CONTRACTS — PARTICULAR PARTIES — PRINCIPAL AND AGENT —
AUTHORITY OF AGENTS — IN GENERAL — where the
applicants operate a
pharmacy at premises leased from the first and second respondent
Source
Original judgment source is linked above.
Catchwords
CONTRACTS — PARTICULAR PARTIES — PRINCIPAL AND AGENT —AUTHORITY OF AGENTS — IN GENERAL — where theapplicants operate apharmacy at premises leased from the first and second respondent(‘Lessors’) — where the applicants’agent negotiated theterms of a proposed agreement to lease with the Lessors’ agent —
where the applicants’ agent
emailed a letter of offer to the
Lessors’ agent which summarised key commercial terms of the proposed
agreement to lease —
where the Lessors’ agent made two amendments to
the letter of offer, signed the offer, and returned it to the applicants’
agent — where the Lessors’ agent did not have actual authority to
enter into the proposed agreement to lease on behalf
of the Lessors —
where the Lessors’ agent said in communications with the applicants’
agent that entry into a new
lease was subject to approval by the Lessors —
whether the Lessors’ agent had ostensible authority to enter into the
agreement to lease on behalf of the Lessors by signing the letter of offer
— whether the Lessors’ agent had actual authority,
or alternatively
ostensible authority, to communicate the Lessors’ acceptance of the
proposed agreement to lease — whether
the Lessors are bound by the terms
of the proposed agreement to lease
Armagas
Ltd v Mundogas SA [1985] UKHL 11
[1986] 1 AC 717, cited
Crabtree-Vickers Pty Ltd v
Australian Direct Mail (1975) 133 CLR 72
[1975] HCA 49,
cited
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32
NSWLR 50, cited
First Energy (UK) Ltd v Hungarian International Bank Ltd
[1993] 2 Lloyd’s Rep 194, considered
Freeman & Lockyer v
Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, cited
Jiwunda
Pty Ltd v Trustees of Travel Compensation Fund (2006) 12 BPR 23,857
[2006]
NSWSC 741, considered
Kelly v Fraser [2013] 1 AC 450
[2012] UKPC 25,
considered
Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal
Corporation (2019) 19 BPR 39,687
[2019] NSWSC 1352, considered
Left
Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA
144, considered
Markson v Cutler [2007] NSWSC 1515,
considered
Masters v Cameron [1954] HCA 72
(1954) 91 CLR 353, cited
Mpinda v
Fair Work Commission (No 2) [2024] FCA 692, cited
Northside
Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
[1990] HCA 32,
cited
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
[2004]
HCA 35, cited
Powercor Australia Ltd v Pacific Power [1999] VSC
110
Radaich v Smith [1959] HCA 45
(1959) 101 CLR 209, considered
Stellar
Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102,
cited
Stokolosa v Weeks Peacock Quality Homes Pty Ltd [2000] SASC 266,
discussed
Wilh Wilhelmsen Investments Pty Ltd v SSS Holdings Pty Ltd
[2019] NSWCA 32, cited
Land Title Act 1994 (Qld) s 184
Property Law Act 1974
(Qld) s 117
Judgment (121 paragraphs)
[1]
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - AUTHORITY OF AGENTS - IN GENERAL - where the applicants operate a pharmacy at premises leased from the first and second respondent ('Lessors') - where the applicants' agent negotiated the terms of a proposed agreement to lease with the Lessors' agent - where the applicants' agent emailed a letter of offer to the Lessors' agent which summarised key commercial terms of the proposed agreement to lease - where the Lessors' agent made two amendments to the letter of offer, signed the offer, and returned it to the applicants' agent - where the Lessors' agent did not have actual authority to enter into the proposed agreement to lease on behalf of the Lessors - where the Lessors' agent said in communications with the applicants' agent that entry into a new lease was subject to approval by the Lessors - whether the Lessors' agent had ostensible authority to enter into the agreement to lease on behalf of the Lessors by signing the letter of offer - whether the Lessors' agent had actual authority, or alternatively ostensible authority, to communicate the Lessors' acceptance of the proposed agreement to lease - whether the Lessors are bound by the terms of the proposed agreement to lease
[1] The first applicant (GPP) operates a pharmacy from premises situated at Building 2, 1 Marble Arch Parade, Arundel (Premises). The Premises are situated on, and form part of, a larger parcel of land described as Lot 21 on SP113788 (Lot 21) which is owned by the first respondent (Basford) and the second respondent (Wisely) (together, the Lessors) as tenants in common in equal shares. GPP occupies the Premises under a lease, which commenced on 28 August 2010 (GPP Lease), for a term of 10 years with one 5-year option. GPP having exercised that option, the GPP Lease will expire on 27 August 2025.
[2] In 2016, the Lessors leased the whole of Lot 21, including the part where the Premises are situated, to the third respondent (United) (the lease being referred to hereafter as the United Lease).
[3] The respondents are part of the United Petroleum group of companies which own and operate petrol stations and engage in other associated businesses, including a business of leasing commercial premises such as the Premises. The group's real property portfolio is managed by a company called ASEH Property Services Pty Ltd (ASEH).
[4] At some stage before March 2023, the second applicant (Walton) agreed to acquire an interest in the pharmacy which GPP operates from the Premises. In that context, GPP instructed its agent, Matthew Buckley of Australian Corporate Property and Projects (ACORPP), to enquire whether the Lessors would be prepared to sell the Premises to GPP and Walton or, failing that, commence negotiations for the terms of a new lease to replace the GPP Lease. Mr Buckley was subsequently told that the Lessors were not interested in selling the Premises but were happy to commence negotiations about a new lease.
[5] From that point Mr Buckley communicated with Stephen McCarthy, a property consultant at ASEH, about the terms of a new lease of the Premises. During those negotiations, Mr Buckley emailed a letter of offer to Mr McCarthy which summarised key commercial terms for the grant of a new lease which, on Mr Buckley's understanding, had been agreed in his discussions with Mr McCarthy. Mr McCarthy made two handwritten changes to the letter of offer before signing it and emailing it back to Mr Buckley.
[24]
(a) it bound the Lessors to the terms of the letter of offer on the basis that Mr McCarthy had ostensible authority to bind the Lessors by signing that document;
(b) alternatively, its placement on the letter of offer communicated to GPP and Walton that the Lessors had accepted the terms set out in the document in circumstances where Mr McCarthy had authority (either actual or ostensible) to communicate such acceptance.
[25]
[8] Ultimately, although the case based on Mr McCarthy's authority to sign the letter of offer was not abandoned, GPP and Walton focussed their submissions on Mr McCarthy's authority to communicate the Lessors' acceptance of the offer.
[9] The respondents submit that the argument that Mr McCarthy had ostensible authority to contractually bind the Lessors by signing the letter of offer must fail because:
[26]
(a) the Lessors did not make any representation to GPP and Walton that the person who signed the letter of offer had authority to bind them to its terms;
(b) there is insufficient evidence to support a finding that GPP and Walton relied on any such representation;
(c) any reliance on such representation was not reasonable.
[27]
[10] The respondents further submit the argument that Mr McCarthy's conduct communicated the Lessors' acceptance of the terms of the letter of offer in a manner which bound them to those terms must fail because:
[28]
(a) the effect of Mr McCarthy's conduct was not to communicate to GPP and Walton that the Lessors accepted the terms set out in the letter of offer;
(b) Mr McCarthy did not have actual authority to communicate that the Lessors had accepted the terms of the letter of offer in circumstances where the Lessors had not in fact decided to accept those terms;
(c) Mr McCarthy did not have ostensible authority to communicate that the Lessors had accepted the terms of the letter of the offer in circumstances where the Lessors did not hold out Mr McCarthy to GPP and Walton as having authority to communicate their acceptance of an offer of terms for a new lease so as to bind them to those terms.
[29]
[11] If I find that Mr McCarthy had authority to bind the Lessors in either of the two ways advanced by GPP and Walton, the respondents submit that the letter of offer did not have legal effect because:
[30]
(a) it was not intended to constitute a binding agreement;
(b) alternatively, Mr McCarthy signed and emailed the letter of offer to Mr Buckley with handwritten variations so that it amounted to a counteroffer which was not accepted by GPP/Walton.
[31]
[12] If I find that Mr McCarthy had authority and that the letter of offer took effect as a binding agreement, the respondents submit that such agreement was subject to a condition subsequent that the Lessors approve the terms of the letter of offer and, in circumstances where that condition was not fulfilled, the agreement came to an end.
[13] Finally, the respondents contend that, following the registration of the United Lease on 19 March 2025, United has an indefeasible interest under that lease pursuant to s 184(1) the Land Title Act1994 (Qld). That interest takes priority over the unregistered interest of GPP and Walton in the alleged agreement for lease. Consequently, upon the expiry of the GPP Lease, United will be entitled to vacant possession of the Premises in priority to any entitlement of GPP and Walton. In that context, the respondents submit that the letter of offer (if it is found to be binding on them) cannot be construed to comprise a contract made by United as lessor; nor is there a proper basis for rectification of the letter of offer to substitute United as lessor in place of the Lessors.
[14] For reasons which follow, GPP and Walton have not established that Mr McCarthy had authority to bind the Lessors to the terms of the letter of offer, whether by signing that document on the Lessors' behalf or by communicating the Lessors' acceptance of those terms by signing the document and returning it to Mr Buckley. In those circumstances, the proceeding must be dismissed.
[32]
The negotiations between Mr Buckley and Mr McCarthy
[33]
[15] Mr Buckley commenced his inquiries of the Lessors by sending an email to various people at United with whom ACORPP had previously dealt in connection with the Premises. He stated that GPP was interested in acquiring the Premises or commencing discussions about adding further options to the GPP Lease.[1] He received a response from David Burgham, the National Property Manager at ASEH, who was not one of the addressees of Mr Buckley's original email but who explained that all those people had left United. In those circumstances, Mr Burgham copied in Russell Meerkin of ASEH, who managed the United Petroleum group's acquisitions and divestments.
[16] Mr Buckley then sent an email to Mr Meerkin, again raising the prospect of GPP acquiring the Premises. On 28 April 2023, having not received a response to his query, Mr Buckley sent a further email to Mr Meerkin and Mr Burgham in which he stated that if the Lessors did not intend to sell the Premises, GPP would like to commence discussions about a new lease. On 1 May 2023, Mr Meerkin sent an email to Mr Buckley confirming that the Lessors were not looking to sell the Premises at that time but would be happy to start a discussion "re lease variation". The following day, Mr Meerkin sent a further email to Mr Buckley asking him to contact Mr McCarthy (who was copied to the email) regarding the GPP Lease. In that email, Mr Meerkin referred to Mr McCarthy as "Head of Property". Mr Buckley subsequently forwarded Mr Meerkin's email of 1 May 2023 to Mr Yap and Ms Nicholson at GPP, explaining that he had been given Mr McCarthy's name and that Mr McCarthy "is (apparently) the head of property".
[17] Mr Buckley then sent an email to Mr Meerkin and Mr McCarthy on 2 May 2023, raising the prospect of discussing extending the options under the GPP Lease if there was no interest in selling the Premises. Mr McCarthy responded by email the same day. He confirmed that the Lessors had no interest in selling the Premises, but went on to state:
[34]
I am confident there will be interest in considering an option for renewal, or options (subject to Lessor's agreement), noting that the current tenure expires in August 2025. I suggest we review your request for consideration re Options around August next year, and trust that this suggested timeline is satisfactory for you.
[35]
[18] Mr McCarthy's evidence at trial was that he included the words "subject to Lessor's agreement" in parentheses in this email because he had been instructed by Mr Burgham that any agreement regarding lease terms was subject to obtaining approval from one of the two directors of United, Avi Silver or Eddie Hirsch, and he wanted to ensure that any lessees he was negotiating with understood that. I accept that evidence. It is consistent with more general evidence which Mr McCarthy, and other witnesses, gave about his role at ASEH and the limits of his authority in negotiating with lessees of properties owned by companies in the United Petroleum group.
