HELICOPTERS PTY LTD v BANKSTOWN AIRPORT LTD

Court of Appeal (NSW)|2010-08-16|Before: McColl JA, Basten JA, Gilbert J, White J

CITATION: HELICOPTERS PTY LTD v BANKSTOWN AIRPORT LTD [2010] NSWCA 178

JUDGMENT OF: McColl JA at 1; Basten JA at 2; Handley AJA at 3

CATCHWORDS: CONTRACT - penalty - tenant's right to object to rent review conditional on payment of rent and outgoings - unpaid outgoings - loss of conditional right not a penalty - LANDLORD and TENANT - lease of Commonwealth land - tenant not liable to State land tax - tenant's covenant to make payment in lieu of land tax - subleases - construction of covenant - whether single or multiple tax thresholds - ELECTION - between competing or inconsistent rights - tenant's right to object to rent review notice conditional on payment of rent and outgoings - landlord's right to reject invalid notice not election between inconsistent rights - ELECTION - act of agent - no evidence agent knew all material facts - election not established - ESTOPPEL - no evidence of representee's state of mind - no evidence of reliance - estoppel not established.

Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, 238 CLR 570 Bridge v Campbell Discount Co Ltd [1962] AC 600 Craine v Colonial Mutual Fire Insurance Co Ltd [1920] HCA 64, 28 CLR 305 CASES CITED: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR 122 Matthews v Smallwood [1910] 1 Ch 777 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71, 224 CLR 656 Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418

PARTIES: A: Helicopters Pty Limited R: Bankstown Airport Limited

COUNSEL: A: P Taylor R: M Einfeld QC with I Stanley

SOLICITORS: A: Swaab Attorneys R: Bruce Stewart Dimarco

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: [2009] NSWSC 889

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298508

MCCOLL JA BASTEN JA HANDLEY AJA

Monday 16 August 2010 HELICOPTERS PTY LIMITED v BANKSTOWN AIRPORT LIMITED CATCHWORDS

CONTRACT - penalty - tenant's right to object to rent review conditional on payment of rent and outgoings - unpaid outgoings - loss of conditional right not a penalty

LANDLORD and TENANT - lease of Commonwealth land - tenant not liable to State land tax - tenant's covenant to make payment in lieu of land tax - subleases - construction of covenant - whether single or multiple tax thresholds

ELECTION - between competing or inconsistent rights - tenant's right to object to rent review notice conditional on payment of rent and outgoings - landlord's right to reject invalid notice not election between inconsistent rights

ELECTION - act of agent - no evidence agent knew all material facts - election not established

ESTOPPEL - no evidence of representee's state of mind - no evidence of reliance - estoppel not established.

In 1998 the respondent leased Bankstown Airport from the Commonwealth for a term of 49 years. The lease obliged it to pay an outgoing to the Commonwealth in lieu of land tax. In 2000 the respondent sub-leased part of the airport to the appellant for a term of 25 years. The sub-lease entitled the respondent to have the rent reviewed every 2 years, but the appellant could only object to the respondent's rent review notice if it had paid all rent and outgoings then owning to the respondent. In March 2006 the respondent initiated a rent review, and the appellant objected to its rent review notice but owed the respondent $7,756.48 at that time for the latter's outgoing in lieu of land tax.

The trial Judge held that the unpaid outgoing prevented the appellant objecting to the rent increase. On appeal the appellant attempted to argue that the disqualification clause was a penalty, and that the respondent was barred by a waiver, an election or an estoppel from taking the disqualification point against the appellant's notice of objection to the rent review notice. HELD: (1) The appellant owed the respondent the claimed amount of the latter's outgoing in lieu of land tax; (2) The appellant was disqualified by its default from objecting to the rent review notice; (3) The loss of the appellant's conditional right to object to the rent review notice was not a penalty; (4) On the facts any waiver had to be based on an election or an estoppel; (5) Election failed because there was no evidence that the relevant agent had knowledge of all material facts at the time; (6) Election also failed because in enforcing the disqualification the respondent was not faced with a choice between competing or inconsistent rights; (7) Estoppel failed because there was no evidence that the appellant relied on the respondent's promise or representation when it failed to pay the amount outstanding. ORDERS Appeal dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298508

