Southcap P/L v Lend Lease Financial Planning Ltd
[1997] QSC 161
•8 September 1997
IN THE SUPREME COURT
OF QUEENSLAND
No. 2393 of 1995
[Southcap P/L v Lend Lease Financial Planning Ltd]
BETWEEN:
SOUTHCAP PTY LTD ACN 002 626 182
Plaintiff
AND:
LEND LEASE FINANCIAL PLANNING LTD ACN 056 426 932
DefendantREASONS FOR JUDGMENT - THOMAS J
Delivered:8 September 1997
CATCHWORDS: CONTRACT - Formation - Whether parties reached concluded bargain through negotiations and exchange of correspondence
CONTRACT - Uncertainty - Whether failure to specify apportionment of “outgoings” rendered lease agreement unenforceable - Failure to specify types of outgoings payable - Need for nexus with demised premises
CONTRACT - Breach - Whether lessor’s failure to complete alterations on time justified lessee’s repudiation of agreement
ESTOPPEL - Representation that parties bound by valid lease - Need for proportionality between remedy and detriment
Counsel:Mr T. North for the plaintiff
Mr P.D. McMurdo QC for the defendant
Solicitors:Minter Ellison for the plaintiff
Freehill Hollingdale & Page for the defendant
Hearing dates: 28-29 August 1997
IN THE SUPREME COURT
OF QUEENSLAND
No. 2393 of 1995
[Southcap P/L v Lend Lease Financial Planning Ltd]
BETWEEN:
SOUTHCAP PTY LTD ACN 002 626 182
Plaintiff
AND:
LEND LEASE FINANCIAL PLANNING LTD ACN 056 426 932
DefendantREASONS FOR JUDGMENT - THOMAS J
Judgment delivered 8 September 1997
This is an action for the specific performance of an agreement for a lease. The plaintiff (“Southcap”) owns or has the right to grant leases over the Southbank Corporate Park. This area includes three buildings, namely Logan House, Oxley House and a recreation centre. The area with which the parties are concerned in the present case is part of the second floor of Logan House.
The relevant agreement is said to have been made by Southcap (through its agent Boreham and Company (Qld) Pty Ltd) with the defendant (“Lend Lease”) by means of two letters, namely Boreham’s letter of 23 June 1995 and Lend Lease’s reply on 11 July 1995. The defence initially denied that Boreham was a duly authorised agent of the plaintiff, but this is no longer in issue. The main questions which need to be resolved are whether there was a concluded and certain bargain; whether Lend Lease is estopped from denying its obligation to enter into the lease; and (alternatively) whether Lend Lease was entitled to refuse to perform the agreement by reason of alleged breach by Southcap of a condition of the agreement.
Before setting out the relevant letters, mention should be made of some preceding and surrounding circumstances. In 1989 Southcap had leased part of the second floor Logan House to a company called Australian Eagle for the period up to 31 August 1995. At material times (at least during the later part of that lease) Australian Eagle was an associated company of Lend Lease in the sense that there was substantial common ownership of shares by a parent company. Moreover, both companies occupied parts of the leased area and to some extent the same officers represented both companies. Mr Barry Dixon, who was at the material time the “general manager - Queensland” of Lend Lease, was such a person. In December 1994 Mr Dixon successfully negotiated with Southcap (through Mr Boreham) for the surrender by Australian Eagle of part of the area of its lease to another company. In March or April 1995 Mr Dixon (on behalf of Lend Lease) commenced negotiating with Mr Boreham to obtain a lease over a substantial part of the remaining area of the lease then held by Australian Eagle, to commence when that lease expired. Letters sent on 24 April 1995 and 5 June 1995 show earlier advanced negotiations.
The 23 June 1995 letter was as follows:
“Attention: Mr B. Dixon
Lend Lease Advisor Services Limited
GPO Box 827
BRISBANE 4001
Dear Sir
Re: Proposed Lease Second Floor Logan HouseFurther to our discussions we write to confirm our agreement for a Lease as follows:-
Area:As indicated on the attached plan, we estimate this to be 378 square metres subject to survey.
Lease Term:Four years.