[19] As to this, Mr McCarthy was engaged under a consultancy agreement with ASEH dated 31 January 2023, to perform all duties of a property management consultant and other ad-hoc duties as stipulated by ASEH. It was a term of the consultancy agreement that, unless specifically authorised in writing by ASEH, Mr McCarthy would not act or be an agent of ASEH or have the power to bind or commit ASEH in any manner. Shortly after Mr McCarthy commenced working at ASEH, he was informed by Mr Burgham that his role would be to contact lessees on a list provided by Mr Burgham and discuss new terms with them that would either bring their leases up to date or be the subject of a new lease. Mr Burgham told Mr McCarthy that he was responsible for preparing a business case by identifying the terms upon which a lessee was prepared to enter into a new lease or to vary an existing lease. When agreement in principle had been reached regarding the terms upon which a lessee was prepared to agree, Mr McCarthy was to provide those terms to Mr Burgham who would, in turn, present the proposed terms to Mr Silver or Mr Hirsch for approval.
[20] Each of Mr Burgham, Mr Silver and Mr Hirsch gave evidence to similar effect: that is, in the course of ASEH managing the real property portfolio of the United Petroleum group, its property consultants were authorised to engage in non-binding negotiations with lessees or prospective lessees and to receive offers from those parties concerning the terms upon which they would be prepared to contract, but that final approval for a transaction could only be given by Mr Silver or Mr Hirsch. Mr Burgham also gave evidence that he instructed Mr McCarthy to follow the approval process. Again, I accept that evidence.
[36]
· A new lease term of 7 years from 1 August [2023]. Response: Five (5) years
[37]
· Starting rent of the new lease to be $230,000 (in line with a fixed 4% increase to be completed if the [GPP Lease] didn't change). Not agreed. Starting Rent: $230,771.48 plus GST
· Options of 5+5 years be included in the new lease. Agreed
[40]
· Market review at the options. Agreed. On the first day of the further Options the annual rent will be adjusted by way of a market review.
[41]
· A first right of refusal to acquire the property be added into the lease. Not agreed
[42]
· We remove the personal guarantee from the lease (we have removed these from most sites and given the tenant has been in occupation so long, they are excess to reasonable requirements given a bank guarantee is also in place). Bank guarantee 3 months inclusive of GST, i.e., $63,462.17 inclusive of GST.
[43]
· Condition: Terms and conditions for the proposed Variation to Lease are subject to Lessor's approval.
[44]
[24] Mr McCarthy copied Mr Burgham and Navinder Kaur on his reply email to Mr Buckley. Ms Kaur worked in the lease administration group at ASEH and, to Mr McCarthy's understanding, was assisting in the preparation of the new standard form of lease. Mr McCarthy gave evidence that he copied these people into the email exchange to keep them apprised of his discussions with Mr Buckley because he expected it would be necessary for Mr Burgham to seek the approval of one of the directors of United when the terms upon which GPP and Walton were prepared to enter a new lease had been determined and, if those terms were approved, for a new standard form of lease to be prepared. Mr McCarthy's evidence was that he approached his discussions with Mr Buckley on the basis that the parties would need to enter into a new lease which would be consistent with standard lease terms which were being prepared at that time by other areas within the United Petroleum group. Mr McCarthy could not recall having any specific discussion with Mr Buckley about the preparation of new standard lease terms but said it was common for him to advise lessees that a new standard form of lease was being worked up.
[25] After Mr Buckley had received Mr McCarthy's responses and discussed those responses with Mr Yap and Ms Nicholson of GPP, he sent an email to Mr McCarthy on 14 June 2023 (copying in both Mr Burgham and Ms Kaur) in which he stated that GPP was happy to proceed to a new lease on the terms proposed in his email of 12 June 2023 as revised by the responses provided in Mr McCarthy's email of 14 June 2023. Mr Buckley asked whether Mr McCarthy would instruct the Lessors' lawyers to draft up new documents for execution.
[26] Mr Buckley then sent a further email to Mr McCarthy on 14 June 2023, in which he raised the need to formally document the earlier renewal of the GPP Lease which had taken effect after the option under that lease was exercised. This email was prompted by a request from lawyers involved in the sale of an interest in GPP's pharmacy business to Walton. In seeking to meet that request it became apparent that neither GPP nor ACORPP could locate a copy of the GPP Lease renewal.
[27] Mr McCarthy gave evidence that sometime between 14 June 2023 and 21 June 2023 he had a telephone discussion with Mr Buckley in which Mr Buckley explained that GPP's pharmacy business was undergoing a restructure that would result in a change of ownership and that is why the lawyers wanted to formalise the earlier exercise of the option. Mr Buckley also told Mr McCarthy that GPP wanted to finalise the restructure before the end of the financial year.
[45]
We are able to deal with this through the new lease terms we have agreed, but that needs to happen (apparently) before the sale can occur and that is currently scheduled for July 1 so hoping we can get this completed by then if possible.
[46]
[30] On 23 June 2023, GPP's lawyer sent an email to Mr Buckley (copied to Ms Nicholson), attaching a draft copy of the letter of offer. The email asked that, if all parties were happy, Mr Buckley include the name of the Lessors' solicitors in the draft before arranging for the lessees (GPP and Walton) and the Lessors to sign, date and return the document to GPP's lawyer. It noted that all parties had to sign the one document because that was a requirement of the Australian Community Pharmacy Association. After receiving the draft letter of offer, Mr Buckley changed the document to record "TBA" in circumstances where it was not clear whether the Lessors would use an external lawyer. He then arranged for the letter of offer to be signed on behalf of GPP and Walton and returned to him that day.
[31] After he had received the letter of offer signed on behalf of GPP and Walton, Mr Buckley sent an email to Mr McCarthy on the afternoon of 23 June 2023 attaching that signed version of the document. His covering email to Mr McCarthy stated:
[47]
Further to various discussions, please find attached a letter of offer which summaries [sic, summarises] the agreement already reached. If the landlord could please sign and return would be appreciated [sic] to enable the new entity (lessee) to be created and the sale of the 10% interest completed before the end of the financial year.
[48]
[32] Mr McCarthy said in evidence that he understood the words "the agreement already reached" in Mr Buckley's email to be a reference to the revised terms set out in the emails exchanged on 12 and 14 June 2023.
[33] The letter of offer attached to Mr Buckley's email to Mr McCarthy was in the following form:
Further to our discussions we set out details of the proposal for a new lease for the above premises as follows:
[51]
Lessee: GPP Arundel Pty Ltd A.C.N. 144 542 076 and
[52]
Solicitor: Bennett & Philp Lawyers, Maurice Hannan; 0418 888 676
[53]
Premises: Lease Building 2, 1 Marble Arch Parade, Arundel, Qld (see in the attached plan)
[54]
Proposed Use: Retail Pharmacy and Allied Health Care
[55]
Proposed Trading Name: Good Price Pharmacy Warehouse
[56]
Rent Review: 4% Annually and Market review at commencement of Option term
[57]
Bank Guarantee: Three (3) months' rent and outgoings being $63,462.17.
[58]
Goods and Services Tax: In addition to the rental and other moneys payable by the Lessee pursuant to the Lease GST will be payable by the Lessee in respect of all payments made by the Lessee.
[59]
This offer is subject to the Lessor's acceptance of the above terms and conditions.
[60]
1. Each party will bear and pay their own legal costs.
[61]
The Lessee must pay all stamp duty (if any) and the cost of a survey plan and all costs of registration.
[62]
The lease documents must be executed by the Lessee prior to commencement of any fitout works (if required) and the commencement date of the lease.
[63]
If the lease is governed by the Retail Shop Leases Act the Lessor will provide a Disclosure Statement in accordance with the Act.
This offer is a subject to and conditional upon the Lessee obtaining the recommendation from the Australian Community Pharmacy Authority ("ACPA") for either:
[64]
(a) the establishment of a new Pharmaceutical Benefits Approval Number to dispense pharmaceutical benefits from the proposed premises by way of an application for change of ownership; or
(b) the relocation of an existing Pharmaceutical Benefits Approval Number to the proposed premises; and
(c) confirmation of the ACPA recommendation by the Delegate of the Department of Health and Ageing; and
(d) being issued with a Pharmaceutical Benefits Approval Number to dispense Pharmaceutical Benefits from the proposed premises by the Department of Health and Ageing prior to the Commencement Date of the Lease.
[65]
I/We accept the above terms and conditions and wish to make an offer to lease the premises and have signed this Letter of Offer and return it together with our cheque payable in favour of the Lessor (or the Lessor's Agent) for the deposit.
[34] Mr McCarthy gave evidence that he reviewed the letter of offer and compared it against the revised terms set out in his email of 14 June 2023. In doing so, he noticed that the wording of the special condition in the letter of offer ("This offer is subject to the Lessor's acceptance of the above terms and conditions") was different to the condition he had included in his email of 14 June 2023, but he considered it was to the same effect. Mr McCarthy also noticed that two of the terms in the letter of offer did not match the previously agreed terms. To properly reflect those previously agreed terms, Mr McCarthy printed the document and amended it by hand to change the lease term from seven years to five years and to specify that the bank guarantee amount was inclusive of GST. In addition to those changes, Mr McCarthy inserted the words "on behalf of" in parentheses next to the words "Lessor's Acceptance" in the signing clause.
[35] Having made those handwritten changes to the document, Mr McCarthy signed it and had his signature witnessed by Ms Kaur. At the time Mr McCarthy signed the amended letter of offer, Mr Burgham had not yet obtained the approval of one of the directors of United to the proposed terms for a new lease.
[36] Although GPP and Walton's case is premised upon Mr McCarthy having signed the letter of offer and Ms Kaur having witnessed his signature (facts about which there is no dispute), it is relevant to note, for reasons I will come to, that neither the name of person signing the letter, nor that person's position, is set out in the document. Further, it would be difficult to identify that person from the signature itself. The same is true of the person who witnessed the signature.
[37] Mr McCarthy scanned the amended and signed version of the letter of offer and returned it to Mr Buckley attached to an email on 26 June 2023. His covering email contained no text. Consequently, the covering also did not identify the person who had signed the letter of offer or that person's position.
[38] Mr Buckley immediately forwarded Mr McCarthy's email to Mr Yap and Ms Nicolson of GPP. His covering email stated:
[68]
Signed doc so the sale can proceed. Leases have been instructed to be drawn. I was advised that their legal team had circa 250 leases they were working on so it may take a little while - but Maurice [GPP's lawyer] was happy that the attached was all that was required so hopefully that is the case for the sale.
[69]
Events following the signing of the letter of offer
[70]
[39] On 12 July 2023, Mr Buckley sent an email to Mr McCarthy in which he asked whether there was any timeframe for getting the formal lease documents for execution. He told Mr McCarthy that the lease may be required by the pharmacy guild, or other relevant body, for the formal transfer of an interest in GPP's pharmacy business to the new ownership. The next day, Mr Buckley sent a further email to Mr McCarthy asking if he could provide any guidance on the timing of the lease documentation.
[40] Mr McCarthy gave evidence that, at or around this time, Mr Burgham informed him ASEH was still in the process of preparing the new standard form of lease for a number of leases, but that Mr Burgham would ensure he took the lease document for the Premises to Mr Silver for approval as soon as possible. Following that discussion, Mr McCarthy sent an email to Mr Buckley on 17 July 2023 stating that ASEH could not provide an accurate timeframe in which the fresh lease document would be sent to GPP and Walton.
