TAB Ltd v A&N Selim Pty Ltd

[2003] NSWSC 1149

CITATION:	TAB Ltd v A&N Selim Pty Ltd [2003] NSWSC 1149
HEARING DATE(S):	27 November, 2003
JUDGMENT DATE:	27 November 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Summons dismissed with costs.
CATCHWORDS:	CONTRACT - AGREEMENT FOR LEASE - UNJUST ENRICHMENT - Lessor and lessee negotiate for new lease - no express agreement as to rent - no formal lease executed - lessee continues in occupation after expiry of existing lease and pays higher rent - whether parties evinced common intention to be bound by informal agreement for lease - whether, if no binding lease, lessee entitled to repayment of rent and outgoings on restitutionary basis. HELD: No concluded agreement, no binding agreement for lease, lessor not unjustly enriched by payment of monthly rent.
CASES CITED:	- Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 - Allen v Carbone (1975) 132 CLR 528 - Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 - Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 - Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1BPR 9251 - Godecke v Kirwan (1973) 129 CLR 629
PARTIES :	TAB Limited - Plaintiff A. & N. Selim Pty Ltd - Defendant
FILE NUMBER(S):	SC 5362/03
COUNSEL:	T.M. Lynch - Plaintiff F.P. Donohoe - Defendant
SOLICITORS:	Hunt & Hunt - Plaintiff James Soulos - Defendant

Ex tempore

Introduction

1    By its Summons filed on 20 October 2003, the Plaintiff seeks a declaration to the effect that it has validly exercised an option to renew a lease between itself and the Defendant in respect of retail premises known as 288 The Boulevard, Punchbowl (“the premises”). It seeks an order that the Defendant specifically perform the agreement arising out of exercise of the option by granting a lease upon certain terms, as well as other consequential relief. 2    The Defendant denies that any binding agreement to grant an option to renew the lease has ever come into existence. The Plaintiff responds that, if that is so, then it is entitled to repayment of a proportion of rent and other expenses which it has paid since 1 November 1998 during the period of its occupation of the premises. The ground for repayment is said to be that the payments were made under a mistake and the Defendant has been unjustly enriched thereby.


The facts

3    There is no dispute as to the facts. They are evidenced in correspondence between the parties. By a lease dated 10 February 1994 the State Rail Authority of New South Wales leased the premises to the Plaintiff for a term of five years, expiring on 31 October 1998. The Defendant purchased the premises in or about 1995 and thereby became the Plaintiffs’ lessor. 4    On 3 April 1998 the Plaintiff wrote to the Defendant seeking a further lease upon terms set out in its letter. The terms were expressed to be “subject to the TAB Management approval” . On 7 April, the Defendant's solicitors replied advising that the Defendant did not agree to the Plaintiff's proposal but made a counter-offer. A term of the counter-offer was that legal fees payable by the Defendant in respect of the preparation of the lease be paid by the Plaintiff. 5    By its solicitor's letter dated 23 April 2003, the Plaintiff did not accept the offer contained in the Defendant's letter of 7 April but set out further terms upon which the Plaintiff was prepared to enter into the lease. That letter accepted many of the terms offered in the Defendant's letter of 7 April 1998, other than those relating to insurance and the payment of the Defendant's costs for the preparation of the lease. That letter concluded:
“Please prepare the lease documents and submit them to the TAB's solicitors, Hunt and Hunt, marked to the attention of Mr E Boyce at your earliest convenience.”

It is not in dispute that if the Defendant's solicitor's letter of 7 April 1998 was an offer capable of acceptance, the Plaintiff's solicitor's letter of 23 April 1998 was a counter offer.

