Bettervale v Warehouse Solutions International

The issues

1. The essential issues are whether there was any oral exercise of the options in the subleases (it not being suggested that either of the defendants gave any written notice of exercise); whether the plaintiff is estopped from asserting that any oral notices of exercise that were given were ineffective because not in writing; or whether there were agreements for new subleases. If the answer to that last question is "yes", then there is a further question as to whether, accordingly, there is either a sufficient memorandum in writing signed by or on behalf of the plaintiff or whether there are acts of performance sufficient to bind the plaintiff to the asserted agreement.

The witnesses

1. Much of the evidence came from the four principal witnesses of fact. They were Mr Toohey for the plaintiff, Messrs Peter and Tom Panayi for the first defendant and Mr Temelkov for the second defendant. I have come to the clear view that none of those witnesses is, in general, a witness whose evidence ought be accepted. There are of course the usual exceptions. One is that the evidence is corroborated by other acceptable evidence. Another is that it is consistent with contemporaneous documents (and that there is no reason to suspect that the contemporaneous documents were prepared with an eye to use in any future dispute). A third is that the evidence is consistent with the probabilities, regarded objectively. A fourth is that the evidence is against interest.
2. There was a submission for the defendants that their evidence gained some force or credibility because each of them told substantially the same story. That reason may be factually correct, as a general proposition at least. It is sufficient answer to say that I do not regard the evidence of one totally unsatisfactory witness as being corroborative of the oral evidence of another and equally unsatisfactory witness.
3. There was another witness for the defendants, Mr Costi. He was not involved in any of the significant discussions that were said to have amounted to or to have included oral exercises of the options. In the scheme of things, his evidence is so tangential that I do not regard it as corroborative. To the extent that it is evidence of conversations well after the relevant events in which one or other of the defendants' witnesses is said to have asserted the defendants' position, those conversations were in my view clearly self-serving, designed to foster the impression, not grounded in reality, that there had been some effective exercises of options, or agreements for new lease.

The central factual disputes

1. The defendants' approach to the case identified some nine questions which were described as central contests of fact. There is an additional one, as to a meeting that took place at the Kooyong Tennis Club on 13 August 2012. I propose to start with that and then to move (with some consolidation) to the other nine contests.

The tennis club meeting

1. The significance of the tennis club meeting is that according to Mr Peter Panayi there was then (almost two years before expiry of his company's sublease) an oral exercise of option. According to Mr Panayi, it went further, and Mr Toohey on behalf of the plaintiff effectively agreed that this could happen.
2. Consistent with what I have said, I do not accept Mr Peter Panayi's evidence of that conversation. I would not regard Mr Toohey's opposing evidence as of itself carrying any weight unless corroborated or otherwise supported. However, on the very day of the meeting and after it had finished, Mr Toohey sent an email to his company's accountant Ms Lam which was copied to Mr Peter Panayi. In my view, that email set out the extent of the agreement reached at the tennis club meeting. In essence, it was an agreement on behalf of the plaintiff to give the first defendant a rent concession, on certain conditions set out in the email. In fact, as will be seen, the first defendant did not meet those conditions.
3. The email says nothing about any oral exercise of option or agreement for a new lease. I regard it as the most accurate record of what happened at the tennis club meeting.

Alleged oral exercises of option prior to May 2014

1. The next central contest of fact concerns the asserted conversations that took place prior to May 2014 concerning renewal of leases. The evidence of those conversations, in which it is said that one or other of the defendants gave oral notice of exercise of its option or options, is entirely oral. It comes from Mr Temelkov on the part of the second defendant and from Mr Peter Panayi on behalf of the first defendant. Consistent with the views as to credibility that I have expressed, I do not accept their evidence, it being uncorroborated, not confirmed in any contemporaneous document, and (in my view) not being consistent with the probabilities, regarded objectively. There are a number of reasons why in my view it is not consistent with the probabilities. They include the terms of an email to which I will turn in a moment, and the defendants' searches for other premises, with which I deal later.
2. I do not find that there were any oral exercises or purported exercises of the options for renewal.

