Insearch Ltd v Kin Hing P/L

[2003] NSWSC 875

CITATION:	INSEARCH LTD v. KIN HING P/L & ORS [2003] NSWSC 875
HEARING DATE(S):	15 & 16/09/2003
JUDGMENT DATE:	26 September 2003
JURISDICTION:	EQUITY
JUDGMENT OF:	Bryson J at 1
DECISION:	Judgment for defendants
CATCHWORDS:	LANDLORD and TENANT - agreement to lease - formation of agreement - correspondence marked "Subject to Lease" and expressing conditions for binding effect requiring execution of formal lease - held no agreement for lease formed, no estoppel or other alleged causes of action
LEGISLATION CITED:	Real Property Act 1900 s.42 Trade Practices Act s.52
CASES CITED:	Baulkham Hills Private Hospital Pty Ltd v. GR Securities Pty Ltd (1986) 40 NSWLR 622 Expectation Pty Ltd v. Pinnacle VRB Ltd [2002] WASCA 160 MacKay v. Dick (1881) 6 App Cas 251 Pentagold Investments Pty Ltd. v. Romanos [2001] NSWCA 425
PARTIES :	Insearch Limited - Plaintiff Kin Hing Pty Ltd and Ford Hing Pty Ltd - First Defendants Shop Distributive and Allied Employees' Association New South Wales Branch - Second Defendant
FILE NUMBER(S):	SC 4239/2003
COUNSEL:	R. Harper - Plaintiff D. Raphael - First Defendants G. Blake SC - Second Defendant
SOLICITORS:	Deacons Lawyers - Plaintiff Mok & Associates - First Defendants Holman Webb Lawyers - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

Friday 26 September 2003

4239/2003 INSEARCH LIMITED v. KIN HING PTY LTD, FORD HING PTY LTD & SHOP DISTRIBUTIVE AND ALLIED EMPLOYEES’ ASSOCIATION

JUDGMENT

1 HIS HONOUR: These proceedings relate to leasing commercial premises at Level 3, Prince Centre, 8 Quay Street, Haymarket. Level 3 is the stratum in Folio Identifier 155/SP 34481. By lease dated 9 February 1999 the first and second defendants referred to as Kin Hing, who were then registered proprietors granted Insearch a lease now registered 5587858C of Level 3 for a term of five years commencing on 8 November 1998 and expiring on 7 November 2003, with an option to renew for a period of five years set out in cl.20 in these words:

20. Option
20.1 The Lessee has the option to take a renewed lease of the premises for a further term of the period of time set out in Item 17 of the Schedule (the “Option Term”) from the explanation of the term of this Lease. The Lessee can exercise the option only if:
20.1.1 the Lessee gives to the Lessor a written notice of exercise to option not less than six (6) months and not more than twelve (12) months prior to the expiration of the term of this Lease; and
20.1.2 there has been no breaches of any of the covenants on the part of the Lessee contained in this Lease during the term of the Lease.
20.2 The Lessor shall at the cost of the Lessee grant to the Lessee a Lease of the premises subject to the same covenants and conditions as are contained in this Lease except that:
20.2.1 the commencement date shall be the day following the expiration of the term of this Lease:
20.2.2 the annual rental for the first year of the term of the renewed Lease, being subject to such reviews as hereinbefore provided, shall be determined by the method set out in Item 18 of the Schedule:
20.2.3 the annual rent shall be reviewed at the anniversary of the date of the commencement of the renewed lease by the method set out in Item 19 of the Schedule; and
20.2.4 this Clause 20 for renewal shall be omitted from such renewed lease.

2 It will be seen that the option was required by cl.20 to be exercised on or before 7 May 2003. Item 18 in the Schedule referred to Method C in cl.19.2.3, which required review by agreement or if the parties could not agree determination by a valuer. Item 19 said “To be negotiated between the Lessor and the Lessee at the time of the exercise of the Option to Renew.” It is open to question whether cl.20 of the lease contained any effectual provision establishing what the annual rental was to be after the first year; and for this reason it is open to question whether the option, if exercised, was enforceable.

