Kilkerrin Investments P/L v Yiu Ying Mei P/L
[2001] QSC 88
•27 March 2001
SUPREME COURT OF QUEENSLAND
CITATION: Kilkerrin Investments P/L v Yiu Ying Mei P/L [2001] QSC 088 PARTIES: KILKERRIN INVESTMENTS PTY LTD
ACN 010 513 943
(applicant)
v
YIU YING MEI PTY LTD ACN 087 841 996
(respondent)FILE NO: 2294 of 2001 DIVISION: Trial PROCEEDING: Miscellaneous Application – Civil ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: 27 March 2001 DELIVERED AT: Brisbane HEARING DATE: 22 March 2001 JUDGE: Muir J CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – Construction and Interpretation of Contracts – where lease contained two options which read literally appeared to cover the same period – whether court can depart from the literal meaning of contractual provisions.
ADMISSIBITY OF EXTRINSIC EVIDENCE IN AID OF CONSTRUCTION - whether ambiguity exists.
Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd SC WA 9.11.1999 unreported, referred to
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, referred to
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1972-73) 129 CLR 99, referred toCharter Reinsurance Co Ltd v Fagan [1997] AC 313, referred to
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, referred toHide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, referred to
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, referred to
Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, referred to
Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 60-853 at 75,343, referred to
Prenn v Simmonds (1971) 1 WLR 1381, referred to
Sola Basic Australia Ltd v Morganite Ceramic Fibres Pty Ltd (CA 11 May 1989, unreported) referred to
Trawl Industries of Australia Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326, referred toWickman Machine Tool Sales Ltd v L. Schuler AG [1974] AC 235, referred to
COUNSEL: P.A. Keane Q.C., S.-C. with L. Kelly for the applicant
R. Lilley for the respondent
SOLICITORS: McCullough Robertson for the applicant
Deacons Graham & James for the respondent
The applicant’s claim
The applicant seeks declarations that it is not obliged to grant the respondent a lease of the premises at 74 High Street, Toowong in which the respondent operates the Sun Fay restaurant as lessee under registered lease 701628984 (“the lease”) and that it is entitled to possession of the leased premises. The basis of the applicant’s argument is that, the option contained in clause 2.3 of the lease not having been exercised, the term of the lease has expired. It does not seek rectification of the lease.
The contractual background
The initial term of the lease was five years, commencing on 1 March 1996 and expiring on 28 February 2001. The instrument of lease, which is dated 20 September 1996, contains a page headed “PARTICULARS” which particularises the identity of lessor/lessee, demised premises, base rent and review dates. Clause 2.3 of the lease makes provision for an option for a further lease for a term of 5 years to follow the term created by the lease.
Assignment of lease and the execution of a deed of consent
The respondent is a company controlled by Mr Chung, a person of modest means. He, together with his wife and mother, had worked in the restaurant for many years. On 24 May 2000 they invested the bulk of their life savings (apart from the family home) in the acquisition of the restaurant business which is the family’s sole source of income.
In May 2000 the applicant consented to an assignment of the lessee’s interest under the lease to the respondent on condition that the respondent execute an instrument entitled Deed of Consent and Assignment of Lease (“the deed”). The deed provided for the inclusion in the lease of a new clause 16 which created an option for a further term of five years.
A letter dated 18 May 2000 from the applicant’s solicitors to the respondent’s former solicitors which forwarded the deed for execution stated, inter alia –
“The Lease has been amended in terms of the Deed of Consent by the addition of a five year option …”
Five copies of the executed deed were returned by the respondent’s solicitors to the applicant’s solicitors under cover of a letter of 25 May 2000.
On 17 August 2000 the applicant’s solicitors notified the respondent’s former solicitors by facsimile transmission that the deed and “the form 13 amendment of the lease have been fully executed”.
Mr Chung swears that he was not made aware until very recently that the deed and the form 13 had been executed by the applicant.
