Profile Events Pty Ltd v West Beach Trust
[2011] SASCFC 1
•21 February 2011
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
PROFILE EVENTS PTY LTD v WEST BEACH TRUST
[2011] SASCFC 1
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Sulan and The Honourable Justice White)
21 February 2011
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - MATTERS NOT GIVING RISE TO BINDING CONTRACT - VAGUENESS AND UNCERTAINTY - AGREEMENT SUBJECT TO FURTHER AGREEMENT OR ARRANGEMENT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT - WHETHER CONCLUDED CONTRACT
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - OBLIGATIONS, PROHIBITED TERMS AND PROTECTION FOR LESSEES - INFORMATION REQUIREMENTS
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - OBLIGATIONS, PROHIBITED TERMS AND PROTECTION FOR LESSEES - MINIMUM TERM OF LEASE AND RENEWAL OF TERM
Parties negotiated with the intention of executing a lease - negotiations became protracted - appellant entered into occupation - formal lease never executed - whether effect of dealings between parties was that there would be no binding agreement unless and until a written lease was executed - whether Judge erred in finding that no binding lease entered into - whether parties negotiated with the intention that a formal lease would substitute any agreement entered into - relevance and effect of negotiations after appellant went into occupation of the premises - whether respondent entitled to mesne profits - effect of s 20B of the Retail and Commercial Leases Act 1995 (SA) - whether appellant has a contractual or statutory right of renewal - whether appellant entitled to damages for breach of an agreement to lease - appeal dismissed.
Retail and Commercial Leases Act 1995 (SA) s 3, s 11, s 12, s 12(5)(b), s 20B, s 20B(3), s 20I(b), s 20J, s 20J(4), s 68; West Beach Recreation Reserve Act 1987 (SA), referred to.
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165, applied.
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, discussed.
PROFILE EVENTS PTY LTD v WEST BEACH TRUST
[2011] SASCFC 1Full Court: Doyle CJ, Sulan and White JJ
DOYLE CJ: West Beach Trust (WBT) owns land and buildings at West Beach, a beachside suburb of Adelaide. Beginning in June 2001 WBT entered into negotiations with Profile Events Pty Limited (Profile Events) with a view to leasing the land and buildings to Profile Events. (I gather that Profile Events was incorporated during the course of these negotiations, but nothing turns on that).
A number of the terms of the proposed lease were agreed between WBT and Profile Events. By this I mean it was agreed that they would appear in the proposed lease. WBT allowed Profile Events to take possession of the premises on 3 December 2001. A number of matters were still being discussed between WBT and Profile Events. Each of them contemplated that a detailed written lease would be prepared and executed. They thought this would be done fairly soon.
In fact, negotiations dragged on. A lease was never executed. On 5 October 2004 WBT gave Profile Events a notice of default as a prelude to terminating its occupation of the premises. On 7 December 2004 the Magistrates Court enjoined WBT from evicting Profile Events. Profile Events is still in possession of the land, nine years after taking possession.
After a 15 day trial a Judge of the District Court held that no lease had come into being. He held that the parties were negotiating with a view to the grant of a lease, and on the basis that there was no binding agreement until a detailed written lease was executed. He also found that Profile Events was allowed to take possession of the premises pending agreement on a lease, and on the basis that it would pay rent at the rate the parties had agreed for the purposes of the proposed lease. The Judge referred to this as an interim agreement or arrangement, and so will I.
Profile Events appeals against that decision, arguing that a binding lease came into being on 3 December 2001. The lease was for a term of five years, with two rights of renewal for five years. Profile Events argues that after 3 December 2001 the parties continued to negotiate on the basis that should they agree on a detailed written lease, that detailed written lease would be substituted for the lease or agreement to lease that had arisen from their correspondence and conduct up to 3 December 2001. Profile Events claims that it has already exercised one right of renewal, and that subject to exercising the further right of renewal it is entitled to remain in possession until 2016.
I add that the Judge decided that Profile Events was and is in occupation as a tenant holding over after the expiry of a five year term on 3 December 2006. That five year term was imposed on the interim arrangement by operation of s 20B of the Retail and Commercial Leases Act 1995 (SA) (the RCL Act). The five year term was imposed without reference to the intention of the parties. I will need to explain this later. Accordingly, the Judge found, WBT had to take appropriate steps if it wished to evict Profile Events: Profile Events Pty Ltd v West Beach Trust [2010] SADC 52 at [146]. In doing so, it would have to comply with any applicable provisions of the RCL Act.
So nine years after WBT gave possession to Profile Events it is still in occupation, holding over. The parties are still disputing. It is surprising that the parties have got themselves into such a legal tangle as they have, and that they have been unable to resolve this between themselves. That left the District Court Judge in the position of having to apply the law to the facts as found, and thereby resolve the legal issues. There is an air of unreality about all this, nine years down the track, but that cannot be helped.
I agree in substance with the conclusions of the Judge. My reasons follow.
The main issue – facts and Judge’s finding
WBT is a body corporate continued in existence by the West Beach Recreation Reserve Act 1987 (SA).
The land and buildings in question are part of a larger area owned by the WBT. On the land in question is a large shed known as the Woolshed. The interest of Profile Events was in making use of the Woolshed as a function centre. The Woolshed contained a licensed restaurant and space for other activities.
In 2001 the WBT decided to let the premises to an outside operator as a function centre. It had brochures prepared promoting the Woolshed and its facilities.
Mr Friebe and Mr Davies were interested in leasing the premises, and entered into negotiations on behalf of or in the name of Profile Events.
