Piazza Trevi v Cromwell BT Pty Ltd as custodian for the Cromwell Symantec House Trust

[2017] NSWSC 794

Supreme Court

New South Wales

Medium Neutral Citation:	Piazza Trevi v Cromwell BT Pty Ltd as custodian for the Cromwell Symantec House Trust. [2017] NSWSC 794
Hearing dates:	Defendant’s Opening Submissions 12 May 2017, Plaintiff’s Opening Submissions 15 May 2017, Hearing 16, 17 May 2017, Plaintiff’s closing written submissions 29 May 2017, Defendant’s closing written submissions 30 May 2017, Plaintiff’s closing written submissions in reply 31 May 2017, closing oral submissions 31 May 2017.
Decision date:	19 June 2017
Jurisdiction:	Equity - Expedition List
Before:	Sackar J
Decision:	See [364]
Catchwords:	Option to renew – waiver of option to renew – relief against forfeiture arising from failure to exercise option to renew – construction of contracts – estoppel – misleading and deceptive conduct – unconscionability – credit of witnesses.
Legislation Cited:	Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2) Conveyancing Act 1919 (NSW)
Cases Cited:	Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 Ashton v Pratt (2015) 88 NSWLR 281 ASIC v Hellicar (2012) 247 CLR 345 Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 B.S. Stillwell & Co. Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR 589 Ballas v Theophilos (No 2) (1957) 98 CLR 193 Barrow v Trustees [1891] 1 Q.B. 417 Beale v Government Insurance Office of NSW [1997] 48 NSWLR 430 Blatch v Archer (1774) 1 Cowp 63 Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665 Bowman & I H Bowman Pty Limited v Durham Holdings Pty Limited (1973) 131 CLR 8 Burrell v Cameron (1997) 8 BPR 15,443 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Christmas v Nicol Bros. Pty Ltd and Anor (1941) 41 NSWSR 317 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; 333 ALR 384 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Evanel Pty Ltd v Stellar Mining N/L [1982] 1 NSWLR 380 Fox v Percy (2003) 214 CLR 118 Gerraty v McGavin (1914) 18 CLR 152 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) SR (NSW) 122 Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 Ho v Powell (2001) 51 NSWLR 572 In Riviera Holdings Pty Ltd v Fingal Glen Pty Ltd [2013] SASC 77 In the Matter of Qatar No.2 Pty Ltd ACN 001184407 and Qatar No.3 Pty Ltd ACN 001184416 [2015] NSWSC 2088 Jones v Dunkel (1959) 101 CLR 298 Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd (2000) 10 BPR 18,085; [2000] NSWSC 459 Legione v Hateley (1983) 152 CLR 406 Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No 2) [2011] VSC 485 Mcgregor v Henry [2006] NSWSC 368 Mitchell v Leafs Gully Farm Pty Ltd [2016] NSWCA 92 Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104 Port Macquarie-Hastings Council v Diveva Pty Ltd [2017] NSWCA 97 R v Navarolli (2009) 194 A Crim R 96 S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR 1296 Shiloh Spinners Ltd v Harding [1973] AC 691 Sidhu v Van Dyke (2014) 251 CLR 505 Simic v New South Wales Land and Housing Corporation [2016] HCA 47 Stellar Mining NL v Evanel Pty Ltd (1983) NSW ConvR 55-118 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2004) 217 CLR 315 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Watson v Foxman (1995) 49 NSWLR 315 Wood v Capita Insurance Services [2017] UKSC 24
Texts Cited:	D J Farrands, The Law of Options and Other Pre-emptive Rights, (1st ed, 2010, Thomson Reuters) J D Heydon, Cross on Evidence, (9th ed 2013 LexisNexis Butterworths) John S Ewart, Waiver Distributed, (1917, Cambridge: Harvard University Press) J D Heydon, M J Leeming and P G Turner, Meagher Gummow & Lehane’s Equity Doctrines & Remedies, (5th ed 2015, LexisNexis Butterworths)
Category:	Principal judgment
Parties:	Pizza Trevi Pty Ltd (Plaintiff) Cromwell BT Pty Ltd as custodian for the Cromwell Symantec House Trust (Defendant)
Representation:	Counsel: H Somerville (Plaintiff) M K Condon SC (Defendant)   Solicitors: Armstrong Law Partners (Plaintiff) Holman Webb Lawyers (Defendant)
File Number(s):	2017/96434
Publication restriction:	n/a

Judgment

Background facts

Legal principles

Construction of contracts

Estoppel

Misleading and deceptive conduct and unconscionability under the ACL

Options – nature and application to doctrines of relief against forfeiture and waiver

The nature of an option

Exercising options to renew

Waiver of an option to renew

Relief against forfeiture

Credit of witnesses

The rule in Jones v Dunkel

The witnesses

Mr Hristaki (Chris) Jovanovski

Mr Patrick O’Connor

Mr Stephen Hadanich

Mr Anthony Gothard

Mr Daniel Williams

Parties’ submissions

(1) Date and timing of the option to renew

Plaintiff’s submissions

Defendant’s submissions

(2) Waiver of the Lease

(3) Estoppel

(4) Unconscionable or misleading and deceptive conduct

Plaintiff’s submissions

Defendant’s submissions

(5) Relief against forfeiture

Plaintiff’s submissions

Defendant’s submissions

Credibility

Plaintiff’s witnesses: Mr Jovanovski and Mr O’Connor

Defendant’s witnesses: Mr Gothard and Mr Williams

Summary of findings on witnesses

Factual considerations

17 September 2015 – the first meeting

12 January meeting – O’Connor representation

8 March 2016 – Mr Logue’s email to Mr Gothard

8 April 2016 – Mr Gothard’s meeting with Mr O’Connor and Mr Hadanich

30 June Meeting – Mr Gothard and Mr Jovanovski

12 September 2016 – First Jovanovski representation

16 September 2016 – call from Mr Jovanovski and the 16 September Letter

Late September 2016 – Second Jovanovski representation

26 October Meeting – Mr Gothard, Mr Williams, and Mr Jovanovski

15 November Meeting – Mr Gothard, Mr Williams, Mr Lewis and Mr Jovanovski and Mr Jovanovski’s son

Conclusion of factual findings

Legal considerations

Valid exercise of an option to renew

Was the sunset date 31 August 2016 or 30 September 2016?

Was the option exercised by the sunset date?

Waiver

Estoppel, misleading and deceptive conduct, unconscionable conduct

Relief against forfeiture

Conclusion

Judgment

1. This case concerns an option to renew a retail lease for a further five year term. The Plaintiff, Pizza Trevi Pty Ltd, operates the Foyer Café in the lobby of a commercial building on Kent Street in the Sydney CBD. The Plaintiff leased the premises from the Defendant, Cromwell BT Pty Ltd for a five year term terminating 31 May 2017. Nearing the end of this term, the Defendant issued a notice to the Plaintiff to vacate possession of the premises by 31 May 2017.

2. The Plaintiff claims it is entitled to a further five year lease pursuant to an option to renew in the existing lease. The Plaintiff claims it validly exercised the option to renew, or, in the alternative the Defendant waived the time for exercise of the option to renew, or is estopped from relying on any failure of the Plaintiff to exercise the option. The Plaintiff also claims the Defendant engaged in unconscionable and/or misleading and deceptive conduct within the meaning of the Australian Consumer Law (ACL) and the Retail Leases Act 1994 (NSW) (RLA).

3. The Plaintiff seeks an order the Defendant grant the Plaintiff a new five year lease commencing on 1 June 2017, by way of specific performance or pursuant to section 237(1) of the ACL and/or section 72 of the RLA. In the alternative, the Plaintiff seeks relief against forfeiture of the option to renew the lease, or in the further alternative, damages.

Background facts

4. In early 2012, the Plaintiff purchased a café/restaurant business known as the Foyer Café (the Foyer Café business) operating in the premises known as Suite 6.02, Level 6, 207 Kent Street Sydney, New South Wales (the Premises) for $935,000.00. Mr Hristaki (Chris) Jovanovski is the sole director and shareholder of the Plaintiff.

5. On 25 September 2012, the Plaintiff entered into a retail lease agreement with the landlord at the time, the Roads and Maritime Services (RMS), for a lease over the Premises (the Lease) (CB 53-94).

6. Salient aspects of the Lease are set out below.

7. Clause 1.2(i) provided:

the provisions contained in this Lease and those applicable expressly or by statutory implication cover and comprise the whole of the agreement between the Lessor and the Lessee in relation to the Premises and the Lessor and the Lessee expressly agree and declare that no further or other provisions shall be deemed to be implied in this Lease or to arise between the Lessor and the Lessee by way of collateral or other agreement by reason of any promise, representation, warranty or undertaking given or made by or on behalf of the Lessor or the Lessee on or prior to the execution of this lease and any such implications or collateral or other agreement is negatived. (entire agreement clause)

8. Clause 3.1 provided:

The term of this Lease commences on the Commencement Date and expires on the Termination Date.

9. Item 5 of the Reference Schedule to the Lease provided the term of the Lease was five years, commencing 1 June 2012 and terminating 31 May 2017.

10. Clause 13.1 provided:

‘The Lessor agrees to grant and the Lessee agrees to accept a new lease of the premises for the term set out in Item 14 of the Reference Schedule (“the new lease”) if:

(a) the Lessee notifies the Lessor in writing of the Lessee’s intention to take up the new lease (“the Lessee’s option notice”) at least 9 months before the Termination Date of this Lease….’

11. The parties agreed nine months before the Termination Date was 31 August 2016.

12. On 26 September 2012, a document titled “Schedule 2 Retail Leases Act 1994 – Lessors Disclosure Statement” (the Disclosure Statement) was issued and signed by the RMS as the Lessor and Mr Jovanovski as the Lessee (CB 99 – 113). Item 6 of the Disclosure Statement included a reference to the ‘exercise date’ for the option to renew as 30 September 2016.

13. On or about 24 July 2013, the Defendant effectively took over from the RMS as Lessors through a Deed of Covenant (CB 116 – 126).

14. On 1 September 2015, Mr Jovanovski sent an email to Mr Gothard, Senior Manager of Asset Services for the Defendant, where he noted the Plaintiff was finding it hard to pay their monthly rent and that surrounding buildings had recently lost good tenants, and enquired as to who was the best person to speak to about the issue (CB 289).

15. Mr Gothard replied on 8 September 2015 suggesting a meeting for Mr Jovanovski to discuss his concerns, though noting surrounding premises were close to full occupancy (CB 290).

