Young v Lamb
[2000] NSWSC 733
•27 July 2000
CITATION: Young v Lamb [2000] NSWSC 733 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 5096/98 HEARING DATE(S): 15, 16 June 2000 JUDGMENT DATE: 27 July 2000 PARTIES :
Robert Francis Patrick Young (P)
Kenneth John Lamb (D1)
Louise Ann Lamb (D2)
William Thomas Newell (D3)
Dianne Margaret Newell (D4)JUDGMENT OF: Austin J
COUNSEL : M Heath (P)
R Colquhoun (D)SOLICITORS: Button Hawdon & McMahon (Batemans Bay) (P)
Daryl Hurst (Moruya) (D)CATCHWORDS: CONTRACT - construction - principles applicable to construction of option to renew lease PARTNERSHIP - ss 5 & 6 of Partnership Act do not authorise a partner to exercise an option to renew a lease of the premises in which the partnership business is conducted REAL PROPERTY - lease - option to renew - letter stating 'intention to exercise' held not be an exercise of the option - service of letter on managing agent held not to be service on lessor for purposes of option clause LEGISLATION CITED: Conveyancing Act 1919 (NSW) s 170
Partnership Act 1892 (NSW) ss 5 & 6
Property Stock & Business Agents' Act 1941 (NSW) ss 42 & 42AACASES CITED: Ballas v Theophilos (No 2) (1958) 98 CLR 193
Ballas v Theophilos [1958] VR 576
Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) NSW ConvR para 55-862
Blackler v Felpure Pty Ltd (Supreme Court of New South Wales, unreported, Bryson J, 24 September 1999)
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600
Brennan v Kinjella Pty Ltd (1993) 6 BPR 13
Carter v Hyde (1923) 33 CLR 115
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1984) 155 CLR 541
Drinkwater v Caddyrack Pty Ltd (Supreme Court of New South Wales, unreported, Young J, 25 September 1997)
Hexyl Pty Ltd v Construction Engineering (Aust) Pty Ltd [1983] 2 NSWLR 624
Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd (1998) NSW ConvR para 55-861
Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673
Quadling v Robinson (1976) 137 CLR 192
Setena Pty Ltd v Permanent Trustee Nominees (Canberra) Ltd (Supreme Court of New South Wales, unreported, McLelland J, 28 October 1986)
Tsaoucis v Gallipoli Memorial Club Limited (1998) NSW ConvR para 55-860DECISION: Proceedings dismissed
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONAUSTIN J
THURSDAY 27 JULY 2000
5096/98 - ROBERT FRANCIS PATRICK YOUNG V KENNETH JOHN LAMB & ORS
JUDGMENT
1 HIS HONOUR: The plaintiff is the registered proprietor of premises at Unit 15, Capital Coast Centre, Queen Street, Moruya. He granted the defendants a registered lease of the premises for three years commencing 1 November 1995, with an option to renew for a further period of three years. The lessees were the first and second defendants as joint tenants as to a one half share, and the third and fourth defendants as joint tenants as to the other half share. The four defendants conducted a business there as partners, trading under the name ‘Moruya Furniture and Bedding’.
2 The option clause, contained in a registered memorandum incorporated by reference into the lease, was in the following terms:
‘43.(a) The Lessor hereby offers a renewal of this Lease to the Lessee on the terms specified in this clause which the Lessee may accept strictly in accordance with the provisions contained in this clause, otherwise this offer shall lapse.
(b) This offer and the option shall bind the Lessor and the Lessor's successors and assigns being the owners for the time being of the Land.
(c) This offer may be accepted by the Lessee or by the Lessee's successors and assigns being the Lessee for the time being of the Demised Premises but if there are two or more people holding as Lessees then this offer shall not be capable of being accepted by less than all of the Lessees for the time being.
(d) The Lessee may only accept this offer and exercise the option if:-
(i) the Lessee shall have punctually paid rent and observed the covenants contained in this Lease throughout the lease term; and
(ii) the Lessee shall have served on the Lessor notice in writing of exercise of acceptance of this offer and of exercise of this option during a period commencing six (6) calendar months and ending three (3) calendar months before the date of expiry of the term of this Lease.