MCCOLL JA BASTEN JA HANDLEY AJA

Monday 16 August 2010 HELICOPTERS PTY LIMITED v BANKSTOWN AIRPORT LIMITED Judgment 1 MCCOLL JA: I agree with Handley AJA. 2 BASTEN JA: I agree with Handley AJA. 3 HANDLEY AJA: This is appeal by a subtenant (the appellant) from the decision of White J that the sub-lessor's rent review notice of 10 March 2006 operated by default to fix the contractual rent for the two-year period commencing on 1 April 2006. 4 The Judge held that the appellant was not entitled to challenge the notice because it owed the respondent $7,756.48 for an outgoing payable under the head lease (the unpaid outgoing). Clause 4.1(e) of the sub-lease provided: "(e) The Tenant does not have the right to give a Dispute Notice if the Tenant has not paid all Rent and other moneys payable under this lease."

The unpaid outgoing 5 The appellant challenged the finding that $7,756.48 was owing to the sub-lessor and submitted that cl 4.1(e) was an unenforceable penalty, and the sub-lessor was barred by an estoppel a waiver or an election from enforcing it. 6 The sub-lessor resisted the appeal on all grounds and, by leave granted at the hearing, filed a notice of contention to argue that the appellant's valuer failed to provide a speaking valuation within the time required by the rent review clause and, on that default, the sub-lessor's rent review notice took effect to fix the rent. 7 On 2 July 1998 the Commonwealth leased the Bankstown Airport to the sub-lessor for a term of 49 years. The airport is a "place" acquired by the Commonwealth for public purposes within s 52(ii) of the Constitution and the freehold and leasehold were not liable to land tax under the Land Tax Management Act 1956 (the Management Act). However, pursuant to a national competition policy agreed with the States, the Commonwealth inserted a clause in the head lease which levied an outgoing on the sub-lessor euphemistically described as an ex gratia payment in lieu of land tax. 8 On 9 February 2000 the sub-lessor sublet part of the airport to the appellant for a term of 25 years commencing on 1 December 1999. The sublease bound the appellant to pay rent and a proportion of the sub-lessor's outgoings including its ex-gratia payments to the Commonwealth in lieu of land tax. 9 The dispute about the unpaid outgoing concerned the sub-lessor's ex gratia payments in lieu of land tax for the 2001 and 2002 financial years, and the calculation of the appellant's contribution. The question was whether the sub-lessor's payments to the Commonwealth were to be calculated after deducting the single tax threshold allowed to taxpayers by the Management Act, or whether it could deduct a threshold in respect of each area let to a sub-tenant. The sub-lessor argued for the latter, but for the years in question the Commonwealth argued for the former, and the sub-lessor made payments on that basis. The appellant contended that the sub-lessor was not liable for the whole of its payments to the Commonwealth in lieu of land tax and the appellant's contribution should be $7,756.48 less than that demanded by the sub-lessor. 10 The tax threshold under the Management Act for the 2000 tax year was $192,000 and for the 2001 tax year was $205,000 (blue 2/927-8). In October 1998 the area subleased to the appellant was valued by the Valuer General at $305,000. The assessable area of the airport as defined in cl 26.2(b) of the head lease (the assessable area) was valued by the Valuer General for 2001 at $58,086,532. and for 2002 at $58,085,032. There were approximately 150 subtenancies at the airport (blue 2/617-767). 11 Clause 26 of the head lease relevantly provided: "26. RATES AND LAND TAX AND TAXES 26.1 Payment of Rates and Land Tax and Taxes. The lessee must pay, on or before the due date, all Rates, Land Tax and Taxes without contribution from the Lessor. 26.2 Ex Gratia payment in lieu of Rates and Land Tax (a) … (b) Where Land Tax is not payable under sub-clause 26.1 because the Airport Site is owned by the Commonwealth, payments in lieu of Land Tax must be made by the Lessee in respect of those parts of the Airport Site: (i) which are sub-leased to tenants; or (ii) on which trading or financial operations are undertaken including, but not limited to, retail outlets and concessions, car parks and valet car parks, golf courses and turf farms, but excluding runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges, and land identified in the airport Master Plan for these purposes; unless those areas are occupied by the Commonwealth or an authority constituted under Commonwealth law which is excluded from making payments by Commonwealth policy or law. Unless otherwise directed by the Lessor, the Lessee will make payments promptly in lieu of land tax at the relevant State rate to the Commonwealth addressed as provided for in sub-clause 24.1. These payments in lieu of Land Tax will be levied on a financial year basis. The Lessee must submit an assessment of the payment in lieu of land tax to the Commonwealth on 31 August of the current financial year with this payment due 30 days later. Land value assessments for the purposes of making payments in lieu of land tax are required at least every three years. (c) …" 12 A number of construction points taken by the appellant can be disposed of summarily. Clause 26.2(b) refers in some places to "payments" and in others to "payment" and it was submitted that the former showed that the sub-lessor was obliged to make separate payments in lieu of land tax each year and this supported the appellant's construction. In my judgment the use of the plural is to be explained by the sub-lessor's obligation to make annual payments during the lease. This is supported by the use of the singular in that part of the subclause which requires the sub-lessor to submit "an assessment of the payment in lieu of land tax … on 31 August of the current financial year with this payment due 30 days later". 