16. On 17 September 2015, Mr Gothard deposed he first met Mr Jovanovski at the Premises (Affidavit of Mr Anthony Gothard dated 28 April 2017 (‘AG’) [13]). While Mr Jovanovski initially deposed he first met Mr Gothard in late 2013 (First Affidavit of Hristaki (‘Chris’) Jovanovski dated 28 March 2017 (‘CJ1’) [45]), he later deposed after reviewing Mr Gothard’s affidavit that he may have been mistaken about the date (Second Affidavit of Hristaki (‘Chris’) Jovanovski dated 12 May 2017 (‘CJ2’) [10]).

17. In this first meeting, Mr Jovanovski complained about the rent being too high. The substance of Mr Gothard’s response to this complaint was disputed (CJ1 [45], CJ2 [10] and AG [13], [15]). Mr Jovanovski recalled saying the rent was too high, but said Mr Gothard told him words to the effect “There is still a long way to go on your lease…” (CJ1 [45]; CJ2 [10]). However, in cross-examination Mr Jovanovski did accept Mr Gothard had told him “we have the option sometime in 2016” (T28/10).

18. Mr Gothard made a file note of this first meeting on 17 September 2015 recording:

CJ complained about rent and how is loosing [sic] money.

Says he paid $1m for the shop and has 11 staff.

AG noted that the café looked busy at the time. Ag explained that the rent is due, is in line with market rent and there’s nothing we can do. With the lease continuing until 2017 with a 5 year option, AG suggested Chris may want to start thinking about what he will do at the time.

CJ advised he has the business on the market for sale but the costs of staff and rent are turning people off.

Chris advised turnover is around $18k per week.

(CB 291).

19. On or about 11 December 2015, the Plaintiff engaged HLB Mann Judd Corporate (NSW) Pty Ltd (HLB) to conduct the sale of the Foyer Café business. Up until 12 July 2016, Mr Patrick O’Connor of HLB acted as the agent for the Plaintiff in the sales campaign.

20. In or around 12 January 2016, Mr Gothard first met with Mr O’Connor to discuss the Plaintiff’s desire to sell the Foyer Café, and ask whether the Defendant would enter a new and longer lease to assist in the sale. Mr Gothard alleged he said they would consider a new lease “in theory” but the rent would need to be higher, the Defendant’s management would need to approve of it, and the lease would need to contain a requirement for a full re-fit of the Premises (AG [16]). Mr Gothard made a file note simply recording

“Initial meeting re plans to put Foyer Café on market for sale”

(CB 292).

21. This conversation is disputed in proceedings. According to Mr O’Connor words to the effect were spoken:

I said:   If Kris [referring to Mr Hristaki Jovanovski] cannot sell the business prior to the renewal date for the option, he will exercise the option for the further 5 years. He is also interested in trying to negotiate a new 5+5, but if he can’t get that he’ll just exercise the option.

Mr Gothard said: Yeah understood, there will be no problems.

(First Affidavit of Patrick O’Connor dated 18 April 2017 (‘PO1’) [10]).

22. Mr Gothard disputed ever saying these words (AG [19]).

23. With the benefit of a file note (CB 199), Mr O’Connor recalled in his second affidavit additional words spoken about the possibility of the Defendant considering a new 5+5 lease for the potential purchaser of the Foyer Café business (Second Affidavit of Patrick O’Connor dated 11 May 2017 (‘PO2’) [8]).

24. Between January 2016 and June 2016, Mr O’Connor met with Mr Gothard on a number of occasions to discuss the sale of the Foyer Café business, the Lease and the potential new lease.

25. On 24 February 2016, Mr Jovanovski phoned Mr Gothard wanting to set up a meeting to discuss transferring the Lease to a putative purchaser. Mr Gothard deposed and noted in his file note made on the day of the call that no sale or assignment could take place without the Defendant’s approval and appropriate documentation (AG [20], CB 293). That same day, Mr Gothard emailed a tenant application form to Mr Jovanovski, and, after no response, sent a follow up on 10 March 2016 (AG [22] – [23], CB 301).

26. On 8 March 2016, Mr Trent Logue, Portfolio Property Manager NSW/ACT of the Defendant, sent an email to Mr Gothard (along with a Mr John Alexander) asking Mr Gothard specifically, among other things:

Can you confirm what leases at KSS have options in the next 5 years? We need to stay quiet on these options as we don’t want them exercised.

(Exhibit D5).

27. That same day, Mr Gothard replied noting the “KSS café (foyer)” had to exercise their option by 31 August 2016, and providing a list of all the options for the leases in KSS (Exhibit D5).

28. On 8 April 2016, Mr Gothard met with Mr O’Connor and Mr Stephen Hadanich, a prospective buyer of the Foyer Café business. Mr Gothard deposed he met with Mr O’Connor and “a married couple” (AG [26]), but agreed in evidence in chief that it was in fact Mr Hadanich (T96/30-35), as Mr Hadanich himself deposed (Affidavit of Stephen Hadanich dated 9 May 2017 (SH) [3] – [4]). Mr Gothard made a file note recording:

Meeting with potential foyer purchaser to discuss current lease, and potential for refurb and new lease.

(CB 309).

29. Sometime after the 8 April 2016 meeting, Mr Hadanich made an offer to purchase the Foyer Café business for the approximate sum of $850,000.00 (SH [20]).

30. On 26 April 2016, Mr Jovanovski phoned Mr Gothard informing him he had another interested buyer (AG [29], CB 70).

31. In early June 2016, Mr Jovanovski instructed Mr O’Connor to reject Mr Hadanich’s offer as he believed it to be too low (CJ1 [37] – [38], CB 216).

32. In around mid-June 2016, Mr Gothard met with Mr O’Connor and another prospective purchaser of the Foyer Café business, being the operators of the Vivo Café (AG [31], First Affidavit of Patrick O’Connor dated 18 April 2017 (PO1) [12]). The exact conversation in this meeting was disputed, though Mr Gothard agreed he told the prospective purchaser he would not rule out providing contribution for a fit-out of the Premises, but provided this was in the context of a proposed new long term lease (AG [31] – [32], PO1 [12], PO2 [23]). Mr Gothard did not make a file note of this meeting (AG [34]).

33. On 30 June 2016, Mr Gothard deposed he met with Mr Jovanovski at the Premises where Mr Jovanovski allegedly complained about the high rent and asked when the option needed to be exercised by (30 June Meeting). Mr Gothard alleged he told Mr Jovanovski the option had to be exercised by 31 August 2016, to which Mr Jovanovski allegedly replied “31 August. OK. I will hand deliver the letter to your office on the last day!” (AG [35]). Mr Jovanovski disputed this conversation ever took place, maintaining he only met Mr Gothard alone once when he first introduced himself (CJ2 [11]). Mr Gothard made a file note that day recording:

Casual chat. Chris whinging about rent being high – AG advised we actually think it’s below market.

Chris says he’ll speak to AG soon about the lease.

AG advised the option needs to be exercised by 31 August.

CJ said he knows this and if he is to exercise it, he will do so by coming to our office personally on the last day.

(CB 311)

(my emphasis).

34. Mr Jovanovski said he continued to have conversations with a number of agents to actively market the sale of the Foyer Café business from August 2016 to October 2016 (CJ1 [40] – [42]).

35. On 12 September 2016, Mr Jovanovski phoned Mr Gothard requesting a copy of the Lease (AG [38], CJ2 [12]). Phone records show a call from Mr Jovanovski to Mr Gothard at 11.52 am that morning (Exhibit D4, CB 232, sequence 36). Mr Jovanovski told him he wanted to renew the option, but the response to this request was disputed. Mr Jovanovski alleged Mr Gothard replied saying “Kris, don’t worry about the option. There is plenty of time. It won’t be a problem, and there is the prospect of finding a purchaser” (CJ2 [12]). In contrast, Mr Gothard alleged he replied saying “But Chris, you needed to exercise the option by 31 August 2016. You knew this, I told you this before. It’s too late now” (AG [38]). Mr Gothard did not make a file note of this conversation.

36. That same day, on 12 September 2016 at 1:42pm, Mr Gothard emailed Mr Jovanovski a copy of the Lease (CB 312). The email read:

“Chris,

As discussed earlier, please find attached a copy of your registered lease.

Regards”

37. On 13 September 2016, Mr Gothard alleged Mr Jovanovski called requesting the Lease, to which Mr Gothard replied that he had sent it yesterday (AG [40]). Mr Jovanovski did not address this conversation in his affidavits, and said in cross-examination he did not remember if he called Mr Gothard that day and, if he did, what was said (T42/10-20).

38. On 16 September 2016, Mr Nigel Russel of Emil Ford Lawyers, acting on behalf of the Plaintiff, wrote a letter to the Defendant which noted:

Our client is desirous of negotiating with you a new five year lease of the premises commencing 1 June 2017 with an option of renewal for a further five years commencing 1 June 2022.

Would you please give consideration to a proposal for our client’s review.

(CB 146) (16 September Letter).

39. That same day, on 16 September 2016, Mr Gothard alleged Mr Jovanovski phoned him and said:

You were right, I was wrong. I had to exercise the option by 31 August. Have you heard from my solicitor yet? He will be sending you a letter soon.

(AG [41]).

40. Mr Jovanovski did not recall making this phone call, and disputed ever saying words to those effect (CJ2 [14]).

41. On or about 17 September 2016, Mr Jovanovski deposed that after being informed by Mr Russell that he had not heard back from the Defendant regarding the 16 September Letter, Mr Jovanovski personally called Mr Gothard asking him for a response. According to Mr Jovanovski, Mr Gothard told him not to worry as there was “plenty of time to exercise the option” (CJ1 [50]). Mr Gothard disputed this conversation ever taking place (AG [43]).

42. In late September 2016, Mr Jovanovski deposed he had a further phone conversation with Mr Gothard asking him about the Lease, where Mr Gothard allegedly told him he would call “very soon” and that “it will be fine” (CJ1 [56]). Mr Gothard disputed this conversation ever taking place (AG [44]).

43. On 26 October 2016, Mr Jovanovski attended a meeting with Mr Gothard and Mr Daniel Williams, a colleague of Mr Gothard (26 October Meeting). At that meeting, Mr Gothard provided Mr Jovanovski a notice from the Defendant to the Plaintiff stating it did not intend “to offer the Tenant a renewal or extension of the Lease after its expiry on 31 May 2017” (CB 315) (Termination Letter). There are disputed and differing accounts of the conversation that took place at this meeting (AG [46], [48], CJ1 [59], [15] – [16], Affidavit of Daniel Williams dated 26 April 2017 (‘DW’) [7], [11]).