The respondent’s attempted exercise of option
On 29 November 2000 the respondent’s former solicitors wrote to the applicant’s solicitors stating that the respondent wished to exercise its option under the lease “to commence on the 1 March 2001 and expire on the 28 February 2006”. The applicant’s solicitors replied in a facsimile transmission of 12 January stating that “the notice contained in (the) letter dated 29 November 2000 was out of time” as the option was required to be exercised no later than 1 October 2000. It was said that the applicant was considering its position. The last date for exercise of the clause 2.3 option was, in fact, 31 August 2000.
The respondent’s former solicitors, in a facsimile transmission to the applicant’s solicitors of 26 February 2001, maintained that the option was exercised within time. On 27 February the respondent’s present solicitors, Deacons, gave notice of exercise of option under clause 16 of the lease. The applicant did not accept the validity of the notice and commenced these proceedings.
The contractual provisions of immediate relevance
Clause 2.3 of the lease provides –
“2.3 Further Term
If the Tenant –(a)wishes to have a lease of the Premises granted to it for the Further Term to commence immediately after the Expiry Date;
(b)gives a notice to the Landlord not more than 9 months’ nor less than 6 months’ before the Expiry Date; and
(c)at that time and at the Expiry Date, is not in default under this lease,
the Landlord will grant to the Tenant a lease of the Premises for the Further Term upon the same provisions as are contained in this lease, including any guarantee by the Guarantor (who must sign the further lease as a condition of the grant of the further lease), except that –
(d)the initial Base Rent shall be determined by applying the Method of Review for the relevant date referred to in the Particulars; and
(e)this sub-clause shall be deleted from the lease for that Further Term.”
“Expiry date” is identified in the lease as 28 February 2001.
“Further term” is defined in the particulars of lease as –
“5 years commencing on 1 March 2001 and expiring on 28 February 2006”.
Clause 14.1 of the deed provided that, as from 25 May 2000, the lease be varied as set out in Schedule 2 of the deed. Schedule 2 provided for the insertion in the lease of the following clause –
“16. OPTION
16.1Option to renew
If the lessee:
(a)is not in default under this lease at the time of giving notice under clause 17.1(b);
(b)gives not more than 3 months notice in writing to the lessor of its desire to exercise the option conferred by this clause;
(c)does not breach any term of this lease after giving notice under clause 17.1(b);
then the lessor must grant and the lessee must accept the option term upon the option conditions.
16.2Definitions
‘option conditions’ means the terms comprised in this lease with the exceptions that:
(a)if the numeral appearing in the particulars as ‘number of options’ is greater than 1 then that numeral is to be reduced by 1;
(b)if the numeral appearing in the particulars as ‘number of options’ is 1 then the clause in this lease conferring an option to renew it is to be deleted together with the definitions of ‘option conditions’ and ‘option term’;
(c)the commencement date of the option term is the day immediately following expiry of this lease;
(d)the commencement base rent for the first lease year of the option term is determined in the same manner as if the date of commencement of the option term was a market review date under this lease;
‘option term’ means a lease created by exercise of the option to renew (if any) conferred by this lease having a duration of the number of years the particulars as ‘term of option’.”
Clause 4 of the Schedule amended the “particulars of the lease … by addition of” –
“Number of Instalments of Rent/Outgoings to Bank Guarantee - 3
Number of Options – 1
Option Term - 5 years”
The particulars in their original form made no reference to an option.
The competing contentions as to the construction of clause 16
I turn now to a consideration of clause 16. It is common ground that the reference in 16.1(a), and (c) to 17.1(b) should be to 16.1(b). The clause makes no reference to any other option and, on its face, is self-contained. Read literally, it enables the lessee to exercise an option for a further 5 year term to take effect “the day immediately following the expiry of (the) lease” by giving not more than 3 months’ notice in writing to the lessor of its desire to exercise the option. Presumably, “more” was intended to be “less”. Once the option is exercised, by operation of clause 16.2(b), the particulars in the lease would be altered and clause 16 would be deleted.