13 Land Tax in upper case was defined in clause 2.1 of the head lease as meaning "any tax levied or imposed by a Governmental Authority on land," but there was no definition of land tax in lower case. The appellant submitted that since the expression in lower case was not defined payments "in lieu of land tax" could not be calculated. Land Tax appears three times in the clause in upper case and three times in lower case with no discernible reason for the difference. The indiscriminate use of upper and lower case cannot support a construction which would defeat the clear intention of the sub-clause. 14 The Judge held that the lease authorised the Commonwealth to give directions as to the manner in which payments in lieu of land tax were calculated. The relevant language was as follows: "Unless otherwise directed by the Lessor, the Lessee will make payments promptly in lieu of land tax at the relevant State rate to the Commonwealth addressed as provided for in sub-clause 24.1." 15 Clause 24.1 provided: "24. NOTICES 24.1 Service of notice Any notice, given also under this Lease will be duly given to or served on the (a) Lessor in writing signed by the Lessee and addressed to: Secretary Department of Transport and Regional Development Trace Building, Level 3, 22 Cooyong Street, CANBERRA ACT 2601 GPO Box 594 Facsimile: (02) 62747804 (or to such other person or to such other address as may be notified by the Lessor in writing to the Lessee from time to time) and delivered by hand or sent by person to person registered mail or facsimile transmission." 16 I do not read the relevant language in cl 26.2(b) as the Judge did. Clause 24.1 deals with the address to which payments in lieu of land tax should be sent and in my opinion the relevant language in subcl (b) enables the Commonwealth to direct the Lessee to send its payments to the Commonwealth to a different address. Such a direction would be a notification within cl 24.1. 17 The relevant language does not deal with the sub-lessor's substantive obligation. A landlord who wishes to reserve to itself a power to vary a substantive obligation of its tenant would have to provide for this in clear and unambiguous language. The language in subcl (b) is inadequate for this purpose. 18 The Judge found that the ex gratia payments were to be calculated on the assessable area as a whole subject to a single threshold. 19 Subclause (b) defines the assessable area and requires periodical revaluations but apart from requiring the sub-lessor to make payments in lieu of land tax "at the State rate" it does not spell out the method to be used for calculating those payments. 20 The Dictionary meanings of "in lieu of" are "in place of" or "instead of". The payments in lieu under the head lease are "in respect of" the assessable area. In my judgment the subclause provides for one assessable area within the airport site formed by aggregating the areas sub-leased to tenants with other areas on which trading or financial operations are undertaken by the lessee excluding certain areas as defined and other areas occupied by the Commonwealth or a Commonwealth authority. The "or" at the end of cl 26.2(b)(i) is conjunctive, and the defined exclusions relate to the Airport as a whole and indicate that payments were to be made in respect of a single composite area. There would be no need to exclude runways etc and land occupied by the Commonwealth or an authority of the Commonwealth if each area subleased was to be the subject of a separate calculation. 21 The Management Act provides for a single annual assessment based on the taxable value of all land owned by the taxpayer at the end of the calendar year subject to a single tax threshold. Prima facie a payment in lieu of land tax should be calculated on the same basis. 22 Clause 26.1 of the head lease requires the sub-lessor to pay "on or before the due date, all Rates, Land Tax, and Taxes without contribution from the Lessor." The clause applies to levies imposed directly on the sub-lessor and is not an outgoings clause which requires the lessee to reimburse the lessor for outgoings it has paid or incurred. 23 Clause 26.2(b) of the head lease applies where Land Tax is not payable, ie by the sub-lessor under cl 26.1, because the airport is owned by the Commonwealth. Payments in lieu of land tax must therefore be calculated on a fictional basis, but the clause does not clearly identify the fiction. 24 Clause 26.1 dealt with land tax payable by the sub-lessor and, in this context, cl 26.2(b) should be construed as providing for payments in lieu of the land tax that would be payable by the sub-lessor if it was a taxable lessee. 25 That fiction is relevant because s 21C(2) of the Management Act deems a head lessee of land owned by the Crown, that is the Crown in right of the State, to be the owner of the land leased. The sub-lessor could only be taxed under the Management Act if it held under the Crown in right of the State. If the freehold was held by a private owner that owner, and not the sub-lessor would be taxed. 26 The Management Act does not impose land tax on sub-lessees and cl 26.2(b) does not attempt to impose a liability on the sub-lessor based on hypothetical liabilities of sub-lessees as if they were taxable under the Management Act. 27 Clause 5, the outgoings clause in the appellant's sublease, relevantly provided: "5. OTHER PAYMENTS 5.1 The tenant must pay outgoings which are: Reasonably related to the Premises or reasonably apportioned to the Tenant over the assessable or rateable land on the airport, Paid or payable by the Landlord or directly assessable or rated on the Tenant, Whether under the Head Lease or otherwise: 5.2 'Outgoings' means: (a) …