44. On 27 October 2016, Mr Gothard made a file note of the 26 October Meeting in the form of an email to himself (CB 316). This file note included the following:

AG pointed out that that [sic] Piazza Trevi have a lease until 31 May 2017 and given that they did not exercise the option, have no entitlement to stay beyond this date.

CJ asked AG when he called to discuss the option. AG said it was mid September and the option needed to be exercised by 31 August.

….

CJ said AG was aware of his desire to exercise the option and AG stated that during previous meeting CJ explained that he was aware that he needed to exercise by end of August and had told AH that he would do so on the last day…

45. On 28 October 2016, Mr Williams made a file note of the 26 October Meeting in the form of an email to himself (CB 223). This file note included the following:

AG and DW And X sat around a meeting table in the tenancy and X asked ‘ so what are we here to discuss?’”

AG responded and made X aware that under the current terms of his lease his option to negotiate a new lease had expired and that such CMW would not be offering him a new lease.

X was clearly shocked and responded by suggesting AG had not tried to negotiate on his initial offer

….

X mentioned that it was unfair, AG responded by saying that CMW had acted within the terms of the lease and the retail leasing act and that everything had been fair in the discussions leading up to this point….

46. In or around early November 2016, Mr Gothard was phoned by Mr Sam Lewis, a long-time friend of Mr Jovanovski. According to Mr Gothard, Mr Lewis allegedly said Mr Jovanovski was “devastated” to have missed the option realising he had made “a very big mistake” and asking whether Mr Gothard would allow Mr Jovanovski to be part of the expression of interest to be the future operator of the Premises he was now leasing. Mr Gothard allegedly replied saying management for the Defendant had decided after much consideration that they would not include Mr Jovanovski in the expression of interest process (AG [49]). Mr Gothard did not make a file note of the phone conversation.

47. Mr Lewis allegedly called a day or so later saying Mr Jovanovski still wanted to meet with Mr Gothard to try change his mind, to which Mr Gothard agreed but noted “you already know our position on the matter” (AG [51]).

48. On 15 November 2016, Mr Gothard and Mr Williams had a meeting with Mr Jovanovski, as well as his son Vince and Mr Lewis (15 November Meeting). There are disputed and differing accounts of the conversation that took place at this meeting, though it is not disputed Mr Gothard refused to allow for the option in the Lease to be renewed, or for a new lease to be granted to the Plaintiff (CJ1 [60], CJ2 [17], AG [52] – [54], DW [12]).

49. Mr Gothard’s file note of the 15 November Meeting included the following:

…

AG advised that our motivation is primarily to increase the presentation of the shop by way of a new fit-out, ideally incorporating it into the foyer.

AG explained that when we purchased the building we renovated the foyer but think opening up the café into the foyer with a new fit-out will improve the presentation of the property overall.

AG also explained concerns re the tenants ability to pay rent. while the rent has been paid to date, the tenant has been very vocal that they believe the existing rent is too high and cannot afford to pay any more. AG advised that we have been very open in return that we believe the market rent is significantly higher.

….

CJ acknowledged that he “slipped up” with exercising the option late but that we should honor it anyway because it wad [sic] only two weeks late.

AG advised that we expected CJ was going to everbody’s [sic] his option because from the first tine [sic] he met Chris, roughly 12 months ago, CJ told AG he knew he had to exercise the option by 31 August 2016 and told AG that he would do so by dropping notice to AG on the last day.

CJ still said it wasn’t fair that we don’t accept his option notice. AG advised that CJ demonstrated that he was aware of his option obligations and he could have exercised it anytime up until 31 August but chose not to…

(CB 318 – 319).

50. On 28 November 2016, Mr Williams made a file note of the 15 November Meeting in the form of an email to himself, noting he referred to Mr Jovanovski in the note as ‘Tony’ (DW [13] – [14]). Mr Williams’ file note included the following:

…

Conversation started very amicably re: the missed notice for lease option. Lawyer admitted that it had been missed by accident.

…

Tony said that he called AG to discuss the lease option prior to the option date and AG had said everything would be ok and there was plenty of time. AG advised very clearly that he had certainly not said this prior to the option date and only post the date passing had he said there would be time to discuss the future as the date had passed….

(CB 222).

51. On 24 February 2017, Armstrong Law Partners on behalf of the Plaintiff provided the Defendant with the Plaintiff’s notice to exercise the option to renew, dated 21 February 2017 (CB 152 – 155).

Legal principles

Construction of contracts

52. French CJ, Nettle and Gordon JJ reaffirmed the approach to construing commercial contracts in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104 (Mount Bruce Mining) at [46] – [52]:

[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience”.

[52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd. (citations omitted)

(See the judgments of Bell and Gageler JJ at [119] – [121] and Kiefel and Keane JJ at [107] – [113] which are of similar effect).

53. Mount Bruce Mining was most recently approved by the High Court in Simic v New South Wales Land and Housing Corporation [2016] HCA 47 at [18] and [78] and applied by the New South Wales Court of Appeal in Port Macquarie-Hastings Council v Diveva Pty Ltd [2017] NSWCA 97 at [29].

54. Further guidance on the construction of commercial contracts was provided by Kiefel, Bell and Gordon JJ in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16] – [17], citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640:

It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35] and the cases at fn 58; [2014] HCA 7). In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] and the cases at fn 60).

Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd ((2014) 251 CLR 640 at 656-657 [35] and the cases at fn 60), that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement.

55. The UK adopts a similar, although not identical, approach to contractual interpretation. In the recent case of Wood v Capita Insurance Services [2017] UKSC 24, the Supreme Court (leading judgment by Lord Hodge) described contractual interpretation at [12] as involving:

an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated…To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.

Estoppel

56. The principles of equitable estoppel as initially set out by Brennan J in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428–9 were summarised by Priestley JA in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 610:

For equitable estoppel to operate there must be the creation or encouragement by the Defendant in the Plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the Plaintiff by the Defendant, and reliance on that by the Plaintiff, in circumstances where departure from the assumption by the Defendant would be unconscionable.

57. This passage was followed by the Full Federal Court (Neaves, Gummow and Higgins JJ) in a case considering whether a lessor was estopped from denying a lessee was entitled to exercise an option to renew; S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 at 653.

58. On the question of representation, French CJ, Kiefel and Bell JJ in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 333 ALR 384 noted at [35]:

[35] It has long been recognised that for a representation to found an estoppel it must be clear. In Low v Bouverie, it was said that the language used must be precise and unambiguous. This does not mean that the words used may not be open to different constructions, but rather that they must be able to be understood in a particular sense by the person to whom the words are addressed. The sense in which they may be understood provides the basis for the assumption or expectation upon which the person to whom they are addressed acts. The words must be capable of misleading a reasonable person in the way that the person relying on the estoppel claims he or she has been misled. The statement that the tenants would be “looked after at renewal time” is not capable of conveying to a reasonable person that the tenants would be offered a further lease.

(footnotes omitted).

59. Adopting a similar approach, Keane J noted at [142]:

[142] Crown relied upon the proposition affirmed by Mason and Deane JJ in Legione that a representation must be “clear”, “unequivocal” and “unambiguous” before it can found a promissory estoppel. Nothing in the subsequent decisions of this Court has detracted from that requirement, which addresses the concern that a doctrine which is apt to preclude a party to a contract from relying upon its terms should not be so broad in its operation as to deny the party the benefit of its bargain by dint of representations which are so equivocal or ambiguous that they could not be given effect as terms of a contract. This concern was acknowledged in Legione by Mason and Deane JJ, who cited with approval the speech of Lord Hailsham of St Marylebone LC in Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd :

“it would really be an astonishing thing if, in the case of a genuine misunderstanding as to the meaning of an offer, the offeree could obtain by means of the doctrine of promissory estoppel something that he must fail to obtain under the conventional law of contract. I share the feeling of incredulity expressed by Lord Denning MR in the course of his judgment in the instant case when he said:

‘If the judge be right, it leads to this extraordinary consequence: A letter which is not sufficient to vary a contract is, nevertheless, sufficient to work an estoppel — which will have the same effect as a variation.’”

[143] It would tend to reduce the law to incoherence if a representation, too uncertain or ambiguous to give rise to a contract or a variation of contractual rights and liabilities, were held to be sufficient to found a promissory estoppel. Practical considerations such as the need of commerce for certainty, both as to the terms to which parties have agreed to be bound, and as to whether their bargaining process has concluded, also provide strong support for this approach.

60. On the question of reliance, Gageler J’s remarks in Sidhu v Van Dyke (2014) 251 CLR 505 at [90] – [93] are instructive:

[90] Paraphrasing Dixon J in Thompson v Palmer , the respondent bore the onus of establishing that she believed the appellant’s representations and that, on the faith of that belief, she took a course of action or inaction which would turn out to be to her detriment were the appellant to be permitted to depart from those representations. The respondent did not need to establish that the belief to which she was induced by the appellant’s representations was the sole or predominant cause of the course of action or inaction she took but, in the language of Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd, she did need to establish that the belief was a “contributing cause”.

[91] To establish that the belief to which she was induced by the appellant’s representations was a contributing cause to the course of action or inaction which she took, the respondent needed to establish more than that she had the belief and took the belief into account when she acted or refrained from acting. She needed to establish that having the belief and taking the belief into account made a difference to her taking the course of action or inaction: that she would not have so acted or refrained from acting if she did not have the belief.

61. On the question of detriment, Bathurst CJ said in Ashton v Pratt (2015) 88 NSWLR 281 at [141] – [142]:

[141] The relevant detriment is that which the party asserting the estoppel would suffer, as a result of her original change of position, if the assumption which induced it was repudiated by the party estopped: Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483 at [42], Grundt v The Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 at 674–675 and Sidhu at [81].

[142] What now appears clear is that there is no need to mould any remedy in the case of equitable estoppel to reflect the minimum relief necessary to remove the detriment: Giumelli at [48], Delaforce at [56]–[57] and Sidhu at [85]. Prima facie the courts should enforce a reasonable expectation which the party bound created or encouraged. However, relief will be limited where the enforcement of a Plaintiff’s expectation would be out of all proportion to the detriment: Delaforce at [62] and Sidhu at [85]. This is because in those circumstances good conscience does not require the promisor be held to his or her promise.

Misleading and deceptive conduct and unconscionability under the ACL

62. The court must examine the relevant course of conduct as a whole in determining whether a party has engaged in misleading and deceptive conduct in contravention of section 18 of the ACL; Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 (Butcher) at [39] per Gleeson CJ, Hayne and Heydon JJ. Relevant considerations may include the nature of the parties, the character of the transaction contemplated and the contents of the representation being made; Butcher at [40] per Gleeson CJ, Hayne and Heydon JJ.

