Rawlings Pty Ltd v Redder than Red Tomato Co P/L No. Scgrg-98-863 Judgment No. S367

[1999] SASC 367

AB & SM RAWLINGS PTY LTD v THE REDDER THAN RED TOMATO COMPANY PTY LTD
[1999] SASC 367

Full Court: Millhouse, Duggan and Lander JJ

1 MILLHOUSE J.  In days gone by solicitors used to drink a toast to the homemade will maker in appreciation of all the work homemade wills brought in.
2 I could not help remembering the homemade will maker during this argument.  Hundreds of thousands of dollars spent with not a thing in writing and no precise agreement between the parties!  The attitude of the parties can be seen by quoting a paragraph from the affidavit of one of the actors:-
"... We mentioned to Rawlings that we still did not have the lease organised and his response was words to the effect that:
'We could do it the cheap way or the expensive way.  We are all friends here and there shouldn't be any problems.' "
3 The proceedings cannot have been cheap: there has been a trial and now this appeal.  
4 Four gentlemen formed the respondent company on 1 May 1996 for the purpose of growing tomatoes hydroponically. They needed somewhere to put up a glass house.  Through Mr Michael Dzamko, one of the four, they were in touch with Mr Neville Rawlings.  Rawlings was a director of the appellant.  He was also director of Rawhard Trading Pty Ltd, a company whose business it was to sell hydroponic equipment - the kind of equipment the respondent needed to grow the tomatoes.  After the four men had found they were unable to establish the enterprise on land at Seaford, Rawlings suggested land at Lot 203, California Road, Willunga, owned by the appellant.
5 That was about April 1996.  Discussions led to what may be termed "a non-contractual understanding":  the glass house would be put on the land at Willunga and Rawhard would supply the equipment and use the glass house as a showcase for its products.  Rawlings said, "Everyone's a winner", no doubt as he was a director both of the appellant and of Rawhard.
6 By this time or very soon thereafter The Redder than Red Tomato Company Pty Ltd was incorporated.  It spent $200,000 putting up, on part of the land, a glass house some 1500 square metres in area with the necessary equipment.  It paid Rawhard $195,000.
7 The understanding was that the respondent would pay $10,000 a year in rent for the greenhouse and propagation facility, have the use of a shed nearby for equipment, have access to the lavatory and vehicular access to the site.  A five year lease with an option for another five years was suggested. The glass house was built - Mr Paul Heywood Smith for the appellant acknowledged it is not a fixture - and the equipment installed.  Nothing was reduced to writing.
8 When the respondent was to start paying the rent was in dispute between the parties.  The respondent asserted it was when it first "began making money": the appellant "at the first planting" (this was about September/October 1996).  In fact no rent was paid until well into 1997 when eleven months was paid, taking it back to 1 November 1996.  There was an explanation for paying late: the roof had blown off the greenhouse and the first plants died. Only when the respondent had the money from insurance could it pay the rent.
9 In November 1996 Rawlings arranged a meeting at a land agent's office to get a simple and cheap lease prepared. Mr Peter Brown, one of the four who had formed the respondent, was at the meeting representing the respondent.  Besides the land agent Mr Manuel Paul, Rawlings and Marc Harding were there for the appellant.  The learned trial Judge in his Reasons sets out the contents of Mr Paul's affidavit.  In it Mr Paul deposes:-
 "5.  ... that the purpose of the meeting was an informal discussion to progress negotiations regarding a possible long term lease by Redder than Red of the greenhouse site that was partially constructed.
 ...
   9. I recall that there were a number of topics discussed as I have said, these being as follows:-
9.1  There was a general discussion that we would need to describe the land intended to be occupied by Redder than Red in proper terms.  There was some discussion to the effect that the land could not be subdivided and it would need to be described as a portion of the whole of the Lot 203 California Road.  There was a discussion to the effect that the parties contemplated a five year term with a right to renew for a further five years.
9.2  There was a view expressed and I do not remember why, that any formal lease should record a commencement date of 1st November, 1996.
9.3  The figure of $10,000.00 per 1,500 square metres was mentioned, being approximately the size of the greenhouse under construction.
