Highpoint P/L & Anor v Quicknet Internet Provider P/L & Anor [2000] QSC 359

[2] The first defendant, an Internet service provider, has been in possession of the land from June 1997 to the present time. The second defendant, a real estate agent and investor, is a director of the first defendant, in which he is a shareholder. The plaintiffs claim they are entitled to possession of the land and seek an order against the first defendant to that effect. In addition, they claim to be entitled to judgment against both defendants for arrears of rent and outgoings, and other consequential relief. The defendants deny the plaintiffs are entitled to the relief they seek, and the first defendant counterclaims for an order for specific performance of an agreement for the purchase of the land it alleges was made between it and the plaintiffs when it exercised an option to purchase provided for in the 1997 agreement. The first defendant claims damages in addition to or in lieu of specific performance, damages for breach of contract, and other relief including relief from forfeiture.

[3] On 15 April 1997, following discussions concerning leasing the premises between representatives of the plaintiffs and the defendants, the following facsimile was sent by the first plaintiff on behalf of itself and the second plaintiff to the second defendant:

Further to our discussions regarding the terms of the proposed lease of Lot 11, please find below our proposal:

1. You enter into a lease for three years, at the rental of $20,000 per year, plus outgoings. Outgoings include rates, body corporate fees and electricity.

2. We offer you an option to buy the premises, to be taken or rejected at or before the end of the first year of the lease, by the purchaser only.

3. If the option to buy is taken, the parties will enter into a cash contract for the amount of $460,000 less rental paid to date. Settlement of the contract to be, at the latest, at the expiry of the third year of the lease. Robert Van Gaal is to be guarantor for the lease and for the contract of sale.

The first year's rental is to be paid on 1st June 1997. The lease commencement date is to be 1st July 1997. The rental for the subsequent years is to be paid annually in advance.

4. If the option to buy is not taken, a further amount of $10,000 is to be paid immediately by the lessee. The net rental is to be $40,000 for Year 2, and $45,000 for Year 3. There is to be a further option of three years on the lease, with rental increases to be negotiated, however to be not less than 6% over the previous year's rental.

It is common ground that the offer was of a lease to the first defendant and that the `purchaser' referred to in clause 2 was the first defendant: paragraphs 8a. and h. of the further amended statement of claim and paragraph 5 of the second further amended defence.

[4] On 2 May 1997 the second defendant sent a copy of the facsimile back endorsed as follows:

THE ABOVE IS ACCEPTED. PLEASE ARRANGE FOR LEASE TO BE SENT TO:

[5] On 30 May 1997 the plaintiffs' solicitors sent this letter to the defendants' solicitors, Richard Ebbott and Co.:

We act on behalf of the lessor in the above matter and note that you are acting on behalf of the lessee.

In accordance with our client's instructions please find enclosed the following:

As our client has not yet had the opportunity to peruse the enclosed documents we reserve its rights to require any amendments, alterations or additions to the same which it may believe are appropriate. We are confident however that the documents in their enclosed forms will be acceptable to our client.

Please arrange for execution of the enclosed documents and thereafter forward same to our office together with payment of the enclosed account.

[6] On 6 June 1997 the plaintiffs' solicitors sent a further letter to the defendants' solicitors advising that an error had been made in a clause of the lease and enclosed copies of an amended page of the lease.

[7] The plaintiffs permitted the first defendant to enter into possession of the premises in June 1997 in the expectation that the lease contemplated by the agreement reached in May would be executed without unreasonable delay. The first defendant paid the rent of $20,000.00 for the first year by a cheque sent at the end of May 1997. Despite many requests made to the defendants on behalf of the plaintiffs that the lease be executed and returned by the first defendant, no lease was received by the plaintiffs until after the plaintiffs had notified the defendants on 25 August 1999 that they elected to terminate the agreement. The requests were made by the plaintiffs' solicitors, Mr Luigi Ferro a director of both plaintiffs, and Ms Lisa Ferro a director of the first plaintiff in 1997, 1998, and 1999 who dealt with the defendants in connexion with lot 11 on behalf of both plaintiffs. The reason for the delay given by the second defendant was that the other director of the first defendant, Mr James Watson to whom the second defendant referred as his `partner', was not available to execute the lease since he was in Sydney, and later, overseas.