(e) The renewal which the Lessee may accept under this clause shall be for renewal of this Lease for the further term referred to in Item 4 of Schedule Two from the day after the date of expiry of the term of this Lease and containing identical covenants to the covenants contained in this Lease subject to the following alterations:-
(i) this clause shall be deleted and there shall be no further right to the Lessee to have the Lease renewed beyond the term referred to in Item 4 of Schedule Two;
(ii) the rental payable under any Lease renewed pursuant to this clause shall be such rent as is agreed between the parties as being the current market rent for the Premises at the time of renewal provided that if the parties are unable to agree on the rent within fourteen (14) days of the date of the Lessee's notice of acceptance under clause (d) (ii), then the rent shall be calculated by valuation in accordance with the provisions of clauses (b) (ii) - (g) of clause 5 hereof.’
3 Clause 49 of the memorandum incorporated into the lease stated that every notice required or authorised to be served under the terms of the lease may be served in any of the methods specified in s 170 of the Conveyancing Act 1919 (NSW). Section 170 relevantly authorises service by personal delivery or by post to the last known residential or business address of the person to be served.
4 When the lease was negotiated in 1995, the plaintiff dealt (through an agent) with the third and fourth defendants. The fourth defendant wrote to the plaintiff's agent on 20 October 1995, agreeing to a proposed rent and asking for documents to be sent to a named solicitor. In 1997 the plaintiff replaced his previous managing agent for the premises with Barry Dedrick Real Estate Pty Ltd (‘Dedricks’). By letter dated 4 July 1997, Dedricks informed the defendants that they had been appointed managing agent of the premises and confirmed arrangements for the payment of rent. Each month thereafter, the fourth defendant came to the offices of Dedricks to pay the rent, and therefore she was personally known to the staff of Dedricks including Janet Donnelly, who handled the work as managing agent for the plaintiff's premises. Ms Donnelly dealt only with the fourth defendant, except on one occasion when she dealt with the third defendant in relation to a break in to part of the premises.
5 Prior to the beginning of the option period, the plaintiff instructed Dedricks to obtain a commitment from the lessees to exercise the option. He says it was extremely important to him that they would continue as lessees. Before the exercise period for the option to renew the lease, Dedricks contacted the defendants by letter dated 21 April 1998 reminding them of the option and inviting them to discuss it.
6 During the period from April to July 1998 there were some conversations between the fourth defendant and Ms Donnelly. None of the conversations is of any assistance to the Court. It seems that on one occasion the fourth defendant responded to the question whether the lessees would be renewing the lease by saying that they did not have to respond until a later date.
7 The principal shareholder of Dedricks, David Furzer, gave evidence of a telephone conversation between the fourth defendant and himself. The fourth defendant said in evidence that she could not recall any such conversation. On balance, given the firmness of Mr Furzer's evidence, it seems to me likely that the conversation occurred as he said it did, although it is difficult to say when it occurred.
8 According to his evidence, the conversation was as follows:
Furzer: ‘Hello my name is David Furzer I don’t think you know me Di [this is a reference to the fourth defendant]. Will you be taking up the option on your unit’.
Fourth defendant: ‘Yes, isn’t Bob happy with us’.
Furzer: ‘Not at all, will you put that in writing’.
Fourth defendant: ‘Yes I will’.
9 It is impossible to infer from the conversation that the lessees had reached any concluded intention to exercise the option, and there is no suggestion that either Dedricks or the plaintiff relied on the conversation to their detriment. Mr Furzer’s question could well have been about the lessees’ intention for the future rather than whether they had reached any decision.
10 In about May 1998 the fourth defendant was approached by a Mr Downey, who had alternative premises available for lease. She commenced negotiations with him, and eventually the defendants took a lease of Mr Downey's premises. But the negotiations were not completed until mid-September 1998.
11 Although he was probably not aware of the negotiations with Mr Downey, the plaintiff continued to be concerned about the position of the defendants during July 1998, given in particular that the option period would expire at the end of July. He sent a facsimile to Janet Donnelly on 22 July 1998, expressing concern that the defendants might not proceed and making suggestions for a substitute lessee.
