Virtual Circuits P/L v Sanderson Edgecliff P/L
[2000] NSWSC 251
•3 April 2000
CITATION: Virtual Circuits P/L v Sanderson Edgecliff P/L [2000] NSWSC 251 revised - 11/04/2000 CURRENT JURISDICTION: Equity Division FILE NUMBER(S): SC 1117/2000 HEARING DATE(S): 16 March 2000 JUDGMENT DATE: 3 April 2000 PARTIES :
Virtual Circuits P/L (Plaintiff)
Sanderson Edgecliff P/L (Defendant)JUDGMENT OF: Bergin J
COUNSEL : Dr JG Renwick (Plaintiff)
ST White/C Parry (Defendant)SOLICITORS: Selby Anderson (Plaintiff)
Bartier Perry (Defendant)CATCHWORDS: Construction of a Lease - Validity of Notice of Termination pursuant to Redevelopment Clause - Entitlement to Exercise Option. CASES CITED: Spectra Pty Ltd v Pindari [1974] 2 NSWLR 617;
Caltex Oil (Aust) P/L v Alderton (1964) 81 WN (Pt 1) (NSW) 297;
Re Haddad; Ex parte RW Jordan P/L (Federal Court of Australia, Sackville J 20 August 1997);
Rudi's Enterprises P/L v Jay (1987) 10 NSWLR 568;
Codelfa Construction P/L v State Rail Authority of NSW (1981-1982) 149 CLR 337;
Nicolene Ltd v Simmonds (1953) 1 QB 543 at 552;
Johnson v Edgeware Railway Co (1866) 35 Beav 480; 55 ER 982 at 984.DECISION: Notice Valid. No Entitlement to exercise option. Summons dismissed.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONBERGIN J
DATE 3 APRIL 2000
1117/2000 - VIRTUAL CIRCUITS P/L v SANDERSON EDGECLIFF P/L
JUDGMENT
1 The plaintiff is the lessee of premises comprising the ground floor, 80-82 McLachlan Street, Rushcutters Bay, New South Wales (the Premises) from where it conducts its computer sales and servicing operations.
2 The defendant is the authorised dealer for Mercedes Benz in New South Wales and presently operates its showroom and sales activities in premises located at 751 New South Head Road, Rose Bay. The defendant also operates a motor vehicle repair shop in premises located at 62 McLachlan Avenue, Rushcutters Bay.
3 The defendant purchased the property located at 80-82 McLachlan Avenue, Rushcutters Bay (the Property) on 24 September 1999 from Marinya Holdings Pty Ltd. (Marinya)
The Lease of the Premises
4 The plaintiff has occupied the premises pursuant to the terms of a lease registered no 3315337 dated 24 June 1997 (the Lease) and has done so since 1 July 1997 being the commencing date of the Lease. The term of the lease is three years and the terminating date is 30 June 2000.
5 The lease includes the following relevant provisions:6 Although reference is made in Clause 30.2 to Item 26, the Schedule to the Lease does not contain an Item 26.
29. OPTION OF RENEWAL
29.1 Lessee’s Notice Requesting Form of Lease
If the Lessee:
(a) is entitled to take a renewed lease of the Premises for the further term of years stated in Item 19; and
(b) wishes to take that renewed lease;
THEN the Lessee must give written notice to the Lessor during the period stated in Item 21 requesting the Lessor to provide a copy of the form of lease ( ‘Form of Lease’) which is or will be in use by the Lessor in respect of leases of premises within the Building as at Date of Termination and subject to which the Lessor will be prepared to grant to the Lessee a renewed lease for the further term of years stated in Item 19. The Form of Lease will be identical to this Lease with the exception of Items 2, 3, 9 and 15 which will be amended accordingly and Items 10(b) and 19 which will be deleted.
29.2 Delivery of Form of Lease
If the Lessor receives notice under clause 29.1 the Lessor must give a copy of the Form of Lease to the Lessee not later than the time stipulated in Item 21.
