195 Crown Street Pty Ltd v Hoare [2012] NSWSC 1222 | Case summary

Judgment 1This application is brought in complex proceedings commenced by three individuals, Min Kyu Kim ("MKK"), Min Jae Kim ("MJK") and Dong Woo Seo ("DWS") and two companies, BMJ Chocolata Pty Limited ("BMJ Chocolata") and MTK Chocolata Pty Limited ("MTK Chocolata"). The Defendants in the proceedings are Byung Sun (Eric) Song ("ES"), Jacob Jihoon Kim ("JK") and Oliver Brown Pty Limited (in liquidation) ("Company"). MJK is the sole director of MTK Chocolata and MJK and ES respectively hold 51% and 49% interests in MTK Chocolata. 2By their Amended Statement of Claim, the Plaintiffs plead, inter alia, an agreement or understanding formed between several persons as to the conduct of a business of operating chocolate cafés under the name "Oliver Brown", that the Company would grant sub-leases of two of those cafés to BMJ Chocolata and MTK Chocolata respectively and as to the issue of shares in the Company. The Amended Statement of Claim also pleads representations made by ES and JK, breaches of the alleged agreement and understanding, misleading and deceptive conduct and a claim of oppression under s 233 of the Corporations Act 2001 (Cth). The Plaintiffs seek orders, inter alia, that the Defendants refund the amount of their capital contributions to the Company, BMJ Chocolata and MTK Chocolata, orders for the sale of the ordinary shares in the Company, BMJ Chocolata and MTK Chocolata owned by ES and JK to the Plaintiffs and damages. 3By an Interlocutory Process filed on 28 August 2012, MTK Chocolata seeks orders under, inter alia, the general law, s 568F of the Corporations Act and ss 122 and 130 of the Conveyancing Act 1919 (NSW) that Shop GRD-C3000 in the Top Ryde City Shopping Centre ("Premises") vest in it. The Premises were previously occupied by the Company under a lease ("Lease") from the Second Respondent to this application, Bevillesta Pty Limited (receivers and managers appointed) ("Bevillesta") for a term commencing on 6 September 2010 and terminating on 5 September 2018. MTK Chocolata contends that the Company agreed to sub-lease the Premises to it, and that it has an interest in the Premises arising from that agreement ("MTK Sub-Lease") and a subsequent surrender of the Lease by an administrator appointed to the Company in circumstances to which I will refer below. The First Respondent to the application, Doutmost Pty Limited ("Doutmost") has now come to occupy the Premises and operate the business previously operated by the Company from the premises in the circumstances to which I will also refer below. MTK Chocolata also seeks leave to issue a writ of possession and an order that Bevillesta do all things necessary to restore it to possession of the Premises. 4Mr Marskell, who appeared for Bevillesta, pointed out at the commencement of the hearing of this application that the orders sought by MTK Chocolata are substantive in character. Bevillesta nonetheless took no objection to the issues being determined by this application. Doutmost also did not raise any objection to that course at the commencement of the hearing of the application but sought to raise such an objection, or at least reserve its position, in closing submissions. In a separate judgment, I held that it was not open to Doutmost to take that course, since s 56 of the Civil Procedure Act 2005 (NSW) required it to raise any issue as to the form of the application when that issue was raised by Bevillesta at the commencement of the hearing rather than in closing submissions; MTK Chocolata's application sought relief under the Corporations Act and was properly brought by interlocutory process under r 2.2 of the Supreme Court (Corporations) Rules 1999 (NSW); and, had it become necessary to do so, I would in any event have granted leave to MTK Chocolata, nunc pro tunc, to file an Originating Process raising the same issues as the Interlocutory Process. Factual background 5I should first outline the unfortunate factual background to this matter. Discussions between MKK on the one hand and ES and JK on the other commenced in March 2010. It was initially proposed that BMJ Chocolata would operate a first café to be established under their proposed business arrangements. The Company was subsequently introduced into the structure and ES represented that the Company would acquire the Lease but "everything else in terms of owing, operating and profit" of the café to be operated at the Premises would be in the name of BMJ Chocolata and it would control that café. MKK subsequently made substantial contributions to the proposed business by payments to ES and into the bank accounts of BMJ Chocolata and the Company. 6MTK Chocolata was incorporated in July 2010 and, in December 2010, it was agreed that MJK, through MTK Chocolata, would be involved in the café at the Premises and MKK would be involved in another café at Chatswood through BMJ Chocolata. MKK also made capital injections to the account of the Company and MTK Chocolata subsequently leased equipment for use in the café business at the Premises. 7By letter dated 31 March 2011 ("31 March Letter"), the Company, on its letterhead signed by ES as its General Manager, wrote to MTK Chocolata as follows: "Re: Shop C300 Top Ryde City Shopping Centre Top Ryde NSW 2112 To: Min Jae Kim (MTK Chocolate [sic] Pty Ltd) This letter is to certify the following items. Until the 31 March 2011, the amount of $195500.00 has been received (include 2 months rental bond) from Min Kyu Kim for the opening of the abovementioned store. Oliver Brown Pty Ltd has the head lease, and MTK Chocolata P/L will be the sub-lesse [sic]. This document is to verify the actual amount that has been paid to date and is not reflective on the total costs of the store." 8On the same date, ES provided an unexecuted sub-lease ("Draft Sub-Lease") in relation to the Premises on which the sub-lessee was noted, apparently in error, as BMJ Chocolata. The Draft Sub-Lease identified the Premises and identified the term of the lease on the first page as 5 years, but the commencing date and terminating date on the first page were left blank and the provision for the term in Annexure A was also blank; and identified the rent payable as $95,500 per annum by 12 monthly instalments of $7,962.50 calculated for the year following the commencing date, which was comparable with but not identical to the base rent payable under the Lease of $91,000 per annum. 