12 On 22 July 1998 the following handwritten facsimile letter was sent by the fourth defendant to Dedricks:
‘22nd July 98,
Dedrick Moruya Real Estate
William Street
Moruya
Dear Sir,
Re Commercial Lease
Unit 15 Capital Coast Centre
We intend to exercise the option to renew our lease on the above premises. With the current economic condition of Moruya we would expect little or no increase.Yours faithfully
[signed] Diane Newell
D Newell
Moruya Furniture & Bedding
80 Queen Street,
Moruya 2537’13 The evidence of the first three defendants, which I accept, is that none of them expressly authorised the fourth defendant to prepare and transmit this letter, or to exercise the option to renew the lease on their behalf. It appears that none of them was aware of the letter until well after it had been sent.
14 On 28 August 1998 the plaintiff's solicitors sent the defendants' solicitor a draft lease for a term of three years from 1 November 1998. By letter dated 21 September 1998 the defendants' solicitor informed the plaintiff's solicitors that his clients would not be proceeding with the new lease. The plaintiff's solicitors replied by letter of 22 September 1998, asserting that the defendants had given notice of exercise of the option by the letter of 22 July 1998, and claiming that an enforceable lease was therefore in existence, subject to a determination of rental.
15 After further correspondence, the defendants' solicitor wrote to the plaintiff's solicitors asserting that the facsimile letter of 22 July 1998 did not constitute a binding notice of exercise of option to renew the lease, as it was ‘couched in equivocal terms, but more importantly, it was not signed by all the Lessees’, and accordingly the letter did not give rise to a new lease ‘irrespective of the question of the determination of rental’. On 30 October 1998 the plaintiff's solicitors wrote to the defendants' solicitor purporting to put the defendants on notice that they had repudiated the agreement to renew the lease. The letter stated that the plaintiff accepted the repudiation and reserved his right to commence proceedings for damages arising from the repudiation. The defendants vacated the premises on 30 November 1998.
16 The premises remained vacant until the time of the hearing. The plaintiff adduced evidence as to his attempts, and the attempts of Dedricks, to find a new tenant. That evidence would need to be assessed if the plaintiff had established a basis for recovery of damages. On the view that I take of the matter, it is unnecessary to do so.
17 By a summons filed on 22 December 1998, and subsequently a statement of claim filed on 16 August 1999 and later amended, the plaintiff seeks a declaration that by the letter of 22 July 1998 the defendants validly exercised the option to renew the lease. The plaintiff also seeks a declaration that the defendants have repudiated the agreement to renew the lease constituted by the exercise of the option, and an order that the defendants pay the plaintiff damages arising from the repudiation.
18 The proceedings raise a straightforward question, namely whether the letter of 22 July 1998 was or was not a valid notice of exercise of the option to renew the lease. It is not disputed that the letter was given within the time limits prescribed by the lease. But there are six questions about the efficacy of the letter:19 I have decided to answer questions (a), (c), (e) and (f) in favour of the defendants, for the reasons set out below. The consequence is that the plaintiff must fail on all substantive grounds.
(a) was the letter, upon its proper construction, an acceptance of the lessor's offer to renew the lease contained in clause 43?(b) did the letter give rise to a contract to renew the lease, notwithstanding the lack of any agreement as to rental?
(c) was the letter served ‘on the Lessor’ as required by clause 43 (d) (ii)?
(d) did the letter comply with clause 43 although it was signed only by one of the four lessees?
(e) did the fourth defendant have the authority (express, implied or ostensible) of the other three defendants to sign the letter?
(f) did the fourth defendant exercise authority as a partner of the other three defendants, in signing the letter?
(a) Was the letter, upon its proper construction, an acceptance of the lessor's offer to renew the lease contained in clause 43?
20 The letter of 22 July 1998 expressed an intention to exercise the option and an expectation that there would be little or no increase in rent. The letter was handwritten and was not cast in formal terms, and did not refer to or use the language of the option clause. On the face of it, it appears to be an expression of an intention to take a binding step in future, not itself binding, and capable of being resiled from. However, the plaintiff urged me to construe the letter as an exercise of the option, having regard to the case law and the circumstances surrounding the transmission of the letter.
21 There is a surprisingly rich case law on the construction of instruments which are alleged to exercise options - surprisingly, because it is acknowledged that each case depends ultimately on its own facts and proper construction of the particular document which is in dispute: Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673, 677 per Kirby P. The primary rule, according to Dixon CJ in Ballasv Theophilos (No 2) (1958) 98 CLR 193, 196, is that the purported exercise of the option must be a clear and unequivocal election to acquire the renewed lease on the terms of the option.
