Challenger Property Nominees Pty Ltd v Leighton Properties Pty Ltd
[2005] VSC 212
•16 June 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2090 of 2004
F5760
| CHALLENGER PROPERTY NOMINEES PTY LTD (ACN 091 336 793) | Plaintiff |
| V | |
| LEIGHTON PROPERTIES PTY LTD (ACN 009 765 379) AND ORS | Defendants |
| - and - | |
| No. 2089 of 2004 F5759 | |
| LEIGHTON PROPERTIES PTY LTD (ACN 009 765 379) AND ORS | Plaintiffs |
| v | |
| CHALLENGER PROPERTY NOMINEES PTY LTD (ACN 091 336 793) | Defendant |
JUDGE: | WHELAN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 2, 3, 4, 5, 6 and 13 May 2005 | |
DATE OF JUDGMENT: | 16 June 2005 | |
CASE MAY BE CITED AS: | Challenger Property Nominees v Leighton Properties | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 212 | |
Contract – Obligations under “Limited Income Guarantee” (“LIG”) agreement – Construction of LIG – Whether leases and licence entered into – Whether LIG had ceased to apply – Whether “refusal” encompasses failure – Whether “administrative delay” occurred.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan SC with Mr P D Crutchfield | Molino Cahill Lipman Karas |
| For the First to Thirdnamed Defendants For the Fourthnamed Defendant | Mr C L Pannam QC with | Freehills Monahan & Rowell |
HIS HONOUR:
Introduction
These two proceedings concern leasing arrangements for a multi‑storey office building at 417 St Kilda Road, Melbourne. An earlier proceeding concerning the same subject matter was determined by Byrne J on 17 December 2004.[1] Both these two proceedings and the earlier proceeding concern an agreement called a Limited Income Guarantee (“LIG”). Whilst the parties, with one exception, are the same, the LIG is the same, and the relevant facts overlap, the central issues in these proceedings differ from those already determined.
[1][2004] VSC 520.
The parties to the LIG are Leighton Properties Pty Ltd (“Leighton”), Challenger Property Nominees Pty Ltd (“Challenger”), and Leighton Holdings Ltd (“Leighton Holdings”). It is dated 27 June 2002. Its recitals record that Challenger (referred to in the LIG as the “Owner”) is trustee of the 417 St Kilda Road Trust, that the LIG was entered into in conjunction with a Subscription and Redemption Agreement also dated 27 June 2002 in relation to the subscription for and redemption of units in that trust, that Mobil Oil Australia Pty Ltd (“Mobil”) leased part of the building and had options to renew, and that under the Subscription and Redemption Agreement Leighton had agreed, in effect, to guarantee to Challenger the returns it would receive if Mobil exercised its option for a further term of five years.
The LIG provides for obligations on Leighton’s part, in turn guaranteed by Leighton Holdings, directed towards securing for Challenger the specified returns. It also provides for circumstances in which Leighton is relieved of those obligations. The earlier proceeding concerned levels 4 and 7 and a provision of the LIG (clause 9.7) relieving Leighton of its obligations if there was a relevant failure by Challenger to consent to a leasing arrangement proposed by Leighton. These proceedings concern levels 6 and 8 and the car park. Leighton relies on the same provision (clause 9.7), but the circumstance in issue here is not a failure to consent but rather an alleged refusal, within the meaning of the provision, on Challenger’s part to execute proffered leases and a licence within 28 days of a request so to do. This dispute began when Leighton asserted that the LIG had ceased to apply to levels 6 and 8 and the car park in a facsimile transmission from its solicitors, Freehills, to Challenger’s then solicitors, Herbert Geer & Rundle, dated 29 October 2004.
The proceedings
Leighton and Challenger each issued proceedings concerning levels 6 and 8 and the car park on 23 December 2004. Leighton’s proceeding is 2089 of 2004 F5759 and Challenger’s is 2090 of 2004 F5760. The pleadings in the two proceedings reflect each other. Challenger’s proceeding has an additional party being the fourth defendant, Herbert Geer & Rundle, who were Challenger’s solicitors. On 1 April 2005 the two proceedings were fixed for hearing and were ordered to be tried together on all issues, save for specified issues raised by Challenger’s pleadings which concern Herbert Geer & Rundle. Herbert Geer & Rundle were represented at, and participated in, the trial.
Challenger opened the case. The issues raised in both proceedings can be conveniently summarised by reference to the pleadings in Challenger’s proceeding (F5760).
As indicated, the dispute arose as a result of an assertion by Leighton that the LIG had lapsed in relation to levels 6 and 8 and the car park due to a failure on Challenger’s part to execute proffered leases and a licence. The lessee/licensee under those proffered documents was a company related to Leighton and Leighton Holdings named Leighton Properties (Vic) Pty Ltd (“Leighton Vic”). The defendants to Challenger’s proceeding are Leighton, Leighton Vic, Leighton Holdings and Herbert Geer & Rundle. It is at times essential to clearly differentiate between the different Leighton companies, but when that is not so I will refer to them together as the Leighton parties.
In Challenger’s Further Amended Statement of Claim it is alleged that consent was sought and given to proposed “Occupancy Agreements” (as defined in the LIG) concerning levels 6 and 8 and the car park (paras 45-47 and 51, 69, 84). The Leighton parties either deny or do not admit the giving of consent. Requests for execution of Occupancy Agreements already executed by Leighton Vic and Leighton Holdings are alleged and admitted (paras 56, 71, 86). Challenger pleads Leighton’s assertion that the LIG had ceased to apply, and pleads execution of the Occupancy Agreements by it (paras 64, 79, 104).
