Lindsay William Gillard v Lifoon Pty Limited - [2005] NSWSC 687

No judgment structure available for this case.

CITATION:
Lindsay William Gillard & Anor v Lifoon Pty Limited & Ors [2005] NSWSC 687

HEARING DATE(S): 29, 30, 31 March 2005
8, 9, 16 June 2005
4 July 2005

JUDGMENT DATE :

13 July 2005

JURISDICTION:
Equity Division

JUDGMENT OF:
Bergin J

DECISION:
See para 106

CATCHWORDS:
[LEASE] - Whether option to renew validly exercised [CONTRACT] - Whether agreement reached for additional terms of lease - whether in writing [NEGLIGENCE] - Whether solicitors breached duty of care - Whether breach of contractual obligation

LEGISLATION CITED:
Conveyancing Act 1919 (NSW)

CASES CITED:
Baloglow v Konstanidis & Ors [2001] NSWCA 451
Fire & All Risks Insurance Co Ltd v Concorde Personnel Management Services Pty Ltd (1987) NSW ConvR 55-330
Heppingstone v Stewart [1911] 12 CLR 126
Industrial Rollformers Pty Ltd & Anor v Ingersoll-Rand (Australia) Ltd (2001) Aust Contract Rep 90-129
Parras & Ors v FAI General Insurance Company Ltd [2001] NSWSC 1077
Tonitto & Anor v Bassal & Ors (1992) 28 NSWLR 564
Trust Co of Australia v Perpetual Trustees WA Ltd & Ors (1997) 42 NSWLR 237
Webb & Anor v Ryleen Pty Ltd, unreported, Young J, 8 November 1994
Wight v Haberdan Pty Ltd & Anor [1984] 2 NSWLR 280
Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894

PARTIES:
Lindsay William Gillard (1st plaintiff)
Kristin Elizabeth Gillard (2nd plaintiff)
Lifoon Pty Ltd (1st defendant)
Henri Hendriks (2nd defendant)
Robert George Stone (3rd defendant)
Ian Erratt (4th defendant)
Frederick John Commins (5th defendant)
Glen Francis Lollback (6th defendant)
Geoffrey John Potter (7th defendant)
William James Thompson (8th defendant)
Peter James Webb (9th defendant)
Michael John Commins (10th defendant)

FILE NUMBER(S):
SC 3931/04

COUNSEL:
I.D. Roberts SC and S.B. Loughnan (plaintiffs - until 31 March 2005); I. Wales SC (plaintiffs - after 31 March 2005)
J.S Drummond (1st defendant)
G. Curtin (2nd - 10th defendants)

SOLICITORS:
Commins Hendriks (plaintiff - unitl 31 March 2005)
Walsh & Blair (after 31 March 2005)
Friedlieb Byrne (1st defendant)
Phillips Fox (2nd - 10th defendants)

LOWER COURT JURISDICTION:

- 56 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

13 JULY 2005

3931/2004 LINDSAY WILLIAM GILLARD & ANOR v LIFOON PTY LIMITED & ORS

Introduction

1 The plaintiffs, Lindsay William Gillard (Mr Gillard) and Kristin Elizabeth Gillard (Mrs Gillard), are lessees of premises at 34 Allonby Avenue, Forest Hill (the premises) of which the first defendant, Lifoon Pty Ltd (the Company), is the lessor. As at the date of the commencement of the hearing on 29 March 2005 these proceedings involved issues relating to whether the plaintiffs had exercised the option to renew the Lease, whether the Lease was varied to include two further options to renew and whether a Notice to Vacate served on the plaintiffs is valid.

2 On the third day of the trial, 31 March 2005, Mr ID Roberts SC, then appearing for the plaintiffs, sought an adjournment of the proceedings on the basis that he, his junior and solicitors, had given the plaintiffs certain advice overnight and that the plaintiffs wished to seek independent legal advice. The trial was adjourned and leave was subsequently granted to the plaintiffs to amend the pleading to sue their solicitor, Frederick Commins (Mr Commins), who had by then given evidence in their case. There was no objection to the leave being granted and when the trial resumed on 8 June 2005, the members of the firm of solicitors of which Mr Commins was a member, Commins Hendricks, were joined as defendants (the solicitors) and were represented for the balance of the trial, limited in the case of the solicitors to a trial on liability only. The claims against the solicitors include claims in negligence and contract for failing to implement the plaintiffs’ instructions and failing to advise them properly in respect of a Contract for the sale of business.

3 The proceedings were heard on 29, 30 and 31 March 2005, 8, 9 and 16 June 2005 and 4 July 2005. Mr ID Roberts SC, leading Mr SB Loughnan of counsel, appeared for the plaintiffs until 31 March 2005 and thereafter Mr I Wales SC appeared for the plaintiffs. Mr JS Drummond of counsel appeared for the Company and Mr G Curtin, of counsel, appeared for the solicitors.

The Facts

4 Forest Hill is a town approximately 15 kilometres east of Wagga Wagga, New South Wales. Mrs Gillard’s aunt and uncle, Gary and Carole Burns, entered into a lease of the premises with the Company in 1998 and operated the business known as “Forest Hill General Store and Newsagency” (the Business) from the premises. It was in the year 2000 that the plaintiffs became interested in purchasing the Business from Mr and Mrs Burns.

5 The plaintiffs instructed Mr Commins to act for them in relation to the purchase of the Business. In an undated file note Mr Commins noted “considering” a variation to the Lease whereby the Lessee was to assume “responsibility for building maintenance excepting pest infestation and all insurance claims damage” with a “trade-off” that Robert Quarmby (Mr Quarmby), the managing director of the Company and also a real estate agent with Raine & Horne in Wagga, “is to offer variation by way of extension of Lease”. It is not clear from the file note when such instructions were given to Mr Commins and, from the earlier entries within it referring to “sell the business”, it appears the note may relate to instructions given to Mr Commins by Mr and Mrs Burns.

6 On 5 June 2000 Mr Commins wrote to Mr Quarmby, in the following terms:

Re Lease of Forest Hill General Store and Newsagency

There is a young couple by the name of Gillard who are related to Gary and Carole Burns and who are considering the prospect of purchasing the business referred to above.

