VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP1631/2020	
CATCHWORDS	
Dispute concerning validity of a lease; whether lease subject to condition requiring parties to enter into a contract to purchase the premises; whether term is to be implied, inferred or part of a collateral contract, whether condition failed; whether contract voidable; test in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.	

APPLICANT	Professor Bin Pty Ltd (ACN 053 790 971)	
RESPONDENT	Australian Waste Recyclers Pty Ltd (ACN: 637 451 177)	
WHERE HELD	Melbourne	
BEFORE	Senior Member L. Forde	
HEARING TYPE	Hearing	
DATE OF HEARING	9 June 2021	
DATE OF ORDER	6 September 2021	
CITATION	Professor Bin Pty Ltd v Australian Waste Recyclers Pty Ltd (Building and Property) [2021] VCAT 1038	
Order
1	The applicant is entitled to possession of the property at 1/5 Berends Drive, Dandenong South (premises).
2	I find and declare that the lease between the applicant and respondent of the premises dated 18 February 2020 (lease) contains an implied term that it only operated insofar as the parties were ready, willing and able to enter into a contract of sale of the premises within the timeframe that they imposed on themselves.
3	I find and declare that the lease was validly terminated by the applicant on 27 April 2020.

L. Forde
Senior Member 			
APPEARANCES:		
For Applicant	Mr G. Labofsky of counsel	
For Respondents	Mr P. Van Eps of counsel	

Reasons
1	The dispute concerns the ongoing validity of a lease dated 18 February 2020 (lease) between the applicant, landlord (Professor Bin) and the respondent, tenant (AWR) in respect of premises located at 1/5 Berends Drive, Dandenong South (premises).  AWR leased the premises for the purpose of operating a waste transfer station.
2	Professor Bin seeks a declaration that it validly terminated the lease and an order for possession of the premises.
3	The issues for determination are:
a.	whether the lease was subject to a condition precedent or subsequent which required the parties to enter into a contract by which Adrian Bradshaw or nominee would purchase the premises on terms consistent with a Heads of Agreement signed by the parties in January 2020; and 
b.	whether, if yes to issue 1, the condition failed and as such the lease was voidable at the election of Professor Bin and liable to forfeiture. 
4	AWR says Professor Bin was not entitled to terminate the lease and the lease was not conditional upon it purchasing the premises. 
BACKGROUND
5	Most facts are not in dispute.
6	In mid-2019 Professor Bin engaged CBRE to market and sell the premises. 
7	In August 2019, Adrian Bradshaw the sole director of AWR inspected the premises and made verbal offers to purchase the premises which were not accepted.
8	On 16 December 2019 Renata Bradshaw, on behalf of Adrian Bradshaw, emailed an offer “in relation to the lease/purchase agreement” for the premises to CBRE. The relevant parts of the email provided: -
I have outlined the offer below in the process that it needs to take place.
1)
lease agreement drafted for the property.
•	with a commencement date on 15/1/2020
•	for the total of $50,000 per annum + outgoings + GST
•	on a 5x5x5 year lease.
•	The leasee will be Australian Waste Recyclers Pty Ltd, ACN 615461393.
•	First month rental paid in advance
•	Security deposit to be caveat on guarantee
2)	
Contract of sale on the property
•	for a purchase price of 1.3 million
•	settlement date 12 months after the date of contract signed
•	in the name of Adrian Bradshaw and/or nominees
•	to be drafted once the lease is in place and active
•	with a licensing agreement attached for an amount of $50,000 per annum
•	with a 5% deposit payable by end of March 2020
•	which can be released to vendor on that date
•	which will come off the total purchase price
As the property will be brought through our SMSF which is still be formulated we are unable to do a 10% deposit on the contract of sale.
Likewise, the COS needs to be drafted after the lease is in place due to tax implications which has been agreed with by the owner.
9	Ms Bradshaw states in her witness statement that the purpose of the arrangement was for AWR to purchase the premises as a going concern, and for asset protection reasons. It is accepted that purchasing an asset as a going concern attracts beneficial GST concessions.
10	On 20 December 2019 Renata Bradshaw emailed a draft contract of sale to CBRE. The draft contract provided: -
a.	the sale was subject to lease to AWR;
b.	a deposit of $65,000;
c.	preliminary settlement on 28 February 2020;
d.	final settlement on 27 February 2021; and 
e.	the purchaser, named as Adrian Bradshaw and/or nominee to pay a licensing fee prior to settlement commencing on 23 March 2020 of $4,166.66 per month
11	A 3-page Heads of Agreement (HOA) was signed by AWR on 21 January 2020 and by Professor Bin on 23 January 2020 in which Professor Bin agreed to sell the premises to AWR and lease the premises to AWR pending settlement. The HOA attached the contract of sale emailed by Ms Bradshaw to Professor Bin on 20 December 2019. The HOA included provisions for:
a.	a lease between Professor Bin and AWR for 5 years with two further 5-year options commencing “31 days after executing the Heads of Agreement in order to provide enough notice for the existing tenant to vacate the premises”. Annual rent was $50,000 per annum + GST inclusive of body corporate fees, land tax, council rates, water rates and building insurance;
b.	a holding deposit of $10,000 payable to Professor Bin upon signing; and  
c.	 “Miscellaneous”   
1)	Property to be purchased as a going concern 29 days after lease commencement date with the following particulars of sale.
a)	Purchaser: Adrian Bradshaw and/or nominee 
b)	Purchase Price: $1,300,000 + GST (if applicable)
c)	Deposit: $100,000 (less $10,000 holding deposit)
d)	Purchaser to sign section 27 for immediate release of deposit.
e)	Settlement date: 12 months after executing the contract of sale or earlier by mutual agreement.
f)	Special conditions:
•	Purchase agreement includes a licencing agreement of $50,000 per annum.
