Kegran Pty Ltd v Warrik Pty Ltd

The email sent on 21 July 2014

1. The email was sent by Mr Phillip Arnell, the sole director of the plaintiff. It was sent to the address "warwickbetts2@dodo.com.au". That is an email address used in 2014 by Mr Warwick Betts, the sole director of the defendant. The email was blind copied to Mr Keith Arnell. He is Phillip Arnell's father, and a holder of 50% of the shares in the plaintiff. He deposed that he received the email. The email appears to have been sent at 10:07am on 21 July 2014.
2. The email, which had "Renewal of lease" as its subject, was in the following terms: Hi Warwick, I am unable to currently locate my cope [sic] of the Ocean Breeze Motel lease. I believe that the notice of renewal is due to be given. Could you double check for me whilst I search at my end. If that is the case & the renewal is due please accept this as us wishing to take up the next 5 year option on the lease. Regards Phil Arnell
3. The defendant does not contend that the terms of the email are themselves insufficient to constitute a valid notice of exercise of the option.
4. As noted earlier, the defendant accepts that the email was sent. However, Mr Betts deposed that he does not recall receiving it, or indeed any other notice of exercise of the option before 28 August 2014. He says that had he received such a notice he would have instructed solicitors to prepare a new lease. Mr Betts says that it was his ordinary practice to do that upon receiving a notice from a tenant exercising an option to renew a lease. Mr Betts further says that if he had received the email he would not have accepted it as a valid form of notice under the lease. Mr Betts does not explain why he would not have accepted the notice as valid.
5. Phillip Arnell deposed that he recalled sending the email to Mr Betts. He deposed that he telephoned Mr Betts immediately after sending it, and that there was a conversation to the following effect: Phillip Arnell: I have just sent you an email. Can you check you got it? Mr Betts: Yes I will. Phillip Arnell: I can't find the lease. I have a lot going on. I just emailed you my notice to renew the lease. Mr Betts: That's no problem. How is Charlie going? Let me know if there is anything I can do. The reference to Charlie is apparently a reference to Phillip Arnell's young son.
6. Mr Betts does not deal with this alleged conversation in his affidavit. Nevertheless, in cross-examination, he accepted that at 10:07am on 21 July 2014 Phillip Arnell spoke to him on the telephone. Mr Betts said he could not recall what Phillip Arnell said to him on that occasion.
7. The fact that Phillip Arnell called Mr Betts on the telephone at that time is supported by records produced by Telstra.
8. Phillip Arnell deposed that he had a further telephone conversation with Mr Betts on 22 July 2014. He says that the conversation was to the following effect: Phillip Arnell: Just checking that you received my email yesterday? About renewing the lease? Mr Betts: Yes I did. Phillip Arnell: Good. I have also prepared a notice of renewal, if you would like to pick it up from the motel? Mr Betts: I will get it from you next time I am there.
9. The Telstra records show that Phillip Arnell called Mr Betts at 9:31am on 22 July 2014.
10. Mr Betts deposed that he did not recall the conversation. He accepted in cross-examination that there was a call at that time, but he could not remember any discussion about the email sent on the previous day, or a notice of renewal. Mr Betts ventured that it would have been significant to him if Phillip Arnell had spoken about a notice of renewal.
11. At about 1:47pm on 22 July 2014 Phillip Arnell sent another email to Mr Betts at the address "warwickbetts2@dodo.com.au". This email attached an email Phillip Arnell had earlier received from the owner of the adjoining property at the rear of the premises, about the cost of replacement of a fence. Mr Betts accepted in cross-examination that he received this email.
12. Phillip Arnell deposed that shortly after sending the email he telephoned Mr Betts and spoke to him about the fence. The Telstra records show that there was a call at 1:49pm on that day. Mr Betts does not refer to this alleged conversation in his affidavit. Evidence was given by the owner of the property at the rear to the effect that within a few days of 22 July 2014 he had a telephone conversation with Mr Betts in which Mr Betts said that he had "received your email with the fence quote that you sent to the motel". This evidence, which was not challenged, establishes that Mr Betts was at that time making use of the email account associated with the address "warwickbetts2@dodo.com.au". It is clear that he had opened and read at least the email about the fence.
