Raven v McShorp Pty Ltd

[1996] QSC 51

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane
  No. 962 of 1993
Before the Hon Justice Williams

[Raven v. McShorp Pty Ltd & Ors]

BETWEEN:

SHIRLEY ANN RAVEN
  Plaintiff

AND:

McSHORP PTY LTD
  First Defendant

AND:

COXLAWN PTY LTD
  Second Defendant

AND:

ROBERT POWELL PALETHORPE
  and
  DAVID KENNETH BLANCH
  Third Defendants

JUDGMENT - GN WILLIAMS J

Judgment delivered 29/03/1996

CATCHWORDS      LEASE - oral agreement for - held on evidence  agreement as to essential terms - specific performance ordered - breach of covenant for quiet enjoyment - inspections by prospective tenants - damages assessed.

Counsel:Heyworth-Smith for plaintiff

DR Cooper for defendants

Solicitors:Georgeson & Company for plaintiff

WT Purcell Chadwick and Skelly for defendants

Hearing Dates:  14 and 15 March 1996

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane
  No. 962 of 1993

[Raven v. McShorp Pty Ltd & Ors]

BETWEEN:

SHIRLEY ANN RAVEN
  Plaintiff

AND:

McSHORP PTY LTD
  First Defendant

AND:

COXLAWN PTY LTD
  Second Defendant

AND:

ROBERT POWELL PALETHORPE
  and
  DAVID KENNETH BLANCH
  Third Defendants

JUDGMENT - GN WILLIAMS J

Judgment delivered 29/03/1996

The plaintiff, Shirley Ann Raven, is the registered proprietor of a block of land situated in the Taringa shopping centre on which a building designed for office and business use is erected.  She acquired the property on or about 12 June 1989 by purchase from the first defendant, McShorp Pty Ltd.  That company in turn took a registered lease of the premises for a term of three years from 13 June 1989 with options of extending for two further three year periods.  McShorp was the trustee of a family trust in which each of the third defendants, Robert Powell Palethorpe and David Kenneth Blanch, and others, were interested.  At the time the lease to McShorp was granted, Palethorpe and Blanch, along with others, carried on the practice of McCarthy Palethorpe and Blanch, solicitors, in the subject building.
           It is agreed that McShorp did not exercise the option when the term of that lease expired on 12 June 1992.  It will be necessary to say more about meetings and discussions between the parties, but for now it is sufficient to note that after 12 June 1992 the firm of solicitors continued to occupy the premises.  From July 1991 cheques in payment of the rent due pursuant to the lease were drawn by the second defendant, Coxlawn Pty Ltd, and after 12 June 1992 that company continued to pay rent.
           The pleadings are important in this case and that is why I have decided to set out the issues raised thereby at the outset of my judgment.
           In the statement of claim the plaintiff alleges that on or about 9 June 1992 she agreed that as and from 12 June 1992 McShorp and/or the third defendants would occupy the subject premises as monthly tenants at a rental of $4,000 per month, but otherwise upon the covenants contained in the lease which expired on 12 June 1992.  She then alleges that by notice dated 5 April 1993 she gave notice to "the Defendants ... requiring the Defendants to deliver up possession of the subject premises on 12 May 1993".  As the defendants, or some or all of them, have remained in occupation of the premises the principal relief claimed by the plaintiff in the action is recovery of possession.  There is also a claim for mesne profits.
           The defendants, and in particular the second and third defendants, allege that on 5 June 1992 there was an oral agreement between the plaintiff of the one part and the second defendant of the other part whereby the plaintiff agreed to lease the subject premises to the second defendant upon agreed terms.  It is then alleged that, because of the health of the third defendant Palethorpe, that agreement was varied on 9 June so that the occupancy of the second defendant was as a tenant from month to month but otherwise upon the terms agreed to on 5 June 1992.  The pleading then alleges that at a meeting between the plaintiff and the third defendants in early February 1993 a further agreement to lease the demised premises was reached.  It will be necessary to refer in more detail to the meetings at which the defendants allege agreement was reached but for present purposes it is sufficient to note that they contend that the agreement reached in February 1993 included agreement on the following:

