Karthurmary Pty Ltd v Facac Pty Ltd

[2013] SASC 90

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeals: Civil)

KARTHURMARY PTY LTD v FACAC PTY LTD

[2013] SASC 90

Reasons for Decision of The Honourable Justice Nicholson

19 June 2013

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - GROUNDS - GENERALLY

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN NOT ALLOWED TO BE RAISED ON APPEAL - QUESTIONS NOT RAISED ON PLEADINGS OR IN ARGUMENT - PARTICULAR CASES - OTHER MATTERS

ESTOPPEL - ESTOPPEL BY CONVENTION

EQUITY - GENERAL PRINCIPLES - GENERALLY

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - CONTRACT IMPLIED FROM CONDUCT OF PARTIES

This is an appeal from a magistrate’s decision that the first and second appellants (the defendants at trial) are estopped from denying that the respondent (the plaintiff at trial) effectively renewed a lease of commercial premises.  A written, otherwise effective, notice of exercise of option to renew under the lease was provided nine days out of time.  However, the tenant continued in occupation for many years after the expiration of the original lease and both parties acted as if a new lease was in place.

Appeal dismissed. Held: (1) both parties shared a common assumption that a new lease for the premises existed at the material times; (2) both parties intentionally conducted their relationship on the basis that a new lease existed at the material times; (3) the respondent relied on the assumption that the lease was in place to its detriment; (4) to prevent the appellants from denying a renewal of the lease is the appropriate remedy in the circumstances; a withdrawal by the appellants from the common assumption would be unconscionable in the circumstances.

Quaere:  The parties contractually agreed to a new lease on identical terms to the agreed lease; such an agreement is to be inferred from their conduct.

Commercial Tenancy Law 3rd ed, Bradbook Croft and Hay, LexisNexis Butterworths Australia 2009, chapter 14, referred to.
Jones v Dunkel (1959) 101 CLR 298; Hillier v Goodfellow [1988] V ConvR 54-310; Forrest Chase Medical Services Pty Ltd & Anor v Toliver Pty Ltd & Anor Supreme Court of Western Australia, 5 September 1997 unreported (Anderson J), BC9704222; Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Moratic Pty Ltd v Gordon [2007] NSWSC 5; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Dabbs v Seaman (1925) 36 CLR 538; Ferrier v Stewart (1912) 15 CLR 32; Commonwealth v Verwayen (1990) 170 CLR 394; Felthouse v Bindley (1862) CBNS 869, 142 ER 1037; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Battye & Anor v Shammall (2005) 91 SASR 315; Coulton v Holcombe (1986) 162 CLR 1; Connecticut Fire Insurance Co v Kavanagh [1892] AC 473; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Australian Communication Exchange Ltd v DCT (2003) 201 ALR 271; Papadopoulos v Tseris NSWCA 16 March 1997 unreported; Bessemer v The Owners Corporation of Strata Plan 35054 and Ors [2002] NSWSC 73, considered.

KARTHURMARY PTY LTD v FACAC PTY LTD
[2013] SASC 90

Magistrates Appeal

NICHOLSON J.

Introduction

1. This is an appeal from the decision of a Magistrate that the first and second appellants were estopped from denying that the respondent had effectively renewed a lease of commercial premises.  The matter is factually complex and the decision of the Magistrate was reached following a trial conducted over some 14 or so days. 

2. This appeal concerns only the question of whether the respondent effectively renewed its lease of the ground floor of a building at 123 Gouger Street, Adelaide as from 4 October 2005.  However, as from that date the respondent also entered into a lease of the upstairs or first floor area of the same building from the same landlords.  Various issues relating to that lease, including a claim for non-payment of rent, together with an action by the landlords for distraint in connection with unpaid rent for the ground floor area were also considered by the Magistrate.  There has been no appeal to this Court with respect to those matters.[1]  Nevertheless, the parties’ interactions with each other in connection with these matters contribute to the factual matrix within which the parties conducted themselves in relation to the question of renewal of the ground floor lease. 

   [1]    Initially one of the matters was the subject of ground seven of the notice of appeal which was abandoned during the hearing of the appeal.

3. In these reasons, I will refer to the building at 123 Gouger Street as “the land”, to the ground floor of the land as the “ground floor premises” and to the upstairs or first floor of the land as the “first floor premises”.  These reasons will canvass the following matters:

   (i)the parties and other relevant persons;

   (ii)a short chronology of major events;

   (iii)a more detailed chronology of relevant events together with some analysis;

   (iv)the essential reasoning of the Magistrate;

   (v)the case for the respondent (FACAC) at trial, as pleaded;

   (vi)the grounds of appeal; and

   (vii)further consideration of and resolution of the issues.

   The parties and other relevant persons

4. The first appellant, Karthurmary Pty Ltd (Karthurmary) is part owner of the land.  The third appellant, Athanasios Koulizos (Arthur)[2] was at all material times a director and the controlling mind of Karthurmary.  As at the time of trial Arthur was elderly and he did not give evidence.  There was evidence before the Magistrate that Arthur was quite ill and his Honour made no finding adverse to the first and second appellants’ case in reliance on Jones v Dunkel.[3] 

   [2]    I mean no disrespect to Mr Koulizos or his family by referring to him as “Arthur” throughout these reasons.  He was consistently referred to only as Arthur throughout the parties’ correspondence and during the trial.  It will also assist in distinguishing him from his son Peter Koulizos (mentioned later).

   [3] (1959) 101 CLR 298.

5. At all material times until on or about 1 August 2008, Jim Baltas and Stella Crisa were co-owners (with Karthurmary) of the land and co-landlords.  On or about 1 August 2008, the interest of Mr Baltas and Ms Crisa was transferred to the second appellant, Steviewonder Pty Ltd (Steviewonder) such that Steviewonder became a co-owner (with Karthurmary) of the land and a co-landlord.  At all material times the fourth appellant, Evan Jackson, was a director of and the controlling mind of Steviewonder.[4]  In these reasons I will, at times, use the term “landlords” as referring to Karthurmary, Mr Baltas and Ms Crisa prior to 1 August 2008 and as referring to Karthurmary and Steviewonder thereafter.

   [4]    At the beginning of the hearing of the appeal, I raised with counsel for the appellants why it was thought necessary to include Arthur and Mr Jackson as appellants given that they were not directly affected by the Magistrate’s orders.  The matter can be re-visited, if necessary, at the time of making final orders on the appeal.

6. Mr Jackson, through his company Steviewonder, commenced the process of purchasing the Baltas and Crisa interest in the premises in November 2007 and very soon thereafter commenced to involve himself in the management of the land from the landlords’ perspective.  From April 2008 Mr Jackson assumed the role of sole contact for the landlords with respect to all landlord and tenant issues concerning the land. 

7. Prior to Mr Jackson becoming involved, Arthur had managed the land and the tenancies on behalf of Karthurmary, Mr Baltas and Ms Crisa.  However, there was a period of time ending, it would appear, sometime in May or June 2005 during which Arthur employed, on behalf of the landlords, the services of a solicitor, Barry Paraskeva.  There was also a period of time after approximately May or June 2005 during which Arthur used the services of Taplin Real Estate as managing agents for the land and tenancies.  Generally, throughout his dealings in connection with the tenancies, Arthur was assisted by his son, Peter Koulizos (Peter).  It does not appear to have been seriously challenged, either at the trial or during the appeal, that each of these people,[5] insofar as they purported to do or say things on behalf of the landlords, acted with the authority of the landlords in that respect. 

   [5]    Various employees of Taplin, Mr Paraskeva and Peter.

8. The respondent, FACAC Pty Ltd, (FACAC) is the occupier of the ground floor premises and has been in occupation since 4 October 2000.  At all material times until late 2007 Dennis Davies was a director and the controlling mind of FACAC.  In late 2007, 50 per cent of the shareholding in FACAC was transferred to Dale and Fleur Newton. 

9. Until Mr Jackson and Mr Newton came on the scene, that is, prior to late 2007, dealings concerning the tenancies of the ground floor premises and of the first floor premises were conducted between Arthur (with the assistance of those others earlier mentioned) and Mr Davies.  Not long after Mr Jackson and Mr Newton came on the scene, they assumed these respective roles. 

   A short chronology of major events

10. By an executed but apparently undated memorandum of lease, FACAC leased the ground floor premises from the landlords for five years commencing 4 October 2000.  This (initial) lease provided for three extensions or renewals each for a further period of five years.  The first extension or renewal was to be effected by FACAC making a written request to renew the lease not less than three months before the expiration of its term provided it had, otherwise, complied with the requirements of the renewal provision.[6]  The permitted use under the lease was “Restaurant, Wine bar”.

    [6]    Clause 10.1 of the lease.  A copy of the lease was tendered as exhibit P1.2 and can be found at pages 4 to 49 of the book of documents marked as MFI-P1.  By way of explanation, much of the case for each party was based on a documentary record of dealings between the parties, evidence given by witnesses about various of these documents and inferences that the parties wanted the Court to draw from this documentary record.  Most of the documents were provided to the Court in a lever arch folder which was marked MFI-P1.  The documents in MFI-P1 were paginated consecutively.  The practice before the Magistrate was to refer to a document in MFI-P1 or a series of pages in MFI-P1 and for that document or series of pages to be tendered, given an exhibit number and by and large identified by reference to the page numbers in MFI-P1.  Thus it followed that the original lease was the first document tendered and was given the number P1.2 and identified as pages 4 to 49 of the lever arch folder MFI-P1.

11. In early 2005, the landlords, through their solicitor Mr Paraskeva, entered into negotiations with Mr Davies for FACAC to take a lease of the first floor premises.  These negotiations initially proved unsuccessful although in time (see below) a lease of the first floor premises was executed. 

12. The last day FACAC was entitled to exercise the first option or extension for the ground floor premises, having regard to the terms of clause 10.1 of that lease, was 3 July 2005.  However, 3 July 2005 passed without any notice of exercise of option being given by FACAC.[7]  Nevertheless, some nine days later on 12 July 2005, Mr Davies sent an email to Mr Paraskeva indicating FACAC’s wish to renew the lease of the ground floor premises.  The Magistrate found that this notice of exercise was too late and, of itself, of no effect.  It was not sufficient to effect a renewal of the lease for a further five year term because it was simply too late.[8]  The finding that this notice of exercise of option was ineffective was not challenged on appeal.  During the trial, the landlords disputed that the purported notice to exercise option dated 12 July 2005 was, in fact, ever sent.  The Magistrate made a finding[9] that it was sent (to which finding I will need to return later in these reasons) and this finding has not been challenged on the appeal. 

    [7]    This was the effect of the finding by the Magistrate although it was disputed by Mr Davies at the trial who said that he had, at some time prior to 3 July 2005, indicated an intention to renew the lease.  This evidence, to the effect that Mr Davies had sent a written exercise of the option to renew prior to 3 October 2005 which written document (either as sent or as received) was not produced, was rejected by the Magistrate (Reasons for Decision at [60]).  There has been no appeal (by way of notice of contention) from this finding.

