Profile Events Pty Ltd v West Beach Trust - [2010] SADC 52

DISTRICT COURT OF SOUTH AUSTRALIA
(District Court Administrative and Disciplinary Division)
PROFILE EVENTS PTY LTD v WEST BEACH TRUST
[2010] SADC 52
Judgment of His Honour Judge Burley
14 April 2010
CONTRACTS
FORMATION OF LEASEHOLD - AGREEMENT TO GRANT LEASE
Plaintiff sued for specific performance and damages for breach of an alleged agreement to grant a lease in respect of commercial premises owned by the defendant. Extensive negotiations between the parties both before and after the plaintiff entered into occupation of the premises - whether concluded and final agreement reached by the time occupation taken - nature and intent of agreement reached - effect of statutory provisions on agreement - Held: final agreement not reached.
Retail and Commercial Leases Act 1995 S20B, referred to.
Masters v Cameron (1954) 91 CLR 353; Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 631; Kriketos v Livschitz [2009] NSWCA 96; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd (2009) 103 SASR 354; Pacific Carriers Ltd v BNP Paribus (2004) 218 CLR 451; TOLL (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Allen v Carbone (1975) 132 CLR 528; Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173; Arjay Investments Pty Ltd v Morrison's Outdoor Catering Pty Ltd Unreported BC 9504537; Masters v Cameron (1954) 91 CLR 353; Australian Broadcasting Corporation v XIVth Commonwealth (1989) 18 NSWLR 540, applied.
Lezabar Pty Ltd v Hogan (1989) 4 BPR 9498, considered.

PROFILE EVENTS PTY LTD v WEST BEACH TRUST
[2010] SADC 52

The plaintiff claims declaratory relief, specific performance and damages in respect of an alleged agreement entered into between the parties in about late November, early December 2001 whereby the defendant agreed to grant a lease to the plaintiff in respect of land at West Beach.
The defendant denies that the alleged agreement for lease was entered into on the terms contended for by the plaintiff. The defendant’s case is that, in mid 2001, it called for expressions of interest in respect of a proposed lease of premises owned by it called the “Woolshed”. A Mr Friebe and a Mr Davies expressed interest in taking a lease, negotiations ensued and, by 1 November 2001, after an exchange of correspondence between the parties, the defendant had agreed to grant a licence to the plaintiff (incorporated on 26 October 2001) to occupy the Woolshed. By the 3^rd of December 2001 the defendant permitted the plaintiff to take exclusive possession of the Woolshed pending agreement by the parties of the terms to be included in a written lease. According to the defendant, final agreement in respect of the terms to be included in the written lease has never been reached.
The plaintiff has been in occupation of the premises since 3 December 2001. Although the parties contemplated the subsequent preparation and execution of a lease, they have failed to agree upon at least some of the terms to be included in that lease, particularly in relation to the permitted use of the premises and, allied to that, terms relating to noise abatement. No lease has been executed by them.
The defendant, by way of cross-claim, now seeks, amongst other things, arrears of rent, damages and possession of the premises.
It was common ground that, prior to the plaintiff’s entry into possession on 3 December 2001, the parties had discussed a number of terms including the rent and the term of the lease. Correspondence from the plaintiff referred to the proposed term as “5 + 5 + 5” years.
The plaintiff asserts that a binding agreement to grant a lease was entered into between the parties by the 3 December 2001, the terms of which included, at least, the area to be leased, the rental and periodic increases thereof, the period of the lease and two rights of renewal. The defendant says that other than rent, terms were not contractually agreed; the parties had only reached “consensus” (the word used by Mr Blue QC, counsel for the defendant) as to some of the terms to be included in the written lease, most of the terms of which were yet to be agreed. On the defendant’s case, exclusive possession was granted to the plaintiff pending the agreement of the terms of the lease. During such occupation the plaintiff was to pay the agreed rent. The defendant contended that, if the parties failed to reach agreement as to the terms to be included in the written lease, the plaintiff was obliged to return possession of the premises to the defendant, subject to any applicable statutory provisions.
The Trial
The trial of this matter commenced on 2 November 2009 and final addresses concluded on 26 November. The trial would have taken much longer but for an order requiring witness statements to be filed and exchanged prior to the trial. A direction was also given that, subject to rulings on admissibility, the examination-in-chief of all witnesses would be by the tender of a witness statement. Any oral examination-in-chief could only be undertaken by leave. During the course of the trial, the plaintiff tendered, with the consent of the defendant, 10 lever-arch folders of documents. The defendant tendered one lever-arch folder of documents. Written final submissions were prepared which I shall refer to respectively as PWS for the plaintiff’s written submission and DWS for the defendant’s written submission. They ran into nearly 90 pages for the former and over 130 pages for the latter. Each counsel spoke to the written submissions for in excess of one sitting day. Many points both factual and legal were debated.
The documents within the ten volumes of documents tendered by the Plaintiff are numbered sequentially. I shall refer to them by their tab number. The documents tendered by the Defendant are also numbered sequentially and I shall adopt the same approach when identifying documents from that volume except that the tab numbers shall be preceded by the letter D. In addition, several of the witness statements have attached to them various documents which have been identified alphabetically. I shall refer to those documents by the letter assigned to them and a reference to the author of the statement. Finally, various exhibits were tendered individually and marked in the usual manner as exhibit P or D followed by a number. I shall refer to these by that designation.
Background Summary
At this point it is helpful to relate in broad terms what occurred between the parties from July 2001 onwards. In providing this summary, I do not propose to refer to all factual disputes. There are not many of them anyway. My purpose is to set out a sequence of events so that a better understanding of the issues raised by the claim and cross-claim may be achieved.
A former tenant of the defendant had built the Woolshed a few years prior to 2001 with a view to conducting within the structure sheep shearing exhibitions and other activities. That project failed and the defendant acquired the building. It needed to be used so that revenue might be gained.
Mr Friebe and Mr Davies became aware that the defendant was calling for expressions of interest. Under the business name “Profile Events”, they forwarded, to the agent appointed by the defendant to call for expressions of interest, a written expression of interest. Mr Friebe’s expertise was in event management and Mr Davies’ expertise was cooking and catering. Following the initial approach, there were discussions between Mr Friebe and officers of the defendant. A “walkaround” was undertaken by Mr Friebe, Mr Davies and officers of the defendant on more than one occasion. Discussions between the parties led to revised expressions of interest being forwarded, in writing, by Mr Friebe and Mr Davies. Although it is not clear, I infer that the various written expressions of interest were penned largely by Mr Friebe. Parts of these written communications might correctly be said to have contained the language of a contractual offer, but the content and style of the documents for the most part used marketing and sales language.
From at least 21 September 2001, heads of agreement followed by a formal lease were stated by Mr Friebe to be the anticipated documentation[1].
[1] Tab 52
By the end of October 2001, Mr Friebe and Mr Davies had put a proposal to which the defendant responded positively. Mr Friebe was anxious to take occupation of the building so that he could commence setting up the proposed business of holding events of various types at the premises which were described by him as a multi-purpose function centre. Because other events had been booked for the premises, the defendant was unable to give exclusive possession until 3 December. However, it was agreed that a licence would be given by the defendant to enable occupation to be taken. The occupant was to be a company nominated by Mr Friebe. That company (the plaintiff) was incorporated on 26 October 2001 and was subsequently nominated by Mr Friebe to be respectively the licensee and lessee of the premises. The plaintiff occupied the premises under the licence from 1 November and subsequently took possession of the premises on 3 December 2001. Prior to 3 December, it was anticipated that before the plaintiff took possession as lessee, heads of agreement followed by a formal lease would be signed. On the day that possession was to be taken, the defendant by one of its officers informed Mr Friebe that the heads of agreement would be just as time-consuming to produce as a lease and consequently the requirement for a heads of agreement should be dispensed with. He said they should proceed straight to the lease document. Mr Friebe agreed to this on behalf of the plaintiff.
The plaintiff took possession of the premises on 3 December. At about that time, the defendant afforded the plaintiff the opportunity of dealing with the defendant’s architects in relation to the possible relocation of the kitchen at the southern end of the building. The relocation would have occurred if, as previously discussed by the parties, the defendant decided to use part of the Woolshed for its own purposes. The defendant asked for the plaintiff’s suggestions as to the possible relocation because it had a bearing on the area to be let by the defendant to the plaintiff and so effected the preparation of the lease. Mr Friebe met with the architects, Greenways, in late January 2002 who in turn reported to the defendant.
The first draft lease was not produced until July 2002. A total of eight drafts were prepared and discussed by the parties between July 2002 and August 2004. Initially, the comments of the plaintiff in relation to the early drafts did not descend into detail, but eventually Mr Friebe wrote in some detail as to why the particular draft was unsatisfactory. This was followed by the plaintiff’s instruction of a solicitor, Mr Johnson, to negotiate with the defendant’s solicitor as to the form of the lease.
