Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd

The lease

1. Prior to dealing with the reasons of the primary judge and the issues raised by the parties, it is convenient to set out the relevant terms of the lease.
2. As I indicated, the lease is expressed to be for a term of 10 years commencing on 7 December 2012 with two options to renew for a further term of 10 years. The leased premises are described as "all those ground floor lockup premises known as 'Caringbah Business and Sports Club' (excluding foyer area) but including the loading dock and garbage room and all those basement lockup premises known as the keg store, cellar/cool room and female staff [sic] both at 22-24 Mackay Street Caringbah NSW". Item 4 of the reference schedule provides for the annual rent of $170,000 plus GST for the first year, whilst Item 5 of the schedule provides for rental of $180,000 plus GST and $190,000 plus GST for the second and third years respectively. Clause 2.1 provides the rent is to be payable monthly.
3. Clause 4.1 defines "Outgoings". It provides as follows: "4. Outgoings 4.1 Outgoings defined For the purposes of this clause 'Outgoings' means the total amount of costs and expenses incurred by the Lessor in respect of: (a) all rates, taxes, charges and assessments, duties, impositions and fees of any kind from time to time payable to any Government, Local Government, semi-government or other competent authority in respect to the Building and the Land; (b) land tax or taxes of the nature of a tax on land calculated as if the Premises were the only land owned by the Lessor and not the subject of a special trust (within the meaning of the Land Tax Management Act 1956 and the Lessor was not a company classified under section 29 of that Act as a non-concessional company; (c) all charges for, and costs in relation to supply of water and sewerage to and removal of all wastes and other garbage from the Building and the Land; (d) all amounts payable in respect of insurances and other charges including stamp duty thereon relating to the Building or the Land and the use and occupation thereof and the equipment and appliances therein, including but without limiting the generality of the foregoing, public risk, workers' compensation, fire and comprehensive insurance and loss of rent insurance for a period not exceeding 3 years; (e) the fees payable to specialist contractors and consultants in relation to the provision of services, maintenance, servicing and repair of the appurtenances of the Building; (f) the costs of operating and supplying all services from time to time provided by the Lessor for tenants and occupiers of the Building, including without limiting the generality of the foregoing, loading docks, storage areas, lifts, escalators, fire services, air-conditioning and the plant and equipment required in connection with any of those services; (g) the costs of repairs, renovations, replacements and maintenance of and to the whole or any part of the Building (excluding any work which amounts to a capital improvement or is of a structural nature) or of any services or finishes or fixtures or plant and equipment; (h) all costs and charges for lighting, power, cooling and heating incurred in connection with the Building and the Common Areas of the Building, or the Land; (i) the cost of the cleaning of the exterior and Common Areas of the Building [sic] any other improvements on the Land; (j) any contributions payable by the Lessor to the Body Corporate under the Strata Titles Act; (k) the costs of managing, controlling and administering the Building and the collection of rents and other money, including but without limiting the generality of the foregoing the reasonable wages and other emoluments paid to any Building manager and other clerical staff employed by the Lessor for these purposes, plus all statutory overheads related to such wages and fees and charges paid to any managing agent but not including leasing commissions and fees and salaries, wages, travelling and accommodation expenses incurred by the directors or administrative officers of the Lessor not directly engaged in the management and operation of the Building provide [sic] that for the purposes of this clause no regard shall be had to any commission payable to the Lessor's management agent for the collection of rents exceeding 3% of rent and outgoings collected by such managing agent; and but will not include: (l) any amount in respect of the capital costs of the Building; (m) any amount in respect of depreciation and. [sic] (n) Outgoings not specifically referable to any particular areas in the Building, unless the Premises is part of the areas to which the Outgoings are referable and the Lessee is not liable to contribute an amount in excess of an amount calculated by multiplying the total amount of that Outgoing by the ratio of the lettable area of the Premises to the total of the lettable areas of the areas to which the Outgoing is referable. An 'Outgoing' is referable to an area if the area is part of the areas in the Building that enjoys or shares the benefit resulting from the Outgoing."
4. It should be noted that "Premises" is defined as that part of the building demised.
5. Clauses 4.2, 4.3 and 4.4 provide as follows: "4.2 Lessee's Contribution It is hereby expressly agreed between the parties to this Lease that in addition to the rent, the Lessee will pay to the Lessor the Lessee's Proportion of the Outgoings for each Outgoings Year, being the Lessee's Contribution. If, however, the Lessee is the lessee of the Premises for part only of an Outgoings Year, the Lessee's Contribution for that part year will be determined by reference to the proportion of the Outgoings Year during which the Lessee has been the lessee of the Premises. 4.3 Lessee to pay charges levied on Premises The Lessee will pay all rates and taxes separately charged to the Premises and for electricity, gas, oil and water separately metered and consumed in or on the Premises, and will also pay all charges in respect of any telephone services connected to the Premises and all other charges and impositions by any public utility or authority for the supply of any service separately to the Premises. 4.4 Accrual All Outgoings irrespective of the period for which they are levied, assessed or charged will be deemed to accrue from day to day, and will be apportioned in respect of time accordingly."
6. "Outgoings Year" is defined in the lease as each 12 month period ending on 31 December in each year and notwithstanding that part of any such 12 month period does not fall within the term.
7. It should be noted that the expression "Lessee's Proportion" is defined to mean the percentage specified in Item 3 of the reference schedule, namely 33.33%, whilst "Lessee's Contribution" is defined as the amounts determined in accordance with cll 4.2 and 4.5.
8. Clause 4.5 deals with what is described as the "lessor's estimate". It provides as follows: "4.5 Lessor's estimate (a) At least one month before the commencement of each Outgoings Year, the Lessor will estimate the amount, if any, which the Lessor calculates will be payable by the Lessee to the Lessor as the Lessee's Contribution in respect of that Outgoings Year, and will notify the Lessee in writing of the amount of the estimate and will itemise the Outgoings under the item descriptions used in the list of Outgoings in the form of the Disclosure Statement. (b) On the first day of each month in each Lease Year the Lessee will pay to the Lessor one-twelfth of the amount so estimated by the Lessor, (c) Before one month after each Outgoings Year and one month after the mid-point of each Outgoings Year, the Lessor will make a written expenditure statement available for examination by the Lessee detailing all expenditure by the Lessor on account of the Lessee's Contribution, and will itemise the Outgoings under the item descriptions used in the list of outgoings in the form of the Disclosure Statement. (d) Within one month after the end of the relevant Outgoings Year or the Relevant Lease Year, whichever is the later, there will be an adjustment between the Lessor and the Lessee to take account of any under-payment or over-payment by the Lessee in respect of the Lessee's Contribution. The adjustment will be calculated on the basis of the difference between the estimate of the Lessee's Contribution and the amount actually expended by the Lessor in respect of those Outgoings, but only taking into account expenditure properly and reasonably incurred by the Lessor in payment of those Outgoings. (e) Within 3 months after the end of each Outgoings Year, the Lessor will give to the Lessee a written report which details all expenditure by the Lessor during the relevant Outgoings Year on account of Outgoings."
9. Clause 15.2 contains a covenant by the lessor to pay rates and taxes and certain other amounts. It is in the following terms: "15.2 Lessor's covenants The Lessor covenants to: (a) pay all rates, taxes, charges and assessments, duties, impositions and fees of any kind from time to time payable to any Government, Local Government, semi-government or other competent authority in respect of the Building or the land, other than those payable by the Lessee under this Lease or by any other lessee or occupier of any other part of the Building; (b) pay all charges for, and costs in relation to the supply of water and sewerage services to, and the removal of all reasonable wastes and other garbage from, the Building and the land other than those payable either by the Lessee under this Lease or by any other lessee or occupier of any other part of the Building; (c) clean all Common Areas of the Building." It should be noted that "Building" is defined as the improvements from time to time existing on the Land, whilst "Land" is defined as the whole of land comprised on the certificate of title, of which the leased premises forms part.
10. Clause 27.1 provides for what are described as "Lessor's Works". It is in the following terms: "27.1 The Lessor will, in a proper and workmanlike manner and at its own expenses prior to the Commencement Date or as soon as possible thereafter, undertake the following Lessor's Works: 1. If there is a third party tenant on the first floor of the Building, entry to premises as existing will be resumed by the Lessor to create a common area to service all tenancies. 2. If there is a third party tenant on the first floor of the Building, toilets will need to be provided to the first floor so there will be the need for access to the ground floor tenancy to provide for plumbing provisions. 3. Ensure that water, electricity and gas are separately metered for the Premises; 4. If there is a third party tenant on the first floor of the Building, OR if there is a third party tenant at the basement level and the entrance and/or stairwell to the basement level via Mackay Street is a designated emergency exit or the basement level, modify the common area foyer to install security sliding door or roller door at the entrance to the Premises. and 5. The Ground Floor tenancy (Club) will otherwise remain unaltered."
11. Clause 21.15 provides for what is described as an entire agreement clause. It is in the following terms: "21.15 Entire agreement To the extent permitted by law, in relation to the subject matter of this Agreement, this Agreement: (a) embodies the entire understanding of the parties, and constitutes the entire terms agreed on between the parties; and (b) supersedes any prior written or other agreement between the parties."