This led to correspondence between Profile Events and WBT between June 2001 and December 2001, and continuing thereafter. Negotiations on the part of WBT were conducted by Mr Hawke, Mr Shattock and Mr McArdle.
Profile Events submitted a series of documents described as expressions of interest or offers. As one might expect, these documents were a mix of self promotion (there is no criticism intended), proposals, suggestions and responses to things said by representatives of WBT. As the correspondence unfolded, and as further documents were presented by Profile Events, the documents reflected agreement on certain matters, and continuing discussions about other matters.
It is common ground that by 3 December 2001 a number of significant issues had been agreed. That was when Profile Events took possession of the premises to enable it to get its plans underway. There can be no dispute that at that time the parties envisaged that a detailed written lease would be prepared and executed. Negotiations continued after 3 December 2001. Over a period of time no less than eight draft leases were prepared and discussed by the parties, without final agreement ever being reached. The District Court Judge summarised the issue before him: Profile Events at [17]. He said:
[17]As may be seen from the introductory remarks, the parties accepted that they had reached some measure of contractual agreement by the time that the plaintiff took exclusive possession of the property on 3 December 2001. On the plaintiff’s case, the defendant had agreed to grant a lease of the premises for a period of up to 15 years. The defendant’s case was that it had agreed to no more than that the plaintiff could enter into possession of the premises and pay the rent (which had been agreed between the parties as an appropriate rent) pending finalisation of the agreement in a written lease. The resolution of this dispute determines the success or failure of the plaintiff’s claim for specific performance.
In relation to the conversations and discussion between Mr Friebe and Mr Davies on behalf of Profile Events, and the representatives of WBT, the Judge by and large accepted the evidence of the latter witnesses when it was in conflict with the evidence of Mr Friebe and Mr Davies. I do not understand Mr McNamara QC, counsel for Profile Events on appeal, to challenge the Judge’s findings in this respect.
The resolution of the case depended, and depends, on the effect of the conversations (as found by the Judge) and on the effect of the correspondence considered by the Judge.
The correspondence and the conversations are to be considered and construed objectively. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 the High Court said at [40]:
[40]This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 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.
Footnote omitted
As I understand the law, the same approach is to be taken when examining the conversations between the parties and their correspondence, with a view to deciding whether or not they have entered into contractual relations.
There is no dispute that the parties envisaged that they would enter into a detailed written lease. Indeed, initially they contemplated heads of agreement to be followed by a detailed written lease. Later they decided to dispense with the heads of agreement and to proceed directly to the written lease.
It is equally clear that between June and December 2001 the parties negotiated on a number of important issues, including the proposed term and the proposed rent. It is evident that they were negotiating with a view to reaching agreement on matters that would be important aspects of the contemplated written lease. There could be no suggestion that, from the outset, the parties were contractually bound, but to say that is not to deny the possibility that on or by 3 December 2001 they became contractually bound.
Again, it is common ground that WBT agreed to Profile Events taking occupation of the premises from 3 December 2001, so that they could begin to establish themselves and implement their long term plan to operate the premises as a function centre. Although Mr McNamara challenged this aspect of the Judge’s conclusions, the Judge found that the parties agreed that Profile Events would pay rent at the rate that was to be stipulated by the proposed lease, for this period of occupation. I will return to that topic. So, to summarise, between June and 3 December 2001 the parties agreed on a number of significant matters, meaning they agreed on what would be provided by the anticipated lease. WBT agreed to Profile Events taking up occupation of the premises. WBT and Profile Events continued to negotiate for the execution of a written lease after that date, and did so over an extended period of time. There were “agreed terms”, meaning matters that the parties agreed would appear in the lease. They included the rent and the term of the proposed lease. There was an agreement that Profile Events could take up occupation of the premises. Profile Events did become the tenant of WBT. But was there more than this?
Mr McNamara argues that when one considers the discussions that took place and the correspondence that passed, and when one considers them objectively, the parties have agreed on a binding lease for five years, with two five year rights of renewal, as from 3 December 2001. He submits that thereafter the parties were negotiating to see if they could reach agreement on a detailed written lease, and if they did, and only if both agreed, that detailed written lease would be substituted for the lease or agreement to lease that arose from the discussions and correspondence. Mr Blue QC, counsel for WBT, contends, and the Judge found, that the effect of the dealings between the parties was that there was to be and was no binding agreement unless and until a written lease was executed. Mr Blue contended, and the Judge found, that Profile Events occupied the premises under an interim arrangement, pending agreement on a written lease, having agreed to pay rent at the same rate as was agreed for the purposes of the contemplated lease. As I understand it at trial Mr Blue did not deny that the effect of the RCL Act was to impose a five year term on this interim arrangement.
This is a case in which one has to be careful about saying that an agreement was reached. The term “agreement” can be applied in different senses to what happened in the course of negotiations between the parties.
The case bears a number of similarities to Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. There, Gleeson CJ, with whom the other members of the Court agreed, said with reference to the facts (at 542):
It was common ground that, on any view of the matter, the parties were in negotiations with a view to entering into an agreement generally of the kind asserted by the appellant and, further, that it was their mutual contemplation that the detailed terms and conditions of their contract would ultimately be contained in a formal document signed by or on behalf of the parties. In the events that happened, no such document was ever brought into existence, although various drafts were exchanged between the parties …
Gleeson CJ made the following point, which is of equal relevance to the present case (at 548):
It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron (at 360). That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
Profile Events relies on evidence of negotiations between the parties after it went into occupation. It is entitled to do so to the extent that those negotiations throw light on the question of whether the parties intended to be bound, as claimed by Profile Events, before a written lease came into being. Those later negotiations might also reveal issues that the parties considered significant, and issues that the parties considered to be merely incidental, thus throwing light on the question of whether a binding agreement was reached in December 2001. If later negotiations showed that there was an important issue that was unresolved, that would be relevant in considering whether agreement had been reached at an earlier stage.