Challenger alleges that agreements to lease and licence were concluded when offers from Challenger, constituted by its respective consents, were accepted by Leighton Vic and Leighton Holdings, constituted by their respective execution of the Occupancy Agreements (paras 132-139). Alternatively, it is alleged that execution by Challenger of the Occupancy Agreements already executed by Leighton Vic and Leighton Holdings brought the leases and licence into existence (paras 139A-B). As a further alternative in relation to the car park licence, part performance is alleged (pars 140-144).
The Leighton parties in response, amongst other things, rely on s 53(1) of the Property Law Act 1958 in relation to the alleged agreements to lease (para 139.2), allege that the parties did not intend to make any binding contract unless and until the lessor/licensor and the lessee/licensee had executed and exchanged formal contracts (para 139.3), and allege, in substance, that any offer constituted by Leighton Vic and Leighton Holdings’ execution of formal contracts and the submission of them to Challenger was only capable of acceptance within 28 days, was only open for 28 days, lapsed after 28 days, or was withdrawn by Freehills’ fax of 29 October 2004 (paras 63, 79, 104, 138-139E).
Challenger also alleges that Leighton breached fiduciary duties which Leighton owed to Challenger, and breached a contractual obligation it had to act in the utmost good faith (paras 147-155). The Leighton parties deny this, and allege that, if Leighton was guilty of any lack of good faith, Challenger is precluded from relying on the breach as Challenger was itself in breach of the obligation of utmost good faith (para 155A).
Finally, Challenger alleges that even if the relevant relieving provision of the LIG (clause 9.7) would otherwise be triggered it was not triggered here because an express exception concerning “administrative delay” applies (paras 156-157). Challenger also alleges Leighton is estopped from contending that the LIG has lapsed as it induced Challenger to assume Leighton would not strictly enforce the time limits for execution (paras 158-163). These allegations are denied by the Leighton parties.
Challenger seeks declarations as to the existence of agreements to lease and licence, or of the leases and licence, and as to the continued application of the LIG, together with other relief. The Leighton parties counterclaim seeking declarations that the LIG has ceased in relation to levels 6 and 8 and the car park, and declarations that the proposed leases and the licence are of no effect.
Summary of claims
The two central issues in the case are whether there now exist enforceable leasing arrangements over levels 6 and 8 of the building and an enforceable licensing arrangement over the car park, and whether the LIG continues to apply to those areas.
Ancillary issues are raised as to good faith and estoppel.
The proper construction of the LIG is an important factor in determining whether enforceable leasing and licensing arrangements now exist, and is, subject to the good faith and estoppel claims, determinative of the issue of whether the LIG continues to apply to levels 6 and 8 and to the car park.
Limited Income Guarantee – principal terms
The LIG imposes obligations on Leighton to pay to Challenger the respective amounts by which the rent, the outgoings, and the car park licence fees, received by Challenger from the specified areas then leased or licensed to Mobil, are less than specified amounts during a period of five years from 1 December 2002 (clauses 2 to 6). The manifest purpose of these provisions is to secure for Challenger the same return as it would have received if Mobil had exercised its five year renewal option. It was common ground that this arrangement was entered into in support of the consideration payable for the units under the Subscription and Redemption Agreement.
As Byrne J described in the earlier judgment, the LIG provides for mechanisms whereby Leighton can minimise or eliminate this liability. The first such means is provided for in clause 7. Under clause 7 if Mobil does not exercise its option to renew, Leighton can at its election require Challenger to lease, or licence (as applicable), the Mobil areas to it, in whole or in part, on the same terms as would have applied to Mobil had it exercised its option, with certain specified amendments. One specified amendment is that Leighton’s performance is to be guaranteed by Leighton Holdings.
If Leighton makes the election provided for in clause 7 in relation to the entire Mobil area, then clause 13 provides that the LIG terminates. In effect, Leighton’s guarantee obligation would be replaced by its obligation as a tenant. Clause 13 also provides that the LIG terminates if Mobil exercises its option. If Challenger enters into an Occupancy Agreement (as defined) in relation to a portion of the relevant area of the building, then clause 13 provides that the LIG terminates for that portion.
“Occupancy Agreement” is defined by the LIG to mean “any lease or licence by which an Occupier derives a right to use or occupy” the relevant area or part of it. The process of entry into Occupancy Agreements is governed by clause 9 of the LIG.
Clause 9 of the LIG applies only if the LIG has not ceased under clause 13. Under clause 9.1.1 Leighton has the “exclusive right to negotiate Occupancy Agreements“ on behalf of Challenger, and Challenger “shall enter into and execute any agreements so negotiated so long as they are on terms and conditions which, when read as a whole … are no less favourable“ to Challenger than would have been the case had Leighton exercised its election under clause 7. Clause 9.1.1 is the second mechanism whereby Leighton can minimise or eliminate its liability.
Under clause 9.2 disputes as to whether any particular terms are “no less favourable” are to be determined in accordance with clause 19. Clause 19 provides for notice of dispute, a compulsory conference between the parties, and, if unresolved, determination by an expert.
