Powell & Powell v Bochas Pty Ltd
[1995] QCA 511
•17 November 1995
IN THE COURT OF APPEAL [1995] QCA 511
SUPREME COURT OF QUEENSLAND
Appeal No. 125 of 1995.
Brisbane
[Powell v. Bochas P/L]
BETWEEN:
BRIAN CHARLES POWELL and
LISA SUSAN POWELL(Plaintiffs) Appellants
AND:
BOCHAS PTY LTD
(Defendant) Respondent
___________________________________________________________________________
Pincus J.A.
Davies J.A.
Mackenzie J.
___________________________________________________________________________
Judgment delivered 17/11/1995
Reasons for judgment of the Court
___________________________________________________________________________
APPEAL DISMISSED WITH COSTS
___________________________________________________________________________
CATCHWORDS: LEASE - option to renew required in writing - whether oral notice of exercise of option effective - whether mere statement of intention - whether waiver by landlord of requirement of writing.
Counsel:Mr P D McMurdo QC with him Mr K B Varley for the appellants.
Mr N J Thompson for the respondent.
Solicitors:Barwicks for the appellants.
Neilson Stanton and Parkinson for the respondent.
Hearing date: 17 October 1995.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 125 of 1995.
Brisbane
BeforePincus J.A.
Davies J.A.
Mackenzie J.
[Powell v. Bochas P/L]
BETWEEN:
BRIAN CHARLES POWELL and
LISA SUSAN POWELL(Plaintiffs) Appellants
AND:
BOCHAS PTY LTD
(Defendant) Respondent
REASONS FOR JUDGMENT - THE COURT
Judgment delivered 17/11/1995
This is an appeal from a judgment of the Supreme Court dismissing an action for a declaration that a certain option to renew a lease had been validly exercised and for other, related, relief; the primary judge gave the defendant, on its counter-claim, a declaration in the opposite sense.
It is convenient to refer to the parties as tenants and landlord, the tenants being the plaintiffs in the suit and the appellants in this Court. By assignment of the interest of previous tenants, the plaintiffs became tenants of premises on which they conducted a motel and the defendant was at material times the owner of the reversion. Under cl. 24.1 of the lease the tenants had an option to renew it for a further term of three years, exercisable by notice in writing delivered by the tenants to the landlord not less than three calendar months prior to the expiration of the original term, 31 January 1995. Under that clause the last day for exercise of the option was 31 October 1994 and three days before that date there was a conversation between Brian Powell, one of the tenants, and one James who had authority to speak on behalf of the landlord. By para. 6 of its statement of claim in the action the tenants alleged that, by that conversation, they orally gave notice of exercise of the option which we have mentioned. The statement of claim went on to say that the landlord, by James, accepted the oral evidence of the option. The pleading alleged that thereafter the tenants assumed that the option had been validly exercised or that the landlord accepted "such an exercise as valid". The pleading alleged that the landlord by its conduct and in particular by what James said during the conversation of 28 October 1994 induced the tenants to adopt that assumption.
On or about 10 October 1994 i.e. 18 days before the critical conversation took place, the tenants decided to sell the motel business. We have referred to cl. 24.1 which gave an option of renewal for three years; if exercised, that would have given three years further tenancy from 31 January 1995. Clause 24.2 provided for a second option of three years from the expiration of the first option period. Powell gave evidence that he phoned James and told him that the property, meaning the motel business, was on the market and mentioned the price. The evidence went on "We are exercising our option", to which according to Powell, James replied "Okay". There was then a discussion about the possibility of agreeing on a third option period. The judge found that after the conversation of 28 October Powell believed that he had exercised the option; one might think that to be a strange belief, since the mode of exercise required by the lease was an exercise in writing. But the judge expressed doubt as to whether Powell was aware of that requirement; his Honour said that Powell "may well have seen the word ‘writing’ in cl. 24.1 but he did not appreciate the significance of it". Both tenants gave evidence that they are aware of the requirement of writing.
In cross-examination Powell was asked by the primary judge what James’ response was to Powell’s statement, meaning the statement "We are exercising our option"; the answer was "Fine, okay". James gave evidence denying that Powell had said "We are exercising our option". The primary judge, for reasons which he explained, had "serious concern as to the accuracy" of Powell’s evidence of the conversation of 28 October.
On 19 December 1994 a solicitor wrote on behalf of the tenants, purporting to exercise the option to extend the lease for a further three years and the landlord’s solicitors replied saying that the purported exercise was out of time. The tenants’ solicitors responded on the same day, 20 December 1994, expressing surprise at the landlord’s attitude in refusing to accept the exercise of the option out of time and giving reasons why the landlord should act otherwise. The letter said in part that the tenants "due to an unfortunate oversight, faced the prospect of continuing to run a business operation and complying with the tenants’ obligations under the lease without any real security of tenure". The expression "unfortunate oversight" is hardly consistent with the case that the tenants had understood that what had happened on 28 October had entitled them to a further three year term.
