Elizabeth City Centre Pty Ltd (Respondent) v Corralyn Pty Ltd (Appellant) No. SCGRG 93/1541 Judgment No. 4807 Number of Pages 8 Landlord and Tenant

[1994] SASC 4807

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(1), MILLHOUSE(2) and PERRY(3) JJ

CWDS
Landlord and tenant - covenants - right of renewal of sublease - exercise of sublessee of right by ordinary post - notice not received by landlord - postal acceptance rule impliedly excluded by term of sublease. Tallerman and Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at p111, applied.

Landlord and tenant - retail and commercial tenancies legislation - Landlord and Tenant Act (SA) 1936 s62 not applicable to assignment of lease. Landlord and Tenant Act (SA) 1936 s62

HRNG ADELAIDE, 14 September 1994 #DATE 27:10:1994

Counsel for appellant:     Mr R B Nunn

Solicitors for appellant:    Nyland Haines and Co

Counsel for respondent:     Mr B T Lander QC with Mr D T J Lim

Solicitors for respondent: Fisher Jeffries

ORDER
Appeal dismissed.

JUDGE1 KING CJ The appellant applied to the Commercial Tribunal for a declaration that an option to renew its sublease of a shop premises at Elizabeth from the respondent had been validly exercised and for consequential relief. The Tribunal held that the option had been validly exercised and made certain orders. There was an appeal to a single judge of this Court. Nyland J allowed the appeal, set aside the decision and orders of the Tribunal and ordered that the appellant give up possession. This is an appeal to the Full Court against the judgment of Nyland J.

2. The respondent is head lessee of the Elizabeth Shopping Centre from the South Australian Housing Trust. It sublet the subject premises which are a dry cleaning shop. There have been a series of assignments of the sublease. One such assignment took place on 12th September 1988 when the sublease of the premises was assigned to Karl Chehade Dry Cleaning Pty Ltd. Simultaneously an Indenture was entered into between that company as tenant and the respondent, varying the terms of the sublease. The date of expiration was extended to 30 June 1992. The respondent agreed to grant an extension for a further period of five years upon the same terms and conditions with certain specified variations "on the written request of the tenant made not more than six months and not less than three months before the expiration of the lease term."

3. On 10th January 1992, that is to say within the period stipulated, Karl Chehade Dry Cleaning Pty Ltd sent a letter to the respondent "giving formal notification of our desire to renew the lease for a further period of five years." In the same letter a request was made for a further "renewal term". The letter was sent by ordinary post. On the finding of the Tribunal, it was not received by the respondent.

4. Karl Chehade Dry Cleaning Pty Ltd assigned the sublease to the appellant, such assignment to take effect on 15th March 1992. It is common ground that the exercise of the option, if valid, enures for the benefit of the appellant.

5. The central question on this appeal is whether the posting of the letter of 10th January 1992 was a valid exercise of the option.

6. The sublease contains a clause, 12.1, dealing with notice as follows:
    "Any notice from the Landlord to the Tenant shall be deemed
    duly served if left for the Tenant on the Leased Premises or
    if mailed by registered or certified letter addressed to the
    Tenant at its address herein set out or at such other
    address as the Tenant shall have last designated by notice
    in writing to the Landlord and any notice from the Tenant to
    the Landlord shall be deemed duly served if mailed by
    registered or certified letter addressed to the Landlord at
    its registered office for the time being in the state or
    territory in which the Centre is located or at such other
    address as the Landlord shall have last designated by notice
    in writing to the Tenant. A notice or demand posted shall
    be deemed to be served on the third business day next
    following that on which it was posted and any notice given
    by one party to the other hereunder may be signed on behalf
    of the party giving the same by a director manager secretary
    or acting secretary of such party. If there is more than
    one Tenant then without prejudice to any other authorised
    mode of service such notice shall be deemed duly served if
    mailed as aforesaid (addressed to all Tenants) to the
    address of any one of them authorised as an address for
    service pursuant to this clause."

7. It was argued on behalf of the appellant that the effect of Clause 12.1 was that the letter exercising the option, having been posted on 10th January, was deemed to have been served on the third business day next following. The contention was that the deeming provision as to a "notice or demand posted" operates independently of the provision that a notice is to be deemed duly served if mailed by registered or certified mail.

