Portlin No 2 Pty Ltd (in Liq) v Whittle - [2009] SASC 229

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PORTLIN NO 2 PTY LTD (IN LIQ) v WHITTLE & ANOR
[2009] SASC 229
Judgment of The Honourable Justice Vanstone
6 August 2009
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - SUBJECT MATTER OF LEASE
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - DURATION
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - COMMENCEMENT
Plaintiff company leased premises from defendants - lease in writing - term of lease ten years with right of renewal - dispute as to the area leased - whether term of lease subsequently reduced to three years - dispute as to commencement date - whether right of renewal unenforceable for uncertainty - determination of rent payable - defendants counterclaim for damages arising from plaintiff taking possession of area greater than that leased - further seek an account for profits made by business operated on demised land but not forming part of plaintiff's lease.

PORTLIN NO 2 PTY LTD (IN LIQ) v WHITTLE & ANOR
[2009] SASC 229
Civil

VANSTONE J: Portlin No 2 Pty Ltd (Portlin) was the corporate vehicle acquired by Mr Maurice Hood and the first defendant, Mr Albert Whittle, to operate premises known as “Truck Stop” on Highway One at Port Augusta. The registered proprietors of the property, Mr Whittle and his wife, the second defendant, leased it to Portlin.
Portlin went into liquidation on 29 June 2006. It still operates Truck Stop. Its major asset is the lease, which it claims subsists. It claims that it is entitled to perfect its leasehold interest and it seeks declarations to entitle it to do so. The terms and conditions of the lease are the matters of dispute in this action.
Background
In 2000 the defendants were in negotiations with a third party, Parnell Mogas Pty Ltd, which they hoped would lead to that company taking a lease over the premises. Ultimately, those negotiations failed and the site was vacant for a number of months. During that period, and in February 2001, Mr Whittle and Mr Morris Hood became directors and equal shareholders in Portlin No 2 Pty Ltd, with a view to that company conducting business at the premises on a temporary basis.
On 6 March 2001 Portlin and Mr Whittle executed a document headed “Offer to Rent” agreeing that Portlin would lease “the property known as Port Augusta Truck Stop situated at Lot 8, Highway One, Port Augusta, excluding the premises currently occupied by Specialised Tyres Pty Ltd”. The term of the lease was expressed to be on a monthly basis, “until Portlin earns a net profit of 2½ per cent on total sale of fuel”. This document is exhibit P18. Mr Hood was by now styled “Managing Director” and his role was to undertake the day-to-day management of the Truck Stop.
From early 2001, Portlin commenced to carry on business at the premises. It is common ground that the business was a 24 hours per day operation and included a fuel service area and café. In a document entitled “Minutes of Meeting of Directors of Portlin No 2 Pty Ltd (exhibit P20), dated 27 March 2001, Mr Whittle and Mr Hood appear to have agreed, as directors of Portlin, that the rent for the “Truck Stop would be fixed at $88,000 p.a. including GST or $7,333.33 per month for the first two months of operation”. Mr Hood said that this figure was not amended for the balance of calendar year 2001.
Not long after June 2001, Mr Hood provided some financial data for Portlin’s operations to Messrs Gill Penfold Kelly, who were Mr Whittle’s accountants. A tax return for the year ending June 2001 was filed. Portlin declared an operating profit before income tax of approximately $8,000.
During the balance of calendar year 2001 Mr Whittle participated very little in the affairs of Portlin, he having suffered a heart attack in April 2001. He did not play any active role until approximately December 2001. At about that time, Mr Hood informed Mr Whittle of the prospect of securing a contract to prepare and supply food to the nearby power station. This was referred to as “NRG Catering”. This enterprise constituted a promising adjunct to the business already carried out from the site. Ultimately it was agreed between Mr Hood and Mr Whittle that they would operate that business in partnership and that Portlin would sub-lease an area of the premises to the partnership.
During March 2002 a new lease was executed by both Mr Whittle, for the defendants, and Mr Hood, for Portlin. The document, which is exhibit P39, was dated 2 March 2002. Its terms were as follows:
Portlin No 2 Pty Ltd Lease
Portlin No. 2 Pty Ltd agrees to lease from the AT Whittle Family Trust all the land and building space not occupied by Specialised Tyres for a period of 10 years with the right to renew.
