HER HONOUR: In these proceedings, the plaintiff, Darzi Group Pty Ltd (Darzi), seeks a declaration that the parties entered into a retail lease on the terms of a lease executed by Darzi and submitted to the solicitors for the defendant, Nolde Pty Ltd (Nolde), on 15 June 2016 (15 June lease document).
The 15 June lease document relates to restaurant premises, which became known as The Sicilian, at the Dorsal Hotel in Forster, NSW. Nolde is the owner of the Dorsal Hotel.
Darzi has been in occupation and operating out of the restaurant premises since late 2014, following the parties' executing a heads of agreement in relation to the restaurant premises on 13 October 2014 (Heads of Agreement).
Alternatively, Darzi seeks a declaration that the parties entered into an agreement for lease on terms contained in a lease sent by Darzi's solicitors to Nolde's solicitors on 7 June 2016, which lease is in the same terms as the 15 June lease document. Darzi seeks specific performance of that agreement.
Nolde denies that a lease in the terms of the 15 June lease document is in existence and, by its cross-claim, seeks a declaration that Darzi has been in occupation of the restaurant premises as a monthly tenant.
The key issue in the proceedings is, therefore, whether the parties reached a binding agreement for the lease of the restaurant premises on the terms of the 15 June lease document. I have found that they did not. I have also concluded that Darzi is occupying the restaurant premises pursuant to a lease under the Retail Leases Act 1994 (NSW), with a minimum lease term of five years to 20 October 2019.
At the hearing, there was some dispute between the parties about whether the Heads of Agreement was binding. The parties did not make detailed submissions on that issue, and the hearing proceeded on the basis that the Court did not need to determine the point. Accordingly, these reasons do not make any determination on that issue.
[4]
Comments on some evidence
Before setting out the facts in this matter, most of which are not in dispute, it is appropriate to comment on some of the evidence in this case.
Omid Darzi, the sole director of Darzi (Mr Darzi), and Maurice John Koorey, a director of Nolde (Mr Koorey), gave very differing accounts of their initial contact and the circumstances in which the Heads of Agreement was executed.
According to Mr Koorey's evidence, he first came into contact with Mr Darzi after Mr Darzi responded to an advertisement that Mr Koorey placed on the website "seek.com.au" advertising the Dorsal restaurant business for sale or lease. Mr Koorey also gave evidence that the Heads of Agreement signed by the parties included a reference to rent being the greater of $2000 or 12% of turnover and that he did not consent to Darzi undertaking extensive renovations at the restaurant premises in the four weeks leading to the opening of the restaurant in December 2014.
Mr Darzi's evidence was inconsistent with Mr Koorey's on those matters. During cross-examination, Nolde's counsel put to Mr Darzi that he fabricated his evidence regarding the circumstances of the first contact between himself and Mr Koorey, as well as the form of the Heads of Agreement when executed by the parties.
Mr Koorey was not required for cross-examination at the hearing and his evidence was, therefore, unchallenged.
Having regard to this and the nature of Mr Darzi's evidence, which Nolde's counsel contends may potentially have a negative impact on Mr Koorey, a submission was made that the Court should make a finding that Mr Darzi's evidence regarding the Heads of Agreement was a deliberate lie. Nolde's counsel also submitted that the Court should make certain findings of fact in accordance with Mr Koorey's evidence.
In view of it being unchallenged, I accept entirely Mr Koorey's evidence regarding his initial contact with Mr Darzi and the circumstances in which the Heads of Agreement was executed, and I do not accept Mr Darzi's evidence on those matters. I am not, however, prepared to make a finding that Mr Darzi deliberately lied.
As outlined by the High Court in Smith v NSW Bar Association (1992) 176 CLR 256 at 268:
'There is a difference between the rejection of a person's evidence and a finding that he or she deliberately lied. In some cases, a rejection of evidence may lead to a finding that the person lied on another occasion… But, as a matter of logic and common sense, something more than mere rejection of a person's evidence is necessary before there can be a positive finding that he or she deliberately lied in the giving of that evidence.
…
A finding that a person deliberately lied when giving evidence is, in effect, a finding of perjury and, thus, it ought not to be made on "the single oath of another man, without any confirmatory evidence"' (footnotes omitted).
I acknowledge Nolde's submission that Mr Darzi's evidence could be construed as raising a serious allegation about Mr Koorey. However, minds may genuinely differ when seeking to recall events from some years ago. It is, therefore, possible that Mr Darzi's evidence was not a deliberate lie but simply the product of an inaccurate recollection.
There is also an absence of "confirmatory evidence" from a source other than Mr Koorey regarding the matters on which the evidence differed.
Accordingly, I do not consider it to be necessary to make a finding that Mr Darzi's evidence regarding the circumstances of the first contact between himself and Mr Koorey or the form of the Heads of Agreement when executed by the parties was fabricated.
In any event, the evidence on those issues has, in my view, little weight and relevance to the outcome of these proceedings.
The evidence in this case also includes correspondence between the parties' solicitors during the period from 17 November 2015 to 7 June 2016 most of which is labelled "without prejudice" or "without prejudice save as to costs". This correspondence followed the attendance by the parties on 2 November 2015 at a "without prejudice" informal settlement conference.
Neither party objected to the "without prejudice" correspondence being admitted into evidence. The parties accepted their relevance and they have, therefore, been admitted in full.
The parties provided supplementary written submissions at the Court's request regarding whether the fact the correspondence was marked "without prejudice" should be taken into account when determining if a retail lease or agreement to lease was entered into. Those submissions have been taken into account in these reasons.
[5]
Factual background
The following facts are based on an acceptance of Mr Koorey's evidence on the matters referred to above.
In early October 2014 Mr Koorey, on behalf of Nolde, placed an advertisement on "seek.com.au" advertising the restaurant business at the Dorsal Hotel. Mr Darzi contacted Mr Koorey and expressed his interest, which was the first contact between them.
On 13 October 2014, Mr Darzi and Mr Koorey met at the Dorsal Hotel and signed two copies of the Heads of Agreement, the pro forma of which had been prepared by Mr Darzi.
The copies of the Heads of Agreement signed by Mr Darzi and Mr Koorey included handwritten details which were inserted by them at the meeting and which provided for the following:
1. an initial term of five years plus three five-year options to renew;
2. an occupation/possession start date of 14 October 2014, with one month's rent-free set-up period.
3. rent in the sum of $2,000 per week (exclusive of GST) or 12% of turnover, whichever was the greater;
4. outgoings to be additional to rent, and calculated as a percentage of rent;
5. public liability insurance in the amount of $20 million;
6. Nolde to maintain a Liquor Licence until transferred by Darzi at its own expense, and all current fixtures and fittings to be included in rent; and
7. all other work to be carried out by Darzi at its own expense.
Some of the handwritten details on the copies of the Heads of Agreement were different as between the two signed copies. For example, in relation to the Bond, the version which Mr Koorey took away with him referred to "$25,000 - bank guarantee or like", whereas the version that Mr Darzi took away referred to "One Month's Rent", and the occupation/possession date of 1 November 2014 was deleted on Mr Koorey's version, but it was not on Mr Darzi's.
On 20 October 2014, Darzi commenced occupation of the restaurant premises, following which it carried out some renovations and fit-out works. The restaurant was closed for about four weeks while the renovations were carried out. Mr Koorey did not give consent, on behalf of Nolde, for Darzi to undertake a large renovation prior to Christmas 2014 or to remove approximately 10 items of plant and equipment from the restaurant and replace them.