Commencement: 1 September 1995.
Rent:To be calculated at a rate of $170.00 per square metre net.
Outgoings:Tenant to pay a proportion based on the area of the tenancy to include air conditioning electricity costs.
Electricity and
Cleaning:Payable by tenant.
Rent Review: Each two years to market.
Car Parking: 8 undercover car bays at a commencing rental of $75.00 per month per car bay.
Special Conditions: The Lessor will replace the carpet throughout the tenancy and the foyer. All internal walls will be repainted and the ceiling made good where necessary. In addition the Lessor agrees to undertake the alterations in the tenancy as indicated on the attached plan.
The Lessor reserves the right to install an emergency escape door to the intertenancy wall should this be required by the building authorities in favour of the adjacent tenancy.
Would you please confirm your agreement to these proposed terms and conditions. We will then instruct the Lessor’s solicitors to forward Lease documents for your execution.
Yours faithfully
BOREHAM & COMPANY (QLD) PTY LTD
Michael J. Boreham
Director”
[There were plans attached showing necessary
partitions and the area to be leased]
Lend Lease’s reply dated 11 July 1995 was as follows:
“ Lend Lease
Advisor Services
11 July 1995
Mr Michael Boreham
Boreham and Company
Ground Floor, Logan House
25 Donkin Street
South Brisbane Qld 4101
Dear Sir
RE: PROPOSED LEASE-SECOND FLOOR LOGAN HOUSE
Further to your letter of the 23 June with various plans attached, I hereby confirm our agreement to the proposed terms and conditions as laid out in that correspondence.
Would you please instruct the Lessors [sic] solicitors to prepare the appropriate documents and forward them for execution to:
Mr Don Wiggins,
Lend Lease Broker Services
1094 Doncaster Road
Doncaster East Vic 3109
Please show the Lessee as being Lend Lease Advisor Services Ltd in the documentation.
Please give me a call if there is anything further you wish to discuss.
Yours faithfully
Barry Dixon
General Manager - Queensland”
Southcap’s solicitors then prepared a lease and on 10 August 1995 sent it to the defendant’s brokers to arrange execution. At this stage, as Australian Eagle’s lease approached its termination date, Southcap had the right to enforce obligations on Australian Eagle’s part to restore or pay the cost of restoration of the premises. Mr Dixon said that he assumed that as the new lessee was part of the same group as Australian Eagle, Southcap would waive any “making good” provisions in consideration for the new lease. Mr Boreham indicated that he would seek instructions.
Southcap in due course decided not to enforce its rights against Australian Eagle and the defendant was informed of this on 26 September 1995 (by telephone conversation with Mr Dixon). I accept that this decision was made in the belief that there was an agreement for lease between Southcap and Lend Lease and that Lend Lease would enter into a lease in those terms. The value of the obligations not enforced against Australian Eagle was $22,918.
On 31 August 1995 Australian Eagle vacated, and it is common ground that Lend Lease was then in occupation of the premises until 15 December 1995.
A survey was necessary to present more accurately the indicative plan of the demised premises enclosed with the letter of 23 June 1995. The area originally estimated was 378 square metres, but after survey this was calculated to be 366 square metres and the necessary adjustments were made on 18 October 1995. It was contemplated that such a survey would occur, and no point is taken on behalf of the defendant in relation to any uncertainty arising by virtue of this circumstance. The survey merely enabled what the parties had agreed in this respect to be defined more precisely.
After receipt of the draft lease on about 10 August 1995 there was no complaint of inappropriate drafting. Lend Lease remained in occupation and Southcap engaged a builder to do some alterations. On 3 October the first rent invoice was forwarded. It was not until 9 October 1995 that the first intimation was given that Lend Lease might not wish to proceed. On that date Mr Wiggins, a representative of Lend Lease, informed Mr Boreham that there was some question whether Lend Lease would proceed, indicating that there would be a board meeting on 18 September, and asking for a one month's tenancy. Southcap's solicitors demanded the execution of the lease, but there was no reply. On 17 October the first rent payment was made. On 23 October 1995, Mr Wiggins told Mr Boreham that the meeting had been "inconclusive" and that it might be six weeks before Lend Lease “knew where they were going”. He again asked for a monthly tenancy in the meantime. This was refused.