63. When considering the impugned conduct as a whole, the question turns on whether the conduct has a tendency to lead a person into error; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [25] per French CJ. The question is objective, and rests upon what an ordinary or reasonable person in the position of the person receiving the representations would have made of those representations; Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at [7] per French CJ, Crennan and Kiefel JJ.

62. On the issue of unconscionability, section 21 of the ACL requires the unconscionability involve a “high level of moral obloquy” and its application be “carefully confined”; Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at [121] per Spigelman CJ.

Options – nature and application to doctrines of relief against forfeiture and waiver

The nature of an option

65. There is a degree of controversy surrounding what Dixon J coins the “academic riddle” of the juristic nature of an option, namely whether it is an irrevocable offer or a conditional contract and proprietary right; Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No 2) [2011] VSC 485 at [114].

66. In my view, the law as it stands in New South Wales treats an option as no more than an irrevocable offer to make a contract; Gerraty v McGavin (1914) 18 CLR 152 (Gerraty); Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) SR (NSW) 122 (McCaul); B.S. Stillwell & Co. Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR 589 (B.S. Stillwell). The New South Wales Full Court (Owen J, Roper CJ in Eq and Herron J) in McCaul held at 123:

In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer.

67. McCaul was later applied by Wootten J in Evanel Pty Ltd v Stellar Mining N/L [1982] 1 NSWLR 380 (Evanel), a decision approved by the Court of Appeal; Stellar Mining NL v Evanel Pty Ltd (1983) NSW ConvR 55-118 per Hope JA (Glass and Samuels JJA agreeing). McCaul and Evanel concerned breaches of conditions which attached to the right to exercise the option in a lease (namely, payment of rent) which is now (and at the time of Evanel) covered by Division 4, Part 8 of the Conveyancing Act 1919 (NSW) (see section 133E(1)(b)). However, the Full Court’s characterisation of an option as an irrevocable offer remains undisturbed by such statutory intervention. The analysis of an option in McCaul was not doubted by Stephen J in the principal judgment in Bowman & I H Bowman Pty Limited v Durham Holdings Pty Limited (1973) 131 CLR 8 (Bowman) at 17-18. Further, McCaul was most recently cited with approval by the New South Wales Court of Appeal in Mitchell v Leafs Gully Farm Pty Ltd [2016] NSWCA 92 at [32] per Leeming JA (with Beazley P and Payne J agreeing).

68. This characterisation is important when considering the requirements for exercising options to renew, and the application of the doctrines of relief against forfeiture and waiver to option cases – all of which I will now address.

Exercising options to renew

69. As Windeyer J remarked, when it comes to options “it is a cold hard world”; Burrell v Cameron (1997) 8 BPR 15,443, at 15,446. A purported exercise of an option to renew must clearly and unequivocally express the fact it is intended to exercise the option; Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 196 per Dixon CJ. Further, an option gives rise to a contract if and only if the conditions set out in the option are strictly complied with; In the Matter of Qatar No.2 Pty Ltd ACN 001184407 and Qatar No.3 Pty Ltd ACN 001184416 [2015] NSWSC 2088 (Qatar) at [26] per Brereton J.

70. Campbell JA collected the principles relevant to exercising an option to renew in Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665 at [69] – [72]:

[69]…..It is uncontroversial that a valid exercise of an option must be a clear and unequivocal election to acquire the relevant property upon the terms specified in the option: Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677–678, 681–682, 683; Quadling v Robinson (1976) 137 CLR 192 at 201. Whether the document in question involves a clear and unequivocal election to acquire the relevant property upon the terms specified in the option is decided from the point of view of a reasonable recipient of the document, with knowledge of the relevant context. In Health Minders at 677, Kirby P said:

The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt: cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Isaacs J of the phrase ‘in the circumstances of its receipt’, adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 at 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at least up to the time for the exercise of the option had expired.”

[70] Samuels JA at 681 and McHugh JA at 683 each adopted a test of enquiring what a piece of writing purporting to exercise an option would fairly be understood as meaning. Samuels JA expressly adopted Isaac J’s addition of the words “in the circumstances of its receipt”; McHugh JA did not expressly do so, but gave a reference to Carter v Hyde (1923) 33 CLR 115 at the page where that addition occurs. In Young v Lamb [2001] NSWCA 225; (2001) 10 BPR 18,553, Stein JA (Mason P and Hodgson JA agreeing) adopted the test stated by Kirby P in Health Minders at 677.

[71] This way of approaching the question of whether the option has been validly exercised is consistent with the objective theory of contract formation.

[72] There is no need for a valid notice exercising an option to use any particular form of words, so long as it conveys in substance that the person serving the notice unequivocally elects to acquire the relevant property on the terms of the option….

Waiver of an option to renew

71. A waiver of a right is “an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right”; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [56] per Gummow, Hayne and Kiefel JJ. In light of the nature of an option, once the date for exercising an option passes then the doctrine of waiver cannot operate since there is no longer a contractual right to waive.

72. In Bowman for example, Stephen J noted at 17-18:

The appellants rely upon Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd [1959] SR (NSW) 122 ; 76 WN (NSW) 72 , and the authorities and texts to which the Full Court there referred and contend that the doctrine of waiver is wholly inapplicable; there was, they say, no obligation binding upon the respondent which the appellants might be said to have waived, instead there was only a right available to the respondent, the right to purchase by exercise of the option, and this right it might retain for a further 12 months but only by the observance by it of certain conditions which it failed to fulfill. The absence of any obligation resting upon the respondent means, it was said, that there was nothing capable of being waived by the appellants; accordingly there was nothing upon which the doctrine of waiver might operate.

73. Gray J approved the reasoning in McCaul in B.S. Stillwell, observing at 603-604:

But assuming that such an analysis be correct in relation to the present option, the reasoning in Gilbert J. McCaul in relation to waiver is unaffected. Upon the assumption of a conditional contract it remains to true that the grantee cannot be required to perform the conditions. The grantor has no right to have the conditions performed, and thus, has nothing to waive. If the grantee fails to perform the conditions but seeks to renew the lease, he is merely making an offer.

74. This authority is consistent with John S. Ewart’s remarks in Waiver Distributed at 63, in the context of a terminated lease:

We see, therefore, that any operation which “waiver” may be supposed to have, must be confined to cases in which there is a right of election, and in which the right has not yet been exercised. But there is no opportunity for “waiver” in that kind of case, for there is no forfeiture to “waive.”

Relief against forfeiture

75. The nature of an option also explains why relief against forfeiture cannot, in my view, be invoked where forfeiture arises from a failure to exercise an option to renew. A mere failure by a lessee to exercise their option to renew (either on time, in the required form, or at all) does not invoke the court’s jurisdiction to grant relief against forfeiture of that lease, since there is no loss of a proprietary right to relieve against.

76. As noted by DJ Farrands in The Law of Options and Other Pre-emptive Rights (Farrands) at 105:

… the equitable rules which provide relief against forfeiture do not apply to forfeiture of an option. It has been established for some time that a court of equity will not and cannot relieve a grantee from any failure to satisfy any conditions precedent. In this context Mellish LJ in Finch v Underwood stated:

The tenant must take the covenant to renew as he finds it; if it contains conditions precedent he must comply with them before he can claim the benefit of it, and if he has not done so a court of equity cannot relieve him.

(footnotes omitted).

77. Brereton J expressed a view consistent with McCaul and Farrands in Qatar, noting at [26]:

…counsel was not, despite a number of requests on my part, able to identify any authority for the proposition that relief could be, or had ever been granted, in respect of an option. As it seems to me, one reason for that is that it has always been held that options must be strictly complied with, because an option gives rise to a contract if and only if the conditions set out in the option are satisfied.

78. An arguably contrary view was contemplated by Young J, as his Honour then was, in Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd (2000) 10 BPR 18,085 (Leads) at 18,088:

[20] There is great doubt that even if this principle does apply it can operate in a situation where what is forfeited is the equitable interest in property that exists under an option to renew a lease prior to the exercise of the option. There is discussion of this in the article by Professor A G Lang, “Forfeiture of Interests in Land”, Law Quarterly Review, vol 100, 1984, p 427 at p 449 and following.

[21] The view that I have tentatively taken and which is, I think, reinforced by the judgment of Peter Murphy J in Hillier v Goodfellow (1988) V Conv R 54-310, is that equity does have jurisdiction to make such an order but one must find that there is unconscionable conduct before one can exercise that discretion.

79. White J went on to summarise the diverging positions in Mcgregor v Henry [2006] NSWSC 368 at [44]:

Equity regards the time for exercise of an option as being essential. There is much authority that equity cannot relieve a tenant from the consequences of failing to exercise an option for renewal in time (see for example Finch v Underwood [1876] 2 Chancery Div 310 at 314 and 315; Kim v Abbey Orchid Property Investments Pty Ltd 1981) NSW Conv R 55-039; Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894 at [29]). On the other hand, in Hillier v Goodfellow [1988] Vic ConvR 54-310, Murphy J stated that the principle is a prima facie one which applied as a general rule, and that equity might grant relief against a minor time defalcation which was accidental and inconsequential, and not wilful or deliberate (63,968, 63,970). In Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd [2000] NSWSC 459; (2000) 10 BPR 18,085, Young J, as his Honour then was, expressed the tentative view (at [20] and [21]) that equity does have jurisdiction to relieve against the forfeiture of an equitable interest in property that exists under an option to renew, but said that before the jurisdiction could be exercised there must be a finding of unconscionable conduct.

As the issue of the availability of this jurisdiction was not argued, I will express no view about it. The requirement stated by Young J in Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd that before the jurisdiction can be exercised, assuming it exists, there must be a finding of unconscionable conduct, must be reinforced by the decisions of the High Court in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2004) 217 CLR 315 and Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367.

(my emphasis).

80. Neither Young nor White JJ adverted to the Full Court’s characterisation of an option in McCaul, though Professor A G Lang’s article referenced by Young J does include a reference to the case in footnote 95 at p 451.

81. As stated, the plain language of McCaul is that an option to renew clause is a contractual right, operating as an irrevocable offer by the lessor and not an enforceable right giving rise to a proprietary interest in the leasehold land. Forfeiture only occurs where an interest, estate or other proprietary right of one person is determined in favour of another person; Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies at [18-210]. A failure to properly exercise an option to renew is therefore no forfeiture of any interest, and thus equity cannot intervene to relieve the lessee against such failure. On that basis, I respectfully would not follow Young J’s analysis.