29.3 Lessee’s Notice as to Exercise of Option of Renewal
If the Lessee wishes to take a renewed lease of the Premises the Lessee must give written notice to the Lessor within 20 Business Days of the date of the Lessee’s receipt of the Form of Lease under clause 29.2 that the Lessee exercises the Lessee’s option to take a lease for the further term of years stated in Item 19 on the terms and conditions contained in the Form of Lease at an initial annual rent to be determined under Part 6 of this Lease in which case
(a) the Lessor must at an any time prior to Date of Termination give written notice to the Lessee stating the Lessor’s estimate of the Current Market Rent as at the commencement date of the renewed lease and such notice will be deemed to be a notice given under clause 6.1(a);
(b) the commencement date of the renewed lease will be deemed to be the Relevant Rent Review Date; and
(c) clauses 6.1, 6.2, 6.3, 6.4, and 6.5 apply.
29.4 Lessee Loses Right to Option of Renewal
The Lessee must lose its option for the further term of years stated in Item 19 if the Lessee fails to give notice under clause 29.1 or clause 29.3.
29.5 Time is of Essence
Time is of the essence of this clause 29.
29.6 Lessor to Grant Further Lease
The Lessor must subject to clause 29.7 grant to the Lessee a lease for the further term of years stated in Item 19:
(a) if:
(i) the Lessee exercises its option of renewal for that further term of years;
(ii) the following conditions are satisfied:
(A) there is no existing breach of the Lease by the Lessee either at:
(1) the dates of the notices given by the Lessee under clause 29.1 and 29.3;
(2) Date of Termination; and
(b) on the conditions and provisions contained in the Form of Lease .
29.7 Lessor’s Entitlement to Refuse to Grant Further Term
The Lessor may refuse to grant a lease for the further term of years stated in Item 19 if the Lessee:
(a) fails on more than 3 occasions during the Term to pay:
(i) the Minimum Rent; or
(ii) any other money payable to the Lessor under the Lease within 10 Business Days of the due date for payment; or
(b) has been in breach of any other of the Lessee’s Covenants and the Lessor, on more than 3 occasions during the Term, serves notice on the Lessee requiring the Lessee to comply with the Lessee’s Covenants.
29.9 Maximum Term of Options
Notwithstanding anything contained in any Form of Lease any renewed lease or leases granted pursuant to this Part 29 must not exceed the term or terms stipulated in Item 19.
30. REDEVELOPMENT OF BUILDING
30.1 Definitions
In this Part:
‘ Affected Premises’ means the part or the whole of the Premises referred to in a notice given by the Lessor to the Lessee under clause 30.2;
‘ Redevelopment’ means upgrading on a floor by floor basis and/or redeveloping the whole or any part of:
(a) the Premises; and
(b) the Building,
whether or not in compliance with or in connection with any legal requirement, including without limitation, any requirement of any Government Agency.
30.2 Notice of Termination Date
If at any time during the period stipulated in Item 26 the Lessor decides in its absolute discretion that it requires vacant possession of the whole or any part of the Premises for the purpose of or in connection with Redevelopment (whether or not the whole or any part of the Premises will be the subject of or be affected by any such Redevelopment) THEN the Lessor may give notice in writing of that decision to the Lessee specifying a date not earlier than six months after the date of service of the notice upon the Lessee as being the date upon which the Lease will terminate (‘ Termination Date’ ) and upon the Termination Date:
(a) the Lease must terminate as regards the Affected Premises;(b) Part 22 will apply as regards the Affected Premises.
30.3 Conclusive Certificate
A Certificate executed or signed or purporting to be executed or signed by the Lessor or its Managing Agent certifying that the Lessor has made a decision under Part 30.2 shall be conclusive evidence for all purposes including court or other proceedings that such a decision has been made pursuant to clause 30.2.
30.4 No Breach by Lessor
The exercise by the Lessor of the rights conferred by this clause shall not constitute a breach by the Lessor of the Lessor’s covenant for quiet enjoyment or of any other covenant or obligation of the Lessor express or implied contained in or arising under the Lease.
30.5 Lessor Not Liable
The Lessee must make no claim against the Lessor for any loss, injury or damage however caused (including without limitation loss of goodwill, profits or economic loss) suffered or sustained by the Lessee or any other person at any time as a result of or arising out of the exercise by the Lessor of any of its rights under this Part.