13. The plaintiff adduced evidence from a forensic technology expert, Mr Rod McKemmish. He conducted a forensic analysis of the mailbox located on Phillip Arnell's laptop computer. Based on that analysis, Mr McKemmish expressed various opinions in his report, including: 1. the 21 July 2014 Renewal of Lease email had been successfully sent from the email account of "sales@obmotel.com.au"; 2. the 21 July 2014 Renewal of Lease email was received by the email server associated with the email account "warwickbetts2@dodo.com.au"; and 3. the 21 July 2014 Renewal of Lease email was downloaded to the email client programme of any computer accessing the "warwickbetts2@dodo.com.au" email account.
14. Mr McKemmish's report also includes the following: When an email is sent to a person's email address, the email is communicated from the sender's email server to the recipients email server. On receipt of the email, the recipient's email server verifies that the "To:" email address refers to a valid email account and places the email into the accounts inbox on the server. When the recipient next connects to the email server via their email client programme, the email is downloaded onto their local inbox on their computer/laptop/mobile device. … I am of the opinion that the email dated 21 July 2014 at 10:07am, under the subject heading "Renewal of Lease" was received by the email server associated with the email account "warwickbetts2@dodo.com.au", and therefore was downloaded by any email client programme connecting to this email account. … Once the email was delivered to the recipient's email server it becomes available for download by the email client programme the next time the email account was accessed. In my experience it is very rare for an incoming email that has been received and accepted by an email server to not be made available for download to the user of the email account. This is in part due to the high level of redundancy built into email systems.
15. After referring to the email sent by Phillip Arnell on 22 July 2014, Mr McKemmish further stated: The fact that the email account of "warwickbetts2@dodo.com.au" was able to receive emails from "sales@obmotel.com" within 24 hours of the 21 July 2014 Renewal of Lease email reinforces my view that the "warwickbetts2@dodo.com.au" server was operating correctly on 21 July 2014.
16. Mr McKemmish was not required for cross-examination.
17. The defendant adduced no evidence about any searches undertaken or analysis conducted in relation to whether the email sent on 21 July 2014 had been received by Mr Betts' email server, downloaded, or opened. The defendant retained a computer forensics expert (including for the purposes of determining whether the email had been received), but no report from the expert was served.
18. I am satisfied on the evidence, in particular that of Mr McKemmish, that the 21 July 2014 email was received by Mr Betts' email server and was downloaded to any computer or device that thereafter connected to the "warwickbetts2@dodo.com.au" email account. It appears that, at the latest, Mr Betts used a device to connect to that account within days of 21 July 2014. I also find that it is likely that Mr Betts saw and opened the email.
19. Within a few days of 21 July 2014 Mr Betts had gone to the inbox of the email account, opened and read the email sent by Phillip Arnell on 22 July 2014, and spoken on the telephone to the owner of the adjoining property about it. By this (or an earlier) connection to the email server, the 21 July 2014 email would have been downloaded into the inbox. It is unlikely that Mr Betts, having gone to the inbox, would leave the 21 July 2014 email unopened. He gave no evidence to the effect that he sometimes did not open emails in the inbox. That he would leave the email unopened is even less likely in circumstances where Phillip Arnell called him on the telephone almost immediately after the email was sent and spoke to him about it. Despite my assessment (referred to later in these reasons) that some of Phillip Arnell's evidence was unsatisfactory and unable to be accepted, I am prepared to accept that a conversation along the lines of that deposed to by Phillip Arnell occurred. It is inherently likely that the conversation concerned the email that had been sent moments earlier. Mr Betts, having been alerted to an email said to concern the renewal of the lease, is unlikely to have overlooked it or dismissed it as of no significance. Mr Betts is likely to have taken the trouble to look for the email and open it. I am further prepared to accept Phillip Arnell's evidence that during his telephone conversation with Mr Betts at about 9:31am on the following day, Mr Betts told him that he had received the email. Moreover, having been told about the email and seeing its subject "Renewal of lease", Mr Betts is likely to have taken the trouble to open it and read it.
20. The above conclusion concerning receipt of the 21 July 2014 email has been reached on the evidence, apart from the presumption that in my view arises in the circumstances under s 161(1)(d) of the Evidence Act 1995 (NSW). I should record that I do not regard Mr Betts' evidence about not recalling the receipt of the email (or indeed any other evidence adduced) as sufficient to raise doubt about the presumption.