(b) The ex gratia payments in lieu of … land tax payable under Clause 26 of the Head Lease;" 28 The sub-lessor's payments to the Commonwealth in lieu of land tax related to the assessable area as a whole, and were not "reasonably related to the Premises", that is the premises comprised in the sub-lease. 29 The relevant provision therefore is that which obliged the appellant to pay "outgoings [eg ex gratia payments in lieu of land tax] … which are reasonably apportioned to [the appellant] over the assessable … land at the Airport … paid or payable by the [sub-lessor] … under the Head Lease." 30 Apportionment is necessary because the appellant only subleased .597 per cent of the assessable area. 31 The appellant did not otherwise challenge the sub-lessor's apportionment or its calculation of the unpaid outgoing. 32 In my judgment cl 26.2(b) of the head lease imposed on the sub-lessor an obligation to make annual payments in lieu of land tax calculated at the State rate on the assessable area with a single tax threshold and the appellant's challenge to the calculation of the unpaid outgoing fails. 33 In March 2006 the appellant owed the sub-lessor the unpaid outgoing and prima facie cl 4.1(e) prevented it objecting to the sub-lessor's Rent Review Notice of 10 March 2006.

Penalty 34 The appellant attempted to argue that cl 4.1(e) of the sublease was unenforceable as a penalty. 35 Clause 4.1(e) is said to be a penalty because the loss of the appellant's right to challenge the Rent Review Notice was disproportionate to its breach in failing to pay the outgoing. 36 The penalty question was not raised in the statement of issues (red 154), in counsel's written or oral opening, or in his closing address. It was first raised in the notice of appeal. Since it is a question of construction: Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71, 224 CLR 656, 662 [11] (Ringrow), and thus a question of law it can be raised for the first time on appeal within the limits in Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418. 37 The question is whether a condition precedent to a contractual right is within the penalty doctrine. The question of penalty or not is determined as a matter of substance not form: Bridge v Campbell Discount Co Ltd [1962] AC 600, 662, 624 but this is not a typical penalty case. As Lord Dunedin said in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, 80: "The essence of a penalty is a payment of money stipulated … in terrorem of the offending party …" 38 In Ringrow (above) the High Court, in a joint judgment of six Judges, said at 662 [10], 665 [21]: " … the law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach ... In typical penalty cases, the Court compares what would be recoverable as unliquidated damages with a sum of money stipulated as payable on breach." 39 Clause 4.1(e) does not stipulate for a payment on breach. It only operates when the appellant attempts to give a Dispute Notice under cl 4. It does not matter how often, or for how long the appellant has been in breach, or for what amounts, provided it owes nothing when it gives a Dispute Notice. 40 If the debt is disputed the appellant can avoid the operation of cl 4.1(e) by paying under protest and suing for money paid under compulsion. The right to give a Dispute Notice is not lost on breach, it is lost if the breach is not rectified before the Notice is given. 41 In my judgment cl 4.1(e) of the sub-lease is not within the penalty doctrine. No additional amount was payable on breach. It only imposed a condition on the appellant's right to give a Dispute Notice. 42 A provision commonly found in the constitutions of corporations, associations, strata bodies corporate, and unincorporated associations prevents defaulting members voting at general meetings and exercising other rights as members. A tenant's option of purchase or renewal is commonly conditional on punctual payment of rent and the due performance of other covenants: cf Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR 122. The penalty doctrine has not been considered applicable in these situations. 43 In Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, 238 CLR 570 (Gardiner) the agreement to indemnify the investor against liability under the loan agreement was conditional on prompt payment under that agreement. The Court held that an investor who failed to pay on time could not enforce the indemnity. No one referred to the penalty doctrine. 44 In my judgment the loss of the right to lodge a Dispute Notice was not a penalty and the sub-lessor was entitled to enforce cl 4.1(e) of the sub-lease.

