Ian Berry Services v Portfolio Leasing Australia No. DCCIV-98-544

[2000] SADC 145

IAN BERRY SERVICES PTY LTD V
PORTFOLIO LEASING AUSTRALIA LIMITED
[2000] SADC 145

Judge Bishop

Civil

Background

By written agreement (“the agreement”) commencing on 24 August 1993, Ian Berry Services Pty. Ltd. (“the plaintiff”) rented from Portfolio Leasing Australia Limited (“the defendant”) specified computer hardware and software equipment (“the equipment”) for an initial term of 48 months at monthly payments of $5395.00, upon terms and conditions set out in the agreement.  The agreement (exhibit P1) was signed by Mr. Ian Berry, the managing director of the plaintiff, and Mr. Eric van Beest, then the manager, customer services, of the defendant.  For the purpose of entering into the agreement, the defendant had purchased the equipment from Computer Management Centre Pty. Ltd. for $211,820, inclusive of installation (exhibit P10).

Crucial to the outcome of this litigation is clause 8 of the agreement, which provided:

“8.     RENEWAL.   After the expiration of the initial Term, this Agreement shall be automatically renewed pending one of the following events:-

(a)  Owner receives Renters written notice of cancellation ninety (90) days prior to the expiration of the Term of this Agreement.  In this event the rent payments shown above shall be due and payable in accordance with paragraph seven (7) up to the effective date of cancellation being the rent due date on or after the expiry of ninety (90) days from the date of receipt by the Owner of such notice of cancellation.  The Renter shall return the Equipment on or before such effective date of cancellation in accordance with paragraph twelve (12).

(b) Owner does not receive from the Renter any written notice of cancellation ninety (90) days prior to the expiration of th [sic] Term of this Agreement or Renter does not return Equipment in accordance with paragraph twelve (12) by the effective date of cancellation associated with valid notice of cancellation as provided for in paragraph eight (a) (8a) [sic].  In either of these events the Term of this Agreement shall immediately be renewed for a period equal to the lesser of the Initial Term or twelve (12) months.  The provisions of this paragraph eight (8) shall also apply after the expiration of each such period of renewal.”

(My emphasis.)

The initial term of the agreement expired on 23 August 1997.  For the purpose of clause 8 (a), written notice of cancellation of the agreement was required of the plaintiff on 26 May 1997.  Admittedly, such notice was here neither given nor received; nor was the equipment returned to the defendant in accordance with clause 12, as provided for in clause 8 (b).  (Pursuant to clause 12, the plaintiff was required to give the defendant ninety (90) days written notice that it was returning the equipment, “as specified in paragraph eight (8).”)

In Portfolio Leasing Australia v Nortel Australia Pty Ltd [1999] NSWCA 136 (19 March 1999), the New South Wales Court of Appeal upheld the validity of clause 8 against the contention that an additional rental provision in an agreement (“option to renew rental for a further 24 months at $880 per month”) rendered the agreement ambiguous. (That problem does not here arise, because there are no additional provisions in the agreement.) Putting aside that additional option to renew, Mason P. (with whom Sheller JA. agreed) remarked that the agreement gave effectively two choices to the renter:

“The renter could by resort to clause 8 give 90 days notice of cancellation, and provided the renter then returned the goods at the end of the term that was the end of the agreement.

Alternatively, the renter could do nothing in which event, in the opening words of clause 8, the agreement would be “automatically renewed” and that renewal would be at the rental stated in the box on page 1 [that is, the additional provision].”

Upon that construction of clause 8, the defendant here relies in contending that, because the plaintiff neither gave written notice of cancellation on or before 26 May 1997 nor returned the equipment on or before 23 August 1997, the agreement was automatically renewed for a further 12 months.

Against that background, I shall now relate what here occurred.