    [8]    Ordinarily, an option to renew a lease must be exercised in accordance with the manner stipulated by the terms of the lease and time will be construed as of the essence.  The theory accepted in this country is that an option to renew, in these circumstances, is an irrevocable offer by the landlord to the tenant and that until the option is exercised no new or additional interest passes to the tenant.  Once the last day for exercise of the option passes, the irrevocable offer made by the landlord to the tenant automatically lapses.  In the ordinary case, a late purported exercise of an option to renew cannot operate as an acceptance of the landlord’s irrevocable offer but can only operate as an offer by the tenant to enter into a fresh lease under the same terms and conditions that would have applied had the option been effectively exercised.  See generally Commercial Tenancy Law 3^rd ed, Bradbook Croft and Hay, LexisNexis Butterworths Australia 2009, chapter 14.

    [9]    Reasons at [64], [66].

13. There is no direct evidence that any oral or written response was given by or on behalf of the landlords to any late receipt[10] of this notice to exercise option.  However, and in essence, the parties conducted their affairs with reference to the occupation of the ground floor premises in an unchanged manner.  In addition, the negotiations for a lease of the first floor premises resumed and towards the end of the year, in or about November 2005, documentation was signed for a lease of the first floor premises for a five year term commencing 4 October 2005, that is, the same date that any renewed lease of the ground floor premises would have commenced.  The terms and conditions of the lease for the first floor premises “mirrored” those of the lease for the ground floor premises, apart from the amount of rent and such like and apart from the fact that it contained (it would seem by error) one additional five year right of renewal. 

    [10]   I use the term “any late receipt” because there is an obvious difference between an email being sent and the email having been received or at least coming to the attention of the landlords in this case.  I will need to deal with this issue later in these reasons.

14. The position had been reached at this stage (late 2005) whereby FACAC had remained in occupation of the ground floor premises, on its case, pursuant to a five year lease commencing 4 October 2005 with two further five year rights of renewal which if properly exercised would entitle it to occupy the ground floor premises until October 2020.  In addition, it was occupying the first floor premises pursuant to a lease (about the existence of which there is no dispute) for a five year term commencing 4 October 2005, also with multiple rights of renewal which if exercised would entitle FACAC to occupy the first floor premises until at least October 2020 but also beyond. 

15. The parties interacted with each other as landlords and tenant respectively for some considerable period of time after the expiration of the initial term for the ground floor premises on 3 October 2005 without any direct reference to the purported exercise of option on 12 July 2005.  There were disputes over payment of rent, proposed increases of rent, payment of outgoings and so on.  Over time these disputes were resolved but not without some festering. 

16. In late April and early May of 2006 correspondence passed between Taplin, as agents for the landlords, and Mr Davies, on behalf of FACAC, concerning the existence or otherwise of appropriate documentation recording the terms and conditions of any lease that might govern FACAC’s occupation of the ground floor premises.  Nothing, in terms of additional formal documentation, eventuated and from May 2006 onwards the parties continued to conduct their affairs, apparently, on a business as usual basis. 

17. Thereafter, no further written exchanges occurred between the parties concerning the absence of any “lease extension” or other formal, documentation relating to FACAC’s continued occupation of the ground floor premises until April 2009.  On 6 April 2009 Mr Jackson sent an email to Mr Newton asserting that FACAC’s occupation of the ground floor premises was based on a monthly tenancy (apparently on the basis of a holding over from the original lease which expired 3 October 2005).  It may be that an assertion of this nature was made to Mr Newton orally at a much earlier time, during conversations with Mr Jackson in December 2007 (whilst Mr Jackson was negotiating for the purchase of the Baltas and Crisa interest).  In any event, a dispute over the basis upon which FACAC was occupying the ground floor premises did not emerge until, at the earliest, sometime after Mr Jackson became involved, that is, late 2007.  By this time the parties (principally through Arthur and Mr Davies) had been conducting their affairs without this matter being raised as a concern (apart from the short lived and ultimately inconclusive late April and early May 2006 correspondence) for a period in excess of two years. 

18. On 27 October 2009, the landlords served on FACAC a notice of termination and re-entry with respect to the ground floor premises which alleged that the renewal had not been exercised and that FACAC had remained in occupation after 3 October 2005 simply as a tenant from month to month.  As a consequence, FACAC approached the Magistrates Court seeking declaratory relief.

19. The tenancy for the initial term of the first floor premises came to an end on 3 October 2010 and was not renewed by FACAC.  Nevertheless, the parties are in agreement that FACAC did effectively renew the lease for the first floor premises for the period 4 October 2010 to 3 October 2015.  However, the landlords’ concession in this respect is expressly subject to the correctness of the Magistrate’s finding that FACAC’s occupation of the ground floor premises was subject to or in accordance with the conditions of a new lease extant for the period 4 October 2005 to 3 October 2010.  In other words, if the Magistrate’s finding in this respect is upheld and the appeal dismissed, the landlords concede that FACAC will now be occupying the first floor premises pursuant to a properly exercised option to renew for the period of 4 October 2010 to 3 October 2015.  However, if the appeal were to succeed such that no lease was in place after 3 October 2005 (but only a holding over) the purported exercise of the option to renew for the period 2010 to 2015 will fall. 

20. The Magistrate held, after his review of all of the circumstances, that the landlords were estopped from denying or challenging the existence of a renewed lease for the period October 2005 to October 2010.  It is this essential finding which is challenged on the appeal.  However, the appellants’ challenge will also involve a consideration of a number of subsidiary issues. 

    A more detailed chronology of relevant events together with some analysis

1. I propose to set out in some detail a history of the parties’ dealings much of which is essentially common ground apart from the further observations and analysis provided.

2. In March/April 2005 (that is, towards the end of the last year of the initial lease of the first floor premises) Mr Paraskeva and Mr Davies engaged in correspondence about a proposal for FACAC to also take a lease of and occupy the first floor premises.  By this time, FACAC had undertaken and was continuing to undertake renovations (including structural) to and refurbishments of the ground floor premises.  In the event that a lease of the first floor premises were to be entered into it was FACAC’s intention to engage in further renovations to and refurbishments of that space and to operate the combined area under the single (liquor) licence then available with respect to the ground floor premises. 

3. Mr Davies gave evidence to the effect that prior to and during this period he had enjoyed a very cordial and friendly relationship with Arthur, that Arthur was interested in the renovations being undertaken and as proposed,[11] that Arthur had indicated to Mr Davies that he was not keen to have a separate tenant in the first floor area and that Mr Davies had discussed with Arthur his wish to occupy at least the ground floor premises for a long time and hopefully in time to buy the building.  The Magistrate accepted Mr Davies’ evidence to this effect and the evidence itself was not challenged at trial. 

   [11]   See exhibit P1.34, a letter from Arthur to the Assistant Liquor and Gambling Commissioner dated 29 July 2005, dealt with later in these reasons.

4. In any event, the effect of the correspondence[12] between Mr Paraskeva and Mr Davies during March and April 2005 was that the landlords wished to lease the first floor premises to FACAC.  Indeed, the landlords’ preference was to consolidate, into a single lease document, any arrangements reached with respect to the first floor premises and the parties’ existing arrangements relating to the ground floor premises.

   We consider the most appropriate way of doing so is for the agreement to be consolidated in a single lease document reflecting the new arrangements and covering all the essential terms in one document, rather than entering into a further document or deed of variation of the existing lease, which will entail two documents being the primary documents of the lease, not one.[13]

   [12]   Exhibit P1.5 (MFI-P1 at pp68-69), P1.6 (pp70-71), P1.7 (p75), P1.8 (p76), P1.9 (p77) and Magistrate’s Reasons at [9]-[14]. 

   [13]   Facsimile dated 10 March 2005 from Mr Paraskeva to FACAC, P1.5 (pp68-69).

5. However, Mr Davies was reluctant, at this time, to proceed with a lease of the first floor premises.  His preference, at this stage, was to buy the building.  He made an in principle “subject to finance” offer to purchase the building.  In a responding email to Mr Paraskeva dated 14 April 2005[14] Mr Davies gave the following as a reason for his preference to purchase.

   I still have a reasonable amount of expenditure to incur to improve the Bar [the ground floor premises] which would predominantly be leasehold improvements, and as far as the upstairs is concerned I estimate between $150 and $200k is needed just to bring the leasehold area up to the standard required to suit what I have in mind for that space.  Again, these would be mainly leasehold improvements, eg entrance, ceilings, wet areas, toilets, fire safety provisions etc.

   It would seem that Mr Davies was reluctant to further improve the landlords’ property in these ways and would have been happier to spend the money on his own building.

   [14]   P1.7 (p75).

6. Mr Paraskeva responded to the effect that the landlords had no interest in selling the property on the basis put forward by Mr Davies, although, they would consider “a more robust and realistic assessment”.  However, and failing that, it was “imperative that agreement be reached one way or another” on a lease of the first floor premises.[15]

   [15]   P1.8 (p76).

7. By email dated 9 May 2005, Mr Davies responded in the following terms.

   I was thinking along the following lines, because upstairs is an absolute mess and needs a total revamp… at guess the estimate is about $200,000 to bring it into being a functional commercial facility. 

   I have been mulling over in my head for quite some time now the benefits of it being attached to the bar [the ground floor premises], both for the owners of the property and ourselves.  I had been considering paying $200 a week renovating it, calculate the period it would cost to get my capital back and then enter into a lease to coincide with the existing lease.

   Barry I do not wish to take the commercial risk of putting the bar under any financial pressure until I have it totally renovated and completed both inside and out.  Therefore it is necessary that I have to forego the option of taking upstairs and focus on the reverse cycle air conditioning for the ground floor, remodelling of the bar, build cubicles, painting, upgrading of the outside with fixed tables, partitions and cover. 

   Suffice to say that if the whole building was one total hotel premises we would both be winners, it makes great logic.  It would take up to two years to renovate and receive back any capital outlay from operations, before I can enter into a commercial lease.

   Finally Barry, I do not find the prospect at all daunting just the timing is lousy.[16]

   [16]   P1.9 (p77).

8. It seems that negotiations with respect to a proposed lease of the first floor premises stalled at about this time.  Mr Paraskeva made a further offer by facsimile letter on or about 25 May 2005[17] but nothing would seem to have come of this. 

   [17]   P1.10 (p78).

9. It can be seen that Mr Davies had made FACAC’s position clear with respect to the relationship that any lease of the first floor premises might have to the lease of the ground floor premises.  FACAC had a present lease commitment to the ground floor premises (albeit one that only had about four months to run) and was in the process of refurbishing those premises at its expense.  Although the notion of having a combined ground floor and first floor space refurbished and operating in combination as licensed premises was attractive to FACAC, it was not prepared at this stage to commit itself financially any further, at least until it had completed its plans for the ground floor premises or unless and until a sufficiently attractive deal was made available. 