The land and building being that, situated on Lot 8 Highway, Port Augusta.
The Directors recognise that the total cost to rebuild and make good the property for occupation, and to expand the business opportunities will be $1,500,000.00 in total.
The rent plan for the first three years will be as follows:
Year 1       $8,000.00 per month      = $96,000.00 including GST
Year 2       $9,990.00 per month      = $119,880.00 including GST
Year 3       $12,765.00 per month      = $153,180.00 including GST
All rent after, to be annually adjusted by CPI or 4% which ever is the lesser.
The commencement date of this agreement, which was not specified, is a matter of dispute. The plaintiff asserts it took effect from its date, namely 2 March 2002, whereas the defendants say it was to operate in accordance with the original commencement date in exhibit P18, being 6 March 2001.
Also in dispute is the area leased to Portlin. Even at the time the earlier offer to rent was signed, Lot 8 had ceased to exist. Its area had been subsumed into a new Lot 1, part of which later became Lot 10. What the parties comprehended by referring to Lot 8 is to be decided. In addition, there is a dispute as to what part of the land was occupied by Specialised Tyres and thus excluded from Portlin’s lease.
Between July and September 2002, after provision of further financial data from Portlin, Mr Nicholls of Messrs Gill Penfold Kelly identified an error in the 2000/2001 tax return for Portlin. It was established that instead of a profit, a loss of the order of $80,000 should have been declared. Apparently the error resulted from a failure to bring to account debts to a number of trade creditors.
When it became apparent to Mr Whittle that Portlin was not trading profitably, as he had believed, he claims that he had various discussions with Mr Hood leading to an abandonment of the 2 March 2002 lease – and in particular its term of 10 years with the right of renewal – and its replacement with a three-year lease. Mr Whittle claims that the new “proposition”, as he called it, was partly reduced to writing and is reflected both in a document entitled “Agreement to operate Portlin No 2 Pty Ltd” (exhibit P40) and in a further document headed “Three year rental plan”, which is part of exhibit P42. On the other hand, Mr Hood denies that there was ever any abandonment of the ten year lease; although he maintains that its terms were varied by means of the document, P42. Accordingly, the third area of dispute is as to the term of the lease agreement between Portlin and the Whittles and as to other terms, including whether any effective right of renewal was given and the rental.
What was the demised land
The lease agreement, exhibit P18, dated 6 March 2001, referred to “the property known as Port Augusta Truck Stop situated at Lot 8 Highway One Port Augusta, excluding the premises currently occupied by Specialised Tyres Pty Ltd”. The later lease, bearing the date 2 March 2002, gave a different description, being “all the land and building space not occupied by Specialised Tyres … being that, situated on Lot 8 Highway, Port Augusta”. Although the two documents describe the area demised in different terms, there is no evidence of that being in response to any event or need and I consider that it resulted merely from a wish to better describe the relevant area. In fact, Lot 8 had ceased to be classified as such in December 2000. Therefore, in order to understand what land was intended by the parties to be the subject of the lease, it is helpful to set out a little of the history of the land under consideration.
From 1 May 1992 the Whittles were, with two others, the registered proprietors of Certificate of Title Register Book Volume 4136 Folio 882, being Allotment 8 of Portion of Section 866, Hundred of Davenport (L.T.R.O. filed Plan No 6589). The Certificate of Title shows that the area of Lot 8 was roughly 22,000 square metres. Mr Whittle said in evidence that he and his wife held the land as trustees for the Whittle Family Trust, but nothing turns on that and it need not be mentioned further. In 1999 the Whittles became the sole owners.
On about 28 December 2000, Lot 8 and adjacent land known as Lot 9, similarly held, were subdivided into two allotments, now called 1 and 2. Until that point, the eastern and southern boundaries of Lot 8 had adjoined the larger Lot 9. Lot 8 was now part of the much larger Lot 1, which had a greater frontage to Highway One.