Waiver, election and estoppel 45 The appellant sought to argue that the sub-lessor's reliance on cl 4.1(e) was barred by one or other of a waiver, an election or an estoppel but its right to do this was challenged. The proceedings in the Division were commenced by summons and heard on affidavit evidence. Pleadings were not directed. On 26 March 2009, shortly before the hearing on 1 April, the Judge directed counsel to confer with a view to agreeing on the issues. The agreed issues (red 154) did not include waiver, election, or estoppel. 46 Counsel lodged outlines of their opening submissions prior to the hearing (black 1, 147-186, 190-199). 47 The appellant's written opening mentioned, but did not develop, a case of conventional estoppel and waiver (black 148). The Judge raised this with senior counsel for the sub-lessor (black 3) who said that such a case should be brought on pleadings, and they were not issues. He said that none of these had been raised during "the quite lengthy pre-trial preparation." If they had been the sub-lessor's legal advisers would have required them to be identified with some precision. 48 Counsel appearing for the appellant (who did not appear on the appeal) silently acquiesced. The trial proceeded without further reference to these claims until final addresses. When counsel for the appellant, who was called on second, commenced his address he handed up written submissions (black 74) which relied on election as an answer to the cl 4.1(e) point (black 187-189), and he referred to waiver in his oral submissions. 49 The Judge said that waiver was not an issue and there was no evidence to support an estoppel (black 75-77). Counsel for the appellant then moved to another topic. 50 At a later stage in his address counsel for the appellant applied for leave to reopen to call evidence to establish a promissory estoppel which he did not particularise (black 106). This was opposed and the Judge refused leave (black 127). This decision is not challenged. 51 The appellant argued in this Court that all three issues had either been raised in counsel's written opening or could be supported on the evidence, or were questions of law which could be taken for the first time on appeal. 52 These issues were not effectively raised at the trial. An attempt to do so in the opening was abandoned and it was too late to raise them in final address. 53 A point of law cannot be taken on appeal for the first time if it could possibly had been met by evidence if it had been raised at the trial: Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418, 438. 54 The evidence relied on by the appellant was documentary. On 10 March 2006 the sub-lessor sent the Rent Review Notice to the appellant via its post box (blue 1/13). It stated that the sub-lessor assessed the rent payable in respect of the premises at $68,370 per annum exclusive of GST, a considerable increase on the current rent of $34,000 exclusive of GST. The Notice was on the sub-lessor's letterhead, but appears to have been signed by Antony Todman for Andrew Wilson "Senior Manager - Property CB Richard Ellis Pty Ltd on behalf of Bankstown Airport Limited". The Notice included the following: "In respect of this assessment of the market rent, you should refer to the terms of your lease for important information regarding the manner and timing of any response. In the event you wish to dispute the Market Rent Review, we advise that under the terms of your lease, BAL needs to receive this notice within the timeframe set out in your lease, together with a confirmation that you have appointed a valuer. You should also be aware of the provisions in your lease as to the rent that will apply during any dispute period." 55 On 17 March Mr Hodgson, the sole director of the appellant, sent a handwritten facsimile letter to Mr Wilson at the sub-lesssor headed "Dispute Notice". The letter referred to a telephone conversation the day before and stated (blue 1/14): "… confirmation by way of this fax and the attached appointed (sic) valuer Michael Mannix … form the basis of my request to dispute your market Rent Review Notice stated 10 March 2006. The provisions of section 4 Rent Review of my lease will be applied." 56 Mr Hodgson attached a copy of a fax from Mr Mannix accepting his appointment as the appellant's valuer for the Rent Review. 57 On 22 March the sub-lessor acknowledged receipt of the appellant's Dispute Notice in a letter addressed on the sub-lessor's letterhead to Mr Hodgson signed "Antony Todman" above the words "Antony Todman for Andrew Wilson Senior Manager - Property CB Richard Ellis Pty Limited on behalf of Bankstown Airport Limited". The letter stated (blue 1/16): "We refer to your facsimile dated 17 March 2006 and accept this letter as your formal Dispute Notice. We acknowledge that you have appointed Michael Mannix … as your valuer and look forward to receiving his decision within the specified time frame." 