•	Remove special condition 3 from the attached draft contract of sale (Draft COS Berends 20122019).
•	Subject to satisfactory review of Section 32 and Contract of Sale.
2)	This agreement is subject to a fully executed surrender of lease between the landlord and the vacating tenant (Hillside Furniture). The landlord is not liable for the actions of any third party but will take every reasonable measure to meet the said lease commencement date.
12	On 24 January 2020 AWR paid the $10,000 holding deposit to CBRE.
13	On 24 January 2020 Professor Bin gave notice to its current tenant who was holding over on a month-to-month tenancy to vacate. 
14	On 18 February 2020 Professor Bin and AWR executed a lease with Adrian Bradshaw as guarantor. The lease was for 5 years commencing on 28 February 2020 with two further 5-year options. Rent was $50,000 per annum plus GST and outgoings.
15	Having regards to the lease commencement date of 28 February 2020, the HOA required the parties to enter into a contract of sale by 28 March 2020 (i.e., 29 days from the date of entry into the lease).
16	On 11 March 2020 Professor Bin’s solicitors emailed AWR a contract of sale for the premises executed by Professor Bin. Relevant provisions included: -
a.	 a sale price of $1.3m with a $100,000 deposit (less the $10,000 holding deposit) payable by 31 March 2020;
b.	a settlement period of 12 months;
c.	the sale was subject to
i.	 a lease for the term ending 28 February 2025 with 2 options to renew of 5 years each; and 
ii.	the parties agreeing to enter into a licence agreement which agreement was attached to the contract. 
17	Professor Bin contends that the terms of the contract emailed on 11 March 2021 were consistent with the draft contract provided by Ms Bradshaw on 20 December 2019 (save for the amendments effected by the HOA) and the terms contemplated by the HOA.
18	On 17 March 2020 Professor Bin’s lawyers emailed Ms Bradshaw and requested payment of the first licence fee of $4,166.66.
19	On the same day, Ms Bradshaw responded stating the licence fee was not due for payment and the contract of sale was with AWR’s solicitors for review as terms had been altered.
20	On 24 March 2020 Professor Bin’s lawyers emailed Ms Bradshaw requesting the exchanged copy of contract before 30 March 2020.
21	On 25 March 2020 CBRE emailed Ms Bradshaw and Mr Bradshaw requesting that they respond with a list of suggested amendments to the contract of sale.
22	On the same day Ms Bradshaw emailed CBRE seeking reimbursement of costs incurred by AWR in relation to the premises. 
23	On 31 March 2020 Ms Bradshaw emailed Professor Bin’s lawyers. Of relevance are the following extracts: 
Hello
We have gone over the contract with our solicitor.
In light of the current worldwide circumstances we have been strongly advised to not enter into any new sale/purchase agreements due to the uncertainty at the moment. 
However, we have made a decision to continue with the sale of the property however the following items have been highlighted of being of major concern, especially whereby default clauses would see us liable for penalties of 300% rise, which highlights unfair contract terms.
If we proceed with the Contract of Sale and Licensing agreement we have been advised by our solicitor, business banker, and financial advisor to provide a goodwill deposit on the contract of sale of $50,000 total and a final settlement date of 19 months from the date of the contract, along with amended contract terms. 
The issues that have been brought to attention by our solicitor are the following:
Building repairs:
•	Upon the occupation of the premises as Lessee, there were a number of items that have had to be repaired/replaced or that need to be repaired/replaced due to the sabotage of the previous tenant.
•	All firefighting equipment which forms part of the essential services on the property had not been maintained within the last 2 years. All fire extinguishers had been removed by the previous tenant as he was leaving the property, the firefighting equipment has been service and brought back up in line with the regulatory body requirements. An invoice has been provided to Simple Industrial.
•	Air conditioning units within the property have been purposefully destroyed and/or had the compressor units from the roof removed by the previous tenant. A quote to have these replaced has been forwarded to Simple Industrial.
•	Cleaning of the premises had not been done by the previous tenant, which would have been a requirement of their lease. An invoice has been provided to Simple Industrial.
24	Professor Bin submits and I accept from an examination of the documents that Ms Bradshaw made a number of significant amendments to the contract of sale submitted on 20 December 2019 that were not contemplated by the HOA including: 
a.	a reduction of the deposit from $100,000 to $50,000; 
b.	an extension of the settlement period from 12 to 18 months; 
c.	removal of special conditions 4.1(b) and 4.1(c) (by which AWR effectively accepted the premises on an “as is” basis) and the imposition of the requirement for Professor Bin to undertake various repairs to the premises; 
d.	the proposed dissolution of the Owners Corporation and removal of any obligation by AWR to pay Owners Corporation fees; and
e.	the requirement to “completely rewrite” the Licence Agreement (but without specifying the reasons why that was required).
25	On 3 April 2020 Professor Bin’s new lawyers emailed Mr Bradshaw in response to the 31 March 2020 email. They summarised the key terms of the agreement between the parties as follows: 
1.	The parties agree to enter into a contract of sale for the Property on the following terms:
a.	Purchase Price $1,300,000.00
b.	Deposit $100,000
c.	Settlement Period of 12 months
d.	Property to be sold as a ‘going concern’
(Contract of Sale)
2.	The parties are to enter into a lease to satisfy the ‘going concern’ provisions of the Contract of sale, on the following terms:
a.	5 Year Term;
b.	Permitted Use ‘Transfer station and equipment storage’;
c.	2 Further Terms of 5 years;
d.	Rent $50,000 + GST per annum; and 
e.	Commencement date 31 days after execution of the HOA.
