Mirania Holdings P/L T/as Mudgee Aviation Services v Mudgee Aero Club Inc

[2005] NSWSC 165

CITATION:	Mirania Holdings P/L T/as Mudgee Aviation Services v Mudgee Aero Club Inc [2005] NSWSC 165
HEARING DATE(S):	24/02/05
JUDGMENT DATE :	24 February 2005
JUDGMENT OF:	White J
DECISION:	See paragraphs 34-37, 40-42.

CATCHWORDS:	LICENSEE & LICENSOR - Option to renew licence - whether validly exercised - Construction of correspondence between the parties - Contra proferentam principles not to apply on the facts.
CASES CITED:	Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 North v Marina [2003] NSWSC 64 Shearer v Wilding (1915) 15 SR NSW 283 Farrands; The Law of Options pp 67-69
PARTIES:	Mirania Holdings Pty Limited T/as mudgee Aviation Services v Mudgee Aero Club
FILE NUMBER(S):	SC 3386/04
COUNSEL:	Plaintiff: G McNally & L Chan Defendant: A Gelbart
SOLICITORS:	Plaintiff: Barry F Cosier & Associates Defendant: Peter Prior & Co

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
ONE DAY LIST

WHITE J

Thursday, 24 February 2005

3386/04 MIRANIA HOLDINGS PTY LIMITED T/AS MUDGEE AVIATION SERVICES v MUDGEE AERO CLUB INC

JUDGMENT

1 HIS HONOUR: The principal issue in these proceedings is whether the plaintiff has validly exercised an option to renew a contractual licence for it to occupy certain parts of the Mudgee Aerodrome.

2 The resolution of that issue turns on whether it was a condition of the option that it be exercised by notice in writing not less than three months before the expiry of the term of the licence.

3 The plaintiff carries on business, amongst other things, of operating a flying training school and an air charter business at the Mudgee Aerodrome from premises which it has occupied from about 1987. On 11 April 1988 the plaintiff entered into a licence agreement with a Mr Nelson and a Mr Kellett who were described as, and doubtless were, trustees of the Mudgee Aero Club. The agreement recited that the licensee, meaning the Mudgee Aero Club, and the trustees for the time being thereof, was entitled to occupy certain identified premises within the Mudgee Aerodrome and had agreed to give a sub-licence to the plaintiff for it to use the premises on the conditions set out in the agreement.

4 Although what was granted was expressed to be a sub-licence, it was described in the agreement as a licence and I shall continue to refer to it as such.

5 The licence was for a term of five years. It commenced from the date of the agreement, that is 11 April 1988. The plaintiff was permitted to use the premises for the purpose of conducting its business of aircraft maintenance, fuel distribution and flying school. The licence fee was $1,500 per annum. In addition, the plaintiff was required to pay moneys referable to increases in insurance premiums payable by the lessor and any moneys which might become payable by the lessor to the Council for the use of the premises.

6 The licence was expressed to be personal to the licensee and not to create or confer on the plaintiff any tenancy or estate or interest in any part of the premises. The case was argued before me on the basis that the rights granted to the plaintiff were contractual rights as a licensee and, as cl 11 said, did not create any estate in the land.

7 The critical clause of the agreement was cl 13. It provided as follows:

“The licensor grants to the licensee an option for renewal of this licence for a further five (5) year term provided that the licensee has duly and punctually paid the licence fees and other moneys payable pursuant to this agreement and shall have duly performed and observed on its part all the terms and conditions of this agreement up to the expiration of the term and shall have given to the licensor notice in writing of its wishes to take a renewal of the licence not less than three (3) months prior to the expiration of the term. The licence fee payable during the renewal term will be the sum of one thousand five hundred dollars ($1,500.00) per annum increased by the rise in the Consumer Price Index (All Groups) Sydney between the quarter immediately preceding the commencement of this licence and the quarter immediately preceding the expiry of the term of this licence and if this increased fee cannot be determined for whatever reason then the fee payable in the renewal term shall be two thousand five hundred dollars ($2,500.00) per annum and the licence shall be subject to all other conditions as are contained in this agreement with the exception of this clause.”

8 Three important matters arise from that clause. The first is that if the option were to be exercised the plaintiff was required to give notice in writing not less than three months prior to the expiration of the term. That is, in the case of the term created on 11 April 1988, before 11 January 1993. Secondly, if the option were exercised the licence fee would be $1,500 per annum increased by changes to the CPI between the quarter immediately preceding the commencement of the licence and the quarter immediately preceding the expiry of the term. Thirdly, the renewed term would not include the option of renewal in clause 13.

