Jiwunda v Trustees of the Travel Compensation Fund

[2006] NSWSC 741

CITATION:	Jiwunda & Anor v. Trustees of the Travel Compensation Fund [2006] NSWSC 741
HEARING DATE(S):	27 to 30 June 2006
JUDGMENT DATE :	24 July 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Plaintiffs entitled to declarations and damages as sought.
CATCHWORDS:	REAL PROPERTY – LEASE – OPTION – OFFER AND ACCEPTANCE – Whether oral agreement to extend option to renew lease had been made – whether agreement resulted in an offer and acceptance of new lease – whether offer and acceptance analysis appropriate. - AGENCY – OSTENSIBLE AUTHORITY – Whether CEO had ostensible authority to accept offer of new lease. - STATUTE OF FRAUDS – “THEREUNTO LAWFULLY AUTHORISED” – Whether authority of agent to sign Memorandum of Agreement required by s.54A Conveyancing Act must be actual authority or may be ostensible authority. - DAMAGES – MITIGATION – Whether Plaintiffs had failed to take reasonable steps to mitigate losses.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) – s.54A
CASES CITED:	- Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 - British Westinghouse Electric Company Ltd v Underground Electric Railways Company Ltd [1912] AC 673 - Denton v Great Northern Railway Co (1856) 5 E&B 860; 119 ER 701 - Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 - Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 - Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 - Jones v Dunkel (1959) 101 CLR 298 - McCaul (Aust) Pty Ltd, Gilbert J. v Pitt Club Ltd (1957) 59 SR(NSW) 122 - Maclean v Dunn (1828) 4 Bing 722; 130 ER 947 - New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd [1975] AC 154 - Paull v Williams [2006] ANZ ConvR 132 - Wilkie v London Passenger Transport Board [1947] 1 All ER 258 Bowstead on Agency (17th Ed), Art. 74 “The Statue of Frauds, Section IV”, James Williams, Cambridge University Press (1932), 102
PARTIES:	Jiwunda Pty Ltd – First Plaintiff Terabu Pty Ltd – Second Plaintiff The Trustees of the Travel Compensation Fund – Defendant
FILE NUMBER(S):	SC 2308/04
COUNSEL:	S.Y. Reuben – Plaintiffs Ms G.M. Preston – Defendant
SOLICITORS:	Pitcher Walton – Plaintiffs McCabe Terrill – Defendant

Introduction

1    The Plaintiffs are the owners of commercial premises at 303 Pitt Street, Sydney (“the Building”). The Defendants are the present trustees of a fund known as the Travel Compensation Fund. For the sake of convenience, I will refer to the Trustees of the Fund at all relevant times as “TCF”.

2    On 1 April 1996, TCF entered into a lease with the Plaintiffs of Suite 404 on level 4 of the Building (“the Premises”). The lease was for a term of five years, expiring on 31 March 2001. It contained an option for renewal for a further term of five years. The option had to be exercised by written notice given to the Plaintiffs not later than 1 January 2001.

3    TCF did not give notice to the Plaintiffs by 1 January 2001 that they desired to exercise the option.

4    On 12 March 2001, Mr Carlo Brattoni, who then held a position described as Chief Executive Officer of TCF, had a meeting with Mr Desmond Kong, a director of the Plaintiffs. The Plaintiffs’ case is that:

– at that meeting Mr Brattoni said that TCF wished to exercise the option to renew the lease despite the fact that the exercise period had expired and asked if the Plaintiffs would waive the time limit on exercise of the option for that purpose;

– Mr Kong agreed to waive the Plaintiffs’ right to rely on expiry of the option period and requested Mr Brattoni to put TCF’s position in writing;

– by letter dated 12 March 2001 on TCF letterhead, Mr Brattoni confirmed the agreement by the Plaintiffs to waive the notice period for exercise of the option and, on behalf of TCF, gave notice of the exercise of the option;

– the 12 March 2001 letter confirmed a prior oral agreement between the parties, or else created and evidenced an agreement between the parties, whereby the Plaintiffs would grant, and TCF would accept, a new lease for a further term of five years upon the terms of the existing lease, as if the option to renew had been duly and timeously exercised;

– as a result, a binding agreement for lease between the parties came into existence, for a term of five years commencing on 1 April 2001.

5    The Defendant’s case is that:

– at the meeting between Mr Kong and Mr Brattoni on 12 March 2001, Mr Brattoni said that:

TCF were investigating the possibility of moving to other premises because the conditions in the Plaintiffs’ Building were unsatisfactory;

TCF wanted to remain in the Premises on a monthly tenancy while their investigations continued;

if TCF desired to enter into a new lease with the Plaintiffs, they would exercise the option to renew if the Plaintiffs would waive the option notice period requirement;

– Mr Kong accepted this position on behalf of the Plaintiffs and agreed to waive the option notice period requirement;

– the terms of Mr Brattoni’s letter of 12 March 2001 are mistaken and do not reflect the agreement actually reached between Mr Kong and Mr Brattoni;

– if Mr Brattoni did make the agreement with Mr Kong in the terms alleged by the Plaintiffs, then Mr Brattoni had no authority, actual or ostensible, to bind TCF to such an agreement by the letter of 12 March 2001 or otherwise;

– if Mr Brattoni made the agreement as alleged and had authority to bind TCF in doing so, nevertheless the agreement cannot be enforced because it is not evidenced in writing in accordance with the requirements of s.54A Conveyancing Act 1919 (NSW).

6    On 29 December 2002, TCF vacated the Premises, claiming that there existed no more than a monthly tenancy. The Plaintiffs attempted to re-let the Premises and, ultimately, were only partly successful.

7    The Plaintiffs sue for damages for breach of the agreement for lease which they say was made on 12 March 2001. The damages comprise loss of rent for the remainder of the term of the lease the subject of the agreement, loss of contributions due under the lease, and the expenses of and incidental to finding a new tenant.

8    TCF say that if they are liable for damages at all, the Plaintiffs are not entitled to the amount claimed because they have failed to take reasonable steps to mitigate their loss in the way they went about trying to re-let the Premises.

