MASON & DIAKOS
[2009] SADC 55
•21 May 2009
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MASON -V- DIAKOS
[2009] SADC 55
Judgment of Her Honour Judge McIntyre
21 May 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND LIQUIDATED DAMAGES
The plaintiff was a tenant of a retail shopping centre owned by the defendant. The parties entered into a deed which documents an agreement concerning the temporary relocation of the plaintiff's business whilst the defendant redeveloped the shopping centre. The plaintiff claims that the terms of the deed entitle him to the payment of $250,000 due to Coles Supermarket not trading in the premises by 31 December 2006 and the sum of $3,500 for each month the plaintiff’s business was located in the temporary premises. The defendant denies that he owes any money to the plaintiff on a number of alternative grounds.
Held: The plaintiff is entitled to payment under the terms of the deed because:
1. The provisions relied upon by the plaintiff are not penalty provisions and were not frustrated by unforseen exigencies;
2. The plaintiff has not acted unconscionably and is not thereby estopped from relying on the terms of the deed;
3. Clause 3.8 of the deed does not require proof of loss;
4. The deed is not a collateral agreement under the Retail and Commercial Leases Act 1995 and the defendant is not entitled to relief under s 68 of the Act.
Retail and Commercial Leases Act 1995 s68, referred to.
Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310; BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 18 CLR 266 at 283; O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359; Legione v Hateley (1983) 152 CLR 406; Davis Contractors Ltd v Fareham UDC [1956] AC696; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Australian Competition & Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62, considered.
MASON -V- DIAKOS
[2009] SADC 55Introduction
This dispute arises out of a Relocation Deed (“the deed”) entered into between Mr Philip Mason (“the plaintiff”) and Mr George Diakos (“the defendant”) on 5 September 2006.
The defendant was the registered proprietor of land and premises at 144-150 Prospect Road, Prospect (“the premises”). This consisted of five specialty shops and a 900m2 supermarket. The plaintiff was the proprietor of a post office and newsagency business (“the business”) and the tenant of one of the specialty shops. The defendant intended to redevelop the premises.
Sokaid Pty Ltd, an entity belonging to the defendant, held land and premises located at 154-160 Prospect Road (“The Terraces”) that consisted of specialty shops on the ground floor and terraced apartments on the first floor.
The deed documents an agreement between the parties concerning the temporary relocation of the plaintiff’s business to The Terraces while the redevelopment of the premises took place. Upon completion it was agreed that the plaintiff would return to the redeveloped premises to continue trading.
The plaintiff seeks payment by the defendant under certain clauses of the deed. The defendant resists this. The defendant abandoned his counterclaim for monies paid to the plaintiff during the course of the trial.
Witnesses
The parties agreed that the defendant be dux litis. The matter accordingly commenced with the defence. The defendant gave evidence concerning the negotiation of the deed and the redevelopment of the premises. The plaintiff gave evidence in support of his claim. There were no other witnesses.
I found the plaintiff to be a more impressive witness overall than the defendant who was somewhat vague and imprecise about dates and events. There was, in the event, little difference between them as to the events in question. Where there was dispute I prefer the evidence of the plaintiff.
There were a number of documents tendered during the hearing of this matter for both the defendant and the plaintiff. These were:
D1 Folder of documents. P1 Original Relocation deed, dated 5/9/06. D2 Letter from Mr Mason to Mr Diakos, dated 19/4/04. D3 Letter from Defendant to Plaintiff, dated 21/4/04. D4 Letter from Plaintiff to Defendant, dated 23/4/04. D5 Letter from Defendant to Plaintiff, dated 3/5/04. D6 Letter from Defendant to Plaintiff, dated 6/5/04. D7 Letter from Plaintiff to Defendant, dated 7/5/04. D8 Letter from Defendant to Plaintiff, dated 7/5/04. D9 Memorandum of meeting of 2/7/04. D10 Letter from Defendant to plaintiff, dated 22/9/04. D11 Letter from Plaintiff to Defendant, dated 29/9/04. D13 Letter from Defendant to Intrepid Property, dated 13/7/05. D14 Letter dated 8/8/04. D15 Letter from the Plaintiff to Intrepid property, dated 8/8/04. D16 Letter from Plaintiff to Intrepid Property, dated 19/8/05. D17 Letter from the Plaintiff to Intrepid Property, dated 23/8/05. D19 Letter from Plaintiff to Defendant, dated 24/1/07. D20 Letter from Plaintiff to Defendant, dated 5/3/07. D21 Summary of Defendant’s evidence re: Schedule of Costs. D22 Bundle of Letters dated July 2008. D23 Bundle of documents re: Contamination. D24 Letter from Safe Work SA dated 1/6/07. P2 Memorandum of Lease to Mr & Mrs Pontifex dated 22/7/08. P3 Letter from Mr Nisyrios dated 11/5/04 to Mellor Olsson. P4 Agreement to Lease Premises document. P5 Letter from Mellor Olsson to Oxford Conveyancing dated 9/6/04 + Draft deed of Assignment. P6 Letter from Plaintiff to Defendant dated 24/6/04. P7
Typed note from Plaintiff to Defendant dated 2/7/04 with handwritten message from plaintiff to defendant. P8 Letter to Mr Nisyrios dated 7/7/04 from Mellor Olsson. P9 Letter from Solicitor for Mr & Mrs Pontifex to Mellor Olsson dated 21/7/04. P10 Letter from Plaintiff solicitors to Defendant’s solicitors dated 21/7/06. P11 Letter from Defendant’s solicitors to Plaintiff’s solicitors dated 16/7/08. P12 Various correspondence and invoices between Plaintiff and Defendant. P13 Bundle of unpaid Tax invoices from Post Plus to Defendant. D25 Email from Plaintiff to Mr Phillips & Mr Hopping dated 10.8.05. D26 Letter from Plaintiff to Defendant, dated 12/3/2007.