[41] On 1 August 2023, Mr Buckley sent an email to Mr McCarthy attaching a draft lease which had been prepared by GPP's lawyers. In his covering email, Mr Buckley stated that GPP and Walton had taken that step to try and expedite the signing of the new lease. Mr McCarthy forwarded the draft lease to Gullu Yalcin (ASEH's national leasing manager) and Elle Brooks (Ms Yalcin's assistant), copying in Mr Burgham, but noted that ASEH might be able to present GPP and Walton with the new standard form of lease.
[42] Having not received a response, Mr Buckley sent a further email to Mr McCarthy on 10 August 2023 asking whether ASEH was happy for the draft lease previously provided to be signed by the lessees and the Lessors. Again, Mr McCarthy forwarded Mr Buckley's email to Ms Yalcin and Ms Brooks (copying in Mr Burgham, Ms Kaur and Natalie Ginley of ASEH) and, among other things, asked Ms Yalcin and Ms Brooks to advise Mr Buckley of the position regarding the new lease document.
[43] On 18 August 2023, Ms Nicolson sent an email directly to Mr Burgham complaining that GPP and Walton had been waiting for several months for the new lease. She stated that both the Department of Health and GPP's bank required copies of the new lease and the matter had become extremely urgent. Mr Burgham replied to Ms Nicolson's email the same day, stating that the new lease was in progress and he had copied Ms Yalcin into the email because she managed the United Petroleum group's leasing.
[71]
Were the Lessors bound by Mr McCarthy's act of signing the letter of offer?
[72]
[54] GPP and Walton assert that Mr McCarthy had ostensible authority to sign the letter of authority such that, upon his signing the document, the Lessors were immediately bound by its terms.
[73]
[55] Ostensible authority can be conferred on an agent where a principal represents to a third party that the agent has authority to perform relevant acts on behalf of the principal and the third party relies on the agent's ostensible authority. The authority is based in estoppel. If a third party, acting in reliance upon the representation of authority enters into a contract with the agent, the principal is estopped from asserting that it is not bound by the contract.[2]
[56] The representation as to authority which creates the ostensible authority must be made by the principal, or by a person who has actual authority from the principal to make such a representation. A third party cannot rely on the agent's own representation as to authority.[3] The representation may be made by the principal (or the person to whom the principal has actually delegated authority) by putting the agent in a position (or allowing the agent to act in a position) from which the agent's authority can be inferred. That inference may arise because the particular position carries a usual authority, but ostensible authority is not confined to that type of case. A course of conduct or dealing may constitute a relevant representation, with the commonest form of representation being a principal permitting the agent to act in the management or conduct of the principal's business.[4]
[74]
Did the Lessors represent that Mr McCarthy had authority to bind them by signing?
[75]
[57] Having regard to the facts set out at [15] to [38] above, I am not satisfied that the Lessors represented to GPP and Walton that Mr McCarthy had authority to contractually bind them to the terms of a new lease by signing the letter of offer.
[58] GPP and Walton plead that Mr McCarthy's authority can be inferred from two matters.
[59] The first matter is the Lessors' conduct in granting Mr McCarthy authority to negotiate commercial terms for new leases and lease renewals.
[60] I doubt that the engagement of an agent to negotiate lease terms on behalf of a landlord of commercial premises provides, without more, a sufficient basis to infer that the landlord has represented that its agent has authority to bind it to a lease. It is unnecessary to reach a concluded view on that question because, in the circumstances of this case, when Mr McCarthy communicated with Mr Buckley he stated on several occasions that any proposed terms upon which the agents might reach consensus remained subject to approval by the Lessors (see [17], [18], [21] and [23] above). Those statements amounted to a clear disclaimer by Mr McCarthy of any suggestion that he had authority to bind the Lessors by accepting the proposed terms set out in the letter of offer.
[61] The second matter is Mr McCarthy's position as a property consultant for ASEH, considered in the context of ASEH's role within the United Group and its association with the Lessors.
[62] I accept that the appointment of an agent to a particular position may have the effect of representing to persons dealing with the agent that the person has the authority to undertake tasks of a kind which someone in such a position would usually be authorised to do in the ordinary course of business.[5]
[63] In this case, however, there is no evidence that a person who holds the position of property consultant (or head of property - see [16] above), at a company in a closely associated corporate group which is engaged in the conduct of the negotiation of commercial lease terms on behalf of other companies within the group, would be regarded as having authority to bind those companies to a new lease. Such evidence as there was on this issue, being the report of Mr Cox, a property consultant called by the respondents, was to the opposite effect.
[76]
[67] If I am wrong in that conclusion, the evidence is not sufficient to support findings that GPP and Walton relied on any representation regarding any person's authority to sign the letter of offer, or that such reliance would have been reasonable in the circumstances. The difficulties in determining the identity of the person who signed the letter of offer (see [36] and [37] above) are relevant to this assessment.
[68] The relevant person for the purposes of establishing reliance is Mr Yap, the directing mind of GPP. Although Mr Walton was the directing mind of Walton, his evidence was that he relied entirely on information provided to him by Mr Yap concerning this matter. Mr Walton did not have any independent communications with Mr Buckley or Mr McCarthy. Mr Yap represented the jointly held interests of GPP and Walton and kept Mr Walton informed as matters arose. In those circumstances, Mr Walton had delegated decision making on behalf of Walton to Mr Yap.
[69] As noted at [38] above, Mr Yap received the signed letter of offer attached to an email sent to him by Mr Buckley. While Mr Buckley's email included the statement "signed doc so the sale can proceed", it did not address who had signed the letter on behalf of the Lessors. Mr Yap's evidence was that having read Mr Buckley's email and the signed letter of offer he formed the view there was agreement on the terms set out in the letter of offer and the next step would be the execution of a formal lease in the same terms as the GPP Lease. On that basis, Mr Yap formed the view it was not necessary to seek alternative premises for the period following the expiry of the GPP Lease.
[70] While this evidence explains why Mr Yap acted as he did, it is not sufficient to establish that, in so acting, Mr Yap (and through him GPP and Walton) relied on a representation by the Lessors that Mr McCarthy (or the person who signed the letter of offer if Mr Yap had not identified Mr McCarthy as the signatory) was authorised to bind them to the terms of a new lease by signing the letter of offer. Mr Yap did not give evidence that, when he received the signed letter of offer, he identified the person who had signed on behalf of the Lessors. Importantly, he did not give evidence that he identified Mr McCarthy as being the person who had signed. Further, Mr Yap did not give evidence that he turned his mind to who had signed the letter of offer on behalf of the Lessors or what authority that person had to contractually bind the Lessors to the terms set out in that document.
[77]
Communication of the Lessors' acceptance of the proposed terms
[78]
[73] It remains to consider GPP and Walton's alternative case that, in delivering the signed letter of offer to Mr Buckley, Mr McCarthy acted within the scope of his actual authority, or alternatively his ostensible authority, to convey the Lessors' acceptance of the terms proposed in that offer.
[79]
Actual authority to communicate the Lessors' acceptance
[80]
[74] Actual authority is a legal relationship between principal and agent created by a consensual agreement between those parties.[7] By such agreement, the principal confers authority on the agent, and the agent accepts that conferral of authority, to perform specific tasks on behalf of the principal.[8]
[75] The conferral of authority by agreement between principal and agent may be express or implied from the conduct of the parties.[9] The relevant conduct can include the appointment of an agent to a certain office or position. In this case, however, there is no scope to imply authority given the acknowledgement by GPP and Walton that the Lessors had not accepted or approved the terms of the letter of offer when Mr McCarthy sent the signed document to Mr Buckley. That is because an agent cannot have implied actual authority to inform an offeror that an offer has been accepted when no decision has been made by the principal to accept that offer.[10]
[76] As to express authority, GPP and Walton rely on the fact that Mr McCarthy was engaged as the point of communication between them and the Lessors. In that role, he was responsible for informing GPP and Walton whether there was agreement on the terms of the letter of offer. That is, it was Mr McCarthy's task to tell GPP and Walton whether the Lessors accepted the proposed terms. On GPP and Walton's case, it follows from this that, by sending the letter of offer bearing a signature next to the words "Lessor's Acceptance", Mr McCarthy was acting within the scope of his express authority to convey the Lessors' acceptance of the offer.
[77] There is no doubt that Mr McCarthy was expressly authorised to convey the outcome of the Lessors' consideration of an offer by a proposed lessee to that party. However, the content of what Mr McCarthy was expressly authorised to communicate when he performed that task in a particular case depended upon the outcome of the Lessors' consideration of the offer.
[78] Mr McCarthy gave evidence that he was told by Mr Burgham that he could not tell a lessee or prospective lessee that any proposed terms had been agreed by the relevant lessor unless and until he had express confirmation from either Mr Burgham or one of the directors of United that the proposed terms had been approved by a director. To similar effect, Mr Burgham gave evidence that if a director of United approved proposed lease terms, he would inform Mr McCarthy of that approval and instruct him to advise the prospective lessee (or its representative) that the terms had been approved. However, if the director considering proposed lease terms did not approve those terms because they required further information, they wanted to negotiate further or alternative terms or they did not want to proceed with the relevant lessee, Mr Burgham's practice was to advise the relevant property consultant at ASEH of the director's instruction so that the consultant could engage in further discussions with the relevant lessee. I accept the evidence of both Mr McCarthy and Mr Burgham about the circumstances in which he was permitted to convey to a lessee or prospective lessee that proposed terms had been approved by a lessor company.
[81]
Ostensible authority to communicate the Lessors' acceptance
[82]
[81] In some cases, an agent's authority to communicate on behalf of a principal may carry with it ostensible authority to bind the principal, either by making an offer capable of acceptance or by accepting an offer made by the third party. That is, an agent may be authorised to communicate offers and acceptances on behalf of the principal thereby bringing into existence a concluded and binding contract even though the agent does not have actual authority to contract.
[82] Authority for that principle is provided by the English Court of Appeal decision of First Energy (UK) Ltd v Hungarian International Bank Ltd.[11] However, it has been said that the principle is very fact-sensitive.[12] For that reason, it is necessary to set out the facts of the various cases in which the application of the principle has been considered.
[83] The plaintiff in First Energy engaged in the business of replacing outdated heating systems with a new form of space heating. In order to make the new systems financially attractive to customers the plaintiff would install the equipment and the customer would pay the purchase price over a number of years. Consequently, the plaintiff approached the defendant, a merchant bank which specialised in commercial lending to trading companies, regarding the provision of credit facilities. The defendant's head office was in London. It also had an office in Manchester and the plaintiff dealt with the Manchester office. For the defendant, the negotiations were conducted by Mr Jamison who was a senior manager at the bank and was in charge of the Manchester office.
[84] Discussions took place and Mr Jamison told the plaintiff that he had no authority to sanction a loan facility. The defendant did not hold Mr Jamison out as having any authority to sanction any facility.
[85] The defendant bank sent a facility letter to the plaintiff signed by its managing director and an assistant director. The letter set out in some detail the terms relating to the facility and the final paragraph provided that the letter did not constitute an offer but detailed the terms upon which the bank was prepared to consider making facilities available and invited the plaintiff to sign the terms if they were acceptable and to forward a cheque for £2,500. It was also stated that the signing by the defendant of one of the copies would only "then create a binding contract between us". The plaintiff signed the facility letter and deposited a cheque for £2,500 with the bank. The facility letter did not come into force because the defendant did not sign a copy of it after the plaintiff had signed. Nevertheless, the parties entered into a binding agreement in respect of some equipment to be installed. This involved a hire purchase arrangement. The bank proceeded with that transaction, and it was performed.
[83]
The conduct of the respondent was to have its sales consultants strike the bargain with the customer. Where managerial approval was necessary it was the sale consultants who would advise the customers that approval had been given. The respondent instructed and permitted the sales consultants to conduct the respondent's business with its customers. In so doing the respondent cloaked the sales consultants with authority. This was apparent or ostensible authority. The conduct of the respondent of having sales consultants act in this way, in regard to these matters, gave them apparent authority on which customers would then rely.
