Consideration
39The 2009 lease provided that any new lease between the parties resulting from exercise of the option was to have a 'new rent' (cl 4.6.1), and stated:
If the new rent is to be current market rent it will be decided in the same way that current market rent is to be decided under Method 3 stated in clause 5 assuming that this lease and the new lease were one continuous lease and the commencement date of the new lease was a rent review date.
40In its reasons the Tribunal set out the material elements of cl 5 (see para [6]). It will be seen that Method 3 specifies that the rent is to be 'current market rent', and sets out a number of criteria, and provides at cl 5.15 for a decision to be made by a valuer appointed under cl 5.16 if the parties do not agree on the amount of the new rent 30 days before the rent review date. This clause covers much of the ground of s 31 of the RLA. In any event s 31 applies to the extent that any gaps exist in the lease provision.
41In a stable lease relationship, the question of the rent for the next term and whether the issue needed to be referred for independent valuation would, very likely, have been resolved in the period prior to commencement date of the new lease (here, 20 April 2012). But during that period the mortgagees in possession were moving to sell the freehold, were in dispute with Coslo over unpaid rent, had effected a lock-out soon after the sale, and Supreme Court proceedings for relief against forfeiture had ensued. Clearly by the time of completion of the sale (14 June 2012), the Bardouhs as the new owners would have been keen to finalise the lease for the next term, and in that regard have settled the amount of the rent.
42Having found at [34] that 'as at April 2012, Coslo had a legally enforceable right to a three year lease of the premises in accordance with the terms of the lease which expired on 19 April 2012 at a market rent determined in accordance with that lease or in accordance with s 31 of the Retail Leases Act' the Tribunal stated at [35]: 'The question which then arises is whether Coslo's position changed between 20 April 2012 and 3 August 2012'.
43The Tribunal referred from [36]-[40] to the following communications: solicitors for the mortgagee in possession to Coslo, 30 March 2012; further letter from the solicitors, 20 April 2012; reply from Coslo's solicitor, 27 April 2012; and solicitors' further letter, 2 May 2012. These communications were all concerned with the question of shortfalls in payment of rent, and bringing rent up to date. There is no express reference in this group of communications to the exercise of the option to renew, let alone the giving of any active consideration to the terms that needed to be settled afresh in the option lease.
44As noted at [7] of our reasons, above, the mortgagees' solicitors
did write on 4 May 2012 to the solicitors for the Bardouhs stating that they had 'not at this stage prepared a lease for the option period given the default of Coslo under the terms of the unregistered lease.' The Bardouhs were on notice at least by this point that the option to renew had been exercised.
45During May and the early part of June, it would seem from the reasons and the evidence on file that Mr Varma (for Coslo) and Mr Bardouh dealt directly with each other. The Tribunal refers, for example, without criticism, at [15] of its reasons to a conversation between Mr Varma and Mr Bardouh as recorded in Mr Varma's affidavit, in which both refer to the option to renew. Mr Bardouh is quoted as being prepared to keep Coslo as the tenant subject to 'rent to market'. Mr Bardouh said he would get his real estate agent to deal with him.
46The Tribunal refers at [40] to the mortgagees' solicitors' letter of 2 May 2012 (see above, [44]), and then continues at [41]:
Following this, several emails passed between the parties regarding the assessment of market rent. The tone of them changed with Mr Varma's email to Mr Bardouh of June 16 and Mr Bardouh's reply of the same date.
47It does not spell out the content of these emails. These are: (1) email dated 12 June to Mr Varna from Mr Bardouh indicating that he will come tomorrow to discuss the new lease and 'progress the market review'; (2) an email dated 14 June to Mr Varma from Mr Bardouh stating that Mr Bardouh had come to see him yesterday about the new lease and market review but he was not in, and would now come by today at 3pm to discuss; (3) a reply from Mr Varma asking can we meet tomorrow, 15th; and then (4) a further email after that meeting from Mr Bardouh - 'As discussed in our meeting this afternoon and on previous occasions in the last week, I am awaiting for your email. Please send before 5pm today as we need this new lease reflecting market rate finalized by Monday 18/6/12. Please include examples of rental properties.' (See Ex 3 before the Tribunal, being in turn Ex AB-1 to the affidavit of Mr Bardouh sworn 11 April 2013 at 10-12.)