There were also two documents marked for identification – MFI D12 and MFI D18. These documents were the subject of argument during the course of the trial. I ruled them inadmissible. I cannot and do not take account of these documents.
Background
The defendant is an architect. He purchased the premises in about 1976. By early 2004 he formed the intention to redevelop the premises into a larger shopping complex. At that time, Mr and Mrs Pontifex were proprietors of the business. They wished to sell the business and had placed it on the market. They had a lease on the premises that commenced on 1 November 1997 and was due to expire on 31 October 2007. They had a right to renew the lease for a further five years.[1] It is common ground that the terms of the lease did not permit the defendant to require Mr & Mrs Pontifex to vacate the premises in order to undertake the redevelopment.
[1] Exhibit P2
The plaintiff became interested in purchasing the business and, in about March 2004, he commenced negotiations with Mr & Mrs Pontifex.[2] While in discussions with Mr & Mrs Pontifex the plaintiff met the defendant. The plaintiff and the defendant both agree that at this stage there was discussion about the redevelopment and relocation of the business until the redevelopment was completed.[3] It was discussed that the business could move into The Terraces although the plaintiff says that at this time The Terraces was undergoing refurbishment and was not ready to move into.
[2] Transcript p186
[3] Transcript p25 and p187.
The purchase of the business and the relocation was discussed concurrently. Effectively this was a three-way negotiation between Mr & Mrs Pontifex, the plaintiff and the defendant.
In relation to the sale of the business, Mr & Mrs Pontifex engaged Mr Marshall from Business Interests and the plaintiff engaged Mr Nisyrios from Oxford Conveyancing. In relation to the negotiation of the deed, the defendant commenced negotiations on his own behalf but ultimately engaged Mr Feely from Intrepid Property to continue those negotiations on his behalf. The plaintiff was negotiating on his own account. Subsequently the defendant’s solicitor, Mr Traianos, became involved and the plaintiff engaged Mr Phillips as his solicitor.
In about April 2004 the plaintiff had reached agreement, subject to stock valuation, with Mr & Mrs Pontifex about the purchase of the business.[4] They were not however able to settle on the purchase due to ongoing negotiations between the plaintiff and defendant about the assignment of the lease. I will refer to these negotiations in further detail shortly. In summary however, it was necessary for the defendant to consent to the assignment of the lease to the plaintiff. Prior to that, he was keen ensure that the plaintiff would relocate his business during the period of the redevelopment. There were differences between the plaintiff and the defendant as to terms upon which this would occur and how it would be documented. Ultimately however the defendant consented to Mr & Mrs Pontifex assigning their lease to the plaintiff in about late July 2004 (“the assignment”) without reaching agreement about the proposed relocation.[5] Settlement occurred on the sale and purchase of the business on 1 September 2004.[6]
[4] Transcript p188
[5] Exhibit P9; Transcript p156 - 157
[6] Transcript p193
It remained necessary for the plaintiff and defendant to come to some arrangement about the relocation of the business in order for the defendant to proceed with the proposed redevelopment. The negotiations are contentious.
Agreement on terms was eventually reached and the plaintiff relocated the business to The Terraces on or about 23 October 2005. The parties did not however sign the deed evidencing their agreement until about 5 September 2006.
The proceedings relate to the deed. The plaintiff claims under the terms of the deed as follows:
·Under clause 4.11 the payment of $250,000 due to Coles Supermarket not trading in the premises by 31 December 2006.
·Under clause 6.2 the sum of up to $2,000 towards legal costs incurred since 24 August 2005 in respect of relocations contemplated by the deed.