[8] On 19 June 1998 a facsimile was sent to the first plaintiff by Pacific Palms Real Estate, a division of Beechdeen Pty Ltd, signed by the second defendant:

RE: LEASE TO QUICKNET, 3374 PACIFIC HWY, SPRINGWOOD

We advise that we will be taking up the purchase option for Quicknet as agreed with the lease to be $20,000 per annum excluding outgoings for the next two years.

Should you have any queries, please do not hesitate to contact me.

After the first plaintiff received the facsimile Ms Ferro spoke to the second defendant. She told him that she had received the facsimile and asked if Richard Ebbott and Co. were still the defendants' solicitors. The second defendant said that they were. Ms Ferro reminded the second defendant that the rental for the second year was payable annually in advance and was due on 1 July 1998. The second defendant said he was unable to do anything about exercising the option or providing the documents and could not pay the $20,000.00 because his partner was in Sydney. He said that upon the return of his partner, in the next month or so, they would sign all the documents and pay the annual rent. He asked Ms Ferro, and she agreed, to send an account to the first defendant for the rent for July only at that stage. There was no discussion about subsequent accounts, and nor was there, I find, any oral variation of 1997 agreement by which rental payments were to be made monthly and not annually in advance. The plaintiffs had no reason to agree to such a thing. Monthly accounts were sent subsequently only because the plaintiffs expected a completion of the sale within a reasonable time. After the conversation, monthly accounts showing rent of $1,666.67 per month (i.e., $20,000.00 per annum) for July, August, September, and October 1998 were sent to the first defendant. An account for July 1998 prepared in June 1998 before the conversation I have related showed an instalment of rent of $3,333.33 (i.e., $40,000.00 per annum), but following the conversation was altered by Ms Ferro to show $1,666.67. It had been prepared originally as a monthly claim because of some confusion between the rent for lot 11 and rent paid by other tenants, who were, Ms Ferro said, all billed monthly. The account for November 1998 and the following months showed the rent as $3,333.33, but the first defendant continued paying at the lower rate.

[9] On behalf of the plaintiffs a number of requests were made for an executed contract of sale but no contract came until 6 September 1999, which was of course after the plaintiffs' notification on 25 August 1999 of termination of the 1997 agreement. The purchase price shown in the tendered contract was `the amount calculated in accordance with the provisions of the correspondence from Highpoint Pty Ltd to Robert John Van Gaal dated 15 April 1997 . .' The settlement date was shown as on or before 30 June 2000.

[10] The first defendant has remained in possession of lot 11 notwithstanding the plaintiffs' notification of termination of the 1997 agreement, and after 30 June 2000 when the three years from 1 July 1997 expired. The plaintiffs began this proceeding on 7 October 1999 and have received payments from the first defendant without prejudice to their assertion that the first defendant is not entitled to remain in possession of the premises. Correspondence passing between the plaintiffs' solicitors and the defendants' solicitors in June 2000 shows that the plaintiffs rejected the defendants' contention that a contract of sale of the land was still then on foot. The plaintiffs refused to complete the alleged contract for $400,000.00, which the defendants claimed was the sum payable by the first defendant on completion. On 30 June 2000 the first defendant was able to pay up to $440,000.00 for the land, and it appears, was ready and willing to do so.

[11] That in outline is the history of the relevant dealings of the parties as I find them to be. There is no point in recounting in detail every request and every assurance given in response, but certain correspondence must be mentioned.

[12] A facsimile dated 12 October 1998 from the plaintiffs to the first defendant, was, I find, sent at 11.30 a.m. that day:

We refer to the lease of the above premises and the proposed contract of sale on same. We note that the lease document submitted to you on 30 May 1997 has still not been signed.

Unless the signed lease is returned to either our or our solicitor's office by 4pm on Friday 16/10/98, we will consider that no contract of sale exists between the two parties. Hence, the rental payable on the premises will revert to full rental, and be charged retrospectively. The amount payable would then be the $10,000 plus $40,000 rental for year 2, as per our agreement.