The third mechanism available to Leighton to minimise or eliminate its LIG liability is provided for in clause 9.1.2. Under this clause Leighton can take a lease of any part of the relevant areas itself on terms regulated in the same way as that provided for in clause 9.1.1. As Byrne J observed, the procedure under clause 9.1.2 gives Leighton more flexibility in relation to the terms of the tenancy than that provided for in clause 7. Clause 9.1.3 provides for Leighton to elect to require Challenger to grant it a licence relating to the car park in certain circumstances.
I pause in my analysis of the LIG to observe that whereas the first and third mechanisms (clause 7 and clause 9.1.2) available to Leighton involve Leighton itself entering into a lease of the relevant areas, the second (clause 9.1.1), which is the one in issue here, involves the introduction of another party as tenant or licensee. This distinction can become obscured here by the fact that the party introduced was another company in the Leighton group, Leighton Vic, and by the fact that Freehills, through whom much of the relevant communication takes place, acts for all three Leighton companies. It is, however, necessary to bear in mind that clause 9.1.1 is directed at the position where an Occupancy Agreement is proposed with a non‑party to the LIG.
The course provided for in clause 9.1.1, being the negotiation by Leighton on Challenger’s behalf of an Occupancy Agreement, and the entry into that agreement by Challenger, is further regulated by clauses 9.7 and 9.8. Clause 9.7 is the central provision in the current dispute. The clauses provide as follows:
“9.7If the Owner refuses to execute an Occupancy Agreement as required by Clause 9 within 28 days of being requested so to do, or upon being requested by Leighton at any time to grant its consent to a proposed new Occupancy Agreement of the Guarantee Property or any part of the Guarantee Property, withholds or refuses to give such consent within 14 days of such request then unless the matter is the subject of a dispute between Leighton and the Owner which has been referred for determination in accordance with clause 19, this Guarantee shall cease in relation to that part of the Guarantee Property as is the subject of the Occupancy Agreement at the expiration of the period of 14 day period [sic] and the Guarantee Amount shall be adjusted accordingly with effect from that date. For the avoidance of doubt, the parties agree that where the Owner agrees to execute an Occupancy Agreement but due to an administrative delay the Owner is not able to actually execute the Occupancy Agreement, there will be no triggering of this Clause 9.7 concerning cessation of that part of the Guarantee Property.
9.8If it is determined pursuant to Clause 19 that the Owner was acting in breach of this agreement in not executing or withholding or refusing its consent to an Occupancy Agreement, then, failing any other agreement between Leighton and the Owner, the Guarantee Amount for the then current Guarantee Year and for future Guarantee Years shall be reduced to nil in respect of that part of the Guarantee Property with effect from the expiration of the 14 days referred to in Clause 9.7.”
Under clause 22 of the LIG, Leighton Holdings guarantees payment by Leighton of all amounts payable by it.
Finally, clause 25 provides:
“Each party agrees to act towards the others with utmost good faith in discharging its rights and obligations under this agreement.”
Relevant events – the construction issues and claims based on the executed leases and licence
For the purpose of the claims based upon the existence of leases and a licence executed by all parties, and for the purposes of determining the issues of construction and application of the LIG, the facts can be stated briefly.
Leighton sought Challenger’s consent to proposed new Occupancy Agreements for levels 6 and 8 and Challenger gave that consent in each case.[2] Consent was also sought for a proposed Occupancy Agreement in relation to the car park. The Leighton parties deny that that consent was ever given. Whilst it is true that Freehills found it impossible to obtain an unambiguous confirmation of consent in relation to the proposed car park arrangements from Herbert Geer & Rundle,[3] I find that the dealings between Ms Nutbean of Challenger and Mr Barrett of Leighton[4] were such that by 5 May 2004 when Herbert Geer & Rundle requested engrossed versions of the proposed car park licence,[5] it was clear that Challenger had consented and when Freehills responded[6] they did so in terms which demonstrate that the Leighton parties were aware Challenger had consented.
[2]Although the Leighton parties do not admit the giving of consent for levels 6 and 8 in their Amended Defence and Counterclaim, in the document ‘Relevant Findings of Fact’ dated 4 May 2004 handed up as part of the Leighton parties’ final submissions, they submitted that consent was given: paras 3.2 and 4.2.
[3]P1: CB 394, 396 and 407.
[4]Transcript 130-134, 198-201, 205-206 and P1: CB 401, 409, 410.
[5]P1: CB 436
[6]P1: CB 460
Leases for levels 6 and 8 and a car park licence were proffered to Challenger. The proffered car park licence was forwarded to Herbert Geer & Rundle under cover of a letter from Freehills dated 18 August 2004[7] which read as follows:
[7]P1: CB 460.
“Dear Sirs
Leighton Properties (Vic) Pty Ltd and Challenger Property Nominees Pty Ltd
Carpark Licence Agreement: 256 spaces, 417 St Kilda Road, Melbourne
We refer to previous correspondence and in particular to your letter of 5 May 2004 requesting engrossed versions of the Licence Agreement (containing the amendments agreed up to 13 January 2004) for execution by your client. The Licence Agreement in duplicate is now enclosed and has been executed by Leighton Properties (Vic) Pty Ltd as Licensee and Leighton Holdings Limited as Guarantor.
Please arrange for execution by Challenger Property Nominees Pty Ltd and return one copy of the Licence executed by all parties for our records.