I have been asked by the Gillards to write to you and ascertain whether you would be prepared to vary the existing lease so as to incorporate 2 x 5 year option periods so that the lease (sic) would have the right therefore of continuing for that extended period of time with the existing terms and conditions otherwise then applicable.

I have also been asked to enquire whether there would be any circumstances where you might consider granting an option to purchase.

Could you please get back to me with advices in this regard.

7 On 7 June 2000 Mr Quarmby wrote to Mr Commins in the following terms:

Further to your correspondence of the 5th inst in relation to giving 2x5 year further option periods, Mr Gillard attended my office and I discussed the matter with him and to grant the 2x5 option periods on the following conditions:

1. Rent is agreed to by the parties.

Further to your other request I would be prepared to give the first right of refusal but not such as an option to purchase.

8 It would appear from this letter that Mr Quarmby discussed with Mr Gillard the conditions on which the Company was willing to grant to the plaintiffs two extra option periods, each of five years. The second last paragraph emphasises the security of the existence of the liquor licence to suggest that although there may have to be some “outlay” to comply with the conditions there was a “long period” during which to “recoup” the outlay, especially assisted by the security of the liquor licence.

9 When the letter of 7 June 2000 from Mr Quarmby was provided to the plaintiffs, Mrs Gillard, after discussion with Mr Gillard and before faxing it to Mr Commins, wrote on it:

The following conditions also apply:

10 It was not until 2 January 2001 that Mr Commins wrote further to Mr Quarmby in the following terms:

Gary and Carol Burns have agreed upon the sale of their business conducted in the premises owned by your company to their niece Kristen Gillard and her husband Lindsay.

One of the terms of sale is that (naturally) owner’s consent to transfer of lease No 5698404 is to be received – that being the lease from your company which terminates on 31 July 2003 and which incorporates an option to renew for five years.

The contract also prescribes that the entry into the contract by the purchasers was subject to the owner agreeing to a variation of the lease so as to prescribe for a further five year option period. From correspondence which I have seen inclusive of your letter to me of 7th June last you appear to be agreeable to the variation but on condition that the tenants assume responsibility for maintaining the interior and exterior of the premises excepting:

a. that you are to be responsible for rectifying termite damage; and

I wonder if you would mind letting me have a response to this letter indicating whether the foregoing accurately reflects your understanding and indicating additionally what further information you may require as to the personal details of Mr and Mrs Gillard.

11 On 18 January 2001 Mr Quarmby wrote to Mr Commins in the following terms:

Further to your letter of 2nd instant, owners’ consent is granted to transfer of Lease No 5698404.

A variation of the Lease so as to prescribe for a further five years option period is subject to my letter of 7th June 2000, which a copy is attached. The only amendment acceptable to the owners is paragraph (b) of your correspondence of the 2nd instant. Such option will be subject to GST and rental increases by CPI.

12 The letter of 2 January 2001 suggested that Mr Quarmby had agreed to be responsible for rectifying termite damage which clearly he had not. The plaintiffs had instructed Mr Commins to put that condition to Mr Quarmby effectively as a counter offer. There was a further problem with this letter. It failed to request confirmation of Mr Quarmby’s willingness to grant to the plaintiffs two additional option periods of 5 years each. Rather it concentrated on Special Condition 6 of the Contract which provided for only one additional option period of 5 years.

13 The condition of the Contract for the sale of business (the Contract) to which Mr Commins referred in his letter, was Special Condition 6 as follows:

6. This contract is entered into by the parties hereto subject to them securing the consent of Lifoon Pty Limited to Transfer of Lease No. 5698404 (to the premises 34 Allonby Street, Forest Hill in which the business is conducted) from the vendor to the purchaser. The parties hereto also agree that the purchaser enters this contract on condition of securing from Lifoon Pty Limited an agreement to vary Lease No. 5698404 so as to provide for a further option right of five (5) years commencing as and from 1 August 2008.

14 The plaintiffs commenced operating the business in late January 2001 and settled the purchase of the business on about 27 March 2001 for the sale price of $340,000, fully financed.

15 The Transfer of the Lease from Mr and Mrs Burns to the plaintiffs was signed on 26 July 2001 and stamped on 15 October 2001. The Lease recorded the agreement that the Liquor licence attached to the Off Licence Retail Area remained at all times the Company’s property and that it reverted to the Company on termination of the Lease (clause 9(i)). Clause 12 of the Lease is as follows:

12. Option to Renew

If the Lessee shall desire to take a renewed Lease of the demised premises for a further term of Five (5) years from the expiration of the term of this Lease and of such desire shall prior for the expiration of such term give to the Lessor not more than six month’ (sic) and not less than three months’ notice in writing and shall in the meantime duly and punctually pay the rent reserved by this Lease at the times appointed for payment and shall duly perform and the covenants and agreements by and on the part of the Lessee contained in this Lease up to the expiration of the term granted the Lessor will at the expense of the Lessee demise to the Lessee the Premises for a further term of five (5) years at a rental to be the amount of the previous year’s rental increased by the amount of the Consumer Price Index. Such further Lease shall be subject to the same conditions and covenants as this Lease except for rental and apart from this Clause.

16 On 28 September 2001 Mr Commins wrote to the plaintiffs in the following terms:

I refer to my phone conversations with Lindsay and note that the matter of formalising your purchase documentation lain in limbo in our file.

At the end of March when your purchase was finalised in terms of transfer of funds etc etc you elected to defer paying your stamp duty of $10,790.00 for the bulk of the permissible so as to give you savings time in which to generate funds etc etc.

It seems that you have overlooked paying stamp duty and in consequence then your documentation has remained inactive within the file.

I have checked the matter of Lease as promised and note that as yet there is no direct Lease between Mr Quarmby’s company and you as the transaction of purchase involved the transfer of Garry and Carole’s lease to you.

I enclose herewith a copy of Garry and Carole’s Lease which you will see was for a term maturing on 31 July 2003 and which incorporated a right of renewal for a further term of five years which would conclude it on the 31st of July 2008.

