Stewart Investments v Legge Building

[2003] NSWSC 193

Reported Decision: (2004) NSW ConvR 56-070

Supreme Court

CITATION:	Stewart Investments v Legge Building [2003] NSWSC 193
HEARING DATE(S):	17/03/03
JUDGMENT DATE:	25 March 2003
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Barrett J
DECISION:	Option clause in lease rectified; summons otherwise dismissed
CATCHWORDS:	LANDLORD AND TENANT - lease of part of property - subject matter of lease - subject matter of option to purchase - whether discoverable from lease - rectification - resort to evidence of background facts - conditional contract upon exercise of option to purchase - lessor's failure to take steps required by condition - whether lessor disentitled to regard contract as discharged
CASES CITED:	Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 53 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212 Pukullus v Camerson (1982) 150 CLR 447 Radaich v Smith (1959) 101 CLR 209 Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 76 ALJR 436 Standard Portland Cement Co Pty Ltd v Good [1982] 2 NSWLR 668
PARTIES :	L E Stewart Investments Pty Ltd - Plaintiff F C & M Legge Building Contractors & Developers
FILE NUMBER(S):	SC 50186/02
COUNSEL:	Mr A G Diethelm - Plaintiff Mr R S Angyal - Defendant
SOLICITORS:	Philip Boyce & Associates - Plaintiff Peter Cornelius & Partners - Defendant

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BARRETT J

TUESDAY, 25 MARCH 2003

50186/02 – L E STEWART INVESTMENTS PTY LTD v F C & M LEGGE BUILDING CONTRACTORS & DEVELOPERS

JUDGMENT

The issues

1 The defendant owns real property in Priestley Street, Mittagong. The proceedings arise from a transaction by which part of the defendant’s property was leased to the plaintiff by a lease also containing an option to purchase. The plaintiff conducts a taxi business and has some eighteen cabs. The business is carried on at the Priestley Street premises.

2 The dispute emerging from the plaintiff’s summons filed on 30 October 2002 and the defendant’s defence filed on 19 December 2002 raises a series of issues in respect of which the parties have been able to produce a statement of agreed issues as follows:

“1. Should the Lease dated 15 February 2000 between the Defendant as lessor and the Plaintiff as lessee be rectified by the insertion at the beginning of the clause at the top of the second page of Special Conditions Annexure A (reproduced at page 73 of the Agreed Bundle of Documents) of:
(a) the words ‘In further consideration of the Lessee entering into this Lease with the Lessor the Lessor grants to the Lessee or its nominee an option to purchase the property leased’ ; or
(b) the words ‘ The Lessor grants to the Lessee an option to purchase (i) the part of the building shown on the annexed plan as ‘PT 1’, and (ii) the parking spaces within the fenced yard shown on the said plan’ .
2. Was the option to purchase granted by the Defendant to the Plaintiff in the said Lease an option to purchase the area demised by the Lease?
3. If the answer to 2. is Yes – what was the area demised by the said Lease? In particular did the demised area consist of:
(a) the part of the building shown as ‘PT 1’ on the Plan annexed to the Lease (reproduced at page 74 of the Agreed Bundle of Documents) together with 26 car parking spaces also marked ‘PT 1’; or
(b) the said part of the building together with the secured yard indicated by cross-hatching on the said Plan (but not including the 8 car parking spaces lying outside the hatched area); or
(c) the said part of the building together with the cross-hatched secured yard and the 8 car parking spaces marked ‘PT 1’ lying outside the cross-hatched area; or
(d) the said part of the building together with 18 car parking spaces lying within the secured yard (but not including those parts of the yard not comprised in car spaces, and not including any car spaces outside the yard)?
4. If the answer to 2. is No – what was the subject matter of the option? In particular, was the subject matter of the option:
(a) the area marked ‘PT 1’ in the Plan annexed to the draft Contract for Sale sent to the Plaintiff’s solicitors on 19 January 2001 (reproduced at page 101 of the Agreed Bundle of Documents), consisting of the said part of the building and 20 car parking spaces; or
(b) some other area?
5. If the land the subject matter of the draft Contract for Sale was not the land the subject of the option, is the Defendant in breach of the contract constituted by the option?
6. Has the option been discharged by reason of the Defendant not obtaining development approval and registering a plan of strata subdivision or such other plan of subdivision as was appropriate to create a separate title for the Plaintiff within 12 months of the date of exercise of the option?
7. Did the Defendant by its agents represent to the Plaintiff prior to the execution of the Lease by the Plaintiff that the demised area would consist of the part of the building shown as ‘PT 1’ on the Plan annexed to the Lease together with the cross-hatched secured yard and the 8 car parking spaces marked ‘PT 1’ lying outside the cross-hatched area and shown on the Plan?
8. If the answer to 7 is Yes , was the making of the said representation conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive in contravention of section 52 of the Trade Practices Act 1974 and section 42 of the Fair Trading Act 1987?
9. If the Defendant is in breach of the contract constituted by the option, or has engaged in misleading or deceptive conduct in contravention of statute, what compensable damage has been suffered by the Plaintiff?”

