Association v Catco Developments Pty Ltd (1989) 88 ALR 583 Shevill v Builders Licensing Board (1982) 149 CLR 620 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 Wynsix Hotels (Oxford Street) Pty Ltd v Toomey [2004] NSWSC 236 St George Bank Limited (first plaintiff) PARTIES : Winners Circle Group Pty Ltd (Administrator Appointed) (second plaintiff) ACN 138 026 150 (third plaintiff) JB (Northbridge) Pty Ltd (defendant) FILE NUMBER(S) : SC 2082/09 COUNSEL : Mr M Ashhurst SC (plaintiffs) Mr D Knoll (defendant) SOLICITORS : Kemp Strang (plaintiffs) ERA Lawyers (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J Friday, 4 December 2009 2082/09 St George Bank Limited & ors v JB (Northbridge) Pty Ltd JUDGMENT 1 HIS HONOUR: The defendant JB (Northbridge) Pty Ltd ("JBN") – of which at all material times John Beville was a director and sole shareholder – is the registered proprietor of a property known as Central Hotel at 45-51 Main Street, Blacktown in the State of New South Wales. In January 2005, by registered lease number AB227824H, JBN demised the property to the second plaintiff Winners Circle – of which at all material times John Beville's son Malcolm was a director – for a term of five years commencing on 17 January 2005, with four options to renew each of ten years, at a rental of $100,000 per annum plus GST. On 15 November 2007, the first plaintiff St George Bank Limited agreed to lend about $30 million to Winners Circle, upon security that included a mortgage of the lease and a charge over Winners Circle's assets and undertaking. Pursuant to that agreement, on or about 28 November 2007, Winners Circle mortgaged the lease to St George, and on 5 December 2007 granted to St George a fixed and floating charge over all its assets and undertaking, to which JBN consented by deed made on 28 November 2007 between JBN, Winners Circle and St George ("the Consent Deed"). 2 As at 3 March 2009, Winners Circle was in breach of certain obligations under the loan agreement and the lease mortgage, and on 4 March 2009 a voluntary administrator was appointed to Winners Circle. On the same day, pursuant to the charge, St George appointed Peter Walker and Morgan Kelly of Ferrier Hodgson as controllers of the assets and undertaking of Winners Circle, including the hotel. On 13 March 2009, JBN served on the controllers a notice of intention to terminate the lease, alleging two defaults by Winners Circle under the lease – namely, overdue rent and outgoings in the amount of $696,953, and the appointment of the voluntary administrator on 4 March 2009. 3 On 25 March 2009, St George appointed the controllers as receivers and managers of the lease, a consequence of which was that by operation of the Consent Deed, JBN was not entitled to terminate the lease for non-monetary defaults that could not be rectified. On 26 March 2009, St George and Winners Circle obtained an interlocutory injunction restraining JBN from taking any action to purport to terminate the lease. On 8 April 2009, a liquidator was appointed to Winners Circle. 4 By notice dated 12 May 2009, the controllers in their capacity as receivers of Winners Circle purported to exercise the option on behalf of Winners Circle. On 26 May 2009, JBN served a notice rejecting the purported exercise of the option, disputing that Morgan Kelly as receiver had power or right to bind Winners Circle or give the notice without the approval of the liquidator or of the court, and identifying as breaches of the lease three "insolvency events" within the meaning of the lease, namely the appointment of a receiver and manager, the appointment of an administrator, and the commencement of a liquidation; and also failure to pay reasonable costs associated with a default, and (apparently) an apprehended breach of the (NSW) Liquor Act 2007. Winners Circle made no application for relief against forfeiture in respect of that notice under (NSW) Conveyancing Act 1919, s 133F, within the time limited by that section. 5 On 1 July 2009, the controllers requested the consent of JBN to the assignment of the lease to the third plaintiff ACN 138 026 150, but did not provide certain documentation and information to which in those circumstances JBN was entitled under the lease. Nonetheless, without waiting any longer for the consent to be provided or refused, Winners Circle on 15 July 2009 purported to assign its interest in the lease to ACN 138 026 150 and, on the same date, ACN 138 026 150 purported to exercise the option. On 16 July 2009, solicitors for JBN rejected this purported exercise of the option and gave another notice under Conveyancing Act, s 133E. None of the plaintiffs made any application for relief under s 133F within the time limited by that section, or at all. 6 On 14 August 2009, Palmer J made orders, pursuant to UCPR r 28.2, for the separate and prior determination of the following questions: Exercise of option by the second plaintiff 1. In the events that happened since April 2009, was the option validly exercised by the second plaintiff on 12 May 2009? Assignment of the lease 2. (a) In respect of the