The Judge examined the conversations and correspondence in detail. It cannot be said that the Judge ignored anything of significance. However, I will refer later to Mr McNamara’s criticisms of the manner in which the Judge dealt with negotiations after 3 December 2001.
The Judge had to construe objectively the correspondence and consider objectively the effect of the discussions. At no stage (up to 3 December 2001) did anyone say, expressly, “We have reached a binding agreement for a lease” or “We have not reached a binding agreement for a lease”. As the Judge said, it was a matter of what inference one drew from what the parties said and did. The Judge’s reasons for his decision can be found in the following passages from his reasons:
[113]When the events between June and 3 December 2001 are considered as a whole, it is clear that up to 3 December the parties contemplated that heads of agreement followed by a written lease would be prepared and signed. As late as 30 November 2001, the correspondence set the date of commencement of exclusive occupation by reference to the signing of a lease. That is a clear indication that a binding agreement was not intended until a lease was signed, even where heads of agreement were still contemplated. In my opinion, nothing occurred between 30 November and 3 December to alter that position.
[114]The fact that the parties contemplated both heads of agreement and a lease up to 3 December is of crucial importance to this question. Both parties were experienced in relation to negotiating leases. As far as the plaintiff is concerned, this experience is evident from Mr Friebe’s evidence (both oral and documentary) taken as a whole. The same conclusion (as far as the defendant is concerned) arises from the evidence of Mr McArdle and the other witnesses from The Trust. Given that commercially experienced parties would not be likely to surrender the advantage to both of them of a thoroughly prepared written lease, the authorities quite rightly state that a court should be slow to conclude that they did so. In my opinion, the application of the legal principles set out earlier in these reasons to the facts found by me lead inevitably to the conclusion that a concluded agreement of the type dealt with in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (supra) was not entered into by the plaintiff and defendant on, before or after 3 December 2001. At best, they entered into an interim agreement which permitted the plaintiff to take possession of the premises in return for a promise to pay rent pending agreement of the terms to be included in a written lease. Specifically, the defendant did not contractually bind itself to grant a lease the terms of which could only be departed from by mutual agreement.
…
[123]In summary, the position as at the 3rd of December 2001 was that the parties had agreed to dispense with the preparation and execution of heads of agreement and would proceed straight to a written lease. In the meantime the plaintiff was to take exclusive occupation of the premises pending an agreement of the terms to be concluded in the written lease. The plaintiff was to pay rent in accordance with the consensus reached between the parties prior to the 3rd of December 2001, namely a base rent with an additional amount calculated by reference to turnover. The plaintiff was to enjoy a rent free period of 6 months. The parties were free at any time to withdraw from negotiations if agreement as to the terms to be included in the written lease could not be achieved. This contractual position was radically altered by the operation of s20B of the Act which imposed a 5 year term upon the parties. That period of 5 years was not inviolate. If, as alleged by the defendant in its cross-claim, the plaintiff breached the agreement by a persistent failure to pay part of the rent, the defendant could take steps to terminate the lease.
Footnote omitted
The reference in [123] to “the Act” is to the RCL Act.
Consideration of submissions on the main issue
It is convenient to deal separately with events up to 3 December 2001 and after that date. However, I should note here Mr McNamara’s criticism of the Judge’s approach to events after 3 December 2001. As to this, the Judge said at [110]:
[110]In addition, although the authorities allow a consideration of events which occurred after the time at which the plaintiff alleges a contract to grant a lease came into existence (no later than 3 December 2001), those events are only material to the question of whether or not, viewed objectively, the parties manifested an intention up to and including 3 December 2001 to be bound by what had been agreed. If, therefore, by reference to the events up to and including 3 December, the parties had or had not manifested such an intention, there is no need to have recourse to subsequent events to ascertain their respective intentions as at that date. What occurred afterwards cannot alter the existence or absence of the intention to be bound as at 3 December 2001. It can only cast light on what otherwise was an unclear situation.
I accept Mr McNamara’s submission that this is too narrow an approach. One must consider events before and after 3 December 2001 when deciding whether or not, as at 3 December 2001, the parties had manifested an intention to be bound to a long term lease, as distinct from the interim arrangement. But the Judge went on at [111] to conclude that events after 3 December 2001 supported the conclusion that he had reached in any event.
The Judge did not say much about events after 3 December 2001, and for that reason I will consider them separately. But I emphasise that the separate treatment is for convenience only, and does not reflect a conclusion that events after 3 December 2001 can be disregarded if, considering events prior to that date, one is not persuaded that a binding agreement exists.
The Judge placed considerable emphasis on the fact that the parties originally contemplated heads of agreement followed by a written lease, and on the fact that later they agreed they would dispense with the heads of agreement (because preparing them involved as much work as preparing the lease) and moved directly to a written lease. I agree with the Judge. The term proposed by Profile Events, and agreed to by WBT, was for a lease of five years, with two five year rights of renewal. It would be surprising if either party would bind itself to such a lengthy arrangement without a detailed written lease. The Judge may have been wrong in saying that both parties were “experienced in relation to negotiating leases”. But that is neither here nor there. I consider that it would be surprising if either party would bind themselves to such a lengthy arrangement without a written lease.
As well, the term of the lease had been expressed as “five + five + five”. Nothing had been agreed about the exercise of the right of renewal. In fact, later there was a dispute between the parties as to the manner in which the right could be exercised, assuming the right existed. That illustrates the point that it is customary for rights of renewal to be regulated in detail by the terms of a lease, and none of the detail had been spelt out as at 3 December 2001.