9By letter dated 5 April 2011, the Plaintiffs' solicitors wrote to ES stating that: "On many occasions, our clients have requested you to provide them with documentations to confirm their investments, including initially the agreed franchise agreements and confirmation of sub-leases of business premises to our client's respective company." That letter did not contend that there was a subsisting equitable sub-lease over the Premises in favour of MTK Chocolata, as MTK Chocolata now contends, but instead that: "[I]t appears our clients have no legitimate ownership or interest in any of the businesses other than your written letter [dated 31 March 2011] that the specified amount of money was received by you and [the Company]". I do not, however, regard that letter as undermining the position which MTK Chocolata now advances, because it appears that the Plaintiffs' solicitors had only recently been engaged, and the contention now advanced that an equitable sub-lease existed would not have been apparent to the individual Plaintiffs and would have required a reasonably comprehensive factual inquiry and legal analysis by their legal advisers. 10By letter dated 4 May 2011, ES's solicitors responded to the letter dated 5 April 2011 from the Plaintiffs' solicitors to ES and stated that: "1. We clearly understand that a lot of the company's operations, policies and procedures have yet to be formalised. The purpose of this letter is to indicate that we have been engaged by the company to formalise any oral arrangements with formal written agreements, policies and procedures ... 2. Our client does not reject the assertion that your client has a stake in the business and that your client has put in capital into the business. As stated in the above our client intends to clarify the total position by way of formal structure/agreements." That letter also noted that the solicitors were currently reviewing the leases, franchise agreements and disclosure documents "to effect compliance" and were seeking instructions for amendments that may be required. 11By letter dated 17 May 2011, solicitors acting for ES and the Company provided a copy of documents described as "the business financials, relevant business documents from our clients' accountants, all revenue and expenses records" of the Company and, relevantly, MTK Chocolata, and also enclosed further draft sub-leases in apparently the same form as provided on 31 March 2011, which still referred to BMJ Chocolata as the party to the sub-lease in respect of the Premises. An unsigned document enclosed with that letter, headed "Financial Statements for the year ended 30 June 2011" (which had not yet ended) for MTK Chocolata, recorded $63,586.32 referable to rent of land and buildings, lease improvements (cost) of $259,610.69 and plant and equipment (cost) of $77,620. Those solicitors also provided a document headed "MTK Chocolata Pty Ltd initial cost of Oliver Brown (Top Ryde)" which recorded the cost of shop fittings and lease improvements and equipment at the Premises. 12These proceedings were commenced by Originating Process and Statement of Claim filed on 14 September 2011; a Defence and Cross-Claim was filed on 2 November 2011 and a Defence to that Cross-Claim was filed on 11 November 2011; the Plaintiffs' affidavits in chief were filed on 21 November 2011; and an Amended Originating Process and Amended Statement of Claim was filed on 7 March 2012. 13On 31 May 2012, the Company purportedly assigned its trade marks to Doutmost for a consideration of $5,000 inclusive of GST and purportedly sold its equipment to Doutmost for a consideration of $11,000 inclusive of GST, although the Plaintiffs did not become aware of these transactions until documents recording them were produced on subpoena in July 2012. In June 2012, the Company sought to assign the Lease to Doutmost, although a caveat placed by the Plaintiffs and interlocutory relief granted by the Court apparently prevented completion of that transaction. 14Administrators were appointed to the Company on 13 July 2012. On 17 July 2012, the administrators advised the Plaintiffs' solicitor that the two cafés were operated by different entities (presumably, Doutmost in respect of the Premises) although the Company was currently the lessee of the two café premises. 15On 18 July 2012, the administrators advised the Plaintiffs' solicitor that they intended to "disclaim" the Company's leases for the Chatswood and Ryde cafés. By notice dated 19 July 2012 ("19 July Notice"), the administrators purported to "disclaim" the Premises. The 19 July Notice was substantially in the form of Form 509B made under the Corporations Act, but the administrators amended the heading of the prescribed form to add the words "and cease occupation/utilisation" after the prescribed heading "Notice of Administrators' intention not to exercise property rights" and, in addition to containing the statutory notice under s 443B(3) of the Corporations Act that the administrators did not propose to exercise rights in relation to the Premises, the notice also stated that Mr Sutherland, as joint and several administrator, "disclaim[ed]" the Premises. An administrator does not have a statutory power to disclaim a lease under s 443B of the Corporations Act and it will be necessary to address the proper characterisation of that "disclaimer" below. 16On 20 July 2012, the administrators advised the Plaintiffs' solicitors of the purported disclaimer of the Premises. Doutmost points out in submissions that, as at 20 July 2012, it was in possession of the Premises and adds that "the basis for such possession remains somewhat unclear". The lack of clarity in that regard largely resulted from the fact that Doutmost, which was in the best position to lead evidence as to the basis on which it had come to occupy the premises, did not do so. 17The substantive proceedings were listed for hearing on 31 July 2012 but the hearing did not proceed after the Company was placed in administration and one of the individual Defendants indicated his intention to file for bankruptcy. 