3 These proceedings were commenced on 8 August 2003, and were heard with expedition on 15 and 16 September 2003. Insearch’s claim is presented in a number of alternatives. The first claim was to the effect that an agreement for a new lease for a term of three years with a three year option was made by exchange of letters on 21 and 24 February 2003. In paras.6 to 17 of the Statement of Claim, it is alleged that Kin Hing had breached this agreement in several ways including by failing to prepare necessary documents to bring into existence a lease document for execution reflecting the agreement for lease.

4 It is then in paras.18 to 25 alleged that Kin Hing are estopped from denying the validity and effect of an agreement for lease such as was earlier alleged. The allegations are to the effect that the letter of 24 February 2003 constituted a representation that Kin Hing had entered into an agreement to lease the premises on the terms and conditions contained, and would prepare and deliver a written lease document for consideration and execution. It is then alleged (SC21) that a number of circumstances and events, particularly in the course of negotiations, had encouraged or created a reasonable expectation in Insearch that the agreement for lease was effective or would be made effective. Further allegations relating to estoppel allege that Insearch was induced to act to its detriment in that it did not take any step on or before 8 May 2003 to exercise the option.

5 In Statement of Claim paras.26 and 27 it is alleged that the lease and option contained implied terms obliging Kin Hing to act reasonably and do all things necessary to enable Insearch to receive the benefit of the option, and an obligation not to do anything which would deny Insearch the benefit of the option.

6 In Statement of Claim para.28 it is alleged that Kin Hing from February 2003 onwards held the property on trust; so far as can be understood the trust alluded to is a trust to carry out the arrangement recorded in the letters of 21 and 24 February.

7 Paragraphs 29 to 39 deal with the position of the second defendant, referred to as S.D.A.E.A.

8 Insearch purportedly exercised the option on 7 August 2003, outside the time for which cl.20 provides, and SDAEA is not prepared to treat that purported exercise as effectual. SDAEA contracted to purchase Level 3, and also five other lots in a different strata plan representing parking spaces, for $3.7m by a contract of sale in writing exchanged on 16 April 2003. The sale was completed on 27 May 2003 and the transfer was registered on 29 May 2003. The property had earlier been offered for sale at auction on 7 March 2003, SDAEA was the only bidder and the property was not sold at auction. The allegations against SDAEA in the Statement of Claim were shortly to the effect that before exchange of contracts, and also before completion, SDAEA knew or ought to have known of the entitlements of Insearch earlier alleged in the Statement of Claim, took its interest in the property subject to equities in favour of Insearch and became bound by the alleged estoppels and equities; and is so estopped itself. It is also alleged (SC38) that the registration of SDAEA as proprietor of the property was affected by fraud within the meaning of s.42 of the Real Property Act 1900.

9 Insearch uses Level 3 for educational purposes, and conducts English courses for students with low levels of fluency and literacy in the English language, and also a Diploma Program at a computer laboratory on the premises. The premises were fitted out by Insearch with 10 class rooms, three computer laboratories and a language laboratory and as well as the fixtures comprising that fit out are equipped with computers, desks, chairs and office equipment necessary for Insearch’s purposes. The premises were especially designed and fitted out for Insearch’s purposes and the fit-out includes additional air-conditioning units, bathrooms and partitioning. On average about 250 to 270 people including employees and students use the premises at any one time while Insearch classes are being held. The students pay fees to Insearch. Insearch maintains that it has the right to remain in the premises after 7 November 2003. If required to re-locate it will come under the need to find another suitable site and design and equip that site for the purposes for which it now uses the subject premises. This will involve considerable work in the fit-out and expense which Insearch’s architects have estimated to be approximately $925,000.

10 The principal sources of evidence in Insearch’s case were Mr Michael Nugara who is Insearch’s Property Administration Manager, and Ms Joanne Farmer, a chartered surveyor employed by GVA Grimley International Property Advisors, which has been advisor to Insearch and has conducted some of its business relating to the lease.

11 Early in November 2002 Mr Nugara gave Mr Stewart Allison, a director of GVA Grimley, oral instructions that Insearch would like to hold over, and that Insearch had an option which needed to be exercised by 7 May 2003 but wanted to negotiate a new lease of three years plus three years instead of exercising the option. He said that if agreement could not be reached on a lease of three years plus three years he would like to exercise the option. He authorised GVA Grimley to negotiate with the landlord. Mr Allison agreed, accepted this retainer and instructed Ms Farmer to assist him in negotiating a new lease.