Then, on 13 October 2006, Lot 1 was subdivided into two new allotments, now called Lots 10 and 11. The new Certificate of Title for Lot 10 was Volume 5972 Folio 688 (exhibit P7). Lot 10 took in all the original Lot 8, but included extra bands of land to the eastern (roughly 25 metres wide) and to the southern (roughly 6 metres wide) sides of the old allotment.
It is a matter of dispute as to whether the parties intended to deal with only the old Lot 8, or all the land comprising Lot 1, or what is now Lot 10. The plaintiff argues it is entitled to the entirety of Lot 10.
It is suggested by the plaintiff that during Mr Hood’s time at the Truck Stop, truck drivers would use parts of Lot 10 which were not part of the former Lot 8 when using the Truck Stop. In particular, Mr Hood referred to a photograph of the southern elevation of the shed from which Specialised Tyres operated and to the paved and gravelled area south of the shed as having been used for truck parking and access to the site. There was not agreement between Mr Hood and Mr Whittle as to whether parts of the two bands I referred to had been cleared and levelled during Mr Hood’s time as manager. Mr Hood said that from time to time trucks would use the band on the eastern side of the old Lot 8 for access and for parking. He said that at one point in his tenure he counted 91 road trains on the site. I accept his evidence that these parts of Lot 10 were used by customers of Truck Stop in the way Mr Hood described. In the circumstances, though, I do not think this evidence is particularly helpful in interpreting the offer to rent and lease documents. I add that it is clear that throughout the relevant period no use was being made of the two bands of land referred to, apart from by persons associated with the Truck Stop.
I find that what the defendants intended to lease to Portlin and what Portlin expected to get by virtue of the agreement in writing dated 6 March 2001 (exhibit P18) was only that land formerly called Lot 8. There was no point in including, at the time of either lease, the balance of the new Lot 1. While customers of Truck Stop might have used a little of the land to the east of Lot 8 at that time, I do not consider that affects the interpretation of the lease document. It seems to me there was no need for that to occur. If it did occur, it was a matter of convenience. In my view it is instructive that, even if the parties had not recognised as at 28 December 2000, that the terminology “Lot 8” was moribund, it is likely that they would have realised that by 2 March 2002 when exhibit P39 was entered. At that time, no doubt, it was still convenient to refer to Lot 8, because it was on that land that the Truck Stop was situated. Mr Morcombe QC conceded that with the lease of Lot 8 would go a licence, express or implied, to travel over that part of Lot 10 referred to in the trial on exhibit P44 as “Access A”.
The second issue which arises under this heading is what was the area of the property occupied by Specialised Tyres and consequently excluded from Portlin’s lease. The evidence about this matter came principally from Mr Hood and was not contested. Mr Hood, a trained draftsman, provided a scale plan of the buildings on the site drawn recently and tendered as exhibit P41. The shaded area on that plan, marked “Specialised Tyres” is that part of a large shed occupied by that business. Photograph number 9 of exhibit P45 shows the southern elevation of that shed. From the south-eastern corner of that shed, extending to the west, are three pairs of large doors. Mr Hood said that these corresponded to the three easternmost “bays” within a total of five in the shed. He explained that he used the word “bay” to refer to the space between two “ribs” of the “portal frame” of the shed. Mr Hood said that in addition to the internal part of the shed comprising those three bays, Specialised Tyres used in the course of its work the external paved area immediately to the south of the bays, extending perhaps 8 metres from the shed. Customers of Specialised Tyres would proceed to the paved area or to the space within the shed by using any of the entrance points to Lot 10 marked by Mr Hood as A, B and C on an aerial photograph, exhibit P44. I consider that, although it might be argued that exclusive use of the 8 metre wide rectangle would likely not be reserved to Specialised Tyres, in a practical sense, it would have to be. Otherwise, access to the bays would be jeopardised.
Accordingly, I find that in terms of the lease, exhibit P39, the area occupied by Specialised Tyres comprised the three eastern bays of the large shed, together with a rectangular paved area extending 8 metres to the south of those bays. It was this area which was excluded from the lease. In addition, a licence to use the three access points associated with the property and the balance of the unimproved land of Lot 8, to take access to the business, would necessarily be reserved to Specialised Tyres, or its successor.