58 On 12 April Mr Mannix sent the following letter to Mr Hodgson which he copied to Mr Wilson at the sub-lessor (blue 1/17): "Please be advised that in order to compile the valuation report as instructed we have conducted an extensive market research exercise and revision of the ground rentals and lease agreements at the subject property in relation to your rental review which is due on April 2006. We are of the opinion that the current market rental value of the subject site is $40,000 per annum net including GST. This is based on an overall (inclusive of GST) rate of $17.50 psm for the entire 2279 sqmt site or $15.00 psm for the 718 sqmt Birch Street frontage and $25.00 psm for the 1180 sqmt 'airside' portion of the site." 59 On 20 April 2006 CBRE (CB Richard Ellis) wrote a letter to Mr Mannix, copied to Mr Hodgson, that was signed by Antony Todman above the words "Antony Todman for Andrew Wilson Senior Manager Property CB Richard Ellis Pty Ltd on behalf of Bankstown Airport Limited". The letter stated (blue 1/30): "We refer to your letter addressed to Brett Hodgson, dated 12 April 2006, sent by facsimile to us. We are not sure why we received this facsimile as the tenant did not comply with Clause 4.1(e) when giving their Dispute Notice. We advise that if this facsimile is to represent a valuation in accordance with the tenants lease, it is rejected. Clause 4.2 of the lease … sets out in detail what is required by the valuer when undertaking their appointment." 60 The letters of 10 and 22 March are relied on to support a case of waiver which, on the facts of this case, could only be by an election or an estoppel. Under the timetable in cl 4 the appellant had to give a Dispute Notice within 28 days of service of the Rent Review Notice. The evidence does not disclose when the appellant received the Notice. The reference in the letter of 17 March to a telephone conversation the day before identifies the latest day the appellant could have received it. This would have given it until 13 April to pay the overdue outgoing and give a valid Dispute Notice. When the sub-lessor took the cl 4.1(e) point on 20 April the appellant could no longer put itself in a position to give a valid Dispute Notice. 61 The Rent Review timetable in cl 4 of the sub-lease (blue 1/221-2) relevantly provided: "4. RENT REVIEW 4.1(a) The Landlord may review the Rent on the … Market Review Date. (b) At any time not earlier than four months before each Market Review Date the Landlord may notify the Tenant of the Landlord's assessment of the Rent to apply from the Market Review Date ('Rent Review Notice'). (c) If the tenant does not within 28 days of service of the Rent Review Notice: Give notice to the Landlord that the Tenant disputes the Rent assessed by the Landlord ('Dispute Notice') and Appoint a Valuer to determine the Rent, the amount stated in the Landlord's Rent Review Notice is to become the Rent payable from the Market Review Date; (d) … (e) The Tenant does not have the right to give a Dispute Notice if the Tenant has not paid all Rent and other moneys payable under this lease. 4.2(a) A Valuer can only be appointed under this Clause 4 if the valuer: (i) … (ii) … (iii) … (iv) agrees to give written notice to the Landlord and Tenant of the Valuer's determination of the Rent within 28 days of being instructed to proceed with the determination; and (v) … (b) The Valuer must: (i) … (ii) provide a 'speaking valuation' (that is, the valuer must give detailed reasons for the determination and specify the matters to which the valuer had regard for the purposes of making the determination. … 4.3 If the Tenant does not appoint a Valuer or if the Tenant appoints a Valuer and the Tenant or the Tenant's Valuer does not give to the Landlord a copy of the Tenant's Valuer's decision within 28 days after giving the Dispute Notice then the Rent is the amount stated in the relevant Rent Review Notice ... 62 Mr Taylor for the appellant submitted that the Dispute Notice of 17 March 2006 confronted the sub-lessor with an election to accept it as valid despite non-compliance with cl 4.1(e), or reject it. Its reply of 22 March was said to be an election to treat it as valid. 63 It is not clear whether the letters were sent by an employee of the sub-lessor or by its agent. In his affidavit Mr Wilson described himself as the Senior Property Manager of the sub-lessor (blue 1/209), and Mr Todman as a Property Manager (blue 1/214). CB Richard Ellis had been held out as the sub-lessor's agent (blue 2/474-5) and if the letters were sent by it there was a prima facie case of ostensible authority. 