10. Importantly, FACAC was not interested in committing itself to a lease of the first floor premises with the additional capital expenditure that necessarily would be involved, independently of it being the tenant of, that is, having a secure right of occupation of the ground floor premises.  FACAC’s position in this respect, must have been known to Mr Paraskeva and therefore to Arthur and therefore to the landlords.  Furthermore, it ought to have been evident to all (Mr Davies, Mr Paraskeva and Arthur) that these negotiations over the first floor premises were occurring only a little over four months before the initial term of the lease of the ground floor premises was due to expire and only a month or so prior to the last day for exercise of the option to renew that lease. 

11. The 3rd of July 2005 was the last day for FACAC to give written notice if it wished to exercise the first option of renewal for five years contained in the initial lease of the ground floor premises.  This day came and went without that notice being given. 

12. However, on 12 July 2005 Mr Davies sent the following email to Mr Paraskeva.  [18]

    Dear Barry

    Re:  the Bar on Gouger

    Please be advised that Facac P/L wishes to renew the lease at 123 Gouger Street.  Also wishing to receive copy (page 2) of the lease for I have miss placed [sic] mine.

    Mr Paraskeva gave evidence that he could not remember receiving such an email and that a search of his records had failed to locate it or a copy of it.  However, Mr Paraskeva also said that he was unable to search any electronic files as far back as 2005 because they were no longer available to him.  The documentary version of the email of 12 July 2005 tendered at the trial was a printed copy produced by Mr Mark Esau from his files.  In July 2005, Mr Esau was a solicitor acting for FACAC.  The hard copy of the email produced to the Court purports to be from Dennis Davies to “Barry M Paraskeva”.  However, also recorded on the address section of the email is “cc:  [email protected]”.  For this reason, the Magistrate, in his reasons, referred to it as a “carbon copy” of the email.

    [18]   P1.11 (p83), Magistrate’s Reasons at [15]-[18], [57], [61]-[67], [74].

13. During the trial the authenticity of this document was challenged by the appellants.  However, after considering the evidence and the arguments on both sides of this question at some length the Magistrate was satisfied of its authenticity.  His Honour made a finding that an email in these terms was sent by Mr Davies to Mr Paraskeva on 12 July 2005.  This finding has not been challenged on the appeal and in my view there is, in any event, a more than adequate evidentiary basis upon which the finding should be upheld.  However, the Magistrate also found that this email was sent too late and, of itself, could not and did not effect a renewal of the ground floor lease.  This finding also has not been challenged and nor on the present state of the law in this country could any challenge have been successful. 

14. It is important still to focus a little on the Magistrate’s precise findings concerning the sending of this email.  As I earlier indicated it is one thing to send an email, it is another for that email to have been received.  In my view, the receipt of this email from Mr Paraskeva is an important (although not necessarily essential) component of FACAC’s case that the landlords are estopped from denying a renewed lease.  Furthermore, an alternative approach to analysing the parties’ conduct raises the question whether or not this email of 12 July 2005, once received, might be characterised as an offer by FACAC to take a new five year lease of the ground floor premises on identical terms and conditions as those then in place, which offer was later accepted by the landlords through a course of conduct. 

15. The Magistrate found that the email was not a reconstruction and had been sent by Mr Davies to Mr Paraskeva on 12 July 2005.[19]  However, his Honour’s discussion concerning whether or not the document had been received by Mr Paraskeva is somewhat obscure.  On this point, his Honour’s process of reasoning included the following.[20] 

    While I accept that Paraskeva was actually aware of the importance of a lease renewal document and would have taken appropriate steps had he been aware of one, it does not prove that renewal was not sent or received.  Indeed, a proviso in his letter to Costi of 16 December 2009 (p.490, Exhibit P1) appears to qualify his knowledge about receipt of same:

    We must also point out also that at the time of this purported exchange, (some four and a half years ago), our use of, (and we venture to say the legal profession’s use of), and reliance on email correspondence was not as commonplace as it is today.

    Notwithstanding the defendants’ various hypotheses concerning the authenticity or otherwise of the document, the best evidence of the email being sent is the email itself, especially since the ‘carbon copy’ was produced not by the plaintiff, but by his then solicitor.  In other words, this would need to have been an invention, not simply by the plaintiff but with the connivance of Esau.  There is no evidence at all to that effect and I accept that the copy produced to the court is authentic.  What effect does the 12 July 2005 email have on the circumstances of the case?

    [19] Magistrate’s Reasons at [64].

    [20]   Magistrate’s Reasons at [65]-[66].

16. The inference seems to be that his Honour, without explicitly stating so, was satisfied that, given the email had been sent, it more than likely had been received.  This is consistent with a later finding by his Honour[21] that “[FACAC’s] email of 12 July 2005 is an unequivocal exercise of the option to renew”.  The appellants complain of this finding[22] on the basis, inter alia, that the email was too late to satisfy the requirements for an unequivocal exercise of the option to renew.  This is correct, but in my view, the appellants’ argument misapprehends the intent behind his Honour’s finding.  In fairness, his Honour made it plain elsewhere in his reasons for judgment, that the 12 July 2005 email was too late.  What his Honour was saying here is that, by its terms, the email was an unequivocal exercise of the option to renew and indeed the plaintiff’s intention no doubt was that it should operate as such but for the fact that, as a matter of law, it was too late. 

    [21] Magistrate’s Reasons at [74].

    [22]   Notice of appeal, ground 2.

17. In any event, it is to be inferred from his Honour’s overall reasons concerning the 12 July 2005 email that he was satisfied that Mr Paraskeva received the email.  Neither the sending nor the receipt (by Mr Paraskeva) of the email was challenged on the appeal; the appeal was conducted on the basis that the email had been sent and received.  In my view, an inference to this effect is properly supported by the evidence.  Mr Davies had successfully emailed Mr Paraskeva prior to 12 July 2005; he can be assumed to have had access to Mr Paraskeva’s correct email address.  On this occasion, the cc copy of the email, as received by Mark Esau, simply showed the addressee as “Barry M Paraskeva”.  However, for the reasons given by the learned Magistrate[23] this does not necessarily mean that the email was incorrectly addressed and would not have found its way.  Once the question of authenticity had been decided in favour of FACAC, that is, that the “cc” copy of the email found in Mr Mark Esau’s email was not a later concoction, it is to be inferred, on a balance of probabilities, that the sending of the email and its receipt at Mr Paraskeva’s email address was of real importance to Mr Davies at the time.  There was no evidence that the email “bounced”.  Given the importance of the subject matter of the email, it can be inferred that had the email “bounced” Mr Davies would have taken steps to check the address and to re-send it.  There is no evidence of this occurring. 

    [23]   Magistrate’s Reasons at [17]-[18].

18. However, in addition to challenging the authenticity of the email, the appellants also argued that the email had no effect in law because it was not sent to the appellants nor to any person that was at that time an agent of the appellants for the purpose of receiving an effective notice of renewal.[24]  Whether or not this agency point is correctly taken is not an issue that needs to be finally determined given that the email is not relied upon by FACAC as an exercise of the option.[25]  Nevertheless, what may be influential in the disposition of the appeal is whether the Court can be satisfied, on a balance of probabilities, that the 12^th July 2005 email, as a matter of fact, came to the attention of the landlords.  The Magistrate did not make an express finding to this effect but, in my view, that he was so satisfied can be inferred from his reasons on this topic as a whole. 

    [24]   Notice of appeal, ground 2.3.

    [25]   The renewal provision, clause 10.1, provides simply “that on the written request by the lessee… the lessor will… grant… a new lease”.  However, clause 4.13 of the lease deals with the giving of notices and sets out various means by which any notice required to be served under the lease shall be sufficiently served on the lessee or on the lessor.  This clause, as might be expected, raises various issues as to its proper construction and application.

19. There is evidence that the landlords’ engagement of Mr Paraskeva ceased sometime prior to July of 2005.  The last written communication from Mr Paraskeva to Mr Davies that is in evidence is Mr Paraskeva’s letter of 25 May 2005.[26]  In that letter he told Mr Davies that, given that agreement as to the first floor premises could not be reached, his advice to his clients would be that they should put these premises up for lease through an agent.  There is some evidence that it was quite soon after this that Taplin was engaged.  Mr Paraskeva’s evidence was to the effect that it was within a week or so of the letter of 25 May 2005 being sent, around early June, that he ceased acting for the landlords. 

    [26]   Exhibit P1.10 (p78).

20. In any event, whether or not a notice required to be served under the lease could be given to the landlords’ solicitor (lease clause 4.13) Mr Paraskeva was the point of contact for the landlords in May 2005.  Mr Davies was not informed prior to 12 July 2005 to the contrary or, in particular, that Mr Paraskeva’s retainer had been withdrawn.[27]  In the circumstances, Mr Paraskeva was held out as the landlords’ agent to receive communications in connection with the lease of the ground floor premises (as opposed to notices required to be served under the lease – clause 4.13).  The email of 12 July 2005 was not a notice under the lease (it was too late to constitute a notice of exercise of option pursuant to clause 10.1).  However, as an offer to renew the lease, it was properly communicated to the landlords by FACAC forwarding it to their ostensible agent, Mr Paraskeva.

    [27]   This is to be inferred from the fact that Mr Davies continued to write to Mr Paraskeva until as late as 21 July 2005, exhibit P1.12 (p87).

21. Furthermore, even if Mr Paraskeva’s retainer had recently ended, it is to be expected that a solicitor of Mr Paraskeva’s experience,[28] in his position and in receipt of an email which on its face was as potentially important as the 12 July 2005 email appeared to be, would have responded to Mr Davies and told him that he no longer acted or would have passed the communication on to his former client or would have done both these things.  There is no direct evidence concerning any of these possibilities.  Mr Paraskeva had no recollection of the email and neither Arthur nor Peter were called to give evidence about these events or at all.  However, Mr Paraskeva did say, in evidence, that his practice on receiving a document of this nature was to provide a copy to the client and seek instructions.  This evidence makes sense.  Furthermore, the fact that the retainer had ended by then would explain why no instructions were received by Mr Paraskeva concerning the 12 July email.  In addition, if in fact, Arthur was content to accept the 12 July email as a sufficient expression of FACAC’s election to stay on, this also might explain why no further steps were taken then to formalise matters. 

    [28]   According to Mr Paraskeva he had been in practice since 1992.

22. The conduct of Arthur and Peter after 12 July 2005 (see further below) was entirely consistent with an acceptance on their part that the lease had been renewed. 

23. It can be inferred, from all the circumstances as just described, including this later conduct of Arthur and Peter, that they had become aware of the email of 12 July 2005 and/or, in some other way at or about that time, had become aware that Mr Davies had expressed his intention to renew the lease. 

24. Thereafter, nothing by way of direct reference to the question of renewal appears in the documentary record until about 10 or so months after the 12 July 2005 email when Taplin, on behalf of the landlords, wrote to Mr Davies on 26 April 2006 directly raising the question of extension of lease documents.  Before coming to this letter in some detail, some of the correspondence and events which took place in the intervening period should be mentioned. 