The reasoning of the primary judge

1. The primary judge carefully reviewed the evidence surrounding the allegation that it had been agreed between the parties that, notwithstanding the rent provided for in the lease, the lower amount agreed upon would be payable unless the merger with the Sharks was achieved. Because his Honour's finding that this agreement had been made was not in dispute, it is unnecessary to consider his Honour's analysis in detail. However, it is significant, having regard to some of the matters raised in argument, that the primary judge described the limited object of cross-examination as first, to test the accuracy and reliability of the disputed conversation about rent and second, "to paint a picture of the [respondent's] internal administration inconsistent with the company being relied upon in the future to perform its covenants as a lessee should the Court grant it relief against forfeiture": Caringbah Business and Sports Club Limited v Caringbah Investments Pty Ltd [2015] NSWSC 724 at [109].
2. As I indicated, his Honour found that the true agreement between the parties was that the lower amount be paid during the first three years of the term. He stated that the object of an order for rectification of a contract is to have the written record conform to its terms: at [169]. He stated that he was satisfied that the respondent had established by clear and convincing proof that the rent payable was that agreed orally (absent a merger with the Cronulla Sharks): at [172]. The primary judge also concluded that he did not regard the parties' "purposefully incomplete statement" of their agreement in the lease as a bar to the availability of the remedy: at [173]. He stated that he was fortified in that view by the fact that the rationale for rectification is that it was unconscionable for a party to a contract to seek to apply it inconsistently with what he or she knows to be the common intention of the parties: at [174].
3. The primary judge also stated that, had he not concluded that the remedy of rectification was available to the respondent, he would have found it was entitled to succeed upon the application of the principles governing promissory estoppel. His conclusion was expressed in the following terms: "[179] Had I not concluded that the remedy of rectification is available to the plaintiff, and best suited to meet the justice of the case, I would have found that the plaintiff is entitled to succeed upon an application of principles governing promissory estoppel. Upon an assumption that rectification is not available, the oral agreement between the parties could reasonably be expressed in negative form, as a representation by the defendant that it would (in the absence of any merger between the plaintiff and the Cronulla Sharks) charge the plaintiff no rent beyond that calculated on the basis of rates of $150,000, $160,000 and $170,000 per annum (plus GST) for the first three years of the lease: Saleh v Romanous (2010) 79 NSWLR 453 at 459-462. The plaintiff plainly relied upon the defendant's agreement in its entry into the sale/lease back transaction at a reduced price for the sale of the land, notwithstanding that its commercial options were fast diminishing under pressure from its bank to reduce its indebtedness to the bank."
4. The primary judge found, in those circumstances, that the respondent had made overpayments of rent in an amount of $45,833.45.
5. In relation to outgoings, the primary judge dealt first with what he described as the untimely notification of the disclosure statements. He stated that a number of factors led him to conclude that the obligation under cl 4.5(b) is contingent on compliance by the lessor with the time limit contained in cl 4.5(a). His conclusion was in the following terms: "[193] Several factors lead me to conclude that the obligation for which clause 4.5(b) provides is contingent on a timely compliance with clause 4.5(a) by the Lessor: (a) First, the time requirement stipulated by clause 4.5(a) is introduced by the words 'at least', implying that consequences might flow from an untimely notification. (b) Secondly, use of the word 'will' in clause 4.5(b) must be taken as imposing an obligation on the Lessee because, if it were otherwise, a lessee might choose not to make outgoings contributions in advance and clause 4.5 would be deprived of utility and purpose. (c) Thirdly, if the word 'will' is sufficient to impose an obligation in clause 4.5(b), it should, logically and fairly, be sufficient to impose an obligation in clause 4.5(a). If the Lessor is to activate an obligation in the Lessee under clause 4.5(b), a fair inference from the language of the clause is that it is required to observe the time constraint for which clause 4.5(a) provides, so as to enable the business of the Lessee, and administration of the Lease, to be conducted in an orderly manner. (d) Fourthly, non-compliance by the Lessee with an obligation to pay money for which clause 4.5(b) provides carries significant legal consequences in that, after allowing for a period of 14 days' grace: (i) by virtue of lease clause 14.1(a), it constitutes an event of default entitling the Lessor, under lease clause 14.2, to forfeit the Lease; and (ii) by virtue of lease clause 14.3, it gives rise to an obligation to pay interest. (e) Fifthly, a lessor who does not comply with the time constraint for which clause 4.5(a) provides is not thereby deprived of an entitlement, under lease clause 4.2, to a contribution to outgoings. (f) Sixthly, a fair reading of clause 4 as a whole suggests that, if the Lessor wants to take advantage of the disclosure statement procedure for which clause 4.5 provides, it is incumbent on the Lessor to initiate the procedure, under clause 4.5(a), in a timely way."
6. In relation to electricity, the primary judge concluded that cl 4.3 has no scope for direct application because the amount of electricity consumed in or on the premises had not been separately metered. He stated that this implicitly directed attention back to cll 4.1 and 4.2: at [202].
7. His Honour concluded that, having regard to cl 4.1(a), (f) and (h), the cost of electricity falls within the definition of outgoings: at [203]. He concluded that, upon the proper construction of cll 4.1, 4.2 and 4.3, the respondent's liability for electricity is set by the lease at 33.33% of the cost charged to the building: at [204].
8. The primary judge, referring to the agreed quantification by the parties, stated that it followed that as at the date of re-entry, the respondent owed the appellant $24,428.09 for outgoings but was owed $58,502.58 as a reimbursement for its overpayment for electricity, whilst as at 27 March 2015, the plaintiff owed the defendant $23,596.19 for outgoings but was entitled to reimbursement in the amount of $82,842.74 for overpayment of electricity: at [208].

The appeal

1. The appellant challenged the conclusion of the primary judge on each of the four issues to which I have referred, namely rectification, promissory estoppel and the two outgoings issues: the efficacy of the disclosure statement and the liability for electricity charges. In a notice of contention, the respondent challenged the validity of the notice under s 129 of the Conveyancing Act and contended that if there was an entitlement to terminate the lease, it was entitled to relief against forfeiture.

The submissions

1. The appellant's submissions may be stated shortly. It contended that rectification was only available in circumstances where it was established the words of the document mistakenly did not reflect the common intention of the parties or, in exceptional circumstances, in the case of unilateral mistake. The submissions did not seem to dispute that mistake could extend to the legal effect of the words used, it emphasised that it was necessary to show that there was a mistake. In the present case it submitted that there was no mistake. It submitted that, irrespective of whether there were any representations made by the parties, the parties were not mistaken as to the words used or their legal effect. In those circumstances, it submitted the remedy of rectification was not available.
2. The respondent submitted that the appellant's approach ignored what it described as the true requirements for an order for rectification, namely the true agreement between the parties and whether it was unconscientious for the appellant to disregard what had in fact been agreed. It submitted that, insofar as it was necessary for a mistake to be identified, the mistake was that the rent payable would be in accordance with the antecedent oral agreement and the ongoing common intention, rather than the rent stated in the document as executed.
3. Senior counsel for the respondent submitted that in fact no mistake was required for the doctrine to operate. He submitted that this was supported by what was said by Campbell JA in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 (Ryledar) at [315] that the rationale for granting rectification is to avoid unconscientious departure from the common intention of the parties and similar remarks by his Honour in Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; 76 NSWLR 603 (Franklins) at [444]-[446]. However, senior counsel for the respondent acknowledged he knew of no case where rectification had been ordered in the absence of a mistake.

