Woolworths (Q'land) Pty Ltd v Heritage Properties Commercial Pty Ltd

SUPREME COURT OF QUEENSLAND

[Woolworths (Q’land) Pty Ltd v Heritage Properties Commercial Pty Ltd]

File No 1833 of 1999

BETWEEN:

WOOLWORTHS (Q’LAND) PTY LIMITED

Plaintiff

AND:

HERITAGE PROPERTIES COMMERCIAL PTY LTD

Defendant

MOYNIHAN J – REASONS FOR JUDGMENT

DELIVERED ON:	9 December 1999
HEARING DATE/S:	27 July 1999
ORDER:	PLAINTIFF’S CLAIM DISMISSED
CATCHWORDS:	CONTRACT – OFFER AND ACCEPTANCE – AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT – Plaintiff sought a declaration that it entered into a concluded agreement with the defendant for the defendant to acquire a site and erect a supermarket on it which the plaintiff would lease – whether the parties had moved from a common intention to enter into contractual arrangements to a common consensus which constituted a binding contract – consideration of correspondence between the parties.
COUNSEL:	Mr P. McMurdo QC with him Mr M. Stewart for the plaintiff. Mr D. Jackson QC with him Mr R Schulte for the defendant.
SOLICITORS:	Allen Allen & Hemsley for the plaintiff. Hopgood & Ganim for the defendant.

The issue for determination in this trial is whether the plaintiff should have a declaration that it entered into a concluded agreement with the defendant for the defendant to acquire what is conveniently referred to as the West End Markets site, (“the site”) and erect a supermarket on part of it which the plaintiff would then lease. The outcome essentially turns on whether the parties intended to reach an agreement, whether they succeeded in concluding one and in that event whether the agreement is enforceable having regard to s 59 of the Property Law Act 1974 (Qld).

The plaintiff had a lease, due to expire in October 1999, of premises on part of the site in which it conducted a Food for Less Foodstore. The plaintiff was keen to maintain its position in West End, preferably with a full line supermarket rather than a food store. It investigated acquiring the site but was not prepared to pay the price asked. It decided to follow what was generally its preferred course and approach a developer to acquire the site, build to satisfy the plaintiff’s requirements and lease the supermarket to the plaintiff.

Stephen Charles Michel, the plaintiff’s property manager, approached the defendant’s Brian Griffin with a view to pursuing such an outcome in respect of the site. Michel and Griffin had previously been involved in dealings, notably, for present purposes, in respect of land at Burpengary and Urangan, where the plaintiff had leased supermarkets developed by the defendant or companies with which Griffin was associated.

Following Michel’s approach, Griffin told Michel in September 1997 that the defendant had entered into a conditional contract to purchase the site. There were issues, ultimately resolved between the defendant and the Brisbane City Council, about the terms of the Development Approval. This aspect is no longer of consequence. Once Griffin notified Michel of the conditional contract, the parties embarked on an exchange of correspondence which it will be necessary to consider in detail. Michel was to take leave from 7 October 1997 to 3 January 1998 and was keen to achieve finality before his leave commenced. Griffin was not unresponsive to this but in the event, on any view of it, this was not achieved. During Michel’s absence, Raymond John McInnes, Michel’s deputy, had carriage of the matter for the plaintiff.

It is convenient to mention one or two matters before turning to the correspondence. The trial proceeded by affidavit. Two of the deponents were called for cross examination, that exercise played no particular part in the outcome of the trial. Put shortly the case turns essentially on the effect to be given to the exchange of correspondence.

The plaintiff alleges the agreement was in writing as follows:

(a) a document transmittal with attachments dated 9 October 1997.

(b) the “Cottee Parker” site plans. They identify the part of the land to be leased to the plaintiff.

(c) a letter dated 27 October 1997 from the plaintiff to the defendant including a generic site plan, standard agreement for lease and lease agreement.

(d) a letter dated 4 November 1997 from the plaintiff to the defendant.

(e) a letter dated 6 November 1997 from the defendant to the plaintiff.

The defendant handed up a list of objections to various portions of affidavits relied on by the plaintiff which I have placed with the court file. The defendant sought to set aside a subpoena served by the plaintiff as an abuse of process. It is now unnecessary to determine the second of these matters. As to the first, I do not propose going through the objections in detail. In many respects the objections are well founded. In any event the material objected to by and large, is of little assistance in carrying out the task with which I am faced and none of it is decisive.

