Reading Entertainment Australia Pty Ltd v AMP Capital Shopping Centres Pty Ltd
[2017] NZHC 2337
•31 October 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-Ā-TARA ROHE
CIV-2017-485-440 [2017] NZHC 2337
BETWEEN READING ENTERTAINMENT
AUSTRALIA PTY LTD First Plaintiff
AND
READING NEW ZEALAND LIMITED Second Plaintiff
AND
AMP CAPITAL SHOPPING CENTRES PTY LIMITED
First Defendant
AND
AMP CAPITAL BAYFAIR PTY LIMITED
Second Defendant
AND
TEL PROPERTY NOMINEES LIMITED Third Defendant
Hearing: 25 September 2017 Appearances:
P J Radich QC and S A Hawkins for the Plaintiffs
S C Price and R A Donald for the DefendantsJudgment:
31 October 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] This is a case about whether negotiations for the lease of space in a shopping centre development resulted in obligations binding on the owners of the shopping centre, notwithstanding the termination of the negotiations before any agreement to
lease was signed.
READING ENTERTAINMENT AUSTRALIA PTY LTD v AMP CAPITAL SHOPPING CENTRES PTY LTD [2017] NZHC 2337 [31 October 2017]
[2] The plaintiffs (collectively, “Readings”) operate cinema complexes throughout New Zealand and Australia. The second and third defendants (respectively “AMP Bayfair” and “Tel Property”) are the owners of the Bayfair Shopping Centre in Tauranga (the shopping centre). In this judgment, I will refer to AMP Bayfair and Tel Property collectively as “the owners”.
[3] The first defendant (AMP Shopping) manages the shopping centre on behalf of the owners.
[4] Readings issued this proceeding in May 2017. In it, they ask for a declaration that they had an enforceable agreement with the owners to lease space in the shopping centre for the establishment of a cinema complex for a term of 15 years plus a renewal period of a further 10 years. They say that the agreement to lease was concluded on 21 June 2016, when a Heads of Agreement document they had submitted to AMP Shopping in December 2015 was, with some amendments they had proposed, accepted and agreed by AMP Shopping on behalf of the owners.
[5] Readings say that the owners wrongfully refused to complete the transaction.
[6] In an alternative cause of action, Readings pleads that it would be unconscionable for the owners to be permitted to resile from the Heads of Agreement as amended, and that the owners are estopped from so doing.
[7] In the alternative to their claim for the declaration referred to above, Readings seek such other form of declaratory relief as the Court might deem appropriate, and an inquiry into contractual damages or equitable compensation.
[8] Readings considered that the defendants had no defence to its claims, and on that basis they applied for summary judgment on liability.
[9] The defendants filed a notice of opposition, supported by a number of affidavits. They contended that no agreement was ever concluded for Readings to take a lease of any space in the shopping centre, and that Readings’ claims against
them have no prospect of success. They filed their own application for summary judgment, and/or for an order striking out Readings’ claims.
[10] On consideration of the affidavits filed for the defendants, Readings accepted that their claims were not suitable for determination under the summary judgment procedure. They abandoned their summary judgment application.
[11] The defendants did not follow suit. They have maintained their contention that Readings’ claims have no prospect of success, and that summary judgment should be entered in favour of the defendants accordingly.
[12] I now give judgment on the defendants’ application for summary judgment
and/or strike-out of the claims against them.
Background
[13] In mid-late 2015, the owners were planning an expansion of the shopping centre. There would be additional retail space, including a supermarket and a cinema complex.
[14] AMP Shopping sent plans of the proposed development to Readings on 24
August 2015. Their covering email advised that one of the “key actions” over the ensuring few months would be to agree a Heads of Agreement with a preferred cinema operator. There were said to be four operators who had shown a strong interest, including Readings, and AMP Shopping was considering running a Request For Proposal (RFP) process to evaluate the competing interest.
[15] AMP Shopping wrote to the Readings on 24 November 2015 (the Request for Proposal), describing the planned expansion of the shopping centre and inviting Readings to submit a proposal to take a lease of a “cinema shell”, comprising approximately 3,200 square metres (the premises). AMP Shopping advised that the owners were looking to select a preferred partner with which to develop the cinema concept. Readings were invited to submit a business plan and proposed commercial terms, including how the costs of the necessary fit-out work would be shared as between the owners and Readings. The Request for Proposal stated that key terms
would initially be encapsulated in a Heads of Agreement, to be completed in the first quarter of 2016. An Agreement to Lease the premises was targeted for completion in mid-2016.
[16] Readings submitted a proposal to AMP Shopping on 7 December 2015. They set out detailed commercial proposals for the cinema complex, and attached with their letter a form of Heads of Agreement (the original HOA) relating to the proposals. The original HOA was in the form of an offer to lease the premises, and it was signed by Mr Wayne Smith, Readings’ managing director.
[17] The original HOA contained the following paragraph 7:
7 CONDITIONS PRECEDENT:
Unless waived by the Lessee [i.e. Readings], the “Conditions Precedents” requiring satisfaction prior to the occurrence of the “Development Commencement Date” are as follows:
(a) The execution of an Agreement for Lease and Lease on terms satisfactory to the Lessor [i.e. the owners] and the Lessee;
(b) The Lessor obtaining all licences, rights, permits, approvals and authorities required to permit the Lessor to lawfully implement and complete the Lessor’s Works and the Project on terms and conditions acceptable to the Lessor, acting reasonably;
(c) The Lessor obtaining all town planning approvals and licences required to permit the Lessee to lawfully carry out the Permitted Use (defined below) from the Premises on terms and conditions acceptable to the Lessee and the Lessor (both acting reasonably);
(d) Obtaining all other statutory approvals, if any;
(e) This Heads of Agreement being approved by the Lessor’s Board of
Directors; and
(f) This Heads of Agreement being approved by the Lessee’s Board of
Directors.
The “Development Commencement Date” is the date when the last of the
Conditions Precedents has been satisfied or waived.
[18] At paragraph 32, the original HOA provided:
32 DOCUMENTATION
The full Agreement for Lease and the Lease to be entered into between the
Lessor and the Lessee will incorporate these terms and otherwise be in
accordance with a standard document agreed to by the parties acting reasonably.
[19] The original HOA concluded with the following paragraph:
The offer contained in this Heads of Agreement is, subject to the conditions of the Heads of Agreement, offered by and on behalf of the Lessee.
[20] AMP Shopping did not immediately respond to the original HOA, and on 4
March 2016 Mr Smith wrote to Mr Ivan Bartley, a development manager employed by AMP Capital Investors (New Zealand) Limited (AMPCI), expressing concern at AMP Shopping’s failure to respond. He said that he was concerned that Readings were being played off against another cinema operator, who was the more favoured option. He asked AMP Shopping to nominate its preferred operator, so that Readings could “turn [their] thoughts to the commerce”.