The respondent attaches much significance to the fact that the new term of five years arising on exercise of the option is expressed to commence on “the day immediately following expiry of this lease.” The exercise of the clause 2.3 option would give rise to a new lease, not an extension of the term of the lease. That being so, if clause 16 is construed literally, it cannot provide for an option for a five year term in addition to that contemplated by clause 2.3.
The respondent argues further that nothing in clause 16 limits its operation by reference to clause 2.3 or to any term of the lease or further lease resulting from the exercise of the option in clause 2.3. Consequently, it is contended that the option in clause 16 is not dependent on the prior exercise of the option in clause 2.3. The respondent relies on a literal reading of clause 16 and points to those features of the clause to which I have drawn attention.
The respondent contends also that on a proper construction of the lease clause 2.3 no longer has effect and the respondent’s right of renewal is to be found in clause 16 inserted in the lease by the deed. Alternatively, it is submitted that clauses 2.3 and 16 are both operative and the respondent was entitled to exercise the option provided by clause 16 without first exercising the clause 2.3 option.
The applicant advances these arguments –
· The respondent’s construction would produce the unlikely result that the lessee had only one option
· The time periods for the exercise of the option are not consistent
· The variation did not remove clause 2.3 and that clause specifically provided for an option for the term of 5 years commencing on 1 March 2001 and expiring on 28 February 2006
· The subject matter of the parties’ agreement in clause 16 is able to be identified in the correspondence preceding the execution of the deed. That correspondence makes it plain that clause 16 is concerned with an option in addition to that given by clause 2.3 and for a term different to that created by the exercise of the option in clause 2.3.
Construction of clause 16
The lease must be construed as a whole. Clause 16 cannot be considered in isolation from clause 2.3, which was not deleted or varied by the deed.
Clause 2.3 provides specifically for the means by which the “Further Term” is to be obtained. In that regard, it prescribes that notice must be given not more than nine months nor less than six months before the “Expiry Date”. That date is 28 February 2001. If the clause 2.3 option is not exercised, does it follow that the clause 16 option may be exercised so as to secure “the Further Term”, notwithstanding the fact that the notice required by clause 2.3 has not been given?
The approach to construction favoured by the applicant is to construe clause 16.2(c) as if it provides –
“the commencement date of the option term is the day immediately following expiry of
this leasethe term created by the exercise of the option in clause 2.3” or, perhaps “… by the renewal of this lease.”
It does not make sense for the parties to insert in the lease another option for a 5 year term commencing at the conclusion of the term initially granted. If, for some reason, it were thought desirable to alter the period within which the option for the five year term provided for in clause 2.3 could be granted, the obvious way to achieve that would be to vary clause 2.3 appropriately. The fact that on an assignment of the lease another option clause has been inserted and clause 2.3 has been left unvaried suggests that the intention of the parties was to create an option for a term additional to the term arising on the exercise of the clause 2.3 option. Also suggestive of that intention are the references to “Further Term” and “Expiry Date” in clause 2.3, which make it plain that the clause makes specific express provision for an option for a lease to take effect immediately on the expiration of the term of the lease.
The construction urged by the applicant would create two options, make obvious enough commercial sense and give effect to what I discern to be the parties’ intention objectively ascertained from the lease and deed. However, in order to give effect to the applicant’s argument in this regard it would be necessary also to treat the words “number of options” inserted in the particulars as being applicable only to clause 16. In my view there is no particular difficulty with that approach. Clause 16.2 operates by reference to a number inserted in the particulars by the deed. The role of that number is not to provide general information about the number of options contained in the lease but to complete the mechanism by which clause 16.2 operates. The fact that the particulars state the number of options as “one”, whilst not an admirable exercise in drafting, does not lead to the conclusion that clause 2.3 has been excised by implication.