(lease)
3.	At all times it was a condition precedent of the Contract of Sale that the lease be executed and vice-versa it was a condition precedent of the lease that the Contract of Sale be executed.
(together ‘the Agreement’)
The email went on to provide:-
In Your Email, you raise a number of issues with the Contract of Sale, which we respond to in turn:
The default clause amounts to a 300% penalty increase
This is disputed and we are unsure how this has been calculated. A 300% penalty increase has never been discussed and does not contain part of the Agreement.
The deposit should be changed to $50,000
Our client does not accept this amendment. The HOA stipulates a deposit of $100,000 and is a key non-negotiable term of the Agreement.
The Settlement Period should extend to 18 months
Our client does not accept this amendment. The HOA stipulates a Settlement Period of 12 months and is a key non-negotiable term of the Agreement.
Variations to Contract of Sale (SC 4.1b, 4.1c, 7.2a, 7.2c and Further Special Conditions)
Many of these variations are not agreed as they contain significant changes to the Agreement. We have decided not to engage in lengthy negotiations in relation to each point due to lack of commercial efficacy. 
You have asked for the Owner’s corporation to be dissolved, along with the owner in factory 3
This is an extremely unusual request and one which is not permitted under legislation. Our client does not accept this amendment, nor does it agree to reduce the purchase price due to any unrelated issues regarding public liability insurance.
Building Repairs
Our client does not agree to complete any of the building repairs mentioned in Your Email. The Contract of Sale price was in contemplation of the building ‘as is’ and such repairs do not form part of the Agreement. 
26	Professor Bin’s lawyer’s email of 3 April 2020 concluded with a demand that AWR, within 7 days, agree to either give notice that it agreed to execute the contract of sale or vacate the premises. The email was incorrectly addressed.
27	A further email of 10 April 2020 enclosing the 3 April email was sent after Professor Bin became aware that the email of 3 April 2020 was incorrectly addressed and not delivered. 
28	On 16 April 2020 Professor Bin unsuccessfully attempted to re-enter possession of the premises.
29	On 26 April 2020 Professor Bin retook possession of the premises by changing the locks.
30	By letter dated 27 April 2020 Professor Bin’s lawyers gave AWR notice of re-entry to the premises.
31	On 30 April 2020 AWR’s possession of the premises was reinstated on an interlocutory basis by the Tribunal.
32	On 4 June 2020 AWR’s lawyers emailed a contract of sale signed by the purchaser to Professor Bin’s lawyers.
33	Professor Bin emphasised in submissions and I accept (by a simple comparison of the documents) that while AWR did not pursue some of the more radical amendments proposed by Ms Bradshaw on 31 March 2020, the terms remained substantively inconsistent with the HOA and the previous iterations of the contract in that:
a.	rather than providing for payment by AWR of the deposit of $100,000 (less the $10,000 holding deposit) on execution, Special Condition 7 provided that the deposit would be paid into trust subject to agreement between AWR and Professor Bin with respect to:
i.	the “appropriate quantum of damages, costs and expenses payable to [AWR] as a result of [Professor Bin] asserting the right to re-enter the Property on or around 26 April 2020”;
ii.	the cost of repairing the air conditioning; and
iii.	the cost of “urgent repairs to the roof and electrical system”; 
b.	by Special Condition 7(b), it provided for the $50,000 licence fee to be “credited against the balance due at settlement” rather than it being a fee additional to the purchase price payable by AWR as the parties agreed in the HOA; and 
c.	by Special Condition 8, it imposed an obligation on Professor Bin to pay any increase in market value of the premises to AWR if AWR defaulted under the contract and Professor Bin terminated the contract based on that default.
34	On 17 June 2021 Professor Bin’s lawyers emailed AWR’s lawyers proposed amendments to the 4 June contract of sale.
35	On 14 September 2020 Professor Bin’s lawyers gave notice terminating the lease.
SUBMISSIONS & ANALYSIS
36	Professor Bin says the lease is conditional upon the parties entering into a contract of sale for the premises and that insofar as the parties fail or refuse to do so, the lease is voidable at either party’s election. It elected to terminate the lease after AWR failed to enter into a contract of sale within the strict 29-day period contemplated by the HOA or within a reasonable time. 
37	AWR agrees that on an objective construction of the HOA at the time of its formation, the parties intended to execute a lease in favour of AWR to allow it access to the premises as soon as practical following the determination of the lease with the then existing tenant and execute a sale for the contract of the land on substantially the same terms and conditions as those annexed to the HOA, with the necessary amendments referred to in the HOA. However, AWR contends that the lease was not conditional upon a contract of sale proceeding. 
Is the lease subject to a condition that the contract of sale for the premises proceed? 
38	In its opening submissions Professor Bin contends that the lease was executed pursuant to and to give effect to the HOA and is necessarily conditional upon the parties entering into a contract of sale. It relies upon three grounds to show that the lease, which is otherwise unconditional on its face, is subject to a condition concerning the entry by the parties into a contract for the sale of the premises. It submits: -
a.	the existence of the condition is one that can be inferred from all of the objective circumstances as being actually intended by the parties to be included in the contract, them having actually turned their mind to that issue.  
b.	the term is one that can be implied under the principle in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (BP Refinery); 
c.	the term can be incorporated on the basis that the HOA is a collateral contract to the lease and the terms of the HOA are therefore incorporated into the lease insofar as they are applicable to, and consistent with, the lease. 
