Alsanto Nominees Pty Ltd v Bowen

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: ALSANTO NOMINEES PTY LTD -v- BOWEN & ANOR [2009] WADC 130

CORAM: COMMISSIONER STAUDE

HEARD: 22, 23 SEPTEMBER, 14, 15, 16 OCTOBER, 20 & 21 NOVEMBER 2008

DELIVERED : 26 AUGUST 2009

FILE NO/S: CIV 1461 of 2007

BETWEEN: ALSANTO NOMINEES PTY LTD (ACN 008 887 741)
Plaintiff
AND
NIELS BOWEN
First Named Defendant
JAYNE ELIZABETH CANNON
Second Named Defendant

Catchwords:

Contract - Offer to lease commercial premises - Formation - Acceptance - Breach of contract - Intention of the parties - Waiver of condition precedent - Construction of contract - Damages for breach

Legislation:

A New Tax System (Goods and Services Tax) Act 1999 (Cth)
National Health (Australian Community Pharmacy Authority Rules) Determination 2006
National Health Act 1953 (Cth)
Pharmacy Act 1964 (WA)
Pharmacy Act Regulations 1976

Result:

Plaintiff awarded damages

Representation:

Counsel:

Plaintiff:     Mr S Owen-Conway QC and Mr P A Monaco
First Named Defendant     :     Mr S K Shepherd
Second Named Defendant    :     Mr S K Shepherd

Solicitors:

Plaintiff:     GV Lawyers
First Named Defendant     :     Tottle Partners
Second Named Defendant    :     Tottle Partners

Case(s) referred to in judgment(s):

Allen v Carbone (1975) 132 CLR 528
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Gange v Sullivan (1966) 116 CLR 418
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Masters v Cameron (1954) HCA 72; (1954) 91 CLR 353
Maynard v Goode (1926) 37 CLR 529
Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451
Sandra Investments Pty Ltd v Booth (1983) 50 ALR 385
Suttor v Gundowda Pty Ltd (1959) 81 CLR 418
Terrex Resources v Magnet Petroleum (1988) 1 WAR 144
Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165
Zisti v Ryde Joinery Pty Ltd, unreported; SCt NSW; 2 May 1996; BC9602382

COMMISSIONER STAUDE:

Preliminary

The trial of this matter was heard in three stages over eight days, commencing on 22 September 2008 and concluding on 21 November 2008. My commission ended on 30 September 2008, but authorised me to hear and determine any matters still pending at that date. My commitments as counsel since the conclusion of the trial, a number of which had been deferred by reason of my appointment, have prevented me from delivering a more timely judgment.

The claim

The plaintiff claims damages against the defendants for breach of an agreement to lease commercial premises owned by the plaintiff at 13 Williams Street, Fremantle ("the premises"). The plaintiff's claim is based on a document called an Offer to Lease signed by the second named defendant on behalf of "Chemist Outlet" as lessee and Mr Tony Monaco on behalf of the plaintiff as lessor. It was a term of the Offer to Lease that the parties would enter into a lease agreement prepared by the plaintiff's solicitors, but no formal lease was executed. The plaintiff relies on the Offer to Lease as a contract in respect of which it is entitled to claim damages for breach.

Pleadings and evidence

The statement of claim pleads simply that the Offer to Lease formed an enforceable agreement which the defendants breached by failing, within a period of time stipulated in a notice of default, to pay a deposit, provide a bank guarantee and enter into a formal lease, as agreed.
The original defence admitted the agreement and all but two of the pleaded terms, but went on to allege that:
(a)"it was the common intention of the parties that the leased premises would be used by Warren Conway as a pharmacy and that Mr Conway would relocate his existing pharmacy from Shop 12, Woolstores, Fremantle, to the leased premises";
(b)the agreement on its true construction was conditional upon the defendants obtaining "such Medicare, Pharmaceutical Council of Western Australia and local council approvals as were necessary to enable the pharmacy to be relocated"; and
(c)the National Health (Australian Community Pharmacy Rules) Amendment Determination 2007 (No 1) published on 27 March 2007 provided that pharmacies in large shopping centres could only be relocated to premises which were at least 500 metres from all other approved pharmacies, and therefore prevented the relocation of Mr Conway's pharmacy to the premises, thus entitling the defendants to treat the agreement as being at an end.
The complexion of the dispute deepened when leave was granted to the defendants prior to trial to amend their defence to deny the fact of an agreement to lease and to aver that the defendants did not intend to enter a lease of the premises, rather that any lease of the premises would be between the plaintiff and Warren Conway, and that, in effect, the Offer to Lease merely amounted to an agreement that the second named defendant would use her best endeavours to have Mr Conway enter into a lease of the premises.
The defendants otherwise maintained, in the alternative, that any agreement was conditional on certain approvals being obtained of the relocation of Mr Conway's pharmacy to the premises, which did not occur.
The amended defence is dated 25 July 2008. It led to a reply being filed which pleaded numerous facts evidencing acceptance and contended that by taking possession of the premises the defendants waived the benefit of the "approvals" condition.
On the second day of trial leave was granted to the defendants to file a substituted defence to accommodate further amendments. In this version of the defence the defendants pleaded that there was no agreement because the document relied on by the plaintiff was in fact a counter-offer which the defendants did not accept (par 7). Alternatively, it was pleaded that:
1.the document did not identify the lessee (par 18);
2.the document provided by cl 18(d) that the parties "use reasonable endeavours to agree a final form of lease and have it executed "in line with the intent" of this agreement" (par 15);
3."the intent of the document was to afford the second-named defendant an opportunity to make arrangements for lease of the premises by a pharmaceutical chemist who could trade from the premises as 'Chemist Outlet – Fremantle' " (par 16);
4.no final form of lease was agreed (par 17); and
5.accordingly, no "binding or concluded agreement" was made (par 20).
The substituted defence went on to plead that the plaintiff knew that the defendants did not intend to enter a lease and that any lease "to be negotiated … would be between the plaintiff and Warren Conroy, the proprietor of a pharmacy in Fremantle" (par 21), and otherwise iterated the point that if there were an agreement it was to the effect that the second-named defendant would exercise best endeavours to facilitate the negotiation of a lease between the plaintiff and Mr Conway and that the agreement was conditional on the stated approvals for relocation were obtained.
The substitution of a fresh defence resulted in an adjournment of the trial to 14 October 2008. An amended reply was filed on 26 September 2008 and a rejoinder on 1 October 2008. When the trial resumed on 14 October 2008 the statement of claim was further amended in two minor respects.
The effect of the amendment and augmentation of the pleadings after entry for trial and, indeed, during the course of the trial, was that the field of dispute was widened rather than narrowed with the result that the trial was longer than it might have been. The principal reason for this was that once issue was joined on the formation of the alleged contract, evidence became relevant which would not have been if the only issue was one of construction.
Senior counsel for the plaintiff, on the authority of Codelfa Construction Pty Ltd v State Rail Authority of NSW(1982) 149 CLR 337 at 352, Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165 at [35] and other cases, objected to evidence of the defendants' subjective intentions in relation to the transaction.
Whilst this objection was appropriately taken in relation to matters of construction, I was bound to rule that the issues finally joined with respect to formation, particularly as to whether there was acceptance, whether the contract fell within either of the first two classes of agreement identified in Masters v Cameron (1954) 91 CLR 353, whether the special condition with respect to approvals required for the relocation of a pharmacy to the premises was a condition precedent to either formation or performance, and other incidental and related issues, necessitated an inclusive approach to the evidence.
Even with respect to issues of construction, it was necessary in this context to bear in mind the principle that the determination of what a reasonable person would have understood the parties to mean "requires consideration not only of the text, but of the surrounding circumstances known to the parties, and the purpose and object of the transaction": Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. See also Allen v Carbone (1975) 132 CLR 528 at 531.
At the commencement of the trial I was presented with schedules of objections with respect to witness statements. Many of these were technical to the point of pedantry. Others were substantial. After reasonable conferral none should have required the Court's ruling. I was disinclined to delay the trial to deal with submissions on the objections and indicated that I would reserve my rulings. At this stage of the proceedings I do not propose to rule line by line. I have not had regard to any hearsay as evidence of the truth of what was said. Nor have I had regard to evidence of subjective conclusions, opinions or interpretations, not otherwise admissible to prove state of mind or narrative continuity. I have not relied on any evidence to which objection has been made to reach any finding adverse to the objector.
With respect to the key issues of formation and construction most of the evidence was contextual. As to the material facts there was relatively little controversy, albeit that by the length of the cross-examination of the witnesses one might have thought so. Despite the enormous volume of legal and evidential material with which the court was provided, the case was, in the final analysis, and somewhat ironically, no more complex than the original pleadings indicated. It was, however, more cumbersome and time-consuming than it might have been.
In this respect I am bound to observe that the failure of the parties to agree a common bundle of trial documents resulted in an unwieldy mass of exhibits containing multiple copies of the same documents. In commercial litigation where most of the documents are common to the parties and undisputed as to provenance there is really no excuse for not providing the court with an agreed bundle.