Consideration

1. In Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336, Mason J (as he then was) emphasised that the purpose of the remedy of rectification was to make the instrument in question conform to the true agreement of the parties where the writing, by common mistake, fails to express that agreement accurately. He pointed out that there was a firm insistence that the mistake must be common and not merely unilateral, except in the case of a special class: at 350 [13]. His Honour made it clear that an antecedent agreement was not necessary, rather, it was sufficient that the written agreement did not reflect the parties' common intention: at 350 [14]; see also Slee v Warke [1949] HCA 57; 86 CLR 271.
2. The need to establish a mistake has been emphasised constantly in the cases: Ryledar at [122]-[129] (Tobias JA), [314] (Campbell JA); NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740; The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; 3 VR 526 (Club Cape Schanck Resort) at [10], [37]-[39]; Pukallus v Cameron [1982] HCA 63; 180 CLR 447 at 452; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [168]; Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119 at [56]-[57].
3. Whilst it has been said that the remedy can apply where there is discrepancy between the form or effect of the document and the intention of the parties, including mistake as to the legal effect of the words used (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 336, 340, 345), it is essential that there is a mistake as to the meaning or effect. The limitation of the remedy, in my respectful opinion, was correctly set out by Phillips JA in Club Cape Schanck Resort at [39]: "Despite the differences in result that appear from case to case (for example, when Rose v Pim is contrasted with Carlenka), I venture to suggest that the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available. In Rose v Pim the parties were mistaken as to the effect of their words, but there was no disconformity between the words employed and what was held to be their common intention - and so rectification was not available. In Carlenka, there was a lack of correspondence between form and intention and so rectification was available. Of course, whatever the nature or source of the underlying mistake of the parties, the common intention of the parties at the time of the execution of the document remains a matter of fact, which accounts, I believe, for such variations as occur in result. The result in any given case will depend upon whether in the particular circumstances of that case there is (as a matter of fact) the requisite disconformity between the document as executed and the common intention of the parties. It is not enough that the parties have made a mistake about their document (whether the mistake be about the words used, their meaning or their effect); that mistake may serve to explain such disconformity (if any) as is seen to exist, but it cannot be a substitute for it."
4. In the present case, there was no mistake as to the words used or their legal effect. The fact that by an antecedent agreement the appellant had agreed to accept a lesser amount for rent for a period does not mean that the parties were mistaken as to the words used in the document or what their legal effect was.
5. The respondent's submission, which found favour with the primary judge, was that it was unconscientious for the appellant to rely on the lease in the face of the earlier agreement contrary to the common intention of the parties, so rectification could be ordered. It was implicit in the submission that the remedy did not depend on the existence of mistake.
6. This submission should be rejected. First, it finds no support in the authorities. The dictum of Campbell JA in Ryledar (see above at [38]) states that the rationale for granting rectification is to avoid unconscientious departure from the common intention: at [315]. This assists in deciding what is required for there to be a common intention. It does not support the submission, particularly where, in the immediately preceding paragraph of his judgment, Campbell JA stated that the rationale was to avoid the unconscientious taking advantage of a common mistake: at [314].
7. Nor does what was said by Campbell JA in Franklins at [444]-[446] support the submission. Although Campbell JA repeated the rationale for rectification, he did not suggest that a common mistake as to the form or legal effect of the words used was unnecessary.
8. The proposition is also contrary to the authorities to which I have referred above at [40].
9. Third, there are significant policy reasons why the remedy should not be extended in the manner suggested, even if it was open to this Court to do so. The reasons that courts hold parties to their written agreements, set out by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [34]-[35], provide sound reasons for not extending the doctrine of rectification. Further, to the extent that it is unconscionable for a party to depart from pre-contractual representations, the law provides other remedies (such as the estoppel asserted in the present case). In these circumstances, there is no justification for extending the remedy in the manner suggested.
10. It follows the appellant is entitled to succeed on this issue.

Promissory Estoppel

1. Having regard to the manner in which the argument was put on appeal, it is important to have regard to two matters. First, the ground of appeal is in the following terms: "2. His Honour erred: (a) In holding that the Respondent had established on the evidence that the Respondent executed the Memorandum of Lease which provided for the payment of rent of $170,000, $180,000 and $190,000 (plus GST) for the first three years of the lease in reliance upon a representation by the Appellant that the amount the Appellant would actually charge would be $150,000, $160,000 and $170,000 (plus GST) for the first three years of the lease; (b) In holding that in the circumstances the Appellant was estopped from resiling from that representation." Second, in the Court below, the appellant conducted its case on the basis that the representation said to give rise to the estoppel was not made.