Terms of the lease
As mentioned, there is no dispute that the “Offer to Rent” document (exhibit P18) was executed on about the date it bears, namely 6 March 2001. Nor is it disputed that the “Portlin No 2 Pty Ltd Lease”, exhibit P39, was executed at around the date it bears, namely 2 March 2002. However, aspects of the events which occurred subsequently, or at least the timing of them, is a matter of dispute.
The plaintiff claims, through the evidence of Mr Hood, that the “Agreement to Operate Portlin” document, exhibit P40, though bearing the date 2 March 2002, was signed by both parties in about May 2002. He said it had been recommended to them that the operation of the NRG business should be separated from the Truck Stop business. The document reflected arrangements made between Mr Whittle and Mr Hood in relation to the NRG business and he recalled it was executed at a time when that business had been operational for several months. The plaintiff argues that, at most, exhibit P40 amounts to an agreement between the two shareholders of Portlin. Although it dealt with rent to be paid over a three year period, that referred to rent payable by the partnership to Portlin and had no impact on the lease agreement between Portlin and the Whittles. The document also touched on Mr Hood’s rate of remuneration and dealt with the distribution of expected profits. For example, under a heading in those terms, the following appeared:
The distribution of additional monies can only take place after each financial year is completed and taxation is satisfied. Should the profit be of a lower than projected amount, the Directors will decide if necessary, on a new formula for distribution of funds. In any event, priority will go to the continuation of the trading of Portlin No 2 Pty Ltd and NRG Catering.
Further into the document there is reference to directors’ loans to Portlin and Portlin’s overdraft facilities. These references support the plaintiff’s classification of the document.
Mr Whittle’s evidence is quite different. He spoke of being concerned to learn in June/July 2002 that Portlin was consistently exceeding its $50,000 overdraft limit. He said this information came to him against a background of having been told of the profit declared in the original tax return of Portlin and having seen a document he claims was prepared by Mr Hood showing promising cash flow figures for February 2002 to January 2003 (exhibit P21). He spoke to Mr Hood about the overdraft and was assured that things were proceeding satisfactorily. They discussed the possible need for additional funds. Then in August he said that he had a telephone call from the accountant, Mr Nicholls, who alerted him to a problem in the finances of the company. He described this as a “major event”. As a result of receiving that information he spoke to his bankers and then to Mr Hood. He told him that the company could not continue in its present condition. He also accused Mr Hood of inducing him to sign the lease, knowing that the company was insolvent. He said it was in the aftermath of those conversations that exhibit P40 was produced. While he believed it was created “in August or just a while after”, he could not explain why it was dated 2 March 2002. He said in August he and Mr Hood agreed to the terms of “our new proposition”. He had told Mr Hood that they could only proceed forward if they looked at a shorter term lease and said they discussed and agreed upon a term of three years. He said they would cap the rent at $9,900 per annum, which was the Year 2 rent. The three years would run from the original date, namely 6 April 2001. He said, although they discussed Mr Hood giving additional security for the overdraft, Mr Hood declined to do so.
Mr Whittle’s evidence was that exhibit P42 was also reflective of the new agreement. Exhibit P42 contains two pages. The first is a sheet, handwritten by Mr Whittle, addressed to Mr Hood and dated 13 February 2003. There is no dispute that it was written on about the date it bears and delivered to Mr Hood by a relative of Mr Whittle. Annexed to it was a typewritten sheet entitled “Three Year Rental Plan”. It is instructive to set out both documents in full.
13-2-2003
HELLO MAURICE
GIRISH HAS ASK FOR THE 3 YEAR RENTAL PLAN.
I HAVE FOUND THIS ONE.
COULD YOU PLEASE SIGN AND KEEP. ONE FOR YOURSELF 1 FOR TRUCK STOP RECORDS
& 1 TO GIRISH. PLUS BUNDIES QUOTE
THANK YOU
REGARDS
ALBERT
It should be noticed that the two references to “Girish” are references to Mr Whittle’s solicitor, Mr Girish Patel who, at this time, was acting for Mr Whittle in relation to the dispute he had with Parnell Mogas over the same premises. That matter went to trial in the District Court in April 2004. The reference to “Bundies Quote” is a reference to a business known as Bundaleer Sheds which had been engaged to perform work at the premises. The document enclosed, being the second page of exhibit P42, was as follows:
THREE YEAR RENTAL PLAN
Portlin No. 2 Pty Ltd would pay the rent according to the rental plan hereunder subject to AT & MJ Whittle Family Trust carrying out building development as stated in the quote of Bundaleer Traders Pty Ltd dated the 12^th November 2001:-
Year 1       $8,000.00 per month = $96,000.00 (including GST) completed.
