G & E Avakoumides Pty Limited v Commonwealth Funds Management

CATCHWORDS : LEASES AND TENANCIES - commercial tenancies - negotiations to lease different premises - where series of offer documents "subject to ... approval ... contract and availability" - whether alleged oral acceptance of written offer document sufficient to create binding agreement - effect of s54A Conveyancing Act 1919. - TRADE PRACTICES - misleading and deceptive conduct - s52 Trade Practices Act 1974 (Cth) - dispute as to floor area to be leased - where defendants negotiating with third parties - representations alleged not supported by evidence. - TRADE PRACTICES - unconscionable conduct - s51AA Trade Practices Act 1974 (Cth) - whether manner of negotiations breached section. LEGISLATION CITED : Conveyancing Act 1919 s54A Trade Practices Act 1974, s51AA Endeavour Homes (Aust) Pty Ltd v Mid Sydney Pty Ltd (unreported Windeyer J NSWSC 9 May 1995) CASES CITED : Landsmiths Pty Ltd v Hall (1999) 9 BPR 17,057 Pirie v Saunders (1961) 104 CLR 149 G & E Avakoumides Pty Limited (Plaintiff) PARTIES : Commonwealth Funds Management Limited (First Defendant) Mirvac Funds Limited (Second Defendant) FILE NUMBER(S) : SC 5354 of 2002 COUNSEL : Mr Paul Finch (Plaintiff) Mr John Graves SC with him Mr Sydney Jacobs (Defendants) SOLICITORS : Makinson & d'Apice (Plaintiff) Gadens (Defendants)

• 11 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5354/02 G & E AVAKOUMIDES PTY LIMITED V COMMONWEALTH FUNDS MANAGEMENT LIMITED & ANOR JUDGMENT Outline 1 This is a claim for damages for breach of contract. The plaintiff claims that it entered into an agreement with the defendants for lease of certain premises. Those premises have now been leased to another party. Thus the claim for specific performance originally made is no longer pressed, the claim being limited to damages. Facts 2 The plaintiffs, G & E Avakoumides Pty Limited (Avakoumides) leased from the defendants Commonwealth Funds Management Limited and Mirvac Funds Limited (the owners) a shop known as the "Universal Café" being shop G24-26 in the Metcentre, which centre is the retail shopping part of a building on the corner of George and Margaret Streets, Sydney. 3 In 2001 the owners commenced major refurbishing of the Metcentre. This involved disruption of tenants in the centre. There were negotiations between Avakoumides and the agents for the owners Messrs Jones Lang LaSalle for the lease of different premises to be known as Shop MG14. The plaintiff contends that these negotiations ended in a binding agreement being reached on 21 August 2002. The defendants contend there was no such agreement. 4 The lease for shop G24-26 was for a period of eight years ending on 31 October 2003. The plaintiff took that lease by assignment in January 1997. The directors of the plaintiff are Mr Con Mides and Mr Michael Mides. Their full surname is Avakoumides, but they are known by the shorter name. 5 The negotiations took the form of the agent furnishing printed documents generally to Mr Con Mides. These were on standard form with standard item headings down the left hand side with printed or typed details relevant to the particular shop and particular offer on the right opposite each item heading. Each of the documents had the following printed in type larger than the ordinary typeface of the other details close to the top of page one "subject to joint owners approval, execution of lease, contract and availability". Following the letter heading describing the particular shop were the following words "below are the details of our offer for an agreement to lease the above premises at the Metcentre on the terms and conditions of the standard agreement to lease and semi-gross Lease for the Centre". 6 The evidence establishes different forms of offer letter were provided on the following dates in 2002: 23 January, 20 February, 29 April, undated June, 15 July, 13 August and 21 August. The offer document in general consists of five pages of terms, one page for signature by the agent and acceptance by the tenant, a further page headed "acceptance and tenant declaration", two further pages being tenant's disclosure statement and a document for completion with items such as "tenant's solicitors", "bankers", "trade references" and the like. To indicate the form of the document I now set out pages 1, 5 and 6 of the 21 August 2002 document:

7 Both Con and Michael Mides said the offer letter was signed by Mr Donnan. The original is not in evidence, but was last in the hands of the agents. Mr Donnan said that such offers were usually signed by him. The Mides brothers said that this document was signed. On the balance of probabilities I find that the offer letter of 21 August was so signed by Mr Donnan on behalf of Jones Long LaSalle as agent for the owners. 8 The offers in the series each varied; the differences for the most part related to base rent, commencement date and lettable area. The form of acceptance of the 29 April 2002 offer was in fact signed and handed to the agents. No one seems to have suggested anything resulted from that. 9 During 2001 and 2002 the operations of shop G24-G26 were interfered with and inconvenienced by the general refurbishing of the Metcentre retail area. In the offer documents in the earlier stages there was a figure allocated to what was called either "landlord's fitout contribution"; or "a leasing incentive", that in the document of 29 April being $30,000. During subsequent negotiations it seems that the agents and the owners wished to settle all claims that might be made against them for damages resulting from the disturbance. The result of this was that in the document dated 15 July the contribution and incentive figure was increased to $300,000 and in return a release in respect of any claim for past events was to be included. 10 The original area of the premises offered for MG14 was to be 62 square metres plus an external area at one stage said to comprise 55 square metres. The evidence shows one internal wall was moved making an internal area of approximately 76 square metres available. The offer letter of 13 August 2002 provided for a lease area of approximately 76.6 square metres "with an external licensed area (subject to survey)". The rent was stated to be $150,461 to increase by four percent annually. The lease incentive was reduced back to $30,000 but that may have been an error, or it may have been a return to the original basis for negotiations, namely to treat the claim for damages or compensation separately. 11 On 14 August 2002 the Messrs Mides wrote to Mr Baynash the retail manager of the Centre. He was an employee of the agents, but appears to have been based in the Centre. That letter put forward various terms for release of claims and a new lease, these being, so far as they were important, (a) a contribution of $300,000; (b) a base rent of $130,000; (c) a shop area of 76.6 square metres internal and approximately 55 square metres external; (d) no further rent for shop M24-26 until surrender and (e) the new lease to provide for CPI increases rather than percentage increases. 12 On 21 August 2002 a meeting took place at MG24. Present were Messrs C & M Mides, Mr Scevola and Mr Schnelle, the latter two being associates of the plaintiff, together with Mr Armstrong and Mr Donnan of Jones, Lang LaSalle. Mr Armstrong was the national leasing director, management services - retail of Jones Lang LaSalle. Mr Donnan was a leasing executive responsible at that time for leasing the Metcentre. There are conflicting accounts of what took place at the meeting. However, it is agreed that the offer document of 21 August and the letter of 14 August were discussed at that meeting. According to Mr Con Mides and supported by his brother, Mr Armstrong, when he arrived at the meeting, said that he had discussed the letter of 14 August with the owners, that they had told him what they would agree to and he wanted to finalize the matter and was there to make an offer. He said that the letter of 14 August was discussed; that Mr Armstrong agreed to the $300,000 subject to the release; that he, Mides, agreed to the base rent of $135,000; that discussion on area was deferred; that he, Con Mides, agreed to a condition that the rent of G24-26 would terminate on commencement of the new lease; and that he agreed to the 4% increases not to CPI increases, which he had previously required. He said that they all went up to look at the new area, that this was all agreed as correct, that he said " OK then we have agreed on everything" and that Armstrong had said that "we have an agreement, the owners have given us the authority to settle on these terms". They then shook hands and then Armstrong said "Congratulations" and then said, having picked up the offer document of 21 August "we will survey the area tomorrow and put in the final measurements into the total lettable area of the Centre". He said that on 27 August Mr Donnan went to Shop G24, told him that the shop had been measured and was exactly 76.6 square metres, that he would ring upstairs and have the agreement brought down, but that there was nobody there and Mr Donnan said "don't worry we have an agreement". Mr Donnan denied this. 13 The evidence of Mr Michael Mides was generally to this effect. He said that Mr Armstrong had said that he wanted to complete the agreement. Mr Scevola said agreement was reached. 14 The evidence of Mr Armstrong is that there were three key issues for discussion at the meeting, namely rent, size of premises and cash incentive. He said that those persons present at the meeting on behalf of Avakoumides made it clear that the area was too small; and that the rent was only acceptable if more space was available. In other words he said that the rent was not agreed. He said that continued to be the position after they had gone and inspected the areas although it is apparent that he was not clear himself as to the extent of the external area. Mr Armstrong said that he had told Con and Michael that he would tell the owners that they would only go ahead if more space was available and that they had agreed to that. He said that he took the offer letter away because he considered it clear no agreement could be reached on it. Mr Armstrong was at great pains to emphasise that there was no agreement on area. His evidence as to rent and contribution and his reluctance to accept agreement on those matters was rather unconvincing but the main point he adhered to was that the plaintiffs were not satisfied with the internal area available - which it was accepted was the area they had specified for - and would only go ahead if the internal area could be increased. He had told the Messrs Mides that this could only be done if an intended tenant for the adjacent area agreed to reduce its space and that this had not happened. He denied the evidence of Mr Mides as to agreement and taking the document to put in the total lettable area. 15 Mr Donnan, at the time of the meeting, was a leasing executive of Jones Lang LaSalle, responsible for the Metcentre area since July 2002. While his evidence, taken together, namely his evidence on affidavit and his oral evidence, was confusing and in places unreliable, I do not think it was intended to be misleading. There was obviously considerable confusion about the outside area. Armstrong had not realised that it was on two levels. There is no certainty even now on the evidence of its actual area, although on the evidence of Mr Donnan, it is about 40 square metres, but it may be more. It is accepted on all sides and it was accepted at the time that it was impossible to increase that area. Mr Donnan said that the Mides brothers were not satisfied with the total area. They were only interested in proceeding if the internal area could be increased. He said that he did not leave the offer letter because it was clear it would not be signed. He denied the claimed conversation about agreement and the purpose of taking the offer document away. He said he had to take the proposal for increasing the internal area to a meeting of the owners, which he thought took place on 26 August. He said that the owners were not interested in endeavouring to increase the area. He said that he told Mr Con Mides that on 27 August. This last evidence may have come as a surprise for the plaintiff, but no evidence was called in reply to rebut it. The evidence establishes that the premises were subsequently let to a Mr Jacobs or his interests at a lesser rent. I do not think that anything turns on that when the $300,000 contribution is taken into account. However, his evidence as to the way that leasing agents and probably large owners of commercial and retail premises deal with these matters is enlightening and to some extent alarming. It was as follows: A. I had actually built up a relationship with an agent who actually represented Mr Jacobs, yes.