48The Tribunal then sets out the full text of the exchange of emails of 16 June 2012. They begin with the reply email sought by Mr Bardouh in communication (4) referred to above. Mr Varma starts with the assertion that the 'current market rental has declined'. Next he states: 'We propose that the Lease be reinstated as per the old Lease on Auction sale contract or alternatively, new lease with following is proposed.' Read in context the reference to the old lease could reasonably be construed as a reference to its rental amount and its other features. The 'new lease' proposed as an alternative contained a lower rent ($45,000 'GST and outgoings inclusive') a total considerably lower than the previous lease's original rent amount ($50,000 exclusive of GST and outgoings, which had not been adjusted during the life of the lease.
49The Tribunal then sets out Mr Bardouh's reply, sent 3 hours' later on 16 June 2012. It commences as follows: 'I will employ real estate agents and solicitors to handle this starting early next week. Coslo Pty Limited is on a monthly lease for now, I withdraw my offer to negotiate a new lease with you and or your company. Please note that from the outset I have suggested to employ an independent valuation expert to determine the market value and that you have refused this offer.'
50Despite the above reply we note that Mr Bardouh did as late as 28 June 2012 through his agent advise Coslo by letter that he was prepared to offer a new lease. That letter asserted that Coslo was a tenant holding over on a month to month basis, an assertion accepted as accurate by the Tribunal given the events of 16 June 2012. The letter advised that the rent was to be substantially increased (to $78,000 pa). The Tribunal noted elsewhere in its reasons that the amount it obtained from the new tenant that replaced Coslo was just below that figure, indicating in its mind that it was a realistic figure.
51The letter of 28 June 2012 was followed on 3 July 2012 by a formal notice from the agent requiring Coslo to vacate the premises a month later on 3 August 2012, and requiring them to make good the premises in ways outlined in the letter of 28 June 2012.
52In support of its submission that the Tribunal misconstrued Mr Varma's email of 16 June 2012 to such an extent that it erred in law, Coslo drew attention to its heading, 'without prejudice'. It was contended that this was strong evidence for the view that the email was no more than part of a usual negotiating exercise over the rent to be set under the option lease. In our view, the heading 'without prejudice' is merely an ingredient to be considered in forming a judgment as to the nature of the relationship between the parties. (Privilege in the technical sense was formally waived: reasons, [35].)
53It is plain that at this point the parties were a long way apart in relation to a the new rent. Equally, it is plain from the reply email from Mr Bardouh that he wished to end the relationship. Mr Bardouh stated that he was not prepared to accept the Varma proposal, and he asks them to leave the premises and refers to other matters of concern to him (make good, removal of debris and the like). Importantly, Mr Bardouh referred to Mr Varma's failure to agree to engage an independent valuer to address the issue.
54The final conclusion of the Tribunal ('the communications emanating from Coslo especially the email of 16 June evince an intention to be no longer bound by any obligations arising from the exercise of the option and communications from Bardouh indicate an acceptance of that repudiation') must be seen in the wider context of the case, as revealed by other parts of the reasons and by reference to the material that was placed before the Tribunal.
55It is clear that the Varma family was in financial difficulty by mid-2011 in keeping up the mortgage payments. The Tribunal expressed understandable doubt as to whether an arms-length relationship had existed as between Coslo (sole director, Mrs Varma) and the registered proprietors, her husband and their two sons, as to timely payment of rent. Plainly an arms-length purchaser (as the Bardouhs were) from a mortgagee in possession was likely to insist on orthodox payment practices. Coslo faced the likelihood that, if it was to continue in business at these premises, they would be faced with a demand for rent under any renewed lease at the market rate, as occurred.
56Moreover, there had been an application to ASIC for deregistration of Coslo on 18 June 2012, later withdrawn. The Tribunal spoke at [46] of this conduct providing 'powerful evidence that Coslo, a company making significant losses, had no real desire to continue in business on the site.' It saw this view as reinforced by the notice and then the sign it erected directing business elsewhere (4 August, and later in August, respectively): see reasons, [46], [53]-[55]. In our view, all of these matters were part of the commercial context against which the Tribunal made its assessment.
57The Tribunal expressed itself in a curt way. But it is clear, we consider, that it had reached the view that Mr Varma could not seen to be dealing genuinely with the new lessor, especially in relation to the need to resolve quickly the key issue of rent, and in his failure to accede promptly to the request for an independent valuer. By this conduct, an objective observer could reasonably conclude that he had renounced the option.
58In our view the Tribunal could not be said to have so misconstrued the email exchange of 16 June 2012, or the surrounding circumstances, to give rise to an error of law, either in the sense of misapplying the standard laid down in Koomphatoo to the facts, or by failing to adhere to the general standards to which we have referred earlier in these reasons in relation to the adequacy of reasons for critical findings of fact.