Inferred Term
39	In support of inferring the term Professor Bin says it is uncontroversial that in construing, or ascertaining, the terms of an agreement, the Tribunal must have regard to the parties’ objective intentions as inferred from the circumstances that surrounded the execution of that agreement. The Tribunal must also have regard to the commercial object of the agreement. It says the circumstances and commercial object that surrounded the entry into the lease demonstrate plainly that the lease was not executed in isolation and was entered into by the parties only as part of a regime in which one would sell the premises to the other. On that basis Professor Bin contends that a term ought to be readily inferred that the lease was not unconditional and only operated insofar as the parties were ready, willing and able to enter into that contract for the sale of the premises within the timeframe that they imposed on themselves;
40	AWR did not make submission directly addressing whether a term was to be inferred. 
41	Professor Bin took the Tribunal to the Court of Appeal decision in Regreen Assett Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd  (Regreen). Regreen involved an agreement between the applicant and the respondent for the sale of rendering equipment and a separate earlier agreement between the respondent and the sole director of the applicant for the sale of the land on which the rendering equipment was situated. The rendering equipment could not be removed from a building on the land without damaging the building. The applicant paid $330,000 for the equipment. The contract for the sale of land was rescinded and the respondent required the applicant to remove the rendering equipment. The Court of Appeal had to determine whether there was an implied term of the equipment agreement that completion was subject to settlement of the land agreement. It was found that the Trial Judge had correctly implied such a term. 
42	In considering the test for inferring a term in contrast to implying a term, the Court of Appeal said
73 An implied term can also be contrasted with an inferred term. The latter is a term which the parties actually intended to form part of their contract but did not reduce to writing or clearly articulate orally, thus requiring the court to infer it from the parties’ communications and course of dealing. As with rectification, the process of inferring a term gives effect to the parties’ actual intention rather than their presumed intention. While the line between inference and implication is not always easy to draw, it is well established that, where the parties have not reduced all the terms of their agreement to a complete written form, the court must first identify all the actual terms by inference before considering whether any additional terms are to be implied.
74 As the process of inferring a term of a contract is informed by the parties’ communications and course of dealing, evidence of their pre-contractual conduct is admissible on the question of whether a particular term is to be inferred. On the other hand, the admissibility of evidence of pre-contractual conduct for the purpose of establishing that a term should be implied into a contract is more complicated.
43	Based on Regreen, I need to decide whether the parties actually rather than objectively intended the lease to be conditional upon the contract of sale proceeding. 
44	Ms Bradshaw deposes in her witness statement that:
a.	In August 2019 Professor Bin contacted Mr Bradshaw to see if he was interested in purchasing the premises;
b.	In August 2019 Mr Bradshaw inspected the premises in the context of a possible offer to purchase the premises;
c.	Several verbal offers for purchase were made but not accepted;
d.	In October 2019 Mr Bradshaw made a further offer by email to purchase the premises proposing two alternative options:-
i.	Option 1 – 24-month lease at $65,000 per annum with a purchase agreement for $1.2 million on the 25th month. If the purchase agreement does not take effect, then a 5-year lease at $85,000 with 5-year option;
ii.	Option 2 – contract of sale at $1.3 million on a 24-month settlement with annual licencing fee of $75,000.
e.	The October 2019 offer was not accepted; 
f.	After being contacted again by CBRE, she sent the email of 16 December 2019 for a lease/purchase agreement;
g.	It was the intention of Mr Bradshaw and herself to acquire the premises on a going concern basis for GST purposes and also to acquire the premises in a different entity to AWR for asset protection reasons. She said that meant that a lease needed to be in place in addition to a contract of sale. 
45	There is no evidence to suggest that Professor Bin was interested in leasing the premises without a sale of the premises nor is there any evidence that it encouraged AWR to enter into a lease. There is no evidence that AWR was interested in leasing the premises in the absence of a contract of sale proceeding. All offers by AWR were based upon it purchasing the premises. 
46	The evidence of Professor Bin is that 
a.	In June 2019 Professor Bin despite recently purchasing the premises decided to sell because of a change in business direction;
b.	There was a monthly tenancy in place with an annual rent of $69,536 plus GST;
c.	CBRE was engaged to sell the premises and in July 2019 advertised the premises for sale;
d.	At the time it engaged CBRE it had an existing tenant in place on a monthly tenancy;
e.	It had been told by Ms Bradshaw in her email of 16 December 2021 that the contract of sale had to be drafted after the lease was in place due to tax implications; and 
f.	It was willing to sell the premises on the basis of the offer of 16 December 2019 i.e., with a short-term lease with settlement after 12 months. It was not willing to re-let the premises without confidence that the premises would shortly after being sold.
47	Professor Bin clearly only ever intended to enter into the lease on the basis that a contract of sale would follow and the lease was conditional upon the contract of sale. 
48	I do not accept AWR’s contention that the HOA contemplated the possibility that no contract of sale would be executed, and the lease would stand alone. That is contrary to the wording of the HOA and the intention of the parties at the time.
49	Based on Ms Bradshaw’s evidence, there was an actual intention on the part of AWR to enter into the lease and then the contract of sale. 
50	The HOA governed an arrangement whereby two agreements were to be entered into by the parties is a specified order namely the lease followed by the contract of sale. The bargain agreed by the parties required both agreements to be completed. 