22 In Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) NSW ConvR para 55-862 Santow J identified in older cases a requirement for ‘strict compliance with the requirements set out’ for the exercise of the option (at 56,760). He suggested that in more recent cases, there have been signs of relaxation of ‘this strict approach’, by reference to the principles of construction of commercial documents. I respectfully agree with Santow J, although in my view the approach to construction set out by Dixon CJ in Ballas v Theophilos (No.2) is not an example of the ‘strict approach’ which his Honour had in mind. It is surely the case now, as ever, that if an option clause sets out a procedure for exercise requiring (for example) that a notice in writing be given to the lessor rather than anyone else, stating expressly that the option may be exercised only by following the procedure set in the clause, there will be no valid exercise of the option if there is an egregious failure to follow the procedure.
23 On ordinary principles of construction, the author's clarity of expression is to be assessed by asking what anybody who received the document would fairly have understood to be the meaning of it, in the circumstances of its receipt: Ballasv Theophilos (No 2), 196; Carter v Hyde (1923) 33 CLR 115, 126; Prudential Assurance case, 677 per Kirby P, 681 per Samuels JA. It is not necessary for the author of the document to use any particular form of words, such as the language of the option clause, and an effective exercise of an option may even mis-state the terms of the option which it purports to exercise: Quadling v Robinson (1976) 137 CLR 192, 201. In most of the reported cases the lessee seeks to assert the exercise of the option against a recalcitrant lessor, but in principle the fact that the lessor makes the assertion against the lessee (as in this case) does not detract from the application of the case law.
24 In the Prudential Assurance case, as in the present case, the option clause provided that if the option was exercised, the parties would negotiate the rent for the new term, subject to a valuation procedure if they failed to agree. The lessee wrote to the lessor saying:
‘As per clause 3.02 of our lease, I now give official notice that we intend to exercise our option re the above store. This option is of course subject to satisfactory terms and conditions being negotiated.’
25 The Court of Appeal were not troubled by the use of the words ‘we intend to’. Indeed, counsel for the lessor conceded that the first sentence of the letter would be a valid exercise of the option, were it not for the second sentence. The Court concentrated on the second sentence, which expressed the matter to be ‘subject to’ the negotiation of ‘terms and conditions’ which were to be ‘satisfactory’. However, reading the letter as a whole, the Court was persuaded that it amounted to a valid exercise of the option to renew the lease. Their Honours emphasised that the letter referred to a specific clause of the lease, and purported to be ‘official notice’, and they noted that under the terms of the option clause, negotiations would be needed to arrive at the rent. Kirby P also took into account the circumstances in which the letter was sent, involving a large property owner who attempted without legal advice to do something ‘official’ under the hand of its managing director in relation to a specified option clause.
26 In my opinion both the terms of the letter in the present case, and the circumstances surrounding its transmission, were very different from the ones considered in the Prudential Assurance case. In the present case there was no reference to any clause of the lease, nor any indication in the letter that the particular provisions of the option clause had been considered. More importantly, nothing in the letter suggested that it was intended to be an ‘official notice’ with immediate operative effect. It was, in its terms, nothing more than a statement of intention to take an operative step in future.
27 The plaintiff also drew my attention to some observations by Smith J in Ballas v Theophilos [1958] VR 576, 581. Smith J's judgment was upheld on appeal to the High Court on other grounds. His Honour said:
‘A statement that the option holder wishes, or desires, or intends, or agrees, to purchase under the option, or to exercise the option, will ordinarily be sufficient, if it be unqualified … But this is only so because such a statement sufficiently conveys, by implication, the meaning that the option holder has made an unqualified election to be thenceforth entitled to the rights, and bound by the obligations, of a purchaser upon the terms set out in the option agreement.’
28 I entirely agree, but the passage does not assist the plaintiff. Smith J makes it clear that the task of the Court is to construe the particular document before it, as a whole, without unduly emphasising particular words to the exclusion of others. The question is, as Dixon CJ said in the passage cited above, whether the option holder has made an unqualified election to take up the rights and obligations of the lessee under a renewed term. In my opinion the letter of 22 July 1998 does not amount to an unqualified election in this sense.