The conduct of the parties

The following account of events (with my emphasis) is founded upon my acceptance of the supportive evidence - primary that of Ms. Adrianne DeKuyer, Mr. Berry, their handwritten notes (mostly in exhibit P3) and the correspondence between the parties which was tendered in evidence (mostly in exhibit P2) - in preference, where conflict arose, to that of Mr. van Beest, who was the only witness called for the defendant.  Upon important factual issues, however, there was practically no conflict; nor was there any real challenge to the accuracy of the well maintained, generally contemporaneous handwritten notes of events kept by Ms. DeKuyer and Mr. Berry.  In his recollection of events, Mr. van Beest was clearly handicapped by a defective memory.

1. Ms. DeKuyer began working for the plaintiff in 1991.  Later she assumed the role of company secretary.  In relation to the agreement between the plaintiff and the defendant, her responsibility included ensuring that the monthly payments were made.  Her responsibility was also, “to diarise and keep an eye on the end of contract period, and then contact [the defendant] as to what our options were for the end of contract” (T17).

2. Having diarised the agreement for the 90 day period that was required for notification, on 21 April 1997 (about a month outside the 90 day period) Ms. DeKuyer telephoned the defendant in Sydney, “to find out what our options were at the end of the contract period” (T24).  She spoke with a man called “Ron” and asked, “what our options are, what happens at the end of that contract period” (T24).  She was told that, “we could continue renting, continue - extend the agreement as such or renew it, return the equipment or part equipment, or pay out” (T25).

   Of that conversation, Ms. DeKuyer made a contemporaneous handwritten note (T21-22), which is contained in exhibit P2 (at page 1) and states:

   “rang 21/4          Ph: 02 9929 6399

   Ron
      90 days prior to the expiration.
            We must advise them of:
               1.  continue renting (at possible lower rent);
               2.  return goods; or
               3.  get buyout figure price
            If don’t auto extended for 12 months.”

   (The third of those options was not an option included in the agreement, clause 22 of which expressly provided that, “Nothing herein contained in this Agreement nor previously purported shall confer on the Renter any right or property or interest in or to the Equipment.”)

   Ms. DeKuyer was uncertain whether her note regarding an ‘automatic extension’ was derived from having read the agreement (T27) or whether it might have come from the conversation (T87).  In her evidence (T88):

   “I believed that we had to contact Portfolio Leasing, 90 days prior to the expiration, and that there were options to be looked at prior to that, and if we didn’t enter into that, and contact Portfolio Leasing, then it would automatically extend for 12 months, but I believe we had made contact to find out what our options were.”

   Upon the third option (“get buyout price”), she said that there was discussed, “getting a buyout figure or even, like, on part of the equipment” (T89), by which (she agreed) the defendant would give the plaintiff a price at which to purchase the equipment (T26).

3. Immediately after that telephone conversation with “Ron”, Ms. DeKuyer faxed the defendant, confirming the plaintiff’s position.  At 3.15 p.m. on 21 April 1997, she wrote (exhibit P2, pages 2 and 3):

   ......... “Further to my telephone enquiry of this morning, I confirm that in accordance with the terms and conditions of the above agreement we are currently looking at our options as it expires in late July [sic], and request confirmation of the buy-out figure.”

1. Coincidentally, within the defendant on 21 April 1997 there was written an internal memorandum to Mr. van Beest from Mr. Mervyn [“Ron”?] Abrams (exhibit P6):

   “Eric,

   Agreement A2-15963-16

   Ian Berry Services

   Adrienne Klekyer [sic] rang re E.O.T. [end of term] options and payout figure

   It seems someone has already spoken to you on this one in October last year.

   Perhaps a phone call from you could bring new business???

   Mervyn ”

   During 1996 and 1997, Mr. van Beest’s responsibilities included supervising the collection of overdue accounts for the defendant.  Mr. Abrams and a Mr. Frank Robinson were fellow employees under his control (T206).

   That internal memorandum of 21 April 1997 was received by Mr. van Beest ‘quite possibly’ (he agreed) on or about that date (T191).  Upon the memorandum, he endorsed:

   “re-rent   12 x $2987  =

   purchase at $41,000  =   ”

   With that endorsement, he explained that he had calculated both 12 months re-rental and purchase of the equipment by the plaintiff at the end of the term, even though there was no right of purchase contained in the agreement (T191-198).

