| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : PRIOLO CORPORATION PTY LTD -v- VANTAGE SYSTEMS PTY LTD [2013] WADC 158 CORAM : SLEIGHT DCJ HEARD : 17, 19 & 21 JUNE & 5 AUGUST 2013 DELIVERED : 17 OCTOBER 2013 FILE NO/S : CIV 2105 of 2010 BETWEEN : PRIOLO CORPORATION PTY LTD Plaintiff
AND
VANTAGE SYSTEMS PTY LTD
Defendant
Catchwords: Landlord and tenant - Agreement for lease with existing tenant - Agreement for lease by exchange of emails - No formal documents executed - Repudiation by tenant - Rectification - Alternative claim of estoppel - Damages Legislation: Nil Result: Judgment for the plaintiff in the sum of $271,177.26
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Representation: Counsel:
Plaintiff : Mr G D Cobby
Defendant : Mr A Hershowitz
Solicitors:
Plaintiff : Clifton Tham Pty Ltd
Defendant : Batten Sacks Harvey Bruce
Case(s) referred to in judgment(s):
African Minerals Ltd v Pan Palladium Ltd [2003] NSWSC 268
Allen v Carbone [1975] HCA 14; (1975) 132 CLR 528
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Attorney-General v Wylde (1946) 47 SR (NSW) 99
Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582
Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424
Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647
Bolton Partners v Lambert (1889) 41 Ch D 295
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd [1995] NSWCA 166
Grundt v The Greater Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641
Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23
Loftus v Roberts (1902) 18 TLR 532
Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] WASCA 209
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571
NZI Insurance Australia Ltd v Baryzcka (2003) 85 SASR 497
One Stop Lighting(Queensland) Pty Ltd v Lifestyle Property Developments Pty Ltd (1999) Q ConvR 54-527
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601
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Placer Development Ltd v Commonwealth [1969] HCA 29; (1969) 121 CLR 353
Powell & Berry v Jones & Jones [1968] SASR 394
Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322
Sinclair Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310
South Australia v Commonwealth [1962] HCA 10; (1962) 108 CLR 130
Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486
Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144
Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Walsh v Lonsdale (1882) 21 Ch D 9
Walton Stores (Interstate) Ltd v Maher (1986) 5 NSWLR 407
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1 SLEIGHT DCJ: The plaintiff, Priolo Corporation Pty Ltd, is the owner of office premises at 34 Colin Street, West Perth. The defendant, Vantage Systems Pty Ltd, occupied the premises pursuant to a formal lease that expired on 30 June 2009 (the Gamol Lease). Vantage had sublet a portion of the premises to deugro Projects (Australia) Pty Ltd (Deugro).
2 Priolo Corporation claims that, by virtue of an exchange of emails in June 2009 between its agent and a representative of Vantage, an agreement for lease was entered into between Priolo Corporation and Vantage. The agreement for lease was for a new lease for a term of three years commencing from 1 July 2009. The alleged agreement was to be 'documented' by Priolo Corporation's standard Lease and Licence being 'utilised'. 3 Vantage remained in possession of the premises after the expiration of the Gamol Lease. A disagreement arose between Priolo Corporation and Vantage as to the terms of a draft lease document prepared by Priolo Corporation's solicitors, primarily as to the reinstatement clauses. Prior to any formal lease document being executed, Deugro indicated to Vantage that it did not intend to take up a sublease of the premises. Shortly after, solicitors acting on behalf of Vantage, wrote to the agents of Priolo Corporation by letter dated 6 October 2009 stating that no concluded agreement had been made and Vantage intended on giving one month's notice to vacate the premises. The letter contended that Vantage had occupied the premises from 1 July 2009 up to that time pursuant to a holding over clause of the previously expired Gamol Lease. 4 Priolo Corporation's claim in this action is a claim for damages based upon a breach of the alleged agreement for lease. Alternatively, Priolo Corporation claims that even if no concluded agreement had been reached, then Vantage was estopped from denying the alleged agreement for lease as by its conduct it had induced Priolo Corporation to assume that the agreement for lease was enforceable and Priolo Corporation had acted to its detriment by not seeking to lease the premises to other tenants. There is also an alternative claim based upon an alleged breach by Vantage of the make-good obligation of the Gamol Lease. 5 Vantage denies the claim of Priolo on the basis that there was no enforceable agreement and that the circumstances do not give rise to an estoppel. The denial by Vantage that there was any legally binding agreement is based upon the contentions that: firstly, there remained outstanding essential matters to be negotiated and finalised by way of documentation in the form of a formal lease and a car bay licence; and, (Page 5)
secondly, that the proposal presented by the agent for Priolo Corporation was subject to a condition that the agreed terms be formally approved by Priolo Corporation, which did not occur. 6 In the event that I find for the plaintiff, a dispute exists as to the correct assessment of damages (albeit a sizeable portion of the quantum of damages is agreed). 7 Vantage has made a counterclaim for $11,797.50 which is not contested. The amount of $11,797.50 was a payment received by Priolo Corporation under a bank guarantee under the Gamol Lease but set off against losses arising from a breach of the alleged agreement for lease. It is common ground that if Priolo Corporation is successful in this action then the sum of $11,797.50 is to be credited against any award of damages and if Priolo Corporation is unsuccessful, then the money is refundable to Vantage and judgment should be entered on the counterclaim.
The evidence 8 The bulk of the evidence in the trial was uncontentious. Primarily the evidence consisted of a trail of documentation between representatives of the parties and on some occasions with Deugro. 9 The documentation can be divided into various categories: 1. Pre-negotiation documents. 2. An exchange of emails leading up to the alleged agreement for lease. 3. Draft lease and licence documents. 4. An exchange of emails and letters after the alleged agreement for lease. 5. Documents relating to vacation of the premises.
1. Pre-negotiation documents 10 Vantage initially leased the premises from a company, Gamol Pty Ltd, pursuant to a lease agreement dated 6 August 2003. The documentation was prepared by Gamol Pty Ltd's solicitors, Stable Scott. This original lease was for a term of three years commencing on 1 July 2003 and expiring on 30 June 2006. The rental was payable monthly in advance. There was also a separate licence agreement granting to Vantage a licence for the same period as the lease (Page 6)
to use six car bays at a monthly rate. Both the lease and the car bay licence contained an option for renewal which was exercised by Vantage extending the term of the lease and the car bay licence for a further three years to 30 June 2009. 11 The Gamol Lease contained a holding over clause that provided, in the event of Vantage remaining in possession of the premises after the expiry of the term, Vantage shall be a monthly tenant. The holding over could be terminated by either party giving one month's written notice. 12 It is common ground that Priolo Corporation became the registered proprietor of the premises on 21 December 2007 and thereby became the landlord under the lease. The managing lease agent for Priolo Corporation was Savills (WA) Pty Limited.