9.4  Outgoings were discussed and it was demanded by Neville Rawlings that Redder than Red pay all outgoings in respect of their occupation of the premises and especially 100% of water, the consumption of which was contemplated as being quite substantial.
9.5  There was a discussion regarding the insurance and I believe that Neville Rawlings required that sheds to which Redder than Red had access, being sheds used by Rawhard Trading Pty Ltd for storage of their goods and products must be insured by the Lessee.
9.6  It was proposed that one month's rent be paid to Rawlings forthwith."
That is an indication of the points on which there had been no agreement.
10 Within a few days Mr Paul prepared a draft agreement to lease premises which he sent to the respondent for comment.  It was meant, according to Rawlings, to be a document upon which the parties could negotiate.  There was no reply.  Things just drifted on.
11 Most unfortunately early in 1997 relations between the parties soured and continued to get worse.  The respondent, for example, in mid 1997 locked the appellant out of its shed.
12 In August 1997 the respondent paid the rent I have already mentioned.
13 On 3 November the appellant, wanting to sell the land, had its solicitors write a letter to the respondent demanding either vacation "on or before 31 December 1997" or "That your company enter into a new lease" on specified terms, one of which was an annual rental of $20,000.
14 The respondent replied by putting a caveat on an area of land much greater than the 1500 square metres taken up by the glasshouse.  In June 1998 the appellant warned the caveat.  Action began in the District Court on 1 July.
15 That is merely an outline of the facts, sufficient though, I hope, for the purposes of deciding the appeal.  The learned trial Judge in the course of his long and careful judgment set out the facts more fully.
16 Mr Heywood Smith conceded the accuracy of His Honour's account.  He also conceded that His Honour had correctly set out the law. Mr Heywood Smith's complaint is that the learned Judge erred in his inferences and in the application of the law to the facts.
17 The relief which the respondent sought at first instance:-
"1.  A declaration that a lease between Redder Than Red and AB & SM Rawlings exists on the terms set out in the Agreement to Lease and the lease representations;
 2.  A declaration that AB & SM Rawlings is estopped from denying:
2.1  the existence of the lease on the terms set out in the Agreement to Lease and the lease representations;
 3.  An order requiring AB & SM Rawlings to prepare and provide to Redder Than Red a lease in registrable form on the terms set out in the Agreement to Lease and the Lease representations.
 ...
 4.  An injunction restraining the defendant from dealing with the Willunga property other than subject to such of the plaintiff's interest ion (sic) the Willunga property as may be determined by this Honourable Court.      
 5.  Costs.

1. Such further or other orders as this Honourable Court deems  fit."
   18 The relief His Honour gave:-
   "1.  That the Plaintiff's Application for declaratory and other relief in terms of Orders 1, 2 and 3 of the Further Amended Statement of Claim be dismissed.
    2.  That the Defendant is estopped from denying to the Plaintiff the right to occupy that site on the land comprised in Certificate of Title Register Book Volume 4095 Folio 29 ('the Willunga property') comprising a 1526 metre squared greenhouse and 256 metre squared propagation facility ('the greenhouse site') for a period of five years commencing 1 November 1996 at an annual rental of $10,000.00 paid monthly in advance by the first day of each month on the following terms and conditions:
   (a)  that the Plaintiff have a licence to take access to the shed constructed near the propagation facility for the purposes of storing heating and cooling equipment and for the use of thereof;
   (b)  that the Plaintiff provide to the Defendant keys to the said shed and allow unrestricted access by the Defendant to the shed;
   (c)  that the Plaintiff has the right to bring vehicular traffic on to the Willunga property for the purposes of carrying out the cultivation of tomatoes hydroponically in the greenhouse and propagation facility and the sale thereof;
   (d)  that the servants or agents of the Plaintiff properly engaged in the cultivation process have the right to take access to the toilet facilities situated on the Willunga property;
   (e)  that the Plaintiff effect appropriate insurance in respect of the greenhouse, the propagation facility, the storage shed and all plant and equipment pertaining thereto and to provide the Defendant with evidence of such insurance;
   (f)  that the Plaintiff do pay for all electricity used by the Plaintiff in carrying out its operations on the Willunga property;
   (g)  that the Plaintiff do pay for all water consumed by the Plaintiff for and in respect of its operation on the Willunga property to the date hereof and that the Plaintiff do forthwith arrange for the installation of an SA Water meter capable of quantifying the water hereafter used by the Plaintiff on the Willunga property;
   (h)  that the Plaintiff comply with all Council conditions ... and plans designed to prevent water erosion on the Defendant's land.