2. The defendant did not reply to the plaintiff’s letter of 21 April 1997 until 15 May 1997 at 9.57 a.m., probably because of workload, Mr. van Beest suggested (T201).  In his faxed letter of reply for the defendant (which was dated 13 May 1997, but was ‘re-sent’ on 15 May 1997), Mr. van Beest wrote, as Manager Customer Services, to Ms. DeKuyer:

   ......... “Further to your facsimile transmission, we advise the following end of term options.

   ·.. Re-rent for 12 months at $2,986.00 per month, or purchase at end of term for $38,000.00

   ......... If you are contemplating upgrading the equipment (wholly or part) please contact me to discuss this further.”

   After conferring with Mr. Berry, next day (at 4.05 p.m.) Ms. DeKuyer telephoned the defendant to speak with Mr. van Beest about those options and was told that, ‘he’ll call me back’ (T34).

3. The defendant not having replied to Ms. DeKuyer’s telephone call of 16 May 1997, on 20 May 1997 she telephoned again and spoke with Mr. van Beest at 12.05 p.m.  In her evidence (T41),

   ......... “I recollect speaking with Mr. van Beest about just in general, about our options.  It was a brief conversation about looking at - at the lump sum, but also querying about ‘part equipment’ because that had been raised, and that was certainly something that we were interested in.”

   In her contemporaneous handwritten note of that conversation (recorded on the letter which she had received from the defendant on 15 May 1997), Ms. DeKuyer wrote (exhibit P2, page 4):

   ......... “rang again 20/5 12.05pm and advised we’d pay $3000 for it or will look at going for upgrade and they can have back equipment.”

   In the evidence of Ms. DeKuyer (which I accept), in their telephone conversation of 20 May 1997, Mr. van Beest said ( (T42),

   ......... “because I had stated that we thought it would be much less than their offer of 38,000, that I had said that we thought it would be much more like $3,000, and he said he would look into that and look into, I guess, our options, as to costings.”

   Contemporaneous confirmation of that indication was recorded by Ms. DeKuyer in her handwritten notes (exhibit P3) of that date:

   “He’ll look at $ options again.  (We could upgrade cheaper than that.)”

   Mr. van Beest could not recall that conversation, but conceded that it possibly occurred (T208).

   That was the last communication between the parties before 26 May 1997, which was the last day on which 90 days written notice of cancellation of the agreement could be given by the plaintiff, unless the agreement were automatically to be renewed for a further 12 months pursuant to clause 8 (b).

4. No response having been received from the defendant since 20 May 1997, on 2 June 1997 (at 3.30 p.m.) Ms. DeKuyer telephoned the defendant and spoke with Mr. Robinson, who told her that Mr. van Beest was away for three days and that he (Robinson) would chase it up (T43).

5. Next day, on 3 June 1997, the plaintiff received from the defendant a facsimile letter signed by Mr. Robinson on behalf of Mr. Abrams of the defendant’s asset management department.  In that ‘standard form’ letter (exhibit P2, page 5), the defendant wrote (in part),

   “Thank you for your recent advice of your intention to return the equipment under the above agreement.

   We advise that your rentals will continue up to and including 24th July 1997 after which the equipment is to be returned to our agent [in New South Wales] no later than 24th August 1997.”

   Somewhat inconsistently with that letter (but confirmatory of the position which Mr. van Beest had indicated to Ms. DeKuyer on 20 May 1997), in a footnote to the letter was typed the following sentence:

   “Your query regarding the software component of the purchase price is being investigated and we will contact you shortly.”

   (That sentence also appears, in the handwriting of Mr. Robinson, on the internal memorandum which Mr. Abrams wrote to Mr. van Beest on 21 April 1997, below the handwritten calculations of Mr. van Beest for re-rental and purchase of the equipment which was the subject of the agreement.)

   With that letter, Mr. Robinson sent Ms. DeKuyer the handwritten note (exhibit P2, page 6):

   “Copy of letter posted today herewith.

   Will advise you further shortly re possible reduction in purchase price.”

   Mr. van Beest confirmed that, in regard to possible purchase prices, matters were referred to him (T215).