Yours faithfully
Freehills”
The proffered level 8 lease was forwarded to Herbert Geer & Rundle under cover of a letter from Freehills dated 8 September 2004[8] which (excluding a passage dealing with levels 4 and 7) read as follows:
[8]P1: CB 535.
“Dear Mr McWilliams
Leighton Properties (Vic) Pty Ltd from Challenger Property Nominees Pty Ltd
Level 8, 417 St Kilda Road Melbourne
Thank [sic] for your fax of 6 September 2004 advising of your client’s consent to the level 8 lease.
As requested, we enclose the lease in duplicate executed by Leighton Properties (Vic) Pty Ltd and Leighton Holdings Ltd for execution by your client in accordance with the Limited Income Guarantee.
Please date and return one copy of the lease executed by all parties.
…
Yours faithfully
Freehills”
The proffered level 6 lease was forwarded to Herbert Geer & Rundle under cover of a letter dated 21 September 2004[9] which (excluding a passage dealing with levels 4 and 7) read as follows:
[9]P1: CB 658.
“Dear Mr McWilliams
Leighton Properties (Vic) Pty Ltd from Challenger Property Nominees Pty Ltd
Level 6, 417 St Kilda Road Melbourne
Thank [sic] for your fax of 20 September 2004 advising of your client’s consent to the level 6 lease.
As requested, we enclose the lease in duplicate executed by Leighton Properties (Vic) Pty Ltd and Leighton Holdings Ltd for execution by your client in accordance with the Limited Income Guarantee.
Please date and return one copy of the lease executed by all parties.
…
Yours faithfully
Freehills”
In each case the terms of the proffered instrument complied with clause 9.1.1. The dispute mechanism under clauses 9.2 and 19 was not invoked. In each case 28 days elapsed without execution by Challenger.
The instruments were not executed within 28 days because the relevant officers of Challenger did not believe that there was any time limit.[10] They were working their way through Challenger’s usual checklist of execution procedures without any sense of urgency or apprehension of a deadline.[11] There were also delays caused by documents going missing and by dilatory responses to requests for documents required under Challenger’s checklist.[12] If the relevant Challenger officers had appreciated that it might be contended that there was a 28 day deadline they would have ensured that Challenger executed the documents within 28 days.[13]
[10]Witness statement of Renee Nutbean (P4): 13-14, 53-55, 59; witness statement of John Ottaway (P2): 6, 8; witness statement of Melissa Watson (P3): 10-11, 29.
[11]Witness statement of Melissa Watson (P3).
[12]Witness statement of Melissa Watson (P3); witness statement of Renee Nutbean (P4): 47, 50.
[13]Witness statement of Renee Nutbean (P4): 13-14, 53-55, 59; witness statement of John Ottaway (P2): 6, 8; witness statement of Melissa Watson (P3): 10-11, 29.
On Friday 29 October 2004, after the expiration of 28 days in each case, Freehills sent a facsimile transmission to Herbert Geer & Rundle.[14] The fax did not specify on whose behalf they were writing. Its subject matter was expressed to be “Limited Income Guarantee - 417 St Kilda Rd, Melbourne.” It set out a history of events concerning levels 6 and 8 and the car park and then stated:
[14]P1: CB 1099.
“We note that in respect of each of the proposed leases for level 6 and 8 and the proposed car park licence, the requirements of clause 9.7 have not been met by Challenger.
Accordingly, the Limited Income Guarantee has lapsed in respect of levels 6 and 8 of the premises as well as in relation to the carpark.
Leighton Properties has recently received invoices from Challenger in relation to 417 St Kilda Road. Having regard to the above and to what has transpired in relation to levels 4 and 7 of the premises, Leighton Properties considers that it is liable only to pay the following accounts for November:
Level 3 $ 4,675.97
Level 9 $35,866.43
$40,542.40
Leighton Properties’ cheque for that amount is enclosed. Please acknowledge safe receipt.
As Leighton Properties has paid the Guarantee Amount for the carpark for September 2004 and the Guarantee Amount for levels 6 & 8 for October, 2004, there should be an adjustment in favour of Leighton Properties from the date on which the 28 day period under clause 9.7, respectively, expired.
Furthermore, as your client is aware, Wilson Parking currently manages the carpark at 417 St Kilda Road. The income collected by Wilson from 19 September 2004 will be credited in favour of your client in determining the final adjustment between the parties.
Please indicate whether your client would like Wilson to continue to operate the carpark on its behalf.”
Each of the leases of levels 6 and 8 and the licence of the car park was executed by Challenger on 29 October 2004 after receipt of Freehills’ fax.[15] The executed documents were delivered to Freehills by Herbert Geer & Rundle on Monday 1 November 2004.[16]
[15]Transcript 361.
[16]P1: CB 1106.
LIG construction issues
There are three issues in relation to which the construction of the LIG is critical. They are:
1.Where Leighton is proceeding under clause 9.1.1, at what point do Challenger and the prospective tenant or licensee become bound to a lease or licence? What was the effect of the parties’ conduct here?
2.When does non-execution of a proffered Occupancy Agreement, on complying terms, trigger cessation of the LIG under clause 9.7? What is meant by the expression “refuses to execute”? Was there a relevant refusal here?
3.What is the scope of the exception or proviso in clause 9.7 concerning “administrative delay”? Does it apply here?
When do the parties become bound to a lease/licence?
