Highgrove Bathrooms Townsville Pty Ltd v Serobotto Nominees Pty Ltd
[2011] QSC 109
•5 May 2011
SUPREME COURT OF QUEENSLAND
CITATION:
Highgrove Bathrooms Townsville Pty Ltd v Serobotto Nominees Pty Ltd [2011] QSC 109
PARTIES: HIGHGROVE BATHROOMS TOWNSVILLE PTY LTD (ACN 146 180 225)
(plaintiff)
v
SEROBOTTO NOMINEES PTY LTD
(defendant)FILE NO/S: CA No 53 of 2009
SC No 49 of 2008DIVISION:
Trial Division
PROCEEDING:
Claim – Damages – Breach of Agreement to Lease
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
Orders delivered 5 May 2011.
Reasons delivered 5 May 2011.DELIVERED AT:
Brisbane
HEARING DATE:
3 – 5 May 2011
JUDGES:
Byrne SJA
ORDERS: Delivered ex tempore 5 May 2011.
1. Claim dismissed.
2. Counterclaim dismissed.
3. Order that the plaintiff pay 90 per cent of the defendant’s costs of and incidental to the claim to be assessed.
CATCHWORDS: CONTRACT – GENERAL PRINCIPLES – FORMATION – INTENTION – COMMERCIAL TRANSACTIONS – where the plaintiff entered into negotiations with the defendant to lease premises – where the defendant asserted that the agreement was subject to a formal lease – whether there was an enforceable and concluded lease agreement – whether the lease remained in a state of negotiation
CONTRACT – GENERAL PRINCIPLES – FORMATION – OFFER AND ACCEPTANCE – ACCEPTANCE – ACCEPTANCE MUST BE IN RESPONSE TO THE OFFER – where a draft letter of offer was sent – where defendant emphasized that the final lease was subject to directors’ approval – where plaintiff amended draft offer and resent to defendant with deposit – whether delivery of draft lease agreement by the defendant to be reviewed by plaintiff manifests an intention to be bound before lease executed – whether parties intended that they would be bound to lease terms before they executed formal lease document – whether retention of deposit constituted acceptance of the revised offer
COUNSEL:
M Steele for the plaintiff
L D Bowden for the defendantSOLICITORS:
Hall Lawyers for the plaintiff
David K Lawyers for the defendant
HIS HONOUR: This is a claim for damages for breach of an
agreement to lease. The main issue is whether an enforceable
agreement to lease was made.
The plaintiff, (“HBT”), as I shall describe it, was incorporated in September 2010. Its directors and shareholders are Mr Lindsay Sinclair and Mr Jed Beveridge.
The directors of the defendant ("SN") are Mr and Mrs Seganfreddo, who also own the company.
Mr Jeffrey Frost is married to Mr Seganfreddo's daughter.
Mr Frost was instrumental in negotiations with Mr Sinclair
and, to a lesser extent, with Mr Beveridge concerning the
prospect of a lease of part of SN's premises at 232 Woolcock
Street, Currajong, Townsville.
Discussions between Mr Frost and Mr Sinclair led to a proposal
by Mr Frost to Mr Sinclair on 25 September last. By this
e-mail, Mr Frost conveyed the willingness of "the directors"
of SN to consider a detailed lease proposal to emanate from
Mr Sinclair. The draft proposal made provision for the term
of the lease, the rent, the commencement date, the premises to
be demised, and other details.
Mr Sinclair controlled Highgrove Trading Pty Ltd. In 2010,
this company acted as a wholesaler of domestic products to
retail businesses. Those retail outlets were operated by
companies that commonly used "Highgrove Bathrooms" in their
names: for example, Highgrove Bathrooms Cairns Pty Ltd, which
had been incorporated to operate a Cairns store selling
products sourced from Highgrove Trading. There were a number
of such retail stores in Queensland.
Mr Sinclair's response to Mr Frost's invitation to make the
offer emerged on 27 September, by e-mail. Mr Sinclair proposed changes, including that there be a 12 month rent-free period.
On 1 October, Mr Frost furnished the response of SN's
"directors". This e-mail mentioned the changes the directors
had suggested. These related, among other things, to
commencement of the term and the amount of the rent, as well
as that "directors guarantees required".
On 4 October, Mr Sinclair and Mr Frost met at the premises
under discussion. The two men spoke about such things as the
extensive fit-out Mr Sinclair said was envisaged for this new
Highgrove Bathrooms store.
Mr Sinclair testified that, after discussing "general things",
he and Mr Frost shook hands as Mr Frost said, "We've got a
deal." Mr Frost, who denies such an event, also gave evidence
that he told Mr Sinclair, in effect, that no lease would be
concluded until SN's directors had approved the proposed
works, all terms of the lease were agreed, and the lease
itself had been signed by all parties. Mr Sinclair denies
that any such thing was said.
Three days after the meeting, Mr Frost e-mailed a "letter of
offer" and a copy of the survey plan to Mr Sinclair, inviting
him to submit the offer to "the directors" of SN.