The rent notices addressed to the defendant were calculated on the basis of the rate for rent contained within the correspondence. For the first three months Lend Lease paid the rent calculated on that basis. No other type of tenancy had been negotiated than the four-year term mentioned in the letters. The requests for a monthly tenancy were belated and were made after the commencement of occupation by Lend Lease and after the commencement of the period contemplated as the term.
Pursuant to its promise under the “special conditions” in the letter of 23 June 1995, Southcap engaged a builder to do some alterations, including the repainting of the tenancy area, recarpeting, amendments to the fit-out and addition of new walls. A new carpet was ordered by the builder at a cost of approximately $12,500, and Southcap paid for the carpet on 24 October 1995. It however has not yet been laid. The builder commenced work on 3 October 1995 and inter alia constructed the proposed inter-tenancy wall, completing same by 20 October 1995. Electrical work necessary for the new division of the second floor was carried out on 6 October 1995. Work relating to the division of the premises was of course necessary for the purposes of the adjoining tenancy as well as for the subject tenancy. It is pleaded on Land Lease’s behalf that the obligation to perform these alterations was to be performed before the commencement of any tenancy on 1 September 1995. Southcap however has not at this stage proceeded to complete the additional work contemplated by the subject agreement. This is now said to be a breach on the part of Southcap which justifies the defendant in refusing to proceed with the lease.
All relevant facts have been established by evidence presented on behalf of Southcap. Lend Lease called no evidence.
By its “amended amended defence” Lend Lease pleaded that the alleged agreement was “not sufficiently certain” in that it did not contain agreement about the following matters:
the proportion of outgoings payable by Lend Lease;
specification of those items to be included in the outgoings to be paid by Lend Lease;
the permitted uses of the premises; and
Lend Lease’s hours of access to the premises.
However, during argument reliance on the matters in paragraphs (3) and (4) was abandoned as it was conceded that it was not necessary that any particular agreement be reached with respect to them. In any event, in the absence of any limitation on use, the tenant would be entitled to any lawful use of the premises; and it would seem to me that the hours of access to the building, given the prior association of the parties, would be taken to be the same as had hitherto existed. It was submitted however that the provisions concerning outgoings were expressly mentioned and that they are too uncertain or ambiguous to be given a certain meaning. The argument was therefore confined to points 1 and 2.
It is fair to acknowledge, particularly in relation to commercial arrangements, that "only if the Court is driven to it" will a provision be held void for uncertainty (Brown v Gould [1972] Ch 53 per Megarry J). It has also been said that unless the language employed by the parties is so obscure and incapable of definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention, a contract cannot be held to be void or uncertain or meaningless (per Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1967-1968) 118 CLR 429, 437. In such cases “as long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction” (ibid p 436).
The position in the present matter has been complicated to some extent by an unfortunate word-processing bungle on the part of the solicitors for Southcap. In the lengthy lease which it forwarded to Lend Lease for signature, the clause dealing with the lessee’s liability for outgoings (clause 4) suffered from the substitution of inappropriate numbering and lettering throughout. This has produced a result that is on its face sheer nonsense. By a process of astute guesswork and multiple numerical substitutions, it seems likely however that the solicitors intended to draw a clause that would, after calculations that would depend on the precise area calculated after survey, make Lend Lease responsible for defined proportions of various outgoings including cleaning, energy needs of common areas inside the building, service and maintenance costs of the building, costs relating to common areas, air-conditioning and lift costs, service and maintenance costs of the car-parks, rates and taxes, and costs of maintaining and operating the recreational facilities. This is probably what the solicitors intended to achieve by the combination of clause 4, the “information schedule - item 2", and schedule F to the draft lease. The proportion in most instances is the proportion which the area of the demised premises bears to the area of Logan House, but there are others where the proportion is that which the area of the demised premises bears to the demised area of the complex as a whole. So far as rates are concerned it would seem that the lease was drawn in a way that would make Lend Lease liable for a proportion of the rates based on the proportion that the area of the demised premises bears to the area of Logan House. In addition, clause 4 purports to give to the lessor a power of variation and redetermination in a discretionary way, that is, according to the “reasonable opinion of the lessor”.
