Hali Retail Stores Pty Ltd v Hafaz [2007] NSWSC 412 | Case summary

6 Hali paid the deposit of $11,000 on or about 16 October 2006, as was acknowledged by e-mail from Mr Bennett to Mr Swart that day. With that e-mail, Mr Bennett enclosed a document entitled "Confirmation of Lease", which he said had been sent to the lessor's solicitor for lease preparation and to Hali's solicitor "so all are aware of the commercial terms that have been agreed". The "Confirmation of Lease" set out particulars of the property, the lessor, the lessor's solicitor, the lessee, the lessee's solicitor, the rental, lease term, option, lease commencement date, rent commencement date, rent reviews, outgoings, permitted use, security, special conditions, deposit and the contact at JPB as well as the (?). It was amended later the same day in an immaterial respect. 7 Hali submits that the agreement of which it seeks specific performance is to be found in the letter of 11 October 2006 and the Confirmation of Lease. 8 On 14 November 2006, Mr Hafaz's solicitor Peter D White & Co submitted to Hali's solicitors Arnold Bloch Liebler a disclosure statement signed on 6 November 2006 and a memorandum of lease in duplicate. On 19 November 2006, Mr Swart travelled to India. On 12 December 2006, Arnold Bloch Liebler wrote to Peter D White & Co proposing a number of amendments to the draft memorandum of lease, including omission of a term that would have required Hali to redecorate the premises at the end of the term, expansion of the definition of the demised premises to include an area at the front of the shop, the toilet facility, four car spaces, a storage enclosure, and reduction of the amount of the bank guarantee from three month's rent or $30,000 to one month's rent being $10,000. Between 13 and 14 December Peter D White & Co indicated agreement to the proposed alterations in respect of the obligation to redecorate and the definition of the premises, but not in respect of the reduced amount of the security guarantee. 9 On 2 January 2007, Arnold Bloch Liebler submitted an amended draft memorandum of lease, incorporating those amendments that had been agreed, for execution by the lessor. On 18 January 2007, Arnold Bloch Liebler submitted to Peter D White & Co a memorandum of lease executed by Hali in registrable form together with cheques for the registration fees and stamp duty, under cover of a letter, that noted that the only outstanding requirement was the guarantee, which would be provided prior to the lessee taking possession. 10 On 8 December 2006, Mr Bennett told Mr Swart that the lessor was interested in finalising the matter prior to Christmas, and that if the documents could be forwarded to Mr White he could action them immediately. During January and February 2007, Mr Swart had several telephone conversations with Mr Bennett as to when Mr Hafaz would return from his overseas trip to execute the lease in registrable form. Mr Bennett told Mr Swart that the formal document would be signed by Mr Hafaz upon his return. On 25 January 2007, Mr Bennett sent Mr Swart an e-mail to the effect that all was well and he expected to finalise the lease the following week. 11 On 8 February 2007, Mr Bennett told Mr Swart that Mr Hafaz would be returning from Pakistan "next Monday and will be signing the lease immediately upon his return", explaining that the delay was due only to Mr Hafaz's commitments in Pakistan since his father's death. However, on 14 February 2007, Mr Bennett informed Mr Swart that Mr Hafaz had decided that he only wanted to proceed with a lease with a commencement date in November 2007, and that position was confirmed in writing on 21 February 2007. 12 These proceedings were commenced on 5 March 2007 and were heard on 22 March, this judgment being given on 23 March 2007. The fundamental issue is whether a legally binding and enforceable contract arose from the letter of 11 October 2006 and/or the Confirmation of Lease document; that is, whether the parties intended to be immediately bound within Masters v Cameron (1954) 91 CLR 353 categories 1 or 4, or not to be bound until a formal lease in registrable form was executed and exchanged (within Masters v Cameron category 3). 