Clause 9.7 provides for loss of the benefit of the guarantee in two situations: where there is a refusal to execute an Occupancy Agreement within 28 days of request; and where there is a withholding or refusal of consent to a proposed Occupancy Agreement within 14 days of request. In the earlier judgment Byrne J suggested the apparent objective of the consent procedure was to relieve Leighton of the burden of preparing an Occupancy Agreement if Challenger did not consent. He also observed that the consent procedure would permit Leighton to propose terms and negotiate with Challenger whilst the proposed tenant was itself still at the negotiation stage.
It seems to me that clause 9 the LIG operates in the following way.
Under clause 9.1.1, Leighton is authorised to negotiate with the prospective tenant. Leighton is not authorised to enter into an agreement with the prospective tenant on Challenger’s behalf. Challenger is obliged to “enter into and execute any agreements” negotiated by Leighton as long as they are on complying terms. Thus, Leighton has authority to negotiate terms and Challenger is bound to Leighton to enter into and execute an Occupancy Agreement so negotiated, but no contract is made between Challenger and the prospective tenant, and no lease or licence is granted, until Challenger enters into and executes that Occupancy Agreement.
There are two paths to a binding agreement between Challenger and the prospective tenant.
On the first, Leighton submits an Occupancy Agreement to Challenger. If the Occupancy Agreement is executed within 28 days a binding agreement between Challenger and the prospective tenant comes into existence. If it is not so executed, two issues arise. First, is clause 9.7 triggered? Second, what effect, if any, does a triggering of clause 9.7 have on the position between Challenger and the prospective tenant?
On the second path, Leighton first seeks Challenger’s consent to a proposed new Occupancy Agreement. The giving of consent under clause 9.7 is not the entry by Challenger into an Occupancy Agreement as provided for in clause 9.1.1. The consent sought is a consent to Leighton, who, in the negotiations with the proposed tenant, is Challenger’s own agent. It is not a communication by Challenger to the proposed tenant. Further, the consent is consent to a proposed new Occupancy Agreement. For these reasons, where consent is given no agreement comes into existence between Challenger and the proposed tenant at that point. If consent is not given, clause 9.7 provides for cessation of the LIG in relation to the area in question. That was the position dealt with in Byrne J’s decision. If consent is given, an Occupancy Agreement may be proffered to Challenger, and the parties are then on the first path already described.
Accordingly, it seems to me that the steps provided for in the LIG will not produce a binding agreement between Challenger and a prospective tenant or licensee before Challenger executes the Occupancy Agreement. Of course, in any particular fact situation the parties may act otherwise than as clause 9 provides, or issues of ostensible authority or estoppel might arise.
The effect of a triggering of clause 9.7 on the position between Challenger and the prospective tenant will depend upon what Challenger does or fails to do, and what communications there are between Challenger and the prospective tenant, in any particular case. Assuming the steps provided for in clause 9.1.1 and clause 9.7 are followed, and assuming the prospective tenant or licensee has signed the proffered Occupancy Agreement (as was the case here), it seems to me that the tenant or licensee has thereby made an offer to Challenger to enter into the proffered Occupancy Agreement. Challenger’s conduct in response to that offer is conceptually distinct from Challenger’s conduct under clause 9.7. Its conduct in these two respects might be practically indistinguishable, but that is not necessarily so.
In the present case no issue of ostensible authority arises. Leighton Vic knows Leighton’s actual authority under clause 9. Leaving to one side estoppel issues, the analysis is as follows.
Leighton Vic made offers to Challenger to enter into Occupancy Agreements in relation to levels 6 and 8 and the car park. It made these offers by signing the Occupancy Agreements which were then submitted to Challenger by Freehills.
If those offers remained capable of acceptance by Challenger, they were accepted when Challenger executed each of the Occupancy Agreements on 29 October 2004 and delivered the executed documents to Freehills through Herbert Geer & Rundle on 1 November 2004.
The Leighton parties contend that those offers did not remain capable of acceptance by Challenger because:[17]
(a)the offers remained open for acceptance and were only capable of being accepted for the period of 28 days after the Occupancy Agreements were respectively proffered to Challenger, and Challenger did not accept within those respective 28 day periods;
(b)the offers were revoked or withdrawn prior to acceptance by Freehills’ fax of 29 October 2004;
(c)clauses 9.1.1 and 9.7 of the LIG operated to preclude Challenger from accepting the offers after the respective lapses of the 28 day periods;
(d)the offers contained a condition that Challenger would execute within 28 days, and Challenger did not comply with that condition.
[17]Amended Defence and Counterclaim paras 64.2, 79.2, 104.2, and 139.2-139E. These paragraphs also concern claims made based upon alleged antecedent agreements to lease or license.
The Leighton parties’ pleaded contentions in this regard are founded upon the provisions of the LIG and upon the asserted fact that otherwise Challenger would obtain the benefit of a Leighton Holdings’ guarantee in circumstances where the guarantee under the LIG had ceased to apply,[18] and upon the terms of the Freehills fax of 29 October 2004.[19]
[18]See Amended Defence and Counterclaim particulars under paras 64.2(g), 79.2(g), 104.2(g), 139B(a), 139B(d).
[19]See Amended Defence and Counterclaim para 64.2(f)(ii), 79.2(f)(ii), 104.2(f)(ii), 139.3(d) and particulars under 139B(c).