2. Exchange of emails leading to alleged agreement for lease 13 In May 2009 discussions occurred between Mr Graham Postma (of Savills acting on behalf of Priolo Corporation) and Mr David Walker (the finance manager of Vantage) concerning a new lease at the expiration of the Gamol Lease. This led to a written proposal for renewal of the lease being prepared by Mr Postma on instructions from Priolo Corporation and sent to Mr Walker by email on 11 May 2009. There is no need in this decision to set out in full the terms of this proposal. There were two sticking points in the proposal presented on 11 May 2009, being the period of a bank guarantee and the rate of increase of rental on an annual rent review. 14 In an email from Mr Walker to Mr Postma dated 29 May 2009 Mr Walker stated: 'We have been in discussions with our bank and our sub-tenant in order to finalise the lease renewal'. The email then went on to discuss issues concerning the period of the bank guarantee suggesting it should be for three months only. 15 In response to this email, on 3 June 2009 Mr Postma sent an email to Mr Walker stating: (Page 7)
Can you please confirm in writing at your earliest that these terms are acceptable to Vantage such that we can instruct the Lessor's solicitors to prepare the draft documentation. 16 In an email sent by Mr Walker to Mr Postma on 3 June 2003 Mr Walker stated as follows in relation to the rent review provisions proposed: … we just noticed the original proposal had an annual increase of 5%, but this proposal now incorporates CPI increases. If we can revert back to the fixed increases offering, I believe we will be able to accept the offer tomorrow. 17 A further revised proposal was submitted by Mr Postma to Mr Walker on 4 June 2009 by email reverting to the annual increase of rental to 5% as requested. The email read: [C]an you please confirm in writing that this proposal is acceptable to Vantage and we will arrange for the Lessor's solicitors to prepare the draft documentation. 18 A copy of the proposal dated 4 June 2009 (the proposal) is attached to this decision as annexure 'A'. The proposal commenced by stating: … we confirm the Lessor is prepared to proceed with a new lease on the basis of the following proposal. 19 The proposal contained a provision that it is 'submitted subject to the formal approval of the Lessor'. 20 The proposal contained a number of errors. Firstly, it incorrectly described the licence fee for six car bays to be $375 per bay per annum, whereas it should have been a fee payable of $375 per bay per month. 21 There was also an apparent typographic error in a paragraph referring to the lease documentation. The provision read as follows: The Lessor's standard Lease and Licence shall be utilised to document and [sic] agreement between the parties; and shall be prepared by the Lessor's solicitors incorporating the relevant terms contained within this proposal. 22 The proposal made some reference to further negotiation in the legal costs provision which read: The lessee shall be responsible for the Lessor's reasonable legal costs associated with preparing, negotiating and executing the legal documentation. (Page 8)
23 The proposal contained a provision that the proposal expired at the close of business on Wednesday, 10 June 2009. 24 On 10 June 2009 Mr Postma emailed Mr Walker enquiring if the proposal was acceptable. The email stated as follows: … can you please confirm ASAP that these terms are acceptable, as your lease expiry is fast approaching and we need to finalise this agreement urgently, or reinitiate our discussions with alternative tenants. 25 Mr Walker later that afternoon sent a reply stating: Vantage Systems is happy with the terms of the proposal. I have just emailed Deugro Projects, and requested their acceptance of these terms in writing. I expect no problems, and we should be good to start wrapping it all up. 26 A further email was sent by Mr Walker on 10 June 2009 to Mr Postma stating: 27 It is this exchange of emails from 4 June 2009 through to 10 June 2009 that Priolo Corporation relies on as constituting the agreement for lease. 28 Also on 10 June 2009 Mr Walker sent a copy of the proposal to Deugro and in response Deugro notified Mr Walker that Deugro was accepting of the terms.
3. Draft lease and licence documents 29 On 11 June 2009 Mr Postma of Savills sent an email to Priolo Corporation's solicitors Clifton Tham informing them that 'agreement has been reached between Priolo Corporation and Vantage Systems to renew their lease …'. Clifton Tham were instructed to '… please prepare draft Lease and Car Parking Licence documentation for review by the parties'. Attached to the email was a copy of the proposal as set out in the email of Mr Postma to Mr Walker dated 4 June 2009. A draft lease document and a draft car bay licence document were prepared by Clifton Tham and sent by email to Mr Postma on 1 July 2009 at which point Mr Postma noticed that the car bay licence fee had been incorrectly stated as $375 per bay per annum instead of $375 per bay per calendar month as intended. (Page 9)
On further instructions from Mr Postma the draft car bay licence document was amended to correct this error. 4. An exchange of emails and letters after the alleged agreement for lease 30 On 2 July 2009 Mr Postma emailed to Mr Walker the draft lease and car bay licence document 'for your review'. According to the evidence of Mr Priolo, who is a director of Priolo Corporation, the company had a standard lease and licence that had been created in consultation with its solicitors. 31 On 2 July 2009 Mr Walker sent a reply stating he would review the documents over the weekend. This did not occur. 32 On 14 July 2009 Mr Postma of Savills again emailed Mr Walker requesting that he confirm as soon as possible that the documents were in order 'such that we can arrange for execution copies to be sent to you ASAP'. 33 On 21 July 2009 Mr Walker sent an email to Mr Postma stating that he was reviewing the draft documents that afternoon. Again this did not occur. 34 At some point of time in or about early August 2009, a discussion occurred between Mr Postma of Savills and Mr Walker. This is confirmed in an email from Mr Postma to Mr Walker dated 10 August 2009 requesting Mr Walker to detail by return email any desired amendments to the draft documents. According to the evidence of Mr Walker these discussions included Vantage pointing out that it was unhappy with the length of the draft lease and licence documents, it was concerned there was no option to renew and finally, and most importantly, it was dissatisfied with the reinstatement clause which Vantage believed placed unacceptable obligations on the lessee. 35 On 25 August 2009 Mr Postma again sent an email to Mr Walker requesting details of any amendments as a matter of urgency. The email stated: Given that the new lease commenced on 1 July 2009 we need to finalise this documentation and have it executed without delay. (my emphasis) (Page 10)
