Barak Pty Ltd v WTH Pty Ltd

[2003] NSWSC 15

CITATION:	Barak Pty Limited v WTH Pty Limited [2003] NSWSC 15
HEARING DATE(S):	22/07/02, 23/07/02, 24/07/02, 30/07/02, 31/07/02, 13/08/02, 17/12/02/ 18/12/02
JUDGMENT DATE:	10 February 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Plaintiff entitled to rectification and to judgment for rent plus interest.
CATCHWORDS:	CONTRACTS - conditions - grant subject to condition that consent "on terms and conditions satisfactory to the Lessee" be obtained from council - determining what is "satisfactory to the Lessee" - EQUITY - rectification of instruments - ascertaining common intention - where single transaction effected by two leases
CASES CITED:	Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329 Jones v Dunkel (1957) 101 CLR 298 Koryar, Koryar & Clarke v Perry & Allen (unreported, FCA, 4 December 1997) Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Meehan v Jones (1982) 149 CLR 571 Peate v Federal Commissioner of Taxation (1964) 111 CLR 443 Pukallus v Cameron (1982) 150 CLR 447 Zieme v Gregory [1963] VR 214
PARTIES :	Barak Pty Limited - Plaintiff WTH Pty Limited trading as Avis Australia - Defendant
FILE NUMBER(S):	SC 5151/01
COUNSEL:	Mr L.G. Foster SC/Mr R.A. Parsons - Plaintiff Mr J.O. Anderson/Mr S.F. Hughes - Defendant
SOLICITORS:	Norbert Lipton & Co - Plaintiff Freehills - Defendant

- 50 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

MONDAY, 10 FEBRUARY 2003

5151/01 – BARAK PTY LIMITED v WTH PTY LIMITED trading as AVIS AUSTRALIA

JUDGMENT

Background

1 On or about 20 May 1999, the plaintiff as lessor and the defendant as lessee entered into two leases bearing that date. One lease related to premises consisting of part of the ground floor of a building at 185 William Street, Kings Cross, the other to premises consisting of part of the first floor of the same building. For convenience (and adopting terminology employed in the proceedings), I refer to the leased ground floor premises as “the showroom” and those on the first floor as “Suite 3”. Each lease referred to the same “commencing date” and provided for the creation of the same term of years. At all material times, the showroom was vacant but Suite 3 was occupied under licence by a company named Periloo Pty Ltd.

2 The showroom, as the description implies, has a frontage to William Street and a façade at street level consisting very largely of glass, including sliding glass doors large enough to allow motorcars to be brought into the showroom from William Street across the footpath. Suite 3 has, at all material times, been used for the parking and storage of motor vehicles and is configured accordingly, with a ramp providing vehicular access from Premier Lane which runs parallel to William Street at the back of the building in which the premises are situated. Periloo Pty Ltd operated a car rental business in another part of the ground floor and used Suite 3 for the storage of vehicles

3 The part of William Street in which the premises are located has long been an area in which motor showrooms are situated, particularly those associated with “prestige” cars. The area is also the site of a number of rental car offices or depots at which persons desiring to hire cars can make the necessary arrangements and obtain hired vehicles. It is the latter aspect of the general locality that is relevant to these proceedings. The defendant carries on business under the name “Avis Australia” and is the Australian member of an international group well known in the field of motor vehicle rentals. It was with a view to carrying on that business at the William Street address that the defendant became party, as lessee, to the leases to which I have referred.

4 Each lease – that is to say, the lease of the showroom and the lease of Suite 3 – contained a provision defining its relationship with the other lease. The relevant provision in the lease of the showroom was clause 40 as follows:

“This Lease is subject to and interdependent with the lease of even date and between the same parties in respect of the premises known as Suite 3, 1st Floor, 185 William Street, Kings Cross (hereinafter referred to as ‘the other premises’). It is agreed between the Lessor and the Lessee that any default under this Lease shall be deemed to constitute a default under the lease of the other premises.”

Clause 40 of the lease of Suite 3 was in identical terms, save that “ Suite 3, 1st Floor ” was replaced by “ Showroom ”.

5 Both leases contained a clause 41 in identical terms:

“This Lease is subject to and conditional upon the Lessee obtaining development consent from the Council of the City of South Sydney to the use of the premises as a car rental outlet (including but not limited to parking of vehicles). In the event that development consent is not obtained on terms and conditions satisfactory to the Lessee within three (3) months of the commencement date of this Lease the Lessee shall be entitled within fourteen (14) days thereafter by notice in writing to terminate this Lease and the parties agree to thereafter execute such documents as are necessary to give effect to this clause. The Lessee shall not be entitled to terminate this Lease as aforesaid if the terms and conditions imposed by Council are reasonable or usual having regard to the intended use of the premises. Notwithstanding anything in the Lease to the contrary the Lessee will be under no obligation to pay any rent in the event the Lessee terminates this Lease pursuant to this Clause.”

6 Application was on 12 April 1999 made to the Council of the City of South Sydney by Hassell Pty Ltd, the defendant’s design consultant, for consent to the use of both the showroom and Suite 3 together for the purposes of the defendant’s business. On 23 June 1999, the Council issued consent for “Use of Ground and First Floor for car hire office, including signage”. The consent was expressed to be subject to a number of conditions, including:

· that the development be generally in accordance with identified plans (condition 2);

· that the existing “Honda” sign on the façade be removed before erection of any new signs (condition 3);

· that the proposed projecting wall sign have dimensions not exceeding limits stated in the consent (height of 2,600mm and width – or projection from the facade – of 450mm) and be in the same position as the existing “Honda” sign (condition 4);

· that the shopfront alterations and internal ramping proposed be deleted (condition 5);

· that the ground floor area be used for business purposes and for static vehicle display but not for vehicle storage (condition 6);

· that vehicles may be moved into and out of the ground floor through the William Street frontage only between 10am and 3pm (condition 7); and

· that hours of operation be confined to 7.30am to 6pm seven days a week (condition 11).

Conditions 12 to 18 dealt with matters concerning fire precautions and required certain work to be carried out.

7 Conditions 5 and 6 need to be understood in light of the fact that the application to the Council envisaged the construction of ramps within the showroom to make more easy the movement of vehicles to and from William Street across the footpath, this being part of a proposal to house in the showroom vehicles involved in day to day rental transactions. The plans referred to in condition 2 included a plan of the showroom in which about one-third of the floor area was designated “car storage area”. Conditions 5 and 6 had the effect of rendering the showroom unavailable for use in the way envisaged by the proposal, since easy access would be denied by non-existence of the built-in ramps (the alternative being a system of heavy portable ramps moved into position as occasion demanded) and the static display requirement imposed by the Council would preclude regular and continuous movement of vehicles into and out of the showroom in the ordinary course of the rental activities.

8 As a result of representations and applications made by Hassell, one of the conditions imposed by the Council was later varied. On 12 August 1999, the Council varied condition 11 to allow operations between 7.30am and 6pm on Saturday to Thursday and between 7.30am and 7pm on Friday. On 6 September 1999, the Council refused an application to modify the consent by amending conditions 4, 6 and 7.

9 The position that existed on 20 August 1999 (that being, as I shall in due course explain, the end of the period of three months referred to in clause 41 of each lease) was therefore that the original consent of 23 June 1999 was in place, subject to one variation, being the amendment of the hours of operation referred to in condition 11. On 2 September 1999, the defendant’s solicitors wrote to the plaintiff’s solicitors purporting to terminate each lease in accordance with its clause 41. The letter was in the following terms:

“We refer to our previous correspondence and in particular to your letter yesterday and our reply.
As your client and its consultants are aware Avis Australia has not been able to date to obtain Development Approval on terms and conditions satisfactory to it as contemplated by clause 41 of the Leases dated 20 May 1999. In particular it has not been able to obtain approval to park 6 cars in the Showroom nor has it been able to obtain approval of the signage it requires.
As a consequence in accordance with clause 41 of each of the Leases Avis Australia hereby gives notice terminating each of the Leases with effect from today.
Can you please arrange for your client (or its consultants as the case may be) to forward to us by return a cheque for $12,500.00 representing the refund of the deposit equivalent to 1 months rent paid by Avis Australia in respect of each of the Leases.”

The issues

10 By its amended statement of claim filed on 22 July 2002, the plaintiff sues for unpaid rent, outgoings and interest and, in the alternative, damages and interest. The defendant’s cross-claim seeks a declaration that the leases were rescinding or terminated and an order for the repayment of a deposit paid on account of the first month’s rent. By a summons filed in separately numbered proceedings the plaintiff also claims rectification of each lease by the addition of the words “together with the other premises” after the words “the premises” in the first sentence of clause 41. The defendant says that it validly and effectively terminated each lease in accordance with clause 41.

11 The plaintiff’s central contention is that the leases took effect and continued in force according to their terms and became the source of financial obligations on the defendant’s part that the defendant has failed to perform. The defendant, on the other hand, says that it is not indebted to the plaintiff because the leases have been rescinded or terminated. At issue in the proceedings, therefore, are questions as to the correct construction of clause 41 of each lease, the question whether clause 41 reflected the parties’ agreement or failed to do so and should be rectified and the question whether, having regard to clause 41 (in its original form or any rectified form), the purported termination of both leases by the defendant was in accord with the lease provisions.