In late November or early December 2014, the restaurant commenced operating.
On 3 December 2014, Darzi commenced paying rent to Nolde in the amount of $9,533.32 (including GST), which equates to the figure of $2000 per week (excluding GST) referred to in the Heads of Agreement.
On 4 December 2014, the solicitors acting for Darzi (Paton Hooke Lawyers) sent an email to the solicitors acting for Nolde (O'Brien Connors & Kennett Solicitors) requesting a copy of the proposed lease once it was prepared together with all the disclosure documentation.
On 12 December 2014 and on 4 March 2015, Darzi's solicitors sent follow up emails to Nolde's solicitors asking for the lease to be forwarded to them.
On 28 April 2015 and 22 May 2015, Mr Darzi sent two text messages to Mr Koorey asking about the lease documents and requesting that they be sent soon.
On 27 May 2015, Nolde's solicitors sent a draft lease to Darzi's solicitors for Darzi's approval. The draft lease was for a term of three years commencing on 1 June 2015, with one two-year option to renew, and rent of $104,000 per annum by monthly instalments of $8,666.66 exclusive of GST. It also included provision for outgoings to be payable by Darzi at a rate of 16.66%, rent reviews in a fixed amount of $500 per week on each review date and $20 million public liability insurance. The cover letter suggested that if any amendments were required, Darzi should speak to Nolde directly.
On 11 June 2015, Darzi's solicitors responded to Nolde's solicitors noting that the draft lease had not been prepared in accordance with the Heads of Agreement. They requested a disclosure statement, as they said the lease was for a retail shop within the meaning of the Retail Leases Act, and enclosed a marked up version of the draft lease (with handwritten notations). The letter proposed a term of five years with three options to renew of five years each, although the handwritten changes to the draft lease only provided for one five year option to renew. The draft lease also provided for a commencement date of 1 June 2015.
On 16 July 2015, Darzi's solicitors sent an email noting that the parties had been in discussions and that Darzi would like to resolve the lease agreement as soon as possible, as without a formal lease Darzi would be placed in a difficult position moving forward in relation to a number of aspects regarding its business.
On 20 July 2015, Nolde's solicitors responded to the list of matters referred to Darzi's solicitors' letter dated 11 June, and provided comments on the draft lease with the handwritten comments. At point 2 of the email, it stated that Nolde would agree to a five (year) lease with a five year option.
On 23 July 2015, Darzi's solicitors requested the disclosure statements, a plan of the premises and a copy of the liquor licence. The letter noted that they would obtain further instructions in relation to the draft lease upon receipt of those documents. On 29 July 2015, Darzi's solicitors sent a follow up request.
On 30 July 2015, Nolde's solicitors sent Darzi's solicitors a draft disclosure statement as required under the Retail Leases Act, which included a term of five years plus an option for five years, a commencement date of 1 June 2015, annual rent of $104,000 and annual rental reviews of $500 per month.
On 15 September 2015, Darzi's new solicitors, Pigott Stinson Lawyers (Pigott Stinson), wrote to Nolde's solicitors stating that Darzi required a formal lease to be entered into without further delay. The letter identified twelve items as outstanding issues, one of which was the term of the lease and referred to the twenty year term contained in the Heads of Agreement. Another of those items related to the plan of the restaurant premises, which was attached. The letter also alleged that Nolde's delay in finalising the lease was unconscionable under the Retail Leases Act, requested a response by Friday 25 September 2015 and reserved Darzi's rights with respect to the Heads of Agreement and the lease.
On 28 September 2015, Darzi's solicitors sent a follow up letter stating that Darzi would consider having the matter referred to mediation under the Retail Leases Act if Nolde did not respond by Friday 2 October 2015.
On 2 October 2015, Nolde's solicitors responded, referring to the Heads of Agreement rent of $2000 per week or 12% of turnover whichever was the greater. They indicated that Mr Koorey used the lower figure of $2,000 per week following advice "as to the Retail Leases Act" and in order to enable Darzi to establish itself. The letter went on to respond to the twelve outstanding items, including the term, and proposed a five year term plus one five-year option to renew. It denied the allegations regarding the Retail Leases Act and said Nolde awaited a response after the parties had met and discussed the matter.
On 14 October 2015, Darzi's solicitors responded noting there was some disagreement in relation to matters raised in the 2 October 2015 letter and a disparity between the respective clients as to their understanding of the background. They suggested meeting for an informal settlement conference, failing which they would apply for mediation under the Retail Leases Act.
On 2 November 2015, the parties and their solicitors attended an informal settlement conference.
Following that conference, on 17 November 2015, Darzi's solicitors sent an email to Nolde's solicitors marked "without prejudice". The second paragraph of the email begins:
"Subject to agreement on all issues and the parties entering into a formal lease, we have summarised the position of the parties to date as follows:"
The email then lists eight points which appear to be matters agreed by the parties and which include year-1 rent of $104,000 per annum plus GST, a commencement date of 1 June 2015, a rent review increase of $250 per week in year 2 and then 4% thereafter, and Darzi to pay one sixth of outgoings. The email goes on to ask whether Nolde would agree to a "5 x 5 x 2 year lease", and refers to some matters relating to equipment, the disclosure statement and advertising.
On 9 December 2015, Darzi's solicitors sent a follow up email asking whether Nolde would agree to a twelve year lease term and noted they were waiting to receive an updated disclosure statement.
On 10 December 2015, Nolde's solicitor advised that Nolde would not agree to a twelve year lease and made an offer of a ten year lease.
On 18 December 2015, Darzi's solicitor, by a letter headed "without prejudice", responded noting that the Heads of Agreement provided for a twenty year term and confirming that Darzi would accept a lesser term of twelve years but would not accept a term less than that. They also requested the disclosure statement.
Nolde did not respond to that letter.
On 5 February 2016, Darzi's solicitors sent a letter marked "without prejudice" to Nolde's solicitors enclosing a draft lease for Nolde's urgent consideration and approval, noting that most of the terms had been drafted based on the parties' position to date (as per the previous correspondence and the discussions during the "without prejudice" meeting on 2 November 2015). They also proposed a term of six years with a six-year option and a commencement date of 1 June 2015. The letter attached a list of equipment that had been in the premises when Darzi took occupation, which was used to address issues or repair and replacement, and included a proposal to deal with the issue of equipment and fit out in the draft lease. The letter also enclosed a liquor application, requested a disclosure statement and advice as to whether the enclosed lease was acceptable.
On 10 March 2016, Nolde's solicitors sent a letter marked without prejudice to Darzi's solicitors stating that Nolde would only agree to a lease with a term of five years, with no option, commencing on 15 June 2015. No explanation was provided for that change. The letter responded to the equipment issue, agreed to two other amendments proposed and stated that they would "attend to preparation of a Disclosure Statement once all terms are agreed".
On 22 March 2016, Darzi's solicitors responded by letter marked "without prejudice save as to costs", stating that Darzi only agreed to reduce the twenty year term referred to in the Heads of Agreement to twelve years in an attempt to resolve the matter and responded to the issues relating to the equipment item. It also requested urgent confirmation that Nolde would proceed with a twelve year lease term, failing which they would refer the dispute to the Retail Tenancy Unit for mediation.
On 22 April 2016, Nolde's solicitor, in an email marked "without prejudice", stated that "as a last resort" Nolde would agree to a "5 x 5 year lease from 14 October 2014". It noted that item 29 was agreed and requested that Darzi submit the relevant application regarding the liquor licence to Nolde.