12 On 19 November 2002 Ms Farmer wrote to Kin Hing in care of BP Woodward & Associates, Real Estate Agent, who were then associated with Kin Hing; she said that Insearch was seeking to discuss the possibility of renegotiating the lease and asked for discussion. Then on 19 December 2002 she sent a letter directed to Mr Dominic Li and Kin Hing and addressed to them in care of BP Woodward & Associates with a more formal proposal. This proposal was for a lease for three years to commence on 1 January 2003. The proposal had a number of aspects including these. There was to be no rent until 1 April 2003; that is to say, there was to be no rent for the first three months. The lease was to be for a term of three years to 31 December 2006 with an option of a further three years on three months’ notice. The lessee was to be entitled to terminate the lease on three months’ notice during the last two years of the first term. The rental was to be fixed for a three year term, and to be reviewed to market at exercise of the option. There was to be no guarantee provision. Each party was to bear their own legal costs incurred in the transaction but the lessee was to be responsible for stamp duty and registration costs.

13 The reference to there being no guarantee recurred to a matter which had been under negotiation in 1998. In the course of negotiation Insearch had asked that there be no guarantee provision and Kin Hing had insisted on a guarantee or security bond, provided for in cl.17 of Lease 5587858C and supported by a bank guarantee given by State Bank of New South Wales Ltd.

14 The letter of 19 December 2002 included some matters which appeared again in later correspondence from GVA Grimley between the parties. The letter was headed, in capital letters and with prominence.

SUBJECT TO LEASE

SUBJECT TO FULL CLIENT BOARD APPROVAL

The terms proposed included the following.

Lease Documentation : to be mutually agreed between parties but based upon the existing lease document

Miscellaneous … please note the foregoing is subject to: -

1. The full board approval of Insearch ltd

2. Negotiation of lease documentation acceptable to our client and their solicitors

3. Until formal lease documentation is executed our client will not be legally bound to proceed with leasing the premises.

15 The initiative taken by the letter of 19 December 2002 did not proceed. Mr Dominic Li of B.P. Woodward & Associates died at about this time. In any event Kin Hing were not prepared to accept its terms.

16 On 20 January 2003 Messrs Mok & Associates, solicitors wrote to GVA Grimley. In the letter Mok & Associates said “We act for Kin Hing Pty Ltd and Ford Hing Pty Ltd …” and went on to refer to the letter of 19 December 2002. Mr Mok in fact had authority from Kin Hing, communicated to him by Mr Kin Hang Chow and much later ratified by Directors’ resolutions, to negotiate with Insearch in respect of exercise of the option and any new lease in substitution. The authority given to him was to negotiate and when he thought there was a good deal, to tell the principals of Kin Hing and they would make a decision. Mr Mok reported to Mr Chow during the negotiations, and was specifically told that there must be a bank guarantee. Mr Mok did not specifically tell representatives of Insearch that his authority was limited and that he had to refer to the principals of Kin Hing to make a decision. On the other hand, he did not ever say that he was fully empowered, and on the face of things, in the absence of an explanation, it should not be taken either from the terms of his correspondence or from the authority usually possessed by a solicitor conducting the commercial negotiation, that he was empowered to make a binding agreement on behalf of his clients, or that they held him out as so being. There is no indication in the evidence that Kin Hing ever held Mr Mok out as fully empowered to make a binding agreement on their behalf. As will appear later, in my understanding of his communications he did not ever purport to make a binding agreement on their behalf.

17 In his letter of 20 January 2003, after referring to the letter of 19 December 2002 addressed to Mr Li, Mr Mok referred to the terms of cl.20 of the registered lease and the requirement for notice of exercise of option and said to the effect that the letter of 19 December 2002 could not be construed as a proper notice to exercise the option, and that it had been treated as an offer subject to contract for a new lease to take effect on condition that the existing lease was surrendered or terminated by mutual consent. He then said:

Given the context of your letter and our view as stated above, we are instructed to inform you that our client is not presently interested in entering into negotiation with Insearch Ltd regarding the terms of the new lease. Should Insearch Ltd wish to make any offer regarding the terms of the lease after its expiration on 7 November 2003 we shall be pleased if you can write to us again and we shall take instructions from our client.
However, if Insearch Ltd wishes to exercise the option to renew the lease, you may advise Insearch Ltd to give our client a written notice in accordance with the lease and we shall prepare the option lease for execution by Insearch Ltd accordingly.