    3.  That until midnight on 31 October 2001 the Defendant its servants or agents be restrained and an injunction is hereby granted restraining it from dealing with the Willunga property other than subject to the Plaintiff's interest as set out in these Minutes of Order and the reasons for judgment of His Honour Judge Burley, Master of the Supreme Court delivered 5 February 1999.
    4.  That either party may be at liberty to apply."
   19 It will be seen that the learned Judge found an equitable estoppel in favour of the respondent but no agreement to lease between the parties.  The appellant has appealed against the former.  The respondent has cross-appealed against the latter.
   20 The points for consideration are first, whether or not the learned Judge's inferences from the facts are justified or whether we should draw our own different inferences, and secondly whether the learned Judge has applied the law correctly to the facts.
   21 Both Mr Heywood Smith and Mr Patrick O'Sullivan for the respondent acknowledge that the law applicable is to be found in the judgment of Brennan J in Waltons Stores (Interstate) v Maher and Another (1987-1988) 164 CLR 387, especially at 428-429. His Honour expounded the law in a well-known passage in his Reasons but as the points are the touchstone for a decision I reproduce them (adapted to the present facts) as a list. The respondent had to prove that:-
   "(1) the respondent assumed that a particular legal relationship then existed between the respondent and the appellant or expected that a particular legal relationship would exist between them and, in the latter case, that the appellant would not be free to withdraw from the expected legal relationship;
    (2) the appellant has induced the respondent to adopt that assumption or expectation;
    (3) the respondent acts or abstains from acting in reliance on the assumption or expectation;
    (4) the appellant knew or intended him to do so;
    (5) the respondent's action or inaction will occasion detriment if the assumption or expectation is not fulfilled;
    (6) the appellant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."
   22 The facts are to be assessed against these points. Mr Heywood Smith urged us, on the principles expounded by the High Court in Devries and Another v Australian National Railways Commission and Another (1992-1993) 177 CLR 472 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (1999) 73 ALJR 306, to examine critically the inferences which the learned trial judge drew from the facts. In the latter case, Kirby J (@ 327) in confirming what he calls the " 'traditional' view", set out in Warren v Coombes (1979) 142 CLR 531 at 551, referred to:-
   "... the duty imposed on appellate courts by statute to make up their own mind; to conduct appeals on the facts by way of rehearing; to draw inferences from the facts for themselves; to give the judgment and make orders that should have been given at trial; and, in exceptional circumstances, even to admit fresh evidence into consideration."
   23 I have tried to follow that and must say that I cannot fault the learned Judge's reasoning, the inferences he draws and the conclusions to which he has come.  His Honour's findings of fact:-
   "     In early 1996 there were discussions initially between Mr Dzamko and Mr Harding and later between Mr Dzamko and Mr Rawlings and others relating to the establishment on the Willunga property owned by the defendant of a greenhouse and propagation facility.  As a result of those discussions the defendant permitted the plaintiff to cause to be constructed the greenhouse and propagation facility on portion of the Willunga property.  The costs associated with the establishment of the greenhouse and propagation facility and the necessary facilities relating to the cultivation of tomatoes hydroponically was, to the knowledge of the defendant, approximately $200,000.  From discussions in April 1996 between the relevant principals, it was anticipated that a lease agreement would be prepared providing for a term of five years with a right of renewal for five years and that the rental, at least for the first five years, was to be $10,000 per annum, with the rent for the subsequent period of five years to be agreed between the parties. The commencement of the initial five year period was to be 1 November 1996.  There is a dispute as to whether the rent was to be payable from the time of the first planting of a tomato crop or from the time at which the defendant commenced to earn money from the cultivation of the tomatoes but, in any event, Ms Heuvel's evidence reveals that rent has been paid for the period commencing 1 November 1996.