There followed further contacts between the parties which do not seem to require specific discussion and on 12 January 1995 solicitors for the tenants wrote to say that, pursuant to an oral agreement reached between Powell and James on 28 October, the landlord effectively waived any requirement of formal written notification of exercise of the option. The letter set out, in substance, the case now contained in the tenants’ pleading and said that James was "emphatic in his agreement to an acceptance of" the oral exercise of the option. As the judge pointed out, this was the first occasion on which it was asserted that there had been such an exercise.
The judge was not prepared to find that Powell used the precise words "We are exercising our option". A little later the reasons went on:
" . . . I am satisfied that the male plaintiff made a statement intimating to James that the plaintiffs intended to exercise the first option. I am not able on the evidence to make a finding as to the precise words that he used; but that is not necessary. Indeed even the words ‘we are exercising our option’ could well have been regarded by the other party as a statement of intention. By contrast, nothing was said by the male plaintiff to indicate that he was by the words he then used, and without more, and in particular without any writing, purporting to exercise the option so that it was binding on the defendant".
His Honour added that he was satisfied that in responding along the lines "fine" or "okay" or both, James was doing no more than acknowledging the statement of intention made on behalf of the tenants. His Honour also found that Powell’s belief at the end of the conversation that he had exercised the option was not a consequence of anything done or said by James, but it was a product of his misconception as to what was required in order to exercise the option.
His Honour went on to say that Powell’s statement "was no more than a statement of intent to exercise the option, or at worst for the defendant an ambiguous statement capable of bearing that meaning". His Honour also held that James’ silence, in not pointing out that a written exercise of option was necessary, did not constitute false, misleading or deceptive conduct and said that he was not satisfied that such silence induced the tenants to believe that the landlord was accepting that the option had been duly exercised.
The essence of the tenants’ case is that they did not have to comply with the term requiring writing because James waived that. It is as if the tenants telephoned to say: "We exercise the option; need we bother to give you formal written notice?", and James said "No". Of course it was not the tenants’ case that a conversation in those terms occurred, but they had to satisfy the judge that whatever was said implied an acceptance by James on behalf of the landlord of an oral exercise of option. It was an essential part of this case that the tenants believed after the conversation that the option had been effectively exercised and on that point they succeeded, at least to the extent that the judge held that Powell so believed. But on the other two elements - that Powell unequivocally told James, in effect, that the option was being exercised by him, by a statement then made, and that James agreed to this being done - the judge rejected the tenants’ case.
In their outline of argument filed in this Court the tenants advanced a number of propositions with which we do not need to deal, because Mr McMurdo QC who led for the tenants advanced one argument only, that the judge should have held that whatever Powell said to James amounted to an unequivocal oral exercise of the option. It was argued for the tenants that the judge’s view to the contrary is insupportable, because a number of factors combine to require an inference that an unequivocal election to extend the term was made. It was argued that this Court is in as good a position as was the trial judge to determine the point.
It is necessary when considering the argument to keep in mind what the trial judge thought of Powell’s evidence and that of Mrs Powell, who said in effect that she heard her husband’s statements to James on 28 October. The principal views to be found in the primary judge’s reasons bearing upon the tenants’ credibility are as follows; some of these have already been mentioned, but it is convenient to collect them together. Powell gave evidence that before phoning on 28 October he was conscious that the option had to be exercised by 31 October in writing. The judge was not satisfied that this was so; he was, however, prepared to find that after the conversation Powell believed he had exercised the option. The judge formed an unfavourable assessment of Powell’s evidence with respect to the question of expenditure subsequent to 28 October; that evidence was adduced in support of an assertion that the tenants had spent moneys in reliance on James’ acceptance of the oral exercise of option, a proposition which his Honour rejected. The judge recorded that Powell’s "willingness to give evidence of matters which could not be justified, and his general demeanour, caused me to have serious concern as to the accuracy of his evidence with respect to the telephone conversation of 28 October". His Honour was not prepared to accept that Powell used the precise words "we are exercising our option" and said that the impression created by each of the tenants in the course of evidence was that "those words have been memorised and nothing was going to make them change one word". The judge found there was nothing said by Powell "to indicate that he was by the words he then used, and without more, and in particular without any writing, purporting to exercise the option". The judge thought that Powell’s statement "was no more than a statement of intent to exercise the option, or at worst for the defendant an ambiguous statement capable of bearing that meaning".