(i)Coxlawn would be the lessee;

(ii)The term would be for two years commencing 13 June 1992 with two options to renew, each option being for a term of two years;

(iii)The lessee would pay to the lessor a maximum annual contribution of $6,000 towards local authority rates and charges, payable quarterly, and that capped contribution would continue through any renewed term;

It is the contention of the defendants that such agreement for lease has governed the occupancy of the building since February 1993.  Coxlawn has paid the rent, paid the contributions to rates, and exercised each of the two options.  The defendants seek declaratory relief and an order that the agreement for lease be specifically performed.
           The plaintiff has delivered a number of pleadings in reply and answer to the defence and counterclaim of the defendants.  In each the plaintiff has denied that the parties reached agreement as to the terms of a lease in or about February 1993, and the relief sought by the defendants is resisted on that ground.  But what is significant is that the plaintiff does not allege any ground on which the court should exercise a discretion to refuse specific performance if in fact it found that there was an agreement for lease reached in early 1993, nor does she allege that, if there was such an agreement for lease, facts exist which would entitle her to terminate it.  In other words, on the pleadings the only substantive issue to be determined at the trial is whether or not there was an agreement for a lease reached early in 1993.  If there was such an agreement then the terms thereof govern the relationship between the parties.
           The plaintiff's allegations in her replies and answers as to why she says there was no concluded agreement reached in early 1993 have altered.  The defendants rely primarily, but perhaps not exclusively, on the document, executed by the second defendant and handed to the plaintiff on or about 5 February 1993 (exhibit 7).  In the Amended Reply and Answer delivered 3 November 1993 (exhibit 46) the plaintiff says that there were three terms therein which were not agreed to at the meeting.  In that pleading she identified those terms as follows:

"(i)Lease not to McShorp Pty Ltd but to Coxlawn Pty Ltd.

(ii)Rates capped for option period as well for initial term.

(iii)Draft contained two two-year options instead of one."

Though the wording of the pleading is somewhat different, those three matters were again specified in the Further Amended Reply and Answer delivered 26 May 1995 (exhibit 47) as the terms of exhibit 7 which were not, according to the plaintiff, in accordance with the agreement reached earlier.  What is of some significance is that that pleading strongly suggests that there was an agreement for lease reached early in 1993, the terms of which were those contained in exhibit 7 but varied in the three respects specifically referred to by the plaintiff in her pleading.
           The final Reply and Answer was that delivered on 12 March 1996.  Again, at least by inference, it concedes that there was an agreement reached  early in 1993 as to a lease.  The allegation is that the draft lease (exhibit 7) differed from the "terms which had been agreed" in the three respects previously articulated and in one additional respect.  The further matter raised by this pleading was in these terms:

"... no agreement had been reached as to the date of commencement of the proposed term, in that the Third Defendants insisted that it commence from 13 June 1992, whereas the Plaintiff insisted that it commence from the date of execution, whenever that might be."