During the course of these negotiations, an approach was made by Mr Friebe in early 2003 relating to a proposal to install a microbrewery at the premises. This was done in conjunction with a Mr Fergus McLachlan through his company Hop and Grape Pty Ltd. The proposal consisted of running a microbrewery in conjunction with a restaurant at the north-western portion of the Woolshed. There were detailed discussions between the parties between early 2003 and mid 2004 which included the preparation and exchange of plans reflecting changes to the premises to implement the proposal. Mr McLachlan gave evidence and said that he eventually walked away from the proposal because he formed the view that either the defendant was not seriously entertaining the proposal or alternatively was not competently dealing with it. These matters are material to the plaintiff’s claim for damages since, it was submitted, at the commencement of negotiations in relation to the microbrewery, and thereafter, there was no signed lease in existence. Because of this, the plaintiff asserted, it lost the opportunity of having a microbrewery established at the premises in conjunction with a restaurant thereby suffering pecuniary loss.
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.
The plaintiff also claims damages for loss of profits. In short, the plaintiff contended that the defendant was contractually bound to enter into a written lease containing the terms allegedly agreed, that it failed to do so and, as a result, the plaintiff lost potential bookings at the premises because it did not have secure long-term tenure.
Having provided a very sketchy outline of some of the dealings between the parties, it is clear that the primary point to be determined is whether or not by 3 December 2001, the parties had entered into a final and binding agreement whereby the defendant agreed to grant a lease of the premises to the plaintiff on the terms and conditions contended for by the plaintiff.
The Case Law
Both parties referred to Masters v Cameron[2] where three categories of cases involving negotiations which contemplated the execution of a formal contract were referred to[3]. The first two categories give rise to a binding agreement before the execution of a formal contract. The third category occurs where the parties do not intend to be contractually bound until a formal contract is entered into.
[2] (1954) 91 CLR 353
[3] at 360
Mr Murr SC, counsel for the plaintiff, initially contended that the dealings between the parties came within either the first category referred to in Masters v Cameron or within the category of case referred to in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd[4]namely:
The parties are content to be covered immediately and exclusively by the terms which they agreed upon, whilst they expected to make a further contract in substitution for the first contract, containing, by consent, additional terms[5].
[4] (1986) 40 NSWLR 631
[5] Para 2.7 PWS
By the end of his submissions, I took Mr Murr to contend that it was more likely that the plaintiff’s case came within the latter category.
The defendant contended that no final binding agreement was reached until a formal lease was signed.
This dispute requires an examination of the principles of law applicable to the formation of a contract. Mr Blue referred to Cheshire and Fifoot Law of Contract, 8^th Austn Ed, under the heading "Intention to create legal relations”[6]. The paragraph referred to deals with the case where, during negotiations for a contract, a document is brought into being which “on its face does not appear to be a contract as such, or else its status may be ambiguous, yet may contain quite detailed clauses and undertakings”.
[6] para [5.19]
The equivalent documentation in this case would be the correspondence exchanged between the parties prior to 3 December 2001 to which reference will be made once I have set out the applicable legal principles.
The learned editors continue:
Such a document may serve various purposes. It may be an aid to negotiations, stating where the parties have got to, or it may be an attempt to make a commitment of sorts, or it may be needed to show to a third party, such as a financier. A problem arises if one party considers that the document contains binding obligations and the other denies this. (Citations omitted)
The learned editors next state:
The question whether such a document can give rise to contractual relations is determined by ascertaining the objective intention of the parties.
It was submitted by the plaintiff, and not disputed by the defendant, that a court may look at the conduct of the parties subsequent to the making of an asserted agreement to determine if the parties intended to be legally bound[7].
[7] Kriketosb v Livschitz [2009] NSWCA 96 per Allsop P at [5] and the cases cited therein.
I would add to that reference Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd[8]. That case involved a proposed sub-lease between the parties. Heads of agreement were entered into, the final clause of which had provided that a legally binding sub-lease would only eventuate upon execution of a sub-lease agreement prepared by solicitors and signed by sub-leasor and the sub-lessee. Although the Full Court dealt with an appeal from a decision relating to an application to set aside a statutory demand, the members of the court had occasion to make observations about the construction of heads of agreement which contemplated a further document being signed by the parties.
[8] (2009) 103 SASR 354
It was held by Gray J (with whom Sulan J agreed) that a contract should be interpreted in accordance with what a reasonable person in the position of each party would have understood the contract to mean, i.e., an objective test is to be applied: Cf Pacific Carriers Ltd v BNP Paribus[9] and TOLL (FGCT) Pty Ltd v Alphapharm Pty Ltd[10].
[9] (2004) 218 CLR 451
[10] (2004) 219 CLR 165
Kourakis J, when dealing with post-contractual conduct and the construction of a contract, drew the distinction between such conduct constituting evidence of what terms are agreed to as opposed to evidence of the parties’ subjective intentions as to the meaning of the term. His Honour was of the view that evidence was admissible as to the former purpose but not for the latter[11].
[11] at [41]
Mr Blue referred to a number of cases to support his submission that, from an objective point of view, it should be inferred that the parties did not intend to enter into a binding contract of the type contended for by the plaintiff at or prior to 3 December 2001.
In Sinclair, Scott & Co Ltd v Naughton[12] the High Court dealt with a case where a memorandum containing short notes of the terms of a contract for the sale and purchase of a cattle station was drawn up by an employee of the sales agent after directors of the plaintiff and the defendant attended a meeting at the office of the sales agent. A sum of money was provided to the agent which was stated to be portion of the deposit in respect of the purchase of the property “on terms as arranged between the vendors and the purchasers”. The document contained a term that required the defendant/purchaser to “sign the contract for sale as soon as the same is available”. The purchaser then conducted himself for a time as if a bargain had been made, but he later repudiated the transaction before a formal contract was signed. The trial Judge considered the nature and importance of the transaction and the language of the memorandum that had been prepared. He came to the view that the parties regarded a more complete contract as essential and that what had been agreed was subject to the preparation and execution of a further document which would be the complete contract.
[12] (1929) 43 CLR 310

The High Court agreed with that conclusion. The majority, Knox CJ, Rich and Dixon JJ, said[13]:
We do no think the parties gave their final consent to terms by which they were content to be bound as a complete and exhaustive statement of their rights and liabilities. The transaction was one of some magnitude. It related to the transfer of an undertaking as a going concern, and unless the parties were entirely inexperienced they must have known that many subsidiary questions would require attention and arrangement before such a piece of business could be satisfactorily carried through.
(My emphasis)
[13] at 316:
Later their Honours said[14]:
We think, as a matter of construction, that the execution of the further contract was a condition or term of the bargain and not a mere expression of the desire of the parties as to the manner in which a transaction already agreed to will in fact go through. There was not a final consent of the parties such that no new term or variation could be introduced in the formal document to be prepared. On the contrary the formal contract might contain other terms than those which appear from or are alluded to in the letter, which expresses an agreement to make an indeterminate contract. The case is not one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing by consent, additional terms.
(Citations omitted)
[14] at 317:
Mr Blue next referred to Allen v Carbone[15]. In that case a real estate agent made an offer to the owner of certain real property to purchase the property on behalf of another person for a stated price. That offer was accepted and the owner signed a document by which he authorised the agent to sell the property to the other person for the agreed price and agreed to enter into a contract of sale “in form approved by the Real Estate Institute of New South Wales”. The stipulated deposit was paid and instructions were given to the solicitor nominated by the vendor for the preparation of a contract which was to be forwarded to the purchaser’s solicitors. The formal contract was never signed by the parties and the purchaser sought specific performance of the agreement relying upon the written authority to the agent.
[15] (1975) 132 CLR 528
The trial Judge dismissed the plaintiff’s suit on the basis that the parties did not intend to create a binding arrangement until the Real Estate Institute contract was signed by both parties. On appeal, the High Court (Stephen, Mason and Murphy JJ) said[16]:
No doubt it is right to say that the intention of the parties to a contract wholly in writing is to be gathered from the four corners of the instrument. The same may be said when parties have brought into existence a document intended to comprehensively record the terms of an agreement thus far reached, notwithstanding that it makes provision for the subsequent execution of a more formal contract which may contain terms not yet agreed. But even in these cases it is legitimate in the course of construing the document to have regard, when appropriate, to subject matter and surrounding circumstances. Here, however, we are concerned not with the construction of a written contract or document in the sense already discussed, but with an informal agreement arising out of an oral conversation, supplemented as it was by Ex. D.
