Ausko Cooperation Pty Ltd v Junapa Pty Ltd [2021] NSWSC 615 | Case summary

Determination

It is convenient to deal first with the question whether the parties entered into a binding agreement for a new lease on about 3 September 2020. As in Darzi Group Pty Ltd v Nolde Pty Ltd (supra - Court of Appeal), also a case involving parties to a retail shop lease, the critical question is whether by an exchange of correspondence the parties entered into a binding agreement for the grant of a lease (see at [3], [99] and [141]). Questions of this nature are ordinarily determined by reference to the classification of cases as expressed in Masters v Cameron (supra) at 360, and the principle stated in that case at 362 that the question depends upon the intention disclosed by the language the parties have employed. The relevant principles have been stated and applied in countless cases since. For example, in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (supra) Gleeson CJ stated at 548: In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understating of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence… It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron (at 360). That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
The determination as to intention rests upon an objective analysis of the conduct of the parties (see, for example, GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634E-F per McHugh JA; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 at [64]-[65] and [69] per Beazley P; Darzi Group Pty Ltd v Nolde Pty Ltd (supra - Court of Appeal) at [4]). It is legitimate for this purpose to have regard to the subsequent conduct of the parties to determine whether, at an earlier juncture, the parties intended to enter into a binding agreement (see Pavlovic v Universal Music Australia Pty Ltd (supra) at [118]).
The relevant conduct of the parties in this case took place in the context of an existing landlord and tenant relationship. The relationship between them was governed by a registered lease of the premises for a 5 year term which was drawing to a close in circumstances where the plaintiff had decided not to take up the option to renew the lease for a further 5 year period. The registered lease, which may be referred to as "the existing lease", is a "retail shop lease" within the meaning of the Act. The existing lease is a lengthy and detailed document which deals with a wide range of matters in an apparently comprehensive manner. Apart from the central matters of rent and outgoings, the existing lease made provision for matters including repairs, insurance, transfer of the lease, forfeiture of the lease, provision of a bank guarantee by the plaintiff, and the giving of a guarantee of the plaintiff's obligations. A rent free period was provided for in cl 31, and cll 34 and 35 dealt with lessor's works and lessee's works respectively.
By Ms Kwon's letter to Mr Youssef on 15 June 2020, the plaintiff sought an indication from the defendant that it would be "willing to offer significantly lower rent for a new term". After Mr Youssef requested Ms Kwon to indicate the rent the plaintiff was seeking, she responded on 8 July 2020 with a "proposal for a new lease". The proposal relevantly covered five items, namely: 1. rent at commencement and annual rent increases; 2. term of lease, including option for further term; 3. outgoings to be paid by the lessee; 4. car space for the lessee; and 5. repairs to be undertaken.
On 16 July 2020 Mr Youssef responded to each item of the proposal, which he described as an offer. There was agreement on some items (including as to a 5 year lease term with an option for a further 5 year term) but not others (including as to rent and annual rent increases). Ms Kwon's email in response on 22 July 2020 provided further agreement on some items (such as annual rent increases and lessee's obligations concerning rubbish bins and recycling bins), but some of the other items remained in issue (such as the rent and the car space), and some additional requests were made concerning repairs. The email concluded with a request that Mr Youssef state whether the defendant "accepts". It is apparent that as the expiry of the term of the existing lease was looming, Ms Kwon was keen to obtain an answer from Mr Youssef to "finalize the terms and conditions of this matter". In his email of 26 August 2020 Mr Youssef said that "we will try to have this finalised as soon as possible". I note these references to finality but do not think that much weight should be placed upon them; Ms Kwon also spoke of finalising the transaction in her email of 24 November 2020.
On 3 September 2020 Mr Youssef sent an email to Ms Kwon which referred to a discussion that took place between them on that day. No evidence was adduced of the terms of that discussion. However, the balance of the email indicates that the defendant had approved of the content of Ms Kwon's email of 22 July 2020, and it may be inferred that the discussion concerned that matter. The last sentence of Mr Youssef's email suggests that it was contemplated (at least by him) that a lease document would be prepared, as had occurred on the previous occasion the parties entered into a lease.
It can be said that at this point the parties had seemingly reached agreement or consensus upon each of the five items that had been under discussion since Ms Kwon's proposal on 8 July 2020, although it should be noted that some uncertainty attends whatever agreement was reached in relation to the car space. I think it can be said that the plaintiff and the defendant had reached agreement upon such terms as are legally necessary to constitute an agreement for lease. That is, the plaintiff and the defendant were in agreement as to the premises, the term and the rent. There was no agreement as to the commencement date of the term, but if an agreement is a retail shop lease, s 8 of the Act would operate to fill that gap.
