Dong v West Services Pty Ltd

[2010] NSWADT 150

CITATION:	Dong v West Services Pty Ltd [2010] NSWADT 150
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Li Fang Dong RESPONDENT West Services Pty Ltd
FILE NUMBER:	105013
HEARING DATES:	9 March 2010
SUBMISSIONS CLOSED:	20 April 2010
DATE OF DECISION:	15 June 2010
BEFORE:	Rickards K - Judicial Member
CATCHWORDS:	Formation of lease agreement
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Helou v Bong Bong Pty Ltd [2006] NSWADT128 Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Brambles Holdings Ltd v Bathurst City Council (2001) NSWLR 153 ABC v XIVth Commonwealth Games (1988) NSWLR 540 Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR at 11,117 Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) CLR 5 647 Carruthers v Whittaker [1975] NZLR 667 CA Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 631 Stephenson v Dwyer [2008] NSWCA 123 Masters v Cameron (1954) 91 CLR 253 Brogden v Metropolitan Railway Co (1876-77) 2 App Cas 666 Agusta Pty Ltd v Perpetual Trustee Company Ltd [2010] NSWCA 110
REPRESENTATION:	APPLICANT B C Kasep, barrister RESPONDENT A J Tudehope SC, barrister
ORDERS:	1.The application is dismissed 2.Unless either party files and serves written submissions as to costs within 14 days, there will be no order as to costs. If either party does file and serve written submissions within 14 days, the other party is to file and serve any written submissions as to costs within a further period of 14 days of service. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved “on the papers” pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.

REASONS FOR DECISION

INTRODUCTION

1 In the original application filed in these proceedings the Applicant seeks a declaration that a valid retail lease agreement exists between her and the Respondent in relation to premises at 15 Rooty Hill Road North, Rooty Hill NSW (“the premises”). The Applicant also seeks damages based upon claimed loss of income caused by the Respondent’s having taken possession of the premises on or about 12 January 2010.

2 Additionally, on 3 February 2010, the Applicant filed an urgent interim application seeking orders restoring possession of the premises to her. This urgent application was heard by Judicial Member Molloy on 11 February 2010, following which orders were made restoring the Applicant to possession of the premises but requiring the Applicant to pay a monthly occupation fee pending determination of the original application.

BACKGROUND

3 On 22 December 2006 the Respondent entered into a retail lease agreement in respect of the premises with Mr Yong Jia Jiang (“Jiang”). The term of the lease was from 1 December 2006 to 30 November 2009. Clause 20 of the agreement permitted Jiang to hold over after the expiry date of the lease under a monthly tenancy which either party could terminate upon one month’s notice and at a rent which was one twelfth of the rent payable upon an annual basis as at the expiry date.

4 On 13 August 2009 Jiang sent a letter to the Respondent’s agent stating that he would “like to continue renting the premises mentioned about 3 years by 3 years.”

5 The Applicant is Jiang’s sister. It appears to be common ground that she had been working at the premises as an employee of her brother or for an entity conducted by him since about 2004 or 2005. The uncontradicted evidence of the Respondent’s real estate agent John Rakuljic is that as and from May 2009 when he became the new managing agent for the Respondent, he would visit the premises to collect rent and that Jiang was never there, but that the Applicant would always be present and would pay the rent in cash, following which receipts would be issued in Jiang’s name.

6 It is apparent from the evidentiary material provided by both parties that both Jiang and the Applicant were represented at various times by the solicitor Kevin Lo (“Lo”).

7 In response to Jiang’s request on 13 August 2009 to be granted a new 3 year lease with 3 year option, the Respondent’s agent forwarded a facsimile message to Lo on 20 October 2009 indicating that before the Respondent would agree to any new lease or new rental amount, certain matters concerning insurance, rent, access to water meters, assurances as to use of the premises and permission for footpath advertising had to be attended to within the ensuing 7 days.