It seems clear enough that in declining to make a finding in favour of the tenants as to the content of what Powell said to James on 28 October, the judge took into account his impressions as to the way the tenants had given their evidence and that he had reservations with respect to Powell’s credibility. The tenant’s task in trying to persuade this Court that, despite the matters just referred to, the judge should have been satisfied that Powell made an unequivocal statement to James, electing to exercise the option, seems a daunting one; yet the point is pressed, on the basis that there were a number of matters which should have convinced the trial judge of the truth of the tenants’ case. Some of those could be described as facts supporting the view that the tenants must or should have desired to exercise the option: it was pointed out that there was evidence that they had been told by an estate agent not to forget to exercise the option, that they had in mind selling the business and that (as James was aware) the effect of failure to exercise the option was that they had no business to sell. It is unnecessary, however, to consider in detail whether the tenants had good reason to exercise the option, for there is a finding that at the end of the conversation Powell believed he had done so. Then it is pointed out that James expected the option to be exercised; that seems neutral, for James’ expectation could not convert a statement by Powell of an intention to exercise the option into an actual exercise.
Further, Mr McMurdo argued that the circumstance that the parties were, as mentioned above, discussing the possibility of agreement on a further option period tends to favour the tenants’ case. In our view the point is two-edged. As we have mentioned, Powell said that he knew the exercise had to be in writing and when asked why he thought a conversation on the phone would be enough he answered:
"Because Mr James had agreed to it on the phone and I believed that once we sorted out the further three year term we would then go to our respective lawyers and all the necessary paperwork would be drawn up at one time".
This answer suggests that the question of exercise of the option was tied up, in the tenants’ view, with agreement on a further option period; it is possible that the tenants entertained the thought that it would be better not to have any absolute legal commitment to exercise of the option until the question of a further option period was agreed on.
Then it was pointed out for the tenants that, before telephoning James, Powell made a note of three matters which had to dealt with, the second being "option", and that the evidence was that after the conversation he ticked that word and wrote "OK" beside the tick. But this does not take the tenants any further than the finding, made in their favour by the judge, that Powell believed after the conversation that he had exercised the option.
Looking at the matter broadly, it would seem odd that both the landlord and the tenants would be content to leave this important step - the exercise of the option - entirely unrecorded. If it was exercised then that created an obligation to pay rental over the three year period amounting to a sum which appears to have been of the order of $200,000. Yet on the tenants’ version of events, although it was clear to both sides that the option had been orally exercised, no-one troubled to write recording that fact. The date on which exercise of the option was first referred to in writing was 19 December 1994, some seven weeks after the supposed oral exercise. On that date the tenants’ solicitors wrote to the landlord’s solicitors purporting to exercise the option and making no reference to any previous exercise. The same letter referred to the possibility of a third option period and, echoing the idea referred to in Powell’s evidence, suggested that a document might be prepared embodying both the extension of the lease in consequence of exercise of the option and provision for a third option. The landlord’s solicitors replied saying that the exercise was too late; to that, the tenants’ solicitors responded by complaining of the landlord’s attitude and advancing reasons why it should not be adhered to, such as that the tenants had been punctual payers of rent and generally co-operative. If it was the fact that the option had been unequivocally exercised, although orally, in due time and that this had been accepted by the landlord, one would have expected some mention of it to be made, as a consideration favouring acceptance by the landlord of the tenants’ exercise of the option. The tenants’ solicitors letter of 20 December referred, as I have already pointed out, to an "unfortunate oversight" on the part of the tenants, presumably being the failure to exercise the option in accordance with the lease. It was not until 12 January 1995 that the tenants’ solicitors raised the suggestion that the option had been effectively exercised orally.
This correspondence is by no means, in itself, necessarily destructive of the tenants’ case; as Mr McMurdo pointed out, there was some evidence which, if accepted, might have explained the failure to allege at an appropriately early stage a waiver of the requirement of written exercise. But the correspondence is relevant as falling into the same general category as some of the considerations put forward by the tenants in this Court. It is true that evidence can be pointed to (most importantly, the tenants’ notes of the conversation) tending to support the probability of Powell having made an unequivocal statement exercising the option; but there are documents having a contrary tendency. The judge did not, nor was he obliged to, decide the content of the conversation of 28 October merely on the basis of what was likely to have been said, looking at what might be called extrinsic factors. His Honour’s conclusion took into account, rightly, his impressions of general credibility.
There is no sufficient reason for interfering with his Honour’s view of the matter; indeed, one might go further and say that there is no possible justification for a finding by this Court, contrary to that view, that Powell made a statement on 28 October amounting to an unequivocal purported oral exercise of the option of renewal.
The appeal is dismissed with costs.
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