request by the receivers of the second plaintiff made 1 July 2009 for the consent of the defendant to an assignment of the lease to the third defendant ("the request"), was such request made in accordance with the terms of clauses 4.5 and 4.6 of the lease? (b) If yes, has the defendant unreasonably withheld its consent to the request? (c) If yes, was the lease validly assigned by the second plaintiff to the third plaintiff on 15 July 2009 ("the assignment")? Exercise of option by the third plaintiff 3. In the events that happened since 8 April 2009 was the option validly exercised by the third plaintiff on 15 July 2009? Relief 4. Are any of the plaintiffs entitled to any of the following relief: (a) a declaration that the second plaintiff validly exercised the option on 12 May 2009, (b) a declaration that the defendant unreasonably withheld consent to the assignment, (c) a declaration that the assignment was valid, and/or (d) a declaration that the third plaintiff validly exercised the option on 15 July 2009. The first purported exercise – lessee in default 7 The first issue is whether Winners Circle was disentitled from exercising the option by reason that it had not observed and performed the covenants and agreements by and on its part expressed or implied in the lease. 8 In the lease, Clause 17 (Option of renewal) relevantly provides as follow: 17.1 The Lessee will have an option to renew its lease of the premises for the option term. 17.2 The option shall be exercised by the Lessee giving the Lessor not more than 12 months nor less than 6 months previous notice of exercise of the option. 17.3 The Lessee shall not be entitled to exercise the option unless it has: 17.3.1 punctually paid the rent; and 17.3.2 observed and performed the covenants and agreements by and on the part of the Lessee expressed or implied in this lease throughout the term except to the extent to which any breach may have been waived or excused by the Lessor. 9 "Insolvency event" is defined in the lease to mean any occurrence when the lessee goes into liquidation (other than a voluntary liquidation for reconstruction or reorganisation with the lessor's consent), has a receiver or manager or receiver and manager appointed in respect of any of its assets, or has an administrator appointed pursuant to the corporations law. It is uncontroversial that there had been relevant "insolvency events", whereby for the purposes of clause 11.1 Winners Circle was "deemed to have made default". 10 Clause 11 makes provision in respect of default, termination and waiver, as follows: 11.1 Default If: 11.1.1 any money payable by the Lessee is in arrears by more than 14 days (even if no formal demand has been made); or 11.1.2 the lessee fails to comply with any other obligation on the part of the lessee arising out of any terms of this lease and such failure is continued for 14 days after service of a notice by the Lessor on the Lessee requiring such failure to be remedies; or 11.1.3 an insolvency event occurs, then in any of such cases the Lessee shall be deemed to have made default. 11.2 Forfeiture of Lease If the Lessee has made default as specified in clause 11.1 the Lessor may without further notice (unless further notice is required by law) to the Lessee at any time: 11.2.1 re-enter upon the premises or any part of them (by force if necessary); and 11.2.2 remove or otherwise deal with the Lessee's equipment as provided in clause 10.5; and determine this lease or call for an immediate surrender of the Lessee's estate and interest under this lease and upon such surrender the Lessor shall be freed and discharged from any claims by the Lessee under this lease but the Lessee shall not be released from liability in respect of any breach or non-observance or non-performance of any covenant, clause, agreement or condition contained in this lease. 11 However, there is no covenant or agreement by the lessee contained in the lease not to have or suffer a liquidator or administrator or receiver to be appointed. There is simply an agreement that if those events should happen, then there will be a deemed default with the associated consequences. This distinction is recognised by clause 11.1, which distinguishes between three classes of events that will be deemed to be default: the first is that money payable is in arrears by more than 14 days, the second is a failure to comply with any other obligation on the part of the lessee arising out of the terms of the lease, and the third is an insolvency event. This indicates that an insolvency event is to be distinguished from a failure to comply with an obligation on the part of the lessee arising out of a term of the lease. Such a distinction is well established. It was adverted to by Gibbs CJ in Shevill v Builders Licensing Board (1982) 149 CLR 620, as follows (at 627-8): In my opinion it does not follow from the fact that the contract gave the respondent the right to terminate the contract that it conferred on it the further right to recover damages as compensation for the loss it will sustain as a result of the failure of the