             The defendant was aware that, in constructing the greenhouse and propagation facility on the Willunga property, the plaintiff had an expectation of being able to occupy the relevant portion of the land for a period of ten years.  The defendant caused to be made to the relevant local Council applications for building approval both in respect of the greenhouse and propagation facility and a shed which was erected on the Willunga property by the plaintiff. The greenhouse and propagation facility and most of the hydroponic equipment were respectively constructed and supplied by the company Rawhard Pty Ltd, of which Mr Rawlings and Mr Harding were directors.  The parties discussed the construction of at least one additional greenhouse at a future time on the Willunga property, the rental for which was to be $10,000 per annum per 1500 square metres of area occupied.  It was anticipated by all the principals concerned from at least April 1996 that a formal written lease would be prepared which was to embody the parties' agreement as to the plaintiff's continued occupancy of portion of the Willunga property.  The parties have not at any material time reached final agreement with regard to the content of that lease.  It was contemplated by the principals concerned that the plaintiff would have access to and use of the packing shed to be constructed near to the greenhouse and that the plaintiff's employees and agents would have the use of a toilet facility situated on the Willunga property.  It was also contemplated by the relevant principals that the plaintiff, by its servants or agents, would have vehicular access to the greenhouse and propagation facility and that the plaintiff could install heating and cooling equipment in the packing shed.  In addition, the defendant permitted the plaintiff to install water tanks on areas abutting the greenhouse.
             The parties understood, and the plaintiff subsequently acted in accordance with such an understanding, that the plaintiff would obtain and pay for insurance in respect of the greenhouse, propagation facility and associated equipment and that the plaintiff would pay for utilities, such as water and electricity consumed by it."
   24 The six points of Brennan J are made out on these facts. 
   25 Yet, this is not the end of the matter. The appellant says that the respondent did not, in approaching the Court, have "clean hands". In Dering v Earl of Winchelsea (1787) 1 Cox 318, Lord Chief Baron Eyre dealt with an allegation of unclean hands:-
   "It is argued that the author of the loss shall not have the benefit of a contribution; but no cases have been cited to this point, nor any principle which applies to this case.  It is not laying down any principle to say that his ill conduct disables him from having any relief in this Court.  If this can be founded on any principle, it must be, that a man must come into a Court of Equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be a depravity in a legal as well as in a moral sense."
   26 The meaning of the phrase "a depravity in a legal as well as in a moral sense" is at the heart of the meaning of "unclean hands".  Traditionally, unclean hands have been associated with issues of fraud, misrepresentation or attempted abuse of process.
   27 The appellant argued that the respondent by acting in the way it had, approached the court with unclean hands.  In particular the appellant complained of the behaviour of Redder than Red in neglecting to respond to the draft agreement, delaying payment of rent for nine months, locking the appellant out of the sheds and non-payment of utility charges.  If there had been a contract, then these all may have constituted breaches of contract but there was no contract.  In equity the equivalent of a breach of contract does not necessarily equate with "a depravity in a legal as well as in a moral sense".
   28 In Loughran v Loughran (1933) 292 US 216, Brandeis J considered an equitable claim which had arisen out of a voidable marriage. The marriage had been entered into, in violation of a State law. It was argued that the widow had no claim inequity as she came with unclean hands by way of the marriage. He held:-
   "The suit at bar was brought after termination of the marriage by death to enforce existing property rights growing out of the marriage in Florida and the decree entered in Virginia.  It was not brought to enforce any transaction had within the District; nor was it brought to enforce an illegal contract; or to further an illegal relation.  Equity does not demand that its suitors shall have led blameless lives.  Neither the doctrine of clean hands, nor any kindred principle on which courts refuse relief, is applicable here."
   29 In Money v Money [No 2] [1966] 1 NSWLR 348, Jacobs J recognised that public policy may allow relief in equity to assist a wrongdoer:-
   "Here there is a transaction which is on my finding illegal because it is contrary to the public policy which bars agreements to oust the jurisdiction of the Court to award maintenance to a deserted or separated or divorced wife.  This transaction has on my finding been partly performed.  However, if on this ground of part performance Equity declines to interfere, the very ouster of jurisdiction which is sought to be prevented by the rule is largely perpetuated.  Any court which came to deal with the question of maintenance would be fettered in its approach by the illegal transaction itself.  Such a court could not ignore the transfer of property achieved by the illegal transaction but, if it did not ignore it, it would find itself in the position of being compelled to make its order on the basis of the illegal transaction. It seems to me that in these circumstances Equity will interfere to prevent the further performance of the illegal transaction since public policy itself requires that it should so interfere."