The documents said by the plaintiff to constitute the contract do not fall to be construed in isolation. They take their place in a chain of correspondence some of which were generated after the alleged agreement. Some of the correspondence referred to or enclosed other documents and so effectively incorporated them. Although there was a certain amount of other evidence which was useful, the case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time; the actual communications are the best evidence on the issues to be determined: cf. Australian Broadcasting Corporation v XIV^th Commonwealth Games Ltd (1989) 18 NSWLR 540 per Gleeson CJ at 550.

I turn now to the correspondence. The conditional contract to acquire the site having been entered into, by a letter of 29 September, the defendant wrote to the plaintiff in the following terms:

“Further to recent discussions, we confirm that we are currently under Contract to purchase the above property with this Contract being subject to us obtaining satisfactory development approvals from the Brisbane City Council generally in accordance with those plans submitted to you. Our Consent Application was lodged in August and from discussions to date with Brisbane City Council Town Planning Officers, we are confident that agreement can be reached on the general form of the development over the coming months.
We are well aware that you have a lease that runs over the property until October 1999 and this offer is made subject to you surrendering your Lease in exchange for a new Lease on the property. We advise that all other tenancies have either relocation clauses or demolition clauses in their Lease and we believe the proposed development can proceed without delay.
We now provide the following offer to you for a Lease of a new supermarket at the above development.
1. Lessor:  Heritage Properties Commercial Pty. Ltd.
2. Lessee:  Woolworths (Q’Land) Pty. Limited.
3.Tenancy Area:         Approximately 3,000 square metres excluding plant rooms, loading docks and switch rooms.

4. Lease Term:            Twenty (20) years.
5. Options:                  Four (4) options each of five (5) years.
6.Base Rental:            The commencing gross annual rental will be set at $675,000.00. Should the tenancy area change, the rental will be re-assessed on a proportionate basis.
7.Percentage Rental:    Percentage rental will be paid above the base rental plus outgoings payments in the following proportions.
-          2.5% of gross sales up to $30 million;
- 2.25% of gross sales between $30 million and $60 million;
-2% of gross sales in excess of $60 million.

8.Rent Review: The base rent is to be reviewed every five (5) years during the lease and option terms to the average of the total base rent plus percentage rent paid for the previous two (2) years.
9.Outgoings: You will be responsible for the payment of increases in controllable outgoings over Year 1 on a floor area proportionate basis to a maximum annual increase of six (6%) percent. We confirm that the controllable outgoings category will not include management or sinking fund costs.
You will also be responsible for the payment of increases in non-controllable statutory outgoings over a base Year 1 on a floor area proportionate basis with no maximum increase provision.
All direct charges to your tenancy including electricity, garbage disposal, maintenance, repair and running costs of airconditioning and equipment are to be borne by you.

10.Lessors Works: We will complete the tenancy in accordance with Woolworths latest standard design and specification.
11.Opening Date: Our current development and construction program is targeting an opening on the Centre by mid 1999.

12. Legal Costs: Each party is to pay for its own legal costs.
13.Development Our negotiations to date with the Brisbane City
Design:Council in relation to the historical aspects of the existing Tristam’s factory building would indicate that some compromises may be required in relation to your standard internal finishes however we will keep you closely advised of progress in this area.

We look forward to finalising negotiations in relation to your new Lease on the property and working with you in an effort to resolve Brisbane City Council design requirements.
We look forward to your early acceptance of the above terms and conditions.”

Following discussions between Griffin and Michel, the defendant sent a revised offer dated 6 October. This was in terms essentially the same as those set out, save for a reduction in the base rental and a change in the basis for the calculation of the percentage rental and it is unnecessary to set it out here.

The document transmittal form of 9 October 1997 from the plaintiff to the defendant refers to a supermarket design and specification manual with the following components:-

1. Supermarket Design Brief

2. Supermarket Construction Summary

3. Supermarket Schedule of Finishes

4. Door Schedule

5. Fire Protection Brief

6. Air Conditioning and Mechanical Ventilation Design Specification

7. Electrical Specification

8. Cleaning Instructions.

These are standard form, substantial and complex documents and raise considerations to which it will be necessary to return.