lessee to pay the rent and observe the covenants for the rest of the term. Clause 9(a) specifies a number of circumstances in which the rights conferred by that clause will arise. The first of those circumstances — where the rent is unpaid for 14 days — is not described by reference to any breach, although it necessarily involves a default. The second case — that in which the lessee commits or suffers to occur any breach or default in the observance of any of the covenants of the lease — does depend entirely upon the lessee causing or suffering a breach to occur. The other conditions on which re-entry is available do not necessarily involve a breach of any covenant or condition of the lease. … The words of clause 9(a) afford no support to the respondent's argument. The rights which the lessee is to have if any of the circumstances mentioned in the clause exist are exhaustively defined by the clause. There are preserved to the lessor "any action or other remedy which the Lessor has or might or otherwise could have for arrears of rent or breach of covenants or for damages as a result of any such event". In my opinion these words refer, distributively, to the three different sorts of circumstances in which the provisions of clause 9(a) take effect. First there is the case in which the rent has been unpaid for 14 days; in that case the lessor can recover the arrears of rent. The second case is that in which the lessee commits or suffers to occur any breach or default in the performance of the covenants, and in that case the remedy preserved is for breach of covenants. Thirdly, events may occur (such as liquidation and bankruptcy) which do not amount to breaches of covenants. 12 A similar distinction has not infrequently been recognised in the context of the law of penalties, between a payment conditioned on a breach of contract (which is a penalty), and one conditioned on termination not for breach but pursuant to a right to do so upon occurrence of an event (which is not) [see, for example, In Re Apex Supply Co [1942] Ch 108; Bridge v Campbell Discount Co Ltd [1962] AC 600; O'Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 367-8, 390; Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205; Amev-UDC Finance Ltd v Austin (1986) 162 CLR 170, 174 (Gibbs CJ), 184 (Mason & Wilson JJ); Barter Card v Myallhurst [2000] QCA 445, [28]; Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Limited [2008] NSWCA 310]. 13 It is true that, in the field of landlord and tenant, it has consistently been held that a proviso for re-entry upon bankruptcy etc, even though there is no explicit promise not to become bankrupt etc, is a "breach of … condition" within (NSW) Conveyancing Act 1919, s 129 (and its equivalents) [Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 WLR 377; Cadogan Estates Ltd v McMahon [2000] 4 All ER 897; Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW ConvR ¶55-358; Wynsix Hotels (Oxford Street) Pty Ltd v Toomey [2004] NSWSC 236 (in which Young CJ in Eq, as his Honour then was, observed that the right to terminate on the happening of an event that the lessee has a receiver appointed comes very close to a negative covenant promising not to have a receiver appointed (at 54)); but even so "very close" does not mean "the same as"]. However, these cases were determined in the context of particular statutory provisions to which a purposive and beneficial construction has been given, and they are not readily transposable to a wider application [Interstar v Integral, [136]]. They are not applicable in the present circumstance, because s 129 is not in issue. 14 In my view, there is no relevant covenant or agreement by or on behalf of the lessee expressed or implied in the lease which, as at May 2000, Winners Circle had not observed and performed (other than breaches that had been waived). Winners Circle had admittedly committed insolvency events and was on that account deemed to be in default, but this was not a failure to observe and perform a covenant or agreement on its part in the lease. Accordingly, Winners Circle was not, on 12 May 2009, disentitled by clause 17.3.2 from exercising the option. 15 Alternatively, Mr Ashhurst SC submitted that any such breach had been excused by clause 4.4 of the Consent Deed, which provided as follows: Where the bank has appointed a receiver referred to in clause 5.1 of this deed, the lessor shall not terminate the lease for non-monetary defaults that cannot be rectified. 