Mr Frost's draft offer began with: "I hereby confirm the offer
to lease the above tenancy under the following conditions".
Those conditions included: identification of the area to be
leased; the term (initially, six years); rental ($150,000 per
annum plus GST); a year rent-free (a concession to be
documented separately); a commencement date of 1 November 2010; "fascia signage" and "fit-out" "to be approved by the
lessor"; and then this:
"Lessee to deposit $27,500 to Lessor's account… upon the
execution of this offer. In the event that the Lessee for any
reason withdraws from this offer before signing the lease, the
Lessor will be entitled to retain $5,000 of these funds for
costs. This deposit amount to be credited towards rental due
under the lease for November and December ..."
On 15 October, Mr Sinclair's son, James, e-mailed Mr Frost to
say:
"I have a signed intent to lease document here and would like
to pay the deposit. Can you send me your bank details so that
I can send a copy of the payment receipt data with the signed
paperwork."
Mr Frost replied, identifying the bank account, and asking
that a copy of the executed "letter of intent" be e-mailed to
him; and James Sinclair did that.
The $27,500 deposit was remitted, as Mr Frost had directed,
but by Highgrove Bathrooms Cairns Pty Ltd, which conducted the
Cairns venture.
1 November was the day nominated in the offer as the
commencement date of the lease.
On that day, Mr Frost sent to Mr Beveridge and James Sinclair
an e-mail that attached "draft lease documents" that had been
prepared by SN's solicitors.
Mr Frost had been preoccupied with responsibilities as an
expert witness concerning another development. He had not
read the draft. His covering e-mail, which asked the
recipients to review the draft lease as soon as possible,
added: "At this stage I have not fully reviewed these
documents and reserve our rights on changes…"
The draft lease nominated HBT as lessee. Its identity as the
corporate vehicle to take the lease had, it seems, been
revealed by Mr Sinclair's solicitors to Mr Alan Whiting, SN's
solicitor, who had prepared the draft lease.
A week later, HBT's solicitors wrote to Mr Whiting saying that
they were reviewing the lease and would "revert” later in the
week with respect to it.
On 16 November, HBT's solicitors wrote to SN's solicitors
pointing out that the draft lease had not provided that the
lessor was to be responsible for plumbing and wiring and for
maintenance of footpath gardens and lawns, amongst other
things. The letter asked that Mr Whiting seek instructions
concerning those "issues". This was not an attempt to renegotiate the terms. Rather HBT's solicitor's letter complained that terms that were included in the 15 October offer had not found expression in Mr Whiting's draft lease.
On 18 November, Mr Beveridge e-mailed Mr Frost asking for the
dimensions of the fascia so that arrangements could be made
for signage.
The next day, Mr Beveridge submitted a fascia signage proposal
for the lessor's approval.
On 25 November, Mr Frost received a telephone call from his
father-in-law, who had been contacted directly by Mr Beveridge
in an attempt to postpone the 1 November lease commencement
date. Mr Seganfreddo also told Mr Frost that Mr Beveridge had
asserted that Mr Frost was responsible for the delays in
finalising the lease.
Mr Frost rang Mr Beveridge straight away. He complained about
the direct approach to Mr Seganfreddo, bypassing him.
Mr Frost informed Mr Beveridge that the start date of the
lease would not be put back and that if he heard any more of
postponing that date, "we'll be withdrawing from
the negotiations".
Mr Beveridge, indicated in a conciliatory way, that he would talk to Mr Sinclair about that. And he mentioned that Mr Sinclair was going to the premises the next day to start fit-out. Mr Frost said that Mr Sinclair was not to go there, that he did not have approval to do anything on the building, adding that no fit-out plans had been supplied, and "we don't want anything started until lease is signed".
Mr Frost emphasised to Mr Beveridge that there would be no
change to the lease start date, which had been moved back once
already: a reference to the fact that, earlier on, the proposed commencement date had been 1 October.
Mr Beveridge said that he would talk to Mr Sinclair about
Mr Frost's insistence that the rent-free period commence on 1
November.
The next day, Mr Frost saw a letter that HBT's lawyers had
written to Mr Whiting that morning which said:
"We are instructed by our clients that the continued delays in
this regard are hindering their efforts to finalise this
matter, and furthermore is hindering their abilities to gain
access to the site for reasons of fit outs, painting, etcetera.
Our client further instructs us that as it has made every
effort to have the Lease executed in an expeditious manner, it
requests the consent of your client for the following:
1. The rent-free period negotiated be commenced from the date
the Lease is signed; and
2. A written confirmation by your client and provided to us
today to allow our client permission to enter the premises to
commence fit out works, and effective immediately.
Please seek instructions from your client and provide the same
to us as a matter of urgency."
This renewed demand that the rent-free period be postponed
came the day after Mr Frost had impressed upon Mr Beveridge
that no such extension would be acceptable, and that any
further such proposal would end the negotiations.