Year 2$9,900.00 per month = $119,880.00 (including GST) and an additional amount for NRG Catering.
Year 3No increase will take place unless a 5% in gross profit is achieved. (sic)
DATED the 1^st day of March 2002.
(signed)(signed)
A.T. Whittle  M.H. Hood
for AT & MJ Whittle Family Trust                   for Portlin No 2 Pty Ltd

As I said, Mr Whittle said in evidence that this document was a reflection of the agreement reached in the latter half of 2002, being “the new proposition”. He was not able to account satisfactorily for the date it bore, namely 1 March 2002. He explained that the note and typewritten document had been sent in February 2003 to Mr Hood as it was relevant to the forthcoming litigation. He said “I just assumed they were tracking the company”. But his evidence about the second page of exhibit P42 was confused.
Mr Hood denied that there was ever any agreement to abandon the ten year lease term. He said that by early 2003 relations between himself and Mr Whittle had deteriorated, due to Mr Whittle interfering in the business. Early in February there had been communications on the topic of whether Mr Hood would remain in the business and only on 10 February 2003 had he advised Mr Whittle that he intended to “remain involved” (exhibit P48). Mr Hood said there was no discussion with Mr Whittle about the terms of exhibit P42 before he received it. He had received a telephone call from Mr Patel about two days prior, but he had referred him to Mr Whittle at Port Lincoln.
In evidence-in-chief Mr Whittle said that his recollection was that the second page of exhibit P42 had been signed by him in September or October 2002 at about the same time as exhibit P40 and he thought it had been left at the Truck Stop. However, in cross-examination he conceded that the sequence of events was that he received a telephone call from Mr Patel about it. He then approached Messrs Gill Penfold Kelly about preparing it. (That firm often engrossed documents at his request.) He then informed Mr Hood he was sending it and sent it by the hand of his relative. After Mr Hood signed it, it was sent to Mr Patel.
That neither exhibit P40 nor exhibit P42 make any reference to an abandonment of the ten year lease term is instructive. When the title and format of the three year rental plan is compared with the Portlin No 2 Pty Ltd lease, exhibit P39, exhibit P42 strikes me as being no more than an alternative version of the rent plan set out in exhibit P39. It does not purport to alter the lease term, either expressly or impliedly. I reject Mr Whittle’s evidence as to the outcome of the “new proposition” conversation. If he was aggrieved at being misled as to the financial position of Portlin and if, because of that, he secured an agreement from Mr Hood to abandon the ten year lease, then I am confident he would have had a contemporaneous document drawn to reflect the new agreement. I do not consider that exhibit P40, the Agreement to Operate Portlin, is such a document. Not only is it dated much earlier, but, plainly, it was drawn at a time when it was contemplated that the introduction of the NRG business would result in profits to the partnership and an inflow of rent to Portlin from the partnership. That was not the expectation in late 2002. Exhibit P40 reads to me as a record of conversations between Mr Whittle and Mr Hood relating to Portlin itself. I see no reason to treat it as other than a record of discussions between the shareholders, or directors, of Portlin. I find that exhibit P40 neither purported to alter the term of the lease, nor did so.
In my view, the genesis of the second page of exhibit P42 is only explicable in terms of the concessions made by Mr Whittle in cross-examination. I find that the second page of exhibit P42 was created only in the days leading up to its transmission to Mr Hood on 13 February 2003. I find it only came into existence by reason of the litigation for which Mr Whittle and Mr Patel were then preparing. I accept Mr Hood’s evidence that there was no conversation between himself and Mr Whittle in relation to the proposed rental for Year 3 as it appears in that document. I accept Mr Hood’s evidence that he was prepared to sign that document without any discussion, on account of the fact that, from Portlin’s point of view, the Year 3 rental was more benign than as appeared in the lease, exhibit P39. I accept that there may well have been conversations between Mr Whittle and Mr Hood about the progress of Portlin in late 2002, and especially so after the error in the 2001 tax return was discovered. I can accept that those conversations may well have been heated and would likely have extended to the question of additional security for the overdraft being provided by both men. However, I reject the suggestion that the term of the lease as set out in exhibit P39 was abandoned and that it was agreed that it would be replaced by a term of three years upon new conditions.