For reasons shortly to be given, in my view those proposals in the lease drawn by Southcap's solicitors went beyond what was agreed, and the defendant Lend Lease would have been entitled to have refused to agree to those particular provisions.
It is necessary to turn attention to precisely what was agreed. The relevant part of the letter of 23 June 1995 dealing with the present subject matter states
“Outgoings:Tenant to pay a proportion based on the area of the tenancy to include air-conditioning electricity costs.
Electricity & Cleaning: Payable by tenant.”
There is no ambiguity whatever concerning electricity and cleaning. Such charges of these kinds as Southcap can prove to be attributable to the demised premises must be paid by the tenant. The only difficulty arises in relation to the more general statement with respect to outgoings. I do not think that there is any particular difficulty occasioned by the word “outgoings”. Courts always seem to have been able to find what is covered by such a word in the context of the particular case (Crosse v Row (1874) LR 9 EX 209, 212; Stockdale v Ascherberg [1904] 1 KB 447. More recently in Patronis v Oynoi & Kampi Pty Ltd, (Butterworths unreported judgments DC 9402297, 23 February 1994) Young J acknowledged that “outgoings” is a word of wide import. But of course there has to be some nexus between the outgoing and the demised premises or their occupancy by the tenant. An outgoing in the context of landlord and tenant is necessarily understood (in the absence of contrary stipulation) as an outgoing in respect of the premises or their occupancy. Thus in Patronis (above) Young J rejected the submission that a promise to pay outgoings obliged the promisor to pay off the personal liability of a party for his own mortgage, or interest on a mortgage over assets which he had agreed to sell to the purchaser free of encumbrance.
The letter of 23 June obliges the tenant to pay “a proportion” of the outgoings, and it is to be “based on the area of the tenancy”. The submission on behalf of Lend Lease is that a proportion requires a numerator and a denominator, and that only the numerator has been sufficiently defined. The question then is whether an appropriate denominator may be implied with respect to relevant outgoings.
The fact that outgoings of different kinds may logically require different denominators does not mean that the agreement is uncertain. The question is whether the words used by the parties in the light of the known surrounding circumstances can and should be given a clear and sensible meaning.
If one takes for example an outgoing such as insurance on the building (i.e. on Logan House) one naturally reasons that if the numerator is the area of the demised premises that the denominator must also be an area with which a logical comparison may be made. One would have no hesitation in concluding that the denominator in that instance must be the area of that building of which the demised premises form a part.
However a different approach would be required when one looks at an outgoing such as rates. Rates are levied on the land as a whole, and the assumption in argument before me was that they would be levied with respect to the land area of the complex. If there were only one building on the land, there would be no problem in staying with the same formula so that the tenants as a whole would bear their due proportion of the whole of that particular outgoing. But where, as here, there are two tenanted buildings, the application of a formula based on a proportion in respect of only one of the buildings would mean that the landlord would recover double the value of the amount payable by it for rates. The basic circumstances of the buildings and their necessary interrelationship with the complex were of course well known to both parties. With respect to rates then, the natural and fair assumption would be that a particular tenant should pay the proportion that the area of its tenancy bears to the entire area of buildings let to tenants within the complex as a whole.
Mr McMurdo QC for Lend Lease mentioned many potentially complicating circumstances where optimal solutions might require quite involved clauses. I do not think that the simple “bare bones” agreement that was reached by these parties can pretend to offer sophisticated solutions to fine points. For example, the landlord might find from time to time that it has less than a full occupancy rate, in which case it would (without a special agreement) recover less during such periods than a full indemnity for the rates. That no doubt was why the solicitors sought to stipulate for a right of variation. But such matters in my view would require precise stipulation. They cannot be implied, and neither as a matter of construction can the simple words of this agreement be said to carry meanings such as these. The position may have been different had the letter stipulated “according to the usual conditions of Southcap’s leases in this complex” (if it could demonstrate its usual conditions), or if it had said "in the same terms, mutatis mutandis, as those of Australian Eagle's lease". That however was not done and in the absence of later acceptance on the part of Lend Lease of the more elaborate conditions proffered to it, it would not be bound by those more elaborate conditions.
