Please contact Edwin Mok on 9223 1500 to discuss further.
28 The heading of the letter shows that Mr Mok continued to communicate within the reservation which had been expressly created by GVA Grimley to the effect that the exchange of communications was "Subject to lease" which on the text of the letters of 19 December and 21 February can be understood to mean that execution of formal lease documentation was essential for a legally binding outcome. What Mr Mok said in the letter differed from the position taken up to that date by Insearch with respect to the need for a bank guarantee, payment by lessee of lessors' costs, or part of them, and erection of a balcony railing, while other lessors' works plainly required further consideration and definition. The express statement that the communication was subject to lease made it clear, to any reasonable reader of the letter, either alone or taken with the earlier communications, that the letter was not an acceptance of any earlier offer, and was not itself an offer open to contract formation by a simple acceptance.
29 The next relevant communication between the parties which might bear on contract formation came on 11 April 2003 when Ms Farmer sent a fax message to Mr Mok enclosing quotations for lessors' works. She said "I look forward to discussing these in more detail with you in the near future." She made no observation on outstanding points of difference in the negotiation, as to the bank guarantee, legal costs or otherwise, and did nothing to carry forward the definition of the terms of the lease which she was proposing.
30 There was no other communication bearing on the possibility of forming a new lease until after the period available for exercise of the option passed. Insearch knew, from January on, that Kin Hing wished to sell Level 3. This showed Insearch that the opportunity to negotiate a new lease with Kin Hing was only open until there was a sale, would probably close when contracts were exchanged and would certainly close when title was transferred. In these circumstances the absence of any reply to Mr Mok's letter of 21 February until 11 April, and the absence of any comprehensive reply at any time to his letter, are remarkable. As Mr Mok said, the ball was in Ms Farmer's court. It was not his obligation to keep it in play.
31 The next formal communication which I have observed was a letter dated 27 May from Mok & Associates on behalf of Kin Hing directed to Insearch in the nature of a Notice of Attornment; this letter was presumably handed to SDAEA's solicitors on settlement of the sale on 27 May 2003 and directed payment of the rent to SDAEA or as it directed.
32 By 19 May Ms Farmer was aware that SDAEA had entered into an agreement to purchase Level 3 and sent a message to Tony Anderson of Laing & Simmons, real estate agents who acted in the interest of SDAEA. She said among other things "I look forward to discussing the lease renewal at the above premises with you in the near future." She sent an email message to Mr Nugara forwarding copy of her message to Mr Anderson and commenting that Laing & Simmons were to be the new property managers. She commented on what SDAEA had known about Insearch's position and said:
[Mr Anderson] is going to call me to discuss further after the sale is completed and he is back in Sydney.
One thing I should put you on notice of is that he seemed to think that Insearch was just exercising its option of five years, I pointed out this wasn't the case and he said he would review the file, however, there could be an issue with basic contract law, offer an acceptance etc and what the previous landlords had agreed to etc etc - but I will let you know if anything ever comes of that or if they are willing to stand by the agreements already in place.
33 There were further communications but it soon emerged that SDAEA was not prepared to enter into any new agreement for lease, did not regard Insearch as having exercised its option or as having made any agreement for lease with Kin Hing, and required possession at the expiry of the registered lease on 7 November. Thereafter Insearch attempted to come to agreement or obtain some acknowledgment of its alleged position from SDAEA, and made a purported exercise of its option on 7 August 2003; these proceedings were commenced on the following day.
34 A further body of evidence dealt with the knowledge which SDAEA had, or, in Insearch's case, ought to have had of Insearch's position. A notice advertising the auction and displayed on the front of the building, and press advertisements referred to there being "New Lease of three years plus three year option" or to that effect, and a press advertisement gave the name of Insearch as the lessee. Representatives of SDAEA saw this and made inquiries of representatives of Kin Hing about the state of their dealings with Insearch, and in reply were given copies of the letters of 21 and 24 February. The view was taken on behalf of SDAEA that these letters showed by their terms that no agreement for lease had been entered into. The contract for sale dated 16 April 2003 disclosed the registered lease, and also a licence agreement relating to the car spaces, and there were extensive acknowledgements in cl.46 that the purchaser knew the terms of the lease, and agreed to abide by the terms of the lease annexed to the contract including the terms of any leases entered into after the date of the contract on the part of the lessor. Clause 46.6 reserved to the vendor extensive liberties to continue to conduct dealings under its leases.
35 Shortly before the auction which took place on 7 March Mr Anderson representing SDAEA, who attended the auction, was again shown copies of the letters of 21 and 24 February by Kin Hing's agents who said to the effect that Kin Hing was considering the matter but no deal had been done and the property was to be sold subject to the existing lease.