9    By a Cross Claim, TCF claim the repayment of the security bond of $12,629 which has been retained by the Plaintiffs in part compensation for the losses which they allege have been occasioned by TCF’s breach of the alleged agreement for lease. It is clear that if TCF’s defence of the Plaintiffs’ claim fails, so also must the Cross Claim fail.

The issues

10    The issues may be summarised thus:

– what was said between Mr Kong and Mr Brattoni at their meeting on 12 March 2001;

– what was the effect, if any, of Mr Brattoni’s letter of 12 March 2001;

– did Mr Bratton have ostensible authority from TCF to send the 12 March letter so that TCF is bound by the legal consequences of the letter;

– if an agreement for lease was made, was it intended to be immediately binding and is it unenforceable for want of writing;

– if TCF are liable in damages for breach of an agreement for lease:

have the Plaintiffs failed to take reasonable steps to mitigate their loss;

what is the quantum, if any, of the damages recoverable by the Plaintiff;

– are the Plaintiffs liable to repay the security bonus.

What was said at the meeting of 12 March 2001

11    There are a number of relevant events and circumstances leading up to the critical discussion on 12 March 2001 between Mr Kong and Mr Brattoni.

12    By the time of a board meeting of TCF on 29 November 2000, Mr Brattoni and the Trustees were well aware that the lease of the Premises from the Plaintiffs would expire on 31 March 2001. There were a number of unsatisfactory aspects of the Premises – questions of security, cleaning and cooking odours from other premises – and the Trustees were actively considering whether to renew the lease with the Plaintiffs or to relocate TCF to other premises. According to Mr Brattoni, there was a divergence of opinion amongst the Trustees as to whether relocation was necessary or desirable.

13    At the meeting of 29 November 2000, Mr Brattoni was requested to investigate and report to the Board at the next meeting in February 2001 on the costs, advantages and disadvantages of relocation.

14    At TCF’s next board meeting on 7 February 2001, Mr Brattoni presented detailed information about the costs and implications of renewing the existing lease or relocating. In summary, Mr Brattoni’s information showed that the rent for suitable alternative premises was likely to be higher than the rent under the renewed lease and that relocation costs were estimated at $180,000.

15    At the board meeting, the Trustees made no decision other than that Mr Brattoni should report to the Management Committee of the Board with comparative costings for remaining at the Premises or relocating and that a staff representative should “provide feedback” to Mr Brattoni “as to the general work environment issues”.

16    It is against that background that one comes to consider what was said between Mr Kong and Mr Brattoni in their meeting on 12 March. There were no witnesses to that discussion. Neither Mr Kong nor Mr Brattoni made a contemporaneous file note of what was said. The only documentary evidence that is of any real assistance in determining what was said is a letter to the Plaintiffs written by TCF’s manager, Mr Rodney Moore, on 28 February 2001 requesting the meeting between Mr Kong and Mr Brattoni, the letter dated 12 March 2001 signed by Mr Brattoni and sent to the Plaintiffs on that day, and, to a lesser extent, a facsimile sent by Mr Kong to the leasing agent of the Building on 15 March 2001.

17    The competing versions of the discussion given by Mr Kong and Mr Brattoni are starkly different; which version is to be accepted is primarily a question of credit.

18    The meeting on 12 March came about as a result of a request by TCF. Mr Moore, on Mr Brattoni’s instruction, wrote to the Plaintiffs on 28 February 2001 in the following terms:

“Dear Sirs,

Premises at Level 4, 303 Pitt Street, Sydney


The lease of office space at Level 4 by Travel Compensation Fund (TCF) is due to expire on 31 March, 2001. The lease includes an option for renewal for a further period of five (5) years. TCF is looking to renew its tenancy in accordance with the terms of the lease and Mr Carlo Brattoni, Chief Executive Officer of TCF, would like to meet with you to discuss certain changes to the premises, as requested by the Trustees of TCF. Please will you contact Mr Brattoni’s Executive Assistant, Mrs Barbara Eldridge, to arrange a suitable date and time.

Yours faithfully
[signature]
Rodney Moore
Manager, Systems & Accounting”

19    Mr Kong says that, in response to this letter, on 12 March he went to see Mr Brattoni in his office. He says that the discussion was quite short. His version of the discussion, as set out in his affidavit, is as follows:

“Mr Brattoni said: ‘We want to exercise the option for renewal of the lease. Will you waive the notice period for the exercise of the option?’

Mr Kong said: ‘That is alright. We will agree to waive the notice period but you need to put it in writing.’”

He adhered closely to this account of the discussion in his oral evidence.

20    Mr Brattoni’s version of the conversation, as set out in his affidavit, is as follows:

“Mr Brattoni: ‘Desmond, nice to see you. We have to discuss what is going on with the TCF here in these premises. As you know the lease expires at the end of March and we should have exercised an option to enter into a new lease by the end of December. The Trustees have asked me to look at other premises which I am doing as the trustees and staff are not altogether very happy with this office location and the standard of the services. The security is not good due to the access on Saturday and after hours and the quality of the services is not good, particularly the standard of the toilets needs to be upgraded and changed and the kitchen also needs to be upgraded, the lifts are constantly breaking down and they need to be fixed so that they run properly and you have to do something about the smells from the food court because they annoy our staff in here. What would you be prepared to do to improve the quality of the premises and improve security so that we might consider staying?’

Mr Kong: ‘Your rent is very competitive for CBD and we wouldn’t spend very much by way of fixing up the services, but perhaps if you sign up a further lease we will be in a position to do further things.’

Mr Brattoni: ‘Well I don’t think the staff and trustees will be happy with that response. I have to take this matter back to them. In the meantime we will stay on in a monthly tenancy and then if we decide to take a formal lease, we will do so by giving you notice. I know we should have done that by the end of December, but do you mind extending the notice period so that if we decide to take a new lease we can do so as if we were exercising the option.’

Mr Kong: ‘We’d like you to stay and we’ll co-operate with you and we can make some small improvements, but we cannot spend a large amount of money because your rent is very cheap. We don’t mind extending the option notice period for a while and will allow you to stay here on a month by month basis until you make up your mind and either want to enter into a new lease or decide to go.’