16 I would not have accepted this argument. An agreement not to terminate a lease for non-monetary defaults that cannot be rectified is not the same thing as an agreement to waive or excuse the breach. The former agreement constrains one type of action only – namely, termination of the lease; it does not constrain or prevent reliance on a non-monetary default for any other purpose (for example, claiming damages for the breach). In my view, if there were an implied covenant not to suffer an insolvency event, clause 4.5 of the deed would not operate as a waiver or excuse of such a breach for the purposes of clause 17.3.2. First purported exercise – liquidator's authority 17 Mr Knoll, for the defendants, submitted that the receiver did not have authority to exercise the option, at least without the approval of the liquidator or of the court, Winners Circle having gone into liquidation. He invoked, inter alia, (CTH) Corporations Act 2001, s 420C(1), which provides that a receiver of property of a corporation that is being wound up may carry on the corporation's business with the written approval of the corporation's liquidator or the approval of the Court. However, s 420C(2) provides that subs (1) does not affect a power that the receiver has otherwise than under that subsection. 18 The power of a receiver to deal with corporate assets the subject the security after liquidation, otherwise than under s 420C(1), has been considered in a number of cases. In Gaskell v Gosling [1896] 1 QB 669, Rigby LJ (whose dissenting judgment was upheld in the House of Lords) said (at 699-700): … what, then, was the effect of the winding-up order? It could not give the company rights which it did not before possess; for instance, the right of revoking the appointment of the receiver, or withdrawing from his control and management any of the property committed to him, that being the property, first of all, of the debenture-holders, and only belonging to the company as to the equity of redemption expectant on the mortgages to them. But, even if there were any such right on the part of the company, its non-exercise could not make the trustees principals. No doubt the company was incapacitated by the winding-up order from carrying on business, and the receiver could not create debts which would be provable in the liquidation against the unmortgaged assets of the company – that is to say, the uncalled capital, if any there were. In other words, he could no longer pledge the credit of the company. But it seems that he could realise the trade assets and employ them in further trading so long as he was not stopped by the trustees for any of the debenture-holders. 19 In Gough's Garages Pty Ltd v Pugsley [1930] 1 KB 615, the company had issued a debenture charging all its undertaking and assets in favour of the debenture holders. On 22 April 1929 it gave notice to its landlords requiring them to grant it a new lease. In July 1929, the debenture holders appointed a receiver. The landlords having failed to comply with the request for the grant of a new lease, the receiver on 23 September 1929 commenced an action in the county court in the name of the company to obtain the grant of a new lease. On 15 October, a winding up order was made and a liquidator appointed. The landlords objected that an order having been made to wind up the company, the receiver could not maintain the action for a new lease. The County Court judge upheld that objection, but was overruled in the Court of Appeal, which held that the statutory right to apply for a renewal of the lease was a right given by the company to the debenture holders as part of their security, and that the receiver was entitled to enforce that right notwithstanding the liquidation of the company. Greer LJ said (at 621): A debenture is given to creditors in order that they may have a security. It is a floating security until there is some kind of default and a receiver is appointed, and the rights under the debenture are actually put in some way into execution by the appointment of a receiver. But the receiver under his debenture has certain powers. In this case, among other powers, he has the power "to take possession of, collect and get in the property charged by this debenture and for that purpose to take any proceedings in the name of the company or otherwise as may seem expedient". That right to take proceedings, was just as much a security for the debt as any other rights given by the debenture. I should not be disposed to put too narrow an interpretation on the word "property". After all, property in law consists of rights. The complete property in any chattel consists of the right to the possession and use of that chattel. But a right of any kind, such as a right to a chose in action, is property which may be pledged to debenture holders just as any other kind of property. It does not matter whether the property in question was in existence in the hands of the company granting the debenture at the time when the debenture was given, or whether it came into existence by the operation of a subsequent Act of Parliament. It seems to me that to deprive the debenture holders of a right, under the part of the debenture that I have mentioned, to realise a valuable right of the company, because the company has gone into liquidation, is to nullify one of the valuable rights given to the receiver by the debenture. 