My conclusions as to this issue are fortified by answers Mr Whittle gave in cross-examination on the topic of the evidence he gave in the District Court during the litigation with Parnell Mogas. He accepted that in evidence before the District Court he asserted that a formal lease with Portlin was never executed. There, he did not refer at all to the lease, exhibit P39. He agreed that his position as presented to the District Court was that the rental agreement he had with Portlin was the second page of exhibit P42. I am also fortified in these conclusions by cross-examination of Mr Whittle before me on an affidavit he filed in the course of the current proceedings, relevant to a caveat which had been lodged over the property. He agreed that some of the matters put forward in that affidavit relating to discussions about rent and lease terms were untrue. He said at one point that he was “shooting blind in a lot of this”. (295) The answers Mr Whittle was effectively forced to give in cross-examination on both topics were discreditable to him. In my view he was embarrassed by this cross-examination. I do not say that any of his answers to me in this trial involved deliberate untruth, but generally I preferred Mr Hood’s evidence on contested matters. In particular, I prefer his evidence as to whether the ten year lease was mutually abandoned. It was not.
I return to mention again the cash flow document, exhibit P21. The provenance of this document was hotly disputed at trial. Although the document asserts on its face: “Prepared by Maurice Hood”, Mr Hood denied having prepared it. He said it appeared to him to be an Excel document, whereas he used a Lotus system. Mr Whittle denied having created the document or having instructed anyone else to create it. He acknowledged he had passed it on to the accountants, Gill Penfold Kelly, and it was from that source that the document recently came. Mr Nicholls, of that firm, denied being responsible for it. It had been entered electronically into the firm’s records from an outside source. I might add that this was not the only document tendered in evidence in respect of which there was doubt as to its source. I am not critical of either Mr Hood or Mr Whittle in relation to their lack of clear recollection about the source of such documents. I consider that both men had genuine lapses of memory from time to time in respect of both conversations between them and events generally, attributable to the passage of time since this course of events. However, in the end, I do not consider that I need to make any finding about the creation of exhibit P21. It is plain that the data contained within it must have been provided from the records at Truck Stop and therefore, probably by Mr Hood. He acknowledged providing monthly figures to either Mr Whittle or the accountant. It is clear that, at least when the NRG contract was struck, the prospects for the Truck Stop were promising. I consider that much is sufficient for the arguments mounted by the defendants regarding the “new proposition” conversations.
Having concluded that the second page of exhibit P42 was created solely for the purposes of the Parnell Mogas litigation and was not reflective of any alteration to the term of the lease, exhibit P39, a question arises as to the efficacy of exhibit P42. On the defendants’ case, as I have said, there was an agreement that the ten year term with a right of renewal given in exhibit P39 was to be abandoned and a new term of three years only, on more benevolent rental terms was to be substituted. On the defendants’ case, that would have been an effective variation of the earlier contract, with consideration flowing both ways. However, on the findings I have made, no consideration was given by Portlin in respect of the typewritten part of exhibit P42. This matter became the subject of debate during final submissions. Mr Morcombe QC argued that exhibit P42 could not be enforceable for that reason. In response, Mr Robertson SC, for the plaintiff, argued that the assertion that there was no consideration for exhibit P42 had never been raised on the pleadings and therefore had not been explored in evidence. He submitted it would, therefore, be unfair to the plaintiff to refuse to give effect to the document on that basis.
While I am sympathetic to that argument, in my view it would have been difficult in practical terms to plead it, having regard to the defendant’s case. In any event, on Mr Hood’s evidence, it is impossible to see that there could have been any consideration. He asserted that there was simply no conversation about the terms of the document, exhibit P42. The plaintiffs were successful in demonstrating that the sole reason for the creation of the document was to enhance the defendants’ claim for damages in the District Court. In the circumstances, my view is that even had the plaintiff had the opportunity to explore the question of consideration, its own evidence effectively foreclosed that issue. Therefore, I am not prepared to find that exhibit P42 amended the lease, exhibit P39.