·Under clause 3.8 the sum of $3,500 for each month the plaintiff’s business was located at The Terraces.
The defendant denies that he owes any money to the plaintiff. He says that
·Clause 4.11 constitutes a penalty and is therefore void and of no effect; or
·In the alternative, if clause 4.11 is not void, then the clause was frustrated by unforseen exigencies; or
·The Plaintiff, prior to his purchase of the business, represented to the defendant that he would relocate to The Terraces based on existing lease conditions. He relied on this representation and proceeded with the re-development including the negotiation and relocation of all other tenants of the premises. The plaintiff resiled from the representation and it is unconscionable that he be allowed to do so. Accordingly, equity should uphold the plaintiff’s promise and declare both clause 4.11 and clause 3.8 void ab initio.
·In the alternative clause 3.8 requires proof of loss and the plaintiff has failed to provide such proof.
·Finally the defendant contends that the deed constitutes a collateral agreement under the Retail and Commercial Leases Act 1995 (“the Act”) and seeks relief under s 68.
There is no specific pleading in relation to clause 6.2 and the defendant conceded that the plaintiff was entitled to this amount in his final submissions.
The defendant counter-claimed $80,000 paid to the plaintiff under clause 3.8. The defendant claimed that this sum should be reimbursed because the plaintiff has not proven any loss suffered as a result of the relocation. In his final submissions the defendant abandoned that counterclaim accepting that the plaintiff had suffered a loss but he maintained his opposition to the plaintiff’s claim under clause 3.8 as outlined above.
Issues
The issues for determination are:
1.Is clause 4.11 a penalty clause?
2.Was the performance of clause 4.11 frustrated?
3.Did the plaintiff make a representation to the defendant and did he resile from it as alleged? If so, what relief is available to the defendant?
4.Does clause 3.8 require proof of loss?
5.Is the deed a collateral agreement under the Retail and Commercial Leases Act 1995? If so, is the defendant entitled to relief under that Act?
Is Clause 4.11 a penalty clause
Clause 4.11 reads as follows:
Provided Mason vacates the current premises by 1 November 2005, Diakos agrees to pay Mason the sum of $250,000 (including GST) if the Coles Supermarket planned for the centre does not commence trading by 31 December 2006.
It is common ground that the success of the redevelopment of the premises depended upon the defendant obtaining a major tenant for the supermarket. Mr Diakos gave evidence that, in order to make the development viable and financially attractive to financiers, he had to approach a major tenant. He negotiated with Coles to take up the supermarket of approximately 250 square metres.[7]
[7] Transcript p23
It was also important to the plaintiff that there was a major supermarket operator present in the shopping centre attracting clientele to the premises.[8] The plaintiff’s business included an SA Lotteries Licence. It was necessary for him, as part of the purchase of the business, to apply for a licence in his name. He was told by SA Lotteries that his application for a licence would not be successful unless there was an anchor tenant in the supermarket area. The defendant wrote to him on 3 May 2004 confirming that the principal tenant for the shopping complex would be Coles Myer.[9] In a further letter dated 6 May 2005 the defendant again confirmed that Coles Myer would be the principal tenant. He set out a construction timetable for the proposed shopping complex and indicated:
Coles Myer expects to take over the supermarket at the end of May 2005 with an opening at the end of July 2005.[10]
[8] Transcript p214-216
[9] Exhibit D5
[10] Exhibit D6
Information to the same effect was reiterated in a further letter from the defendant to the plaintiff dated 7 May 2004.[11]
[11] Exhibit D8
The plaintiff gave evidence that he was concerned about the relocation of his business to temporary facilities because of the likelihood that sales and profits would fall whilst in the temporary premises. His key concerns were how long the redevelopment would take and how long he would be in the temporary premises.
The plaintiff agreed on terms with Mr and Mrs Pontifex in about April 2004 in relation to the purchase of the business.[12] It is clear on the evidence that there were a number of meetings between the plaintiff and the defendant concerning the lease arrangements. The defendant was required to consent to the assignment of the Pontifex lease to the plaintiff.
[12] Transcript p188
The Pontifex lease did not contain a clause enabling the defendant to require the tenant to leave the premises to facilitate a redevelopment. The defendant wished to negotiate a resolution whereby the plaintiff left the premises during the redevelopment and relocated the business to The Terraces. He further wished to ensure that the business returned to the premises as a tenant once the redevelopment was complete. The plaintiff was prepared to do this but was keen to do so on terms favourable to his business. There was a substantial period of negotiation about various topics. These were complex arrangements involving a number of steps including assignment of the Pontifex lease to the plaintiff, termination of the existing lease at the premises, a lease for the temporary premises and negotiation of a new lease in the redeveloped premises.