It is common ground that this informal agreement amounted to a limited consensus, but it is disputed that what then occurred amounted to a concluded contract. In resolving this dispute it is legitimate to ascertain the terms of the agreement then made by the parties, that is to say, what the parties relevantly intended, by drawing inferences from their words and their conduct in the making of that agreement. Where parties reach an agreement which is expressed informally, whether in writing or orally, the terms of their bargain are not ordinarily recorded in meticulous detail in the words which they use. To ascertain the relevant intention it is often necessary to resort to inference, the process for which there is little or no scope when the parties have taken care to comprehensively record the terms of their agreement in written form.
[16] at 531
The court was of the view that the trial Judge was correct in finding that no concluded agreement had been entered into. They referred to the usual method of selling real estate in New South Wales which was by means of the signing and exchange of contracts in the form approved by the Real Estate Institute. They said[17]:
That no departure from this method was intended is suggested by the absence of any discussion on 11 July of the terms (other than price) which one would expect to find in a binding contract for sale of real estate. ……..[I]t was a preliminary agreement which was not in itself a binding contract.
[17] at 533
In Summit Properties Pty Ltd v Comserv[18], a decision of the New South Wales Court of Appeal, the parties, through their respective solicitors, negotiated the terms of a lease. A lease was drawn up and signed by the lessee but it was never executed by the lessor. The trial judge found that an informal agreement for a lease had been entered into as a result of an exchange of two letters between the solicitors. On appeal, Glass JA delivered the judgment of the Court. He came to the contrary conclusion. He said[19]:
Many contracts are made in an informal way when the parties have passed beyond the negotiating stage by reaching an agreement upon all the terms of the bargain. But there are other forms of negotiation in which the achievement of an agreement upon terms fails to produce a binding agreement because the parties contemplate that it is not the settlement of the terms but the completion of some ceremony which marks the state which the contract comes into existence. It is well understood that the exchange of contracts for the sale and purchase of land is such a ceremony without which a bargain of that kind cannot be struck. The terms of the correspondence between the solicitors already noted objectively evince an intention that neither client was to be bound by the memorandum of lease at the moment when all of the terms had been settled by the solicitors. Some further ceremony was required whether it was to be the contemplated lodgement for registration of a memorandum duly executed by the lessor’s solicitors or the earlier ceremony whereby both lessor and lessee both reciprocably bound themselves by bilateral execution of a registrable Memorandum of Lease. The correspondence shows that some ceremony or other was contemplated whereby both parties agreed to be bound by the terms hammered out by their solicitors. Agreement on terms was insufficient without an agreement to be bound by them.
[18] (1981) 2 BPR 9173
[19] at 9175
Next Mr Blue referred to the decision of Young J in Arjay Investments Pty Ltd v Morrison’s Outdoor Catering Pty Ltd [20]. In that case the Plaintiff signed heads of agreement for the lease of premises owned by the Defendant which contained the provision that the Plaintiff would pay the costs of the preparation of the lease whether the lessee decided to proceed or not and that if the parties failed to proceed with the lease the deposit monies were non-refundable. The Defendant signed a copy of the heads of agreement by its Director as did the Plaintiff, but the Director of the Plaintiff company altered the heads of agreement before signature. The Plaintiff paid a security deposit and went into possession and commenced renovation of the premises amounting to an expenditure of about $20,000. A draft lease was later sent by a firm of solicitors to the Plaintiff which was stated not to be binding until formally approved by the Defendant. It contained a provision, which had not previously been agreed, that if the Defendant wished to re-develop the premises it could terminate the lease by giving at least six months’ notice. The plaintiff objected to that clause on the basis that it would never have invested $20,000 on improvements if it could have obtained what was effectively no more than a lease terminable on six months’ notice. The Plaintiff in the proceedings sought a declaration that there was an agreement for lease and it sought specific performance of that agreement.
Young J said[21]:
The question as to whether there has been a binding contract in this sort of situation is one which is often difficult to resolve because one has to look at the intentions of the parties where the understanding they may have reached is contained in what might be called commercial correspondence, often imprecisely formulated. The Courts have worked out various guidelines to assist in coming to a conclusion as to whether there is a binding agreement. These are only guidelines and the actual evidence in a case, or the actual intention of the parties, will, of course, mean that one may have to put some of the guidelines to one side, but nonetheless they are helpful.
One of these guidelines is that where one has a lease of commercial premises one normally expects that the lease will only come into existence after there has been an exchange of formal documents; (citations omitted)
A second guideline is that if one can see in negotiations that the parties have in mind the preparation of a more formal document by a solicitor, one tends to think that they did not intend to be bound until the formal document was produced and exchanged.
Thirdly, the mere fact that the parties have hit upon a price or worked out the basic conditions of their agreement does not necessarily indicate that they have actually reached agreement; indeed it is not at all uncommon in a sale of land transaction for Estate Agents to prepare a document similar to a Heads of Agreement document in the present case for the purpose of being submitted to the solicitors for both sides so that they have some details from which they can draw a formal document. Mere agreement on the basics does not mean that there is an operative agreement. (citations omitted)
Thus in Kassabian v Lagonicos (1993) NSW ConvR 55-690 at 59, 943 McLelland C J in Eq said, “There must be more than the arrival of the parties at a consensus. The parties must intend that the consensus at which they have arrived should there and then constitute a binding contract.”
[20] Unreported BC 9504537
[21] at 2
Next, Mr Blue referred to Lezabar Pty Ltd v Hogan (1989) 4 BPR 9498 a decision of the New South Wales Court of Appeal. Gleeson CJ delivered the main judgment with which Kirby P and Priestly JA agreed.
The facts were that the parties had certain discussions during the course of a dinner party relating to the sale of the plaintiffs’ home to the defendants and on a later occasion in relation to the sale of the defendants’ home to the plaintiffs. Each couple had their own solicitors and each was in a general way aware of the ordinary course taken in conveyancing transactions in New South Wales. Before any contract was signed, possession was given by the owners of the respective properties to others in anticipation of a contract being signed. However, contracts were never signed. The issue before the court was whether or not there were concluded contracts for sale. The trial judge and the Court of Appeal said that no enforceable contracts had arisen.
Gleeson CJ stated[22] that the primary question was whether or not the parties intended to make a concluded bargain, citing Masters v Cameron[23].
[22] at 9500
[23] (1954) 91 CLR 353
He then referred to the decision of the New South Wales Court of Appeal in Australian Broadcasting Corporation v XIth Commonwealth Games Limited[24] where the court said:
That is not the same as, although in a given case it may be closely related to, question whether the parties had 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 course, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect in which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
[24] (1989) 18 NSWLR 540
Gleeson CJ said[25]:
When reference is made to the “intention” of the parties, it is to be borne in mind that, ordinarily, the test of contractual intention is objective. There are some cases in which the issues are such that subjective intention is in question. They would include cases where there are disputes about mistake, misrepresentation, duress or undue influence. Ordinarily, however, what is in issue is not the subjective stated mind of the individual parties but their “intention as expressed”. (citations omitted)
[25] at 9500
His Honour pointed out that the facts of the case were of the type dealt with by the High Court in Allen v Carbone[26], a case where the parties made an “informal agreement” which amounted to a “limited consensus”.
[26] (1974) 132 CLR 528
Gleeson CJ was of the view that in making a decision as to whether or not the parties have manifested an intention to enter into a concluded contract “the court will construe their language, and characterise their conduct where appropriate, by reference to any surrounding circumstances which are properly to be regarded as throwing light upon their intention”. His Honour considered that conveyancing practice in New South Wales was a surrounding circumstance of substantial importance because “the form of contract ordinarily used contains important provisions for the protection of both parties, and the court would not likely attribute to knowledgeable parties an intention to forego such protection”.
As to subsequent conduct, he said[27]:
Reference may be made to the communications between the parties subsequent to the date of the alleged oral agreement for the purpose of showing that “it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such nature” (Citations omitted).
[27] at 9501
Those cases, in my opinion, set out the principles to be applied when examining the question as to whether or not the parties entered into a binding agreement independently of the written lease both parties clearly anticipated would be prepared and executed by them.
Because the Plaintiff has pleaded that a binding agreement for lease was struck prior to or at the time that the Plaintiff entered into possession of the premises on 3 December 2001 and that that agreement was subsequently varied by further agreement between the parties, there are two stages of negotiations to be examined. First, whether a binding agreement for lease had been entered into by 3 December 2001 and second, whether that agreement was subsequently varied by further agreement between the parties.
The Facts
I turn now to the facts concerning the plaintiff’s case on liability.