Q. And who you were dealing with prior to the offer being put on the 21 August? A. Absolutely, as with all shops, a lessor will never accept one offer; you need to, usually the practice is to have three offers on the table for consideration.

Q. And you never disclosed to the Mides that you were dealing with any other parties? A. I don't - it happens everyday.

Q. With the offer of the 21, you were instructed to put that offer, correct? A. That is correct.

Q. And in conformity with that you were instructed to put it in those terms, if you have a look at A to Mr Armstrong's affidavit, is that correct? A. Is what correct? 16 If the evidence of Messrs. Armstrong and Donnan is accepted, then the written offer was withdrawn and that is the end of the matter. However, as I have come to a clear decision that the case can be decided on other grounds, a finding on this is not necessary. I should add that no reliance could be placed on the evidence of Mr Baynash. He sent incorrect emails to the owners, did not act on instructions and purposely made false statements to Mr Mides. 17 It is accepted that s54A of the Conveyancing Act 1919 applies. The contract sued upon was for the disposition of an interest in land. Unless there is a note or memorandum of the agreement in writing, signed by the party to be charged, or by some other person lawfully authorised by the party to be charged, that is an end to the matter. Where there is a written offer subsequently orally accepted and acted upon, that is sufficient compliance with the section. Pirie v Saunders (1961) 104 CLR 149 at 154. 18 In 1995 in Endeavour Homes (Aust) Pty Ltd v Mid Sydney Pty Ltd (unreported Windeyer J NSWSC 9 May 1995) I said: This action illustrates once again, if that is necessary, the problems that are caused because there is no accepted procedure regulating the bringing into existence of a binding agreement for lease. In this State, at least, for contracts for the sale and purchase of land, there is an accepted practice under which it is generally accepted that a binding agreement arises only upon exchange of counterpart signed contracts, signed by a vendor and purchaser. Yet with leases which very often involve sums of money well in excess of those involved in domestic conveyancing matters no such satisfactory procedure exists. 19 This case is another stark illustration of problems caused by lack of a recognized procedure bringing about a binding agreement for lease between parties. In spite of the misleading opening words of the letter of 20 August 2002, I have concluded that no binding agreement could be reached by oral acceptance of the terms of that document. This does not mean that I endorse the manner in which the negotiations proceeded. I have no doubt that Mr Armstrong indicated that he was there to come to an agreement. But the words, "subject to joint owners approval, execution of lease, contract and availability" are against the plaintiff, although the words "execution of lease" must be relevant to conduct after contract and could impose a condition on the proposed lessee only. In conveyancing terms the words "subject to contract" mean what they say. They do not envisage oral acceptance of a written offer. Nor do they envisage a binding agreement with a more formal agreement to be entered into later, even if standard terms had been provided at an earlier date. 20 The offer document itself I think makes this clear. The approximate area of premises described as "Approx. 76.6 sq. metres with an external licensed area (subject to survey)" is not definite. What is meant by "semi-gross lease" is not explained although I accept that the parties might have known what it meant. The item for legal costs envisages "negotiations for amendment to the lease document". The special conditions items state the offer is "subject to approval of the landlord". The evidence is the "draft semi-gross lease" whatever that was and the appropriate floor plan were not attached. Item "Documentation" provides "An agreement to lease and lease will incorporate the terms and conditions of this letter and any further or other provisions required by the Landlord's solicitors." 