On 29 April 2016, Darzi's solicitors responded in a letter marked "without prejudice save as to costs", advising that Darzi would accept a lease with a ten year term so long as it commenced on the date the lease was signed.
On 11 May 2016, Nolde's solicitors, in an open email, rejected the proposed commencement date, noting that Darzi took occupation of the restaurant premises on 14 October 2014. They asserted that Darzi had resiled from the offer to pay "$2,000 per week (exclusive of GST) or 12% of turnover, which is greater" and stated that the transfer of the liquor licence must be finalised urgently, noting that Mr Koorey had provided the documents to Darzi.
On the same day, by way of a separate letter marked "without prejudice save as to costs", Nolde's solicitors wrote and re-affirmed the offer of a five by five year lease term commencing on 14 October 2014 and advised that the offer was open until 12 noon Wednesday 18 June 2016.
Darzi did not accept that offer and on 16 May 2016, Darzi's solicitors sent a letter (marked "without prejudice") noting the parties were close to settlement, that they were instructed to make one final offer and, if the parties did not reach agreement by 23 May 2016, Darzi would have no option but to seek a mediation under the Retail Leases Act for a twenty year lease term and compensation for Nolde's undue delay in finalising the lease. The letter also noted that the only remaining issues appeared to be the commencement date and the term and went on to propose the following alternatives:
1. a term of ten years commencing on 1 March 2015; or
2. a term of ten years and three months with a commencement date of 1 December 2014.
On 27 May 2016, Nolde's solicitors wrote back in a letter marked "without prejudice", stating that "our client is agreeable to a lease with a term of five years with an option of five years and three months commencing on 1 December 2014", and went on to stated "Please let us have your advices".
On 31 May 2016, Darzi's solicitors responded (by letter marked "without prejudice save as to costs") stating that Darzi agreed to a lease commencing on 1 December 2014 with a term of five years and an option of five years and three months. They noted that Mr Darzi would be travelling on 16 June and would like the lease signed by both parties before that date and stated that they would amend the lease as agreed and submit the final lease for Nolde's execution later that week. The letter ended with a statement continuing to reserve all of Darzi's rights.
On 3 June 2016, Darzi's solicitors sent an email marked "without prejudice" to Nolde's solicitors at 5.11pm attaching the final lease for execution and requested the signed lease to be returned along with an updated disclosure document. The form of that final lease is not in evidence.
On 7 June 2016, Darzi's solicitors sent an email marked "without prejudice" to Nolde's solicitors referring to a telephone conversation with "Lyn", and the correspondence between the parties dated 15 September 2015 and 1 October 2015 by which "the parties agreed to attach a plan of the premises as an exhibit to the lease". The email attached an updated final lease with the following changes:
1. new special condition which referred to the plan;
2. new exhibit 1 to the lease with the plan;
3. new exhibit 2 with the list of Additional Leased Property; and
4. an amendment to item 11 of the lease to refer to that list as exhibit 2.
The email attached the lease in colour, requested that it be executed by Nolde, noted that Darzi had been sent the lease for execution, proposed that the signed leases be exchanged as soon as possible and said that they would send the original lease signed by Darzi to Nolde's solicitors to allow Nolde to sign, so that the lease could be registered.
Pausing there, there is no evidence before the Court as to the contents of the discussion between Lyn from Nolde's solicitor's office and the writer of the 7 June 2016 email and how the changes to the lease sent on 7 June came about. It is, therefore, not known whether Nolde requested the changes having reviewed the final lease for execution sent to its solicitors, on 3 June, or whether they were identified by Darzi and the call was to explain why they were needed.
Based on the email itself, it is not possible to infer either way.
On 15 June 2016, Mr Darzi signed the final execution copy of the lease on behalf of Darzi. A counterpart lease, registration copy of the lease and exhibits all duly executed by Darzi were sent to Nolde's solicitor on the same day with a cheque in the sum of $109.50 in favour of LPI-NSW. Darzi requested that Nolde's solicitors deliver a signed counterpart of the lease to Darzi's solicitors, as well as a copy of Darzi's registered lease and each exhibit executed by the parties, in due course.
Nolde's solicitors did not respond to the 7 June 2016 email or the 15 June 2016 letter. On 18 July 2016, Darzi's solicitors wrote to Nolde's solicitors asking them urgently to advise Nolde's position in relation to execution of the lease.
On 18 August 2016, Darzi's solicitors wrote and requested an executed lease be returned by 26 August 2016, failing which they would make an urgent application to the Retail Tenancy Unit.
On 20 October 2016, Darzi's solicitors wrote to Nolde's solicitors referring to an email from Nolde's solicitors dated 8 September 2016 attaching a schedule of outstanding rent and outgoings.
There was some dispute at the hearing as to whether the document tendered in evidence (exhibit 3) was the email from Nolde's solicitors dated 8 September 2016 and attached schedule, as referred to in the 20 October 2016 letter. The document tendered is an email from Lyn Hendry at Nolde's solicitors addressed to Darzi's solicitors attaching a one page PDF referring to "Outgoings, 1 West Street Foster", and "Outstanding Rent" calculated for the period from 14 October 2014 to 13 October 2016. There is little doubt that the document tendered is the 8 September email attaching a schedule of outstanding rent and outgoings to which the 20 October 2016 letter refers and I find accordingly.
The letter from Darzi's solicitors dated 20 October 2016 asserted that the calculation in the schedule for rental adjustment was not in accordance with the lease and states:
"Under the lease the rental increased in December 2015 to $10,725.00 per month GST inclusive being a monthly increase of $1,191.68 GST inclusive.
Our client has paid the adjusted sum of $13,108.48 (being the 11 months from December 2015 to October 2016 inclusive @ $1,191.68 per month)."
The letter goes on to note that Nolde had not requested payment for any outgoings, had not provided Darzi with outgoings statements, nor had it provided any tax invoices for the rent Darzi had paid. The letter also indicated that Darzi was willing, as a sign of good faith, to pay, on or before 1 November 2016, the sum of $10,000 as a contribution towards outgoings but reserved its rights to receive outgoing statements and adjust payments as required. It also provided preliminary comments in respect of the outgoings referred to in the schedule.
On 6 December 2016, Darzi signed an on premises licence application with Liquor and Gaming New South Wales (Liquor & Gaming NSW) in respect of the restaurant premises.
On 9 December 2016, Darzi deposited $10,000 into Nolde's bank account in relation to outgoings.
On 29 March 2017, Mr Koorey, in the name of SRI Publishing Co Pty Ltd, lodged a Change of Boundaries application form with Liquor & Gaming NSW, in which the liquor licence area was proposed to be changed to exclude the restaurant premises area.
On 9 August 2017, Liquor & Gaming NSW approved Darzi's liquor license application.
On 18 October 2017, Darzi's solicitors sent a letter to the solicitors for Nolde requesting Nolde sign the 15 June lease document by 27 October 2017. It also noted that the Retail Leases Act required Nolde to return the signed lease within three months and that Darzi's position was that the 15 June lease "exists by way of estoppel".
On 10 November 2017, Darzi lodged a caveat on the title to the Dorsal Hotel property. Nolde has not taken any steps to pursue a lapsing notice in respect of that caveat.
On 30 November 2017, Darzi's solicitors sent an application for mediation to Nolde's solicitors.