There is a separate issue about the terms of the lease so far as it purports to confer a right of renewal. In exhibit P39, the term of the lease is “10 years with the right of renew”. It was accepted by both parties that the term of any renewal would be ten years. The defendants however argue that the renewal is unenforceable for uncertainty, as there is no mention of an essential term, namely, the rent to be paid for the renewed period.
Mr Morcombe QC pointed to a line of authority holding that the exercise of a right of renewal creates a new lease, rather than an extension of the original lease. He noted that the renewed lease would have to be different from the original, as it would not contain a further right of renewal. It was accepted by the plaintiff that a right of renewal creates a new lease. It was argued, however, that the effect of a right of renewal is to adopt the terms of the original lease, less the right of renewal.
The issue is whether exhibit P39 sufficiently identifies the rent to be paid for the renewal period. As previously set out, exhibit P39 lists the rent to be paid for the first three years, and then provides, “all rent after, to be adjusted by CPI or 4% whichever is the lesser”. It was put by the defendants that an objective test must be applied in determining what the parties intended. Mr Morcombe QC argued that the parties did not intend to follow this formula for the balance of the lease and renewal term. Rather it was their intention to relate the rent to the profitability of the Truck Stop. It was accepted however that on the face of exhibit P39 the parties intended to apply the rent formula for at least the remainder of the term of the original lease. The plaintiff argued that this formula provided a means to ascertain the rent to be paid under a renewal of the lease.
I consider that, given the rental for year 10 will, in time, be ascertainable, there is no difficulty in finding that the lease makes provision for rental during the term of any renewed lease. The renewal is enforceable.
Commencement date
It will be remembered that the commencement date for the monthly lease referred to in the Offer to Rent, exhibit P18, was 6 April 2001. In the lease document, exhibit P39, no commencement date was given. Mr Whittle’s evidence was that the agreement, in effect, referred back to exhibit P18 and was to commence on the same date. Mr Hood specifically agreed to the 6 April 2001 commencement date for exhibit P39 in cross-examination. That was a concession well made, inasmuch as communications in writing, namely exhibit P22, referred to that commencement date. Unless there was found to be a link between exhibit P18 and exhibit P39, then, exhibit P39, having no commencement date, would be unenforceable. In my opinion, exhibit P39 was clearly building upon the monthly arrangement already entered into and was to be, in effect, retrospective in terms of its starting date.
The only argument against a suggestion that the starting date of exhibit P39 was intended to be 6 April 2001 is that the rent actually paid during the 2001 calendar year was not in accordance with that set out in exhibit P39. As was mentioned earlier, it appears that in a meeting of the directors of Portlin, occurring on about 27 March 2001, Mr Whittle and Mr Hood agreed that the rent payable for the Truck Stop for the first two months of operation would be $7,333.33 per month. Mr Hood’s evidence was that that rent continued to be paid throughout 2001. The plaintiff argues that, since the rent set out in exhibit P39 for Year 1 is $8,000 per month, it can be inferred that Year 1 is not contemplated as being 2001. I have rejected that argument because the minutes, exhibit P20, do not amount to an enforceable agreement between Mr Whittle, representing the landlord, and Mr Hood, representing Portlin. By the time exhibit P39 was executed, the year dating from 6 April 2001 was all but finished and, in a sense, the figure applied to it was unimportant. I find that the factors which I referred to in the previous paragraph bearing on this issue weigh more heavily than the apparent concession in exhibit P20 and the payment of a lesser figure throughout Year 1.
The only other issue on this topic is as to the commencement date of exhibit P42, the document headed “Three Year Rental Plan”. I have found that this document is void for want of consideration. Had my decision on that point been different, I would also have found that this document in its reference to Year 1, was referring back to the original commencement date of 6 April 2001. The rent for the first year provided by that document mirrors the rent for the first year in exhibit P39.
Counterclaim
The defendants make a counterclaim. They assert that since 1 October 2006 the plaintiff has been in possession of Lot 1, whereas pursuant to the lease they are entitled only to part of it.