Mr Brattoni: ‘Very well, I’ll report back to the Board and advise the staff that there are unlikely to be any major improvements in the level of services and security. In the meantime, if the trustees do decide to stay here and renew the lease will you agree to extend the notice period in the lease which has expired.’

Mr Kong: ‘That will be no problem. I will do that for you.’”

21    Shortly after the meeting terminated, Mr Brattoni says, he instructed Mr Moore to draft a letter to be sent to the Plaintiffs to confirm the result of his discussion with Mr Kong. He says in his affidavit evidence that he gave Mr Moore the following instruction:

“Mr Brattoni: ‘Rodney, I just had a meeting with Desmond and they’re not committing to making any decent improvements to the facilities. In the meantime though, it would be advantageous to get an extension of our present terms and conditions on a monthly tenancy. God knows how long the trustees will have me looking for new offices before they make a decision. If we end up staying here the existing terms are still reasonable. Desmond is keen to have us stay and so he is prepared to waive the notice period but in the meantime I have told him we will stay on monthly until we make the final decision.’

Mr Moore: ‘Well then I had best do a letter getting them to extend our notice period so that we can keep paying the same rent.’”

22    Mr Moore’s affidavit evidence as to the instructions given to him by Mr Brattoni on 12 March was:

“After this meeting I recall Mr Brattoni and I had a further conversation in which words to the following effect were said:–

Mr Brattoni: ‘Rodney, I’ve had a meeting with Desmond and I have made him aware that the Trustees need changes to these premises if we’re going to stay. They won’t agree to stay here and take up a new lease unless there is an upgrade to these premises. He understands and is going to get back to me. In the meantime, he has agreed to waive any notice period if we want to extend the option. Will you please write him a letter confirming our meeting.’

Mr Moore: ‘Okay.’”

23    Mr Moore drafted a letter to the Plaintiffs on TCF letterhead in the following terms:

“Dear Sirs,

Premises at Level 4, 303 Pitt Street, Sydney


We refer to our letter of 28 February, 2001 with respect to renewal of the lease of office space at Level 4 by Travel Compensation Fund (TCF), which is due to expire on 31 March, 2001. We confirm our discussions for renewal of the lease and thank you for your agreement to waive the notice period as set out in Schedule Five of the lease document.

We hereby give notice of TCF’s wish to renew the lease of the office premises for the further term of five years on the terms and conditions as set out in the existing lease and at the rental set out in Schedule Five of the lease. We acknowledge that GST will be payable on rentals effective from 1 April, 2001.

Yours faithfully
Carlo C Brattoni
Chief Executive Officer”

24    Mr Brattoni says that shortly after his instructions to Mr Moore on 12 March, Mr Moore came to his office and presented him with the letter to be sent to the Plaintiffs. Mr Brattoni says that he was about to leave the office and did not read the letter properly before he signed it. Mr Moore does not agree with this version of events, as I shall explain shortly.

25    It is clear that by 28 February 2001 Mr Brattoni was feeling more than a little frustrated by the apparent inability of the TCF Trustees to give him instructions as to whether to renew the Plaintiffs’ lease or to relocate. He and Mr Moore had, by that time, realised that the option notice period under the Plaintiffs’ lease had already expired so that TCF had no legal right to remain in the Premises after 31 March 2001, except on a monthly holding-over. Mr Brattoni and the Trustees’ Chairman had spent considerable time inspecting other premises but, according to Mr Brattoni, as at 28 February and as at 12 March he still did not know whether TCF was “coming or going”. Mr Brattoni says that about a day before he instructed Mr Moore to write to the Plaintiffs the letter of 28 February he had a discussion with Mr Moore in which he expressed in strong terms his frustration and his irritation with the Trustees’ failure to give clear instructions.

26    Mr Brattoni agrees that as at 28 February and 12 March 2001 he was conscious that TCF was in a difficult position. Their right to exercise the option to renew the lease with the Plaintiffs had expired and it was possible that the Trustees could decide not to relocate; in that event, the then current lease would come to an end on 31 March and TCF would have to negotiate with the Plaintiffs for a new lease rather than being able to insist on a renewed lease at a rental already stipulated; the Plaintiffs would be seeking current market rent, which could be higher than the rent stipulated in the renewed lease if the option had been duly exercised. Further, if TCF had to enter into a new lease they would be liable to pay GST whereas it was possible (subject to clarification from the Australian Taxation Office) that no GST would be payable if TCF entered into a renewed lease consequent upon the exercise of an option.

27    On the other hand, Mr Brattoni appreciated that if he went to Mr Kong and asked the Plaintiffs for an ex gratia extension of time for an indefinite period to exercise the option while informing Mr Kong that TCF may well not take up the option and may relocate, Mr Kong might have taken the attitude: why should the Plaintiffs ex gratia give TCF an option to renew at a rental fixed under the old lease if TCF may relocate in any event; if TCF decided to stay, they could come back to the Plaintiffs and negotiate with the Plaintiffs for a new lease at current market rental.

28    Mr Brattoni concedes that these considerations were in his mind at the time he went to see Mr Kong on 12 March. He says that it would have been “particularly galling” if TCF decided not to relocate, had to negotiate with the Plaintiffs for a new lease of the Premises, and ended up having to pay a higher rent than they would have had to pay if they had exercised the option under the existing lease.

29    It is clear, therefore, that when Mr Brattoni attended the 12 March meeting he had a motive for requesting Mr Kong for an extension of the option period without telling him that TCF were considering relocating and wanted only a monthly tenancy until it made up its mind whether or not to relocate.

30    I have come to the conclusion that Mr Kong’s account of the discussion with Mr Brattoni on 12 March 2001 should be accepted. My reasons are as follows.

31    Mr Kong was a careful and precise witness. Although his accent is heavy, his command of English is good and he had no difficulty in dealing with spoken and written communications between the parties regarding the lease or in giving his evidence. His credibility was attacked in cross examination on a number of subsidiary issues but I did not find his evidence improbable or evasive. His recollection of the meeting with Mr Brattoni appeared to be quite clear and his account of it was not shaken in cross examination. Doubtless, there was more said in the meeting than the very short statements by each person recounted by Mr Kong. However, Mr Kong is a man of few words whereas Mr Brattoni is not. It is in accordance with Mr Kong’s character, as I have observed it, that he would focus upon the essential matters discussed and would not trouble to recount Mr Brattoni’s statements which were peripheral to those essential matters.