Clause 41 – “the commencing date”

12 The first question to be determined in relation to clause 41 of each lease concerns identification of the period of three months to which it refers, that is, the period described by the words “within three (3) months of the commencement date of this Lease”. Clause 1 of each lease contains definitions but there is not in that clause or elsewhere any definition of “commencement date” or “commencement date of this Lease”. However, Item 2 on the first page is:

“2. COMMENCING DATE: means the date upon which the Council of City of South Sydney issues the development consent referred to in clause 41.”

To regard this “commencing date” as the “commencement date” referred to in clause 41 itself would, of course, be an absurdity. The parties clearly did not contemplate termination by the lessee if the stipulated development consent had not been obtained within three months of the date of issue of the stipulated development consent, since to do so would have been a nonsense. They intended to fix a period referable to a readily ascertainable starting point which, in some sensible way, could be regarded as the “commencement” of the leases. There can be no real doubt, in my judgment, that they intended to fix the period by reference to the date on which each lease “commenced” by becoming binding upon them as what was, in conceptual terms, the equivalent of an agreement to create a term of years measured from the “commencing date” defined as the date of issue of the Council consent. That agreement became binding on the date of the lease, 20 May 1999, and it is that date that must be regarded as the “commencement date of this Lease” referred to in clause 41.

Clause 41 – “the premises”

13 The words at the centre of the controversy about the correct construction of clause 41 are those that describe the consent that must be forthcoming from the South Sydney Council, namely, consent “to the use of the premises as a car rental outlet (including but not limited to parking of vehicles)”. As has been seen, the Council’s consent did not allow (and in fact positively precluded) the parking of vehicles in the showroom except for “static display” as distinct from “storage”, although parking of vehicles in Suite 3 was allowed. It is, I think, common ground, that the “static display” permission did not amount to “the parking of vehicles” in a sense relevant to the operation of the lease. The question is whether a consent not allowing parking of vehicles in the showroom meant that there was no consent in the terms described in the showroom lease, bearing in mind that clause 1 of the showroom lease, which contained the definitions, said that, “unless the context indicates a contrary intention”:

“’demised premises’ or ‘premises’ both mean the property hereby demised”.

The “property hereby demised” is described as part of the property in the relevant folio identifier under the Real Property Act, the part being “premises known as SHOWROOM 185 William Street Kings Cross”.

14 Applying the clause 1 definition, therefore, the requirement in the clause 41 condition of the showroom lease is that there be a development consent from the South Sydney Council which allows, in relation to the showroom alone, use “as a car rental outlet (including but not limited to parking of vehicles)”. Because the consent actually granted did not allow parking of vehicles in the showroom, this condition was not, on any view, satisfied unless it can be said that “premises” in clause 41 had a meaning out of line with that specified by the clause 1 definition of that term.

15 The plaintiff argued that “premises” in clause 41 did not take its meaning from the clause 1 definition (so as to be confined to the showroom) and was to be understood as referring to the showroom and Suite 3 together, so that, with the Council consent allowing parking of vehicles in Suite 3 and use of the composite whole as a car rental outlet, the condition was satisfied. This approach pays attention to the fact that the two leases were “interdependent” by virtue of clause 40 of each and proceeds on the basis that “premises” in clause 41 of the showroom lease (and perhaps in other places in each lease) referred to the showroom and Suite 3 together as a whole.

16 This gives rise to a need to consider the scope and meaning of the qualification “unless the context indicates a contrary intention” at the start of clause 1 of the showroom lease. It is, I think, important to emphasise the word “context” in that qualification. What the qualification does is to focus attention on the particular defined term (here, “premises”) in the whole of the context in which it is found and to direct the reader to consider whether that context is such that one cannot accept that the particular word has the meaning given to it by the interpretation clause. The qualification is an acknowledgement that, in some places, the defined term may not bear its assigned meaning and that those places will be identified by means of a contextual indication that some other meaning is intended. Thus, where an Act uses the word “person” in provisions entailing qualifications, conduct and responsibility of a kind of which only an individual is capable, that context excludes the meaning of “person” that otherwise extends to corporations as well as natural persons: see, for example, the observations of Menzies J in Peate v Federal Commissioner of Taxation (1964) 111 CLR 443 at 456.

17 The important point is that the qualification “unless the context indicates a contrary intention” operates solely by reference to the content of the instrument itself. There is, in effect, a direction by those responsible for composing the instrument to those who will afterwards read it that the whole of the subject matter and the scheme by which the instrument deals with that subject matter are to be considered in deciding whether a word to which a defined meaning is assigned is to be read as having some other meaning. Only if, by express words or necessary implication, the instrument itself shows, within its own four corners and without resort to extrinsic evidence, that the other meaning must have been intended is it permissible to abandon the defined meaning

18 In the present case, there is nothing in the words of the showroom lease to cause the reader to apprehend that clause 41 cannot operate perfectly sensibly, in the context of the whole of the scheme of that lease, if the word “premises” is confined to the showroom itself or to suggest the operation of some obvious but unspoken alternative meaning of “premises”. In short, clause 41 and the lease as a whole have a perfectly sensible and rational operation with “premises” meaning, in accordance with the clause 1 definition, the showroom premises alone. There is no excluding or modifying context.

19 That being so, the condition in clause 41 of the showroom lease requiring the grant of consent in the terms specified in that clause was not satisfied and an occasion for exercise by the defendant of the right of termination under that clause arose when, at the expiration of the period of three months referred to in the clause, the Council had not granted a consent on terms allowing the parking of vehicles in the showroom – unless clause 41 was subject to an equity on the part of the plaintiff to obtain rectification and that equity intervenes to preclude a finding that the defendant validly end effectively terminated by resort to the right of termination conferred by clause 41.

The plaintiff’s rectification claim

20 The plaintiff says, quite simply, that, in a context where two leases were entered into simultaneously in relation to different parts of the same building with a view to the use of both parts together for a single enterprise, where each lease contained a provision making it “subject to and interdependent with” the other with default under one lease being also default under the other, and where each lease contained the same provision regarding Council consent to the use of “the premises”, the true subject matter of the parties’ bargain with respect to the Council consent was a combination of the two parts comprised in the respective leases. On that footing, the plaintiff says, each lease should be rectified by inserting “together with the other premises” after “the premises” where first appearing in clause 41. So modified, clause 41 of each lease would permit termination of that lease if, within the specified period of three months, the Council had not granted in respect of the showroom and Suite 3 together the particular development consent envisaged by that clause 41.

21 Authoritative guidance as to the correct approach to a rectification claim of this kind is provided by members of the High Court in Pukallus v Cameron (1982) 150 CLR 447. Wilson J said (at p 452):

“The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at p.664; Slee v Warke (1949) 86 CLR 271 at p.280; Joscelyne v Nissen [1970] 2 QB 86, at p.98; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, at p.350. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the views expressed to the contrary in Joscelyne at p.98, and Maralinga at p.350. The opposing view is argued by Mr Bromley QC in an article in the Law Quarterly Review vol 887 (1987) p.532. It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord.
The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance "convincing proof" that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties.”

Brennan J said (at p 456):

“Although the remedy of rectification is no longer held to depend upon proof of an antecedent concluded contract, Slee at p.280; Maralinga at p.336, it is necessary to show a concurrent intention of the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to ‘displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties’ Maralinga at p.351.”

22 To these observations may be added that of Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at p 350:

“What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class to which I shall later refer.
It is now settled that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification. It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention ( Shipley Urban District Council v. Bradford Corporation [1936] Ch 375; Slee v. Warke (1949) 86 CLR 271). But this circumstance does not affect what I have already said.”

23 In Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329, Mahoney A-P emphasised that what is to be identified is an intention, being, in the case of an agreement between two parties, the intention of both of them. Only if the document fails to give effect to what is seen to be the common intention of those parties will rectification be ordered.

24 In the present case, there is evidence of the dealings and course of conduct leading up to the preparation and execution of the two leases that makes it relatively easy to discover the common intention. The defendant was introduced to the William Street site by a letting agent acting on behalf of the plaintiff. On 1 December 1998, the defendant’s NSW and ACT Regional Manager, Mr Laurendi, wrote to the agent, Mr Smedley, as follows:

“Regarding property at 177 William Street I would like to make an offer of $150,000 Per Annum, for the downstairs office areas and upstairs car park. We would ask for terms of a 2 years lease and 2 year options.
We would be looking to get possession of the premises around January, and would like to go forward if the above conditions are satisfactory to your client.”
Mr Laurendi wrote to Mr Smedley on 21 January 1999 as follows:

“Following our conversation on the 20th January, 1999, I am writing to confirm our in principle agreement for leasing the property at 177 William Street, Kings Cross.
The agreement in principle is for $150,000 per annum, being for the downstairs and upstairs car park, with an initial lease of 2 years and 2 x 2 yr options.
It would be appreciated if you could forward the lease documents at your earliest convenience, so our solicitor can ratify.”