36 On 3 September 2009 a Mr Loneragan of Savills sent an email to Mr Walker stating: We write in relation to the Leasing Proposal dated 4 June 2009 for the abovementioned premises and your email of 10 June 2009 confirming acceptance of terms on behalf of the lessee. It is noted that to date, Savills WA has not received formal acceptance of the draft lease provided on 2 July 2009. The leasing proposal referred to above states that the 'Lessors standard Lease and Licence shall be utilised'. We hereby give notice that, as it is now more than eight weeks since the draft lease was provided, the lessor's solicitor will be instructed to issue documents for execution by the lessee on Thursday, 10 September 2009. Any legal fees incurred in amending and re-issuing documents to incorporate further changes requested by the lessee (if approved by the lessor) after that date, are payable by the lessee. 37 It is common ground that Priolo Corporation had invoiced Vantage for rental for the months of July, August and September 2009 based upon the Gamol Lease. This invoiced rental had been paid by Vantage. Mr Postma in his evidence was unable to explain why the increased rental was not claimed immediately. Mr Loneragan, the Commercial Property Manager of Savills, stated in his evidence that the reason no claim was made for the new rental was that he was waiting on the formal lease documents to be executed. However, an invoice was eventually sent by Savills to Vantage for the additional rental at a monthly rate in advance calculated on the basis of the difference between the rental under the Gamol Lease and the rental prescribed under the alleged agreement for lease. The rental was claimed on the basis of a monthly accrual in advance. The additional rental claimed in each of the months of July, August and September 2009 was $1,556.68 (inclusive of GST). It is common ground that this calculation is correct based upon the annual rental set out in the alleged agreement for lease. 38 On 4 September 2009 Mr Walker sent an email to Mr Loneragan of Savills apologising for Vantage's delay 'in wrapping this up'. The email went on to state: As explained to Graham, our only concern with the lease was the 'make-good' provisions which are excessive and irrelevant. In fact, this is the largest lease document we have ever dealt with. Early next week we shall provide an alternative 'make-good' clause. 39 On 7 September 2009 Mr Walker sent an email to Mr Loneragan of Savills attaching an alternative make-good clause. On the same date (Page 11)
Mr Walker sent an email to Mr Gullifer of Deugro enclosing the draft lease and car parking licence documents presented by Priolo Corporation and stating that Vantage had 'a major problem with their make-good clause'. 40 On 8 September 2009 Mr Gullifer of Deugro sent an email to Mr Walker stating they would review the documents. The email stated that in the opinion of Deugro the make-good clause was 'way over the top'. Mr Walker on the same date sent an email to Savills informing them of the subtenant's views concerning the make-good clause. 41 Mr Walker in his evidence stated he could not reconcile the amounts claimed in the calculations made by Savills as to the adjusted rent. On 8 September 2009 Mr Walker sent an email to Savills asking for an explanation as to how the rent charges were calculated. However, he made no complaint as to the liability to pay the rental adjustment. 42 On 11 September 2009 Savills sent an email to Mr Walker stating that the landlord was not prepared to accept the proposed alternative make-good clause. The email further stated: The Lessor has previously suffered substantial losses when tenants have vacated his properties because the yielding up provisions were to [sic] vague to ensure that the premises were returned in an acceptable condition. Consequently, the yielding up provisions in the Lessors new leases were specifically designed and worded by the Lessor to expressly set out the requirements that the Lessor expects his tenants to abide by when yielding up the premises. The Lessor is prepared to delete individual provisions which are not relevant to the tenant and to negotiate with tenant's [sic] on individual items which may be too onerous on the tenant. Accordingly can you please submit a list of the specific items which you believe are too onerous so that we can submit that list to the Lessor for proper consideration. 43 A copy of this email was sent by Mr Walker to Deugro by email dated 14 September 2009 suggesting they work together to eliminate the clauses that they mutually objected to.
5. Documents relating to vacation of the premises 44 On 23 September 2009 Mr Gullifer of Deugro enquired as to how much notice they would be required to give to Vantage to vacate the premises, given that the original lease had expired. On that same day (Page 12)
Mr Walker sent a further email to Deugro stating that Deugro could not withdraw from the matter as Deugro had committed itself to a new lease by implication due to email correspondence. 45 On 25 September 2009 Middletons, solicitors acting on behalf of Deugro, sent an emailed letter to Vantage stating that there was no binding agreement and stating Deugro intended vacating the premises on or before 31 October 2009. On 30 September 2009 Deugro formally gave one month's notice of termination of a claimed tenancy at will. 46 On 6 October 2009 Batten Sacks Harvey Bruce, solicitors acting for Vantage, sent a letter by fax and post to Priolo Corporation in effect stating that no concluded agreement had been reached, that Vantage was occupying the premises pursuant to the holding over clause of the Gamol Lease and giving notice of termination. It gave notice that Vantage would vacate the premises on 30 November 2009. 47 On 21 October 2009 Clifton Tham, solicitors for Priolo Corporation, wrote a letter to Batten Sacks Harvey Bruce, disputing the entitlement of Vantage to vacate the premises and stating that Priolo Corporation considered Vantage was bound by the agreement for lease and Priolo Corporation would commence proceedings to enforce the agreement. Relevant to the estoppel claim, Clifton Tham stated: Finally, in his email correspondence, Mr Walker conveyed to our client through its managing agent, Savills, that there would be a lease between your client and our client. On the faith of that, our client ceased advertising the space for rent, chose not to pursue other potential tenants and incurred legal costs with our firm negotiating with your client as to the terms of the formal lease to be signed. The existence of the other potential tenants was flagged in our client's agent's email correspondence at the time.
Intention to enter into a contract – general principles 48 A central issue in this case is whether the parties intended to create a legally binding relationship by the exchange of emails ending on 10 June 2009, notwithstanding that documentation in the form of a formal lease and car bay licence had yet to be agreed to and executed. This is not a unique situation. It is one that has been considered in many cases. There are many cases where an informal agreement containing references to a subsequent preparation of a formal contract has been held unenforceable and conversely many cases where an informal agreement has been binding, notwithstanding that it contained a term relating to the execution of a formal document (see the list of cases cited in Powell & Berry v Jones & Jones [1968] SASR 394, 400 (Bray CJ)). The results in (Page 13)
individual cases provide little guidance as the factual matrix varies enormously from case to case. This is particularly so as the court may have regard to all the relevant surrounding circumstances to determine the intention of the parties. 49 The fundamental principle which determines whether a contract exists is that there must be a voluntary assumption of a legally enforceable duty: Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424, 457. There must be an intention to subject the agreement to the adjudication of the courts: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 [24] - [25]; South Australia v Commonwealth [1962] HCA 10; (1962) 108 CLR 130, 154. 50 The court may have regard to both pre-contractual conduct and post-contractual conduct on this question: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 (Hayden JA); African Minerals Ltd v Pan Palladium Ltd [2003] NSWSC 268 [28]; Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd [1995] NSWCA 166; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 [26]. Subsequent communications may be legitimately used against a party as an admission by conduct of the existence or non-existence of an informal contract: Geebung Investments Pty Ltd v Varga Grey Investments (No 8) Pty Ltd. 51 The nature of the intention is to be ascertained objectively. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, the High Court stated the principle as follows: This Court, in Pacific Carriers Ltd v BNP Paribas has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. [40] (Page 14)