82. It may also be observed that even if the above analysis was not an appropriate characterisation of an option, the authorities support the proposition that the doctrine of relief has no application to cases where forfeiture does not arise from an act or omission amounting to a breach. The unstated premise of relief against forfeiture is that such indulgence relies upon a lessee, mortgagee or some other party being in breach of a condition. So much is made clear from the seminal cases on relief against forfeiture, which speak strictly of relief against forfeiture for breach of a covenant or condition (see, for example Shiloh Spinners Ltd v Harding [1973] AC 691 at 723 per Lord Wilberforce and Legione v Hateley (1983) 152 CLR 406 (Legione v Hateley) at 449 per Mason and Deane JJ). This is also reflected in the legislation now applying to relief against forfeiture, with the provisions of the Conveyancing Act 1919 (NSW) relating to a forfeiture for “a breach of any covenant, condition, or agreement (express or implied) in the lease” (section 129(1)), or a “breach by the lessee of any relevant obligation” (section 133E(2)) (emphasis added).

83. Generally with options to renew, the obligation to grant the option only bites if the lessee elects to exercise its contractual right to renew, and does so in accordance with the contract. The mere failure of the lessee to exercise its contractual right can therefore not, on any reading, be construed as a breach. Without a breach, the loss of the lessee’s option to renew cannot properly be characterised as forfeiture of the lease which equity has jurisdiction to relieve against.

84. If this view is incorrect and the court does have discretion to relieve against forfeiture arising from a failure to exercise an option to renew, the principle basis’ of jurisdiction in which the courts may exercise their indulgence are set out in Shiloh at 723-724 per Lord Wilberforce and approved in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2004) 217 CLR 315 (Tanwar) at [58] and are as follows.

85. First, courts will generally relieve if the forfeiture is meant to secure the performance of a primary stipulation, and the party benefiting from the forfeiture can be compensated, such as forfeiture for non-payment of rent. These limited cases will require consideration of whether the applicant for relief’s conduct was wilful, the gravity of the breaches, and the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.

86. Secondly, equity may intervene where the right to forfeiture arises from one of “the special heads of fraud, accident, mistake [and] surprise.” Russell L.J summarised authorities relevant to these special heads in Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR 1296 at 1304:

The next case cited was Harries v. Bryant (1827) 4 Russ. 89. That also concerned a lease for lives with a covenant for renewal on the falling of each life on payment of a small fine, provided application were made within six months of the dropping of a life. A life dropped in January 1822 and no application was made until November, the lessee not knowing until then the identity of the person named as the life. The claim for a new lease was refused, Sir John Leach M.R., saying at p. 91:

“A court of equity will relieve against the effect of an express covenant, where strict performance of the condition is prevented by ignorance not wilful, or by unavoidable accident. Ignorance is considered to be wilful, where a person neglects the means of information, which ordinary prudence would suggest; and accident is not unavoidable, which reasonable diligence might have prevented.”

In the course of argument the following citation was quoted, at p. 90:

“In Bateman v. Murray (1803) 5 Bro.P.C. 20 in the House of Lords, Lord Thurlow L.C. said, ‘Courts of equity will relieve the lessee, if he has lost his right by fraud of the lessor, or accident on his own part; but will never assist him where he has lost his right by his own gross laches or neglect: ‘and again:’ Where the lessee has lost his legal right, he must prove some fraud on the part of the lessor by which he was debarred the exercise of his right, or some accident or misfortune on his own part, which he could not prevent, by means whereof he was disabled from applying for a renewal at the stated times, according to the terms of his lease.'”

….

Yet another case cited, Reid v. Blagrave (1831) 9 L.J.O.S. Ch. 245 concerned a lease for lives renewable on notice and payment of a fine. Sir John Leach M.R. said, at p. 248:

“no accident will entitle a party to renew unless it be unavoidable. I am of opinion, that nothing but accident, which could not have been avoided by reasonable diligence, will entitle the Plaintiff to a renewal in this court.”

87. Along with wilful ignorance, mere forgetfulness of a covenant of a lease is also not a mistake which the lessee can be relieved against; Barrow v Trustees [1891] 1 Q.B. 417 per Lord Esther M.R at 420.

88. There is some debate as to whether unconscionable behaviour operates as an additional or all-encompassing further basis for relief. As noted in Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies at [18-280]:

Unconscionable behaviour may be used loosely, as a portmanteau term that refers to conduct grounding relief on the basis of one of the ‘special heads’ of fraud, accident, mistake or surprise. When that manner of speech is used, however, the starting point for anaylsis is the particular head of relief that the Plaintiff relies on. Analysis then moves though the other elements of the forfeiture doctrine (see Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2004) 217 CLR 315 at [5], [20] – [26], [37] – [39], [58] – [67]). The judicial statements which have suggested that the law accepted and applied in the Shiloh Spinners decision is to be replaced or supplemented by a stronger notion of unconscionable conduct are problematic.

Credit of witnesses

89. The assessment of a witness’s credit cannot be resolved by observations of demeanour alone. That is a notoriously problematic methodology, although demeanour can clearly be a relevant consideration. Contemporaneous documents in whatever form will almost always be a far more reliable guide in assisting the court to resolve who to believe in determining what in fact likely occurred.

90. For good reason, judges are not necessarily bound to accept a witness’s sworn testimony, even if the witness is not cross-examined. This is especially so if there are contemporaneous records which present a different and contrary interpretation of the facts.

91. A sense of grievance will sometimes skew or distort a witness’s recollection of events. Once sworn to, that evidence, by reason of the grievance, will often harden to such a point that concessions, even against objectively contrary material, become impossible for the particular witness. It is at that point a judge may feel entirely satisfied the witness’s version of events should be rejected (for general discussion, see in Fox v Percy (2003) 214 CLR 118 at [30] – [31] per Gleeson CJ, Gummow and Kirby JJ and Watson v Foxman (1995) 49 NSWLR 315 at 318 – 319 per McLelland CJ in Equity).

The rule in Jones v Dunkel

92. The rule in Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) may play a role in the assessment of the probability of a witness being accepted. The Jones v Dunkel rule is a particular application of the general principle in the law of evidence that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted"; Blatch v Archer (1774) 1 Cowp 63 at [65] per Lord Mansfield. The statement of the rule in Cross on Evidence at [1215] was approved in R v Navarolli (2009) 194 A Crim R 96 by Muir JA at [2]:

[2] What is known as the Rule in Jones v Dunkel is summarised in Cross on

Evidence (Aust ed) as follows:

First, that unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence or produce particular material to an expert witness may (not must) in appropriate circumstances lead to an inference that the uncalled evidence or missing material would not have assisted that party's case.

93. The rule can operate against a party who bears the onus of proof and against a party who does not; Ho v Powell (2001) 51 NSWLR 572 at [16] per Hodgson JA (with whom Beazley JA agreed).

The witnesses

94. Both sides called a number of witnesses and a number of extra statements were read without cross-examination.

95. The principal witnesses for the Plaintiff were Mr Jovanovski and Mr O’Connor. The Defendant called Mr Gothard and Mr Williams.

Mr Hristaki (Chris) Jovanovski

96. Mr Jovanovski affirmed two affidavits (CJ1 and CJ2).

97. Mr Jovanovski was born in 1949 in Macedonia. In 1968 he received a Diploma in Mechanical Engineering from a technical school in Macedonia. However in 1969 he emigrated to Germany where he stayed until 1972 emigrating then to Johannesburg in South Africa. He lived in South Africa for 28 years. He emigrated to Australia in 2009 and received permanent residency in 2011 (CJ1 [1] – [8]).

98. He is the sole director, secretary and shareholder of the Plaintiff. He caused the company to be registered on 22 January 2009 (CJ1 [10] – [12]).

99. In the middle of 2012 the company purchased the Foyer Café business operating at the Premises for $935,000. After purchasing the business he negotiated a new lease at the Premises with the then landlord, the RMS (CJ1 [13] – [14]).

100. On 25 September 2012 he executed a sub-lease of the Premises on behalf of the Plaintiff. On 26 September 2012 he received the Lessor’s Disclosure Statement (CJ1 [15] – [18]).

101. At the time of the purchase of the Foyer Café business Ms Katerina Samaris acted for him as the conveyancer on behalf of the Plaintiff in relation to the purchase of the business and sub-lease (CJ1 [16]).

102. He received advice from Ms Samaris that he should read the Lessor’s Disclosure Statement carefully to make sure he checked the terms. He did just that before he signed the document (CJ1 [20] – [21]).

103. Since 2012 onwards the Plaintiff has operated the Foyer Café business at the Premises. The Premises also holds a liquor licence (CJ1 [22] – [23]).

104. In 2013, Mr Jovanovski executed on behalf of the Plaintiff a document entitled a Deed of Covenant which was to acknowledge the landlord of the building containing the Premises was changing from RMS to the Defendant. Mr Jovanovski asserted that in about 2015 the Plaintiff paid to upgrade the kitchen on the Premises to a gas kitchen at a significant cost to the Plaintiff. He had not at the date of his first affidavit been able to exhibit any documents relating to the improvements (CJ1 [24] – [31]).

105. In late 2015, Mr Jovanovski decided to try and sell the Foyer Café business. He consulted HLB to have them assist in that sale. They were engaged on 11 December 2015. The person he dealt with at HLB was Mr O’Connor (CJ1 [32] – [36]).

106. From that time he was actively marketing the Foyer Café business for sale through numerous agents. A number of potential purchasers were brought to the Premises (CJ1 [38] – [44]).

107. To the best of Mr Jovanovski’s recollection, the first time he met with Mr Gothard was in about late 2013 at the Premises. He recalled at the meeting complaining about the rent being too high and the hope that it could be more reasonable in the future. He said Mr Gothard responded by simply indicating the Lease had a long way to go and there could be discussions (CJ1 [45]).

108. Mr Jovanovski appreciated that on 16 September 2016 his then solicitor Mr Russell sent a letter to the Defendant which he did not see, he asserted, before it went. However on 17 September 2016 he called Mr Russell to ask whether there had been a reply. Immediately after that telephone call he called Mr Gothard and asked him whether he had received a letter from his solicitor and if he had an answer. He asserted that Mr Gothard responded by saying he should not worry and that there was plenty of time to exercise the option and that “we will get back to you” (CJ1 [47] – [50]).

109. Mr Jovanovski said he understood that what was said by Mr Gothard was that he had plenty of time to exercise the option and that the Defendant would allow him to do so. He also believed as a result that the Defendant would negotiate in relation to a new lease. He also said that as a result of the conversation with Mr Gothard he decided to wait until he heard back about the request for a new 5+5 lease before taking any further steps in relation to the renewal of the option, although he believed he had communicated clearly to the Defendant that he wanted to exercise the option regardless of any other negotiations (CJ1 [51] – [52]).