32    Mr Kong said that he asked Mr Brattoni to confirm his position in writing: that is inherently probable, given the importance of the matter discussed. Mr Kong said that there had been no discussion about the Plaintiffs carrying out improvements to the Premises. It is significant that Mr Brattoni’s letter contains no reference to that topic, although it was foreshadowed in Mr Moore’s letter of 28 February 2001. In short, Mr Kong’s evidence of what Mr Brattoni said is consistent with what appears in Mr Brattoni’s letter of 12 March, which Mr Brattoni signed shortly after the discussion took place. According to Mr Kong, Mr Brattoni said that TCF wanted to exercise the option and, to that end, wanted an extension of the option period. That is exactly what Mr Brattoni’s letter of 12 March conveys.

33    On the other hand, as I have noted, there is conflict in the evidence of Mr Brattoni and Mr Moore as to how the 12 March letter came to be written and sent. In Mr Brattoni’s account of his discussion with Mr Kong, no one mentioned the desirability of confirming in writing what had just been agreed: matters were left on the footing that if TCF wanted to exercise the “extended option” they would put their position in writing. According to Mr Brattoni, sending the letter of 12 March was the suggestion of Mr Moore when Mr Brattoni reported to him the result of his discussion with Mr Kong.

34    Mr Moore, on the other hand, says that it was Mr Brattoni who instructed him to prepare the 12 March letter.

35    According to Mr Brattoni’s account of what happened after his discussion with Mr Kong, Mr Moore brought the letter to him just as he was about to leave the office for a luncheon appointment; Mr Moore asked him to sign the letter there and then and Mr Brattoni signed it after giving it the merest glance; he then gave the letter back to Mr Moore.

36    Mr Moore says that this version of events is not correct. He says that he prepared the letter on Mr Brattoni’s instructions, took it to Mr Brattoni’s office and, as Mr Brattoni was not there, left the letter on his desk for Mr Brattoni to approve and sign.

37    Mr Moore struck me as a careful witness who was frank about what he could not recollect and about what he could recollect. He was quite firm in his recollection that he did not give Mr Brattoni the letter, wait for him to sign it and then take it away. I prefer the evidence of Mr Moore that he was instructed to write the letter and that he left it on Mr Brattoni’s desk because it is consistent and clear and because the evidence of Mr Brattoni as to how he came to sign the letter is improbable.

38    The question whether to renew the existing lease or relocate was very important to TCF’s operations and had been much occupying Mr Brattoni’s time since November 2000. He had expended considerable effort in looking at possible alternative premises; he had worked out the cost of relocation, which was considerable.

39    Mr Brattoni is an accountant by training and says that he is usually careful in his business dealings. Given the significance of Mr Brattoni’s discussion with Mr Kong to TCF’s operations and the importance to TCF of making arrangements for its accommodation, it is improbable, in my opinion, that Mr Brattoni did not himself think of confirming TCF’s position in writing, as Mr Kong had requested, and that he did not bother take a few seconds to read through the 12 March letter before signing it.

40    Mr Brattoni says that he glanced at the letter. Even if this were so, a mere glance would have told him that there was no reference in the letter to a monthly tenancy and that the very first line of the second paragraph notified the exercise of the option. A mere glance would have been sufficient to alert him that the letter did more than just confirm that the option period had been extended.

41    I find it improbable that Mr Moore could have drafted the 12 March letter under a fundamental misconception of what Mr Brattoni had told him it should contain. Mr Moore gave an account of his recollection of those instructions in paragraph 18 of his 18 August 2005 affidavit but it was clear from his cross examination that his actual recollection of those instructions was very poor and was, in truth, conjecture on his part.

42    Significantly, it was put to Mr Moore that instead of being told by Mr Brattoni that Mr Kong “had agreed to waive any notice period if we want to extend the option”, as recounted in his affidavit, he was told rather that “Mr Kong has agreed to waive any notice period if we agree to exercise the option”. Mr Moore was unable to deny that Mr Brattoni said “exercise” rather than “extend”. If Mr Brattoni had said “exercise the option” rather than “extend the option”, then the terms of the 12 March letter would be correct in that they reflected such an instruction.

43    Mr Moore is a chartered accountant by profession and has spent some considerable time in practice. As I have noted, he struck me as careful and precise. He appreciated the distinction between the extension of an option and the exercise of an option – as, indeed, would anyone who had any experience in business affairs. He gave no rational explanation as to how the terms of the 12 March letter which he had drafted could differ so critically from the instructions he said were given to him by Mr Brattoni – how he could have drafted an unconditional exercise of the option if, in fact, Mr Brattoni had instructed him that TCF would not agree to take up a new lease unless the Plaintiffs upgraded the Premises.

44    I bear in mind that Mr Moore’s letter of 28 February 2001 requesting a meeting between Mr Kong and Mr Brattoni referred to Mr Brattoni’s desire to discuss “certain changes to the premises”. However that letter also said “TCF is looking to renew its tenancy in accordance with the terms of the lease”. I find it difficult to believe that Mr Moore, who derived his understanding as to what was happening with the lease solely from Mr Brattoni, could have expressed himself in this way unless Mr Brattoni had told him something to give him this understanding.

45    For these reasons, I think it more probable than not that the contents of the 12 March letter correctly reflect the instructions given by Mr Brattoni to Mr Moore that day.

46    I take into account that Mr Brattoni had a motive for not being forthright with Mr Kong in telling him that TCF was considering relocating and, accordingly, wanted only a monthly tenancy while it made up its mind whether to exercise the option. I have referred to this motive above.

47    Additionally, it was put to Mr Brattoni that his recollection of the events of 12 March 2001 was not very clear and that he had reconstructed events in a way that he believed they had occurred. Mr Brattoni conceded that “there could be an element of what you say there” but he said that he was prepared to stand by his evidence. In view of the conflict in the evidence of Messrs Moore and Brattoni as to how the 12 March letter came to be signed, I conclude that there is a much larger element of reconstruction in Mr Brattoni’s evidence than he is prepared to concede.