In consequence of those four factual matters the plaintiff alleges in that last reply that essential terms of a lease were not agreed to.  It does seem to me that there is some inconsistency in her position.  Until the allegation with respect to the commencement date was introduced the position appeared to be that all essential terms were agreed on, but were in three respects different from the terms contained in exhibit 7.  That also appears to be the major thrust of allegations contained in the Reply and Answer of 12 March 1996, but because of the introduction of the issue with respect to commencement date it is said that there was no agreement on essential terms.  Again there is the difference in that the last pleading asserts that no agreement was reached as to the number of options, whereas in the earlier versions the allegation was that it was agreed there was only to be one option period.
           In that regard reference to also be made to a passage in an affidavit of the plaintiff sworn 14 October 1993 (exhibit 48).  Therein she said that Exhibit 7 "did not accord with the proposed agreement" because of the three matters particularised in the reply and answer exhibit 46.  Again there is a concession that there was an agreement reached as to essential terms.
           I turn now to the evidence in more detail.
           Prior to June 1989 McShorp was the trustee of a unit trust which provided premises and other services to the solicitor's partnership.  One of the partners retired in about April 1989 and that precipitated the sale of the building by McShorp and the taking back of the lease from the plaintiff.  By July 1991 the restructuring with respect to the provision of services to the continuing partnership was completed with Coxlawn becoming the trustee of the ongoing service trusts.  In consequence of that from July 1991 Coxlawn paid the rent under the lease though the lessee was still strictly McShorp.  According to the third defendants that provided the background to the decision taken that McShorp would not exercise the options under the lease that it had.
           There was a meeting between the plaintiff and the third defendants in February 1992 and it is clear that at that meeting the plaintiff was informed that McShorp did not intend to exercise its option for a further term after June 1992.  It seems to be agreed that the plaintiff was upset on hearing that because she had acquired the property as an investment and was looking for security in the form of a long term lease.  The plaintiff's evidence is rather vague on these points, but it is clear that she was made aware that the solicitors wanted to continue in occupancy of the building though McShorp would not be exercising the option.  She denies that there was any mention of Coxlawn at that meeting.  I accept the evidence of Palethorpe and Blanch that at that meeting they indicated to her, at least in broad terms, that McShorp would not be exercising the option because of changed circumstances and that they wished to negotiate a new lease.  At that time the rent under the lease was approximately $58,500 per annum, and the third defendants indicated that they regarded that as too high given prevailing market values, and they wanted to negotiate a fresh lease at a reduced rental.  At that meeting the third defendants indicated a general interest in a two year lease with one two-year option at a reduced rental.  The plaintiff's initial position was that she wanted a lease for a longer term in order to obtain the security she required.  After discussion an agreement was reached that if the rental was $48,000 per annum a lease for two years with two options each of two years would be acceptable.  There was also some discussion at that meeting about putting a cap on the lessee's contribution for rates.
           The discussions at and outcome of that meeting are not of critical importance.  The significance of that meeting and what was discussed thereat is that it provided the basis on which subsequent negotiations were held.  It is therefore not necessary to make any finding on, for example, whether it was agreed that Coxlawn was to be the lessee under any fresh lease agreement entered into.
           Matters appear to have been allowed to drift along until there was a meeting on 5 June 1992, approximately a week before the existing lease was to expire.  In the end there appears to be substantial agreement between the parties as to what was agreed at that meeting.  According to Blanch he indicated that the starting point was the discussion held in February 1992 and he says that they went through things which had then been agreed to.  In an answer to an interrogatory (exhibit 53) the plaintiff said that she made an accurate diary note in her computer of what was then agreed; a copy of the printout of that diary note became exhibit 24.  Relevantly it is these terms:

"Agreement was reached on the following:

Base rent of $48,000 fixed for two years.

Ceiling on rates contribution of $6,000 per annum - balance to be at my expense for period of initial lease not options.

Land tax to be at my expense.

Insurance to be covered by tenant including $5M public liability; $48,000 loss of rent $250,000 building value/plate glass damage.  Present policy current until 24/2/93.

TWO YEAR LEASE WITH 2 X 2 YEAR OPTIONS

Year 3 - true market review with no base.

Year 4 - CPI

Year 5 - true market review with no base.

Year 6 - CPI

Additional agreements not forming part of lease:

Building to be repainted inside (lessee's expense if carpets are replaced by lessor) (existing colour pussy willow).

Re-carpeting (lessor's expense)

General maintenance i.e.

Removal of partition in front office (lessee)

Replacement of bulkhead (external) (50% - 50% suggested by RP)

Repair of concrete front door brackets (lessor)

Removal of partition from old building society office at tenant's expense.  Fixtures in this area are property of Shirley Raven.

Note:I did not want lease with options - my offering was for four year lease - no options.

Lease to be completed and forwarded to Adrian by week ending 12/6/92."