Issues

On the pleadings the core issues are:
1.Did the Offer to Lease document constitute an enforceable contract?
2.If so, was it breached by the defendants?
To answer these, the questions to be determined are:
(a)Did the amendments made to the Offer to Lease document by Mr Tony Monaco on 6 February 2007 constitute a counter-offer and, if so, was it accepted by the defendants?
(b)To the extent that the document provided for the parties to use their best endeavours to agree a final form of lease "in line with the intent of this agreement", did the document evince an intention by the parties to be legally bound by it?
(c)Was the document sufficiently certain and complete in its terms so as to constitute an enforceable contract?
(d)Did cl 19 of the document, which made the agreement subject to the lessee using "best endeavours to gain Medicare and Pharmaceutical Council of WA approval to purchase and relocate any required licences and gaining local government approval" ("the approval condition") operate as a condition precedent to the formation or performance of a contract? Did the defendants enter into possession of the premises on or about 19 April 2007 and, if so, did they waive the benefit of the approval condition, thereby making the contract unconditional?
(e)If not, did the National Health (Australian Community Pharmacy Rules) Amendment Determination 2007 (No 1), in combination with the requirements of the Pharmacy Act1964, cause the defendants to be relieved of the obligation to perform the contract on the basis that the approval condition could not be fulfilled, taking into account the defendants' obligation to use "best endeavours"?
The foregoing analysis does not include the issue of whether the first-named defendant was a party to the alleged contract. This question can be disposed of readily.
The defendants were jointly represented by their solicitors and counsel. If Mr Bowen did not accept that at all material times Ms Cannon was acting on his behalf as well as her own, it would not have been appropriate for the two defendants to be jointly represented. In any event, the substituted defence, although containing a general traverse, does not specifically deny that Ms Cannon transacted the Offer to Lease on Mr Bowen's behalf and he did not give evidence.
Ms Cannon gave evidence that she and Mr Bowen were in business together. She described him as her business partner. They are the directors and shareholders of Chemist Outlet Pty Ltd. Between them they own a number of Chemist Outlet-branded pharmacies. Mr Bowen attended with Ms Cannon at a meeting at the premises on 2 May 2007 and made pertinent admissions which are recorded elsewhere in these reasons. Furthermore, correspondence by Tesoriero Henderson Cotter, solicitors, dated 22 May 2007 in response to the plaintiff's solicitors' notice of default clearly indicated that they were instructed by Ms Cannon and Mr Bowen, and did not dispute Mr Bowen's part.
In the circumstances I have no hesitation in finding that Ms Cannon acted on Mr Bowen's behalf as well as her own in her dealings with the plaintiff. (It was not the defendants' case that the alleged agreement was made on behalf of their company).

Relevant events

The plaintiff is the registered proprietor of the premises. The matters in issue involved Mr Antonio (Tony) Monaco and Mr Allesandro (Sandro) Monaco, directors of the plaintiff.
The defendants, both pharmacists domiciled in New South Wales, are directors of and shareholders in a company called Chemist Outlet Pty Ltd which operates a chain of pharmacies. Prior to 23 August 2007, the company was called Pharmacy by Mail (Marketing) Pty Ltd. The defendants own, some individually and others jointly, a number of pharmacies in New South Wales, Queensland and the Australian Capital Territory each of which trades under the style "Chemist Outlet". The trading name of each is "Chemist Outlet" followed by the name of the location.
Ms Cannon said that she and Mr Bowen owned 12 or 13 pharmacies between them. She said that she had acquired and relocated pharmacies on 14 or 15 occasions. In addition to pharmacies owned by the defendants there are a number of other pharmacies which are licensed to use the name Chemist Outlet. Together, these pharmacies were described as the Chemist Outlet group. In Ms Cannon's witness statement she explained:
"It is in the interests of Chemist Outlet Pty Ltd to bring more members into the group because, although it might require some initial outlay for the company to assist in the identification of suitable premises and arranging fit-out and the necessary licences and transfers[,] [o]nce in place, Chemist Outlet Pty Ltd earns an income from the ongoing annual franchise or group member fee and the rebates from pharmaceutical wholesalers. Once in place, Chemist Outlet Pty Ltd would also seek reimbursement from the new group member for set-up costs, including fit-out."
In late 2006/early 2007 a Mr Peter Smith, who worked in Perth for a building company called Arrix Constructions, contacted Ms Cannon to tell her of premises in Fremantle that he thought might be suitable for a pharmacy. Ms Cannon subsequently contacted a Mr Greg Simpson an employee of Symbion Health, a pharmaceutical supplier with whom the defendants dealt, and asked him whether he knew of any pharmacist who might be interested in relocating their pharmacy to those premises and becoming a group member of Chemist Outlet. Mr Simpson apparently suggested one Warren Conway, who had a pharmacy in the Woolstores Shopping Centre in Fremantle.
Neither Mr Simpson nor Mr Conway was called to give evidence, but ultimately, because of the conclusions to which I have come, nothing turns on this. Mr Simpson apparently offered to negotiate with Mr Conway and later informed Ms Cannon said that he was interested in joining the group and relocating his pharmacy.
Ms Cannon said that she calculated that the premises were less than 1 kilometre from Mr Conway's pharmacy. She spoke by telephone with an unidentified person from the Australian Community Pharmacy Relocation Authority who gave her to believe that the relocation was within the rules. She said she was not told of any prospective changes to the relocation rules.
Ms Cannon expected that if Mr Conway became a franchisee he would lease the premises and that applications would be made to the Pharmaceutical Council of Western Australia for registration of the premises as a pharmacy and to Medicare for approval to supply pharmaceutical benefits.
On 22 January 2007 Mr Mark Guttridge of Knight Frank Australia Pty Ltd, a real estate and property management firm, received an email from a Mr Robert Hewer of Arrix Constructions enquiring on behalf of a client "wishing to set up several Chemist Outlet stores" in various areas of Western Australia as to the availability of suitable premises. Mr Hewer's letter pointed out that there were "stringent guidelines regarding the relocation of a pharmacy".
Mr Guttridge was aware of the premises and later secured an exclusive agency agreement with the plaintiff by which Knight Frank would act as the lessor's agent in consideration of a commission payable upon the premises being leased.
Mr Guttridge spoke by telephone with Ms Cannon on 29 January 2007. She then emailed him as follows:
"As discussed earlier today, I have passed the information re the various sites you forwarded to me onto our contact in Perth to source pharmacies for us. We are particularly interested in the Freemantle (sic) site and possibly have a pharmacy licence there as well.
Is the Freemantle site still available as you mentioned other parties were interested. Also is it zoned RETAIL?"
Mr Guttridge admitted in cross-examination that Ms Cannon told him that a licensed pharmacist would be nominated as the lessee. He agreed with the proposition that any "arrangement" in respect of the premises would have to be conditional upon the transfer of a pharmacy licence being approved. For her part, Ms Cannon understood that neither she nor Mr Bowen could own a pharmacy in Western Australia because to be licensed to operate a pharmacy under the Pharmacy Act1964 (WA), a pharmacist had to be domiciled in the State.
Mr Guttridge responded by email on 30 January 2007, confirming a number of details, including the annual rental of $330,000, and inviting an offer. He wrote:
"Would you like me to assist by doing up an offer to lease this afternoon for the site, and we can try and buy 14, 21 or 30 days by putting it under offer subject to pharmacy license (sic), and a first right 24hr clause for you to go unconditional if another offer is received.
That would be a way to secure the site, while still giving you a few weeks to get the licensing sorted."
Later that day Ms Cannon responded:
"Yes, I would appreciate if you could draw up a lease offer as detailed in your email. I just need it subject to gaining Medicare approval to purchase and relocate the licence and local council approval which should be fine as it is zoned retail."