8. I think that the argument is untenable. When the clause is read as a whole, its meaning is clear. It does not stipulate exclusive means by which a notice may be served. The ordinary rule applies that a notice may be given by any means which actually brings it to the attention of the person to whom it is given. The clause authorizes certain methods of service which are to be valid irrespective of whether they are effective to bring the notice to the attention of the other party. It authorizes service by the landlord by the leaving of the notice at the leased premises and by registered or certified mail addressed as stipulated; it also authorizes service by the tenant by registered or certified mail addressed as stipulated. If the service is effected by registered or certified mail, it is deemed to be effective on the third business day next following the posting. The word "posted" is clearly a reference back to the posting by registered or certified mail authorized earlier in the clause. To construe the clause as suggested by counsel for the appellant would distort the natural structure of the clause and would render the provisions as to registered or certified mail almost nugatory. It would lead to the absurd result that the only effect of those provisions would be to determine the time of service, that is to say forthwith if registered or certified mail were used, as against the third business day next following if ordinary post were used.

9. The letter exercising the option having been sent by ordinary post, the appellant gains no assistance from Clause 12.1 of the sublease.

10. It was contended, however, that, quite apart from Clause 12.1 of the sublease, the dispatch of the letter by ordinary post was effective as an exercise of the option. This sublease does not purport to make the methods of communication authorized by Clause 12.1 exclusive. Other means of communication which brought the exercise to the attention of the respondent would be effective service. The letter, however, was not effective to bring the exercise of the option to the attention of the respondent. It did not reach the respondent. There was in fact no actual communication of the exercise of the option to the respondent.

11. It was argued that the problem is overcome by what is known as the postal acceptance rule. The rule was stated by Dixon CJ and Fullagar J in Tallerman and Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at p111 as follows:
    "The general rule is that a contract is not completed until
    acceptance of an offer is actually communicated to the
    offeror, and a finding that a contract is completed by the
    posting of a letter of acceptance cannot be justified unless
    it is to be inferred that the offeror contemplated and
    intended that his offer might be accepted by the doing of
    that act ..."

12. The terms of the sublease are incompatible, to my mind, with the applicability of the postal acceptance rule. The sublease deals with the topic of communication by post. A notice sent by registered or certified mail is deemed to have been duly served. The express provision with respect to that method of posting impliedly excludes an intention that the option is deemed to have been duly served by the dispatch of the notice by ordinary post. Clause 12.1 leaves no room for the operation of the postal acceptance rule with respect to a notice sent by ordinary post.

13. In my opinion the learned judge on appeal was correct in holding that there had been no valid exercise of the option.

14. Counsel for the appellant argued that relief should be granted under s62 of the Landlord and Tenant Act 1936. The application to the Tribunal did not seek such relief. The Tribunal apparently raised the topic during the hearing and it was referred to in addresses before the Tribunal. The Tribunal discussed the section in its reasons for its decision in a way which indicated that it would have been disposed if necessary to act on the section to assist the appellant. Nyland J made no reference to the issue in her reasons for judgment, although s62 was relied upon in the argument before her. The grounds in the Notice of Appeal to this Court make no reference to the topic. Mr Lander QC for the respondent argued that s62 does not apply, as a matter of law, to the circumstances of this case. Although the section 62 issue has not been dealt with satisfactorily at any stage of the proceedings, I do not think that there would be any point in remitting that issue to the Tribunal as I have reached the conclusion that Mr Lander is correct.

15. The power of the Tribunal to grant relief under s62(10) is conditional upon a breach by the landlord of the obligations imposed by s62(2). The obligations under s62(2) arise only where a document to which the section applies is presented to a tenant for signature. Subsection (1) provides that the "section applies to a document that is intended to constitute a commercial tenancy agreement (or part of such an agreement), or a memorandum of such an agreement." A Commercial Tenancy Agreement is defined by s54 to mean "an agreement under which a person grants to another for valuable consideration a right to occupy, whether exclusively or otherwise, premises for the purpose of carrying on a business."

16. That definition is not apt, in my opinion, to describe an assignment of a lease. An assignment is not a grant by the landlord of the right to occupy. That grant was made by the original sublease. The assignment to the Chehade company merely transferred the previous tenant's rights and obligations with the consent of the respondent. It was not the respondent's grant of the right to occupy. Neither was it presented by the landlord to the tenant for signature within the meaning of s62(2). I do not think that the Indenture dated 12th September 1988 between the Chehade company and the respondent comes within the definition either. It merely varies the terms and conditions of the grant of the right to occupy. It is true that it extended the term, but I cannot think that the obligations under s62(2) must be complied with afresh whenever the term of a lease is extended.