25. On or about 21 July 2005 Mr Davies wrote again to Mr Paraskeva.[29]  Evidently Mr Davies was not yet aware that Mr Paraskeva was no longer a point of contact for the landlords.  In that letter (apparently sent by facsimile on 22 July 2005) Mr Davies advised Mr Paraskeva that he had applied for an overdraft at Westpac “to finish the upgrading of the bar”.  Mr Davies also asked Mr Paraskeva to provide him with a copy of page 2 of the lease agreement.  The actions undertaken, as asserted in the letter,[30] are consistent with Mr Davies’ evidence to the effect that he was under the assumption that at all material times the lease of the ground floor had been renewed. 

    [29]   Exhibit P1.12 (p87). 

    [30]   There is evidence that at or about this time Mr Davies did procure an overdraft from Westpac for this purpose.

1. On 29 July 2005 Arthur provided a letter to the Assistant Liquor and Gambling Commissioner.[31]  The letter contains the heading “Re: 133 [sic] Gouger Street, Adelaide – Redevelopment of Premises” and was in the following terms (omitting formal parts).

   I am writing in response to my tenant’s (FACAC Pty Ltd) request for written permission to conduct structural alterations to the site of their lease (ground floor – 123 Gouger Street, Adelaide SA 5000). 

   I formally grant them permission to make any changes; which improve the value of the premises and/or the business and are made in accordance with Local Council and Liquor Licensing Guidelines and Bylaws. This is further to, and in accord with, verbal agreements made in the past between myself and the tenants. 

   I am more than happy to discuss this matter further, if it is deemed necessary by your office.

   The letter was signed by Arthur, as director of Karthurmary Pty Ltd and purportedly “on behalf of” Karthurmary Pty Ltd, Jim Baltas and Stella Crisa.  The letter is not referred to in the Magistrate’s reasons but in my view it serves to lend quite strong support to aspects of his Honour’s reasoning which were based on other written materials. 

   [31]   Exhibit P1.34 (exists separately from MFI P1).

2. The letter is entirely consistent with and supports a finding that Arthur (and therefore the landlords) as at 29 July 2005 (that is, after the last day for the exercise of the option but some two months or so before the expiry of the ground floor lease) understood a long term tenancy to be in place and that the tenant was in the process of conducting structural alterations to the premises.  It must also have been obvious to Arthur that these alterations would inure to the benefit of the landlords rather than the tenant unless the tenant continued in occupation of the ground floor premises with the certainty and entitlement to a saleable asset that a long term lease provides. 

3. On 23 August 2005 (again after the last date for the renewal of the option and now approximately one month or so before the date of expiration of the lease for the ground floor premises) Peter wrote to Taplin about the leasing of the first floor premises.[32]  In the letter Peter put forward some proposed terms that would need to be agreed upon.  However, the letter also includes the following.

   I spoke with Dad [Arthur] last night and we agreed that at this stage, Dennis [Mr Davies] is the better option as a tenant of the first floor of Gouger Street.  Therefore Jim and Dad would like to progress on this matter.  …

   [One of the important points that would need to be agreed upon is] merge the leases for upstairs and downstairs into one lease.

   There is no reason to find other than that Peter was accurately conveying the position, at the time, of both his father and Jim Baltas.  Again, it can be inferred that the landlords are operating on the assumption that a long term lease for the ground floor is in place.  It can be inferred that, at this time, either the landlords were aware that the option to renew had been “formally” exercised or, if not, that they were not fussed, on the basis that both parties were of the understanding that FACAC was in any event entitled to occupy the premises for the new term to commence on 3 October 2005. 

   [32]   Exhibit P1.30 (p93).

4. On 14 September 2005 a landlords’ confirmation of acceptance of offer to lease the first floor of the premises to FACAC was signed by Mr Baltas and, it would seem, by Arthur.[33]  The confirmation of acceptance of offer to lease contains the following handwritten notation which has been initialled by Mr Baltas and, it would appear, Arthur. 

   We agree with the abovementioned points, which only pertain to level 1/123 Gouger Street.  However, we wish to have one lease which includes both the ground floor and level 1/123 Gouger Street.

   [33]   Exhibit P1.31 (p94).

5. The Magistrate found that Peter’s letter to Taplin and the signed confirmation of acceptance of offer to lease[34] were “consistent with a landlord seeking stability to rent both the ground and first floor levels to the same tenants and lends weight to the notion that the parties were always intending to extend the lease”.  I agree with this finding and, if anything, I would put it in the stronger terms set out earlier. 

   [34]   Exhibit P1.30 and P1.31.

6. On 3 October 2005 the initial term of the ground floor lease expired by effluxion of time.  However, at sometime towards the end of 2005 and presumably in accordance with the landlords’ confirmation of acceptance of offer to lease referred to above but subject to any further negotiations that presumably took place in the intervening period, the parties executed a five year lease for the first floor for the period commencing 4 October 2005 to 3 October 2010.[35]  This lease was, in all material respects, in identical terms to the lease of the ground floor premises although it contained (probably in error) an additional option to renew.  Given the history of the matter to this point, the entry by both parties into such a lease of the first floor premises is only explicable on the basis that both landlords and tenant were of the understanding that a five year tenancy of the ground floor premises commencing on the same date (3 October 2005) was in place. 

   [35]   The lease of the first floor is P1.15 (p117-155). 

7. The documentary record reveals little of significance after this until Taplin’s letter of 26 April 2006.[36]  The full terms of that letter (excluding formal parts) are as follows.

   [36]   Exhibit P1.17 (p498-499).

   Dear Mr Davies

   Re: Lease Extension, Ground Floor 123 Gouger Street, Adelaide SA 5000

   We wish to advise that the current agreement for the above described property was due to expire on 3 October 2005 with an Extension period for a further five (5) years period ending 3 October 2010.  Your rental was also due for review on the 4^th October 2005.

   In accordance with your memorandum of lease agreement, our client has instructed us to offer a 5% increase as follows for the next twelve (12) month period. 

   [A rent calculation is then set out]

   It would be appreciated if you would kindly sign the original copy of this letter as indicated, in the presence of a witness and return the original to our office by Monday 8 May 2006.  Please retain one copy of this letter for your records.

   Upon receipt of the signed copy, we will arrange for the preparation of the Extension of Lease documents and we will contact you in regard to the execution of same.  The cost of preparation and administration will be $330.00 and we would appreciate your return remittance with the execution acceptance of this correspondence.

   Should you wish to discuss this matter further, please do not hesitate to contact the undersigned.

   Assuring you of our best attention at all times.

   Enclosed with the letter on a separate page was a document which included provision for it to be signed and dated by FACAC.  That document was in the following terms.

   We, FACAC Pty Ltd do hereby accept the above terms and conditions and authorise Taplin Realty Pty Ltd to attend to the preparation of the Extension of Lease Agreement on our behalf and hereby confirm the extension of our lease for a five (5) year period.  We enclose a cheque payment of $330.00 for fees as indicated in the attached letter and tax invoice.

8. The Magistrate made this finding.[37]

   The defendants’ agent was drawing Davies’ attention to a clear assertion that they had not yet received a written extension of lease and were doing everything to assist him to renew.  All he needed to do was sign and date the document. 

   [37] Reasons at [22].

9. In my view, the letter and enclosure from Taplin has elements of ambiguity to it.  On one reading it might be seen as stating there is no lease in place for the new term and you, the tenant, still need to confirm that you wish to enter into a lease for the new term; here are the terms and conditions if you wish to do so.  Alternatively, the letter and enclosure might be read as seeking agreement to a new proposed rent, being one calculated in accordance with the requirements of the existing lease terms and as putting a process in place to enable formal (extension of) lease documentation to be executed.  In this latter respect, there is a difference between the parties having taken steps to renew the lease (by way of the tenant exercising the option or the parties otherwise reaching agreement) and the formal lease documentation that ordinarily would then be entered into as a second stage. 

10. Let us assume for the moment that the 12 July 2005 “exercise of option” was effective or at least accepted as such by the landlords.  In these circumstances, the parties would be immediately bound to the terms of a new lease for the new five year period such terms being those provided for in accordance with the option provision in the initial lease.  It might be a requirement or an expectation that a new formal lease document would be entered into but that is a separate exercise.  Ordinarily, a failure to execute a new lease by a party would not put at risk the contractual arrangement already reached if the option had been properly exercised or the parties had otherwise reached agreement for a new (extension of) lease.  Such a failure to execute documentation may comprise a breach of any new agreement such that a right to terminate by the innocent party might arise.  However, that has not been suggested here.

11. The Taplin letter was ambiguous in its use of language and when considered against the background circumstances then pertaining.  It refers to “the current agreement” and that it “was due to expire on 3 October 2005 with an extension period for a further five (5) year period ending 3 October 2010”.  It also states, “your rental was also due for review on 4 October 2005”.  The proposed new rent was said to have been arrived at in accordance with “your memorandum of lease agreement”.  The burden of the letter is to obtain agreement to the new rent so that Taplin might then arrange “for the preparation of the extension of lease documents”.  The language of the letter is consistent with an understanding that an existing tenancy was in place but that both a rent review and formal lease documentation needed to be finalised.  This is particularly so, given the circumstances of its arrival “out of the blue” in the context of the parties’ relationship to this point.  Neither the author of the letter, nor anyone else from Taplin, was called to give evidence.  In any event, the letter can be seen as consistent with an understanding on both sides that, as of April 2006, FACAC was almost seven months into a renewed five year tenancy. 

12. The effect of Mr Davies’ evidence in chief and in cross-examination was that he saw no need to sign the document provided because in his mind he had already effected an extension of the lease.  On 4 May 2006 Mr Davies provided a lengthy written response[38] to the Taplin letter of 26 April 2006.  The letter included the following under the heading “Renewal of Lease and Increase in Rent”. 

    1.   The lease extension was renewed on 3 October 2005 by our lawyer Mark Esau and Barry Paraskeva of Loutas Paraskeva.  It was understood that there was to be no increase in the rent payable, for not only was the building upgraded by myself at no cost to the landlord, but the power board was replaced to suit occupational health, safety and welfare requirements and legislation, as well as council compliance.

    2.   Air conditioning for the ground floor unit had two motors and one pump replaced, two coolroom motors that had ceased were also replaced.  It was during this operation that we became aware of asbestos in the building… At an estimate this company would have already spent in excess of $30,000 that should have been a responsibility of the landlord… .

    3.   To date I have shown my willingness to work with the owners as much as possible to avoid them spending what I believe what would be in excess of $40,000 which was one of the considerations I took into account, to some degree, in agreeing to rent out the upstairs unit. 

    What I find annoying is that as soon as I present your office with a copy of the lease, which you did not have on file, you immediately increase the rent by 5% being a rather extreme amount, especially under the circumstances outlined above.

    It is my position that the lease agreement, if an increase is necessary, should be altered to reflect the current CPI and pay the Carta Corporation the amount due and outstanding in respect of the asbestos. 

    [38]   Exhibit P1.27 (p506-508).