Mr Guttridge replied shortly afterwards, attaching a standard Offer to Lease and indicating that the plaintiff would allow a rent-free period of three months. He requested Ms Cannon to sign and return the offer with a view to obtaining the plaintiff's acceptance as soon as possible.
The document prepared by Mr Guttridge was stated on its cover to have been prepared by Knight Frank on behalf of the plaintiff. The cover also had the words "Prepared for Jayne Cannon, on behalf of Bowens Health Services/Chemist Outlet". I also note:
1.The first page of the document provided space for the name and address of the lessee. These spaces were blank, but against the words "tenant's trade name" was inserted "Bowen Health Services/Chemist Outlet".
2.The document proposed a lease term of 10 years commencing on 1 March 2007 with a five year option, rent commencing three days after the "date of tenancy handover".
3.The rent was stated to be $330,000.00 per annum plus GST.
4.Rent reviews were provided during the term and during the option period of five years.
5.Clause 11 of the Offer provided that the lessor's solicitors would prepare the lease "incorporating all the details and agreements set out in this offer and such other further terms, conditions and covenants as the lessor's solicitors consider reasonable, adequate and necessary in the circumstances to protect the head lessor having regard to the nature of the premises".
6.Clause 12 provided for a deposit of one month's rent in the amount of $30,250.00 to be paid to the trust account of Knight Frank Australia Pty Ltd.
7.There was a term that the lessee provide a bank guarantee as follows:
"The lessee shall provide a five (5) month's gross rental as a bank guarantee (inclusive of GST) for the term of the lease and any extension thereto for the sum of $151,250.00 on or before date of possession or execution of lease documents whichever being the earlier date".
8.Clause 19 was headed "Special conditions". The claim included the following wording:
"This offer to lease is agreed between the parties, subject to lessee at lessee cost and best endeavours gaining Medicare approval to purchase and relocate any required licences and gaining local council approval.
(In line with this, if the lessor receives another alternative offer to lease while the preceding condition is current, it is agreed that the lessee will be given a first right of refusal to proceed with this offer by removing the foregoing condition and becoming unconditional within 48 hours of date of such formal notice.)"
In his covering email Mr Guttridge stated:
"If you can please sign and return to me ASAP so I can present to the owners formally and try and get formal signoff. They can get you handover ASAP, and you can commence the licensing approvals and fit-out process ASAP."
Ms Cannon responded by email on 1 February 2007:
"Thank you for the attached lease, would the owner consider the following:
1.Four months gross rent free from the date of handover, that is the day we have access to start our shop fit. Does "gross rent free period" mean we don't pay outgoings either?
2.Use of premises – may we please add food items as well. Would we be able to add that the landlord will not unreasonable (sic) withhold approval for change of use.
3.Lease commencement date – 1^st May 2007 – is this possible as it will take time to purchase the licence and get all the approvals in place.
4.Lease term 5 + 5 + 5 with rent commencement four months after handover.
5.Annual rent reviews – CPI capped at 3% & market review at end of each term (years 6 and 11) capped at 4%.
6.Lease preparation – lessee to pay the lessor amount of $1,500.00 or half the costs in preparation of the lease documents.
7.Bank guarantee – two months.
8.Special conditions – what is the capacity of the electrical board?
How many telephone lines are running into the building and accessible and ready to use?
Provide reverse cycle air-conditioning points – is there an air-conditioning system in the premises? If there isn’t air-conditioning will landlord install.
Can the lighting be brought up to 600 lux as this is required for our stores.
Would the landlord consider giving us one set of double electric doors at the front.
Does the current premises have any flooring and if so, what is it and what condition is it in. If none or poor condition would the landlord consider putting commercial grade permanent grade polish vinyl down.
Will the premises be freshly painted on handover and if so are we able to choose the colour.
We require a certificate verifying fire compliance and an occupation certificate or the equivalent from council.
Please add after Medicare in point 19 (and Pharmaceutical Council of Western Australia).
9.On the front page can we remove the prepared for Jane Cannon Bowen Health Services & just have it saying prepared for Chemist Outlet.
10.On page 2 tenant's trade name – Chemist Outlet Freemantle (sic).
11.Remove clause 18(d) as we haven't seen the terms of the lease so cannot agree.
Mark, thank you for giving me the opportunity to lease the tenancy. I look forward to being able to negotiate a mutually beneficial and long term lease for both the landlord and our company."
Mr Guttridge responded later that day attaching a "final offer". He requested a draft formal lease document from the plaintiff's solicitors and forwarded it to Ms Cannon. The document prepared by Mr Guttridge following Ms Cannon's email differed from the previous offer in that:
1.Clause 2 relating to the permitted use of the premises was amended to include food items.
2.The lease commencement date was changed to 1 May 2007.
3.The lease term was five years from the lease commencement date with two five year options.
4.The rent commencement date was changed to four months after date of tenancy handover with outgoings payable from lease commencement.
5.The rent review clause (cl 8) was amended to provide a 4 per cent annual increase on the previous year's base rent with market review at years five and ten and reverting to 4 per cent fixed increase in the years thereafter. (This clause reflected Ms Cannon's request that rent increases during the first term of the lease be capped at 3 per cent.)
6.The lease preparation clause (cl 11) was changed to provide that the lessee's costs of the lease preparation be capped at a maximum of $1,500.
7.The bank guarantee clause (cl 13) was amended to reflect three months' gross rental in the amount of $90,750.
8.Clause 18(d) which provided:
"Notwithstanding that any one or more of the parties has not executed the lease in accordance with the provisions of this agreement, the landlord, the tenant and the guarantor (if any) will from the date of execution of this agreement by the landlord be bound by the terms, conditions, covenants and provisions contained in the lease as if it were both duly executed and delivered."
was deleted, and in lieu of these words the following were inserted:
"Standard form of lease to be issued by independent lawyers Godfrey Virtue and all parties to use reasonable endeavours to expedite and agree final form of lease and executed in line with intent of this agreement."
(9)The special condition in cl 19 was amended by insertion of the words "and Pharmaceutical Council of WA" after "Medicare".
The offer was signed by Ms Cannon and returned to Mr Guttridge on 2 February 2007. On this version of the document:
1.The words on the cover had been changed to read "Prepared for Chemist Outlet".
2.Ms Cannon amended cl 2 by deleting the words "Chemist Outlet" and signed that change.
3.Clause 5 was changed by Ms Cannon so the rent commencement date was expressed to be "four months from 1^st May 2007 (lease commencement date)" and the words "rent free months: May, June, July and August 2007" were inserted.
4.The rent review was amended by Ms Cannon to delete the words inserted by Mr Guttridge so that it read:
"(For years: 2, 3, 4, 5, 7, 8, 9, 10, 12, 13, 14 and 15)
CPI All groups weighted over average of 8 capital cities, index, capped at 3.5%
On taking up option (years 6-11) the annual gross rent shall increase by a fixed 4% on the previous year's rent."
5.The acceptance clause (cl 22) was changed by Ms Cannon to delete the words "and confirm that a copy of the standard lease to be agreed will form part of this offer to lease the premises as described."
6.In the acceptance clause the name of the "company or trust for which the lessee acts" was given as "Chemist Outlet" and the address was inserted.
7.The acceptance clause was signed by Ms Cannon who added the inscription "Jayne Cannon – proprietor. Chemist Outlet 2/2/07".
Mr Tony Monaco on behalf of the plaintiff signed the lease on 6 February 2007, although he dated it 7 February 2007. At the same time Mr Monaco amended the document as follows, initialling the amendments:
1.In cl 5 (lease term) after "five years" he added "six months". He also amended the rent free months to delete August.
2.In cl 19 Mr Monaco deleted the words "in close proximity to the switch board" and inserted the words "as is", inserted the numeral "8" before the words "brand new Toshiba reverse cycle units", deleted the word "ducted" and inserted "cassette" and, in the part of the clause relating to flooring, he added the words "as is".
Mr Guttridge said that Mr Monaco gave him the amended signed document on 6 February 2007. Mr Guttridge then emailed Ms Cannon stating:
"I have good news, the owners have reviewed the final offer for 13 William Street Fremantle and I can advise they have given conditional signed acceptances attached. Final signed counter attached.
They have conceded the CPI (8 capital cities capped at 3.5%) rent review, and market at option capped at 4%.
They have conceded May 1^st commencement, and final counter offered additional May, June, July rent free. (6 months from today). Happy to hand over early once lease is finalised.
They have clarified that the 8 brand new commercial Toshiba reverse cycle a/c units have cassettes rather than duct.
I think this is a great result for both parties.
Really now comes down to you using best endeavours to get the pharmacy licence asap."
Following the receipt of this document Ms Cannon emailed Mr Guttridge on 7 February 2007:
"Thank you for the attached lease offer.
Would you please be able to amend the market review on the lease to offer document to reflect market reviews capped at 4% (not fixed 4% increased) as in your email below stating the owner has agreed to market review being capped at 4%.
Thank you, I will let you know how I go on the 15^th when I am meeting with the pharmacist re purchasing the pharmacy."
Mr Guttridge's evidence was that he had confirmed in his email of 6 February 2007 that the plaintiff had agreed to the market review at the expiration of the term being capped at 4 per cent. He said that although it was not reflected in Ms Cannon's amendments to the Offer to Lease, his email of 6 February 2007 made it clear that the plaintiff had agreed to cap the market review increase as she requested. At that stage he did not consider that there was any issue with respect to any of the terms of the lease.
It is apparent from the evidence that there was no further email correspondence or discussion regarding the terms of the Offer to Lease although there was some correspondence over the terms of the form of lease proposed by the plaintiff's solicitors on which Ms Cannon took her own legal advice. Ms Cannon admitted in evidence that she did not object to any of the amendments made by Mr Tony Monaco. She also acknowledged that she took legal advice during the negotiation of the Offer to Lease.
A meeting was convened at the premises sometime after 7 February 2007 at which Ms Cannon, Mr Guttridge and another person attended. Mr Tony Monaco and Mr Sandro Monaco were there. Ms Cannon, Mr Guttridge and Mr Tony Monaco inspected the vacant premises. After they did so Mr Sandro Monaco asked Ms Cannon how confident she was in acquiring another pharmacy and having its licence transferred to the premises. She said words to the effect that it was a formality.
On 20 February 2007 Ms Cannon emailed Mr Guttridge as follows:
"Hi Mark
The gentleman's details for the lease are:
Warren Conway
C/o Woolstores Chemart Chemist
Shop 12, Woolstores Shopping Centre
Freemantle
If as discussed you and the owners would keep this confidential I would appreciate it. Please do not contact Warren directly, I will take care of everything for him and relay all the information necessary and get him to sign all relevant documents.
I thank you again for your assistance with finding the site. I really appreciate it."
There was a conflict of evidence between Ms Cannon and Mr Guttridge as to when she first informed him of the identity of Mr Conway as the defendants' nominee as lessee. I accept Mr Guttridge's evidence that he was not provided with Mr Conway’s name until Ms Cannon emailed him on 20 February 2007 in the above terms. I do not accept her evidence that she mentioned Mr Conway's name to Mr Guttridge in a telephone conversation on or about 30 January 2007. Had Mr Conway been identified as the likely nominee at that time there is no reason why Ms Cannon would not have suggested that the Offer to Lease be prepared in his name. Ms Cannon did not speak with or meet Mr Conway until 14 February 2007.
Mr Conway's name was conspicuously absent from any documentation until 20 February 2007. The terms of Ms Cannon's email of that date clearly suggest that she was informing Mr Guttridge of Mr Conway's details for the first time. It is significant in my view that she requested at that time that his name be kept confidential and that he not be contacted directly. It is significant too, that it was not until 8 March 2007 that Ms Cannon requested Mr Guttridge to prepare a form of Offer to Lease which reflected Mr Conway as the offeror. This request was made because Ms Cannon understood it was a pre-requisite to an application for relocation approval that the applicant had a right to occupy the premises.
Also on 20 February 2007, Ms Cannon sent a four page fax to Mr Guttridge which included a pro forma City of Fremantle application for planning approval signed by her as the applicant and seeking approval of the proposed use of the premises as a retail pharmacy. The application form was signed by Mr Monaco on behalf of the plaintiff the same day and the common seal of the plaintiff applied.
From about 19 February 2007 Ms Cannon worked with Mrs Kathy Riggs whom she described as the retail manager for the Chemist Outlet group to set up the proposed new pharmacy at the premises. Mrs Riggs was instructed to arrange the fit-out for the premises, merchandise, equipment, signage, and computer acquisition and installation. Mrs Riggs set up an account with Chemist Outlet's main wholesaler, Symbion Health and ordered stock. An electricity supply account was established with Synergy in the name of Pharmacy by Mail (Marketing) Pty Ltd.
After preparing shop designs with Mrs Riggs, Ms Cannon instructed Doepel March Architects to draw up plans for the pharmacy on behalf of Pharmacy by Mail (Marketing) Pty Ltd. The plans were required for City of Fremantle planning approval.
Ms Cannon also instructed her staff to prepare an application to register the business name "Chemist Outlet – Fremantle" in the name of Mr Conway.
In mid-March Ms Cannon prepared a draft application to Medicare Australia in Mr Conway's name for approval of the relocation of the pharmacy. She also prepared a draft application to the Pharmaceutical Council of Western Australia for registration of the premises as a pharmacy in Mr Conway's name.
All of these actions were taken without any agreement having been concluded with Mr Conway. At no time and in no respect was Ms Cannon the agent of Mr Conway.
In February 2007 Ms Cannon instructed her New South Wales solicitors to prepare documents relating to Mr Conway. These documents included a loan agreement between Lisboa Investments Pty Ltd and Reefway Enterprises Pty Ltd as lenders and Mr Conway as borrower for an amount not exceeding $1.5M and a deed of option between Mr Conway as grantor and the defendants as grantees granting an option to purchase the grantor's business described as Woolstores Chemart Chemist exercisable by the grantee or its nominee at any time, subject to the provisions of the Pharmacy Act 1964 (WA) and the Pharmacy Act Regulations 1976 (WA). There was also an agreement for sale of business between an unspecified purchaser and Mr Conway as vendor of the business of "Chemist Outlet – Fremantle" situated at the premises.
Ms Cannon said that she provided these draft agreements to Mr Conway at a meeting on 15 February 2007. The loan agreement was to finance Mr Conway's Chemist Outlet franchise. Ms Cannon conceded that there was no correspondence by email or letter from Mr Conway throughout the relevant period. She did not follow-up Mr Conway in respect of the documents from 15 February 2009. Indeed, there was no evidence that Mr Conway ever agreed to become a member of the Chemist Outlet group.
Ms Cannon said that Mr Conway's name was not mentioned in the Offer to Lease because he had requested that his identity be kept confidential. In the absence of corroborating evidence I do not accept this explanation. It is far more likely, in my opinion, that Mr Conway was not mentioned because no agreement had been reached with him at the time when the Offer to Lease was negotiated.
Ms Cannon submitted the application for planning approval for change of use of the premises under letter dated 14 March 2007 to the Town Planner of the City of Fremantle. The application included details of proposed signage depicting the words "Chemist Outlet Discount Chemist Superstore".
On 21 March 2007 Mr Guttridge emailed Ms Cannon as follows:
"As below on 2 February we sent you through the draft form of lease for Fremantle. Re-attached for reference. The final copy will be updated to reflect the amendments and agreed position in the final Offer to Lease. If there are no major issues with the standard form I will instruct the solicitors to prepare final copies. Please confirm. We also note that you have not remitted deposits due under the lease and are now required to do so as per the Offer to Lease."
The email attached an email from Mr Gordon Bragg of GV Lawyers (formerly Godfrey Virtue & Co), attaching a draft form of lease. On 22 March 2007 Ms Cannon responded as follows:
"Attached are comments re the lease. If you would please be able to pass on to your solicitor and have a lease with all details included emailed to me I would really appreciate it. Sorry about the misunderstanding we must do things a bit backward over here! But it is all good and I don’t think Mark had that many comments. Thanks for all your help.
Jayne."
Her email attached an email from the defendants' solicitors Tesoriero Henderson Cotter commenting on the proposed form of lease. The email and attachment were forwarded by Mr Guttridge to Mr Bragg of GV Lawyers by email on 23 March 2007 with instructions on behalf of the plaintiff to prepare the final lease of the premises to "Warren Conway on behalf of Chemist Outlet". The email stated in part:
"For reference I have attached the draft form of lease that was forwarded and the Offer to Lease agreed with the lessee. Note we have a signed copy from the lessee on file signed by Jayne Cannon. The copy attached is unsigned purely because for WA Pharmacy Licensing it has to be transferred into the name of the licensee which will be Warren Conway, the current licensee and owner of the pharmacy at Woolstores Fremantle. Tenant will be receiving council approval April 4th, and the deal becomes unconditional with respect to the licensing clauses now that we are at final lease stages. The tenant is ready to commence fit-out."