18The Company was placed in voluntary winding up following a resolution passed at the second meeting of its creditors on 17 August 2012. By letter dated 27 August 2012, the solicitors for the administrators, now the liquidators, advised the Plaintiffs' solicitors that: "The administrators did not adopt property rights and therefore have no further capacity to deal with the pre-existing lease. Upon issue of a notice under s 443B by an administrator, the premises can then be dealt with by the landlord at their discretion. The operation of a notice under s 443B is effectively the same as a disclaimer. We advise that the now appointed liquidators will not assign any interest in the pre-existing lease as they have no capacity to do so." By a further letter dated 31 August 2012 to the Plaintiff's solicitors, the liquidator's solicitors again asserted that the administrators had previously "disclaimed the relevant property" pursuant to s 443B(3) of the Corporations Act and denied any act of disclaimer by the liquidators. 19From at least July 2012, the Plaintiffs had taken comprehensive steps to place both Doutmost and Bevillesta on notice of their claims. On 4 July 2012, MTK Chocolata lodged a caveat in relation to the Premises identifying its interest under the MTK Sub-Lease which remains in effect. By letter dated 5 July 2012, the Plaintiffs' solicitors put Doutmost on notice of the proceedings and of the Plaintiffs' claim that the Company had previously agreed to lease the Premises to MTK Chocolata. On 13 July 2012, Ms Park, the sole director of Doutmost, advised the Plaintiffs' solicitor that: "I have stopped ever single things related to Oliver Brown (GRD-C3000) or Top Ryde Shopping Centre [sic]". Ms Park's response was either not correct when given or subsequently became incorrect, since Doutmost came to occupy the Premises no later than 17 July 2012. By letter dated 26 July 2012, the Plaintiffs' solicitors also put Doutmost on notice of their claim over the equitable assets of the business since inception and their contention that the transactions disposing of the Company's assets had taken place without proper authority, in breach of duty by the Company's officers and at undervalue. 20By letter dated 3 July 2012, the Plaintiffs' solicitors also provided Bevillesta's solicitors with copies of the Amended Originating Process and Statement of Claim filed in these proceedings and requested Bevillesta take no further steps in relation to the threatened lease assignment from the Company to Doutmost pending the hearing of the proceedings, then listed to commence on 30 July 2012. On 6 July 2012, the Plaintiffs' solicitors provided Bevillesta's solicitors with a copy of the caveat lodged over the Premises which claimed an equitable interest by reason of the alleged MTK Sub-Lease. By letter dated 18 July 2012 to Bevillesta's solicitors, the Plaintiffs' solicitors noted the Administrator's intent to "disclaim" the Lease and submitted a lease application in respect of a new lease of the Premises in the name of MKK and MJK. Bevillesta submits that this letter is inconsistent with MTK Chocolata's contention that it held an equitable interest under the MTK Sub-Lease. I do not accept that submission. First, MTK Chocolata had made clear its claim to an equitable interest arising from the MTK Sub-Lease in the caveat lodged on 5 July 2012, and that claim was shortly thereafter reiterated by the Plaintiffs' solicitors' further letter dated 26 July 2012, so that there is no suggestion that it was not being pressed; and, second, that letter seems to me to involve a pragmatic and sensible attempt to reach a commercial resolution with Bevillesta, and it would hardly be surprising for the Plaintiffs' solicitors to have taken the view that an assertion of existing rights in the Premises at this stage might not have been conducive to such a commercial resolution. 21By letter dated 26 July 2012, the Plaintiffs' solicitors again wrote to Bevillesta's solicitors noting that Doutmost was operating the café at the Premises and drew attention to the Plaintiffs' claim to equitable interests over the assets of the business; the claimed agreement between the Company and the Plaintiffs to sub-lease the Premises; an allegation that the transaction between the Company and Doutmost was in breach of directors' duties; and that the consideration for the transaction between the Company and Doutmost was significantly at undervalue. 22By letter dated 7 August 2012, Bevillesta's solicitors indicated that it had decided not to accept the Plaintiffs' lease application. By letter dated 10 August 2012, the Plaintiffs' solicitors informed Bevillesta's solicitors, accurately, that the administrators had formed the view that there may be grounds to set aside the transactions between the Company and Doutmost and advised that the Plaintiffs had received instructions to set aside those transactions. Bevillesta's solicitors did not respond and, on 17 August 2011, the Plaintiffs' solicitors advised Bevillesta's solicitors that they intended to make an application for an order that MTK Chocolata be given possession of the premises based on the agreement between the Company and MTK Chocolata that a sub-lease of the premises be provided to MTK Chocolata. By letter dated 27 August 2012, Bevillesta's solicitors responded to the Plaintiffs' solicitors advising that the Premises were currently leased to Doutmost not the Company. That advice was also incorrect, at least in part; the evidence to which I refer below indicates that a lease to Doutmost was not to be executed until 6 September 2012. 23On 6 September 2012, Bevillesta's solicitor advised the Plaintiffs' solicitors that it had received a lease for the Premises executed on behalf of Doutmost and that Bevillesta would be executing that lease at 4pm on that date. The evidence of Ms Jane Daly (who is the Lease Administration Manager of the Top Ryde City Shopping Centre at Top Ryde and manages the day-to-day retail outlet issues with tenants on behalf of Bevillesta) in this application is that Bevillesta has accepted an application to re-let the Premises from Doutmost (Daly affidavit 14.9.2012 [12]). However, Ms Daly does not, in terms, give evidence of the execution of a lease between Bevillesta and Doutmost and, as I noted above, no such lease was led in evidence. 24I should note, for completeness, that Ms Daly also gives evidence that she became aware for the first time that MTK Chocolata asserted it was the sub-lessee of the Premises on reading the Plaintiffs' interlocutory application. The correspondence from the Plaintiffs' solicitors to which I have referred above plainly and repeatedly placed Bevillesta, through its solicitors, on notice of the Plaintiffs' claim and specifically of its claim to the MTK Sub-Lease. Although Ms Daly was not cross-examined, I do not consider that her evidence can establish that Bevillesta (as distinct from Ms Daly personally) was unaware of MTK Chocolata's claims at the time it granted any lease of the Premises to Doutmost, if it has done so. Whether the MTK Sub-Lease was established 25MTK Chocolata contends that an oral agreement for the MTK Sub-Lease was reached at some time after 2010, although it was initially proposed that BMJ Chocolata rather than MTK Chocolata should operate the café at the Premises, with that position later being changed. 