It is true that the premises the subject of the lease had been identified. But as at 3 December 2001 WBT had indicated that it was likely to move its offices into the part of the Woolshed then set up as a licensed restaurant. It had not committed itself to this, but it was reserving the right to do so if it wished, and indicating that it was likely to exercise that right. If it did so, that would involve significant building work because it was common ground that in that event another area for a restaurant would have to be established within the Woolshed. There was much to be resolved if this was to happen. There is no basis for concluding that the parties evinced an intention that the preliminary discussions about how this would be done reflected a settled agreement.
The rent to be paid had been agreed, in reasonable detail.
The proposed use of the premises had not been spelt out in any detail, although the parties were in general agreement. This also was a matter that required definition. On the Judge’s findings WBT was particularly concerned that noise from events in the Woolshed should not cause disturbance to occupants of the immediately adjacent holiday village operated by WBT. There had been problems in the past with noise from late night events. The matter had been raised by WBT with Mr Friebe and Mr Davies. Viewed objectively, the dealings between the parties made it clear that it was important for WBT to establish appropriate limits on Profile Events’ use of the premises, and equally important for Profile Events to be satisfied that it would not be unduly constrained in the conduct of the business that it proposed.
Profile Events had agreed that guarantees would be provided by Mr Friebe and Mr Davies, but the agreement was no more detailed than that. There was a good deal of detail that would need to be sorted out.
There were other matters that were agreed, and in relation to which the agreement was probably sufficient for the purposes of a binding lease. It was agreed that the existing liquor licence would be transferred to Profile Events, and that was implemented. Profile Events had agreed to purchase plant and equipment at the premises, and did so and made payment for that plant and equipment.
There were other matters of some significance that were not agreed. These included parking for motor vehicles and access to the Woolshed, and renovations and improvements to be carried out by WBT to some parts of the premises. A number of ancillary matters that one would expect the lease to cover had not been agreed.
In short, confining my attention for the moment to events to 3 December 2001, I agree with the conclusion reached by the Judge. The parties had negotiated on the basis that there would be a detailed written lease. The conversations and the correspondence were consistent with the intention of the parties being that neither would be bound until that detailed written lease was executed. There is really nothing to support an argument that, viewed objectively, the correspondence and conduct suggested that the parties had departed from this aspect of the proposal, and had evinced an agreement for a long term lease on the basis of the matters on which agreement had been reached by 3 December 2001. As I have indicated, it was unlikely, considered objectively, that the parties would do that. Moreover, the outline nature of the agreement on some issues, and the significance of the issues that remained outstanding, also support the conclusion reached by the Judge. The circumstances in which Profile Events took possession of the premises are consistent with the Judge’s conclusion.
I turn now to events after 3 December 2001.
The correspondence between December 2001 and October 2004 (when the parties finally fell out) is voluminous. I have done my best to survey it, directing my attention mainly to the items to which counsel referred.
Until late February 2004 the correspondence passed mainly between Profile Events and WBT. Until the middle of 2003 the correspondence reflects ongoing and seemingly endless canvassing of unresolved matters and possible changes of approach to different aspects of the arrangement. The correspondence does not support a finding that the conduct of the parties reflects an intention to dispense with a detailed written lease. To the contrary, much of it is about the content of the lease. Nor does it support a submission that a long term lease, in the terms for which Profile Events now contends, already existed. There is nothing to support a suggestion that the parties are discussing a possible substitute for an existing lease, the substitution to take place only if both parties agree. Not surprisingly there are references to what has been agreed, but these are references to matters agreed in the sense that they are agreed for inclusion in the contemplated lease.
A letter of 8 February 2002 from WBT to Profile Events states:
We wish to advise that with effect from 01 November 2001 the West Beach Trust has leased the Woolshed to Profile Events Pty Ltd. and in accordance with the lease conditions Profile Events Pty Ltd will be operating restaurant and function centre facilities within the complex.
The Trust has agreed to allow Profile Events Pty Ltd to purchase and/or lease various plant and equipment items within the Woolshed. Included in the plant and equipment is the Redcat computerised Point of Sale system licenced from Possum IT.
…
This letter was written to enable Profile Events to obtain a transfer of the liquor licence, to organise finance and so on. When the letter is seen in context, there is no reason to read it as departing from what I have said is the effect of the correspondence.
A letter of 29 August 2002 from WBT to Profile Events raises the failure by Profile Events to pay rent at what WBT asserts is the agreed rate. That was the rate that was to appear in the proposed lease. Part of the letter returns yet again to negotiations, including possible variations to the arrangements already made. But Mr McNamara pointed, for example, to statements such as this:
The exchange of correspondence about the lease arrangement in October and November 2001 contemplated that:
(a)your company would enter under a licence arrangement from 1 November; and
(b)there would be a lease commencing on 3 December with exclusive occupancy from that date and a document entitled Heads of Agreement would be executed upon your company taking exclusive occupation.
The Trust subsequently informed your company that advice from Crown Law was that there was no point in a Heads of Agreement document as the terms were set out in the correspondence and the matter should proceed straight to a lease. Your company has continued occupation and conducted functions and operated the restaurant in accordance with the terms negotiated. It has agreed to a variation of the original arrangement and has waived the requirement for a document entitled “Heads of Agreement”. The rent free period agreed was 6 months from 3 December 2001.
A draft lease document stating a rent free period from 3 December until 3 June 2002 has been provided to you. Your response to this clause in your letter of 30 July 2002 is that it is “to be discussed further”.