29 In my view the surrounding circumstances as at 22 July 1998 support this conclusion. The fourth defendant had been approached by Ms Donnelly for an indication of the lessees' intention. She indicated to Mr Furzer that the lessees intended to exercise the option, and he urged her to ‘put it in writing’. She was therefore under pressure to give Dedricks some kind of written document. At the same time, she was negotiating with Mr Downey but those negotiations had not reached finality. A rational response to this dilemma would be to do what, in my opinion, she in fact did - to endeavour to ‘hold’ her position with the plaintiff by giving Dedricks a written but non-binding statement of intention to renew, while proceeding in all haste to establish whether alternative premises would be available.
30 For the most part, the defendants' evidence is consistent with this construction of the letter of 22 July. However, the fourth defendant gave some evidence at the hearing which was puzzling. Her evidence was as follows:31 The defendants objected at the hearing that this evidence was inadmissible. With some hesitation, I allowed the evidence in. Upon reflection, however, it seems to me that I was mistaken to do so. The admissibility of parol evidence in aid of the construction of a contract was clearly explained by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 347ff. His Honour said (at 347):
‘Q. Now, you also knew that if you didn't do something by the end of July then you were at risk of losing the opportunity to renew the lease, correct?
A. Yes. ….
Q. Therefore it was important to you to at least keep your options open in relation to the renewal of the lease with Mr Young?
A. Yes. ….
Q. That left you with a difficulty I suggest to you because you had not sewn up any deal with Mr Downey prior to the time that you were required to exercise the option, correct?
A. Correct. ….
Q. You were faced with a situation where the time in which you could exercise the option under your lease with Mr Young could expire and that your negotiations with Mr Downey could fall over?
A. Yes.
Q. Therefore when the matter was raised directly with you, you wanted to do something in relation to the exercise of the option in order that the very least keep your options open?
A. Yes.
Q. Because, can I suggest to you, if your negotiations with Mr Downey had fallen through you wanted to be in a position to say that you had exercised your option with Mr Young?
A. Yes.’32 His Honour then considered the extent to which its extrinsic evidence may be resorted to for the purpose of interpreting a written instrument. After reviewing the authorities, his Honour reached the following conclusions (at 352):
‘The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument…’.
‘The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. …It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of contract. To the extent to which they have this tendency they are admissible. But insofar as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations or the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.’
33 The evidence, outlined above, of the background and surrounding circumstances of the letter of 22 July 1998 was admissible on these principles, given that the letter was ambiguous (see also Drinkwater v Caddyrack Pty Ltd (Supreme Court of New South Wales, unreported, Young J, 25 September 1997)). But the oral evidence of the fourth defendant that her intention in writing the letter of 22 July 1998 was to be able to say, if the negotiations with Mr Downey fell over, that she had exercised the option, is direct evidence of the intention of the author of the document which should not have been admitted into evidence.
34 I have decided, however, that even if that part of the fourth defendant's oral evidence set out above were to be treated as wholly admissible, that evidence would not alter my conclusions. In my opinion, the fourth defendant did not appreciate the distinction between an intention to exercise the option in future, and an intention to take an operative and binding step immediately. The answer to the cross-examiner’s question should therefore not be construed as an assertion that she intended the letter to have an immediately operative though conditional effect. She was merely saying that she wanted to preserve the availability of the plaintiff's premises in the event that her alternative negotiations broke down, and in that event to rely on the letter as evidence of the defendants' intention to move towards a new lease. I reach this conclusion upon the basis of my observation of the witness and in light of the answers she gave in re-examination.
35 The plaintiff drew attention to the form of notice of exercise of option contained in the New South Wales Conveyancing Law and Practice (CCH), the opening words of which are ‘I [We] give you notice of my [our] intention to exercise the option …’. This implies, according to the plaintiff, that the authors of this publication believe that the language of intention is appropriate for a valid exercise of the option. It seems to me that the CCH form is significantly different from the letter which I have to consider. The CCH form is headed ‘Notice Exercising Option for Renewal’, and it sets out specific particulars of the demised premises and other matters, in a relatively formal way. In my opinion a document which wholly follows the CCH precedent is likely to be a valid exercise of the option. I shall leave it to the authors to consider whether in future editions, the matter should be put beyond debate by removing language of intention from the form.