That account of what was agreed differs from the evidence given by Blanch in only two respects.  Firstly, according to the third defendants the lessee was to be Coxlawn, and secondly, the capping on the rates contribution was to extend to option periods.
           I am satisfied that by the end of that meeting the plaintiff knew that the fresh lease would be to Coxlawn as lessee.  The plaintiff has constantly asserted, and did so whilst in the witness box, that she was not aware of Coxlawn until much later in 1993.  However she is clearly mistaken in that regard.  Blanch gave evidence that at the meeting on 5 June 1992 he gave her a Coxlawn cheque for $1,825.81 with respect to outgoings under the then existing lease.  The plaintiff claimed to have no recollection of that, but counsel for the defendants was able to put to her from subpoenaed bank records a deposit slip signed by her showing a deposit of a cheque from Coxlawn Pty Ltd (dated 5 June 1992) for $1,825.81.  On being shown those documents (exhibit 23) the plaintiff agreed that she must have seen the cheque, but still claimed she could not recollect anything of it.  As already noted Coxlawn had in fact been paying the rent directly into her bank account since July 1991.  It may well be that she had not been aware of that fact, but in the light of exhibit 23 I accept the evidence of Blanch that at least at the meeting of 5 June 1992 it was made clear to the plaintiff that Coxlawn was to be the new lessee.
           There is no doubt that Blanch contended that the cap on the contribution to rates should continue throughout any renewed term of the lease, but it is not necessary to make any definite finding with respect to what, if anything, was agreed to in that regard at the meeting on June 5.
           At the end of that meeting it was agreed that Blanch would prepare a lease in registrable form to give effect to what had been discussed.  Again it is not necessary to make any formal finding as to whether or not there was an agreement (as contended for by the plaintiff) that such documentation would be completed by 12 June.
           On or about 9 June Palethorpe suffered a major heart attack and that put in doubt the future of the solicitors' partnership.  On that date Blanch telephoned the plaintiff and informed her that in those circumstances no lease could be executed at that time.  The plaintiff accepted the position and it would appear from her evidence she agreed to let the current occupancy of the premises continue at a rental of $4,000 per month.  It will be noted that such was the rental which had been agreed to at the meeting on 5 June.  Probably the arrangement was that the other terms agreed upon at the 5 June meeting applied to the monthly tenancy.  Coxlawn paid the rent and things drifted along until the end of January 1993.
           The plaintiff had financed her acquisition of the building by means of an interest only loan from the ANZ Bank.  In December 1992 it became necessary for her to refinance and that was negotiated with the National Australia Bank.  The payments to the bank were to be the rental from the premises, but at that time there was no formal lease.  It is understandable that matters then came to a head and the plaintiff put pressure on the defendants for a formal lease to be executed.  Whether or not she had difficulty in arranging a meeting with the third defendants is beside the point.  However the observation must be made that the third defendants were somewhat cavalier in their attitude to the continued occupancy of the premises.  No meeting was forthcoming despite a telephone call threatening termination of the tenancy unless a lease was executed.  The plaintiff wrote on 25 January 1993 (exhibit 6, wrongly dated 1992) informing Palethorpe that as a new lease had not been executed she could only assume that the defendants were not "prepared to fulfil our agreement as of June 5 1992".  She therefore said she was "forced to give you notice to vacate the premises by 25 February 1993".  The response was a telephone call from Blanch on 27 January asserting that there was always a lease in place.  During that telephone conversation an arrangement was made to meet on 1 February 1993.
           According to the plaintiff in her evidence in chief the meeting of 1 February 1993 confirmed the basics of the lease which had been agreed at the meeting in February 1992.  But I conclude that the plaintiff was mistaken in so saying.  Under cross-examination she agreed with the proposition put to her that Blanch went through the notes of what had been discussed at the meeting on 5 June 1992 and that agreement was confirmed on those matters.  In the circumstances I accept the evidence from the plaintiff under cross-examination and Blanch to the effect that what transpired on 1 February 1993 was in effect a reaffirmation of what had been agreed on 5 June 1992.  The plaintiff maintained that in February 1993 the agreement was still to the effect that the $6,000 cap on contribution for rates was to apply only for the initial term of the lease.  However, in all the circumstances, including the terms of both exhibit 7 and exhibit 8, I am satisfied that there was agreement in February 1993 that the cap should apply not only during the initial term but also during the option periods.
           I am also satisfied that there was a clear intimation to the plaintiff that Coxlawn would be the lessee and that was accepted by her.
           At the meeting in February 1993 the plaintiff argued that the initial term of the lease should commence on the date the lease was executed.  However, the third defendants, and in particular Palethorpe, were adamant that any lease had to be backdated to 13 June 1992.  Again, partly influenced by the terms to be found in exhibits 7 and 8, I am satisfied that there was ultimate agreement to the effect that the new lease should be backdated to 13 June 1992.