Leighton Vic is not a party to the LIG. Under the LIG, Challenger has promised Leighton that it will enter into complying Occupancy Agreements which Leighton has negotiated (clause 9.1.1). Leighton, Leighton Holdings and Challenger have agreed that if it “refuses” to do so then, unless the administrative delay provision applies, “this Guarantee shall cease” (clause 9.7). If the administrative delay provision does apply “there will be no triggering of this Clause 9.7 concerning cessation of that part of the Guarantee Property” (clause 9.7).
When Freehills forwarded the proposed leases for levels 6 and 8 to Herbert Geer & Rundle the covering letters were entitled in a manner suggesting they were written on behalf of Leighton Vic and each stated that the lease was forwarded “for execution by your client in accordance with the Limited Income Guarantee” (see paras 30 and 31 above). Thus, it might be contended that Leighton Vic expressly incorporated into its offers the provisions of the LIG and that those provisions involved a 28 day time limit. The Leighton parties did not put the matter this way, but such an approach is open on their pleading and it seems to me that the terms of the covering letters require that it be addressed.
There are two problems with this suggested express incorporation of the LIG’s provisions into Leighton Vic’s offers. First, the only subject matter of clause 9.7 is cessation of the guarantee. This has nothing to do with Leighton Vic. It is not a party to the LIG. Leighton Vic cannot simply be equated with Leighton because they are related companies. Secondly, if clause 9.7 is to be incorporated the administrative delay provision must be incorporated as well. This accentuates and highlights the first problem, as the exception prevents “triggering” of the clause concerning “cessation” of that part of the Guarantee Property. Any attempt to incorporate this provision produces what seems to me to be an entirely unworkable position between Challenger and the prospective lessee. Leighton Vic could not be bound to keep its offer open during both the 28 day period and any “extension” under the administrative delay provision, but, if it is not so bound, Challenger is not getting the full “time limit” for which the LIG provides. In the circumstances I conclude that the covering letters do not impose any express time limits on the offers.
I do not accept that limitations drawn from the LIG should be implied into the offers made. It was submitted by the Leighton parties that the absence of such an implied limitation could lead to the “absurd” outcome where Leighton Holdings would (so it was submitted) be relieved from its liability to guarantee Leighton Properties but still be liable to guarantee Leighton Vic. This is not in itself an “absurd” outcome. It is the very type of outcome to which each of the mechanisms in clauses 7, 9.1.1. and 9.1.2. are directed. The Leighton parties’ submission did not address how the administrative delay provision would operate in relation to the asserted implied limitation. The pleaded limitations simply ignore it.
It does not seem to me that the Freehills’ fax of 29 October 2004 withdraws or revokes any offer, and my conclusion is that it does not do so. The fax does not say that it withdraws or revokes any offer. Its sole substantive subject matter is the LIG, an agreement to which the offeror, Leighton Vic, is not a party. The fax does not purport to be written on behalf of Leighton Vic. Whilst the fax does assume that no car park licence will ever exist, that is, in my view, an inadequate basis for treating it as the withdrawal or revocation of an offer, or offers, otherwise still open for acceptance.
The conclusions I reach are as follows:
1.Each of the Leighton Vic offers remained capable of acceptance at the time they were accepted by Challenger executing the proffered Occupancy Agreement and completing exchange. The LIG ceased in relation to those areas pursuant to clause 13.
2.If I am wrong about that because of the express incorporation of provisions of the LIG into the offers by the covering letters to the level 6 and 8 leases, or because of the implication of the LIG’s provisions into the offers, then the question of whether the offers remained capable of acceptance when Challenger executed will turn on whether the guarantee had ceased under clause 9.7 in relation to the respective areas.
3.If I am wrong about the Freehills’ fax, and it did revoke or withdraw the offers, the issue of the operation of clause 9.7 remains the relevant one as, if the guarantee has not ceased, Leighton Properties and Leighton Holdings remain liable under the LIG.
Triggering clause 9.7 – “refuse” to execute
Challenger submitted that a “refusal” in clause 9.7 required some deliberate or advertent act. It relied upon what it submitted was the ordinary meaning of the word, and upon a number of authorities dealing with the expression in differing contexts.[20]
[20]Boon v Maher (1986) 7 NSWLR 232, 237; Rhone-Poulenc Agrochimie S A v UIM Chemical Services Pty Ltd (1986) 12 FCR 477, 489; Patti v Belfiore (1958) 100 CLR 198, 205.
Leighton for its part submitted that in its ordinary sense “refuse” was capable of encompassing “failure” and submitted there were a number of indications here that that is what was intended. Those indications were submitted to be:
¾clause 9.8 addresses the consequences of an expert determination of breach “in not executing or withholding or refusing its consent”. The use of the expression “not executing” in this context suggests that “not executing” is the relevant act which would produce the consequence clause 9.7 provides for;
¾the proviso concerning administrative delay suggests a failure as a result of such a delay would otherwise trigger cessation of the guarantee;
¾the consequence of “refusal” provided for in clause 9.7 comes only at the end of the period;
¾if the Challenger approach is adopted there is no time limit for execution;
¾guidance can be gained from clauses 9.6.1 and 9.6.2;
¾clause 9.1.1 imposes a mandatory requirement on Challenger to execute, and the focus is accordingly on any failure to do so rather than a refusal to do so; and
¾the “matter” referred to in clause 9.7, as being the possible subject of a dispute, is whether the terms comply, which suggests failure rather than refusal.