52 'Intention' means intention to enter into a contract, not what the parties intended by the terms of the contract: Anaconda Nickel v Tarmoola [26]. 53 When assessing all the circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and in particular to the subject matter of those communications: Allen v Carbone [1975] HCA 14; (1975) 132 CLR 528, 531 - 532. 54 In the often quoted High Court case of Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360, the court identified three classes of cases: 1. The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms re-stated in a form which will be fuller and more precise but not different in effect. 2. The parties have completely agreed upon all of the terms of their bargain and intend no departure from or addition to that which their agreed terms expressly or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. 3. The intention of the parties is not to make a concluded contract at all, unless and until they execute a formal contract. 55 In each of these first two cases there is a binding contract. In the first case there is a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document. In the second case there is a contract binding the parties to join in bringing the formal contract into existence. 56 There is a fourth class of case which is now recognised by the authorities, one in which the parties are content to be bound immediately and exclusively by the terms which they have agreed upon while expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms: Sinclair Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310; Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486; African Minerals Ltd v Pan Palladium Ltd [20] - [25]; Anaconda Nickel v Tarmoola [24]. In this (Page 15)
category of cases it is now recognised that there can be an informal contract where the expectation of the parties is that other terms will be negotiated and by consent included in the formal document. The fact that there are further negotiations to be conducted and matters to be agreed does not mean an existing informal contract is not binding. Once the court has determined that the parties have the requisite intention to enter into a legally binding contract, it is then necessary to go on to consider whether the contract is incomplete or uncertain so as to be void: Anaconda Nickel v Tarmoola [28]. 57 It does not follow that because an informal agreement contains omissions to matters which are to be negotiated that the informal contract will be invalid. It is only the omission of an essential term that will have that effect: Anaconda Nickel v Tarmoola [29]. As to the meaning of 'essential' Lloyd LJ in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601, 619, stated: It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologist. If by 'essential' one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether they are important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, 'the masters of their contractual fate'. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'. (my emphasis) 58 The fact that the terms yet to be agreed are of economic significance does not prevent a contract coming into existence forthwith if that is what the parties intended. If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty: Pagnan SpA v Feed Products Ltd (619, 620). (Page 16)
59 Kennedy J in Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144, 159, stated: An agreement does not have to be worked out in meticulous detail. A bargain can be made containing certain terms, regarded as essentials, whilst the parties recognise that a formal document will eventually be drawn up in the full expectation that a number of additional terms will, by consent, be included in that document. See also African Minerals Ltd v Pan Palladium Ltd [26]. 60 In the case of an agreement to lease the essential terms are: 1. The identification of the parties; 2. The identification of the land or premises to be let; 3. The commencement and duration of the term; and 4. The rental payable. [NZI Insurance Australia Ltd v Baryzcka (2003) 85 SASR 497, 506.] 61 In the case of Geebung Investments Pty Ltd v Varga Group Investments Pty Ltd (No 8)Kirby P listed at (20) what he considered to be indices of whether an informal contract was binding or not. Relevantly these included the following: 1. The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal contract, does not mean that that informal agreement is not presently binding; 2. The fact that the parties contemplate the drawing up and execution of a formal contract is a consideration which may point to the conclusion that no presently binding agreement was intended until that formal contract is executed; 3. The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the 'major matters', their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document; 4. In order to determine in what areas the parties were, and were not, in agreement, and what matters they considered necessary in order (Page 17)
for an agreement to exist, it is legitimate to examine their subsequent conduct. Where the correspondence between the parties after an informal agreement refers to important terms and conditions not mentioned during the informal discussion, it may more readily be inferred that the earlier discussion was simply a preliminary negotiation and not a binding agreement; 5. Depending on the size, the importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding; 6. It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding; 7. Depending on the subject matter, where the parties have not used solicitors but intended to do so in the drawing up of their formal agreement, that may also be a factor which will point to the non-existence of a binding agreement until the contemplated formalities have been agreed. 62 The case of Geebung Investments Pty Ltd v Varga Group Investments Pty Ltd (No 8) concerned an informal agreement to settle Supreme Court proceedings as a result of an informal meeting between the parties in the absence of their solicitors at a real estate agent's office. The informal agreement was upheld as legally binding. As part of his reasoning, Kirby P stated as follows: Courts should be upholders of bargains and not the destroyers. Of course, I realise that this aphorism, derived from the cases, begs the question to be solved. However, it is important that courts should approach challenges such as the present avoiding an over-nice approach to the arrangements between the parties which result in a disharmony between the parties' reasonable expectations of what the law provides. To strike down the agreement of the parties here, themselves and without solicitors, to settle their dispute, would disappoint legitimate and reasonable expectations of the parties and of the community. The law should strive to avoid that result in every case, but particularly in an agreement between business people whose agreements the law should be specially ready to uphold and enforce. [21] (Page 18)
63 No contract will result where there is reserved to one party a discretion as to whether or not to perform, because the apparent consideration provided by that party is, as a matter of law, illusory: Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, 605, 613; Placer Development Ltd v Commonwealth [1969] HCA 29; (1969) 121 CLR 353, 356; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571, 581; African Minerals Ltd v Pan Palladium Ltd [17]; Loftus v Roberts (1902) 18 TLR 532, 534. 64 Where there is a conditional event, whether the failure of the event to occur means there is no contract, or simply no obligation to perform, depends on the intention of the parties as expressed in the contract or agreement. Hence although an approval may, for example, be expressed in the form of a condition precedent, upon examination it may seem to have been a condition precedent not to the formation of the contract but the obligation to complete it: African Minerals Ltd v Pan Palladium Ltd [49]; Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153, 157 (Gibbs CJ).