Whilst the Trust will address issues of drafting and clarification to ensure that the documentation expresses the key points agreed the Trust is not prepared to negotiate on the rent free period.
The Trust is of the view:
(a)That there is a lease arrangement which is binding on all parties with rent payable from 3 June 2002.
(b)That collateral with that lease arrangement is an arrangement for your company to purchase the plant and equipment.
(c)That the liabilities of the company are to be personally guaranteed by the directors.
(d)That the lease is to be for a period of five (5) years from 3 December 2002 (with two (2) options to renew).
(e)That the Trust is entitled to issue a notice demanding payment of overdue rent from the company and the guarantors.
The Trust points out that if Profile Events defaults on its lease by failing to pay rent the Trust is entitled to terminate the arrangements in relation to the lease and plant and equipment.
Because the company has negotiated a lease for five (5) years (with no first year break‑out clause as originally requested by the company), if the company defaults the Trust is entitled to claim from the company and its directors damages which might include the loss of rent and other losses suffered by the Trust during the balance of the five (5) year period.
I agree that some of these statements support Mr McNamara’s submission. The picture had become confused, in part because of negotiations about a change to the rent free period under the interim arrangement, as I have described it. The parties tended to ignore the distinction between matters agreed for the purposes of the proposed lease and matters affecting Profile Events’ occupation. While the letter appears to reflect a view that there is already a lease agreement in force, that approach is not consistent with the tenor of early correspondence. In fact, the response from Profile Events (on 12 September 2002) reflects a belief by it that the parties will soon come to an agreement.
There are other letters that refer to agreed terms, but by and large my understanding is that these are references to matters that have been agreed in the course of negotiations, with a view to them being included in the anticipated lease.
As time went by matters got to a point at which the parties discussed the possibility of Profile Events abandoning the business proposal. WBT agreed to allow Profile Events until 31 July 2003 to decide whether to continue. There were recriminations on each side about the delay that had occurred. Profile Events asked for more time to decide whether or not to proceed. On 30 July 2003 WBT wrote as follows:
The Board decided not to accede to your request for a further extension. The offer for an option to quit by 30 June 2003 was made in our letter of 29 August 2002 and your acceptance was agreed in your letter of 16 September 2002. Subsequently a further extension was granted to 31 July 2003 and included in clause 5.15 of the draft lease provided to you on 14 July 2003. The purpose of this right to terminate early was to accommodate your request that you wanted to ascertain whether the business was commercially viable so as not to be bound by a long term lease if it was not. It is considered that your occupancy of the building since December 2001 should be sufficient time to establish the commercial viability or otherwise of your business.
It is requested that you advise us by the close of business on 31 July 2003 as to whether you wish to continue on the key terms and conditions agreed in correspondence. If you fail to advise by that time that you wish to terminate the arrangement and will quit the premises by 30 September 2003 then your company will be bound by the lease on the terms negotiated.
The draft lease and other documents forwarded on 14 July 2003 contains terms which have been previously agreed. If you suggest that the draft should be altered as it does not reflect the agreed terms or there are drafting issues to be addressed then please provide details of your proposed alterations so the issues can be addressed. As we wish to finalise the lease and other documentation as soon as possible, if your company is to continue, please provide those comments in writing within seven (7) days.
To my mind this letter reflects the fact that the parties were still negotiating on various matters, and it is consistent with the Judge’s ultimate findings that the parties were not already bound to a long term lease. In its response of 31 July 2003 Profile Events stated:
Further to your letter dated the 30th July 03 and our subsequent discussions, we confirm our acceptance of the fundamental lease terms as outlined in your letter dated 29th of August 02 and other agreed terms outlined through previous correspondence.
The remaining outstanding items of the 14th July 03 Draft Lease are subject to mutual agreement to finalise the lease. In the event of failure to reach agreement on these outstanding items, we request that the trust consider negotiating a mutually satisfactory exit strategy with us.
We also confirm your commitment to respond on these lease issues as a matter of priority owing to time being of the essence.
I make the same comment about this response.
It is notable that during the period covered by this correspondence Profile Events did not assert that a long term lease existed. It did not argue that a detailed written lease would be entered into, in substitution for the existing lease, only if it so agreed. The tenor of the correspondence is that the parties are continuing to negotiate towards an agreement which is intended to regulate their relationship. No real attention is paid to clarification of the basis on which Profile Events is occupying the premises.
In February 2004 solicitors on each side took over the correspondence. On 27 February 2004 solicitors for Profile Events wrote to the solicitors for WBT. They said:
We confirm our advice that there is a legally binding agreement between WBT and Profile in respect to the lease of the premises. The terms of the agreement are set out in correspondence between WBT and Profile during the period of 30 November 2001 and 29 August 2002 at which time the Crown Law acting for WBT advised that formal Heads of Agreement were not required.
Subsequently, in or about 11 August 2003 certain terms of the agreement were varied.
From the date of the original agreement until now, there had been various draft leases provided which purport to reflect the agreement between the parties.
We are instructed that the last formal discussions held between the parties was on 11th and 17th September 2003, at which our client (with the assistance of a non legal person) outlined their concerns with the draft lease and requested that the draft lease be amended and a further draft be provided to them. It has now been five months and our client is still waiting on the draft lease to be provided based on these discussions.
…
The letter called for an early finalisation to the negotiations. This is the first occasion, so far as I am aware, on which Profile Events asserted a binding agreement, at least if that is intended to be a binding long term lease, as distinct from the interim arrangement.
On 5 March 2004 the solicitors for WBT replied. They stated:
Our client takes the view that there is an equitable lease at least from 3 December 2001.