48    Finally, but not least in importance, I am unable to accept Mr Brattoni as a witness who always endeavours to be careful in his evidence. In paragraph 15 of his affidavit of 21 June 2006 Mr Brattoni says that “on several occasions between March and August 2001” he and Mr Kong had conversations in which Mr Kong asked whether TCF had decided to relocate and Mr Brattoni told him that TCF was still considering its options. Mr Kong denied such conversations. When pressed to give some particulars about these conversations, Mr Brattoni was vague and often evasive; he did not appear to me to have any actual recollection at all of the conversations which he reported in paragraph 15 of his affidavit: T149.46–T154.30.

49    For these reasons, I have concluded that Mr Kong’s account of the discussion with Mr Brattoni on 12 March 2001 should be accepted in preference to the account given by Mr Brattoni. Further, I conclude that Mr Brattoni knew and approved the contents of the 12 March letter when he signed it.

The effect of the 12 March letter

50    Ms Preston of Counsel, who appears for TCF, says that the 12 March letter was ineffective to exercise the option for renewal contained in the then current lease because the terms upon which that offer could have been exercised had not been complied with so that the irrevocable offer constituted by grant of the option had lapsed: if a new lease was to come about it could only be as the result of a new offer and acceptance resulting in a binding contract: see e.g. Gilbert J. McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR(NSW) 122, at 123-124.

51    I accept Ms Preston’s analysis thus far as correct.

52    Ms Preston then submits that the 12 March letter, although ineffective to exercise the option in the lease, constituted a new offer by TCF to the Plaintiffs to enter into a lease upon the same terms as would have obtained had the option been duly exercised. However, Ms Preston submits, there is no evidence that that new offer of TCF was ever accepted by the Plaintiffs and that the Plaintiffs communicated that acceptance to TCF. For that reason, the 12 March letter could not have brought about the formation of the agreement for lease for which the Plaintiffs contend. It is at this point that I part company with Ms Preston’s submission.

53    TCF’s submission insists on the classical formula of offer and acceptance as the sole criterion for ascertaining the formation of a contract and upon the notion that an offer and its acceptance must always be unequivocably recognisable as such.

54    However, the law recognises that while offer and acceptance analysis is a useful tool in most circumstances, there will be some cases in which the formation of a contract may be inferred from the acts and conduct of the parties, viewed in the light of surrounding circumstances: see e.g. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, at paras 71-81 per Heydon JA; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, at 535 per McHugh JA; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117 per McHugh JA; Paull v Williams [2006] ANZ ConvR 132, para 24, per Giles JA.

55    This recognition is necessary, and perhaps long overdue, because it is impossible to fit many situations in which a contract is undoubtedly made into the paradigm of offer and acceptance without giving to people’s conduct a legal character and consequence which they never contemplated in fact. So, for example, merely publishing a train timetable has been said to be an offer to enter into a contract to carry passengers: Denton v Great Northern Railway Co (1856) 5 E&B 860; 119 ER 701. Likewise, boarding a bus has been said to constitute acceptance of a contractual offer constituted by providing that bus for public transport: Wilkie v London Passenger Transport Board [1947] 1 All ER 258, at 259. Such curiosities of legal reasoning are no longer necessary or appropriate: see generally the remarks of Lord Wilberforce in New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd [1975] AC 154, at 167, and the review of the authorities by Heydon JA in Brambles Holdings.

56    In the present case, neither Mr Kong nor Mr Brattoni is a lawyer. I have no reason to think that they went to their meeting on 12 March 2001 cognisant of the law of options: rather, they wanted to achieve a commercial result and to have the parties’ respective positions clarified in light of the fact that the option period in the lease had expired, as both parties knew.

57    On the version of the discussion on 12 March 2001 which I accept, Mr Brattoni said that TCF wanted an extension of the option contained in the current lease: as a matter of commercial practicality, clearly this meant that TCF wanted to have the opportunity to enter into a new lease on exactly the same terms as would have obtained had its option to renew been duly exercised. Mr Kong said that if TCF wanted a new lease, the Plaintiffs would waive the option notice period: as a matter of commercial practicality, this meant that the Plaintiffs were willing to grant a new lease to TCF on exactly the same terms as would have obtained had TCF duly exercised the option. I am satisfied that Mr Kong and Mr Brattoni had a common understanding and intention that if TCF wanted a new lease on the same terms as if the option had been exercised, then it could have one: TCF simply had to give a written notice “exercising the option” and the Plaintiffs would grant a lease on the same terms as if the option had been validly exercised. Why should this common intention to bring about an agreement, if TCF wanted one, be foiled by choosing to call Mr Brattoni’s letter an “offer”, so that the want of a response from the Plaintiffs results in there being no contract, when one could just as easily call Mr Kong’s statement of the Plaintiff’s position an offer, so that the 12 March letter was an acceptance which gave effect to the parties’ common understanding and intention? In the light of an objectively manifested common intention of the parties to create a contractual relationship, I do not think that the modern law of contract readily embraces such arbitrariness.

58    If one were compelled to analyse the discussion between Mr Kong and Mr Brattoni according to the paradigm of offer and acceptance, I would hold that Mr Kong, on behalf of the Plaintiffs, made an oral offer to Mr Brattoni on behalf of TCF to grant a new lease to TCF in the same terms as would have applied had the option been duly exercised, and he stipulated that acceptance of that offer had to be in writing.

59    The terms of the 12 March letter clearly indicated that TCF wanted a new lease of the Premises on the same terms as would have obtained had the option been duly exercised. I hold, therefore, that the letter amounted to an acceptance of the offer made by Mr Kong on the Plaintiffs’ behalf at the 12 March meeting. The letter itself was not an offer requiring acceptance by the Plaintiffs because its terms invited no response from the Plaintiffs. To the contrary, the letter presupposed that the “option”, that is, an offer for a lease, was available to be taken up by TCF: it gave notice that the offer was indeed taken up and that the obligations of TCF under the new lease, in particular, its obligation to pay GST, if any, would commence on 1 April 2001, immediately upon the expiry of the then current lease, without anything further needing to be agreed or to be done by the Plaintiffs.