26In order to establish a complete and enforceable lease agreement, there must be certainly as to its essential terms, including the parties to it, the identity of the leased premises, the commencement and duration and the rent to be paid: Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597 at 607; Competitive Funerals Pty Ltd v Gurmit Sing Rai t/as Blacktown City Funerals [2005] NSWSC 1171 at [109]-[111]. Bevillesta contends that a commercial lease would ordinarily be made up after the exchange of formal documents; while that, no doubt, is ordinarily correct, it does not exclude the possibility that parties dealing within a small business, without legal representation, may reach an implied agreement by their conduct. 27MTK Chocolata contends that that agreement is established, at least as between the Plaintiffs and the Defendants, by an admission in the pleadings. Paragraph 9(f) of the Amended Statement of Claim alleges an agreement formed between the individual Plaintiffs and the individual Defendants during 2009 and 2010 for the incorporation of the Company for a purpose including the grant of sub-leases to BMJ Chocolata and MTK Chocolata and paragraph 9(f)(ii) of the Amended Defence admits that sub-leases were to be provided by the Company to MTK Chocolata and BMJ Chocolata. Doutmost contends that this rises only to the level of "admitting an intention or expectation on the part of the Defendants that such sub-leases were to be provided" and Bevillesta points out that the Company was not incorporated until 25 May 2010 and MTK Chocolata was not incorporated until 23 July 2010. I do not consider that the pleadings establish a concluded sub-lease agreement, since the allegation in paragraph 9(f) of the Amended Statement of Claim is put in terms of the purpose of the Company, rather than alleging a concluded agreement to grant a sub-lease, and the Defence does not admit a contractual obligation to provide a sub-lease. Importantly, the pleadings also do not sufficiently identify the terms of the sub-lease for which the Plaintiffs contend. 28MKK gives a detailed account, in his affidavit dated 21 November 2011, of the circumstances giving rise to his involvement with the Company and the incorporation of BMJ Chocolata and subsequently of MTK Chocolata. He gives evidence of initial discussions related to the operation of the Top Ryde Café by BMJ Chocolata; of the incorporation of the Company, which was to lease the Premises on the basis that BMJ Chocolata would be the "owner" and would operate and take the profit of the café operated from the Premises; and of a subsequent change by which it was agreed, in early December 2010, that MJK would invest in the café at the Premises through MTK Chocolata and MKK would instead invest in another café operated at Chatswood through BMJ Chocolata. However, MKK's account of those dealings also does not indicate any specific agreement to grant a sub-lease of the Premises as distinct from a wider economic or business interest of MTK Chocolata in the Company, the café or the Premises, and also does not indicate any agreement as to the terms of such a sub-lease. 29Bevillesta also contends that any oral agreement to sub-lease between the Company and MTK Chocolata must have occurred by way of a conversation between MJK, as the sole director of MTK Chocolata, and JK as the sole director of the Company. I do not accept that submission. The evidence indicates that the Company held ES out to be its General Manager and to have authority to act on its behalf, both in dealings with Bevillesta and in dealings with the Plaintiffs, and such an agreement could be formed by conduct on his behalf, and it appears that MTK Chocolata had, at least by conduct, authorised MKK to act on its behalf. 30I have also considered whether the MTK Sub-Lease could be implied from the parties' conduct, although it is not possible to point to a particular act of offer and acceptance. An agreement may be inferred from parties' conduct although there is no identifiable offer and acceptance, where the parties' conduct is consistent only with the existence of that agreement between them: J W Carter, E Peden and G J Tolhurst, Contract Law in Australia, 5th ed, LexisNexis Butterworths, 2007 at [3.05]. In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 528, Kirby P referred to the principle of inferred acceptance, where there is an inference from the conduct of the disputing party that it accepted a contract as valid. However, in that case, the terms of the relevant contract were clear from a printed contract which had been provided to the defendant but not signed by it, and McHugh JA (with whom Samuels JA agreed) found the contract to be established by the acceptance of goods or services provided for on the terms of the written offer. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, McHugh JA observed that: "It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often to unrefined to fit easily into the slots of 'offer', 'acceptance', 'consideration' and "intention to create a legal relationship" which are the benchmarks of the contract of classical theory. ... Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship made by reason of the parties' "subsequent conduct" become sufficiently specific to give rise to legal rights and duties".; see also Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68]. 