21. I turn next to the question whether in these circumstances the plaintiff validly exercised the option to renew.
22. The terms of the option are contained in cl 21 of the lease. In my opinion, cl 21.1(2), read with cl 21(4), requires the lessee, not less than six months before the Termination Date, to serve a notice upon the lessor to the effect that the lessee wishes to lease the premises for the further term. The option must therefore be exercised by the service of a written notice that is to the requisite effect. An email may constitute written notice (see Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716 at [33]).
23. There is no doubt that the 21 July 2014 email was received not less than six months before the Termination Date. Further, the defendant was correct not to contend that the terms of the email were insufficient to constitute a valid notice of the exercise of the option. As only about one month remained for exercise of the option, renewal of the lease can be said to have then been due, and in those circumstances the email ought be read as conveying the plaintiff's wish to lease the premises for the next five years, being the first further term referred to in Item 15 of the Reference Schedule.
24. However, the defendant submitted that the email did not constitute a valid notice because cl 19(4) required the notice to be addressed to the defendant's address in Port Macquarie, and the email was not so addressed. I do not accept that submission.
25. Clause 19(4) does not in my view impose conditions that must be satisfied in order to exercise the option to renew. Reading the lease as a whole, it seems to me that the conditions that must be satisfied in order to exercise the option are only those contained within cl 21. Clause 19(4), which is part of a clause that is concerned with the subject of notices more generally, should be regarded as facultative, not mandatory, in relation to the service of a notice of exercise of the option. That is to say, cl 19(4) does not prescribe the exclusively available methods of service, as distinct from identifying in a non-exhaustive way certain methods that the parties agree to be sufficient (see Papantoniou v Stonewall Hotel Pty Ltd [2018] NSWCA 85 at [35] and [44]; FAI General Insurance Company Ltd (in liquidation) v Parras (2002) 55 NSWLR 498; [2002] NSWCA 334 at [39]-[40]). This is indicated by the expression "will be sufficiently served" at the commencement of the clause. That indication is not in my view overcome by the final sentence of cl 19(4). I agree with the submission made by the plaintiff to the effect that the final sentence applies only to notices that are served in accordance with cl 19(4)(c). All such notices must be addressed in accordance with the requirements of the final sentence which immediately follow. It would make no commercial sense to require a notice that was served personally, or a notice sent by facsimile, to be addressed in accordance with those requirements, failing which the service would be regarded as invalid (see Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617 at 622-3). I should add that I do not think that the final sentence of cl 19(4) is intended to apply to notices to the lessor generally, even notices not served in accordance with cl 19(4).
26. It follows from the above that the option to renew does not require the notice of exercise to be served in accordance with cl 19(4), including the final sentence thereof. It is enough if the notice of exercise has been "served" on the defendant within the meaning of cl 21.
27. In my opinion the 21 July 2014 email was so served. The email was received by Mr Betts' email server, then downloaded and likely opened and read by Mr Betts. The email can be considered to have been delivered to the sole director of the defendant, and brought to his attention, including by the words spoken in the telephone conversation on 21 July 2014. The email came to Mr Betts' notice and it is moreover likely that he became aware of its contents.
28. There can be no doubt (and the contrary was not suggested) that Mr Betts, as the sole director of the defendant who appears to have personally dealt with matters to do with the lease, had authority to receive and deal with any notice of exercise of the option.
29. Even if, contrary to my findings, Mr Betts did not proceed to open and read the email, I would still conclude that it had been served in accordance with cl 21. In that situation, the email would still have been received and downloaded, and its existence drawn to Mr Betts' attention by Phillip Arnell. That would be sufficient in my opinion (see Spencer v Bamber [2012] NSWCA 274 at [211]).
30. For the above reasons I have concluded that the plaintiff validly exercised the option to renew by serving written notice, in the form of the 21 July 2014 email, as required by cl 21 of the lease. The plaintiff thereby became entitled to the grant of a new lease in accordance with the terms of the option.