Knowledge of the renewal provisions

1. Another central contest of fact related to the parties' knowledge of the renewal provisions. On the whole of the evidence I am satisfied that each of the principal actors, Mr Toohey, Mr Temelkov and Mr Tom Panayi read and understood the renewal provisions in the sublease. The latter two did so when Mr Temelkov received an email from Mr Michael Crombie of Colliers International (I shall return to his roles) saying in effect, among other things, that the subleases were soon to expire. That was on 14 February 2014. It must have meant, as Mr Temelkov acknowledged, that Mr Crombie believed, because he had been told by Mr Toohey, that there had been no exercise of the options for renewal.
2. Mr Temelkov said, and I accept, that he and Mr Tom Panayi thereafter reviewed the option provisions. I am satisfied also that Mr Peter Panayi was made aware of those provisions, both by Mr Temelkov and by Mr Peter Panayi's son Mr Tom Panayi, shortly afterwards.
3. As to Mr Toohey, he became aware of the provisions no later than October 2013, when the plaintiff received a notice of increase of rent under the head lease and Mr Toohey read the lease and sublease documents to see what could be done to pass that on. It is inconceivable that, in examining that situation, he did not think about the options for renewal, particularly because he said that he began to think about selling the head lease.
4. In short, I come to the conclusion that well before 5 May 2014 (the significance of that date will become apparent in a moment), the four men to whom I have referred were well aware of the option provisions, and thus the requirements for exercise of the options, in the various subleases.

The emails of 5 May 2014

1. A matter of great dispute was the genesis of emails sent out by Mr Toohey on 5 May 2014. In those emails, Mr Toohey gave notice (on behalf of the plaintiff) of the rents that would be charged for new leases from July or mid August 2014 (those being the dates of expiry of the subleases). Not surprisingly, the defendants placed great reliance on these emails as evidencing an understanding on Mr Toohey's part, and hence on the part of the plaintiff, that there had been an exercise of the options, or perhaps some other agreement for the grant of new subleases.
2. Whilst I do not accept Mr Toohey's explanation of the emails (it being, in common with much else of his evidence, entirely unsatisfactory), I have come to the view that as at May 2014, Mr Toohey had not firmly decided to sell the head lease. I have come to the conclusion that he was prepared for the plaintiff to continue as head lessor if it could get sufficient rental from the defendants to enable it to meet its commitments under the head lease, and to generate some modest additional return. Thus, it was of central importance to Mr Toohey to have clearly in his mind what were the rentals that could be charged.
3. To my mind, in sending out the emails, Mr Toohey was informing the defendants of the rents that would be charged if they were to renew their subleases (to the extent that this was still available), or to enter into agreements for new subleases. As to the latter point: the relevant emails are at least consistent with the offer of new subleases where there was no possibility of exercising the option.
4. Mr Toohey notified the proposed rents in terms that suggested that he was intending to utilise the rent review provisions of the subleases (for two of the warehouses) that enabled a market assessment to take place on a renewal of lease pursuant to exercise of an option. However, there was also in those subleases a provision enabling the plaintiff to charge an increased rent during the period of any holding-over. Thus, despite the attempts made by Mr Toohey to explain away his choice of words (which he agreed were very unfortunate, and which he said could have been better expressed), I do not regard this point as providing any significant corroboration for the defendants' case theory.