13. The letter goes on to raise various other issues relating to rent, insurance, the outgoings for the first floor premises and expenses incurred in upgrading the front of the property and likely to be incurred with respect to renovations for the first floor premises.  The letter concluded with the following paragraph.

    In conclusion, with the support of the landlord, and the understanding including Taplin’s we would continue our efforts to proceed slowly and cautiously, to improve the trade downstairs to justify the capital upstairs, that would benefit us in a full and profitable operation, that could then justify the capital expenditure and improve for the landlord, the property’s value far and above what is indicated on the rates notice, which in due course will justify the acquisition.  Failing to get your understanding, we would have to look at alternatives.

    This letter contains its own ambiguities.  It canvassed a number of potential or actual areas of disputation between the parties.  However, there is no suggestion that Mr Davies was not of the understanding that he had already renewed the lease and was a long term tenant of the ground floor premises.  It is true that there is no evidence of any agreement or conduct between Mark Esau and Barry Paraskeva concerning a renewal on 3 October 2005.  Of course, Mr Paraskeva had well and truly ceased acting for the landlords by 3 October 2005.  However, it is open to conclude, as counsel for FACAC submitted, that Mr Davies was really referring to an earlier agreement to renew as at 3 October rather than any such agreement actually occurring on 3 October which would be very unusual.  Again, the language of the letter here is ambiguous.  

14. The Magistrate made an important finding with reference to this letter.[39]

    Davies’ letter of 4 May 2006 could not be a renewal… .  In any case, the 4 May response by Davies, particularly the reference to having extended the lease through the plaintiffs’ solicitor, appears to have assuaged any concerns held by the defendants or their agents about the issue. 

    I agree with this finding; it is supported by the conduct between the parties thereafter. 

    [39] Magistrate’s Reasons at [25].

15. Notwithstanding this exchange of correspondence on 26 April and 4 May 2006, the parties continued to deal with one another as landlords and tenant and continued to discuss and negotiate various issues concerning both the ground floor premises and the first floor premises.  No further mention is made of any lack of extension of lease documentation.  Correspondence between the parties’ representatives and some internal correspondence between the landlords and its agent, Taplin, shows that neither party was concerned about the absence of formal documentation.  Both were operating on the assumption that a five year term for the ground floor premises was in place.[40]

    [40]   See, for example, the correspondence at P1.33 (p170,171, 173, 222, 230), the letter of Taplin to Davies dated 29 June 2006 at p179 of P1 and the letter at p235 of P1.  These letters do not appear to have been formally tendered but the Magistrate does refer to them in his reasons, at [29], [34] and there would appear to be no objection to their admissibility at least for this purpose.

16. After reviewing the documentary record for the period of at least two years or so after 3 October 2005, the Magistrate made a number of findings along the line that the documentary record was entirely consistent with both the landlords (as then constituted – that is, Karthurmary, Mr Baltas and Ms Crisa) and FACAC both being of the view that the extension of lease for the ground floor premises was in place for the period of five years from 4 October 2005.[41]

    [41]   See, for example, Magistrate’s Reasons at [25], [26], [28], [29], [30], [31], [33], [34], [35], [36], [37], [38].

17. By way of example, reference might be made to the letter of Taplin to Mr Davies dated 31 May 2006[42] which dealt with the question of rent for both the ground floor premises and the first floor premises.  It includes the following statement.

    The owner has agreed that no increase will be included in your rent payment for the ground floor as from 4 October 2005 but will be increased by 5% as at 4 October 2006. 

    There is no reference to the need for any lease extension documents to be entered into.  I agree with the finding of the Magistrate concerning this letter[43] that this was a compromise with respect to rent that was negotiated following Mr Davies’ letter of 4 May 2006 and that the tenor of the letter (as a whole) supports a finding that the agent no longer believed the extension was a live issue. 

    [42]   P1.33 (p173).

    [43] Magistrate’s Reasons at [28].

18. The Magistrate made more specific findings.  He found that when one looks at the history of the correspondence it becomes clear that Peter, on behalf of his father, was satisfied that an extension of lease had been effected,[44] that it was open to infer from the numerous despatches that the lease was presumed by all to be in place and that other seemingly more important issues such as rent increases and bond monies were being resolved[45] and, ultimately, it was open to infer that Arthur was aware of the extension and that is why the matter proceeded as if an extended lease was in place.[46]  I am satisfied on my review of the evidence that these findings were appropriate and should not be disturbed. 

    [44] Magistrate’s Reasons at [39].

    [45] Magistrate’s Reasons at [39].

    [46] Magistrate’s Reasons at [40].

19. On 15 October 2007, some two years after the expiration of the initial term of the ground floor premises, Mr Esau lodged on behalf of FACAC a caveat over 123 Gouger Street claiming:

    An estate and interest as lessee of the said land pursuant to a lease dated on or about 4 October 2000 and expiring on 3 October 2005 between the caveator as lessee and the caveatees as lessors which lease was renewed for the period commencing on 4 October 2005 and expiring on 3 October 2010.  

    The caveat was not warned by the landlords.

20. By email dated 12 October 2006[47] Ms Aspinall of Taplin drew Peter’s attention to the fact that, when Taplin went through its files to collate information for Andrew Duncliffe,[48] it became apparent that although the extension letter had been sent in April to Mr Davies, it had not been signed or returned.  She requested instructions with reference to this matter.  Peter responded to Ms Aspinall by email dated 12 October 2006.[49]  The response dealt with an issue concerning a proposed rent increase which also had been raised by Ms Aspinall in her email.  Whilst there is a reference to “the lease” in Peter’s email, there is no reference whatsoever to the extension issue. 

    [47]   Exhibit P1.33 (p222).

    [48]   It was at about this time that the landlords engaged Andrew Duncliffe, a solicitor at Thompson Playford (as they were then known), to act on their behalf.

    [49]   Exhibit P1.33 (p230).

21. By a letter dated 26 October 2006[50] Mr Duncliffe, as solicitor for the landlords, advised Mr Esau, as solicitor for FACAC, that “with respect to the ground floor lease, the rent is to be paid strictly as required by the Lease ie monthly in advance on the first day of each and every month. … Our client insists on strict compliance with the lease as to [the 1 November] payment and future rental payments.”  As the Magistrate observed[51] there was no mention of the lease extension issue in Mr Duncliffe’s letter.  It can be inferred that Mr Duncliffe was not instructed to raise this issue, and notwithstanding the correspondence between Ms Aspinall of Taplin and Peter in which Taplin raised the lease extension issue and which presumably led to the instructions given to Mr Duncliffe. 

    [50] Exhibit P1 at p235. Again, it does not appear that this letter was formally tendered although it is referred to by the Magistrate in his reasons at [34]. Again, there could be no objection to its tender.

    [51] Magistrate’s Reasons at [34].

1. On 3 November 2006 Lyn Bronson of Taplin wrote to Mr Davies concerning the ground floor tenancy.[52]  The letter again deals with the question of a rent increase for the ground floor tenancy and uses the following language “we wish to advise that the current memorandum of lease for the above described premises was due for rental renewal as at 4 October 2006”.  (Emphasis supplied.)

   [52]   Exhibit P1.18 (p240).

2. As previously indicated, the only time a concern might have been raised that there may not have been a renewed lease in place for the period 4 October 2005 to 3 October 2010 was in late 2007 at the time that Mr Jackson started to negotiate for the purchase of the Baltas and Crisa interest.[53]  However, it was only significantly later again that, by letter dated 6 April 2009, Mr Jackson, on behalf of the landlords (as then constituted) asserted that the ground floor tenancy had not been renewed and FACAC was in occupation on a month to month basis. 

   [53]   That is, apart from the Taplin 26 April 2006 letter dealt with earlier which on one view might be confined to a concern about extension documentation.

   The essential reasoning of the Magistrate

3. The Magistrate’s reasons tend to be somewhat discursive in the sense that they take the form of an ongoing discussion of the evidence both oral and documentary interwoven with submissions by each side and, from time to time, with what appear to be findings or apparent findings of fact.  However, the essence of his Honour’s reasoning at the end of the day is clear enough.  It can  be summarised in the following.

   (i)The initial five year lease for the ground floor premises expired by effluxion of time on 3 October 2005. 

   (ii)During that initial lease term the relationship between Arthur who, for all intents and purposes, represented the appellant landlords and Mr Davies who represented FACAC was friendly and cordial; both understood and intended that FACAC was to be in occupation of the ground floor premises for the long term.  Consistently with this understood position, the initial lease had multiple rights of renewal each for five years and FACAC had spent and intended to continue to spend money on renovating and refurbishing the premises with the consent of Arthur. 

   (iii)At all times throughout their dealings the relationship of Arthur and Mr Davies was informal, friendly and cooperative.[54]

   (iv)The latest time by which FACAC was entitled under the terms of the initial lease to exercise an option (a unilateral entitlement) to renew for a further five year term commencing 4 October 2005, was 3 July 2005.  This date came and passed without any formal exercise of the option.

   (v)By email dated 12 July 2005 sent to and received by Mr Paraskeva, in his capacity (as believed by Mr Davies) as solicitor for the landlords, Mr Davies purported to exercise the option to renew. 

   (vi)This purported exercise of the option to renew was out of time and ineffective, of itself, to effect a renewal in accordance with the requirements of the initial lease. 

   (vii)Nevertheless, at all material times after 4 October 2005 and whether by virtue of Arthur being made aware of the email of 12 July 2005 or of other communications between Mr Davies and Arthur (or others on behalf of Arthur) the landlords and FACAC proceeded in their dealings one with the other and generally as if the lease had been renewed.[55]

   (viii)In addition to the oral and documentary evidence specifically referred to in the Magistrate’s reasons, his Honour relied on two other matters as support for the conclusion that both parties, at all material times, acted as if the extension was in place.  One was the fact that (and circumstances in which) the parties entered into a “mirror” lease of the first floor premises commencing 4 October 2005.[56]  The other was the fact that, apart from the letter from Taplin of 26 April 2006, nothing was conveyed to Mr Davies that might have put FACAC on notice that the landlords were not of the view that an extension of the lease was in place until sometime after Mr Jackson arrived on the scene and after FACAC had invested significant sums of money in renovating the ground floor premises.[57]

   [54] Magistrate’s Reasons at [41].

   [55]   See the finding in the Magistrate’s Reasons at [73] and see also, [40] “it is open to the Court to infer that Arthur was aware of the extension and that is why the matter proceeded as if an extended lease was in place”, [68] “it is clearly open to the Court to infer that both parties assumed that the lease had been extended”, [69] “ the actions of both parties evidenced by the correspondence and testimony of Davies during this crucial [2006-2007] period is consistent with them believing that the lease had been renewed”.

   [56] According to the Magistrate this was “consistent with a landlord seeking stability to rent both the ground and first levels to the same tenant and lends weight to the notion that the parties were always intending to extend the lease”, Magistrate’s Reasons at [26].

   [57]   Magistrate’s Reasons at [68] “would a tenant spend considerable amounts of money to improve a leased property if it believed it was only holding a monthly tenancy?  Conversely, would a landlord expect a tenant to spend large sums of money on improvements if it had no enduring tenure and was only renting on a monthly basis?”