64 Election requires an unequivocal act or declaration by the elector with knowledge of the relevant facts: Matthews v Smallwood [1910] 1 Ch 777, 786-7; Craine v Colonial Mutual Fire Insurance Co Ltd [1920] HCA 64, 28 CLR 305, 326 (Craine). It is at this point that the appellant's attempt to establish an election breaks down. Mr Todman appears to have signed the letter of 10 March as well as the letters of 22 March and 20 April. By 20 April at the latest he knew of the unpaid outgoing but there is no evidence about his earlier knowledge. The Court cannot infer from his position as Property Manager that he was aware of the state of the account between the appellant and the sub-lessor, and cannot infer that a superior who had such knowledge at the time authorised or approved the despatch of the letters with knowledge of their contents or ratified them later. 65 Mr Wilson was not cross-examined, and there is no evidence that he knew of the unpaid outgoing before 20 April 2006. Mr Wilson and Mr Todman first appear in the evidence in the letter of 10 March 2006. The last letter in evidence from CBRE or the sub-lessor before 10 March 2006 is that of 7 February 2005 (blue 2/498), which was signed by Geoff Hollier Senior Property Manager. If election had been an issue at the trial the sub-lessor may have established that neither Mr Wilson nor Mr Todman knew of the unpaid outgoing until some time after 22 March. Since the election point might have been answered by evidence it was not open on appeal. 66 In any event a breach of cl 4.1(e) did not give the sub-lessor a choice between competing or inconsistent rights: Gardiner [2008] HCA 57, 238 CLR 570, 591 [63]-[66]. The sub-lessor had no right to receive a valid Dispute Notice. Giving an invalid Notice was not a breach of contract which confronted the sub-lessor with an election between inconsistent rights. 67 A tender of performance in breach of contract gives the innocent party a choice between insisting on his right to performance or accepting the tender of something to which he was not contractually entitled. It gives the innocent party a choice between his existing rights and new rights. It is a power, in the Hohfeldian sense, to create those new rights. He can't have both sets of rights and must elect: Handley "Estoppel by Conduct and Election" 2006 pp 230-231. 68 The letters of 10 and 20 March did not bring a new right into existence. There was only ever one right which was to object to an invalid Notice. The only question was whether the sub-lessor would exercise that right or not. The letters may have promised or represented that the sub-lessor would not exercise the right, which was exclusively for its benefit, but that, without more, would not be a binding waiver of the right: Gardiner (above) at 599-601 [88]-[93]; 601 [95]-[96]. An election against reliance on cl 4.1(e) was not established. 69 The appellant's attempt to raise a case of estoppel fails because essential facts were not established. As Isaacs J said in Craine (above) at 327: "… the law of estoppel looks chiefly at the situation of the person relying on the estoppel; … the knowledge of the person sought to be estopped is immaterial;" 70 An estoppel, unlike an election, does not require proof that the promisor or representor had knowledge of the relevant facts. The focus is on the state of mind of the promisee or representee who must have changed his position in reliance on the promise or representation. 71 The sub-lessor's promise or representation in its letters of 10 and 20 March were made to Mr Hodgson on behalf of the appellant, but there is no evidence that they caused him to take or refrain from taking any action in relation to cl 4.1(e). The Court does not know whether Mr Hodgson read the clause after he received either of the letters. Unless he was aware of its terms at the time he could not have understood from the letters that the sub-lessor was promising not to exercise its rights under cl 4.1(e), or was representing that the disputed outgoing was not payable. 72 If Mr Hodgson had forgotten about the unpaid outgoing but was aware of the terms of cl 4.1(e), the letters would not have conveyed any relevant promise or representation. Even if he was aware of the clause and the sub-lessor's claim to the unpaid outgoing he may have been so confident in his legal position that he would not have contemplated paying the outgoing under protest or otherwise. As the Judge said without evidence of Mr Hodgson's state of mind there could be no case of estoppel.