17. I would dismiss the appeal.

JUDGE2 MILLHOUSE J This appeal is over the purported exercise of an option for the extension of the sub-lease of a dry cleaning shop in the Elizabeth City Centre. The respondent is the lessee of the premises, from the South Australian Housing Trust: the appellant had the benefit of the assignment of a sub-lease. The chain of documents and events by which this came about is complicated. It is set out in the Reasons, first of the Commercial Tribunal and then of Her Honour Justice Nyland of whose judgment the appellant complains.

2. The whole thing comes down to whether the posting of a letter was a sufficient exercise of an option.

3. These are the relevant facts. The appellant occupied premises pursuant to a sub-lease which had been due to expire on 30 April 1991 but the expiry date had been extended to 30 June 1992. Originally there was no right of renewal but by an Indenture a right of renewal for five years had been put in. It could be exercised, ".... on the written request of the Tenant made not more than six months and not less than three months before the expiration of the Lease Term ....." and it was common ground - I need not give the whys and wherefores - that the option could be exercised between 1 January 1992 and 31 March 1992.

4. On 10 January 1992 Mr Karl Chehade, on behalf of the appellant, wrote a letter to the respondent which read in part:-
    " Elizabeth City Centre Management
    C/- Lease Administrator
    PO Box 545
    ELIZABETH SA 5112
    Dear Sir/Madam,
    Re: Deed of Assignment and Guarantee and Lease Renewal
    Option T1 - Elizabeth City Centre
    I have received your letter dated 28th December,...
    At this stage, I am also giving formal notification of our
    desire to renew the lease for a further period of 5 years.
    As we discussed earlier, I would appreciate a new lease
    being drawn to accommodate a further renewal term of ten
    years (5 + 5). This would be of an advantage to both
    parties, particularly myself, as I have only recently
    purchased the business, and would require additional time to
    make the business viable, particularly in these bad times.
    I look forward to a long and prosperous relationship with
    your centre,
    Yours Sincerely
    (Signed) Karl Chehade
    Karl S Chehade"

5. Mr Chehade said he posted the letter by ordinary mail. The Tribunal found, on the balance of probabilities, that "the letter was written and posted as deposed by Mr Chehade." The respondent, on the other hand, by three of its servants or agents, gave evidence that the letter had never been received. The Tribunal said:-
    "The majority of the members of the Tribunal suspect that
    the letter was received by the respondent but nevertheless
    it is its unanimous decision in the state of the evidence
    that the letter has not been proved on the balance of
    probabilities to have been so received."

6. These are findings of fact which stand.

7. Well, then, the letter exercising the option was posted but not received. What follows?

8. Section 12.1 of the sub-lease:-
    " ... and any notice from the Tenant to the Landlord shall
    be deemed duly served if mailed by registered or certified
    letter addressed to the Landlord at its registered office
    for the time being ... A notice or demand posted shall be
    deemed to be served on the third business day next following
    that on which it was posted and any notice given by one
    party to the other hereunder may be signed on behalf of the
    party giving the same by a director manager secretary or
    acting secretary of such party. If there is more than one
    Tenant then without prejudice to any other authorised mode
    of service such notice shall be deemed duly served if mailed
    as aforesaid (addressed to all Tenants) to the address of
    any one of them authorised as an address for service
    pursuant to this clause."

9. I have already mentioned a right of renewal. Here is s.19 more fully:-
    "SECTION 19
    19. OPTION FOR RENEWAL
    The Landlord will on the written request of the Tenant made
    not more than six months and not less than three months
    before the expiration of the Lease Term and if there shall
    not at the time of such request nor at any time thereafter
    up to the expiration of the Lease Term be any existing
    breach or non-observance of any of the covenants and
    agreements on the part of the Tenant grant to it a Sub-Lease
    of the leased premises for the further period of 5 years
    from the expiration of the Lease Term upon the same terms
    and conditions as are herein contained save and except:-
     ..."

