CJ Bova Pty Limited v Geoffrey Needham Pty Limited

COUNSEL : Plaintiff/Respondent- I.R.Pike Defendant/Applicant- D.Roberts

SOLICITORS : Plaintiff/Respondent- Nathan Thomas Mattock Defendant/Applicant- Robert Bryan Cameron

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

(1972/09) C J BOVA PTY LIMITED v GEOFFREY NEEDHAM PTY LIMITED & ANOR JUDGMENT 1 HIS HONOUR: By their notice of motion filed on 25 November 2009 the defendants seek a declaration that these proceedings have been settled by agreement between the parties. They also seek consequential relief giving effect to the alleged settlement. 2 The plaintiff disputes the defendants' entitlement to such relief. However, both parties have sought to have the issue determined by me on a final basis notwithstanding that the application has been brought by notice of motion in the proceedings themselves. 3 The application came before me yesterday, 3 December 2009, while I was sitting as the Duty Judge in the Equity Division. As the business of the court permitted me to do so, I acceded to the parties' application and agreed to hear the dispute on a final basis. 4 For the reasons that follow, I propose to dismiss the defendants' notice of motion with costs. 5 The dispute between the parties has its origins in a lease by the plaintiff of premises to the first defendant (and guaranteed by the second defendant) for a term of 3 years from 17 June 2004. The lease was in writing and is in evidence before me. 6 Pursuant to the exercise by the first defendant of an option contained in the lease, the plaintiff granted to the first defendant a further lease of the premises for a term of 3 years commencing on 17 June 2007. The first defendant continued in occupation of the leased premises following the expiration of the original term, but a year or so later, namely in July 2008, the first defendant notified the plaintiff of its intention to vacate those premises. It did so in August 2008. 7 The plaintiff claims that the first defendant's conduct constituted a repudiation of what in effect amounted to an equitable lease. It has sought damages for the first defendant's alleged breaches of various provisions of that lease, including its failure to pay rent, its failure to redecorate the leased premises and its failure to repair and make good those premises. The plaintiff has also sought damages for the first defendant's alleged removal of certain items alleged to belong to the plaintiff. 8 Mr Roberts of Counsel, who appeared for the defendants, drew my attention to clauses 10(1)-(3) of the lease which provided as follows: "BOND

10(1) The tenant shall on or before executing this lease pay to the landlord a cash bond of an amount equal to the amount referred to in item 5 of the reference schedule (called "bond") as a security bond in earnest of performance of the tenant's obligations under this lease.

(2) In the event of the tenant defaulting in the payment of rent or in performing some other obligation under the lease, the landlord is entitled to: (a) appropriate the whole or part of the bond in satisfying the outstanding rent, other moneys and for compensation for breach of covenant; or (b) to forfeit the bond. And if the bond is forfeited or appropriated the landlord shall notify the tenant that the bond has been applied in full or in partial satisfaction of the landlord's claim and shall itemise the landlord's claim, giving credit for the bond and for interest.

(3) The landlord is entitled to recover rent and other moneys payable and damages for breach of covenant without being limited to the bond but if any further claim is made against the tenant, the landlord shall credit the tenant with the bond." 9 Following the first defendant's departure from the leased premises, there followed an exchange of correspondence between their respective solicitors. In a letter dated 11 November 2008, the solicitors for the plaintiff made reference to the various heads of claim that the plaintiff intended to make against the defendants. Under the heading "Bond", the following passage appeared in that letter: "Bond

We are also instructed that given you owe our client a significant amount as a result of your failure to pay rent and the breaches set out above, our client intends to withhold the bond from you until determination of the dispute. Our client will credit its claim for unpaid rent and damages with the bond amount ." [Emphasis added] 10 A passage to a similar effect appeared in the plaintiff's solicitors letter of 13 January 2009. 11 By contrast, Mr Pike of Counsel, who appeared for the plaintiff, drew my attention to the statement of claim which, in paragraph 30, provides as follows: "30. As a result of the breaches referred to in paragraphs 23-28 above, CJ Bova has suffered loss and damage which it seeks from GN, less GN's bond in the amount of $2,555.46 .