However, agreement on what is legally necessary for an agreement is not the same as an intention to make a concluded bargain. To determine whether the parties had that intention at a particular time it is necessary to objectively analyse their conduct, including relevant subsequent conduct, in the context in which it occurred.
As I have said, the context includes an existing retail shop lease within the meaning of the Act. The parties must be taken to have been aware of that statutory background.
The parties were negotiating for a new lease with a term of 5 years with an option for a further 5 year term. By s 16 of the Act, a retail shop lease for such a term is required to be lodged for registration. In these circumstances the parties should be taken to have contemplated that a formal lease document would be prepared and executed. That conclusion would in any event be drawn from the last sentence of Mr Youssef's email of 3 September 2020 (see also s 15 of the Act).
There are, in addition, other requirements of the Act that relate to the making of a retail shop lease, notably the requirement in s 11 of the Act for the lessor to give a disclosure statement to the lessee at least 7 days before a retail shop lease is entered into. That is an important requirement, and failure to satisfy it is not only an offence, it also affects the enforceability of a retail shop lease. Section 12A, for example, provides that a lessee under a retail shop lease is not liable to pay any outgoings unless the liability is disclosed in the lessor's disclosure statement. The parties here contemplated a lease that would make the plaintiff liable for certain outgoings. I think they should be taken to have contemplated that a lessor's disclosure statement would be given before the proposed retail shop lease was entered into.
There are other circumstances that, in my view, are indications that the parties, although in agreement by 3 September 2020 on matters essential for an agreement for lease, did not intend to make a concluded bargain or binding agreement at that point. The detail and scope of the existing lease leads me think it unlikely that the parties would intend to become legally bound when a number of matters the subject of the existing lease were not the subject of the discussions leading up to 3 September 2020. For example, there was no discussion concerning insurance, the provision of a bank guarantee, or the giving of a guarantee of the plaintiff's obligations. It seems to me that these are matters about which these parties would be expected to reach agreement before becoming bound to a new lease, particularly a lease for a 5 year term, with an option for a further 5 years. It strikes me as unlikely that these parties, having dealt so comprehensively with their relationship in the existing lease, would proceed to bind themselves to a lengthy lease without having these not insignificant matters dealt with.
I note in passing that by s 16BA of the Act, the defendant would have been required to return the bank guarantee given by the plaintiff pursuant to the existing lease. There was thus a clear need for something to be done if any such security was to be provided for the proposed new lease.
For the above reasons I am unable to accept that the parties intended to be bound to an agreement on only the terms set forth in the correspondence up to and including 3 September 2020 without addressing the many matters they had previously taken the trouble to deal with in the existing lease.
I turn then to the plaintiff's alternative argument that the parties should be taken to have agreed to enter into a new lease on the terms of the existing lease save for changes made to accommodate the matters agreed upon in the correspondence between them. This argument gains some support from the approach taken by Helsham J in Blackburn Developments No 19 Pty Ltd v Downs Surgical (Australia) Pty Ltd (supra). In that case, his Honour found that the parties to an existing lease entered into an agreement for a renewed lease, and granted specific performance in respect of the agreement. His Honour found (at 9146 and 9147) that it was implicit in the terms of the communications between the parties that the contemplated formal document would contain the agreed terms but would otherwise be in the form of the current lease. Helsham J evidently placed some reliance upon the fact that the existing lease contained "the ordinary sort of covenants and conditions that one would expect to find in a five year lease of business premises"; and also the references in the correspondence to "renewing the lease".
The present case differs in various respects. Here, the existing lease contains at least some provisions which I doubt could be considered "ordinary" covenants or conditions (e.g. cl 8.6 concerning an indemnity in favour of the defendant, and cl 20 containing an exclusion of warranties) and further contains some provisions which seem to have become redundant (e.g. those concerning the rent free period, the lessor's works and the lessee's works). Further, this is not a case where the parties were explicitly speaking of a renewal of an existing lease. The plaintiff decided not to exercise its option to renew the lease and instead sought to negotiate what Ms Kwon described as "a new term" or "a new lease".