Your urgent attention should be given to this matter.

There was no response to that transmission, not because, as the second defendant said, it was not received. The absence of response was, I conclude, another example of the defendants' procrastination evident throughout their dealings with the plaintiffs in relation to lot 11.

[13] On 2 December 1998 the first plaintiff sent a letter to the first defendant concerning invoices for work carried out on the airconditioning at lot 11. Included in the letter was a statement that `you have also exercised your option to purchase [lot 11] . .'

[14] A facsimile dated 12 January 1999 from the plaintiffs' solicitors to the second defendant was as follows:

We act for Highpoint Pty Ltd and Brisbane Unit Development Corporation Pty Ltd.

Since 30 May 1997 both our office and our client have been requesting lease documentation to be returned to our office duly executed. We have still not received the executed lease documentation.

2. You have purported to exercise an option contained in an unsigned lease. It is a pre-condition of any exercise of the option that you properly execute the lease. Accordingly your purported exercise of the option is invalid.

3. You have been paying a reduced rental on the basis that you have validly exercised the option.

4. In the circumstances, our client does not accept your exercise of the option and requires you to pay the proper rental.

We are instructed that any agreement by our client to grant you an option to purchase the property was conditional upon a formal lease being executed. In the circumstances, if the lease is not properly executed by you and returned to our office within seven days from the date of this correspondence then our client will immediately:

1. Require you to pay all rental in accordance with the terms of the Offer to Lease.

2. Withdraw its offer to you to purchase the property.

If you wish to continue at the low rental and exercise the option contained in the lease, we suggest that you execute and return to our office within seven days the executed lease (in triplicate).

[15] On 6 August 1999 the plaintiffs sent two letters signed by Ms Ferro on behalf of Mr Ferro, a notice to remedy breach of covenant, and a contract of sale to the first defendant. The first letter said:

You will note that the Form 7 allows you reasonable time to remedy the default. Given the history of this matter, we consider that fourteen (14) days is more than a reasonable time for you to remedy the breaches of the Agreement to Lease.

The notice, dated 6 August, required the first defendant to remedy breaches of covenants to pay rent and outgoings and to execute a lease pursuant to the terms of the 1997 agreement by:

a. paying the sum of $22,259.22 as monies due and payable pursuant to the Agreement to Lease as particularised in the attached Schedule;

b. executing the Lease submitted by Burns Jameson under cover of a letter from Burns Jameson to Richard Ebbott & Co, the solicitors for the Lessee dated 30 May 1997 and delivery of same to the Lessor or its solicitors.

Please find enclosed the Contract of Sale (in duplicate) which is submitted for your execution and the Guarantors execution.

We require the Contract of Sale and the Guarantee to be executed by the Purchaser and the Guarantors within fourteen (14) days of receipt of this letter.

You should note that time is of the essence for you to execute and return the documentation. If we have not received the duly executed Contract and Guarantee within fourteen (14) days of the service of this letter on you, then we will consider that the failure by you to execute and deliver the Contract of Sale and Guarantee evinces an intention by you no longer to be bound by your obligation pursuant to the Agreement dated 15 April 1997. As such, if you fail to return the duly executed Contract of Sale and Guarantee within the time stipulated, we will be entitled to terminate the Agreement dated 15 April 1997 and thus extinguish any rights that you have to purchase Lot 11.

[16] On 25 August 1999 the plaintiffs sent two letters signed by Ms Ferro to the directors of the first defendant. The first said:

We confirm that on 6 August 1999, we served Notice to Remedy Breach of Covenant on you in relation to various breaches of the Agreement to Lease of the premises situated at Lot 11, Highpoint South.

We consider that you have had reasonable time to comply with the Notice to Remedy Breach of Covenant. Indeed, we have not heard from you.

In the circumstances, we now give you notice that we elect to exercise our rights to re-enter upon the premises and to determine your estate in the premises. We hereby exercise all of our rights pursuant to the terms of the Agreement to Lease and at law in general.