9 On 20 January 1993 the plaintiff wrote to the Secretary, Mudgee Aero Club Incorporated. (I infer that the Mudgee Aero Club had previously been an unincorporated association and some time between 1988 and 1993 it was incorporated). Omitting one paragraph, the letter said:

“We, the Directors of Mirania Holdings Pty Limited wish to apply to have the Deed of Agreement between our Company and the Mudgee Aero Club Inc., renewed for a further five years with a five year option.

....

Due to the increasing costs involved in operating a flying business, its uncertain future and the CPI at present being almost zero, we ask that the cost of this agreement remain the same for a further five years.”

10 The letter bore a heading “RE: DEED OF AGREEMENT”.

11 The opening words of this letter were expressed in a way which was consistent with a purported exercise of an option for renewal in terms of cl 13 of the licence agreement. However, it is difficult to regard this as a purported exercise of rights under cl 13. The exercise was late if it were a purported exercise of rights under that clause. It sought relief from the provisions in cl 13 as to how the fee for the renewed term would be struck. More importantly, it sought not only a renewed term but a five year option as well. It was, I think, an offer for a new licence.

12 The defendant replied on about 8 February 1993 in the following terms:

“RE-THE TRUST DEED BETWEEN THE ABOVE PARTIES:
Dear Sir/madam,
The board of the Mudgee Aero Club Incorporated have pleasure in informing you that the original lease for a period of five (5) years, with an option for a further (5) years, has been renewed, with a proviso that the existing rent, presently at $1500.00 per annum, shall be increased by a sum of $100.00 per annum for each of the 5 years of the lease.
This increase will cause the rental to be a sum of $2000.00 per annum in the fifth year of the agreement in 1996-1997, when the next five year option would be up for review on the first of November 1997.
Trusting that this arrangement will meet with your approval, ”

13 That was a counter offer that was apparently accepted by the plaintiff by its conduct. Subject to the provisions set out in that letter relating to the licence fee that would be payable, (or rental as it was called), the effect of renewing the “original lease”, (as it was called), would be to incorporate by implication the terms of the licence agreement of 11 April 1988. But was that also true of the terms of cl 13 of the agreement? Either cl 13 was also incorporated by implication, or there was no condition prescribing how or when or on what conditions the five-year option of renewal should be exercised. If cl 13 were incorporated by implication, it would permit the plaintiff to exercise the option of renewal at any time up to three months before the expiry of the term. It would also prescribe the licence fee for the new term being based on changes to the CPI between March 1993, (being the quarter immediately preceding the commencement of the term of the 1993 licence), and June 1997, (being the quarter immediately preceding the termination of that term). In saying that, I am assuming that one would infer that the term would expire on 1 November 1997, although that is not clear at this stage.

14 If cl 13 can be impliedly incorporated into the 1993 licence, determining how the CPI changes would apply to a renewed term would be not an easy question considering the increase in scale of fees for which this letter provided during the five-year term from 1993. I will return later in these reasons to the question of whether clause 13 was impliedly incorporated in the 1993 licence.

15 On 11 March 1997 the plaintiff, by notice in writing, requested the renewal of the licence for a further five years with a five-year option. On 14 March 1997 the defendant replied with the following terms:

“RE: DEED OF AGREEMENT
Dear Mr & Mrs Loughnan,
The Board of the Mudgee Aero Club Incorporated have the pleasure in informing you that the Lease has been renewed for a period of five (5) years commencing 1st November 1997 with a five (5) year option.
The rent will be $2,000.00 per year.
Yours faithfully,”

16 This renewal could not have been pursuant to an exercise of rights under cl 13, if that clause were incorporated in the 1993 licence. The letter of 14 March 1997 was, in my view, an offer to the plaintiff for the grant of a new term with a five-year option of renewal. There is no issue but that such a term and option was granted and I can assume that the offer was accepted either orally, or by the conduct of the plaintiff. As the new five-year term would commence on 1 November 1997, by necessary implication the existing term was to terminate by midnight on 31 October 1997. It is clear that the rent for the new term commencing on 1 November 1997 was not determined in the way prescribed by cl 13.

17 The critical question in this case turns on the proper construction of the letter of 14 March 1997. It was confirmed in a subsequent letter of 7 October 1997 but the terms of that letter are not materially different from the terms of the letter of 14 March 1997 and it is to the former letter that attention needs to be addressed.

18 The circumstances to which I have referred provide an objective matrix of facts against which the letter of 14 March 1997, and the earlier letter of 11 March from the plaintiff, need to be construed.