The lease

3 This statement of agreed issues will be better understood in the light of a description of some of the key aspects of the document. The lease is dated 15 February 2002. The “Property leased” is described as:

“PART OF THE LAND IN FOLIO IDENTIFIER 1/811388 BEING UNIT 1/18 PRIESTLEY STREET, MITTAGONG (FACTORY OFFICES AND CAR PARKING)”

The permitted use (relevant to the user covenant in clause 6.1.1) is described as:

“OFFICE & FACTORY IN CONNECTION WITH TAXI HIRE BUSINESS”.

A special condition headed “SECURE PARKING” reads:

“The Lessor will ensure that the Lessee can secure that part of the car park shown as fenced in the attached copy of the Plan and that no other of the Lessor’s Lessees shall have access to the secured area of the car park at any time.”

4 The reference in this special condition to “the Plan” is the only reference to any plan. It is common ground that “the Plan” referred to is a plan forming the last page of the lease. As will be seen from the copy in the Appendix to this judgment, the plan shows two buildings with a frontage to Priestley Street, each set back somewhat from the street. Priestley Street runs in an east-west direction. The property is on the northern side of the street. Each building runs back some distance from the street in a northerly direction and there is a space between the two which is the site of a driveway or private road. Each building is shown in the plan as divided into two parts. In the building relevant for present purposes, being the western building, the main entrances are on the eastern wall, so that the driveway or private road represents the means of reaching the premises from the street. The part of the western building closer to the street (that is, the south part) is marked on the plan “PT 1” and the other part (to the north) is marked “PT 2”. The pattern is the same in the other building where the parts are marked “PT 2” and “PT 4”. Also depicted on the plan are 52 small rectangular areas (or parking spaces) outside the walls of the buildings. Each such area is marked “PT 1”, “PT 2”, “PT 4” or “PT 5”. Of these, 26 are marked “PT 1”. The 26 are adjacent to the part of the western building marked “PT 1”, some to the west of it, some to the south and some in the driveway to the east. Also depicted is a fence enclosing an area outside and abutting the western and southern walls of the part of the western building marked “PT 1”. The fenced area represents a yard appurtenant to the “PT 1” section of the western building and occupies virtually all the open space between the western and southern walls of that part and the boundaries of the parcel. There are doors in the western wall through which this yard could be reached and gates shown in the yard’s surrounding fence. Shaded by hachure lines on the plan is the whole of the area of the western building marked “PT 1” and the contiguous outside area shown as fenced that I have called “the yard”, including 18 of the small rectangular parking spaces marked “PT 1”. The other eight “PT 1” parking spaces are outside the yard.

5 The last feature of the lease to be mentioned is the special condition headed “OPTION TO PURCHASE”. This should be set out in full:

“OPTION TO PURCHASE
for a purchase price of $380,000.00 and subject to the Lessor obtaining development approval and registering a plan of strata subdivision or such other plan of subdivision as is appropriate to create separate Title within twelve (12) months of the date of exercise of this option by the Lessee otherwise on usual conditions specified in contracts for the sale of land subject to registration of a plan of subdivision.
(b) This option is binding on the Lessor, its successors, transferors or assignors.
(c) This option may be exercised at any time before 4.00 p.m. on 15 December 2000 as follows:-
(i) By delivery of a written notice of exercise of option and a bank cheque for $38,000 by way of deposit to the Lessor.
(ii) The notice and cheque be delivered to the officers of Messrs Robert Johns & Co., Solicitors at Suite 3, The Mews, 11-13 Bundaroo Street, Bowral, New South Wales.

(iii) The Lessor will within fourteen (14) days of receipt of the notice and cheque for the deposit deliver to the Lessee’s Solicitor, Philip Boyce & Associates at Suite 1, 34-36 Wingecarribee Street, Bowral a contract setting out the terms of this Option Agreement.

(iv) Within seven (7) days of receipt of the contract from the Lessor’s Solicitor the Lessor and lessee will execute the contract and exchange such contracts.
(d) On delivery of the notice of exercise of this option the party bound by the option at that date and the party in whose favour it has been exercised become immediately bound as vendor ad as purchaser respectively under a contract for sale of land in accordance with the terms contained in this option and incorporated into the contract.
(e) The execution of the formal contract shall not affect the substance of the party’s obligations under the contract by which the parties are bound pursuant to this option agreement if it is exercised.
(f) (i) The purchase price and other moneys payable by
and on behalf of the Lessee under this option are exclusive of Goods and Services Tax or like impost (GST).
(ii) Liability for GST (payable in respect of any taxable supply) is additional. It is payable by the Lessee to the Landlord at the time of completion of the purchase, if the option is exercised by the Lessee.”

What is the subject matter of the option?

6 On 15 December 2000, the plaintiff delivered a written notice of exercise and a bank cheque in accordance with the special condition just quoted. It is accepted that the option was thereby exercised. There is, however, a question as to the subject matter of the resultant contract for sale.

7 It is this question that gives rise to the plaintiff’s rectification claim in respect of the lease. Before that is considered, however, I should refer to the plaintiff’s submission that there is no need for rectification because the true meaning of the lease can be ascertained as a matter of construction without resort to extrinsic evidence. This submission was advanced on the basis stated thus at para 26-040 of the fourth edition (2002) of Meagher, Gummow and Lehane’s “Equity Doctrines and Remedies” (by Meagher, Heydon and Leeming):

“Courts both of law and of equity regularly insert, delete, alter and interpret words in such a fashion as to make the document sensible, without necessary recourse to any doctrine of rectification.”