(a) Unpaid rent in the amount of $58,467.20, being the amount of $2,657.60 per month (incl GST) over a 22 month period from 17 August 2008 to 16 June 2010;

(c) The cost of the failure to make good and repair; and

Further precise particulars of damage will be provided at the time of service of evidence." [Emphasis added] 12 It was in the foregoing context that by letter dated 9 October 2009 the solicitors for the plaintiff made a "without prejudice" offer to the solicitors for the defendants in the following terms: "However, in the interests of reaching a resolution, and to avoid incurring additional legal fees, we are instructed that our client is willing to settle the Proceedings on the following no basis:

1. Payment to our client in the amount of $29,315.00 (inclusive GST) for loss of rent. Our client is willing to accept such payment over three monthly instalments. By way of compromise, our client is willing to waive any claim to interest on these instalments;

2. Payment to our client for legal fees incurred in the Proceedings. To date, our incurred $14,106.50. By way of compromise, our client is willing to reduce this amount by 50%, which means that our client is willing to accept a payment in the amount of $7,080.25 (for the avoidance of doubt, this amount is additional to the amount of $29,315 for unpaid rent set out at paragraph 1 above). As you would be aware, if our client successful in the Proceedings, our client would have reasonable grounds to obtain a costs order in its favour on a party/party basis, which is ordinarily assessed at approximately 70% of costs incurred. In these circumstances, our client's offer to reduce the amount for legal fees by 50% means that your clients receive a discount of approximately 20%.

3. By consent, the Proceedings be discontinued with no orders as to costs; and

4. The parties release each other from all claims they now have, or could have, in relation to the subject matter of the Proceedings.

We note that your clients' liability to our client for unpaid rent would have been greater if our client had not made attempts to mitigate its losses by finding another tenant. Consequently, due to our client's conduct, your client's liability has been reduced.

By way of compromise, our client is willing to forgo the interest on the unpaid rent, agents' fees and the costs of the unreturned inventory sought in the Proceedings. However, if your clients do not accept this offer, our client will continue to pursue these components of its claim.

This offer will remain open for acceptance until 12pm on Friday, 16 October 2009, after which it will expire.

We are instructed that this is our client's final settlement offer." 13 I note that the amounts appearing in paragraphs 1 and 2 of that letter, namely the amounts of $29,315.00 and $7,080.25 add up to $36,395.25, which is the amount referred to in the letter of 12 November, to which I refer below. 14 By letter dated 6 November 2009, the solicitors for the defendants rejected the offer and made a counter-offer to pay a sum of $29,000, inclusive of costs. 15 By letter dated 12 November 2009 the solicitors for the plaintiff rejected the defendants' offer, setting out the reasons why they considered that that offer was inadequate. In paragraphs 10, 11 and 12 of their letter of 12 November 2009 the solicitors for the plaintiff wrote as follows:

"Quantum of our client's claim 10. We remind you that our client's claim is comprised at least the following:

(a) Rent $29,315 (b) Interest $816 (c) Agent's fee $3,056 (d) Repainting $3,000 (e) Make good $1,600 (f) Couch $195 Total $37,982

In addition to the above, our client has incurred approximately $16,000 in legal fees to date. It is anticipated that a further $22,000 will be incurred should the matter proceed to hearing, including the costs associated with mediation.

In light of our client's Offer of Compromise dated 6 July 2009, it is likely that the vast majority of these costs will be recovered on an indemnity basis. Your clients' exposure to judgment and costs therefore exceeds $75,000."

16 Finally, under the heading "Our client's final offer" in paragraphs 13-15 of that letter of 12 November 2009, the solicitors for the plaintiff said: "Our client's final offer

As stated in our letter of 9 October 2009, our client's final offer to settle the proceedings before trial was $36,395.25, being its claim for rent plus 50% of its legal fees to date. This was a generous offer given your clients' potential exposure.

Given the matter has been referred to mediation, our client is prepared to put that offer again on the conditions set out in numbered paragraphs 1 to 4 of our letter dated 9 October 2009.

This offer is open for acceptance until 12pm on Thursday 19 November 2009." 17 On 18 November 2009 the solicitors for the defendants responded in the following terms:

We note your offer as contained in paragraphs 13 and 14 of your letter.

We are instructed that our client is prepared to accept that offer subject to confirmation of the following matters : 1. We are instructed that a Bond is held by your client. This Bond is to either be returned to our client or credited against the agreed settlement sum.