The copy of the Offer to Lease attached to that email was in the same terms as the Offer to Lease signed by Ms Cannon on 2 February 2007 and by Mr Tony Monaco on 6 February 2007, but the cover of the document included the words "prepared for Warren Conway, on behalf of Chemist Outlet", and Mr Conway's name was inserted as lessee and the address "C/o Woolstores Chemart Chemist Shop 12 Woolstores Shopping Centre Freemantle" (sic) inserted next to registered address.
A draft lease was forwarded by email by Mr Guttridge to Ms Cannon on 27 March 2007 with a message indicating that the plaintiff's solicitors had reviewed the comments made by Ms Cannon's solicitors. There was further email correspondence in relation to the form of the lease. Tesoriero Henderson Cotter sent Ms Cannon some further notes on 29 March 2007 which she forwarded to Mr Guttridge by email that day with a message stating, inter alia:
"I am meeting with Warren at 8.00am on Tuesday morning so if you are able to give me the three copies of the lease on Monday some time as I will be in Perth I can give them to Warren to save time."
A formal lease was prepared by GV Lawyers naming Warren Conway as the lessee. On 3 April 2007 Ms Cannon emailed Mr Guttridge requesting that three parts of the lease be sent to Mr Conway's accountant, Mark Murphy.
The City of Fremantle's development approval was notified by letter dated 10 April 2007. Ms Cannon then made arrangements to commence the fit-out. Sometime prior to 19 April 2007 Mr Sandro Monaco was asked by Mr Guttridge whether the defendants could have early possession of the premises. He acceded to this request and arranged for the keys to the premises, the plaintiff's only set, to be delivered by Mr Tony Monaco to Mr Peter Smith of Arrix Constructions.
Arrix Constructions then commenced fit-out works. Arrix eventually invoiced Ms Cannon for $76,071.60, mainly for the laying and taking up of vinyl flooring. Arrix also invoiced Ms Cannon for replacing lock barrels and keys. Ms Cannon said in her statement that she "was aware that there was a risk that if Warren Conway's pharmacy could not be relocated some of the work in respect of the fit-out might be wasted." Notably, however, she had no reason at that stage to doubt that the relocation would be approved.
On 19 April 2007 Mr Sandro Monaco attended the premises and observed "a large volume of vinyl floor rolls, various tradesmen, tools and vehicles inside the premises." He went into the premises. He saw that about half of the floor covering had been laid. He noted that padlocks to the entry doors had been removed and that there was a new padlock on the roller door. By this time the front doors had been replaced by the plaintiff with new automatic doors as agreed.
When Mr Sandro Monaco subsequently attended the premises shortly after Anzac Day he observed that work had ceased and there were no tradesmen on site. By this time Ms Cannon had become aware of the change in the relocation rules and understood that it may not be possible to obtain approval of a relocation of Mr Conway's pharmacy. She said she had been researching the Australian Community Pharmacy Authority Rules on the internet on 20 April 2007 when she discovered that the short distance relocation rule had changed to restrict relocations from a large shopping centre.
She spoke with Mr Conway on 23 April 2007 to ask him to provide information about the size of the Woolstores Shopping Centre. She then made various inquiries of Medicare and was advised that it satisfied the definition of a large shopping centre for the purposes of the relevant legislation and that in the circumstances Mr Conway's pharmacy could not be relocated to a location within 1 kilometre if it was within 500 metres of another pharmacy.
On 23 April 2007 she telephoned Mr Smith and told him to stop work. She conferred with Mr Bowen on 26 April 2007.
Mr Guttridge received a call from Ms Cannon a couple of days prior to 2 May 2007 in which she informed him that there was a problem with the lease. A meeting was arranged for that date. After informing Mr Sandro Monaco of his conversation with Ms Cannon, Mr Guttridge was instructed to email Ms Cannon requesting payment of a deposit, provision of a security deposit or bank guarantee and the return of the signed lease documents by Chemist Outlet's nominee. This email on 30 April 2007 requested a deposit of two months rent "in consideration of early access to the subject property and in consideration of delays in returning leases."
On 2 May 2007 there was a meeting at the premises attended by Mr Sandro Monaco, Mr Tony Monaco, Mr Guttridge and the defendants. Ms Cannon revealed that the law had changed so that a pharmacy could not be transferred from a large shopping centre to another location. According to Mr Sandro Monaco:
"She was very apologetic and said: 'We (indicating herself and Bowen) cannot proceed with the lease.'
My brother Tony said to her and to Bowen that 'you have a five year lease and you have plenty of time to find a pharmacy to transfer here.'
Bowen said that 'We know that we are liable for compensation to you, which can be sorted out between our respective solicitors and I am immediately going to go and find another pharmacy and negotiate the purchase even if I have to pay above market rates to have it transferred here.'
Cannon asked: 'How much is it going to cost to remove the flooring because we know we are liable for it?' Tony said 'We've spent over $10,000.00 on replacing the doors which you've requested and remember that you've got a five year lease here'."
There was some further discussion about other pharmacies in the vicinity. According to Ms Cannon, Mr Bowen said he would make enquiries over the following week to see if another pharmacist in the area might agree to relocation.
Mr Tony Monaco's evidence corroborated Mr Sandro Monaco's evidence with respect to the meeting with the defendants and Mr Guttridge on 2 May 2007. Neither witness was challenged as to their evidence. Nor were they contradicted by Ms Cannon.
After the meeting Ms Cannon and Mr Bowen spoke to a Mr Brian Donnegan at a pharmacy within 500 metres about relocating. He later advised them that he had signed an Offer to Lease elsewhere. On 3 May 2007 Ms Cannon telephoned a Mr Anton Variyan at the Wray Street Pharmacy and asked him if he wanted to relocate. He responded a few days later in the negative. On 7 May 2007 Ms Cannon approached Mr Dominic Carbonaro of the Port Pharmacy. He did not wish to relocate. There was no evidence of any other pharmacy within 1 kilometre of the premises that was not in a large shopping centre.
On 3 May 2007 a further email was sent from Mr Guttridge to Ms Cannon referring to the meeting and stating that the plaintiff's preferred option was that:
"You continue to use best endeavours to expedite the resolve (sic) your licensing and nominee issues, and that you are able to resolve the situation presented verbally on site yesterday by acquiring relocation of an alternative license (sic) and nominee and that is resolved as soon as possible."
On 10 May 2007 Ms Cannon informed Mr Guttridge by telephone that an alternative pharmacy had not been found and that the premises could be relet.
On 14 May 2007 a notice of default was served on behalf of the plaintiff by GV Lawyers.
In response to the notice Tesoriero Henderson Cotter wrote to GV Lawyers on behalf of the defendants on 22 May 2007 stating that the approval condition could not be satisfied because Medicare approval could not be obtained due to a change in the relevant rules on 27 March 2007. The letter concluded:
"Our clients deny any breach of the Offer to Lease and deny that they are in default as alleged or at all. Our client's position is that the Offer to Lease has been frustrated and is incapable of performance. If your client does not accept that is the case, our clients will arrange for an application to be made for Medicare for relocation of the relevant approval number (in the knowledge that the application will be refused)."
On 29 May 2007 GV Lawyers responded by letter stating that the defendants had waived the benefit of the approval condition 19 of the Offer to Lease, that the Offer to Lease had been rendered unconditional by reason of the defendants having taken possession of the premises, and that the defendants' solicitors' letter of 22 May 2007 constituted a repudiation of the agreement.
This contention was denied in the defendants' solicitors' letter to GV Lawyers dated 7 June 2007 in which further reference was made to the National Health (Australian Community Pharmacy Rules) Determination 2006 as amended on 27 March 2007.
The plaintiff treated the contract as having been repudiated and subsequently took steps to relet the premises.