21 Even if the letter set out binding terms available for acceptance it provided for a particular manner of acceptance. The plaintiff company did not so accept. It may seem extraordinary that the terms for acceptance seem intended to bring about some binding obligation on the tenant, although that is not clear, but it is not necessary to go into this. Finally I agree with the following passage at page 17058 from the judgment of Young J in Landsmiths Pty Ltd v Hall (1999) 9 BPR 17,057: The cases show that the court is entitled to assume that where there is a contract for the sale of land or a lease for three years or more, the parties normally intend to have a formal document, in the case of a lease because it has to be registered. Again, the cases show that it is more likely than not that in such a situation the parties do not intend to be bound until the formal document has been exchanged. This is the case with leases: Blackburn Developments No 19 Pty Ltd v Downs Surgical (Aust) Pty Ltd (1974) 2 BPR 9141. 22 The contract claim fails. I should add that, although it has become unnecessary, I accept the evidence that the offer document was taken away because no agreement was reached. Had agreement been reached a fresh document could have been produced on a computer within minutes. All other offer documents were left with the plaintiff. The reason given by Con Mides for its being taken away to insert the total lettable area of the Centre does not ring true and is contrary to the claim that Donnan said the internal area of MG14 had been measured at exactly 76.6 square metres. Trade Practices Act claim 23 The pleaded claim is that on or about 21 August the defendants' represented to the plaintiffs in trade and commerce that they had made an error in calculating the external area; that they would have the external area surveyed; that they would speak to the authorized person of the defendants and discuss extending shop MG14 and that after this they would advise the plaintiff of the position. It is then pleaded that the defendants did not advise the plaintiff they were negotiating with a third party at the same time and that the representations set out were misleading and deceptive in that they did not have the area surveyed, they did not speak to the owners and they did not advise the plaintiff they were negotiating with a third party. On any basis this representation is not supported by the evidence and is not one which was relied upon by anybody. The evidence is that the only thing to be measured was the internal area. That claim must fail. The claims under paragraphs 17D and 17E of the amended statement of claim were not pursued by the plaintiff. 24 There is an additional claim that the failure to report back to the plaintiff, to give the plaintiff a reasonable opportunity to accept the offer or amended offer was conduct amounting to unconscionable conduct within the meaning of s51AA of the Trade Practices Act 1974. As I have said I do not accept that the plaintiff was not told that additional space was not available. The failure pleaded seems to relate to the external area, but assuming it relates to the internal area there is no evidence for the plaintiff that the alleged representations were made. They said they were not. The evidence of Mr Donnan, which I accept, is that no larger area would be offered and he told Con Mides of this. As I have said the way in which these negotiations seemed to be conducted is not necessarily to be approved but that does not make the conduct unconscionable within the s51AA meaning and the general law. The plaintiff was not under any disability. It was well able to look after itself. There is no evidence that the owners would have entered into a lease with the plaintiff company upon the terms they entered into a lease with another party nor that the plaintiff would have entered into a lease on those terms which did not include any amount for compensation for disruption. There is no basis to think that it was unconscionable not to give the plaintiff company a further chance to agree to a lease on the terms put forward by the agents assuming contrary to the plaintiff's case they were not agreed on 21 August. There is no evidence that the plaintiff would have accepted the offer of 21 August by 28 August, assuming it was different from the offer which it sought. In other words no loss is shown to have resulted from the alleged failure to report back. The difficulty is that this claim is quite inconsistent with the contract claim. It is not made out. Orders 25 The summons and the amended statement of claim be dismissed. 26 The plaintiff to pay the defendants' costs. 27 Exhibits may be returned.

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