The plaintiff responded to the revised offer of 6 October 1997 by letter of 27 October 1997 in the following terms:

“We refer to your revised letter of offer dated 6/10/97 and previous discussions. The following letter of offer outlines the essential commercial terms which the State would be prepared to submit to the Woolworths Board.
1. Premises
The Supermarket will form part of an enclosed mall development as depicted on Cottee Parker Site Plans SDO 1/A, SDO 2/A and SDO 3/A dated June 1997.
This offer is based on these plans and latest information. In the event of further amendments, redesigns and changes to configuration, Woolworths reserves its right to amend this offer.

2. Lease Area
This offer is based on a 3,000 m²(minimum) store module conforming with the Woolworths’ Specification and design standards, excluding plant areas, loading docks and switchrooms.
3.Lease Term
20 years

4. Options
4 x 5 years

5. Gross Rental
$625,000 per annum payable calendar monthly in advance.

6. Commencement Date
The commencement date of the lease will coincide with the completion of Woolworths’ fitout and the commencement of trade.
7.Outgoings
Woolworths will not be liable for centre outgoings.
Woolworths will meet their own utility costs and maintenance costs excluding structural fair wear and tear replacements, renewals or reinstatements within the demised area.

8. Extended Trading Hours
The landlord and Woolworths will agree on minimum/or diminished services to be provided at no cost to Woolworths whilst the Supermarket is open for trade. The identification of those items can be resolved once site plans are full developed.

9. Promotional Levy
Nil

10. Opening Promotion
Not applicable.

11. Review Mechanism
Five-yearly ratchet review based on 80% of the average of the preceding 2 years’ total rent paid applying for the term certain and options.

12. Percentage Rent
The tenant agrees to pay percentage rental annually in arrears over and above the gross base rent turnover equivalent as follows:-
2.5% of gross sales up to $40 million
2.25% of gross sales $30 million to $40 million
2.0% of gross sales in excess of $40 million

13. Design Brief
The design brief will be issued with Woolworths’ standard Specification. The lessor is to provide the tenancy in accordance with the obligations contained in the Specification. The transmittal documents accompanying the Specification will be attached to the agreement. The kit is current for a period of 6 months and will be reissued if necessary to ensure that an up-to-date Specification is annexed to the agreement. The rental agreed is not subject to variation.
We note your advice that due to the building’s historical aspects, some compromises may be required in relation to Woolworths’ standard finishes. We understand the development is unique, however, until we have reviewed our position, no commitments are to be made on our behalf.

14. Programming
The landlord must provide a construction program acceptable to Woolworths for inclusion in the Agreement for Lease. The landlord will be bound to perform under this agreement with a normal industry allowance for delays. If the store is not delivered without the established time parameters, appropriate compensation mechanisms will apply.

15. Scope of Works & Finishes
As part of the agreement a Schedule of Finishes and Scope of Works will be required for attachment to the agreed documentation.

16. Opening Date
The landlord will have to provide specific construction and staging programs including the date of handover following practical completion.
It is essential from the opening date that the tenant has the full enjoyment of the property. The landlord will have to satisfy certain completion criteria at the opening date of the Supermarket. If this is not complied with, the rental will revert to 1% of turnover until it is attained.
We understand that the target opening date is June 1999.

17. Master Plan
It is essential, at the agreement phase, that the parties understand the proposed development direction of this Centre in the future. It is not our intent to restrict the rights of the landlord to develop the Centre in a predetermined, orderly manner, however, we will expect such works to be sympathetic to the trading requirements of the tenant.

18. Permitted Use
Supermarket including the sale of alcohol.

19. 24-Hour Access & Ability to Trade
It is essential that there is 24-hour access and the ability to trade 24 hours. Woolworths will require exclusive external access to services during after hours’ trade.

20. Trolley Storage
An acceptable trolley storage area must be provided for 400 trolleys.

21. Legal Costs
Each party will bear their own costs.

22. Car Parking
It is essential that an area is designated for parking and it is agreed that it will remain parking, irrespective of future developments.

23. Fitout Period
Following the practical completion of works as detailed in the Specification, Woolworths will require a period of 8 weeks to fitout the store prior to opening.

24. Other Supermarkets
It must be acknowledged that the basis of this offer reflects no change in building area of the existing Supermarket over the term. The landlord will warrant that a second supermarket will not be introduced to the site over the term of the lease.