The witnesses called by the parties are as follows:
By the Plaintiff -
·Andrew Cranage Friebe, a Director of the Plaintiff
·Fergus Robert McLachlan, a prospective business partner of Mr Friebe in relation to the proposed micro-brewery
·Bikran Kumar, an Architectural Draughtsman whose employer was retained by Mr Friebe and Mr McLachlan to prepare various plans
By the Defendant -
·David James McArdle, the Chairman of the Board of the Defendant
·Ronald Charles Shattock, the CEO of the Defendant
·Robert Allen Hawke, an employee of the Defendant
·David White, an employee of the Defendant
·Andrew Davies, the other director of the Plaintiff
The following consists of my findings relating to the dealings between the parties from mid 2001 to 3 December 2001. There may be some repetition of the facts already referred to by way of summary. What follows will consist of my detailed findings which bear upon the question of whether or not the parties manifested an intention to be contractually bound in the manner contended for by the Plaintiff or whether, as the Defendant contended, there was, at best, merely an interim agreement for occupation of the premises to be taken pending finalisation of the terms to be included in a written agreement. It was the defendant’s case that, if and when those terms were agreed, they would be reduced to writing and the resulting document would be executed.
There were not many material disputes of fact. I shall deal with those as I progress with the narrative.
I commence with a description of the Reserve. Most of the evidence giving rise to these findings is referred to in PWS at paragraphs 2-10. I shall not repeat those detailed references. The Woolshed is situated on part of the West Beach Recreation Reserve which was created in 1954. It is approximately 135 hectares in area consisting of parklands roughly between the western boundary of Adelaide Airport and the sand dunes of West Beach. It contains a holiday village immediately to the south of the Woolshed and a caravan park immediately to the north of the Woolshed. The Reserve includes a golf course, sporting fields and provision for boating including launching ramps. There is a walking/cycling trail which runs in a north/south direction immediately to the west of the western perimeter of the Woolshed.
The Defendant (which I shall sometimes refer to as “The Trust”) was created by Act of Parliament in 1954 and continues its existence by virtue of another Act of Parliament passed in 1987. The Trust is a statutory authority and body corporate. Its principal activities include the provision and administration of accommodation facilities such as the holiday village, caravan resort, sporting facilities, boating and water sport facilities and walking and cycling trails.
The Trust earns income, particularly from the provision of accommodation, and it uses surplus income to fund development and maintenance of the facilities on the Reserve.
The 1987 Act which repealed the 1954 Act requires the Trust to administer and develop the Reserve as a sporting, cultural and recreational complex and as a tourist attraction and resort.
In relation to the holiday village, the Trust prepared a Master Plan[28] which was completed by February 2001. It refers to the Trust’s proposal to build additional villas on the northern end of the village adjacent to the southern end of the Woolshed.
[28] Annexure A to the Witness Statement of Mr McArdle
On the first day of the trial a view was taken of the Woolshed[29]. It is a large timber and steel-framed structure consisting of several large interconnected areas referred to as the kitchen/restaurant area, the interpretive display area, the main auditorium (which has a stage at its western end) and the storage area situated at the north-western corner of the building. The building was constructed in 1998 for a company called Woolshed Investments Pty Ltd which occupied the land pursuant to a lease granted by the Trust. The premises were licensed.
[29] Notes of the view are at T 42-45
In February 2000 Receivers were appointed to Woolshed Investments. A termination of the lease was negotiated.
In about mid-2000 the Trust considered the relocation of its administration into part of the Woolshed, combining the holiday resort and caravan park receptions in a single facility within the Woolshed. By early 2000 the Trust had made a decision, in principle, to proceed with these proposals.

Prior to 3 December 2001, various functions were held at the Woolshed including wedding receptions, birthday celebrations and corporate functions. On 20 May 2001 a dance arranged for young people by a business called “Total Euphoria” took place. It became a cause for concern to the Trust. Loud music was played, there was traffic congestion and minor damage to the Woodshed occurred.
I mention at the outset that the defendant challenged the credibility of Mr Friebe’s evidence. The defendant contended[30]:
At no point during any of their discussion prior to 3 December 2001 did Friebe or Davies raise with the other any notion of holding dance parties or raves or music events over multiple rooms or outside.
[30] at DWS 11.4
Further reference to this is made at paragraph 7 of an additional written outline handed up by Mr Blue during the course of his final address. In both instances, reference is made to paragraph 8F of Mr Davies’ statement[31]. Mr Davies said that neither he nor Mr Friebe raised with the other “any notion of holding dance parties or raves or music events over multiple rooms or outside”. At DWS para 11.4 reference is made to some evidence given by Mr Friebe[32] as a possible “suggestion to the contrary”. When that passage from the evidence is examined, it refers to whether or not Mr Friebe made mention of having “music festivals” to any of the defendant’s officers. Mr Friebe said that he had discussed with Mr Hawke events held by Total Euphoria. He said that he told Mr Hawke:
We would probably like to do some of those types of things ………
[31] Ex D38
[32] T132: 28
I assume that reference to “we” is a reference to himself and Mr Davies and “those types of things” is a reference to loud musical events as held by Total Euphoria in the past. What Mr Friebe said in evidence does not conflict with what Mr Davies said at paragraph 8F of his statement because all that he was referring to in that paragraph were conversations between himself and Mr Friebe. Be that as it may, there were other aspects of Mr Friebe’s evidence challenged by the defendant and I shall return to the question of the credibility of his evidence in due course.
The defendant retained property consultants, FPD Savills, to call for expressions of interest in respect of The Woolshed. They produced a brochure which is Appendix A to Mr Friebe’s statement[33]. Mr Davies obtained a copy of that brochure in June 2001 from a Mr Rob Williamson of Savills. The plan contained in the brochure depicts only internal areas of The Woolshed building.
[33] Ex P2
Both Mr Hawke and Mr Davies gave evidence of Mr Hawke conducting a “walkaround” with Mr Friebe and Mr Davies in respect of the premises in June 2001. Mr Hawke, during the course of the tour, referred to the Trust’s plans to build further holiday units immediately to the south of the southern end of The Woolshed. When asked about his recollection of such a statement having been made during the walkaround in June 2001 Mr Friebe said[34] that he had no recollection, but he did not dispute that it may have been said. However, very shortly thereafter[35], he suggested that Mr Hawke and others who gave evidence to a similar effect in respect of a meeting on 6 August 2001, were wrong. The other witnesses, Mr Shattock, Mr McArdle and Mr Davies all said that the plan to build villas adjacent to the southern end of The Woolshed was discussed on 6 August 2001.
[34] at T289: 12
[35] See also T291:29, T292:6
In my view, the evidence of Mr Hawke as to what he said during the walkaround in June and the evidence of the other witnesses as to what was said on 6 August 2001 is to be preferred. Mr Friebe allowed for the fact that he was told of this in June during the walkaround but did not accept that the topic was discussed on 6 August 2001. I consider it unlikely that the question of building villas near The Woolshed was omitted from the conversation on 6 August. It was clearly a matter of concern to Mr Shattock, Mr McArdle and Mr Hawke that any proposed use of The Woolshed did not detract from the running of the holiday villas by the Trust by the spillage of noise from The Woolshed function centre into the holiday villa area. This was clear from the evidence given by Mr Hawke (which I accept) as to what was said to all tenderers. He said[36]:
I recall as part of the walkaround process of introducing all the tenderers to the business that there was discussion on noise, and it was particularly in relation to that we were having new cabins built at the new village to the northern end, and obviously that if we have some functions that were a little noisy, whether it would be through music or whether it be through people leaving the carpark, that was one of the concerns of the Trust: that that would be one of the things we need to look at – all parties need to look at – down the track.
[36] T2039:4 et seq
After the walkaround, Mr Friebe and Mr Davies forwarded an expression of interest to Mr Williamson of Savills[37]. Mr Williamson forwarded the expression of interest to Mr Shattock on about 3 July.
[37] Tab 38
The 6 August meeting was attended by Mr Shattock, Mr McArdle, Mr Friebe and Mr Davies. The meeting took place at The Woolshed. Mr McArdle and Mr Shattock raised the possibility of the Trust relocating its offices and the holiday village reception into The Woolshed. He also referred to the importance of a restaurant being conducted in The Woolshed. As referred to above, I accept that they mentioned that the Trust planned to build more cabins on the northern end of the holiday village adjoining the southern end of The Woolshed.
Mr McArdle suggested that the rent proposed in the first expression of interest be increased and that it combine a base rent with a turnover rent. There was also discussion of the possible redevelopment of The Woolshed. Mr Friebe said that the turnover rent was linked to the redevelopment but Mr McArdle and Mr Shattock stated to the contrary. Nothing turns on this difference.
At the meeting on the 6^th of August 2001 a copy of the master plan relating to “Adelaide Shores”[38] was provided to Mr Friebe and Mr Davies. The master plan included a number of references to the future expansion of the holiday villas.