4. In my view, the Magistrate made no error in these respects; there was more than ample evidence (oral and documentary) to support each of these propositions. 

5. The Magistrate then proceeded to consider the law.  His Honour relied upon Hillier v Goodfellow[58] and Forrest Chase Medical Services Pty Ltd & Anor v Toliver Pty Ltd & Anor.[59]  I agree with the criticisms raised by counsel for the appellant concerning his Honour’s reliance on these two authorities.  I agree that they are not of particular assistance on the facts of the present case.  However, his Honour mostly relied upon principles said to be derived from Walton Stores (Interstate) Ltd v Maher[60] and, in particular, on the following observation of Mason J in that case.[61]

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

   [58] [1988] V ConvR 54-310.

   [59]   Supreme Court of Western Australia, 5 September 1997 unreported (Anderson J), BC9704222.

   [60] (1988) 164 CLR 387.

   [61]   At 404.

6. The Magistrate went on to observe that in determining whether or not, in a case such as the present, there had been a renewal of the lease, the Court was not restricted to the strict application of contract law but rather “the High Court has endorsed an approach based on equity and fairness”.  His Honour said this.[62]

   It would appear that if a short delay was followed by an unequivocal renewal and behaviour by the landlord consistent with an assumption that the renewal had been effected, the Court should grant the tenant relief.  That is exactly what occurred in the present case.  Indeed, in all the negotiations and dealing between the parties during their relationship up until the question of the renewal became an issue for the defendant the focus was on the terms of the lease.

   [62] Magistrate’s Reasons at [72].

7. I agree with counsel for the appellant that, such reasoning is unsound.  But it is only unsound when viewed in isolation from other aspects of his Honour’s reasons.  On any analysis of the judgments in Walton Stores and subsequent authorities which have relied upon that case to explicate the law of equitable estoppel, such an estoppel will not arise simply on the basis of an unequivocal renewal (after a short delay) and behaviour by the landlord consistent with an assumption that the renewal had been effected.[63]  

   [63]   I will leave aside for the moment but will return to the question of whether such conduct by the parties might, in appropriate circumstances, properly be characterised as giving rise to a contract based renewal of the lease.

8. However, it is apparent that his Honour also had in mind that for an equitable estoppel to arise FACAC would also need to show that, in reliance on the assumption that the renewal had been effected, it took steps to its detriment such that it would be unconscionable conduct on the part of the landlords thereafter to ignore or withdraw from the assumption.  His Honour made these further findings.

   (i)“[A]n obvious but important reality upon which [FACAC] proceeded … is that extensive and costly renovations were undertaken on the assumption that the lease was renewed.”[64]

   (ii)“[FACAC] invested significant sums of money in renovating the ground floor business; considerable amounts of money to improve a leased property.”[65]

   (iii)“If the assumption of a renewal is not now adhered to by [the landlords] it would clearly operate as a significant detriment to [FACAC]”.[66]

   (iv)“[The landlords] cannot choose to ignore in 2009 [their] own approach in 2006 and thereafter.  [Their] change of position, if permitted, would have a devastating effect on [FACAC], which would prohibit it taking the benefit of its renovations and goodwill if relegated to a monthly tenancy.  The detriment to [FACAC] would be profound.”[67]

   (v)“[As a consequence the landlords] should not be empowered to depart from the assumption of a legitimate renewal and should be estopped from asserting that a valid renewal has not been made.  In my view, this is in line with the obvious shift of the Court towards fairness …”.[68]

   [64] Magistrate’s Reasons at [73].

   [65] Magistrate’s Reasons at [68].

   [66] Magistrate’s Reasons at [69].

   [67] Magistrate’s Reasons at [78].

   [68] Magistrate’s Reasons at [78].

9. Unfortunately, the Magistrate did not make precise findings about the nature and extent of expenditure on improving the landlords’ premises incurred by FACAC.  However, his Honour’s findings to the effect that the extent of the detrimental reliance was significant has not been seriously challenged.  Such a finding is, in my view, well supported by the evidence.  What the landlords do challenge on appeal is the finding that it would be unconscionable, in all the circumstances, to allow the landlords to depart from any relevant common assumption given that, as at the trial, FACAC had enjoyed approximately six years occupancy during which it had enjoyed the benefit of the expenditures.

   The case for the respondent (FACAC) at trial, as pleaded

10. According to the third amended particulars of claim filed soon after the trial commenced, the essence of FACAC’s claim that the lease had been renewed was pleaded as follows.

    (i)Reliance was placed upon an alleged notice in writing purporting to exercise the option provided in or about June 2005 which was subsequently confirmed by the email of 12 July 2005 to Mr Paraskeva.  The Magistrate examined the evidence before the court relevant to the question of whether a written notice of renewal earlier than 12 July 2005 had been provided and was not satisfied, on balance, that it had been.  His Honour also found that the notice of exercise that was sent to Mr Paraskeva by email dated 12 July 2005 was outside the permitted time and too late to effect a renewal of the lease.  There has been no appeal from these conclusions.[69] 

    [69]   It was conceded by FACAC at the trial that the 12 July email was out of time.

    (ii)FACAC, in addition, pleaded various conduct of the parties after 12 July 2005 which it maintained led to a number of oral agreements that varied the terms of the initial lease, as renewed, and that these oral agreements were honoured and represented the true arrangement between the parties.  Included amongst these allegations was the following pleading.[70] 

    [70]   Paragraph 14.3 of the third amended particulars of claim.

    14.3  Arthur on behalf of the first defendant [Karthurmary] and the original property owners accepted at all material times from about June 2005 that the plaintiff had validly renewed its lease.  This acceptance was acknowledged by him orally on many occasions by discussing the extension of the lease with Davies.  Further, the following material facts confirmed the extension. 

    14.3.1 When the plaintiff lodged the caveat … neither Arthur nor the other original property owners made any complaint … about the caveat nor did they state that there had not been a renewal of the lease.

    14.3.2Arthur, because he knew that the plaintiff [FACAC] and Davies intended to renew the lease instructed the original owners’ solicitors to deal with the plaintiff in relation to the extension of the lease.  In addition, the same solicitors were instructed to enter into arrangements for a new lease of the first floor of the premises which had not been previously leased by the plaintiff.  That lease was negotiated to have the same term [other than one additional extension] as the lease for the ground floor.  There was also negotiations to determine if a more suitable method of leasing the ground floor and first would be to combine the plaintiff’s occupation of both the areas into one new lease document.  That eventually did not occur.   On the 4 October 2005, the original property owners and the plaintiff entered into a second lease with the plaintiff for the first floor of the premises which provided for the original and the first renewed term of that lease to be operative for exactly the same dates as the original lease which had been renewed. 

    14.3.3At a date unknown by the plaintiff, but likely to be in April 2006 Arthur and/or the first defendant instructed Taplin Real Estate agents to act on behalf of the original property owners to determine in writing a new rent per annum to be paid per month and to determine a budget for a further five year period ending on 3 October 2010.  The new rental in paragraph 11 herein was agreed as a result of the correspondence between Taplin and the plaintiff.

    (iii)In a pleading which appears to be (although is not expressly stated as being) in the alternative to the plea that the option had been exercised and the plea set out in (ii) above,[71] FACAC pleaded an estoppel case.  That plea was in the following terms.

    [71]   See paragraph 14.6 of the third amended particulars of claim.

    14.6  In late 2004 on a date that cannot be remembered, Arthur and Davies discussed the future of the plaintiffs business.  The conversation was to the following effect.  Davies advised Arthur he was about to carry out his plan to renovate the bar and convert it to an hotel.  His intention to do so had been previously discussed on a number of occasions with Arthur.  Davies discussed that he would like to buy the freehold of the building. Arthur said it was not for sale as it was his children’s inheritance.  Arthur said he was really happy for Davies to be a long term tenant, renovate and stay for the full term of the lease.  Arthur said he was keen for Davies to establish an hotel as it would increase the value of the building and the plaintiff’s business.  Davies said during the long term of the lease maybe someday, he could buy the building.

    14.6.1Davies relied on Arthur’s statements, which amount to representations.  The plaintiff completed throughout 2005 significant renovations, and installed plant and equipment to establish an hotel.

    14.6.3[72]     The plaintiff applied for an overdraft account in the sum of $150,000.00 in about June 2005, which was granted by its bank in August 2005.  That money was drawn down in order [to] complete the renovations.

    14.6.4At no time did Arthur ever suggest to Davies that the plaintiffs lease had not been renewed or that it would not be entitled to remain in the premises for less than the full term of the lease.  His conduct and statements at all times were consistent with his representation and desirous of Davies business continuing in the premises.

    14.6.5In late 2007 in a meeting with Davies and in 2008 in correspondence, Evan Jackson on behalf of the defendants resiled from the representation.  He said the plaintiff was entitled to remain as a monthly tenant only and had not renewed the lease in October 2005.

    14.6.6Davies would not have caused the plaintiff to carry out the renovations and install plant and equipment, if there was any suggestion by Arthur that he would not be entitled to remain for the full term of the lease.

    14.6.7The defendants should be estopped from their conduct (through Jackson) of resiling from the representation and conduct.

    It can be seen that the estoppel claim, as pleaded, was essentially based on representations said to have been made by Arthur to Mr Davies in late 2004 and reliance by FACAC on those representations essentially “throughout 2005” and as more fully particularised in sub-paragraphs 14.6.1 and 14.6.3.  According to the plea in sub-paragraph 14.6.6, Davies would not have caused FACAC to carry out the 2005 reliance conduct but for the alleged representations by Arthur. 

    [72]   There is no 14.6.2 in the pleading.

11. The basis for a renewal of the lease as pleaded in paragraph 14.3 (above) was not directly addressed by the Magistrate.  The Magistrate ultimately decided the matter on the basis of an equitable estoppel.  However, in doing so, his Honour focussed on representational conduct by the landlords and/or a common assumption generated by the parties occurring after the 12^th July 2005 email and not (as paragraph 14.6 of the pleading asserted) in late 2004.  Nevertheless, his Honour certainly relied on the nature of the relationship between Arthur and Mr Davies prior to 12 July 2005 as contributing to the common belief or understanding of the parties throughout their interactions in 2005, 2006 and 2007.  Furthermore, the pleading in paragraph 14.6 can be read as referring to a continuing common understanding rather than as restricted to specific identified representations earlier in the relationship which served as the fount of all reliance conduct thereafter.

    The grounds of appeal

12. In the Notice of Appeal the appellants relied on a number of grounds in asserting that the Magistrate erred in finding that the landlords were estopped from denying the existence of a renewed lease for the period 4 October 2005 to 3 October 2010. 