The respondent argues, however, that irrespective of what may be thought to be the intention of the parties, clause 16 is plain and unambiguous and must be given its literal meaning.
There is ample authority for the desirability of construing commercial documents so as to make commercial sense of them. eg, Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd [1]; Antaios Compania Naviera SA v Salen Rederierna AB,[2] Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [3]; Wickman Machine Tool Sales Ltd v L. Schuler AG .[4]
[1](1990) 20 NSWLR 310 at 313-314.
[2][1985] AC 191 at 201.
[3][1997] AC 749 at 771.
[4][1974] AC 235 at 251.
At the latter reference Lord Reid said –
“The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.”
In Antaios, Lord Diplock expressed even stronger views concerning the imperative to make business sense of commercial contracts, stating -
“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”
There are, however, limits to a court’s ability, in construing a written contract, to avoid an inconvenient, improbable or harsh result.
In Australian Broadcasting Commission v Australasian Performing Right Association Ltd [5], Gibbs J expressed the limitations on a court’s powers in construing a written contract as follows –
“It is trite law that the primary duty of a court in construing a written
contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch. D. 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch. D. 681, at p 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument.”
[5](1972-73) 129 CLR 99 at 109.
It is also impermissible to adduce evidence of surrounding circumstances as an aid to construction where no ambiguity exists. Mason J explained the applicable principle in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[6]–
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.”
[6](1982) 149 CLR 337 at 352.
The process of construction though is not a purely semantic exercise directed to ascertaining the dictionary or some other such meaning of the relevant word or phrase. In an unreported Court of Appeal decision (Arbuthnott v Fagan) referred to by Mance J at first instance in Charter Reinsurance Co Ltd v Fagan[7], in rejecting a submission to the effect that if the meaning of words in a contract are clear, the purpose of the contractual provisions cannot be allowed to influence the court’s interpretation, Steyn LJ observed –
“I readily accept Mr Eder’s submission that the starting point of the process of interpretation must be the language of the contract. But Mr Eder went further and said that, if the meaning of the words is clear, as he submitted it is, the purpose of the contractual provisions cannot be allowed to influence the court’s interpretation. That involves approaching the process of interpretation in the fashion of a black-letter man. The argument assumes that interpretation is a purely linguistic or semantic process until an ambiguity is revealed. That is wrong. Dictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context. And part of the contextual scene is the purpose of the provision. In the field of statutory interpretation the speeches of the House of Lords in Attorney-General v Prince Ernest Augustus of Hanover [1957] AC 436 showed that the purpose of a statute, or part of a stature, is something to be taken into account in ascertaining the ordinary meaning of words in the statute: see Viscount Simonds’s speech, at p 461, and Lord Somervell of Harrow’s speech, at p 473. It is true that such a purpose may also be called in aid at a later stage in the process of interpretation if the language of the statute is ambiguous but it is important to bear in mind that the purpose of the statute is a permissible aid at all stages in the process of interpretation. In this respect a similar approach is applicable to the interpretation of a contractual text.”
[7][1997] AC 313 at 326.
His Lordship later observed that in construing a commercial contract the court should take into account the commercial purpose of the contract “and that presupposes an appreciation of the contextual scene of the contract”.
In Manufacturers Mutual Insurance Ltd v Withers,[8] McHugh JA, in a passage referred to with approval in later decision of the New South Wales Court of Appeal,[9] drew attention to the need to go beyond purely linguistic considerations when considering the meaning of words in contracts. He said -–
“… few, if any, English words are unambiguous or not susceptible of more than one meaning or have a plain meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means. In my view evidence of surrounding circumstances will generally be admissible if it is known to both parties or sufficiently notorious to be presumed to be within their knowledge.”
[8](1988) 5 ANZ Insurance Cases 60-853 at 75,343.
[9]Trawl Industries of Australia Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358 and Sola Basic Australia Ltd v Morganite Ceramic Fibres Pty Ltd (CA 11 May 1989, unreported).