25. Amenity Provisions
Woolworths will seek a number of covenants to ensure that centre standards are maintained for the term. These are not intended to impose onerous conditions on the landlord, but are necessary to ensure the centre trades to its optimum. We are confident your group is familiar with these standard conditions relating to car parking, compensation, centre development, kiosks, flea markets, set-offs, management standards, strata titling and services.

26. Lessee’s External Signage
It is common practice that this forms part of the lessor’s turnkey obligations. Obviously, due to the nature of this development, it will be necessary for our Construction Manager or Project Manager to resolve this issue with your consultants.

27. Compensation
The tenant will rely on the preservation of certain amenities over the term of the lease. These are fundamental to the ongoing success of the Supermarket and will be evidenced in the lease. Failure by the landlord to observe these principles will result in the tenant suffering sales and profitability losses. The landlord will be required to compensate the tenant for any losses and must work to maintain a trading environment consistent with that originally demised.

28.        Site Plan
Attached to the lease will be a site plan depicting the store, balance of development, car parking and traffic arrangements to and from the site.
It will include the following components:
·    External/Internal signage and pylon details
·    Car parking layout, including typical bay and road widths
·    Trolley corrals
·    Lighting including an illumination plan with lux level contours
·    Contour levels over the carpark
·    Pedestrian and trolley accessways
·    Pedestrian entry points
·    Location of services, i.e. toilets, mothers’ room, public telephones, etc.
·    Fixed mall furniture
·    Kiosk-free zone/sidewalk sale zone
·    Disabled parking
·    Landscaping plan
·    Vehicle circulation patterns
·    Any proposed freestanding uses
·    Any property boundaries or easement rights
·    After hours trolley storage area
·    After hours entry
·    Staff parking area
·    Supermarket expansionary area, if applicable
·    Tenancy mix for proposed support shops
·    Identification of major tenants
·    Ramp gradients
·    Travelator directions
·    Development statistics
·    External traffic patterns
·    Location of car park shade structure
·    Location of parents with prams parking
Note: A copy of a Generic Site Plan is attached for guidance.

29. Development Plans
We note that plans are still schematic in nature and we will await more detailed issues in order to review entry statements, weather protection, trolley access, mall furniture, sightlines, services, dock areas, car parking, internal vehicle circulation, lighting and customer access, etc.
Woolworths would welcome the opportunity to collaborate throughout this phase.

30. Planning Status
The landlord will covenant over the term to maintain the planning status of the centre in the context of its retail hierarchy at the present date. This will entail submissions on planning schemes, scheme reviews and objections to proposed competitive centres which threaten the development.

31. Statutory Approvals
All planning and building works are to comply with statutory requirements and it will be the responsibility of the landlord to secure all necessary permits, approvals and consents at their own costs.

32. Centre Rules
It will be necessary to review the centre rules you wish to attach to the lease.

33. Surrender of Lease
The current store will cease trading close of business 27/6/98. As agreed, Woolworths will be released from the existing lease at no fine or premium. The lease will be surrendered on the commencement date of the proposed new store lease.

34. Quitting Existing Store
Woolworths will require a tenancy at will for a period of one month at no rent. This will allow us to salvage equipment and fitout from the current store. We anticipate make good will not be a requirement and that Woolworths may abandon equipment and fitout it has no use for.

35. Consents
We recognise that the basis of the offer to grant a lease is subject to a number of conditions:
Would you please identify any contractual legal, infrastructural or commercial matters that require resolution or could impact the delivery of the project.
Woolworths will require an indication of timing for each condition to be satisfied. This will assist in presenting the submission and also the case flow of capital expenditure.

36. Documentation & Approvals
This offer is subject to satisfactory development plans, programming, scope of works and finishes.
Further, the terms and conditions outlined are subject to the approval of the Woolworths Board and execution of agreements and lease documentation satisfactory to our Group. A copy of our widely accept6ed standard Agreement for Lease and Lease Agreement is enclosed.

37. Confidentiality
All information provided by Woolworths must remain confidential and privileged between the parties.

38. Currency of Approvals
Any approvals granted by the Woolworths Board will be operative for a period of 12 months. If the legal documentation is not executed the tenant can elect to terminate the agreement free of any claim, etc., if the landlord cannot satisfy the tenant on the progress of the development.”

The letter mentioned a site plan and a standard agreement to lease as enclosures. There is some confusion as to what was ultimately sent but it seems the intended enclosures did not reach the defendant until after its letter of 6 November. I should mention the Board referred to is the Board of Woolworths Limited and not of the plaintiff but nothing now turns on this.