On 24 January 2018, Nolde's solicitors responded to the application for a mediation stating that Nolde would not agree to any dialogue between the parties until the caveat was removed from the title. The letter also stated:
"The lessee has banned Mr Koorey from the restaurant area. Such a ban is in breach of the terms of the lease between the parties especially in the case of emergencies or security issues…"
The letter went on to state that there were a number of matters with which Nolde took issue but, in the interests of endeavouring to reach a compromise, those matters had not been articulated. It ended by saying that Nolde assumed that Darzi would "not seek the issue of a Certificate under s 68 [Retail Leases Act] until we have received a response to this letter…".
On 31 January 2018, Darzi's solicitors wrote refusing to withdraw the caveat until the "2016 Lease" was registered, alleging that Nolde's refusal to register the "lease" was in breach of the Retail Leases Act and also alleging that Nolde was in breach of cl 11.1 of the "2016 Lease" as a result of Mr Koorey coming to the restaurant premises for what was said to be for "no valid purpose". They also advised that Darzi would be seeking to issue a s 68 certificate under the Retail Leases Act and threatened legal action.
On 23 February 2018, Nolde's solicitors wrote and advised that Nolde would proceed to "finalisation of this matter on the basis of the terms set out in the Heads of Agreement with rent to be assessed at 12% of turnover". They also advised that the lease term was to "commence on 14th October 2014 for a term of five (5) years with three further options of five (5) years each" with outgoings payable by the lessee to be 16.67%.
On 23 April 2018, the Small Business Commissioner provided a certificate under s 68 of the Retail Leases Act to Darzi's solicitor that the mediation had not taken place because the Registrar was unable to arrange it.
These proceedings were commenced on 29 May 2018.
Since 26 September 2016, Darzi has paid rent in accordance with the terms of the 15 June lease document.
Other than one tax invoice dated 1 December 2014 and the schedule attached to the 8 September 2016 email, Nolde has not issued any tax invoices for rent, increased rent or demanded payment of outgoings.
Nolde has not executed the 15 June lease document or banked the cheque in the sum of $109.50.
[6]
Darzi's submissions
Darzi's counsel submits that a consideration of the communications and dealings between the parties leading to the 15 June lease document, and subsequent conduct supports a finding that the common intention of the parties was that they intended to be bound by the 15 June lease document.
This is put on two bases. The first is that the written correspondence between the parties bound them and no further document was required, even though a lease, executed by both parties and exchanged in registrable form, was contemplated by the parties.
The second, alternative, basis is that the 2015 June lease document executed and forwarded by Darzi has been accepted by Nolde by conduct and binds the parties.
Darzi's case, in essence, is that the parties entered into, and conducted themselves in accordance with the binding Heads of Agreement. They then entered into negotiations in relation to a formal lease agreement for the commercial purpose of being able to register the lease.
Darzi's counsel submits that all the terms of the lease had been negotiated and there were no terms remaining to be agreed by at least 27 May 2016. Those negotiations ended in Darzi accepting the lease terms demanded by Nolde and, by way of acceptance, executing and returning the 15 June lease document to Nolde's solicitors.
Darzi accepts it sought a formal lease document, but says doing so was a prudent commercial thing to do and cannot be taken as an admission that Nolde's execution of the 15 June lease document was required before the parties were bound.
It also submits that evidence of subsequent conduct supports a finding that the parties did not intend for Nolde's execution to be a pre-condition to the formation of a binding lease agreement. That evidence includes:
1. payment and acceptance of rent, including increases, referable to the 15 June lease document;
2. cooperation between the parties to apply to Liquor and Gaming to remove Nolde as the licensee and replace it with Darzi's nominee; and
3. Darzi being ready, willing and able to perform other obligations, including the payment of outgoings.
Darzi argues that references in correspondence from Nolde's lawyers in January 2018 to the "lessor" and to alleged "breaches of the terms of the lease between the parties" constitutes an admission that Nolde was referring to the 15 June lease document, and Nolde's failure to issue a lapsing notice in respect of the caveat lodged by Darzi, is evidence that shows Nolde has acted consistently with the binding nature of the 15 June lease document.
It contends that there is a binding agreement or agreement for lease in the nature of the first class of case considered by the High Court in Masters v Cameron (1954) 91 CLR 353 at 360, being:
"one in which the parties have reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect".
Darzi also relies on the recent judgement in Wayne Edward John Streat v Fantastic Holdings Limited [2011] NSWSC 1097 (Streat v Fantastic Holdings Limited), in which the Court held that the parties were bound to the lease document prepared even though the lessor had not executed the lease.
[7]
Nolde's submissions
Nolde's counsel submits there was no intention to make a, and there is no, concluded or binding lease as the 15 June lease document has not been executed and exchanged by the parties.
Nolde submits that the Heads of Agreement is not binding and argues that Darzi's threat of mediation to the Retail Tenancies Tribunal is an admission that Darzi did not consider the Heads of Agreement to be binding.
Nolde accepts that the parties negotiated the terms of a lease during the period from May 2015 to June 2016. This negotiation, however, was conducted through solicitors and is said, by Nolde, to be on the basis that there would be no formal, binding or legal lease unless and until a lease in registrable form was agreed, executed and exchanged in accordance with ordinary practice. This is in the nature of the third class considered in Masters v Cameron (1954) 91 CLR 353 at 360.
Nolde relies, in particular, on the email from Darzi's solicitors dated 17 November 2015 which included the phrase: "Subject to agreement on all issues and the parties entering into a formal lease, we have summarised the position of the parties to date as follows", and submits that there was never anything said or done by either party which suggested that the parties' intention had changed in that respect.
Nolde's counsel points to other correspondence, including the letters dated 16 July 2015 and 15 September 2015 in which Darzi, through its solicitors, refers to the need for a formal lease, as evidencing the objective common intention of the parties not to make a concluded bargain unless and until they both executed and exchanged a formal lease.
Nolde also relies on the letter from Darzi's solicitors dated 31 May 2016 which included a reservation of Darzi's rights, in support of the proposition that Darzi did not consider there to have been a binding agreement in place at that time.
Nolde's counsel accepts that the major terms of the lease were agreed, but contends that the email from Darzi's lawyers dated 7 June 2016, in which Darzi sent the final lease for execution and highlighted changes made to the lease by the addition of a special condition and inclusion of the two exhibits, means that the amended lease terms were not yet agreed.
Nolde submits that its refusal to execute and exchange the 15 June lease document is fatal to Darzi's claim having regard to conveyancing transaction practice where the parties are represented by solicitors, relying on the statement by Palmer J in Viva Plastic Pty Ltd v Stoermer [2006] NSWSC 948 (Viva Plastic Pty Ltd v Stoermer) at [23] that:
"the normal expectation of the parties is that documents evidencing the transaction will be prepared by solicitors, that the parties will receive advice of their solicitors as to the terms of their agreement embodied in the documents, and there will be no binding agreement between the parties until formal execution and exchange of counterparts of the documents".
As to the subsequent conduct of the parties, Nolde's counsel submits that it is equivocal given Darzi did not pay rent in accordance with the 15 June lease for some time and Nolde's conduct did not change after 15 June 2016.
[8]
Consideration
To determine whether a binding lease or agreement for lease exists in the terms of the 15 June lease document, the Court must ascertain the objective common intention of the parties having regard to the language used by the parties, their conduct and the surrounding circumstances known to the parties: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
As Gleeson CJ stated in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 (at 548):
"It is to be noted that the question in a case such as the present is to be expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron [(1954) 91 CLR 353] (at 360). This is not the same as, although in a given case it may be closely related to, the question whether the parties had reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract".
Where parties have agreed all relevant terms of a lease, but have also agreed that a formal lease document is to be executed and exchanged, the question for determination is whether the parties intended to be immediately bound. That is to be determined from the outward manifestations of the parties: Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 at 616; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657.