That is to say, Mr Mok pointed out, in specific terms, that Insearch had the opportunity to exercise the option and that if Insearch did Kin Hing would comply.

18 This was the last occasion on which, at any time until after the date for exercise of option had passed, there was any express reference to the option or to the possibility of its exercise in the written communications between the parties. After 20 January 2003 there was no statement to Mr Mok or to Kin Hing to the effect that Insearch would or might exercise the option, or that exercise of the option was under consideration, and there was no indication that consideration of exercise of the option was being deferred because negotiations to a different end were being undertaken. There was no more than passing reference to the option on the occasion of a site meeting when proposed Lessors’ works were under discussion.

19 On 6 February 2003 there was a meeting on site attended by Mr Mok and the principals of Kin Hing, Messrs Chow, who do not speak English and could communicate only with Mr Mok in Cantonese. Ms Farmer and Mr Ma also attended. There was discussion about works which Insearch wished or required Kin Hing to carry out, particularly on the toilets. In my understanding the requirement was made irrespective of the form which Insearch’s continuing right to occupy the premises might take, which was not the subject under discussion that day. Insearch was to continue in occupation at least until November even if there was no further lease, and might continue longer according to whether the option was exercised or a new lease was agreed to. Ms Farmer noted as the outcome of this meeting “Edwin [Mok] & clients don’t see the need for much work in the toilets. They will investigate the leaks. They will tile the balcony but only in return for an exercise of the 5 year option or on signing a new three plus three lease. With no break option.”

20 On 19 February 2003 Ms Farmer spoke to Mr Nugara and noted “Given they are exercising the option to remain on L2. They may as well seek a three plus three proposal on L3 and take it from there.” (L2 is a different property, not leased from Kin Hing).

21 On 19 February 2003 Ms Farmer sent Mr Mok a fax message saying “Following our recent meeting onsite at the above premises, I write to request a financial proposal on a new three plus three year lease to my client … the new lease would be without a break option but with some Lessors works as per previous discussions included. Following a receipt of your proposal, Insearch will be in a position to confirm their intentions for the above premises. I look forward to receiving a proposal shortly.” This message bore the heading:

SUBJECT TO LEASE

SUBJECT TO FULL CLIENT BOARD APPROVAL.

22 Mr Mok responded on 19 February by telephone and asked what the other terms of the lease would be. Ms Farmer said to the effect that the existing lease wasn’t a bad start for the new one subject to some minor amendments which she might be seeking. There was also discussion about rent and about performing some works, but the works were not defined.

23 Then on 19 February Mr Mok sent a letter to GVA Grimley saying:

Re: Lease of Level 3, 8 Quay Street to Insearch Ltd

We refer to the above matter, and in particular, your facsimile correspondence dated 19 February 2003 regarding a new 3 + 3 year lease.

We advise that our client agrees to the following conditions in regards to the proposed lease:

1. The 3+3 lease will commence 8 November 2003
2. There will be no rent-free period
3. The annual rent will be $253,500 plus GST
4. Rent may be reviewed and increases as per annual CPI increases.
5. A security of bond $110,000 will be required
6. The lessee is to pay our legal costs, limited to $2,500 plus GST.
7. The lessor will undertake resurfacing of the balcony area, and replacement of some ceiling tiles. (in female toilet(added handwritten note)
8. The lessee will undertake the payment of outgoings.

If these conditions are suitable to your client, please submit your proposed Lease agreement for the new 3 + 3 lease.

We look forward to hearing from you.

24 This letter did not express agreement to any standing proposal from Insearch. The position it took about the date of commencement of the lease was different from the position GVA Grimley had taken on 19 December. Also different from the positions which Insearch had taken to that date were the requirement that there be no rent free period, the requirement for a security bond and the requirement for the lessee to pay legal costs. The request that GVA Grimley submit their proposed lease agreement appears to have been a reflection of indications from Insearch which were less than precise; there was a need for definition of the lessors’ works required, and it was reasonable to ask GVA Grimley to state how a proposed lease based on the existing lease document should differ from it.