[84]
[120] Gray J concluded that, in advising the appellants that management approval had been given to construct the house they wanted for $115,000, the agent was acting within the class of acts that the respondent's sales consultants were usually authorised to do. The respondent was responsible for that practice because it instructed its sales consultants to act in that way.[30]
[121] There are differences between the facts of Stokolosa and the facts of this case. There is no suggestion that Mr McCarthy acted fraudulently in this case. Another difference is that the agent's conduct in Stokolosa - informing the appellants that approval had been given by management and presenting the contract documents to the appellants - constituted an offer by the respondent builder which the appellants accepted by signing those contract documents. In this case, it is GPP and Walton who are said to have made an offer in the terms set out in the letter of offer. Mr McCarthy's conduct in returning the signed letter of offer is said to have communicated the Lessors' acceptance of that offer.
[122] Notwithstanding those differences, GPP and Walton submit that, having regard to numerous points of comparability between the facts of Stokolosa and the facts of the present case, I would accept the reasoning in Stokolosa as being correct and apply similar reasoning to conclude that, by their conduct, the Lessors cloaked Mr McCarthy with ostensible authority to bind them to a new lease by communicating their acceptance of the terms proposed in the letter of offer.
[123] As to this, GPP and Walton rely upon the following matters which they submit are relevantly comparable with the facts of Stokolosa:
[85]
(a) that Mr McCarthy was the singular point of contact with the Lessors throughout the negotiation of the proposed terms of the new lease (as the agent in Stokolosa was the singular point of contact for the appellant customers);
(b) that Mr McCarthy informed GPP and Walton, through his communications with Mr Buckley, that the negotiated terms would be subject to the Lessors' approval (as the agent in Stokolosa had informed the appellant customers he would require management approval to build the design they proposed at the price they required);
(c) that the Lessors instructed Mr McCarthy to communicate to prospective lessees such as GPP and Walton whether they accepted proposed lease terms (as the respondent builder in Stokolosa had instructed the agent to inform customers whether management approval for the construction of a non-standard house had been given);
(d) that Mr McCarthy communicated the Lessors' acceptance of the terms proposed in the letter of offer by signing next to the words "Lessor's Acceptance" and returning the signed letter of offer to Mr Buckley (as the agent in Stokolosa had informed the appellant customers that he had obtained management approval);
(e) that, by reason of the preceding matters, the Lessors clothed Mr McCarthy with ostensible authority to bind them to the terms proposed in the letter of offer by communicating their acceptance of those terms (as the builder in Stokolosa had cloaked the agent with ostensible authority to bind it to a contract by communicating that approval had been obtained and, in so doing, communicating an offer that was capable of acceptance by the customer).
[86]
[124] I accept that the first three matters identified by GPP and Walton are comparable to the facts of Stokolosa. There was no real dispute between the parties about those matters. There was, however, dispute as to whether the fourth and fifth matters were established in the circumstances of this case.
[125] As to the fourth matter the respondents submit that, because Mr McCarthy's covering email to Mr Buckley attaching the signed letter of offer contained no message (see [37] above), the only thing Mr McCarthy did which was capable of communicating that the Lessors accepted the terms proposed in the letter of offer was signing that document, on behalf of the Lessors, against the words "Lessor's Acceptance". The respondents then submit that if I find Mr McCarthy was not authorised to bind the Lessors by signing the letter of offer on their behalf (as I have at [54] to [72] above) then Mr McCarthy's signature was of no legal effect, and its communication to GPP and Walton was equally of no legal effect. That is, Mr McCarthy's conduct in sending the letter of offer bearing his unauthorised signature was incapable of communicating to GPP and Walton that the Lessors had accepted the proposed terms.
[126] I am unable to accept that submission. The respondents have not cited any authority in support of the proposition that a document which bears an unauthorised signature is not capable of communicating representations of fact contained in the document to a person who receives it. That proposition appears contrary to the observation of Evans LJ in First Energy that there is no requirement that an apparent authority to communicate decisions should be commensurate with an apparent authority to enter into a transaction of a particular kind on behalf of the principal (see [91] above). On that basis, I can see no reason in principle why a document which bears an unauthorised signature may nevertheless have the effect of conveying representations of fact contained in the document to a person who receives it.
[127] In the circumstances of this case, I am satisfied that the effect of Mr McCarthy's conduct in signing the letter of offer, on behalf of the Lessors, against the words "Lessor's Acceptance", and sending that signed document to Mr Buckley, was to communicate to GPP and Walton that the Lessors had accepted the proposed terms.
[87]
Conclusion on the question of Mr McCarthy's authority
[88]
[142] As I have concluded that Mr McCarthy did not have authority to bind the Lessors to the terms of the letter of offer, either by signing that document on the Lessors' behalf or by communicating the Lessors' acceptance of those terms by sending a copy of the document bearing his unauthorised signature, the proceeding must be dismissed.
[143] In those circumstances, I will set out my conclusions on the remaining issues more briefly.
[89]
Did the signed letter of offer take effect as a binding agreement?
[90]
[144] The respondents submit that if (contrary to my earlier findings) Mr McCarthy had authority to bind the Lessors to the terms of the letter of offer then, construed objectively, those terms indicate that the parties did not intend to be legally bound by the document.
[145] In advancing that submission, the respondents placed particular emphasis on the parties' inclusion of the special condition ("This offer is subject to the Lessor's [sic] acceptance of the above terms and conditions") as an indication of their intention not to be legally bound.
[146] As to this, the respondents submit that, construed objectively, there are three possible meanings that might be given to this special condition:
[91]
(a) the parties intended that the special condition would operate merely as a condition of the offer such that if (contrary to my earlier finding) Mr McCarthy's act of signing the letter of offer amounted to acceptance by the Lessors of the terms and conditions then the special condition would be satisfied (this being the construction for which GPP and Walton contend);
(b) the parties intended that the special condition would operate as a form of "subject to contract" clause such that there was no intention by the parties to be bound by the letter of offer until the Lessors had accepted its terms (this being the construction for which the respondents contend in submitting the letter of offer did not take effect as a binding agreement);
(c) the parties intended that the special condition would operate as a condition subsequent to any binding agreement for lease which made that agreement subject to the Lessors' acceptance of the proposed terms (this being the construction for which the respondent contend in advancing an alternative submission addressed below).
[92]
[147] In contending that the special condition should be given either the second or the third meanings, the respondents argue that adopting the first meaning would give the words of the special meaning no work to do. Every offer to enter a contract is always subject to the other party's acceptance of the offer. The respondents contend that the parties' description of the requirement for the Lessors' acceptance as a special condition evidences their intention that the requirement would be included as a special condition in any agreement resulting from acceptance of the offer. In support of that argument, the respondents emphasise the use of the same language in the special condition concerning the Lessors' acceptance and the wording used in paragraph 7 of the special conditions set out in the letter of offer which states: "This offer is subject to and conditional upon the Lessee obtaining [certain recommendations and confirmations from the relevant regulatory body and government department leading to the issue of a Pharmaceutical Benefits Approval Number which GPP and Walton would require to use the Premises as a pharmacy]". The respondents submit the words used in paragraph 7, like the words the parties used to express the requirement that the Lessors accept the terms and conditions of the offer, could only function as a special condition if they are construed as meaning that any agreement resulting from acceptance of the offer would be subject to the relevant condition.
[148] I do not accept the respondents' submissions as to the meaning of the special condition requiring the Lessors' acceptance. In my view, construed objectively in the context of the letter of offer as a whole and the negotiations between Mr McCarthy and Mr Buckley which preceded it, that special condition should be given the first meaning for which GPP and Walton contend.
[149] The parties' respective agents had reached consensus upon the terms for a new lease. The commercial purpose of the letter of offer was to summarise those proposed terms in a form which could be provided to the Lessors to obtain their acceptance and, critically, to formally record the Lessors' acceptance of those proposed terms. That is clear from the structure of the letter of offer and the language the parties used. The document commences by referring to the discussions between Mr McCarthy and Mr Buckley and states that it sets out details of the proposal for a new lease for the Premises. The summarised terms are then set out, followed by the special conditions. There then appears a statement by GPP and Walton that they accept the terms and conditions and wish to make an offer to lease the Premises and (to that end) have signed the letter of offer and returned it together with the cheque for the deposit payable in favour of the Lessors (or their agent). The letter then makes provision for signing by the proposed parties to the new lease. Critically, the Lessors were to execute the document by signing against the words "Lessor's Acceptance". As just observed, I consider that by using those words the parties intended to formally record the Lessors' acceptance of the terms proposed for the new lease.
[93]
Did the signed letter of offer constitute a counteroffer?
[94]
[155] The respondents submit that the handwritten changes which Mr McCarthy made to the letter of offer before he signed the document and emailed it to Mr Buckley (see [34] above) meant that the purported acceptance effected by the signed letter of offer did not correspond to the offer made by GPP and Walton. Instead, the amended letter of offer which Mr McCarthy signed could only take effect as a counteroffer.
[156] In support of that submission, the respondents rely on the principle that for there to be valid acceptance of an offer resulting in a binding contract the offer and acceptance must precisely correspond with any departure from the offer resulting in the purported acceptance being ineffective.[32]
[157] Although that principle is undoubtedly correct, I do not accept that it applies to the facts of this case to invalidate the Lessors' acceptance of the letter of offer. Such a finding would ignore the fact, known to both Mr Buckley and Mr McCarthy, that the letter of offer was intended to summarise the terms upon which Mr Buckley and Mr McCarthy had reached consensus in the emails they exchanged on 12 and 14 June 2023 (see [22] to [23], [25] and [31] above).
[158] When Mr McCarthy reviewed the letter of offer, he identified that the document did not conform to the previously agreed terms in two respects. Through Mr Buckley, GPP and Walton had previously said they were prepared to enter into a new lease on those previously agreed terms. That is, it was the common understanding of both Mr Buckley and Mr McCarthy that GPP and Walton were offering to enter into a new lease on the previously agreed terms. When Mr McCarthy amended the letter of offer, he was not varying the terms of the offer by GPP and Walton or seeking to depart from that offer. All he was doing was correcting the letter of offer so that it properly reflected the offer by GPP and Walton which Mr Buckley had informally communicated through his earlier email. In those circumstances I do not accept that Mr McCarthy's amendments to the letter of offer rendered the Lessors' acceptance ineffective and constituted a counteroffer.
[95]
If the signed letter of offer was binding, was it subject to a condition subsequent?
[96]
[159] This is the alternative submission advanced by the respondents in the event I was to find that the letter of offer took effect as a binding agreement (see [146](c) above). For the same reasons set out at [147] to [152] above, I do not accept this alternative submission.
[97]
The identity of the lessor, rectification of the letter of offer and the indefeasibility United's interest under the United Lease
[98]
[160] These issues arise because, as noted at [2] above, in 2016 the Lessors and United entered into the United Lease, pursuant to which the Lessors leased the whole of Lot 21, including the Premises leased to GPP under the GPP Lease, to United. The United Lease was registered on 19 March 2025.
[161] In the United Lease, the Lessors and United acknowledged and agreed that the United Lease was concurrent with pre-existing leases granted by the Lessors over parts of Lot 21, including the GPP Lease (cl 28.1). In respect of such pre-existing leases, the Lessors assigned their interest as lessors to United together with the benefit of all covenants by the existing tenants, that is, GPP (cll 28.2 and 28.3).[33] The Lessors also granted United the right to take certain steps under or in respect of the pre-existing leases without the Lessors' consent (cl 28.5). The Lessors agreed that they would not deal with the pre-existing leases, including by accepting a surrender of, or terminating, such leases except as permitted by the terms of the United Lease or with the prior written consent of United (cl 28.6).