6    On 9 July 1998 the Plaintiff's solicitors submitted a draft lease for the Defendant's consideration. The draft contained terms not referred to in the earlier correspondence. The covering letter stated:
“We would be obliged to receive your confirmation that the enclosed document reflects the instructions of your client following which we will arrange for the documents to be signed by the lessee, stamped and forwarded to you for the execution of your client and registration.”
7    The letter of 9 July was answered by a letter from the Defendant's solicitors dated 29 July in which a number of substantial amendments to the draft lease were sought. Two of the major objections of the Defendant to the draft lease, namely objections to clauses 10.2 and 11.2 were never subsequently resolved. 8    By letter dated 19 August 1998, the Defendant's solicitors proposed that the rent should be fixed at $32,000 per annum. By letter dated 20 August 1998, the Plaintiff's solicitors rejected the offer to rent the premises at $32,000 per annum and repeated an offer to pay rent at $26,000 per annum. By a further letter of 20 August 1998, the Plaintiff's solicitors agreed to some of the amendments to the draft lease sought by the Defendant's solicitors in their letter of 29 July 1998 and rejected other requested amendments. 9    By letter dated 11 September 1998 the Defendant's solicitors accepted some of the proposals in the Plaintiff's solicitors letter of 20 August and rejected others. In particular, the Defendant's solicitors advised that the Defendant insisted on a rental of $32,000 per annum. 10    The Plaintiff then took over from its own solicitors the correspondence with the Defendant's solicitors. By letter dated 28 September 1998, it agreed to certain of the Defendant's proposals and rejected others. In particular, it rejected the Defendant's requirements for the deletion of clauses 10.2 and 11.2 of the draft lease. The letter contained the following passage:
“The TAB will only agree to pay the incidental costs associated with the preparation of the lease. Should you continue to engage George Shad and Co to negotiate the terms of the lease at $200 per hour, you are welcome to do so at your cost.”

The letter concluded by rejecting a rental of $32,000 per annum and asserting that rent had already been agreed at $26,000 per annum.

11    On 12 October 1998, the Defendant's solicitors responded to the letter of 28 September 1998 in the following terms:
“Our client does not agree to the proposals contained therein. As our clients appear to have reached a stalemate in relation to the terms and conditions of any proposed new lease, we advise that your client shall be considered monthly tenants from the expiration of the registered lease, namely 31 October 1998.”

There was no response to this letter from the Plaintiff.

12    The Plaintiff remained in possession of the premises after the term of the prior registered lease expired on 31 October 1998. There are two holding over clauses in the prior registered lease. Clause 30 of memorandum SO78957, which is incorporated into the lease, provides:
“If the Lessor permits the Lessee to continue in occupation of the demised premises after the expiration of the said term the Lease shall continue as a tenancy from month to month only at a rent proportionate to the rent hereby reserved for the final year of the term and subject to the covenants conditions and restrictions referred to in this Lease.”

Clause 50(j) of the lease provides:
“If the Lessee continues in occupation of the demised premises after the expiration of the term of this Lease then the day immediately following the expiration of the term and the first day of each successive two (2) year period thereafter shall be a review date for the purpose of calculating the rent to be paid by the Lessee to the Lessor for the period of the occupation.”
13    Very shortly before expiry of the prior lease, namely on 29 October 2998, the Plaintiff paid the Defendant a monthly instalment of rent calculated at the rate of $26,000 per annum. There is no correspondence or other communication in evidence which discloses whether this payment was made and accepted expressly as rent under a monthly holding over or as rent under a new lease. After 29 October 1998, the Plaintiff continued to pay rental to the Defendant calculated at the rate of $26,000 per annum and the Defendant continued to accept rent at that rate. 14    On 27 June 2000 the Plaintiff wrote to the Defendant in the following terms:
“In accordance with the lease agreement for the above premises, rent has been reviewed as follows.”

Then followed a calculation whereby the Plaintiff agreed to pay rent backdated to 1 November 1999 calculated at $26,000 per annum plus a 4% increase.

15    On 6 January 2001 the Defendant wrote to the Plaintiff in the following terms:
“As per our agreement to pay the outgoings. Enclosed is water bill. Also there was a four percent increase in rent from 1-11-99. Could you please adjust it.”

By letter dated 24 January 2001, the Plaintiff's agent responded:
"In accordance with the lease agreement, rental has been increased as follows [then was set out the calculation of the adjustment] .”

On 6 March 2001, the Plaintiff's agent reimbursed the Defendant for water rates in accordance with the request of 6 January 2001.