51	The parties’ communications and course of dealing show an intention by AWR to purchase the premises with a lease in place. The lease was a mechanism by which it could secure a tax concession on the sale so that the purchase was more financially advantageous to it. It was not looking to secure a lease in the absence of the purchase.
52	I accept Professor Bin’s submission that a term ought to be inferred that the lease was not unconditional and only operated insofar as the parties were ready, willing, and able to enter into that contract for the sale of the premises within the timeframe that they imposed on themselves.
Implied Term
53	Both parties relied upon the test for considering whether a condition can be implied into a commercial agreement set out in BP Refinery as follows: -
40. Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. 
41. Their Lordships venture to cite only three passages - albeit they are familiar to every student of this branch of the law. In The Moorcock (19) Bowen LJ said: "I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen.  It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself.
In Reigate v. Union Manufacturing Co., Scrutton LJ said: 
"A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated someone had said to the parties, 'What will happen in such a case?', they would both have replied: 'Of course, so and so will happen; we did not trouble to say that; it is too clear."'
54	As to the five requirements from BP Refinery, Professor Bin submits: 
i.	The term is reasonable and equitable because it gives effect to the parties’ clear commercial arrangement as recorded in the signed HOA and is not partisan to one party over another; 
ii.	The term is necessary to give business efficacy to the lease because the lease was, plainly, never intended to operate for an unconditional term of 5 years; 
iii.	The term is so obvious that “it goes without saying” having regards to the plain context in which it was agreed and executed; 
iv.	The term is capable of clear expression; and
v.	The term does not contradict any express term of the lease. In this respect, although the lease contains the usual provisions for term, default and termination, the condition sits readily alongside those provisions not as a separate or contradictory right to terminate, but as providing a condition precedent or subsequent to the lease itself. That point is made good by the simple fact that leases commonly contain such conditions together with options to extend and termination provisions;
55	Professor Bin says this case is on all fours with the decision in Regreen in which the Court implied terms making one interlinked agreement conditional upon the performance of the other.
56	I now turn to consider the conditions in the BP Refinery test.
The term must be reasonable and equitable
57	 I find that the term is reasonable and equitable because it is consistent with the agreement reached by the parties in the HOA. The objective construction of the HOA which is not disputed is that at the time of its formation, the parties intended to execute a lease in favour of AWR to allow it access to the premises as soon as practical and execute a contract of sale for the premises on substantially the same terms as those annexed to the HOA, with the necessary amendments referred to in the HOA.  The agreement reached in the HOA was to be given effect to by the entry into the lease followed by the entry into the contract of sale. The evidence of AWR was that it intended to acquire the premises as a going concern for GST purposes and to acquire the premises in a different entity for asset protection reasons.  This intention meant the lease needed to be in place before the contract of sale.  
58	Professor Bin contends, and I agree, that the only purpose of the lease was to convey benefits on AWR in connection with the purchase of the premises. It is reasonable and equitable for both parties to be relieved of their obligations under the lease once AWR ceased to be the purchaser of the premises. The implied term was a contingent condition and Professor Bin was entitled to possession of the premises once the condition was not fulfilled. 
59	As found in Regreen, it is fair and appropriate to judge the transaction as a composite transaction as envisaged by the HOA notwithstanding that two separate agreements were prepared. The lease was not executed in isolation. It was part of a regime whereby Professor Bin was selling the premises to AWR.
The term must be necessary to give business efficacy to the contract
60	The term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it. 
61	AWR emphasised that that the HOA did not include the implied condition. It says the HOA binds the parties and compels them to enter into a contract of sale in the terms set out in the HOA.  As such Professor Bin should enforce the HOA. An implied condition in the lease is unnecessary.
62	The Court of Appeal in Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd when considering whether a term was necessary to give business efficacy to the contract said:
The condition … requires consideration of whether the term is necessary for the purposes of ‘giving to the transaction such efficacy as both parties must have intended that at all events it should have’, making the agreement work or avoiding an unworkable situation. Where the express terms of an agreement are sufficient to give it the business efficacy the parties intended it to have, it will not become necessary to imply additional terms. However, a term may be commercially necessary, in order for the contract to be workable in a business sense, notwithstanding that it can operate without the term. In Commonwealth Bank of Australia v Barker, French CJ, Bell, and Keane JJ stated that the requirement that a term implied in fact be necessary ’to give business efficacy’ to a contract can be regarded as a ‘specific application’ of the criterion of necessity which also supports the implication of a term in law. They also said that ‘[i]mplications which might be thought reasonable are not, on that account only, necessary.’
63	Professor Bin had a monthly tenancy in place before the lease with AWR.  The evidence is that Professor Bin wanted to sell the premises not secure a long-term tenant in the absence of a sale.  There is no business efficacy in binding Professor Bin to a 15-year lease when it is not selling the premises to AWR.  The transaction that was intended by both parties was that the contract of sale would follow the lease, both contracts being part of the one transaction set out in the HOA. The lease in its current form is insufficient to give it the busines efficacy the parties intended it to have as evidenced by the HOA. 
64	The fact that the lease could operate without the implied term is not the test.  As stated in Regreen “the ‘business efficacy’ condition is not concerned with whether it is theoretically possible for a contract to operate without the postulated implied term, but whether the contract would be commercially workable without it.” The transaction is set out in the HOA.
65	I find that the term is necessary to make the transaction work and avoid an unworkable situation. It is necessary to give the agreement such efficacy as both parties intended.