[162] Following the grant of the United Lease, the Lessors remained the registered proprietors of Premises. In those circumstances, the respondents submit that the Lessors retained the legal capacity as at the date the letter of offer was signed to enter into a new lease of the Premises on the terms of the letter of offer; although, in doing so, the Lessors might have been in breach of cl 28.6 of the United Lease and of their obligation not to derogate from their grant of exclusive possession of Lot 21 to United under the United Lease. The respondents further submit that upon registration of the United Lease, whereby United's interest as lessee achieved indefeasibility pursuant to s 184(1) of the Land Title Act1994 (Qld), United will (upon the expiry of the GPP Lease) become entitled to vacant possession of Lot 21, including the Premises, in priority to any entitlement GPP/Walton hold under the unregistered agreement to lease in the form of the letter of offer.
[99]
[168] The second further amended originating application is dismissed.
[169] I will hear the parties as to costs.
[100]
[1] It is common ground that Mr Buckley represented the joint interests of GPP and Walton throughout the negotiations, although Walton's interest in the proposed new lease was not disclosed to the Lessors.
[101]
[2]Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd[1964] 2 QB 480, 503 (Freeman & Lockyer); Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd[1975] HCA 49; (1975) 133 CLR 72, 78 (Crabtree-Vickers); Northside Developments Pty Ltd v Registrar-General[1990] HCA 32; (1990) 170 CLR 146, 172 and 187 (Northside Developments); Pacific Carriers Ltd v BNP Paribas[2004] HCA 35; (2004) 218 CLR 451, 466 [36] (Pacific Carriers); Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation[2020] NSWCA 144, [55]-[58] (Left Bank Investments); Wilh Wilhelmsen Investments Pty Ltd v SSS Holdings Pty Ltd[2019] NSWCA 32, [74]-[76] (Wilhelmsen Investments).
[102]
[3]Freeman & Lockyer, 505; Crabtree-Vickers, 78; Northside Developments, 187; Pacific Carriers, 466 [36]; Left Bank Investments, [60]; Wilhelmsen Investments, [80] and [84].
[103]
[4]Freeman & Lockyer, 503; Left Bank Investments, [59]; Wilhelmsen Investments, [78].
[12]Left Bank Investments, [107]; Allco Finance GroupLtd(in liq) v Gothard[2014] FCAFC 6, [78] (Allco). See also Markson v Cutler[2007] NSWSC 1515, [9] (Markson).
[17] See the reference to the criticism in Bowstead & Reynolds on Agency (16th ed, Sweet & Maxwell, 1996) p 372 and the rejection of that criticism in Powercor Australia Ltd v Pacific Power[1999] VSC 110, [1254] (Powercor). See also the reference to the criticism in Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell, 2010) pp 369-370 in Allco, [78].
[112]
[18]Bowstead & Reynolds on Agency (23rd ed, Sweet & Maxwell, 2024) p 426 [8-020].
[25]Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation (2019) 19 BPR 39,687.
[116]
[27] As to which, see Kelly (in which the agent, Mr Masters, was the head of the principal's employment benefits division and had delegated power to conduct the day-to-day administration of the salaried staff pension plan), Powercor (in which the agent, Mr Murphy, held the position of Manager Energy and Marketing for the principal, and where entry into the disputed contracts was preceded by a course of conduct in which Mr Murphy was involved in negotiations which led to similar contracts which were not the subject of dispute), and Jiwunda (in which the agent, Mr Brattoni, was the chief executive officer of the principal and where there was a prior course of dealing in which Mr Brattoni had given notice on behalf of the principal that an option for a new lease would not be exercised and, subsequently, that the lessor's offer of a new lease was accepted).
[6] In this proceeding, GPP and Walton claim that the signed letter of offer took effect as a binding agreement to enter a new lease of the Premises on the terms set out therein. They seek a declaration that the Lessors, or alternatively United, are bound by the terms of the signed letter of offer (and, to the extent it may be required by reason of the United Lease, rectification of the letter of offer to delete references to the Lessors to be replaced with United). Further, they seek orders for the specific performance of the letter of offer.
[7] In seeking that relief, GPP and Walton accept that Mr McCarthy did not have actual authority to execute the letter of offer on behalf of the Lessors. They also accept that the Lessors had not in fact approved the terms set out in the letter of offer when Mr McCarthy provided the signed document to Mr Buckley. Nevertheless, they submit that Mr McCarthy's signature on the letter of offer had one of two effects:
[21] Returning to the negotiations between Mr Buckley and Mr McCarthy, it appears that Mr Buckley telephoned Mr McCarthy some time before 25 May 2023 and again raised the subject of additional options for the GPP Lease. On 25 May 2023, Mr McCarthy sent an email to Mr Buckley which referred to their telephone conversation and stated that, to have the request considered by the Lessors, Mr Buckley should arrange for a proposal to be forwarded to him at ASEH.
[22] After taking instructions from Mr Yap and Ms Nicholson of GPP, Mr Buckley sent an email to Mr McCarthy on 12 June 2023 proposing key terms for a new lease. Mr McCarthy replied by email on 14 June 2023 indicating that his responses to those proposed terms were highlighted in Mr Buckley's email.
[23] The proposed terms and Mr McCarthy's responses (in bold) were as follows:
[28] On 19 June 2023, Mr McCarthy sent an email to Mr Buckley (copying in Mr Burgham and Ms Kaur) stating that ASEH would be passing the heads of agreement documents to its lawyers for processing. That was followed by an email from Mr Buckley on 21 June 2023 in which he provided Mr McCarthy with the names of the lessees to be included in the new lease.
[29] On 22 June 2023, Mr McCarthy sent an email to Mr Buckley attaching a copy of an email from 2020 confirming that GPP had exercised the five-year option under the GPP Lease. Mr Buckley replied to Mr McCarthy the following day acknowledging the confirmation but repeating that the formal documentation had not been completed. He stated that this formal documentation was required to allow the ownership change to go ahead. I understand this to be a reference to the sale of an interest in GPP's pharmacy business to Walton. In that context Mr Buckley stated:
[44] Ms Nicolson sent a further email to Ms Yalcin on 21 August 2023, asking for an estimate as to when the new lease would be provided to GPP and Walton. Having not received any response, she sent a further email to Ms Yalcin on the evening of 23 August 2023 asking that Ms Yalcin contact her the following day to provide an update on the new lease.
[45] On 24 August 2023, Mr Buckley sent a further email to Mr McCarthy asking when GPP and Walton might expect the Lessors to sign off on the new lease. As Mr McCarthy was on leave at that time, Mr Buckley received an out of office response which directed him to contact Mr Burgham and Ms Ginley. He then sent an email to Mr Burgham stating that the execution of the new lease by the Lessors was required to allow the sale of an interest in GPP's business to complete. In turn, Mr Burgham forwarded Mr Buckley's email to Ms Yalcin and Ms Brooks and asked them to take carriage of the request for assistance. Ms Yalcin confirmed to Mr Burgham that ASEH instructed their lawyers to prepare the new lease the previous week and she had followed up with the lawyers that day. She stated that she would call Mr Buckley to discuss the status of the new lease.
[46] On the same day, Ms Yalcin responded to Ms Nicolson's earlier emails, stating that instructions had been issued to ASEH's lawyers and that she expected the draft lease to be ready shortly. She advised Ms Nicolson that she would forward the draft lease as soon as it was to hand.
[47] On 25 August 2023, Mr Buckley provided a copy of the draft lease previously prepared by GPP's lawyers to ASEH's lawyers.
[48] On 31 August 2023, Ms Nicolson exchanged emails with the lawyer for ASEH. During that exchange, ASEH's lawyer asked if GPP and Walton would accept a lease on the same terms as the GPP Lease, varied to accept the agreed commercial terms. Ms Nicolson confirmed that GPP and Walton would accept provided the agreed commercial terms were incorporated and the new lessee entity was correctly recorded in the lease.
[49] On 5 September 2023, after Mr McCarthy had returned from leave, he forwarded Mr Buckley's email of 24 August 2023 to Ms Yalcin and Ms Brooks and asked if ASEH was able to advise GPP and Walton of the approximate timing for presentation of the draft lease. In that email, Mr McCarthy stated that ASEH had already provided GPP/Walton with "HOA agreed commercial terms". The following day, Ms Brooks sent an email to Mr McCarthy requesting a copy of the "HOA document" referred to in his email. Mr McCarthy then sent an email to Ms Brooks and Ms Yalcin attaching the signed letter of offer. Mr McCarthy said in evidence that, to the best of his recollection, this was the first time he had provided a copy of the signed letter of offer to anyone else at ASEH or United.
[50] On 6 September 2023, after Mr McCarthy had provided the signed letter of offer to Ms Yalcin and Ms Brooks, Ms Yalcin had a telephone conversation with Mr Buckley. She then sent an email to Mr Buckley confirming what they had discussed: namely that what she described as the "conditional offer" by GPP and Walton to enter a new lease had been rejected by the board of directors of United on the basis of the commencing rental. Ms Yalcin stated that the board had instructed her that a new lease could be agreed subject to the commencing rental being $355,000 plus GST.
[51] On 7 September 2023, lawyers for GPP and Walton wrote to the Lessors asserting that the signed letter of offer constituted a binding agreement for lease. By that letter GPP and Walton asserted that a new lease had commenced on 1 August 2023, that they intended to comply with its terms, and they expected the Lessors to do likewise. They called upon the Lessors to either sign the draft lease previously provided to them or to provide the formal terms of the new lease without delay.
[52] On 26 September 2023, lawyers for the Lessors wrote to the lawyers for GPP and Walton rejecting the assertions made concerning the effect of the letter of offer.
[53] GPP and Walton commenced this proceeding on 21 December 2023.
[64] More importantly, in the circumstances of this case, Mr McCarthy's express disclaimer of authority in his communications with Mr Buckley (see [17], [18], [21] and [23] above) effectively displaced any inference which might otherwise have arisen from the appointment of Mr McCarthy as property consultant (or Mr Meerkin's misdescription of him as head of property) for ASEH.
[65] GPP and Walton do not identify any other basis upon which I could find the requisite representation of authority. For completeness, I note that prior to the commencement of the negotiations with Mr Buckley, Mr McCarthy had had no involvement with anyone representing GPP and Walton (see [15] to [17] above). In those circumstances, there was no previous course of dealings between GPP and Walton and the Lessors from which it could have been inferred that, in his negotiations with Mr Buckley, Mr McCarthy had authority to sign the letter of offer on the Lessors' behalf and, in so doing, bind them to its terms.
[66] As I am not satisfied that GPP and Walton have established that the Lessors made the requisite representation concerning Mr McCarthy's authority, this part of the case must be dismissed.
[71] I accept the respondents' submission that the effect of Mr Yap's evidence is that he saw there was a signature and, from that, assumed that there was agreement on the terms of a new lease without considering any question of the authority of the signatory. That evidence does not establish that Mr Yap inferred from any conduct or communications from the Lessors that they were representing that Mr McCarthy (or the person who signed the letter of offer if Mr Yap had not identified Mr McCarthy as the signatory) had authority to bind them to a new lease. Nor does the evidence establish that Mr Yap relied on such a representation in forming the view that the terms of a new lease had been agreed. Finally, the evidence does not establish that, assessed objectively, a reasonable person in Mr Yap's position would have acted on a representation of the authority of Mr McCarthy (or the person who signed the letter of offer if Mr Yap had not identified Mr McCarthy as the signatory), particularly in circumstances where, as already observed at [60] and [64], Mr McCarthy had expressly disclaimed having authority to bind the Lessors.