You will also recall that Lindsay had discussions with Mr Quarmby in which he agreed subject to other agreements as occurred between you that he would grant you a right of variation of the Lease incorporating a further right of renewal for a further term of 5 years which would take the lease up to the 31st of July 2013.

As you will recall the mortgage documentation which you provided to the lenders including a Bill of Sale over the business complimented by a guarantee given by Garry and Carole which in turn was supported by a mortgage over their household premises.

…

As I see it I need to get your house in order in terms of your proprietary rights in respect of the lease as essentially that constitutes your security not only for borrowing but more importantly for the future potentiality for selling the business.

Once I stamp your contract and transfer of the lease I can then go back to Mr Quarmby and do the variation of lease extending the term for the additional five years as per his letter but the first step must be the stamping of your contract and the transfer of the lease.

Bearing in mind that we have a way to go please be gentle with Mr Quarmby.

17 The next communication with the Company after Mr Quarmby’s letter of 18 January 2001 was not until 28 November 2002 when Mr Commins wrote to Mr Quarmby in relation to an “urgent matter” which had arisen “associated with the lease” regarding the issue of a sullage assessment issued to the plaintiffs by the local council. In that letter Mr Commins also wrote:

In earlier correspondence you agreed to vary the terms of lease by way of extension subject to the tenants accepting an enlarged responsibility for maintaining the premises and I believe it would be appropriate to formalise terms of that agreement.

18 On 3 December 2002 Mr Quarmby responded to Mr Commins’ letter advising that he was “more than prepared to have a conference in reference to queries regarding the above lease with Mr Gillard”. Mr Quarmby invited Mr Commins to contact him on his mobile telephone to make a time and date convenient to both parties for that conference.

19 It was not until 10 March 2003 that Mr Commins wrote to Mr Quarmby in the following terms:

The Gillards would like us to have a joint conference which they would like me to come along and at which you too should feel free to have your solicitor should you wish in an attempt to try and explore avenues for agreements in terms of the occupancy of the Forest Hill Store premises etc.

Could you please contact me at a time of your convenience so that we might discuss this.

20 On 17 March 2003 Mr Commins wrote to the plaintiffs in the following terms:

re: Lease from Bob Quarmby

Bob Quarmby has responded to my recent letter and agrees that it would be a good idea to have a joint conference – his suggestion is either or both of you, himself and me.

Bob suggested he would be happy to have the conference at a time that was most convenient to you in terms of running the store etc and I therefore ask that you might get back to me or one of my secretaries indicating what time and/or day would best suit you (my next appointed time to go to Wagga is next Wednesday but you should not feel bound to that).

21 The meeting took place on 24 March 2003 (the Meeting). The conversations at the Meeting are pivotal to the outcome of this litigation. The plaintiffs allege that at the Meeting the Company: (a) waived the necessity for the plaintiffs to exercise the option in writing; and (b) agreed to a variation of the Lease to include two further options each of 5 years, additional to the option already contained in the Lease (the Variation). The parties are at issue as to what was said at the Meeting and I will consider the detailed evidence in relation to these matters later in this judgment. The plaintiffs claim that Mr Quarmby advised them that it was not necessary to send him a letter to exercise the option. The Company claims that Mr Commins’ suggestion at the Meeting that he would send Mr Quarmby a letter in case he was “hit by a bus” was an essential requirement for the exercise of the option. There was discussion at the Meeting concerning a proposed development of the site and whether the plaintiffs would be interested in either a joint venture with the defendant or selling the Business to the defendant.

22 In December 2003 the Company lodged a Development Application (DA) with the Council of the City of Wagga Wagga. The description of the proposal was “to erect five shops on the corner of Allonby Avenue and Fife Street, Forest Hill replacing the current shopping complex” as a “two stage development”. The covering letter to the Council from Mr Quarmby included the following:

2. The Development will be done in two stages. Stage 1 will be demolition of house on 1 Fife Street and construction of the bank of four shops. The current business will then shift the takeaway into the shop shown and balance into shop shown as Hardware.

3. Stage 2 will be demolition of current shop and erecting of new Supermarket building, which will then house the new Supermarket, Newsagency, Bottle shop and Post Office. The Hardware shop shall then be vacant.

23 At some stage after the Meeting the plaintiffs decided that they did not wish to become joint venturers in the development and decided to negotiate with Mr Quarmby for the sale of the Business.

24 On 1 March 2004 the plaintiffs’ accountants wrote to Mr Quarmby advising that the plaintiffs had discussed with them “the possibility of selling their business to you following your recent enquiries into the possibility of purchasing the business”. The accountants informed Mr Quarmby that, based on a number of factors including “a long term lease in a prime location”, they had advised the plaintiffs only to sell the Business if the purchase price was $500,000 plus stock at valuation. The accountants also advised that there was a significant opportunity cost for the plaintiffs because they would be selling the potential to make very good levels of profits for the remaining term of the lease.

25 It was some time after the plaintiffs’ accountants had written to Mr Quarmby that he visited the premises and asked Mr Gillard to provide him with “the figures in relation to the purchase price”. It was at this visit that Mr Quarmby informed Mr Gillard that the plaintiffs did not have “a proper lease”. When Mr Gillard informed Mrs Gillard of this conversation contact was made with Mr Commins.

26 On 7 April 2004 a meeting took place at the offices of the Company’s solicitors in Wagga, Friedlieb Byrne, at which Mr Friedlieb, solicitor, was present with Mr Quarmby, Mr Commins and the plaintiffs. Mr Friedlieb’s evidence was that the following conversation took place.

Friedlieb: Mr Quarmby does not agree that you have renewed your lease.

Commins: My clients believe that they have as Bob agreed to it at the meeting.

Quarmby: You said at the meeting that you were going to send a letter exercising the option.

Friedlieb: By not sending that letter your clients ensured that the rent would not go up but would remain the same. Bob has made you a good offer.

Gillard: I will have to go the accountant to get the figures to give to Bob. We are heading up to Sydney for the Easter weekend so we won’t be able to do anything until sometime next week.

27 Mr Friedlieb gave evidence that after the plaintiffs left the meeting, the following conversation took place.

Friedlieb: It looks like we are going to have a fight. Why didn’t you send the letter.