10. Mr Roger Nunn, for the appellant argued (as he had successfully before the Tribunal but unsuccessfully before Her Honour) that, under S.12 there were three ways of notifying the exercise of the option to renew - by personal delivery of notification in writing, by posting by registered or certified letter (in which case it would be "deemed to be served on the third business day next following that on which it was posted") or by posting by ordinary mail (in which case the option was deemed to have been exercised on posting in accordance with the postal acceptance rule).

11. Quite apart from the bizarre result which this interpretation gives - that an exercise of the option by registered or certified letter would take place three days later than if exercised by an ordinary letter - the plain meaning of s12.1 is against him.

12. I set out again the relevant parts:-
    " ... and any notice from the Tenant to the Landlord shall
    be deemed duly served if mailed by registered or certified
    letter addressed to the Landlord at its registered office
    for the time being ... A notice or demand posted shall be
    deemed to be served on the third business day next following
    that on which it was posted and any notice given by one
    party to the other hereunder may be signed on behalf of the
    party giving the same by a director manager secretary or
    acting secretary of such party ......"

13. It is obvious that the second sentence refers back to the first - service is deemed on the third business day after the posting of a registered or certified letter. The second sentence merely fills in the `temporal gap' in the first by providing that a registered or certified letter will be deemed received on the third business day after posting. The sentence does not provide for service by ordinary post.

14. Section 12.1 does not provide that service of a notice must be by registered or certified letter: the words are "deemed duly served if mailed by .....": service by ordinary letter is not excluded. In that case the ordinary postal acceptance rule applies. The rule is that an offer is accepted upon the posting of a letter of acceptance but may be quite easily displaced in several ways, one of which is by evidence that the letter was not received. Nyland J discusses it all in her judgment. I need not go over again the ground which she has so well covered. I merely sum the rule up in this way. The acceptance of an offer is complete as soon as it is posted - if it must have been within the contemplation of the parties that the post might be used to communicate acceptance (Henthorn v Frazer (1892) 2 Ch 27). The general rule in contract is that acceptance must be communicated and the postal acceptance rule is an exception.

15. What is the position here? I notice that Mr Chehade in his letter said, "I would appreciate a new lease being drawn .....". He requested the landlord to do something of which the landlord would have no knowledge unless the letter had reached it. The option itself provided for a different method in the future of computing the rent. Yet the appellant went on as before, paying the same rent in the same way: no new sub-lease came from the respondent: indeed, the respondent did not respond when a response was called for. Quite apart from all this I see in Bresson v Squires (1974) 2 NSWLR 460, one of the cases cited by Nyland J, that Bowen CJ in Eq. said (at 462):-
    " ... the exception, being based upon notions of expediency
    and convenience does not apply where its application would
    produce manifest inconvenience, and absurdity; that this is
    particularly so with options for the purchase of land,
    where, if the exception applies, the offeror may, where the
    letter is delayed or goes astray, become a trustee of the
    land without becoming aware of it, or without becoming aware
    of it until a substantial period of time has elapsed."

16. On the argument of the appellant, something like that would have happened here too: the landlord, unbeknown to it, would have been unable to look for another tenant because it had been tied to the appellant.

17. Mr Nunn sought the aid of s13 of the Commercial Tribunal Act and of s62 of the Landlord and Tenant Act, saying that his client came to the Court with clean hands.

18. One of the curious features of this case is that neither appellant nor respondent got in touch with the other during the period when the option could be exercised, to see what was going on - the appellant after 10 January to see why the respondent had not sent him a fresh lease and sought a readjustment of the rent payments, and the respondent because there had been no response to its letter of 28 December to the appellant which required a response. It may be that the suspicion of the Tribunal about the respondent is well grounded but in view of the finding of the Tribunal that the respondent did not, on the balance of probabilities, get the letter, I take that no further.

19. The fact is that Mr Chehade could have followed up his letter of 10 January but he didn't: that being so the appellant does not merit the exercise of discretion in its favour.

20. It's bad luck for him that he did not go to the trouble of sending his letter registered or certified (or whatever is the contemporary equivalent offered by Australia Post). He didn't and is saddled with the finding that the letter wasn't received and that he therefore had not exercised the option.

21. Nyland J was quite right. I suggest the appeal be dismissed.

JUDGE3 PERRY J I agree that the appeal should be dismissed for the reasons given by the Honourable the Chief Justice.