Whether there is a concluded agreement for lease depends on the intention of the parties, prima facie to be determined objectively without regard to the subjective intention of one or other of the parties: Long v Piper [2001] NSWCA 342 (Long v Piper) at [49]. See also Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655, where Campbell JA stated:
"For the purpose of deciding whether a contract has been entered, or what construction it bears, the common intention that the court seeks to ascertain is what is sometimes called the "objective intention" of the parties. That is theintention that a reasonable person, with the knowledge of the words andactions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract".
In commercial lease and conveyancing transactions, where the parties are acting through solicitors, there is a presumption that there will be no binding agreement until formal execution and exchange of counterparts of the documents takes place or there is "the completion of some ceremony which marks the stage at which a contract comes into existence": Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 97,093, Glass JA at 3; Viva Plastic Pty Ltd v Stoermer.
That presumption can be displaced if there is evidence that the parties had a common intention that, despite the normal expectation as to how a conveyancing transaction would proceed, the agreement informally reached between them should be immediately binding, although its terms may later be amplified and embodied in formal documents to be exchanged by their solicitors: Viva Plastic Pty Ltd v Stoermer at [24] per Palmer J; Long v Piper at [47]-[55] per Giles JA.
In Viva Plastic Pty Ltd v Stoermer, the Court was not satisfied that the parties had intended to be bound even though the lessor has sent a final lease for execution to the tenant. This was because the tenant had failed to pay the monthly rent after receipt of the lease and had only purported to execute it lease after the lessor served a notice to quit. Accordingly, the Court held that the tenant intentionally delayed executing any agreement because it did not want a binding lease (as it was in financial difficulty and could not afford to pay the bond).
In Long v Piper, the Court was not satisfied that the parties intended to be bound by a lease for reasons including that the lessee did not pay an amount of $90,000 that was due on the commencement date of the lease, the lessee had taken occupation as a caretaker for the licensee of the hotel, and it remained for the formal lease to be prepared and executed.
In Streat v Fantastic Holdings Limited, the Court was satisfied that the parties intended to be bound even though the lessor had not executed and exchanged the final agreed lease. In that case, the lessor had prepared the final version of the formal lease and sent it to the lessee for execution, and then (effectively) changed its mind. There was also evidence that the lessor was encountering financial difficulties, wanted a commitment from the tenant in order to satisfy its financier, and had demanded rent in accordance with the lease sent to the lessee.
In my view, these cases are of limited assistance to the Court as they each concern a different factual matrix to that in these proceedings. They confirm that the Court must assess the facts, surrounding circumstances and conduct of the parties in this case to objectively determine whether there is a binding lease or agreement for lease in the terms of the 15 June lease document.
I accept Darzi's submissions that, by 31 May 2016, the parties had reached a consensus on the key terms which were legally necessary to constitute a lease of the restaurant premises and that those terms were embodied in the 15 June lease document.
The evidence indicates that, as at 16 May 2016, the only issues that remained outstanding in relation to the terms of the lease were the commencement date and the term of the lease. This is made clear by the correspondence between the parties' solicitors evidencing the negotiations of the terms of the lease during the period from 27 May 2015 (the date when the first draft lease was sent by Nolde's solicitors to Darzi's for approval), and culminating in the letter from Darzi's solicitors to Nolde's solicitors on 16 May 2016 (setting out the two remaining terms to be finalised).
The two remaining issues (the commencement date and the term) were resolved when Nolde's solicitors, on 27 May 2016, advised that their client was agreeable to a lease with a term of five years with an option of five years and three months commencing on 1 December 2014, and on 31 May 2015, when Darzi's solicitor wrote that their client accepted those terms.
While the letter from Nolde's solicitors dated 27 May 2016 simply refers to Nolde being "agreeable to a lease with a term of five years with an option of five years and three months commencing on 1 December 2014", it should be read in the light of the previous correspondence between the parties which records consensus on other terms of the proposed lease.
The 27 May 2016 letter amounts to an offer by Nolde to a lease on the terms previously agreed with a lease term of five years with an option of five years and three months commencing on 1 December 2014, which offer was accepted by Darzi's solicitors dated 31 May 2015.
The amendments included in the final lease and referred to in the email sent by Darzi's solicitors on 7 June 2016 are in the nature of drafting updates in respect of matters that were not in contention. This can be seen from the nature of the amendments themselves which were:
1. the inclusion as Exhibit 1, being the plan of the restaurant premises in the form of the plan sent by Darzi's solicitor on 15 September 2015, to which Nolde's solicitors noted and agreed to by letter dated 2 October 2015;
2. the inclusion of Item, 30 as a special condition, which provided for cl 3.1 of the lease to be amended to insert the words "and shown in the plan attached as Exhibit 1 to this lease" (being the plan referred to above); and
3. the inclusion of Exhibit 2, being the list of the Additional Leased Property, in the form forwarded to Nolde's solicitor on 22 March 2016, as well as a report from Stout's plumbing and photographs that were referred to in a letter sent to Nolde's solicitors on 5 February 2016.
The terms of the lease contained in the 15 June lease document reflected the terms that had been agreed in correspondence and were sufficiently clear and certain to be capable of forming a binding contract. The parties did not contend otherwise at the hearing.
However, consensus on, and certainty of, the terms is not enough to create a binding agreement. The parties must also have intended to be bound and form legal relations.
In this case, when considered objectively, the correspondence between the solicitors for the parties, the surrounding circumstances and subsequent conduct demonstrates that the parties did not intend to be bound without both parties executing and exchanging a formal lease document.
The surrounding commercial circumstances in this matter are that the parties had signed the Heads of Agreement, following which Darzi had taken occupation of the restaurant premises on 20 October 2014 and commenced paying rent.
This was not then a commercial leasing transaction where the lessee was not in possession and the parties were negotiating the terms of a lease afresh. Nor was it a situation where there were no agreed terms upon which the parties could proceed. The Heads of Agreement contained key terms relating to rent, term, commencement date and other matters, such as the liquor licence and insurance, and Darzi had commenced occupation and paying rent on that basis.
The evidence also makes clear that the parties, through their solicitors, were negotiating on the basis that the terms agreed between them would be included in a formal lease which was intended to be executed and exchanged by the parties, and then registered. While it appears that Darzi expected the formal lease to reflect the terms of the Heads of Agreement, this did not eventuate, which led to a dispute between the parties as to the terms of the formal lease.
The start of the formal lease preparation process commenced when, on 27 May 2015, Nolde's solicitors sent Darzi's solicitors a draft lease which was stated to be "for approval" by Darzi. The letter from Nolde's solicitors enclosing the draft lease did not say the lease sent for approval was subject to execution and exchange by the parties.
In my view, Nolde may have intended to be bound by the terms of that draft lease if it had been approved, executed and returned by Darzi in that form, akin to the situation in Streat v Fantastic Holdings Limited.
As it turns out, the terms of that draft lease were not approved or accepted by Darzi because it was inconsistent with the Heads of Agreement, providing for a term of only 3 years with one 2-year option, rather than a 5-year term with three 5-year options. It was also inconsistent with the Heads of Agreement in relation to rent, as it provided for rent of only $2000 per week (excluding GST), and included a rent review mechanism. As to be expected with a detailed lease document, the draft lease also included a range of terms that had not been dealt with by the Heads of Agreement.