Commins: Because Bob told me not to.

Friedlieb: Bob says that you told him that you would send him the letter just in case he got hit by a bus.

Commins: It’s time for me to go.

28 On 16 April 2004 Mr Commins wrote to the Company’s solicitors in the following terms:

I refer to the discussions which occurred at your office on 6 April last (sic) and note that after the clients had left you indicated that Mr Quarmby had stated to you that at our joint conference on 23 March 2003 I indicated that I would write to him and you indicated that he recalled that I mentioned the words “in case you get hit by a bus”.

That recollection of Mr Quarmby is completely accurate as it is clearly recalled by the Gillards and by me.

The statement which I made to Mr Quarmby must however be put in a context.

In the course of verbal discussions which were deliberately held within the Option to Renew exercise period the Gillards advised Mr Quarmby of their intention to renew the lease and as Mr Quarmby admitted he agreed that their notification of intention to renew as occurred in those conversations was sufficient and the parties then went on to discuss what was more significant in the mind of Mr Quarmby that day, namely whether or not the parties might be able to get together to join forces in a joint venture to develop the locality and the suggestions made that day were that Mr Quarmby would provide the land and the existing building, that the Gillards would provide the finances for an extension to existing building, that the existing residence was to be demolished to make room and that the general expectations were that the costs of such extension would be in the vicinity of approximately $300,000. 00.

These matters have been recorded in my notes of the day.

Mr Quarmby had indicated that he accepted that the right of renewal had been exercised I said to him words to the effect “I will write to you confirming this in case you get hit by a bus”.

What is relevant of course is that earlier in the conversations Mr Quarmby did not say words to the effect of “I will accept your renewal subject to you confirming it” as the fact was that he (as he admitted at our conference) acknowledged the lessees’ exercise of right of renewal.

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I note that we have agreed to provide a break-up of trading figures from the various components of the business to be used as a starting point for further negotiations.

29 On 3 May 2004 Mr Friedlieb responded to Mr Commins’ letter of 16 April 2004 in the following terms:

We note previous correspondence and discussions in respect of this matter. In particular, we note your letter of 16 April 2004, which, with the greatest of respect, may be regarded as somewhat self serving.

The history of this matter would appear to be that pursuant to Lease dated 24 August 1998 number 5698404A, Lifoon Pty Limited leased premises under that Lease to Gary Francis Burns and Carole Burns. The period of that Lease being 1 August 1998 to 31 July 2003. Clause 12 of that Lease provided a specific option for a further 5 year period. Should the lessee seek to exercise that option Clause 12 set out the manner in which that option was to be exercised.

It would appear that during the course of 2001 the aforementioned Lease was assigned to Lindsay and Kristin Gillard. We do not wish to raise at this stage certain aspects that may become necessary in due course to raise concerning the manner in which that assignment took place. Documentation in respect of that assignment would appear to be somewhat wanting at this stage subject to any documentation which may eventuate which we are not privy to at this stage. It would appear, however, that certain documentation may not have come into effect in respect of the assignment of the Lease and in that regard we specifically draw attention to Clause 9 (q), (r) and (s). As to whether or not there has been a breach of the Lease we reserve our client’s rights in that regard should it become necessary to address that issue.

Pursuant to the terms of the Lease, the option provided in Clause 12 was required to be exercised in writing somewhere between the period 31 January 2003 and 30 April 2003.

It appears that there was no issue that discussions took place between the principal of Lifoon Pty Limited, the Gillards and Mr Commins of your office during that option exercise period. In that regard, we note your letter of 16 April 2004 wherein it is confirmed “the Gillards advised Mr Quarmby of their intention to renew the Lease”. There is an issue, however, as to whether Mr Quarmby agreed that that notification of intention to renew was sufficient for the purpose of exercising formally the option. It is submitted that the notification of intention to renew submitted by the Gillards in that discussion was merely a notification of intention to renew. It is conceded by your correspondence that the notification of intention to renew the Lease would be confirmed in writing no doubt so as to satisfy strict compliance with the terms of the Lease. No such conduct/action took place. It is argued therefore that the option was not exercised. Mr Quarmby may certainly have acknowledged your clients’ notification of intention to renew the Lease. That, however, did not constitute an exercise of the option to renew. The Statement to our client that the notification would be put in writing was a clear indication/acknowledgment that it was necessary to put the notice of exercise of option in writing.

Accordingly, it is our opinion that if your client has a Lease at all (which is not conceded) it is no more than a month to month tenancy.

30 On 3 May 2004 Mr Friedlieb wrote another letter to Mr Commins conveying the Company’s offer to purchase the Business (exclusive of stock) for $300,000. On 6 May 2004 Mr Quarmby attended the premises and made an offer to Mr Gillard to purchase the Business “for $400,000 plus newsagency stock”.

31 On 14 May 2004 the plaintiffs wrote directly to Mr Quarmby in terms that included the following:

all

We also would like to have further discussions with you referrable to the question of rent where the construction processes begin to impact on trading within the shop.

32 On 28 May 2004 Mr Friedlieb advised Mr Commins that the plaintiffs had written directly to Mr Quarmby and that he had been instructed to reject the plaintiffs’ offer. He also advised that the Company was not prepared to make any counter offer and withdrew any previous offers. Mr Friedlieb finally advised that he had been instructed to issue Notice of Termination of the Lease which would be served formally. A Notice to Vacate was served on the plaintiffs in June 2004 in the following terms:

Pursuant to Lease No 5698404A which expired on 31 July 2003. You have been holding over as a tenant on a month to month basis at premises 34 Allonby Avenue, Forest Hill being the land in Folio Identifier 1/207179 and Folio Identifier 1/535133.

You are hereby given notice that the landlord, Lifoon Pty Limited, terminates your holding over the abovementioned premises. You are hereby notified you are required to vacate the premises at 34 Allonby Avenue, Forest Hill at the expiration of one (1) month after the date hereof namely 21 July 2004.

33 On 13 July 2004 the Company lodged a second DA with the Wagga Council for “three speciality shops plus a supermarket”. The covering letter to that DA advised that the Company wished to build in two stages because it wanted to give the people of Forest Hill “services that will be equivalent to what they have now”. The letter also advised that the newsagent and post office area would be open space, but should that change, the Company would submit a further DA.