[38] Annexe A to Mr McArdle’s Statement – D25
Mr Friebe and Mr Davies submitted a revised proposal on about the 24^th of August 2001.[39]The proposed business activities were described as follows:
MULTIPURPOSE FUNCTION CENTRE – Utilising the entire complex to offer a professional, flexible, fully catered venue capable of attracting all levels (high, med. and lower end of private, corporate and government functions/events including trade shows, conferences, seminars, product launches, weddings and private celebrations, gala and special entertainment events, theatre and live performances, dinner/concepts etc.) this would include dry hire of the venue through to full food and catered functions.
[39] Tab 42
The proposed leasing structure, referred to as a “revised offer”, provided for a “5+5+5” lease period, a minimum rent and a turnover rent and payment of rates and taxes up to $15,000 per annum. Calculation of the turnover “would be most likely evidenced by Aust. Tax Office BAS returns”. The document also provided for a second option in relation to rent.
The next material contact between the parties was by way of a telephone conversation between Mr Shattock and Mr Friebe whereby Mr Shattock advised Mr Friebe that the Trust’s preferred option was to relocate its offices and the holiday village reception into the Woolshed in the area then consisting of the kitchen and restaurant. Mr Friebe was also advised that the Trust had a preference for a restaurant to be operated from the premises.
Next a document headed “revised leasing offer – September 21^st 2001”[40] was forwarded to the Trust. The document referred to the Trust’s preference to occupy the current kitchen and restaurant area which, if it occurred, was accepted by Mr Friebe and Mr Davies.
[40] Tab 52
Reference was also made to a “Restaurant / Café”. Mr Friebe and Mr Davies indicated their preparedness, in principle, to provide such a facility. They then said:
“Whilst further discussions are obviously required between the stakeholders to fully develop a viable and workable concept, we offer the following as an outline of the main identified criteria and components we can provide in making this a viable endeavour with the Adelaide Shores environment and for all concerned…”
As to “Improvements and Capital Works” they stated that they “looked forward to participating in the discussions for planning, development and design of the works proposed by the Trust at the Woolshed”. An example was given of a possible timetable as follows:
OCTOBER 01 – Completion of interim lease/heads of agreement.
NOVEMBER 01 – MAY 02 – Profile events occupies and operates facility as is whilst planning for various capital works as required. New kitchen and restaurant facility completed during this time ready for change over.
The document refers to proposed business activities in the same terms as the previous proposal. The timetable refers to an “interim lease/heads of agreement”. This and the fact that the proposed business activities “could be” so described indicates to me that further discussions would be necessary before a final agreement was reached.
The document again provided two options in relation to the rent. The first as a specified minimum rent of $65,000 per annum but otherwise by reference to a percentage of turnover. As with the earlier proposal, six months’ rent free was proposed and rates and taxes were payable up to a total of $15,000 per annum.
The final “summary” is as follows:
The above is, as previously mentioned, an overview of the salient points for Profile events establishing a successful lease of the Woolshed Complex. We look forward to receiving a positive commitment from the Trust to formalise this expression of interest process and expedite a mutually beneficial association for all parties concerned.
In late September, according to Mr Shattock, or mid-October according to Mr Friebe, Mr Shattock advised Mr Friebe that Profile events, then still only a business name, had been selected as the preferred applicant but that the Trust would not accept a “break clause” referred to in previous expressions of interest which, if it had been agreed, would have enabled the nominated lessee to terminate the lease within 12 months of its inception. This discussion was followed by a fourth proposal from Mr Friebe and Mr Davies received by the defendant on the 12^th of October 2001[41]. The revised “offer” was accompanied by a covering letter the second paragraph of which is as follows:
I trust this captures the salient points and provides a successful basis for us to continue into a treatment phase as the preferred party for the formation of a heads of agreement and full lease document.
[41] Tab 56
The revised proposal did not contain a break clause. It repeated an earlier suggestion that turnover figures “would be most likely evidenced by Aust. Tax Office BAS returns”. The document also contained the suggestion:
A date of occupancy is suggested to officially commence on the date of signed acceptance of completed lease documents by both parties.
Clearly, as at 12 October 2001, Mr Friebe understood occupancy to be dependent upon an executed lease.
On 18 October 2001 Mr Friebe and Mr Davies met with Mr Shattock and Mr Hawke at the Woolshed. Mr Friebe said that his personal assistant, Maree Taylor, also attended. According to Mr Friebe, Mr Shattock said that the Trust had decided to relocate its offices to the Woolshed and that, because of that decision, a turnover rent was what the Trust required. Mr Shattock said that he did not announce a final decision on the part of the Trust to relocate its offices. It was his recollection that he informed Mr Friebe that it was likely that the Trust would relocate its offices and the holiday village reception to the area consisting of the existing restaurant and kitchen. He said that, in that event, the Trust would construct a replacement restaurant, kitchen and toilets. Mr Shattock denied that the rent based on a percentage of turnover was tied to the question of the relocation of the Trust’s offices.
It was submitted that I should accept the version put forward by Mr Shattock and supported by Mr Hawke.
The effect of what Mr Friebe contended for was that a final agreement had been reached in relation to the relocation of the Trust’s offices, the place where they would be relocated to and the nature of the building work to be undertaken to implement such an agreement. Reference was made to an expense allocation sheet[42] which contained a list of building and other items which would be necessary if the Trust relocated its offices. This was produced at the meeting and the quantum of likely costs was discussed. These amounts were the parties’ respective estimates and, as such, do not support the contention that a binding agreement was reached. Professional estimates needed to be obtained as occurred later in the parties’ dealings with one another.
[42] Tab 61
When comparing the two versions of what was said on 18 October about the Trust occupying part of the Woolshed, the emphasis placed by each of the parties is quite different. Mr Friebe’s version is to the effect that an agreement was reached, and Mr Shattock’s version is to the effect that the subject was discussed but a final agreement had not been reached. This difference of approach has often occurred during the course of this matter. On the one hand, the plaintiff contends for a sufficiently clear and binding agreement having been reached prior to 3 December, whereas the defendant contends that topics were discussed in respect of which, in some instances, at best, the only agreement reached was that the written agreement contemplated by the parties would contain such a term.
As to what transpired on 18 October, I am far from convinced that the defendant through its officers committed itself to a specific agreement in relation to relocation of its offices, the nature of the work to be undertaken to implement such an intention and by whom costs were to be borne in relation to such work. I consider that it is far more likely that the topic was discussed between the parties on 18 October in some detail but without any attempt by either party to reach final agreement in that regard. I consider Mr Friebe’s evidence on this (and other) points of difference to be unreliable. When pressed on points of difference such as this, he tended, after some pause, to give answers expressed in an uncertain manner, but, more often than not, to an effect which he perceived might support his case. Although the evidence of Mr Shattock (and Mr McArdle) was not entirely free of favourable reconstruction of events in areas where there is a conflict, their evidence, taken as a whole, is more reliable than Mr Friebe’s. I accept the evidence of Mr Shattock and Mr Hawke that the question of relocation was raised by Mr Shattock informing Mr Friebe that the Trust was likely to relocate and that that statement was followed by a discussion of the nature of the building work and the estimated costs thereof as referred to in the expense allocation sheet. No contractual agreement as to this aspect of the matter was reached, then or at any other time. This conclusion is consistent with the letter dated 30 November 2001 referred to at para 12A below.
The parties also discussed on 18 October the time at which and the basis upon which Profile Events might commence occupation of the premises. Mr Friebe wanted to commence occupation by 1 November. He was informed that other persons conducting functions on the premises would have access to the premises up to 3 December and consequently he could not have exclusive occupancy until that date. Apparently Mr Friebe wished to store some balloon equipment on the premises. This was agreed to on the basis that between 1 November and 3 December he would have a license to use the premises for that purpose. There was some subsequent dispute between the parties as to whether or not that license was to be reduced to writing. It is not a material dispute because it was common ground that Mr Friebe had the defendant’s permission to use the premises for the storage of the balloon equipment between 1 November and 3 December.
It was also common ground that during the course of the meeting on 18 October Mr Friebe produced a revised offer dated 18 October 2001 relating to the proposed leasing structure[43].
[43] Tab 58
By letter dated 18 October 2001[44], Mr Shattock wrote to Mr Friebe referring to the revised offers of 11 and 18 October and their meeting on 18 October. Several matters were covered in that letter including a request to Mr Friebe to nominate a lessee and to confirm that, if the lessee is a company, the directors are prepared to sign a directors’ guarantee. The letter concluded that if the matters raised therein were agreed to, Mr Shattock would arrange for the preparation of a license to enable occupation from 1 November and heads of agreement to enable exclusive occupation from 3 December 2001.
[44] Tab 60
By letter dated 22 October 2001[45], Mr Friebe and Mr Davies replied to Mr Shattock’s letter of 18 October. Forwarded with the letter of 22 October 2001 was a revised offer whereby Mr Friebe and Mr Davies agreed to the matters raised in Mr Shattock’s letter dated 18 October. In relation to the proposed directors’ guarantee, the letter of 22 October 2001 stated:
We are prepared to accept normal commercial terms and Directors’ Guarantees and will be able to provide other requested details within a few days.