You are hereby requested forthwith to vacate the premises and deliver up the premises to us and/or our authorised agents.

We further give you notice from this point you are not entitled to re-enter the premises for any reason whatsoever without the express written consent of us.

Please find enclosed a Notice of Re-Entry and Termination of the Agreement to Lease by way of service.

We refer to our letter of 6 August 1999 and the Contract of Sale and Guarantees which were submitted for execution and return to us within fourteen (14 ays).

We warned you in that letter that time was of the essence and that if you did not return the duly executed Contract of Sale and Guarantees within fourteen (4) days, then we would consider that you had no intention of being bound by the Agreement dated 15 April 1997 and, accordingly, we would terminate that Agreement.

To date, we have not heard from you. We have not received the executed Contract of Sale. We have not received the executed Guarantees.

Accordingly, we hereby terminate the Agreement dated 15 April 1997. As a consequence, any right that you may have had to purchase Lot 11 is hereby extinguished.

There had been no response to the letters and notice of 6 August before the two letters of 25 August were sent and received. It was common ground that the first defendant was in arrears on 6 August and remained so until 25 August.

[17] The second defendant replied in a letter with a Pacific Palms Real Estate letterhead dated 26 August 1999:

Please find enclosed the signed lease in triplicate for QuickNet Internet Provider P/L. Can you please sign lease where required and return so we can get it duly stamped. Will do a contract of sale on the office once the lease has been stamped.

[18] The plaintiffs' solicitors sent a facsimile to the directors of the first defendant on 3 September 1999:

We act for Highpoint Pty Ltd and Brisbane Unit Development Pty Ltd.

1. On 6 August 1999, our client served on you a Notice to Remedy Breach of Covenant pursuant to Section 124 of the Property Law Act 1974 (as amended) specifying the breaches of the Agreement to Lease and the actions that were required by you to remedy those breaches, failing which our client would re-enter.

2. On that same day, our client sent a letter to you dated 6 August 1999 enclosing a Contract of Sale and Purchase for your execution advising that if the Contract of Sale was not executed and returned within fourteen (14) days, then our client would terminate the Agreement dated 15 April 1997 and thus extinguish your right to purchase Lot 11.

3. You failed to remedy the breaches of the Agreement to Lease.

4. You failed to return the duly executed Contract.

5. Accordingly, by letters dated 25 August 1999, our client:

(a) gave you notice of termination of the Agreement to Lease;

(b) gave you notice that the sale of Lot 11 was at an end.

6. After the Agreement to Lease had been terminated, you submitted a Lease with amendments.

Our client has validly terminated your Agreement to Lease. We are hereby instructed to demand that:

1. You vacate the premises and deliver up possession of the premises immediately. Without resiling from our client's right to terminate and to take immediate possession, our client is prepared to allow you a reasonable time to vacate the premises to minimise inconvenience to you.

2. That you pay to our client the amount of $40,339.00. You should note that our client's claim for the amount of $40,339.00 is subordinate to our client's right to terminate the Agreement to Lease. The sum of $40,339.00 is calculated as follows:

We require our client's demands to be met within seven (7) days, failing which we will institute proceedings against you. Furthermore, if you need time to move out of the premises, please contact the writer so that arrangements can be made. In saying this, you will note that our client still requires immediate possession and simply extends you the courtesy of allowing you to move out in a reasonable and timely manner.

On the same day the plaintiffs' solicitors sent a facsimile to Richard Ebbott & Co. with a copy of the letter sent to the directors of the first defendant.

[19] Richard Ebbott & Co. responded in a letter dated 6 September 1999:

We refer to your facsimile of the 3rd instant and advise that we do act on behalf of Quicknet Internet Provider Pty. Ltd. and would appreciate all further communications to our client being directed through our office. We do thank you for your courtesy in forwarding to us a copy of your letter of the 3rd instant.

We confirm that the executed lease was provided by the sole director of our client company to Mr. Ferro of your client companies. Please advise us as soon as the lease has been executed by the lessor.

We now enclose herewith a contract of sale in duplicate in respect to the purchase of Lot 11, 3374 Pacific Highway, Springwood which has been duly executed by our client company and also by the guarantor Mr. Robert John Van Gaal.