           At the end of the meeting it was accepted that Blanch should prepare a lease reflecting the matters agreed between the parties.  That was done; exhibit 7 was prepared and duly executed by the second defendant and by the third defendants as guarantors.  That lease was picked up by the plaintiff on or about 4 February and taken by her to her solicitors.
           Subsequently two events of some significance occurred.  In the course of a telephone conversation initiated by Blanch a couple of days after exhibit 7 was given to the plaintiff, the plaintiff indicated she had some concern about the contents of cl. 2(c)(iii).  I will say more about that later.  It was put to her in cross-examination that she also at that time complained about the cap on the rates contribution continuing through the option periods, but she denied that she then raised that matter.  In her evidence she asserted simply that as the lease was all in favour of the defendants she declined to execute it.
           The second thing that happened was that the plaintiff's solicitor, Adrian Symons of Georgeson & Co, submitted a draft lease to the second and third defendants under cover of a letter dated 29 March 1993 (exhibit 9); the lease enclosed therewith is exhibit 8.  The letter was headed:  "Lease - SA Raven to Coxlawn Pty Ltd", and the terms were as follows:

"We refer to the above matter and enclose herewith Lease in triplicate in relation to the above premises for execution by your Client and return to us within seven (7) days from the date hereof, failing which our Client reserves her right to withdraw her offer of a Lease.

As our Client has not yet had the opportunity to peruse the Lease she also reserves to herself the right to alter the same if necessary."