   30 More recently Young J in Telstra Corporation Ltd v Capetan Pty Ltd & Anor (1996) (unreported, SCNSW Equity Division, delivered 22 March 1996) indicated that excessive delay would not necessarily be tantamount to unclean hands:-
   "... whilst I would not go so far as to say there were unclean hands, the landlord has made it fairly plain that it is never likely to be satisfied with any detail that was given by the tenant to it and that what will happen, if some injunction is granted, is that there will be a continual request for further information and continual delay."
   31 In the light of these propositions; that unclean hands must have an element of  "depravity in a legal as well as in a moral sense", that "equity does not demand that its suitors shall have led blameless lives" and there is a discretion as to whether a wrong doer is seen to be assisted by equity.  What of the situation here?
   32 There are substantially four complaints that the appellant suggests are tantamount to unclean hands.  First, that the respondent failed to do anything at all about the draft agreement.  It said nothing about the issue of guarantors or indeed about any other term of the lease.  The respondent does not resile from the fact that the agreement to lease was not signed or returned but points out that the onus of preparing a formal lease was on the appellant and it never did.  Both parties could have been more vigilant in their approach to getting a formal lease signed.
   33 The second complaint is that payment of rent was not in accordance with what had been agreed.  The appellant says that the rent should have been paid from the time of planting, the respondent once they started making money.  No rental payments were received until some nine months or so after the respondent had gone on the land.  The respondent had a different interpretation as to when rent was to be paid: a freak storm, resulting in an insurance claim, further delayed the payment of rent: the rent was eventually paid and it was accepted by the appellant.
   34 The third complaint, involves the supposed locking out of the appellant from the sheds on the Willunga property.  It had always been agreed that Rawhard would use the greenhouse as a display to shew off its equipment.  This meant that Rawhard would occasionally shew people through the greenhouse.  At some stage the appellant was locked out of the adjacent sheds: the sheds housed equipment, which the appellant wanted to shew its clients.  The locks had been changed at a time when the relationship between the parties had soured.  On the other hand the respondent said all the appellant had to do is ask for a key.
   35 The final complaint is that utility charges were not paid until some 18 months after 1 November 1996.  The respondent argued that it had difficulty in paying utilities as no accounts had ever been rendered for the services: as soon as the accounts had been received, the utilities were paid.
   36 The question is whether these activities amount to unclean hands.  I think none of them does.  The failure to respond to the draft agreement was largely the fault of the appellant.  The appellant had let the draft agreement go for many months before chasing the matter up.  The discussion on the rent sees both parties differing on an essential term: the difference of opinion is not equivalent to unclean hands.  The lock out of the sheds was at a time when relationships were strained but I accept that the appellant could have had access if it were requested.  I also accept that the delay in paying the utilities was because no accounts were rendered.  While these activities diverged from what had been agreed, they do not border on unconscionable.  I accept what the learned trial Judge said:-
   "The concept of equitable estoppel is based on unconscionable behaviour and if both parties act in an unconscionable way it cannot be said that an equity will arise. But a minor alteration does not constitute unconscionable behaviour."
   37 The rock on which the ship of the appellant founders is that the respondent spent $200,000 to the knowledge of the appellant and with its acquiescence (more than acquiescence if one remembers the closeness of the appellant and Rawhard which had most of the $200,000 for its equipment).  Put that against the complaints of the appellant, the behaviour of the respondent is not significant.  That being so the hands of the respondent were sufficiently clean for it to succeed and to have a remedy.
   38 It follows that I suggest the appeal be dismissed.
   39 Mr O'Sullivan acknowledged that his client cannot have it both ways, either there was an equitable lease or there is an equitable estoppel but there cannot be both.  Nevertheless the respondent has cross-appealed against His Honour's findings that there was no equitable lease.