6. Not surprisingly, upon receipt of the defendant’s letter of 3 June 1997, Ms. DeKuyer that day telephoned Mr. Robinson and told him, “we had not cancelled, we wanted options” (handwritten notes in exhibit P3).  Mr. Robinson told her that the matter would have to await Mr. van Beest’s return from study leave to sort [it] out (T43; and exhibit P3).

7. Two days later, on 5 June 1997 (at 5 p.m.), Ms. DeKuyer faxed to the defendant, for the attention of Mr. van Beest, the following letter (exhibit P2, page 7):

   ......... “Further to your fax from Frank Robertson [sic] of 3rd June, I wish to dispute [sic] that we have not in fact notified your company of our intention to return the equipment as per the above agreement.

   I would point out that on 21st April, we simply made enquiries as to our options, and seven (7) weeks later are still waiting for those details.

   ......... You may recall, you replied by fax on 13th May [received on 15 May 1997] with a proposed new rental figure and a purchase price, of which I have questioned, pending your further advices.”

11.... On 10 June 1997, Mr. van Beest replied to the plaintiff with this facsimile transmission (exhibit P2, page 9):

......... “We refer to recent discussions and advise that the end of term purchase price has been reviewed with a proposed reduction to $33,000.00.  The amount includes all equipment consisting of hardware and software.”

By that letter, Mr. van Beest accepted (in evidence) that he was continuing discussion with the plaintiff about the end of term purchase, after the 90 day notification period had expired (T221).

1. On 12 June 1997, Ms. DeKuyer telephoned the defendant to speak with Mr. van Beest.  She left a message, but there was no reply (exhibit P3).  On that same day she also wrote to Mr. van Beest (exhibit P2, page 10).  She thanked him for his fax of 10 June and requested a breakdown,

   ......... “indicating what the $33,000 is made up of as there are some items we no longer have use for  ....  and can be returned to you, whilst others have been modified ....

   We consider that the commercial value of the items that are still of use to us is no more than $5,500 and are therefore prepared to offer to you $5,500 as an end of term purchase price.

   ......... On receipt of your acceptance we will arrange payment.”

13.... No reply having been received to the plaintiff’s letter of 12 June 1997, Ms. De Kuyer wrote again to Mr. van Beest on 7 July 1997 (exhibit P2, page 11), enclosed a copy of her earlier letter and concluded,

“As our agreement ends on 24th July [sic], I await your advices.”

She wrote to him again on 21 July 1997 (exhibit P2, page 13),

“Further to my letters of 12th June and 7th July, I wish to advise that we have not received a response from your office.

I await your advices.”

From about the middle of 1997, many of the customer services duties within the defendant were taken over from Mr. Van Beest by Mr. Robinson (T169).

1. For the defendant, Mr. van Beest eventually replied to the plaintiff in an undated letter which Ms. DeKuyer received at 7 a.m. on 24 July 1997.  In that letter (exhibit P2, page 14), Mr. van Beest said that, “the equipment pricing can not be broken down and is offered at the price in total.”  He concluded,

   ......... “The offer you have made is considered far too low however we will reduce our end of term figure to $27500.00.”

   To that letter, the plaintiff replied on 12 August 1997 (exhibit P2, page 15) and, in a final attempt to resolve the matter, offered $10,000 in full settlement and enclosed a cheque in that amount.

   Mr. Van Beest could not explain the delay in his replying to the plaintiff’s letter of 12 June 1997 (T226-227).  However, he accepted that, in his undated reply, he was still addressing the plaintiff’s offer to purchase the equipment (T229).  He also accepted that he was still then content to continue negotiating a sale, and that he had not communicated to the plaintiff any intention of the defendant to renew the agreement on 24 August 1997 (T232).

2. On 27 August 1997 (four days after the expiration of the initial term of the agreement), the defendant’s collection department wrote to the plaintiff about an amount of $5395 overdue in respect of the agreement (exhibit P2, page 17), the last payment in that amount having been posted by the plaintiff to the defendant on 29 July 1997 (exhibit P2, page 12).  Ms. DeKuyer faxed the defendant in reply on 1 September 1997.  She said that July was the final instalment and referred to her letter of 12 August 1997 (exhibit P3).