Oral exercises of option after May 2014

1. I turn to the question of oral notices of exercise of option after those emails were sent. That can only be relevant for Warehouses 1 and 3 if the plaintiff had agreed to waive not only the requirement for written exercise, but also the requirement for timeous exercise. That is because the option windows for the subleases of those warehouses had closed.
2. As to Warehouse 2, the evidence comes from Mr Temelkov. For the reasons I have given as to his credibility, I do not accept it. There is a matter of context that gives support to that view of his evidence. (There is, equally however, a matter of context that tells against it.) That supporting matter is that, in June 2014 and following requests for new leases, Mr Toohey caused the plaintiff to instruct its lawyers to prepare, and the lawyers did prepare, draft new subleases.
3. I am prepared to find that there were some requests for new leases (as the defendants called them) during June and July. To that extent at least, I accept the evidence given by Mr Temelkov on this point, of making those requests. That evidence is consistent with emails sent by the defendants to the same effect. However, I do not regard those requests as reflecting any genuine belief on the part of the defendants that they had any entitlement to new leases or subleases. Rather, in my view, it reflects a plan that the defendants concocted, knowing that their subleases had expired or were about to expire and that the options had not been exercised, to give colour to a case that, nonetheless, they had some enforceable right to new subleases.
4. There are many indicia in the evidence that the defendants did not genuinely believe that they had any entitlement to new subleases. Since these are brief reasons, I will mention only one. That is an email sent by Mr Temelkov to Mr Crombie, of Colliers International, with whom both the plaintiff and the defendants had been dealing (although for different purposes). Mr Crombie had been engaged by the defendants to look for other premises. He wrote to Mr Temelkov on 14 July 2014 about a "new site" and asking "if we can assist you in any way". Mr Temelkov replied saying, among other things, that "it's still up in the air". Those words could only have referred to the state of negotiations between Mr Temelkov and Mr Toohey. They are flatly inconsistent with the proposition that there was as at 14 July 2014 any concluded and enforceable entitlement to a new sublease. Mr Temelkov's cross-examination on that point does nothing for his credibility. His attempts to explain it away were in my view false.

The preparation and retention of new subleases

1. As I have said, Mr Toohey caused the plaintiff to instruct its lawyers to prepare new subleases. That was done. The defendants submitted that this was consistent with the existence of agreements for new subleases.
2. Although there is much force in that submission, on balance I do not accept it. As I have said, there is much contextual material which suggests that the defendants did not then genuinely believe that they had any concluded agreement (whether or not enforceable in law) for fresh subleases.
3. Although I have little regard for Mr Toohey's evidence, and I do not accept his explanation as to why he caused those instructions to be given, I do think that there is an explanation that is not consistent with the defendants' case theory. It is clear that at the time the drafts were prepared, the plaintiff was having trouble meeting its financial obligations, including to the head lessor.
4. It is clear that, at the time the drafts were prepared, this trouble arose very substantially because the first defendant was paying a reduced rent for Warehouse 1, and was not being particularly prompt in payment of even that reduced rent. I think that this was causing significant financial difficulties to the plaintiff.
5. In those circumstances, I think, Mr Toohey remained prepared to grant new subleases if the plaintiff could get the rents that it required and if his additional requirements, as to directors' guarantees and the like, were met. If all those things happened, the plaintiff would have had market levels of rent which would enable it to meet its commitments and, in the case of the first defendant, some security, by way of guarantees, for the payment of its rent.
6. Mr Toohey's behaviour in respect of the draft subleases was not creditable. He was asked whether they had been prepared. He said (falsely) they had not, and gave knowingly false reasons. He retained possession of them, and did not even admit that they had been prepared, until mid-July 2014. To my mind, that reflects his attitude that he would not cause the plaintiff to enter into any new subleases unless all the conditions that he had sought to impose were met.

The November 2014 conversation

1. The next central dispute of fact concerns a conversation said to have occurred in November 2014 between Messrs Toohey and Temelkov. There is no doubt that they had a meeting at the premises in November 2014. There is no doubt that Mr Toohey told Mr Temelkov that the plaintiff was going to sell the whole site. According to Mr Toohey, he said that the plaintiff could do so because no-one had exercised their options and there were no long-term subleases; and that he had engaged Mr Crombie as the selling agent.
2. Mr Temelkov denied those specific matters. In this context, I accept his denial. Mr Toohey's evidence as to the conversation is lacking in credibility, even by his standards.
3. Thus, I do not find that at the November 2014 meeting, Mr Toohey told Mr Temelkov that in the plaintiff's view the defendants had not exercised their options and there were no long-term subleases.