At no stage did either the plaintiff or her solicitors inform the defendants that the plaintiff was not happy with any of the terms of exhibit 8 or that she wished to alter any of those terms in any way.
           In an affidavit sworn on 14 October 1993 the plaintiff made this statement:  "On 29 March 1993, draft leases prepared by my solicitor in accordance with the agreed terms were forwarded by my solicitor to the defendants."  (exhibit 25)  In answer to interrogatory No 1 (exhibit 49) the plaintiff swore that "my solicitors did prepare a lease document in respect of the premises and forward it to the solicitors for the defendants".  The lease therein referred to was that which is now exhibit 8; that is made clear by answer to interrogatory No 2 (exhibit 50).  Then in answer to interrogatory numbered 4 the plaintiff said that that lease "was prepared upon instruction provided by me to do so, the date of such instructions being on or about 16 March 1993".  (exhibit 51)
           That material establishes that exhibit 8 was drafted on the plaintiff's instructions and accurately reflects all the essential terms which were agreed to at the meeting on 1 February.
           Nothing happened after the exchange of exhibits 7 and 8 until 5 April 1993 when the plaintiff's solicitors wrote saying they were instructed to "withdraw any offer to lease the above premises to your client Coxlawn Pty Ltd".  On the same date the plaintiff's solicitors wrote enclosing a "Notice of Termination of Tenancy" and headed that letter "Re:  SA Raven proposed lease to Coxlawn Pty Ltd".  The enclosed notice was addressed to both McShorp and Coxlawn and gave "notice to deliver up possession of the premises at 209 Moggill Road, Taringa aforesaid which you hold of me as tenant on the twelfth day of May 1993".
           The reply from McCarthy Palethorpe and Blanch dated 6 April 1993 asserted that "there is a lease on foot".
           Having considered all the evidence I am left with no doubt but that all the essential terms of a lease had been agreed upon at the meeting on 1 February 1993.  On the evidence I find that exhibit 8 was drafted by the plaintiff's solicitors on express instructions, and so far as essential terms are involved express instructions as to them were given by the plaintiff to her solicitors.  When one compares exhibits 7 and 8 there is, in my view, no indication of any want of agreement on essential terms.
           In each document Coxlawn Pty Ltd is named as the lessee.  In each document the commencing date of the first term was said to be 13 June 1992.  In each document the annual rental was said to be $48,000 payable by instalments of $4,000 on the thirteenth day of each month.  In each document (though the wording of the clause is somewhat different) there was a provision requiring the lessee to make an annual contribution of $6,000 towards the rates payable by the lessor with respect to the subject property.  In each document that provision was said to apply during "the term hereof".  In each document there was a provision (though in different phraseology) providing for two option periods, each of two years, with the rent in the first year of each option period to be "true market rental" calculated in accordance with the procedure specified, and in the second year of each such period was to be the rent for the preceding year adjusted by the Consumer Price Index in accordance with the formula contained in the lease.  In each document the option clauses provided that the lease for each extended period should be on the same terms and conditions (with specified exceptions) as applied during the initial term; as the rate cap was not specifically excluded in either document that meant that the cap would have applied throughout each option period.
           In other words the evidence, and in particular the documentary evidence, does not support the grounds upon which the plaintiff asserts in her various replies and answers that there was no agreement as to the terms of a lease reached in February 1993.
           It appears that the defendants included in their draft (exhibit 7) the terms of the collateral agreement reached in June 1992 relating to various repairs and maintenance work to be carried out on the building [cl. 2(c)(iii)].  But that is clearly a collateral matter and its inclusion in the document does not have the consequence of destroying the agreement.
           In the circumstances I am satisfied that there was a binding agreement for lease reached on 1 February 1993, and that the essential terms are as I have indicated.  The second defendant is entitled to an order for specific performance of that agreement, and I will hear submissions as to the precise form of order.
           As the plaintiff has failed there is no need to consider the question of mesne profits further.
           The second defendant also claims damages (including aggravated or exemplary damages) for breach of the implied covenant for quiet enjoyment of the demised premises.  In the counterclaim it is alleged that the plaintiff has demanded that the demised premises be made available "for inspection by letting agents and prospective tenants and conducted herself with contumelious disregard of the right of the Second Defendant to have quiet enjoyment of the said premises."
           The plaintiff, both by herself and through her solicitors, requested on numerous occasions that she be permitted to have a real estate agent inspect the premises, and on some occasions that agent was to be accompanied by a prospective tenant.  To the extent that the plaintiff was demanding the right to have a prospective tenant inspect the premises when there was a subsisting lease in existence there was, in my view, a breach of the implied covenant.  But it is not entirely clear how often that happened.  The plaintiff put the freehold on the market, and to the extent that a prospective purchaser, with or without an agent, wished to inspect the premises that could be done without there being any breach of the implied covenant.  The various letters tendered do not always make it clear whether those inspecting were interested in the sale of the premises or in a tenancy.  But it is clear that a number of inspections related to a tenancy.  It is also true that, at least with respect to some inspections, the plaintiff sought to arrange a time outside of normal business hours so as to minimise any disruption to the third defendants.  Whilst that is relevant, it does not detract from the fact that technically there was a breach of the implied covenant.
           Given the history of the relationship between the parties I am not prepared to find that the circumstances are such as to warrant an award of aggravated or exemplary damages.  As already noted I have reached the conclusion that the third defendants, who controlled the second defendant, adopted a cavalier approach to the continued occupancy of the premises.  After Palethorpe had recovered from his heart attack and it was clear that they wanted long-term occupancy, the third defendants took no steps to honour their undertaking to prepare a lease until the plaintiff brought matters to a head early in 1993.  Then, it was frankly conceded, having prepared exhibit 7, they overlooked reading carefully exhibit 8, the lease submitted by the plaintiff's solicitors; Blanch said he was "busy" and had "other matters on."  Their general conduct throughout undoubtedly led the plaintiff to feel extremely frustrated.  She had no lease that she could place before her financier as indicating the security for loan repayments.
           In the circumstances I am prepared to find that there were some breaches of the implied covenant, but they occasioned no specific loss to the defendants; indeed there is no hard evidence of any inconvenience suffered by the defendants as a result.
           In the circumstances I assess damages for breach of the implied covenant in the sum of $500.
           Given that the defendants have been successful they should have the costs of both the action and the counterclaim.
           I will hear further submissions as to the formal orders which should be made in the light of these reasons.