[21] Mr Smith was given some assurances that the owners were motivated to conclude a deal (not necessarily with Readings), in the course of a telephone conversation between Mr Bartley and Mr Smith on 10 March 2016. Mr Bartley’s note of the conversation records that Readings were “ahead by a whisker” as the owners’ preferred operator.
[22] Thereafter, negotiations between Readings and AMP Shopping proceeded into mid-2016. Those primarily involved in the negotiations were Mr Smith for Readings, and Mr Bartley. Mr David Cosgrove, AMP Capital Investors’ divisional development manager, also had some involvement in the negotiations.
[23] Readings reviewed the proposals made in the original HOA. Mr Smith sent an email to Mr Bartley on 2 May 2016, advising that Readings were willing to “upgrade” certain aspects of the original HOA, including the percentage rent formula (the original HOA had proposed the higher of base rent or a stated percentage of gross sales).
[24] Mr Cosgrove first spoke to Mr Smith about Readings’ proposal on 10 May
2016, in the course of a telephone conference call in which Mr Bartley also participated. At that stage, Mr Cosgrove and Mr Bartley were endeavouring to
improve the terms which Readings had put forward in the original HOA and in subsequent correspondence. In particular, Mr Cosgrove and Mr Bartley were looking for Readings to accept increased occupancy costs and a longer term for the guarantee Readings had offered from their parent company. Mr Cosgrove also referred to discussions about Readings’ board approval processes, and the timing for approval of the “headline commercial terms”.
[25] Mr Bartley wrote to Mr Smith on 10 May 2016, setting out the owners’ position on Readings’ “Guarantee and Security” provisions in the original HOA, and the amount to be paid by Readings for operating expenses (opex). Mr Bartley noted that he understood it would take between two and four weeks for Readings to obtain their board’s approval.
[26] Mr Bartley concluded his 10 May 2016 email by saying:
Before we select our final preferred cinema partner, we need agreement on [the guarantor and opex issues]. Can you please confirm if you are able to enter into an HOA on this basis and/or whether you are prepared to recommend these terms to your Board for approval?
[27] On 20 May 2016 Mr Bartley wrote to Mr Smith, advising:
We have received endorsement from [the owners] to proceed with negotiation of a conditional ATL [i.e. Agreement to Lease] on the basis that Reading confirms its Board approval to the improved terms outlined in your email of 10 May 2016 … Once you have confirmed approval, we will arrange for the circulation of ATL documentation.
[28] Mr Smith’s email of 10 May 2016 was not produced in evidence.
[29] Mr Smith replied to Mr Bartley the same day, advising that the next Readings’ board meeting was scheduled for 2 June 2016. He confirmed that he would be submitting to his board the original HOA, with amendments (detailed in Mr Smith’s email) relating to the Guarantee and Security clause, a revised cap on opex for which Readings would be liable, and a revised percentage rent provision (together, “the amended HOA”). Mr Bartley responded by email the same day, noting that the three additional items “look[ed] correct”.
[30] On 17 June 2016 Mr Smith wrote to Mr Bartley advising that Readings’ senior management committee had resolved to recommend to their board moving forward with the Bayfair project. Mr Smith then said:
On that basis, it is now appropriate to issue the Agreement to Lease and Lease documentation at your earliest convenience so that we may conclude that part of the transaction and thereby eliminating one further condition precedent.
[31] On 21 June 2016 Mr Bartley wrote to Mr Smith in the following terms:
Thank you for your letter dated 17 June 2016 confirming that Reading’s Senior Management Committee has resolved to recommend to its Board to move forward with the Bayfair project.
On the basis of that confirmation, I have now instructed solicitors BSA Law to prepare an Agreement to Lease and Lease documentation reflecting the terms of the Bayfair Heads of Agreement supplied by Reading and dated
7 December 2015. In addition, the lease documentation will reflect those further terms that have been amended and discussed via email between you
and me. For clarity those amended terms are …
[32] This is the letter on which Readings rely in support of their contention that a binding agreement was reached. For convenience, I will refer to it in this judgment as “the June letter”.
[33] In an email sent with the June letter, Mr Bartley said: “Please find attached confirmation that we’re progressing with the documentation on the terms discussed.”
[34] On 2 July 2016, Reading International Inc’s CEO, Ellen Cotter, travelled from Los Angeles to Tauranga to view the shopping centre. Mr Smith said in his affidavit that Ms Cotter supported his recommendation to Reading International’s board that approval of the amended HOA and the planned fit-out investment, as negotiated, was appropriate. In his affidavit, Mr Smith said that, following that visit, “the negotiations of [the amended HOA] were concluded.”
[35] In a telephone conversation on 4 August 2016 Mr Bartley and Mr Cosgrove told Mr Smith that an anticipated deal with the proposed supermarket operator had not been concluded, and that that had had a big impact on both the development plan and the programme. According to Mr Bartley’s note of the conversation, the owners had challenged AMP Shopping to revisit the returns on the expansion project. The
owners had asked for “superior returns”, which would require Mr Bartley and Mr
Cosgrove to look at either increased income from the project or lower costs.
[36] Mr Bartley’s evidence was that Mr Smith told Mr Cosgrove and Mr Bartley that, based on what they had told him, Readings would probably walk away from the Bayfair development, as it would not have confidence in the feasibility of the project and there was too much risk. However, a Readings board meeting was scheduled for the following morning “to formalise approval”, and Mr Smith said he would present the amended HOA to Readings’ board as drafted.
[37] Readings’ board approved the amended HOA on 5 August 2016. Mr Smith passed that fact on to Messrs Bartley and Cosgrove by email dated 5 August 2016.
[38] According to Mr Smith, there was an apparent “cooling” by AMP Shopping
on the deal at about this time. Mr Bartley sent Mr Smith an email on 10 August
2016 apologising for the slow response, saying:
… we are currently deep in negotiations trying to close out the issues we briefly discussed last week regarding [a named supermarket operator] … In addition to [the negotiations with the supermarket operator], we are still working on how to close the commercial gap with respect to the project feasibility – this too is very tough in light of the current and forecast construction market in [New Zealand]. We will be in touch as soon as we have a landing on the above.
[39] Mr Smith replied saying “let’s get the AFL [i.e. the Agreement For Lease]
done and signed so it’s behind us please.”
[40] Mr Bartley and Mr Smith spoke again on the telephone on 23 August 2016. Mr Bartley told Mr Smith that AMP Shopping needed details about the parent company guarantee proposed by Readings. Mr Bartley described that as important information that was required before any deal could be finalised.
[41] On 25 August 2016 Mr Bartley sent an email to Mr Smith advising him that AMP Shopping and the owners had an issue with the project yield, an issue which had been discussed previously and had not changed. Mr Bartley advised that he had tried to get the terms with Reading improved “in an effort to get us closer to the
required commercial metrics for the development”. He acknowledged that Mr Smith had been consistent with respect to Readings’ position, but went on to say “that’s not to say I won’t be asked to try again.”