25 On 9 February 1999, Mr Smedley wrote to the plaintiff’s solicitor, Mr Lipton, as follows:

“Avis have agreed to lease the eastern ground floor showroom and all the parking space above with the rear access of 177 to 185 William.
Rent $150,000 per annum
Term 2 years plus two option terms of two years giving total of six years
Use Premium Rent A Car
Period From as soon as possible
Outgoings Showroom 17.5% of outgoings
Car Parking 8.5% of outgoings
Solicitor Attention Andrew Buchanan
Cowley Hearne
80 Mount Street
North Sydney 2060
Phone [phone]
Barak Pty Limited are paying for repairs to parquetry flooring and should Avis wish to put a new facade on the showroom insurance will pay for the cost of the existing broken front plate glass window.
Should you have any other questions please do not hesitate to contact me.”

26 It is clear that, at that point, the transaction envisaged was a single transaction involving both downstairs premises (the showroom) and upstairs premises (Suite 3) at a rent of $150,000 per year. The idea that there should be two leases, one for each part (or, perhaps, a lease for the showroom and a licence for Suite 3) came from the plaintiff. On 17 February 1999, Mr Stern, a representative of the plaintiff, instructed Mr Lipton to prepare two leases, one for the showroom at a rent of $100,000 per year and the other for Suite 3 at $50,000 per year. The reason emerges from the evidence as having originated with Dr Lewkovitz, the principal of the plaintiff. It appears that the showroom and Suite 3 occupied roughly equivalent floor areas, each accounting for about 12.75% of the building. However, the showroom at street level and with a street frontage was seen, not unnaturally, as commanding a higher rental than a first floor parking area and Dr Lewkovitz wanted to be sure that there would be no suggestion of some dilution of the rental value of the showroom through the inclusion of both areas in the one lease without differentiation as to rent.

27 On 24 February, Mr Lipton sent two draft leases (one for each of the separate areas) to the defendant’s solicitor, Mr Buchanan, noting that his present instructions were that he was “to furnish you with a Licence relating to the car parking area” (clearly a reference to Suite 3) but that in the interests of time he was sending a draft lease that had already been prepared so that the terms could be considered. Each draft lease contained a permitted user clause. The document for the showroom precluded use “for any purpose other than as an outlet for the rental of motor vehicles”; while the corresponding specification in the document for Suite 3 was “for any purpose other than for car parking purposes”.

28 Telephone discussions between the respective solicitors established that the defendant had no objection to separate leases or to their being “interdependent”. This was confirmed in a letter of 8 March 1999 in which Mr Buchanan forwarded comments on the leases. In his reply of 11 March 1999, Mr Lipton set out the terms of the suggested provision which eventually became clause 40 of each lease.

29 By late March 1999, it had become clear that a development consent would be needed before the defendant could commence business in the William Street building. On 23 March 1999, Hassell Pty Ltd, the defendant’s design consultant, wrote to Mr Smedley as follows:

“South Sydney Council have indicated that a DA and construction certificate are required for Avis’ relocation to 177 William St.
The particular issues are
1. Hours of operation
2. Signage
3. Access from William St
4. BCA compliance
(are there sufficient fire protection measures in the building for the storage of cars and use as an office?)
These may well not be significant issues however Avis would like some assurance of this before committing to this project.
Do you have a contact at council who can put these issues to rest?
Please advise.”

30 There was a measure of anxiety on each side to ensure that the transaction was not lost. On 26 March 1999, Dr Lewkovitz told his solicitor that he was happy for the leases to be signed immediately on the basis that they were “conditional upon DA for use required”. On 31 March 1999, Mr Buchanan forwarded to Mr Lipton the terms of a suggested lease provision covering this matter. The relevant part of Mr Buchanan’s letter read as follows:

“We refer to our recent correspondence and request that the following clause be inserted in the lease to cover the need for Avis Australia to obtain Development Approval.
‘This Lease is subject to and conditional upon the Lessee obtaining development consent from the Council of the City of South Sydney to the use of the premises as a car rental outlet (including related activities, including but not limited to parking of vehicles). In the event that development consent is not obtained within three (3) months of the date of this Lease on terms and conditions satisfactory to the Lessee, the Lessee will be entitled within fourteen (14) days thereafter by notice in writing to terminate this Lease and the parties agree to thereafter execute such documents as are necessary to give effect to this clause.’
‘The parties agree that notwithstanding anything in the Lease to the contrary no rent will be payable by the Lessee until the expiry of the three (3) month period referred to above.’
On the assumption that the above is acceptable to your client, can you please forward marked up and execution copies of the Leases to me …”

31 Mr Lipton considered that this suggested clause did not adequately protect his client’s position – a view that was not surprising in light of the fact that the clause turned upon grant of an approval on terms satisfactory to the lessee, a matter Mr Lipton no doubt apprehended would be determined, at least to some extent, by reference to the lessee’s subjective state of mind. He therefore did some redrafting and included in a revised version of each lease a clause modelled on the form proposed by Mr Buchanan but altered to introduce objective determinants and to prevent the clause’s operating merely by reference to what the defendant deemed satisfactory to it. The provision thus drafted by Mr Lipton became clause 41 in each lease as finally executed.

32 The parties’ common intention was quite clearly that the two leases should be the documentary medium through which a single transaction was carried into execution. The single transaction was the letting of both the showroom and Suite 3 at a rent of $150,000 per year in a manner making it clear that $100,000 was attributed to the showroom and $50,000 to Suite 3. Neither part was to be let without the other and, through clause 40 of each, the leases were, in effect, to stand or fall together as if a single lease. When, in his letter of 31 March 1999, Mr Buchanan referred to the clause he had drafted being “inserted in the lease”, he did not refer to either the lease of the showroom or the lease of Suite 3. It would have been meaningless, in the context, for him to have contemplated one rather than the other. In referring to “the lease”, he had slipped back into thinking of a single transaction effected by a single lease, having included in his drafting a description (“as a car rental outlet (including related activities, including but not limited to parking of vehicles)”) that was appropriate to the showroom and Suite 3 together. That description was clearly inapt for Suite 3 alone, consisting, as it did, of parking bays one storey above street level, with an entrance only from the subsidiary back lane and with no capacity to house the customer reception and other facilities that make up a car rental outlet. The description was consistent only with an intention related to both leased areas viewed as a combined whole.

33 In commercial terms, both parties intended that clause 41 of each lease should operate in such a way as to make the subject matter of the development consent the use of the showroom and Suite 3 together – being the single letting – “as a car rental outlet (including related activities, including but not limited to parking of vehicles”. It was no part of the common intention that the user specification in clause 41 should apply separately and independently to the area comprised in each lease. The condition in each clause 41 was intended to operate as a composite condition applicable to the two leased areas together as the single economic unit the parties’ single underlying transaction (effectuated by two lease documents) caused them to be.

34 The plaintiff is accordingly entitled to the relief by way of rectification sought in the amended statement of claim, that is, by the addition of the words “together with the other premises” after “the premises” in the first sentence of clause 41 of each of the two leases.

Clause 41 in its rectified form

35 I proceed now to consider the question whether, in the events which happened, the defendant validly terminated both leases in accordance with the rectified clause 41 by its solicitors’ letter of 2 September 1999.

36 The right of the defendant as lessee to terminate each lease was expressed by each clause 41 (as rectified) to arise and be exercisable in a defined “event”, namely, that a particular development consent “is not obtained … within three (3) months of the commencement of the date of the Lease”. A later part of the clause nevertheless denied the right to terminate (assuming it had otherwise arisen) if a consent had been obtained within the specified period and its terms and conditions were of a particular quality. Various elements should be separately examined.

Clause 41 – “satisfactory to the Lessee”

37 The description of the “event” in the first part of the clause must now be considered. The question to which that part addresses attention is whether, by the end of the specified period (that is, by 20 August 1999), there had been issued a development consent to use of the showroom and Suite 3 together as a car rental outlet (including but not limited to parking of vehicles), being a consent the terms and conditions of which were “satisfactory to the Lessee”. That question will be answered in the affirmative in each of two sets of circumstances. The first is where, at some time on or before 20 August 1999, there was issued a development consent permitting the described use and being subject to terms and conditions satisfactory to the lessee (defendant) at the time of issue of the consent. The other is where, at some time on or before 20 August 1999, a consent permitting the described use was issued on terms and conditions that were not satisfactory to the defendant at the time of issue of the consent but became satisfactory to it on or before 20 August 1999, either because the terms and conditions changed so as to be satisfactory or because there was a change in what was satisfactory to the defendant causing it to coincide with the terms and conditions. The right to terminate did not, in my view, become exercisable if, at some time on or before 20 August 1999, there was issued a development consent permitting the described use on terms and conditions satisfactory to the defendant at the time of issue of the consent but there was subsequently (and on or before 20 August 1999) a change in what was satisfactory to the defendant.