On 4 November 1997 the plaintiff faxed the defendant stating that the percentage rent provision (item 12) in its letter of 27 October did not accord with discussions and set out a substitute clause. There is no longer an issue about this.

On 6 November 1997 the defendant wrote to the plaintiff responding to its letter of 27 October:

“Further to our meeting of 4^th November 1997, we now provide our response to the general terms and conditions as set out in your letter of offer of 27^th October 1997.
1. Premises
Agreed – We will keep you fully advised of any proposed changes and implications associated with the Brisbane City Council approvals.

2. Lease Area
The lease area of 3,000 square metres (minimum) is to be based on the Cottee Parker plans submitted and will exclude plant areas, external loading dock areas and switch rooms.

3. Lease Term
Agreed

4. Option
Agreed

5. Gross Rental
Agreed

6. Commencement Date
Agreed

7. Outgoings
Agreed

8. Extended Trading Hours
Agreed

9. Promotional Levy
Agreed

10. Opening Promotion
Agreed

11. Review Mechanism
A downward review of the ratchet rental review after five (5) years is totally unacceptable to us and will not be in agreed in any form.
As you are aware, we have been working on the redevelopment of this property for over 18 months and at no time during this period have we been advised of review mechanisms in the proposed form.
The review mechanism must be in accordance with your standard Lease Agreement which we have used on Urangan Central and Burpengary Plaza, being the average of the total base rent plus percentage rent for the previous two years.

12. Percentage Rent
The percentage rental is to be as set out in our letter of offer of 6^th October 1997 and as confirmed by you in your letter of 4^th November 1997.

13. Design Brief
We will continue to liaise with you in relation to our final development approval and how those aspects may affect the Woolworths proposed tenancy.

14. Programming
Agreed

15. Scope of Works and Finishes
Agreed

16. Opening Date
A full construction program and opening date will be able to be set early next year and we will keep you fully advised of any changes in that area.
In relation to completion criteria, we confirm that we would accept those criteria used in the Burpengary Plaza or Urangan Central Agreements for Lease.

17. Master Plan
Agreed

18. Permitted Use
Agreed

19. 24 Hour Access & Ability to Trade
Agreed

20. Trolley Storage
Agreed – Trolley storage will be able to be provided at the first basement level.

21. Legal Costs
Agreed

22. Carpark
Agreed

23. Fitout Period
Agreed

24. Other Supermarkets
Agreed

25. Amenity Provisions
Agreed – As discussed, the project will be a mixed use development and as such, the retail component will be held on a strata title. We accept that the individual shops will not be able to be strata titled in the development.

26. Lessee’s External Signage
Agreed – As discussed, we will put all proposals forward to the Brisbane City Council and endeavour to work with you to achieve a satisfactory result.

27. Compensation
Agreed – Generally, in accordance with the Burpengary Plaza and Urangan Central Leases.

28. Site Plan
Agreed

29. Development Plans
Agreed

30. Planning Status
Agreed

31. Statutory Approvals
Agreed

32. Centre Rules
Agreed

33. Surrender of Lease
Agreed – We will keep you closely advised in relation to the target closing business day for the current business.

34. Quitting Existing Store
Agreed

35. Consents
The Brisbane City Council have advised us that we will have a development approval by the 21^st of this month. As soon as this approval is to hand we will send you a report summarising our position in relation to proceeding with building works.

36. Documentation & Approvals
Agreed

37. Confidentiality
Agreed

38. Currency of Approvals
Agreed

We will keep you closely advised of progress over the coming months, however we look forward to receiving confirmation of acceptance of some outstanding issues in relation to our general terms of agreement. We look forward to your early response in this regard.”

The plaintiff responded by a letter of 17 November in these terms:

“Thank you for your letter dated 6/11/97.
We note your advice regarding the rent review mechanism and confirm we will go to our Board on the basis that base rental will be reviewed five-yearly to the average of total rent paid in the previous two years.
We further confirm completion criteria will be that used in the Urangan Central Agreement for Lease and that trolley storage will be provided at the first basement level. We also note your advice with respect to the target closing business day for the current business.
We advise we are agreed in principle on all points and we will proceed to seek approval to enter into an agreement to lease and lease agreement from our Board at its December 1997 meeting. We will advise further as soon as that approval is received.”