36 On any reasonable reading it should be understood that continuing communications arising out of the letter of 21 February remained subject to the same reservations as that letter unless and until it appeared that the reservations were withdrawn. When dealing in evidence with the requirement, expressed twice in the letter of 21 February 2003 for board approval of Insearch Pty Ltd, Mr Nugara said to the effect that approval would not in fact be given by the board, according to the way Insearch conducted its business, but would be given by the executive, whom I understand to be people in management positions to whom Mr Nugara reported, and he regarded approval by the executive of any agreement he reached as a formality. In my opinion this does not overcome the need, explicitly specified by GVA Grimley, for there to be full board approval of Insearch before any binding agreement could be taken to emerge. This was an express reservation, made by GVA Grimley in the interest of Insearch, and while I would suppose that Insearch could have waived it, there is no indication that it was ever waived, nor is there any indication of something which undoubtedly Insearch would have proved if it was the case, that there ever was full board approval for any particular proposal; Mr Nugara's explanation strongly suggests there was not.
37 On behalf of Insearch it was contended, with extensive references to authority, that the question whether the parties entered into a binding agreement for lease by the exchange of letters in February 2003 was to be answered by the Court looking at the circumstances as a whole and objectively determining the intentions of the parties. It was submitted that the parties achieved a consensus on all the main terms for a three year lease with an option for a further three years and intended to be immediately bound. The situation was said to be one in the fourth category, associated with Masters v. Cameron and voiced by McLelland J in Baulkham Hills Private Hospital Pty Ltd v. GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627-628, where the parties were content to be bound immediately and exclusively by the terms which they had agreed upon while expecting to make a further contract in substitution for the first contract containing by consent additional terms. In support of this contention counsel referred to evidence of Mr Nugara and Ms Farmer in which they explained or attempted to explain, not to my mind in a way satisfactorily related to the actual terms of the communications, the states of their minds and their understanding whether a binding contract had been made. I have not accepted their statements in their evidence which seem, not uniformly to show their beliefs that a binding contract had been made, as in my view later communications, particularly communications from Ms Farmer in May 2003, show that it is extremely improbable that she then believed that Insearch had a binding and enforceable agreement for lease.
38 To my mind the terms of the written communications clearly show, in several ways, that an agreement had not been achieved. This is primarily shown by the fact that each side communicated in terms which referred to the communication being "subject to lease" which usually means and in this case was in fact spelt out to mean that the parties would not be legally bound until formal lease documentation was executed.
39 That the communications did not show an agreement for lease further appears from the significant loose ends on which no agreement had been reached. The requirement that there was to be no rent-free period had never been expressly acquiesced in by Insearch. The requirement that there be a security bond had never been expressly acquiesced in. The requirement that the lessee was to pay legal costs had never been expressly acquiesced in. No definition had been given to general statements to the effect that there were to be rent reviews and annual CPI increases; the terms of such arrangements cannot be taken to be established by any-well known common practices and there was a need for definition by reference to particular clauses before it could be seen what was been agreed upon. There was a need to define what works the lessors were to do, and agreement was outstanding as to their extent. There was a call from Mr Mok for discussion which had not been answered. When Ms Farmer responded on 11 April her response dealt only and not fully with the lessors' works, and not with other outstanding matters. There was no further discussion. Attempts were made to show that Mr Mok deliberately evaded discussion; in my view it was not established that he deliberately evaded discussion, and the length of time which passed after his letter of 24 February, and the failure of Ms Farmer's response on 11 April to deal with significant matters he had raised were not, to my mind, satisfactorily explained. It was quite open to Insearch to enter into discussion by messages as well as by telephone or on a face to face meeting. In fact Insearch left the matter without significant attention and without complete attention after Mr Mok had stated a negotiating position, subject to lease, on 24 February. Any ideas that Mr Mok deliberately played out the time available for Insearch to exercise its option, or that he beguiled Insearch into omitting to do so, would be completely wrong. Mr Mok was frank and clear in his letter of 20 January, unusually so, and he and Kin Hing had no obligation to assist or guide Insearch. The parties were each advised by expert persons, there was no element of a relationship of dependence or subordination on either side, and each was in a position to consider and protect its own commercial interests fully.
40 Counsel submitted alternatively that there a consensus was achieved which created immediately binding subsidiary obligations between the parties not to prevent satisfaction of the conditions outstanding in the negotiation and to make reasonable efforts to bring about satisfaction of the preconditions. That is to say, it was submitted that there was what I would call a process contract by which the parties bound themselves to proceed in negotiations in a particular way and not to depart from it. In my view there is no element whatever in the facts in evidence which would tend to show that the parties bound themselves in any such way. Mr Mok's letter of 20 January 2003 established that Kin Hing gave no commitment to Insearch to proceed in any particular way or to grant a lease to Insearch in any other way than on due exercise of the option. The machinery for exercise of the option was carefully spelt out by Mr Mok in that letter. The letter, and the absence of any further reference in the well-considered written communications between the parties to exercising the option or preserving the opportunity to do so, exclude the view that there was any process contract or any implied obligation of Kin Hing to facilitate or keep open the opportunity for exercise of the option.