Prior to that date there was correspondence between WBT and Profile (initially with Andrew Friebe prior to the incorporation of Profile on 26 October 2001) leading to Profile entering possession on 3 December 2001.
For there to be an equitable lease there must be four essential terms agreed namely:
(a)If there is rent the amount of the rent.
(b)The identity of the parties.
(c)The identity of the premises.
(d)The term and the commencement date.
If the court determines that these essentials have been agreed then it will look to see whether there have been other terms agreed between the parties or are to be implied as a matter of law.
The letter is a lengthy one, ten pages in all. In relation to the premises, the letter grapples with the changes that have occurred along the way. On my reading of the letter, the overall effect is that there is not yet agreement on this essential matter. The letter puts forward various proposals. In relation to the use of the premises, and the issue of noise, some five pages are spent on issues of detail and issues of principle. Overall, I find the letter equivocal, because the letter itself appears to acknowledge that two essential matters have not yet been resolved. I should add that the letter encloses yet another draft of the proposed lease.
Fairly detailed negotiations continued between the solicitors. In a letter of 4 May 2004 the solicitors for WBT wrote:
It is noted that both parties accept that there is an equitable lease. Both would say that they would sign a document consistent with agreed terms.
The drafts forwarded, especially recently, contain concessions by the Trust and like your client it is not bound by any concessions made in negotiations until all points are agreed.
If a formal document cannot be agreed it will be up to a court to determine the terms whether as terms agreed or implied or as usual covenants.
The letter concludes by stating that WBT is “anxious to resolve the outstanding issues”. From time to time in the correspondence there are references to the existence of a lease, but to my mind these continue to be equivocal, when the overall context is understood. Some of the uncertainty is due to the failure to distinguish between what I have called the interim arrangement and the long term arrangement. The solicitors for WBT refer from time to time to “the equitable lease”. An apparent failure by Profile Events to pay the full amount claimed by way of rent continued to cause problems. On 11 June 2004 the solicitors for Profile Events wrote to the solicitors for WBT complaining about delay, and about their inability to make commitments to potential investors because of the ongoing uncertainty. The letter states in part:
In light of the continuing and ongoing delays and the failure of WBT to fulfil its obligations regarding the lease agreement, the writer’s concessions in the amendments to the lease are more than reasonable.
It is with disappointment that we are forced to reiterate our position on a number of matters that have already been agreed in the heads of agreement and are not negotiable.
Again, there is nothing in this to support Mr McNamara’s contention.
By notice dated 5 October 2004 the solicitors for WBT gave a notice to Profile Events asserting that it was in occupation pursuant to an “equitable lease”, entered into in October or November 2001. The notice asserted that a term of the lease was the agreed provision (for the long term lease) relating to payment of rent, and that the appropriate rent had not been paid. The notice called upon Profile Events to remedy the breach failing which WBT would be entitled to re-enter the premises. I find nothing in this inconsistent with the Judge’s conclusion.
The response from the solicitors for Profile Events (a letter of 13 October 2004) was to assert that the RCL Act provided protection to Profile Events. The letter goes on to complain about delays by WBT, and states that Profile Events will seek relief under the RCL Act. The response from WBT solicitors of 28 October 2004 maintains that there is an “equitable lease”, and denies any breach of the RCL Act. The intrusion of the RCL Act further muddies the water.
I accept that there are assertions made by the solicitors for WBT, in the correspondence during the period in question, that do not sit easily with the Judge’s conclusions. But these are argumentative points made by the solicitors. They do not support the conclusion for which Mr McNamara contends.
My overall conclusion is that the dealings between the parties after Profile Events went into possession do not support the conclusion that as at 3 December 2001 the parties had agreed on a long term lease in the terms contended for by Mr McNamara. Nor did they later reach agreement. Surprising as it is, through all this period they continued to negotiate with a view to settling on a detailed written lease, but never did so. They never departed, when their conduct is viewed objectively, from the basis upon which they began, namely, that Profile Events was occupying the premises under an interim arrangement, and that a binding lease of a long term nature would come into existence only when that lease was agreed and executed.
Mr McNamara based some submissions on the Defence filed by WBT. The pleadings on each side are, as seems to be common these days, lengthy and replete with factual references that should not form part of the pleading, and that tend to confuse rather than enlighten. While the Defence is not as clear as it might be, my understanding is that in broad terms it admits most of the facts alleged by Profile Events, these facts mainly remaining uncontentious at trial, but denies that they have the legal effect for which Profile Events contends. In particular, para 3.12.4 of the defence states:
… it was a condition of the agreement, as set out in paragraph 5 below, between the parties that a lease reflecting the terms agreed as between the parties would be executed by the parties.
Paragraph 5 of the defence speaks of the “occupation of the premises by the plaintiff” on certain “essential terms”, which by and large seem to reflect the matters that had been agreed between the parties. The legal effect of that allegation is unclear to me. A similar allegation is made in the counterclaim. But the allegation seems to turn on correspondence of 31 July 2003, involving acceptance of terms by Profile Events.
I have to say that in the end I find the Defence and Counterclaim unclear. The case for WBT at trial seems to have departed from the pleading, and no objection has been taken to that before us. I leave that matter there.
I am not persuaded that the Judge was wrong. In fact, I agree with his conclusion. The difficulty in the case is attributable to confusion on the part of the parties.
The interim arrangement and the cross claim for rent or mesne profits
The Judge’s finding was that until 3 December 2006 Profile Events was in occupation of the premises under an interim arrangement permitting it to take possession of and to use the premises for its business, paying rent at the rate that had been agreed for the proposed long term lease, the occupation to continue until the long term lease was agreed and executed, or, presumably, until one party or the other terminated negotiations for that long term lease.