3. On 5 September 1997, Ms. DeKuyer spoke on the telephone with Mr. Robinson.  He told her that the plaintiff’s cheque for $10,000 had not been banked “and that the matter went to their board and was rejected” (exhibit P3).  She asked for a written response on the matter.

4. On 12 September 1997, Ms. DeKuyer received from Mr. Robinson the defendant’s letter of 5 September 1997, which referred to the plaintiff’s offer of $10,000 on 12 August 1997, advised that the offer had been declined and returned the plaintiff’s cheque, which was dated 13 August 1997.  To that letter, Ms. DeKuyer replied on 22 September 1997 (exhibit P2, page 22), referred to the apparent “stalemate as you are not prepared to accept back part of the equipment”, nor the plaintiff’s offer, and concluded,

   ......... “As we are endeavouring to settle this matter, I would appreciate your further advices.”

18.... On 16 October 1997, Ms. DeKuyer received from Mr. Robinson the defendant’s letter of 13 October 1997 (exhibit P2, page 23), which informed the plaintiff that,

......... “Your agreement has now renewed and has a current end of term date of 24th August 1998.

Your options now include purchasing the equipment including paying out the end of term balance of the agreement, or returning the equipment provided ninety days written notice is received by Portfolio Leasing Australia prior to the end of the current term.

......... Alternatively should you wish to acquire new equipment or upgrade this equipment and we are able to assist (subject to credit approval) with a new agreement then we may be able to offer some variations to the above details and options.  Please contact me if we can assist you further.”

To that letter, Ms. DeKuyer replied on 20 October 1997, regretting “that it does not address the issues I have raised” (exhibit P2, page 24).  She continued,

......... “We have been trying to communicate with your office since 21st April 1997 re the close of our four year agreement (ended 24th August 1997) and despite four months of letters and phone calls (many of which have not been returned), you advise that the contract has now been extended.

We do not require a further 12 mth lease, what we have been trying to achieve is settlement of the agreement and would appreciate your efforts in achieving this aim.

......... A review of your current attitude and a genuine endeavour to settle this matter would be appreciated.”

19.... When the defendant’s next invoice of 27 October 1997 for $21,903.70 was received by the plaintiff on 3 November 1997, Ms. DeKuyer returned it with the endorsements (exhibit P2, page 25),

“   -  There is no extended agreement
              -  Please refer [to] my correspondence to Frank Robinson of
                  20/10/97              7/7/97            20/5/97
                  22/9/97              12/6/97              16/5/97
                    5/9/97               5/6/97            21/4/97.”
                    1/9/97               2/6/97
                  12/8/97
                  21/7/97

1. To Ms. DeKuyer’s further letter of 17 November 1997 to Mr. Robinson (exhibit P2, page 27), seeking a reply to her letter of 20 October 1997, she received another invoice dated 26 November 1997 for $27,622.40 (exhibit P2, page 28), which she returned with the endorsement:

   ......... “Please refer to Frank Robinson as there is no agreement in existence and you have been advised many times.       2/12   10 a.m.”

21.... Ms. DeKuyer wrote to the managing director of the defendant on 12 December 1997 (exhibit P2, page 30):

......... “Our rental agreement with your company (as above) expired on 23rd August 1997.  I originally contacted your company on 24th April 1997 [sic] to ascertain what our options were on expiry of the agreement and since that time I have been handballed between Eric van Beest and Frank Robinson, and are [sic] no closer to a resolution.

I ask for your assistance in this matter as a ridiculous thirty-four (34) weeks have now passed and we are still no closer to a solution.  And my last two letters of 20th October and 17th November have simply not been replied to, yet we continue to receive invoices with late payment charges for an agreement which we have never extended.

......... I would appreciate your early response.”

22.... To that letter of Ms. DeKuyer, Mr. Robinson replied on 7 January 1998 (exhibit P2, page 31) as manager - credit control of the defendant:

......... “A close examination of all correspondence relating to this matter shows that both options to either purchase the equipment for the designated price of $27,500.00 or return the equipment were extended to your company and that neither option was exercised by the end of term date of 24 August 1997.