The submissions

1. In its written submissions, the appellant challenged the finding of detrimental reliance made by the primary judge. It submitted that it was the board of directors of the respondent which resolved to enter into the sale and lease back transaction. It submitted that only three of the seven directors were at the meeting at which the representation was made and no evidence was called from three of the other four directors.
2. The appellant submitted that evidence from the other directors as to what they relied on was peculiarly within the power of the respondent to produce and an inference should be drawn that their evidence would not have assisted the appellant on this issue: Jones v Dunkel [1959] HCA 8; 101 CLR 298. The appellant submitted that the only director of the respondent not present at the meeting at which the representation was made who gave evidence, Mr Takairangi, did not give evidence about the board meeting in December 2012 at which the sale and lease back was discussed, although he gave evidence that he attended board meetings and was aware of the sale and lease back arrangements. The appellant submitted, referring to the judgment of Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 (Ferrcom) at 418-419, that the presumption that the evidence would not have been favourable to the party's case is stronger where a party fails to interrogate a friendly witness as to facts presumably within his or her knowledge than in the case of a failure to call a witness.
3. The appellant also referred to the evidence of Ms Katrina Rooney, the Operations Manager of the respondent, submitting that she gave evidence that she was responsible for preparing minutes of board meetings of the respondent and that she did not produce any minutes of meetings in December 2012, nor did she give evidence of any such board meeting.
4. The appellant also submitted that, had the other directors read the lease, they would have seen the entire agreement clause. He said it was not explained how the other directors relied on the oral agreement in the face of that provision.
5. The appellant also pointed to the fact that it was the respondent's solicitors who prepared the draft lease and, although Mr Grimshaw said he told the solicitors of the oral agreement, they were not called to state what they understood the position to be.
6. The appellant submitted that Messrs Wallace, Grimshaw and Collings gave no evidence about what they told the other directors or what occurred at the board meeting which authorised the sale and lease back. It described the oral evidence as vague and unconvincing.
7. In those circumstances, the appellant submitted that reliance was not established. Senior counsel for the appellant stated that although some directors may have relied on the representations, there was no corporate reliance.
8. Senior counsel for the appellant submitted at the hearing that the respondent did not alter its position on the faith of the representation because the representation had to be understood in the context of the negotiations at the time. He submitted that subsequent to the conversation, there was a significant renegotiation of the terms of the lease which included a change in the leased area. In those circumstances, he submitted, the representation could not be a continuing representation. Senior counsel for the appellant submitted somewhat boldly that the point was "embedded" or "capable of being part of" the submission in pars [38]-[45] of his client's written submissions, although acknowledging that on their face, they were in support of the proposition that there was no detrimental reliance. Ultimately, he accepted that the point was not raised and would require factual findings. He also accepted there was no cross-examination on the issue.
9. So far as the question of reliance was concerned, senior counsel for the appellant pointed out that in his affidavit, Mr Collings did not say he relied on the oral agreement in agreeing that the respondent enter into the lease. However, it should be noted that Mr Collings' recollection was that after Mr Erceg had stated such amounts were acceptable, Mr Grimshaw replied: "That's fine with us. As long as you know that we can't pay the higher amounts unless the Sharks come on board, that's fine". Senior counsel accepted that Mr Grimshaw gave evidence of reliance.
10. Senior counsel for the appellant referred to the following evidence of Mr Wallace: "Q. In order for directors to approve the sale of the lease back, the terms of the transactions had to go before them at a meeting, didn't they? A. Yes. Q. When was that meeting called? A. I couldn't tell you exactly. Q. Let me help you, 7 December is the date of sale, the date of the lease back for the lease? A. Mm. Q. About when? How many days before? A. It would've - it would have maybe been December, may have been in the November period. Q. November, when in November? A. I couldn't tell you exactly. Q. Well you would have looked for a copy of the minutes of the meeting, wouldn't you, whereby you or Mr Grimshaw explained to the directors what the terms of the sale and lease back were? A. No, we had - in one of the meetings where this red figure was mentioned there were a number of directors at that meeting so they were aware of it them. We would have had a further meeting I think a few days after that to accept or decline the offer and because I said because there was no-one else around we had to - we were virtually backed into a corner. Q. When were those meeting though? A. I can't, look I can't give you an exact date. It would've been some time in November. Q. Have you looked for copies of minutes of directors meetings. A. No, I haven't. Q. There was no such meeting, was there? A. Yes, there was. It may not have been minuted but there was a meeting. Q. Sorry, are you saying that you possibly put it before an informal meeting of some sort? A. Possibly. Q. You have got no recollection at all of any meeting have you? A. Look, we didn't make the decision on our own to accept the sale price or the rent figure. Other directors were involved. Q. You also would have explained at any meeting, formal or informal, what the terms of the lease were, wouldn't you? A. Yes. Q. You would have set out to them what the terms of the side agreement were? A. Yes. Q. That would have been recorded in the minutes, wouldn't it? A. I think they might have but I can't be 100% sure and I don't know whether we can show you minutes that relate to that."