34 The plaintiffs did not vacate the premises and they commenced these proceedings on 14 July 2004.

The plaintiffs’ claims against the Company

35 The plaintiffs filed a Second Further Amended Statement of Claim during the trial on 8 June 2005 in which they allege that at the Meeting the Company dispensed with and waived the requirement under Clause 12 of the Lease that the plaintiffs’ exercise of the option to renew was to be in writing. They allege that at the Meeting they exercised the option to renew the Lease. It is also alleged that at the Meeting the Company agreed to the Variation.

36 The plaintiffs make an alternative claim that on or about 18 January 2001 the Company consented to the assignment of the Lease to the plaintiffs and agreed to grant to the plaintiffs two further options to renew the Lease each for a term of 5 years in addition to the existing option to renew the Lease upon terms (the 2001 Agreement).

37 There is a further claim that the Company represented to the plaintiffs that: (a) it had accepted the plaintiffs’ exercise of the option to renew contained in the Lease; (b) it did not require the plaintiffs to comply with the provisions in the Lease that exercise of the option to renew be in writing; and (c) it had agreed to the Variation. The plaintiffs claim that they were induced by the representations and relied upon them and did not give to the Company notice in writing of the exercise of their option to renew under the Lease. In those circumstances the plaintiffs claim that the Company is estopped from denying that (a) the plaintiffs have validly exercised their option to renew the Lease; (b) that the Company waived compliance with the requirements of Clause 12 of the Lease; and (c) that the Company agreed to the Variation. The plaintiffs claim that the Notice to Vacate is invalid and of no effect.

The Company’s cross claim

38 The Company seeks by way of cross claim against the plaintiffs a declaration that the Notice to Vacate is valid and effective and also seeks an order for judgment for possession of the premises.

The plaintiffs’ claims against the solicitors

39 The second to tenth defendants are the partners of the firm Commins Hendricks (CH) of which Mr Commins, the second defendant, was a partner. There is no issue that in mid 2000 the plaintiffs retained CH to act on their behalf for the purpose of acquiring the Business with the assets, including the Lease. There is also no issue that the plaintiffs wished the Lease to provide for two further options each of 5 years (the Variation). It is alleged the plaintiffs instructed CH to negotiate the Variation.

40 The plaintiffs’ claim that the solicitors owed to them a duty to exercise reasonable care, skill and diligence in the discharge of their duties and the implementation of their instructions including to negotiate and conclude the Variation. Alternatively the plaintiffs claim the solicitors had a contractual duty in the same terms. It is alleged that the solicitors breached their duty of care and their contractual obligations by failing to prepare and execute a new Lease in a registrable form. It is also alleged that the solicitors failed to implement the plaintiffs’ instructions to negotiate the Variation and they failed to take reasonable steps to ensure that the Lease was lawfully varied in the manner sought by the plaintiffs.

41 It is also alleged that the solicitors failed to advise the plaintiffs of their rights under Special Condition 6 of the Contract, in circumstances in which the plaintiffs would not have completed the Contract but for their belief that the Lease had been amended so as to include the Variation.

42 It is also alleged that the solicitors breached their duties to the plaintiffs in causing or permitting settlement of the Contract to occur without obtaining from the Company a new or varied Lease in the approved form embodying the plaintiffs’ instructions. It is further alleged that the solicitors breached their duties in advising the plaintiffs that it was safe to complete the Contract when there was no new or varied Lease in place. It is alleged that such conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 42 of the Fair Trading Act 1987. The plaintiffs claim damages from the solicitors, but the trial as between the plaintiffs and the solicitors was limited to liability.

The exercise of the Option

43 Mr Gillard’s evidence was that at the Meeting Mr Commins said, “what we are here for is to take up the option in the lease” and that Mr Quarmby responded “that’s fine”. Mr Gillard claims that he then said, “can we get the extra 10 years put on top?” to which Mr Quarmby responded, “wasn’t it for 5 years?”. Mr Gillard said, “it was for 10 years, 5 years plus 5 years”. Mr Gillard claims that Mr Quarmby then said “that’s right”.

44 Mr Gillard’s evidence was that there was then some discussion about the building of a new shop at the premises with Mr Quarmby putting forward a number of options and ideas about redeveloping the land that the parties then discussed. Mr Gillard said that towards the end of the Meeting Mr Commins said to Mr Quarmby “I will send you a letter to confirm the exercise of lease” to which Mr Quarmby responded “that isn’t necessary”. Mr Gillard said that Mr Commins later said to Mr Quarmby “I will send you a letter anyway in case you get hit by a bus”. He was not able to say what Mr Quarmby said in response to this and when it was suggested to him in cross-examination that Mr Quarmby said “okay”, he was not able to deny that this was said.

45 Mrs Gillard’s evidence of the Meeting was that Mr Commins said, “we are here to take up the option”, to which Mr Quarmby responded, “I have no problem with that and no problem with the extended term”. Mrs Gillard remembered her husband saying that the option was for 10 years, 5 plus 5 years, and that Mr Quarmby said that there was no problem with that. Mrs Gillard’s recollection also included Mr Commins saying to Mr Quarmby that he would send him a letter “in case you get hit by a bus” but she had a recollection that Mr Quarmby said “don’t worry about it”.

46 Mr Commins’ first affidavit of 16 July 2004 did not include evidence of what was said at the commencement of the Meeting. His affidavit of 24 February 2005 in reply to Mr Quarmby’s affidavit of 8 November 2004 included evidence that when the Meeting started “I immediately raised the issue of the option” and said, “we’ve come here to exercise the option” to which Mr Quarmby responded, “yes, yes, that’s fine”. Mr Commins also gave evidence in this affidavit that he said to Mr Quarmby, “the lease requires the exercise to be in writing, do you want it in writing?” to which Mr Quarmby responded, “no – it’s alright”. Mr Commins also claimed that at the end of the meeting he said to Mr Quarmby, “Now you don’t want it confirmed in writing?” to which Mr Quarmby responded, “No.” It appears from this affidavit that it was not until the following year in April 2004 that Mr Commins remembered, when reminded by Mr Quarmby, that he had said “I’ll give you a letter in case you get hit by a bus.”