31On balance, I consider that the evidence does not establish an agreement, whether formed orally or by conduct, between the Company on the one hand and MTK Chocolata or its principals on the other to grant the MTK Sub-Lease. As I noted above, the discussions set out in the Plaintiffs' evidence were in the most general terms, and at best contemplated the principals of MTK Chocolata "own[ing]" the business rather than contemplating the legal form of a sub-lease or its commencement date or term. I have also had regard to the 31 March Letter and Draft Sub-Lease which, read together, would have been one means of documenting the arrangement between the parties. Bevillesta submits that the statement in the 31 March Letter that MTK Chocolata "will be the sub-lesse[e]" is "no more than a statement of future intent" that MTK Chocolata "will be the sub-lessee at some indeterminate time in the future". I would not read that document, in its context, in that narrow manner. However, neither MTK Chocolata or its principals at any relevant time accepted the terms of the Draft Sub-Lease as constituting the arrangement between the parties. That omission is a matter of substance since they might well not have accepted that, for example, that a sub-lease for five years gave effect to their claim to ownership of the café at the Premises. The Interlocutory Process itself claimed a sub-lease for a longer term than is referred to in the Draft Sub-Lease. I can therefore see no point at which consensus was reached, or reflected in conduct, as to the fact that the Plaintiffs' investment in the café operated at the Premises would take the particular form of a sub-lease or as to the terms of that sub-lease. 32MTK Chocolata contends that the MTK Sub-Lease is specifically enforceable and the equivalent of a lease at law. In York House Pty Ltd v Federal Commissioner of Taxation (1930) 43 CLR 427 at 435-436, Knox CJ and Stark J observed that an unregistered agreement for lease is not void, and may confer equitable claims or interests and that, if a court of equity would compel specific performance of an agreement for a lease by the execution of a lease, the matter should be treated as if such a lease had been granted and was actually in existence. Their Honours referred to Walsh v Lonsdale (1882) 21 Ch D 9 and observed that: "If the agreement can be specifically enforced, the landlord has the same rights as if a lease had been granted, and the tenant is protected in the same way as if a lease had been granted. There is thus the equivalent of a lease, and the tenant is the lessee in equity ... It is not in opposition to ordinary legal parlance to describe such an agreement as a lease, and the person entitled thereunder as a lessee." Similarly, in Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 26, Mason J observed that, where an agreement for lease is capable of specific performance, the relationship between the parties in equity is that of landlord and tenant. Since I have not found the MTK Sub-Lease to be established, it follows that I cannot find it to be specifically enforceable or to give rise to an equitable sub-lease of the Premises. Whether the MTK Sub-Lease satisfies the requirements of s 54A of the Conveyancing Act 33This issue does not strictly arise since I have not found the MTK Sub-Lease to be established. However, I should address it against the contingency that an appellate court takes a different view. In order to satisfy the requirements of s 54A of the Conveyancing Act, MTK Chocolata relies on the 31 March Letter and the Draft Sub-Lease provided to it on the same date as constituting a note or memorandum of that agreement within the meaning of that section. MTK Chocolata also relies upon acts of part performance by possession of the Premises, payment of rent and installation of fit-out in the Premises. 34Section 54A of the Conveyancing Act provides that: "(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceeding is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged." The relevant memorandum must specify the material terms of the contract and may be constituted by two or more documents, provided there is some or express or implied cross-reference between them: Harvey v Edwards, Dunlop & Co Ltd [1927] HCA 13; (1927) 39 CLR 302 at 307; Timmins v Moreland Street Property Co Ltd [1958] Ch 110 at 130; Elias v George Sahely & Co (Barbados) Ltd [1983] 1 AC 646 at 655; Pang v Bydand Holdings Pty Ltd [2010] NSWCA 175 at [21]-[22]. A written offer which is subsequently accepted by conduct may be a sufficient note or memorandum of the contract: Pirie v Saunders [1961] HCA 4; (1961) 104 CLR 149 at 154. A draft contract accompanied by a signed solicitor's covering letter may constitute a note under the section where it is alleged the draft became a concluded contract and the solicitor was authorised to send it on behalf of the person to be charged: Re Byrne; Ex parte Norco Co-Op Ltd (1986) 15 FCR 255; P W Young, A Cahill and G Newton, Annotated Conveyancing and Real Property Legislation New South Wales, 2010-2011 ed, LexisNexis Butterworths, 2011 at [310 38.35]. 35Mr Ng, who appeared for Doutmost, accepted in submissions that I could properly read the 31 March Letter and the Draft Sub-Lease provided on the same date as connected. Had I found that MTK Chocolata had accepted the terms of the 31 March Letter and the Draft Sub-Lease, I would have held that those documents, read together, were sufficient writing to confirm the essential terms of the MTK Sub-Lease, namely the location of the Premises (contained in both the 31 March letter and the Draft Sub-Lease), the rental payable (specified in the Draft Sub-Lease) and the length of the term (specified in the Draft Sub-Lease). I consider that the commencement date of the MTK Sub-Lease would have been implied, reading those documents together, as the same as the commencement date of the Lease. However, as I noted above, the evidence does not establish that MTK Chocolata or its principals in fact accepted that the terms of the Draft Sub-Lease constituted the terms of the parties' arrangement. 36MTK Chocolata alternatively contends that the MTK Sub-Lease is supported by sufficient acts of part performance including the payment of rent, possession of the premises by MTK Chocolata and expenditure by MTK Chocolata on the fit-out and establishment of the premises. In particular, MTK Chocolata relies on the fact that it paid substantial sums on the fit-out of the Premises described as "lease improvement" in draft accounts of MTK Chocolata provided by ES's solicitors and made payments described as "rent" in those draft accounts. 