[42] It appears that Mr Smith was not impressed with that response. He sent an email to Mr Bartley the same morning, saying that he was getting the “uneasy sense” that the deal was going to “turn bad or be renegotiated on some new test” put up by AMP. Mr Smith said that once Readings got a sense the project was moving forward, and “we have a suitable document in play between us”, then, as part of the exchange, suitable disclosures and letters of support from Reading’s bankers would be forthcoming. Mr Smith went on to emphasise that Reading International Inc is a substantial corporation, and that Readings had been a tenant in one of AMP’s centres for well over a decade, with the same parent company guarantee in place.
[43] On 17 October 2016 Mr Smith asked for an update on the status of the shopping centre expansion project. Mr Smith noted that it was “well into October”, and that no lease documents had arrived.
[44] Mr Bartley responded on 18 October 2016, noting that the projected return/profitability of the project was still short of what the owners would be likely to accept.
[45] On 17 February 2017 Mr Smith, Mr Bartley, and Mr Cosgrove held a telephone conference, in the course of which Mr Cosgrove advised that the Bayfair cinema deal had been given to one of Readings’ competitors. Mr Smith advised that Readings would be instructing their solicitors regarding what was viewed as a repudiation of the amended HOA.
[46] Readings’ solicitors wrote to AMP Shopping on 22 February 2017. They referred to the original HOA as an offer, which was said to have been accepted by the owners (with the amendments incorporated in the amended HOA) by the June letter. The solicitors asserted that there was “clear evidence” that the parties intended that the amended HOA was to constitute a binding contract between them, and that the owners had repudiated that agreement. Readings’ solicitors indicated
that Readings would, if necessary, issue a Court proceeding based on breach of contract or equitable estoppel.
[47] The defendants’ solicitors replied by letter dated 10 March 2017. They rejected the assertion that a binding contract existed between the parties.
[48] Evidence has been provided by both AMP Bayfair and Tel Property supporting the defendants’ opposition. Mr Conrad Sinclair, a director of AMP Bayfair, and Mr Brent Buchanan of Fisher Funds (who represent Tel Property’s interest in the shopping centre) both say that the companies they respectively represented never gave any authority to AMP Shopping, AMPCI, Mr Cosgrove or Mr Bartley to enter into an HOA or lease on their behalf with Readings. Mr Buchanan confirmed that Readings’ proposal did not go to Tel Property or its directors for approval, and Mr Sinclair gave similar evidence for AMP Bayfair.
[49] Readings did not file any reply affidavits challenging the evidence given by
Messrs Bartley, Cosgrove, Sinclair and Buchanan.
Defendants’ applications for summary judgment – legal principles
[50] Rule 12.2(2) of the High Court Rules provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
…
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[51] In the context of summary judgment, the word “satisfies” as used in r 12.2(2) means that the Court must be confident, sure, convinced, or persuaded to the point of belief. The Court must not be left with any real doubt or uncertainty.1 Summary judgment should only be granted where the defendant has a clear answer to the plaintiff’s claims which cannot be contradicted,2 and summary judgment should not
be granted where there is a dispute as to credibility. Questions of credibility can only be adequately determined where there is an opportunity to test evidence by cross-examination.3
[52] In Westpac Banking Corp v M M Kembla New Zealand Ltd, the Court of Appeal held that a defendant seeking summary judgment has the onus of proving on the balance of probabilities that the plaintiff ’s claims cannot succeed.4 It is not enough for a defendant to show that there are weaknesses in the plaintiff’s case, and it is not appropriate to decide by summary procedure the sufficiency of a plaintiff’s claim except in clear cases. Otherwise, the defendant would be able to force on the
plaintiff’s case before completion of discovery and other interlocutory steps and the assembling of the plaintiff’s evidence. Elias CJ, delivering the judgment of the Court of Appeal, said:5
… It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. … The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[53] The Court of Appeal also made it clear in Westpac Banking Corp v M M Kembla New Zealand Ltd that the Court may refuse summary judgment to a defendant on the ground that an amendment to the plaintiff’s statement of claim, which the plaintiff was prepared to make, raised a cause of action on which the Court could not be satisfied the plaintiff would not succeed.6
Defendants’ strike-out applications – legal principles
[54] Rule 15.1 of the High Court Rules provides that the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, or case appropriate to the nature of a pleading, or is likely to cause prejudice or delay.
3 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR 12.2.03].
4 Westpac Banking Corp v M M Kembla New Zealand Ltd, above n 2, at [61].
5 At [64].
6 At [66].
[55] The following principles have been established by the Supreme Court:7
(a) the jurisdiction to strike out a cause of action is one which is exercised rarely and only where the cause of action is clearly untenable (i.e. has no prospect of success);
(b)a strike-out application proceeds on the basis that the facts pleaded against the applicant are true;
(c) the Court should be particularly slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new situation;
(d)developments in negligence need to be based on proved rather than hypothetical facts; and
(e) if a pleading may be saved by amendment, that amendment should be allowed.8
The issues to be decided
[56] The issues to be decided on the defendants’ summary judgment application are whether the defendants have shown that it is clear that Readings will not be able to establish at trial any of the following:
(i)that there was a binding agreement to lease (in the form of the amended HOA);
(ii)that it would be unconscionable to permit the defendants to resile from the amended HOA, and that they are estopped from denying that the parties had committed to a lease of the premises with a term of 15 years plus 10 years;
(iii)that the June letter concluded a “process contract” between the parties, under which the defendants were obliged to at least submit to Readings a form of Agreement to Lease the premises.
[57] The first two issues arise from Readings’ pleadings in the statement of claim. The third issue, in which breach of a “process contract” is alleged, was developed in submissions made by Mr Radich. I will consider it on the basis that the question will be whether, if Readings were to amend its statement of claim to plead the “breach of process contract” cause of action, the defendants have shown that it is clear that Readings could not succeed at trial on that cause of action.
[58] If the defendants succeed on their summary judgment application there will be no need to consider their (alternative) strike-out application. If it is necessary to consider the strike-out application, the issues will generally be the same as those listed in paragraph [56] above – Readings’ statement of claim should be struck out if and to the extent the claims in it are “clearly untenable” (on one or more of the issues set out at paragraph 56 of this judgment). The key difference with the strike-out application is that Readings will be entitled to the presumption that the facts it has pleaded are capable of being proved at trial.
[59] I will address each issue listed above at paragraph 56 in turn, dealing first
with the defendants’ summary judgment application.
Issue (1) – have the defendants shown that it is clear that Readings will not be able to establish at trial that there was a binding agreement to lease (in the form of the amended HOA)?
The defendants’ submissions
[60] Mr Price submits that it is clear on the evidence that Readings cannot show that there was any intention by either party to be bound by any contract to lease the premises. He also refers to lack of certainty of parties, unfulfilled conditions precedent in the original HOA (and the amended HOA), and conduct by Readings after 21 June 2016 which is said to directly contradict the proposition that a binding contract was formed with the June letter.