Conclusions as to whether concluded contract existed 65 Priolo Corporation contends that the acceptance by Vantage of the proposal created an agreement for lease which falls within the fourth category of cases described in Sinclair Scott & Co Ltd v Naughton and other authorities referred to earlier in this decision. As stated earlier in this decision it does not matter that further negotiation is required. However, the degree of negotiation that is required may be indicative of the lack of intention to be bound by an enforceable contract until negotiations had concluded an agreement. Vantage contends that the acceptance of the proposal did not constitute a legally binding contract as the proposal contemplated that there would be further negotiations on important commercial terms which if not resolved would result in no lease eventuating. 66 The task in this matter of ascertaining objectively the intention of the parties is difficult. Although the parties rely upon the wording in emails before and after the alleged agreement for lease and the surrounding conduct of the parties to support their positions, in many instances the wording of emails and the conduct of the parties is equivocal. 67 However, notwithstanding these difficulties, I conclude on the balance of probabilities that the parties intended to enter into a binding agreement for lease by the acceptance of the proposal by Vantage. (Page 19)
68 The factors that have led me to this conclusion are as follows: (a) I find that it was understood by Vantage that at the time Priolo Corporation presented the proposal it was requiring a commitment from Vantage prior to the expiration of the Gamol Lease to take a new lease. This is clear from the proposal which contained the provision that the proposal expired at the close of business on Wednesday, 10 June 2009 and the email from Mr Postma to Mr Walker on 10 June 2009 stressing that the agreement needed to be finalised urgently as the lease expiry was fast approaching. I find that by accepting the proposal, Vantage made a commitment to enter into a new lease with Priolo Corporation. As result of that commitment, Priolo Corporation ceased to be concerned about the possibility that it may need to find an alternative tenant and ceased to take any steps to find an alternative tenant. Likewise, there was no evidence presented that Vantage gave any contemplation that a deal had not been struck and that it may need to find alternative premises. I find that it continued in possession after the Gamol Lease expired on the understanding that it had secured the right to remain in possession as a result of a joint commitment for the creation of a new lease. Also consistent with the belief that an agreement was in place was the response of Vantage when Deugro indicated that it was not willing to continue with a subtenancy. Vantage contended that Deugro was bound and could not withdraw from the new subtenancy. Although this response may be viewed as commercial bluff in order to secure the commercial advantage of a subtenant in case a lease eventuated, I believe it is more consistent with Vantage believing it had already secured the premises by an agreement for lease. (b) I find that because of the commitment by Vantage to take a new lease, there was a lack of urgency in finalising the lease and licence documentation. Vantage remained in possession and the parties saw no need to prioritise completion of the documentation prior to the expiration of the Gamol Lease. The parties were still negotiating on the terms of the formal documentation after the Gamol Lease had expired. (Page 20)
(c) The fact that the acceptance of the proposal constituted an agreement for lease and not a lease itself explains why initially the rental invoice was under the old rental. This is consistent with the explanation given by Mr Loneragan in his evidence that the old rental was charged pending a formal lease document being executed. Of course, at equity the parties might be treated as landlord and tenant and the agreement enforced in a similar way to a lease: Walsh v Lonsdale (1882) 21 Ch D 9. Given the enforceability of an agreement for lease, once the negotiations as to the terms of the formal lease and car bay licence were dragged out by Vantage, it was not unreasonable for Priolo Corporation to demand an adjustment of rent backdated given that Vantage was occupying the premises as a result of the agreement for lease. Significantly, Vantage, through its representative Mr Walker, did not contest the liability to pay the adjusted rent but only the calculation. (d) I believe it is significant that the proposal of 4 June 2009 commenced with the wording 'We confirm the Lessor is prepared to proceed with a new lease on the basis of the following proposal'. This is to be compared with an earlier proposal dated 11 May 2009 which had the wording 'We are pleased to provide the following proposal for consideration' (my emphasis). In my view this change in the wording between the two proposals suggests that the latter proposal was intended to be in the nature of a contractual offer. Consistent with this, Mr Walker used in an email dated 3 June 2009 contractual terms 'offer' and 'acceptance' when he stated 'We will be able to accept the offer tomorrow'. (e) The proposal of Priolo Corporation of 4 June 2009 did not state that it was 'subject to' the parties agreeing to and executing a formal lease and car bay licence documents. Notwithstanding the typographical error in the documentation clause in the proposal, in my opinion, the clause clearly meant that the agreement arising from the acceptance of the proposal was 'to be documented'. This I believe is consistent with the parties having concluded a legally binding agreement which was then to be documented by a more elaborate agreement. The other (Page 21)
(Page 22)
agreement are entered into by parties to a commercial transaction. As I have already noted, the proposal document contained substantially more than the essential terms of a lease. There was nothing in the draft lease and licence documents which contradicted the proposal document. Further, there was nothing in the terms of the draft lease and licence documents which was identified by counsel for Vantage as unusual. In my opinion both the length and the terms contained in the lease and licence documents were not extraordinary. This is supported by Vantage ultimately only complaining about the reinstatement clause. Again, in relation to the reinstatement clause, there was no complaint that it was inconsistent with the proposal document. (ii) Secondly, counsel for Vantage relied upon an answer given by Mr Priolo in cross-examination as to whether he would allow a tenant to remain in possession for three years in circumstances where the parties were unable to agree and sign a final lease document. When Mr Priolo was first asked the question he said that he would follow the advice of his solicitors and, then later when further pressed, stressed that he would always be able to reach an agreement. Finally when further pressed he stated he would not allow the tenant to remain. The first thing that should be noted about this evidence is that the subjective understandings or intentions of Mr Priolo are irrelevant, it is the intention of the parties ascertained objectively: see Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23 [24] (Pullin JA); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451. Further, in my view the questions asked of Mr Priolo were too broad to be helpful to ascertain objectively the intention of the parties. A situation where the parties are unable to reach agreement as to the provisions to be included in a more formal document could cover a multitude of circumstances. For example, if one party simply (Page 23)
refused to negotiate then this may constitute a repudiation of the agreement for lease and entitle the other party to terminate the agreement for lease and seek immediate possession. Ultimately I am satisfied that initially Priolo Corporation would seek legal advice, as stated by Mr Priolo, and what action Priolo Corporation took would be dependent upon that legal advice. (iii) Thirdly, counsel for Vantage also relied upon the uncertainty created by the failure of the proposal to provide when and how the rental was payable. However, when and how the rental is payable is not an essential term and, as recognised by counsel for Vantage, in the absence of express agreement, the law provides it shall be payable monthly in arrears. However, in reality, when and how the rental was to be paid was not an issue between the parties so that when a draft lease and a draft car bay licence were presented providing for the rental and licence fees to be payable monthly in advance, no objection was raised to this provision. (iv) Fourthly, counsel for Vantage contended that as a result of the error in the proposal concerning the car bay licence rate there was not a meeting of minds on an essential issue. I reject this. There was a meeting of minds on this issue as I find that, notwithstanding the error, Vantage was prepared to accept a licence fee of $375 per bay per month as evidenced by the fact that Vantage raised no objection when the error was corrected in the draft lease and licence documents submitted to it. For reasons which I will give later in this decision, this was a situation where a rectification of the proposal document should be allowed. 69 Vantage seeks to rely upon Mr Priolo and representatives of Savills deciding at a meeting on 17 December 2009 to instruct solicitors to obtain legal advice as to whether make-good expenses could be claimed under the Gamol Lease, under the alleged agreement for lease or under the unsigned draft lease. The contention of counsel for Vantage is that this demonstrates that Priolo Corporation did not believe a binding contract had been entered into by way of an agreement for lease. However, in my (Page 24)