37The test to establish part performance is relatively demanding, requiring that the acts of part performance are "consistent only with the existence of a contract between the parties, and to have been done in actual performance of that which in fact existed" or, in another formulation, that there be acts done by and by force of the contract that are unequivocally and in their own nature referable to some such agreement as that alleged: JC Williamson Ltd v Lukey (1931) 45 CLR 282 at 300; Regent v Millett [1976] HCA 40; (1976) 133 CLR 679 at 682-683; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 432; Khoury v Khouri [2006] NSWCA 184; (2006) 66 NSWLR 241 at 244. Acts that are preparatory or ancillary to the performance of the contract, or undertaken in reliance on it rather than in performance of it, will not be sufficient to establish part performance and the alleged acts of part performance must post-date the informal contract: Ciavarella v Polimeni [2008] NSWSC 234 at [126], [128]. I do not consider that the acts to which MTK Chocolata refers are sufficiently clearly referable to the existence of the MTK Sub-Lease, as distinct from the wider dealings between the Plaintiffs on the one hand and ES and the Company on the other, to establish part performance. 38MTK Chocolata contends that the Plaintiffs made capital contributions in the sum of $648,750 in accordance with the agreement, inter alia, that the Company would provide the MTK Sub-Lease in respect of the Premises. The Defence filed by the Defendants in the proceedings admits that payments of $582,290 have been received. I cannot find that those payments are referable to the MTK Sub-Lease, since they are equally consistent with contributions made on the footing that the Company would occupy the Premises and that MTK Chocolata would either make loans to it or ultimately occupy the Premises under licence. I also do not consider that I can find that the unsigned financial statements of MTK Chocolata that record payment of rent on "land and buildings" establish an act of part performance, where that reference is equivocal as to whether those payments were made in respect of any sub-lease by MTK Chocolata or were contributions made by MTK Chocolata to rent payable by the Company under the Lease. While MTK Chocolata contributed to payment of a security bond, that bond was to be provided by the Company under the Lease (MKK affidavit 21.11.2011 [43]) and did not relate to a separate security bond in respect of any sub-lease by MTK Chocolata. The installation of equipment purchased in MTK Chocolata's name in the Premises also does not establish part performance since that would also be consistent with the wider business arrangement between the parties. 39MTK Chocolata also submits that part performance can be established by its operation of the café at the premises. I cannot accept that contention, because paragraph 17(b) of the Amended Statement of Claim alleges that the café at the Premises was operated by the Company rather than BMJ Chocolata or MTK Chocolata and that pleading was verified by MJK, the sole director of MTK Chocolata. The evidence of MJK and MKK also indicates that they only worked at that café for relatively short periods and were not permitted by ES to take any substantial role in the management of the café. The evidence therefore does not establish that MTK Chocolata in fact operated the café at the Premises. Whether the 19 July Notice was a repudiation of the Lease or a surrender of the Premises 40This issue also does not strictly arise since I have not found the MTK Sub-Lease to be established, so there is no room for any interest of MTK Chocolata as sub-lessee to be preserved on surrender of the lease by the Company. 41MTK Chocolata contends that the 19 July Notice effected a surrender of the Lease on the basis that the Company gave up the leasehold interest to Bevillesta which accepted that surrender. In Wilson v Jolly (1948) 48 SR (NSW) 460, the principle underlying a surrender was expressed as being that the lessee, by its voluntary act, is not permitted to destroy an interest of its own creation. In 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193 at 199-200 Asprey JA observed: "For a surrender of a lease by way of operation of law to occur there must be an act done by one of the parties to the lease, assented to by the other, which act is inconsistent with the continuance of the lease. It is necessary to prove an act or acts which are unequivocally referable to an agreement between the lessor and the lessee that the lease shall be terminated. It is not sufficient that the acts in question are merely consistent with the intention of the parties that the lease should [not] continue to exist. Where, as here, the question is whether the existing lease has been surrendered by operation of law and a new lease of the subject premises has been entered into between the lessor and a third party or whether the lessee has assigned his lease to the third party, in order that the first of these alternative positions may be established, it must be proved that there has been a grant of a new lease to such third party by the landlord with the assent of the lessee and a yielding up of possession by the lessee to the third party." (citations omitted) 42In Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 at 694, Clarke JA observed that: "In determining whether a surrender by operation of law has taken place the courts look to the actions of the parties in order to determine whether they have conducted themselves in a manner inconsistent with the continued existence of the lease. Where it is found that both parties have so conducted themselves then the conclusion will be that a surrender by operation of law has taken place." 43In Fleeton v Fitzgerald (1998) 9 BPR 16,715, the Court of Appeal held that the termination of a head lease was not a forfeiture where it was not effected under a forfeiture clause in the lease and did not conform with the notice or other requirements of s 129 of the Conveyancing Act and was instead a surrender by operation of law which was not subject to notice requirements. The Court noted that the surrender of a lease could be implied. Beazley JA (with whom Mason P and Meagher JA agreed) observed that: "Forfeiture and surrender are both means whereby a lease is terminated prior to the expiry of the term of the lease. Forfeiture occurs were a lessee has committed a breach of the terms of the lease and has failed to remedy the breach in accordance with a properly constituted notice. The lessor may then terminate the lease. Forfeiture must be effected pursuant to a forfeiture clause in the lease and in conformity with the statutory requirements prescribed by s 129 of the Conveyancing Act." Her Honour also noted that, if a lease was terminated by forfeiture by reason of a failure to remedy the breach, the sub-lease was also terminated, but sub-tenants were afforded statutory protection from termination of the head lease under s 130 of the Conveyancing Act. I will address the potential operation of that section below. 