30.6 Lessee’s Acknowledgement
The Lessee acknowledges and agrees that in entering into this Lease the Lessee has not relied and will not rely upon any warranty or representation made by the Lessor or any person on behalf of the Lessor whether express or implied or upon any conduct of the Lessor or any person on behalf of the Lessor as to whether or when the Lessor may make a decision under clause 30.2
ITEM 2: DATE OF COMMENCEMENT (Clause 1.1)
REFERENCE SCHEDULE
1 July 1997
ITEM 3: DATE OF TERMINATION (Clause 1.1)
30 June 2000
ITEM 9: MINIMUM RENT AT DATE OF COMMENCEMENT (per
annum) (Clause 1.1)
$39,780.00
ITEM 10; RENT REVIEW DATES ( Clause 1.1)
(a) on each anniversary of the date of commencement
(b) the first day of further term under clause 29.ITEM 15: BANK GUARANTE (Clause 1.1)
Amount: $9,945.00
Percentage of increase (Clause 27.1); in accordance with rent review.ITEM 19: OPTION OF RENEWAL (Part 29)
ITEM 21: PERIOD OF NOTICE FOR EXERCISE OF OPTION
Number of years: 3 years
Commencing on: 1 July 2000
Terminating on: 30 June 2003
(Part 29)
The period commencing 9 months before Date of Termination and ending 3 months before Date of Termination.
Defendant’s purchase of the Property
7 Marinya and the defendant commenced negotiations in respect of the sale of the property in March or April 1999. The defendant took the view that it would not proceed with the purchase unless it had the Development Consent from the Council to proceed to alter the use of the property to accommodate its motor vehicle showroom and workshop.
8 The plaintiff became aware of the defendant’s Development Application and lodged an objection with the Council. Additionally its solicitors wrote to Marinya advising it that it was aware of the development application to change the approved use of the premises. The plaintiff’s solicitors drew Marinya’s attention to the term of the Lease and the fact that it was of great concern to it that Marinya had given consent to the lodgement of the Development Application by the defendant.
9 The defendant completed the purchase of the property on 24 September 1999. The solicitors for Marinya wrote to the plaintiff on that date advising it that the property had been sold to the defendant and directing it to make all payments of rent and other money due under Lhe lease after the completion date 24 September 1999 “as the Purchaser directs in writing”.
10 On 1 November 1999 the solicitors for the defendant wrote to the plaintiff enclosing a Notice of Termination of the Lease which was in the following terms:11 On 3 November 1999 the plaintiff’s solicitors wrote to the defendant’s solicitors in respect of the notice and said:
NOTICE OF TERMINATION OF LEASE
TO: Virtual Circuits Pty Ltd
Ground Floor
80-82 McLachlan Avenue
Rushcutters Bay NSW 2011
Definitions
“Lease” means lease registered number 3315337 and dated 24 June 1997
“Premises” means part of the ground floor of the building known as 80-82 McLachlan Avenue, Rushcutters Bay, having an area 234 m2 as shown on the plan annexed to the Lease.
Notice
In accordance with clause 30.2 of the Lease, the lessor hereby gives you notice of its intention to redevelop the premises. For the purposes of redevelopment, the lessor requires vacant possession of the premises.
The Lease will terminate on 3 May 2000, being a date not earlier than 6 months from the date of service of this notice.
Dated 1 November 1999
Your client has purported to terminate the Lease pursuant to clause 30.2 of the Lease. Please note that this clause is only operative if Item 26 of lease’s reference schedule is completed. You will note that an Item 26 is not included in the reference schedule. Therefore your client does not have the right to terminate the Lease in order to redevelop the building.
In addition, we are instructed that our client when entering into discussions in relation to leasing the premises was not advised by Marinya Holdings Pty Ltd that the site was to be redeveloped during the term of the Lease. The Lease was prepared by the lessor’s solicitors consistent with the statements and representations made to our client.
12 The plaintiff advised the defendant that it would not be vacating the premises and would be exercising its rights to renew the Lease pursuant to clause 29 of the Lease.
13 On 6 November 1999 the plaintiff served upon the defendant a document in the following terms:
NOTICE OF EXERCISE OF OPTION
To: The Secretary
Sanderson Edgecliff Pty Ltd
C/- Bartier Perrier Solicitors
P.O. Box 2631
SYDNEY NSW 2001
Virtual Circuits Pty Ltd (A.C.N.058 830 596) the Lessee under Lease registered No:3315337 in respect of the premises known as Ground Floor 80-82 McLachlan Avenue Rushcutters Bay (“the Lease”) HEREBY GIVES YOU NOTICE of its intention to exercise its option pursuant to Clause 29 of the Lease and requests and requires you to grant it a renewed Lease of the premises demised by the Lease for a term of three years from the expiration of the term granted by the Lease and upon and subject to the covenants, agreements and conditions of the Lease. Pursuant to Clause 29 of the Lease we request that you provide a copy of the form of Lease.