What followed was a long exchange of correspondence and attendance at an informal "without prejudice" settlement conference, in which the parties, primarily through their solicitors, negotiated and sought to reach agreement on the terms of a formal lease to be executed and exchanged by the parties.
The email sent from Darzi's solicitor dated 17 November 2015 after the informal "without prejudice" settlement conference included the phrase: "Subject to agreement on all issues and the parties entering into a formal lease, we have summarised the position of the parties to date as follows".
This statement should not be read as necessarily qualifying all subsequent correspondence between the parties, as submitted by Nolde's counsel. However, it is an indication that the parties did not intend to be bound by terms agreed in correspondence until a formal lease was entered into, meaning, in my opinion, execution and exchange by both parties.
The subsequent correspondence, including when Darzi's solicitors sent a draft lease on 5 February 2016, and the final lease on 3 and 7 June 2016, made no mention of the parties being bound once an agreement on the terms of the lease had been reached.
Much of the subsequent correspondence was also marked "without prejudice" and some of it, at least on Darzi's part, indicated a desire to finalise the formal lease quickly and contained requests that Nolde execute and return a lease (see for example, the 5 February 2016, 22 March 2016, 16 May 2016 and 3 and 7 June 2016 correspondence from Darzi's solicitors).
When read in the light of the 17 November 2015 email, there is no indication in that correspondence which suggests the parties intended to be bound as soon as the terms were agreed and a final form of lease was sent to Nolde for consideration.
Rather, the correspondence shows that the negotiations centred around trying to agree the terms to be included in a formal lease document which was to be executed and exchanged in accordance with usual practice. This did not happen. The formal lease was prepared by Darzi, and Darzi was ultimately the only party that approved and executed the final form document.
The correspondence does not indicate an intention to depart from the usual practice. To the contrary, the email dated 7 June 2016 from Darzi's solicitors which sent the "final lease" to Nolde (that Darzi had prepared), requested that Nolde execute it so the parties could then exchange. This is consistent with those steps being part of the contractual process before being bound.
The fact that the parties had been in dispute for some time about the terms that would apply to the formal lease is significant, as is the "without prejudice" nature of the correspondence, including the letters in which the key terms of the lease were said to be agreed, and final versions of the lease were sent to Darzi's solicitors.
After the hearing, the parties provided supplementary written submissions about whether the fact that some correspondence was labelled "without prejudice" could be taken into account in determining whether a binding lease or agreement for lease had been entered into.
Darzi submits that the use of "without prejudice" terminology is of no consequence. It contends that the lease did not stipulate that execution was required before it became binding and argues that execution was simply part of the performance of an agreement that had already been created.
Nolde submits that the use of "without prejudice" language evinces an intention not to create legal relations, and demonstrates that execution and exchange were pre-conditions to entering into a binding agreement. The defendant refers to various authorities including Alan Ramsay Sales & Marketing Ltd v Typoo Tea Ltd [2016] 4 WLR 59 in which Flaux J stated (at [15]):
"the use of the words "without prejudice" where negotiations between the parties are subject to contract, in other words where the parties wish to negotiate a contract but in doing so, do not wish to become contractually bound by the negotiations unless and until they have reached a satisfactory agreement".
Acceptance of a without prejudice offer can, in appropriate circumstances, give rise to a binding and enforceable agreement: Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 110, 118.
Here, there was consensus on the terms of the lease and the without prejudice offer to enter into a lease with those terms was accepted on a without prejudice basis.
However, the parties were in dispute about the terms of the formal lease (which led to a "without prejudice" informal settlement conference) and the negotiations of the lease terms were conducted via solicitors, primarily on a "without prejudice" basis, including the offer made by Nolde's solicitors on 27 May 2016, the acceptance by Darzi's solicitors on 31 May 2016 and the sending by Darzi's solicitors of the final leases on 3 and 7 June 2016. These facts are, in my view, indicative of the parties not wishing to be bound until the formal lease document was finally agreed, executed and exchanged.
This is particularly so in circumstances where some of the correspondence between the parties' solicitors was not qualified with a "without prejudice" notation. For example, on 11 May 2016, Nolde's solicitors sent two communications to Darzi's solicitors, the first, a letter, was marked "without prejudice", and offered a five-year by five-year lease commencing on 14 October 2014. The second, an open email (without a "without prejudice" notation), rejected Darzi's 29 April 2016 offer. It can be inferred from this that Nolde's solicitors gave some thought to when the expression "without prejudice" was being used. That usage should, in this case, be given some effect, rather than simply reading the words "without prejudice" as a term that the solicitors included as a matter of course.
There is also force to Nolde's submission that the express reservation by Darzi's solicitors of their client's rights, which was included in the letters dated 16 and 31 May 2016, is an indication that the parties did not intend to be bound by the terms of the formal lease unless and until it had been executed and exchanged by the parties.
In the context of the past dealings and changes of position as evidenced in the correspondence, that reservation appears to relate to a right to seek to enforce the Heads of Agreement (which Darzi asserts was binding) in the event that the formal lease was not finalised. A reasonable bystander would consider a reservation of rights in a "without prejudice" letter to be consistent with an intention not to be bound until the further acts contemplated, being the execution of the lease in terms approved by the parties, were completed.
Additionally, Nolde's letter dated 27 May 2016 stated that "Our client is agreeable to a lease with a term…" and also stated "We await your advices". The letter was marked "without prejudice".
Nolde's counsel accepted that the statement "We await your advices" is conveyancing parlance for 'now engross it in formal documents and provide the formal documents' 'as in for consideration'.
The words "We await your advices" are not, in my view, suggestive of an intention to be immediately bound, either at that time or on receipt of the engrossed documents. The words are more akin to a request, meaning 'please arrange for the formal lease to be submitted so it can be reviewed and, if approved, executed and exchanged'. Those words are consistent with an interpretation that there were other steps yet to be undertaken by Nolde, before it and Darzi were bound by the terms being offered.
An objective review of the correspondence between the parties' solicitors also indicates that Nolde was not pressing for a formal lease, had concerns about Darzi's tenure and did not take steps to complete the acts left for it to undertake before being bound by the 15 June lease document. For example, there were significant delays in Nolde responding to Darzi's early requests for a formal lease in 2015. In addition to not responding to the final lease that was sent to it on 3 and 7 June 2016, Nolde did not update the disclosure document required under the Retail Leases Act, notwithstanding its advice in the letter dated 10 March 2016 that it would do so once all terms were agreed.
These matters are also indicative of a party intending not to be bound until the formal lease was executed and exchanged. In my view, something more than Nolde's silence after its solicitors' without prejudice letter was sent on 27 May 2016 would be necessary to indicate an intention to be immediately bound without execution and exchange.
In coming to the view that the parties did not intend to be bound prior to execution by both parties and exchange, I have not relied on Mr Koorey's evidence to the effect that Nolde has no intention of executing the 15 June lease document and will not do so because it does not reflect the terms of the Heads of Agreement. This is evidence of the subjective intention of a party which is not relevant to determining the issue. It is also inconsistent with the contemporaneous documents which indicated that Nolde was agreeable to a lease on terms different to the Heads of Agreement, including, in particular, the draft lease sent by Nolde to Darzi for approval on 27 May 2015 and the letter dated 27 May 2016.
[9]
Does the subsequent conduct point to a binding agreement?
Subsequent conduct and communications may also be considered when determining whether a binding agreement has in fact been reached at an earlier time. This includes admissions by the parties to draw a conclusion about the formation of a contract: Australian Broadcasting Corporation v XIVth Commonwealth Games (1988) 18 NSWLR 540 at 547-548, 550; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163; Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [121]; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 at 625.