13. By ground 2, the appellants complain that the Magistrate erred in finding that [FACAC’s] email of 12 July 2005 was an “unequivocal exercise of the option to renew”.[73]   I have already briefly dealt with this.  In my view, the appellants have taken this statement out of context.  Considered in isolation, it is plainly incorrect.  However, his Honour did not use this expression in the sense that the 12 July 2005 email, of itself, effected a renewal.  The appellants also maintain that this email was not sent to the appellants or to any party who at the time was an agent of the appellants for the purpose of receiving an effective notice of renewal.  Given that at no time was there an effective notice of renewal this criticism falls away.  However, I have indicated that I am satisfied, for the reasons given, that the contents of or sentiment underlying the document did come to the attention of both Mr Paraskeva and of Arthur.   

    [73] Magistrate’s Reasons at [74].

14. By ground 3, the appellants complain that the Magistrate erred in holding that “it would appear that if a short delay was followed by an unequivocal renewal and behaviour by the landlord consistent with an assumption that the renewal had been effected the Court should grant relief.”[74]  Again, this proposition should be read in its full context.  Standing alone, I agree that it does not accurately represent the law.  However, the Magistrate’s decision was not based on nor did it follow from an acceptance of this proposition.  The proposition was, in a sense, a starting point for his Honour’s more detailed analysis and application of the law of equitable estoppel.  The language used is loose.  However, if anything, it resembles a finding that there had been, in effect, a contractual renewal; a renewal of the lease by agreement.  I will come back to such a consideration later in these reasons. 

    [74] Magistrate’s Reasons at [72].

1. By grounds 4 and 5 the appellants complain that the Magistrate erred in his interpretation and application of Hillier and Forrest Chase Medical Services.[75]  As earlier indicated, I agree with this criticism.  However, the view taken by his Honour of these two cases was not, in my view, critical to his overall reasoning and decision reached in the matter. 

   [75]   Magistrate’s Reasons at [70] and [74].

2. That leaves grounds 1 and 6 of the notice of appeal.[76]  Ground 1 is in the following terms.

   [76]   Ground 7 related to the distraint claim which does not need to be dealt with on the appeal.

   1.The … magistrate erred in fact and law at Reasons [78] in holding that the appellants:

   “ …departed from the assumption of a legitimate renewal and should be estopped from asserting that a valid renewal has not been made.”

   1.1    He erred in fact because on his own finding of primary fact at Reasons [22], the appellant had on 26 April 2006 through its agents Taplins by letter to the respondent made a “clear assertion that they had not yet received a written extension of Lease.”

   1.2    Therefore, on his own primary finding of fact, or alternatively on the evidence, the parties did not assume there had been a legitimate renewal of the lease, nor did the appellants “depart” from any such assumption.

   1.3    He erred in law because even if the respondent assumed at any relevant time that a legitimate renewal had been effected, this assumption was not caused or contributed to by the appellants in any way which could properly have grounded an estoppel, nor was any relevant assumption made by the respondent relied upon by the respondent to its detriment so as to afford a proper basis for the estoppel as found by the … magistrate.

   Ground 6 is in the following terms.

   6.The … magistrate erred in law in granting relief to the tenant – as he apparently did in Reasons [72] and [78] – on a basis not pleaded or contended for by the respondent.

   6.1    The respondent did plead an estoppel, but this was an allegation of estoppel based on a representation on behalf of the appellant in late 2004, prior to the time of expiry of the option to renew.

   6.2    The … magistrate correctly made no finding or order based on the pleaded estoppel, and should have dismissed the estoppel claim accordingly.

   6.3    The … magistrate erred in granting relief on the basis of a claim not pleaded or contended for at trial.

   6.4    In any event, even if it was open to the … magistrate to decide the case on a basis not pleaded or contended for, he erred in fact and law for the reasons set out in this Notice of Appeal.

   Further consideration of and resolution of the issues

3. During the appeal, counsel for the appellant submitted, at some length, that for FACAC to succeed with an estoppel claim it would need to point to a representation or representations to the effect that it did not need to comply with the 3 July 2005 deadline when giving a notice of exercise of the option to renew.  This is one type of representation that might give rise to an estoppel.  However, this was not the way in which the trial was conducted (and notwithstanding the form of the pleadings) and it was not the way in which the Magistrate considered and decided the estoppel issue. 

4. During submissions on appeal I asked counsel for the appellants whether, in this respect, they had been caused any prejudice either at trial or on the appeal in the sense of having been denied procedural fairness.  In particular, I was concerned with whether the appellants had been prejudiced by the way the Magistrate dealt with the matter in his reasons as compared with the pleadings, FACAC’s opening and the way in which the trial had been conducted.  When pressed on this issue, counsel for the appellants conceded that this was not a matter of concern.  The appellants’ complaint on appeal relates to the basis relied on by the Magistrate for a finding of equitable estoppel and an asserted lack of factual foundation for that finding.[77]  Accordingly, appeal ground 6 (at least sub-grounds 6.1, 6.2 and 6.3) falls away.  I return to the first ground of appeal.

   [77]   Appeal transcript at 45-47.

5. A helpful and for present purposes, with respect, adequate statement of the doctrine of the promissory estoppel is that provided by Brennan J in Waltons.[78]

   In my opinion to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

   [78] (1988) 164 CLR 387 at 428-9. Professor Carter in his book Contract Law in Australia 6^th ed, 2013, LexisNexis Butterworths at 7-14 has observed: “Brennan J’s formulation has been referred to in several subsequent cases without disapproval [footnoted authorities and citations omitted from this quotation]. However it has not been approved by the High Court, and it may be that element (1) places undue emphasis on the need for an assumption or expectation that a particular legal relationship existed or would exist [footnote omitted].

6. In my view, there is sufficient in the Magistrate’s findings and in the evidence as surveyed in these reasons to support each of Brennan J’s six requirements.[79]  However, the estoppel analysis can be simplified or at least put in alternative terms.  The situation before the Magistrate was one of estoppel by convention.  The matters necessary to establish an estoppel by convention have been described by Brereton J in Moratic Pty Ltd v Gordon[80] in the following terms.

   (1)that [the plaintiff] has adopted an assumption as to the terms of its legal relationship with the defendant;

   (2)that the defendant has adopted the same assumption;

   (3)that both parties have conducted their relationship on the basis of that mutual assumption;

   (4)that each party knew or intended that the other act on that basis; and

   (5)that departure from the assumption will occasion detriment to the plaintiff.

   As Campbell JA in Franklins Pty Ltd v Metcash Trading Pty Ltd[81] has pointed out, the need for the one assumption to be adopted by both parties and for it to be the conventional basis of their relationship is established by High Court authority.[82]

   [79]   As far as elements (1) and (2) are concerned, the assumption in this case was that a legal relationship (the renewed lease) did exist rather than would come into being.

   [80] [2007] NSWSC 5 at [32]; approved of by Tobias JA (with whom Mason P and Campbell JA agreed) in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [200] and by Campbell JA (with whom Allsop P and Giles JA agreed) in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [573].

   [81] [2009] NSWCA 407 at [574].

   [82]   Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244 (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ); Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 676-7 (Dixon J, McTiernan agreeing); Dabbs v Seaman (1925) 36 CLR 538 at 549-50 (Isaacs J); Ferrier v Stewart (1912) 15 CLR 32 at 44-5, 46 (Isaacs J).

7. The evidence supports the following conclusions.

   (i)From, at the latest, mid July 2005 until, at the earliest, November 2007, both parties shared the common assumption (indeed, the intention and desire) that a five year lease of the ground floor premises for the period 4 October 2005 until 3 October 2010 and on the same terms (but for any negotiated variations over time) as the initial lease due to expire 3 October 2005, had been agreed upon and was in place.[83]

   (ii)Both conducted their relationship on this basis throughout that period and intended each other to do so.[84]

   [83]   Elements (1) and (2) above.

   [84]   Elements (3) and (4) above.

8. The issue that requires a little further consideration is that of the detriment that would be caused to FACAC if the landlords were permitted to withdraw from the common assumption.  The appellant landlords submit that, even if in all other respects the requirements for an estoppel are sufficiently made out, the aspect of detrimental reliance has not been.  The appellants submit that the remedy given in Waltons – to compel the tenant to take a lease - was unusual and very much the product of the quite extreme facts in that case.  Here, the money that was spent by FACAC in reliance on the expectation of a long term tenancy must have been well and truly recovered during the six years or so of occupation from 4 October 2005 to trial and more than seven years to the hearing of the appeal. 

9. The evidence is unclear as to the total amount of expenditure incurred by FACAC and as to a fair and proper distribution of that expenditure across recurrent as compared with capital items.[85]  The court has no useful information concerning the tax treatment of any such expenditures.  However, the Magistrate found that expenditure incurred on renovation and refurbishment, which would not have been incurred but for the assumption, was substantial.  There is no basis upon which this finding should be disturbed. 

   [85]   The appellant conceded that in the order of $100,000 was spent during May 2005 to May 2006 although not all on capital works.  FACAC submitted that expenditures in reliance on the assumed state of affairs exceeded that figure and extended over a longer period of time.  It is not possible from the financial records tendered, (in particular, P3) to resolve this issue.

10. In addition, it can be inferred that the decisions made by FACAC as to the development and conduct of its business on the land were informed not just by an expectation that a five year term until October 2010 was in place but by the understanding that the lease for that second term conferred two further five year options which, in effect, guaranteed tenure to 2020.  By expending the money and conducting the works it did, FACAC developed the business and its goodwill.  It can be accepted that it did so in reliance on the assumption that it would have until 2020 (not just until 2010) to take the benefit of the business and its goodwill, as developed. 

11. In addition, FACAC entered into a minimum five year commitment to the landlords with respect to the first floor premises.  This was in reliance (by both) on the shared assumption concerning the ground floor lease.  FACAC assumed various further obligations and committed management time and some financial resources to the planned development of the first floor.  This venture proved unsuccessful; indeed the Magistrate ordered that FACAC pay the landlords damages (capped at the Magistrates Court jurisdictional limit) of $40,000 for breach of the first floor premises lease.  Again, FACAC entered into and committed expenditure and management time on this failed venture but would not have done so if not for the shared assumption that the extension of the ground floor lease (with its two further rights of renewal) was in place.

12. The appellant landlords submit that even if an equitable estoppel is made out, FACAC is entitled only to the minimum equity that will do justice between the parties[86] and that given the six or seven years of additional occupation, the granting of a lease for 2005 to 2010 with two further five year options is not necessary in order to achieve and would exceed the minimum equity. 

    [86]   See, for example, Commonwealth v Verwayen (1990) 170 CLR 394.

13. I disagree.  It is not possible, nor is it appropriate, for a court of equity to carefully measure out that amount of extra occupation that would recompense FACAC for its reliance loss.  The risk of “under compensation” is patent.  Of course, to deal with the issue in the way FACAC urges would risk “over compensation”.  The question is, which of these risks is the more palatable? 