Date: 6 November 1999.
14 The plaintiff commenced proceedings seeking declarations that it is entitled to take a renewed lease of the premises; that it has validly given notice to the defendant within the terms of clause 29.1 and is now entitled to receive by 31 March 2000 the copy of the prepared Lease referred to in that subclause; and that upon receiving a copy of the prepared form of Lease will be entitled to exercise the option of renewing the lease pursuant to clause 29.3.
15 By cross claim the defendant seeks declarations that the cross claimant has validly terminated the Lease and the cross defendant has not validly exercised its option to renew.
The Redevelopment Clause
16 The Redevelopment Clause (Clause 30), if operative, entitles the defendant to make a decision that it requires vacant possession of the premises for the purposes of or in connection with redevelopment. The clause refers to the period during which the decision is made as being “at any time during the period stipulated in Item 26”.
17 It was conceded that such a decision had been made by the defendant at the time it served the Notice of Termination on the plaintiff on 1 November 1999 and no point has been taken in respect of the content of the Notice not complying with the Clause.
18 If the defendant makes such a decision it is entitled to give the plaintiff notice in writing of that decision specifying a date, being the date upon which the Lease will terminate. However, such termination date must not be earlier than six months after the date of the service of the notice on the plaintiff.
19 If operative, clause 30.6 contains an acknowledgment by the plaintiff that it has not relied and will not rely on any warranty or representation made in respect of whether or when a decision may be made under clause 30.2.
20 The main issue for decision is the consequence of the absence of Item 26 in the Reference Schedule to the Lease on the operation of clause 30.
21 The plaintiff claims such absence rendered the clause inoperative. It is submitted that the Reference Schedule contains the particular details upon which the parties have agreed whereby certain rights within the general terms of the Lease are limited or enlivened.
22 It was submitted that the defendant is only entitled to make a decision during a stipulated period and as no such period was stipulated, no decision can be made and the clause becomes inoperative.
23 The plaintiff submitted that any inconsistency the Court might find between clause 30 and the Reference Schedule should be resolved by construing the Lease against the defendant: Johnson & Edgeware Railway Co (1866) 35 Beav 480; 55 ER 982 at 984.
24 The defendant claims that absence of Item 26 has the consequence that the defendant is entitled to make the decision at any time during the period of the Lease or at a reasonable time during the period of the Lease.
25 In support of this submission the defendant relied upon the decision of Wootten J in Spectra Pty Ltd v Pindari Pty Ltd (1974) 2 NSWLR 617. In Spectra Wootten J considered the validity of an option to renew which left blank the period during which the lessee was entitled to give notice of exercise of the option. The relevant clause provided as follows:26 The defendant in that case submitted that the clause was void for uncertainty. Wootten J took what he described as a realistic common-sense view and held at p 620:
Should the lessee desire to exercise this option it shall give to the lessor notice in writing to be sent by prepaid registered mail to the lessor’s last known place of residence of its desire so to do not later than calendar months prior to the expiration of the term hereby granted.
The defendant’s argument, in effect, requires me to hold that the fixing of a period of notice is such a fundamental matter that the parties could not be taken to have intended the option to renew to take effect in the absence of a specification of the period of notice. I can see no basis for drawing this inference. The parties clearly intended to include an option to renew, but they were sufficiently indifferent to the question of notice either to fail to notice the blank or to fail to fill it in. In either case, I think the reasonable inference is that the parties agreed to the inclusion of an option to renew, but did not agree on any particular length of time prior to expiration of the term of the lease by which notice of exercise of the option was to be given. I therefore, hold that the clause is not void for uncertainty, and that the notice of renewal could be sent at any time prior to the expiration of the original term.