[45] Tab 62
By that I take Mr Friebe and Mr Davies to have meant that they would sign guarantees which contained normal commercial terms, whatever that phrase may mean. Such an agreement is inchoate and therefore cannot be characterised as contractual.
After the plaintiff confirmed its agreement to the matters raised in the Trust’s letter, there followed dealings between the parties with regard to the preparation of the heads of agreement and a lease and the transfer of the Liquor License relating to the Woolshed.
By paragraph 12A and 12B of the amended statement of claim the plaintiff pleads:
12A. On 30 November 2001 the defendant wrote to the plaintiff confirming the parties had entered into a lease agreement under terms discussed and forming part of the plaintiff’s submissions.
12B. In the premises on or about 30 November 2001 or, alternatively, on 3 December 2001, the plaintiff and the defendant entered into an agreement whereby the defendant agreed to lease to the plaintiff the premises upon the following terms …..”
There followed 16 specific terms said by the plaintiff to have been agreed to by both parties in a binding way by, at the latest, 3 December 2001. In addition, in paragraphs 12C (which was amended by leave during course of the trial) and 12D, the plaintiff asserted that certain implied terms were contained in the agreement between the parties.
Mr Murr, in his final address, conceded that not all of the terms contended for had been established by the plaintiff.
The letter of 30 November 2001[46] referred to in Paragraph 12A is as follows:
In acknowledgement of the expression of interest lodged by you, subsequent discussions and your revised offer of 22 October 2001, this letter confirms my verbal advice that your offer has been successful and the Board of the Trust has resolved to enter into a lease over the premises with your company under terms discussed and forming part of your submission.
The term of the lease is 5 + 5 + 5 years for the conducting of an exhibition and function centre together with a restaurant/café facility available to the public and guests of Adelaide Shores accommodation properties.
The lease document is now being prepared to reflect the terms agreed and to meet the conditions of the commercial and Retail Shops (sic) Act.
Your occupation of the premises from 1 December is agreed to subject to the successful execution of the lease.
[46] Tab 76

On the same day the defendant through Mr Shattock sent an additional letter to Mr Friebe which is as follows:
As discussed verbally we need to include within the lease the future intention of changes to the premises including the excising of the restaurant from the leased area to the Trust for its administration office relocation.
We will also need to define the general location within the building that the new restaurant/café, kitchen and toilets are to be constructed.
Could you please give this your consideration and provide indicative areas on the attached plan[47].
[47] Tab 77
On 3 December 2001 the plaintiff commenced exclusive occupation of the premises. On about 16 November 2001, Mr Friebe had forwarded to Mr Hawke a draft “wish list” which contained numerous items concerning the prospective occupancy of the premises by the plaintiff on an exclusive basis. These included, by paragraph 3 under the heading “Operational”, reference to “Heads of agreement (by end of Nov) (by H of Ag. Stage) Lease drawn up for in registrable form”.
On 3 December, Mr Friebe and Mr Davies met with Mr Shattock and Mr Hawke on the site. Several things were discussed including the proposed heads of agreement and lease. It was common ground that Mr Shattock advised Mr Friebe and Mr Davies that the Trust had received advice that there was no point in having heads of agreement prepared because it would require as much work to prepare such a document as it would a full lease. It was agreed that heads of agreement could be dispensed with and that the parties would proceed with the preparation and execution of a written lease.
In setting out the facts up to 3 December, I have not descended into the detail covered by both counsel in their final addresses. That detail included an examination of disputes of fact: e.g. whether, prior to 3 December, any of the defendant’s officers mentioned that the defendant intended to build additional holiday villas near the Woolshed; and, allied to this, whether the degree of noise generated by any particular function was discussed.
As I understand it, these and other factual disputes were said to be important in deciding whether a binding agreement to grant a lease on the terms contended for by the plaintiff was arrived at by 3 December. In relation to the question of noise, the effect of the plaintiff’s submission was that the noise generated by events was not discussed, or if it was, limitations on noise did not become a term of the agreement for lease. The defendant said noise was discussed but did not suggest that an actual or proposed term as to noise was agreed upon. Expressed in that way, there was no material dispute. Both parties agreed that no term as to noise, actual or proposed, was expressly agreed to before 3 December.
Noise was an important consideration. The Trust did not want the activities conducted at the Woolshed to distract from the enjoyment of the nearby holiday villas by holiday-makers. Any objective assessment of the circumstances in which the parties negotiations took place would have revealed this importance. Similarly, noise was important to a proposed lessee because the lessee would not want to be unduly restricted. It seems to me, therefore, that the fact that the parties either did not mention or did not agree terms as to noise prior to 3 December 2001, indicates that a final and binding agreement had not been reached by them.
Any other factual disputes raised by the parties as to events up to 3 December 2001, however they may be resolved, do not alter the conclusions to which I have come.
It is by reference to these matters that the plaintiff asserts that a completed agreement was reached between the parties containing all the essential terms for a lease including the area to be leased, the rent to the paid, payments regarding rates and taxes, rent reviews, rights of renewal and the permitted use of the premises. On the plaintiff’s case, no terms at variance with what had been agreed could be added without the consent of both parties. In the absence of such agreement, the agreement to grant a lease was confined to what had been agreed to by 3 December 2001.
The plaintiff’s case is dependent upon the finding that the alleged agreement reached was contractually binding. The plaintiff said that such an agreement was subsequently varied by agreement between the parties but that argument can only be made good if I conclude that by 3 December 2001 a contract (capable of being amended) had been entered into. In other words, if the plaintiff fails to establish that such an agreement was entered into, it must necessarily follow that there could be no subsequent enforceable variations. Nevertheless I must allow for the possibility that a binding agreement was entered into, not by 3 December 2001 but by the time that the parties had agreed on what the plaintiff contended were variations of the original contract.
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 have in any event formed the view that what occurred on and after 3 December (as well as before) leads inevitably to the conclusion that the parties by their conduct, viewed objectively, did not manifest an intention to be contractually bound in the various manners contended for by the plaintiff either before, on or after 3 December 2001. In arriving at that conclusion, I have taken into account the plaintiff’s case regarding variations to the original agreement being allegedly agreed to by the parties after 3 December 2001. As I have said, there cannot be a legally binding agreement to vary a non-existent contract. The latter is dependent on the former for its enforceability. That is not to say that parties who have agreed upon the terms to be included in a contract cannot thereafter vary those terms both before and after entry into a binding contract (if that occurs). If they agree to vary proposed terms prior to entering into the contract, no contract is thereby created by those variations. The parties remain at the negotiation stage from which each may at any time withdraw. Apart from agreeing that the plaintiff would take possession from 3 December 2001 and pay rent from 3 June 2002 pending agreement of the terms of a written lease, subject to the provisions of the Retail and Commercial Leases Act, this is what occurred between the plaintiff and the defendant in late 2001.
I should state my reasons for arriving at this conclusion. In a case such as this, the conclusion that the parties intended to be bound as alleged by the plaintiff can only be based on inference. There was no direct statement to that effect by either party prior to 3 December. Parts of the various “expressions of interest” as submitted by Mr Friebe and Mr Davies contain language couched as an “offer” or “revised offer”. This is the language of contract. But, the documents also contain the language of a promoter or marketer which is often imprecise. In addition, an expression of interest does not necessarily give rise to an offer which, if accepted, becomes a contract. More often than not, an expression of interest indicates a willingness to discuss proposed terms to be included if “consensus” as to those terms is reached.
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 correspondence48 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.
48 Tab 76
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.
It follows that the plaintiff has failed to establish an agreement for lease containing the terms and conditions, expressor implied, referred to in the statement of claim. The plaintiff recognised this to some degree when Mr Murr accepted that not all of the pleaded terms had been established by the evidence. I have concluded that a very much more limited agreement was arrived at by the 3^rd of December 2001 and that nothing which occurred thereafter between the parties altered the nature of that limited agreement. It must follow from my conclusions that the plaintiff’s claim for specific performance of an alleged agreement to grant a lease has not been made out.
The Retail and Commercial Leases Act 1995 (the Act)
The defendant’s primary position was that, because no agreement was reached between the parties, there could be no lease within the meaning of the Act and therefore the provisions of the Act would not apply. However, the plaintiff accepted49 that if the parties entered into an interim agreement pending negotiation and execution of a written lease, s 20B of the Act would apply and extend its term to the 2^nd of December 2006.