opinion, Priolo Corporation was simply prudently seeking legal advice about the difficult legal issue as whether a binding agreement for lease existed. 70 Vantage also relies upon the provision in the proposal dated 4 June 2009 which states that it 'is submitted subject to the formal approval of the Lessor'. There is no evidence that any formal approval was given by Priolo Corporation after Vantage had accepted the proposal and before Vantage repudiated the alleged agreement for lease. Vantage contends that a formal approval by Priolo Corporation was required before the accepted proposal became legally binding. 71 The first thing that should be noted about this clause is that it relates to an approval of the proposal. It does not require an approval in the form of executing a final formal lease document. I believe this distinguishes the present case from cases where the informal agreement provides that it is subject to the approval and signing by a party of formal contract documents (see, for example, Barrier Wharfs Ltd v W Scott Fell & Co Ltd[1908] HCA 88; (1908) 5 CLR 647, where the High Court ruled there was no binding contract arising from an exchange of letters where the parties agreed to a wharfage fee and the defendant wrote to the plaintiff stating it would 'be glad if you will make a contract for our approval and signature'. Barrier Wharfs' case can also be distinguished from the present case on the grounds that the extent of the agreed matters was minimal and there remained many outstanding items to be negotiated and agreed). 72 In this matter Vantage contends that the need for a formal approval by Priolo Corporation is consistent with the terms of the management agreement entered into between Priolo Corporation and Savills. The management agreement between Priolo Corporation and Savills relating to the premises is dated 15 July 2008. It provided that Priolo Corporation must ' honour, ratify and comply' with the agreement entered into on its behalf by Savills pursuant to the management agreement and be liable as principal. The management agreement authorised Savills to negotiate on behalf of Priolo Corporation but provided that Savills did not have the authority to 'enter into and sign a lease in respect of any part of the Property'. In my opinion, the provisions of the management agreement provide no assistance as to the meaning of the approval clause in the proposal. Whatever the management agreement provided, it was capable of amendment between Priolo Corporation and Savills. Mr Priolo's evidence was that Priolo Corporation had been kept informed of the negotiations between Savills and Vantage and had expressly given (Page 25)
its prior approval for Savills to present the proposal contained in the email sent on 4 June 2009. 73 The provision providing that the proposal was submitted subject to the formal approval of the Lessor was also included in the proposal submitted by Savills on 11 May 2009 for consideration by Vantage. The provision was described by Mr Postma in his evidence as a standard provision inserted in all proposals presented by Savills on behalf of a landlord. 74 In my opinion, once an express authority was given by Mr Priolo to present the proposal, this express authority vitiated any need for Priolo Corporation to later ratify the proposal by giving formal approval. This was not a situation where the managing agent had negotiated the terms of an agreement for lease with a prospective tenant without specific reference to the landlord and there remained a need to inform the landlord of the negotiated terms and seek a ratification from the landlord. 75 Further, even if a ratification was required in the form of a formal approval, the withdrawal of Vantage before ratification, does not cancel what otherwise would be an enforceable contract: Bolton Partners v Lambert (1889) 41 Ch D 295; Attorney-General v Wylde (1946) 47 SR (NSW) 99, 115; GE Dal Pont, Law of Agency (5.40 to 5.41). Priolo Corporation was entitled to approve or ratify the contract within a reasonable time notwithstanding the withdrawal of Vantage. In my view Priolo Corporation did ratify the agreement by the letter from its solicitors dated 21 October 2009. I conclude that this was within a reasonable period given the delays that had been created by Vantage in not dealing with the draft lease and licence documents. 76 Finally, the wording in the revised proposal 'the Lessor is prepared to proceed with a new lease' in the proposal leads me to conclude that Priolo Corporation was not reserving the right to withdraw from the proposed lease and, therefore, this was not a case where there was no consideration provided. 77 Accordingly, I do not accept that there was no binding agreement because Priolo Corporation had not formally approved the agreement for lease before Vantage claimed it was entitled to withdraw. 78 Finally, I am satisfied that the agreement for lease, having adequately set out the essential terms, was sufficiently certain to be enforceable. (Page 26)
Estoppel claim
General principles 79 The case of Priolo Corporation is that even if there is no enforceable agreement for lease between the parties, then the defendant Vantage is nonetheless estopped from denying the existence of the agreement. 80 The foundation of the remedy of an equitable estoppel is unconscionable conduct: Walton Stores (Interstate) Ltd v Maher (1986) 5 NSWLR 407, 406, 416. Before a person can be estopped he or she must have played such a part in the adoption of the assumption that it would be unfair or unjust if he or she was left to ignore it: Grundt v The Greater Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, 657 - 658 (Dixon J). 81 Whether conduct by a defendant is unconscionable may in part be dependent upon the grounds upon which it is held that no contract was entered into. Although a conclusion that the parties did not reach a point of formulating their agreement in terms of an enforceable contract, it is not a reason by itself for denying them the beneficial application of the equitable principles of estoppel. However, it is a reason to carefully scrutinise the circumstances which a plaintiff says give rise to a conclusion that an insistence by the defendant that it was not bound by any obligation would be unconscionable. Courts must be careful not to effectively force on commercial parties terms which the court may think are reasonable but which the parties have not agreed to: Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582, 585 - 6 (Kirby P). 82 In this matter the claim for estoppel as pleaded is dependent on an alleged representation in emails from Mr Walker on 10 June 2009 that a relationship of landlord and tenant existed between the parties on the terms and conditions set out in the proposal. This is nothing more than alleging that Vantage accepted the proposal intending to be bound legally. I conclude that if the acceptance of the proposal had not given rise to a binding contract, an estoppel does not operate as claimed by Priolo Corporation. In my view Priolo Corporation's entitlement stands or falls on a binding contract existing. If no binding contract exists then neither party was bound and there would be nothing unconscionable on either party declining to complete a legally unenforceable contract (see One Stop Lighting(Queensland) Pty Ltd v Lifestyle Property Developments Pty Ltd (1999) Q ConvR 54-527 [26]). This is notwithstanding Priolo Corporation may have acted to its detriment anticipating that eventually a formal lease would be entered into by the parties. (Page 27)
83 For the above reasons the alternative claim of estoppel fails.
Rectification 84 Following amendments to the statement of claim allowed by me at the conclusion of the trial, Priolo Corporation pleads for a rectification of the proposal document so as to correct the error in the car bay licence fee so that it provides for $375 per bay per month. 85 Spry 'Equitable Remedies' (8th ed) at page 608 identifies three classes of cases where rectification may be granted: 1. Firstly, rectification may be granted where all parties to a document are under a concurrent mistake, that is, a common mistake at the time of its execution, as to the provisions that it contains. 2. Secondly, it may be granted where, although one party is not under a mistake as to the provisions in fact contained in a document, executes it in the knowledge that another party has executed it under a mistake as to those provisions, or other circumstances render it unconscionable that those provisions should not be rectified. 3. Thirdly, a court of equity may order rectification of documents where it is appropriate to do so pursuant to specific equitable doctrines, such as those that relate to trusts and to the enforcement of fiduciary duties. 86 The error contained in the proposal as to the car bay licence fee was never in dispute in these proceedings. In the evidence of Mr Walker it was acknowledged that Vantage understood on receipt of the proposal that Savills had made a mistake in preparing the proposal document. Mr Walker's evidence was that Vantage took the attitude that, as it was paying what it considered to be a premium rate of rental, it should not alert the plaintiff to the mistake. Mr Walker's evidence was that the attitude of the defendant was 'okay we will accept that mistake on their behalf and we won't mention it'. It is not disputed that this constituted a sharp practice. 87 Subsequently when the draft lease and car bay licence documents were prepared by Clifton Tham, the solicitors acting for Priolo Corporation, and sent to Vantage the error made in the proposal document was corrected. At no time did Vantage raise objection to this correction. (Page 28)
There were some discussions between Mr Postma and Mr Walker about the provisions in the draft documents but the rate payable for the car bays was not disputed. On 3 September 2009 Mr Postma sent an email to Mr Walker which spelt out in clear terms that the car bay licence fee was $375 per bay per month. Mr Walker in his evidence stated that by this time everyone recognised a mistake had been made in the proposal and the licence fee was now $375 per bay per month. 88 In my opinion, the circumstances of this case fall within the second category of cases referred to in Spry 'Equitable Remedies' and in all the circumstances it would be unconscionable not to allow the rectification given the reprehensible conduct of Vantage in not alerting Savills to the known error and the acceptance by Vantage of the correction once this was made in the draft lease and licence documents forwarded to Vantage for its consideration. Accordingly, I will allow rectification of the proposal document as sought by Priolo Corporation and as a result the agreement for lease will include the rectified term.