25 GVA Grimley and Insearch did not respond to the letter of 19 February 2003 with an indication of agreement. Ms Farmer sent Mr Mok a further letter dated 21 February 2003 addressed to Kin Hing, with some general similarities to the letter of 19 December; this letter had the same prominent heading, the same reservations under “Miscellaneous”, and under Lease Documentation said “To be mutually agreed between the parties but based on the existing lease document. The Lessee would like to see some amendments to the make good provisions.” The proposal was for a lease of three years commencing on 8 November 2003, an option to renew for three years on three months’ notice, the lessor was to upgrade the toilet facilities and raise the height of the balcony; there was to be no performance bond and each party was to bear its own legal costs. The letter concluded by enclosing some photographs as a further indication of what the lessee required for lessors’ works, and called for further discussion.

26 This letter could not be seen as acceptance of or concurrence with the position taken by Mr Mok on 19 February. In my opinion this letter was not an offer to enter into contractual relations capable of simple acceptance. The heading of the letter and Point 2 under Miscellaneous reinforced the clear intention not to be bound unless and until there was agreement on lease documentation. At several points the proposal was not sufficiently clear to be open to formation of an enforceable agreement by acceptance. Further at several points the letter made requirements which it had earlier been established did not accord with Kin Hing’s wishes; none of these were incidental or unimportant matters. Generally there was need for a definition of several points before the proposal could be seen as open for acceptance. More importantly, express reservations in the text of the document meant that it was not open to formation of a contract simply by acceptance.

27 Mr Mok replied by a letter of 24 February 2003 headed “Subject to lease.” After referring to the lease and the letter of 21 February he said:

We accept your proposed terms of three years plus three years, the commencement rental to be $253,500 per annum plus GST; accept the rental review to be CPI and we accept that the tenant is however to pay for the outgoings.

We are instructed to reply as to the other matters:
1. The bank guarantee is to be kept by our client
2. Lessee to pay for lessor’s legal cost up to $1,500 instead of $2,500.
3. The Lessor agree to clean the tiles, replace ceiling tiles an re-service the balcony area (please provide two quotations for lessor’s approval
4. The Lessor may consider the replacement of the vanity units and toilets and the replacement of tap ware (please provide two quotations for consideration).
5. Lessor will not agree to erect any balcony railing at this stage.

Please contact Edwin Mok on 9223 1500 to discuss further.

28 The heading of the letter shows that Mr Mok continued to communicate within the reservation which had been expressly created by GVA Grimley to the effect that the exchange of communications was “Subject to lease” which on the text of the letters of 19 December and 21 February can be understood to mean that execution of formal lease documentation was essential for a legally binding outcome. What Mr Mok said in the letter differed from the position taken up to that date by Insearch with respect to the need for a bank guarantee, payment by lessee of lessors’ costs, or part of them, and erection of a balcony railing, while other lessors’ works plainly required further consideration and definition. The express statement that the communication was subject to lease made it clear, to any reasonable reader of the letter, either alone or taken with the earlier communications, that the letter was not an acceptance of any earlier offer, and was not itself an offer open to contract formation by a simple acceptance.

29 The next relevant communication between the parties which might bear on contract formation came on 11 April 2003 when Ms Farmer sent a fax message to Mr Mok enclosing quotations for lessors’ works. She said “I look forward to discussing these in more detail with you in the near future.” She made no observation on outstanding points of difference in the negotiation, as to the bank guarantee, legal costs or otherwise, and did nothing to carry forward the definition of the terms of the lease which she was proposing.

30 There was no other communication bearing on the possibility of forming a new lease until after the period available for exercise of the option passed. Insearch knew, from January on, that Kin Hing wished to sell Level 3. This showed Insearch that the opportunity to negotiate a new lease with Kin Hing was only open until there was a sale, would probably close when contracts were exchanged and would certainly close when title was transferred. In these circumstances the absence of any reply to Mr Mok’s letter of 21 February until 11 April, and the absence of any comprehensive reply at any time to his letter, are remarkable. As Mr Mok said, the ball was in Ms Farmer’s court. It was not his obligation to keep it in play.

31 The next formal communication which I have observed was a letter dated 27 May from Mok & Associates on behalf of Kin Hing directed to Insearch in the nature of a Notice of Attornment; this letter was presumably handed to SDAEA’s solicitors on settlement of the sale on 27 May 2003 and directed payment of the rent to SDAEA or as it directed.