38 Whether particular terms and conditions are “satisfactory to the Lessee” involves, as I see it, a question of fact, namely, whether the lessee is subjectively honestly not content with the terms and conditions: Meehan v Jones (1982) 149 CLR 571; Zieme v Gregory [1963] VR 214. Unless, on the evidence, the lessee is found to have been subjectively honestly not content with the terms and conditions, those terms and conditions will be taken to have been satisfactory to it. Such a “not content” approach seems to me to be compelled by the unreality that attends any attempt to prove in any positive way that someone affirmatively finds something “satisfactory”, given that what is “satisfactory” to a person often turns in whole or in part on no more than neutrality or lack of objection, as distinct from active approval or endorsement. The general issue must therefore be approached in the light of whatever the evidence shows to be what might best be described as the demonstrated requirements of the defendant with respect to the subject matter of the terms and conditions actually imposed.

39 The approach to the meaning of “satisfactory to the Lessee” just outlined is, I think, consistent with that taken by Beaumont J in Koryar, Koryar & Clarke v Perry & Allen (unreported, FCA, 4 December 1997) to the following provision of a joint venture agreement:

“Perry/Allen shall have the right to retain ownership of the fishing vessels and equipment and are at liberty to withdraw their vessels and equipment if not jointly satisfied.”

40 Dealing with the meaning of “satisfied”, Beaumont J said:

“The primary dictionary meanings (Macquarie Dictionary) of the transitive verb ‘satisfy’ are:
‘1. to fulfil the desires, expectations, needs, or demands of, or content (a person, the mind etc); supply fully the needs of (a person etc). 2. to fulfil (a desire, expectation, want, etc)...’
As an intransitive verb, ‘satisfy’ means ‘to give satisfaction’. The primary meanings of ‘satisfaction’ are:
‘1. the act of satisfying. 2. the state of being satisfied.’
The present context indicates, in my view, that the words “not satisfied”, here used intransitively, were intended to mean that the joint venture had not fulfilled the defendants' desires or expectations of the venture.”

41 The present context seems to me to entail an equivalent conclusion, namely, that consent will not have been obtained on terms and conditions satisfactory to the lessee if the consent does not fulfil the lessee’s desires or expectations of the consent – what I have termed the demonstrated requirements of the lessee.

42 Debate before me was directed mainly to the question whether, within the relevant period of three months, there had been obtained a development consent of the kind contemplated by the earlier part of clause 41. There can be no real doubt that the consent issued on 23 June 1999 was a development consent to use of the showroom and Suite 3 together as a car rental outlet (including but not limited to parking of vehicles). In its rectified form, the clause does not require that any particular part of the composite whole be available for the parking of vehicles, merely that parking be allowed in some part. To the extent that the defendant sought, by reference to the permitted user clause in the showroom lease (referring to use as “an outlet for the rental of motor vehicles”) and to dictionary definitions of “outlet” (which include not only the sense inherent in “retail outlet” but also that in “drainage outlet”), to argue that the showroom lease expressly contemplated vehicles coming into and going out of the showroom, I do not accept the submission. “Outlet” in the expression “outlet for the rental of motor vehicles” carries the “retail outlet” connotation of a species of sales location servicing customers, not the “drainage outlet” connotation involving movement as through a channel or opening.

43 Because the consent issued on 23 June 1999 was a consent to the use of the composite premises for the purpose stated in clause 41, it is necessary to consider the extent of the correspondence between the content of the terms and conditions to which that consent was subject and the demonstrated requirements of the defendant in relation to each relevant subject matter, determined on the evidence, so that there may be an assessment whether there was such coincidence between them that the terms and conditions are to be considered “satisfactory” to the defendant in the way I have earlier described.

44 The notice of termination conveyed by the defendant’s solicitor’s letter of 2 September 1999 said that the defendant had been unable to that point to obtain development consent on terms and conditions acceptable to it. The letter referred to two matters “in particular”, being inability to obtain approval to park six cars in the showroom and inability to obtain approval of the signage the defendant required. Although the words “in particular” are used, it seems clear that the two matters mentioned were the only ones on which the defendant relied. A third that had previously been identified (the specification of trading hours in condition 11) had been resolved by the Council’s variation of 12 August 1999. The question whether the terms and conditions were “satisfactory” to the defendant must therefore be approached in relation to the two particularly identified matters only.

The first part of clause 41 - parking in the showroom

45 The application for development consent made by Hassell on the defendant’s behalf on 12 April 1999 made it clear that the defendant wished to have the ability to park vehicles in the showroom, as well as in Suite 3. In the plans forming part of the application, the whole of Suite 3 was labelled “Car Storage Area”, as was about one-third of the showroom, the rest being shown as a customer counter, offices and other facilities. There was explicit reference in the body of the application, in the space labelled “Vehicular access’, to “Access to site off William St & Premier Lane” and “Vehicle access every day”. Even before the application was lodged, however, the possibility of difficulties in appropriate access from William Street had emerged. It was mentioned in Hassell’s letter of 23 March 1999 to Mr Smedley quoted above.

46 On 11 May 1999, that is, nine days before the date of the leases, Mr Laurendi of the defendant reported to executives of the defendant’s parent company in New York on the situation then prevailing with respect to Council consent. His email of that date was as follows:

“Have heard back from council on objections to development approval 1.Signage needs to be moved from middle of building to side 2.They will not approve down stairs car bays this will mean that we will lose 6 bays.
Other than that we are able to operate. We have 3 options I have contacted the agent for old tab site rent is $115,000 pa this is a smaller site than where we are currently bidding for office is 80 sq mtres parking is 150sq but they have a handshake deal on this and we would need to act in the next couple of days.
2 ….Current bid is for 214sq office and downstairs parking (6) and 214 sq of parking on 1st floor, I have spoken with agent and asked him to see if owner would reduce downstairs office and reduce rent accordingly, but I dont hold out much hope for this.
3.We go with what is on the table at the moment and expand the office area amanda can you forward to andrew”

47 Mr Siniscalchi, one of the recipients of this email, replied:

“Why would we expand the office space that will just increase the cost. Lets pursue a concession on the rent and see how we do.”

48 Mr Medley who was, at the time, the chief executive of the defendant, also communicated with United States executives on the matter. His email of 13 May 1999 was as follows:

“Mike, the rent on these premises has been set at $150K pa. The term of the lease that the landlord wishes to enter into is 2x2x2. This property was seen by Joe Laurendi in December, and it was expected we would sign the lease in March, with a three month rent holiday, which would have expired on the 1st June.
The landlord has contacted Joe to get a decision as to whether Avis will take possession of this property.
We have a meeting with the Council tomorrow morning (14 May) to discuss two main issues:
(a) position of sign;
(b) withdrawal of car spaces on the ground floor, thus leaving only 10 spaces on the first floor.
There are no washing facilities in this property or fuel facility. It is expected that we use ‘Joe’s Garage’ to fuel and wash the vehicles and ferry them to this location.
The landlord has advised Joe that he would expect Avis to take possession after the DA has been signed and start paying rent immediately. He is also looking to sign the lease, pending DA approval, tomorrow, and with the signing of the lease he would like a month’s rent, which is approximately $12,000K.
Please advise your concerns and advices regarding this decision.
Please note there are no other sites available in this area, and if a decision is not made to take possession of this property, I believe we will lose this property and will find it very difficult to locate alternative premises.”

49 On 14 May 1999, Mr Laurendi and representatives of Hassell met with officers of the Council. After that meeting, Hassell prepared both a revision of the downstairs layout to eliminate parking and a revision of the signage arrangements. It is to be inferred from this that, as a result of the meeting with Council officers, Hassell was not confident that the Council would approve downstairs parking and signage arrangements the defendant regarded as ideal. The revised downstairs layout was faxed by Ms Keirnan of Hassell to Mr Laurendi on 17 May 1999 with a handwritten cover sheet saying:

“Joe,
Attached is revised plan for your comments/approval.
Regards
Sarah.”

50 The copy of this cover sheet in evidence also carries a notation “Approved 18.05.99” which appears to be in the same handwriting as the message to “Joe”, from which I infer that, on 18 May 1999, Mr Laurendi conveyed to Ms Keirnan something that she understood to be the approval she had solicited and that she made a note accordingly on the original fax which was still in her possession. The plan referred to restricted the downstairs area to a counter (positioned at right angles to the William Street frontage) and offices, together with a “Display Area” not partitioned from the counter. It also deleted ramping to the footpath level. From this (and from Mr Laurendi’s apparent approval of the plan), it may be inferred that the defendant was prepared to consider (no doubt as a less preferred alternative) a situation where, so far as vehicles were concerned, use of the showroom was confined to static display, with entry and exit still being by way of the portable ramps carried into position as the need arose.

51 On 19 May 1999, Hassell sent to Egis Consulting, the air conditioning consultants, a fax as follows:

“Unfortunately Council have rejected our application to change the existing shopfront to 177 William St. They won’t allow us to ramp up from the street to increase the frequency of cars coming & going. Therefore there is no requirement for a ramp or separate car storage area – refer attached revised plan. This will change the mechanical services layout but there is no further structural input required. I’m hoping to issue tender documents by this Friday. Please with any queries regarding this.”