That is perhaps not a major difference in itself, but taken with the matters already referred to, and in circumstances where the parties must be taken to have contemplated that a formal lease document would be prepared and executed yet made no express reference to the existing lease playing any role in that regard, I do not think it is implicit that the parties contemplated that the formal document would take the form of the existing lease save for changes to accommodate the matters agreed upon in the correspondence. Had that been intended it would have been very simple to make a statement to that effect. Moreover, it should not be overlooked that in one respect, namely, the car space, entirely new provisions would need to be drafted and included in the new lease document. I have already observed that some uncertainty attends the agreement reached in relation to that matter. There seems to be considerable scope for further discussion on the precise terms of the envisaged first right of refusal. In my opinion, the circumstances suggest that, at most, the parties may have expected that the existing lease would be used as a basis or template that would assist in the formulation of a new lease document.
In summary, it is my opinion that the present case is one where the parties, as at 3 September 2020, should be taken to have in contemplation that there could be further negotiations as to the terms to be included in a new lease. As I have said, a number of matters, including matters of apparent importance, were not the subject of the discussions up to that time. I think that the parties intended that those matters, or at least the significant ones (such as insurance, bank guarantee, and guarantee of the plaintiff) would be dealt with by provisions to be included in the new lease document, and contemplated that there could be negotiations about such matters. When further regard is had to the statutory context, including the requirement to give a lessor's disclosure statement before a retail shop lease is entered into, I am unable to be satisfied that on or around 3 September 2020, these parties made a concluded bargain and intended at that time to be immediately bound to perform the terms that had been agreed up to that point. There was no binding agreement for a new lease for a term of 5 years, with an option for a further 5 years, on such terms.
In reaching these conclusions I have taken into account the conduct of the parties after 3 September 2020.
The content of the emails sent on 4 September 2020 seems to be equivocal. Ms Kwon was seeking the defendant's agreement to delete one of the matters that had been agreed (concerning rubbish bins and recycling bins). That is consistent with either a concluded bargain or a continuation of negotiations in the absence of a concluded bargain.
The evidence concerning the payment of rent is of little weight. There is no direct evidence of the amount of rent paid in September 2020, but having regard to Mr Kim's evidence, it can be inferred that if rent was paid it was at the "old" rate of $9,166.66. At the suggestion of Ms Kwon, the plaintiff paid rent in October, November and December 2020 at the "new" rate of $7,855.83. These payments were simply deposited into the appropriate account and in a limited sense may be considered to have been "accepted" by the defendant or its agents. However, the agents continued to invoice the plaintiff for rent at the rate of $9,166.66, and there was no express acceptance by or on behalf of the defendant that only $7,855.83 was payable. Whatever force there is in the making of the payments of $7,855.83, it is somewhat diminished by the plaintiff's reversion to the "old" rate in January 2021 (again on the advice of a solicitor) after the defendant denied that any new lease had been agreed.
Ms Kwon's email of 12 November 2020 suggests that the plaintiff thought that the consent of the defendant was needed in respect of a foreshadowed change in the directorship of the plaintiff. The basis for that belief is not revealed in the evidence. Neither is it clear why the request was made for the defendant's solicitor to "hold for", which I think should be read as "hold off", on the preparation of the new lease documents. The reason is likely related in some way to a guarantee of the plaintiff's obligations. Again, I think that the conduct is equivocal. The plaintiff may be seeking consent to a change in what it regarded as a concluded bargain involving a guarantee given by Jay Young Kim; or it may be putting Mr Kim forward as a prospective guarantor in the course of negotiations in the absence of a concluded bargain, in either case suggesting that there be a pause in the drafting process. I do not think that the email necessarily bespeaks of a recognition by the plaintiff that the issue was a potential "deal breaker", and thus an indication that no concluded bargain had been made.
For these reasons, the "subsequent conduct" of the parties does not seem to me to significantly assist the case of either party on the question whether a binding agreement for a new lease had been made on or around 3 September 2020.
I should add that I do not consider that the facts in Streat v Fantastic Holdings Ltd (supra) are closely analogous to the facts in the present case. In the former case, the Court found an agreement for lease in the form of a lease that had been executed by the lessee and returned to the lessor. The form of lease, which embodied the terms agreed in earlier communications, had been prepared by the lessor and sent to the lessee (see at [6]-[7]). Pembroke J found that all of the terms of the lease had been agreed and that nothing remained to be done other than execution of the document by the lessor (see at [3] and [8]). His Honour rejected the contention that the parties did not intend to be bound until both had signed. I regard that case as considerably stronger than the present case.