36 My conclusion, therefore, is that the letter of 22 July 1998 was not, on its proper construction, a notice in writing of acceptance of the offer contained in clause 43, and nor a notice exercising the option to renew the lease. That is my principal ground for decision. However, in case I am wrong on the principal ground, I shall deal with the other matters raised, which in my view provide some additional grounds for denying the relief sought by the plaintiff.37 Clause 43 envisaged that the parties would negotiate and agree upon the rent for the renewed term, but if they did not agree within 14 days after the date of the notice of exercise, then the rent would be calculated by a process of valuation stipulated in the lease. It is clear that if the option clause is in that form, a notice of exercise of the option is valid and effective even if it does not specify a particular rent, or refers to or invites negotiation as to the rent. If authority is needed for that basic proposition, it may be found in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; and the Bava Holdings case, supra. (The position is different, of course, if the option clause requires as a condition precedent that the rent be fixed: see the Booker Industries case.) The problem in the present case was not the absence of any specificity as to rent, but the absence of any intention that the letter of 22 July 1998 be a binding and operative exercise of the option.
(b) Did the letter give rise to a contract to renew the lease, notwithstanding the lack of any agreement as to rental?
(c) Was the letter served ‘on the Lessor’ as required by clause 43 (d) (ii)?
38 As I have said, Clause 43 (d) (ii) required the lessee to serve a notice in writing of exercise of the option ‘on the Lessor’. ‘Lessor’ was defined in clause 1 (b) to ‘mean and include’ legal personal representatives and successors in title, but the definition did not extend to agents. The plaintiff's counsel submitted, perhaps rather faintly, that Dedricks was the legal personal representative of the plaintiff because it was the plaintiff's managing agent, but that cannot be so. According to Butterworths Australian Legal Dictionary (1997), ‘legal personal representative’ means the executor of a will or the administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability, or the holder of an enduring power of attorney. Dedricks was none of these.
39 The definition of ‘Lessor’ uses the words ‘mean and include’. The plaintiff submitted, on the basis of the word ‘include’, that the procedure of service on the Lessor was not exclusive, and there would be adequate compliance if the notice was served on an agent for the lessor. I disagree, because the submission is inconsistent with the wording of Clauses 43(a) and 43(d)(ii), as well as the word ‘mean’ in the definition.
40 The plaintiff relied on Setena Pty Ltd v Permanent Trustee Nominees (Canberra) Ltd (Supreme Court of New South Wales, unreported, McLelland J, 28 October 1986). In that case it was held that service of a notice of exercise of option on the lessor’s managing agent was effective. However, in that case the lease required that the notice be served on ‘the Lessor’, and defined that expression to include the agents of the lessor. McLelland J expressly relied upon the extended definition, finding that there was no contrary intention in the option clause. There is no such extended definition in the present case and therefore no basis for applying his Honour's reasoning to this case.
41 The plaintiff also relied on Blackler v Felpure Pty Ltd (Supreme Court of New South Wales, unreported, Bryson J, 24 September 1999). But the same point is to be made about that case. There was a definition of ‘the lessor’ which included agents - indeed the managing agent was expressly mentioned.
42 Clause 43 (a) contains an offer by the lessor of a renewed term ‘which the Lessee may accept strictly accordance with the provisions contained in this clause, otherwise this offer shall lapse’. One of the provisions dealing with acceptance of the offer is Clause 43 (d) (ii), which expressly requires that a notice in writing be served on the Lessor (defined in the manner referred to above). The letter of 22 July 1998 was sent to Dedricks and was not served on the lessor in the manner required by Clause 49 and s 170 of the Conveyancing Act (cf the Gallipoli Memorial case, supra; Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd (1998) NSW ConvR para 55-861) . Therefore, even if the letter had purported to accept the offer of a renewed term (contrary to my holding), the acceptance was not strictly in accordance with the provisions of Clause 43
43 In my view the fourth defendant's failure to serve the letter on the plaintiff was a failure to comply with the exercise procedure in an essential way, having regard to the terms of Clause 45 (a), even though the letter eventually came to the notice of the plaintiff. Cases referred to by Santow J in the Bava Holdings case on the construction of time clauses are distinguishable. Therefore failure to serve the letter on the lessor would be a sufficient ground for denying the relief sought by the plaintiff, even if I had come to a different view on the basic question of construction.