52 The reference to rejection by the Council is no doubt a reference to the apprehension of rejection engendered by the meeting of 14 May 1999. The accompanying plan showed carpet extending on to part of what was labelled “Display Area” in the plan sent by Ms Keirnan to Mr Laurendi on 17 May, with the balance (of a width equivalent to that of the sliding doors) marked “Existing parquetry floor to remain” and with the sliding doors themselves marked “Existing sliding glass door and shopfront to remain”.

53 The leases are dated 20 May 1999. Having regard to the evidence to which I have referred, it must be concluded that Hassell by then was working towards implementation of a configuration that excluded the possibility of cars being parked in the showroom except to the limited extent allowed by the uncarpeted area in the plain of 19 May 2002 with entry and exit being by means of the portable ramps. There is no direct evidence that Hassell prepared the 19 May 2002 plan on the defendant’s instructions or with its knowledge or consent, but commonsense suggests that the consultant would not have done so on some entirely untutored and speculative basis. It was clearly an important member of the group working on the defendant’s project and must be taken to have been aware of the defendant’s aims and wishes and what it would regard as satisfactory. It is most unlikely that Hassell would have taken the step of instructing Egis to start work by reference to the lay-out in the 19 May 1999 plan (with, one assumes, consequent exposure of the defendant to liability for Egis’s fees) unless Hassell knew that that lay-out was acceptable to the defendant.

54 There is, in any event, direct evidence of a communication made on 11 June 1999 by Mr Laurendi to Hassell (Mr Ropiha) as follows:

“Tai
Redesign as per phone call”

55 Sent with Mr Laurendi’s fax was a plan showing a showroom configuration in which the area previously available for vehicle storage has been eliminated and the customer counter, previously positioned at right angles to the William Street frontage, is parallel with that frontage and occupying almost the whole width of the showroom. Mr Laurendi was cross-examined about this fax and its accompanying plan:

“Q. I show you this document. Do you remember sending that to Mr Ropiha?
A. I don’t recall it, but obviously I have.
Q. Who prepared the document that is attached to this fax?
A. I believe Hassells would have.
Q. And submitted it to you for your approval; is that right?
A. Yes.
Q. And when you sent it back, that constituted your approval, did it not?
A. Not necessarily.
Q. Not necessarily? What is the qualification?
A. As I said before, numerous sets of plans have always been put forward by Hassells. Numerous possibilities have been put forward by Hassells and this is one of those drawings.
Q. Is that your answer?
A. Yes.
Q. It is clear from this drawing, isn’t it, that what was proposed for the downstairs area, according to this drawing, is a retail desk as indicated, that is, in a position different from the side where it was before, with offices at the back?
A. Yep.
Q. And no possibility of storing or parking motor vehicles in the downstairs area?
A. Correct.
Q. And you told Hassells, that you wanted to rejig that downstairs area from the drawing I showed you a little while ago, on 17 May, to a drawing which fitted the general requirements of the one I am now showing you, didn’t you?
A. I can’t recall if I gave them those instructions, no.
Q. You see, at this time, 11 June, it was right up against the latest possible moment that you could make a decision as to precisely how you would configure this downstairs area, wasn’t it?
A. Several ways were discussed about configuring. I don’t know what you mean about that was the latest possible time that I could choose.
Q. You were at the business end of the time frame. You understand that?
A. Yes.
Q. You would agree with that, wouldn’t you?
A. Yes.
Q. You could have moved out of 214 at any time from about the end of June onwards?
A. On a month’s notice, yes.
Q. So it was important on getting on with refurbishing the downstairs area of the Barak premises?
A. It was important that we get development approval.
Q. Would you agree with what I put to you?
A. No.
Q. I suggest to you that it is clear from this document that you instructed Mr Ropiha to prepare a drawing which simply didn’t allow for any parking downstairs?
A. It is not clear that I asked him to prepare that document, no.
Q. I suggest to you, you approved, for the purposes of going forward from this time onwards, a configuration that did not involve parking of vehicles downstairs?
A. I do not see approval on that. I see discussion happening on it, yes.
Q. Does it not indicate that if you were considering a configuration such as this, parking downstairs was not essential to Avis in these premises?
A. No. It is a reconfiguration.
Q. But if it was essential, you would never even consider such a thing, would you?
A. I go back to saying that numerous plans were produced. It doesn’t necessarily mean that that is what I was intending to accept.
Q. But if you are to be believed in your evidence, preparing a plan such as this was a complete waste of time, wasn’t it?
A. I --
Q. Wasn’t it?
A. Yes.”

56 Mr Laurendi was then taken to his earlier evidence in which he had said that a consent that did not allow the parking of vehicles in the showroom “would never have been acceptable to” the defendant. He was asked whether he adhered to that evidence and said, “Yes”. The cross-examination then continued:

“Q. Would you not agree that if that was the position of Avis, as you gave it yesterday, there was no point at all in preparing a drawing showing a configuration of the kind that the drawing I am now showing you has within it?
A. Correct.
Q. No point at all?
A. Correct.
Q. Did you tell Mr Ropiha that the drawing he prepared and sent to you was a pointless exercise?
A. The question you asked me was if it was acceptable. You didn’t ask me whether I could go on and ask for additional drawings. It was never acceptable, that clause, in the conditions where we weren’t able to park cars downstairs.
Q. That is your answer?
A. Yes.”

57 Mr Laurendi was later taken to fax communications between Hassell and Mr Quijano, an architect and project manager in the parent company’s properties department in New York. This correspondence centred upon plans identical, in concept, with those of 11 June 1999. Cross-examination followed:

“Q. What was the purpose, to your understanding, of this interchange that we have just been through between Hassell & Partners and New York at this time, resulting in this document?
A. That is a normal process when we are looking at new premises.
Q. You say that, but would you please answer my question? What was the purpose of doing it at this time, in relation to this property, in this fashion, as you understood it?
A. As I understood it, that was the normal process whereby several different options are looked at and canvassed by a number of people within the organisation.
Q. For what purpose?
A. For what purpose?
Q. Yes.
A. I don’t know.
Q. They weren’t just doing this for fun, were they?
A. No they weren’t. They were looking at different lay outs. They were looking to accommodate what they understood would be the council’s position in relation to the development application.
Q. They didn’t know that?
A. No.
Q. Hadn’t you told them on 11 May they weren’t going to be able to park cars downstairs?
A. I said that was what council was telling us. It was not what council had arrived at. It still had to go before council.
Q. These people, to your knowledge, were looking at this downstairs layout fully expecting that council would not permit the parking or storage of vehicles there, weren’t they?
A. These people were giving us different options, which is their job. They are in the properties department. They are looking at several different options and that is what they do. That is what Hassells do. That is what Manual Quijano does. They put it forward to management and management reviews it and decides whether to accept it or not accept it.
Q. You never told them that the things they were doing at this time was a complete waste of time, as far as you were concerned, did you?
A. I can’t recall. I don’t believe that I did.
Q. No, because it wasn’t, was it?
A. I can’t recall.
Q. You can’t recall?
A. No.”

58 Mr Quijano became directly involved in correspondence with Hassell. On 22 June 1999, Mr Quijano sent to Hassell a fax as follows:

“Please revise drawings for Kings Cross as indicated in attached sketches.”

59 The lay-out in the attached sketches (of which there were several, although all relating to a single configuration) depicted the showroom in a way similar to that in the most recent Hassell drawings, that is, with the customer counter across virtually the whole width of the showroom and no space in the showroom for car parking. Mr Quijano sent a copy of this fax and its accompanying sketches to Mr Laurendi with an indorsement as follows:

“Joe, I spoke with Pat Siniscalchi and George Proos, they agree with the revisions.”

60 On 28 June 1999, Hassell sent Mr Quijano a fax beginning:

“We have now completed revised documentation of the works for Kings Cross and have issued revised drawing sets to Joe Laurendi and yourself by mail.
The DA and Construction Certificate have been approved by Council and issued to Joe Laurendi and therefore alteration work can now commence.
Our final fee reconciliation for the project is as follows and takes account of changes to remove parking from the ground floor area (amendment 1), changes required by Avis US (Mike and Pat) (amendment 2) and final changes requested by yourself (amendment 3).”

61 It is clear to me that, after the meeting with the Council on 14 May 1999, the defendant was not at all confident of obtaining from the Council a consent allowing parking of vehicles in the showroom. After that meeting, Hassell, with the knowledge and consent of the defendant and, I am satisfied, at the request of Mr Laurendi or Mr Quijano or both, embarked on a process of developing alternative lay-outs for the showroom that excluded parking and saw the whole of the showroom occupied by the customer counter and associated facilities. It is not as if Hassell prepared one such lay-out which was rejected by the defendant out of hand. On the contrary, there was an ongoing process of development which continued after the leases were executed and up to the point where the unavailability of parking in the showroom was crystallised by the Council’s conditional consent of 23 June 1999. On the immediately preceding day, 22 June 1999, Mr Quijano stated explicitly that Mr Siniscalchi, a senior New York executive, and Mr Proos, the incoming chief executive of the plaintiff who started in that position in mid-July 1999, agreed with a configuration embodied in Mr Quijano’s own sketches which entailed no parking of vehicles in the showroom. By 28 June 1999, Hassell regarded matters as having reached a point both with the Council and with their client where the alteration work was ready to begin on that basis.