Acts of part performance relied upon must be unequivocal and in their own nature referable to some such contract as that alleged: Maddison v Alderson (1883) App Cas 467; see also the general statement of principle in JW Carter, Contract Law in Australia (7th ed, 2018, LexisNexis Butterworths), Ch 9.
Payment of a higher rent in conjunction with continued occupation is evidence of part performance under a fresh agreement: Darter v Molloy [1993] 2 Qd. R. 615; Lighting By Design (Aust) Lty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23.
While silence by itself may not amount to evidence that a party has taken itself to be bound by a contract (Empirnall Holdings v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523; Brogden v Metropolitan Railway Co (1877) 2 App Cas 666; Robophone Facilities Ltd v Blank [1966] 3 All ER 128), silence in conjunction with other circumstances of a case, such as doing and saying nothing for a considerable time, can give rise to an inevitable inference that a party has accepted a contract as valid: Empirnall Holdings v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 528 and 534.
It is not in dispute that since 26 September 2016, Darzi has paid rent in accordance with the terms of the 15 June lease document, including increases that took effect in December 2016, 2017 and 2018. This is a significant fact.
However, Darzi did not start paying rent referable to the 15 June lease document until more than three months after it had returned the executed version to Nolde.
Darzi also did so only after Nolde's solicitors sent an email dated 8 September 2016 attaching a schedule setting out rental arrears in an amount of $25,618.27 (which was not consistent with the 15 June lease document).
Nolde has continued to accept that rent for nearly two and a half years and has been silent on the issue. However, it has done so in circumstances where it had asserted that a higher rent was payable and has not issued any invoices or demands for rent since 8 September 2016. In that context, Nolde's conduct could be characterised as acquiescing to rent being paid in a lesser amount than it considered payable, rather than acting in a way that was unequivocally referable to the 15 June lease document.
The situation is also different to that identified in Streat v Fantastic Holdings Limited, where the lessor had, in the month immediately after the new lease was said to have come into effect, issued invoices for, and accepted rent, based on that lease.
Darzi also points to Mr Koorey's application to Liquor and Gaming seeking to remove Nolde as the licensee and replace it with Darzi's nominee, and Darzi taking out public liability insurance, as conduct which supports the existence of a binding agreement on the terms of the 15 June lease document. However, both of those matters were contemplated by the Heads of Agreement and the 15 June lease document does not contain any terms relating to the liquor license.
I accept that taking those steps is consistent with a lease of some term, rather than a month to month lease terminable at will of the kind alleged by Nolde. Those steps are, however, also consistent with a five-year minimum term under the Retail Leases Act or a lease in accordance with the terms outlined in the Heads of Agreement. It is not conduct which is unequivocally referable to a binding agreement in the terms of the 15 June lease document.
There is also the matter of outgoings, which Nolde has not pursued since the schedule sent by its solicitors on 8 September 2016. That schedule refers to outgoings, some of which were calculated at 16.67% and some which were not. Outgoings calculated at 16.67% are consistent with the 15 June lease document.
Ultimately, the issue of outgoings was not resolved and Darzi made a payment of $10,000 in good faith towards outgoings, having requested proper outgoings statements, and responding to Nolde's schedule. Nolde accepted the good faith payment of $10,000 towards outgoings and Darzi's correspondence indicates it was ready, willing and able to pay according to the 15 June lease document.
At its highest, this conduct is not inconsistent with a lease of the kind being sought by Darzi. However, it is also consistent with a lease with a five-year minimum term under the Retail Leases Act, a lease in accordance with the Heads of Agreement or a monthly tenancy as contended for by Nolde. The parties' conduct in respect of outgoings is therefore equivocal and of little weight.
Darzi also relies on Nolde's failure to take steps to issue a lapsing notice in respect of the caveat lodged by Darzi and the references in the letter from Nolde's solicitor dated 24 January 2018 to a "lessor" and breach of the "lease".
I accept Nolde's submissions that these acts are equivocal. Nolde had, by that solicitor's letter, made it clear that it did not accept the validity of the caveat. Additionally, references in the correspondence to a "lease" and "lessor" could have referred to arrangements pursuant to a range of leases, such as a lease in accordance with the Heads of Agreement or a lease under the Retail Leases Act, particularly since Darzi was already in occupation.
Darzi has, since 15 June 2016, continued to request the return of the executed lease from Nolde, threatened mediation and alleged that a lease "exists by way of estoppel". Darzi's counsel submitted that such conduct is explicable as a party wanting to ensure it has the formal executed document, which it asserts the other should provide, consistent with the agreement reached between them. It is equally explicable as a party conducting itself on the basis that the execution and exchange of the 15 June lease document was required before the parties were bound by it.
It should also be noted that Darzi has not made a claim on the basis of estoppel of the nature considered in Waltons Stores (Interstate) Ltd v Maher (1998) 164 CLR 387.
While the payment and acceptance of rent in accordance with the 15 June lease document is a significant factor for Darzi, the context in which those payments were made, coupled with the surrounding circumstances and conduct by both parties prior to and after 15 June 2016, evinces an objective intention not to be bound before the execution and exchange of the formal 15 June lease document.
The subsequent conduct of the parties does not constitute admissions or acts of part performance sufficient to support a finding of a binding agreement or agreement for lease in the terms of the 15 June lease document.
[10]
Authority to bind
The correspondence which is said to give rise to a binding lease was between the solicitors for the parties and not the parties themselves.
Solicitors have authority to negotiate the terms of a contract on behalf of their clients. That authority does not extend to bind a client to a contract without clear and cogent evidence of such authority: Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 per Bathurst CJ at 610 and Beazley P at 628 and 630; Summit Properties v Comserv (No 784) Pty Ltd (1981) 2 BPR 97,093.
This point was raised in Nolde's supplementary written submissions but objected to by Darzi on the basis that it was too late for Nolde to recast its case in that way.
The authorities on this issue are well known and it is a relevant factor to consider in this matter. However, in the absence of the issue being raised at the hearing, I have not relied on it in coming to my view, but note that it is a submission which is consistent with the findings I have made above.
[11]
Conclusion
For those reasons, I find that no binding lease or agreement for lease came into existence on the terms of the 15 June lease document, as contended by Darzi. It follows that Darzi's summons should be dismissed.
[12]
Nolde's cross claim - month-to-month tenancy
By its cross-claim, Nolde contends that Darzi has been occupying the restaurant premises as a monthly tenant and that Nolde is, therefore, entitled to terminate the periodic tenancy at any time by giving Darzi one month's notice.
Nolde submits that the Retail Leases Act has no application in the present case because Darzi did not enter into a "retail shop lease" prior to or after taking possession of the restaurant premises. Accordingly, Nolde submits that Darzi did not enter into possession of the restaurant premises as lessee "under the lease" or begin to pay rent as lessee "under the lease": see s 8(1) of the Retail Leases Act.
Nolde also submits that, as there was no agreement as to the term of the lease when Darzi entered into occupation, the tenancy is at will and determinable on one month's notice pursuant to s 127(1) of the Conveyancing Act 1919 (NSW).
Darzi contends that there was a lease caught by the Retail Leases Act and therefore the minimum term of the lease would be five years.
[13]
Consideration
The relevant sections of the Retail Leases Act are as follows: -
3 Definitions
(1) In this Act:
retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:
(a) whether or not the right is a right of exclusive occupation, and
(b) whether the agreement is express or implied, and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing.
8 When the lease is entered into
(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).