60    The question now is: did Mr Brattoni have ostensible authority from TCF to sign and send the 12 March letter.

Whether Mr Brattoni had ostensible authority

61    An agent has ostensible authority to bind a principal in a transaction when the principal, by words or conduct, represents or permits it to be represented that the agent has authority to act on the principal’s behalf in that type of transaction. A representation of authority may be implied from a course of dealing between the principal and the third party: see Bowstead on Agency (17th Ed), Art. 74; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, at 503.

62    It is important at the outset to identify what is the critical action of Mr Brattoni, as agent, for which ostensible authority of TCF must be shown before TCF is bound. For example, I could not find that Mr Brattoni had ostensible authority to execute a formal lease on behalf of TCF because it had been drawn to the attention of the Plaintiffs and their solicitors on two previous occasions that a Memorandum of Lease required execution by all the TCF Trustees.

63    However, what is in issue in the present case is whether Mr Brattoni had ostensible authority from TCF to sign, not a formal lease, but the letter of 12 March 2001, so that TCF is bound by the legal consequences (if any) of that letter. As I have held, that letter gave notice of TCF’s acceptance of the Plaintiffs’ offer of a new lease, to be binding in the same way as if the option had been duly exercised.

64    Mr Reuben of Counsel, who appears for the Plaintiffs, submits that the following facts and circumstances constitute a representation by TCF to the Plaintiffs that Mr Brattoni had authority to sign and send a letter giving such notice:

– Mr Brattoni was appointed Chief Executive Officer of TCF and had dealt with the Plaintiffs in that position since 1991;

– on or about 5 September 1995 Mr Brattoni, on behalf of TCF, advised the Plaintiffs that TCF would not exercise its option under the then current lease to renew, but would negotiate for a new lease;

– by letter dated 18 September 1995 on TCF letterhead, Mr Brattoni as Chief Executive Officer of TCF accepted on behalf of TCF the Plaintiffs’ offer of a new lease, with some minor variations, requested the Plaintiffs to instruct their solicitor to prepare a new lease for execution, and asked the Plaintiffs to procure vacant possession of part of the premises to be leased to TCF.

65    Ms Preston submits, in essence, that no representation of Mr Brattoni’s authority to give the notice contained in the 12 March letter could have been made by TCF because:

– the Plaintiffs had been advised that previous leases had to be executed on behalf of TCF by all Trustees;

– Mr Kong must have known that Mr Brattoni himself had no authority to conclude an agreement with the Plaintiffs and that the terms of any such agreement had to be approved by the Trustees.

66    I am unable to accept these submissions, for the following reasons.

67    First, Mr Brattoni had given notice, on behalf of TCF, in September 1995 that an option for a new lease would not be exercised and, subsequently, that the Plaintiffs’ offer of a new lease was accepted. The new lease in the terms accepted by Mr Brattoni was executed by the Trustees in due course. In my opinion, that course of dealing represented to the Plaintiffs that Mr Brattoni was authorised by TCF to give notice to the Plaintiffs as to whether or not an option was exercised and whether or not the Plaintiffs’ offer of a new lease was accepted.

68    Second, the situation which existed on 12 March 2001 was very different from the negotiation of a new lease on terms to be agreed. If that had been the case, it would have been apparent that the new terms would have to be approved by the Trustees. However, the terms of the lease which Mr Kong and Mr Brattoni were discussing had already been settled – they were the terms which would have obtained had the option been duly exercised. All that TCF had to do was to notify the Plaintiffs whether or not those terms were accepted.

69    There is no evidence which leads to the inference that Mr Kong or any other officer of the Plaintiffs knew, or must have known, that Mr Brattoni did not have authority from TCF to send the 12 March letter. In my opinion, just as Mr Brattoni had ostensible authority from TCF to notify the Plaintiffs in September 1995 whether the terms of a new lease were, or were not, accepted, so also did he have ostensible authority to notify on 12 March 2001 whether the terms of a new lease, already settled, had been accepted.

70    Accordingly, I conclude that Mr Brattoni had ostensible authority to sign and send the 12 March letter and that TCF is bound by the consequences of that letter. For the reasons I have given above, I conclude that the letter constituted the acceptance of an offer of a new lease by the Plaintiffs, to operate in the same way as if the option had been duly exercised – that is, the acceptance of the offer was to have immediate and binding legal effect as an agreement for lease, the obligations of the parties commencing on 1 April 2001 immediately upon expiry of the existing lease and the parties being obliged to execute and deliver a formal Memorandum of Lease in due course.

Whether a binding and enforceable agreement made

71    Ms Preston submits that there was no common intention that the parties be bound by the agreement made on their behalf between Mr Kong and Mr Brattoni until the formal exchange of an executed Memorandum of Lease. I am unable to accept this submission.

72    In my opinion, the discussion between Mr Kong and Mr Brattoni, coupled with the terms of the 12 March letter, made it clear that the parties wished to be contractually in the same position as if the option in the lease was still open to be validly exercised by TCF: if the option had been duly and timeously exercised, there would have come into effect immediately a binding agreement for lease whereunder the parties were required subsequently to execute and deliver a Memorandum of Lease. That is what TCF itself must have contemplated when it noted in the final sentence of the 12 March letter that GST in respect of the new lease would become payable on rent “effective from 1 April, 2001”, i.e., upon commencement of the term of the new lease.

73 Next, Ms Preston submits that if there was an intention to be bound immediately, the agreement made on behalf of the parties is nevertheless unenforceable as an agreement for lease for want of writing. She relies upon s.54A(1) Conveyancing Act, which provides:

“ Contracts for sale etc of land to be in writing

(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged.”

74    Ms Preston says that the 12 March letter evidencing the agreement was not signed by a person “lawfully authorised” by TCF to sign it because Mr Brattoni had no actual authority from TCF either to make such an agreement with the Plaintiff or to sign the letter – ostensible authority to sign is not sufficient, Ms Preston says.