The plaintiff gave evidence that negotiations with the defendant had been dragging on for some time since his in principle agreement with Mr & Mrs Pontifex. He thought that he had finally reached agreement with the defendant on about 2 July 2004.[13] He prepared a memorandum setting out the details of this agreement (“the plaintiff’s memorandum”).[14] This can be summarised as follows:
1. Agreement by the defendant to assign the Pontifex lease to the plaintiff.
2. Agreement by the plaintiff to move to The Terraces on terms set out in the memorandum.
3. Heads of agreement between the plaintiff and defendant for the plaintiff to lease a portion of the new shopping centre when complete.
[13] Transcript p190-192
[14] Exhibit D9
The plaintiff accepted that his business would be located at The Terraces for approximately 12 months but he retained a right to rescind the lease on the temporary premises, on the giving of two months notice, if redevelopment of the shopping centre had not commenced by 30 September 2004.
The defendant gave evidence in chief that he did not agree to the matters outlined in the plaintiff’s memorandum. Specifically he did not agree to the proposal that the plaintiff be at liberty to rescind the lease on the giving of two months notice.[15] In cross-examination his evidence was less clear. He agreed that the agreement reached on 2 July 2004, as documented in the plaintiff’s memorandum, could be termed “a lay person’s agreement” to be drawn up by lawyers.[16]
[15] Transcript p41
[16] Transcript p148-9
A meeting was arranged to take place at the defendant’s solicitor’s, Mr Traianos’, office on about 19 July 2004. There is some dispute as to precisely what occurred at that meeting. The plaintiff says that he attended in the belief that they were going to sign an agreement based on his memorandum. He said that the defendant’s solicitor informed him that “we have an issue”. He then gave evidence as follows:
AI said ‘We don’t have an issue, do we George?’ Mr Diakos said ‘Yes, I have an issue with the agreement’ and at that point I said words to the effect ‘I cannot believe this, we’ve been negotiating this’, I hit the table with my fist, I went (demonstrates) with my hand. I said ‘As far as I’m concerned this meeting is finished. The next person you will hear from will be my solicitors when I find one because you’re preventing me from purchasing the business and by the way you’ll also hear from the vendor’s solicitors because you’re stopping them from selling the business’. At that point, I think reasonably described, stormed out.
"QBefore storming out was the issue identified.
AThe issue was not identified. The extent of the conversation was as exactly as I’ve said it. There was no issue identified.
The defendant agreed initially that the purpose of the meeting was to put what had been agreed into a legal agreement based on the plaintiff’s memorandum of 2 July 2004.[17] He agreed that Mr Traianos started the meeting by stating the defendant had some issues with the memorandum. He said that the plaintiff’s memorandum was based on an offer that he had put to the plaintiff to which the plaintiff added some additional conditions. The additional conditions related to “releasing him from his commitment”.[18] In cross-examination however it appeared that the defendant was likely to be confusing the plaintiff’s memorandum of the 2nd July 2004 with the plaintiff’s response to an offer that he made to the plaintiff in about May 2004.[19] The plaintiff had substantially accepted that offer but had inserted a new clause, Clause 23.2, which stated:
23.2 The Lessee reserves the right to terminate this Lease in event that
(a) the building works are not commenced within three months of the date of relocation to the temporary premises with the Lessee giving three months prior notice of cancellation to the Lessor and
(b) the building works are not completed within eighteen months of the date of commencement of this lease with the Lessee giving three months prior notice of cancellation to the Lessor,
[17] Transcript p149
[18] Transcript p150
[19] Exhibit P4
It was put to the defendant that this issue was resolved at the meeting on 2 July 2004, that this agreement was reflected in the plaintiff’s memorandum at paragraph 2.3 which read:
…..
2.3 If redevelopment of shopping centre has not commenced by September 30, 2004, Mr Mason can rescind the lease with a minimum of 2 months notice in writing.
The defendant was unable to recall this.[20] He disputed the plaintiff’s evidence that the issue with the memorandum of 2 July was not identified prior to his storming out. He did not however specifically identify the issue in dispute at that meeting in his evidence. The defendant said:
ANo, that is not – I can’t remember what he said but always I maintained that concern that he was insisting on to move from The Terraces before – before the due date and that is the part all along that I was objecting and we both I think we lost a bit of our temper yes
QI can’t suggest the exact words that Mr Mason used, he can’t remember them, but suggesting to you that the gist of it was that he got upset and he said to you words to the effect “but we had agreed all that two weeks ago and I thought we were here today to complete and finalise that agreement and now you want to change things”.