41 Counsel then developed submissions to the effect that there was a failure by Kin Hing and Mr Mok to provide a lease document for consideration and execution. There could only be such an obligation if a binding agreement for lease had first been reached; Mr Mok gave no commitment of any kind to provide a lease document and there was nothing in the facts which could bear out a suggestion or interpretation that communications had come to a halt pending his providing one. Counsel referred to Expectation Pty Ltd v. Pinnacle VRB Ltd [2002] WASCA 160 at [89] and to its reference to Australian case law associated with MacKay v. Dick (1881) 6 App Cas 251 relating to implied obligations to do all that is necessary to enable another contracting party to have the benefit of contract. Upon the facts and upon what I regard as the correct view that there was no agreement for lease, and no relevant agreement at all, there is no room for that principle to operate.
42 Insearch's counsel's submissions went on to deal with ways in which it was contended that SDAEA was bound by equitable obligations incurred by Kin Hing to Insearch. As there were, on my holdings, no such obligations there is no room for Insearch to succeed against SDAEA. SDAEA had actual notice of the terms of the two letters and made what in my view was a correct interpretation of them, that is that they did not show any agreement for lease. In any event, SDAEA is protected by s.42 of the Real Property Act 1900 as it had become the registered proprietor. A charge of fraud, not carried to particulars, was made against SDAEA in the Statement of Claim; in my view, this charge should not have been made as it was not carried to particulars in the Statement of Claim, and counsel was unable, at the hearing, to indicate any matter of fraud which underlay it. There is nothing in the facts which could in my opinion raise for consideration a claim that SDAEA was in some way bound to respect any rights in the nature of a leasehold of Insearch for any period after 7 November 2003. Although the submissions on this subject were extensive, they are in my opinion wholly disposed of by the holding that Kin Hing were not bound by any agreement, estoppel or equity arising in any way, with the consequence that there was no right by which SDAEA as purchaser could be bound.
43 There was a further development to the effect that the letter of 24 February 2003 should be construed as a representation by Kin Hing to Insearch that an agreement for lease had been entered into or that a sufficient consensus had been achieved between the parties to justify Insearch proceeding on the assumption that the parties' relationship would be governed by the three year lease and not by the existing lease. In my view there is no reasonable basis for interpreting the facts as showing that there was any such consensus. The terms of the letters from both parties demonstrate clearly the pre-finality of the arrangement which they made. The letters could not, to a reasonable or indeed to a rational person, present a basis for thinking that either party had entered into a commitment upon which the other would be justified in acting. In the most clear and explicit way, commitment was postponed until the emergence of an executed lease. Nothing ever happened to show that this specification was departed from.
44 Insearch also presented contentions to the effect that the plaintiff was entitled to relief against forfeiture of the interest which it would have obtained had it exercised its option; and referred to the restatement of principles in Pentagold Investments Pty Ltd. v. Romanos [2001] NSWCA 425. In my view there is no element in the facts which could justify embarking on granting to the plaintiff relief in equity against the consequences of its not having exercised its option. Kin Hing did nothing to lead Insearch into the line of conduct which it took in not exercising the option, and it is not possible to perceive the events as the forfeiture of an equitable interest; the beginning and end of the event was that Insearch had an option on exercise of which it would have had an equitable interest, Mr Mok pointed out the opportunity to exercise it and the Kin Hing's readiness to conform if it was exercised, and Insearch pursued another line of conduct, no doubt on the view that that would serve its interest, and did not exercise the option. There is no element of unconscionable conduct on the part of Kin Hing, nor is there any other element which could justify altering the ordinary consequences according to the terms of the Lease which follow the line of conduct which Insearch has taken. The intervention of the rights of SDAEA, which has not been implicated in any way in the circumstances, but is protected by s.42 of the Real Property Act, are a powerful, indeed insuperable obstacle to intervention by a court of equity to alter the rights of the parties.
45 It was further contended that Insearch was entitled to relief under the Trade Practices Act s.52. There is no substance in the contention that by the letter of 24 February 2003 that Kin Hing engaged in any conduct which was misleading or deceptive; quite to the contrary, the letter was explicit and clear as to there not then being circumstances in which either party was contractually bound. It should have been obvious to a reasonable observer that unless the negotiations were carried further and some result emerged, no rights would have been created. Indeed Insearch had repeatedly and as recently as 21 February expressly stated to that effect. This being so there was no room for a reasonable person to treat the letter of 24 February as conveying any assurance, or representation, or as indicating in a misleading and deceptive way that agreement had been reached or that there was any certainty or assurance that agreement would be reached. By making this claim Insearch has attempted to depart from understandings as to the basis on which negotiations proceeded which it had itself taken a major part in creating. It is a parody that Insearch should now assert that the conduct of Kin Hing has been misleading or deceptive.
46 In my opinion Insearch should not succeed on any of its claims.
47 Order: I give judgment for the defendants with costs.