By letter of l5 December the plaintiff, having referred to “our heads of agreement” confirmed to the defendant that the “Woolworths’ Board had approved capital for leasehold premises in accordance with our arrangements”. The capital referred to appears to be the cost of fitting out the new supermarket. The plaintiff has accepted this resolution as satisfying its requirement for Board approval. The letter went on:

“. . . This approval is subject to the execution of legal documentation, the final design development, scope of works and programming satisfactory to our Group.
We will instruct our solicitor to prepare draft documentation and forward this to you as soon as possible in the new year. We look forward to working with you again to achieve the successful completion of yet another project.”

By a letter of 20 February 1998 the plaintiff’s solicitors wrote to the defendant:

“We have received preliminary instructions from Woolworths in relation to this development.
We are enclosing discussion drafts of the agreement for lease and lease based on those instructions. The documents are based on the current standard Woolworths Supermarket documents and there are therefore some changes from the base documents used for the Burpengary and Urangan Shopping Centres. However, we have endeavoured to incorporate into the drafts the relevant amendments to the then standard Woolworths documents which were agreed for those other developments.
We look forward to receiving your comments on the draft in due course.”

The defendant’s solicitor acknowledged the letter on 10 March stating they would respond shortly. Despite follow up letters of 18 June and 2 July, the latter seeking to “finalise the documents for the project as soon as possible” there was no response to the letter of 20 February. The evidence is however sparse as to what was happening up to the defendant’s letter of 17 August to be referred to shortly. It seems as likely that the matter went somewhat into limbo because of the need to resolve outstanding issues, which the defendant’s letter of 17 August states had then been resolved, before arrangements could be finalised and documented. In any event that view is at least as open as a conclusion that the parties were content to let things lie because they had reached agreement.

The defendant’s letter of 17 August 1998 was in the following terms:

“As discussed we have now resolved all outstanding issues with the Brisbane City Council and we are advised that a development approval will be issued to us this month.
The development approval will incorporate a supermarket of 3,000m², 1,800m² of specialty shops and sixty eight units as shown to you in our proposed development plans.
As we have pointed out over the past twelve months it has always been our intention to proceed with this development after obtaining the appropriate approvals and after assessing the marketability of the residential component of the proposed development and more importantly after we were able to achieve vacant possession of all tenancies. All our negotiations with you specifically referred to our company being able to obtain early possession of the site. As disclosed to you there were seven tenancies outside of your own with ongoing lease commitments, the majority of which run through to October 1999 and to date we have only been able to achieve vacant possession of two of those tenancies and reach general agreement for relocation or buy-out with two others.
As we currently stand there are three Lessees refusing our offers of relocation in the new development or buy-out of their leases and we are continuing to review our options in relation to our development timetable.
As you are already aware a major factor associated with the viability of the proposed development is the success of the residential component being sixty eight units and from our investigations and in light of the poor pre-sale performance of the West End Central Development we are still assessing this development. For us to secure appropriate finance our bankers will require a high proportion of pre-sales of the residential units.
As we are not able to obtain early possession of the site nor have we been able to negotiate the surrender of the existing leases, and in view of the highly conditional nature of our negotiations with you to date, we believe it is in the interests of all parties that further negotiations with you cease until all outstanding requirements become clearer. Accordingly, we formally withdraw any offer to lease.
It is our intention to progress our development approval through to building approval over the coming months and launch a major marketing campaign for the residential units in March next year. We will continue to work closely with you in keeping you advised of our progress in this regard. We expect, if all goes well, and at the appropriate time, to contact you again in order to recommence tenancy negotiations when our development position and time table is clarified.”

The statement that the defendant was not able to obtain early possession of the site does not sit particularly well with its letter of 29 September 1997. The second paragraph stated that tenants other than the plaintiff had a relocation or demolition clause in the leases and rather suggests that the crucial consideration to vacant possession was the plaintiff’s occupation under its lease to expire in October 1999. There is nothing in the correspondence or the documentation prior to the letter of 17 August 1998 to suggest that the outcome of the negotiations reflected in the correspondence was in any sense conditional on the marketing of residential units and there is no evidence beyond the assertions in that letter. Notwithstanding such considerations, the issue remains whether there was, at the time of the letter of 17 August, already a concluded binding agreement.