20 Romer LJ said (at 625): By the debenture the company charged in respect of the moneys due to the debenture holders, "its undertaking and all its property, present and future, including its uncalled capital". I think those words "uncalled capital" are by themselves sufficient to show that the property included in the charge consists of every asset of the company. … Among the assets of the company was the valuable right attaching to the company as a tenant under the lease … to obtain compensation, or a new lease in lieu of compensation, under s 4 and s 5 of the Landlord and Tenant Act , 1927. That is, therefore, a right which is charged in favour of the debenture holders and forms part of their security. The debenture provided that at any time after the principal moneys became due the debenture holders might appoint a receiver, and the receiver so appointed should have power "to take possession of, collect, and get in the property charged by this debenture, and for that purpose to take any proceedings in the name of the company or otherwise as may seem expedient". That clause would therefore empower the receiver duly appointed by the debenture holders to take the necessary proceedings for the purpose of obtaining a new lease in lieu of compensation in respect of which new lease the company had already given notice to the lessors on April 22, 1929. In pursuance of that power, the receiver commenced these proceedings in the county court and rightly commenced them in the name of the company. When the company was ordered to be wound up by the Court, as it was by an order dated October 15, 1929, that right which had been given by contract to the debenture holders of, among other things, taking proceedings to obtain this new lease in the name of the company was in nowise affected. It is perfectly true (and it has been laid down over and over again) that where, as happened in this case, the debenture or trust deed securing the debentures contains the usual clause, that the receiver appointed under the deed shall be deemed to be the agent of the company, that the winding up of the company, or the compulsory liquidation of the company puts an end to the agency. But it does not put an end in any way to the powers of the receiver. In my opinion, when this liquidation order was made, the right of the receiver to proceed in the name of the company in the county court was in nowise affected. 21 In Visbord v Federal Commissioner of Taxation [1943] HCA 4, (1943) 68 CLR 354, Williams J said (at 382): The company cannot authorise the receiver to do any act which it is unable to do itself, so that it cannot empower the receiver, after the date of the liquidation, to carry on its business so as to create debts provable against the unmortgaged assets of the company … but the receiver can still continue to exercise his powers in the name of the company although the company is no longer liable for any debts which he may incur in doing so … 22 In Mercantile Credits Ltd v Atkins (1985) 1 NSWLR 670, Needham J held that where the right to carry on any business previously carried on by a mortgagor company is part of the security given to the mortgagee, the winding up of the mortgagor company does not of itself terminate the power of the receiver to carry on the business, as the rights of the receiver stem from the power given in the mortgage to appoint him and to carry on the business as agent of the mortgagor company, and that while the winding up determines the authority of the mortgagor company there is nothing to stop the mortgagee from entering into possession by giving the receiver the mortgagee's authority to carry on the business as an agent of the mortgagee. 23 In Re Yates, National Mutual Life Association v Catco Developments Pty Ltd (1989) 88 ALR 583, a company had charged its undertaking by debenture mortgage to Natwest which appointed a receiver under the debenture on 28 May 1986. On 16 December 1987, the company was wound up. On 5 January 1988, the company obtained a judgment against the debtor which remained unsatisfied. On 27 July 1988, Natwest and the receiver executed a further appointment of receiver. The receiver applied to be substituted as petitioning creditor. Sheppard J held that the application was competent; that the debenture provided authority for the receiver to bring the application in the name of the company; and that the powers conferred on the receiver by the debenture mortgage and his appointment expressly authorised him to make the application, as did the provisions of the then Companies (NSW) Code. His Honour referred with approval to observations of McLelland J in Re Leslie Homes (Aust) Ltd (1984) 8 ACLR 1020: Winding-up deprives the receiver, under such a debenture as that now in suit, of power to bind the company personally by acting as its agent. It does not in the least affect his powers to hold and dispose of the company's property comprised in the debenture, including his power to use the company's name for that purpose, for such powers are given by the disposition of the company's property which it made (in equity) by the debenture itself. That disposition is binding on the company and those claiming through it, as well in liquidation as before liquidation, except of course where the debenture is vulnerable … or is otherwise invalidated by some provision of law applicable to winding-up. … In this state of affairs it