It seems to me that ordinarily a “refusal” would require some deliberate determination not to take a particular course, and that there would need to be strong indications in a particular context before a failure to take a step, without more, would fall under a provision governing a refusal to take that step. In my view the context here does contain such strong indications. It seems to me that, in the context, a failure to execute within 28 days does fall within the introductory words: “If the Owner refuses to execute an Occupancy Agreement as required by Clause 9 within 28 days of being requested so to do”. My reasons for this conclusion are as follows.
Clause 9.1.1 imposes an obligation on Challenger to execute. On my analysis of how a contract will be formed with a prospective tenant if the steps provided for in the LIG are followed, no contract exists between Challenger and the tenant until that step is taken. Other than in the introductory words of clause 9.7 there is no time limit for this critical step. It seems to me that the proper construction is that Challenger must execute a complying Occupancy Agreement and that it must do so within 28 days or the consequence provided for in clause 9.7 results (subject to the administrative delay provision).
There are two other aspects of the provisions which particularly fortify this conclusion. They are the use of the expression “not executing” in clause 9.8, and the fact that the consequence of “refusal” in clause 9.7 comes at the end of the period, suggesting that the elapse of the time is relevant, which would be the case if failure is encompassed.
The “administrative delay” provision also assists in my view. The provision assumes that in a circumstance where Challenger had agreed to execute but had not actually done so because of an administrative delay, there would be doubt about the position. It seems to me that there could be no such doubt unless a “refusal” in the context encompassed a failure to execute.
I do not think that the other factors put forward by the Leighton parties assist.
Clause 9.7 is not a carefully drafted provision. It has at least one obvious drafting error, being the phrase “at the expiration of the period of 14 day period”. I accept the Leighton submission that this clearly erroneous phrase must be construed as a reference to the applicable period (14 or 28 days).[21]
[21]Fitzgerald v Masters (1956) 95 CLR 420, 426-7. This error is repeated in the last two lines of clause 9.8.
The strongest indication against a construction which would include a failure to execute within 28 days as a “refusal” within the meaning of the introductory words is the contrasting expression used in relation to consent, being “withholds or refuses”. An inconsistency is created on the construction I have adopted. A similar inconsistency would arise in my view in clause 9.8 (“not executing”) if the alternative construction were accepted. Reading clause 9 as a whole, it seems to me that the commercial purpose of clause 9.7 is to create a time limit for consent (if sought) and for execution, with consequences should that limit not be met, and that this means a failure to execute within 28 days is, in the context, a refusal so to do. It must not be forgotten that any apparent harshness in this outcome is ameliorated by the “administrative delay” provision to which I will turn shortly.
Clause 9.7 is a provision which is of critical importance, but it is not necessarily surprising that it contains drafting inconsistencies and at least one clear drafting error. Such clauses can sometimes be the subject of intense negotiation and last minute alteration under pressure which can lead to drafting which might subsequently appear difficult to reconcile or explain.
Finally, I reject the submission of Challenger and Herbert Geer & Rundle that the 28 day period is applicable only if the request specifies a 28 day period. In my view that construction is not consistent with the introductory words.
It follows from the above that Challenger did refuse within the meaning of clause 9.7 to execute the Occupancy Agreements within 28 days and, unless the administrative delay provision applies, clause 9.7 was thereby triggered.
Scope of “administrative delay”
The Leighton parties submitted that an “administrative delay” within the meaning of the exception or proviso was some circumstance to do with administrative matters which prevented execution within the 28 days. They suggested such circumstances might arise if the company seal was lost or if a person required for due execution was ill or absent. It did not, in their submission, encompass a failure to execute within time because of a misconception about what was required, which is what they submitted had occurred here.
Challenger submitted that “not able” to execute simply meant “does not” execute. It submitted that it could not mean “impossible to execute”, as it would always be possible to execute no matter what the obstacle. Challenger relied upon the evidence as to the delays involved in complying with the checklist. It also submitted that misconceptions held by the relevant administrative staff about time limits could be, and in this case were, a part of the “administrative delay”. The Leighton parties responded that, if Challenger’s approach were adopted, every failure to execute would be an “administrative delay”, which cannot have been intended.
The provision concerning administrative delay has two features which seem to me to be important in this context. First, it is manifestly intended to ameliorate the strictness of the rest of clause 9.7, and the potentially significant commercial consequences of its operation. Secondly, it only operates where Challenger has already agreed to execute the proffered Occupancy Agreement.
I do not accept that the provision is to be confined to circumstances of physical impossibility. If administrative staff are slow, or are acting under some misconception, or if self-imposed administrative requirements cannot be met, then those circumstances might, in a particular case, mean Challenger was not able to execute an Occupancy Agreement, which it had agreed to execute, within the specified time.
In the present case Challenger had agreed to execute the Occupancy Agreements.[22] A combination of misconceptions held by administrative staff, the perceived need to comply with an administrative checklist, and some dilatoriness and carelessness, produced a position where Challenger was not able to actually execute the documents within 28 days. Certainly, if the administrative staff had been disabused of their misconceptions, they could, and would, have ensured the documents were executed within time, but the misconceptions held by the administrative staff are themselves part of the reason for the administrative delay.
[22]The Leighton parties did not suggest Challenger had not agreed to execute. Challenger did do so, as appears from the terms of its respective consents (see para 28 above) and from P1: CB 460, 535 and 658.