Legislative requirements

The supply of pharmaceutical benefits is regulated by the National Health Act 1953 (Cth). Since 1 July 2006 approvals to provide pharmaceutical benefits and applications for relocation of pharmacies with such approval have been governed by the National Health (Australian Community Pharmacy Authority Rules) Determination 2006. Prior to 28 March 2007 Mr Conway's pharmacy could have been relocated with approval to the premises within 1 kilometre.
Schedule 2 of the Determination provided that to approve such a relocation the Authority must be satisfied of various matters, including, relevantly:
(a)that the applicant has a legal right to occupy the premises; and
(b)that the proposed premises can be used as a pharmacy under local government and State law.
The National Health (Australian Community Pharmacy Rules) Amendment Determination 2007 (No 1) published on 27 March 2007 by par 9 provided that the Authority must recommend that an applicant be approved under s 90 of the National Health Act in respect of particular premises if the application involved the cancellation of an approval in force in respect of approved premises and if, the application being of a kind mentioned in Pt 1 of Sch 1, the relevant requirements were met. Item 104 of Pt 1 of Sch 1 of the Determination required, with respect to a "short distance relocation (1 km)" that:
"Either:
(a)the existing premises are not in a private hospital or large shopping centre; or
(b)the existing premises are in a private hospital or large shopping centre, and
(i) the proposed premises are at least 500 m in a straight line from all premises other than approved premises in the private hospital or large shopping centre; or
(ii) the authority is satisfied that before 27 March 2007, the applicant had a legal right to occupy the proposed premises."
It is not disputed that the pharmacy of Mr Conway at the Woolstores Shopping Centre was within a large shopping centre as defined (being a shopping complex under a single management which has a gross leasable area of not less than 5000m², a supermarket of net less than 1000m², not less than 30 other commercial establishments operating independently of one another and customer parking facilities within the complex) and that there were other pharmacies within 500 metres of the premises.
Item 305 of Pt 2 of Sch 3 provided that approval could be given in exceptional circumstances of particular applications pursuant to Item 104 of Sch 1, not including the kind of application that would have been made by Mr Conway.
The Pharmacy Act1964 (WA) also restricted the operation of a pharmacy at the premises. The premises had to be registered for use as a pharmacy. The Pharmacy Act Regulations 1976 required the applicant to prove a lawful entitlement to occupy the premises. It is an offence to practice or carry on business as a pharmaceutical chemist without a licence. A licence cannot be obtained unless the pharmaceutical chemist is domiciled in Western Australia.
I accept the defendants' contention that up until 28 March 2007 the legislation would have permitted the proposed relocation of Mr Conway's pharmacy to the premises, but that under the subsequent legislative regime a pharmacy could not be relocated from within a large shopping centre and that therefore Mr Conway's pharmacy could not be relocated with approval to the premises.
I am also satisfied that neither of the defendants was eligible to be licensed as a pharmacist in Western Australia because they were not domiciled in this State. In any event it seems to me that the federal legislation would not have permitted the approval of a new pharmacy at the premises.
If a lease had been concluded between Mr Conway and the plaintiff prior to 27 March 2007, the premises registered for use as a pharmacy under State law and approved for such use by the City of Fremantle, he would have obtained approval for the relocation.
As it was, however, the amendment of the Determination on 27 March 2007 prevented his pharmacy being relocated. It would not have prevented any other pharmacy within 1 kilometre, not in a private hospital or large shopping centre, being able to relocate to the premises, hence the defendants' approaches to other local pharmacy proprietors to see whether they would be interested in relocating.

Conclusions

The defendants' principal contention as set out in their outline of submissions dated 20 November 2008 is that no valid, enforceable agreement was ever concluded between the plaintiff and either of the defendants. Whilst this contention reflected the defence as amended prior to trial, it is fundamentally different from the position expressed by the defendants' solicitors in response to the notice of default which was that the agreement had been frustrated by a change in the relevant legislative rules which precluded an approval being granted of a relocation of Mr Warren Conway's pharmacy.
No attempt has been made to prove that the response made by the defendants' solicitors to the notice of default issued on behalf of the plaintiff was based on any misapprehension of the facts or any error of law which would tend to explain the defendants' volte-face with respect to the threshold question of formation.
Whilst the legal character and effect of the Offer to Lease is a matter which the defendants are entitled to have determined on the facts as found, and according to principle, it is, in my opinion, significant, and does reflect on the credibility and cogency of the evidence of Ms Cannon, that she and Mr Bowen should now dispute that there was ever any agreement of legally binding effect.
Although not necessarily determinative, the response made on the defendants behalf by their New South Wales solicitors constitutes conduct subsequent to the alleged making of a contract which may, in my opinion, be regarded for the purpose of ascertaining whether or not there was a contract: Terrex Resources v Magnet Petroleum (1988) 1 WAR 144, per Kennedy J at 160; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 78. The taking of possession and commencement of fit-out work are also consistent with a concluded contract.
I find that the Offer to Lease as signed by Mr Tony Monaco constituted a counter-offer inasmuch as it increased the lease term by six months and deleted August from the rent free months. The email from Ms Cannon to Mr Guttridge on 7 February 2007 notified her acceptance of the terms of the Offer to Lease as amended by Mr Tony Monaco. As I have previously pointed out, the capping at 4 per cent of the rent review to market had been agreed by that time.
In any event, by continuing to deal with the plaintiff's directors Mr Sandro Monaco and Mr Tony Monaco and their agent Mr Guttridge, and by subsequently entering into correspondence regarding the terms of the formal lease the defendants' clearly evinced their acceptance of the counter-offer. Indeed, the conduct of the parties from 6 February 2007 is consistent only with the existence of a concluded agreement. The terms of the lease as set out in the Offer to Lease document signed by Ms Cannon and Mr Tony Monaco were all agreed.
That being the case one must next consider the meaning and effect of cl 18(d) by which the parties agreed to use reasonable endeavours to "expedite and agree a final form of lease [to be] executed in line with the intent of [the] agreement".
Prior to the Offer to Lease being agreed Mr Guttridge provided a draft of a "standard form of lease" which he had obtained from Mr Bragg of GV Lawyers. Although there was some subsequent correspondence regarding the final form of this document, the essential terms of the proposed lease were included in the Offer to Lease which was, in my opinion, sufficiently certain and complete as to constitute an enforceable agreement to lease.
It is clear from the words used that the parties did not intend the execution of a formal lease to be a condition precedent to the formation of a contract. The form of the Offer to Lease characterises it as an agreement within the first of the three classes identified in Masters v Cameron (1954) HCA 72; (1954) 91 CLR 353 in which the High Court (Dixon CJ, McTiernan and Kitto JJ) held:
"Where parties who have been in negotiation reach agreement on terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In each of the first two cases there is a binding contract: in the first case of a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. ...
Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own ..."
The defendants' case is that it falls into the third class and is therefore unenforceable. The defendants contend that the words "in line with the intent of this agreement" should be construed as referring to a common intention that a nominee of the defendants would be the lessee and point to the fact that Ms Cannon told Mr Guttridge that the defendants would need to nominate a pharmacist as the lessee and the fact that the name of the lessee is missing from the first page of the Offer to Lease.
I do not accept that the fact that the parties contemplated that the formal lease would be between the plaintiff and a nominee of the defendants has the effect of reducing the Offer to Lease to a mere arrangement which involved no binding obligations on either part. It is patently clear from the words used in the Offer to Lease that a legally binding agreement was intended which, importantly for the defendants, would secure the premises and enable the fit-out and badging of the premises as a Chemist Outlet pharmacy in anticipation of a subsequent agreement being reached with Mr Conway or another Fremantle pharmacist.
While the name of the lessee was left blank on the first page of the document, the Offer to Lease was executed by Ms Cannon who, as I have observed, was informed by legal advice, in a manner that unambiguously signified an intention to create a binding agreement upon acceptance. Ms Cannon is experienced in business and is accustomed to leasing commercial premises. Her evidence is admissible to prove the factual matrix within which the agreement was formed, but does not afford a satisfactory explanation as to why she signed the document as the "Tenant/Lessee" on behalf of Chemist Outlet if she did not intend to make a binding agreement.