It seems that a Notice to Quit dated 31 August 2006 was served upon the plaintiff and, in response, the plaintiff came to this court seeking an injunction to reserve their exclusive possession pending the determination of this matter. A series of interim injunctions were ordered, leading to the extant orders of 21 June 2007. The first of these restrained the defendants from acting in reliance on that Notice to Quit. That order was expressed to be “until further order”. The land referred to in that order was Certificate of Title Register Book Volume 5831 Folio 41. It is acknowledged on both sides that the Folio number should have been 419, and nothing flows from that. That is the Certificate of Title for Lot 1. Undertakings as to damages were given in relation to each injunction.
On the findings I have already made, the plaintiff was only entitled to the area of the old Lot 8 less the Specialised Tyres area. The defendants are entitled to possession of those parts of Lot 10 which do not form part of the old Lot 8. Although the defendants claim they have been deprived of the use and enjoyment of the two bands of land, there is no evidence before me of any loss flowing from that deprivation. As to the balance of Lot 1, that is the vacant land not forming part of Lot 10, had the defendants wished to develop that land then presumably, they could have come back to the Court to have the injunction narrowed.
The defendants further claim that in about September 2003 they commenced a business on a part of Lot 10 and Lot 8 not the subject of the lease to the plaintiff. It consisted of the provision of showers, sinks, washing machines, bedrooms and an automatic teller machine for use of truck drivers passing through Truck Stop.
Mr Hood’s clear evidence was that the areas which housed these activities – referred to as “the amenities business” – were part of Portlin’s lease. He said that the amenities business formed part of the operation of Truck Stop as a requirement of planning approval. In any event, this area was certainly not part of the area reserved from the lease for use by Specialised Tyres. It appears that since September 2006 the liquidator has collected monies generated through that business.
In cross-examination it was put to Mr Hood that between April 2000 and March 2003 there was no partitioning in the area within the western end of the shed, shown on exhibit P41A as an L-shaped area marked in yellow and labelled as laundry, bedrooms 1-2, ensuites 1-3, store and future ensuites. Mr Hood refuted that suggestion. He agreed that bedrooms 1 and 2 were not fitted out at the time he left in March 2003, but he said that all the partitioning was in place. He said the partitioning had gone into that area in early 2002. He said no money was derived from the use of that area before March 2003. He refuted the suggestion that the area was not part of Portlin’s lease. He said there were no discussions between himself and Mr Whittle as to the rent to be paid by Portlin for that area. The evidence of Mr Whittle on this topic was scant. He said that in about March 2002 “preliminary framing” was constructed in the amenities area. He said that the planning consent and subsequent fit-out of the amenities area did not take place until after Mr Hood had left in 2003. He did not give any evidence as to whether this part of the Truck Stop formed part of the plaintiff’s lease. I prefer and accept Mr Hood’s more detailed evidence on these topics.
As to the profits arising from the amenities business retained by Portlin, there is simply no evidence before me suggesting that Portlin is not entitled to such profits. Nothing was put to me by the defendants in final submissions as to this part of the claim. It is simply not made out. That part of the counterclaim fails.
Conclusion
I found that the land which was subject to the two leases, exhibit P18 and exhibit P39, was the original Lot 8, less the area occupied by Specialised Tyres. The Specialised Tyres land was the three easternmost bays of the large shed, together with the rectangular paved area extending 8 metres to the south of those three bays. In addition, I have found the plaintiff enjoyed a licence to use part of Lot 10 for the purpose of taking access at the point labelled “A”.
I have found that the lease, exhibit P39, had a ten year term with a right to renew for the same term, and commenced on the original commencement date, being 6 April 2001. The rent for Year 3 was as stated on exhibit P39, being $12,765 per month including GST. The rent for the years thereafter was based on that figure, as increased by the CPI or 4 per cent, whichever was less. I have found that since October 2006, by order of this Court, the plaintiffs have been in possession of land beyond their entitlement under the lease, but there is no evidence as to any damages arising therefrom. I have found that the counterclaim for an account of profits made from the amenities business fails.
I propose to hear the parties as to the form of orders to give effect to these findings.