13 As was said by Giles JA, with whom Priestley JA and Foster AJA agreed in Long v Piper [2001] NSWCA 342 [48], the fact that there is agreement on the terms in a draft lease does not mean that there is a concluded agreement for lease and whether the parties intended to make a concluded bargain is not the same question although in a given case it may be closely related to the question, whether they had reached agreement upon such terms as were legally necessary to constitute a contract [see also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 (Gleeson CJ)]. Giles JA continued [49]: Whether or not there was a concluded agreement for lease depends on the intention of the parties, prima facie to be determined objectively without regard to the subjective intention of one or other of the appellants and the respondents. There is no doubt that in early July 1993 the parties anticipated that a lease of the hotel would come about and were acting to that end. A concluded agreement of lease could come into existence prior to the execution of a formal lease but whether or not it did calls for an objective determination of the intention of the parties from their communications and dealings in June and July 1993. 14 For Hali, Mr TGR Parker SC relied particularly on the use of contractual language - the language of offer and acceptance - in the 11 October letter, and the fact of payment of the deposit. For Mr Hafaz, Mr Kahn relied primarily on the correspondence and the documentation as showing that the parties contemplated a formal lease document; on the express reference in the original offer of 10 October, later signed by Mr Swart, of the acceptance being "subject to lease"; and on usual conveyancing practice in the context of commercial leases; and to the circumstance that negotiations continued after the Confirmation of Lease document. 15 The authorities enable the following propositions about the application of Masters v Cameron in the context of negotiations for leases to be stated. 16 First, the use of terminology in the course of negotiations such as "subject to lease" evidences an intention not to be legally bound until formal lease documentation is executed and exchanged [Masters v Cameron; G&E Avakoumides Pty Ltd v Commonwealth Funds Management Pty Ltd [2004] NSWSC 711 [19] (Windeyer J); Insearch Ltd v Kin Hing Pty Ltd [2003] NSWSC 875 [38] (Bryson J)]. 17 Secondly, in the context of a commercial lease for a term exceeding three years (which therefore has to be registered for practical purposes), it is improbable that parties intend to be bound before the terms of the formal lease are settled by solicitors and exchanged (albeit notionally), especially if the parties had in mind the preparation of a formal document. In that respect, consensus on the commercial terms on which a lease is to be given is not equivalent to an intention that that consensus should, without more, be legally binding [Gobblers Inc Pty Limited v Stevens (1993) NSW ConvR 55-665; Kassabian & Rawstron Investments Pty Ltd v Lagonicos (1993) NSW ConvR 55-690 (McLelland CJ in Eq); Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606 (Young J); Blackburn Developments (No 19) Pty Ltd v Downs Surgical (Australia) Pty Ltd (1974) 2 BPR 9141; Landsmiths Pty Ltd v Hall (1999) 9 BPR 17,056 (Young J); Long v Piper, [51]-[55]). 18 Thirdly, a "lease advice notice" issued by a lessor or its agent to a potential lessee does not make a binding contract, even though a substantial holding deposit may be paid in connection with its issue [Sydney Harbour Casino Holdings Pty Ltd v NMBE Pty Ltd (1998) 9 BPR 16,679; see also Kassabian v Lagonicos]. 19 Fourthly a real estate agent ordinarily does not have authority to make a binding agreement for lease on behalf of his principal. Although such authority can be conferred on an agent, something more than the mere retainer of an agent to advertise for and find a tenant is required to give that authority [cf Williams & Co Pty Ltd v Bond [1965] VR 610; Baker v Taylor (1906) 6 SR (NSW) 500; Colbron v St Bees Island Pty Ltd (1995) 56 FCR 303, 313; McCalman v Higgins [1960] NSWR 739; Thuman v Best (1907) 97 LT 239; Mathiou v Furcastle Pty Ltd (QSC 15 September 1989) Mackenzie J)]. 20 In the present case, the significant factors are these: 21 First, the initial offer, and Mr Swart's initial response to it (the counter offer), were both expressed to be "subject to lease". This is a powerful indicator and is against the proposition that the parties intended to be found before a formal lease was executed and exchanged. 22 Secondly, what was involved was a commercial lease for a term of three years with an option to renew for five years such as would, for practical purposes, require registration. That also points against the parties intending to be bound before there was a formal lease settled, executed and exchanged. 