ANo, that is not correct. One of the reasons why we went to Mr Traianos’ office it was purely to discuss all the issues that had been around the table for quite some time, we wanted to iron them out and reach a resolution. That was the reason of that meeting, it was not to go and sign up.[21]
[20] Transcript p152
[21] Transcript p153-154
The other matters the plaintiff says he raised in this meeting concerning the holding up of his purchase of the business with the Pontifexs were put to the defendant. He could not recall these matters being raised.
I find that the issue of early termination of the lease at The Terraces had been resolved in principle between the plaintiff and defendant prior to the meeting at the defendant’s solicitors. The plaintiff modified his position to allow termination of the lease on The Terraces only if redevelopment did not commence as anticipated by the defendant. If the redevelopment commenced on time, the plaintiff had no additional rights to terminate the temporary lease. This was substantially more favourable to the defendant than the plaintiff’s prior position. In the absence of any clear evidence from the defendant about this topic it is difficult to ascertain precisely what further issue the defendant wished to raise with the plaintiff at this meeting. In view of this, and the defendant’s generally vague recall of the meeting, I prefer the plaintiff’s version of the events at that meeting.
In any event it is clear that, after this meeting, a solicitor acting on behalf of the Pontifexs wrote to the defendant’s solicitor indicating that the sale transaction to the plaintiff was being delayed by the lease negotiations. The Pontifexs wished to obtain an assignment of the lease to the plaintiff in order to complete settlement of the sale. This letter was sent on 21 July 2004.[22] Following this letter the defendant agreed to an assignment of the lease from the Pontifexs to the plaintiff with no agreement concerning the relocation of the business.
[22] Exhibit P9
The defendant gave evidence on this topic as follows:
QYou agree that after discussing it with Mr Traianos getting some advice about the Retail Commercial Leases Act you instructed him to write back and say “Okay we will just do a straight assignment of the lease”.
AThat is correct.
QWould you agree than that it must follow from all of that that all the other issues remained to be negotiated and worked out between you and Mr Mason and on your evidence nothing else had really been agreed.
AWell, I – I was advised from the very minute we were going to sign that – sign that existing lease, we going to have a – big issues in the future, but I had no option but to agree and sign that.
QMy suggestion to you is simply this; you did have the option of agreeing to the proposals that Mr Mason had noted down, written out and then circulated to all the parties in his memo of 2 July 2004. You had that option didn’t you.
AI had that option but I disagree, I still disagree about that relocation about the moving out from The Terraces before the lease expires.[23]
[23] Transcript p157
The plaintiff settled on the sale and purchase of the business on 1 September 2004. On 22 September 2004 the defendant wrote to the plaintiff following a meeting between them.[24] This letter proposed that the plaintiff relocate the business to The Terraces on 6 and 7 November 2004 to enable the immediate commencement of construction of the proposed shopping centre. It was indicated that the construction would be over a 12 month period and that the opening date for the new shopping centre was to be April 2006.
[24] Exhibit D10
The plaintiff responded to that by letter dated 29 September 2004[25] identifying 6 key issues of concern to him. In particular he said that he could not move his shop prior to Christmas, that work had not been completed on the temporary shop and that he needed to obtain approval for the transfer from SA Lotteries and Australia Post.
[25] Exhibit D11
The defendant then appointed a Mr Feeley to act as his agent in the negotiations with the plaintiff. There were a number of meetings between Mr Feeley and the plaintiff. Mr Feeley drafted various written proposals, which were sent to the plaintiff. The plaintiff would then respond; often raising counter proposals.[26] On August 19, 2005 the plaintiff wrote to Mr Feeley indicating that “the final offer as presented is unacceptable to me” and indicating his intention to continue trading at 144 Prospect Road in accordance with his lease.[27]
[26] Transcript p165-166
[27] Exhibit D16
There is some dispute as to what occurred after this and in particular concerning the circumstances in which clause 4.11 entered the contract.
The plaintiff says that following this letter on about 20 August 2005, he had a discussion with the defendant in which the defendant said that he had committed and contracted to Coles being in the new centre in July 2006. The plaintiff said words to the effect, “if that is the case and Coles are not in by the end of 2006 what about you pay me $250,000.” He says the defendant agreed to this and it was subsequently incorporated into the agreement as clause 4.11.[28]
[28] Transcript p200
The defendant’s evidence concerning the incorporation of that clause is not entirely clear. He was unable to recall at what stage the question of such a payment was brought up[29] but thought it may have been mentioned at a meeting at the premises of the plaintiff’s accountant, Mr Brian Hopping, in about July 2005.[30]
[29] Transcript p43
[30] Transcript p46
The defendant agreed that there was a meeting following the plaintiff’s letter of 19 August 2005. He said that he went to the plaintiff’s business premises on Saturday, 20 August 2005. He said that he explained his concern about the rejection of his final offer to both Mr Mason and his wife. He said that by August 2005 the plaintiff was the only tenant remaining in the premises and that the only option open to him was to accept the plaintiff’s demands.[31] His evidence on this topic was however somewhat confused and it is unclear whether he says that the amount of $250,000 formed part of those demands and, if it did, how that came about.