We should be pleased if you would have the contract of sale executed by your client and return the original executed contract to us in due course.

On behalf of the plaintiffs their solicitors replied to that letter in a facsimile dated 9 September 1999 in which they confirmed their instructions were `to the effect that the Agreement set out in the facsimile transmission of 13 [sic] April 1997 is at an end', and accordingly the first defendant's right to purchase lot 11 had been extinguished.

[20] On behalf of the defendants it is contended that the facsimile of 15 April 1997, endorsed as it was by the second defendant, constituted the lease of the premises contemplated by the parties. Plainly that is not so. The facsimile was the plaintiffs' proposal which required, as clause 1 provided, the first defendant to `enter into a lease'. The second defendant's response confirms that construction. He wrote: `PLEASE ARRANGE FOR LEASE TO BE SENT TO [his solicitors]'. The dealings the parties had after the 1997 agreement was made are consistent with that interpretation of their intention: the many requests from the plaintiffs and the assurances given on behalf of the defendants culminating - too late - in the execution and delivery of a lease. In any event, the first defendant cannot rely on a lease in resisting the plaintiffs' claim to possession because, even if there was one for the three years beginning on 1 July 1997, it expired on 30 June 2000. Furthermore, the 1997 agreement required the parties to it to co-operate to ensure that a lease was executed within a reasonable time of the agreement: see Electronic Industries Limited v. David Jones Ltd (1954) 91 C.L.R. 288, and Laurinda Pty. Ltd. v. Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 C.L.R. 623. The first defendant's failure to co-operate was such as to justify the conclusion that it had repudiated the agreement. The plaintiffs then accepted that repudiation by their letters of 25 August 1999 thus bringing the agreement to an end. The plaintiffs' solicitors letter of 3 September 1999 confirmed the plaintiffs' termination of the contract. The defendants assert that the lease documents tendered by the plaintiffs were not in accordance with the 1997 agreement, and so the first defendant had no obligation to execute and return it to the plaintiffs: paragraph 9(e)(iii) of the second further amended defence. That may be so, but any such discrepancy did not relieve the first defendant of its responsibility to co-operate with the plaintiffs.

[21] The only way in which the first defendant could successfully resist the plaintiffs' claim and establish its own claim would be by proving an entitlement to the land arising from the facsimile of 19 June 1998. But the purported exercise of the option to purchase was not effective. That facsimile was not from the first defendant but from Beechdown Pty Ltd and so did not comply with the 1997 agreement: see Duncan Properties Pty Ltd v. Hunter [1991] Qd. R. 101, at p. 103. It must be accepted however that following receipt of the facsimile the plaintiffs dealt with the defendants on the footing, induced by the second defendant's assurances, that the long-awaited lease and a contract of sale as provided for in the 1997 agreement would be forthcoming. A construction that may properly be put upon those dealings - including the monthly claims to rent at the lower rate based on an annual rent of $20,000.00 - is that they constituted an offer by the plaintiffs, notwithstanding the ineffectiveness of the facsimile of 19 June 1998, to enter into a contract of sale at the price provided for in the agreement.

[22] As the purported exercise of the option was ineffective no contract for the sale of the land can be found to have been made, and any offer by the plaintiffs to sell was clearly enough withdrawn on 25 August 1999. But if that analysis is incorrect and an agreement was made in June 1998, it too required the co-operation of the parties to ensure that a contract of sale specifying inter alia the date of completion was executed within a reasonable time. The plaintiffs never wavered in their instance that that should be done, but again the first defendant failed to co-operate, so that by 6 August 1999 the plaintiffs were entitled to conclude that the first defendant had repudiated any such agreement. They brought any agreement to an end on 25 August 1999, their solicitors letter of 3 September 1999 confirming the termination of the contract. The first defendant's conduct went beyond the merely dilatory to the point of studied obstruction: cf. Laurinda Pty Ltd v. Capalaba Park Shopping Centre Pty Ltd at p. 633 per Mason C.J., and at p. 657 per Deane and Dawson JJ.