[72] These are further reasons why the case that Mr McCarthy had ostensible authority to bind the Lessors by signing the letter of offer must be dismissed.[6]
[79] From that evidence, it is clear the Lessors had not agreed with Mr McCarthy that he would communicate to GPP/Walton that the Lessors had accepted the terms of the letter of offer unless those proposed terms had in fact been approved by a director of United. No such approval had been given by 26 June 2023, when Mr McCarthy provided the signed letter of offer to Mr Buckley.
[80] In short, when Mr McCarthy sent the signed letter of offer to Mr Buckley, he did not have express authority to convey the Lessors' acceptance of its terms to GPP and Walton. This part of the case must be dismissed.
[86] Further discussions took place about other supplies and installation of heating equipment. The facility letter was not signed but the parties continued to do business with respect to hire purchase agreements for the installation of the equipment. Sometime later, the senior management of the defendant decided they were no longer interested in the plaintiff's business.
[87] At first instance, the trial judge found that a letter sent by Mr Jamison concerning further hire purchase agreements was an offer which could be accepted. The trial judge also found that, although Mr Jamison had no ostensible authority to enter into the transaction, he had the authority to communicate an offer by somebody within the defendant who did have necessary authority. Once the offer was accepted the defendant was bound in circumstances where the evidence established that the plaintiff relied on the representation that Mr Jamison had obtained approval for the transaction.
[88] On appeal, Steyn LJ found that the trial judge was correct in construing Mr Jamison's letter as an offer which was accepted and observed that the letter was calculated to convey to the plaintiff that Mr Jamison had obtained approval for the transaction at the appropriate level at head office. The defendant did not challenge the trial judge's finding that reliance on the representation had been established.
[89] The relevant issue on the appeal was whether the defendant had held out Mr Jamison as its agent for the purpose of conveying the approval of the offer. Steyn LJ stated that the case fell within a category described by Lord Keith in Armagas Ltd v Mundogas S.A,[13] as arising where the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question.[14]
[90] Steyn LJ held that the law recognises that in modern commerce an agent who has no apparent authority to conclude a particular transaction may sometimes be clothed with apparent authority to make representations of fact. In accordance with general commercial understanding the managing director and general manager of a bank such as the defendant is clothed with a general ostensible authority to convey that the transaction had been approved by the bank. Mr Jamison's position as senior manager in Manchester was also such that he was clothed with ostensible authority to communicate that head office approval had been given for the facility set out in the letter. To find that Mr Jamison did not have ostensible authority to communicate head office approval would defeat the reasonable expectations of the parties and would fly in the face of the way in which negotiations between trading banks and trading customers seeking commercial loans are conducted in practice.[15]
[91] Evans LJ agreed with Steyn LJ, observing that the proposition that cases must exist where an agent has apparent authority by virtue of his or her position to communicate decisions made by his or her seniors is demonstrated by the practical consideration that any board of directors or other senior management cannot always communicate directly with third parties. Someone must be authorised to communicate on its behalf. From the third party's point of view, there must be someone with whom to deal. It is not the practice in normal commercial transactions for written proof of, for example, board decisions to be demanded by contracting parties. Moreover, there is no requirement that the authority to communicate decisions should be commensurate with the authority to enter into a transaction of the kind in question on behalf of the principal.[16]
[92] For a time, the decision in First Energy was criticised in Bowstead & Reynolds on Agency.[17] That is no longer the case,[18] following approval of the reasoning by the Privy Council in Kelly v Fraser,[19] an appeal from the Court of Appeal of Jamaica.
[93] In Kelly, Mr Fraser took up employment with the Island Life Insurance Co Ltd. Shortly afterwards he became a member of the company's salaried staff pension plan. Island Life Insurance also conducted a separate pension scheme for non-salaried salesmen. The rules of the salaried staff pension plan gave its trustees a discretion to accept benefits into the plan from other pension funds. Mr Fraser discussed with Mr Masters, the head of the company's employment benefits division, the possibility of transferring the accrued value of his entitlement under the pension scheme of Life of Jamaica Ltd, Mr Fraser's previous employer, into the salaried staff pension plan. A letter requesting the transfer was sent to the trustees of the Life of Jamaica scheme. The signatories of that letter were trustees of the salesman pension plan, not the salaried staff pension plan, but they signed it as trustees of the "Island Life pension plan". The pension administrator of Life of Jamaica subsequently sent a cheque representing Mr Fraser's accrued contributions under his previous pension plan to "the trustees of the pension plan for the employees of Island Life Insurance Co Ltd".
[94] Mr Masters, who had delegated power to conduct the day-to-day administration of the salaried staff pension plan but did not have authority to approve the transfer of funds into it, received the cheque and credited the money to the trustees. That money was then invested with the other funds of the plan. After receipt of the transferred contributions, Mr Masters wrote a letter to Mr Fraser acknowledging that those contributions had been credited to the trustees for the salaried staff pension plan. That letter did not state in terms that the trustees of the plan had approved the transfer. It did say, however, that the transferred funds had been invested as part of the assets of the plan, and that the plan was committed to maximising the return on his contributions while preserving the invested capital. Mr Fraser then received benefit statements periodically which confirmed that the transferred funds were represented by units in the plan which were receiving accruals of value from the investment returns. Those things could not have happened in the ordinary course unless all necessary internal approvals, including any that might be required of the trustees, had been obtained. The documents which were sent to Mr Fraser were found to amount to an unequivocal representation that they had been.
[95] The salaried staff pension plan was discontinued several years later. At that time, the trustees discovered that the contributions from Mr Fraser's previous pension scheme had been transferred into the salaries staff pension plan without their knowledge. They paid Mr Fraser the amount of his accrued benefits under the plan, including the transferred sum, but, in distributing the surplus fund monies in proportion to members' account balances at the distribution date, they determined Mr Fraser's share of the surplus should be calculated without reference to the transferred sum. Mr Fraser argued that the trustees were estopped by the letter of acknowledgement written by Mr Masters and the issue of subsequent benefit statements from relying on the fact that they had not approved the transfer. That argument succeeded in the Court of Appeal of Jamaica and in the Privy Council.
[96] Lord Sumption JSC held that it is possible for the proper authorities of a company (or any principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it. Such representations, if made by someone held out by the company to make representations of that kind, may give rise to an estoppel. The particular facts must be carefully examined in every case where it is said such a representation was made.[20]
[97] On the facts of Kelly, Lord Sumption JSC considered the answer was clear. The trustees of a pension scheme are the ultimate source of authority for the conduct of its affairs. They must perform some functions personally and delegate others. But trustees in that position will hardly ever communicate directly with contributories and beneficiaries. The decisions of trustees are communicated and applied by professional managers, often in the pensions department of the sponsoring employer. The trustees of the salaried staff pension plan delegated administrative functions to the company. Those functions must have included communicating with contributors and confirming the entitlements which resulted from their contributions and from the trustees' decisions. Mr Masters was the senior officer of the relevant department of the company. Although he never professed to have authorised the acceptance of the transfer funds himself, the plan could not have operated effectively if he did not have authority to write letters informing contributors that they had been duly accepted and in respect of what contributions. Further, the transfer funds were accepted (with or without the trustees' approval) and accruals to those funds were notified to Mr Fraser in successive benefit statements. The trustees could not disclaim those matters and treat the transfer funds for some purposes as if they had been received and for other purposed as if they had not.[21]
[98] The reasoning in First Energy was applied in the Supreme Court of Victoria in Powercor. In that case, the plaintiff (PCA) was a supplier of electricity to consumers in Victoria. The defendant (PP) was a generator of electricity in New South Wales which it supplied to a pool in New South Wales and a pool in Victoria. Both parties were engaged in the business of dealing in commodity derivative contracts, commonly referred to as futures contracts, in the electricity industry in Australia. PCA sought specific performance of 11 such contracts which it alleged were negotiated as a hedge against the movement of the spot price of electricity in Victoria.
[99] In 1996, the parties entered into an agreement known as the Master Agreement, pursuant to which they agreed to enter into futures transactions in the New South Wales and Victorian electricity market on the terms and conditions set out therein. The terms of the Master Agreement formed part of each subsequent transaction by reason of the parties providing that each futures transaction was to be an amendment to the Master Agreement. The parties subsequently entered into 35 separate undisputed futures transaction agreements. PCA alleged that the parties entered into 11 additional futures contracts. In respect of each of the additional futures contracts, PP alleged (among other defences) that Mr Murphy, PP's Manager Energy and Marketing who acted on behalf of PP in the negotiations with Mr Treacy, PCA's Trading Business Development Manager and Manager Energy Purchasing (NSW), was not authorised to enter into the particular contract on behalf of PP.
[100] The negotiation of each undisputed contract followed a pattern. The terms were negotiated over the telephone, by facsimile and in face to face meetings. Offers were made by each party, the period during which the offer was to remain open was specified by PP (called "the validity period"), the validity period was extended from time to time, discussions took place on a variety of matters and agreement was reached. Once all the terms were agreed PP prepared what was known as a confirmation letter. This was a standard form. In each of the 35 undisputed contracts, a letter of confirmation was signed by senior personnel in each party's organisation. Mr Treacy never signed a confirmation letter. He was not authorised to do so. Mr Murphy did sign some but only for agreements of one month or less or when he was acting in the position of General Manager of Development in the absence of Dr Lang who normally held that position. Dr Lang signed most of the confirmation letters on behalf of PP. In some 25 of the undisputed contracts the confirmation letter was not executed until after the parties had actually commenced honouring the contract.
[101] Gillard J found that Mr Murphy had both actual and ostensible authority to bind PP by entering into each of the 11 disputed contracts. However, Gillard J also considered the reasoning in First Energy,[22] and found that if actual or ostensible authority to contract did not exist, Mr Murphy had both actual and ostensible authority to communicate the terms of an offer and communicate the acceptance of an offer following which the contracts came into being. The basis for finding ostensible authority to communicate offers and the acceptance of offers was PP's conduct in holding out Mr Murphy as having such authority by reason of the prior course of dealing which led to the formation of the 35 undisputed contracts. Over that prior course of dealings, PP placed Mr Murphy in a position to communicate offers and the acceptance of offers and contracts were formed following such communications.[23]
[102] The question of authority to communicate the acceptance of an offer was considered in the context of an option to renew under a lease in Jiwunda Pty Ltd v Trustees of Travel Compensation Fund.[24] The lessee, being the trustees of a fund known as the Travel Compensation Fund (TCF), denied the authority of Mr Brattoni, the chief executive officer of TCF, who had written a letter which was said by the lessor to have had the effect of exercising the option.
[103] Prior to the expiry of the initial lease term, the TCF trustees were considering whether to exercise the option or to relocate to other premises. TCF had not exercised the option by the date prescribed by the lease. In those circumstances, TCF wrote to the lessor stating that it was looking to renew its tenancy and that Mr Brattoni would like to meet the lessor to discuss certain changes to the premises, as requested by the trustees. There was then a meeting between Mr Brattoni and Mr Kong on behalf of the lessor where Mr Brattoni asked whether the lessor would waive the notice period for the exercise of the option if the TCF trustees decided to renew the tenancy. After that meeting, Mr Brattoni signed a letter which thanked the lessor for its agreement to waive the notice period and gave notice of TCF's acceptance of the lessor's offer of a new lease which, subject to the question of Mr Brattoni's authority, would bind the parties as if TCF had duly exercised the option.
[104] It was clear that Mr Brattoni did not have ostensible authority to execute a formal lease on behalf of TCF because the lessor and its solicitors had been informed on previous occasions that a memorandum of lease required execution by all the TCF trustees. The issue was whether Mr Brattoni had ostensible authority to sign the letter which gave notice of TCF's acceptance of the lessor's offer. Palmer J found that Mr Brattoni did have ostensible authority based on a prior course of dealing in which Mr Brattoni had given notice on behalf of TCF that an option for a new lease would not be exercised and, subsequently, that the lessor's offer of a new lease was accepted (the new lease in the terms accepted by Mr Brattoni then being executed by the TCF trustees in due course). It was held that this course of dealing represented to the lessor that Mr Brattoni was authorised by TCF to give notice to the lessor as to whether an option was exercised and whether the lessor's offer of a new lease was accepted.