32 By 19 May Ms Farmer was aware that SDAEA had entered into an agreement to purchase Level 3 and sent a message to Tony Anderson of Laing & Simmons, real estate agents who acted in the interest of SDAEA. She said among other things “I look forward to discussing the lease renewal at the above premises with you in the near future.” She sent an email message to Mr Nugara forwarding copy of her message to Mr Anderson and commenting that Laing & Simmons were to be the new property managers. She commented on what SDAEA had known about Insearch’s position and said:

[Mr Anderson] is going to call me to discuss further after the sale is completed and he is back in Sydney.
One thing I should put you on notice of is that he seemed to think that Insearch was just exercising its option of five years, I pointed out this wasn’t the case and he said he would review the file, however, there could be an issue with basic contract law, offer an acceptance etc and what the previous landlords had agreed to etc etc – but I will let you know if anything ever comes of that or if they are willing to stand by the agreements already in place.

33 There were further communications but it soon emerged that SDAEA was not prepared to enter into any new agreement for lease, did not regard Insearch as having exercised its option or as having made any agreement for lease with Kin Hing, and required possession at the expiry of the registered lease on 7 November. Thereafter Insearch attempted to come to agreement or obtain some acknowledgment of its alleged position from SDAEA, and made a purported exercise of its option on 7 August 2003; these proceedings were commenced on the following day.

34 A further body of evidence dealt with the knowledge which SDAEA had, or, in Insearch’s case, ought to have had of Insearch’s position. A notice advertising the auction and displayed on the front of the building, and press advertisements referred to there being “New Lease of three years plus three year option” or to that effect, and a press advertisement gave the name of Insearch as the lessee. Representatives of SDAEA saw this and made inquiries of representatives of Kin Hing about the state of their dealings with Insearch, and in reply were given copies of the letters of 21 and 24 February. The view was taken on behalf of SDAEA that these letters showed by their terms that no agreement for lease had been entered into. The contract for sale dated 16 April 2003 disclosed the registered lease, and also a licence agreement relating to the car spaces, and there were extensive acknowledgements in cl.46 that the purchaser knew the terms of the lease, and agreed to abide by the terms of the lease annexed to the contract including the terms of any leases entered into after the date of the contract on the part of the lessor. Clause 46.6 reserved to the vendor extensive liberties to continue to conduct dealings under its leases.

35 Shortly before the auction which took place on 7 March Mr Anderson representing SDAEA, who attended the auction, was again shown copies of the letters of 21 and 24 February by Kin Hing’s agents who said to the effect that Kin Hing was considering the matter but no deal had been done and the property was to be sold subject to the existing lease.

36 On any reasonable reading it should be understood that continuing communications arising out of the letter of 21 February remained subject to the same reservations as that letter unless and until it appeared that the reservations were withdrawn. When dealing in evidence with the requirement, expressed twice in the letter of 21 February 2003 for board approval of Insearch Pty Ltd, Mr Nugara said to the effect that approval would not in fact be given by the board, according to the way Insearch conducted its business, but would be given by the executive, whom I understand to be people in management positions to whom Mr Nugara reported, and he regarded approval by the executive of any agreement he reached as a formality. In my opinion this does not overcome the need, explicitly specified by GVA Grimley, for there to be full board approval of Insearch before any binding agreement could be taken to emerge. This was an express reservation, made by GVA Grimley in the interest of Insearch, and while I would suppose that Insearch could have waived it, there is no indication that it was ever waived, nor is there any indication of something which undoubtedly Insearch would have proved if it was the case, that there ever was full board approval for any particular proposal; Mr Nugara’s explanation strongly suggests there was not.