8 Courts act in this way where to do so is necessary to avoid absurdity and in order to give effect to what must be accepted as a clearly manifested intention, albeit one literally at odds with the words used. In the present case, the material under the heading “OPTION TO PURCHASE” is arranged in subclauses. Subclauses (b) to (f) are so designated, with the first word of each starting with a capital letter in the usual way. The first apparent subclause – which one would expect to be designated “(a)” - is not shown as subclause (a) and its first word starts with a small letter. Furthermore, there are apparently words missing, since the statement one would expect of grant of an option to purchase a specified subject matter does not appear and the provision starts with what would logically follow words of grant and subject matter, being the price and the conditions of grant.

9 The intention that an option to purchase be granted by lessor to lessee is clear from the heading “OPTION TO PURCHASE” and the specified machinery concerning exercise. Can there be any real doubt that the subject matter of the option is the property demised by the lease? The defendant says that there is no reason in logic why the parties to a lease should not incorporate into it an option for the lessee to purchase from the lessor something other than the demised premises. This is no doubt true. But while the lessor and lessee of Blackacre may use their lease as a vehicle for the grant by the lessor to the lessee of an option to purchase Whiteacre (or a Rolls Royce), the chance that they will do so must be regarded, in reality, as remote. Nevertheless, such a chance exists and in the absence from the “OPTION TO PURCHASE” clause of any identified subject matter and despite the very high degree of likelihood that it is intended to refer to the demised premises, I do not consider that the question can be resolved as a matter of construction alone. It is necessary to consider the claim for rectification.

The rectification claim

10 The approach to be taken to a rectification claim of this kind is the subject of comment in several of the judgments in Pukullus v Cameron (1982) 150 CLR 447. Wilson J said (at p 452):

"The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at p.664; Slee v Warke (1949) 86 CLR 271 at p.280; Joscelyne v Nissen [1970] 2 QB 86, at p.98; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, at p.350. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the views expressed to the contrary in Joscelyne at p.98, and Maralinga at p.350. The opposing view is argued by Mr Bromley QC in an article in the Law Quarterly Review vol 887 (1987) p.532. It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord.
The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance "convincing proof" that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties."

11 Brennan J said (at p 456):

"Although the remedy of rectification is no longer held to depend upon proof of an antecedent concluded contract, Slee at p.280; Maralinga at p.336, it is necessary to show a concurrent intention of the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to 'displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' Maralinga at p.351."

12 To these observations may be added that of Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at p 350:

"What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class to which I shall later refer.

It is now settled that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification. It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention ( Shipley Urban District Council v. Bradford Corporation [1936] Ch 375; Slee v. Warke (1949) 86 CLR 271). But this circumstance does not affect what I have already said."

13 In Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329, Mahoney A-P emphasised that what is to be identified is an intention, being, in the case of an agreement between two parties, the intention of both of them. Only if the document fails to give effect to what is seen to be the common intention of those parties will rectification be ordered.

14 I proceed then to the evidence about events leading up to the execution of the lease, insofar as they pertain to the intended form of the option to purchase clause. Mr Stewart, the principal of the plaintiff, first inspected the property with Ms Lynam, a member of the staff of an estate agent retained by the defendant. There is a conflict in the evidence of Mr Stewart and Ms Lynam as to what transpired on that occasion, specifically whether there was reference by Ms Lynam to the premises to be let including 26 car parking spaces and whether Ms Lynam gave Mr Stewart a plan at the on-site meeting. I shall return to these matters.

15 On 6 November 1999, Mr Stewart wrote to Ms Lynam setting out “the terms of the lease we discussed”. These included:

“An option to purchase the unit at the expiration of one year from the commencement of the lease for the sum of $355,000.00.”
“The back yard to be secured at all times for the angle parking of our drivers private cars.”

16 On 17 November 1999, the plaintiff executed a formal document entitled “Lessee’s Letter of Intent” the narrative of which began:

“The purpose of this Letter of Intent is to confirm that we have agreed to accept a Lease of the above premises from the Lessor, for the term and subject to conditions set out in the Schedule.”

The Letter of Intent described the subject matter of the letting as:

“Unit 1/18 Priestley Street, Mittagong (approx 715m ² of factory and office space) plan attached showing demised area hatched.”

The Letter of Intent included the following:

“ Option to Purchase :
The Lessee will have an option to purchase the demised premises, on the following terms:-
Purchase Price: $380,000
Time Limit: 12 months from date of commencement of lease i.e. expiry of option period 30.11.2000
Option Fee: $1,000.00 to be paid upon execution of lease document – such fee will not be refundable if option not exercised. Option fee to be credited to deposit if option exercised.”

The plan attached to the letter of intent is identical with the plan eventually attached to the lease as already described. The letter of intent was sent by Mr Stewart to Ms Lynam with a letter dated 22 November 1999 and by Ms Lynam to the defendant’s solicitors the following day.