49 DWS para 174
I have concluded, as a matter of contract law, that the only agreement reached between the parties was one whereby the defendant permitted the plaintiff to take possession of the premises for the purposes of carrying on its business pending the agreement between the parties of the terms and conditions to be inserted in a formal written lease. To the extent that rent became payable, it was to be paid in accordance with the agreement reached between the parties prior to the 3^rd of December 2001 for the payment of rent. The requirement to pay rent only commenced on the 3^rd of June 2002 because the parties had agreed upon a rent free period of six months. It is not clear from the evidence, but it is at least possible that the parties as at the 3^rd of December 2001 anticipated that the agreement of the terms to be included in a written lease would be achieved within that six month period. However, when that did not occur, the plaintiff commenced to pay rent although, according to the plaintiff, there was a failure to pay that component of the rent based on turnover.
Again it is not clear, but it may well have been that neither party realised that, if the provisions of the Act did apply, the interim agreement might have impressed upon it a minimum term of five years by virtue of s 20B of the Act. The relevant parts of that section are as follows:
20B – minimum five 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 is worked out under this section on the assumption that any right or option of renewal or extension under the lease or 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.
Because of that section, the contractual agreement reached on the 3^rd of December 2001 whereby the plaintiff was to be given occupation of the premises pending agreement of the terms to be included in a written lease, was converted, in my opinion, into a lease for a period of five years.
Before leaving the topic of the length of the term of the interim lease, I should, for the sake of completeness, deal with the plaintiff’s argument that the parties had agreed to two 5 year periods of renewal the first option for which had been validly exercised. Originally, in the statement of claim, it was pleaded that the option was to be exercised by reference to a reasonable period of time i.e. a reasonable period of time (prior to the expiration of the lease) should be allowed for the defendant to obtain a new tenant should the option not be exercised. By amendment, the plaintiff pleaded instead that the option could be exercised at any time prior to the expiry of the relevant five-year period. Mr Murr relied upon Tsaoucis v Gallipoli Memorial Club Ltd50 which involved the exercise of a right of renewal by a tenant who was lawfully holding over after the expiry of the lease. Mr Blue distinguished that case on the basis that the parties had executed a formal lease which contained no provision relating to the time by which the option to renew was to be exercised and that the tenant was lawfully in occupation of the premises when the option was exercised.
50 (1998) 9 BPR 16, 265
I agree that that case is materially different from this matter for the reasons advanced by Mr Blue and that the approach taken by the court in that case does not apply to this matter.
The plaintiff purported to exercise the right of renewal two weeks prior to the expiry of the first five-year term. Even if, contrary to my conclusion that no agreement for lease as contended for by the plaintiff had been entered into, there was such an agreement, in my opinion no implied term could arise enabling the exercise of the option prior to the expiry of the primary term. At best, a reasonable time before expiry would be implied. The length of a reasonable time is determined by reference to the time it would take the defendant to obtain a new tenant so as to reduce to a minimum the period during which the premises might remain unlet. It would, in my view, be a matter of months rather than two weeks.
In summary, the position as at the 3^rd 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 3^rd 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.
Damages
That leaves for consideration the question of damages. 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. First, there has been no contractual breach giving rise to the alleged losses. Second, the nature of the agreement reached by the 3^rd of December 2001 was in one sense very limited but in another sense, because of the 5 year period of the lease, quite secure. Provided that the plaintiff paid rent in accordance with what had been agreed, it was entitled to hold the premises for a period of 5 years. The view of Mr Friebe that his tenure was insecure because a written lease had not been provided by the defendant was erroneous. As a matter of law, the plaintiff had a 5 year tenancy. Thus, any lack of future bookings based on an alleged lack of a secure tenure did not result from any breach on the part of the defendant of the terms of whatever arrangement was reached between the plaintiff and the defendant by the 3^rd of December 2001. The same reasoning applies to losses allegedly arising from the fact that the micro-brewery never became an established and permanent part of the business run at the Woolshed.
Although I have found for the defendant on the claim, and will, in due course, proceed to dismiss the plaintiff’s claim against the defendant, I have given consideration to whether or not it is appropriate to assess damages. It sometimes occurs that, for the sake of completeness, the court will address matters of damages even where the claim for damages has not been successful. Unfortunately, in my opinion, this is not such a case. Where the determination of liability consists of a choice between one of two possible conclusions, it is more often than not appropriate, where the plaintiff has failed to establish a case for damages, to assess damages on the assumption that the plaintiff had established a case for damages. In those circumstances, if the trial judge’s decision is appealed against, issues of both liability and damages have been dealt with by the trial judge. However, in this case, the question of the success or failure of the plaintiff’s case involves relatively complex legal and factual conclusions which present a variety of bases upon which a decision, one way or the other, may be made. The appropriateness of assessing damages then becomes a question of deciding what, upon appeal, is the most likely basis of the plaintiff establishing a case for damages in its favour. In this case, the difficulty of usefully assessing damages lies in the fact that, on the facts and the law, there are potentially a number of ways in which the plaintiff may have been successful. For example, in broad terms, the plaintiff relied upon breach of contract as the principal basis of its claim, but the terms allegedly breached were many and varied and were contained in either the original agreement reached by the 3^rd of December 2001 according to the plaintiff, or by breach of terms that, on the plaintiff’s case, were agreed to by way of variation of the original terms. The plaintiff has also relied on allegations of unconscionable conduct and estoppel supporting, on its case, the contention that an agreement of the type relied upon by the plaintiff had been entered into.

Within that pleading framework, even allowing for the fact that by the time the final addresses were delivered a more straightforward case on damages was relied upon by the plaintiff, the possible findings both as to the nature and extent of the terms agreed upon and the manner at which any given term was breached are many and varied all of which potentially have a bearing upon how damages are to be assessed.
One of the principal uncertainties about assessing damages arises from the radically different approach taken by the parties to the duration of the lease agreement actually entered into. The lease could have been for a period of 5 years (as I have concluded) or it could have been for up to a period of 15 years depending upon whether or not there had been an effective renewal of the lease by the plaintiff. A duration of 15 years is not only dependant upon renewal, it is also dependant upon a court finding that the term of the lease agreed to between the parties as at the 3rd of December 2001 was for a period of 5 years with two rights of renewal of 5 years each. In addition, it was the defendant’s case that even if the parties had agreed a period of up to 15 years, the plaintiff in any event failed effectively to exercise the first option to renew. All of these matters affect the question of quantum of damages. Because of the potential variability in conclusions reached, the wisdom of proceeding to an assessment of damages is called into question.
In all the circumstances I can see no useful purpose in assessing damages on a set of particular assumptions that may be far removed from any conclusions to which an appellate court might come.
The Defendant’s Cross Claim
The pleading of the cross claim which, to some degree, is a pleading in the alternative, has, in common with the plaintiff’s claim, a detailed recitation of the nature of the agreement allegedly entered into between the parties. My conclusions relating to the nature and extent of that agreement (when dealing with the plaintiff’s claim) also determine how the defendant’s cross claim is to be approached. If the plaintiff has been in breach of an agreement, it could only be the agreement which I have found to exist, namely a limited agreement allowing occupation of the property and providing for payment of rent pending negotiation of the terms to be included in a written lease.
As I understand it, there are two aspects to the cross claim of the defendant:
(1)A claim based on a valid termination of whatever agreement existed between the parties as at November 2004; or
(2)A claim based on a finding that there had not been such a valid termination.
As to (1), was there a breach sufficient to justify the termination of the lease agreement? If so, did the defendant effectively terminate the lease on the basis of such a breach.
There is no dispute that up to and after October 2004 (in fact up to September 2009) the plaintiff did not pay that component of the rent fixed by reference to the plaintiff’s turnover. In my opinion, the failure to pay rent by reference to turnover, constituted a serious breach of the lease agreement reached between the parties capable of supporting a termination of such lease agreement.
In October 2004, the defendant served a notice pursuant to s.10 of the Landlord and Tennant Act (1936) on the plaintiff51. The plaintiff’s response was to commence proceedings in the Magistrates Court seeking an injunction restraining the defendant from proceeding further with the terms of the notice. That injunction was granted and, after the Magistrates Court proceedings were transferred to this court, subsequently considered and varied by other judges of this court. The last of the interlocutory hearings relating to the injunction was before Judge Soulio on 29 September 2009. On that occasion, for the first time, the court made it a condition of the continuation of the injunction that rental calculated by reference to turnover be from then on paid by the plaintiff.
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It goes without saying that any interlocutory order made by a court pending trial could not be said either to be binding on the trial judge or, put another way, to constitute a final determination of the matter in dispute between the parties. Although Mr Murr submitted to the contrary, any interlocutory proceeding in this action, whether in the Magistrates Court or in this court, cannot have a bearing upon the legal effect of the parties’ actions up to the time of trial. In particular, if there was a valid ground available to the defendant to terminate the lease and the lease was thereby terminated by the defendant, any interlocutory proceedings seeking injunctive or other relief taken by the plaintiff can have no bearing on that question. This includes the ability of the defendant, if it is subsequently found that the injunction should not have been granted, to seek damages pursuant to the undertaking as to damages given by the plaintiff (and by Mr Friebe) in support of the application for injunctive relief. That right to recover damages does not affect the defendant’s right to claim damages for breach of the terms of the lease.