Consequently the agreement has renewed until 24 August 1998 and the arrears now total $28,593.50 including $1,618.50 late charges.

......... Payment of these arrears are [sic] now required within seven (7) days of the date of this letter otherwise legal action will be commenced against the company and its guarantors.”

23.... The reason for which the plaintiff did not return the equipment to the defendant or its agent at the end of August 1997 was, as Mr. Berry said in evidence (T148),

......... “we were still waiting on what our options were to make an economic decision”.

......... He believed that the defendant had “waived” the options set out in the agreement, “by discussing and giving us the variation in prices” (T148).

1. On 13 February 1998, following a telephone conversation with Mr. Ian Watson, the managing director of the defendant, Mr. Berry wrote to Mr. Watson (exhibit P2, page 32) and, in a “genuine attempt to finalise the matter” enclosed the plaintiff’s cheque for $20,500 in full settlement, pointing out that the equipment was of very limited value.

   On 18 February 1998, Mr. van Beest replied (exhibit P2, page 33) to that letter of Mr. Berry, returned the plaintiff’s cheque and indicated that the defendant’s position had not changed.

2. After correspondence between the plaintiff’s solicitors and the defendant in 1998 (exhibits D5, D3, D6 and D4), on 22 April 1998 the plaintiff commenced this action against the defendant for a declaration that the agreement expired on 23 August 1997 and that, from that date, the plaintiff is not liable to make any rental payments to the defendant.  Second amendment of the statement of claim was filed on 4 March 2000.

3. On 30 September 1998, the defendant’s solicitors accepted the plaintiff’s offer to purchase the equipment for $13,000, whereupon that amount was paid (exhibit P5), Mr. van Beest having determined that $13,000 was then an appropriate price (T252).

4. From August 1996, the defendant’s business was managed by Unison Finance Group (T155).  In October 1998, the plaintiff’s Adelaide insurance broking business was sold to the Police Credit Union (T145).

5. On 23 September 1999, the defence of the defendant was filed, denying that the plaintiff is entitled to the relief sought.  On 6 November 1999, the defendant’s counterclaim was filed, seeking declarations that the agreement was renewed for a further term of 12 months commencing on 24 August 1997 and that the plaintiff is liable to pay the defendant the total amount of $112,267.86 (being $75,530.00 for rent due from August 1997 to September 1998 at the rate of $5395 per month and $36,637.86 for interest and service charges) together with further interest thereafter at the rate of $58.03 per day.

6. On 14 January 2000, the plaintiff filed a defence to the defendant’s counterclaim and again sought an order that the agreement terminated in August 1997.

The contentions of the parties

I do not propose here to recite the extensive submissions of counsel, which are contained in about 100 pages of transcript.  In essence, the plaintiff’s contention is that, from 21 April 1997, when Ms. DeKuyer telephoned the defendant and enquired of “Ron” about the plaintiff’s options under the agreement, the parties were engaged in negotiations about the prospect of the plaintiff purchasing all or part of the equipment; and that, because of those protracted negotiations, the defendant should be estopped from asserting that the agreement was automatically renewed pursuant to clause 8 (b) of the agreement.  The contention of the defendant is that the equipment was not returned by the plaintiff; that, pursuant to clause 8 (b), the agreement was automatically renewed; and that no conduct of the defendant, before the initial term expired, should be regarded as constituting an estoppel of the defendant from relying upon clause 8 (b) of the agreement.

Estoppel by conduct

The doctrine of estoppel by conduct (or, in more obscure language, in pais) is now well established.  To adopt the following passage from the judgment of Brennan J. (as he then was) in the seminal case of Waltons Stores (Interstate) Ltd v Maher and another (1988) 164 CLR 387, at 413,

“A party who induces another to make an assumption that a state of affairs exists, knowing or intending the other to act on that assumption, is estopped from asserting the existence of a different state of affairs as the foundation of their respective rights and liabilities if the other has acted in reliance on the assumption and would suffer detriment if the assumption were not adhered to: [authorities cited].”