47 Mr Commins gave evidence in relation to some notes that were produced from his files, the first of which was headed “24.3.03” (the first note) and the second of which was headed “23.3.03” (the second note). The first note was in the following terms:

48 The second note with the date “23.3.03” was in the following terms:

Meeting CH
Bob, Lindsay, Kristin, FJC
Acknowledged:

1. Right to renew.
2. Agreement as to the 5 x 5 as per Bob’s letter of 7/6/2000 to CH.

49 Mr Commins’ evidence was that the first note was prepared at the Meeting and the second note was prepared the following year when he was preparing for the meeting to be held on 7 April 2004 at Mr Friedlieb’s office. The source of the content of the second note was Mr Commins’ memory of what took place at the Meeting and his knowledge of subsequent events. The first note makes no mention of the exercise of the option or discussion in relation to the Variation. It makes no mention of Mr Quarmby agreeing that the option could be exercised orally. This absence may well be of some significance in circumstances where the solicitor involved was a careful note taker. I am afraid this is not such a case and in any event it is beyond doubt from the evidence both in the plaintiffs’ case and in the defendant’s case that there was discussion of these two matters.

50 Mr Drummond suggested to Mr Commins that the second note was made at the Meeting. This was denied by Mr Commins. The entry: “offered $500K plus stock” in the second note tends to support the claim that the note was made the following year. The plaintiffs did not make that offer until 1 March 2004 when their accountants wrote to the Company. The second note states “acknowledged (1) Right to Renew”. Mr Drummond cross-examined Mr Commins about this entry as follows (tr 147):

51 The content of these notes and the absence of certain things from them is not of much assistance in this case having regard to the fact that all relevant witnesses on both sides recalled the conversation about sending a letter in case Mr Quarmby was “hit by a bus” and the two extra option periods.

52 Mr Quarmby swore an affidavit on 8 November 2004 in which he gave evidence that the conversation at the Meeting included Mr Commins saying that “the Gillards are considering exercising the option – now what about the options, as you know they want a 5 plus 5 years”. Mr Quarmby said that he responded with the question “do they want a 5 year option on top of their current option period of 5 years?”, to which Mr Gillard responded, “No. What we want are two 5 by 5 option periods on top of the current option giving us 15 years altogether”. Mr Quarmby claims that he responded:

If you want those options then as they will extend the Lease by 15 years then, as I have already told you, you will have to agree to undertake all repairs to the building no matter what they are. As previously indicated to you in my previous letter the Lessor will be liable for the contamination. The rental however will have to be adjusted to market at the beginning of each option period.

53 Mr Quarmby claimed that the conversation then continued as follows:

Commins: Okay.

Quarmby: What I want to do with the site is to knock down the old building and put up a new one.

Mr Gillard: Where would we operate from while that was happening?

Quarmby: You would have to lease some of those transportable buildings.

Mr Gillard: I don’t think that would be much good.

Quarmby: Something will be able to be worked out. If you don’t agree to that would you be interested in being partners in the construction of the new building? It will cost you about $300,000.

Mr Gillard: I will have to think about that.

Quarmby: If those alternatives aren’t of any interest I would prefer to get vacant possession of the site so I can proceed with the development. Are you interested in selling?

Mr Gillard: We would consider any offer if the price was right.

Commins: There are a number of things to think about. I will send you a letter to exercise the option just in case you get hit by a bus.

Quarmby: Okay.

54 On 7 June 2005 Mr Quarmby swore another affidavit correcting the content of his affidavit of 8 November 2004. The only amendment made to the above evidence was that he claimed that Mr Commins said, “I will send you a letter just in case you get hit by a bus” instead of, “I will send you a letter to exercise the option in case you get hit by a bus”. Mr Quarmby had also sworn an affidavit on 4 March 2004. I have already set out the evidence Mr Quarmby gave in his 8 November 2004 affidavit. The affidavit sworn on 4 March 2005 referred to the affidavits of Mr Gillard (25 February 2005), Mrs Gillard (25 February 2005) and Mr Commins (24 February 2005). In particular Mr Quarmby agreed that Mr Commins said to him, “I will send you a letter in case you get hit by a bus” and denied that he responded, “don’t worry about it”. In dealing with Mr Gillard’s evidence Mr Quarmby denied that Mr Commins said, “I will send you a letter to confirm the exercise of lease” and claimed that Mr Commins said, “I will send you a letter in case you get hit by a bus.” This evidence then put Mr Quarmby’s evidence at odds with his earlier evidence in his 8 November 2004 affidavit. That appeared to be the reason that he swore his correcting affidavit of 7 June 2005 in which he adopted the evidence in the 4 March 2005 affidavit with a slight change and withdrew the words “to exercise the option” that appeared in the 8 November 2004 affidavit. However Mr Quarmby rejected this as the reason (tr 301-302).

55 There was a suggestion in the Company’s evidence that the plaintiffs recognised that the letter was necessary to exercise the option and that the failure to send the letter to Mr Quarmby was intentional. Mr Friedlieb said to Mr Commins in the meeting on 7 April 2004, “by not sending that letter your clients ensured that the rent would not go up but would remain the same”. It seemed this evidence was tendered to suggest that the plaintiffs benefited by not exercising the option. Mr Friedlieb was cross-examined about this aspect of his evidence. He agreed that he had drafted the Lease and knew that at the end of the term of the Lease, if the tenants held over, they would pay rent at the same rate as the last calendar year. He was cross examined as follows (tr 292):

56 Mr Quarmby was also cross-examined about this aspect of the discussion at the meeting with Mr Commins on 7 April 2004. He gave the following rather unsatisfactory evidence (tr 302-303):

57 It is clear beyond any doubt that whatever the reason was that the letter was not sent to Mr Quarmby, it had nothing to do with the plaintiffs seeking to take some advantage of a situation in which there could be no rental increase.