The handwritten notice

1. Phillip Arnell deposes as follows: On Saturday 2 August 2014, as best I can recall, around midday, Mr Betts came to the Ocean Breeze Motel unannounced. Sometime after 21 July 2014, but prior to Mr Betts arriving at the motel, I had handwritten a notice. I wrote words to the effect "We wish to take up the next 5 year option of the lease in the name of Kegran Pty Ltd". I remember making specific reference to Kegran Pty Ltd because my email on 21 July 2014 did not mention Kegran. I did not make a copy of the notice. I did not think that there was any dispute that I had exercised the renewal of the lease by the email. My purpose in providing Mr Betts with the handwritten note was so that he had the correct entity for the lease to be registered in. I do not now recall whether I was at the motel when Mr Betts arrived, or whether I arrived back at the motel shortly after. I recall being alone with Mr Betts, going to my desk and bringing over the notice I had prepared and handing it to Mr Betts saying words to the effect of: Phillip Arnell: "Here is the notice." Mr Betts took the notice. He was courteous and polite and did not stay long.
2. Mr Betts deposed as follows: I have no recollection of attending the Property on 2 August 2014 as referred to at paragraph 28 and 29 of the Phil Arnell Affidavit, paragraph 5 of the Rosemary Arnell Affidavit and paragraph 5 to 7 of the Mary Ann Arnell Affidavit. I have no recollection of Phil Arnell handing me a handwritten notice, on 2 August 2014 or at any time, as referred to at paragraphs 29 and 30 of the Phil Arnell Affidavit. If I had been handed a written notice by the Plaintiff exercising the option to renew the Lease, I would have immediately instructed my solicitors to prepare a new lease in accordance with my ordinary practice. At no time did I instruct my solicitor to prepare a new lease. If I had received a handwritten notice from the Plaintiff, I believe I would remember, as it was not usual for tenants to hand me written notices, and I would have immediately understood the significant [sic] of a notice to exercise an option to renew the Lease.
3. Phillip Arnell's account is corroborated to some extent by the evidence given by three other witnesses. Keith Arnell deposed that at about the time he received the 21 July 2014 email he had a conversation with Mr Betts in which Mr Betts said words to the following effect: I have just come back from the Ocean Breeze Motel and I have agreed with Phillip that we'll renew the lease for another five years. I am very proud of what we've achieved through economic cooperation.
4. Phillip Arnell's wife, Mary Arnell, deposed that Mr Betts came to the motel on Saturday 2 August 2014 and met with Phillip Arnell in the lounge room. She deposed that about 20 or 30 minutes later, after Mr Betts had left, she had a conversation with her husband in which he told her that Mr Betts had been there "to pick up the lease renewal notice".
5. Phillip Arnell's mother, Rosemary Arnell, was staying at the motel during the period from 11 July 2014 to 4 August 2014. One purpose of the visit was to be there when Phillip and Mary's second child was born. The child, Harry, was born on 26 July 2014. Rosemary Arnell deposed: On 2 August 2014 I recall having a conversation with Phil before he left the Motel on an errand. I know it was 2 August because I recall that it was a Saturday after Harry was born and 2 August was the only Saturday after Harry was born before we left Port Macquarie. Phil said to me words to the effect of: Phillip Arnell: If Warwick comes while I am out, then please let me know. I need to see him about renewing my lease.
6. Rosemary Arnell deposed that Mr Betts did come to the motel on that day. She further deposed that later that day she asked Phillip Arnell whether he had sorted out the lease renewal with Mr Betts, to which Phillip Arnell replied "Yes".
7. A deal of cross-examination was directed to the issue concerning the handwritten notice. Phillip Arnell initially stated, consistent with his affidavit, that he prepared the handwritten notice because the 21 July 2014 email had not included the plaintiff's name, and he "just wanted to make sure that it was abundantly clear". He had earlier agreed that when he sent the email he believed he was validly exercising the option. Phillip Arnell was then asked why he did not just send another email to Mr Betts rather than go to the trouble of preparing a handwritten notice. Phillip Arnell said that he "was also aware of what it said in the lease about prescribed methods of service". That had not been mentioned in his affidavit. He then said that he felt that sending an email might not be a prescribed method of service. He also said that one purpose of giving the handwritten notice to Mr Betts was to make sure that he had complied with the service requirements under the lease. Phillip Arnell agreed that he believed at the time that giving the handwritten notice was important. He said, in effect, that even though he sent a blind copy of the 21 July 2014 email to his father as "insurance", his failure to retain a copy of the handwritten notice was an oversight in circumstances where "there wasn't a dispute that the notice had been served".