does not seem to me to be entirely accurate to say (as is said in some of the cases) that a winding up terminates a receiver's agency (if the receiver is appointed before the winding up) or prevents a receiver's agency arising (if the receiver is appointed, as in the present case, after the winding up). Rather the agency remains or arises (as the case may be) but the receiver's authority as agent is necessarily limited so as to be consistent with the existence of the winding up. Accordingly the agency subsists for the purpose of the receiver's dealing with property charged by the relevant security, but not (it seems) so as to permit the creation of any pecuniary liability provable against the company in the winding up. The subsistence of a receiver's agency, notwithstanding a winding up, was recognised by Street J in Re Landmark Corporation (1968) 88 WN (NSW) (Pt 1) 195 at 196 where his Honour said: The secured creditor is entitled to stand outside the winding up and to rely upon his security, including his contractual right thereunder to appoint a receiver. The effect of a winding up order is to restrict the company's corporate capacity to pursue its objects in its memorandum: at most its business can thereafter only be carried on so far as is necessary for its beneficial winding up … This consequence ensues irrespective of whether a receiver or the liquidator is in fact exercising a right of custody and control over the company's assets. And so far as a receiver is concerned, although he retains his right to custody and control, the company, whose agent he is, no longer has full and free capacity to continue its business in terms of the objects in its memorandum. 24 In my view, these cases establish that while a winding-up order incapacitates a company from carrying on business, and deprives the receiver of power to bind the company personally by acting as its agent, it does not affect the rights of a receiver given under a security that pre-dated the liquidation, although the company is no longer liable for any debts which the receiver may incur in exercising those rights; and an option to renew a lease is such a right. 25 In the present case, the option contained in the lease formed part of the assets of Winners Circle which it gave to the bank as security. Clause 26.4(c) of the Lease Mortgage empowered the receivers to do anything the law allowed a receiver of the lessee's interest in the lease to do, which includes exercise of an option in the lease. The receiver's capacity to exercise the option is not affected by the subsequent appointment of a liquidator. Its exercise may not impose on the company liabilities provable against the unsecured assets, the consequent liability under the (renewed) lease being that of the receiver. But that does not deny the capacity of the receiver to exercise the option, which formed part of the mortgagee bank's security. First purported exercise – signature 26 The defendants submitted that the notice of exercise, having been signed by one of the receivers, was not a valid notice for non-compliance with clause 1.13.2 of the lease, which provides that all notices to or by a party to the lease shall: 1.13.1 be in writing addressed to the address of the recipient shown in this lease or to such other address as it may have notified the sender, or to the premises if the recipient is the Lessee; 1.13.2 be signed by the Lessee or (if the Lessee is a body corporate) by a director or secretary of the Lessee or by an authorised officer of the Lessor; … 27 Mr Knoll submitted that upon the proper construction of clause 1.13.2, where the lessee was a body corporate, only a director or secretary could sign a notice. In my opinion, that is not the true construction of clause 1.13.2. The preferable construction is that the words "(if the lessee is a body corporate)" are intended to expand, and not to limit, the permitted methods of execution by the lessee, and not to exclude other methods of signature authorised by law. In other words, the clause contemplates signature by the lessee in any manner permitted by law, and in addition where the lessee is a body corporate, by a director or secretary of the lessee. 28 In the lease, "Lessee" is defined to mean the named lessee (Copatress Pty Ltd, which subsequently changed its name to Winners Circle), "any permitted assigns of the lessee and the servants, agents, employees, invitees, licencees, contractors and subcontractors of the lessee". For the purposes of this definition of "lessee", the receiver was either or both of the "permitted assign" of the lessee (pursuant to the Lease Mortgage and the Consent Deed) or (at least for the purpose of giving notice of the exercise of the option) the agent of the lessee. As already mentioned, clause 26.4(c) of the Lease Mortgage authorised the receiver to do anything the law allowed a tenant of the land or a receiver of the lessee's interest in the lease to do; and clause 39 appointed each receiver appointed thereunder as the lessee's attorney, to do anything expedient to give effect to the receiver's rights, including "signing deeds" and "otherwise dealing with [the lessee's] interest in the lease". The Deed of Appointment of the receivers of 25 March 2009 that gave them all the powers, authorities and discretions conferred on the bank or the receivers under the Lease Mortgage (clause 1). 