17 Mr Stewart’s evidence is that he received the form of Lessee’s Letter of Intent from Ms Lynam. She confirms having prepared it and having attached the plan after adding the hachure lines. Mr Legge says that he first saw the Lessee’s Letter of Intent and attached plan in January or February 2001. It is clear, nevertheless, that Ms Lynam, in preparing the document, sending it to Mr Stewart and, on receipt from him of the signed version, sending it on the defendant’s solicitors, was acting in the course of her (or, more precisely, her employer’s) retainer as the defendant’s letting agent.

18 On 29 November 1999, the defendant’s solicitors sent to the plaintiff’s solicitors a form of lease. The covering letter said that, upon return of the executed lease, a cheque for costs and disbursements and evidence of payment of public liability insurance,

“we will then proceed to prepare the contract for the option to purchase”,

adding that this would not be possible until certain searches and inquiries had been made.

19 On 1 December 1999, the plaintiff’s solicitors sent to the defendant’s solicitors a number of items, including the lease submitted by the latter, but with amendments included in it. Among these was the addition of special conditions as an annexure A, including what they described in their letter as “an option to purchase on the terms as set out in the correspondence between our respective clients”.

20 The plaintiff’s solicitors have in their file a version of these special conditions showing two lines of typing between the heading “OPTION TO PURCHASE” and the commencing words “for a purchase price of $380,000”. Those two lines read:

“(a) In further consideration of the Lessee entering into this Lease with the Lessor the Lessor grants to the Lessee or its nominee an option to purchase the property leased.”

There is nothing in the evidence to show that a version of the special conditions incorporating those two lines ever reached the defendant, its letting agent or its solicitors. I readily infer that the version sent on 1 December 1999 suffered from the defect of omission with which I am now dealing.

21 On 23 December 1999, the defendant’s solicitors wrote to the plaintiff’s solicitors saying, among other things, that the option clause in the special conditions prepared by the latter was “not acceptable”. On 25 January 2000, the plaintiff’s solicitors’ said in reply:

“We refer to your comments concerning this option and await your further advice in that regard.”

22 On 28 January 2000, the defendant’s solicitor sent the plaintiff’s solicitors an annexure A for signing and return. It appears to have been a slightly amended version of the form originally prepared by the plaintiff’s solicitor. The option provision was unchanged. The lease, as executed and dated 15 February 2000, included that option provision.

23 Having regard to this course of correspondence, any uncertainty about the parties’ intention regarding the subject matter of the option is, in my view, amply resolved by the Lessee’s Letter of Intent. That document was prepared by the defendant’s letting agent and executed by the plaintiff. It may readily be accepted as reflecting the parties’ antecedent agreement on the question of the subject matter of the option. It says, in unequivocal terms,

“The Lessee will have an option to purchase the demised premises, on the following terms:-“

24 There is nothing in the pre-lease correspondence or in the evidence about conversations that in any way detracts from the proposition that the subject matter of the option was intended by the parties to be the property the subject of the lease. The unequivocal statements in the letter of intent – which is also entirely consistent with ordinary commercial expectations in such matters – justifies rectification of the lease by the insertion, before “for a purchase price of $380,000” of the words to the effect contended for by the plaintiff, although I do not think that the manifested common intention extended to grant of an option to the lessee “or its nominee”. That aspect was not mentioned in the pre-lease documents, but the subject matter of the option was made perfectly clear: “the demised premises”. Rectification should therefore be to the effect that there be added immediately before “for a purchase price of $380,000.00”, where appearing after the heading “OPTION TO PURCHASE”, the words and symbol:

“(a) The Lessor grants to the Lessee an option to purchase the demised premises ”.

25 Such rectification is, in a sense, the species of rectification ex abundanti cautela to which the Privy Council resorted in Standard Portland Cement Co Pty Ltd v Good [1982] 2 NSWLR 668, that is, rectification which “makes clear that which is expressed in the correspondence and implicit in the contract”.

26 Reverting to the agreed issues set out above, the position I have now reached is such that Item 1 should be dealt with by saying that rectification in the terms just indicated should be decreed and that, with the lease so rectified, the answer in relation to Item 2 is in the affirmative. That leads on to the second issue central to the proceedings, that is, the definition or identification of the demised premises themselves. This is the matter addressed by Item 3 of the agreed issues for trial.

What is the subject matter of the lease?

27 Identification of the subject matter of the letting involves construction of the lease. It is not suggested by either party that there is an entitlement to have the lease rectified in this respect. It is entirely a matter of discovering the meaning of its content as it stands.

28 When the matter is approached in that way, it is immediately clear that there is ambiguity. The description “Unit 1/18 Priestley Street” does not refer to any part of No 18 Priestley Street (or the land in folio identifier 1/811388) identifiable from a source such as a registered strata plan. Some further clue is given by the additional words “(factory offices and car parking”), at least to the extent of a need to see, on site, premises or areas capable of answering that description. Further guidance comes from the reference in the description of permitted use to “office & factory” in that again it is necessary to find something physically capable of use for those purposes. The only other guidance in the lease itself is provided by the clause headed “SECURE PARKING” which has already been quoted but should be set out again:

“The Lessor will ensure that the Lessee can secure that part of the car park shown as fenced in the attached copy of the Plan and that no other of the Lessor’s Lessees shall have access to the secured area of the car park at any time.”