It is not necessary to consider what the position would have been if one party had refused to proceed further with the negotiations at a stage when the negotiations were still in progress, as distinct from when they had become unduly protracted.
There is no doubt that Profile Events agreed to pay rent at the rate contemplated under the long term lease, from 3 December 2001, subject to the agreement for a six month rent free period.
But was that an agreement regulating the rent to be paid in the event that a long term lease never came into being? Or, did the parties only agree on the payment of rent at the relevant rate on the assumption that the long term lease would come to fruition and that the occupation under the interim arrangement would be subsumed into the term of the lease?
I have found nothing in the material before the Court to suggest that the parties identified the distinction that gives rise to the questions that I have posed. On the other hand, at no stage during the lengthy negotiations, even when it began to be apparent that the negotiations might ultimately fail, did Profile Events claim that rent was payable at the rate contemplated under the long term lease only if the long term lease came into being.
The question now is whether it is a necessary implication from the circumstances that the parties agreed that under the interim arrangement rent would be paid at what I will call the long term rate, whether or not the envisaged lease was ever entered into. Although the Judge found that Profile Events promised to pay rent pending agreement at the long term rate, I cannot find any such express agreement. It is, I have said, a matter of whether such agreement is to be implied as a matter of necessary implication.
In the end, I have come to the conclusion, not without some doubts, that the implication is to be drawn. Each party knew that the long term lease might not eventuate. They must have been alive (although in a confused way) to the distinction between the interim arrangement and the anticipated long term arrangement. As well, Profile Events has been content to have the benefit of the rent free period as an aspect of the interim arrangement. The fact that that was claimed and granted from the very outset suggests that, although the parties may have not fully appreciated what they were doing, it was a mutual intention that under the interim arrangement rent be paid at the long term rate.
For those reasons I reject Mr McNamara’s challenge to the Judge’s finding on this point. Mr McNamara argued that there was no basis for the Judge to pick out rent as a matter agreed as part of the interim arrangement, as distinct from other matters on which the parties had reached agreement by 3 December 2001 for the purposes of inclusion in the long term lease. But there was such a basis. The basis was that, perhaps in a confused way, the parties realised that it was necessary to say something about payment pending the negotiation of a lease, and I am satisfied that the necessary inference from their conduct is that they were in agreement as found by the Judge.
There is one matter of detail. The Judge treated Profile Events as a tenant holding over after the expiry of the five year term (on 3 December 2006). As a tenant holding over, with the consent of WBT, Profile Events is liable to pay rent at the agreed rate for the whole period of its occupation. Profile Events is still in occupation. WBT is entitled, on its cross claim, to recover any arrears of rent. WBT can also recover possession of the land by taking appropriate action: Profile Events at [146]-[147].
It follows from this that the orders made by the Judge on the cross claim were properly made.
The impact of the RCL Act
This is a rather tangled topic.
The documents indicate that after some time the parties began to focus on the impact of the RCL Act. The documents suggest that in the early stages of negotiations they did not, although there is a passing reference to the RCL Act in the letter from WBT of 30 November 2001, under which Profile Events went into occupation. The impact of the Act received little attention in the pleadings and my clear impression is that it got little attention at trial. The same can be said on appeal. There is an air of unreality in picking over the facts and considering the application of the RCL Act under these circumstances, but it is necessary to do so to some extent.
The Judge found that the interim arrangement was a retail shop lease for the purposes of the definition of that term in s 3 of the RCL Act.
That might seem a surprising conclusion. But the RCL Act is intended to provide protection for tenants who enter into a retail shop lease, and is deliberately cast in fairly broad terms. For the purposes of the Act “lessor” includes “a prospective lessor” and “lessee” includes “a prospective lessee”: s 3. The RCL Act imposes substantial disclosure obligations on a prospective landlord, which are designed to ensure that a prospective tenant is adequately informed about the terms of a proposed retail shop lease. Other limits and controls are imposed on landlords.
The Judge concluded that under the interim arrangement WBT granted to Profile Events “… for value a right to occupy a retail shop for carrying on a business ...”, and that the interim arrangement was a retail shop lease. Accordingly, disclosure requirements in the RCL Act applied to WBT as a prospective lessor, and Profile Events was to be treated as a prospective lessee.
As I have mentioned earlier, it is clear that before the negotiations ended, the parties (or their solicitors) were aware of the potential application of the RCL Act.
Section 20B of the RCL Act provides:
20B—Minimum 5 year term
(1) The term for which a retail shop lease is entered into must be at least five years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2)A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.
Example—
If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).
The Judge found that the effect of this provision was to impress on the interim arrangement a five year term. It is not clear to me whether or not Profile Events attacks this finding. I note that in para 16 of the Statement of Claim it invoked the protection of the RCL Act.
There is a tension between the Judge’s conclusion and the nature of the interim arrangement – occupancy during negotiations for a written lease. But no direct attack was made on the conclusion.
At this stage the point is of no practical significance. The five year term has expired, assuming that the RCL Act impressed a five year term on the interim arrangement. As I understand it s 20B does not apply to Profile Events’ occupation after the expiry of the initial five year term. I say this because s 20B(3) relevantly provides as follows:
20B(3) This section does not apply to a lease if—
…
(d)the lessee has been in possession of the retail shop premises for at least 5 years; or
…
When the initial five year term expired, Profile Events had been in possession for at least five years, and so the section did not impose a further five year term on the continued occupancy by Profile Events of the premises.