11. It should be noted that immediately before that passage of evidence, Mr Wallace was asked why he signed the agreement and gave the following response: "A. Well as I said to you before, we had no real alternative. Had there been another potential purchaser on the doorstep we may not have got to this stage. The only reason we signed the lease in the first place on that figure was as I've said to you before, the offer was made to us on that lower figure, the 150, 160, 170 figure. Had the Sharkies come on board and merged with us, it would've gone to the 180 figure. Now I didn't dream up those three amounts."
12. Although senior counsel for the appellant accepted that Mr Wallace was found to be a witness of truth, he stated that Mr Wallace did not identify what was said at the meeting or how the oral agreement would work in light of the entire agreement clause or the increased floor space (which had apparently been agreed upon subsequent to the conversation).
13. Senior counsel for the appellant also referred to the following evidence of Mr Grimshaw: "Q. And there would be a meeting of directors that record the ratification? A. There was a meeting of the directors to ratify our consent to the lease. Q. Was that the same meeting at which the consent to sell the building for 2.5 was given? A. No, it wasn't because part of the lease there was a lot of to-ing and fro-ing in relation to different clauses. So that was probably the last ratification required, but it was - it wasn't done at the same time as the sale. … Q. It had to be a side deal, didn't it, because it wasn't what the lease agreement said? A. There was no side deal. It was particularly important for final ratification that every Board member provide their input. Q. I'm sorry, what was that? A. That every Board member provided their input. Q. Yes, and when did that occur? A. In term of the sale's contract - Q. No, I'm talking about the lease? A. As indicated I don't recall exactly what date. Q. There was no meeting, was there? A. There was a meeting. Q. You and Mr Wallace entered into the lease and you didn't seek the directors' approval to do so, did you? A. That's incorrect. Q. If you had had a meeting there would be a Minute and you'd be able to produce it? A. We do have Minutes and I'd like nothing better than be able to produce it. Q. Well you would have explained to your fellow directors what the lease said and what the arrangement with Erceg and Dunning really was, wouldn't you? A. Yes. Q. And the Minutes would have reflected that, if you had given that explanation; you'd agree with that, wouldn't you? A. The Minutes would have reflected the ratification. I can't recall the detail of the content of the Minutes. Q. The would have indicated also that you explained to your fellow directors that there was a difference between what the lease says about rent and what lease to be paid was? A. The fellow directors were all well aware of the agreement prior to the final ratification of the lease. It was part of the ongoing back and forwards. Q. You didn't tell them, did you? A. All the Board members were fully aware of the agreed rent prior to the lease being ratified. Q. Did it come to them in their dreams one night? Is that how they became aware? A. Is that a serious question? Q. Yes? A. I don't know what they were dreaming about. Q. You didn't tell them, did you? A. Yes, I did. It was common knowledge. I mean obviously it was common knowledge because we sought - we tried to seek comfort and reaffirm with Walter and Martin at a subsequent meeting that that was the agreement because obviously we knew that the recorded lease would have different figures on them. Q. You're making all of this up, aren't you? A. No, I am not."
14. It was submitted that this suggested that the oral agreement was not actively discussed at the meeting.
15. It should be noted that senior counsel for the appellant accepted that an equitable estoppel could arise out of pre-contractual negotiations.
16. The respondent submitted that the reliance case was essentially a new case, the case below being that the conversation did not occur at all. It pointed to the fact that the level of rent was an important matter and the respondent was in financial difficulties at the time of the negotiations. It submitted that, in those circumstances, the logical inference was that Messrs Wallace, Collings and Grimshaw would have informed the other directors of the agreement reached prior to the entry into the lease.
17. The respondent also pointed to the fact that the primary judge accepted the evidence of the witnesses notwithstanding the absence of board minutes. It pointed in particular to the judge's findings at [106] and [151]-[157].
18. The respondent also pointed out that Messrs Wallace, Grimshaw and, to a lesser extent, Collings were the guiding minds of the respondent in the negotiations and their intentions could be taken to be that of the company. It further noted that it was Messrs Wallace and Grimshaw who executed the lease. It submitted that, in those circumstances, even if the other board members did not know of the oral agreement as a matter of fact, the lease would not have been entered into but for the assurances.
19. The respondent pointed out that the other directors who did not give evidence were not directors at the time of trial and there was no evidence of their willingness to co-operate.
20. The respondent also pointed out that post-completion, rent was paid at the rate set out in the oral agreement.
21. Senior counsel for the respondent submitted that the continuing representation argument raised by the appellant was not raised in the Court below and leave to argue it should not be granted. He also submitted the factual reliance case was not put.
22. Senior counsel for the respondent also pointed to the fact that the finding of the primary judge that there was an antecedent oral agreement was not challenged on the rectification issue, which, he submitted, was inconsistent with the challenge to reliance sought to be mounted.