44Her Honour also observed that: "Surrender occurs where a lessee gives up the leasehold interest to the immediate lessor and the lessor accepts the surrender. Surrender may occur by operation of law as well as by express act of the lessee, and is therefore not subject to notice requirements. For there to be a surrender by operation of law there must be unequivocal conduct by both parties which is inconsistent with the continuance of the tenancy ... Surrender by operation of law occurs where the parties do some act showing an intention to terminate the lease and it would be inequitable for them to rely upon a formal deed of surrender or where the tenant gives up possession of the premises and the landlord accepts that to have occurred. ..." Her Honour noted that the effect of surrender of a lease was that the sub-lessee's interest was preserved even if its rights were unknown to the head lessor and even where the grant of the sub-lease gave the head lessor the right to forfeit the lease. On the facts of that case, her Honour noted that, when the lease was surrendered, the appellant's interest as sub-tenant remained. 45On the other hand, Bevillesta characterises the 19 July Notice as a contractual disclaimer. A contractual disclaimer of a lease is analogous to a repudiation of the lease and would not itself bring the lease to an end, but instead leaves it open to the lessor to continue to enforce its terms or to take appropriate steps to obtain possession of the premises: WG Clark (Properties) Ltd v Dupre Properties Ltd [1992] Ch 297 at 302-303; Re Teller Home Furnishers Pty Ltd (in liq) [1967] VR 313 at 317; A J Bradbrook, C E Croft and R S Hay, Commercial Tenancy Law, 3rd ed, LexisNexis Butterworths, 2008 at [17.21]. Bevillesta contends that it accepted that repudiation by seeking to re-let the premises (Daly affidavit 14.9.2012 [12]-[14]). Bevillesta also emphasises that the forfeiture of a lease avoids all under-leases: Great Western Railway Co v Smith (1876) 2 Ch D 235 at 253; Pennell v Payne [1995] QB 192 at 197. 46Doutmost seeks to distinguish a contractual disclaimer at general law from forfeiture for a breach of covenant, condition or agreement in the Lease, so as to avoid the application of s 129 of the Conveyancing Act or the consequence that a purported act of re-entry which did not comply with that section is characterised as an act of surrender, in the manner which occurred in Fleeton v Fitzgerald above. Doutmost also contends that a forfeiture of the Lease can be supported by reference to clauses 18.1 and 18.2 of the Lease, which apply, inter alia, where an administrator is appointed in respect of the Company, and rely on the decision in Melacare International Ltd (in rec) v Daley Investments Pty Ltd [1999] NSWSC 496 as authority that s 129 of the Conveyancing Act would not apply to forfeiture of the Lease on that basis. However, there is no evidence that Bevillesta sought to forfeit the Lease on that basis, as distinct from relying on the administrator's purported "disclaimer" of the Lease. It is therefore not necessary for me to decide whether Bevillesta could have done so having regard to s 129 of the Conveyancing Act and s 440B of the Corporations Act. 47Doutmost also points out that s 440B of the Corporations Act applies where the Premises have been or were used or occupied or in possession of the Company. In my view, that requirement is satisfied, to the extent that the Company was in occupation of the Premises, either itself or by permitting (on a basis which is unclear) Doutmost to occupy the Premises. Doutmost contends that the notice given by the administrator itself amounted to consent to acts taken by Bevillesta, including re-entry into the Premises, satisfying the requirement for written consent under s 440B(2) of the Corporations Act. Although that notice, in terms, did not indicate such consent, I accept that such consent would be implied in circumstances involving a surrender of the Premises accepted by Bevillesta. 48In my view, the 19 July Notice gave rise to a consensual surrender of the Company's right to occupy the relevant premises, as distinct from only a notice of the administrator's intention not to exercise property rights under s 443B(3) of the Corporations Act, a statutory disclaimer (which the administrators had no power to undertake) or, as Bevillesta contends, a contractual disclaimer of the property amounting to a repudiation of the Lease. An administrator has power under s 443B of the Corporations Act to give notice that he or she does not propose to exercise rights in relation to the Premises, which protects him or her against personal liability for rent but would not generally bear on the Company's liability and is not the same as a disclaimer by a liquidator: Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391; 135 ALR 280 at 285; Cihan v Oncu [2004] NSWSC 338 at [6]. A notice given under s 443B(3) of the Corporations Act is not, in itself, a repudiation of the lease: Silvia v FEA Carbon Pty Ltd [2010] FCA 515; (2010) 185 FCR 301 at [23]-[24]. In Cihan v Oncu above, Windeyer J held that a notice given by an administrator under s 443B(2) of the Corporations Act, when combined with an unregistered form of surrender in the form required under the Real Property Act 1900 (NSW), gave rise to a surrender accepted by the head lessor. I do not understand that result to depend on the execution of the form of surrender which would not be necessary to a surrender taking effect at law, although it may give rise to an express surrender. 49It seems to me that several factors support that conclusion. First, Bevillesta took none of the steps which one would expect it to have taken had there been, as it contends, a contractual disclaimer operating as a repudiation of the Lease, including communicating acceptance of that repudiation to the Company or taking any formal step to terminate the Lease in accordance with its terms. Second, it appears that Bevillesta re-entered into the Premises without the Court's leave under s 440B of the Corporations Act and it seems to me the more likely inference is that Bevillesta understood that it was entitled to do by reason of consent given by the administrators in connection with a surrender of the Lease. In Crosswell v Meriton Pty Ltd (1993) 2 Tas R 472 at 478, Underwood J similarly held that a lessor did not exercise its right to forfeit a lease where it did not purport to do so and no notice of intention to do so was served and held that, in these circumstances, the termination of the lease took place by surrender. 