The right of renewal
On the Judge’s findings Profile Events had no contractual right of renewal. It was in occupation under the interim arrangement, which conferred no such right. I will deal separately with the question of a right of renewal under the RCL Act.
As there was no right of renewal, the purported exercise of a right of renewal by Profile Events was ineffective.
The Judge went on to hold, in any event, that by implication any exercise of a contractual right of renewal had to take place a reasonable time before expiry of the relevant term. Profile Events purported to exercise the right of renewal two weeks before the expiry of the five year term. The Judge found that it had not exercised the right within a reasonable time of expiry of the five year term. I am inclined to agree with the Judge in this respect, but it is unnecessary to decide the point.
Renewal in reliance on the RCL Act
Section 12 of the RCL Act provides that if a landlord does not provide a tenant with a proper disclosure statement before a retail shop lease is entered into, the Magistrates Court, on application by the lessee, can make an order which, among other things, has the effect of varying the lease: s 12(5)(b). Profile Events argues that WBT was in breach of s 11 of the RCL Act in failing to provide a copy of the proposed lease before offering to enter into the lease, and in breach of s 12 by failing to provide a proper disclosure statement. These contentions are denied by WBT.
Profile Events claims that the Judge could and should have exercised the power under s 12(5) and should have reformulated the alleged contractual term as to renewal so as to entitle Profile Events to exercise that right at any time before the expiry of the five year term.
Profile Events acknowledges in its Outline that it did not “explicitly seek relief under s 12(5)”. WBT submits that such a claim was not articulated before the Judge and, not surprisingly, not ruled upon by the Judge. Nor is this argument raised by the grounds of appeal.
In these circumstances I am of the opinion that it is not appropriate to allow Profile Events to raise this claim at this late stage.
This is the kind of claim which, if it is to be considered by a court, needs to be clearly identified and clearly argued at the stage when the facts are being determined. That has not happened.
In any event, the submission lacks any real merit. I am not sure whether or not Profile Events contends that WBT was obliged to comply with s 11 and with s 12 both in relation to the interim arrangement and in relation to the contemplated long term lease. In any event, in the overall circumstances I have not identified anything that clearly supports the making of the order contemplated. However, I do not decide that point because the matter does not arise for decision.
Profile Events further argues that it is entitled to renewal of the five year term because WBT failed to comply with the requirement of s 20J of the RCL Act, which requires a lessor by written notice to a lessee to offer the lessee a renewal or extension of a lease or to inform the lessee that the lessor does not propose to offer a renewal or extension not less than six months and not more than 12 months before the end of the term of the lease. Failure to do so means that the lessee is granted a right to request an extension of the lease and the lease is extended until six months after the lessor gives the required notice: s 20J(4). As no right of renewal attached to the interim arrangement, on the Judge’s findings, the application of s 20J is not excluded by the provisions of s 20I(b).
For the same reasons as I gave in relation to the point last considered, I would not permit Profile Events to raise this argument at this late stage.
Profile Events next claimed that the Court should exercise the power conferred by s 68 of the RCL Act to relieve Profile Events “from the obligation to comply with a provision of the lease or agreement …”, the relevant non compliance being the failure to exercise the right of renewal within a reasonable time prior to the expiry of the five year term. The submission was linked to the alleged breaches of the RCL Act by Profile Events.
I do not accept this submission. There was no right of renewal attached to the interim arrangement. There was no obligation from which Profile Events needed to be relieved.
Although this claim was raised in the pleadings, it is not apparent to me that it was properly articulated at trial. However, it is not necessary to rely on that point.
That disposes of the various claims by Profile Events that it exercised a right of renewal of the five year term.
Damages for breach of the agreement for lease
The Judge rejected the claim by Profile Events for damages. The Judge summarised the claim as follows at [124].
[124]… In broad outline, the plaintiff’s case in damages was based on the assertion that the defendant was obliged to provide a written lease not inconsistent with the terms which, on the plaintiff’s case had already been agreed, and that it failed to do so. According to the plaintiff, this had two consequences in damages: first, the non-existence of a signed written lease resulted in the loss on the part of the plaintiff of the opportunity to participate in the proposed micro-brewery business; and second, the plaintiff lost the opportunity to take forward bookings because of the lack of security in relation to its tenure. Neither of these heads of damage can be made out for a variety of reasons. …
On the Judge’s findings the claim for damages had to fail. There was no breach by WBT of an obligation to provide a written lease embodying the terms on which Profile Events claimed agreement to lease had been reached. There was no such agreement. Profile Events was in occupation pending negotiations for a written lease. Accordingly, the damages claim must fail.
The Judge further found that as the interim arrangement had impressed on it a five year term, Profile Events had tenure for five years and this was sufficient to enable it to pursue the possible installation of a micro-brewery, and sufficient certainty to take forward bookings. Lack of a secure tenure was not a problem: at [124].
It is not necessary to decide this issue, and without further submissions I prefer not to do so. Profile Events claimed that, subject to exercising its rights, it had tenure for 15 years. There is a significant difference between that and a statutory five year term. The lack of a five year term was not the only problem that Profile Events faced. The parties were unable to reach agreement on, or failed to agree on, a number of relevant matters. If the failure by WBT to produce a lease in the terms pleaded by Profile Events was in fact a breach of contract, and if that lease should have been produced fairly promptly, it may well be that the failure by WBT was causative of loss. However, for the reasons indicated, I do not decide that point. It received little or no attention in argument on appeal.
Conclusions
In my opinion all orders made by the Judge should stand. The appeal should be dismissed.
SULAN J: I would dismiss the appeal, and I agree with the reasons of Doyle CJ.
WHITE J: I agree with the order proposed by the Chief Justice and with his reasons.
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