The Valuation 73 The Judge held that the valuer's letter of 12 April 2006 was not a "speaking valuation" as required by cl 4.2(b)(ii) but he did not express a final view on the consequences of that finding under cll 4.2 and 4.3. 74 The letter of 12 April was clearly not a "speaking valuation" and the appellant did not contend otherwise. Mr Taylor, for the appellant, relied on differences in the language of cll 4.3 and 4.4 to submit that the 28 day time limit was complied with if the valuer's "determination" or "decision" was given to the sub-lessor in time. The speaking valuation could be given later, and the valuation completed in May 2006 and proffered to the sub-lessor on 23 August (red 118) was said to qualify for this purpose. 75 The effect of a failure to provide a speaking valuation within time was fully argued and in my opinion the Court should decide that question. 76 Clause 4.2(a)(iv) required the Tenant's Valuer to agree to provide written notice of his "determination" within 28 days of being instructed. Clause 4.2(b)(ii) required him to provide a "speaking valuation" with detailed reasons for his determination which specified the matters to which he had regard. 77 Clause 4.3 deals with the position if the sub-lessor does not receive a copy of the Tenant's Valuer's "decision" within 28 days and cl 4.4 deals with the position when it does. 78 The clauses refer to the valuer's "determination", his "speaking valuation", and his "decision". Mr Taylor submitted that the valuer's determination and decision was simply his opinion about the market rent. 79 This submission fails to give proper effect to cl 4 as a whole. Clause 4.2(b)(ii) which requires the valuer to provide a "speaking valuation" does not specify a time limit for this. Since cl 4 contains a detailed timetable for a Rent Review it may reasonably be supposed that some time limit applies to the requirement for a "speaking valuation". As a matter of necessary implication this must be the 28 day period for provision of the determination or decision. 80 This reflects a purposive and commercial construction. Despite the different terms used, the determination or decision is the valuer's opinion about the market rent supported by a speaking valuation which discloses his reasons. The clauses are speaking of different aspects of the same thing, a speaking valuation which gives both the result and the valuer's reasons. Both must be communicated to the sub-lessor within the fixed time limit.

Conclusion 81 In my judgment the appellant's Dispute Notice was invalid under cl 4.1(e), and its valuer failed to provide a speaking valuation within the time required by cll 4.2(b)(ii) and 4.3. The sub-lessor's Rent Review Notice therefore took effect by default under cl 4.3 to fix the rent. The appeal should be dismissed with costs.

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At a glance

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Judgment (28 paragraphs)

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Cases Cited (5)