[23] Since there was no contract for the sale of lot 11 - or alternatively, if there was such a contract it was validly terminated on 25 August 1999 - the first defendant cannot have the relief it seeks and it must pay the plaintiff $55,000.00 still owing arising from its possession of the land to 30 June 2000. The agreement reached in May 1997 provided that the lower rental should apply only in the event of the first defendant's purchasing the land for the agreed price of $460,000.00. (The parties agreed at the trial that if the plaintiffs are entitled to payment at the higher rate specified in the agreement they are entitled to judgment for $55,000.00 in respect of the first defendant's occupation of the land to 30 June 2000.)

[24] In paragraph 19 of the second further amended defence the defendants say that the notice dated 6 August (1999) was ineffective as a notice under s. 124 of the Property Law Act 1974. Particulars (a) to (c) of that assertion are that Ms Ferro executed the notice on behalf of each plaintiff as director beside the company seal in each case when she was not a director of the second plaintiff and when the memorandum and articles of association of each plaintiff required two directors to sign when affixing the seal. In paragraph 21(b) of the second further amended defence there is a denial that the notice was `adequate to determine the Agreement to lease or Contract', and particulars (ii) to (iv) repeat particulars (a) to (c) in paragraph 19. I do not think there is anything in this point. It is not necessary for the plaintiffs to rely on the notice to justify their claim to possession of lot 11 because the three years from 1 July 1997 has expired. The first defendant's failure to respond to the notice within the time specified provides, however, further evidence of the first defendant's repudiation of the 1997 agreement. But in any event Ms Ferro's actions were ratified by the plaintiffs' solicitors' letter of 3 September 1999 concerning which no issue as to authority was raised, nor did any such issue arise concerning the letters of 6 August 1999 or the letters of 25 August 1999.

[25] In paragraph 21(b)(i) of the second further amended defence it is pleaded that `the Agreement to lease and Contract' were instalment contracts as that term is defined in the Property Law Act. The reference is to Division 4 of Part 6 (ss. 71 - 76), which contains provisions concerning instalment sales of land. It has no relevance to this case, however, because there never was a contract for the sale of lot 11, and even if there was such a contract it was not an instalment contract. Section 71 provides that in Division 4 `instalment contract' means `an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments'. In this case only one payment for the land was contemplated by the 1997 agreement - on settlement, when the first defendant would have been entitled to receive a conveyance. Mr Hackett argued for the defendants that the deposit under the 1997 agreement was the $60,000.00 rent, but since it exceeded ten per cent of the purchase price it was not `a deposit' as that term is used in the definition of `instalment contract', because `deposit' is defined in s. 71 as meaning a sum -

(a) not exceeding 10% of the purchase price payable under an instalment contract; and

(c) liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser.

I do not accept that submission. Any rent paid was for the occupation of the land and, then, if the option to purchase was to be exercised, was to be taken into account as part of the formula which fixed the purchase price.

[26] The first defendant sought relief for the loss of its option as lessee under s. 128 (4) of the Property Law Act, which is available when an act or omission that constituted a breach by a lessee of the lessee's obligations under a lease containing an option would, but for s. 128, have had the effect of precluding the lessee from exercising the option. But in that section, `a reference to a breach by a lessee of the lessee's obligations under a lease containing an option is a reference to a breach of those obligations by an act done or omitted to be done . . . in so far as the act or omission would constitute a breach of those obligations if there were no option contained in the lease': s.128(1)(b). Relief under s.128(4) is not available to the first defendant, in my view. Even if there was a lease and the facsimile of 19 June 1998 was effective as an exercise of the option, loss of the first defendant's option was not the result of any act or omission that constituted a breach by it of its obligations under the lease, but rather its repudiation of the agreement reached in June 1998 and the plaintiffs' acceptance of that repudiation.

[27] In the result I conclude that the plaintiffs are entitled to possession of lot 11 and to payment of the $55,000.00 I have mentioned. The first defendant is not entitled to any of the relief it seeks. I shall invite further submissions on the terms of the judgment and the question of mesne profits for the period from 1 July 2000 to the date of judgment.