19 Counsel for the defendant submits most persuasively that at no stage was the option in cl 13 of the original licence agreement exercised. With that I agree. He submits that on each occasion in 1993 and 1997 there was a fresh contract for a new five year licence together with the grant of a five year option of renewal, which contracts incorporated by reference the terms of the “Deed of Agreement” referable both to the term and the option, subject, I think, to such modification as was required by the terms of the correspondence. Thus in the case of the 1997 licence he submits that all of the terms of the Deed of Agreement were incorporated by reference, save for a modification of the licence fee stipulated in the deed to be the sum of $2,000 per year referred to in the letter of 14 March 1997.

20 The defendant submits that the letter must be read as a whole including the reference in the heading to the “Deed of Agreement”, which appears both in the letter of 14 March and the letter from the plaintiff to which it responds. Counsel for the defendant also submits that the reference to the lease being renewed for a period of five years commencing 1 November 1997 with a five year option are words of description of what is granted in accordance with the deed of agreement. Counsel points to the unlikelihood that the parties in March 1997 would have bound themselves to a fixed fee for up to ten years. That is a powerful consideration.

21 Counsel for the plaintiff submits that the fee payable for the licence was always nominal, because the business which the plaintiff operated from the aerodrome was presumably of benefit for the Aero Club. Whilst that may be so, it is noteworthy that both in the deed of 11 April 1998 and the contract made in or about February 1993, the defendant made provision either for there to be an increased fee, in the case of renewal, or a stepped fee over the period of the second term with a review of the fee at the expiration of the second term.

22 However, there is, in my view, a major difficulty with the defendant’s construction and that is that, in my view, the 1993 contract, which granted the five year option of renewal, did not incorporate cl 13.

23 It would be possible to incorporate cl 13 by implication into the 1993 agreement notwithstanding that there was a sliding fee payable during the term of that licence. That could be done by inferring that the CPI increases provided for by cl 13 would be applicable to the fee payable at the end of the term. (See by analogy Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67 and Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548). However, it is not possible to read the provision that the option would be up for review on 1 November 1997 in a way which is consistent with there having been a grant in 1993 of an option for renewal in terms of cl 13. It may be said that those words are inconsistent with any option of renewal. Whether that is so or not, is not, I think, to the point. Those words, in my view, are inconsistent with the incorporation of cl 13 into the 1993 contract.

24 The question then is whether, given that cl 13 was not incorporated by reference into the 1993 licence term, should it be taken nonetheless to have been incorporated by the correspondence of 11 and 14 March 1997. It is, I think, only the heading to the letter of 14 March 1997 that might bring about that result. There is an implied incorporation of the conditions of the licence agreement relating to the term of the lease which arises from the stipulation that the lease had been renewed. That is to say, even though there was, in my view, a fresh grant of a licence by the contract arising from the acceptance of the offer in the letter of 14 March 1997, the grant was in terms of the renewal of a lease and that, by necessary implication, incorporates the terms of the preceding lease or licence which is described as having been renewed.

25 However, I do not read the letter as also implying that the option of renewal should be on the terms of cl 13. In my view the heading of the letter identifies generally the subject matter with which the letter deals, but the only words which incorporate the terms of the Deed of Agreement into the subject matter are the words referring to the renewal of the lease. I come to that view more readily because of the view which I have formed, for the reasons I have given, that in the immediately preceding term, cl 13 was not incorporated as the conditions prescribing the way in which the option then granted should be exercised.

26 These matters are finely balanced. I have concluded that the construction which I have preferred is not displaced by the consideration that the March 1997 correspondence does not provide for any increase in the fee payable on the exercise of the option for renewal.

27 Although, as I have said, both the original deed of agreement and the 1993 contract provided for increases in the fee, no increase in the fee payable for the term from 1 November 1997 to 30 October 2002 was provided for. I cannot in those circumstances regard it as improbable that the parties would not have intended there to be no further increase from 2002.

28 For a time I considered whether I could find assistance in the resolution of the issue of construction from the principle that where there is doubt about the meaning of a grant, the doubt would be resolved against the grantor. That is, if the defendant wished to impose restrictions or conditions on the grant of the option to renew, it behoved it to do so clearly. However, Mr Gelbart for the defendant rightly pointed out that that principle may be regarded as an aspect of the principle that documents are to be construed contra proferentem, and he submitted the relevant words in this case were proffered by the plaintiff in its letter of 11 March 1997. Having considered the comprehensive review of the authorities made by Campbell J in North v Marina [2003] NSWSC 64, I do not consider that the principles of construction which I have referred to are of assistance, one way or the other.