62 It is necessary to refer here to the evidence of Mr Proos. He had seen the premises on 9 and 10 June 1999 before taking up his appointment as chief executive of the defendant in mid-July. Mr Proos testified that, from the time of his first inspection, he had had it in mind that the showroom would accommodate six cars. He was asked about when this became an imperative:

“Q. Do you say that you ever reached a stage where you were insistent upon having six rental vehicles approved for parking or storage on the ground floor of the premises?
A. I believe we were insistent that we have the ground floor available for storage, without the restriction of display or hours of moving them in and out.
Q. You used the pronoun we?
A. Well, I.
Q. Were you answering for yourself then?
A. Yes.
Q. When do you say that you formed that view that you were insisting upon that?

A. I would – around the end of July.”

63 There is nothing in Mr Proos’ evidence to suggest that he did not agree with the sketches that accompanied Mr Quijano’s fax to Hassell dated 22 June 1999 as stated in Mr Quijano’s handwritten endorsement addressed to Mr Laurendi.

64 Mr Laurendi sought, in cross-examination, to classify the process of revision of drawings which led to Hassell’s fax of 28 June 1999 to Mr Quijano (beginning, “We have now completed revised documentation of the works for Kings Cross …) as no more than “the normal process whereby several different options are looked at and canvassed by a number of people within the organisation” to “exhaust all avenues”. Mr Laurendi advanced that characterisation in the course of a cross-examination in which he professed continuing inability to recall relevant matters. The characterisation is not consistent with the documentary evidence. The process disclosed by the documents is one of logical and orderly development culminating in Hassell’s fax of 28 June 1999 referring to completion of revised documentation and to the fact that “alteration work can now commence”. Much of the relevant communication involved employees of Hassell and Mr Quijano. It is significant that the defendant did not seek to adduce any evidence from the two relevant members of the staff of Hassell (Ms Keirnan and Mr Ropiah) or from Mr Quijano. They were, respectively, employees of a consultant with which the defendant had a close association and an executive of the defendant’s parent company, with the result that they may be regarded as in the class of persons who could and should have been called by the defendant. I infer that their evidence is unlikely to have supported the version of events up to 28 June 1999 given by Mr Laurendi and would more likely have confirmed the impression created by the documents: Jones v Dunkel (1957) 101 CLR 298.

65 I move now to a different series of events. On 5 July 1999, Mr Lipton, the plaintiff’s solicitor, wrote to Mr Buchanan, the defendant’s solicitor, saying, among other things:

“Would you please advise us in writing whether the development consent which your client has received from South Sydney City Council is satisfactory and, if so, would you confirm in writing that the condition contained in Clause 41 of each Lease has been satisfied. Our client requires such confirmation before it is in a position to furnish a Notice to Vacate to the occupant of the car spaces.”

66 Mr Buchanan’s response (dated the same day) was:

“We understand that our client has concerns in relation to certain of the conditions of the Development Consent namely condition 11 as it operates until 7.00 pm on Fridays and conditions 13 to 18 which it believes are matters which are the responsibility of your client.
We anticipate to be in a position to respond to you further in relation to this issue tomorrow.”

67 At that point, therefore, the only expressed “concerns” of the defendant (apart from satisfying fire precaution matters which were accepted as being the plaintiff’s responsibility) centred on condition 11 dealing with hours of operation. Nothing was said about availability of parking in the showroom or matters of signage.

68 Mr Lipton wrote to Mr Buchanan on 9 July 1999 seeking a further response. Mr Buchanan replied on 19 July 1999 by way of a letter which must be taken to represent a considered response:

“As detailed in my facsimile of 5 July 1999 my client has concerns in relation to certain of the conditions of the Development Consent namely condition 4 in relation to exterior signage, condition 11 as it operates until 7.00pm on Fridays and conditions 13 to 18 which it believes are matters which are the responsibility of your client.
My client is discussing these issues with the South Sydney Council and I anticipate being able to respond to you in more detail once those discussions are completed.”

69 It was, of course, not strictly accurate for Mr Buchanan to say that all these “concerns” had been referred to in his letter of 5 July 1999. That letter made no mention of condition 4 concerning signage. Discussion thereafter took place between the respective clients. Mr Laurendi obviously regarded Dr Lewkovitz as a hard negotiator, saying in one of an email to New York dated 9 July 1999, “This guy is one difficult individual”. That email recorded that Hassell “will approach Council on signage and trading hours”. It made no mention of parking in the showroom.

70 On 21 July 1999, Mr Lipton reported the position to Mr Buchanan as follows:

“1. Our respective clients have agreed that your client shall be entitled to use the existing Honda sign as its signage. Your client shall not be liable to pay a signage fee to our client in respect of the said sign.
2. Your client has resolved with Council the issue of operating hours.
3. Our respective clients have agreed that the conditions of the Development Consent which relate to the building as a whole as distinct from any conditions which may relate to your client’s tenancy shall be the responsibility of our client.”

71 It was not until almost a month later, on 20 August 1999, that the defendant’s solicitor first raised with the plaintiff’s solicitor the aspect of the development consent that precluded car parking in the showroom. Mr Lipton’s note of a conversation on that day with Mr Buchanan contains the following:

“Car parking on ground floor and signage are the only two issues.”

72 Mr Proos, who became the defendant’s chief executive during July 1999, gave evidence that it was at about the end of that month that he first formed the view that it was essential for the defendant to be able to move vehicles into and out of the showroom without restriction.

73 Obviously in an attempt to bring matters to a head, Mr Lipton wrote to Mr Buchanan on 31 August 1999 as follows:

“We refer to previous correspondence. We note that to date we have not received from you written confirmation that the condition contained in clause 41 in each Lease has been satisfied. The period within which your client is entitled to terminate the Leases pursuant to the said Clause has clearly expired. Consequently, the Leases are free of the said condition and rental is payable as from the date of the development approval, being 23rd June, 1999.
Our client looks forward to receiving payment of the outstanding rental without delay.”

74 Mr Buchanan replied on the same day disputing the interpretation of the lease on which Mr Lipton’s letter was based and saying that a further response would be made after instructions were received. The material part of that further response (dated 2 September 1999) was as follows:

“As your client and its consultants are aware Avis Australia has not been able to date to obtain Development Approval on terms and conditions satisfactory to it as contemplated by clause 41 of the Leases dated 20 May 1999. In particular it has not been able to obtain approval to park 6 cars in the Showroom nor has it been able to obtain approval of the signage it requires.
As a consequence in accordance with clause 41 of each of the leases Avis Australia hereby gives notice terminating each of the Leases with effect from today.”

75 Mr Lipton replied on 7 September denying that the right to terminate was available to be exercised and maintaining that, in any event, the Council’s conditions were reasonable or usual having regard to the defendant’s use of the premises.

76 The significant point about these communications in the July – September period is that the defendant’s initially expressed “concerns” about the Council consent did not refer in any way to the issue of car parking in the showroom. That matter was not raised until 20 August 1999 in conversation between the solicitors and 2 September 1999 in correspondence.

77 In the whole of the circumstances described, I readily conclude that the Council consent precluding parking of vehicles in the showroom did not, at the time of its issue on 23 June 1999, fail to be “satisfactory” to the defendant by reason of that feature. I am satisfied that, as a matter of fact, the defendant’s then view of matters was such that it was not dissatisfied with the condition precluding parking in the showroom. Considerable effort was expended in developing the various layouts in the May-June period. Senior executives had, according to Mr Quijano, expressed agreement with those layouts. The consultant Hassell was ready to start arranging building work based on them. All this indicates quite clearly, to the necessary degree, that the defendant was ready, willing and able on 23 June 1999 to go ahead with a reconfiguration of the showroom involving no parking spaces and, as a corporation, found to be acceptable on that date a situation where parking in the showroom was precluded by the terms of the Council’s consent. This conclusion is confirmed and consolidated by the content of the communications between the solicitors between July and September. Had the inability to park vehicles in the showroom not been “satisfactory” to the defendant as at 23 June 1999, Mr Buchanan’s letter of 5 July 1999 should have referred to that aspect of the Council’s consent and his more considered and definitive summation in the letter of 19 July 1999 would certainly have done so. It is clear to me that Mr Buchanan wrote both letters on instructions. The conditional consent issued on 23 June 1999 had been in the parties’ consciousness for more than eight weeks before the first occasion on which apparent reservations on the defendant’s part as to the unavailability of parking in the showroom was first communicated by the defendant in the course of the solicitors’ conversation recorded in Mr Lipton’s note of 20 August 1999. Other matters of concern were raised in the solicitors’ correspondence more than a month earlier. The only sensible conclusion is that the ability to park vehicles in the showroom was not, on 23 June 1999, something that found a place in the demonstrated requirements of the defendant.