The cross claim involves to some degree the tacit, and to a large degree the explicit, acknowledgment by the defendant that since the 3^rd December 2001 some form of lease agreement has existed between the plaintiff and the defendant subject to the effectiveness of steps taken by the defendant to terminate the agreement in October and November 2004. As I stated earlier, the cross claim is to be dealt with by reference to my conclusion that a limited form of lease agreement was entered into by the parties by the 3^rd December 2001, namely an agreement whereby the defendant would permit the plaintiff to take exclusive possession of the premises pending the final agreement of the terms to be included in a written lease. The limited agreement included an obligation on the part of the plaintiff to pay rent in terms of the agreement that had been reached for the payment of rent prior to the 3^rd December 2001. This included a rent free period of 6 months. In light of that finding, the cross claim becomes one whereby the defendant seeks orders against the plaintiff for:
(a)Arrears of rent up to the time of the termination (if that occurred) of the limited agreement in about November 2004;
(b)Mesne profits from the date of termination until the defendant regains possession of the premises; and
(c)An order for possession of the premises.
The recovery of arrears of rent up to the date of the alleged termination does not require an elaborate discussion. It is not in dispute that up to (and after) November 2004, the plaintiff has not paid any rent calculated by reference to the agreement to pay rent based on turnover. All that has been paid is the base rent of $65,000 per annum. In light of my conclusion that the plaintiff was obliged to pay (where applicable) rent based on turnover, the defendant is entitled to an order for the recovery of arrears where the percentage of turnover exceeded the base rent.
The relief sought in paragraphs (b) and (c) above involve an additional consideration. Mesne profits and an order for possession are only to be granted if there has been an effective termination of the limited lease agreement. If I conclude that there has not been an effective termination, the limited lease has remained in force until its expiry on 2^nd December 2006 and the plaintiff has held over in respect of that tenancy thereafter. In those circumstances mesne profits may not be recovered nor may an order for possession be made unless, by some means other than a purported termination in about November 2004, the defendant has either terminated the limited agreement or alternatively established a right to an order for possession.
It is the plaintiff’s case on the cross claim that there has never been an effective termination of whatever agreement was reached between the parties by 3^rd December 2001 and consequently the defendant is not entitled to mesne profits nor to an order for possession. That does not mean, however, that the defendant is entitled to no relief at all. To the extent that the plaintiff remains a tenant of the defendant, the plaintiff has at all times been liable to pay rent including rent based on turnover. It is common ground that the plaintiff has only paid the full amount of the rent due since the 29 September 2009 when Judge Soulio made it a condition of the continuation of the injunction that rent including rent based on turnover be paid thereafter. In those circumstances, the defendant is clearly entitled to a monetary judgment commensurate with the arrears which have accrued up to the date of the alleged termination.
The following points fall for decision:
(1)Whether the limited lease agreement was effectively terminated by the defendant in about October/November 2004;
(2)Whether the limited agreement was otherwise effectively terminated by the defendant;
(3)If there has been no effective termination, whether the defendant has demonstrated an entitlement for an order for possession of the premises; and
(4)What is the quantum of the defendant’s counter claim.
Has the limited agreement been terminated
I turn again to the events of October and November 2004. Under cover of a letter dated 5 October 2004 the defendant served on the plaintiff a “Notice to Remedy Breach”52. The notice referred to s.10 of the Landlord and Tenant Act and to “an equitable lease entered into in or about October or November 2001” a term of which required rent to be paid calculated by reference to turnover. It was asserted in the notice that, contrary to the terms of the equitable lease, the plaintiff had failed to provide evidence of turnover as required by the provisions of the lease and had failed to pay rental in accordance with the provisions of the lease. The notice required the plaintiff to remedy the breaches within 14 days of service of the notice, failing which it was asserted that the defendant would be “entitled to re-enter the premises and to forfeit the lease”.
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Section 10 of the Landlord and Tenant Act 1936 is as follows:
No re-entry till notice to tenant to remedy breach.
10. A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable by action or otherwise, unless and until –
(a) the lessor serves on the lessee a notice specifying a particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and in any case requiring the lessee to make compensation in money for the breach; and
(b) the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach.
The right of re-entry or forfeiture does not arise by virtue of the provisions of s10 of the Landlord and Tenant Act. Those rights must be provided for in the lease. Section 10 only circumscribes the way in which recourse might be had to such rights.
It seems to me that reliance on this section by the defendant was misplaced. The only lease agreement in existence as at October 2004 was the limited lease agreement to which I have previously referred. That lease agreement did not contain a provision providing for a “right of re-entry or forfeiture”. In those circumstances the notice given by the defendant to the plaintiff could not have been effective by reference to s10 of the Landlord and Tenant Act. Consequently, even though the failure of the defendant to provide evidence of turnover and to pay rent by reference to turnover continued after the notice was served on the plaintiff, no right of re-entry or forfeiture was available to the defendant.
By letter dated 13 October 200453, the plaintiff’s solicitors wrote to the defendant’s solicitors asserting that, for various reasons, the notice previously served on the plaintiff was ineffective. One of the grounds advanced was that s81 of the Retail and Commercial Leases Act repealed Part 4 of the Landlord and Tenant Act. If that is the case there is a further ground for stating that the notice given on the 5 October 2004 was ineffective.
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On 24 November 2004, the defendant resolved to issue a Notice of Termination in respect of the lease based on non-payment of rent. The defendant was unable to proceed with its stated intentions because the plaintiff obtained the interlocutory injunction in the Magistrates Court previously referred to. This was the only other evidence of a purported termination of the lease agreement. The resolution by itself could not constitute an effective termination because, by its terms, a further notice was to be issued requiring payment of rent, in default of which eviction proceedings could be taken.
It follows that there was no effective termination of the limited lease agreement prior to the expiry of its five year term. Since the expiry of the five year term, in the absence of rights of renewal (or the effective exercise of same), the plaintiff has been in occupation of the premises lawfully as a tenant holding over after the expiry of the primary term. This means that the defendant’s counter-claim can only be for the recovery of arrears of rent which have accrued. In particular, the defendant is not entitled to an order for possession. To bring the plaintiff’s right of occupancy to an end the defendant must, if there are grounds, give notice to the plaintiff (as a tenant holding over) to quit the premises. To the extent that the provisions of the Retail and Commercial Leases Act apply, such a notice would have to take into account those provisions.
As to the quantum of the arrears of rent, I have evidence before me, which is summarised in Annexure 1A to DWS, which enables the rent, calculated by reference to turnover, to be ascertained up to the 31 December 2008. Such a calculation must exclude GST and amounts to a total of $335,329 from which is to be deducted rent actually paid. The evidence does not permit me to make an accurate calculation of arrears of rent after 31 December 2008. In those circumstances I think it appropriate to limit, for the moment, my orders on the counter-claim to declaration that the defendant is entitled to recover from the plaintiff arrears of rent from the 3 June 2002 to the date of on which (if that has occurred) the plaintiff commenced (and continued) to pay the full amount of the rent. In any event, an order directing a Master to undertake the appropriate inquiry as to the amount of the arrears should also be made. The parties should not lose sight of the fact that the calculation of the amount due could be a relatively straightforward exercise, in which event a consent judgment on the counter-claim might be entered.
In light of the foregoing, I propose to make the following orders:
1.Judgment for the defendant dismissing the plaintiff’s claim.
2.Declaration that since 3 December 2006 the plaintiff has been in possession of the subject premises as tenant holding over after the expiry of lease agreement entered into by the parties on about 3 December 2001.
3.Declaration that since June 2002 the plaintiff has, subject to compliance with the condition as to payment of rent imposed by the Court on 29 September 2009, been in breach of the lease agreement referred to in paragraph 2 by failing to pay rental calculated by reference to the turnover income gained by the plaintiff in operating its business at the said premises (the arrears).
4.That a Master of the Court inquire into and report to the Court as to the amount of the arrears for the period commencing June 2002 to the date of the report.
5.If the Master’s report is accepted by the Court (totally or in part), the defendant (as plaintiff by cross claim) be at liberty to enter judgment against the plaintiff (as defendant by cross claim) accordingly.
6.The injunction obtained by the plaintiff against the defendant in the Magistrates Court of South Australia, as varied by subsequent orders of this Court, be dissolved.
7.The cross claim of the defendant be adjourned.
8.The parties be at liberty to apply to a Master for directions as to the inquiry and report.
9.The question of costs be adjourned.