In this respect it is significant that the negotiation and execution of the Offer to Lease occurred even before Ms Cannon had spoken with Mr Conway. Indeed, he had no input whatsoever into the negotiation of the terms of the lease. The securing of a leasehold interest in the premises was in the defendants' commercial interests. In the circumstances obtaining at the time, it was, I find, a necessary pre-requisite for an invitation to any pharmacist to join the Chemist Outlet group.
The agreement of such important matters as the term of the lease, the options for renewal, the commencement date, the rent and the rent reviews does not signify the making merely of an "arrangement" to reserve an opportunity for an unidentified and hitherto uninvolved third party to obtain a lease of the premises at a later time. The securing of a lease of the premises on terms acceptable to the defendants was clearly in accordance with the modus operandi described by Ms Cannon of setting up a Chemist Outlet pharmacy and re-couping the cost of doing so from the prospective licensee who, in Western Australia, would have to be substituted as the lessee in order for the necessary approvals to be obtained.
In the event that Mr Conway or another pharmacist came on board the formal lease would reflect a novation of the agreement with the plaintiff by the substitution of the defendants' nominee as lessee. Ms Cannon gave Mr Guttridge to understand as much. It mattered nought to the plaintiff so long as the lessee's obligations were performed. The prospect of Mr Conway or another pharmacist eventually becoming the lessee in that manner did not affect the contractual liability the defendants undertook.
I turn now to what I see as the heart of the dispute as to the enforceability of the contract: the construction of the approval condition.
When the defendants entered into their dealings with the plaintiff they no doubt hoped, and perhaps had some reason to expect, that Mr Conway would agree to become a Chemist Outlet group member and relocate his pharmacy to the premises. However, what attracted them to the premises in the first place was the location. This is evident from the email sent by Mr Hewer to Mr Guttridge. The defendants owned a number of Chemist Outlet pharmacies in parts of Australia where it was not necessary for them to be domiciled. They had previously bought pharmacies and relocated them. They had not previously ventured into Western Australia before, but wished to do so.
The approval condition, inserted at their request, did not provide that any particular pharmacy would be relocated to the premises, rather that approvals would have to be obtained from Medicare and the Pharmaceutical Council of Western Australia "to purchase and relocate any required licences".
As I have found, the defendants' intention to relocate an existing pharmacy licence and to eventually substitute a nominated pharmacist as the lessee was communicated to Mr Guttridge, the plaintiff's agent. The existence of a common understanding in this regard is a fact which informs a proper construction of the approval condition. Without that background, no sense can be made of it as clearly the defendants were not eligible to buy and relocate a Western Australian pharmacy licence. The form of words of the approval condition may have been used before by the defendants but was not quite apposite to what they intended to do in Fremantle.
Because of the conclusions expressed below with respect to waiver it does not matter whether the approval condition is construed as a condition precedent to formation or performance. The wording of the next paragraph of cl 19 is as follows:
"(In line with this, if the lessor receives another alternative offer to lease while the preceding condition is current, it is agreed that the lessee will be given a first right of refusal to proceed with this offer by removing the foregoing condition and becoming unconditional within 48 hours of date of such formal notice.)"
It is clear from these words that the parties intended that the plaintiff would not be bound by the agreement pending fulfilment of the condition and could accept another offer provided that the defendants were given the opportunity to go unconditional on 48 hours' notice.
In the circumstances I construe the approval condition to mean that the parties would not be bound if, prior to the commencement date of 1 May 2007, the defendants had not been able to get Medicare, Pharmaceutical Council of Western Australia and City of Fremantle approval to relocate an existing pharmacy to the premises using their best endeavours, unless, in the specified circumstances, the defendants elected to proceed unconditionally.
The plaintiff contends that the benefit to the defendants of the approval condition was waived by their taking possession of the premises on or about 19 April 2007 and that the contract thereby became unconditional. The defendants' response is that they did not take early possession, but were merely given access for the purpose of fitting out the premises.
In my view possession of the premises was given to the defendants upon the handover of the keys to Mr Smith on 19 April 2007. Although the plaintiff's contractor was on the premises to fit the automatic doors about this time, the effect of giving Mr Smith the keys was to allow work to be done to fit-out the premises as a Chemist Outlet pharmacy as Ms Cannon anticipated would occur. In her email to Mr Guttridge of 2 February 2007 she asked for "four months gross rent free from the date of handover, that is the day we have access to start our shop fit."
Ms Cannon's evidence was, as I have mentioned, that she was prepared to take the risk of incurring expense in the fit-out which would be wasted if Mr Conway's relocation were not approved. It was in the defendants' commercial interests to get the premises ready for a planned opening in early June. By commencing the fit-out the defendants treated the agreement as unconditional. Their conduct was unequivocal. It was inconsistent with there being no contract. It was also inconsistent, in my opinion, with the continuing operation of an unfulfilled condition. The benefit of the condition to the defendants was waived and with it the right to terminate the agreement upon non-fulfilment.
As Young J observed in Zisti v Ryde Joinery Pty Ltd, unreported; SCt NSW; 2 May 1996; BC9602382 at 11:
"Although the law governing leases and contracts has been merged into a single set of principles in recent years, it is still of the essence of being a lessee that one actually enters onto the premises."
A condition for the benefit of a party can be waived by that party: Suttor v Gundowda Pty Ltd (1959) 81 CLR 418, Maynard v Goode (1926) 37 CLR 529 at 536, 537-538, Gange v Sullivan (1966) 116 CLR 418. The waiver of the benefit of a condition may also amount to an election to affirm a contract, such that the right to terminate for non-fulfilment is lost: Sandra Investments Pty Ltd v Booth (1983) 50 ALR 385 at 394, Starke, "Cheshire & Fifoot’s Law of Contract", 6^th ed, Butterworths, 1992 at p 757.
The approval condition was not fulfilled. Mr Conway's pharmacy could not be relocated due to a change in the rules. Other Fremantle pharmacists were approached by the defendants but were not amenable to relocation. But for the agreement becoming unconditional by reason of the defendants taking early possession of the premises, I find that the approval condition would not have been capable of being fulfilled.
I do not accept that the use of "best endeavours" required the defendants or either of them to seek registration in Western Australia as submitted by the plaintiff. I accept that the defendants unsuccessfully approached a number of other pharmacists within 1 kilometre of the premises. While the evidence did not establish conclusively whether there were any other pharmacists who might have responded differently I am satisfied that having regard to what they had invested in time and money the defendants had no reason not to check out all possibilities.
The contract having become unconditional the termination occurred by breach, defendants failing to complete within a reasonable time specified in a notice of default. Otherwise, the contract was terminated by repudiation on the part of the defendants. In either event the plaintiff is entitled to damages.

Damages

The plaintiff's damages are to be assessed on the basis that where a party sustains a loss by reason of a breach of contract, it is, so far as money can do it, to be placed in the same situation, as if the contract had been performed: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80.
It is common cause that the premises were relet to Best & Less Pty Ltd pursuant to a lease which commenced on 22 October 2007 for a term of 10 years at an annual rent of $288,000 plus GST, with the tenant entitled to a rent-free period from 22 October 2007 to 31 May 2008 (seven months). The agreement to lease between the plaintiff and the defendants was for five years with an annual rent of $330,000 plus GST with the lessee entitled to a rent-free period of three months from 1 May 2007 to 1 July 2007.
The plaintiff's claim is for $27,500 per month for the 10 months from August 2007 to May 2008 (until Best & Less commenced to pay rent) and thereafter for the 47 remaining months of the five year term at $3,500 per month being the difference between the respective rents.
There are also claims for lease preparation costs, GST and interest.
No account is taken of the commission which would have been payable to Knight Frank had the lease not been terminated by breach. I calculate this fee to be, at 12 per cent of gross rent for five years, $198,000. Had the contract been performed the plaintiff would have paid the commission certainly, but in mitigating its loss it appointed another agent to relet the premises. It is reasonable to assume that the commission paid upon the Best & Less lease, being for a 10 year term, was no less than the commission payable to Knight Frank. In the end, one commission was paid as would have been the case if the contract had been performed. No adjustment is required.
The defendants submit that the plaintiff failed to mitigate its loss by subsequently letting the property at a lower rental than had been agreed with the defendants, and allowing the subsequent tenant a seven month rent free period.
Mr Sandro Monaco's evidence was that he was aware of Best & Less Pty Ltd's interest in retail space prior to the expiration of Harvey Norman's tenancy of the premises in November 2006. He informed Best & Less of the availability of the premises and was offered $288,000 rent per annum. Mr Monaco said that the offered rental was acceptable, but that no agreement to lease was reached with Best & Less because of various building requirements.
When Harvey Norman vacated the plaintiff gave CB Richard Ellis an exclusive agency which exempted the plaintiff’s liability to pay a commission if a lease agreement was concluded with Best & Less. Subsequently, CB Richard Ellis was unable to find a tenant and the exclusive agency was terminated in December 2006.
After expiration of the notice of default served on the defendants, Mr Monaco contacted a number of agents namely Knight Frank, Burgess Rawson, Ron Farris, Colliers and CB Richard Ellis. None of these agents was able to find a tenant, but in June 2007 Mr Monaco was informed through CB Richard Ellis that Best & Less was still interested in the premises. Best & Less initially offered $260,000 gross annual rent, less than its previous offer, but an agreement to lease was subsequently made on the terms set out above. The only other offer obtained with respect to the premises was from Rivers for $250,000 per annum for five years with a six month rent free period.
I am satisfied that the plaintiff acted reasonably in the manner in which it sought to relet the premises and that it reasonably accepted an offer to lease on terms which were the best that could be obtained with reasonable effort at the time, including with respect to the rent-free period. The defendants have not proved an unreasonable failure to mitigate.
The plaintiff has lost the rent which the defendants' nominee would have paid from the end of the agreed rent-free period until the point at which Best & Less were liable to pay rent being August 2007 to May 2008 (10 months at $27,500), and thereafter for the balance of the five year term at the difference between the agreed rent and the rent payable by Best and Less (47 months at $3,500).
There is a claim for the cost of the lease prepared by GV Lawyers. The evidence of Mr Bragg was that on the instructions of Mr Guttridge a file was opened in the name of Mr Conway and an invoice for fees capped at $1,500 was raised in anticipation of Mr Conway becoming the lessee. I am not satisfied that the plaintiff incurred any loss in respect of the costs of the lease and accordingly declined to allow this part of the claim.
There is also a claim for GST. No submissions were made by either side as to whether damages should be allowed for the plaintiff's liability to pay GST. This was a claim for damages for breach of contract, not a claim in debt. The premises were not occupied for the period in which the plaintiff's alleged loss, calculated by reference to agreed rent, was incurred. I do not consider there was a taxable supply by the plaintiff to the defendants which gave rise to a liability to pay goods and services tax pursuant to A New Tax System (Goods and Services Tax) Act 1999 (Cth). In any event the onus is on the plaintiff to prove its loss. I am not satisfied that it has done so with respect to the GST claim.
A component of the plaintiff's claim is effectively for future loss. In capitalising a sum of damages for the loss of the bargain it is appropriate to discount that component for accelerated receipt.
I assess damages as follows:
Loss of rent
August 2007 to May 2008 inclusive  $275,000
May 2008 to August 2009 at $3,500 per month               $ 52,500
For 32 months at $3,500 (discounted)  $100,000
Interest
On $275,000 at 3 per cent for 10 months (cumulative)     $    6,876
On $275,000 at 6 per cent for 15 months  $ 20,625
On $52,500 at 3 per cent for 15 months  $    1,969
Total  $456,970
The plaintiff should have judgment accordingly.