For substantially the same reasons as are set out above, I am not satisfied that a retail shop lease came into existence on or around 3 September 2020. A retail shop lease is relevantly defined in s 3(1) of the Act to mean any agreement under which a person grants to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop. In my opinion, agreements for the purpose of the definition are in the nature of concluded agreements intended to be binding whereby a party grants, for valuable consideration, a right of occupation for the purpose of the use of retail shop premises (see Darzi Group Pty Ltd v Nolde Pty Ltd (supra - Court of Appeal) at [39]-[40] per Basten JA). That is so whether the agreement is express or implied, oral or in writing, and whether or not the right is a right of exclusive occupation. However, contrary to the submissions of the plaintiff, no such agreement was concluded on or around 3 September 2020 whereby the defendant granted to the plaintiff, for value, a right of occupation of the shop premises for a 5 year term with an option for a further term of 5 years.
I am also of the view that s 8(1) of the Act does not operate to deem that a retail shop lease came into existence. Section 8 is concerned with a temporal question, namely, when a retail shop lease is deemed to have commenced or been entered into, rather than with whether a retail shop lease has come into existence (see Darzi Group Pty Ltd v Nolde Pty Ltd (supra - Henry J) at [188]-[189]; Darzi Group Pty Ltd v Nolde Pty Ltd (supra - Court of Appeal) at [33] per Basten JA; see also In the matter of Creditors' Trust Deed established in the administration of Bevillesta Pty Ltd [2013] NSWSC 1258 at [31] per Black J). No retail shop lease came into existence between the parties on or around 3 September 2020. Accordingly, the plaintiff did not (notionally) enter into possession of the shop premises as lessee under such a lease, and neither did it begin to pay rent as lessee under such a lease.
I turn now to consider the plaintiff's estoppel claim. As pleaded, the claim rests upon the allegation that the defendant represented to the plaintiff that it was intended that the new lease or agreement for a new lease be legally binding. The representation is said to have been made in the circumstances of the negotiations between the parties between July 2020 and 3 September 2020, and the circumstances pertaining in the period between September 2020 and December 2020 when the parties were in the process of drafting and executing a formal lease and said to be in the process of fulfilling the terms of the agreement for a new lease (see Statement of Claim paragraph 18, which refers, inter alia, to paragraphs 5, 14 and 15). It is alleged that from about 3 September 2020 the plaintiff entered into possession of the shop premises on the terms of the new lease or agreement for a new lease, and thereafter paid rent accordingly.
The estoppel case was not referred to in the plaintiff's written submissions, and was only briefly developed in the closing submissions, but it is clear that the case was pressed. In my view, the case must fail because the conduct of the defendant throughout the period in question did not amount to or give rise to any representation to the effect that what had been agreed in the negotiations up to 3 September 2020 was intended to be legally binding. The defendant made no express representation to that effect, and I do not think that such a representation should be implied from the conduct of the defendant either in the negotiations or thereafter.
The negotiations do not objectively convey a representation by the defendant that an immediately binding agreement had been made, and the mere receipt of the rent payments of $7,855.83 in October, November and December 2020 without complaint in circumstances where invoices were being issued for amounts of $9,166.66 does not amount to a clear representation by the defendant that a legally binding agreement for a new lease had been made. Neither does the defendant's conduct in instructing solicitors to draft lease documents.
I accept that the plaintiff may have thought that a new lease had been agreed upon in September 2020. I further accept that such a belief contributed to the plaintiff's decision to spend money (about $3,200) in September 2020 on refrigeration equipment and repairs to refrigeration equipment. However, to the extent that this expenditure might be said to have caused detriment to the plaintiff, it was not detriment incurred in reasonable reliance upon a representation made by the defendant as alleged. The same can be said in relation to the payments made in October, November and December 2020. It is in any case difficult to see how any detriment could have been suffered by making those payments which were smaller than the amounts being invoiced.
For the above reasons, the defendant is not precluded by estoppel from asserting that no new lease or agreement for a new lease came into existence.
I should add that no submissions were advanced in support of the pleaded claim that the making by the defendant of the alleged representation amounted to a contravention of s 18 of the Australian Consumer Law. That claim is in any event defeated by my conclusion that the alleged representation was not made.
It follows from the above that the plaintiff has failed to make out any of its claims against the defendant. No questions concerning the quantification of any damages remain for determination. In these circumstances it is appropriate to proceed now to dismiss the Statement of Claim. An order will also be made that the plaintiff pay the defendant's costs of the proceedings.
The defendant did not file any Cross-Claim seeking an order for possession. However, it appears that by the Notice to Vacate dated 7 January 2021 the then monthly tenancy (that arose under the holding over provisions of the existing lease) was terminated on 7 February 2021. Of course, the plaintiff should be afforded a reasonable period to allow it to vacate the shop premises in an orderly fashion.

Ausko Cooperation Pty Ltd v Junapa Pty Ltd

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Judgment (6 paragraphs)

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