29 Moreover, JBN in the Consent Deed acknowledged the right of the Bank to appoint a receiver of the lessee's interest, and the right of the Bank and the Receiver to exercise their other rights under the Lease Mortgage (clause 5), and specifically acknowledged and agreed that the Bank could exercise all the rights and powers of the lessee under the lease, including the right to renew the lease, as if the Bank were originally named as the lessee (clause 8). The Deed of Appointment delegated to the Receivers all the Bank's powers under the Lease Mortgage or which it was entitled to exercise by law; through this route also – quite apart from the authority derived from the lessee as part of the security granted by the lessee – the receivers were able to exercise the option and execute the notice of exercise as agents for the Bank, as if it were the lessee. First purported exercise – s 133E 30 Mr Knoll submitted, although I think eventually rather faintly, that Winners Circle's right to exercise the option to renew was extinguished by reason of the circumstance that on 26 May 2009 JBN gave notice under Conveyancing Act, s 133E, and Winners Circle did not within one month thereafter seek from the court relief against the effect of the breaches identified in the notice. 31 At least ultimately, it was accepted that s 133E was irrelevant unless a relevant breach otherwise disentitling the lessee from exercising the option were established. Of the matters referred to in the s 133E notice, those which were potentially relevant were the insolvency events (which I have, above, concluded were not breaches attracting clause 17.3.2), and an alleged non-payment of costs said to have been associated with defaults. However, there was no evidence whatsoever of any such default, or costs, or demand therefore, and this matter was not pursued on behalf of JBN in argument. 32 Accordingly, s 133E is not, in the circumstances, relevant. There was no relevant breach by the lessee of any relevant obligation precluding its entitlement to the option, relief against the effect of which breach might otherwise have been required. First purported exercise – conclusion 33 It follows that the purported exercise of the option by the receiver on 12 May 2009 was valid and effective. Question 1 should be answered in the affirmative. It follows also that Question 4(a) should also be answered in the affirmative. Purported assignment of the lease 34 The next major issue pertains to the purported assignment of the lease on 15 July 2009 by Winners Circle to ACN 138 026 150. It far from clear that this issue has practical significance, particularly in the light of the conclusion I have reached in respect of the first purported exercise, and I shall deal with it but shortly. 35 Clause 4.5 of the lease provides for no assignment without consent: The Lessee shall not during the continuance of this lease assign or transfer the Lessee's interest in the premises or this lease or by any act or deed procure any assignment or transfer, except in accordance with the terms of this lease. 36 The procedure for obtaining consent for such an assignment is then provided for by clause 4.6, relevantly as follows: 4.6.1 This lease may be assigned or transferred if the Lessee requests the Lessor's consent to the assignment or transfer of this lease in writing and shall furnish with that request: 4.6.1.1 Information regarding the financial resources and financial standing, the business experience and retailing skills of the in-going tenant; 4.6.1.2 Particulars of the use of the premises intended by the in-going tenant; 4.6.1.3 Confirmation that the Lessee has complied with paragraph 4.6.2 of this clause. 4.6.2 The Lessor is entitled to withhold consent to the assignment or transfer of this lease in any of the following circumstances: 4.6.2.1 if the in-going tenant proposes to change the use to which the premises are put (unless the Lessor consents to the change of use); 4.6.2.2 if the in-going tenant has financial resources and retailing experience that are inferior to those of the Lessee; 4.6.2.3 If the Lessee has failed to comply with the provisions contained in this clause for requesting and obtaining consent to the assignment or transfer. 4.6.3 If requested by the Lessor, the Lessee shall furnish to the Lessor such further information as the Lessor may reasonably require concerning the financial standing and business experience of the in-going tenant. 4.6.4 The Lessor agrees to deal expeditiously with the Lessee's request for consent to assign or transfer this lease. … 37 Although the request for consent to the assignment of the lease was expressed to be one under clause 4.6.1 of the lease, it did not provide the information required by that clause. The plaintiffs advanced no submission to the contrary. I would therefore answer question 2(a) in the negative; it follows that Question 2(b) does not arise, and that I would answer question 4(b) in the negative. 