Consideration

1. There was little dispute between the parties as to the relevant principles. In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387 at 428-429, Brennan J explained the relevant requirements for the doctrine to operate in the following terms: " … it is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."
2. Further, as I indicated above, senior counsel for the appellant did not dispute that pre-contractual representations could give rise to an estoppel of the nature of that contended for in the present case, nor did he contend that the entire agreement clause necessarily would prevent such an estoppel from arising. He was correct in doing so: see Franklins at [33], [554]; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at [444]-[449].
3. The submission made by the appellant that the representation was not a continuing representation was not raised at the trial, nor was it the subject of cross-examination. It was raised neither in the grounds of appeal, nor in the written submissions. It was not suggested to any of the directors of the respondent that although the representation may have been made initially, either it was withdrawn or they ceased to rely upon it as a result of changed circumstances. In those circumstances, leave to rely on the submission should not be granted: see eg, Coulton v Hulcombe [1986] HCA 33; 162 CLR 1; Water Board v Moustakas [1988] HCA 12; 180 CLR 491; Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418; Whisprun Pty Ltd v Dixon [2003] HCA 48; 200 ALR 447.
4. The other submission made by the appellant was that the respondent had not relied upon the representation. This submission was not at the forefront of the case below where the principal issue was whether the conversation at which the representation was made in fact took place.
5. The submission made by the appellant seemed to have two strands. First, it was submitted that at least one of the directors who was present at the meeting, Mr Collings, did not rely on the representation and second, even if the directors who were present relied on the representation in agreeing that the respondent enter into the lease, having regard to the absence of the evidence of the other directors, it was not open to conclude that the respondent itself did so.
6. It is important to note that reliance is a fact to be found, not to be presumed. In Gould v Vaggelas [1984] HCA 68; 157 CLR 215, Wilson J stated that where a plaintiff shows that a defendant has made false statements, intending to induce him to enter into a contract, and the statements were of such a nature as would be likely to provide such an inducement and the plaintiff entered into such an agreement and suffered damage, common sense suggests the false representation at least played some part in adducing the entry into the agreement: at 238. However, as has been subsequently pointed out, this was a case of deceit and the real question is the appropriate inference to be drawn from the whole of the evidence including answers elicited in cross-examination: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [143]; Sidhu v Van Dyke [2014] HCA 19; 251 CLR 505 at [58], [64].
7. In the present case, the primary judge said that he had no reason to doubt the evidence of Mr Grimshaw and he accepted both Messrs Wallace and Collings as reliable witnesses of truth.
8. In an affidavit of 1 May 2014, Mr Wallace, after deposing to the conversation concerning the rent, stated that he only agreed to have the company enter into the lease because of the statement concerning rent. This evidence was admitted as to his state of mind at the time. I have set out his evidence in cross-examination above at [59]-[60], where he said that the representation concerning rent was conveyed to the board.
9. I have set out the cross-examination of Mr Grimshaw above at [62]. He stated that the oral agreement was brought before the board.
10. As I indicated, Mr Collings was present at a meeting with Messrs Grimshaw, Erceg and Dunning at which Mr Grimshaw said the respondent could not pay the higher amount unless the Sharks came on board.
11. The lease was executed by Messrs Grimshaw and Wallace.
12. Having regard to these facts and notwithstanding the absence of documentary evidence, it seems to me it was open to the primary judge to infer that the lease was executed in reliance upon the representations, particularly in circumstances where the lower rent was paid and accepted in the period after execution of the lease and the oral agreement was asserted immediately after the demand for higher rent was made.
13. Further, it must be remembered that there was no minute of a board meeting authorising the entry into the lease, although it was in fact entered into. If there had been such a minute, but one which did not record the oral agreement, that may have some significance. However, the absence of any record concerning the lease does not lead to a conclusion contrary to the accepted evidence of Messrs Wallace and Grimshaw that the oral agreement was brought before the board and the lease was entered into in reliance upon it.
14. I do not think that the position is altered by the failure to call the other directors and to lead evidence of reliance from Mr Takairangi. In circumstances where it appeared the principal matter in issue was whether the conversation occurred and where two of the directors not called were no longer connected with the respondent, it is at least doubtful whether inferences of the nature referred to in Jones v Dunkel and Ferrcom should be drawn. Even accepting that it should be inferred that the evidence of those directors would not have assisted the respondent, it seems to me that, in the circumstances, the primary judge was entitled to reach the conclusion he reached on this issue.
15. No issue was raised as to the existence of the other requirements for an estoppel to arise. It follows that this ground of appeal has not been made out and the appellant was estopped from asserting the rent payable was that set out in the lease rather than as stated in the representations.