110. However during this period he continued to actively market the Foyer Café business for sale (CJ1 [53]).

111. In late September 2016, having not heard from Mr Gothard or anyone from the Defendant, he again telephoned Mr Gothard. Mr Gothard indicated that he would get back to him very soon, but also said “it will be fine”. Again, as a result of the latter statement, he believed the Defendant would offer a new 5+5 lease or that he would be granted the option to renew for five years (CJ1 [56] – [57]).

112. On 18 October 2016, he received a telephone call from Mr Gothard and was asked to attend a meeting, being the 26 October Meeting. During the Meeting Mr Gothard told Mr Jovanovski that he did not exercise the option in time and that the Defendant was not going to grant the option. Mr Jovanovski would have until 31 May to vacate the Premises. At the meeting Mr Gothard handed him a letter which confirmed that the Defendant did not propose to offer the Plaintiff a renewal or extension of the Lease after the expiry date on 31 May 2017 (CJ1 [58] – [59]).

113. Mr Jovanovski told Mr Gothard he could not believe what was happening and that Mr Gothard had told him that there was plenty of time to exercise the option and now he was being given notice. He said Mr Gothard apologised and said it was his bosses whom he had never met and that he simply received instructions from them by email (CJ1 [59]).

114. Mr Jovanovski said he attended a further meeting in November 2016, being the 15 November Meeting, and on this occasion a friend of his, Mr Sam Lewis, and his son attended the Meeting. He recalled at the Meeting Mr Lewis indicating to Mr Gothard that the Plaintiff was seeking to have the option renewed and it was unfair of the Defendant not allow the Plaintiff to do so. Mr Jovanovski said again Mr Gothard said it was not him but his bosses (CJ1 [60]).

115. Mr Jovanovski’s affidavit of 12 May (CJ2) was in response to both Mr Gothard’s affidavit of 28 April (AG) and Mr Williams’s affidavit of 26 April 2017 (DW).

116. Mr Jovanovski denied that at any meeting with Mr Williams Mr Gothard said that the Defendant had acted within the terms of the Lease and the RLA. He also denied Mr Gothard had ever said at any meeting that Mr Jovanovski was well aware of the option date and that it had been discussed previously. Further Mr Jovanovski did not recall any discussions regarding the rent or rent levels at the 26 October Meeting (CJ2 [3] – [4], [15]).

117. Mr Jovanovski also denied that his friend Mr Lewis introduced himself as a lawyer at the 26 October Meeting. He also denied Mr Lewis said words to the effect that Mr Jovanovski had missed the option and that it was an honest mistake. Mr Jovanovski did recall however Mr Lewis saying that the Defendant had taken the view that Mr Jovanovski had missed the option but that he thought there was further time to consider a new lease. Mr Jovanovski also denied Mr Gothard said at the 26 October Meeting that he was surprised that the option was missed by accident and that it had triggered the Defendant’s view on the future of the café and the building in general (CJ2 [5] – [7]).

118. As far as Mr Gothard’s affidavit was concerned Mr Jovanovski indicated that he had never seen Mr Gothard make any notes of any meetings in his presence (CJ2 [9] – [10]).

119. Mr Jovanovski denied certain other events including ever meeting with Mr Gothard alone (CJ2 [11]).

120. Mr Jovanovski agreed he had a telephone conversation with Mr Gothard on 12 September 2016 and further asserted that during this conversation Mr Gothard said to Mr Jovanovski that he should not worry about the option, that there was plenty of time, and there would not be a problem (CJ2 [12]).

121. Mr Jovanovski denied Mr Gothard ever said to him during the 26 October Meeting that they had had a previous discussion in which he had been told that he needed to exercise the option by 31 August (CJ2 [16]).

122. Amongst other things Mr Jovanovski denied that he had ever said that he had slipped up in exercising the option (CJ2 [17]).

123. Mr Jovanovski gave some brief evidence in chief when he was called. He indicated Mr O’Connor had told him that at one point that he had received an offer and a deposit. However when Mr Jovanovski was told that the offer was $850,000 he told Mr O’Connor he was not interested in selling the Foyer Café business as the offer was too low. He was then cross-examined.

124. Mr Jovanovski agreed that his son Vinnie worked in the business and has done for a long time and he was still there (T26/35-40). He also agreed Mr Lewis was a lifelong friend of his and he spoke to him regularly (T26/40-45).

125. Mr Jovanovski asserted that he had only met with Mr Gothard twice (T28/14-20).

126. Mr Jovanovski agreed when he first met Mr Gothard he raised the question of the rent and his difficulties in meeting the current rent (T28/40-47).

127. Mr Jovanovski asserted the only meeting he ever had with Mr Gothard was when Mr Gothard handed him the Termination Letter (T29/30-38).

128. Mr Jovanovski said in September 2016 he called Mr Gothard and asked whether he had received the emails and that he had not responded to his solicitor. Mr Jovanovski asserted that Mr Gothard responded by saying that he need not worry and that he had plenty of time (T33/1-20).

129. When shown the 16 September Letter, Mr Jovanovski said that he did not recall ever seeing the email or any draft (T34/5-13).

130. Mr Jovanovski agreed he may have received an email from Mr Russell enclosing a copy of the 16 September Letter, but his son wrote and read his emails (T34/35-45).

131. Mr Jovanovski said he had only seen for the first time in the witness box the 16 September Letter. He accepted that it may have been emailed to his son but his son did not give it to him (T36/40-50).

132. While his son did not give the 16 September Letter to him, he did want Mr Russell to exercise the option (T37/15-25).

133. It was put to Mr Jovanovski he was not attempting to answer questions to which he responded that he had never seen the emails before, he was not deaf, but he was not a solicitor, he was not an advocate and he simply ran a coffee shop and that all he wanted to do was to discuss the opportunity to get a lease and instead he was given a notice (T39/15-30).

134. Mr Jovanovski was asked how many times Mr Gothard had told him not to worry to which he answered that he did tell him that but it was only once (T40/10-20).

135. Mr Jovanovski could not remember Mr Gothard telling him that he needed to exercise the option by 31 August 2016 but that that may have been said by Mr Gothard (T41/1-15).

136. Mr Jovanovski denied he ever told Mr Gothard in a telephone call that Mr Gothard was correct about the exercise of the option on 31 August (T43/15-20).

137. Mr Jovanovski accepted Mr Gothard may have told him that he needed to exercise the option by August 31 but he also said he need not worry about things and that he had plenty of time (T44/1-10). When asked about the telephone call on 12 September Mr Jovanovski said that he did not remember what Mr Gothard had said (T46/30-40). Mr Jovanovski then asserted that during the conversation on 12 September Mr Gothard said that Mr Jovanovski should not worry about the option as there was plenty of time and it would not be a problem (T47/20-30).

138. When asked again how many times Mr Gothard had said not to worry Mr Jovanovski said he was only told once (T47/45-50).

139. It was put to Mr Jovanovski that he was making his evidence up. He said he did have a conversation with Mr Gothard (T48/5-10).

140. Mr Jovanovski appreciated he had to tell the truth in his affidavits but he asserted in respect of Mr Gothard “Anthony is lying. You know that. He was told by his bosses to lie” (T49/1-10).

141. He was asked whether he could recall a conversation with Mr Gothard on 30 June 2016 to which he responded that he never sat down with Mr Gothard in June (T49/45-50).

142. It was put to Mr Jovanovski that during a meeting in June he was told that 31 August was the date for the exercise of the option to which he responded that he would hand deliver the letter to Mr Gothard’s office on the day. He denied saying that and said that Mr Gothard “is lieing” (T51/30-40).

143. Mr Jovanovski indicated he had retained a “Samara” who he consulted about the Lease and that she went through the Lease with him in 2012 (T54/5-49).

144. It was put to Mr Jovanovski that the reason he asked Mr Russell to send the 16 September Letter was because he was panicking because he realised he missed the exercise date. Mr Jovanovski said he did panic when he found out but he did not know what he had to do (T56/15-20).

145. Mr Jovanovski agreed that he would have received an explanation about the option in 2012 (T56/45-50).

146. He denied that he discussed the terms of the Lease with any of the brokers retained (T57/1-7).

147. Mr Jovanovski agreed at the meeting with Mr Lewis, Mr Lewis said to the meeting that Mr Jovanovski had made a mistake (T57/30-35).

148. Mr Jovanovski agreed in 2014 he received a letter indicating a change of ownership of the Premises (T58/40-45).

149. It was again suggested Mr Jovanovski was making his evidence up. He denied that (T62/40-50).

150. Mr Jovanovski agreed in early 2016 he was trying to do the best he could to get the best price for the sale of the business. He would be prepared to sell at $1.1 million although he agreed he was advertising it at $1.2 million (T65/1-20).

151. Mr Jovanovski agreed he was told by HLB there were potential purchasers in the range of $800,000 to $900,000 but that he did not want to sell at that price (T65/20-30).

152. Mr Jovanovski also said he had paid $935,000 for the Foyer Café business and “I spent a lot of money on doing it” (T65/44-46).

153. Mr Jovanovski agreed that in mid-2016 if he did not get a buyer he would have to exercise the option (T66/15-20).

154. He denied telling Mr Gothard that if he did not get a buyer he would exercise the option on the last day (T66/25-35).

155. Mr Jovanovski said he was told by Mr Gothard that if a sale occurred at $850,000 then the Defendant would give a 5+5 lease (T67/20-25).

156. Mr Jovanovski agreed it was Mr Hadanich who had offered the $850,000 which he rejected. He also agreed that by June 2016 Mr Hadanich was out of the picture (T67/40-50).

157. Mr Jovanovski also accepted he knew that the Defendant would have to approve any new tenant (T69/30-45).

158. It was put to Mr Jovanovski that he did not speak to Mr Gothard in late September to which he said he could not remember the dates and “all that” (T72/35-45).

159. Mr Jovanovski agreed at the 15 November Meeting when Mr Lewis was present, Mr Lewis said that the Defendant was legally entitled to take the position that he did (T70/25-35).

160. Mr Jovanovski appeared to agree at this meeting he said that he had slipped up but he believed the Defendant should honour the purported exercise of the option anyway because it was only two weeks late (T78/15-25).

161. Mr Jovanovski agreed he knew he was two weeks late because the Lease required him to do it by 31 August (T79/15-20). He said however he knew he had a document which said 30 September (T79/15-16).