A rather similar point is made in the following passage from the reasons of Lord Hoffman in Charter Reinsurance Ltd v Fagan[10] –
“I think in some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts their meaning will be different but no less natural.”
[10][1997] AC 313 at 391.
The authorities are replete with examples of courts departing substantially from the literal meaning of words in contracts in order to give effect to the discerned intention of the parties.
The following passage from the judgement of Lord Hoffmann in Mannai Ltd[11] provides one such illustration -
“When, therefore, lawyers say that they are concerned, not with subjective meaning but with the meaning of the language which the speaker has used, what they mean is that they are concerned with what he would objectively have been understood to mean. This involves examining not only the words and the grammar but the background as well. So, for example, in Doe d Cox v Roe, 4 Esp 185 the landlord of a public house in Limehouse gave notice to quit ‘the premises which you hold of me … commonly called … The Waterman’s Arms.’ The evidence showed that the tenant held no premises called The Waterman’s Arms; indeed, there were no such premises in the parish of Limehouse. But the tenant did hold premises of the landlord called The Bricklayer’s Arms. By reference to the background, the notice was construed as referring to The Bricklayer’s Arms. The meaning was objectively clear to a reasonable recipient, even though the landlord had used the wrong name.”
[11]Supra at 775.
I will conclude such references to authorities with a passage from the reasons of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [12]–
“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.
[12][1998] 1 WLR 896 at 912.
It cannot be said that clause 16, looked at in isolation, contains any relevant ambiguity. However the lease must be construed as a whole and doubt arises about the meaning of the words “expiry of this lease” in clause 16 when regard is had to clause 2.3. That clause provides for an option for the same period as clause 16 construed literally. The respondent points out that the deed defines “lease” to mean “the registered lease…no 701628984 and all variations to it by this deed…”, but the definition applies only to the extent that the context does not otherwise require.
In my view, in the context of the lease as a whole, the words “this lease” in clause 16.2(c) are used in a broad or colloquial sense and refer to the additional term created under clause 2.3. To borrow from the language of Lord Wilberforce in Prenn v Simmonds[13] the other provisions of the lease and surrounding circumstances manifested by the deed “stamp upon (the) contract a popular or looser meaning” than the strict legal meaning of the words under consideration. By construing clause 16 in this way, clauses 2.3 and 16 can serve their intended role of providing for separate terms each of five years.
[13](1971) 1 WLR 1381.
That approach to construction is consistent with that taken in the authorities discussed earlier. Those authorities make it apparent that an “ambiguity” in words in a contract, for purposes of construction, may arise from the inter-relationship between those words and words in another clause or part of the contract.. Such approach also appears to me to be consistent with that taken by Owen J in Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd [14], which decision was affirmed on appeal.
[14]SC WA 9.11.1999 unreported.
The conclusion I have reached produces a most unattractive result. It may well cause substantial hardship to the directors of the respondent and members of their family. It was submitted on behalf of the applicant that the respondent has a remedy against its former solicitors. Whether that remedy is of value remains to be seen. Those considerations however cannot bear on the manner in which clause 16 is to be construed.
The role of extrinsic evidence
The applicant submitted also that it was possible to have regard to the correspondence preceding the deed in order to ascertain “the subject matter of the agreement.” In that regard reliance was placed on a number of passages in Mason J’s judgment in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales.[15]
[15](1982) 149 CLR 337.
Evidence of the negotiations leading up to the execution of the deed, in so far as they consist of statements and actions reflective of the parties’ actual intentions is not admissible. The content of prior negotiations, however, is admissible in so far as it goes to “… the factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction.”[16]
[16]Codelfa (Supra) at 348.
At the time the deed was entered into the parties were aware that –
· The lease contained clause 2.3.
· The respondent was acquiring or had acquired the Sun Fay restaurant business.