[31] Transcript p50
In examination in chief the defendant was shown a letter from the plaintiff to the defendant’s agents dated 23 August 2005 confirming an agreement reached on 20 August 2005 whereby the defendant would pay the sum of $250,000 to the plaintiff if Coles did not move in to the premises by 31December 2006.[32] The contents of the letter were put to him as follows:
Q“And then penalty payable should this not occur $250,000 this was agreed by Mr Diakos in a discussion on Saturday 20 August. Can you agree discussing that.
AYes, that was the Saturday.
QSo, that is the Saturday when he asked for $250,000, right, and you agreed to that.
AYes.[33]
[32] Exhibit D17
[33] Transcript p52-53
In cross-examination however the plaintiff’s version of events was put to the defendant and he denied that version as follows:
QCan I suggest that the way the $250,000 came up was this. That you saw Mr Mason on the day of the conversation, either at or near his business premises.
AIt was within his premises.
QDid he say to you something to this effect. ‘Well, George, obviously it’s getting to the point now where we will soon be moving. Can you tell me when will the new shopping centre actually be ready for me to move in?’
ANo, that’s not true and it’s not correct.
QI suggest that that did happen and that in response to that you said ‘Well, I’m planning and in fact am committed to getting Coles in by July of next year’ that’s to say July 2006.
AThat conversation never took place in that meeting.
QI suggest that Mr Mason then said, ‘Well, it that’s right, if you’re confident of that, well, how about you agreeing that if Coles do not move in and start trading by 31 December 2006, then you will agree to pay me $250,000.
AThat’s not correct. My….what the discussion was all about.
QI suggest that things happened as I’ve just suggested to you and that you said ‘Yes, well, that will be all right. Coles will be in well before 31 December 2006, so I will agree.’
AThat’s not correct. That’s not true.[34]
[34] Transcript p167-169
In re-examination the defendant indicated that he could not recall any discussion about an amount of $250,000 at the meeting with the plaintiff on 20 August 2005.[35]
[35] Transcript p181-183
The defendant requested that I draw an adverse inference for the failure to call Mrs Mason to give evidence about the meeting between the plaintiff and defendant on 20 August 2006. Whilst it may have been helpful to have Mrs Mason’s evidence, the defendant’s evidence on the topic of what was or was not discussed at that meeting is so unclear that I am uncertain what inference I am being invited to draw. The usual inference is that the evidence would not have assisted the plaintiff. Presumably in these circumstances the defendant invites the inference that Mrs Mason would have negatived the plaintiff’s evidence that the amount of $250,000 was discussed and the circumstances in which it was discussed. The defendant’s evidence on this topic was however so unsatisfactory that it is not possible for me to say what he contends was discussed at that meeting. In his evidence in chief he appears to have agreed that it was discussed and yet, in cross-examination and re-examination he resiled from this.
In any event it is not necessary to resolve this issue because plainly, at some stage, the defendant and plaintiff agreed a payment of $250,000 if Coles did not move into the premises by 31 December 2006. No matter how reluctantly the defendant agreed to that payment and no matter what the timing or circumstances of that agreement it culminated in the inclusion of clause 4.11 in the deed. The circumstances in which the clause was negotiated do not assist in its interpretation.
It is also pertinent to note at this point that solicitors acting on the defendant’s behalf drafted the contract and he signed it. Further, he signed it at a time when it was plain that Coles would not be moving into the shopping centre by 31 December 2006.[36]
[36] Transcript p88-90
I now turn then to the consideration of the meaning and effect of Clause 4.11
The defendant contends that clause 4.11 of the deed is a penalty clause. The application of the doctrine of penalties is restricted to circumstances where there is a breach of contract. A penalty must be collateral to the main promise and purpose of the contract and it must operate as a deterrent to failure to perform that main promise or purpose by imposing an additional default or detriment on the promisor and by conferring an additional benefit on the promisee in the event of a default. [37]
[37] Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310
There is no express obligation or covenant in the deed requiring the defendant to have Coles commence trading by 31 December 2008. Nor, in my view, could such an obligation be implied into the deed as is apparently contended by the defendant.
The test for implying a term into a contract is set out in BP Refinery (Western Port) Pty Ltd v Hastings Shire Council[38] as follows
[F]or a term to be implied, the following conditions (which may overlap) must be satisfied:
1. it must be reasonable and equitable;
2. it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
3. it must be so obvious that “it goes without saying”;
4. it must be capable of clear expression;
5. it must not contradict any express term of the contract.