Award of damages
(i) Background 89 It is common ground that if the parties entered into a binding agreement for lease that Vantage repudiated this agreement by refusing to take a lease and vacating the premises on 30 November 2009. 90 An issue arises as to whether Priolo Corporation took adequate steps to re-let the premises at the same rental and thereby mitigated its loss. The evidence of Mr Postma was that Savills did not attempt to re-market the property immediately after Vantage gave notice that it intended to vacate the premises on 30 November 2009. Initially Savills waited for legal advice from Priolo Corporation's solicitors as to whether steps should be taken to re-let the property. Mr Postma's evidence was that the premises were then re-marketed using the database of Savills, its website and making enquiries with potential tenants identified from Savills' records. Also an advertising signboard was erected in February 2010. Notwithstanding its efforts, Savills was unable to find a replacement tenant. 91 On 22 June 2010 Priolo Corporation instructed Jones Lange LaSalle to take over as agents. Jones Lange LaSalle were able to find a tenant (Rialto Energy Limited) which took a three-year lease commencing on 13 August 2010 at an annual rental of $475 per square metre per annum compared with $545 per square metre per annum under the agreement for lease (subject to adjustment GST and rent reviews). The new lease (Page 29)
provided for a rent free period of two months so that the rental commenced as from 13 October 2010. Rialto Energy Limited also entered into a car bay licence for six car bays at the rate of $325 per bay per month, compared with $375 per bay per month under the agreement for lease (under the agreement for lease there was also provision for an additional bay). 92 Mr Graham Kennedy, a certified practising valuer, gave evidence on behalf of Priolo Corporation which included the tendering of a valuation report. This report stated that in Mr Kennedy's opinion the market demand for office space contracted during 2009 making it harder to find tenants as the year progressed. He expressed the opinion that there was little or no demand towards the end of 2009, that finding a tenant in mid-2009 would have taken four to six months and it would have taken at least six months or more by the third or fourth quarter of 2009. He expressed the opinion that the annual rental value of the premises was approximately $500 per square metre as at June 2009 but by December 2009 had fallen to approximately $450 per square metre. He also expressed the opinion that it might be necessary to offer a rent-free period of approximately 10% of the term of the lease in order to secure a tenant.
(ii) Legal principles 93 The Court of Appeal in the decision of Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] WASCA 209 comprehensively stated that the principles that apply to an award of damages for a breach and repudiation of a lease. Relevantly, the principles stated in Luxer Holdings Pty Ltd v Glentham Pty Ltd included the following: 1. The general contractual principle is that the innocent party suing for breach of contract is to be placed in the same position, so far as money can do it, as if the contract had been performed: [29]. 2. If a lessor terminates the lease agreement in consequence of the lessee's breach of an essential term or by acceptance of the lessee's repudiation, the lessor is entitled, in accordance with the ordinary contractual principles, to sue the lessee for damages for loss of the benefit of the lessee's covenant to pay future rent, outgoings and other amounts: [30]. 3. Where a lessor terminates the lease agreement for repudiation, it may claim arrears of rent in respect of the period before termination, in addition to damages for loss of the benefit of the lessee's covenant to pay future rent, outgoings and other amounts in respect of the period after termination: [31]. (Page 30)
4. The onus is on the lessor to prove it has suffered damage. But the onus is on the lessee to prove that the lessor has failed to take reasonable steps to mitigate its damage, and to demonstrate the extent to which there has been a failure to mitigate: [41]. 94 These principles are consistent with general principles of contractual damages and, in my opinion, apply equally to a breach and repudiation of an agreement for lease as they do to a formal lease.
(iii) Priolo Corporation's claim 95 The claim for damages can be summarised under four headings: (a) Rental loss 96 The claim for rental loss is divided into a number of periods: (i) A period for the months of July, August, September and November 2009 when Vantage remained in possession but paid a rental at the rental applicable under the Gamol Lease. The claim for this period is the difference between the amount payable under the agreement for lease as from 1 July 2009 and the rental that was paid. This amounts to $7,783.38. (ii) A full rental is claimed pursuant to the agreement for lease during the period from 1 December 2009 to 13 October 2010 (being the period the premises were not re-let). The amount claimed is $128,455.89. (iii) A further claim for rental from 14 October 2010 (when Priolo Corporation was able to obtain rental payments under the new lease with Rialto Energy Ltd but (Page 31) at a reduced rental) to 30 June 2012 (when the lease under the agreement for lease would have expired). The amount claimed for this period is $70,527.90.
97 The total rent loss claimed is $206,767.17 98 The calculation of the loss claimed for rental is not in dispute. The only issue raised on this claim for rental loss was a contention on the part of Vantage that Priolo Corporation had not mitigated its loss by advertising the premises immediately and adequately in order to achieve an earlier re-letting of the property. The onus lies on Vantage to establish that Priolo Corporation did not mitigate its loss. No evidence was called by Vantage to demonstrate that the advertising undertaken was inadequate or that with more extensive advertising it was likely the property would have been re-let earlier. Vantage relied in part upon the fact that an advertising signboard was not erected until some time in February 2010 but this by itself does not establish that the advertising was inadequate given the evidence that Savills had advertised the leasing of the premises on its website and had approached potential tenants from its database. Further, the difficulties that Priolo Corporation experienced in re-letting the property are consistent with the evidence given by Mr Graham Kennedy. Also, it has not been established on the evidence that Priolo Corporation could have obtained a rental commensurate with the rental that Vantage had agreed to pay under the agreement to lease, given the decline in the rental market in 2009 described by Mr Kennedy in his evidence. Based on the above I reject the contention that Priolo Corporation failed to mitigate its loss in relation to the loss of rental. Accordingly, I allow the amounts claimed for loss of rental in full.