27 The defendant in this case made an alternative submission that in the circumstances of this case the words “at any time during the period stipulated in Item 26” may be ignored as superfluous and meaningless: Caltex Oil (Aust) Pty Ltd v Alderton (1964) 81 WN Pt 1 (NSW) 297; Re Haddad; Ex parte RW Jordan Pty Ltd unreported, Federal Court of Australia, Sackville J 20/8/1997.
28 Alternatively the defendant submitted that the Court would imply a term which is reasonable in the circumstances: Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 and that the time at which the defendant exercised the right falls within such reasonable period.
The alleged clause 30 conversation
29 An additional feature to the case was some evidence admitted on the basis that it fell within the category of discussions relating to the common assumption as to the period during which a decision under clause 30 could be made: Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337 per Mason J at 354-355.
30 Mr Casey, the company secretary of Marinya, which is not a party to these proceedings, gave evidence of a conversation he had with Mr Hotz the Managing Director of the plaintiff in the following terms:
Mr Hotz: The renovation clause in the Lease is a bit harsh.
We can be kicked out at any time if you decide to redevelop.
Mr Casey: Our solicitors have said that it is a standard clause going into leases at the moment and it should stay to protect to Marinya’s interests.
Mr Hotz: What are your intentions about redevelopment?
Mr Casey: We presently have no intention to redevelop. So long as we are in the property it is unlikely that we will want to exercise the redevelopment clause. However, if a buyer makes us a good offer then we will consider selling and a new owner could exercise all the landlord’s rights in the Lease including the redevelopment clause.
31 The sophisticated and careful cross examination of Mr Casey sought to establish that:
· The certainty that the conversation took place in the terms claimed was based upon a premise that Marinya’s solicitors, Minter Ellison, had taken it upon themselves to put the redevelopment clause in the Lease without consultation with Marinya and had recommended it to Marinya;
· Mr Casey was quite mistaken in his recollection in that regard because it was Mr Casey’s suggestion to Minter Ellison that they utilise a previous lease which had been drafted by them as a precedent for the Lease with the plaintiff; and
· That by reason of this mistaken belief and by reason of it being a premise of Mr Casey’s certainty that the conversation took place in the terms claimed his recollection was unreliable in relation to the whole of the conversation.
32 There is no doubt that Mr Casey was mistaken about who propounded clause 30 of the plaintiff’s Lease. Mr Casey wrote to Minter Ellison on 10 June 1997 enclosing a previous lease in relation to another tenant which had been drafted by Minter Ellison which itself contained an identical clause 30 and the omission of Item 26.
33 Mr Casey was certain that a conversation with Minter Ellison had occurred in which an explanation was given to him as to why such a clause should stay in a lease. From his evidence I am satisfied that such a conversation did take place with Minter Ellison and it is more probable than not that the conversation was in relation to the Lease with the previous tenant.
34 Notwithstanding the mistaken belief that he had the conversation with Minters about the clause in the plaintiff’s lease, Mr Casey maintained his claim that he did have the conversation with Mr Hotz in the terms set out in his affidavit. The cross examination relied upon to construct the argument, that because the premise for the certainty had been shaken so should the ultimate reliability of the recollection, was:
Q You have said there, you have deposed to a conversation with Mr Hotz and you have said that you said to Mr Hotz our solicitors have said that it, the renovation clause, is a standard clause going into leases to me and it should stay to protect Marinya’s interest and that is your evidence. I am asking you whether one of the reasons you say you can be sure that was said is that it was not a clause you had seen before and it was suggested by your solicitors?
A Yes.35 Although “one of the reasons” upon which Mr Casey could be so certain that the conversation took place in the terms he claimed it did was successfully shaken, he appeared to me to be doing his best to recollect a conversation which he honestly believed he had with Mr Hotz.
36 Mr Hotz denied that such a conversation took place. He acted for the plaintiff in negotiating and executing the Lease and did not instruct lawyers to assist the plaintiff in that process. He had previously entered into leases in which there had been such clauses but he took the view that because Item 26 was not in the Reference Schedule clause 30 did not operate.
37 Once again, in a very careful and focused cross examination, Counsel for the defendant attacked the premise upon which it was argued that the conversation would not have taken place. Mr Hotz gave the following evidence:
Q You regarded it as a bit harsh didn’t you?