2. The amount of rent claimed by your client includes GST. Therefore, a Tax Invoice should be issued to enable our client to claim an input tax credit for the relevant amount of GST. We note that in paragraph 1 of your letter of 9 October 2009, you indicated that the debt may be payable in three (3) monthly instalments and that you have confirmed this aspect of your offer.

Assuming the above matters are in order, would you please forward Terms of Settlement for approval and execution." [Emphasis added] 18 There then followed some hurried discussions between the solicitors for the respective parties. Thereafter, by their letter of 23 November 2009, the solicitors for the plaintiff set out their client 's position in the following terms: "Settlement negotiations

1.On 12 November 2009, our client made an offer of settlement on the terms contained in that letter (Plaintiff's Offer).

2. On 18 November 2009, your clients purported to accept the Plaintiff's Offer, such acceptance being "conditional" on the following matters: (a) that the bond be returned to your client or credited against the settlement sum, and

(b) that a tax invoice he issued to your client in respect of the rental claim. 3. These conditions were not terms of the Plaintiff's Offer.

4. On Friday 20 November 2009, we informed you that your clients' purported "acceptance" is subject to conditions which were not terms of the Plaintiff's Offer. Therefore, our client does not agree that the parties to the Proceedings have reached an agreement as your clients made a counter offer (Defendants' Counter Offer). Our client instructed us to reject the Defendants' Counter Offer due to the following: (a) our client's claim already credits your clients' bond as set out in paragraph 30 of the Statement of Claim. In any event, crediting your clients' bond was not a term of the Plaintiff's Offer; and

(b) a tax invoice is not appropriate as any payment by way of settlement is properly characterised as "damages" which are tax free.