The first part of clause 41 – the facade sign

78 In the defendant’s purported notice of termination dated 2 September 1999, the second of the matters which, it was said, led to the conclusion that the defendant had not been able to obtain development consent on terms and conditions satisfactory to it was that it had not been able to obtain approval of “the signage it requires”.

79 The conditions of the development consent dated 25 June 1999 concerning exterior signs were conditions 3 and 4, namely, that the existing “Honda” sign on the façade be removed before erection of any new signs and that proposed projecting wall signs be confined within certain dimensions and be in the same position as the “Honda” sign. The specified maximum dimensions were a height of 2,600mm and a width of 450mm. This contrasted with a height of 4,000mm and a width of 700mm shown in the plans which accompanied the defendant’s application for development consent.

80 The question of signage was raised by Mr Laurendi in his emailed status report of 11 May 1999 to executives in New York (see paragraph [46] above). The issue was stated thus:

“Signage needs to be moved from middle of building to side.”

81 This was a report of the position that then pertained in discussions with the Council. The other matter mentioned was the question of parking in the showroom. After referring to these two matters, Mr Laurendi said:

“Other than that we can operate.”

82 The reply from New York, as already seen, was that efforts should be devoted to attempting to negotiate a rent reduction (see paragraph [47] above.

83 Mr Medley, in his email sent to New York on 13 May 1999 (see paragraph [48] above), identified the showroom parking question and “position of signs” as the “two main issues” for discussion in the meeting with the Council scheduled for the next day. On 18 May 1999, Hassell sent the Council a fax as follows:

“Attached are sketches showing the revised projecting wall sign size, which is in accordance with development control plan No 7, as per our meeting last Friday. Could you please call me with any comments regarding the revised size.”

The accompanying sketches showed an “Avis” sign in the façade in the position of the existing “Honda” sign. Its dimensions were shown as a height of 2600mm and a width (that is, protrusion from the façade) of 450mm, these being the maximum dimensions stated in the development consent condition but, of course, smaller than the dimensions shown in the plans submitted by the defendant with the application for development consent.

84 The sketches for revised drawings forwarded on 22 June 1999 by Mr Quijano to Hassell and also copied to Mr Laurendi with a handwritten endorsement (see paragraph [58] above) showed a façade sign having the smaller dimensions just mentioned. This endorsement is the one addressed to Mr Laurendi and saying that Mr Quijano had spoken to Mr Siniscalchi and Mr Proos and that “they agree with the revisions”. The page on which the smaller facade sign is depicted carries a handwritten notation by Mr Quijano, “Signage OK”. In the context, the endorsement as to agreement by Mr Siniscalchi and Mr Proos must be taken to extend to the “Signage OK” endorsement.

85 On 20 July 1999 Hassell wrote to Mr Laurendi stating that application could be made for variation of conditions to accommodate a larger sign and that the Council “might accept” a sign matching the size of the existing “Honda” sign. On 27 July 1999, Hassell copied to Mr Quijano a copy of a submission Mr Laurendi had asked Hassell to prepare seeking approval for “larger facade mounted signage” – clearly, a reference to a sign larger than contemplated by the development consent conditions. Hassell expressed an opinion that the Council was unlikely to approve. In a monthly report faxed to Mr Quijano on 13 August 1999, Hassell confirmed that the application for variation of conditions regarding signage had been made and repeated that it was unlikely to be successful.

86 In the correspondence beginning with Mr Lipton’s letter of 5 July 1999 (see paragraph [65] above), the matter of the sign was first mentioned in Mr Buchanan’s letter of 19 July 1999. As has been noted, Mr Buchanan was not strictly correct when he said that condition 4 had been raised in his 5 July 1999 letter. Mr Lipton’s letter of 21 July 1999 referred to an agreement between the respective parties for the defendant to use the existing “Honda” sign. It is not clear, however, that that would have satisfied the consent condition, as it appears that the “Honda” sign was larger than the condition allowed.

87 These documents show that, before the meeting with the Council on 14 May 1999, the defendant’s sole concern regarding the facade sign concerned its positioning: hence the statement in the report to New York on 11 may 1999 that “signage needs to be moved …”, that is moved from the position of the existing “Honda” sign. Mr Medley’s email to New York on the eve of the meeting confirmed this by referring to “position of signs” as one of the “two main issues” for discussion with the Council. Immediately before the development consent issued on 23 June 1999, Mr Quijano informed Mr Laurendi that he had instructed Hassell to prepare revised drawings including a sign 2,600mm by 450mm and that Mr Siniscalchi and Mr Proos both agreed with the position depicted on those drawings. From this it must be inferred that, on 22 June 1999, Mr Quijano, Mr Siniscalchi and Mr Proos all accepted and agreed to a facade sign of the size contemplated by the Council consent issued the next day. The copy of the fax of 22 June 1999 sent by Mr Quijano to Mr Laurendi with the handwritten endorsement was, I consider, an indication to Mr Laurendi that he should pursue in conjunction with Hassell the approach shown in Mr Quijano’s sketches.

88 After the consent issued (with its conditions requiring the new sign to be in the same position as the “Honda” sign and to be not more than 2,600mm by 450mm), nothing in the evidence to which I have referred suggests that the previously expressed concern as to positioning of the sign continued. The only matter concerning the sign that was referred to after the issue of the consent was the size of the sign.

89 Mr Buchanan’s letter to Mr Lipton dated 19 July 1999 referred to the defendant’s “concern” regarding “condition 4 in relation to exterior signage”. There is an ambiguity in that reference because condition 4 dealt with both position and size and the letter did not say whether the “concern” extended to one aspect or both. But in the period 18 May 1999 to 22 June 1999, there were elements of this part of the evidence making it sufficiently clear, I think, that it was the size issue alone that continued to be of concern to the defendant.

90 The defendant’s application for development consent proceeded by reference to a façade sign 4,000mm high and 700mm wide. When it became clear in May 1999 that the Council was unlikely to approve anything larger than 2,600mm by 450mm, several plans incorporating a sign of that smaller size were prepared. A sign of that size was identified (by the notation “Signage OK”) in Mr Quijano’s fax of 22 June 1999 to Hassell as being acceptance to all of Mr Quijano himself, Mr Siniscalchi and Mr Proos. Moreover, by the handwritten endorsement on the copy faxed to Mr Laurendi, Mr Quijano was effectively telling Mr Laurendi that that was the approach that the defendant was to follow.

91 Although identification of the “concern” about the sign occurred at an earlier stage of the correspondence between the solicitors in the July-September period than identification of “concern” about the showroom parking issue, the fact remains that that “concern” did not in reality exist on 22 June 1999, being the day before the issue of the Council’s consent. Mr Laurendi, in particular, may have hoped at that point to have a sign of the originally sought dimensions of 4,000mm by 700mm or even larger. But when the consent issued on 23 June 1999, a sign 2,600mm by 450mm was consistent with the demonstrated requirements of the defendant relevant to the determination of what, at that point, was “satisfactory” to it. As was made clear in the cross-examination of Mr Proos, the move to seek a variation by the application of 6 August 1999 reflected a decision after issue of the consent to attempt again to attain the position that had been sought originally and which involved a sign equal in size with those of some nearby rental car operators. I repeat, in relation to the issue concerning the sign, the observations in paragraph [64] above.

Decision on the first part of clause 41

92 The evidence shows that, as at 23 June 1999, the demonstrated requirements of the defendant in relation to vehicle storage or parking in the showroom and the size and positioning of the façade sign were, as a matter of fact, as ultimately reflected in the final plans referred to in Hassell’s fax of 28 June 1999 which, in relation to relevant matters, were the same as those sent with Mr Quijano’s key fax of 22 June 1999 copied to Mr Laurendi with the handwritten endorsement. The defendant’s demonstrated requirements had crystallised at the time of issue of the development consent on 23 June 1999 in a form that, as to vehicle storage in the showroom and size of the sign, was consistent with the conditions with respect to those matters included in the consent. It is true that the defendant later expressed dissatisfaction with the conditions in question and, in relation to one of them, made formal application to the Council in an attempt to secure the position described in its original application. But the expressions of dissatisfaction and the application for variation were a new departure representing alteration by the defendant of its already manifested requirements. For reasons I have mentioned, any such new departure or alteration cannot be regarded as affecting the question whether the conditions of the consent as granted were satisfactory to the defendant.

93 I hold, therefore, that the terms and conditions on which the development consent of 23 June 1999 were issued were, in terms of clause 41 of each lease (as rectified), “satisfactory to the Lessee”.

The second part of clause 41 – “reasonable or usual”

94 This finding in relation to the first part of clause 41 makes it unnecessary to consider the second part of the clause involving the question posed by the sentence:

“The lessee shall not be entitled to terminate this Lease as aforesaid if the terms and conditions are reasonable or usual having regard to the intended use of the premises”.

I nevertheless record my conclusion that the conditions concerning unavailability of vehicle storage in the showroom and the size of the facade sign were, on the evidence, as described in that sentence.