[61] First, a reasonable person receiving the June letter would not have understood it to mean that the amended HOA was accepted by the owners, and that the owners had agreed to be bound by it. No such acceptance by AMPCI or any of the defendants was explicitly stated in the June letter, and nor could any such acceptance be inferred from the contents of the June letter. The June letter was merely a step in the process towards preparing and executing a formal Agreement to Lease and Deed of Lease, and the parties would not be bound until those documents were executed.
[62] Mr Price points to the fact that these are sophisticated commercial parties, both experienced in negotiating complex leases. The nature of the potential transaction was within the class of cases where the Courts have adopted a starting presumption that the parties did not intend to be bound before a formal agreement had been prepared and executed by both parties. The uncontested evidence in this case is that completion of formal documentation was expected, but neither the original HOA nor the amended HOA, nor any other formal documentation, was completed by any of the defendants.
[63] Secondly, Mr Price submits that neither of the two plaintiffs was named as a party in the original HOA. Nor were any of the defendants named in the original HOA. Readings have failed to state the party with whom they claim to have contracted, and there can be no enforceable contract for a lease without certainty of parties.
[64] Thirdly, Mr Price refers to the “conditions precedent” at paragraph 7 of the original HOA9 (and retained in the amended HOA), noting that a number of them were never fulfilled. An Agreement to Lease and Lease on terms satisfactory to both lessor and lessee has not been executed, and neither the original HOA nor the amended HOA were approved by the lessor’s boards of directors. There could be no binding contract where conditions precedent to the existence of a contract had not
been met.
[65] Fourthly, Mr Price submits that the defendants never authorised Mr Bartley or Mr Cosgrove, or anyone else, to enter into any contract of the kind alleged by
9 Set out at [17] of this judgment.
Readings, or to grant a lease of the premises on behalf of the owners. And neither of the owners acted in any way which could give rise to any ostensible authority for AMP Shopping, AMPCI, Mr Cosgrove or Mr Bartley to enter into any such contract on their behalf.
[66] Fifthly, Mr Price submits that the requirements of s 24 of the Property Law Act 2007 (the PLA), that contracts for the disposition of land are not enforceable unless in writing signed by the party against which the contract is sought to be enforced, have not been met. Accordingly, even if a contract of the kind alleged by Readings had been entered into, it would be unenforceable.
[67] Mr Price submits that Readings’ own conduct after 21 June 2016 is inconsistent with any belief on its part that a binding contract had been concluded by the June letter. Mr Smith himself said in his affidavit that a contract was only concluded after the 2 July 2016 visit by Reading International’s CEO. Also, Mr Bartley’s uncontested evidence was that he told Mr Smith on a number of occasions in August 2016 that the project feasibility was uncertain, and that Readings’ proposal would need to be improved. Mr Smith’s response was not that the defendants were bound to continue with the negotiations - he only said that Readings would not improve their offer, and would likely walk away from the project. And on 25 August
2016 Mr Smith sent an email saying: “once we get a sense the project is moving forward and we have a suitable document in play between us … letters of support from our bankers will be forthcoming … Let’s not put the cart before the horse please.”
Readings’ submissions
[68] Mr Radich submits that it is reasonably arguable for Readings that the amended HOA and the June letter together matured into a binding agreement following the approval of the transaction by the Reading International Board on 5
August 2016. Taken together, the amended HOA and the June letter contained all essential terms of an agreement.
[69] Mr Radich relied on the following principles, referring in support to the Court of Appeal decision in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd:10
(i)a contract is not necessarily legally incomplete merely because consequential matters have been omitted, particularly when they related to questions of contingency and risk allocation;11
(ii)it is the intention of the parties, as discerned by the Court, to be bound or not to be bound, which should be paramount. If the Court is satisfied that the parties intended to be bound, it will strive to find a means of giving effect to that intention;12
(iii)however, 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;13
(iv)provided there is a sufficient framework for determining the undetermined aspects, the Court can step in and “cure” an omission by implying a term;14
(v)it is permissible to consider conduct of the parties subsequent to the formation of the alleged contract to determine if a contract was formed.15
[70] On the issue of whether the “conditions precedent” in cl 7 of the original
HOA were in fact conditions “precedent” or conditions “subsequent”, Mr Radich
submits that the modern approach is to accord little significance to any designation
10 Fletcher Challenge Energy Limited v Electricity Corporation of New Zealand Ltd [2002] 2
NZLR 433 (CA).
11 At [51].
12 At [60].
13 At [59].
14 At [62] to [64].
15 At [56] citing Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18
NSWLR 540 at 550.
the parties may have adopted. A condition may clearly be a condition precedent, for example, where parties have negotiated a bargain which is expressed to be “subject to contract”. In such a case, no legal agreement whatever has been reached. If the situation is not one where the condition prevents the formation of any contract at all, some form of contract will have been made, although the rights and obligations of the parties may be contingent on certain events. In the meantime, there is a conditional contract in existence from which neither party is at liberty to withdraw at
will.16
[71] In this case the “conditions precedent” in cl 7 of the original HOA (incorporated in the amended HOA) were not conditions of the type that would prevent a lease from being executed.
[72] Mr Radich refers to the various telephone conversations which need to be considered alongside the documentary evidence when considering the parties’ dealings. He identified the following disputed matters on which those conversations may shed light:
(a) whether Mr Bartley told Mr Smith that Readings were the preferred operator;
(b) what authority AMP Shopping had to conclude an agreement;
(c) whether communications subsequent to the conclusion of the essential terms with the June letter were, from the parties’ points of view, consistent with an intention to be bound. Were they communications that were simply “tightening the bolts”, or did they reflect a shared view that more needed to be done?
[73] Mr Radich also submits that it is reasonably arguable for Reading that there was sufficient certainty of parties. Mr Smith has said that he was aware that the shopping centre was owned by the owners, and it would have been self-evident that
the ultimate parties to a deed of lease would be the owners or their nominees.
16 Citing Hunt v Wilson [1978] 2 NZLR 261 (CA) at 267.
Further, it is reasonably arguable that agency estoppel prevents the owners from denying that AMP Shopping/AMPCI had authority to contract with Readings on their behalf.
[74] On the issue of whether or not AMP Shopping or AMPCI was authorised to bind the owners, Mr Radich referred in his oral submissions to Burrows, Finn, and Todd Law of Contract in New Zealand.17 The learned authors noted that:
while a person cannot be bound as principal by a contract made without his or her authority, yet if the result of his or her conduct is that A appears to be his or her agent and makes a contract with a third person who relies on that appearance, he or she may be estopped from denying the existence of the authority. An apparent or ostensible agency is as effective as an agency which has been deliberately created.
Discussion and conclusions on issue (1)
Applicable law – intention to be bound
[75] One of the prerequisites to the formation of a valid contract is that the parties must have intended to be bound by the agreement (or to a particular means of reaching agreement – e.g. by use of an arbitration clause to resolve any provision which is not agreed) immediately. The question of whether the parties intended to be bound is paramount. Only if that stage is reached will the Court go on and strive to give effect to that intention by “filling any gaps” in the parties’ agreement18.