A Not at all. I didn’t regard it as harsh because it referred to an Item 26 which didn’t exist so I went to the, I went to the back page which an untrained legal person like myself will do, you
go and have a look at, very simple like the rent, the period and any clauses and there was no Item 26 so there was no period stipulated and I felt quite happy with that.Q You took the view, did you, that because there was no Item 26,
clause 30 had no operation?A Absolutely.
Q Do you ever express this view to anyone?
A No.
Q Did you ever ask anybody to delete it from the lease because it was otiose?
A I didn’t think it was necessary. There is no Item 26. My lease went up to Item 25.
Q Is that right?
A That’s correct.
Q You took the view, did you, without any legal advice whatsoever that clause didn’t operate?
A That’s correct.
Q And did you ever express that to anyone?
A No.
Q Never expressed it to Mr Casey?
A No
.
Q Did you think an error may have occurred and Item 26 may have been forgotten?A Not at all.
Q You thought it was an omission?
A Not at all, it was never discussed with me that there was going to be a renovation clause…given that I spent a substantial amount of money and given I negotiated with Mr Casey that we intended to be there for six years I didn’t expect to have a demolition clause in my contract.
Q When you read it you realised there was one there, didn’t you?
A No, not at all.
Q You read clause 30 you told us that?
A Clause 30 relates to Item 26 which did not exist in my contract.
Q Listen to me please Mr Hotz, you read clause 30, didn’t you?
A I read clause 30 as I have told you before.
Q And you formed the view, didn’t you, that it was a bit harsh given the amount of money you were proposing to spend on the building?
A Not at all.
Q You really tell Her Honour that because Item 26 did not appear you took the view that you didn’t have to worry about cl 30 at all?
A Absolutely.
Q Had no operative effect whatsoever?
A Absolutely.
Q Never asked any legal advice about it?
A No legal advice.
Q Never expressed the view to anyone?
A No.
Q Took the risk, did you, that cl 30 just would not operate?
A That’s correct.
……….
Q So you are saying to Her Honour that… proposing to spend a significant sum of money on the building cl 30 didn’t trouble you at all.
A It did not trouble me because I had discussions with Mr Casey prior to getting the lease and he had assured me that we were there for a good six years.
(Tr 9-10)
38 On further questioning Mr Hotz said that what amounted to such assurance was that Mr Casey had said that he looked forward to the plaintiff being there as tenant for six years.
39 The plaintiff relied on the fact that it had expended a large amount on the fit out of the premises to suggest that it would not have tolerated an operative clause 30. The defendant relied on the same fact to submit that it was most likely that the conversation between Mr Hotz and Mr Casey occurred. It was submitted that the plaintiff was of the view that in the light of the amount of money it had spent that such a clause was “a bit harsh” and therefore sought some indication from Mr Casey about Marinya’s intentions. However, Mr Hotz’ evidence was that he did not think it was harsh because he thought it was inapplicable or inoperative.
Findings
40 I am assisted by the approach adopted by Wootten J in Spectra Pty Ltd v Pindari Pty Ltd (1974) 2 NSWLR 617. It seems to me that the failure to stipulate a period in that case is analogous to the failure to stipulate the period in this case. I am of the view that the parties intended to include a Redevelopment Clause in this Lease. The alternative inferences that present on the document alone are that there was sufficient indifference to the stipulation of the period either to fail to notice the omission of Item 26 or to fail to include it.
41 I conclude that the reasonable inference is that the parties agreed to the inclusion of the Redevelopment Clause but did not agree to any limitation on the period during which a decision under Clause 30 could be made.
42 I am satisfied that it would not be doing violence to the terms of the whole of the Lease to construe it as meaning that the defendant could make a decision under Clause 30.2 at any time during the period of the lease. This conclusion is consistent with the approach adopted in Caltex Oil (Aust) Pty Ltd v Alderton (1964) 81 WN Pt 1 (NSW) 297 in that the words “during the period stipulated in Item 26” are regarded as superfluous.
43 Although I have not implied a term stipulating a reasonable period, I agree with the defendant’s submission that the time at which the decision was made and, in particular, notice was given was within a reasonable period having regard to the fact that the Notice provided a Termination Date about eight weeks earlier than the original Termination Date of the Lease.
44 I turn now to the evidence in relation to the conversation alleged by Mr Casey.
45 Mr Hotz said he did not expect to have a Redevelopment Clause in the Lease because he had spent a substantial amount of money on the premises and he intended to stay there for six years. Inconsistently with that expectation the clause was within the Lease when he received it and executed it.