The plaintiff submitted that the agreement was concluded either by the 17 November letter or by the notification of the Board approval in its letter of 15 December. Hence the alternative forms of declaration sought. Whether the contract was concluded on 17 November or 15 December turns essentially on whether Board approval was a condition precedent to the formation of the contract (in which case the contract was concluded on 15 December when Board approval was notified to the defendant) or to its performance (in which case the agreement was reached on 17 November). It is unnecessary to consider these issues further at this stage.

The principles to be applied in cases where parties negotiate with the common intention that at some stage they will enter into contractual arrangement and then, without formal documentation having been executed, fall into dispute about whether or not they concluded a binding contract, have been extensively canvassed and applied in numerous cases. Each turns on its own facts. Thus in the leading case of Masters v Cameron (1954) 91 CLR 353 the High Court identified three categories. First, when the parties had reached finality in arranging the terms of their bargain and intended to be immediately bound but proposed fuller or more precise, but which was not different, in effect, documentation. Secondly, where there was complete and final agreement on all the terms of the bargain but performance of one or more of them was conditional on the execution of a formal document. Thirdly, where there was no intention of a concluded bargain until and unless there was a formal contract. The court held that in the former two cases there was a binding agreement but not in the latter. Although apposite to the circumstances of that case it is recognised that the categories referred to in Masters v Cameron are too narrow for all circumstances. Thus the cases speak of a so called fourth category in which the parties are bound immediately and exclusively by the terms agreed on, while expecting to make a further contract in substitution for the first containing, by consent, additional terms: Sinclair Scott Co Ltd v Naughton (1929) 43 CLR 310 at 317; Love and Stewart (Ltd) v S Instone and Co (Ltd) (1917) 33 TLR 475 at 476, Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd and Ors (1986) 40 NSWLR 622 at 628. The mere fact that parties contemplate execution of formal documentation subsequent to reaching an agreement does not mean that the informal agreement is not presently binding: see the second Masters v Cameron category and Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14, 551 per Kirby P.

The crucial issue in the present case seems to me to be whether the parties had moved from a common intention, indeed expectation, that they would enter into contractual arrangements to a consensus, the terms of which were capable of forming a binding contract and were intended to do so: cf. Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.

The issues of intention to contract, completeness and uncertainty which arise in cases such as this overlap but should be considered separately. The point was made in the Australian Broadcasting Corporation case (supra), by Gleeson CJ at p 548 when he said:

“It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain; see, eg. Masters v Cameron (at 360). That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that the parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention”.

Brooking J discussed the approach in Toyota Motor Corporation v Ken Morgan Motors, [1994] 2 VR 106 at p130 said:

“If the court comes to the conclusion that parties intended to make a contract it will if possible give effect to their intention by overcoming difficulties said to result from uncertainty or incompleteness.
While the distinction between uncertainty and incompleteness is a useful one, the vagueness of a provision may lead to it being held that there is no contract either on the ground of uncertainty or on the ground of incompleteness, the fatal dilemma being that the provision either is incapable of being given a definite meaning or, properly construed, shows that the parties intend to reach an agreement hereafter by way of setting some point presently left outstanding.”

I am satisfied that the plaintiff and the defendant negotiated with a common intent that they would enter into a contractual relationship for the defendant to construct a supermarket on the site and for it to be leased to the plaintiff. It is true that the defendant’s intention, inferentially at least, changed at some time prior to the letter of 17 August 1998 but as I have said the question however remains whether there was at that time a concluded and binding agreement.

The parties contemplated the execution of documentation, an agreement to lease, lease and what is conveniently referred to as construction contract documentation, subsequent to reaching agreement but, as the cases referred to earlier demonstrate, of itself that is not determinative of the issues which arise here. I am satisfied that the parties contemplated that the documentation would be explicit, precise, and hence in the nature of things extensive particularly in relation to the construction aspect. In my view the effect of the material is to the contrary of the parties being satisfied with an agreement involving the implication of terms or obligations measured by considerations, however objective, such as reasonableness. By way of illustration the plaintiff’s letter of 27 October 1997 stated that there would need to be agreement on “minimum or diminished services to be provided at no costs (to it)” and that the identification of those terms could be resolved “once site plans were fully developed”. It is fair to say in this context that, subject to the qualification about the defendant’s change of heart, the parties did not contemplate an outcome other than finalisation and implementation of an agreement up to the defendant’s change of heart referred to earlier.