8 A letter was then sent by the Respondent’s agent to Jiang dated 5 November 2009 indicating that the Respondent was prepared to permit Jiang to have a further 3 year lease with rental to be $4,177.42 per calendar month but subject to the previously requested matters being attended to. A copy of this letter was also sent to the solicitor Lo.

9 The Applicant claims that on 10 November 2009 she purchased from Jiang the business conducted at the premises and that the consideration for this purchase was the sum of $200,000. In support of this contention, the Applicant relies upon an undated document entitled “Sales Agreement” which is expressed to be between a company called JP Easyway (Aust) Pty Ltd as vendor and the Applicant as purchaser. The terms of this document are very brief and simply recite:

“The Seller agreed to sell Rooty Hill Discount, 15 Rooty Hill Road North, Rooty Hill NSW 2766 to the Buyer on 10 November 2009. The price is $200,000 as below:

Stock: $150,000
Fix and fixture: $15,000
Goodwill $35,000

There is no GST due to ongoing constant business …”

10 It is not suggested that Lo, as the solicitor who at various times acted for both Jiang and the Applicant, played any part in the creation of the “Sales Agreement”, and the sale was not referred to in any correspondence from Lo or the Applicant to the Respondent, to its solicitor or to its agent.

11 In response to the letter forwarded by the Applicant’s agent to Lo and Jiang on 5 November 2009, the agent received a certificate of insurance currency, a written assurance from Jiang dated 11 October 2009 that access could be had to the water meter, a further written assurance dated 11 October 2009 that no flammable items or spray cans would be sold on the premises, an invoice from Blacktown City Council for fees payable for goods displayed outside the premises, and a further typed document under the hand of Jiang dated 10 November 2009 stating that he “will agree to transfer the lease of the shop mentioned above to Li Fang Dong”.

12 By letter dated 23 November 2009 the Respondent’s solicitors notified Jiang that, amongst other things, there had not been a valid exercise of the option to renew the lease, but that because Jiang had indicated he did wish to renew the lease and, “subject to formal lease documentation being entered into”, the Applicant would grant a new lease either for a term of 3 years with a first year’s due rental of $4,177.42 per month with no option to renew, or alternatively a new lease for the term of 3 years with a further 3 year option with rent to be $4,654.08 for the first year. It was further indicated in this letter that Jiang was required to have his solicitor confirm which of these two alternatives was accepted, and that he was also to provide a certificate of currency of insurance cover for $20,000,000 (although I do note the typographical error in the letter in expressing this sum), as well as a cheque to bring the security bond up to the amount equivalent to the current monthly rent figure, and payment of the outstanding licence fees due to Blacktown City Council. There was no response to this letter.

13 The sum of $4,177.45 for due rent was paid in cash by the Applicant to the Respondent’s agent when he attended at the premises on 30 November 2009. The Applicant asserts that at about this time in late November 2009, the agent told her that she should “engage a solicitor to enter into a new lease of the retail premises with the Respondent”. The Applicant does not claim to have told the agent that she had purchased the business from Jiang in the preceding weeks, nor did she ask the agent to alter the receipt issued on 30 November 2009 from Jiang’s name. The agent denies ever being told that the business had been transferred by Jiang to the Applicant.

14 On the following day 1 December 2009, the Applicant’s solicitors wrote again to Jiang noting that they had received no response to their letter dated 23 November 2009 and advising that accordingly the Applicant was not prepared to grant a new lease to either Jiang or to any other party and that the lease would be terminated on 4 January 2010.

15 The solicitor Lo then wrote to the agent on 2 December 2009 advising simply that:

“we are today instructed by our client that she wants to lease the captioned premises as she understands that the former lease with Yong Jia Jiang had been expired. We appreciate if you could let us have the terms for the lease …”.