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: ALSANTO NOMINEES PTY LTD -v- BOWEN [2009] WADC 130 (S)

CORAM: STAUDE DCJ

HEARD: 26 AUGUST 2009, 21 JULY 2011

DELIVERED : 26 AUGUST 2009

SUPPLEMENTARY
DECISION :10 AUGUST 2011

FILE NO/S: CIV 1461 of 2007

BETWEEN: ALSANTO NOMINEES PTY LTD
Plaintiff
AND
NIELS BOWEN
First Named Defendant
JAYNE ELIZABETH CANNON
Second Named Defendant

Catchwords:

Costs - Issue remitted by Court of Appeal for determination by trial judge - Whether defendants should be deprived of part of the costs of trial - Whether issue on which defendants failed is discrete and severable and added to costs in a significant and discernible way

Legislation:

Rules of the Supreme Court 1971, O 66 r 1(3)

Result:

Plaintiff to pay defendants' costs of action to be assessed on basis of uninterrupted five day trial

Representation:

Counsel:

Plaintiff:     Mr P A Monaco
First Named Defendant   :     Mr S K Shepherd
Second Named Defendant    :     Mr S K Shepherd

Solicitors:

Plaintiff:     GV Lawyers
First Named Defendant   :     Tottle Partners
Second Named Defendant    :     Tottle Partners

Case(s) referred to in judgment(s):

Alsanto Nominees Pty Ltd v Bowen [2009] WADC 130
Amaca Pty Ltd v Hannell [2007] WASCA 158 (S)
Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S)
Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602
McConnell v Nationwide News Pty Ltd; Prue v Nationwide News Pty Ltd (Unreported, WASC, Library No 920670, 10 December 1992)
Mickelberg v The State of Western Australia [2007] WASC 140 (S)
Townsend v Collova [2005] WASC 4 (S)

STAUDE DCJ:

Introduction

The issue of the costs of the trial has been remitted for my determination as the trial judge by order of the Court of Appeal dated 7 April 2011: Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S).
The original decision was in favour of the plaintiff. I awarded damages for breach of contract: Alsanto Nominees Pty Ltd v Bowen [2009] WADC 130. That decision was successfully appealed by the defendants. The Court of Appeal found that the defendants had not, as I had found, waived the benefit of a condition precedent, referred to in my reasons as 'the approvals condition'.
The plaintiff contends that the defendants should be deprived to some extent of their costs of the trial (the submission is as to 80%), invoking O 66 r 1(3) of the Rules of the Supreme Court 1971 (RSC) which provides:
Where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues.
After holding that the defendants should have their costs of the appeal, the Court of Appeal held [10]:
The costs of the trial raise different considerations. It would ordinarily follow from the finding of this court on the appeal that the appellants would be entitled to their costs of the trial. However, it appears from the comments of the primary judge [8] ‑ [11] that the conduct of the appellants in amending their defence during the trial may have caused significant unnecessary costs to be incurred. In view of his finding that the respondent was entitled to judgment, and therefore to the costs of the action, it was unnecessary for the primary judge to give separate consideration to that question. Clearly, however, if the appellants caused unnecessary costs to be incurred that would have an important bearing on whether, or to what extent, the appellants' entitlement to the costs of the trial should be reduced. Regrettably, this court is not in a position to determine whether that was the case and, if it was, the significance of those costs in the overall context of the trial. It is therefore necessary for the question of the costs of the trial to be remitted to the primary judge.
I do not consider that the Court of Appeal's decision not to apportion the costs of the appeal, even though the appellant defendants failed on the formation ground, inhibits my discretion with respect to the costs of the trial. The considerations which bore upon the Court of Appeal's discretion in determining liability for the costs of the appeal are quite different from those which affect the discretion to be exercised with respect to the costs of the trial.

Principles

In McConnell v Nationwide News Pty Ltd; Prue v Nationwide News Pty Ltd (Unreported, WASC, Library No 920670, 10 December 1992) Owen J stated:
Order 66 r 1(3) only applies where the failed issue has increased the costs. The term 'issue' does not mean a precise issue in the technical pleading sense, but any disputed question of fact or issue of law, and a party will not be awarded costs merely because of his success on particular issues: Cretazzo v Lombardi (1975) 13 SASR 4 at 12, 16.
Because of court delays and the high cost of litigation, courts should always exercise the discretion to award the costs of issues on which parties fail in such a way that they will come to realise they will not necessarily recover the whole of their costs of raising a discrete issue, and therefore carefully consider what matters they will raise: Commission of Australian Federal Police v Razzi (1991) 101 ALR 425 at 430.
In Townsend v Collova [2005] WASC 4 (S) Le Miere J found that for the purposes of O 66 r 1(3)
an issue is introduced where a defendant denies a fact asserted by the plaintiff and leads evidence to support the defendant's contention in relation to that fact.

The applicable principle was enunciated by the Court of Appeal in Amaca Pty Ltd v Hannell [2007] WASCA 158 (S) [7] ‑ [8]:
The power to depart from the general rule to the effect that costs follow the event and to instead adjust the costs order to be made by reference to the failure of the generally successful party on specific and particular issues within the litigation is recognised by practice, authority and the express provisions of O 66 r 1(3). However, its application depends upon the identification of discrete and severable issues, the litigation of which has increased the costs of conducting the proceedings. Established practice in this state, and the authorities, suggest that the exercise of this power should be approached broadly, and as a matter of impression, and without an attempt at "mathematical precision" which is likely to prove illusory – see, for example, J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (Western Australian Branch) [No 2] (1993) 46 RR 301.
Accordingly, the power to adjust an order for costs by reference to particular issues upon which the generally successful party has failed, is properly exercised only where there are discrete and severable issues upon which the generally successful party has failed, and which have added to the costs of the proceedings in a significant and readily discernable way. In a case in which the generally successful party has failed on only a minor issue, which did not add materially to the cost of the conduct of the proceedings, it would not ordinarily be appropriate to depart from the general rule, unless the conduct of the generally successful party in relation to that issue had been unreasonable. In the event of unreasonableness, different considerations may apply.
In Amaca the plaintiff was successful at first instance, but lost on appeal. There were four substantive and discrete issues, namely, foreseeability, duty of care, breach and causation. The Court of Appeal held that the 'factual and evidentiary substratum' to each of these issues was common to all of them. At trial the knowledge of the appellant as to the risk of contracting mesothelioma as a result of the use of materials containing asbestos fibre bore directly upon the issues of foreseeability, duty of care and breach, and was central to the issue of causation.
The Court of Appeal concluded that the major part of the time spent at trial was concerned with evidence which spanned all four identified issues and that it was reasonable for the defendant to put the plaintiff to the proof of all of the issues necessary to establish the cause of action. Consequently, there should be no departure from the general rule. A different outcome was reached with respect to the costs of the appeal because a good deal of the argument on appeal was directed to issues upon which the appellant failed.
The Court will not ordinarily descend to an issue by issue analysis for the purpose of awarding costs. There are, nevertheless, cases in which it is appropriate to apply O 66 r 1. The cases to which I have referred support the principle that the usual order for costs may be departed from in circumstances where there are discrete and severable issues upon which the generally successful party has failed which have added to the costs of the proceedings in a significant and readily discernible way. In a case where those issues have the same factual and evidential substratum costs would not necessarily be increased.
Neither O 66 r 1(3) nor the cases require the court to be satisfied that the conduct of the generally successful party be unreasonable or inappropriate. As appears from the dicta in Amaca at [8], unreasonableness is a consideration where the successful party fails on a minor issue which does not significantly add to the costs of the proceedings.
In Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd(No 2) [2000] FCA 602 [54], cited by Newnes J in Mickelberg v The State of Western Australia [2007] WASC 140 (S) [36], Goldberg J put it this way:
A court should not be too ready to disallow costs simply because a party has failed upon an issue unless it is a quite separate and distinct issue from the issues in respect of which it succeeded or unless there be an element of unreasonableness or inappropriate conduct in relation to that issue. (citation omitted)
In Mickelberg Newnes J held at [43] that it was not necessary that the issue concerned was raised unreasonably, but unreasonable or inappropriate conduct by a party in relation to that issue may be a ground for depriving that party of costs.