44 In the Setena case McLelland J expressed the obiter view that:
‘the management of property leased to tenants would ordinarily embrace the receiving of a notice from a tenant exercising an option of renewal of his lease, and in my view a Managing Agent of such property would, in the absence of proof of some relevant limitation to his authority, be presumed to have authority to receive such a notice.’
45 In the Blackler case Bryson J said that he found McLelland J’s view persuasive. I respectfully agree. But that view acknowledges that the general authority of the managing agent may be subject to some relevant limitation, and in the present case it would be clearly inconsistent with clause 43 to permit the notice of exercise to be served on the managing agent.
46 I should add that the defendant sought to rely on ss 42 and 42AA of the Property Stock and Business Agents Act 1942 (NSW) and regulations made under it, to support a submission that Dedricks had not been properly appointed as the plaintiff's managing agent because there was no written agency agreement complying with that legislation. I regard this legislation as irrelevant to the issues before me. The sections merely preclude recovery of commissions, fees and expenses if the requirements are not satisfied. They do not purport to affect the agent’s authority to act on behalf of the principal.47 In Tsaoucis v Gallipoli Memorial Club Limited (1998) NSW ConvR para 55-860, Young J. said (at 56,733):
(d) Did the letter comply with clause 43 although it was signed only by one of the four lessees?
‘Ordinarily, where an option is granted to two people jointly, both must sign the exercise document.’
48 This raises the question whether, if one of two lessees has authorised the other to excise the option on behalf of both of them, the exercise document will be fatally flawed unless it is signed by both lessees. In my opinion there is no such principle. To treat Young J's observation as supporting such a principle is to take it out of context. His Honour supported the observation that I have quoted by citing his own judgment in Brennan v Kinjella Pty Ltd (1993) 6 BPR 13,168. In that case the option was granted to Mr and Mrs Brennan, but the purported notice of exercise commenced with the words ‘I Timothy Francis Brennan hereby exercise the option’. As Young J observed in the Gallipoli Memorial case, he had held in the Brennan case that on the proper construction of the document, the notice did not purport to be an exercise of the option by both grantees.
49 It is clear from his Honour's remarks in the Gallipoli Memorial case that if the document had purported to be a notice of exercise of the option by both grantees, and the grantee giving the notice had been validly authorised by the other grantee to do so, the option would have been validly exercised. In a case where the notice of exercise is given by one of several grantees, the important question is whether the grantee who gives the notice has been properly authorised by the others.
(e) Did the fourth defendant have the authority (express, implied or ostensible) of the other three defendants to sign the letter?
50 Clause 43 (c) of the memorandum stated that if there were two or more people holding as lessees, then the offer of renewal would not be capable of being accepted by fewer than all the lessees. Clause 43 (d) (ii) stated that the ‘Lessee’ could exercise the option only by serving a notice in writing on the lessor. The definition of ‘Lessee’ in clause 1 (a) had the effect that in clause 43 (d) (ii) the reference to ‘Lessee’ included each of the lessees.
51 Thus, there was clearly a requirement in the memorandum that the option be exercised by all four of the lessees in the present case, by notice in writing. However, upon their proper construction these provisions did not prevent an exercise of the option by one lessee on behalf of all of them. The stipulation (Clause 43 (c)) that the exercise must be by all of the lessees prevented some of the lessees from exercising the option to the exclusion of the others, but it did not prevent all of the lessees from exercising the option through the agency of one of them.
52 As Young J pointed out in the Gallipoli Memorial case (at 56,734), it is always possible to exercise an option by an agent, provided authorisation exists at the date of exercise of the option. That being so, the question in the present case is whether on 22 July 1998 the fourth defendant was in fact authorised to exercise the option on behalf of all of the defendants.
53 The plaintiff submits that the fourth defendant had the authority of the other three on two grounds: first, because they allowed her to deal with the plaintiff on their behalf in all matters relating to the lease; and secondly, because they were partners.
54 The first submission fails on the facts. The evidence shows that in 1995 the fourth defendant conducted some negotiations with the plaintiff, and agreed to the proposed rent on behalf of the defendants. But the lease was signed by all four defendants, and there is nothing in the evidence to indicate that the other three defendants authorised the fourth defendant to bind them to it.
55 After the lease was signed the fourth defendant dealt with the plaintiff's agent in relation to the payment of rent and other matters concerning the occupation of the premises under the lease. Again, however, that did not imply any authority on her part to bind them to such a major step as exercise of the option to renew.