162. Mr Jovanovski agreed he was told by Mr O’Connor in the first few months of 2016 that the Defendant was looking for a new lessee to take over the Premises. Mr Jovanovski indicated that he was told by Mr O’Connor that he wanted a lessee who could spend a large sum of money on the Premises (T80/5-20).

Mr Patrick O’Connor

163. Mr Patrick O’Connor affirmed two affidavits (PO1 and PO2).

164. Mr O’Connor is a chartered accountant with ten years’ experience in the accounting industry. From February 2009 to July 2016 he was an employee of HLB Mann Mann Judd (PO1 [2] – [3]).

165. In late 2015 the Plaintiff engaged HLB to act as advisors on the marketing and possible sale of the Foyer Café business on the Premises. Mr O’Connor had the day to day carriage of the matter under the supervision of Mr Simon James, a partner of HLB (PO1 [4] – [5]).

166. In order to be able to sell the business the lessor would be required to consent to an assignment of the existing Lease of the Premises to any prospective purchaser. To that end Mr O’Connor had had several discussions with Mr Gothard in relation to potential sale of the business (PO1 [6] – [9]).

167. Mr O’Connor said that in early 2016 he had a conversation with Mr Gothard in which he indicated that if Mr Jovanovski could not sell the business he would exercise the option but that he was also interested in trying to negotiate a new 5+5 lease. He said that Mr Gothard indicated that he understood that and there would be no problems (PO1 [10]).

168. In or about June 2016, he said he attended a meeting with Mr Gothard and a representative of a prospective purchaser. The purchaser indicated that they were interested in buying the business particularly if the Defendant would be prepared to make a contribution to the fit-out of the Premises. Mr O’Connor said Mr Gothard indicated that he would not rule that out and that a proposal would have to be put (PO1 [11] – [12]).

169. In his second affidavit Mr O’Connor indicated with greater particularity that he had met with Mr Gothard on 12 January 2016. Mr O’Connor asserted he asked Mr Gothard whether the Defendant would consider a 5+5 lease for an assignee to which Mr Gothard indicated that the Defendant would consider it, but they would need tick all the boxes in terms of their financials and experience. There would also have to be a market rent review and that the rent may go up by at least 10 or 20% (PO2 [6] – [8]).

324. As is later expanded upon in [349], the email simply makes the point Mr Jovanovski was desirous of “negotiating” for a new five year lease, with a further five years commence 1 June 2022. In my view, the Letter is deliberately silent on the option to renew as the parties were aware the date for exercising the option had passed. The reference to the Lease’s registration number and Mr Jovanovski’s acknowledgement he provided the Lease to Mr Russell (CJ1 [46]), furthers the likelihood Mr Russell, and in my view Mr Jovanovski, had read the Lease and were aware pursuant to clause 13 the sunset date of 31 August had passed. This is confirmed by Mr Jovanovski’s evidence in cross-examination where he accepted in mid-September before the 16 September Letter was sent, he knew the option to renew had expired (T55/42-50).

325. I do not accept Mr Jovanovski’s denials of ever seeing the 16 September Letter (T38/23-33), particularly as Mr Russell sent the Letter to Mr Jovanovski shortly after sending it to the Defendant (Exhibit D3). I am satisfied I can draw a Jones v Dunkel inference from the failure of the Plaintiff to call Mr Russell, that he would not have given evidence which could have assisted the Plaintiff’s case.

326. Further, I am satisfied by the terms of the 16 September Letter, and Mr Jovanovski’s own concessions that by mid-September he was two weeks late to exercise the option (T79/5-20; T79/35-40), that the conversation deposed to by Mr Gothard as occurring on 16 September (AG [41]) did take place. Namely, I accept Mr Jovanovski phoned Mr Gothard on 16 September, as reflected in his phone records (Exhibit D4, CB 232-233, sequence 47 and 48), and told Mr Godard he realised he was wrong and had to exercise the option by 31 August 2016. It follows that I therefore reject Mr Jovanovski’s denial of this conversation (CJ2 [14]). In this context, the 16 September Letter was, in my view, an attempt by Mr Jovanovski to salvage his chances of securing a further Lease, once he realised the option to renew was no longer available to him.

Late September 2016 – Second Jovanovski representation

328. I do not accept Mr Jovanovski’s evidence on Mr Gothard telling him “It will be fine” in relation to the Lease in late September (CJ1 [56] – [57]). As noted, Mr Jovanovski’s recollection of conversations he alleged transpired in September 2016 was, at best confused, and at worst contrived. In cross-examination, he repeated on two occasions Mr Gothard had told him only once in September words to the effect that he did not need to worry (T33/25-35; T47/45-50). Mr Jovanovski also spoke of only one conversation with Mr Gothard in September (T48/5-7) and was unable to place this conversation as taking place before or after the 16 September Letter. His phone records do not show a phone call to Mr Gothard from 17 September to 2 October 2016, consistent with Mr Gothard’s assertion the phone call never took place (AG [44]). On these grounds I am not satisfied a phone call took place between Mr Gothard and Mr Jovanovski in late September 2016, nor that Mr Gothard ever told Mr Jovanovski “It will be fine” in relation to the Lease after the option to renew date had passed.

26 October Meeting – Mr Gothard, Mr Williams, and Mr Jovanovski

329. I accept Mr Gothard’s version of what occurred at the 26 October Meeting between himself and Mr Williams on behalf of the Defendant, and Mr Jovanovski on behalf of the Plaintiff where the Defendant issued the Plaintiff with the Termination Letter. In particular, I accept Mr Gothard telling Mr Jovanovski he had told him he needed to exercise the option by the end of August at a previous meeting where Mr Jovanovski had told him he would do so on the last day, as deposed by Mr Gothard (AG [46]) and reflected in Mr Gothard’s file note in the form of an email he sent to himself the following day, 27 October, at 5.15pm (CB 316). Again there are some differences between Mr Gothard’s affidavit evidence of this meeting and his file note, but those differences, in my view, are minor and immaterial. A similar account was provided by Mr Williams in his affidavit where he recalled Mr Gothard telling Mr Jovanovski “You were well aware of the option date – we have discussed it previously” (DW [7]). While this exchange was not recorded in Mr Williams’ file note (CB 223), I am satisfied the substance of his recollection is accurate.

330. I also accept the ‘previous meeting’ Mr Gothard spoke about was a reference to the 30 June Meeting, as stated by Mr Gothard in cross-examination (T120/1-5), especially given its consistency with Mr Gothard’s evidence of the 30 June Meeting (CB 311; AG [35]; T101/15-20).

331. Mr Jovanovski agreed he asked Mr Gothard “Well, when did we discuss the option?”, but disputed the substance of Mr Gothard’s response, maintaining he simply said “We discussed the option in September” (CJ2 [15]). In the absence of contemporaneous records supporting this recollection, and in the face of contemporaneous records to the contrary, I reject Mr Jovanovski’s version of the 26 October Meeting and accept Mr Gothard’s version.

15 November Meeting – Mr Gothard, Mr Williams, Mr Lewis and Mr Jovanovski and Mr Jovanovski’s son

332. Finally, I accept Mr Gothard’s account of the further meeting between Mr Gothard and Mr Williams for the Defendant, and Mr Jovanovski, Mr Lewis, and Mr Jovanovski’s son, Vince, for the Plaintiff.

333. Prior to the 15 November Meeting I am satisfied Mr Gothard was contacted by telephone by Mr Lewis who introduced himself as an old friend of Mr Jovanovski (AG [49]). I am satisfied further that in the course of that conversation Mr Lewis acknowledged Mr Jovanovski had missed the option and realised he had made a big mistake. He also acknowledged the Defendant was legally entitled to take the approach they did, but asked for an opportunity for Mr Jovanovski to make submissions on behalf of the Plaintiff in an attempt to persuade the Defendant it ought to be allowed to stay. This phone conversation fits consistently with the 15 November Meeting.

334. At the 15 November Meeting, I am satisfied Mr Lewis again accepted the Defendant was legally entitled to take the position that it did and more importantly during the course of the conversation I am satisfied Mr Jovanovski admitted that he had slipped up in exercising the option but believed the Defendant should honour it because it was only two weeks late. These findings are based on Mr Gothard’s version of what occurred both in his affidavit (AG [52]), his file note in the form of an email to himself the same day at 12.26pm (CB 318), and in part by the file note of Mr Williams which noted Mr Lewis admitted the Plaintiff had missed the “notice for lease option” by accident (CB 222). Further, in cross-examination Mr Jovanovski himself accepted Mr Lewis had acknowledged the Defendant was legally entitled to terminate the Lease (T70/25-35) and had said Mr Jovanovski had slipped up but that the Defendant should grant the option anyway because it was only two weeks late (T78/20-25).

335. Mr Williams also recalled Mr Jovanovski saying at the 15 November Meeting that he had called Mr Gothard to discuss the option prior to the sunset date and that Mr Gothard had told Mr Jovanovski that everything would be OK and that he would have plenty of time. Whilst I accept Mr Jovanovski made that assertion at the Meeting, I am also satisfied Mr Gothard responded by indicating his denial that such an exchange ever occurred.

336. I am fortified in the views that I have expressed in relation to the 15 November Meeting by the failure of the Plaintiff to call Mr Lewis or Vince. I infer they would be unable to assist Mr Jovanovski in what he alleged took place at the meeting.

Conclusion of factual findings

337. In my view, this case can best be described as a tenant, dissatisfied with rent rates and looking for a number of commercial alternatives nearing the end of his lease, losing the only certain alternative by omitting to exercise the option to renew by the due date.

338. Since December 2015, Mr Jovanovski was looking to sell the Foyer Café business to recoup the $935,000 he spent to purchase the business in early 2012 (T65/30-50). He did not receive any offer close to the $1.1 million he was looking for, but remained optimistic by retaining numerous agents and/or brokers from June-August 2016. An offer of a fresh 5+5 lease no doubt increased the value of the business (CJ1 [54]), and exercising the option to renew might have foreclosed a sale on this basis. For this reason, in my view, Mr Jovanovski continued to dither between renegotiating a fresh 5+5 lease and exercising the option to renew the existing Lease, right up to, and indeed beyond the sunset date of 31 August. In the midst of this indecision, I am satisfied Mr Jovanovski, despite having been told of the sunset date on 30 June 2016, simply forgot to exercise the option to renew in time.