In my view the term "outgoings" is not itself uncertain. Without purporting to give a comprehensive denotation of potential items covered by that term in the context of the present case, outgoings relevant to office premises which are part of a complex such as this would include rates, water rates, management and administration expenses, insurance, external common lighting, fire protection and fire brigade levy, pest control, repairs and maintenance, security, gardening, air-conditioning repairs and maintenance, lifts and air-conditioning, electricity and lift repairs and maintenance. Neither in my view is the agreement uncertain by reason of the failure to give a more comprehensive definition of the applicable denominator in each instance. In my view in each instance the denominator is identifiable having regard to the words used to describe the numerator and the surrounding circumstances including the nature of the outgoings themselves.
I accept the following submissions made by Mr T. North on behalf of Southcap. The "area of the tenancy" is part of the second floor of Logan House. That building is one of a number of buildings under one title forming a complex known as Southbank Corporate Park. The area of the tenancy is rentable building floor space. The "area of the tenancy" referred to in the letter of 23 June is rentable building floor space. If the numerator is rentable building floor space, then prima facie so should be the denominator. The area of the tenancy is a certain and calculable portion of the rentable floor space within the building "Logan House". It is also a certain and calculable proportion of the rentable floor space within the complex as a whole. Whether the proportion of any outgoing payable by the tenant is calculated by reference to the proportion of the rentable floor space within the building, or within the complex as a whole, is dependent only on the nature of the outgoing. If the outgoing relates only to the building, for example a repair to the floor in the foyer of that building, then it is the proportion of the rentable floor space within that building that is taken up by the tenancy that represents the proportion of the outgoing payable by the tenant. If the outgoing relates to the complex as a whole then it is a proportion calculated by reference to the rentable floor space in the complex that is payable. In either event it is a proportion of the outgoing "based on the area of the tenancy".
It is not necessary to multiply examples. The application of this approach will enable Lend Lease's obligation with respect to any identifiable outgoing to be calculated.
Mr McMurdo QC for Lend Lease submitted that the formula contended for by the landlord would make his client liable to contribute to outgoings that related solely to another building within the complex. I do not think that this is so. An item will be an outgoing only if it has some appropriate nexus with the demised premises. Mr McMurdo further submitted that there would be administrative difficulty in determining particular outgoings and the defendant's proportion thereof, and that the parties could not have intended this to happen. It may well be that in the end the solicitor's proposal (if properly drafted) would be administratively simpler, with the identification of various kinds of expense and a stated mathematical proportion for each. That however is not to the point. There is a natural tendency for a party which has changed its mind and does not wish to cooperate in carrying out an agreement to raise unnecessary administrative difficulties. I do not think that once an initial modus operandi has been established there would be any particular difficulty in carrying out this particular arrangement. I reject the submission that the agreement fails for uncertainty.
Mr McMurdo further submitted that the letters of 23 June and 11 July 1995 did not reveal an intention to make a concluded bargain. I accept that this is a matter to be resolved objectively upon a construction of the relevant documents and that it is appropriate to have regard to the surrounding circumstances and the subsequent conduct of the parties if it throws light upon the meaning of the language used (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 547 et sic). I do not find it helpful however to discuss cases referred to in argument which turn on their own facts.
The main submission on behalf of Lend Lease in this context depends upon the circumstance that the parties clearly intended that further documents would be prepared. However that does not necessarily place the arrangement in the third category discussed in Masters v Cameron (1954) 91 CLR 353, 360. In my view the parties had reached finality on all matters that needed to be dealt with by them. Naturally they intended to have the terms restated in a form more fully and precisely, but not different in effect. There is a strong case for concluding, given the preexisting relationship, that it was intended that that lease would be in similar form to that relating to the premises of which Lend Lease was already partially in occupation and which it intended to remain in occupation. However as the letters did not expressly state this to be so, I shall not attribute this meaning to the documents, although it is arguable that the circumstances justify it. Both letters contemplate that "lease documents" would be prepared by the lessor's solicitors, and Lend Lease's acceptance expressly requests Southcap to "instruct the lessors [sic] solicitors to prepare the appropriate documents and forward them for execution . . .". In my view it was contemplated that more detailed provisions would be drawn consistently with the terms specifically stated in those letters. There was no objection in correspondence as to the contents of the lease, and even at trial there were no submissions that the draft lease had been inappropriately drawn, save for the provisions concerned with outgoings payable by Lend Lease. The initial draft, for reasons earlier mentioned, failed properly to incorporate the parties' agreement in relation to outgoings, but an alternative more appropriate agreement in this respect may now be drawn.