The efficacy of the disclosure statement

1. It is common ground that the disclosure statement was served outside the period prescribed by cl 4.5(a) of the lease. The appellant submitted that, notwithstanding this delay, service was not ineffective. The respondent supported the contrary conclusion reached by the primary judge.

The submissions

1. The appellant submitted that cll 4.2 and 4.5 must be read together. It submitted that although cl 4.2 imposes an obligation to pay the lessee's contribution, cl 4.2 does not in terms preclude the lessor claiming the lessee's proportion of the outgoings immediately after they are incurred or paid. However, it submitted cl 4.5 provides for a more orderly means of payment.
2. The appellant submitted that cl 4.5(a) is not a condition precedent to the operation of cl 4.5 but a procedural notice provision. It submitted that the obligation to make the first payment will arise after the one month period of notice, envisaged by cl 4.5(a) and cl 4.5(b), expires. Thus, it submitted, if a notice was given in December, the first payment required would be the February payment and the absence of the January payment would be dealt with in the final accounting under cl 4.5(d). Alternatively, it submitted that, in those circumstances, the January payment would be due one month after service of the statement. It submitted that such an approach gives a businesslike interpretation to the lease that is for the benefit of both parties and preferable to payment of a proportion as incurred or a large contribution at the end of each period.
3. The appellant submitted that if cl 4.5 has no application in those circumstances, the obligation on the lessee to pay its proportion of the outgoings arises at the time the outgoings are in fact met.
4. The respondent submitted the appellant's construction is not a businesslike interpretation and is contrary to the express terms of cl 4.5. It submitted that such an interpretation anticipates the possibility of multiple estimates being sent or the respondent being liable to pay on the basis of actual expenditure until a notice is sent and then on the basis of estimated expenditure, which could include an amount in respect of which payment has already been made. It also submitted that if the disclosure statement is served in the second six months of the year in question, there can be no room for the operation of cl 4.5(c).
5. The respondent submitted the appellant effectively has a choice: either to seek payment on the basis of outgoings actually incurred or on the basis of a disclosure statement served within the time prescribed. However, senior counsel for the respondent accepted that a possible interpretation was that absent a disclosure statement the liability on the lessee to pay its proportion of outgoings arises at the end of each lease year in question.

Consideration

1. The relevant principles of construction are well established. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640, the plurality reaffirmed that the meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood them to mean. It requires consideration of the language used, the surrounding circumstances known to the parties and the commercial purposes or objects to be secured by the contract: at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 89 ALJR 990 at [46]-[52].
2. I have set out cll 4.1, 4.2 and 4.5 above. The obligation to pay the lessee's proportion of the outgoings is contained in cl 4.2. The obligation, in my opinion, arises at the end of each outgoings year (when the outgoings can be calculated) or that part of an outoings year in which the lease remains on foot. It does not seem to me to impose an obligation to pay the lessee's contribution as and when the lessor has incurred the liability as distinct from the end of the outgoings year in question.
3. Although cl 4.5 is couched in mandatory terms, neither party disputed that cl 4.5 provides an alternative basis for the payment of the lessee's contribution in the sense that, even if the procedure in cl 4.5 is not followed, the liability to pay the contribution under cl 4.2 remains.
4. The obligation on the lessee to make payments in accordance with cl 4.5(b) of the lease, namely payments on the first day of each month of each lease year, is enlivened by the giving of notice under cl 4.5(a). It is to be noted that whilst cl 4.5(b) requires the payment to be made on the first day of the month of the "Lease Year", defined as any year commencing on the commencement date of the lease or any anniversary of that date, the time for the notice under cl 4.5(a) is determined by reference to the outgoings year, which is each 12 month period ending 30 December. Having regard to the commencement date of the lease, the first day of the first month of the lease year is 7 December, whilst the relevant outgoings year commences on 1 January. Thus, if notice is required to be given before 1 December in any year, the liability to make payment in respect of the amount claimed in the notice commences on 7 December of that year.
5. In this context, it seems to me that any notice given after the expiration of the period fixed by cl 4.5(a) would not be effective to impose liability on the lessee to make the payments in cl 4.5(b). That construction gives effect to the words "at least one month before the commencement" (emphasis added) and gives a businesslike interpretation to the provision. A late notice, even if given prior to the commencement of the lease year in question, would give the lessee virtually no time to arrange its affairs to meet the liability, whilst cl 4.5(b) could not operate according to its terms if notice was given after the first day of the month of the lease year in question.
6. In these circumstances, the primary judge was correct in concluding the disclosure notice was ineffective to impose liability on the respondent to make payments under cl 4.5.

Electricity

1. In a document supplied to the Court following the hearing, setting out the parties' agreed position (assuming acceptance of the respondent's contentions) as to the appellant's liability for electricity, it was contended that the respondent was entitled to a refund in respect of electricity charges as at the date of the s 129 notice and the date of re-entry in an amount of $58,502.08. This was consistent with the conclusion reached by the primary judge. The primary judge did not provide any calculation as to how the amount was made up. He did not need to do so having regard to the conclusion he reached and the subsequent agreement of the amount payable in accordance with his conclusion.
2. Although it is irrelevant to the question of construction which needs to be resolved, it is helpful to have regard to the manner the parties sought to apply the provisions in ascertaining their respective rights and obligations under the clause.
3. By a letter from the respondent to the managing agent of the appellant, the respondent asserted that it had incurred electricity charges of $80,631.67 and sought what it regarded as a fair contribution by the landlord, namely 30% of the amount, $24,189.50. That proposal was rejected in a letter from the appellant's solicitors of 10 January 2014 in which it stated that it believed an allowance of $100 in respect of electricity charges was the appropriate allowance to be given by the appellant. That was rejected by the respondent in a letter from their solicitors to the appellant's solicitors dated 5 February 2014 in which they repeated the proposition that they should be refunded 30% of the total electricity charges paid by them, amounting to $24,189.50.
4. It must be emphasised that none of this material is relevant to the question of construction. However, it does provide the factual background to the dispute.