The term must be so obvious that ‘it goes without saying’
66	It is very clear on the evidence that the parties intended the transaction to comprise both the lease and the contract of sale. The HOA make it clear that both transactions were to take place. The reason the lease was arranged was to benefit AWR in its acquisition of the premises.  Professor Bin did not require the lease. 
67	Had the parties been asked at the time they entered into the HOA and the lease whether the implied term should be included in the lease I have no doubt that the answer would have been “yes”. The condition that the implied term must be so obvious that ‘it goes without saying’ is satisfied. 
68	The commercial purpose of the lease was a GST benefit and asset structure benefit upon the acquisition of the premises for AWR. Accordingly, if an officious bystander who observed the transactions between AWR and Professor Bin had asked them: ‘Is the lease to come to an end if the contract of sale does not proceed?’ they would have responded: ‘Oh, of course’.
The term must be capable of clear expression
69	AWR submits that the precise formulation of the implied condition is unclear.  I find that the term relied upon by Professor Bin is capable of clear expression. 
The term must not contradict any express term of the contract.
70	AWR says the implied condition offends the principle from BP Refinery in that if implied, it contradicts: 
a.	clause 7 of the lease which provides a clear process to terminate the lease; and 
b.	the clear intent of the HOA which makes the obligation to sign the Contract of Sale: “Subject to satisfactory review of Section 32 and Contract of Sale” and therefore implies that AWR was able to declare the review unsatisfactory and elect not to proceed with the contract of sale. 
71	I find that the term is not inconsistent with the right to terminate set out in clause 7 of the lease. The implied term is not about a breach of lease. There is no dispute under the lease. The dispute resolution clause is not enlivened. 
72	The term does not contradict the right of AWR to elect not to proceed with the contract of sale following a review of the s32 Statement. If that event occurred, then the lease would be voidable.
Other Matters
73	It is submitted by AWR that the HOA contemplated the possibility that no contract of sale for the premises would be executed.  The lease is a distinct, standalone agreement from the HOA. To conclude otherwise it is argued, would lead to the absurd counterfactual that having encouraged AWR to enter into the lease, take possession of the land and commence operating its business from the land, within approximately one month thereafter Professor Bin would be entitled to determine the lease by reason of a failure of the parties to enter into a contract of sale of land. To so determine would be to give life to the unconscionable outcome.
74	One could argue the same could be true looked at from the perspective of Professor Bin. AWR having agreed to purchase the premises encouraged Professor Bin to grant a lease to it which Professor Bin would not otherwise have granted as part of its acquisition in order to obtain some financial benefits. It would lead to the absurd counterfactual that AWR could elect not to proceed with the purchase leaving the premises tied to a 15-year lease but no sale. 
75	The HOA contemplates two agreements to give effect to the bargain struck by the parties. There is nothing unconscionable about an outcome which holds the parties to their agreement. 
76	AWR submits that it was open to the parties to expressly agree the purported implied term or condition which they did not do. It relies upon the requirement in s 52(1) of the Property Law Act 1958(VIC) (PLA) that any conveyance of land or an interest therein is void unless executed by deed and s 126 (1) of the Instruments Act 1958 (Vic) which prohibits a person from bringing an action against another for an interest in land, such as a lease, unless it is brought upon a written agreement or memorandum signed by the person charged. It says it is not open to Professor Bin to unilaterally change the agreement to lease by the parties which was solemnised by the proper execution of the lease document. 
77	Section 126 of the Instruments Act 1958 (Vic) and s 53(1) of the PLA do not, as a matter of principle, preclude the implication of terms into contracts that are themselves in writing and signed by the parties. The provisions are satisfied by the written executed lease.
78	Contrary to AWR’s position, no issue arises under the Instruments Act 1958 or PLA. The implied term is not creating the interest in land.
79	For the reasons stated if the term cannot be inferred, then  I find that the term was implied into the lease. 
Is There a Collateral Contract?
80	Professor Bin says the term can be incorporated on the basis that the HOA is a collateral contract to the lease and the terms of the HOA are therefore incorporated into the lease insofar as they are applicable to, and consistent with, the lease.
81	Professor Bin relies upon the High Court decision in Hospital Products Ltd v United States Surgical Corporation  and in particular the following passage by Gibbs C.J.: 
A representation made in the course of negotiations which result in a binding agreement may be a warranty - i.e., it may have binding contractual force - in one of two ways: it may become a term of the agreement itself, or it may be a separate collateral contract, the consideration for which is the promise to enter into the main agreement. In either case the question whether the representation creates a binding contractual obligation depends on the intention of the parties. In 1. J. Savage & Sons Pty. Ltd. v. Blakney and Ross v. Allis-Chalmers Australia Pty. Ltd., it was said that a statement will constitute a collateral warranty only if it was "promissory and not merely representational", and it is equally true that a statement which is "merely representational" - i.e., which is not intended to be a binding promise - will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. In the present case Mr. Blackman, who made his statements fraudulently, had, of course, no intention that they should amount to contractual undertakings, but he could not rely on his secret thoughts to escape liability, if his representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained objectively; it "can only be deduced from the totality of the evidence" Heilbut, Symons & Co. v. Buckleton. In other words, as Lord Denning said in Oscar Chess Ltd. v. Williams: "The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice."
82	In this respect, it is contended, a promise or assurance made by one party to another (Contract A) prior to executing the parties’ primary contract (Contract B) can constitute a contract collateral to Contract B if the consideration for the entry into Contract B was the promise or assurance contained in Contract A. It is submitted by Professor Bin that this is the case here, where the parties’ entry into the lease constituted part of the consideration exchanged by the parties within the HOA – that is, formed a fundamental part of the parties’ underlying bargain.