16 Following receipt of the above communication, the Respondent’s solicitors wrote to Lo on 4 December 2009 seeking identification details of exactly who his client was, and advising that the Respondent would grant a new lease of the premises “subject to Lease documents being executed”. The letter then set out a number of required “basic terms and conditions” which included payment of monthly rental of $4,654.08 in the first year. The letter further stated that the Respondent required three things to be provided prior to a lease being prepared. The first requirement was a certificate of insurance currency in the sum of $20,000,000 noting the interests of the Respondent and Blacktown City Council, the second requirement was a cheque in favour of the Retail Tenancy Unit in the sum of $13,962.24, and the third requirement was provision of evidence of payment of all outstanding licence fees due to Blacktown City Council. This letter also stated that advice as to whether Lo’s client intended to proceed with the lease had to be received prior to 11 December 2009.

17 Lo then sent a letter dated 10 December 2009 in reply to the Respondent’s solicitors as follows:

“We are instructed by our client to accept the terms of the lease set out in your letter dated 4 December 2009 and are expecting a lease agreement from you as soon as possible.

In this connection, we assume that the Lessor will not vacate the premises before the lease is finally executed.”

18 In a further letter dated 14 December 2009, the Respondent’s solicitors advised Lo that his client had failed to comply with the requirements set out in their letter dated 4 December 2009, being provision of the insurance certificate, payment of the security bond and evidence of payment of licence fees, and that his client had also failed to confirm that Jiang would provide a personal guarantee. This letter also advised Lo that his client was required to “provide a cheque for the shortfall of the agreed rental ($476.66) for the current month’s rental to our client’s agent”, and that “if all of the above requirements have not been complied with by 5.00 pm Wednesday, 16 December 2009 our client’s offer in respect of the lease is withdrawn”.

19 Lo sent a letter to the Respondent’s solicitors on the following day 15 December 2009 advising that Jiang could provide a personal guarantee, that the insurance certificate was being attended to and that his client was “arranging funds for the security bond”. This letter also advised that, to “show her sincerity of leasing the shop”, the Applicant would during that week meet payment of $476.66 being the “shortfall of the rental for December.”

20 The Respondent’s agent provided evidence that on that same day that the above letter was sent, namely15 December 2009, the Applicant attended at the agent’s office, which was an unusual event, and handed over cash in the sum of $476.66 to the agent. There is no dispute that this money was eventually taken by the agent and a hand written receipt issued, although it is his evidence that he did not understand why the Applicant was paying this sum because he was not aware of any arrears of rent. A hand written receipt was issued by the agent indicating that this sum had been received from the “tenant”. The money was placed into the agent’s safe where it still remains.

21 The Respondent’s solicitors then sent a letter to Lo dated 17 December 2009 stating that the requirements as to insurance, payment of security deposit and evidence of payment of licence fees had to be met, together with payment of the shortfall in rental for December, by 5.00 pm Friday 18 December 2009, failing which the offer to lease would be deemed to be withdrawn and vacant possession of the premises would be required on or before 5 January 2010, as per the previous notice issued to Jiang. It is of course obvious that the Respondent’s solicitors were not then aware that the Applicant had recently visited the agent’s office and handed over a sum of money.

22 On Friday 18 December 2009, Lo sent a letter to the Respondent’s solicitors attaching the required insurance certificate of currency, advising that payment for shortfall in rental had been provided by way of “cheque to the property agent”, and that another cheque for the security bond would be forwarded to the agent “in the middle of next week”. The letter also advised that the Applicant “warrants that outstanding licence fees had been paid to Blacktown City Council and she needs some time (within a few days) to get the receipt to your office”. This letter again requested preparation of a lease as soon as possible, but the solicitor had still not identified the exact identity of the client for whom such lease was to be prepared.

23 Lo then sent to the Respondent’s solicitors a receipt from Blacktown City Council for the licence fee; this was sent by email transmission on Monday, 21 December 2009, at 1.49 pm. On the same day, either before or after this transmission, a letter was sent by facsimile to Lo by the Respondent’s solicitors confirming that the offer to lease the premises was withdrawn and that the premises were to be vacated as had been previously notified.