8. Phillip Arnell's evidence on this matter, in particular as to the reasons why he prepared the handwritten notice and why he failed to make a copy or obtain some acknowledgement that it had been given, was unconvincing. The evidence is marked by inconsistencies, and significant departures from the account in his affidavit. In addition, it is noteworthy that in a number of later communications with Mr Betts about the renewal of the lease, in which reference was made to the 21 July 2014 email, there is no mention at all of any handwritten notice. I also found unconvincing his explanation for this omission, namely, that he did not mention it because, unlike the 21 July 2014 email, the handwritten notice was something which could be easily refuted. It is difficult to believe that if he had truly thought that notice by email might not be sufficient, and had in fact given a handwritten notice to Mr Betts as well, he would fail to mention it in any of the later communications.
9. Whilst I did not form a generally unfavourable impression of Phillip Arnell as a witness, I would not be prepared to accept his evidence on this topic unless it was corroborated by other evidence that is itself reliable.
10. The testimony given by Keith Arnell provides support for the view that not long after 21 July 2014 Mr Betts went to the motel and spoke to Phillip Arnell about the renewal of the lease. I am prepared to accept that testimony as being reasonably accurate. Keith Arnell generally gave his evidence in a satisfactory manner. I accept that he regarded the exercise of the option to renew as a matter of importance at that time, and had spoken to his son about attending to the matter. It is likely that he would recall a conversation with Mr Betts about it. I note, however, that Keith Arnell gave no evidence about any handwritten notice being given to Mr Betts.
11. The evidence of both Mary Arnell and Rosemary Arnell supports the view that Mr Betts attended the motel on 2 August 2014. Neither was an impressive witness and I would not be prepared to accept that either possessed any actual recollection of the details of any conversations that occurred at that time. However, in light of Keith Arnell's evidence, and in the absence of a firm denial from Mr Betts, I am prepared to find that it is likely that Mr Betts did go to the motel on 2 August 2014.
12. In my view it is likely that on that occasion there was some discussion between Mr Betts and Phillip Arnell about the renewal of the lease, the plaintiff's desire for which had earlier been notified in the 21 July 2014 email. It is also likely that in the course of that discussion Mr Betts expressed his agreement or at least acceptance that there would be a new lease for a further five years as desired by the plaintiff. I accept that he probably said something to that effect in his later conversation with Keith Arnell. In this regard I note that when the issue of renewal of the lease came up in early 2015, Phillip Arnell stated in an email to Mr Betts on 14 January 2015 that "the five year renewal was requested & agreed to by yourself". I accept the evidence given by Phillip Arnell in cross-examination that this was intended to be a reference to what had occurred in about July 2014.
13. However, viewing the evidence overall, I am not persuaded that when Mr Betts went to the motel Phillip Arnell gave him a handwritten notice as claimed. I do not accept Phillip Arnell's evidence about that matter. His account is corroborated only to a small extent by other evidence that can be accepted as reliable. I appreciate that Mary Arnell gave evidence that on the day Mr Betts attended the motel her husband spoke about a lease renewal notice, but I am unable to accept that those words, or other words about a renewal notice, were said. Rosemary Arnell referred in her evidence to Phillip Arnell stating that he needed to see Mr Betts about renewing the lease. I am prepared to accept that Phillip Arnell may have said something about speaking to Mr Betts about the lease, or even the renewal of the lease. But this is likely to have merely been a reflection of an intention to speak to Mr Betts about the matter, following the sending of the 21 July 2014 email, in order to gain Mr Betts' concurrence that the plaintiff would have a new lease.
14. It follows from the above that had I not concluded that the plaintiff had validly exercised the option to renew by serving written notice in the form of the 21 July 2014 email, I would not have concluded that the option had been exercised by service of a handwritten notice as alleged by the plaintiff.

Conclusion

1. A declaration should be made to the effect that the plaintiff validly exercised the first option to renew contained in registered lease AF361361 for the period from 1 March 2015 to 28 February 2020. There should also be an order that the agreement for the grant of the new lease that arose upon such exercise be specifically performed and carried into effect by the parties. The defendant did not suggest that there was any reason to withhold specific performance if, contrary to its case, the option had been validly exercised. Liberty to apply will be given to the parties in case any issue arises in respect of the performance of the agreement.
2. As the plaintiff has succeeded in obtaining the relief it sought, the Court will order that the defendant pay the plaintiff's costs of the proceedings.

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