83	Finally, Professor Bin contends, and I agree, that an agreement which is subject to a condition that is not fulfilled is voidable at the election of a party. The lease is exposed to forfeiture by conferring upon the lessor the right to determine the lease if he or she so choses. 
84	In closing submissions, AWR’s counsel said that the parties did not intend the HOA to be binding. This assertion is contrary to AWR’s Points of Defence which specifically pleaded that the HOA was binding on the parties. It is also contrary to other submissions made by AWR that Professor Bin should enforce the HOA rather than take the action it did.
85	There are numerous instances in correspondence written by AWR’s lawyers where the HOA is clearly relied upon by AWR. For example, in a letter dated 16 April 2020 to Professor Bin’s lawyers it reads “My client is also seeking to formalise the contract of sale that is the subject of a heads of agreement and which my client relied upon in signing the lease of the premises.” This departure from the HOA being binding is inconsistent with the evidence.
86	Given the positive admission in the points of defence that the HOA is binding and imposed obligations on the parties, AWR cannot raise for the first time in its closing submission a new ground that the HOA is not binding on the parties. 
87	Furthermore, there is no evidence whatsoever that the parties did not intend the HOA to be binding.
88	AWR denies the existence of a collateral contract.
89	I find that the HOA and lease are collateral contracts. The HOA provides for a lease followed by the entry into a contract of sale. The parties’ entry into the lease constituted part of the consideration exchanged by the parties in entering into the HOA. For reasons already stated the parties had an intention at the time of entry into the HOA that the contract of sale would follow the lease and the lease was conditional upon a contract of sale being entered into by the parties.
90	I find that the lease is conditional upon the parties entering into a contract of sale for the premises and that insofar as the parties fail or refuse to do so, the lease is voidable at either party’s election. 
Has the condition been breached?  
91	 Professor Bin says that because the lease contained the condition that the parties enter into a contract of sale by 29 March 2020 (or some reasonable time thereafter), both parties were subject to the obligation to do all such things as are necessary on their part to allow the other to have the benefit of the contract. Neither could, for instance, refuse to negotiate with respect to the terms of the contract (or act unreasonably in that negotiation) in order to exercise the right of termination after the 29 day period and frustrate the purpose of the agreement. 
92	With the lease commencing 28 February 2020, the HOA required the parties to enter into a contract of sale by 28 March 2020 being 29 days from the entry into the lease.
93	A contract of sale was not entered into by the parties. 
94	On 11 March 2020 Professor Bin’s solicitors, emailed AWR a contract of sale for the premises executed by Professor Bin. It was consistent with the HOA but for one new provision in the licence agreement. That provision was to increase the licence fee if settlement did not occur on time (licence penalty clause).
95	AWR did not respond to Professor Bin before the 29-day period expired. 
96	AWR says the version of the contract of sale provided by the Professor Bin on 11 March 2020 contained additional special conditions and punitive licence fees and was therefore not comparable to the form of contract that had been negotiated and agreed between the parties. AWR did not identify the “additional special conditions” and I have been unable to identify any that were not contemplated by the HOA other than the licence penalty clause. 
97	AWR says that Professor Bin failed, refused, or neglected to offer to enter into a contract of sale as required by the HOA. It has prevented AWR’s strict compliance with the HOA insofar as there was an obligation to enter the contract within 29 days. It cannot now insist on the strict performance of an obligation that it prevented AWR from performing. 
98	I do not accept the contention that the contract of sale sent on 11 March 2020 contained a substantial departure to the terms agreed. But for the licence penalty clause the 11 March 2020 contract was compliant with the agreement reached in the HOA.
99	Rather than raise a single issue of the licence penalty clause, AWR sought to rewrite the agreement. The contract sent by Ms Bradshaw on 31 March 2020 deviated in many significant aspects from the agreement set out in the HOA.
100	It was always open to AWR to take issue with the licence penalty clause within the 29-day period which it did not do.
101	I accept Professor Bin’s submission that as a general rule, an agreement which is subject to a condition (either precedent or subsequent) that is not fulfilled is voidable at the election of a party. In the context of a lease, a similar result ensues – namely, that the particular lease is exposed to forfeiture by conferring upon the lessor the right to determine the lease if he or she so chooses. Such a condition is a “qualification annexed to an estate” whereby the estate (i.e. the lease) will be defeated or defeasible upon its failure.
102	I accept Professor Bin’s contention that it provided a draft contract of sale on 11 March 2020 to AWR which was consistent with the HOA. In doing so, Professor Bin fulfilled its implied obligation to do all it could do in order to give effect to the condition and to give AWR the benefit of the HOA.  AWR did not respond to the draft contract until 31 March 2020 – after the 29-day period elapsed on 29 March 2020. 
103	It is clear from the conduct of the parties that they did not treat the 29-day time period as being “of the essence”. In the circumstances, the parties had a reasonable period of time in which to comply with the HOA.
104	 I do not accept Professor Bin’s assertion that by sending the email of 31 March 2020, AWR repudiated the HOA. On 25 March 2020 CBRE, invited AWR to suggest amendments to the contract of sale and that is what they did in the 31 March 2020 email. 
105	Contrary to Professor Bin’s submission, Professor Bin was not entitled based solely upon the noncompliance with the 29-day time frame, to re-enter the premises from 29 March 2020. The conduct of the parties shows that time was not of the essence so that the parties had a reasonable period in which to negotiate the contract of sale. 