Issues

The questions to be asked are:
1.Are there discrete and severable issues on which the generally successful party has failed?
2.Have those issues added to the costs of the proceedings in a significant and readily discernable way?
In attempting to resolve these issues, I am bound to consider whether it was reasonable for the defendants to put the plaintiff to proof of all elements of its claim by putting in issue the formation of the contract, an issue upon which they failed.
In my reasons for decision I made the following observations from [3]:
The statement of claim pleads simply that the Offer to Lease formed an enforceable agreement which the defendants breached by failing, within a period of time stipulated in a notice of default, to pay a deposit, provide a bank guarantee and enter into a formal lease, as agreed.
The original defence admitted the agreement and all but two of the pleaded terms, but went on to allege that:
(a)"it was the common intention of the parties that the leased premises would be used by Warren Conway as a pharmacy and that Mr Conway would relocate his existing pharmacy from Shop 12, Woolstores, Fremantle, to the leased premises";
(b)the agreement on its true construction was conditional upon the defendants obtaining "such Medicare, Pharmaceutical Council of Western Australia and local council approvals as were necessary to enable the pharmacy to be relocated"; and
(c)the National Health (Australian Community Pharmacy Rules) Amendment Determination 2007 (No 1) published on 27 March 2007 provided that pharmacies in large shopping centres could only be relocated to premises which were at least 500 metres from all other approved pharmacies, and therefore prevented the relocation of Mr Conway's pharmacy to the premises, thus entitling the defendants to treat the agreement as being at an end.
The complexion of the dispute deepened when leave was granted to the defendants prior to trial to amend their defence to deny the fact of an agreement to lease and to aver that the defendants did not intend to enter a lease of the premises, rather that any lease of the premises would be between the plaintiff and Warren Conway, and that, in effect, the Offer to Lease merely amounted to an agreement that the second named defendant would use her best endeavours to have Mr Conway enter into a lease of the premises.
The defendants otherwise maintained, in the alternative, that any agreement was conditional on certain approvals being obtained of the relocation of Mr Conway's pharmacy to the premises, which did not occur.
The amended defence is dated 25 July 2008. It led to a reply being filed which pleaded numerous facts evidencing acceptance and contended that by taking possession of the premises the defendants waived the benefit of the "approvals" condition.
On the second day of trial leave was granted to the defendants to file a substituted defence to accommodate further amendments. In this version of the defence the defendants pleaded that there was no agreement because the document relied on by the plaintiff was in fact a counter-offer which the defendants did not accept (par 7). Alternatively, it was pleaded that:
1.the document did not identify the lessee (par 18);
2.the document provided by cl 18(d) that the parties "use reasonable endeavours to agree a final form of lease and have it executed "in line with the intent" of this agreement" (par 15);
3."the intent of the document was to afford the second named defendant an opportunity to make arrangements for lease of the premises by a pharmaceutical chemist who could trade from the premises as 'Chemist Outlet – Fremantle' " (par 16);
4.no final form of lease was agreed (par 17); and
5.accordingly, no "binding or concluded agreement" was made (par 20).
The substituted defence went on to plead that the plaintiff knew that the defendants did not intend to enter a lease and that any lease "to be negotiated … would be between the plaintiff and Warren Conroy, the proprietor of a pharmacy in Fremantle" (par 21), and otherwise iterated the point that if there were an agreement it was to the effect that the second named defendant would exercise best endeavours to facilitate the negotiation of a lease between the plaintiff and Mr Conway and that the agreement was conditional on the stated approvals for relocation were obtained.
The substitution of a fresh defence resulted in an adjournment of the trial to 14 October 2008. An amended reply was filed on 26 September 2008 and a rejoinder on 1 October 2008. When the trial resumed on 14 October 2008 the statement of claim was further amended in two minor respects.
The effect of the amendment and augmentation of the pleadings after entry for trial and, indeed, during the course of the trial, was that the field of dispute was widened rather than narrowed with the result that the trial was longer than it might have been. The principal reason for this was that once issue was joined on the formation of the alleged contract, evidence became relevant which would not have been if the only issue was one of construction.
Senior counsel for the plaintiff, on the authority of Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165 at [35] and other cases, objected to evidence of the defendants' subjective intentions in relation to the transaction.
Whilst this objection was appropriately taken in relation to matters of construction, I was bound to rule that the issues finally joined with respect to formation, particularly as to whether there was acceptance, whether the contract fell within either of the first two classes of agreement identified in Masters v Cameron (1954) 91 CLR 353, whether the special condition with respect to approvals required for the relocation of a pharmacy to the premises was a condition precedent to either formation or performance, and other incidental and related issues, necessitated an inclusive approach to the evidence.
Even with respect to issues of construction, it was necessary in this context to bear in mind the principle that the determination of what a reasonable person would have understood the parties to mean "requires consideration not only of the text, but of the surrounding circumstances known to the parties, and the purpose and object of the transaction": Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. See also Allen v Carbone (1975) 132 CLR 528 at 531.
…
With respect to the key issues of formation and construction most of the evidence was contextual. As to the material facts there was relatively little controversy, albeit that by the length of the cross-examination of the witnesses one might have thought so. Despite the enormous volume of legal and evidential material with which the court was provided, the case was, in the final analysis, and somewhat ironically, no more complex than the original pleadings indicated. It was, however, more cumbersome and time-consuming than it might have been.
Needless to say, those comments were not made lightly. They reflected my consideration of the pleadings, the evidence and the course of the trial.
In this case, the feature of the proceedings identified by the plaintiff as significant, and the subject of my observations in the reasons, is the defendants' denial of the agreement to lease. The issues around the question of formation of the agreement upon which the generally successful defendants failed were issues that they introduced during trial. Formation was not in issue until the trial. Hitherto it had been admitted, on the pleadings and by the conduct of the defendants themselves.
It is submitted on behalf of the defendants, and I accept, that the plaintiff has been compensated for the costs of the amendments. Accordingly, the issue before me should be addressed on the basis that the defence substituted at trial was at all times the defence, that formation was in issue from the outset.
The defendants submit further that evidence of the circumstances of the formation of the contract would have been necessary in order to deal with the construction and waiver issues. I was taken to the observations of McLure P at [19] where her Honour indicated that it was necessary to have regard to the terms of the lease and all of the 'surrounding circumstances' to determine whether the defendants had waived the approval condition, and to [25] where her Honour held that it was the intention of the parties that the lessee would be a third party, in support of this submission.
I accept that the issues relating to construction and waiver required some examination of the circumstances of surrounding the formation of the contract, 'the factual matrix', and acknowledged as much in my reasons, but such evidence as was necessary for that purpose was not contentious and would not, in my opinion, have substantially increased the length of the trial if formation as a legal fact were not put in issue. I do not accept that, as in Amaca, 'the factual and evidentiary substratum' of the main issues was the same. I stand by the observations I made in my reasons for decision. The issue by the evidential and factual questions it created and the legal argument it generated added to the length, and therefore the cost, of the trial in a significant and discernible way.
These issues on which the defendants failed were severable and discrete from the issues upon which the plaintiff failed and did substantially increase the costs of the proceedings. I am satisfied that the ventilation of the formation issue did not bear upon or assist the determination of the issue of whether there was a waiver of the approval condition which is the question on which the trial turned.
I am not concerned with the issues on which the plaintiff failed as the costs order to be made will otherwise compensate the defendants for the costs of those issues. However, I am particularly mindful of the extent to which the defendants have been put to the expense by the issues raised by the amended reply in considering to what extent there should be an apportionment of the costs of the issue on which they failed.
The defendants contend that the plaintiff has been adequately compensated by an order for costs thrown away by reason of the amendment of the defence. With respect, I do not consider that such an order would normally have the effect of depriving the generally successful party of costs. It does not, in my opinion, affect the operation of the usual order that costs follow the event. That much seems to have been conceded by Mr Shepherd before Principal Registrar Gething on 23 July 2008 (ts 48).
Nevertheless, I take the view that the costs of the second day of the trial 23 September 2008 are the plaintiffs by virtue of the order I made that day that the defendants pay the plaintiff's costs of the adjournment and any costs thrown away. The hearing that day was taken up by the amendment application.
While recognising that, in the interests of consistency and predictability, a court should be reluctant to depart from the general rule that costs follow the event, I am satisfied that my discretion should be exercised so as to limit the costs recoverable by the defendants to those allowable for a trial lasting five days, being the anticipated length of trial when it commenced.
This apportionment is based on a broad view of the proceedings as a whole. It would be contrary to principle, impractical and unhelpful to attempt a detailed quantification by reference to sitting time.
I do not intend by this order to derogate from the effect of the order I made on 23 September regarding the costs of the adjournment and costs thrown away. In the event that any clarification is required by the taxing officer I grant liberty to apply.
So the orders will be:
1The plaintiff do pay the defendants' costs of the action to be assessed.
2The defendants' costs of the trial are to be assessed on the basis of an uninterrupted five‑day trial.

[2009] WADC 130

26 AUGUST 2009

Key Legal Topics

Areas of Law

Contract Law

Legal Concepts

Contract Formation

Breach of Contract

Damages for Breach