Finishing Services Pty Ltd v Lactos Fresh Pty Ltd

REASONS FOR JUDGMENT 1 The appellant ('Finishing Services') was as at 22 December 2002 the lessor of premises in Mulgrave, Melbourne, owned by it to the first respondent ('Lactos Fresh'). The lease was dated 1 September 1999 and provided for a term of seven years with the option of a further term. Lactos Fresh was then called Nobi Holdings Pty Ltd. This appeal concerns the notification by Finishing Services on that date of a new and higher rent to be paid from 1 March 2003 which it purported to give under a rent review clause in the lease agreement. A single judge of this Court held the notice to be ambiguous and therefore invalid and made a declaration accordingly ([2006] FCA 219). The alternative case brought by Lactos Fresh was against the second respondent ('Colliers Victoria') who had advised Finishing Services as to an appropriate market rental. It is alleged that this conduct was misleading and deceptive, in contravention of s 52 of the Trade Practices Act 1974 (Cth) and that Lactos Fresh suffered loss in consequence of it. 2 The lease provided for an annual rental. At the time the lease was signed it was fixed at $244,152 per annum. Clause 3.1 of the lease provided that rent be paid by Lactos Fresh by equal monthly payments in advance. Clause 3.2.2 'market rental review' provided: 'Upon any day being not more than six months prior to 1 March 2003 and (if the Lessee exercises its option to renew) not more than 6 months prior to 1 September 2006 and 1 March 2010. The Lessor or the Managing Agent may give written notice to the Lessee stating the sum which the Lessor assesses to be the proper rent for the premises for the ensuing period such rent being the market rental value for the premises on the assumption that the premises are tenanted and with all fixtures and fittings and partitions, plant machinery utensils shelving safes and other articles and materials in the nature as set out in schedule 2 of trade or tenants fixtures installed by either the Lessor or the Lessee and having regard to the rents being obtained for comparable premises within the same municipality and the rent shall be varied accordingly, such variation to take effect on and from the day immediately following the date to which such notice shall relate and if the party receiving the notice does not object in writing to the proposed market rent within 30 days it becomes the rent for the review period PROVIDED that the Lessee may by notice in writing (delivered to the Lessor or the Managing Agent within 30 days following receipt of the Lessor's or the Managing Agent's notice of assessment) state that he disputes the Lessor's assessment in which case sub-clause (a) hereof will apply AND in all respects time shall be of the essence in the delivery of the said notice within the time shall so stipulated …' The clause went on to provide for the resolution of any dispute by a determination to be made by the nominee of the President or other senior officer of the Australian Institute of Valuers. 3 The letter in question on the appeal, signed by Mr Allen a director of Finishing Services, dated 20 December 2002 and addressed to Nobi Holdings, was in these terms: 'Re: Notice of Rental Assessment commencing 1 March 2003 for 42-44 Glenvale Crescent, Mulgrave Under the terms of our lease a market review of the rent paid is to take effect from 1 March 2003. Please find enclosed the Managing Agent's letter in this regard which is self explanatory and will form the basis of the new rent starting 1 March 2003. In due course we will correspond with you regarding the new monthly rental and the appropriate GST that will be payable.' 4 The letter from Colliers Victoria 24 October 2002, which was enclosed, was addressed to Finishing Services and advised: 'As your managing agent we draw your attention to the fact that a market value rental review is due in respect of this property on the 1st of March 2003. We have investigated the current market rental levels for similar buildings that incorporate cool room and chiller facilities. We report that in our opinion the market rates for the various areas are as follows:- Offices: 208 m2 x $155.00 p.sq.m. $ 32,240.00 p.a. Coolroom, etc: 2,768 m2 x $135.00 p.sq.m. $373,680.00 p.a. Warehouse 400 m2 x $ 75.00 p.sq.m. $ 30,000.00 p.a. $435,920.00 p.a Should you agree with the above we will notify the tenant accordingly.' 5 The letter from Finishing Services and its attachment were received by Nobi Holdings on 23 December 2002. After receiving that notice its general manager, Mr Bertrand, telephoned Mr Finkemeyer, who was in charge of another facility which the company rented in Victoria and who had an association with Jones Lang LaSalle, a commercial real estate agent. He asked Mr Finkemeyer to provide him with an opinion of the current market rent applicable to the Mulgrave premises. 6 Mr Bertrand gave evidence before his Honour that he had a telephone conversation with Mr Allen on 23 December 2002. Its purpose was to arrange a meeting to discuss alterations to the Mulgrave premises. They were unable to meet until 3 February 2003 because Mr Allen was unavailable over the Christmas period and until 15 January 2003 and Mr Bertrand was on leave between 15 January 2003 and 30 January 2003. Mr Bertrand said that the conversation would have occurred before he read the notice. He said that no reference to a rental increase was made by Mr Allen in the course of that conversation. Mr Allen, for his part, denied that any such conversation took place and said that it would not have been possible for him to have had a conversation on 23 December 2002 because the office of Finishing Services had closed for the Christmas break on the afternoon of 20 December 2002. Mr Bertrand then said that the conversation must have taken place on that date. Although it was not necessary for his Honour to make a finding as to whether the conversation had occurred, because of the conclusion he reached concerning the ambiguity and therefore ineffectiveness of the notice, he observed that he would not have been able to find, on the balance of probabilities, that Mr Bertrand's version was correct. His Honour did not make any observation concerning Mr Bertrand's creditworthiness. 