37 On behalf of Insearch it was contended, with extensive references to authority, that the question whether the parties entered into a binding agreement for lease by the exchange of letters in February 2003 was to be answered by the Court looking at the circumstances as a whole and objectively determining the intentions of the parties. It was submitted that the parties achieved a consensus on all the main terms for a three year lease with an option for a further three years and intended to be immediately bound. The situation was said to be one in the fourth category, associated with Masters v. Cameron and voiced by McLelland J in Baulkham Hills Private Hospital Pty Ltd v. GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627-628, where the parties were content to be bound immediately and exclusively by the terms which they had agreed upon while expecting to make a further contract in substitution for the first contract containing by consent additional terms. In support of this contention counsel referred to evidence of Mr Nugara and Ms Farmer in which they explained or attempted to explain, not to my mind in a way satisfactorily related to the actual terms of the communications, the states of their minds and their understanding whether a binding contract had been made. I have not accepted their statements in their evidence which seem, not uniformly to show their beliefs that a binding contract had been made, as in my view later communications, particularly communications from Ms Farmer in May 2003, show that it is extremely improbable that she then believed that Insearch had a binding and enforceable agreement for lease.

38 To my mind the terms of the written communications clearly show, in several ways, that an agreement had not been achieved. This is primarily shown by the fact that each side communicated in terms which referred to the communication being “subject to lease” which usually means and in this case was in fact spelt out to mean that the parties would not be legally bound until formal lease documentation was executed.

39 That the communications did not show an agreement for lease further appears from the significant loose ends on which no agreement had been reached. The requirement that there was to be no rent-free period had never been expressly acquiesced in by Insearch. The requirement that there be a security bond had never been expressly acquiesced in. The requirement that the lessee was to pay legal costs had never been expressly acquiesced in. No definition had been given to general statements to the effect that there were to be rent reviews and annual CPI increases; the terms of such arrangements cannot be taken to be established by any-well known common practices and there was a need for definition by reference to particular clauses before it could be seen what was been agreed upon. There was a need to define what works the lessors were to do, and agreement was outstanding as to their extent. There was a call from Mr Mok for discussion which had not been answered. When Ms Farmer responded on 11 April her response dealt only and not fully with the lessors’ works, and not with other outstanding matters. There was no further discussion. Attempts were made to show that Mr Mok deliberately evaded discussion; in my view it was not established that he deliberately evaded discussion, and the length of time which passed after his letter of 24 February, and the failure of Ms Farmer’s response on 11 April to deal with significant matters he had raised were not, to my mind, satisfactorily explained. It was quite open to Insearch to enter into discussion by messages as well as by telephone or on a face to face meeting. In fact Insearch left the matter without significant attention and without complete attention after Mr Mok had stated a negotiating position, subject to lease, on 24 February. Any ideas that Mr Mok deliberately played out the time available for Insearch to exercise its option, or that he beguiled Insearch into omitting to do so, would be completely wrong. Mr Mok was frank and clear in his letter of 20 January, unusually so, and he and Kin Hing had no obligation to assist or guide Insearch. The parties were each advised by expert persons, there was no element of a relationship of dependence or subordination on either side, and each was in a position to consider and protect its own commercial interests fully.

40 Counsel submitted alternatively that there a consensus was achieved which created immediately binding subsidiary obligations between the parties not to prevent satisfaction of the conditions outstanding in the negotiation and to make reasonable efforts to bring about satisfaction of the preconditions. That is to say, it was submitted that there was what I would call a process contract by which the parties bound themselves to proceed in negotiations in a particular way and not to depart from it. In my view there is no element whatever in the facts in evidence which would tend to show that the parties bound themselves in any such way. Mr Mok’s letter of 20 January 2003 established that Kin Hing gave no commitment to Insearch to proceed in any particular way or to grant a lease to Insearch in any other way than on due exercise of the option. The machinery for exercise of the option was carefully spelt out by Mr Mok in that letter. The letter, and the absence of any further reference in the well-considered written communications between the parties to exercising the option or preserving the opportunity to do so, exclude the view that there was any process contract or any implied obligation of Kin Hing to facilitate or keep open the opportunity for exercise of the option.

41 Counsel then developed submissions to the effect that there was a failure by Kin Hing and Mr Mok to provide a lease document for consideration and execution. There could only be such an obligation if a binding agreement for lease had first been reached; Mr Mok gave no commitment of any kind to provide a lease document and there was nothing in the facts which could bear out a suggestion or interpretation that communications had come to a halt pending his providing one. Counsel referred to Expectation Pty Ltd v. Pinnacle VRB Ltd [2002] WASCA 160 at [89] and to its reference to Australian case law associated with MacKay v. Dick (1881) 6 App Cas 251 relating to implied obligations to do all that is necessary to enable another contracting party to have the benefit of contract. Upon the facts and upon what I regard as the correct view that there was no agreement for lease, and no relevant agreement at all, there is no room for that principle to operate.