339. While I accept the Defendant did not want the Plaintiff to exercise the option to renew since they wanted a substantial new fit-out of the Premises, I do not consider the Defendant, and in particular Mr Gothard, did or said anything to cajole, induce, mislead, or improperly or unlawfully influence Mr Jovanovski to not exercise the option. Mr Gothard told Mr Jovanovski of the sunset date of 31 August some two months before that date (30 June 2016) and did nothing between those periods to suggest to Mr Jovanovski that date no longer applied. The consequences of these findings follow.

Legal considerations

Valid exercise of an option to renew

Was the sunset date 31 August 2016 or 30 September 2016?

340. Since the Plaintiff did not press it ever validly exercised an option to renew by the alternative sunset date of 30 September (Plaintiff’s opening submissions [22]; Plaintiff’s closing submissions [55]), except on 24 February 2017 being well beyond either contended sunset date (CB 152) (T152/15-30), it is strictly unnecessary to determine when the operative date to exercise the option was. Nonetheless, since the Plaintiff still sought, somewhat perplexingly, to establish 30 September as the operative date to exercise the option, I will provide a short analysis of why I am satisfied the operative date for exercising the option to renew was 31 August 2016, pursuant to clause 13 of the Lease, and why that right was not exercised.

341. Nothing in the Disclosure Statement, or might I add in the Plaintiff’s submissions, indicates the document, and thus item 6, has contractual force. Factors militating against construing the Disclosure Statement as some form of contractual variation on the Lease are the following.

342. First, the statutory provisions concerning the Disclosure Statement make clear the Statement’s purpose is not to supplant any contractual terms, but to ensure fully informed consent and arm’s length independent decision making on the part of both parties, with the Lessor required to provide the Statement at least 7 days prior to execution of the lease (section 11 of the RLA). This characterisation is consistent with the instructions Mr Jovanovski recalled receiving from his conveyancer upon receipt of the Disclosure Statement in September 2012: ‘Read the document and make sure you check the terms, it’s a summary of the lease’ (CJ1 [20]). In light of this statutory purpose, and Mr Jovanovski’s knowledge of such a purpose, the Disclosure Statement cannot in my view be characterised as intending to supplant or superimpose terms in existing contractual arrangements.

343. This view is compounded by the existence of the entire agreement clause in the Lease, making it clear the parties intend for the provisions of the Lease to constitute the entire agreement. In my view, the Plaintiff’s argument the entire agreement clause does not apply to the Disclosure Statement runs contrary to a reasonable commercial construction of the clause. The section relied upon by the Plaintiff, namely that no prior promises, representations, warranties or undertakings shall be deemed to be implied or arise in the Lease, does not mean the parties have agreed for the Lease to not operate as the entire agreement. The entire agreement clause is clearly intended to capture both past and future representations made between the parties, and make clear that the Lease as it stands is the only and entire agreement binding the parties. True it is that future variations may be made to the Lease, but only if supported by consideration. The Disclosure Statement clearly falls outside this category, and rather than replacing, superseding or superimposing terms onto the Lease, was intended by the parties to act as a summary of the Lease they signed the day before.

344. In addition to the entire agreement clause making it clear the Lease exhaustively sets out all relevant provisions, the terms of the option come solely and directly from the Lease itself. Item 6 does not refer to, or purport to materially, or at all, change or vary clause 13 of the Lease. It does not set out the operative terminology of clause 13 nor provide any sort of methodology as to how 30 September is calculated. In my view, the Disclosure Statement purports to be no more than a summary of the Lease executed the day before.

345. The contractual significance of the Disclosure Statement as a whole is further undermined by the fact the parties clearly abandoned observance of the provision under section 11 of the RLA that the Lessor’s Disclosure Statement be provided 7 days prior to the execution of the lease. The Disclosure Statement was instead executed the day after the execution of the Lease, meaning the parties and in particular the Plaintiff could not and did not rely on the terms of the Disclosure Statement in agreeing to the Lease.

346. This view is demonstrated in Mr Jovanovski’s concessions he recognised the relevant date was 31 August 2016. While he recalled being happy when he found item 6 of the Disclosure Statement because “I knew I saw it somewhere” (T55/20-30), he also conceded he knew he had to exercise the option by 31 August (T67/45-T68/5), and that by mid-September he knew he was two weeks late (T79/5-20; T79/35-40). Indeed, in closing oral submissions counsel for the Plaintiff conceded, correctly in my view, there was no evidence Mr Jovanovski relied on 30 September as the sunset date for the option to renew (T158/15-20).

347. I am therefore satisfied the recording of 30 September in the Disclosure Statement can be construed as no more than a mistaken calculation of clause 13 of the Lease, and 31 August 2016 was accordingly the correct sunset date under the Lease, to the knowledge of both parties.

Was the option exercised by the sunset date?

348. The parties agree the option was not exercised by 31 August 2016 or 30 September 2016.

349. The Plaintiff accepts the 16 September Letter is not an exercise of the option (T152/15-30). In my view, this is correct given the Letter appears to be no more than a proposal for the parties to enter into a fresh contractual arrangement for a 5+5 lease. With no mention of simply extending the Lease for another five years, nor any reference to the option or clause 13 of the Lease, the Letter falls well short of a clear and unequivocal expression of the fact the Plaintiff intends by the Letter to exercise the option to renew.

350. Without relying on the 16 September Letter, there is no other document or statement the Defendant can point to prior to 31 August or 30 September that amounts to an exercise of the option.

351. The only purported exercise of the option the Plaintiff’s rely on is the letter of 24 February 2017 sent to the Defendant by Armstrong Law Partners on behalf of the Plaintiff (CB 152 – 55). In the “cold hard world” of options where an exercise to renew must be strictly complied with, I am therefore satisfied in exercising the option to renew almost six months after the operative sunset date, the Plaintiff did not validly exercise the option to renew in accordance with the Lease.

Waiver

352. I am not satisfied the Defendant abandoned its right to require the option to renew to be strictly complied with by acting in a manner inconsistent with that right.

353. As established at [311], the O’Connor representation amounted to no more than an acknowledgement by the Defendant that the Plaintiff would plainly still be able to exercise the option to renew if negotiations for a 5+5 lease failed. Even if it did, Mr Gothard’s reminder to Mr Jovanovski at the 30 June Meeting that 31 August 2016 was the operative sunset date would have in any case, in my view, dispelled any belief in the Plaintiff that the Defendant had abandoned its right to require the option to renew be exercised by the sunset date.

354. Further, as I am satisfied 31 August 2016 was the operative sunset date, the Plaintiff cannot rely on purported representations made by the Defendant following this date to claim waiver. Thus, even if I were to accept, against overwhelming evidence, that the First and/or Second Jovanovski representation took place, such representations would not amount to a waiver since once 31 August passed, there was no longer any contractual right relating to a new lease, and thus there was no right for the Defendant to waive.

Estoppel, misleading and deceptive conduct, unconscionable conduct

355. I am also satisfied the Plaintiff does not have a claim for equitable nor statutory relief on the basis of the preclusionary doctrines of estoppel, misleading and deceptive conduct and/or unconscionable conduct.

356. For reasons already established, the O’Connor representation, and specifically the words “Yeah understood, there will be no problems” in context are not capable of conveying to a reasonable person that the tenants would be offered a further lease, whether in the form of a fresh 5+5 lease or a five year extension of the existing Lease. The same applies to the First and Second Jovanovski representations in September which, if they took place, could not have been the basis for the Plaintiff thinking prior to 31 August 2016 the option to renew date would be extended, or a 5+5 lease would be granted.

357. I am also not satisfied the Plaintiff relied on any representations allegedly made by the Defendant to take a course of action which led to its detriment. The sales campaign was launched prior to any of the alleged representations being made, and was driven by the Plaintiff’s desire to recoup its initial expenditure, as was its rejection of Mr Hadanich’s offer in June 2016. Further, in finding Mr Jovanovski simply forgot about the 31 August sunset date, I reject the Plaintiff’s contention it did not exercise the option to renew out of reliance on the Defendant’s representations.

358. In addition, while Mr Gothard accepted Mr Jovanovski knew and trusted him as an advisor in relation to the tenancy (T98/30-49), Mr Gothard did nothing, in my view, to betray this trust. This is particularly so in light Mr Gothard telling Mr Jovanovski the operative sunset date on 30 June 2016, and making clear to Mr O’Connor at the 8 April Meeting the Defendant’s desire to secure a tenant who would contribute to a substantial re-fit of the Premises. This level of plain dealing on behalf of the Defendant falls well short of a “high level of moral obloquy” required to prove unconscionable conduct, and further fortifies, in my view, why the purported representations relied upon by the Plaintiff were not capable of amounting to a misleading assurance as to the security of the Plaintiff’s tenure.

359. On these grounds, I am satisfied the Plaintiff’s claim for relief under the preclusionary doctrines of estoppel, misleading and deceptive conduct, and/or unconscionable conduct must fail.

Relief against forfeiture

360. Finally, as stated in setting out the legal principles surrounding relief against forfeiture, I am satisfied pursuant to McCaul that relief against forfeiture cannot operate to relieve against a forfeit of a lease due to the failure of the lessor to exercise the option to renew (see para [81] above).

360. However, if I am wrong on this view, I am also not satisfied this case raises any bases for the court to relieve the Plaintiff for the loss of its opportunity to exercise the option to renew. As found, the Plaintiff was told of the sunset date on 30 June 2016, in addition to being clear from clause 13 of the Lease. Whether it be through wilful ignorance by neglecting information that ordinary prudence would suggest, or mere forgetfulness, I am satisfied there is no ground on which equity should intervene, if such a jurisdiction were permitted.

361. Further, it is unnecessary for me to determine the true role unconscionability plays in relief against forfeiture, as I have found there is no element of unconscionability involved in the Plaintiff’s failure to exercise its option to renew and the Defendant’s decision to not renew or grant a new lease.

362. As I am satisfied section 72(1)(d) of the RLA does not intend to change the substantive law for when relief against forfeiture applies, the Plaintiffs claim for relief under the RLA must also fail for the same reasons.

Conclusion

364. In summary, in my view, the operative date for exercising the option to renew was 31 August 2016, and the Plaintiff failed to validly exercise the option by this date. In failing to do so, I do not accept the Plaintiff should nonetheless be granted a further five year lease commencing on 1 June 2017 on grounds of waiver, estoppel, misleading and deceptive conduct or unconscionable conduct, by way of specific performance or statutory relief under the ACL or RLA. Further, in my view this is not a case where relief against forfeiture is enlivened, and even if it were, there are no grounds for granting such relief.

365. In light of my reasons, I invite the parties to prepare short minutes and, should the need arise, to be heard on the question of costs.

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Decision last updated: 19 June 2017