29 This clause relates to the yard to the west and south of the part of the western building marked “PT 1” shown as fenced in the plan attached to the lease. The clause falls into two parts. The first obliges the lessor to ensure that the lessee can secure the area shown as fenced on the plan. This imposes upon the lessor an obligation to see that fencing and other physical matters are in such a state that security can be achieved by the lessee by means such as the locking of gates – so that there must be means of securing that the lessee can activate; and it is for the lessor to see to that matter.

30 The second part of the secure parking clause exhibits a number of features both by what it says and by what it does not say. First, it does not in any explicit way give the lessee any right to possess the fenced yard. Second, it assumes that the lessor has an ability to control entry upon the fenced yard by its other lessees, that is, persons who lease from it parts of the property at 18 Priestley Street other than the part the subject of the lease now under consideration. Third, it says nothing about the right of the lessor to possess the fenced yard. The clause is really silent on questions of right of possession in relation to that area as between lessor and lessee. The fact that the lessor undertakes an obligation not to grant access to certain persons does not necessarily mean that there is recognition of the lessor’s right to let them in. The obligation could be performed by including in each other lease of a part of the Priestley Street site, by way of reinforcement or more abundant caution, a provision by which the tenant under that lease covenanted not to assert or to purport to exercise any right to have access to the fenced yard. Such a course would indicate nothing relevant to the question whether the lessee under the lease now in question enjoyed a right of exclusive possession of that area.

31 Viewed in the way I have just described, the secure parking clause does not deal with the question of exclusive possession that is of the essence of a lease in accordance with the classic formulation in Radaich v Smith (1959) 101 CLR 209. The clause therefore does not assist in the resolution of the ambiguity as to the subject matter of the letting. The internal indications in that clause are not sufficient to cause the fenced yard to be part of the leased area according to the bare words of the lease itself; nor is it sufficient to cause it to be excluded. Ambiguity as to the meaning of “Unit 1” therefore remains.

32 The extent to which surrounding circumstances may be considered in interpreting a written contract where the content is ambiguous was considered by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Subsequently, in Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 76 ALJR 436, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ stated the relevant principles as follows:

“In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities (in particular, speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1385; [1971] 3 All ER 237 at 239-241; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-997; [1976] 3 All ER 570 at 574-576), which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract ( Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574):
‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating’.
Such statements exemplify the point made by Brennan J in his judgment in Codelfa (at 401):
‘The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.’”

33 With respect to pre-contractual negotiations, Mason J said in Codelfa:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ...
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself."

34 In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Heydon JA observed that

“pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term”.

35 Resort to pre-contractual conduct as a source of evidence of the meaning of “Unit 1” leads at once to the Lessee’s Letter of Intent dated 22 November 1999, a letter from Mr Stewart to Ms Lynam dated 6 November 1999 and a letter of 17 November 1999 from Mr Stewart to Ms Lynam. In the letter of 6 November, Mr Stewart set out “[t]he terms of the lease we had discussed”, including:

“the back yard to be secured at all times for the angle parking of our drivers’ private cars”.

36 By the letter of 17 November, Mr Stewart sought confirmation of two matters, the second being:

“that rear of Unit 1 is totally secured & for our exclusive use.”

37 Ms Lynam gave evidence that she relayed this request to Mr Legge and received a positive reply which she passed on to Mr Stewart by saying:

“Mr Legge has confirmed that you can have exclusive use of the fenced area.”

38 The Lessee’s Letter of Intent described the premises in the way previously noticed, that is:

“Unit 1/18 Priestley Street Mittagong (approx 715 m2 of factory and office space) plan attached showing demised area hatched.”

39 The plan, of course, showed by hachure not only the part of the western building marked “PT 1” but also the whole of the fenced yard, including the 18 small “PT 1” rectangles or parking spaces within it. The Lessee’s Letter of Intent contained no equivalent of the secure parking clause in the lease. Such a provision would have been redundant since the fenced yard formed part of the “demised area hatched” so that, being within that demised area, the fenced yard was recognised as being within the exclusive possession of the lessee – that being the position that Ms Lynam informed Mr Stewart had been confirmed by Mr Legge (“Mr Legge has confirmed that you can have exclusive use of the fenced area”). For present purposes, I do not think there is any distinction to be drawn between “exclusive possession” and “exclusive use”. Mr Legge’s confirmation, as relayed to Mr Stewart by Ms Lynam, was that the only person who would enjoy the fenced yard was the lessee. And Mr Stewart, for his part, apparently regarded that area as part of Unit 1, referring to it, effectively, as belonging to Unit 1: the “rear of Unit 1” and “the back yard”.

40 The background facts thus show that “Unit 1” was treated by Mr Stewart on behalf of the plaintiff and Ms Lynam on behalf of the defendant as having a “back yard” which was its “rear”. The yard was something in relation to which the lease transaction was to secure for the tenant a right of exclusive possession (or use). These matters were known to both parties when the lease was entered into and, to my mind, establish the subject matter of the lease.