Other matters pointing to knowledge of proposal to sell

1. However, that is not the end of the question of the defendants' knowledge. The plaintiff was negotiating to sell the head lease to a company known as Logos Investments Pty Ltd. In February 2015, Logos offered subleases to both defendants for each of the three warehouses. It is obvious that Logos would not have done this unless it were buying with vacant possession. It is equally obvious that the defendants would not have needed new subleases if (as their case is) they had agreements for new subleases that, one way or the other, were enforceable. Nonetheless, the defendants treated with Logos. There was a series of revised proposals sent by Logos to the defendants (usually through Mr Crombie) in March and April 2015. To my mind, it is not credible that the defendants would have received all these proposals, and not once protested either to Logos or to the plaintiff that there was no need for them to take subleases from Logos because they had enforceable subleases at that very time.

The defendants' searches for other premises

1. That is consistent with what in my view is another key matter of context. From March 2013 the defendants had been looking for other business premises. Their evidence was that, at least for two years or so up until April 2015, that was because they were seeking additional rather than alternative accommodation. I do not accept that evidence. There is nothing other than unsupported assertion as to the defendants' need for, and more importantly financial ability to pay for, additional premises.
2. The sums of money were not exactly insubstantial. One of the properties that the defendants looked at was for sale. Its price was said to be of the order of $14.5 million. Another, also for sale, had an asking price of $13.5 million.
3. Other properties were leaseholds. One, known as the Old Visa Site, had a head rental of $2.2 million per annum and outgoings exceeding $350,000 per annum. In addition, the head lessee wanted $2 million for the assignment of the head lease.
4. Other leasehold properties were asking rentals between $1.2 million and $2.1 million, in some cases with outgoings in very substantial amounts in addition. The idea that the first defendant, which could not meet its obligations under its sublease of Warehouse 1 without a very significant rent abatement, yet could afford either to purchase or to lease additional premises on any of the terms that I have just referred to is, with respect to those who sought to give evidence of that, ludicrous.
5. I accept that the second defendant's financial position was better than that of the first defendant. However, there was no analysis, no business case, and no reasoned justification whatsoever put forward in the evidence for the proposition that the second defendant could have afforded to take on obligations of the magnitude of those to which I have referred, as well as maintaining its obligations under the subleases of Warehouses 2 and 3.
6. In my view, at all material times when the defendants were looking for other premises, they were looking for alternative rather than additional premises.
7. That to my mind is consistent with the objective probabilities. The defendants knew that they had to make a decision in early to mid-2014 as to exercise of their options. As rational and prudent businessmen, it is likely that they would have analysed the other alternatives that were open to their companies. One such alternative would be to seek other premises, perhaps offering other advantages and offering more security of tenure. In my view, that is precisely what the defendants were doing at all relevant times.
8. There are other matters of context that support this view, including an email in which Mr Crombie set out an understanding, quite clearly gained from Mr Temelkov, that the defendants (or at least the second defendant) had an "immediate" need for new premises in June 2014. That could not have been the case if, as the defendants now wish to suggest, they had enforceable agreements for new subleases of the warehouses at the premises.
9. As I have said, I find that the defendants were looking for alternative accommodation. I find that their searches, becoming as they did more intensive from early 2014, are entirely consistent with the proposition that they were then thinking of moving, and (continuing as they did after July 2014) inconsistent with their present case theory.

Resolution of the key issues

1. Based on those conclusions on the central context of fact, it is obvious how most of the issues should be resolved.

Nor oral exercises or estoppels

1. I do not find that either of the defendants gave oral notice of exercise of the options for renewal. Hence, no question of estoppel can arise. In any event, there is no basis for finding detrimental reliance in circumstances where the defendants understood from 12 February 2014 (because of Mr Crombie's email of that date to Mr Temelkov) that the plaintiff was asserting that they had not exercised their options for renewal, and were then or shortly afterwards aware of what had to be done to ensure a valid exercise of the option. They did not do so. Their failure to do so cannot be sheeted home to anything said or done, or omitted to be done, on behalf of the plaintiff.

No oral agreements or estoppels

1. Equally, since I have not accepted the defendants' evidence, there is no basis for finding that there were any fresh oral agreements for new leases. To the extent that the question of estoppel arises in relation to those suggested new agreements for new leases, what I have said is sufficient to indicate that no estoppel could arise in any event.