58 The plaintiffs were badly let down by Mr Commins in that he did not make a careful note of the Meeting and he did not follow up either with them or the defendant after the Meeting with any note or letter. If a careful note had been made or a confirmatory letter written the plaintiffs would have been assisted by some contemporaneous record. However the plaintiffs were quite firm in their evidence that at the commencement of the Meeting Mr Commins advised Mr Quarmby that they were there to take up the option. That firmness was not shaken in cross-examination (tr 22, 28, 32, 72-74 & 222). Mr Commins’ evidence that he advised Mr Quarmby that the plaintiffs were there “to exercise the option” suffers from the criticism that it was not put in an affidavit until February 2005 and I have taken that into account. I accept the plaintiffs’ evidence that Mr Commins advised Mr Quarmby that the plaintiffs were at the meeting to “take up” the option.

59 I have no doubt that Mr Quarmby knew the plaintiffs were at the Meeting to exercise the option and I do not believe that Mr Commins’ letter of 10 March 2003 with its hopelessly vague reference to exploring “avenues for agreement in terms of the occupancy” affected Mr Quarmby’s understanding that the plaintiffs were there to exercise the option. I do not accept that Mr Commins advised Mr Quarmby at the Meeting that the plaintiffs were only “considering” exercising the option. Both Mr Gillard and Mr Commins gave evidence that Mr Quarmby informed Mr Commins and the plaintiffs to the effect that it was not “necessary” to exercise the option in writing. Mrs Gillard did not give evidence about this aspect of the matter and Mr Quarmby denied that he informed Mr Commins that it was “alright” and that he did not have to exercise the option in writing.

60 In determining who to accept between Mr Commins and Mr Gillard on the one hand and Mr Quarmby on the other on this aspect of the matter, I have had regard to what everyone at the Meeting accepts was said towards the end of the Meeting – that Mr Commins would send a letter to Mr Quarmby “just in case he got hit by a bus”. There was no need to mention the event of a possible demise of Mr Quarmby under a bus if what was required was an exercise of an option in writing. If that were the case, the letter would have to be sent irrespective of any incidents with a bus. I am satisfied that the context of this conversation towards the end of the Meeting is clearly an indication that Mr Quarmby had indicated that he did not wish the plaintiffs to exercise the option in writing and that Mr Commins added that he would send the letter in case of Mr Quarmby’s possible demise. I accept that Mr Quarmby did say that it was not necessary for the plaintiffs to exercise the option in writing.

61 Mr Drummond referred to a number of authorities in relation to the exercise of an option to renew a lease including: Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894; Parras & Ors v FAI General Insurance Company Limited [2001] NSWSC 1077; and Webb & Anor v Ryleen Pty Limited, unreported, Young J, 8 November 1994. These cases are all quite distinguishable and have little to do with the facts of this case.

62 Mr Drummond submitted that if I were to find, as I have found that Mr Quarmby stated that it was not necessary to write to him for the purposes of exercising the option, then there was no reliance by the plaintiffs on that statement. This submission was based upon the fact that after the Meeting, Mrs Gillard asked Mr Commins who was going to send the letter that had been described as the letter in case Mr Quarmby was hit by a bus. Mr Commins advised Mrs Gillard that he would send the letter. I am not satisfied that this discussion demonstrates a lack of reliance on Mr Quarmby agreeing to the oral exercise of the option. The letter was not a necessary step in the exercise of the option in the circumstances. Mr Commins did not have to send a letter to exercise the option. Indeed his evidence was that if he had sent a letter it would have merely confirmed that the option was exercised orally at the Meeting pursuant to Mr Quarmby’s agreement for the exercise to occur in that fashion. It was a matter of prudence. The plaintiffs did not exercise the option in writing because Mr Quarmby advised them that they did not have to do so. It was in reliance on that statement that the plaintiffs continued on in occupation of the premises without giving written notice which would be to their detriment if the Company were permitted to require exercise of the Option in writing.

63 I am quite satisfied that Mr Quarmby knew that he had represented to the plaintiffs that they did not need to exercise the option in writing. I am also satisfied that Mr Quarmby formed the view at the Meeting that the plaintiffs had exercised their option to renew the Lease for the 5 year period. Mr Quarmby would have the Court believe that he knew that the plaintiffs had not exercised their option, that the Lease term expired on 1 August 2003 and that he kept that to himself until April 2004 when he decided to put a counter offer to purchase the Business. I do not accept that at all. I am of the view that Mr Quarmby well knew that the plaintiffs had orally exercised their option pursuant to the representation he made that it was not necessary to exercise the option in writing. He, on the Company’s behalf, gave up the right to rely upon the requirement in the Lease to exercise the option in writing. It would be quite inequitable to now allow the Company to enforce its previous right to require the exercise in writing. The Company is estopped from denying that the option has been validly exercised.

64 The plaintiffs gave the Company notice of their desire to renew the Lease at the Meeting in the form that Mr Quarmby advised was acceptable to the Company. I am satisfied that the plaintiffs are entitled to the declaration sought that the Company waived the requirement to exercise the option in writing. I am also satisfied that the plaintiffs are entitled to the declaration that they validly exercised the option to renew. In those circumstances the plaintiffs are entitled to a declaration that the Notice to Vacate is invalid. The Company’s cross claim will therefore be dismissed.

The 2001 Agreement

65 Mrs Gillard suggested in her evidence that she thought that there had been agreement to the two extra option periods as early as 2001. That suggestion emerged only in cross-examination when Mrs Gillard gave evidence that Mr Quarmby would have known the plaintiff accepted the terms offered in the letter of 18 January 2001 because “we were already practicing these terms” (tr 79). Mrs Gillard gave evidence that she informed Mr Commins that the plaintiffs accepted the terms offered by the Company, but did not ask Mr Commins to inform Mr Quarmby. Mrs Gillard’s evidence was that she did not know that she had to ask Mr Commins to do that (tr 80). Similarly Mr Gillard gave evidence in cross-examination that the plaintiffs “started the terms from the day I took over” (tr 17). However Mr Gillard accepted that he did not convey acceptance of the terms to Mr Quarmby and he did not ask Mr Commins to inform Mr Quarmby (tr 17).