…
Note. Therefore, if the lessee starts to pay rent as lessee or enters into possession as lessee, the lease is considered to have been entered into even if neither party has executed the lease at that time…
16 Minimum 5 year term
(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.
(2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section.
Note. For example, if a lease is entered into for a term of 3 years, its term is extended by 2 years to 5 years. If a lease is entered into for a term of 2 years with an option for a further 1 year after that initial 2 years, the term of the lease is extended to 4 years (with the option for a further 1 year after that initial 4 years).
18 Restrictions on adjustment of base rent
(1) In this section:
base rent means rent, or that component of rent, which comprises a specified amount of money (whether or not there is provision for the amount to change).
Note. Turnover rent (rent determined by reference to the lessee's turnover) is not base rent because turnover rent is not a specified amount of money (it varies according to the lessee's turnover).
…
(3) A provision of a retail shop lease is void to the extent that it:
…
(c) provides for base rent to change on a particular occasion in accordance with whichever of 2 or more methods of calculating the change would result in the higher or highest rent.
The Retail Leases Act scheme does not require the parties to execute and exchange a formal lease document before or after entering into occupation and paying rent. The scheme provides for a "statutory lease" deriving its force in the statute in defiance of the general law: see commentary in Brendan Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co.) at 8.130.
Pursuant to s 3 of the Retail Leases Act, a retail shop lease may exist whether or not there is an agreement for lease in writing. What is required is an agreement under which a person has been granted the right of occupation of a retail shop in exchange for value, typically being rent.
When s 3 of the Retail Leases Act is read together with s 8, it is apparent that s 8 of the Retail Leases Act focuses on the time at which a retail shop lease commences.
This means there can be entry into a retail shop lease as lessee and payment of rent as lessee under a retail shop lease where there is consensus as to the terms of such a lease but not any formal written lease entered into: Whiteway House No.199 Pty Ltd v Abracoona Pty Ltd (1998) 9 BPR 16,523; Aspromonte Pty Ltd v Zagari (1999) 9 BPR 17,247; Brendan Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co.) at 8.130.
There is no dispute that the restaurant premises are a retail shop for the purposes of the Retail Leases Act. Schedule 1 specifies restaurants and other eating places as a listed business for the purposes of the definition of retail shop to which the Retail Leases Act applies.
Nolde relies on the case of Pozetu Pty Ltd v Alexander James Pty Ltd [2016] NSWCA 208 (Pozetu), which held that where a lessee enters into possession and pays rent but there is no agreement as to the term of the lease, a tenancy at will determinable on one month's notice comes into force pursuant to s 127(1) of the Conveyancing Act: Pozetu at [46].
Pozetu concerned a situation where the initial term of a lease had expired and the parties had not agreed the rent payable for a further term of the renewed lease. In those circumstances, the Court held that no new lease in law or in equity came into existence and the lessee, who remained in possession and paid rent, did so under a tenancy at will determinable on one month's notice, which came into force pursuant to s 127(1) of the Conveyancing Act and which occurred independently of the purported exercise of the option to renew.
This case is not about the terms of a renewed lease.
In this case, the parties executed the Heads of Agreement, following which Darzi entered into occupation of the restaurant premises and commenced paying rent. Relevantly, the Heads of Agreement provided for the amount of rent to be paid, the commencement date, a lease term of five years plus three 5-year options to renew, and other terms.
As events transpired, there were negotiations that led to the 15 June lease document, which included different terms in respect of rent, the term and the commencement date of the lease. For the reasons set out above, I have found that those new terms are not binding on the parties.
However, it does not necessarily follow that the tenancy in existence is at will and terminable at one month's notice.
The consensus reached on key terms as set out in the Heads of Agreement, particularly the rent to be paid, at the time Darzi entered into occupation and commenced paying rent means that this is not a case in which s 127(1) of the Conveyancing Act or the principles in Pozetu apply. It is of no consequence for the purposes of the Retail Lease Act that those key terms were intended to be included in a formal lease document which did not eventuate.
The agreed rent was $2000 per week (exclusive GST) or 12% of turnover (whichever was greater). Nolde submits that this means the rent provision is void, providing as it does for a change in rent in accordance with a method of calculating the change which would result in the higher rent: s 18(3)(b) of the Retail Leases Act. If there is no agreed rent, it is said there can be no retail shop lease.
I do not accept Nolde's submission on this point. As noted by Darzi's counsel in final submissions, s 18(3)(c) of the Retail Lease Act only applies to base rent, which is defined in s 18(1) to mean rent comprising a specified amount of money. It does not include turnover rent as such rent is not a specified amount. Turnover rent is dealt with in s 20 of the Retail Lease Act.
There is also force to Darzi's submission that, if s 18(3)(c) applied because of the inclusion of "or 12% of turnover (whichever is the greater)", it would only be void to that extent, rather than rendering the entire rent provision or Heads of Agreement void.
The relevant times for assessing when a retail shop lease arose are the dates on which Darzi took possession or started paying rent. Darzi commenced occupation of the restaurant premises on 20 October 2014 and paid rent for the first time on 3 December 2014. On each of those dates, there was consensus between the parties on key terms recorded in the Heads of Agreement.
In the words of s 3 of the Retail Leases Act, there was an agreement under which Nolde granted to Darzi, for the amount of $2000 per week (exclusive GST) or 12% of turnover (whichever was greater), a right of occupation of the restaurant premises, which is a retail shop lease.
Accordingly, and pursuant to s 8 of the Retail Leases Act, I find that a retail shop lease was entered into on 20 October 2014, being the date on which Darzi commenced occupation of the premises.
While not determinative, it is also evident from the correspondence that Nolde adopted the position that the Retail Leases Act applied to the arrangements between the parties even though the formal lease had not yet been brought into existence. It provided draft disclosure statements to Darzi in July 2015 and November 2015, and indicated, by letter from its solicitors dated 10 March 2016, that it would prepare a disclosure statement once all terms were agreed.
For those reasons, I have formed the view that this is not a situation in which s 127(1) of the Conveyancing Act applies. Rather, the Retail Leases Act applies with the result that the minimum lease term that Darzi would enjoy is five years from the date Darzi entered into possession, being 14 October 2014.
It follows that Nolde's cross-summons should also be dismissed.
[14]
Costs
The general rule is that costs follow the event unless it appears to the Court that some other order should be made: rule 42.1 Uniform Civil Procedure Rules 2005 (NSW).
Neither party succeeded with the claims they sought in their summons and cross-summons.
There is no apparent reason why the general rule should not apply in this case with the result that the plaintiff pays the defendant's costs of the plaintiff's summons, and the cross-claimant/defendant pays the cross-defendant/plaintiff's costs of the cross-summons
In the event that either party would like to submit that there are reasons why some other order in relation to costs should be made, they may contact my associate and the other party and the issue can be determined on the papers. Directions may be made in chambers for that purpose.
[15]
Orders
For the reasons given, the Court makes the following orders:
1. Dismiss the plaintiff's summons.
2. The plaintiff to pay the defendant's costs of the summons.
3. Dismiss the cross-summons.
4. The cross-claimant/defendant to pay the cross-defendant/plaintiff's costs of the cross-summons.
The Court notes that if either party wishes to submit that some order in relation to costs other than the orders made in 2 and 4 above should be made, they should notify my associate and the other party of that fact within 14 days of the date of this judgment, in which case the orders as to costs will have no effect and the Court will make directions for the service of brief written submissions with the intent that the issue of costs be dealt with on the papers.
[16]
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Decision last updated: 29 March 2019