50If I had held that the MTK Sub-Lease had been established, I would have held that MTK Chocolata's equitable interest under the MTK Sub-Lease survived the surrender of the Lease by the administrators. That result is reinforced by, but does not depend on, s 122 of the Conveyancing Act which has the effect that, on the surrender of the lease, its covenants would be enforceable between MTK Chocolata and Bevillesta notwithstanding the surrender, including but not limited to MTK Chocolata's obligation to pay rent: Plummer and John v David [1920] 1 KB 326; Wilson v Jolly above; Crosswell v Meriton above at 483; P W Young, A Cahill and G Newton, Annotated Conveyancing and Real Property Legislation New South Wales, 2010-2011, LexisNexis Butterworths, 2011 at [32620]. Equitable priorities 51MTK Chocolata also contended that it was entitled to the relief sought in the application having regard to the principles concerning priorities between competing interests in land under the provisions of the Real Property Act. It is not necessary for me to address that question, given the findings which I have reached above. Both Doutmost and Bevillesta made clear that they did not contend that, if MTK Chocolata had acquired an equitable interest arising from the MTK Sub-Lease, Doutmost had any prior interest. Whether a disclaimer by the liquidator to the Company is established 52Alternatively, MTK Chocolata contends that, if there was a disclaimer of the Lease under s 568 of the Corporations Act, there should be an order under s 568F of the Act that the disclaimed interest in the Premises vests in MTK Chocolata. I do not consider that the 19 July Notice given by the administrators can properly be characterised as an act of a liquidator, although the administrators were subsequently appointed as the Company's liquidators. The letter dated 13 August 2012 from the then administrators to the solicitors for MTK Chocolata could not constitute such a disclaimer, because they had not yet been appointed as liquidators; and the letter dated 27 August 2012 from the liquidators' solicitors to the Plaintiffs' solicitors merely reiterated the effect of the administrators' purported disclaimer of the Lease and, in any event, was not executed by the liquidator as required to constitute disclaimer under s 568 of the Corporations Act. MTK Chocolata does not point to any other document constituting a disclaimer signed by the liquidators in that capacity for the purposes of s 568 of the Corporations Act. I therefore do not consider that the question of any vesting order under s 568F of the Corporations Act arises. Relief under s 130 of the Conveyancing Act 53MTK Chocolata contends that if, contrary to its submission that there was a surrender of the Lease, there had been a forfeiture of that Lease, it was entitled to an order under s 130 of the Conveyancing Act vesting the leasehold interest in the Premises in it. Bevillesta contends that there would be a question as to the exercise of discretion under s 130 of the Conveyancing Act, where MTK Chocolata did not seek to restrain Bevillesta from re-letting the Premises. I do not accept that submission, given the extent to which MTK Chocolata had placed Bevillesta on notice of its rights and the fact that, in any event, there is no evidence that Bevillesta has in fact executed a lease with Doutmost, as distinct from intending to do so. 54Section 130 of the Conveyancing Act relevantly provides: "(1) Where a lessor is proceeding, by action or otherwise, to enforce a right of re-entry or forfeiture, under any covenant, proviso, or stipulation in a lease made either before or after the commencement of this Act or for non-payment of rent, the Court may, on application by any person claiming as under-lessee any estate or interest in the property comprised in the lease, or any part thereof, make an order staying any such action or other proceeding on such terms as to the Court may seem just, and vesting, for the whole term of the lease, or any less term, the property comprised in the lease, or any part thereof, in any person entitled as under-lessee to any estate or interest in such property, upon such conditions as to execution of any deed or other document, payment of proper and reasonable rent, costs, expenses, damages, compensation, giving security, or otherwise as the Court in the circumstances of each case, and having regard to the consent or otherwise of the lessor to the creation of the estate or interest claimed by the under-lessee, thinks fit; but in no case shall any such under-lessee be entitled to require a lease to be granted to him or her for a larger area of land or for any longer term than he or she had under his or her original under-lease. (2) Any such order may be made in proceedings brought for the purpose by the person claiming as under-lessee or, where the proceedings brought by the lessor are in the Court, may be made in the latter proceedings." 55That section is applicable only where the right of re-entry or forfeiture is enforced under any covenant, proviso or stipulation in a lease. There is an open question whether relief under s 130 of the Conveyancing Act would be available in respect of a contractual disclaimer: Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 at [49]-[53]. It is not necessary for me to consider whether that section would have been applicable on the present facts, since I have not found the MTK Sub-Lease to be established. Conclusion and costs 56For these reasons, the Interlocutory Process must be dismissed. The outcome of this application would not prevent the Plaintiffs seeking leave to bring claims which are not presently raised by the pleadings arising from the transactions which I have outlined above, either in their own names or in a derivative action brought in the name of the Company. All parties may be well advised to consider whether there is room for a consensual resolution of these matters before incurring the costs involved in any further expansion of these proceedings, and exposing the underlying business to the risk of failure under the pressures of continuing litigation. I will hear the parties as to costs.

(1988) 14 NSWLR 523

195 Crown Street Pty Ltd v Hoare

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