46 M. Hotz accepted that if clause 30 was operative it was a “critical” clause but “only if it had relevance to the Item which wasn’t there, so I didn’t think it was critical”.
47 The communications between the plaintiff and Marinya and Marinya’s solicitors and the plaintiff at around the time that Mr Hotz said he observed that Item 26 was not in the lease gave me the distinct impression that there was co-operation between the plaintiff and Marinya. This co-operation included a sharing of the cost of the fit out.
48 It seems that notwithstanding this co-operative and on one view of it, trusting relationship, Mr Hotz would have me believe that he scanned the Lease and found a meaningless clause on which he understood he could ride free of any redevelopment decision: Nicolene Ltd v Simmonds (1953) 1 QB 543 at 552 per Denning LJ.
49 The plaintiff’s objection to the defendant’s development application may be viewed as providing some support for the likelihood that the conversation did take place. On this occasion, in marked contrast to the circumstances surrounding the negotiation of the lease, Mr Hotz did instruct lawyers to act for the plaintiff. The argument is that the reason for this difference in approach and the need for the objection was that Mr Hotz was concerned about the operation of clause 30 and the common assumption that the rights under the redevelopment clause could be exercised at any time by a new owner.
50 The letter of objection directed to Marinya makes no mention of the inapplicability of clause 30 or any suggestion that it was inoperative. The thrust of the letter was that the Lease contained an option allowing the plaintiff to renew for a further term of three years and that it intended to exercise its option and remain in occupation in the premises.
51 Mr Hotz is a man of experience in the business world for some twenty years. He claimed that he did not tell any other person about the view that he held that Clause 30 was inoperative. It is very difficult to understand why he would not tell the other directors or his lawyers when they were instructed to object to the Development Application. That seemed a relevant and appropriate time for such a communication to occur. Mr Hotz would have me believe that this was a “risk’ of which he was aware from June 1997 and he kept it to himself.
52 A further matter of relevance is the conversation deposed to by Mr Hotz when he telephoned Mr Casey in 1999 to enquire of him whether the rumour that the building was for sale was true. At this time no suggestion was made to Mr Casey that any purchaser of the property should be informed that Mr Hotz regarded the Lease between the plaintiff and Marinya as having an inoperative clause 30. No steps were taken by the plaintiff to ensure that any prospective purchaser was given notice that the property that it was about to purchase included a Lease of the premises, which included a clause which the plaintiff regarded as inoperative.
53 Further, on 24 September 1999 when Marinya notified the plaintiff that the purchaser was the defendant, no steps were taken between that time and 1 November to notify the defendant of that position. It was not until after the service of the Termination Notice this matter was raised for the first time in the plaintiff’s solicitor’s letter which also claimed that the plaintiff had not been advised by Marinya that the site was to be redeveloped during the term of the lease.
54 I am satisfied that Mr Hotz’ silence is attributable, not to keeping the “risk” to himself, but to an understanding that, although the clause was within the Lease and the parties understood it could be operated at any time, the plaintiff was comforted by the fact that Marinya had indicated that it would not redevelop whilst it was the owner.
55 The danger emerged with the appearance of a prospective purchaser, the defendant, and the lodgment of the Development Application. In my view the subsequent conduct of the plaintiff is consistent with an understanding that the rights under the clause 30 could be exercised at any time during the period.
56 On all the evidence, and having regard to my observations of the witnesses, Mr Casey and Mr Hotz, I am satisfied on the balance of probabilities that the conversation did take place between Mr Casey and Mr Hotz in the terms deposed to by Mr Casey. In those circumstances I am satisfied that the parties intended clause 30 to operate and that a decision could be made to redevelop at any time during the period of the Lease.
57 I am satisfied in all the circumstances that the Notice of Termination is a valid Notice under Clause 30.2 of the Lease.
58 The consequence of my finding in respect of the Notice of Termination is that the plaintiff is not entitled to take a renewed Lease of the premises. In those circumstances the right to exercise the option is not triggered.59 The Summons is dismissed. I make the declaration in paragraph 1 of the Cross Claim. I will hear any application for costs should the parties not be able to agree on such order.
Orders
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