5. Pursuant to our client's instructions, we informed you that the Plaintiff's Offer remained open for acceptance until 12pm today. We note that this offer has expired and therefore lapsed." 19 The defendants dispute the correctness of the plaintiff's conclusions and maintain that the proceedings have been settled on the terms of the correspondence between their respective solicitors. 20 It is the resolution of this issue that is before me. Discussion 21 The starting point of Mr Pike's submissions was that it is trite law that an offer and its acceptance must precisely correspond in the sense that the offeree must have accepted all the terms of the offer and must not have added anything more. Any departure from the terms of the offer deprives a purported acceptance of validity as an acceptance. Rather, it may amount to a new offer, usually described as a counter offer, which is then open to acceptance by the original offeror. 22 In the present case, the offer which was put on behalf of the plaintiff was that contained in paragraphs 13-15 of the letter of 12 November 2009, which in turn incorporated the contents of paragraphs 1-4 of the letter of 9 November 2009. It was not disputed that the said offer was capable of acceptance. The defendants could have responded by simply accepting the offer. They did not do so. Instead they responded in terms of the letter of 18 November 2009. 23 At its highest, by its terms, the letter of 18 November 2009 purported to accept the offer "subject to confirmation" of the two matters set out in that letter. The first matter related to the moneys held under the bond, while the second matter related to an invoice in relation to GST. Neither of those matters were specifically mentioned in the letter of offer of 12 November 2009, although Mr Roberts reminded me that there was a reference to GST for loss of rent in paragraph 1 of the letter of 9 October 2009, whose terms were incorporated in the offer. 24 Mr Roberts submitted that the reference to the bond should be read in the context of the earlier correspondence between the parties in November 2008 and January 2009. He submitted that it was clear from that earlier correspondence that the plaintiff held the bond and would not be releasing it pending the determination of this dispute. He submitted that it was quite clearly implicit in the offer that the moneys held under the bond would be credited towards the $36,395.25 referred to in the offer. 25 Likewise, Mr Roberts submitted that the reference in the letter of 9 October 2009 to rent foregone being inclusive of GST clearly indicated that the amount in question, namely $29,315, would be paid in respect of rent foregone and that accordingly a tax invoice would issue. 26 Accordingly, Mr Roberts submitted that the two matters in respect of which confirmation was being sought were so obvious that the words "subject to confirmation" constituted nothing more than a checking exercise and could not be construed as imposing further terms. Mr Roberts referred specifically to what was said by Einstein J in Guang Dong Zhi Gao Australia Pty Ltd v Fortuna Network Pty Ltd [2009] NSWSC 1170. He submitted that in the circumstances, the words following the phrase "subject to confirmation" were nothing more than clarifying (perhaps it might have been more appropriate for him to use the word "confirming") that which was glaringly obvious. 27 Mr Pike took issue with this submission. He submitted that the earlier correspondence between the parties in November 2008 and January 2009 had been superseded by the filing and service of the statement of claim, which in his submission made it clear that the plaintiff was seeking an amount to compensate it inter alia for loss of rent, but only after deducting the bond that it held. In other words, according to Mr Pike, the statement of claim limited itself to the amount of lost rent, having retained, but also having given credit for, the amount of the bond. 28 In respect of the second matter, Mr Pike submitted that notwithstanding the method by which the plaintiff calculated the compromised amount it was prepared to accept, that amount represented a discounted figure for all of the loss suffered by the plaintiff, including the loss of rent, the loss incurred in redecorating the premises, the cost occasioned by the failure to make good and repair the premises as well as the loss of the items which the plaintiff claimed had been wrongly taken. In other words, according to Mr Pike's submissions, it was to be an overall settlement, out of which it was not possible to identify a precise amount in respect of the loss of rent. 29 I am minded to accept Mr Pike's submissions. I do not consider that the matters raised in the defendants' solicitors' letter of 18 November 2009 were so glaringly obvious as to constitute nothing more than a "checking exercise". Indeed, as Mr Pike pointed out, the defendants' solicitors must have thought it necessary to raise those issues for the purpose of clarification. If they had been as glaringly obvious to them as Mr Roberts submitted, I would not have thought that they would have raised them. 30 In the course of Mr Pike's submissions, I asked him whether his argument would be available in circumstances where the matter sought to be made subject to confirmation was truly glaringly obvious. I asked him by way of example what would have been his position if the solicitors for the defendants had purported to accept the offer on behalf of their clients but had said that such acceptance was subject to the amounts in question being in Australian dollars rather than in United States dollars. (I should add that on the facts of this case, there appears to be absolutely no connection whatsoever with the currency of the United States, and accordingly the answer to any such question would have been glaringly obvious). Mr Pike responded that his position would be the same. I am not entirely certain that I agree with that position, but I accept that my question was hypothetical, in that in the present case there is a real issue in relation to the bond and to the tax invoice for GST purposes. 31 In the circumstances, I do not accept that the letter of 18 November 2009 constituted an unequivocal acceptance of the plaintiff's solicitors' offer. It constituted a rejection of that offer. Whether it actually constituted a counter-offer capable of acceptance in that form is a matter that does not need to be determined in the present case. 32 There are two further reasons which support the plaintiff's case. First, in the letter of 18 November 2009, the solicitors for the plaintiff used the term "subject to confirmation". In my opinion, the term calls for a response by way of confirmation of the matters raised in that letter. It is not an acceptance unless and until such a confirmation is received. Yet on the facts no such confirmation was received. 33 Secondly, the letter does not even in terms purport to "accept" the offer. It merely indicates that the defendants were "prepared to accept" the offer subject to the matters mentioned. I do not consider that acceptance and preparedness to accept are one and the same thing. 34 In those circumstances, the defendants' notice of motion should be dismissed. 35 Both Counsel agreed that the unsuccessful party must bear the costs of the successful party of the notice of motion. Accordingly, the defendants must bear the plaintiff's costs of this application. 36 Mr Pike also sought an order for the costs thrown away by reason of a court appointed mediation having been vacated on the grounds that these proceedings had been settled. I am told that the amounts involved are small, involving only the appearance by the solicitor for the plaintiff to inform the mediator that the mediation would have to be vacated. I understand that there also was an appearance before the mediator on behalf of the defendants. 37 In all the circumstances, I do not think it would be appropriate also to visit those costs upon the defendants. They acted in good faith in vacating the mediation and I do not understand that the solicitors for the plaintiff opposed that course, which was of course a sensible one. I am told that there is nothing to prevent the parties from going to mediation after the delivery of this judgment, and I would certainly encourage them to do so. As a practical matter, this current attempt at settlement floundered by reason only of a relatively small amount of money. A great deal more will inevitably be spent in relation to costs should the matter go to a final hearing. 38 Accordingly, I order that the defendants' notice of motion filed on 25 November 2009 be dismissed with costs. **********

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