[76] In determining whether the parties intended to be bound the Court can look at the words of the agreement, background facts (including statements made by the parties in the course of the negotiations, and any draft contract terms). The Court may also have regard to the parties’ conduct after the contract is said to have been
made.19
[77] The Court has an entirely neutral approach when determining whether the parties intended to enter into a contract. It is only if the Court decides that the
17 S Todd “Privity and agency” in J Burrows, J Finn and S Todd (eds) Law of Contract in New
Zealand (5th ed, LexisNexis, Wellington, 2016) at [16.2.2].
18 Fletcher Challenge Energy Limited v Electricity Corporation of New Zealand, above n 8, at
[60].
19 At [56].
parties did have that intent that the Court’s approach will change – it will then do its best to give effect to their intention and, if at all possible, uphold the contract despite any omissions or ambiguities.20
[78] On the question of “agreements to agree”, the Court of Appeal in Fletcher Challenge Energy noted that an agreement to agree will not be held void for uncertainty if the parties have provided a workable formula or objective standard, or machinery (such as arbitration) for determining the matter which has been left open.21 It will be a matter of fact and degree in each case whether the gap left by the
parties is simply too wide to be filled.22
[79] Specifically in respect of “heads of agreement” cases, the Court of Appeal noted that there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later: “it happens every day when parties enter into so-called ‘heads of agreement’.”23
[80] The learned authors of Law of Contract in New Zealand note in their discussion of “subject to contract” cases, that the normal inference in such cases is that the parties intended that their contractual liability would be suspended until a formal contract was drawn up and signed.24 However, it will be a question of the parties’ deemed intention on the facts of each case whether some rights and obligations were intended to apply immediately. The authors of Law of Contract in New Zealand suggest that the relevant questions are:25
(a) Was the way the agreement was concluded such as to indicate that the agreement was intended and expected to have effect immediately? Or
(b)Did the form of words used indicate that some contractual effect was to be given to the preliminary agreement?
20 At [58].
21 At [62].
22 At [63].
23 At [65] citing Pagnan SpA v Feed Products Ltd (1987) 2 Lloyd’s Rep 601 at 619.
24 J Finn “Conditional Contracts” in Burrows, Finn and Todd, above n 15, at 264.
25 At 265.
Analysis – did the parties intend to be bound by the amended HOA in this case?
[81] In general terms, I accept Mr Radich’s submission that the November 2015
Request for Proposal was an invitation to treat. The original HOA constituted a conditional offer by Readings to lease the premises, and the amended HOA was an amended offer. That amended offer remained conditional, in the respect referred to below.
[82] The original HOA contained a number of provisions which were described as “Conditions Precedent”. Strictly defined, a “condition precedent” might mean that no contract would come into existence at all unless and until the condition was satisfied. However, in more recent times the Courts have been prepared to examine conditions which the parties have described as “conditions precedent”, to determine whether the parties in fact intended to take on immediate obligations to each other, from which neither could withdraw until it was clear at some later time that the condition had not been met. The position was described by Cooke J (as he then was)
in Hunt v Wilson as follows:26
I venture to think that the ambiguous labels precedent and subsequent, when applied to conditions, are seldom of real help in solving issues in this branch of contract law. Certainly they can be positively misleading unless the meaning of what is being said is made specific by explaining to what the condition in question is seen as precedent or subsequent. Sometimes, in a rather inexact sense, the term condition precedent is used to describe a stipulation which does prevent the formation of any contract at all – as when the parties have negotiated a bargain but expressed it to be “subject to contract”. Then in truth no legal agreement whatever has been reached, neither party being in law committed to anything. In all other cases some form of contract has been made and the rights and obligations of the parties are governed by what they have agreed to.
All or some of the rights or obligations of the parties may be contingent on certain events, such as the approval of a Court or an independent third party, which in that sense may be called a condition precedent; but in the meantime there is a conditional contract in existence from which neither party is at liberty to withdraw at will. Indeed there are often, though not invariably, binding obligations in the meantime, such as an obligation to do all necessary things to obtain the approval.
[83] I think it is clear in this case that the clauses described as “conditions precedent” at cl 7 of the original HOA were not all conditions precedent, in the strict
26 Hunt v Wilson [1978] 2 NZLR 261 (CA) at 267.
sense that no obligation would arise at all unless and until they were satisfied. First, the conditions did not have to be satisfied before any contract would come into existence – the introductory wording of cl 7 provided only that they were to be satisfied “prior to the occurrence of the ‘Development Commencement Date’”. The Development Commencement Date was defined as being the date on which the last of the so-called conditions precedent had been satisfied or waived.
[84] The first of the so-called conditions precedent was “(a) the execution of an Agreement for Lease and Lease on terms satisfactory to [Readings and the owners]”. Quite clearly, contractual rights and obligations were intended to arise when the parties executed an Agreement for Lease and a Lease, and that would not necessarily have required the last of the so-called conditions precedent to be waived or satisfied. Other “conditions precedent” in cl 7 such as the obtaining of necessary town planning approvals, licences, and statutory approvals (clauses 7(b), (c) and (d)) would likely not be satisfied until some time after an Agreement for Lease had been
executed.27 If that is right, those conditions could not have been intended to be
conditions precedent, in the sense that no obligations would come into existence at all until they had been satisfied, or waived.
[85] However, I think conditions (e) and (f) at cl 7 of the original HOA, requiring that the original HOA be approved by each side’s board or boards of directors, were intended to be genuine conditions precedent, in the sense that no rights or obligations would arise until that had occurred.
[86] I reach that view for the following reasons.
[87] First, I accept Mr Price’s submission that the nature of the contract under negotiation in this case was a very substantial commercial transaction, of the kind where one would not ordinarily expect the parties to take on legal rights and obligations before a formal document was executed. From Readings’ point of view, it would be taking on a commitment to lease for a term of at least 15 years, with
lease commitments which would run into some millions of dollars over the term.
27 That is apparent from cl 8 of the original HOA, which provided for rights of termination of the Agreement for Lease in the event of the Development Commencement Date not being reached within 12 months after the signing of an Agreement for Lease.
From the defendants’ perspective, there were additional complexities arising from the fact that it was not dealing just with Readings, but was looking to obtain long-term leases on satisfactory commercial terms from a number of other substantial tenants, including the supermarket operator. Indeed, it appears that it was difficulties in the negotiations with one of the other prospective lessees that led the owners to re-open (in early August 2016) the terms on which they would be prepared to contract with Readings. I accordingly accept the submission that the case is in this respect comparable with cases such as Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd, in which the Court of Appeal considered that the complexity of the commercial arrangements under negotiation were such that the inference was that the parties did not intend to be bound before the agreement had been drawn up and
executed on both sides.28
[88] I think it is at least arguable in this case that completion and approval of the original HOA would have been a significant milestone, with the parties arguably then taking on at least a “process contract” obligation, namely to negotiate for the completion of a full Agreement for Lease. (If the parties did not intend even a “process contract” to arise at that point, it is difficult to see why they would have bothered to negotiate a Heads of Agreement at all.) The provision for formal approval by the respective boards also suggests that formal rights and obligations of some sort were intended to arise at that point, but not before (if binding contractual obligations were intended to arise before the respective boards had approved the original HOA, it is difficult to see what point would have been served by the provisions for board approval).