7 Mr Finkemeyer replied to Mr Bertrand's request for advice on 17 January 2003, but Mr Bertrand did not receive it until 31 January 2003, when he returned from leave. Mr Finkemeyer's advices suggested an annual rental of $374 720 as appropriate. 8 Mr Allen sent a letter dated 20 January 2003 to Lactos Fresh addressed to its parent company, Lactos Pty Ltd, in Tasmania and marked to the attention of the company secretary, the person with whom he usually communicated regarding the lease of the Mulgrave premises. He asked that Lactos Fresh advise its bank to alter the telegraphic transfer due on 1 March 2003, to take account of the new rental for the current year at '$39 959.33 per month of which $3632.67 is the GST component'. 9 A meeting took place on 3 February 2003, the meeting which Mr Bertrand said had been arranged on 23 December 2002. Mr Allen said that this meeting was organised on 3 February 2003, after Mr Bertrand had called to inform him that alterations had been made to the leased premises. At that meeting Mr Bertrand gave Mr Allen a letter in which it was said: 'We acknowledge receipt of your letter with the assessment by your agent of the market value for the property we rent from you in Mulgrave. The amount of the increase you are asking for is very detrimental to our business. Therefore we have requested an estimation from our own agent. His assessment turns out to be significantly different from your agent estimation. His opinion on office/dry warehouse cost is $ 70 p.sq.m. and $ 120 p.sq.m. for refrigerated space, We would like to understand how these two numbers coming from professional agents can be so different and resolve this matter with you in due course.' Mr Bertrand reiterated the complaint that the increase in rental would have a detrimental impact on his company's business in conversation with Mr Allen. Mr Allen said that it was too late to complain. 10 Mr Bertrand then sent a letter to Mr Allen dated 7 March 2003 in which it was said: 'It is clear then that we do not have agreement as to the market rent for the premises and as such the provisions of clause 3.2.2(a) of the Lease are now operative. We confirm our previous advices that we dispute that you have provided a proposed increase that is at market. We also note that you are estopped from relying on the time period set out in clause 3.2.2 due to your unavailability to meet during the relevant period.' 11 Mr Allen responded by letter on 12 March 2003 in which he said that no written objection, as required by clause 3.2.2, was received during the 30 day period and '[y]ou are therefore unable to dispute the rental as advised in our correspondence of 20 December 2002'. 12 A meeting took place between Mr Bertrand and Mr Allen on 17 March 2003, with some other persons present. Mr Bertrand offered to pay increased rent up to the figure which Lactos Fresh had been advised reflected market value. Mr Allen again said that it was too late to object to the increase in rent. Mr Bertrand said that Mr Allen should have told him about the 30 day deadline, but Mr Allen rejected this suggestion. The meeting ended with Lactos Fresh intending to consider its position. 13 On 20 March 2003 Mr Bertrand sent a letter to Mr Allen in which Lactos Fresh confirmed its position as set out in the letter of 7 March 2003. It went on: 'Today, we have made an additional payment of $ 9,116.00. As such, we have now commenced paying rent at the amount set out in our letter to you of February 3, 2003. This increased payment is being made as a sign of good faith. It is, however, an interim measure pending the assessment of the correct amount. As such, we repeat our request that you implement the provisions of clause 3.2.2(a) of the Lease and request the Australian Institute of Valuers to nominate a member to determine the current fair market rent.' Mr Allen responded by letter dated 31 March 2003 in which he advised that the new rent had been fixed according to the lease and, in effect, he wished no further communication about the matter. Lactos Fresh thereafter paid the increase rental under protest. 14 These proceedings were commenced on 17 December 2003. In its original statement of claim Lactos Fresh, consistent with its assertion in the letter of 7 March 2003, alleged that Finishing Services was estopped from claiming the increase rent. In its amended pleading it alleged that the 'purported letter' did not state the proper rent for the premises for the period from 1 March 2003 'such rent being the market rental value for the premises having regard to the rents being obtained for comparable premises within the same municipality'. It gave as particulars: '… The Purported Notice did not state that the Lessor assesses the proper rent for the premises to be $435,920.00 and instead referred to a market review to take effect from 1 March 2003 and that further correspondence would be provided and the accompanying letter from the Managing Agent referred to a market rental review being due on the 1st of March.' 15 In the following paragraph of the statement of claim it was further alleged that the sum stated in the notice did not constitute an assessment, or a reasonable assessment, of the proper rent for the premises 'such rent being the market rent or value for the premises having regard to the rents being obtained for comparable premises within the same municipality'.