   40 His Honour preferred the evidence of the witnesses of the appellant to the evidence of Dzamko, the witness for the respondent, about the meeting in Mr Paul's office in November 1996.    They had been there: Dzamko had not: Brown had represented the respondent but he was dead before trial.  The former asserted there was no firm agreement: Dzamko thought it had all been fixed.  In his affidavit Mr Paul deposed to a number of points which were not settled.  As His Honour puts it, "Mr Rawlings, on behalf of the defendant, regarded the document which was subsequently prepared by Mr Paul as being a basis for further negotiation".  There was no final agreement on the essential details of the lease.  Guarantees had not been prepared.  Suitable guarantors had not been chosen.  The lease was far from being in registrable form.  There remained the significant issue of leasing further areas, in case the respondent wanted to expand.
   41 There was no equitable lease in the sense that there was an agreement for a lease which could be specifically enforced, Walsh v Lonsdale (1882) 21 Ch D 9. It follows that the cross-appeals fails.
   42 I suggest that both appeal and cross-appeal be dismissed.
    43 DUGGAN J.   I agree with the view expressed by Millhouse J that the appeal and cross-appeal should be dismissed.  I add these comments.
   44 Except in relation to one or two minor matters, the appellant did not challenge the findings of fact made by the learned trial judge. It was also accepted by the appellant that the principles referred to by Brennan J in Walton Stores (Interstate) v Maher and Another (1988) 164 CLR 387 at 428-429 were applicable to the claim by the respondent that an equitable estoppel had been created in its favour. However it was argued that the trial judge erred when he came to apply those principles to the facts found by him.
   45 The six part test for the creation of an equitable estoppel put forward by Brennan J is set out in the judgment of Millhouse J.
   46 It was argued by the appellant that there was insufficient proof of an expectation on the part of the respondent that a legal relationship would exist between the appellant and the respondent from which the appellant would not be free to withdraw.  The learned trial judge held that a finding in favour of the respondent on this issue was justified by reason of the fact that the appellant permitted the respondent to construct the glasshouse on a portion of the property in expectation of a lease of up to ten years at an annual rental of $10,000 for the first five years.
   47 Mr Heywood-Smith, for the appellant, argued that the building of the structure on the property may be indicative of no more than folly on the part of the respondent and he pointed to the fact that at the time of the construction a significant number of matters were still to be agreed between the parties.  However, it is my view that, in the circumstances of the case, the building of the facility provided ample evidence of an anticipation on the part of the respondent which answered the description adverted to in the first proposition enunciated by Brennan J.  This is further supported by the evidence of Mr Neville Rawlings (T439) who was called by the appellant to give evidence as to his understanding of the basis upon which the respondent was allowed to construct the facility.  He said the respondent was allowed to proceed because it had been agreed that there would be a ten year lease.  In addition Mr Rawlings expressed the optimistic view to Mr Dzamko at the end of the April meeting that everyone was going to be "a winner".
   48 Next, the learned trial judge found that the appellant had induced the relevant belief on the part of the respondent.  This finding was based on the actions of the appellant in permitting the construction to take place.  Mr Heywood-Smith argued that the appellant did no more than indicate that it was prepared to negotiate the terms of the lease.  However the trial judge was entitled to find that the appellant had done much more than that.  It had permitted the respondent to expend a considerable amount of money on the appellant's property and, against the background of the ongoing negotiations between the parties, it created the type of belief contemplated by Brennan J in the second of his propositions.
   49 The third and fourth propositions referred to by Brennan J are satisfied by inference from the facts to which I have referred.  It is clear that the respondent acted on the assumption or expectation thus created when it set about installing the facility on the appellant's land.  Furthermore the appellant was aware that the respondent was acting on that assumption.  The requirements of propositions five and six were also met.  It is self evident that the appellant's action would occasion detriment if the agreement did not reach fruition and it is obvious also that the appellant had no intention to act so as to avoid the detriment when it issued its ultimatum to the respondent in November 1997.  The detriment remains.
   50 I agree with the view expressed by Millhouse J that the respondent did not act in an unconscionable way so as to deprive it of the remedy which it sought.  I agree also that there was no equitable lease and that the cross-appeal should be dismissed accordingly.
   51 LANDER J.    I agree for the reason given by Millhouse and Duggan JJ that both the appeal and cross appeal should be dismissed.

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