That the underlying principle is the combination of detrimental reliance by the one party and unconscionable conduct by the other was also there recognized by Mason C.J. and Wilson J., at 404:

“equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has “played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it”: per Dixon J. in Grundt [(1937) 59 CLR 641, at 675]; see also Thompson [(1933) 49 CLR 507, at 547]. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.”

Waltons’ case was concerned with a situation where, although the parties were not in a pre-existing contractual relationship, the appellant was not entitled to stand by in silence when it must have known that the respondents were proceeding on the assumption that they were in a contractual relationship.  In those circumstances, the appellant was estopped from retreating from its implied promise to complete the contract (see Mason C.J. and Wilson J., at 406-408).

In the situation which here exists, where the parties were in a pre-existing contractual relationship, I have derived assistance from the much cited passage of Lord Cairns L.C. in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439, at 448:

“if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”
(My emphasis.)

The six-fold test of Brennan J. in Waltons’ case (supra), which was referred to by our Full Court in AB & SM Rawlings Pty Ltd v The Redder Than Red Tomato CompanyPty Ltd [1999] SASC 367 has also here been applied.

This case

In addition to the factual findings which have been made in relation to the conduct of the parties, upon all of the evidence I am also satisfied and find:

1. From when Ms. DeKuyer telephoned and spoke with “Ron” on 21 April 1997, the parties entered upon a course of negotiations as to whether all or some of the equipment, which was the subject of the agreement, would be sold to the plaintiff, even though that course was not available under the terms of the agreement.

2. Those negotiations were still continuing between the parties on 26 May 1997, which was the last day on which 90 days written notice of cancellation of the agreement could validly be given by the plaintiff, unless the agreement were automatically to be renewed for a further 12 months pursuant to clause 8 (b).

3. Because those negotiations were still continuing on 26 May 1997, the plaintiff then reasonably assumed or expected that the ‘automatic renewal’ provision of clause 8 (b) would not be enforced or would be held in abeyance.

4. In reliance upon that assumption or expectation, the plaintiff then abstained from giving the 90 days written notice required, either to cancel the agreement or return the equipment, and continued in negotiations with the defendant.

5. By entering into and continuing in those negotiations, the defendant actively induced the plaintiff to adopt the assumption or expectation that the ‘automatic renewal’ provision of clause 8 (b) would not be enforced or would be held in abeyance.

6. Inferentially, the defendant knew that the plaintiff would act upon that assumption or expectation and abstain from giving the required notice.

7. The plaintiff’s inaction in not giving the required notice will occasion detriment to the plaintiff, unless the assumption or expectation is fulfilled, that detriment being the payments required upon automatic renewal of the agreement.

8. By not fulfilling the plaintiff’s reasonable assumption or expectation that the ‘automatic renewal’ provision of clause 8 (b) would not be enforced while the negotiations were still continuing, the defendant failed to act to avoid that detriment.

   From the course of negotiations which here took place between the parties from 21 April 1997 (though with gross lassitude on the defendant’s part), clearly those negotiations were still ongoing, from the plaintiff’s reasonable point of view, when the initial term of the agreement expired on 23 August 1997.  The defendant had then been in receipt of the plaintiff’s settlement offered $10,000 cheque for about nine days.  Only when Ms. DeKuyer spoke with Mr. Robinson on 5 September 1997 (13 days after the agreement had expired) was she told that the plaintiff’s offer had been rejected.  The plaintiff’s cheque was not returned until 12 September 1997, 20 days after the agreement had expired.

   In view of the inconclusive negotiations, which were still continuing between the parties when the agreement expired, upon the findings which have been made, in my judgment it would be quite inequitable or unconscionable to permit the defendant here to rely upon a strict application of clause 8 (b) of the agreement.  For these reasons, declarations will be made

   ·.. that the agreement has expired, and has not been renewed;

   ·.. that the plaintiff is not liable to pay the defendant any further rental pursuant to the agreement; and

   ·.. that the defendant is estopped from claiming any further rent.

The defendant’s counterclaim will be dismissed.  The plaintiff’s costs upon the claim and counterclaim are to be paid by the defendant.