The Supreme Court of Western Australia ruled against Edwards Industrial Products Pty Ltd in a case concerning the interpretation of a charging clause within a lease agreement. On 20 February 2025, Justice Lundberg declined to grant the plaintiff the relief it sought, focusing on whether a charging clause in a contract to lease remained effective after the execution of a formal lease that did not include a similar provision.
The case arose from a lease arrangement over commercial property in Kenwick, where the plaintiff, the lessor, owned the property, and the defendant, the lessee, operated a bumper repair business. The dispute originated from a contract to lease signed on 16 April 2014, which was subsequently followed by a formal lease executed on or around 1 June 2014. After the lease expired in November 2019, the lessor sought payment for overdue amounts. When the lessee failed to respond, the lessor lodged a caveat against the lessee’s residence, claiming an interest as chargee.
Central to this case was clause 7.2 of the contract to lease, which stipulated that the guarantors and lessee agreed to charge any property they owned as security for payment obligations owed to the lessor. The absence of a corresponding clause in the formal lease led to the main legal issues addressed by the court.
The court examined two pivotal questions: First, whether clause 7.2 immediately created an equitable charge; second, if such a charge existed, did it survive the execution of the formal lease or cease to exist upon its execution?
Justice Lundberg reiterated that the proper construction of a commercial contract should be objective, considering its text, context, and purpose. The court recognized that where parties execute multiple documents, these must be read together to ascertain their proper interpretation, especially when created simultaneously or in close succession.
The court emphasized that the intention behind a charging clause must demonstrate an immediate obligation to charge the property rather than a future intention. In this case, the language in clause 7.2 indicated that the charge was contingent upon the execution of the lease, suggesting it was not intended to be immediately operative.
The plaintiff asserted that all elements required for creating an equitable charge had been satisfied. They argued that even a statement indicating a party “will charge” property could create an immediate charge. However, the court found this interpretation unconvincing, noting that the phrase “agree to charge” lacked the immediacy required for establishing an equitable charge.
In its ruling, the court concluded that the contract to lease was intended to merge into the formal lease, which was meant to replace the earlier agreement entirely. The absence of the charging clause in the formal lease was significant, as it indicated the parties’ intent to exclude it from the final agreement. The court also recognized that the formal lease was prepared with the involvement of solicitors, who could have included any terms deemed necessary but chose not to.
Ultimately, the court denied the plaintiff’s request for relief, reinforcing the importance of clarity in contract drafting. This case serves as a reminder that charging clauses must clearly express an immediate intention and that any prior agreements must be properly incorporated into subsequent contracts to avoid ambiguity.
Legal practitioners are advised to ensure that charging clauses are written with precision. Expressions that imply future intentions, such as “will charge” or “agree to charge,” should be avoided unless that is the intended meaning. Instead, language indicating an immediate effect, such as “hereby charge with immediate effect,” may provide clearer legal standing.
The ruling highlights critical lessons in drafting commercial contracts, particularly those involving charges and entire agreement clauses, emphasizing that a charge must meet strict legal criteria to be valid.