· The option in clause 2.3 had not been exercised but was capable of being exercised and there was no difficulty in the way of its exercise.
· The respondent had requested an additional 5 year option, the applicant’s agent had stated to the respondent’s solicitors in writing that there was “no problem” with that, and the applicant’s solicitors had written to the respondent’s solicitors advising that the lease had been amended by the deed “by the addition of a 5 year option”.
· No concern had been expressed by either party about clause 2.3.
· The inclusion in the lease of an option in addition to that contained in clause 2.3 would be to the financial advantage of the respondent as it would tend to enhance the value of its business while providing a measure of security.
Once these matters are taken into consideration and regard is had to the wording of clause 2.3 and clause 16 it becomes plain that clause 16.2(c) should not be given a literal construction but should be construed as the applicant submits. The aim of the deed, objectively ascertained, was to make provision for the assignment to the respondent of the lessee’s interest in the lease as varied by the inclusion of a further option for an additional term of 5 years.
The respondent’s alternative arguments.
The respondent submitted that if its construction argument is not successful the declarations sought by the applicant should not be made as –
(a) the applicant is estopped from asserting the construction relied on by it;
(b) the applicant contravened section 51AC(1) and section 53 of the Trade Practices Act 1974; and
(c) the applicant waived its right to rely on clause 2.3.
The estoppel argument is based on the wording of clause 16. It is said that by the wording of the clause the respondent was induced by the applicant to conclude that a renewal of the lease at the expiration of its initial term might be able to be obtained under clause 16. A difficulty with the submission is that it is apparent from the evidence that both parties proceeded on the assumption that clause 2.3 remained operative and that the effect of the deed was to confer on the respondent an additional option.
On 19 July 2000 the respondent’s former solicitors advised it that they had received the stamped documents from the Stamps Office, that the lease was due to expire on 28 February 2001 and that the further option needed to be exercised by notice given no later than three months prior to that date. But no one on behalf of the respondent’s former solicitors swears to how the mistaken view contained in the letter was arrived at. Nor does anyone swear to a belief that clause 2.3 did not continue to be operative or that the lease made provision for only one further term of five years. Consequently, all the material discloses is a careless error on the part of the respondent’s former solicitors.
The trade practice’s argument must fail for generally similar reasons. It is based on the applicant, by the wording of clause 16, allegedly creating a misconception that clause 16 enabled an option to be exercised in order to extend the lease for five years on the expiration of the initial term. As I have said, no such misconception was sworn to and the evidence suggests a belief on the part of each party (either by itself or its solicitors) that clause 16 created a second option to be exercisable at the expiration of the term created by exercise of the clause 2.3 option.
It is submitted also that it is inconceivable that, “the applicant whose director is a highly respected jurist, would grant an option and register a variation of the lease to record that option intending that the grantee should not be able to enjoy that option.”
That limb of the waiver argument is based on the applicant’s failure to sign the deed until 25 August or notify the fact of its execution to the respondent before 28 August. The thrust of the argument appears to be that by not returning the deed and, perhaps, a copy of the instrument of lease, the applicant caused the respondent not to advert to the terms of the lease and, in particular, the requirement to exercise the clause 2.3 option on or before the prescribed date. No one on behalf of the respondent swears to not having a copy of the lease or to not being aware of the terms of clause 2.3 at relevant times. Indeed, as the above discussion makes plain, the existence of the clause 2.3 option must have been a focus of attention for the respondent’s solicitors during the conveyance. Nor does the evidence support the view that the applicant’s solicitors may have been labouring under a misapprehension about the parties’ bargain that there be two options rather than one. The letter of instructions from the agent dated 11 May 2000 clearly spelt out the position. Accordingly, there is no substance in this point either.
Conclusion
It follows from the foregoing that the option was not duly exercised and that the term of the lease has now expired. I see no reason why declarations should not be made to that effect. I will hear submissions on the form of the order and costs.
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