It is not the case that every failure to execute would, on this construction, fall within the “administrative delay” provision. Challenger must not only be unable to execute due to an administrative delay but it must also have agreed to execute, as Challenger had done here. If the failure to execute had occurred in the absence of an agreement to execute, or if it had been occasioned in whole or in part by any reluctance or hesitation on Challenger’s part, or even by any consideration on Challenger’s part as to whether it should execute, then the provision would not apply. There is no suggestion in the evidence of any reluctance, hesitation, or indeed any consideration, on Challenger’s part. Its officers were moving through a process of compliance with formalities, oblivious to any need for expedition. The reason execution did not occur within 28 days is aptly described as “administrative delay”.
Conclusions
Thus, my conclusion is that Leighton Vic’s offers were capable of acceptance by Challenger when it did accept them by executing and completing exchange of the two leases and the licence. Leighton Vic is now liable to Challenger as its lessee/licensee and Leighton Holdings is liable as Leighton Vic’s guarantor. The LIG has ceased to operate in relation to the areas the subject of those leases and that licence pursuant to clause 13.
If, contrary to my earlier conclusion, there was a time limit on Leighton Vic’s offers drawn from clause 9.7 of the LIG, then Challenger accepted within time because the administrative delay provision applied. In that circumstance Leighton Vic would be liable as lessee/licensee and Leighton Holdings would be liable as Leighton Vic’s guarantor.
If, contrary to my earlier conclusions, the Freehills’ fax of 29 October 2004 revoked or withdrew Leighton Vic’s offers, then it would not be liable, but the LIG would continue to apply to the applicable areas. Clause 9.7 would not have been triggered because the administrative delay provision applied. In that circumstance Leighton Properties and Leighton Holdings would remain liable under the LIG.
Other issues
Other issues occupied a good deal of the court book, the witnesses statements, the evidence at trial, and the submissions. Those issues concerned allegations on Challenger’s part that enforceable agreements for leases and an agreement to licence had been entered into prior to execution, allegations made by Challenger that Leighton was estopped from denying the existence of agreements to lease or licence and was estopped from contending that clause 9.7 had been triggered or from relying upon the triggering of clause 9.7, allegations by Challenger that Leighton had breached its obligation of utmost good faith provided for in clause 25 of the LIG and allegations in response on behalf of the Leighton parties that Challenger had precluded itself from relief in that respect by its own breaches of that provision, and allegations on Challenger’s behalf that Leighton had breached fiduciary duties which it owed to Challenger.
Briefly stated, my conclusions on these matters are as follows.
There were no relevant agreements to lease or licence made. Judged objectively, the parties intended that the formal contracts would be the sole repositories of their agreements and that no binding agreements would be made before their execution. Even in relation to the car park, where the parties did proceed as if Leighton Vic already had a licence, it seems to me that that position is correctly analysed on the basis that the parties were prepared to acquiesce in a licence on an interim basis pending execution of the formal agreement.
Similarly, I reject the assertion that there is now an estoppel which precludes the Leighton parties from contending that agreements to lease or licence were not made. The relevant Challenger officers gave evidence that they assumed such agreements were in place. Even if that were accepted, those assumptions were not induced by anything done by the Leighton parties.
I reject the suggestion that Leighton or Leighton Holdings is estopped from contending that clause 9.7 has been triggered. Whilst the Challenger officers gave evidence, which I accept, that they held the view that there was no relevant time limit on execution, in my opinion there is no basis for concluding that that assumption was induced by any conduct of Leighton or Leighton Holdings.
On the evidence before me no breach of the duty of utmost good faith was established against either of the contending parties, Leighton or Challenger. Leighton and Leighton Holdings have relied on the operation of clause 9.7. That clause does not provide Leighton with a power or a discretion or an election. It provides for a consequence of action or inaction on Challenger’s part. Leighton and Leighton Holdings did nothing to prevent Challenger from executing the documents within time. They simply relied upon the consequence which the contract provided for should that event occur. In my view they did not have a duty to warn Challenger of the consequence for which the LIG provided. The warning they would have given could only have been the construction of the LIG for which they contended. Challenger had its own lawyers. There had already been considerable dispute about clause 9.7 in a different context. It does not seem to me that the exercise of utmost good faith required Leighton or Leighton Holdings to advise Challenger of its construction of clause 9.7, or to refrain from relying on clause 9.7 if the event for which it provided occurred.
I do not consider that the Leighton parties established a failure to exercise utmost good faith on Challenger’s part in relation to the lease negotiations it undertook, the detail of which it is not necessary to set out. The Leighton parties established circumstances which might have led to a breach of the obligation to exercise utmost good faith, but the evidence does not establish Challenger ever did so.
Finally, I reject Challenger’s case based upon breach of fiduciary duty on the part of Leighton. The fiduciary duties relied upon were founded upon the agency created in clause 9.1.1. I accept that Leighton owed fiduciary duties to Challenger as its agent, but the critical issue is how far those duties extend. They do not extend beyond the scope of the agency itself. The scope of the agency is confined to the negotiation of Occupancy Agreements. Leighton did nothing in the negotiation of the Occupancy Agreements which breached any fiduciary duty. Its reliance on clause 9.7, after Challenger had failed to execute within 28 days, was not conduct carried out by it in the course of any agency existing between Challenger and it. Even if that had not been the case, in the circumstances here reliance on an express contractual provision could not constitute breach of any fiduciary duty.[23]
[23]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97 per Mason J.
I will hear the parties on the orders required to give effect to these reasons and on the issue of costs.
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