No part performance

1. There was a question as to part performance. I accept that Mr Toohey's emails of 5 May 2014 set out the basis on which the plaintiff would be prepared to grant new subleases. However, the defendants did not accept whatever offer might be spelled out from that email. Nor did they perform the offered terms. The first defendant declined to pay the rent demanded for Warehouse 1. The second defendant declined until February 2015 to pay the rent demanded for Warehouse 3. Although it changed its mind thereafter, that is not consistent with acts of part performance in the intervening months.

No relevant misleading or deceptive conduct

1. There was a separate issue as to misleading or deceptive conduct. On the principal issues, that goes no further than the issues that I have dealt with already. However, there is a separate way in which it may be relevant: namely, what should happen in the event that (as I have done) I conclude that the plaintiff has made good its claim for relief.
2. The defendants have remained in occupation from month to month. In my view, they have not done so on the basis of any representation made to them by the plaintiff, or in reliance on anything done or omitted to be done by the plaintiff. They have done so because it suited them to do so. They have not accepted the rent proposed. They have not (in the case of the second defendant, up until February 2015) paid the rents demanded. The fact that they have only a month's security of tenure is an inescapable consequence of the terms of their subleases, in the events that (I have found) occurred. It is not attributable to anything on the part of the plaintiff that could amount to misleading or deceptive conduct (or, for that matter, that could ground an estoppel).

No relief against forfeiture

1. On the view to which I have come it is not necessary to deal with relief against forfeiture. However, if that did arise for consideration, I would conclude that the defendants should not have it (either under the general law or pursuant to the relevant statutory provisions).
2. In the case of the first defendant, it should not have relief against forfeiture because I have no confidence whatsoever that it could or would pay the rent demanded in respect of the sublease of Warehouse 1. Further, in its case, it has made it clear that it will only pay the conceded arrears of rent if it gets a new sublease. A defendant that seeks to bargain with the Court in that way is not in a very strong position to ask the Court to exercise a discretionary head of relief in its favour.
3. Further, and as to both defendants in this context, the rights of a third party have intervened. That is because the plaintiff has agreed to sell the head lease and the contract for sale is due for settlement at the end of this month. The plaintiff is required to give vacant possession. The purchaser is entitled to the benefit of vacant possession. In circumstances where the defendants have stood by and permitted the negotiations to proceed and to culminate in a contract, their rights, if any (and I have said there are none), should not trump those of the purchaser.

Arrears of rent

1. The remaining question relates to the plaintiff's claim against the first defendant for arrears of rent. As to arrears prior to 30 June 2014, there is no contest. The plaintiff is entitled to judgment for the amount claimed together with interest.
2. The plaintiff also seeks judgment for arrears of rent in respect of the months of occupation since July 2014. That claim is based on the relevant email of 5 May 2014. For the reasons I have given that email was not an effective exercise of the right to shift the rent to a market rent on renewal pursuant to exercise of option. It was, however, in my view effective as an exercise of the contractual right then undoubtedly available to the plaintiff to increase the rent for the period of any holding over.
3. In those circumstances, I think, the plaintiff has made good its entitlement to this aspect of the claim also.

Conclusions

1. It follows that the plaintiff is entitled to the relief claimed. It is entitled to judgment for possession and to have a writ of possession issue. It is entitled to an order that the caveats be removed. And as against the first defendant, it is entitled to judgment for arrears of rent, together with interest, on the basis I have explained.
2. The parties are to bring in draft orders to give effect to what I have said. There will be a question as to the time at which the writ of possession should be executed. The defendants sought three months. The plaintiff says that they should have no more than three weeks.
3. The defendants' claim was based on the proposition that they were entitled to all the time they needed to move, and to transfer their businesses without interruption. The plaintiff's alternative view was put on the basis that, as the defendants' witnesses acknowledged in cross-examination, they had alternatives available to them. In my view, bearing in mind that the situation is entirely of the defendants' making, and taking into account what I have said as to the contract for sale, the plaintiff's position is to be preferred.
4. Accordingly, my present view is that the writ of possession should be executed at such a time as will enable the plaintiff to give vacant possession on the date when completion of its sale of the head lease is due. I will however hear further submissions if desired.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 September 2015