66 It was suggested to Mrs Gillard that there was no need to have a meeting with Mr Quarmby in March 2003 if all that was to happen was the exercise of the option. Mrs Gillard accepted that the option could have been exercised by sending a letter without the necessity for a meeting. It was also suggested to Mrs Gillard that the reason the plaintiffs wanted to meet with Mr Quarmby was to “put some different terms” to him (tr 79). Mrs Gillard denied this suggestion.

67 The suggestion that there were different terms to be put to Mr Quarmby seems to stem from what Mr Drummond submitted was the “major difference” between the parties, identified by him as being the Company’s requirement that the plaintiffs take responsibility for rectifying termite damage. In support of this submission reliance was placed on the letter from Mr Commins to Mr Quarmby dated 28 November 2002 in which reference was made to the agreement “in earlier correspondence” to vary the terms of the Lease “subject to the tenants accepting an enlarged responsibility for maintaining the premises” and Mr Commins’ belief that “it would be appropriate to formalise terms of that agreement”. This was contrasted to the terms of Mr Commins’ letter of 10 March 2003 which suggested a meeting to “attempt to try and explore avenues for arrangement in terms of the occupancy” of the premises. The terms of this letter certainly suggest a different position to that suggested in the letter of 28 November 2002. Mr Commins claimed in cross-examination that this letter was “badly worded” (tr 124). Mr Commins was cross-examined about this claim and, as with much of his other evidence, I found his evidence on this topic quite extraordinary. It included the following (tr 124-127):

Q. Well, had you, either before or shortly following 18 January 2001, notified Lifoon or Mr Quarmby of any acceptance, by your client, of the terms contained in the letter of 18 January 2001.

104 I am satisfied that the solicitors breached their duty of care and their contractual obligations and caused damage and loss to the plaintiffs. The damages are to be assessed because this trial between the plaintiffs and the solicitors was, as I have said, limited to liability. Should the parties not be able to agree on quantum I shall refer to an Associate Justice the assessment of damages.

Retail Leases Act 1994

105 I should, as I indicated to the parties on 7 July 2005 that I would, record that the question of the applicability of the Retail Leases Act 1994 in this case is a matter that all parties have asked that I do not express any view upon. Accordingly I express no view upon its applicability.

Conclusion

106 The plaintiffs are entitled to the declaration and consequential orders that they validly exercised the option to renew the lease for a further five years until 1 August 2008. The Company’s Cross claim is to be dismissed. The plaintiffs have failed to prove that there was an agreement reached with the Company for two additional option periods of 5 years each. The plaintiffs have proved that the solicitor defendants have breached their duty of care and their contractual obligations to the plaintiffs in failing to negotiate and conclude an agreement for the two additional option periods, causing damage to the plaintiffs. The damages are to be assessed by an Associate Justice if the parties are unable to agree on quantum.

107 The parties are to bring in Short Minutes of Order, including an agreed costs order and a reference to an Associate Justice for the assessment of damages at 9.30 on 20 July 2005. If the parties are unable to agree on a costs order I will hear argument at that time.

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Citations

Lindsay William Gillard v Lifoon Pty Limited [2005] NSWSC 687

Most Recent Citation

Ko v CKAS Enterprises Pty Ltd [2018] NSWSC 1876

Cases Citing This Decision

2

Lifoon Pty Ltd v Gillard; Hendriks v Gillard [2006] NSWCA 182

Ko v Ckas Enterprises Pty Ltd [2018] NSWSC 1876

Cases Cited

5

Statutory Material Cited

1

Baloglow v Konstantinidis [2001] NSWCA 451

Parras v FAI General Insurance Company Ltd (Prov Liq apptd) [2001] NSWSC 1077

Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894

CITATION:	Lindsay William Gillard & Anor v Lifoon Pty Limited & Ors [2005] NSWSC 687
HEARING DATE(S):	29, 30, 31 March 2005 8, 9, 16 June 2005 4 July 2005
JUDGMENT DATE :	13 July 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Bergin J
DECISION:	See para 106

CATCHWORDS:	[LEASE] - Whether option to renew validly exercised [CONTRACT] - Whether agreement reached for additional terms of lease - whether in writing [NEGLIGENCE] - Whether solicitors breached duty of care - Whether breach of contractual obligation
LEGISLATION CITED:	Conveyancing Act 1919 (NSW)
CASES CITED:	Baloglow v Konstanidis & Ors [2001] NSWCA 451 Fire & All Risks Insurance Co Ltd v Concorde Personnel Management Services Pty Ltd (1987) NSW ConvR 55-330 Heppingstone v Stewart [1911] 12 CLR 126 Industrial Rollformers Pty Ltd & Anor v Ingersoll-Rand (Australia) Ltd (2001) Aust Contract Rep 90-129 Parras & Ors v FAI General Insurance Company Ltd [2001] NSWSC 1077 Tonitto & Anor v Bassal & Ors (1992) 28 NSWLR 564 Trust Co of Australia v Perpetual Trustees WA Ltd & Ors (1997) 42 NSWLR 237 Webb & Anor v Ryleen Pty Ltd, unreported, Young J, 8 November 1994 Wight v Haberdan Pty Ltd & Anor [1984] 2 NSWLR 280 Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894
PARTIES:	Lindsay William Gillard (1st plaintiff) Kristin Elizabeth Gillard (2nd plaintiff) Lifoon Pty Ltd (1st defendant) Henri Hendriks (2nd defendant) Robert George Stone (3rd defendant) Ian Erratt (4th defendant) Frederick John Commins (5th defendant) Glen Francis Lollback (6th defendant) Geoffrey John Potter (7th defendant) William James Thompson (8th defendant) Peter James Webb (9th defendant) Michael John Commins (10th defendant)
FILE NUMBER(S):	SC 3931/04
COUNSEL:	I.D. Roberts SC and S.B. Loughnan (plaintiffs - until 31 March 2005); I. Wales SC (plaintiffs - after 31 March 2005) J.S Drummond (1st defendant) G. Curtin (2nd - 10th defendants)
SOLICITORS:	Commins Hendriks (plaintiff - unitl 31 March 2005) Walsh & Blair (after 31 March 2005) Friedlieb Byrne (1st defendant) Phillips Fox (2nd - 10th defendants)