[89] Those views are consistent with AMP Shopping’s indication in its letter of 24
August 2015 that it wished to complete a Heads of Agreement with its “preferred cinema operator”, the condition at cl 7 of the original HOA relating to the execution of an Agreement for Lease and Lease on terms satisfactory to the lessor and the lessee, and the provision at cl 32 of the original HOA that the full Agreement for Lease would incorporate the terms of the original HOA and otherwise be in accordance with a standard document agreed to by the parties acting reasonably
(emphasis added). The latter provision made it clear that, on the completion and
28 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA) at 388.
approval of the original HOA, the parties would at very least then be under a “process” obligation to act reasonably in their negotiations for a “standard document” (which would incorporate the original HOA terms).
[90] The next point is that the last paragraph of the original HOA makes it clear that the offer constituted by the original HOA was in itself intended to be conditional:
The offer contained in this Heads of Agreement is, subject to the conditions of the Heads of Agreement, offered by or on behalf of [Readings].
The obvious way in which the offer itself might have been conditional was that it
had to be approved by Readings’ board before it would be available for acceptance.
[91] Also, I think the board approval conditions would have made little sense if they were not intended to have the effect that no contract would come into existence unless and until the approvals were given. There would have been little point in the executives on either side expending time and effort negotiating a full Agreement to Lease and Lease if the boards retained the ability to disapprove the amended HOA altogether. In my view, the intention was to suspend all rights and obligations pending the completion and board approval of the original HOA.
[92] In combination, I think those factors make it clear that it was never the intention of Mr Smith or Readings that Readings would be bound to anything unless and until Readings’ board had approved the Heads of Agreement (and the owners’ boards had done likewise).
[93] That view is also consistent with the parties’ conduct in the negotiations which followed in 2016. On 10 May 2016 Mr Bartley asked Mr Smith if he could confirm whether Readings could enter into a Heads of Agreement on the basis set out in Mr Bartley’s email of that date and/or “whether [Mr Smith was] prepared to recommend [the terms] to [Readings’] Board for approval”. And when he wrote to Mr Bartley on 20 May 2016 Mr Smith began by noting that Readings’ next board meeting was on 2 June 2016, and that he was “targeting that date”. He said that he would be submitting the amended HOA to Readings’ board.
[94] Mr Bartley did say in his reply email of 20 May 2016 that he had received endorsement from the co-owners of the shopping centre “to proceed with negotiations of a conditional ATL”, but that statement was itself conditional on Readings confirming Board approval to the improved terms Mr Smith had put forward. The parties were still approaching the matter on the basis that what existed was a conditional offer from Readings; nothing would be capable of acceptance by the owners until Readings’ board had confirmed that their offer was no longer conditional.
[95] I do not think that approach changed with the June letter. Mr Bartley was prepared to take the anticipatory step of having solicitors prepare agreement for lease and lease documents on the strength of Mr Smith’s advice that Readings’ senior management committee would be recommending the amended HOA to Readings’ board for approval, but he did not say those lease documents would be forwarded to Readings before their board had notified its approval.
[96] Readings’ board met and approved the amended HOA on 5 August 2016. But the day before that board meeting, Mr Smith had a telephone conference with Mr Bartley and Mr Cosgrove in which Mr Smith was advised in clear terms that the owners were no longer prepared to accept the commercial terms which Readings had proposed. It appears that Mr Smith did not then protest that it was no longer open to the owners to resile from Mr Bartley’s statements in the June letter – he simply said he thought it likely that Readings would “let it go” (although he would allow the amended HOA to go to Readings’ board).
[97] Mr Bartley emailed Mr Smith on 10 August 2016 advising that he was “still working on how to close the commercial gap with respect to the project feasibility”. Mr Smith responded the same day recommending “aggressive value engineering (post construction tendering)” as the approach the owners should take to resolve their difficulties. He did not say that all commercial issues had been resolved (although he did ask Mr Bartley to send him a form of Agreement for Lease).
[98] In an email dated 25 August 2016 Mr Bartley referred to his having “tried to
get the terms with Readings improved in an effort to get us closer on the commercial
metrics for the development”. He sought further information from Mr Smith relating to other Readings complexes and some information on Readings’ parent company.
[99] Mr Smith replied on 25 August 2016, providing further information about Readings’ cinemas in other locations, and the way Readings structured their business generally. The letter began:
AMP have requested information regarding [Readings’] offer. This brief
document will outline to you our offer as it is today.
[100] Mr Smith’s letter of 25 August generally appears to have been intended to persuade Mr Bartley and the owners to select Readings for the shopping centre expansion, and not one of its competitors (e.g. “… whilst there are other cinema exhibitors out there, Reading does have a significant point of difference in our new builds …”) The letter does not on its face reflect any belief of Mr Smith that the commercial arrangements with the owners had been agreed, and that all that was required was completion of formal Agreement to Lease and Lease documents.
[101] Certainly AMP Shopping had indicated the owners’ conditional assent to the amended HOA in Mr Bartley’s email of 20 May 2016 and in the June letter. But if the intention was that neither side would be bound by the original HOA (or the amended HOA) unless and until each board had approved the original HOA (or the amended HOA), as I consider was the case, there was nothing to stop the owners from reversing that conditional assent prior to approval by the board of Readings. Certainly Readings’ board could have declined to approve the amended Heads of Agreement at its board meeting on 5 August 2016, when the issue was still whether there would be a binding heads of agreement at all.
[102] A statement is clearly not an offer if it expressly provides that the person who makes it is not to be bound merely by the other party’s notification of assent (or before a condition on which the offer was made is fulfilled),29 and I think that was the case here. Readings made the relevant offers in this case, and their offers were always conditional on approval by their board. Even if Mr Bartley’s conditional
statements in his email of 20 May 2016 and the June letter could be regarded as the
29 Buhrer v Tweedie [1973] 1 NZLR 517 (HC).
equivalent of Mr Tweedie’s “I agree” response to Mr Buhrer’s conditional counter- offer in Buhrer v Tweedie, the offeree (in this case the owners) remained free to withdraw before Readings conditional offer (in the form of the amended HOA) matured into an actual offer.
[103] Unlike cases such as Fletcher Challenge Energy, no Heads of Agreement was signed in this case, and the conditions relating to the amended HOA being approved by the respective boards were in my view true conditions precedent, in the sense that no binding agreement would exist at all until the amended HOA was approved by all of the boards.
[104] In distinguishing this case from Fletcher Challenge Energy Ltd, Mr Radich emphasised that in this case (unlike the position in Fletcher Challenge) the essential terms were all agreed when Mr Bartley sent the June letter. But I do not think the issue in this case is whether the terms were sufficiently agreed for there to be an enforceable contract. The issue is whether the parties intended binding obligations to come into existence before the respective boards had approved the amended HOA, and on that issue I do not consider it reasonably arguable for Readings that they did.