16    It is to be observed at this point that the reimbursement of water rates is consistent with an obligation under condition 2.3 of memorandum SO78957, as incorporated into the prior registered lease, which provides for the payment of outgoings by the Plaintiff if it continues to hold over as a monthly tenant after termination of that lease. 17    On 6 November 2001, the Plaintiff's solicitors wrote to the Defendant's solicitors, asserting that a binding agreement for lease had been reached in the terms of the correspondence exchanged between the parties in April 1998. The Plaintiff sought execution of a formal lease and advised that legal proceedings might ensue if no agreement could be reached. The Defendant did not respond to this letter and nothing further seems to have occurred until 8 May 2003, when the Plaintiff wrote to the Defendant seeking execution of a new lease. In that letter the Plaintiff asserted that it was entitled to an option for a further term of five years. By letter dated 12 June 2003, the Defendant's solicitors replied asserting that the Plaintiff was only a monthly tenant of the premises. 18    By letter dated 25 June 2003, the Plaintiff purported to exercise the option for a further term of five years which was contained in the agreement for lease which it said had come into existence in 1998. There is no dispute that if an option to renew for a further term of five years has in fact been given to the Plaintiff, then the Plaintiff has validly exercised that option.


The Plaintiff’s submissions

19    The Plaintiff's Summons seeks a declaration to the effect that it became entitled to the option as a term of a binding agreement which came into existence between the parties on or about 23 April 1998 or alternatively by about 25 June 2003. Mr Lynch of Counsel, who has argued the case most ably for the Plaintiff, abandoned at the outset of his submissions the contention that a binding agreement for lease had come into existence on or about 23 April 1998. He contended that a binding agreement for lease had come into existence on 1 November 1998, immediately after the term of the previous registered lease expired. 20    Mr Lynch's submissions in support of this proposition may be summarised thus:


– the parties had agreed upon all of the essential terms of the new lease in the exchange of correspondence dated 7 April and 23 April 1998;

– thereafter, they negotiated as to what other terms might be incorporated into a formal lease document;

– these negotiations produced some agreement and some disagreement;

– the agreement was as to terms previously agreed in the correspondence of 7 and 23 April and the disagreement simply left the agreed terms unvaried;

– in particular, the Defendant’s attempt to vary the rent from $26,000 per annum, which it had stipulated in its letter of 7 April, to $32,000 per annum was ineffective and, in any event, was abandoned when the Defendant accepted rent at the rate of $26,000 per annum on 29 October 1998;

– the conduct of the parties on 29 October 1998 when the Plaintiff paid and the Defendant accepted rent at the rate of $26,000 per annum evidences a common intention that, as from expiry of the prior registered lease on 31 October, they were to be bound by an agreement for lease in the terms which had previously been agreed between them;

– the conduct of the parties after 29 October 1998 confirms that their intention at that time was that they should be immediately bound by an agreement for lease.



The Defendant’s submissions

21    Mr Donohoe of Counsel, in his equally able and succinct argument for the Defendant, submits that it was always intended by the parties that there should be no legally binding agreement for lease unless and until a lease had been approved by the parties' solicitors and formally executed and exchanged. This did not occur. The Defendant made it clear by its solicitor's letter of 12 October 1998 that, if the Plaintiff continued in occupation of the premises after expiry of the prior registered lease, then it would be doing so as a monthly tenant holding over under the terms of that lease. This is what happened and this has remained the position of the parties at all times thereafter.