[105] Left Bank Investments is another case in which the question of authority to communicate the acceptance of an offer was considered in the context of an option to renew under a lease. Leased premises in Lismore were inundated by flood waters approximately one month before the initial five-year term of the lease expired. A dispute arose as to whether the lessee had exercised an option to renew. An email which was sent prior to the flooding by the lessee's solicitors on the instructions of Ms Marlowe, its chief executive officer, was found to have constituted acceptance of the lessor's offer of a new lease. Prior to that email being sent, Mr Kreutzer, a representative of the lessor had dealt with Ms Marlowe in relation to matters concerning the lease, including minor building alterations and maintenance issues. For a period of months after the email was sent, Ms Marlowe had engaged in further negotiations with Mr Kreutzer relating to the term of the new lease, whether it would contain an option to renew and the quantum of rent increases. No new lease was signed. Ms Marlowe was also the manager in charge of the planned refurbishment of the premises by the lessee whose duties included liaising with Mr Kreutzer about that project. Ms Marlowe ceased employment with the lessee before the flooding occurred. The lessee defended the proceeding on the basis (among other defences) that Ms Marlowe did not have authority to accept the lessor's offer.
[106] The lessor's claim to enforce the agreement for lease was dismissed at first instance.[25] Darke J accepted the lessor's submission that the question could be stated as whether Ms Marlowe had authority to communicate an acceptance of the lessor's proposal so that the lessee was bound by the legal consequences of that communication, but even so stated, the question was whether Ms Marlowe had authority to do a particular act which bound the lessee to an agreement for lease.[26]
[107] On the question of ostensible authority, the relevant holding out by the lessee was found to be the holding out of Ms Marlowe as chief executive officer, including the holding out of her as the manager in charge of the planned refurbishment of the premises. Darke J concluded that this holding out of Ms Marlowe did not amount to a representation that she had authority to exercise any option to renew or otherwise bind the defendant to any agreement for lease. The position of chief executive officer does not itself ordinarily carry with it an authority to make agreements of that nature. Further, Ms Marlowe's role as the manager in charge of the planned refurbishment of the premises did not lead to a different conclusion. Darke J accepted that pursuit of the project might have a bearing upon the lessee's intentions in respect of the taking of a new lease, but the management of the project and decisions about entering into a new lease were considered to be not so closely interdependent that it would be reasonable to assume that Ms Marlowe as the chief executive officer and manager of the project would have the authority to exercise the option to renew or otherwise bind the defendant to an agreement for lease. The decision in Jiwunda was distinguished on the basis that there was no prior course of dealing in which the lessee had held its agent out to the lessor as having authority to give notice as to whether the lessor's offer of a new lease was accepted.
[108] That decision was upheld on appeal. In addressing the question of ostensible authority, Gleeson JA considered the lessor's reliance on the line of English authority commencing with First Energy. Assuming the correctness of the distinction drawn in those authorities in applying the principle of ostensible authority to the communication of a decision, as distinct from the making of a decision, it was held that the principle did not apply on the facts. That is, there was no error in Darke J's finding that there was no prior course of dealing in which the lessee held out Ms Marlowe to the lessor as having authority to give notice as to whether the lessor's offer of a new lease was accepted.
[109] The limits upon the application of the principle of ostensible authority to the communication of a decision can be seen in the decision of Brereton J in Markson. That case concerned a dispute whether vendors had agreed to accept a five percent deposit on a sale of a residential property when, on its face, the contract required that the purchasers pay a deposit of ten percent of the purchase price. The contract also contained a special condition which provided that if the vendors, at the request of the purchaser or otherwise, accepted a deposit less than ten percent, then the amount paid should be deemed to be a payment on account of a full ten percent deposit and the balance of the ten percent was due and payable under the contract but the vendors would forbear from requiring payment of it until the earlier of completion or default. Before the purchaser executed the contract, the vendors' real estate agent told him that the vendors had agreed to accept a five percent deposit. On that basis, the purchaser tendered a five percent deposit which the agent accepted. The vendors argued that any such statement and acceptance by the agent was unauthorised and contrary to their express instructions that a full ten percent deposit was required. They terminated the contract for incomplete payment of the deposit and entered into a new contract of sale with a different purchaser. The purchaser under the terminated contract sued for specific performance of that contract.
[110] The purchaser's claim was dismissed on the basis that the special condition contemplated an acceptance of a deposit of less than ten percent within the terms of the contract itself, not by conduct occurring outside the four corners of the contract. Brereton J also considered the parties' arguments as to whether the vendors were bound by the agent's statement that they had agreed to accept a deposit of only five percent. While acknowledging that the agent had the usual authority of a real estate agent, Brereton J held that appointment as a real estate agent does not confer authority to bind the vendor to anything. Likewise, that a real estate agent is authorised to receive a deposit does not confer on that agent authority to bind the vendor in dealings in respect of the deposit. His Honour held that no representation or conduct by the vendors, to the purchaser or more generally, had been identified that would cloak the agent with ostensible authority wider than the usual scope of a real estate agent's authority.
[111] It was in that context that Brereton J addressed the purchaser's argument that a distinction should be drawn between authority to bind a vendor and authority to communicate a vendor's position. His Honour accepted that a real estate agent generally, and particularly the agent the subject of the proceeding, has authority to communicate the negotiating position of the vendor on whose behalf the agent is acting, but held that communication of a negotiating position is not one that gives rise to legal relations because it is not the communication of an offer capable of immediate acceptance. Brereton J referred to the decision in First Energy and acknowledged that, in some cases, authority to communicate - for example by signing a letter on behalf of a principal - may carry with it ostensible authority to bind - that is, to make an offer contained in the letter - but noted that this depended upon the context and that a letter on a company's letterhead signed by an executive officer is quite distinct from a letter from a real estate agent who does not ordinarily have authority to make a binding contract. On that basis, Brereton J rejected the argument that authority to communicate the negotiating position of the vendor carried with it ostensible authority to vary the contract.
[112] Like Brereton J in Markson, I consider Mr McCarthy's position as agent negotiating proposed terms for a new lease of commercial premises to be somewhat distinct from the position of the agent in First Energy and the other cases discussed above in which the principle of ostensible authority has been applied to the communication of a principal's decision.[27]
[113] The only case which GPP and Walton rely upon where the principle of ostensible authority has been applied to the communication of a principal's decision in circumstances somewhat analogous to the present case is the decision of Gray J in Stokolosa v Weeks Peacock Quality Homes Pty Ltd.[28]
[114] The appellants in Stokolosa wished to build a new house. While visiting one of the respondent builder's display villages, they met and spoke to its agent who held the position of sales consultant. They gave him a sketch of the type of house they wanted built and told him that their budget was $115,000. Subsequently, the agent called at the appellants' home and provided them with plans he had drawn. On that occasion, the appellants again emphasised that their budget was $115,000 and they would be sticking to it. The appellants then added some matters of details to the plans before meeting the agent again at the display village. When the appellants asked how soon the building could begin the agent told them he would have to get approval from his manager for construction of the plans proposed by the appellants at the price of $115,000. A few days later, the agent telephoned the appellants and told them that the proposal had been approved. The agent then attended at the appellants' home and filled out a standard Housing Industry Association building contract. The appellants signed the contract at that meeting.
[115] A form provided to the appellants with the contract advised them that the respondent builder could ask for payment in advance of monies that had to be paid to third parties. The form gave the example of monies for soil reports. The agent told the appellants that the next step was to obtain a soil report. He said this would cost $1,500. The appellants paid this amount, being part of the $115,000 contract price, to the agent in two instalments. The agent paid the first instalment of $500 to the respondent builder. He applied the second instalment of $1,000 for his own purposes.
[116] A short time later, a representative of the respondent builder contacted the appellants and informed them that there was no contract because the respondent builder had not signed the contract. Further, the representative stated that the respondent was not prepared to build the house proposed by the appellants for $115,000; the respondent could only construct the house for $125,000. The respondent refused to perform the contract on the basis that it had not signed the document. The appellants accepted that refusal and built a house using another builder. They sued the respondent for their loss of bargain, being the difference between the contract price and the cost at which the respondent could have constructed the house. Having lost at first instance in the Magistrates Court they succeeded on appeal to a single judge of the Supreme Court of South Australia.
[117] In allowing the appeal, Gray J found that sales consultants were the public face of the respondent builder. The appellants and other members of the public had no direct dealings with the respondent's management, only with its sales consultants. Throughout the appellants' dealings with the respondent, all negotiations were conducted through the sales consultant as the respondent's agent. The respondent accepted that, although a manager would formally sign each construction contract, the sales consultants had authority to reach agreement with customers for standard houses without prior consultation with management. If a non-standard house was proposed, sales assistants were required to obtain approval for management and then to advise the customer if approval was granted.
[118] On that basis, Gray J held that the respondent placed its sales consultants in a position which portrayed them to the outside world as having authority to enter into a transaction of the kind in question. For a non-standard house, approval from management would be needed. That approval would be sought and obtained by the sales consultant who would then advise the customer that approval had been given and proceed with the transaction. The sales consultants were authorised to convey to the customer that approval had been given. That was the usual, if not inevitable, practice.
[119] On the question of authority, Gray J stated:[29]
[128] Although I have not accepted the respondents' submissions about the fourth matter referred to at [123] above, their submissions about Mr McCarthy's lack of authority to bind the Lessors by signing the letter of offer on their behalf are also relevant to the consideration of the fifth matter.
[129] I agree with the observation of Darke J in the first instance decision in Left Bank Investments that determining whether the fifth matter has been established in the circumstances of this case requires considering whether Mr McCarthy had authority to do a particular act which bound the principal to a contract (see [106] above). That proposition is borne out by a consideration of the circumstances in which the principle of ostensible authority to bind a principal to a contract by communicating offers capable of acceptance, or the acceptance of proposed terms, has been applied. A critical finding made in each of those decisions is that the agent had ostensible authority to do the act by which the principal became bound; that is, the act which communicated the offer by the principal, or the principal's acceptance of an offer, to the other contracting party.
[130] In Stokolosa, Gray J held that the agent had ostensible authority to advise the customers that management approval to construct their house had been given, and thereby to communicate an offer to contract by the building company. That conclusion turned on facts concerning the way the building company carried on its business, and particularly how it held out its sales consultants to customers. Importantly, this included the finding that the building company instructed and permitted the sales consultants to conduct its business with customers by striking the bargain (see [119] above). It was in that factual context that Gray J found that the act of the agent which communicated the offer to contract by the building company (advising the customers that management approval had been given) was within the class of acts that sales consultants were usually authorised to do.
[131] In First Energy, it was held that by reason of the agent's position as senior manager in charge of the bank's Manchester office, he was clothed with ostensible authority to communicate to the customer that head office approval had been given for the facility set out in the agent's letter, and thereby to communicate the offer to contract by the bank which was accepted by the customer. To similar effect, it was held in Kelly that by reason of the agent's position as the senior officer of the department responsible for the administrative functions delegated by the trustees of the pension plan, he was clothed with ostensible authority to write letters informing contributors that their contributions had been duly accepted. In both Powercor and Jiwunda the conclusion that the agent was clothed with ostensible authority to do the act which communicated the offer or acceptance by the principal was based on a finding that there had been a prior course of dealings by which the principal held the agent out as having authority to do such acts on the principal's behalf.
[132] The same critical finding was not made in the decisions where the courts rejected an argument that the principle of ostensible authority should be applied to an agent's communication of a principal's offer or acceptance.