[105] I do not consider this is a case where further discovery or evidence which might be produced at trial would be likely to assist Readings on the “intention to contract” issue. I accept Mr Price’s submission that there is very little disagreement on the relevant facts, and the real issues are concerned with the legal interpretation of those facts. Importantly, Readings did not dispute Mr Bartley’s evidence about the telephone conference of 4 August 2016, in which he and Mr Cosgrove made it clear to Mr Smith that the owners were not prepared to abide by the commercial terms which had previously been provisionally agreed between Mr Bartley and Mr Smith.
[106] That determination is sufficient for me to find for the defendants on issue (i). It is in my view sufficiently clear that Readings cannot succeed with their claim for a declaration that they had an enforceable Agreement for Lease, concluded with the June letter (or by the Readings’ board approval purportedly given on 5 August 2016).
[107] That finding means that it is not strictly necessary for me to address Mr Price’s submissions based on lack of certainty of parties, lack of any authority in Mr Bartley or his company to bind the owners, and the absence of any contract or written record sufficient to satisfy s 24 of the PLA. However, in case the matter should go further I will briefly set out my views on those issues.
[108] First, I do not think the defendants have satisfied the summary judgment threshold on the certainty of parties issue. The original HOA was submitted by Mr Smith under cover of a letter written on “Reading Entertainment” letterhead, with Mr Smith shown as “Managing Director, Australia and New Zealand”. The original HOA named a company to be formed, Reading Tauranga Ltd, as the proposed lessee. As for the lessor, Readings clearly intended it to be the entity or entities that owned the shopping centre. The original HOA referred to the lessor as “AMP Capital … or nominee”, and it is clear from the original HOA and from Mr Bartley’s letter of 24
November 2015 that it was the “owners” of the shopping centre who were carrying out the expansion (including the new cinema space), and that it was the “owners” (“landlord”) who were looking to “select a preferred partner” with whom to enter into a heads of agreement (and later an agreement to lease). I would have held that it was at least arguable for Readings that the parties to the alleged agreement were the first plaintiff (as agent or trustee for a company to be formed) as lessee, and the owners (or their nominee) as lessor.
[109] I would not have regarded the question of whether Mr Bartley or Mr Cosgrove (or their respective employers) had actual or ostensible authority to bind the owners as suitable for determination on a summary judgment application. Notwithstanding the evidence that neither of the owners’ boards approved the original HOA or the amended HOA, and that Mr Bartley had no authority to conclude any agreement on the owners’ behalf, Mr Bartley did advise Mr Smith on
20 May 2016 that he had the owners’ “endorsement”, and I think the circumstances in which he made that statement would have justified some scrutiny at trial. Also, the evidence on the question of possible ostensible authority is almost certainly incomplete at this stage. Mr Bartley was obviously taking relevant steps, purportedly acting on the owners’ behalf, and it seems improbable that they would have been unaware of those steps. The extent to which they may have held out Mr
Bartley (or his employer) as having authority to bind them would have been a matter for trial.
[110] Mr Price submits that the agreement for which Readings contend would also have been unenforceable for failure to comply with s 24 of the PLA.
[111] Section 24 of the PLA provides that a contract for the disposition of land is not enforceable unless it is in writing. Disposition is defined as including “lease”; and “lease” defined as including an “agreement to lease”.
[112] Mr Radich submits that the correspondence between the parties (culminating in the June letter) that allegedly formed the contract between the parties was in writing and was signed in each case by its author. The writing forming a contract may be in electronic form30, and signing may be effected by electronic signature.31
An electronic signature will be considered adequate if the Court is satisfied that its
insertion was intended to signify adoption of the electronic memorandum of which it forms part.32
[113] In this case the June letter was signed by Mr Bartley (and apparently scanned to Mr Smith). In those circumstances I would have held it arguable for Readings that the agreement for which it contends was not unenforceable because of s 24 of the PLA.
Issue (2) have the defendants shown that it is clear that Readings will not be able to establish at trial that it would be unconscionable to permit the defendants to resile from the amended HOA, and that they are estopped from denying that the parties had committed to a lease of the premises with a term of
15 years plus 10 years?
The defendants’ submissions
[114] Mr Price submits that Readings’ estoppel pleading is vague, and it must fail
essentially for the same reasons the contract claims must fail. There is no basis in the evidence to support an assertion that the defendants ever committed to any
30 Electronic Transactions Act 2002, s 19.
31 Section 22.
32 Welsh v Gatchell [2009] 1 NZLR 241 (HC) at [75].
agreement of the sort alleged. The highest Readings’ case could be put would be an indication by Mr Bartley that a draft Agreement to Lease and draft Lease documentation would be provided. That is a long way short of those terms being negotiated and finalised between lawyers and ultimately executed.
[115] Mr Price submits that none of the defendants did anything which could give rise to an estoppel. AMPCI/AMP Shopping did not do or say anything to encourage or create Readings’ alleged belief that there was an agreement in place, and their representatives did not explicitly or implicitly accept Readings’ proposal.
Readings’ submissions
[116] Mr Radich submits that it is reasonably arguable for Readings that the exchange of correspondence gave rise to an expectation on Readings’ part that the point had been reached at which their proposal had been accepted, and that it would be unconscionable for the defendants, having created that belief, to act in a way that was contrary to it.
[117] Mr Radich also submits that the defendants are arguably estopped from denying AMP Shopping’s or AMPCI’s authority to contract. The extent of that authority, and the relevant communications which gave rise to the appearance of agency, need to be properly explored at trial, where the witnesses’ accounts can be tested in cross-examination. Mr Radich refers specifically to Mr Bartley’s 10 May
2016 email, in which he advised that he had received “endorsement from Bayfair” to proceed with the negotiation of a conditional Agreement to Lease. He submits that that statement is consistent with the process foreshadowed in the Request for Proposal sent to Readings in November 2015.
Discussion and conclusions on Issue (2)
Applicable legal principles
[118] To establish equitable estoppel it must be shown that:33
(a) a belief or expectation has been created or encouraged by words or conduct of the party against whom the estoppel is alleged;
(b)to the extent an express representation is relied upon, it is clearly and unequivocally expressed; and
(c) the party alleging the estoppel reasonably relied to its detriment on the representation; and
(d)it would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[119] In Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, the Court of Appeal reviewed the authorities on equitable estoppel in New Zealand, Australia and the United Kingdom, before distilling the following further principles:34
[114]Nevertheless some principles may be stated with a degree of confidence even if the application of those principles in particular cases may be a matter of some difficulty. The three main elements relevant to relief stem from the ingredients necessary to establish equitable estoppel in the first place. These are the quality and nature of the assurances which give rise to the claimant’s expectation; the extent and nature of the claimant’s detrimental reliance on the assurances; and the need for the claimant to show that it would be unconscionable for the promisor to depart from the assurances given.