24 By letter dated 22 December 2009, Lo took issue with the stance taken by the Respondent and advised that the Applicant considered that she had paid rent in accordance with a lease agreement which had already been reached. This contention is at the core of the dispute which has brought the parties to the Tribunal.

DECISION

25 In summary, the Applicant contends that she paid rent on 30 November 2009 in the sum of $4,177.45 and then paid the further sum of $476.66 on 14 December 2009 in respect of the “shortfall of the agreed rental”, and that these rent payments were made pursuant to an agreement reached between the parties in respect of the premises. Accordingly, the Applicant says that, pursuant to section 8 of the Retail Leases Act 1994 (“the Act”), a retail shop lease is deemed to have been entered into which entitles the Applicant to possession of the premises.

26 In the alternative, it is also contended that the Applicant had notionally entered into possession of the retail premises for the purpose of section 8 of the Act from the time that she expressed acceptance of the terms and conditions set out within the above letter.

27 It is convenient to deal with this latter contention first. Reliance is had by the Applicant upon the decision of this Tribunal in Helou v Bong Bong Pty Ltd [2006] NSWADT128. In this matter, the Tribunal concluded that:

“(82) In the Tribunal’s opinion, the aforegoing cases establish the following propositions regarding section 8(1). First, a person who is already in possession of retail shop premises pursuant to a pre existing tenancy covered by the Act may be said notionally to: ‘Enter into possession …. as lessee under the lease’ without vacating and re-entering the premises, once an agreement for a new lease falling within the Act is concluded. Secondly, the commencement of a lease by virtue of entry into possession or payment of rent by the lessee may occur under s8(1) even though no formal deed or agreement of lease is ever executed, so long as the parties have reached consensus as to the terms of the lease. Thirdly, in order to reach this consensus, so as to give rise to the requisite lease relationship, it is not necessary that the parties reach agreement on all the terms of the right of occupation. This is an implicit consequence of the broad definition of ‘lease’ in s3, embracing any agreement, express or implied, and whether oral, in writing, or partly oral or partly in writing, ‘under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop’ “

28 One difficulty with the argument that the Applicant notionally entered into possession of the retail premises for the purpose of section 8(1) of the Act is that, prior to 10 December 2009 which is the date upon which the Applicant claims to have entered into an agreement with the Respondent, the Applicant was not already in possession of the premises pursuant to any pre-existing tenancy. The pre-existing tenancy of the premises was held by Jiang.

29 The real issue to be determined is whether there was a concluded agreement between the parties at any stage pursuant to which the Applicant either paid rent or arguably occupied the premises.

30 A number of propositions as to what constitutes the settled law surrounding the formation of an enforceable agreement were accepted by the Court of Appeal in Laidlaw v Hillier HewittElsley Pty Ltd [2009] NSWCA 44 and are set out within paragraphs 58 and 59 of the decision of Handley AJ. These propositions emerge from previous decisions of superior courts as follows:

a.A contract may come into existence through conduct: Empirnall Holdings Pty Ltd –v- Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523,535; Brambles Holdings Ltd –v- Bathurst City Council (2001) NSWLR 153,177-9
b.The conduct is to be viewed in the light of the surrounding circumstances and in the commercial context in which the dispute arose: ABC –v- XIVth Commonwealth Games (1988) NSWLR 540,584
c.The conduct must be of such a character as necessarily to lead to an inference that an agreement has been made and its terms: Empirnall (1988)14 NSWLR at 535; Brambles (2001) 53 NSWLR at 195
d.It is an error to suppose that merely because something has been done there is contract in existence which has thereby been partly performed; Computer Services Pty Ltd –v- Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR at 11,117
e.Business people not uncommonly act on an anticipated contractual relationship prior to the contract being formed: Sagacious Procurement Pty Ltd –v- Symbion Health Ltd [2008] NSWCA 149, paragraph [117]
f.Subsequent conduct is admissible to determine whether a contract has been entered into: Sagacious (above) at paragraphs [69], [99]-[106]
g.Subsequent correspondence showing that the parties continued in negotiation negatives a concluded contract: Barrier Wharfs Ltd –v- W Scott Fell & Co Ltd (1908) CLR 5 647; Sagacious (above) paragraph [104]
h.The retention of lawyers supports the view that the parties intended to contract through formal documentation: Carruthers –v- Whittaker [1975] NZLR 667 CA,671
i. It is one thing for the parties to settle what are to be the terms of an agreement, if it should be made, and quite another to make that agreement; Barrier Wharfs (above) at paragraph 650
j.The use of the words “in principle” ordinarily requires a conclusion that there will be no binding contract until formal contracts are executed and exchanged: Baulkham Hills Private Hospital Pty Ltd –v- G R Securities Pty Ltd (1986) 40 NSWLR 631,636; Stephenson –v- Dwyer [2008] NSWCA 123 at paragraphs [106],[126], but this will not be so in every case: Baulkham Hills (above) at 628.

31 Review of exactly what was being offered by the Respondent through its solicitor’s letter dated 4 December 2009, indicates the following:

a)The Respondent was prepared to grant a new lease of the premises to the Applicant with basic terms and conditions to be as set out in the paragraphs numbered 1 to 12 within that letter.
b)The lease would only be granted upon execution of lease documents containing, inter alia, the above basic terms and conditions.
c)No lease documents would be prepared for execution unless and until the Applicant supplied a certificate of insurance currency in the terms as specified, a cheque in the sum of $13,962.24 payable to the Retail Tenancy Unit for the security bond, and evidence of payment of the outstanding licence fees due to Blacktown City Council.
d)Advice as to whether these terms were accepted had to be received by the Respondent’s solicitors before 11 December 2009 as well as confirmation of the name and address of the Applicant.

32 The letter sent by Lo to the Respondent’s solicitors on 10 December 2009 certainly expressed acceptance of the terms contained within the above letter, but did not respond to the matters set out by the Respondent as being required to be attended to by the Applicant before any lease document would be prepared; instead, Lo’s letter ignored these stated requirements and simply asked for provision of a lease agreement “as soon as possible”. In the absence of evidence to the contrary, this request tends to indicate agreement that there would be no concluded bargain between the parties until a formal lease had been executed, therefore bringing this matter within the third category of cases described in Masters –v- Cameron (1954) 91 CLR 253

33 Even though the other requirements of the Respondent as set out in its solicitors’ letters dated 4 December 2009 and 14 December 2009 had not been met despite the Applicant’s purported acceptance of same, the Applicant did furnish the sum of $476.66 to the Respondent’s agent on 15 December 2009.

34 The above requirements, despite being expressly accepted by the Applicant, had still not been met by 21 December 2009 when the letter sent by the Respondent’s solicitors to Lo advised of withdrawal of the Respondent’s offer to lease the premises to the Applicant.

35 There was no concluded lease retail shop lease agreement between the parties as at 16 December 2009 when the sum of $476.66 cash was delivered by the Applicant to the Respondent’s agent because performance by the Applicant of the terms said to have been agreed to between the parties as a precursor to preparation of a formal lease agreement had not occurred, no formal lease had therefore been entered into, and the parties had agreed that there would be no binding agreement unless a formal lease had been executed.

36 In a further letter dated 17 December 2009, the Respondent’s solicitors again extended the time to 18 December 2009 for the Applicant to meet the requirements said to have been agreed to by the Applicant, but again this deadline was not met.

37 It is submitted on behalf of the Applicant that the conduct of the Respondent was such as to give rise to a contract between the parties. In effect, the Applicant contends that, notwithstanding the express terms of the letter dated 4 December 2009 sent by the Respondent’s solicitors, the Respondent by its agent’s conduct in initially accepting payment of rent for December from the Applicant and then requesting additional payment of rent for December entered into a retail shop lease agreement with the Applicant without requiring adherence to all of the terms set out within the 4 December 2009 letter.