23 Thirdly, the parties plainly contemplated that there would be further documentation, namely a formal lease. This is apparent in both letters of 10 October and that of 11 October, and is against an intention to be bound before that formal lease was executed and exchanged. 24 Fourthly, the negotiations, so far as they went, were conducted on behalf of the lessor by the agent, and there is no document executed by the lessor himself; as there are no additional indicia of the agent having more than usual authority, that tends against there being an intention to be immediately bound. 25 Fifthly, while the letter of 11 October uses language of offer and acceptance, that is not a matter of great weight. Many Masters v Cameron class 3 "agreements" may be expressed in such terms, and it is natural language to use in the context of agreements not yet intended to be binding as it is in true contracts. It does not necessarily indicate an intention to be immediately bound, especially where, as here, it occurs in the context of the parties negotiating expressly "subject to lease". 26 Sixthly, there is the payment of the deposit. However, as Sydney Harbour Casino shows, even the payment of a deposit of $300,000 in connection with the issue of a "lease advice notice" does not show that there is a binding contract, it was in the nature of a holding deposit to take the property off the market while the formal lease was completed. 27 Seventhly, negotiations in respect of some significant matters continued after the lease advice notice was issued, in particular as to the extent of the demised premises and the amount of the security guarantee. That the parties continued to negotiate on those issues and, indeed, that it was the lessee who was proposing amendments, points against the parties regarding themselves as immediately bound on 11 or 16 October. 28 Eighthly, the documentation - and in particular the letter of 11 October and the email covering the Confirmation of Lease - refers to the "commercial terms" agreed by the parties. I think this is plainly a case in which consensus had been reached on the commercial terms that would apply if the parties ultimately entered into a legally binding lease, but they had not yet reached the situation where they intended those commercial terms to be immediately binding. 29 Accordingly, viewed objectively in the context of usual conveyancing practice, and having regard principally to the use of the words "subject to lease" in the first two communications, in my view the parties were negotiating on the basis that they would not be bound until there was a formal lease, executed and exchanged between them. It follows that, in my opinion, there is no binding and enforceable agreement for lease and the claim for specific performance and for damages for breach of contract must fail. 30 It is unnecessary therefore that I consider the defence of hardship, save to observe that since the mortgages, the burden of which was relied on as the main element of hardship, were entered into by the lessor after he had notice of the Confirmation of the Lease, the hardship defence is not an impressive one. 31 For reasons which appear sufficiently from the Court of Appeal's decision in Sydney Harbour Casino, the deposit paid to the agent is, in the circumstances, refundable to the plaintiff. 32 But for the late amendment to add a claim under the (NSW) Fair Trading Act 1987, the summons would have been dismissed. It will now be necessary for the balance of the summons to proceed to a further hearing. Although I will hear the parties on this, as I am seized of the facts it seems to me desirable and probably economical for the parties if I continue to manage the matter towards that hearing, which may well be in short scope. 33 I order that the claims for relief in paragraphs 1, 2, 3 and 3(a) of the summons be dismissed. I declare that the plaintiff is entitled to the deposit held by JPB Property Group. I order that the defendant do all things, execute all documents and give all authorities and directions necessary or convenient to procure the release of the deposit by JPB Property Group to the plaintiff. I order that the plaintiff pay the defendant's costs of the proceedings to date. I stand over the balance of the summons to 9.30 am on 11 April 2007, before me for mention. I anticipate that any party who wishes to file further evidence will do so by that date. 34 I will deal with the plaintiff's application for indemnity costs on 11 April.

Hali Retail Stores Pty Ltd v Hafaz

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Judgment (14 paragraphs)

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