29 It follows from the reasons I have given for my conclusion, that it is unnecessary to consider the plaintiff’s alternative claims based on estoppel or for relief against forfeiture, except insofar as they may be relevant to any issue about costs. I will simply say that had I found the construction issue in the defendant’s favour, I would have rejected both of the alternative grounds of the plaintiff’s claim. So far as the estoppel case was concerned, it was based upon Mr Knox having made an assumption as to the manner of exercise of the option of renewal based on the very correspondence which I have had to consider. If that correspondence had had the meaning contended for by the defendant, then clearly there was no clear representation which could found an estoppel. It is also unnecessary to consider whether as a matter of principle, relief against forfeiture could be available in the circumstances of this case. Even if it could, counsel for the plaintiff accepted that it would be necessary to find that there was some unconscionable conduct engaged in by the defendant, before the Court could exercise a discretion to relieve against forfeiture, assuming jurisdiction to do so existed. There was no such unconscionable conduct in this case.

30 The plaintiff sought various orders. For the reasons I have given, I think it appropriate to make a declaration in terms of para 1 of the amended summons with one qualification: the parties were agreed that if the option of renewal was not granted on the terms of cl 13 of the Deed of Agreement, it could be exercised at any time prior to the expiry of the term on 31 October 1997. It had been so exercised, either orally or in writing, by the time that term expired (see Shearer v Wilding (1915) 15 SR NSW 283 and Farrands; The Law of Options pp 67-69).

31 It has not been necessary to consider which was the first act which was effective to exercise the option and hence the declaration should exclude the words “as by letter dated 8 October 2002 or otherwise”.

32 The plaintiff by its amended summons also sought an order that the defendant grant to it a licence to occupy the premises for a five year period from 1 November 2002 upon the terms and conditions of the licence agreement between the parties save for cl 13 of the agreement of 11 April 1988. However, it does not appear to me that there is anything further that the defendant need do by way of grant to the plaintiff. I decline to make that order.

33 The plaintiff has also sought an order that the defendant, its servants and agents be restrained from interfering with the plaintiff’s right to occupy the premises. I do not think there is any threat to interfere with the plaintiff’s right to occupy the premises if the court has determined that the plaintiff has validly exercised the option. Nor do I think it appropriate to make such an order. Questions may well arise hereafter as to whether the defendant is entitled to terminate the licence. That is not a question which has been in issue before me. It would be inappropriate for there to be any order in place which might be thought to inhibit the defendant from exercising whatever contractual rights it might have in that respect.

34 Accordingly, on the plaintiff’s summons I will and I do make a declaration that the plaintiff has validly exercised the option granted by the defendant on 7 November 1997 to occupy the premises licensed in the agreement between the parties dated 11 April 1988.

35 The defendant has filed a cross-claim. Part of the relief sought in the cross-claim was in substance, although not in form, an order for possession of the premises. For the reasons I have given, that claim must fail.

36 A further part of the cross-claim sought judgment for amounts totalling $5,186.39 being arrears in respect of insurance premiums and in respect of rent charged by the Mudgee Shire Council. I am told by counsel that there is no issue as to the quantum of the amounts payable. The plaintiff submits that judgment ought not be entered against it for those sums because it has made offers of payment. However, by its defence it did not admit that the amounts claimed were owing and it has not pleaded a defence of tender accompanied by a payment into court. Accordingly, there should be judgment for the cross-claimant for the sum claimed.

37 Thirdly, the defendant in its cross-claim has sought damages for the alleged breach of the licence, although perhaps more appositely it should be a claim for mesne profits on the basis the licence was terminated and the plaintiff was thereafter a trespasser. However, for the reasons I have given, the basis for that claim fails.

38 I will hear the parties on costs.

(Counsel addressed on costs)

39 Although the plaintiff has succeeded in these proceedings it is apparent from the affidavits which have been read that a substantial part of the costs incurred by the plaintiff in the proceeding were incurred in relation to issues upon which I have indicated the plaintiff would have failed had it been necessary to resolve them. I do not think in those circumstances it is appropriate the defendant should pay the plaintiff’s costs of preparing those issues. Nor am I attracted to the idea that I should make an order for costs which simply deprives the plaintiff of its costs in relation to those issues, as such an order is likely to result in a greater burden of costs overall to the parties. It is necessary to make an arbitrary assessment of what costs should be allowed, which is essentially a matter of impression.

40 I order that the defendant pay two thirds of the plaintiff’s costs of the proceedings, including reserved costs.

41 The defendant has succeeded on one part of its cross-claim but has failed on some of the substantive parts of the cross-claim. Although there was no tender of the amounts claimed, the plaintiff had made an offer to pay amounts which were claimed and for which I have directed that judgment be entered. In those circumstances I direct there be no order as to the costs of the cross-claim.

42 The exhibit may be returned after twenty-eight days.

******