41 It follows from what I have said that none of the eight “PT 1” rectangular parking spaces lying outside the yard area shown in the plan attached to the Lessee’s Letter of Intent forms part of the letting. Those areas were not, by that document or otherwise, referred to in the series of events I have described in relation to the fenced yard.

42 There is, as I have said, a conflict in the evidence about what was said concerning the 26 rectangular parking spaces marked “PT 1”. Mr Stewart’s evidence was that Ms Lynam had told him that the 26 spaces formed part of the property and that this had occurred at a site meeting between him and her before 17 November 1999. I quote from the cross-examination of Mr Stewart:

“Q. Ms Lynam didn’t say to you, I suggest to you, that the area to be leased included all of the 26 car spaces marked PT 1 on the plan?
A. Absolutely. That was always the intention.
HIS HONOUR: Q. When you say absolutely you mean she did say?
A. Yes, your Honour. They have never been deleted, never been crossed off, never been changed in anywhere.
ANGYAL: Q. I am not talking about what was on the plan or any other document, I am asking you about what Ms Lynam said to you when you inspected the property?
A. She told me 26 car parking spaces of that particular property. There was never any debate to the contrary, ever.

Q. You haven’t seen fit to say anything about that in your affidavit, have you?
A. Well, I think if you go to paragraph 12, we talk there about 26, 26 in total, both inside and outside the security area. It was never, it was never debated. It was never suggested there would be less than 26. We are a motor vehicle business. Cars are what we are all about.
Q. * You understand, don’t you, that it is one of the plaintiff’s claims in these proceedings that Miss Lynam told you that the area to be leased included all of the 26 car spaces marked PT 1 on the plan?
OBJECTION
ANGYAL: Part C, paragraph 7, particular B.
OBJECTION WITHDRAWN
QUESTION MARKED * READ
A. That’s correct, yes.
Q. Why didn’t you say anything about such a conversation in your affidavit, Mr Stewart, if indeed it took place?
A. Well, it was in the plan. It was all – why didn’t I? I can’t say that. If it is not in my affidavit, I’m not sure, but I certainly do in paragraph 12. I mention all 26 parking spaces there. All those spots, if I could say, the front of the building, it’s the ones that are obviously in question. They are right at the showroom entrance. It is where our customers park. It was essential part of the business. I would never have agreed not to have had them as part of the property.”

43 The following occurred in re-examination:

“DIETHELM: Q. Would you please cast your mind back to the first meeting with Miss Lynam which was before, you say, 17 November, on which the letter of intent was brought into existence. Was there any conversation between you and her at that meeting about the number of car spaces?
A. Yes, there was.
Q. What did she say to you and what did you say to her?
A. She told me there were 26 car spaces in total. Some were in the main public area, which was the centre driveway, and the areas at the rear; and we walked through the building and we looked at the rear area where there were gates and padlocks and so forth. I asked her at that point in time could that area be made secure for our drivers at night so they could leave their cars there and have entry and exit to it, which was exactly the way it had been done with the NRMA in the past, and she said: I am sure that could be looked after, and that was pretty much the way it went. We looked at the offices during that meeting. We talked about the rear tenant was only on a weekly tenancy, as I remember, and it wasn’t long term and it was an ideal facility for us.”

44 Ms Lynam denied that reference to 26 parking spaces occurred in the course of her meeting with Mr Stewart:

“Q. Can I suggest to you that you had a conversation with Mr Stewart at that meeting about the number of car spaces that were attached to unit 1?
A. No, no car parking spaces were ever mentioned. No number of car parking spaces were mentioned.
Q. Mr Stewart was vitally interested in car parking spaces?
A. The only car parking spaces he was interested in were the ones that were at, what I call, the back of the unit or the western side of the unit and the reason he was interested in that was not so much because of the car parking but because it could be secure. The number never came into the conversation.
Q. There was a discussion about car parking spaces?
A. Secure parking, at the rear of unit No. 1, was what we discussed.
Q. Do you say that Mr Stewart didn’t ask you about or talk to you about any car parking spaces near the front entrance to the unit, that is to say, between the two buildings?
A. They were never discussed.”

45 Ms Lynam testified that she did not give any plan to Mr Stewart at the on-site meeting. His recollection is that she did. However, it is clear that the only plan she would have given him, if she gave him any, is one that was on the back of a leaflet or brochure that had been prepared by Ms Lynam’s firm for the purpose of promoting interest in the parts of the Priestley Street premises that were to let. That plan showed the subdivided areas of the two buildings but included neither depiction of parking spaces nor depiction of fenced yard. It follows that, even if Ms Lynam did give Mr Stewart a copy of the leaflet or brochure at or about the time of the on-site meeting, it would not have conveyed any message at all about parking spaces.