[38] (1977) 180 CLR 266 at 283
It is not necessary to imply a term requiring the defendant to have Coles commence trading by 31 December 2008 in order to give business efficacy to the deed. The deed is plainly effective without it. It cannot be said that the term sought to be implied is “so obvious that it goes without saying”. Such a clause would significantly alter the effect and substance of the deed by imposing a substantial primary obligation on the defendant with a corresponding course of remedies available to the plaintiff should that obligation be breached.
Further, an implied term that Coles must commence trading by 31 December 2006, does not sit well with clause 4.6 of the deed. That clause expressly addresses the event of the centre not being completed within 13 ½ months after the plaintiff moved into the temporary premises.
I conclude that the sum of $250,000 was payable by the defendant on the happening of two events. The first was that the plaintiff vacated the premises by 1 November 2005. The second was that Coles did not commence trading by 31 December 2006. It is uncontentious that the first event occurred. It is further uncontentious that Coles did not commence trading by 31 December 2006. Non-occurrence of the second of those events did not give rise to a breach of any express or implied term of the deed. In particular, the plaintiff did not have any claim for damages for breach of the deed if Coles did not trade in the centre by 31 December 2006 or any other date for that matter.
Accordingly, it is my view that clause 4.11 is not a penalty clause. The clause does not impose contractual terms on the defendant or indeed the plaintiff. Rather, it specifies the payment of an amount on the happening of the two events referred to above. It is not a question of penalty or liquidated damages for breach of a contractual obligation.[39]
[39] O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 and Legione v Hateley (1983) 152 CLR 406
Was the performance of clause 4.11 frustrated
The defendant contends that clause 4.11 of the deed has been frustrated in that it was not possible for Coles to commence trading at the centre by 31 December 2006 due to factors beyond the defendant’s control.
The defendant gave evidence of those factors. These included planning issues with the City of Prospect, relocation of traffic lights, site contamination issues, a work place accident requiring closure of the site and an investigation by Safe Work SA, and theft of electrical cables. The defendant indicated that these unforeseen matters caused significant delay to the completion of the project and consequential delay in Coles commencing to trade at the premises.[40]
[40] Transcript p84-90
Whilst these issues and delays may have been frustrating to the defendant they do not amount in law to frustration. I have found that there was no contractual obligation either expressed or implied upon the defendant to ensure that Coles commenced trading by 31 December 2006 or at all. The only obligation in clause 4.11 of the deed is for the defendant to pay the sum of $250,000. The delay is not relevant to the defendant’s contractual obligation under that clause or indeed the defendant’s obligation under the deed as a whole. Both parties have performed their obligations under the deed with the exception of the defendant paying the sums in dispute in these proceedings. Accordingly it cannot be said that a contractual obligation has become incapable of being performed in the requisite sense.[41]
[41] Davis Contractors Ltd v Fareham UDC [1956] AC696 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Representation
The defendant contends that in April 2004 the plaintiff represented that he was prepared to relocate his expectant leasehold interest on reasonable terms and conditions. Those reasonable terms and conditions were stated to be as follows:
1. Indemnity for loss of profits.
2. Payment of all costs.
3. Right to return to the new development.
4. Assurances that Coles would be a tenant and that the redevelopment would be completed in about 13.5 months.
The defendant says that the plaintiff’s representation was expressed in statements to that effect and is evidenced in letters passing between the parties as tendered in evidence. It was also implied by the way in which the parties conducted themselves. It is said that the representation was relied upon by the defendant who went ahead with the development based upon that representation. It is further said that the plaintiff breached or misrepresented his position in that he required unreasonable or penal terms being clause 4.11 and 4.6. The defendant says that these circumstances give rise to an estoppel.
Whilst the submissions on this point were couched in terms of a representation it must be that the defendant is asserting that the plaintiff has acted unconscionably. This is not a case where a party was induced to enter into a contract by a misrepresentation rather it appears to be an assertion that the plaintiff has unconscionably exploited his position. If that were the case then the court does have equitable jurisdiction to grant relief. In order to obtain such relief it is necessary for the defendant to establish, inter alia, that he was under a special disability or disadvantage, that the plaintiff knew or is likely to have known about his special disability/disadvantage and that the plaintiff proceeded to exploit this unconscionably in order to force the defendant to enter into the deed. [42]
[42] Commercial Bank of Australia v Amadio (1982) 151 CLR 447
The defendant in this matter is an architect and an experienced property developer. He does not therefore have disabilities such as illiteracy or lack of education. He had the benefit of legal advice. His lawyers drafted the deed.
