Primary RE Ltd v Great Southern Property Holdings Ltd & Ors – enforceability of maintenance obligations

This post is the second in a series of posts discussing the judgment in Primary RE Ltd v Great Southern Property Holdings Ltd & Ors [2011] VSC 242.

The main clause relied upon by the Receivers of the land owning companies in their s 146 notices was clause 6(b), which required the tenant to:

… establish, tend and manage the Plantation Crop in a proper and skilful manner and in accordance with sound silvicultural and environmental practices adopted in the forestry industry and as and when appropriate prepare, cultivate, spray herbicides and insecticides, plant seeding trees, fertilise and Harvest the Plantation Crop.

Primary RE argued that:

• clause 6(b) is ambiguous and uncertain and incapable of enforcement because ‘proper’ and ‘sound’ practices were unclear and there was no established general practice within the forestry industry;  and
• the tenant was entitled to know what to do to remedy the default.

The Receivers argued that:

• the clause is not ambiguous or uncertain;
• courts can have regard to external standards such as what is ‘reasonable’ to add flesh to the contract;
• those standards were well established by reference to the Great Southern’s own internal manuals and published codes of practice;  and
• Primary RE’s own expert had no difficulty with the concept.

The Court accepted the receivers’ submissions and found that the expressions in clause 6(b) of the lease were:

• well understood by an informed independent bystander in the position of the landlords and the tenant, as having meaning and capable of practical application;
• the relevant expressions in clause 6(b) were deliberately framed to allow for advances in science, technology and conditions;  and
• the kind of precision in the lease demanded by Primary RE would frustrate effective management through over prescription.

I think this discussion provides a useful example of how a modern court will interpret relatively broad provisions in a lease and is recommended reading for practitioners who regularly draft or litigate leases.

This discussion can be located at paragraphs [67] to [75] of the judgment.