Mr Frost obtained Mr Seganfreddo's instructions not to proceed
with Mr Sinclair's offer. He then e-mailed Mr Beveridge.
The e-mail stated a "time line on this lease to date", listing
events that finished with HBT's solicitor's letter that day
asking that the rent-free period commence when the lease was
signed. The e-mail also objected to the comments in that
letter attributing "continued delays", in effect, to those on
SN's side, and continued:
"All rights were reserved in the lease documentation and
communications issued.
“Attached is the draft lease documents just received along
with the lease plan. Can you review as soon as possible? At
this stage I have not fully reviewed these documents and
reserve our rights on changes. I will also send you the
Lessor's disclosure statement tomorrow.
"As advised today, the directors do not agree with your
contentions and do not wish to proceed any further with this
matter. Please provide your account details for the refund of
the balance of the deposit."
The initial question is whether an agreement for lease was
made.
HBT's offer was communicated on 15 October. But where
is SN's acceptance?
HBT relies on the acceptance, or retention, of the $27,500
deposit paid to SN's account in performance of that term of
the 15 October letter of offer.
The negotiations, however, were not concluded by the retention
of the deposit paid to SN's bank account.
That payment was envisaged by the terms of an offer which, as
everybody concerned knew, fell to be considered by SN's
directors, who might not agree to the terms Mr Frost had
suggested Mr Sinclair propose.
The deposit was in the nature of a pre-contract payment. Its
mere retention pending execution of the lease cannot, of itself, have constituted an acceptance of the offer.
After all, the very point of the offer was to advance a
proposal that might not prove acceptable to SN's directors.
Retention of the deposit does not, therefore, disclose an
apparent consensus concerning the terms of the offer.
Rather, the matter remained in the realm of negotiations.
Next, the plaintiff contends that the delivery of the draft
lease on 1st November manifests an intention to accept the 15
October offer. This cannot be right.
First, as HBT’s solicitors explicitly recognised in
their 16 November letter, this draft did not conform, in
material respects, with the offer. So it cannot have
constituted an effective acceptance of it.
Secondly, Mr Frost's covering email made it plain that the
Draft, which he said in the email he had not read, was being
forwarded merely for consideration. In context, obviously the
draft was not offered - by Mr Frost let alone by someone with
authority to bind SN to an enforceable agreement for lease -
as a proposal which, were it accepted, would thereby mature
into an enforceable contract for lease.
There is no conduct on SN's part - whether of Mr Frost or of
Mr Segganfreddo - manifesting acceptance of the 15th October
offer.
This conclusion means that the claim fails.
In any event, it was understood by all, and plain enough that
the parties did not intend to be finally bound before the
lease was executed.
Mr Frost had said as much to Mr Sinclair on 4th October;
and Mr Sinclair was content to proceed on that basis.
Mr Frost's evidence is generally preferable to that of
Mr Sinclair and Mr Beveridge. His memory is not only more
detailed but is, I am satisfied, more reliable. In
particular, his account of the conversation on 4th October is
to be preferred to evidence of Mr Sinclair on the topic.
In short, Mr Frost did not shake hands with Mr Sinclair
saying, in effect, that there was a deal; and it is also more
probable than not that Mr Frost clearly conveyed to
Mr Sinclair that no agreement for lease was to be taken as
made until the lease itself was duly executed.
Mr Frost testified, and I accept, that he told Mr Sinclair
that their negotiations were "subject to lease", that he did not have the authority to make agreements on behalf of the owner, that "it's got to be in black and white signed - a signed lease before anything can happen", and that Mr Sinclair
responded by indicating that he had no problem with that.
Other considerations point in the same direction.
By the "deposit" provision of the offer, the proposed Lessee
is free to withdraw from the offer at any stage before the
lease is signed, and for any reason. In that event, the
extent of the offeror's liability is limited to the $5,000 to be forfeited "for costs" that the prospective Lessor might incur in having the lease prepared.
Then there is the solicitor's letter of 16 November seeking
permission for HBT to carry out work on the premises. Yet by
this time, on HBT's case, it had been Lessee of the premises,
entitled to exclusive possession, for more than three weeks.
It is true that Mr Sinclair and Mr Beveridge put in place
arrangements for work to be done on the premises before the
lease was signed. But Mr Frost is not shown to have known
that. And when he heard from Mr Beveridge that Mr Sinclair was
arranging tradesmen to do work, he insisted that that be
stopped because no lease had been concluded.
These parties intended that they would be bound to the terms
of the lease when they executed the lease document, and not
before, which is another reason for concluding that HBT's
claim must be dismissed.
SN accepts that, in such circumstances, its counterclaim for
rescission for misrepresentation may as well be dismissed too.
I will hear the parties with respect to the forms of order.
...
HIS HONOUR: Order that the plaintiff's claim be dismissed.
...
HIS HONOUR: Order that the defendant's counterclaim be
dismissed.
...
HIS HONOUR: Order that the plaintiff pay 90 per cent of the
defendant's costs of, and incidental to, the claim to be
assessed.
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