The parties purported to have reached agreement on essential matters for a binding lease, and neither of them contemplated any further negotiation. There was in fact no further attempted negotiation. It may also be noted that the discussions which led to the non-enforcement of Southcap's rights against Australian Eagle were premised on the view that there already existed a lease or at least a binding obligation to enter into one.
It is unnecessary to repeat the sequence of events stated earlier. I reject the submission that the parties lacked a common intention to enter into contractual relations by means of the letters of 23 June and 11 July.
Estoppel
Southcap presented an alternative submission that Lend Lease is in any event estopped from denying the making of a valid lease by reason of Southcap having foregone its rights against Australian Eagle. I do not propose to discuss this issue at length. I accept that the conduct and statements on behalf of Lend Lease were sufficiently clear to found an estoppel and that Southcap has to some extent acted to its detriment in reliance thereon. However there is no evidence that Southcap has irrevocably lost its contractual rights against Australian Eagle. The disadvantage is that it might now be more difficult to prove and recover its entitlement. Further, even if it is now completely unable to make recovery against Australian Eagle, the maximum extent of Southcap's disadvantage would be a monetary loss of something under $23,000. One of the few points that emerges in The Commonwealth v Verwayen (1990) 170 CLR 394, where some similarity of approach can be seen in the respective judgments of the members of the court, is the need for proportionality between the remedy and the detriment. In the present case, assuming that Southcap did not otherwise have a binding agreement against Lend Lease for a lease, its disadvantage by reason of Lend Lease's conduct could readily be removed by a modest award of equitable damages. The present circumstances would not in my view justify a court in granting in effect a propriety remedy binding Lend Lease to perform an agreement that it had not made. In short, whilst I would uphold the existence of an estoppel, I would not regard it as one which would entitle Southcap to relief by way of holding Lend Lease liable as if it had entered into such a lease.
Breach by Lessor
It was submitted on behalf of Lend Lease that, if an agreement existed between the parties, one of its conditions was that Southcap must by 1 September 1995 perform certain recarpeting, repainting and repairs to the ceiling. Quite simply the agreement does not specify a time by which such work has to be carried out, and in those circumstances the law would imply that such works be performed within a reasonable time. It was known to the parties that another party (Australian Eagle) had the right of possession until 31 August 1995, and it would be very difficult to imply from the present letters and surrounding circumstances that such alterations should be performed before the commencement of the new lease.
It is true that some letters written on behalf of Southcap show an intention not to perform the work until a lease was signed by Lend Lease, but I do not regard such conduct as amounting to a repudiation of its obligations. Once Lend Lease's refusal to proceed with the lease became apparent to Southcap, it would have been foolish to incur the additional expense until the enforceability of the lease could be demonstrated. No notice was ever given by Lend Lease complaining of this failure or requiring the works to be performed by a given time. That is not surprising because the position taken by it was that no lease existed.
In short, there was no obligation upon Southcap to do these things by 1 September 1995; its obligation is to complete the promised alterations within a reasonable time; in the circumstances it is not yet in breach of that obligation.
Orders
I declare
that a binding agreement was made between the parties evidenced by the letters of 23 June 1995 and 11 July 1995;
on the proper construction of that agreement the defendant is liable to pay outgoings calculated in accordance with the principles stated in these reasons; and
that the agreement ought to be specifically performed.
The proceedings will be adjourned to 12 September 1997 for any necessary more specific orders before determining the form of the decree for specific performance, ancillary orders and costs.
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