38 However, it does not follow that the lease was not validly assigned, notwithstanding that the assignment would have been in breach of the covenant against assignment without consent. An assignment of a lease is effective to convey the leasehold estate to the assignee, despite the absence of a consent stipulated for in the lease [Ladies Sanctuary Pty Ltd v Parramatta Property Investment Ltd (1997) 7 BPR 15,156; Molina v Leask (1998) NSWSC, Santow J, unreported]. Accordingly, were it to arise, I would answer question 2(c) in the affirmative, and I would answer question 4(c) in the affirmative. Second purported exercise – by third plaintiff 39 In view of the conclusions that I have reached concerning the exercise of the option by the second plaintiff, it is unnecessary to consider this question. However, had it been necessary to do so, I would have concluded that the option was not validly exercised by the third plaintiff on 15 July 2009, for at least two reasons. 40 First, the option is given to the "lessee", a term which is defined to include (only) the lessee's "permitted assigns". It follows from the conclusions I have reached in respect of the lack of consent for the assignment that the third plaintiff was not a permitted assign, consent not having been obtained, nor even properly sought. 41 Secondly, the third plaintiff had not become registered as lessee, and was therefore at best an equitable assignee. The equitable assignee of an option cannot exercise the option against the grantor. In Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548, Giles J (as his Honour then was) approved the reasoning of Roskill LJ and Sir John Pennycuick in Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, that the only rights that an equitable assignment could create in the equitable assignee were rights against the assignor – who became trustee of the benefit of the option for the assignee, and thus could be compelled in equity to exercise those rights for the benefit of the assignee. But unless and until the equitable assignee becomes the legal assignee, it is not in a position to enforce the contractual right created by the grant of the option to the original grantee. Giles J said (at 561F): While an assignment at law substitutes the assignee for the assignor as contracting party with the opposite party, an equitable assignment operates between the assignor and assignee. In the absence of notice of an assignment, the opposite party looks only to the assignor; with notice of an assignment, the opposite party may be unable safely to deal with the assignor (see William Brandt's Sons & Co v Dunlop Rubber Co [1905] AC 454 (at 462)), but his agreement is still with the assignor and it is the assignor rather than the assignee who has the contractual right to exercise the option. To the extent to which in exceptional circumstances departures from the dictates of this reasoning have been permitted, they do not extend to the situation in Warner Bros Records Inc v Rollgreen Ltd , the proposition found in that case in Long Leys Co Pty Ltd v Silkdale Pty Ltd should be acted upon, and Showa was not entitled to give the lessor's notices as equitable assignee. 42 Accordingly, if it were necessary to do so, I would therefore answer question 3 in the negative, and I would answer question 4(d) in the negative. Conclusion 43 It follows that I would answer the questions for separate determination as follows: 1. In the events that happened since 8 April 2009, was the option validly exercised by the second plaintiff on 12 May 2009? Answer: Yes. 2.(a) In respect of the request by the receivers of the second plaintiff made 1 July 2009 for the consent of the defendant to an assignment of the lease to the third defendant ("the request"), was such request made in accordance with the terms of clauses 4.5 and 4.6 of the lease? Answer: No. (b) If yes, has the defendant unreasonably withheld its consent to the request? Does not arise. (c) If yes, was the lease validly assigned by the second plaintiff to the third plaintiff on 15 July 2009 ("the assignment")? Does not arise, but yes, in equity only. 3. In the events that happened since 8 April 2009 was the option validly exercised by the third plaintiff on 15 July 2009? Answer: No. 4. Are any of the plaintiffs entitled to any of the following relief: (a) A declaration that the second plaintiff validly exercised the option on 12 May 2009? Answer: Yes. (b) A declaration that the defendant unreasonably withheld consent to the assignment? Answer: No. (c) A declaration that the assignment was valid? Answer: Yes, but in equity only. (d) A declaration that the third plaintiff validly exercised the option on 15 July 2009? Answer: No. 44 I will hear the parties as to what orders should be made consequent upon those answers, and as to the question of costs. ********** 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. 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