[133] In Left Bank Investments it was held that the agent's position as chief executive officer and manager in charge of the planned refurbishment of the premises did not carry with it an authority to exercise an option to renew or otherwise bind the principal lessee to an agreement for lease. Further, there was no prior course of dealing in which the principal lessee held out the agent to the lessor as having authority to give notice as to whether the lessor's offer of a new lease was accepted. Accordingly, the agent did not have authority to do the act which communicated the principal lessee's acceptance (providing instructions to solicitors to send an email stating that the lessee accepted the offer of a new lease) and the principal lessee was not bound by that act.
[134] To similar effect, in Markson it was held that the agent's usual authority as a real estate agent did not extend to binding the vendor in dealings in respect of the deposit and no representation or conduct by the principal vendor was identified which would clothe the agent with ostensible authority wider than the usual scope of a real estate agent's authority. Accordingly, the agent did not have authority to do the act which communicated the principal vendor's acceptance (telling the purchaser that the vendor had agreed to accept a five percent deposit) and the principal vendor was not bound by that act.
[135] In this case, the outcome of GPP and Walton's case based on Mr McCarthy's communication of the Lessors' acceptance turns on the question whether Mr McCarthy had ostensible authority to do the act which communicated that acceptance; that is, signing that document next to the words "Lessor's Acceptance" and sending the signed document to Mr Buckley. As already observed, I have found at [54] to [72] above that Mr McCarthy did not have ostensible authority to bind the Lessors by signing the letter of offer on their behalf. In light of that finding, GPP and Walton can only succeed on this part of their case if I was to accept that by placing Mr McCarthy in the position where he was responsible for communicating with GPP and Walton, including to inform them whether the Lessors accepted proposed lease terms, the Lessors clothed him with ostensible authority to bind them by communicating their acceptance of the terms in the letter of offer through the unauthorised act of signing that document on their behalf. I do not accept that is the correct conclusion in the circumstances of this case.
[136] Unlike Stokolosa, this is not a case where the Lessors had instructed or permitted Mr McCarthy to conduct their business. It was no part of Mr McCarthy's role to strike new leases with lessees on the Lessors' behalf. Instead, his role was to engage in non-binding negotiations for the purpose of identifying the terms upon which GPP and Walton were prepared to enter a new lease and to provide those proposed terms to the Lessors for their consideration and approval. Reaching consensus, in a non-binding way, on such terms is not the same thing as striking the bargain with a lessee. Importantly, that this was the extent of Mr McCarthy's role was made clear to GPP/Walton by his express disclaimer of any authority to contract on behalf of the Lessors in his communications with Mr Buckley (see [17], [18], [21] and [23] above). In those circumstances, Mr McCarthy's role was closer to that of the real estate agent in Markson than that of the sales consultant in Stokolosa. On that basis, I do not accept GPP and Walton's submission that the reasoning in Stokolosa can be applied to the facts of this case.
[137] I also have some doubt that the reasoning in Stokolosa properly reflects the distinction between the position of an agent such as Mr McCarthy engaged in non-binding negotiations of the terms of a commercial lease and that of the agent in First Energy and the other cases discussed above in which the principle of ostensible authority has been applied to the communication of a principal's decision (see [111] and [112] above). It is unnecessary for me to express a concluded view on that. My conclusion that Mr McCarthy did not have ostensible authority to bind the Lessors by communicating their acceptance of the proposed terms is sufficient to resolve this part of GPP and Walton's case.
[138] In circumstances where Mr McCarthy did not have ostensible authority to sign the letter of offer on the Lessors' behalf, I am ultimately not persuaded that the Lessors' conduct - engaging Mr McCarthy to conduct non-binding negotiation of commercial lease terms, including informing GPP and Walton whether the Lessors accepted proposed terms - clothed Mr McCarthy with authority to communicate their acceptance of the proposed terms by signing the letter of authority on their behalf and sending the signed document to Mr Buckley. Absent such authority, the Lessors were not bound by that conduct.
[139] If I am wrong in that conclusion, the evidence of Mr Yap (set out at [69] above) is not sufficient to support findings that GPP and Walton relied on any representation regarding Mr McCarthy's authority to communicate the Lessors' acceptance of the terms set out in the letter of offer, or that such reliance would have been reasonable in the circumstances. The evidence is not sufficient to establish that, in acting as he did, Mr Yap (and through him GPP and Walton) relied on a representation by the Lessors that Mr McCarthy was authorised to bind them to the terms of a new lease by communicating their acceptance of the terms in the letter of offer. Mr Yap did not give evidence that, when he received the signed letter of offer, he turned his mind to what authority Mr McCarthy had to contractually bind the Lessors by communicating their acceptance of the terms set out in that document.
[140] The evidence does not establish that Mr Yap inferred from any conduct or communications from the Lessors that they were representing that Mr McCarthy had authority to bind them by communicating their acceptance of the proposed terms for a new lease. Nor does the evidence establish that Mr Yap relied on such a representation in forming the view that the terms of a new lease had been agreed. Finally, the evidence does not establish that, assessed objectively, a reasonable person in Mr Yap's position would have acted on a representation of the authority of Mr McCarthy, particularly in circumstances where, as already observed at [60] and [64], Mr McCarthy had expressly disclaimed having authority to bind the Lessors.
[141] These are further reasons why the case that Mr McCarthy had ostensible authority to bind the Lessors by communicating their acceptance of the terms in the letter of offer must be dismissed.
[150] Analysed in that way, I am satisfied that the structure of the letter of offer and the language used by the parties in that document evinces an intention on the part of the parties to be legally bound by the terms of the document from the time the Lessors conveyed their acceptance of those terms by executing the document. To construe the special condition about Lessors' acceptance in that way does not deprive it of any work to do or render its words superfluous. This construction reflects the parties' commercial purpose that the letter of offer should record two things: the requirement that the proposed terms be accepted by the Lessors, as well as the Lessors' acceptance of those proposed terms (which would satisfy the requirement).
[151] I accept that the words used in paragraph 7 of the special conditions of the letter of offer have the effect of making any agreement resulting from the Lessors' acceptance of the offer subject to satisfaction of the conditions set out in that paragraph. That must be the case where those conditions would not be satisfied until sometime after the Lessors accepted the offer. However, the fact that the parties used the same words to express the requirement for the Lessors' acceptance does not mean those words should be construed as having the same meaning or effect. Self-evidently, the requirement that the Lessors accept the offer was not one which was affected by the same temporal considerations. Unlike the conditions specified in paragraph 7, the requirement that the Lessors accept the offer would be satisfied when that acceptance was provided by the Lessors executing the letter of offer.
[152] To give the special condition either of the meanings contended for by the respondents would afford the Lessors the opportunity to revisit their decision to accept the terms and conditions of the letter of offer after conveying that acceptance to GPP and Walton. Considered objectively, I can see no reason why the parties would have intended the special condition should have that effect. Such a construction would be contrary to what I consider to be the parties' intention to be legally bound from the time the Lessors conveyed their acceptance by executing the letter of offer.
[153] The respondents also identified the following further features of the letter of offer which they submit support the argument that the parties did not intend to be legally bound by that document: the letter of offer contemplates that a formal lease will be executed and registered (see paragraphs 2 and 4 of the special conditions); the letter of offer does not address what was to happen with the existing GPP Lease, including the early termination of that lease or the extent that the terms of that lease would be incorporated into the proposed new lease; although the letter of offer stipulates the amount of the bank guarantee which the lessee must provide, it does not specify the date by which it must be provided; the letter of offer the letter of offer provides for a rent review to be conducted at the commencement of each of two option terms, but does not specify the mechanism by which that rent review is to be performed; against the item "Direct Charges", the letter of offer states "TBA" indicating that was a matter on which the parties had not reached agreement; against the item "Outgoings", the letter of offer provided a figure of 30.26%, in circumstances where the GPP Lease had been amended in September 2011 to remove the lessee's obligation to pay a percentage of outgoings and replace it with an obligation to pay gross rental.
[154] I am not persuaded that any of these matters, considered separately or in the aggregate, are sufficient to displace the conclusion that the parties intended to be legally bound by the letter of offer when it was executed. I accept GPP and Walton's submission that the letter of offer expresses the parties' agreement on the key terms for a new lease: the parties; a description of the property; the permitted use of that property by the lessee; the commencement date of the new lease; the term of the new lease and the number and duration of option periods; the commencing rent, annual rental increase and the timing of market reviews; the amount of outgoings; and the amount of the bank guarantee. It is true that the parties intended that the terms they had agreed upon would be restated in a fuller form in a formal lease and that further matters, including those identified by the respondents upon which agreement had not yet been reached, might be agreed between them and included in that formal lease. However, for the reasons set out above, and particularly in circumstances where, considered objectively, the new lease was intended to replace an existing formal lease which already addressed these additional matters, I am satisfied that the parties intended to be bound by the letter of offer when it was executed.[31]
[163] Having considered the terms of the United Lease when preparing these reasons for judgment, it seems to me that there is a real question as to whether, by the terms of the United Lease, the Lessors granted exclusive possession of Lot 21 to United. Exclusive possession is the fundamental right which distinguishes a lease from a licence. Whether the transaction creates a lease or a licence depends upon the nature of the right which, based on the proper construction of the agreement, the parties intended the person entering upon the land should have, not upon the terms used by them to label the transaction.[34]
[164] By clause 2 of the United Lease, the parties stated that the Landlord (that is, the Lessors) leased the Premises (that is, Lot 21) to the Tenant (that is, United) on the terms of the United Lease. The United Lease does not contain an express term which grants United exclusive possession of Lot 21. There is no clause which confers an entitlement on United to quiet enjoyment of Lot 21 free from any interference by the Lessors. Nor would such a right arise by necessary implication. The acknowledgement that the United Lease existed concurrently with the pre-existing leases precludes a finding that United's use of Lot 21 necessarily required that it have exclusive possession of the land.
[165] This is supported by cl 9.3 of the United Lease, by which the Lessors granted to United "the sole exclusive right to carry-on on [Lot 21] a business comprising (wholly or partially) a petrol station and convenience store". Further, that clause provided that during the term of the United Lease, the Lessors would not, without the prior written consent of United, grant a lease, licence or other right to occupy any part of Lot 21 for the purpose of carrying on a business comprising wholly or partially a petrol station and convenience store. On a plain reading of that clause, the parties seem to have intended that the Lessors might grant interests in Lot 21, including a lease, concurrently with the United Lease. If the proposed lease involved the use of part of Lot 21 for a petrol station and convenience store then the Lessors would have to obtain the consent of United. However, if the proposed lease was for some other use then the United Lease would not restrict the Lessors' entitlement to grant the concurrent interest. That appears to be inconsistent with an intention by the Lessors and United that United would be granted exclusive possession of Lot 21.
[166] If that is correct, much of the dispute about the identity of the lessor under the letter of offer, whether rectification of the letter of offer is required (or available), and the effect of the registration of the United Lease would fall away. If the United Lease did not grant exclusive possession of Lot 21 to United or otherwise limit the Lessors' entitlement to grant concurrent interests in that land, including leasehold interests, then the identification of the Lessors as parties to the letter of offer would not raise any issue and the question of rectification would not arise. Registration of the United Lease would confer indefeasibility in respect of the interest created by the United Lease. However, if that interest was something less than a right to exclusive possession and was subject to the Lessors' continuing entitlement to grant concurrent interests in that land, including leasehold interests, indefeasibility of United's interest would not defeat any entitlement of GPP and Walton arising from the letter of offer.
[167] The views I have expressed in [163] to [166] are preliminary. The nature of the right conferred by the United Lease, including consideration of cl 9.3, was not the subject of argument during the trial. In those circumstances, and where I have already determined that the proceeding must be dismissed for the reasons set out above, I do not consider it either necessary or desirable to attempt to reach a concluded view about those matters.