I am satisfied that the parties contemplated a package with a completed and concluded agreement dealing with the plaintiff’s surrender of its lease, vacation of the premises, construction of the new supermarket and its lease to the plaintiff. They did not, for example, contemplate that construction commence before the agreement to lease was concluded or that the agreement to lease be entered into before the construction documentation was concluded.

It is simple enough to isolate portions of the correspondence which support the position of the plaintiff on the one hand or of the defendant on the other. Inevitably that occurs in cases such as this and it is useful and understandable, from a forensic point of view, for this to be done. The issues to be tried, however, ultimately turn on the effect to be given to the documents as a whole: cf. Geebung Investments Pty Ltd v Varga Group Investments (supra) per Kirby P at 14570; Australian Broadcasting Corporation v XIV^th Commonwealth Games Ltd (supra) per Gleeson CJ.

In my view, having regard to these considerations, there are too many unresolved issues for there to be a concluded and binding agreement. There is much to be said for the view that the parties were essentially in agreement about the terms of the agreement to lease and the lease. The position is, in my view, different in respect of the construction of the supermarket and some aspects of this flow into the lease arrangements. The difference probably reflects the more intricate and detailed nature of the construction aspect of the proposed agreement. For example, the original mid 1999 opening date was obviously soon not viable. The lease commencement was to coincide with the completion of the plaintiff’s fitout and commencement of trade. That depended on a construction program, acceptable to the plaintiff, a site plan and other matters. In any event, as I have said, what was contemplated was a comprehensive concluded agreement.

The plaintiff’s standard form plans and associated documentation referred to in the correspondence were for a supermarket of 4,100 square metres of regular shape. The area available on the site was of the order of 3,100 square metres and of irregular shape. That had implications for matters such as the layout of the supermarket and the interrelationship and scale of the various components of the store.

Other considerations such as the development conditions imposed other constraints. For example, the plaintiff’s letter of 27 October 1997 acknowledged the defendant’s advice that due to the “historical aspects” of the site compromises might be required in relation to the plaintiff’s standard finishes and reserved its position in respect of them. The outcome appears to have depended on the final development approvals - the defendant’s letter of 6 November 1997. The matter does not seem to have been taken further in a context where the letter of 27 October provided that a schedule of finishes was to be attached to the “agreed documentation”. Elsewhere the letter suggests there were unresolved issues, thus para 36:

“. . . . subject to satisfactory development plans . . . .”
“. . . . and execution of agreements and lease documents satisfactory to our group”. The latter is repeated in the letter of 15 December 1997.

Passages such as those referred to and others support a conclusion that the plaintiff wanted a final say on matters of detail. Thus in its 27 October letter, para 13 anticipated “an up to date specification . . .” and reserved the plaintiff’s position with respect to compromises in relation to standard finishes if compromises were necessary. See also para 15. Paragraph 14 referred to a construction program “acceptable to” the plaintiff. Paragraph 16 referred to “certain completed criteria”. The detail of the site plan anticipated by para 28 should be noted as should paras 29 and 36. The plaintiff’s letter of 15 December 1997 preserves its position with its reference to “satisfactory to our group . . .”.

It is true that the defendant expressed agreement to the plaintiff’s proposals with respect to many such matters, but as I have indicated many of them were in general terms or in terms of anticipated agreement once the details were spelt out and addressed. However confidently the parties may have anticipated agreement in respect of such matters, it did not in fact occur.

What was left was not a matter of “mere mechanical formulation”: cf. Australian Broadcasting Corporation v XIV^th Commonwealth Games Ltd (supra) at 545-46. The unresolved matters were not such as could be dealt with by the implication of a common term. They were too intricate, diverse and the scope of particular issues was too wide ranging to be dealt with in terms of considerations of reasonableness. In any event, as I have said, in my view, the parties did not intend them to be dealt with on that basis but intended precise and detailed provision in the documentation.

The considerations being those I have canvassed, the plaintiff is not entitled to a declaration in either of the terms sought.

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Citations

Woolworths (Q'land) Pty Ltd v Heritage Properties Commercial Pty Ltd [1999] QSC 389

Cases Citing This Decision

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Cases Cited

4

Statutory Material Cited

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Hadid v Lenfest Communications Inc [1996] FCA 675

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5

[1999] QSC 389

9 December 1999