106	On 10 April 2020 Professor Bin’s lawyers sent an email to AWR enclosing a copy of their demand contained in an email of 3 April 2020 addressed to AWR. The 3 April email had been sent to an incorrect email. The email of 10 April 2020 reiterated the content of the 3 April demand but changed the time frames for compliance.  A deadline of 5 pm on 15 April 2020 was stipulated.
107	 The 3 April email (adopted by the 10 April email) made demand on AWR under the HOA that within 5 days it would either:
a.	Provide notice in writing that it intends to execute contract of sale in accordance with the HOA; or
b.	Vacate the property.
The letter gave notice that if neither of the two options was taken, action would be taken “to remove you from the property for unlawful occupancy.” Importantly no demand was made under the lease. 
108	AWR’s written opening submission referred to re-entry on 16 April 2020 as being in breach of s146 of the PLA and clause 7 of the lease. Both provisions require at least 14 days’ notice of breach to be provided to AWR before terminating the lease.
109	Implicit in AWR’s submission is that any re-entry by Professor Bin could only occur after service of a notice of default allowing 14 days’ notice in which to remedy any breach. 
110	In the Statement of Agreed Facts, the parties agreed that on 16 April 2020 Professor Bin unsuccessfully attempted to retake possession of the premises. Accordingly, as re-entry did not occur there is no issue with the requisite period of notice not being provided at that time.
111	 On 26 April 2020 Professor Bin retook possession by changing the locks. 
112	This was more than 14 days after the 10 April 2020 letter.  
113	However, the 3 and 10 April 2020 demands were not demands made under the lease. They were demands under the HOA, an agreement which was collateral to the lease. This was clearly set out in the emails. There was no reference to a breach of lease.
114	Professor Bin was not terminating the lease based upon a breach of the lease. It was terminating the lease because of a failure of a condition that the parties enter into the contract of sale within a reasonable time. As the condition had not been met, it gives rise to an entitlement to terminate.
115	There was no obligation to follow any dispute resolution or breach processes under the lease or  s146 of the PLA.
116	AWR submits that on 16 April 202 its solicitors emailed Professor Bin’s lawyers after Professor Bin purported to retake possession on the premises. The email included a statement “My client is also seeking to formalise the contract of sale that is the subject of a heads of agreement and which my client relied upon in signing the lease of the premises.” AWR says this complied with the 10 April 2020 demand and cured the alleged default. 
117	The 10 April email required a response within 5 days. 
118	The 10 April email also required a statement from AWR that it ‘intends to execute a Contract of Sale containing the terms in accordance with the Agreement without the conditions set out in your Email.”  “Agreement” is a reference to the HOA and “Email” is a reference to AWR’s email of 31 March 2020. 
119	 The response from AWR’s solicitor on 16 April 2020 did not meet the time frame and it fell short of the required statement. Seeking to formalise a contract is not the same as expressing an intention to execute a contract without previously suggested conditions. It lacks the level of commitment demonstrated by the expression of an intention to execute a contract. 
120	Having heard nothing further, on 26 April 2020 Professor Bin retook possession by changing the locks. 
121	I find that Professor Bin’s re-entry was valid, and the lease terminated on 26 April 2020.
122	On 30 April 2020 the Tribunal gave AWR possession on an interlocutory basis.  Those proceedings were struck out when AWR failed to comply with an administrative mention. 
123	Even if AWR was entitled to possession of the premises after 26 April 2020, it did not, within a reasonable time, enter into a contract of sale in accordance with the HOA. I accept Professor Bin’s submission that it could not reasonably have been expected to do anything further to ensure that the parties entered into a contract on terms consistent with the HOA. It tried to engage with AWR a final time on 17 June 2020.  AWR did not progress the matter and on 14 September 2021 Professor Bin terminated the lease a second time. 

					CLAIM FOR LICENCE FEES
124	Professor Bin claims $50,000, being the annual licence fee set out in the HOA. Professor Bin says it agreed to the lease only because of AWR’s promise in the HOA to pay a licence fee of $4,166.66 per month (or $50,000 p/a) in addition to the annual $50,000 of rental. That is consistent with Professor Bin’s having received $68,000 p/a in rental from its previous tenant (which it evicted to give effect to the HOA). The promise to pay an additional $50,000 licence fee formed part of all of AWR’s offers prior to entry into the HOA and the lease and was an integral part of the parties’ arrangement. 
125	Professor Bins says the promise to pay by AWR was misleading or deceptive because, having regards to AWR’s conduct in negotiating the contract of sale, it is clear that AWR never intended on paying the licence fee – and by refusing to enter into a contract of sale on the agreed terms, AWR deprived Professor Bin of the licence fees which it promised Professor Bin it would receive.
126	AWR says no licence fee is payable as the HOA is not binding on the parties.
127	I have found that the HOA is binding on the parties.
128	Having also found that AWR breached the HOA, the appropriate measure of damages is an amount to reflect the $4,166.66 per month licence payable from the date the parties ought to have entered into the contract of sale, being within a reasonable period. In the circumstances a reasonable period is 30 days after 17 June 2020 when Professor Bin last tried to engage with AWR on the contract of sale terms.  At the date of these reasons, that will be 13 months’ worth of payments which equates to $54,166.58.

COUNTERCLAIM
129	AWR seeks to set off by way of defence against any liability to Professor Bin $118,785.33 being its alleged loss and damage caused by Professor Bin’s unlawful trespass to land and goods, and unlawful repudiation of the lease. 
130	Having found in favour of the applicant, the counterclaim is dismissed. 

L. Forde
Senior Member