95 The plaintiff put into evidence an expert report by Mr Byrnes, a consulting architect and planner with some forty years experience and appropriate academic and professional qualifications. In that report, Mr Byrnes refers to certain instruments and policies of the Council (principally Development Control Plan No 7 – Guidelines for Outdoor Advertising and Public Domain improvements for William Street in Development Control Plan 1997: Urban Design) and expresses the view that the consent conditions with respect to vehicle storage in the showroom and the size of the facade sign are consistent with those items. The condition as to sign size involves no more than what Mr Byrnes describes as “a question of compliance with a required numerical standard of Council under its Development Control Plan No 7”. In relation to vehicle storage in the showroom, Mr Byrnes refers to an objective of Development Control Plan 1997 to decrease traffic movements along William Street and to enhance it as a pedestrian thoroughfare, citing an existing problem in the precinct where:

“footpaths have been designed or modified for the movement of traffic, not the movement of pedestrians”.

96 There is also reference to Development Control Plan No 11 which states:

“A site’s entry and exit should generally be located to cause least interference to vehicular and pedestrian activity on the frontage roads.”

97 By reference to these matters and matters of general amenity with which any local government authority is properly concerned, Mr Byrnes expresses a professional opinion that the consent conditions in question are both usual and reasonable.

98 Mr Byrnes was cross-examined. It was put to him, in relation to the condition concerning the sign, that, according to photographs of other premises in William Street introduced into evidence, many have signs larger than the condition allowed; and that what is usual or reasonable should be judged by reference to that. Mr Byrnes responded that standards change over time and that what is reasonable or usual at one point may not be reasonable or usual at another. The defendant made a submission that the existence of the larger signs on other premises showed that the condition allowing only a smaller sign was not reasonable and usual. For the reasons outlined in my description of Mr Byrnes’ response, I would not accept that submission. The same applies to the extent that it is said that cross-pavement vehicular access and vehicle storage may have been allowed in other premises. These aspects may possibly have some bearing on what was usual or reasonable, in terms of Council consent conditions, at some historical point but they cannot affect what is usual or reasonable now. And to the extent that they may in some other way testify to what is “usual” in the street, they say nothing about what is “reasonable”. The two adjectives are used as alternatives in the lease provision.

99 In summary, no reason for not accepting Mr Byrnes’ opinion on the “reasonable or usual” question has been convincingly advanced and the defendant has not sought to lead any competing expert evidence.

Decision on defendant’s purported termination

100 The plaintiff has been successful in showing that the defendant did not, in terms of each lease, become entitled to exercise the contractual right of termination provided for in clause 41 (as rectified) and that the purported exercise, on 2 September 1999, of a right of contractual right of termination was therefore of no effect under the terms of the lease.

Subsequent events

101 It is necessary at this point to say something about events after the purported termination by the defendant. No rent was ever paid by the defendant, since it took the view that the “commencing date” of the lease had never arrived and that the specified term of years had never begun. On 3 September 1999, the defendant, which already had keys to the premises, gave them to Mr Smedley, together with certain drawings belonging to the plaintiff. Dr Lewkovitz’s evidence is that he wanted to get the drawings back because he had only the one copy. As to the keys, he says that he did not ask Mr Smedley to retrieve them and that he had several sets. Mr Smedley’s evidence on the point was as follows:

“Q. Can I show you a copy of document number 116 in exhibit E. That’s your signature on that document, isn’t it?
A. Yes it is.
Q. Does that refresh your memory about the return of the keys?
A. The instructions that I’ve been given was to say, actually, collect the drawings, the plans of the building because they had historic value and also personal value to Dr Lewkovitz and that was my instructions, not to necessarily pick up the keys.
Q. I’m sorry.
A. It wasn’t to pick up the keys. It was to pick up the drawings of the building.
Q. You recall that specifically, do you?
A. Yes.
Q. Were you now, in the light of that document, able to recall that you also collected the keys on the third of September 1999?
A. Well, I must have picked up the keys at that particular time.”

102 The document shown to Mr Smedley dated 3 September 1999 is what on its face was a fax from Mr Laurendi to Mr Smedley (being marked FAX) but, because of both its message and the absence of any fax number for the addressee, must be accepted as a memorandum, saying:

“Graeme
Please find as per your request keys and drawings for 177 William St Kings Cross.
Regards
Joe Laurendi”

Two lines appear below, one starting in typewriting “Received by” and having the handwritten words “Graeme Smedley” following; and the other with a space for signing in which Mr Smedley’s signature appears.

103 Mr Smedley obviously acknowledged receipt of not only the drawings but also the keys but, in view of his evidence and that of Dr Lewkovitz on the matter, I do not accept that he was following the plaintiff’s instructions or acting with its authority in accepting the keys.

104 As I mentioned at the beginning of these reasons, Suite 3 was, at material times, occupied under licence by Periloo Pty Ltd. The licence was terminable on notice given by the plaintiff but no notice was ever given by it to Periloo, with the result that the plaintiff did not take a preliminary step necessary to conferring on the defendant the possession contemplated by the lease of Suite 3. Dr Lewkovitz testified, however, that there would have been no difficulty in obtaining possession for the defendant as and when the need to do so arose and it is clear that the plaintiff’s rights as against Periloo would have enabled it to do so. Periloo was till in possession when Dr Lewkovitz gave evidence on 23 July 2002.

105 The showroom was vacant at all material times up to the defendant’s purported termination on 2 September 1999 and continued to be vacant thereafter. Mr Smedley testified to attempts to lease it and that there was no success.

106 In my judgment, the correct characterisation of events on and after 2 September 1999 is that the defendant, by its solicitor’s letter of that date, repudiated the two leases, a position it confirmed on the following day by giving the keys to Mr Smedley. However, I do not regard any conduct of the plaintiff as having amounted to acceptance of the repudiation. It is true that steps were taken by the plaintiff to attempt to find a replacement tenant for the showroom. But I do not consider that the plaintiff thereby showed an intention no longer to be bound to give possession of both areas to the defendant under the composite transaction effected by the two leases. On the contrary, had the defendant appeared on the doorstep of the premises at any time, wishing to take possession and tendering all moneys due, the plaintiff would, in my judgment, have given possession to the defendant, at the same time putting an end to its attempts to find another tenant. The important point, it seems to me, is that the attempts to find a replacement tenant did not in any way cut across either the ability or the willingness of the plaintiff to give possession to the defendant; nor would they have done so unless and until successful to such an extent that a right of occupation inconsistent with that previously given to the defendant was created in favour of someone else.

107 In these circumstances, I do not regard the plaintiff as having in any way accepted the defendant’s repudiation in such a way as to put an end to the contracts and to give rise to a right of action in damages. Rather, it continued throughout to treat the leases as continuing to subsist. This was made clear initially in a letter of 7 September 1999 from the plaintiff’s solicitor to the defendant’s solicitor in which a demand for payment of rent was made. The demand was repeated in a letter of 30 September 1999 which also said:

“If your client no longer seeks to take occupation of the premises, our client is prepared at the cost of your client and on behalf of your client, to attempt to lease the premises to another party. If your client wishes our client to take such action, please let us know.”

108 Although the defendant’s solicitor relied to this letter, the reply did not convey the confirmation sought. The plaintiff’s solicitor nevertheless wrote on 25 October 1999:

“We refer to previous correspondence. Please note that our client, on behalf of your client, is attempting to lease the premises to another party.”

109 The next day, 26 October 1999, the defendant’s solicitor sent a letter denying the defendant’s liability “to pay the costs referred to in your fax yesterday” and repeating earlier demands for return of the deposit paid by the defendant. On 11 November 1999, the plaintiff commenced proceedings in which it sued for unpaid rent together with interest.

110 Although the plaintiff’s attempts to find a new tenant were, according to its solicitor’s letters, made by it “on behalf of” the defendant, it is clear that the plaintiff did not have the authority of the defendant to seek what would, on the plaintiff’s view of matters, have been a sub-tenant. Rather, the plaintiff must be regarded as having undertaken the search on its own account but, as I have said, to do so was not to disown the obligation to give possession to the defendant or to deny the defendant’s right to possession. Indeed, the plaintiff’s statement that it was proceeding “on behalf of” the plaintiff, although incorrectly asserting some form of agency or authority, clearly recognised the defendant’s rights as lessee.

Conclusion and disposition of proceedings

111 In proceedings 4558 of 2001, the plaintiff is entitled to the relief by way of rectification of the leases in accordance with items 1 and 2 of the summons filed on 12 September 2001. In proceedings 5151 of 2001, the plaintiff is entitled to judgment for unpaid rent together with interest and the further amended cross claim filed on 14 September 2001 must be dismissed. In each proceeding, the defendant must pay the plaintiff’s costs.

112 I direct that the parties attempt to agree the amount for which judgment in favour of the plaintiff should be entered and the terms of short minutes of orders to give effect to these reasons. Any agreed short minutes are to be filed by delivery to my associate within 21 days from today. If short minutes are not agreed so as to be available to be filed within that period, each party must file by delivery to my Associate within 28 days from today the form of short minutes for which it contends. If it becomes necessary for the proceedings to be re-listed, the parties will be informed.

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Last Modified: 02/10/2003