The defendant’s disadvantage was a situational disadvantage rather than a constitutional disadvantage. He had spent significant time and resources to redevelop the centre and the plaintiff was the remaining impediment to that redevelopment. There must however be something more than commercial vulnerability, no matter how extreme, to elevate disadvantage into special disadvantage attracting the intervention of the courts.[43]
[43] Australian Competition & Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62
In my view there is no warrant to grant equitable relief in the circumstances of this matter. The defendant’s situational disadvantage arose principally, if not solely, due to the defendant’s own actions. He commenced arrangements for the redevelopment of the centre without reaching agreement with the plaintiff and indeed assigned the lease to the plaintiff without reaching such arrangements. He could have entered into agreement with the plaintiff on different terms on a number of occasions including on the basis of the plaintiff’s memorandum of July 2004. Further, at the time the defendant executed the deed on 5 September 2006 the plaintiff had moved to the temporary premises some 11 months earlier and the redevelopment had commenced. The plaintiff’s bargaining power together with his ability to force the defendant to enter the deed was thus considerably reduced. Finally, the defendant was aware, at the time he signed the deed, that it was unlikely that Coles would move into the shopping centre by 31 December 2006 but nevertheless signed it.[44]
[44] Transcript p88-90
In any event the representation relied upon by the defendant concedes that the plaintiff was entitled to negotiate reasonable terms and conditions for the relocation of the business. What is reasonable is somewhat in the eye of the beholder as the extensive negotiations in this matter demonstrate. It is clear from the evidence that the plaintiff at all times was attempting to safeguard the viability of his new business and to obtain some protection should the centre not be completed within the time frame indicated by the defendant. This was not an unreasonable concern particularly in light of subsequent events. The plaintiff had genuine and realistic concerns about the detriment he would suffer from being in temporary premises and sought to address these in the negotiations. Further given the defendant’s prior representations as to the commencement and completion time for the redevelopment there was, in my view, nothing unconscionable about the negotiation of, agreement to or enforcement of clause 4.11. Had matters transpired as represented by the defendant then Coles would have been in occupation of the premises some months prior to 31 December 2006.
I therefore decline to grant relief as sought by the defendant in relation to the claim of unconscionability.
Does clause 3.8 require proof of loss
Clause 3.8 provides as follows:
Diakos has agreed to underwrite any losses in net dollar profit of Mason’s newsagency business arising whilst trading at the temporary premises by way of a monthly payment of $3,500 (including GST) into Mason’s nominated bank account on the first day of each month during the term of The Terraces lease (with the first and last payments being proportionate to the parts of the month to which they relate).
The business operated at The Terraces from 23 October 2005 until 19 October 2008. Whilst practical completion occurred in July 2008 there was a difficulty with the Council which meant that occupancy could not start until 1 October 2008. It was only after that date the plaintiff could fit out the premises.[45] The plaintiff invoiced the defendant on a monthly basis during this period for payment under clause 3.8. The defendant paid the plaintiff’s invoices up to and including November 2007. It was at this stage that the defendant indicated to the plaintiff that he was required to provide proof of loss as a pre-condition to payment under clause 3.8. The unpaid invoices are for the period December 2007 to October 2008 and total $38,500.[46]
[45] Transcript p170-172, Exhibits P11 and D22
[46] Exhibit P13
The defendant conceded as part of his case that there was likely some loss to the plaintiff by reason of the relocation to The Terraces but contends that clause 3.8 requires presentation of proof of that loss. It is uncontroversial that the plaintiff has not supplied proof of loss to the defendant.
It is my view that the plain wording of clause 3.8 does not require proof of loss as a precondition to payment. I therefore find that the plaintiff is entitled to $38,500.
Is the deed a collateral agreement? If so, what are the consequences?
The defendant says that the deed is a collateral agreement under the terms of the Retail & Commercial Leases Act 1995 and claims to be entitled to relief under to s68 of that Act. I do not agree.
The Act relates to disputes concerning retail and commercial leases. This is not a dispute about a retail and commercial lease, rather, it is a dispute about a contractual conditions in the deed. The relocation deed deals with the terms upon which the first lease would be surrendered and the temporary lease and, subsequently the lease for the redeveloped premises, would be entered into. The deed is not collateral to the leases in the manner contemplated by the Act. It is not the same situation as a director’s guarantee of payment of rent under a lease nor is it a side agreement about lease terms entered into in an attempt to circumvent the Act.. Even if I were wrong about this, and the deed was capable of being a collateral agreement under the Act, the defendant has not established any basis upon which he is entitled to relief under to s68 of the Act.
Conclusion
For the reasons outlined above I find that the plaintiff’s claim succeeds and that he is entitled to judgment in the sum of $290,500. This is made up as follows:
·Under clause 4.11 $250,000
·Under clause 3.8 $ 38,600
·Under clause 6.2 $ 2,000
$290,600
I will hear the parties as to the question of interest and costs prior to entering judgement for the plaintiff.
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