Whether an option was granted

22    I am unable to accept the submissions put on behalf of the Plaintiff, essentially for the reasons submitted by Mr Donohoe. 23    One starts from the position that parties who propose to enter into a substantial transaction involving real estate, such as a sale or a lease, and who have engaged solicitors to assist them in the transaction usually intend that they will not become bound by some informal agreement but only by a document settled by the solicitors and formally executed and exchanged by them: see generally Allen v Carbone (1975) 132 CLR 528. 24 Where, as in this case, parties propose to enter into a substantial commercial transaction involving real estate with the advice of their respective solicitors and it is alleged that will they have become bound by an informal contract arising from the exchange of correspondence, the Court must be satisfied of three requirements. First, the parties must have arrived at a consensus as to the terms of the agreement. Second, the terms must be sufficiently clear and certain to be capable of forming a binding contract. Third, the parties, by their words and conduct taken in the context of the surrounding circumstances, must evince a common intention that the consensus at which they have arrived should constitute an immediately binding agreement: see Godecke v Kirwan (1973) 129 CLR 629 at 638; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1BPR 9251 at 9254ff; Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627, and on appeal at 631 and 634. 25 In ascertaining whether the parties intended to enter into an informal but binding agreement it is, of course, permissible to have regard to their conduct subsequent to the alleged contract: see Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 163-4 per Haydon JA and the authorities there cited. 26 In the present case, I am of the opinion that from the very commencement of their negotiations for a new lease the parties expressed a common intention that there would be no binding agreement between them unless and until a formal lease had been executed. This is made expressly clear in the concluding sentence of the letter of 23 April 1998 from the Plaintiff's solicitors to the Defendant’s solicitors – a letter upon which the Plaintiff relies heavily as finalising the terms of the transaction between the parties. This intention is repeated in the Plaintiff's solicitor's letter of 9 July 1998 in the passage which I have quoted at paragraph 6 above. The common intention is further affirmed by the exchange of correspondence between the parties' solicitors in July, August and September 1998 in which the parties negotiated the terms of the lease which is to be executed. 27 I do not think that the conduct of the parties on 29 October 1998 in paying and accepting a monthly rent calculated at $26,000 per annum evinces a change in their previously expressed common intention. The Defendant's solicitors had made it very clear in their letter of 12 October 1998 that a stalemate in negotiations had been reached and that if the Plaintiff remained in occupation, it would only be as a monthly tenant. As I have noted, when the Plaintiff paid the new rental calculated at $26,000 per annum on 29 October, there is no evidence that it did so on the express basis that the payment was made under the terms of the new lease rather than under a monthly tenancy. 28 As Mr Donohoe correctly submits, the evidence as to what occurred on 29 October 1998 and thereafter is perfectly consistent with the Plaintiff adopting a position that it would not agree to the terms of the new lease insisted upon by the Defendant, particularly as to a rental of $32,000 per annum, but would hold over as a monthly tenant paying a rent at $26,000 per annum for as long as it and the Defendant were content with that rent. The evidence is, likewise, consistent with the Defendant agreeing to accept a rental of $26,000 per annum under a monthly tenancy rather than under a five year lease on the basis that if it became dissatisfied with that rent at any time and the Plaintiff refused to pay more, it could terminate the tenancy on one month's notice. 29 I do not think that the conduct of the parties after 29 October 1998 adds anything to this perception. The periodic payment of outgoings by the Plaintiff is consistent with its obligations as a monthly tenant under the holding over provisions of the old lease. The payment of increases of rent in accordance with the formula in the proposed new lease are, likewise, capable of reflecting a common intention that each party was happy for the rent to be paid under a monthly tenancy at the rate stipulated in the draft new lease but if one party became unhappy with that rate, the monthly tenancy could easily be ended. 30 Further, I think it is clear from the parties’ correspondence after 23 April 1998 that they regarded themselves as free to negotiate all of the terms of the proposed lease, until such terms as had been concluded were incorporated into a formally exchanged lease. As at 29 October 1998 that had not happened. The parties disagreed as to the rent and as to other substantial terms of the proposed lease. There was therefore no concluded agreement between the parties as at 29 October 1998 which could become immediately binding. 31 For these reasons I am of the opinion that there has never been a binding agreement for lease between the parties containing the option which the Plaintiff purported to exercise on 25 June 2003.


Restitution claim

32    I come now to the Plaintiff's claim for restitution of part of the rent and outgoings paid since 1 November 1998. The Plaintiff puts this claim on the basis that it made these payments under a mistaken belief that they were payable under an existing lease and it says that the Defendant has been unjustly enriched by that payment, so that the Defendant should be liable to make restitution. 33    I am unable to uphold this claim. There is no evidence at all from anyone who was involved in making these payments on behalf of the Plaintiff that he or she made payments only in the belief that a lease was then in existence. There are loose references in correspondence from the Plaintiff which relate these payments to an agreement or to a lease, but those references might just as well be to the holding over provisions of the prior registered lease or to some agreement whereby the Plaintiff continued to hold over on a monthly tenancy. 34    Further, and even more significantly, there is no evidence whatsoever that the Defendant has been enriched unjustly by the payments. There is no evidence that the payments do not reflect a proper and commercial market rent for the premises which the Defendant would have been able to obtain from another tenant had it terminated the occupation of the Plaintiff on 1 November 1998. In short, the Plaintiff has had the use and occupation of the premises since 1 November 1998 and there is no evidence at all that the payments which it has made to the Defendant since that time in consideration of that occupation have been excessive, unfair or unjust.

Orders

35    For these reasons, none of the relief sought by the Plaintiff in its Summons will be granted. The Summons will therefore be dismissed. 36    I order that the Plaintiff pay the Defendant's costs of the proceedings. 37    I order that the injunction granted on 27 October 2003 be dissolved forthwith. Exhibits may be returned.
– oOo –

Last Modified: 12/05/2003