38 It is clear that although the Applicant personally paid rent on 30 November 2009 to the Respondent’s agent, this payment was in accord with the usual practice employed by her of paying cash to the agent when he visited the premises, the payment occurred at a time while Jiang was still the lessee of the premises and the payment was followed by the issuing by the Respondent’s agent of a receipt in Jiang’s name. The subsequent request by the Respondent’s solicitors for payment of additional rent was made in combination with the restatement of other requirements which the Applicant was requested to meet before any lease agreement would be prepared and then executed.

39 Neither the payment of these rental amounts by the Applicant nor the manner in which the payments were accepted by or on behalf of the Respondents unambiguously point to any deviation by the Respondent from the terms of the proposed agreement which were set out in the 4 December 2009 letter. Similarly, the fact that the Applicant continued to apparently operate the business conducted at the premises after 10 December 2009 without interference from the Respondent does not indicate any acceptance by the Respondent that the Applicant was now occupying the premises pursuant to any agreement reached on 10 December 2009 or pursuant to any agreement formed at any later stage by reason of the Respondent’s conduct; Jiang was still the lessee of the premises at this time and the rent had been paid on 30 November 2009 pursuant to the terms of Jiang’s lease agreement with the Respondent. There is no evidence of conduct indicating the Respondent’s acquiescence to the Applicant’s failure to meet the terms and conditions set by the Respondent as being required to be met before a lease document would be prepared, nor indicating any departure by the Respondent from its expressed position that its offer of a lease to the Applicant was subject to formal lease documents being executed.

40 In considering the overall conduct of the Respondent in seeking payment of the rent shortfall for December, reference should be had to the majority judgment of Macfarlan JA in Laidlaw (see reference above), where reliance was placed upon the decision of the House of Lords in Brogden v Metropolitan Railway Co (1876-77) 2 App Cas 666 that:

“[5]… the conduct of parties may give rise to a contract. It was made clear however that the character and circumstances of such conduct must indicate unambiguously that the parties intended to contract. For example the Lord Chancellor said about the conduct in question in that case that ‘no explanation can be given of it unless it refers to the contract in question (at 678)’

Further, as is set out by His Honour at paragraph 9 of his judgment in Laidlaw :

“not only must the conduct point to the existence of a contract, but it must point to the existence of the contract in the terms alleged in the proceedings”.

41 The requirement that there needs to be evidence that the Respondent acted in a way which unequivocally indicated that an agreement with the Applicant was on foot is repeated within another decision of Macfarlan JA in Agusta Pty Ltd v Perpetual Trustee Company Ltd [2010] NSWCA 110 of paragraph 3:

“Her Honour rightly held that in these circumstances the Applicant had not proved that the loan had been impliedly renewed. The conduct of the Respondent was clearly ambiguous. This precluded any implication that it had agreed to renew the loan and I refer in this respect to what I said (with the concurrence of Beazley JA) in Laidlaw … ”.

42 In summary, the conclusion reached from a reasonable reading of the 4 December 2009 letter and consideration of the conduct of the parties is that there would be no binding agreement until a formal lease had been executed and that no formal lease would be prepared until certain requirements had been fulfilled by the Applicant. There is no conduct of the Respondent pointing unambiguously to the existence of any other retail lease agreement between the parties.

43 This leads to a determination that there is no retail shop lease agreement in existence between the parties. Accordingly, I make the orders as set out below:

ORDERS

44 The application is dismissed.

45 Unless either party files and serves written submissions as to costs within 14 days, there will be no order as to costs. If either party does file and serve written submissions within 14 days, the other party is to file and serve any written submissions as to costs within a further period of 14 days of service. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved “on the papers” pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.