46 Ms Lynam’s evidence on the events surrounding the on-site meeting is more specific than that of Mr Stewart. He did not mention reference to the 26 spaces in the part of his affidavit recording his on-site meeting with Ms Lynam. I have no doubt that Mr Stewart noticed the 26 spaces marked “PT 1” when he later saw the plan attached to the Lessee’s Letter of Intent. But I do not accept that Ms Lynam said anything about 26 spaces when they met or that any plan she may have given him at or about that time showed any parking spaces associated with the part of the western building in which he was interested. There is also the telling point that, had Mr Stewart expected the eight additional “PT 1” parking spaces to be in the letting, he would not have accepted the Lessee’s Letter of Intent in which they alone, of all the “PT 1” areas on the plan, were outside the area expressly delineated by the hachure lines. I find that Ms Lynam did not, at any material time, represent to Mr Stewart that the property to be leased included the 26 rectangular parking spaces marked “PT 1”.

47 It is relevant to record, as an aside, that the plan including parking spaces that was attached to the Lessee’s Letter of Intent (and later to the lease) was a modified version of a plan that had appeared on a promotional brochure prepared by another estate agency firm at an earlier time when it had been retained to find tenants. Ms Lynam used that plan as a source when preparing the plan for her own leaflet or brochure that did not show any parking spaces. Ms Lynam would not have given a competitor firm’s brochure to a prospective tenant such as Mr Stewart and I am satisfied that any plan she gave him before incorporating one into the Lessee’s Letter of Intent was the one without parking spaces she had prepared for he own firm’s brochure.

48 My conclusion on this aspect of the case (that is, the matter raised by Item 3 of the agreed issues for trial) is that the area demised by the lease was that referred to in Item 3(b) of the issues for trial.

Consequences of exercise of the option

49 It is common ground that the option granted by the lease was exercised by the plaintiff on 15 December 2000 by delivery of the necessary notice and cheque. Paragraph (c)(iii) of the option clause required the defendant to deliver a contract for sale within fourteen days after receipt of the exercise notice and deposit cheque. By agreement, this period was extended and, within the extended period, the solicitors for the defendant delivered a contract in which the property to be sold was described as:

“Unit 1, 18 Priestley Street, Mittagong – Unregistered plan: Lot 1 in an unregistered plan (copy attached) (clause 28) which is part of Lot 1 Section – Plan 811388 (copy attached).”

50 Attached was a plan designated “Plan of Proposed Subdivision under the Strata Titles Act 1973 of Lot 1 DP 811388” consisting of several sheets. In that plan, the fenced yard was not depicted in any way and Lot 1 was shown as consisting of a part of the western building corresponding with that shown in the plan attached to the Lessee’s Letter of Intent, together with 20 parking spaces.

51 On 23 February 2001, the plaintiff’s solicitors wrote to the licensed conveyancer who by then had come to act for the defendant saying, in relation to the form of contract:

“Our client’s difficulty is that by the nature of a strata title subdivision proposed by the Vendor that it does not reflect the whole of the demised premises subject of the Lease.
Our client believes that the premises all car spaces and the area that was shown as enclosed by fence as shown on the plan exhibited to the Lease would be the property to be acquired by it.”

The plaintiff thus expressed an expectation of having not only what I have found to be the subject matter of the lease but also the eight “PT 1” parking spaces outside that area.

52 Correspondence between the solicitors and the conveyancer ensued. On 25 May 2001, the defendant’s conveyancer wrote to the plaintiff’s solicitors:

“I refer to our telephone conversation of 23 May.
I confirm that my client is willing to proceed with this matter on the basis that the property described in the Plan attached to the Lease is the subject matter of the sale to your client.
I enclose a copy of a letter received today from Campbell and Anderson.
I have asked my client to contact the Surveyors to instruct them to prepare a new Plan for inclusion in the Contract, a copy of which I send to you as soon as I receive it.”

Enclosed was a copy of a letter from the surveyors, Campbell and Anderson, saying that there “should be no objection” to expansion of Lot 1 to correspond with the area shown in the plan attached to the lease and that “there should not be an issue for Wingecarribee Shire Council”.

53 There, it appears, the matter rested so far as correspondence between the solicitors and the conveyancer was concerned, although there was some later correspondence between the plaintiff’s solicitors and Ms Lynam’s firm about identification of the property demised by the lease. The plaintiff remained firm in its assertion that it was entitled to not only the area marked by hachure lines on the plan attached to the lease, but also the eight “PT 1” rectangular parking spaces lying beyond it.

54 The defendant did not, within 12 months after exercise of the option on 15 December 2000, obtain development approval or registration of a plan appropriate to create a separate title for the property to be sold. These are actions of the defendant mentioned in the “subject to” part of what, in rectified form, is subclause (a) of the “Option to Purchase” clause in the lease. That clause made it clear, in subclause (d), that an immediately binding contract was to arise upon exercise, even though provision was made for a subsequent exchange of contracts. The “subject to” part of subclause (a) (as rectified) was therefore contractually operative as from 15 December 2000 and must be accepted as the source of an obligation of the defendant to obtain the specified development approval and plan registration by 15 December 2001.

55 The defendant accepts that it had such an obligation but says that, in the events which happened, it was justified in not proceeding to obtain the approval and registration and that the contract that arose upon exercise of the option is at an end, having been discharged when the specified period of twelve months elapsed without those items having been obtained. The plaintiff, as I understand its position, says that the defendant was not so justified but accepts that if, contrary to that contention, the defendant’s failure was justified, the contract has been discharged.

