Yeshiva Synagogue Incorporated 9893834 v Karimbla Properties (No 10) Pty Ltd

These proceedings concern adjoining properties at 36 and 36A Flood Street, Bondi, which properties are together known as the Yeshiva Centre. The properties are owned by the defendant, Karimbla Properties (No 10) Pty Ltd, which is the trustee of the Harry Triguboff Foundation (“the Foundation”). The premises were purchased by the defendant in December 2012.

The purchase was made subject to existing tenancies. The premises, which have for many years been used by persons and entities associated with the Orthodox Jewish sect known as Chabad Lubavitch, were subject to numerous leases including to the plaintiffs, namely, Yeshiva Synangogue Incorporated 9893834 (“the Synagogue”) and Sydney Talmudical College Association (“the College”). The Synagogue and the College each held a lease over part of 36 Flood Street and a lease over part of 36A Flood Street.

Yeshiva College Bondi Limited (“Yeshiva College”), which conducts a school at the premises, also held leases over parts of 36 and 36A Flood Street. Our Big Kitchen Ltd, which operates a kitchen for charitable purposes, held a lease over part of 36 Flood Street.

The plaintiffs commenced the proceedings in April 2017 after the defendant served notices of termination of two of the four leases, seeking to bring them to an end prior to the expiration of their terms. Further notices of termination, this time in respect of all four leases, were served in early September 2017. The plaintiffs challenged the validity of the purported terminations (which were based upon cl 27 of each lease). These issues fell away at the commencement of the hearing. The defendant gave undertakings not to rely on the various notices of termination, and not to exercise any right of termination under cl 27 of the leases in the period up to 19 December 2017, the date upon which the leases expire.

The remaining issue to be determined is whether the plaintiffs have any rights of possession or occupation in respect of the premises after the expiry of the leases on 19 December 2017.

The issue was initially raised by the defendant in a Cross-Claim against the plaintiffs. A declaration was sought to the effect that the plaintiffs had no right to possession of any part of the premises after 19 December 2017 (see prayer 5(b)). By their Defence to the Cross-Claim, the plaintiffs contended that certain deeds entered into by the defendant and others (not including the plaintiffs) provided for the continued use and occupation by the plaintiffs of a reasonable part of each of 36 and 36A Flood Street after 19 December 2017.

The plaintiffs and Mr Yosef Feldman (who was himself a party to the deeds) then filed a Second Cross-Claim against the defendant and the other parties to the deeds. Those other parties were notified of the proceedings by email from the plaintiffs’ solicitor, but personal service was not effected. None of them appeared or sought to take any active part in the proceedings. A declaration was sought in the Second Cross-Claim to the effect that the plaintiffs were each entitled to the continued use and occupation, including after 19 December 2017, of a reasonable part of each of 36 and 36A Flood Street while Yeshiva College remains a viable entity.

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:

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:

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:

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:

The plaintiffs submitted that cl 5 of the 36A Flood Street Deed and cl 6 of the 36 Flood Street Deed (which they refer to as the “use clauses”) provide for the Yeshiva Centre to be used for the entities referred to therein (including the plaintiffs) and associated purposes of the Chabad community in Sydney. They submitted that the use clauses impose obligations on the defendant in addition to and independent of its obligations under the leases, and that the obligations continue after the termination of the leases, at least while Yeshiva College remains a viable entity at the Yeshiva Centre. The plaintiffs seem to accept that if Yeshiva College ceased to be a viable entity (at the Yeshiva Centre) the defendant would be entitled to sell the premises (see cl 4 of each of the Deeds of Agreement).

The plaintiffs submitted that the scheme envisaged by the Deeds of Agreement (including the Deed made with BHCWB Housing LLC) 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 was submitted that the use clauses were the only provisions which gave rights to Yeshiva College after its lease expired, and the clauses operated in the same way in relation to the other entities referred to in the use clauses.

The plaintiffs submitted that their construction of the use clauses was supported by the context in which the December 2012 transactions took place. They submitted that the series of transactions was designed (the defendant being a charitable body) to ameliorate the financial difficulties facing the entities operating the Yeshiva Centre, and to allow the Yeshiva Centre to continue to operate for the benefit of the Chabad Lubavitch community and the entities operating from the premises.

The plaintiffs recognise that the use clauses do not specify which portion of the premises each of the entities is entitled to use and occupy. They submitted that the clauses give the defendant a degree of flexibility in determining how and which portions of the premises are to be used by each entity “as long as some reasonable accommodation” is made for each of them.

The plaintiffs acknowledge that as they are not parties to the Deeds of Agreement they cannot enforce the use clauses. However, the plaintiffs submitted that it is open to Rabbi Yosef Feldman, who is a party to the Deeds of Agreement, to enforce the promises given in the clauses to him and the other parties to the Deeds of Agreement.

The defendant submitted that if cl 4 of each of the Deeds of Agreement restricted its right to sell the premises, it was clear from the terms of cl 6.1 of the 36A Flood Street Deed (and cl 5.1 of the 36 Flood Street Deed) that the restriction operated only until termination of the leases. Once that occurred, the defendant had the right to sell the premises with vacant possession.

The defendant then submitted that the use clauses merely restricted the uses to which the defendant may put the premises; they did not confer positive rights of use or occupation upon the plaintiffs or anyone else. The clauses were thus in the nature of negative covenants. In that regard, it was submitted that “and” ought be read distributively in the use clauses so that they identify the range of uses the defendant is permitted to put the premises. It was further submitted that the restrictions only applied while any of the leases were on foot as, after termination of the leases, cll 6.1-6.3 of the 36A Flood Street Deed and cll 5.1-5.3 of the 36 Flood Street Deed allowed the defendant to deal with the premises in a manner inconsistent with the continued operation of the use clauses.

The defendant pointed to difficulties that would arise on the construction advanced by the plaintiffs. In particular, it was put that the clauses would be void for uncertainty if they provided positive rights to a number of entities to use or occupy a reasonable part of the premises. Further, it was put that such rights would be inconsistent with provisions of the leases (to which the sale to the defendant was subject), including the holding over provisions which contemplate that any holding over would be with the defendant’s consent and terminable on one months’ notice. The defendant also submitted that the plaintiffs’ construction sat awkwardly with the evident intention that the potential terms of the existing leases were to be reduced so as to finish in 2017 rather than 2020.

The defendant submitted that the use clauses in each Deed of Agreement contained an agreement between the vendor and the defendant, rather than a joint promise by the vendor and the defendant in favour of the other parties to the instrument. Finally, the fact that the plaintiffs and the other entities referred to in the use clauses were not parties to the Deeds of Agreement was advanced as a further indication that the clauses did not confer rights upon them.

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:

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.