[115] As a general approach, the clearer and more explicit the assurance is, the more likely it is that a court will be willing to grant expectation- based relief. That is because a clear assurance is more likely to engender an expectation by the promisee that it will be fulfilled. Similarly, the greater the degree and consequences of detrimental reliance by the claimant, the more likely it is that the court will be prepared to hold the defendant to the promise rather than make an award (generally of a more limited nature) designed to compensate for reliance-based losses.
[116] Unconscionability is the third key consideration. As Brennan J explained in Waltons Stores unconscionability is the element which both attracts the jurisdiction of a court of equity and moulds the remedy. In assessing the appropriate remedy, all the relevant circumstances are to be considered. The aim is not to satisfy the claimant’s expectation (although that may be what the relief requires in appropriate cases) but to satisfy the equity that has arisen in the claimant’s favour.
Analysis
[120] I do not consider the estoppel argument can succeed. There is in my view no basis for an assertion that the exchange of correspondence under consideration gave rise to an expectation on Readings’ part that the point had been reached at which its proposal had been accepted, and that it would be unconscionable for the owners to act in a way contrary to it.
[121] As I have concluded on issue (i), it was the parties’ intention that any contractual obligations between them would arise only on approval by the parties’ respective boards. The amended HOA was never signed by either party, and it was never approved by the owners’ boards. Nor can it be said that the defendants’ conduct created any reasonable belief or expectation on Readings’ part that the defendants had unconditionally agreed to be bound by the amended HOA before it was approved by Readings’ board, or even that they would submit to Readings a form of agreement to lease before that occurred. Neither the 20 May 2016 email from Mr Bartley nor the June letter purported to waive or alter the conditions precedent which required board approval by the respective parties. If anything, both communications affirmed the necessity of Readings’ board approval.
[122] I do not consider it arguable that, on receipt of the June letter, Readings believed they had received anything in the nature of an assurance from Mr Bartley or the owners that the condition precedent which required the approval of the parties’ respective boards would not be insisted upon by the owners. The documents show the intention was that no rights or obligations would exist on either side until the boards had all given their approval, and any claimed “expectation” of Readings must be considered from that starting position.
[123] If Readings did rely to its detriment on either the 20 May 2016 email or the June letter, I do not consider it arguable for Readings that they acted reasonably in so doing. Readings are experienced commercial operators, and they knew that there would be no binding obligation on either side before their board had approved the
amended HOA. As Kirby P observed in Austotel Pty Ltd v Franklins Selfserve Pty
Ltd:35
The wellsprings of the conduct of commercial people are self-evidently important for the efficient operation of the economy. Their actions typically depend on self-interest and profit-making not conscience or fairness. In particular circumstances protection from unconscionable conduct will be entirely appropriate. But courts should, in my view, be wary lest they distort the relationships of substantial well-advised corporations in commercial transactions by subjecting them to the overly tender consciences of judges.
[124] Austotel Pty Ltd was also a case where the Court considered that, once it had been determined that there was no agreement between the parties, the alternative estoppel argument must fail. As Kirby P put it:36
… all that such an estoppel would do would be to prevent the appellant from denying the existence of an “agreement” which was not a legal agreement at all. This would have no utility and was not ultimately pressed by the respondent.
[125] I conclude there is no arguable basis for Readings’ estoppel claim.
Issue (3) – have the defendants shown that it is clear that Readings will not be able to establish at trial that the June letter concluded a “process contract” between the parties, under which the defendants were obliged to at least submit to Readings a form of Agreement to Lease the premises?
Readings’ submissions
[126] If there was no binding agreement to lease in the form of the amended HOA, Mr Radich submits that, at least, the parties formed a contract to negotiate – an enforceable “process contract” – of the type described by the Court of Appeal in Schulz v McArthur Ridge Investments Ltd.37 The original HOA, and the amended HOA resubmitted on 10 May 2016 following negotiations, contained all essential terms of an enforceable process contract.
[127] The “process contract” was not at odds with s 24 of the PLA, because it did
not effect a “disposition” within the meaning of that section. The process contract
was a contract that was antecedent to any deed of lease which might follow. In any
35 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 (NSWCA) at 586.
36 At 584.
37 Schulz v McArthur Ridge Investments Ltd [2015] NZCA 298 at [34] – [37].
event, the exchange of correspondence (through which Mr Radich submits that the contract was formed) was in writing, signed in each case by the author.
The defendants’ submissions
[128] Mr Price submits that the claimed “process contract” is not consistent with either Readings’ statement of claim or Mr Smith’s affidavit, in which he verified the allegations in the statement of claim.
[129] Mr Price then submits that Readings have failed to adequately identify the content of the alleged process contract. While Mr Radich did refer to an obligation on the defendants to supply a form of agreement to lease and thereafter to negotiate on it in good faith, that would be inconsistent with paragraph 7(a) of the original HOA (and the amended HOA) which referred to the Agreement to Lease being “on terms satisfactory to the lessor and the lessee”.
Discussion and conclusions on Issue (3)
Legal principles applicable to “process contracts”
[130] In Schulz v McArthur Ridge Investments Ltd, the Court of Appeal noted that it is well established that a contract to negotiate may be enforceable.38 The Court went on to note:
[35] … Whether it is depends upon its terms and their specificity. That question is separate from whether the substantive agreement, if reached, is sufficiently certain. If the contract specifies the way in which negotiations are to be conducted with enough precision for a court to be able to determine what the parties are obliged to do, it is enforceable. For example, an agreement simply to negotiate in good faith is unenforceable because those terms are subjective and a court cannot apply an objective test to assess whether the parties have done so. On the other hand an agreement to use best endeavours to obtain a defined object (for example, to obtain planning permission) may be enforceable. Where there is an enforceable process contract, the breach lies in failing to follow the process, not in failing to achieve the objective.
38 Schultz v McArthur Ridge Investments Ltd [2015] NZCA 298, at [35].
Analysis
[131] The difficulty for Readings with the “process contract” argument is that even a process contract cannot exist unless and until the parties intend to be bound by such a contract. The same issues apply in that respect as were applicable on issue (1). In this case I have found that the parties did not intend to assume any binding obligations until the respective boards had approved the amended HOA, and it was only when that occurred that any obligations, including “process obligations”, would arise. In my view, that mutual intention was not affected by the parties’ correspondence in May and June of 2016, including Mr Bartley’s 20 May 2016 email and the June letter. In my view the “process” contract for which Readings contend is not reasonably arguable. I accordingly find for the defendants on issue (3).
Result
[132] The defendants having succeeded on all issues, they are entitled to summary judgment. I enter judgment for the defendants accordingly.
[133] In those circumstances there is no need to address the defendants’ alternative
strike-out application.
[134] The defendants are entitled to costs, which I fix on a 2B basis, plus disbursements as fixed by the registrar.
Associate Judge Smith
Solicitors: Gibson Sheat
4
3
0