75 I am unable to accept this submission. It depends upon giving to the words in s.54A “thereunto lawfully authorised” the meaning “thereunto actually authorised”, as if only actual, and not ostensible, authority to sign a document on behalf of a principal were required by the section.

76    However, the words of the section do not bear that meaning. “Thereunto lawfully authorised” means that the person signing the writing, if not the person to be charged under the contract, must have authority to sign in any of the various circumstances in which, under the general law of agency, one person will become legally bound by the acts of another. Accordingly, the authority to sign required by s.54A may be derived from express conferment by the principal; it may be implied by law or from the situation of the parties; it may be what has come to be known as ostensible or implied authority. The authority to sign may even be conferred retrospectively: there may be no authority of any kind at the time that the contract is made or the written memorandum is signed, so long as the principal later ratifies the contract purportedly made on his behalf, so that, by that act, the signature on the written memorandum becomes that of his “lawfully authorised” agent.

77    A strong case in point is Maclean v Dunn (1828) 4 Bing 722; 130 ER 947. There a wool broker purported to make a contract on behalf of both buyer and seller and signed a “bought and sold note” recording the contract, purportedly on behalf of both parties. In fact, the broker had had no previous communication with the buyer. When the seller sued the buyer upon the contract, the broker said that he had met the buyer a short time after the contract note was signed and the buyer assented orally to the contract. That fact was found in favour of the seller.

78    The buyer then submitted that there was no sufficient writing evidencing the contract within the Statute of Frauds because the broker was not the buyer’s agent for any purpose at all at the time that the “bought and sold note” was signed by him.

79    At 726-7 (ER 949), Best CJ said:

“It has been argued, that the subsequent adoption of the contract by Dunn will not take this case out of the operation of the statute of frauds; and it has been insisted, that the agent should have his authority at the time the contract is entered into. If such had been the intention of the legislature, it would have been expressed more clearly; but the statute only requires some note or memorandum in writing, to be signed by the party to be charged, or his agent thereunto lawfully authorised; leaving us to the rules of common law, as to the mode in which the agent is to receive his authority. Now, in all other cases, a subsequent sanction is considered the same thing in effect as assent at the time. Omnis ratihabitio retrotrahitur et mandato æquiparatur: and in my opinion, the subsequent sanction of a contract signed by an agent, takes it out of the operation of the statute more satisfactorily than an authority given beforehand.”

See also James Williams “The Statue of Frauds Section 4”, Cambridge University Press (1932), at p.102ff.

80    I have held earlier that, under the general law of agency, Mr Brattoni had ostensible, or implied, authority to sign the 12 March letter on behalf of TCF. That ostensible authority was sufficient to constitute Mr Brattoni as the agent of TCF “lawfully authorised” to sign the letter for the purposes of s.54A Conveyancing Act.

A pleading point

81    Ms Preston submits that even if it be found that what transpired between Mr Kong and Mr Brattoni, followed by the sending of the 12 March letter, constituted a binding and enforceable agreement for a new lease, the Plaintiffs’ claim should nevertheless be dismissed because that case was never properly pleaded.

82    I am unable to accept this submission.

83    Ms Preston does not say that all of the facts founding the Plaintiffs’ case as I have described it were not adequately pleaded. She says, however, that the Plaintiffs’ case as pleaded is founded upon the proposition of law that TCF duly exercised the option that was contained in the current lease, although as a matter of law that option could never have been validly exercised after it had lapsed. She relies upon paragraph 8 of the Statement of Claim, which is as follows:

“Pursuant to the Defendant’s exercise of the option for renewal, there came into existence a ‘new lease’ and/or an agreement to lease for a term of 5 years commencing on 1 April 2001 and terminating on 31 March 2006 on the same terms, covenants and conditions as the lease excluding the option for renewal at the rental therein set out plus GST (collectively hereinafter referred to as ‘the agreement for lease’ ).”

84    However, that paragraph must be read in the context of paragraph 7:

“By letter dated 12 March 2001 the Defendant confirmed the Lessor’s agreement to waive the notice period set out in Schedule 5 of the lease document and exercised the option to renew the lease of the premises for a further term of 5 years on the terms and conditions as set out in the existing lease and at the rental set out in Schedule 5 of the lease plus GST.
Particulars
Letter from the Travel Compensation Fund dated 12 March 2001 signed by Carlo C Brattoni, Chief Executive Officer.”

85    In my opinion, the words “pursuant to the Defendant’s exercise of the option for renewal” in paragraph 8 of the Statement of Claim simply refer to the content of the 12 March letter, as pleaded and particularised in paragraph 7. The parties may well have thought, erroneously, that an option was being exercised but what they did had the legal consequences which they were seeking to achieve: the grant of a new lease effective from 1 April 2001 upon the terms which would have obtained had the option been validly exercised.

86    Even if Ms Preston’s reading of paragraph 8 of the Statement of Claim is right, all of the facts necessary to establish the Plaintiffs’ case as it has been found were pleaded. Accordingly, the Plaintiffs are not now limited by their legal characterisation of those facts in their pleading, especially as Ms Preston does not submit that any prejudice has been suffered by TCF in the conduct of their case by the legal categorisation given by the Plaintiffs to the facts which they have pleaded.

Jones v Dunkel submission

87    Ms Preston submits that inferences adverse to the Plaintiffs’ case should be drawn from the Plaintiffs’ failure to call a number of witnesses. In my view, none of those persons would have been able to give evidence of any significance at all to the issues in the case.

Damages

88    It will have become clear from the foregoing that I have concluded that there was a binding and enforceable agreement for lease between the Plaintiffs and TCF, made on 12 March 2001, whereby TCF were obliged to execute and deliver to the Plaintiffs a Memorandum of Lease for a term of five years commencing on 1 April 2001. Such a Memorandum of Lease was submitted by the Plaintiffs to TCF on or about 10 September 2001 but TCF failed to execute and deliver it, in breach of the agreement for lease. Further, TCF were in breach of the agreement for lease when, on 29 December 2002, they moved out of the Premises, asserting that they were only holding over under a monthly tenancy.