(b) Outgoings 99 Priolo Corporation claims outgoings payable under the agreement for lease as follows: 100 The total for the two periods is $29,186.54. The amount claimed is not in dispute between the parties except Vantage again argues that this amount should be reduced as Priolo Corporation failed to mitigate its loss. For the reasons given above I reject this contention. (Page 32) (c) Carpark licence fees 101 Priolo Corporation also claims the following amounts: (a) Loss of car parking licence fees for six bays for the period from December 2009 through to 13 August 2010 when the new lease commenced. The amount claimed is $20,837.89. (b) A further amount is claimed, being the difference in the car bay fee payable from 14 October 2010 to 30 June 2012. The amount claimed is $7,451.61. (c) Priolo Corporation claims a further loss in the form of a car parking levy paid to the City of Perth for provision of a seventh car bay (as per the agreement for lease) for the months of November 2009 through to 13 August 2010. The amount claimed is $3,282.34. 102 Similar to the claim for rental, the calculations of the loss of car parking licence income is not in dispute. For the reasons given above in relation to rental I reject a contention by Vantage that Priolo Corporation failed to mitigate its loss in relation to loss of carpark licence fees. However, in relation to the loss claimed in relation to the seventh car bay, I am not satisfied that the amount claimed should be allowed. The provision for a seventh car bay was an optional allowance and prior to termination of the agreement for lease Vantage indicated that it did not require the seventh bay. Also there was no evidence before me as to the liability of Priolo Corporation to pay a car parking levy from the City of Perth. 103 Accordingly, I will allow items (a) and (b) above. This totals $28,289.50.
(d) Sundry expenses 104 Priolo Corporation claims the following sundry amounts: 1. Legal expenses for drafting of lease and licence pursuant to agreement for lease: $2,420. 2. Advertising expenses for re-letting: $2,908.40. 3. Property management appointment fee: $7,331. 4. Re-painting expenses $5249.30. (Page 33) 105 Items 1 to 4 are not disputed. The only amounts in dispute relate to the re-painting expenses and the expenses incurred in re-carpeting the premises. 106 In relation to the re-painting expenses I accept the evidence contained in a property condition report dated 17 December 2009 that the premises required painting. The need for re-painting the premises is supported by the fact that Vantage did not paint the premises pursuant to a requirement to paint the premises within three months of the termination of the Gamol Lease. The evidence of Mr Glen Silver of Vantage was that the only painting done at the end of the Gamol Lease was a touch-up of the board room. 107 A lessor can recover money reasonably spent in trying to attract new tenants, including making alterations to the premises for that purpose: Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322, 610. I accept the evidence of Mr Loneragan that the painting of the premises was required in order to make the premises marketable to re-let. 108 The amount of the costs of re-painting the premises is not in dispute. Accordingly, I allow the amount of $5,249.30 as claimed. 109 In relation to the carpet, it is clear that the carpet was old. It had been present in the premises since the time Vantage first took occupation of the premises in July 2003. The Gamol Lease provided in cl 3.6(b) that Vantage was 'to make good or to be responsible for and pay all expenses relating to making good or replacement of re-laying carpet damaged or worn in the premises fair wear and tear excepted'. There was no evidence of the condition of the carpets at the commencement of the Gamol Lease. 110 Mr Priolo's evidence was that when he inspected the premises on 11 December 2009 the carpets '… were in a terrible state. They were badly discoloured, torn and very excessively damaged'. He suggested that photographs attached to a property condition report demonstrated the condition of the carpets as described by him. The photographs attached to the property condition report are of a poor quality and in my opinion do not substantiate the claims of Mr Priolo. 111 A property condition report dated 17 December 2009 prepared by Mr Loneragan described the carpets as being stained, marked, dirty, (Page 34)
worn and damaged in various places. However, in his evidence Mr Loneragan described the carpet in some places as being in 'immaculate condition' (ts 77).
112 Mr Postma in an email to Mr Priolo dated 17 December 2009 stated that the premises presented reasonably well. In relation to the carpet he described them as being presentable, although a tenant taking a long-time lease was likely to require the premises to be re-carpeted. 113 In the absence of more accurate photographs and without a report covering the state of the carpets at the commencement of the Gamol Lease, I am unable to conclude that the condition of the carpet was in excess of what could be expected from fair wear and tear. In such circumstances, I conclude that eventually the carpets would have needed replacement by Priolo Corporation. This may have occurred during the term under the agreement for lease or at the end of the lease prior to Priolo Corporation re-letting the premises. In the circumstances I am not satisfied that the expense incurred in re-carpeting the premises is a loss suffered in consequence of the repudiation of the agreement for lease by Vantage or sufficiently related to the repudiation to constitute an expense incurred in mitigation of loss. Accordingly, I disallow the amounts claimed for removing the old carpet and replacing it. This leaves a net amount I make under the heading of 'Sundry expenses' of $17,908.70.
(e) Alternative (additional claim) 114 Priolo Corporation pleaded an alternative claim for re-painting and re-carpeting the premises, plus other items of reinstatement under the Gamol Lease. 115 In relation to the repainting expense claimed, as I have previously mentioned, Vantage was required to repaint the premises within three months of the expiry of the Gamol Lease. This was not done and if I had disallowed the claim based upon a breach of an agreement for lease, then I would have allowed the amount claimed as an alternative claim for breach of the Gamol Lease. In relation to the claim for replacing the carpets, I conclude there was no obligation on Vantage to replace the carpets as I am not satisfied that the deterioration in the carpets went beyond fair wear and tear. (Page 35)
116 The other items of expenses claimed by Priolo Corporation consist of the following: 1. Costs of replacing damaged diffusers in fluoro light fittings: $94.05 2. Repairing wall skirtings: $467.50 3. Repairing venetian blinds: $319.00 4. Repairing ceiling tiles: $157.30 5. Cutting new keys: $104.00 117 The total of these other items is $1,141.85. It is not disputed in these proceedings that Priolo Corporation incurred these expenses. Although these other items were pleaded as an alternative claim, the matter was argued before me that they were also additional expense items incurred in getting the premises ready to be re-let. I am satisfied that based upon both the requirement to reinstate the premises at the end of the Gamol Lease and the need to place the premises in a marketable condition, that Priolo Corporation is entitled to each of the expense items listed 1, 2, 4 and 5 above. However, I do not allow the amount claimed for venetian blinds as on the evidence before me the venetian blinds were installed by Vantage. This reduces the amount I will allow for the additional items to $822.85.
Summary of damages awarded 118 In summary I award the following damages: 1. Loss of rental: $206,767.17 2. Outgoings: $29,186.54 3. Loss of car bay fee: $28,289.50 4. Sundry items: $17,908.70 5. Alternative (and additional claim): $822.85 Sub-total: $282,974.76 Less amount allowed on counterclaim: $11,797.50 Total: $271,177.26 (Page 36)
119 In addition to the damages awarded I will also award interest at 3% per annum as from 1 July 2009 to 30 June 2012 and thereafter until judgment at the rate of 6% per annum. (Page 37)
Annexure A (Page 38)
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