42 Insearch’s counsel’s submissions went on to deal with ways in which it was contended that SDAEA was bound by equitable obligations incurred by Kin Hing to Insearch. As there were, on my holdings, no such obligations there is no room for Insearch to succeed against SDAEA. SDAEA had actual notice of the terms of the two letters and made what in my view was a correct interpretation of them, that is that they did not show any agreement for lease. In any event, SDAEA is protected by s.42 of the Real Property Act 1900 as it had become the registered proprietor. A charge of fraud, not carried to particulars, was made against SDAEA in the Statement of Claim; in my view, this charge should not have been made as it was not carried to particulars in the Statement of Claim, and counsel was unable, at the hearing, to indicate any matter of fraud which underlay it. There is nothing in the facts which could in my opinion raise for consideration a claim that SDAEA was in some way bound to respect any rights in the nature of a leasehold of Insearch for any period after 7 November 2003. Although the submissions on this subject were extensive, they are in my opinion wholly disposed of by the holding that Kin Hing were not bound by any agreement, estoppel or equity arising in any way, with the consequence that there was no right by which SDAEA as purchaser could be bound.

43 There was a further development to the effect that the letter of 24 February 2003 should be construed as a representation by Kin Hing to Insearch that an agreement for lease had been entered into or that a sufficient consensus had been achieved between the parties to justify Insearch proceeding on the assumption that the parties’ relationship would be governed by the three year lease and not by the existing lease. In my view there is no reasonable basis for interpreting the facts as showing that there was any such consensus. The terms of the letters from both parties demonstrate clearly the pre-finality of the arrangement which they made. The letters could not, to a reasonable or indeed to a rational person, present a basis for thinking that either party had entered into a commitment upon which the other would be justified in acting. In the most clear and explicit way, commitment was postponed until the emergence of an executed lease. Nothing ever happened to show that this specification was departed from.

44 Insearch also presented contentions to the effect that the plaintiff was entitled to relief against forfeiture of the interest which it would have obtained had it exercised its option; and referred to the restatement of principles in Pentagold Investments Pty Ltd. v. Romanos [2001] NSWCA 425. In my view there is no element in the facts which could justify embarking on granting to the plaintiff relief in equity against the consequences of its not having exercised its option. Kin Hing did nothing to lead Insearch into the line of conduct which it took in not exercising the option, and it is not possible to perceive the events as the forfeiture of an equitable interest; the beginning and end of the event was that Insearch had an option on exercise of which it would have had an equitable interest, Mr Mok pointed out the opportunity to exercise it and the Kin Hing’s readiness to conform if it was exercised, and Insearch pursued another line of conduct, no doubt on the view that that would serve its interest, and did not exercise the option. There is no element of unconscionable conduct on the part of Kin Hing, nor is there any other element which could justify altering the ordinary consequences according to the terms of the Lease which follow the line of conduct which Insearch has taken. The intervention of the rights of SDAEA, which has not been implicated in any way in the circumstances, but is protected by s.42 of the Real Property Act, are a powerful, indeed insuperable obstacle to intervention by a court of equity to alter the rights of the parties.

45 It was further contended that Insearch was entitled to relief under the Trade Practices Act s.52. There is no substance in the contention that by the letter of 24 February 2003 that Kin Hing engaged in any conduct which was misleading or deceptive; quite to the contrary, the letter was explicit and clear as to there not then being circumstances in which either party was contractually bound. It should have been obvious to a reasonable observer that unless the negotiations were carried further and some result emerged, no rights would have been created. Indeed Insearch had repeatedly and as recently as 21 February expressly stated to that effect. This being so there was no room for a reasonable person to treat the letter of 24 February as conveying any assurance, or representation, or as indicating in a misleading and deceptive way that agreement had been reached or that there was any certainty or assurance that agreement would be reached. By making this claim Insearch has attempted to depart from understandings as to the basis on which negotiations proceeded which it had itself taken a major part in creating. It is a parody that Insearch should now assert that the conduct of Kin Hing has been misleading or deceptive.

46 In my opinion Insearch should not succeed on any of its claims.

47 Order: I give judgment for the defendants with costs.

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Last Modified: 09/26/2003