The submissions

1. The appellant submitted that, notwithstanding the definition of leased premises, the appellant continued for a period to occupy other parts of the building and, in respect of some of those areas, there was no other occupant.
2. The appellant submitted the electricity charges were not expenses incurred by the lessor and as such, cl 4.1 was not engaged. It also submitted that cl 4.2 was not engaged. The appellant submitted that, unlike the cost of water and sewerage services, it had no obligation under cl 15.2(b) of the lease to pay electricity charges. It submitted the respondent made the choice of bearing the electricity charges even though they included supply of electricity to parts of the building not included in the lease. It submitted the respondent benefited from this because it was using part of the building not included in the lease.
3. Senior counsel for the appellant submitted the simple point was that the appellant did not incur liability for electricity charges, so cl 4.1 could have no application.
4. The respondent submitted the interpretation contended for by the appellant was not a businesslike interpretation: first, because it permitted the appellant to cause the respondent to continue to pay electricity charges for the whole building indefinitely; second, because it ignored the fact that part of the charges related to the common parts of the building and parts which were occupied by other users; and third, because it ignored the obligation imposed upon the lessor by cl 27.1 of the lease to install a separate meter.
5. The respondent further submitted that, following the sale, electricity charges for the whole building became the responsibility of the appellant.
6. Senior counsel for the respondent submitted it was implicit in cll 4.1(f) and (h) that the appellant bore responsibility for the electricity. He submitted the electricity charges fell within cl 4.1 but the appellant had an opportunity to avoid unfairness by carrying out separate metering.

Consideration

1. The intention of the parties in relation to electricity, in my opinion, was relatively clear. Clause 4.3 imposes a liability on the lessee to pay for electricity separately metred and consumed on the premises whilst cl 27.1(3) requires the lessor to ensure that electricity is separately metred for the premises. The balance payable for electricity for the building, of which the leased premises form part, will be an outgoing falling within at least cll 4.1(f) and 4.1(h) of the lease (subject to cl 4.1(n)).
2. The difficulty of course is that the appellant did not comply with its obligations to have the premises separately metred. In the circumstances, if the lessor had incurred liability for electricity charges, they would have been dealt with under cl 4.1. This was the conclusion reached by the primary judge.
3. However, the appellant contended that it did not incur the charges. It also contended it had no obligation under cl 15.2 to pay for electricity charges for the building.
4. It is correct that cl 15.2 does not deal with electricity expressly but, in my opinion, it is implicit in cll 4.1(f), (h) and 4.3 that the lessor was liable for electricity charges save to the extent they were separately metred.
5. The primary judge, having concluded that the appellant was liable to pay the electricity charges, considered that the respondent was entitled to set off the amount it had paid in respect of such charges without giving detailed consideration of the basis on which it was entitled to reimbursement of the charges so as to establish the set off.
6. In my opinion, the respondent had an entitlement to recover these charges either as damages for breaches of the implied covenant on the part of the lessor to pay them or as money had and received on the basis it was unjust for the appellant to retain the benefit of the payment made by the respondent: Australian Financial Services and Leasing Pty Limited v Hills Industries Limited [2014] HCA 14; 253 CLR 560 at [6], [15], [78]. In Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38, Wallace P, with whom Holmes JA agreed, referred with approval to the statement in Johnson v Royal Mail Steam Packet Co (1867) LR 3 CP 38 at 45, that a right to reimbursement existed in a case where a person occupying property is compelled to pay a claim in respect thereof, which should have been paid by another (in this case the appellant): at [44].
7. It should be noted that neither party argued there should be an apportionment of liability for the electricity charges by reference to charges incurred in respect of the leased premises compared to charges incurred in relation to the balance of the building. It was also common ground that if the appellant was held liable to pay the electricity charges, it would be entitled to the lessee's contribution under cll 4.1 and 4.2.
8. It follows that the conclusion of the primary judge on this issue was correct.

Conclusion

1. It was not contended by the appellant that if the conclusion of the primary judge on the issues of rent and electricity were correct, it was still entitled to exercise a right of re-entry. In these circumstances the appeal should be dismissed with costs.

A further matter

1. An order for the winding-up of the respondent was made on 10 July 2015. Notwithstanding, this appeal was commenced without leave of the Court being granted pursuant to the provisions of s 471B of the Corporations Act 2001 (Cth).
2. No motion seeking leave to proceed was filed in accordance with the rules, although, as senior counsel for the appellant pointed out, leave to proceed was sought as part of the relief in the notice of appeal. In the result, the matter was not raised until the commencement of the hearing of the appeal, after the expenditure of a considerable amount of money on the proceedings.
3. As leave was not opposed, it was granted. However, the course adopted was unsatisfactory. Leave is not a formality and it should be sought prior to the commencement of the proceedings to enable a proper exercise of the discretion conferred on the Court under s 471B. As the course adopted in the present case was apparently acquiesced to by the liquidator, it is not necessary to say anything. However, it should not be assumed that in all cases leave will be granted simply because cost has been incurred in a matter in circumstances where leave should have been applied for prior to the commencement of the proceedings.
4. McCOLL JA: I have had the advantage of reading in draft the reasons of the Chief Justice. I agree with his reasons and the orders his Honour proposes.
5. MACFARLAN JA: I agree with Bathurst CJ.

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: 18 July 2016