56 I conclude that, unless the requisite authority arose from the defendants’ partnership, the fourth defendant did not have the authority of the other three defendants to exercise the option.57 The defendants conducted their business in the demised premises as partners, under the business name ‘Moruya Furniture and Bedding’, although there was no written partnership agreement. The plaintiff says that the fourth defendant had actual or at least ostensible authority to bind them to the exercise of the option by virtue of the partnership. He relies on ss 5 and 6 of the Partnership Act 1892 (NSW), which provide:
(f) Did the fourth defendant exercise authority as a partner of the other three defendants, in signing the letter?
‘5. Every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member, binds the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner.
6. An act or instrument relating to the business of the firm, and done or executed in the firm-name, or in any other manner, showing an intention to bind the firm by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners: Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments.’
58 In my opinion the partnership of the defendants, and specifically ss 5 and 6 of the Partnership Act, did not confer on the fourth defendant the authority to exercise the option on behalf of her partners. I accept that the plaintiff was told that the fourth defendant had no authority to exercise the option, and that he believed her to be the partner of the other three defendants, and that he did not otherwise know that she lacked authority.
59 However, s 5 is limited in a significant way. It states that each partner is an agent of the other partners for the purpose of the business of the partnership. The business of the partnership in the present case was the business of a furniture and bedding retailer. The lease of the premises in which the business was conducted provided one of basic prerequisites for the conduct of the business, but the making of the lease was not itself part of the business. Consequently the implied authority of the fourth defendant as a partner to bind the others to contracts made for the purpose of the business of the partnership did not extend to authorise her to bind them to the exercise of the option. Upon the same analysis, the transmission of the letter of 22 July 1998 (if, contrary to my view, it was a purported exercise of the option) was not an act ‘for carrying on in the usual way business of the kind carried on by the firm’. It follows that the letter was not transmitted by a ‘person thereto authorised’ for the purposes of s 6.
60 This conclusion is consistent with the authorities to which the plaintiff referred me. In Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1984) 155 CLR 541 the High Court pointed out that s 5 deals separately with the actual and ostensible authority of a partner, noting in each case that the section effectively states the common law and recognising that both limbs of the section are confined to authority to carry on the business of the partnership. Although an appeal was allowed against the judgment of Kearney J at first instance (Hexyl Pty Ltd v Construction Engineering (Aust) Pty Ltd [1983] 2 NSWLR 624), the High Court’s judgment is consistent with his Honour’s observation (at 630) that s 5 embraces cases where a partner enters into a contract for the purpose of and in the course of the partnership. In the Gallipoli Memorial case (at 56,734) Young J raised the possibility that authority to exercise an option to renew a lease may arise out of a partnership and s 5 of the Partnership Act. But his Honour merely remarked that ‘there may have been an argument’ to that effect, and he noted that the point was not argued before him.
Breach of warranty of authority
61 The plaintiff seeks to recover damages from the fourth defendant if I find against his claim that the letter of 22 July 1998 validly exercised the option to renew the lease. My principal ground for decision is that on its proper construction, the letter was not an exercise of the option, but merely a statement of future intention. That being so, the letter did not bind the defendants and did not purport to do so. I reject the plaintiff’s submission that the letter was at least a representation that the fourth defendant had authority to exercise the option in future.
62 According to McGregor on Damages (by Harvey McGregor, 16th ed, 1997, paragraph 1307)63 In my opinion judgment should be entered for the defendants on the plaintiff's amended statement of claim. My principal ground for reaching this conclusion is that the letter of 22 July 1998 was not, upon its proper construction, an exercise of the option to renew; and consequently, there was no express or implied warranty of authority to do so by the fourth defendant. My supplementary grounds are that if the letter was on its proper construction a purported exercise of the option, the exercise failed because the letter was not served on the lessor as required by the option clause; and further, the fourth defendant was not authorised by the other defendants to exercise the option at that time.
‘One who professes to act as agent for a principal is taken to warrant the existence of his authority in consideration of the representee acting in a matter of business on the face of it, and will be liable for breach of contract if that authority does not exist.’
Conclusions
But in this case there was no representation or warranty by the fourth defendant of the authority to accept the offer and exercise the option. The claim based on breach of warranty of authority must therefore fail.
* * * * * * * * *
0
7
3