14. Over “compensation” causes no corresponding harm to the landlords.  Early in the piece a bargain was struck on terms satisfactory to the landlords that was to entitle FACAC to occupy the ground floor premises on the agreed lease terms (subject to any mutually agreed variations) until 2020.  Nothing will have changed (leaving aside the extent to which the landlords may no longer be happy with the relationship as it has developed – but they have their remedies at law in accordance with the lease terms).  However, the risk of under “compensation” brings with it a corresponding risk of windfall to the landlords; a return of the improved ground floor premises much earlier than the landlords otherwise expected or ordinarily would be entitled to and a capturing of any business goodwill as built up by FACAC and attached to these premises.  This risk of a windfall arises essentially because FACAC was nine days late in exercising its contractual right to renew which was a matter that did not trouble the landlords at the time and for some considerable time thereafter.  It also arises in the circumstances where the landlords had contributed significantly to the creation of the shared assumption and the consequential detrimental reliance.

15. Viewed in this light it becomes very difficult, perhaps impossible, in this case to fairly identify and characterise a response as the minimum equity to do justice between the parties.  A more helpful enquiry is to ask whether, in all the circumstances, would the landlords be acting unconscionably if they were to withdraw from the shared assumption?  In my view (and as I apprehend it, the Magistrate’s view) they would be.  Equity should intervene and hold the parties to the shared assumption for the creation of which the landlords were partly but substantially responsible.

16. The appeal should be dismissed for the reasons given to this point.  However, I am satisfied that there is another, perhaps more straightforward, answer to the landlords’ claim that the lease was not renewed.

17. Once, as I am satisfied occurred, the landlords (essentially Arthur) became aware, either through the 12 July 2005 email or otherwise of FACAC’s intention to renew the lease on identical terms and conditions, a contractual offer to do so had been communicated.  It is still the case that “mere silence” will not qualify as an acceptance of an offer so as to give rise to a binding contract, in the sense that an offeror cannot impose on an offeree an obligation to respond or else be deemed to have accepted the offer.[87] 

    [87]   Felthouse v Bindley (1862) CBNS 869; 142 ER 1037 is authority for the proposition, although its application to the facts of that case can be criticised.

18. However, an acceptance need not be express (oral or in writing) it can be inferred from conduct.  Furthermore, whilst an atomistic approach to contract formation is a helpful analytical and educational tool it is not always necessary or possible, in practice, to identify a single specific event which qualifies as an offer and a single specific event which serves as an acceptance of that offer.  The situation often encountered in commercial life has been described by McHugh JA (as he then was) in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.[88]

    Under the common law theory of contract, the silent acceptance of an offer is generally insufficient to create any contract: Brogden v Metropolitan Railway Co and Robophone Facilities Ltd v Blank. The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as a rejection and not an acceptance of the offer. Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: Carlill v Carbolic Smoke Ball Co. However, an offeror cannot erect a contract between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance: Felthouse v Bindley and Fairline Shipping Corporation v Adamson. The common law's concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer or be bound by contractual obligations.

    Nevertheless, the silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer: Rust v Abbey Life Assurance Co Ltd. The offeree may be under a duty to communicate his rejection of an offer. If he fails to do so, his silence will generally be regarded as an acceptance of the offer sufficient to form a contract. Many cases decided in United States jurisdictions have held that the custom of the trade, the course of dealing, or the previous relationship between the parties imposed a duty on the offeree to reject the offer or be bound: CMI Clothesmakers Inc v ASK Knits Inc; Brooks Towers Corporation v Hunkin-Conkey Construction Co; Alliance Manufacturing Co Inc v Foti. But more often than not the offeree will be bound because, knowing of the terms of the offer and the offeror's intention to enter into a contract, he has exercised a choice and taken the benefit of the offer. In Laurel Race Course Inc v Regal Construction Co Inc a contractor proposed that it would do additional work upon the basis that, if the work was the result of its defective workmanship under the original contract, there would be no charge. Otherwise the work would be charged on a “cost-plus” basis. The building owner made no reply to this offer. The contractor commenced work on the job to the knowledge of the building owner who was held bound by the terms of the offer. Speaking for the Court of Appeals for Maryland, Judge Levine said:

    “¼ Where the offeree with reasonable opportunity to reject offered services takes the benefit of them under circumstances which would indicate to a reasonable person that they were offered with the expectation of compensation, he assents to the terms proposed and thus accepts the offer.”

    This formulation states acceptance in terms of a rule of law. However, the question is one of fact. A more accurate statement is that where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. A useful analogy is to be found in the “ticket cases” where an offeree, who has or ought to have knowledge of the terms of a contract of carriage or bailment, is generally bound unless he raises objection: cf Thornton v Shoe Lane Parking Ltd and MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia).

    The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.

    [88] (1988) 14 NSWLR 523 at 534-535, emphasis supplied, citations omitted.

19. The landlords and FACAC operated under a shared assumption that the renewal was in place for more than two years.  How did this shared assumption come about?  The following analysis is supported by the Magistrate’s findings and the additional findings made by me.

    (i)As early as during the first half of 2005 FACAC had commenced to spend money on renovation and refurbishment with the consent and encouragement of Arthur.

    (ii)At this time and prior thereto, Mr Davies and Arthur engaged in conversations concerning FACAC’s desire to be a long term tenant.

    (iii)At this time, the landlords were keen to let the first floor premises and preferably to the same tenant who occupied the ground floor premises, that being FACAC.

    (iv)At this time, FACAC was not so keen to lease the first floor premises.

    (v)However, to the extent that FACAC was interested in the first floor premises (whether as lessee or purchaser) it was only in order to refurbish and combine it with the ground floor premises.

    (vi)On 3 July 2005 the last opportunity to formally exercise the option to renew the ground floor lease passed.

    (vii)On 12 July 2005 FACAC, in unmistakable terms, purported to “exercise” the option.  As earlier explained, this email is to be characterised as an “offer” to renew communicated to the landlords’ ostensible agent for this purpose, Mr Paraskeva.

    (viii)As a purported exercise of option, this email was too late and ineffective as such.  However, there was no reaction from the landlords to this failed attempt to exercise the option until, at the earliest, the Taplin letter of 26 April 2006.

    (ix)In the meantime, the cordial relationship between Arthur and Mr Davies continued and FACAC continued its expenditure on ground floor renovations and refurbishments.

    (x)On 29 July 2005, Arthur provided to the Assistant Liquor and Gambling Commissioner his written consent to structural alterations to be performed in the future.

    (xi)Furthermore, negotiations for the first floor premises lease resumed and an agreement to lease was executed by the parties in or about September 2005.

    (xii)In November 2005, the parties executed a lease of the first floor premises in terms that “mirrored” the terms of the ground floor premises lease and to commence 4 October 2005.

1. If either party had any concern that a renewed lease of the ground floor premises was not in place or might not proceed, now – and, in particular, before the execution of the agreement to lease the first floor premises – was the time to raise and resolve it.

2. In these circumstances the conduct of the landlords including, at the latest, the presentation by them of a lease for and their acceptance of the tenancy of the first floor premises, comprised an unequivocal acceptance by conduct of FACAC’s “offer” to lease the ground floor premises.  And this would be so even if the 12 July 2005 email had not found its way to Arthur.  It is to be inferred from the landlords conduct over this period that they well understood that FACAC was offering to continue with the same legal relationship concerning the ground floor premises after 4 October 2012.  In my view, the “ultimate issue” as posed by McHugh JA was satisfied – that a reasonable bystander would regard the conduct of the appellants, including their silence, as signalling to FACAC that its offer had been accepted.

3. I recognise that the matter was not conducted or argued for on this basis before the Magistrate and that to approach the appeal in this way raises again the spectre of procedural unfairness.  

4. The possibility that this conceptual approach might apply to the evidence before and findings by the Magistrate was directly raised with or by the appellants’ counsel on a number of occasions during submissions.[89]

   [89]   For example, Appeal Transcript at 9-10, 13-14, 50, 53-56.

5. In University of Wollongong v Metwally (No 2)[90] the High Court[91] observed:

   It is elementary that a party is bound by the conduct of his case.  Except in the most exceptional circumstances, it would be contrary to all principle to allow a party after a case has been decided against him to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

   [90] (1985) 59 ALJR 481 at 483.

   [91]   Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ.

6. As a general proposition an appellate court will be reluctant to permit a new point to be raised for the first time at the appeal.  It will require exceptional circumstances for it to be permitted where, had it been raised in the court below, it could have been met with further evidence.[92]  Different considerations can apply where the issue raised for the first time is solely one of law. 

   When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interest of justice, to entertain the plea.  The expediency of adopting that course may be doubted when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below.  But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed, unless the Court is satisfied that the evidence upon which they are asked to decide establishes beyond a doubt that the facts, if fully investigated, would have supported the new plea.[93]

   [92]   Coulton v Holcombe (1986) 162 CLR 1 at 7-8.

   [93]   Connecticut Fire Insurance Co v Kavanagh [1892] AC 473 at 480 and see also Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438.

7. In Battye & Anor v Shammall[94] Doyle CJ found in the circumstances of that matter that he was unable to identify any risk of prejudice to the defendant having regard to the manner in which the trial had been conducted and as a result of the case being pressed on appeal on a new basis.  In these circumstances, the Chief Justice said this.[95]

   I am left with the fact that ordinarily it is not in the interest of justice to permit a plaintiff to depart from the manner in which a case has been conducted prior to appeal.  The change here is a striking one.  But if the plaintiffs are held to the conduct of their case at trial an apparently good claim will be defeated.  I do not think that the Magistrate’s decision to defer the trial of the defendant’s counter-claim and to defer consideration of the plaintiffs’ reply and defence to counter-claim, would have been any different if the claim had been presented as one for breach of fiduciary duty. 

   For those reasons I agree with Gray J that the plaintiff should be entitled to advance their case on the basis on which they now claim to do so, and on that basis they are entitled to succeed.

   [94] (2005) 91 SASR 315.

   [95]   At [21]-[22].

8. The situation in the present appeal is even more unusual in that if the appeal were to be determined in this manner it would be determined on a ground not raised by either party.  Ordinarily, this is most undesirable although not always out of the question.[96]  Further, it is likely that this Court has an inherent power to entertain such a contention in the circumstances without a formal notice of contention being filed.[97]  The contractual analysis does no more than place a legal construction on the factual material and findings of the Magistrate that were already before the Court.  It is difficult to see how the case at trial would have been conducted differently by the appellants had a contractual analysis been expressly pleaded or otherwise relied upon.  Indeed, it is arguable that FACAC’s pleading in the opening paragraph of paragraph 14.3 (set out earlier) is wide enough to embrace a contractual analysis. 

   [96]   Australian Communication Exchange Ltd v DCT (2003) 201 ALR 271 at [6]-[7], [41], [48]-[52], [98]-[101].

   [97]   Cf; Bessemer v The Owners Corporation of Strata Plan 35054 and Ors [2002] NSWSC 73 at [59] citing Papadopoulos v Tseris NSWCA 16 March 1997 unreported.

9. Nevertheless, it is not necessary that I express a concluded view as to whether or not the parties bound themselves contractually to a new lease for 4 October 2005 to 3 October 2010.  I am content from the dismissal of the appeal to rest on the estoppel analysis.

10. The landlords’ appeal is dismissed.  I will hear the parties on the question of the costs of the appeal.