56 The proposition that the defendant was justified in not proceeding to obtain the specified approval and registration is advanced on the basis that, at all material times, the plaintiff made it clear that it would not accept anything less than the area marked by hachure in the lease’s plan plus the eight “PT 1” parking spaces outside that area – in other words, that the plaintiff would be content only with something greater than both that which the defendant considered itself obliged to give (being Lot 1 in the plan forming part of the form of contract submitted by the defendant’s solicitors and consisting of the agree and uncontroversial walled area plus 20 parking spaces) and that which the defendant afterwards expressed itself willing to give (being the area shown in the plan with the lease, but without the eight additional “PT 1” parking spaces). In light of my findings, that subsequently expressed willingness of the defendant coincided with its contractual duty but the plaintiff never accepted or acknowledged this and left the defendant in a position where the claim upon it by the plaintiff was to have, in addition, the eight further parking spaces.

57 In these circumstances, the defendant was justified in not pursuing the matter of the development approval and plan registration. Had it proceeded by reference to the area conceded by its conveyancer’s letter of 25 May 2001 and obtained approval and registration accordingly, the plaintiff would have refused to purchase the lot delineated in the plan because that lot would not have included all the land to which the plaintiff considered itself entitled. The same would have happened had the defendant proceeded by reference to Lot 1 as shown in the draft strata plan included in the form of contract for sale.

58 A party in whom a right of rescission is vested is not entitled to exercise that right if it was his default that brought about, or at least materially contributed to, the occurrence of the event allowing rescission. That principle was confirmed by the Court of Appeal in Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212. Referring to the principle, Powell JA (with whom Stein JA and Rolfe A-JA agreed) said:

“Support for the latter of these two propositions may be found in the Judgment of this Court in Nina's Bar Bistro Pty. Ltd. (formerly Mytcoona Pty. Ltd.) v. MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 - a case involving a claim by a party, which was held to have failed to comply with a covenant to use its best endeavours to obtain the consent of a lessor to the assignment to it of a lease - in which it was held that, if non-compliance with a contractual obligation is to take away the defaulting party's right to terminate, there must be a direct causal relationship between the compliance and the failure to complete, the onus of proving which lies on the non-defaulting party, and there must be an absence of repudiation by the defaulting party prior to that time.”

59 The same principle must apply where, as here, a party is fixed with an obligation relevant to satisfaction of a condition which, if not satisfied, will cause a contract to lapse or expire. That party cannot rely upon or take advantage of the lapse or expiry if he or she has brought it about or materially contributed to it by failing to perform the obligation. In the present case, however, it was not the defendant’s failure to obtain the development approval and plan registration that was the substantial cause of the period of twelve months passing without the condition of the contract arising from exercise of the option having been satisfied. The substantial cause was the plaintiff’s refusal to accept, in fulfilment of the defendant’s obligations under the contract, anything other than a particular subject matter which, as has now been shown, was more than its contractual entitlement.

60 The defendant is entitled to rely on non-satisfaction of the condition. As I have said, the plaintiff does not, as I understand it, dispute the defendant’s contention that, in such an eventuality, the contract was discharged after the end of the period of twelve months. That contention must therefore be upheld.

61 In terms of the agreed issues for trial, the question in Item 6 is accordingly answered in the affirmative.

Misleading or deceptive conduct

62 The plaintiff’s claim under s.52 of the Trade Practices Act 1974 (Cth) and s.42 of the Fair Trading Act 1987 is reflected in Item 7 of the issues for trial. That claim raises a question of fact already dealt with by my finding that Ms Lynam did not, at any material time, represent to Mr Stewart that the property to be leased included the 26 rectangular parking spaces marked “PT 1” in the plan that became the attachment to both the Lessee’s Letter of Intent and the lease. There was accordingly no such representation by her with respect to the eight of those spaces lying outside the area that I have found to be the subject of the lease. I add, for completeness, that the evidence does not indicate that anyone else made any such representation on behalf of the defendant.

63 The question posed by Item 7 of the issues for trial is therefore answered in the negative.

Disposition of proceedings

64 The plaintiff has made out an entitlement to part of the relief sought in its summons, being an order for rectification of the option clause in the lease (although not precisely in the terms sought) and a declaration that the option to purchase was validly exercised. As to the latter, however, there was no dispute save on the central issue of the subject matter, as to which my finding is against the plaintiff. In all other respects, the plaintiff has been unsuccessful in establishing its entitlement to relief. In particular, it has not shown that the subject matter of the lease and the option is the area outlined in red in the plan annexed to the summons (that is, the hachure area plus the eight further “PT 1” parking spaces), that being an issue crucial to all the substantive claims for relief by way of declaration.

65 It is appropriate that I make an order that the lease dated 15 February 2000 and executed by the plaintiff and the defendant be rectified by inserting at the beginning of the clause headed “Option to Purchase” in Special Conditions Annexure “A” the words and symbol:

“(a) The Lessor grants to the Lessee an option to purchase the demised premises”.

Otherwise, the claims in the summons are dismissed. My predisposition is to think that the plaintiff should pay the whole of the defendant’s costs but I shall hear any submissions there may be on costs.

Appendix
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Last Modified: 03/27/2003