89    The Plaintiffs have fully particularised their losses arising from TCF’s breaches of the agreement for lease and have summarised them in Annexure D to Mr Kong’s affidavit of 20 June 2006. TCF do not dispute that the expenses and losses particularised were incurred or whether the calculation of the losses is correct. They say, however, that the Plaintiffs are disentitled from recovering any part of those losses because the Plaintiffs have failed to take reasonable steps to mitigate their losses in the way in which they went about attempting to re-let the Premises after TCF had given vacant possession. It is, of course, for TCF to satisfy the Court of this proposition.

90    On 4 February 2003, the Plaintiffs placed the re-letting of the Premises in the hands of letting agents, Tim Green Commercial, who had been responsible for letting the Building for some years previously. The first criticism made by TCF is that the agents should have been engaged to market the Premises in October 2002, when the Plaintiffs first became aware that TCF regarded themselves as monthly tenants and entitled to move out.

91    I do not think that this criticism is justified. The Plaintiffs, through their solicitors, had disputed TCF’s contention that there was a monthly tenancy: the Plaintiffs were justified in waiting to see whether TCF would change their minds. In fact, TCF moved out of the Premises on 29 December 2002, although they had paid rent up to 31 December 2002. It is notorious that there is little commercial activity during the Christmas holidays and in January. I do not think that the Plaintiffs were unreasonably late in formally instructing their agents on 4 February 2003.

92    TCF have engaged Mr Simon Fonteyn to give expert opinion on the issue of mitigation. Mr Fonteyn prepared a report dated 21 June 2006.

93    I commence by observing that Mr Fonteyn was asked, in his instructions founding the report, to address the wrong question: he was asked “have the Plaintiffs fully mitigated their loss”: Report para 4.1. The correct question upon which Mr Fonteyn’s opinion should have been sought was: “have the Plaintiffs taken all reasonable steps to mitigate their loss”: see e.g. British Westinghouse Electric Company Ltd v Underground Electric Railways Company Ltd [1912] AC 673, at 689. The two questions are very different.

94    It is undisputed that the Plaintiffs did not fully mitigate their loss in the sense that they did not, in fact, avoid all loss by obtaining tenants for the whole of the Premises immediately upon vacation by TCF. However, the law reduces a plaintiff’s damages, not for failing to mitigate loss, but for failing to take reasonable steps to mitigate.

95    Mr Fonteyn made many and detailed criticisms of what the Plaintiffs’ letting agent did, or failed to do, in devising a market strategy for re-letting the Premises. Mr Cameron Algie, the director of Tim Green Commercial who was responsible for the letting strategy, answered each of those criticisms, saying why he had decided to market the Premises as he did. Mr Fonteyn was asked whether, in his opinion, no experienced and competent leasing agent in Mr Algie’s position at the time could reasonably have come to the view that Mr Algie’s marketing strategy was likely to be effective: Mr Fonteyn was not prepared to say that. He conceded that there could be differing views amongst competent and experienced letting agents as to the most effective strategy: Mr Algie’s strategy was one such strategy which could have been devised although he himself would have devised a different one.

96    I take into account that Tim Green Commercial, through Mr Algie, was responsible for the letting of the whole Building which was classified as “C-grade office accommodation”. Tim Green Commercial and Mr Algie had a certain view, based on their experience, as to what type of marketing and advertising expenditure was most effective for C-grade office accommodation. Mr Algie has had nine years’ experience in commercial leasing and Tim Green Commercial is one of the largest independent commercial letting agents in the Sydney CBD.

97    On the other hand, Mr Fonteyn conceded, very significantly, that he had not acted as a letting agent for any C-grade building since 1993.

98    Mr Algie gave reasoned answers to Mr Fonteyn’s criticisms about whether the Premises should have been refitted out before being put on the market, whether they should have been marketed as a whole floor or as separate smaller suites, whether the level of expenditure on marketing was appropriate and the type of marketing was appropriate, whether the time taken to find new tenants was reasonable, and whether the rents achieved were in accordance with current market rents. Those answers were not shown in cross examination to have been founded on any material factual error or incorrect assumption. They were essentially matters of professional judgment and opinion.

99    Mr Kong’s letter of instructions to Tim Green Commercial on 4 February 2003 made it clear that the Plaintiffs were relying on Tim Green Commercial to advise on the most effective strategy for re-letting the Premises. I cannot hold that the Plaintiffs acted unreasonably in placing that reliance on letting agents who had substantial commercial letting experience not only in relation to the Building itself but otherwise in commercial letting in the Sydney CBD area generally.

100    In view of the fact that Mr Fonteyn was not prepared to say that no competent and experienced letting agent in Mr Algie’s position could reasonably have devised the marketing strategy which Mr Algie did, and in view of the reasoned answers given by Mr Algie to Mr Fonteyn’s criticisms, I am not persuaded that Mr Algie’s marketing strategy for re-letting the Premises was unreasonable. In view of Mr Algie’s much greater and more recent experience in the letting of C-grade commercial buildings generally, I prefer his evidence to that of Mr Fonteyn and, in particular, I prefer Mr Algie’s evidence as to whether the rents achieved on re-letting of the Premises were in accordance with then current market rents.

101    In summary, I am not satisfied that the Plaintiffs have failed to take reasonable steps to mitigate the losses occasioned by TCF’s breach of the agreement for lease. Accordingly, in the award of damages there should be no deduction from the losses calculated in accordance with Annexure D to Mr Kong’s affidavit of 20 June 2006.

Orders

102    The Plaintiffs are entitled to:

– a declaration as to the existence of an agreement for lease in terms of paragraph 1 of the Relief claimed in the Statement of Claim;
– a declaration in terms of paragraph 4 of the Relief;
– damages for breach of the agreement for lease, without deduction for failure to mitigate, together with interest.

103    The deposit of $12,629 paid by TCF, which the Plaintiffs are entitled to retain, is substantially exceeded by the damages to which the Plaintiffs are entitled. The Plaintiffs will be obliged to set off the deposit against the damages. The Cross Claim will be dismissed accordingly.

104    I will stand the proceedings over for a short time to enable the Plaintiffs to bring in Short Minutes of Order reflecting these reasons for judgment. I will then hear any argument as to costs.

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