Kingsley's Chicken Pty Ltd v Queensland Investment Corporation & Anor [2005] ACTSC 117

4. The Act was enacted in 2001 and its substantive provisions took effect from 1 July 2002. The Act replaced the Tenancy Tribunal Act 1994 and the Commercial and Retail Leases Code of Practice. The Act is intended to make comprehensive provision for the regulation of relationships between lessors and tenants of commercial and retail premises in the ACT. In particular, the Act applies, inter alia, to premises located in the retail area of a shopping centre (see s 12(1)(b) of the Act) and accordingly applied to the premises the subject of this appeal case. One particular aspect of the Act deals with a tenant's expectations of reasonable security of tenure. In that context, the Act provides for the extension of existing leases to a minimum term of five years and the Act sets in place statutory procedures for new leases to be given in respect of the same premises for the same or similar use.

5. A renewal of a lease under the Act is provided for in s 6(1) of the Act:

(1) A new lease is taken to be a renewal of another lease (the existing lease_) for this Act if the new lease is between the same parties as the existing lease and relates to the same premises and the premises are to be put to the same or similar use._

6. The objects of the Act in respect of the renewal of leases, are set out in s 106. That section provides:

106 Objects of div 12.2

(1) The Legislative Assembly recognises that conflicts sometimes happen between a lessor's expectation that the lessor will be able to deal with the leased premises subject only to the terms of the lease and a tenant's expectations of reasonable security of tenure.

(2) The objects of this division are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure fair dealing, as far as practicable, between lessor and tenant in relation to the renewal or extension of premises.

7. Although Mr Erskine, who appeared as counsel for the appellant, sought to make a special point of this provision, I do not think that it assists in the proper interpretation of the earlier provisions of the Act with respect to which this matter is concerned. In any event, as will appear, the interpretation for which Mr Erskine ultimately contends would not seem to me to give effect to those objects, particularly as to the emphasis on "fair dealing".

107 Lessor's intentions about renewal

(1) This section applies to all leases.

(2) The tenant may, in writing, ask the lessor to tell the tenant whether the lessor intends to renew the lease if--

(a) for a lease for longer than 1 year--the lease is due to end in not less than 6 months and not longer than 1 year; or

(b) in any other case--the lease is due to end in not less than 3 months and not longer than 6 months.

(3) If the lessor receives a request under subsection (2) on a day (the request day), the lessor must tell the tenant, in writing within 1 month after the request day, either that--

(a) the lessor proposes to renew the lease; or

(b) the lessor does not propose to renew the lease.

(4) If the lessor fails to notify the tenant under subsection (3), the lease is extended by a period equal to the period starting 1 month after the request day and ending when the lessor gives the tenant a notice that, apart from being late, complies with subsection (3).

9. That section of the Act enables a tenant, in writing, to ask a lessor to tell the tenant whether the lessor intends to renew a lease that is for a longer term than one year and making the request not less than six months and not longer than one year before it is due to end. That request was made in this case on 9 December 2002 and responded to by the lessor on 20 December 2002 within the one month period required by s 107(3) of the Act. The response was that the "lessor proposes to renew the lease".

10. After that date, I assume that the parties entered into negotiations for the purpose of giving effect to their intentions that the lessor offer and the tenant accept a new lease. However, it was not until a letter of 10 May 2004 that there is any evidence before me of what was proposed. That letter from the Retail Manager of the Canberra Centre to the Managing Director of the lessor enclosed what is said to be "a letter of offer" unsigned by the Retail Manager but purporting to act for the "Leasing Manager, ACT and NSW" together with a Disclosure Statement under the Act. I reproduce the letter and letter of offer:

10 May 2004

Mr Kingsley Vaar [sic]

Managing Director

Kingsley's Chicken Pty Ltd

PO Box 882

WODEN ACT 2606

SUBJECT TO LESSOR APPROVAL

Dear Mr Vaar [sic]

Re: CANBERRA CENTRE - SHOP CL15B PROPOSED LEASE

Enclosed is a letter of offer containing the terms and conditions of a lease dated 10 May 2004, a Disclosure Statement and the Owner's general form of lease which we are advised is consistent with the Leases (Commercial and Retail) Lease Act 2001. The Owner reserves the right to amend or replace the form of lease. [My emphasis]

Byvan Management (ACT) Pty Limited does not warrant that the form of lease complies with the Act. You should obtain independent legal advice to verify that the lease complies with the Act. Under the legislation the Owner is obliged to advise that the Act and handbook exists and that a copy of the Act may be purchased from ACT Government Shopfronts.

You are requested to acknowledge receipt of the above by signing the enclosed copy of this letter together with the executed letter of offer and Disclosure Statement. [My emphasis]

Yours faithfully

[Sgd]

Glen Campbell

RETAIL MANAGER

I/We acknowledge receipt of this letter and the enclosed letter of offer and disclosure statement.

DATED 2004

[Sgd] [Sgd]

Signature Print Name

10 May 2004

Mr Kingsley Vaar [sic]

Managing Director

Kingsley's Chicken Pty Ltd

PO Box 882

WODEN ACT 2606

SUBJECT TO LESSOR APPROVAL

Dear Mr Vaar [sic]

Re: CANBERRA CENTRE - SHOP CL15B PROPOSED LEASE

Further to recent correspondence and discussions regarding the tenancy for the above premises, we are pleased to advise the terms and conditions of a new lease by which we would be prepared to recommend acceptance by the Centre's Owners. [My emphasis]

If you are in agreement please confirm this by initialling each page, signing where indicated and returning the documents to this office.

[Items 1 - 28 set out the particulars of Lessor, Lessee, trading name, shop description, rental, term and other lease conditions.]

In accepting this offer you acknowledge that no promise, representation, warranty or undertaking has been made by us in relation to the potential of the premises to be leased and that the permitted usage does not imply any form of exclusivity. [My emphasis]

If you or your representatives have relied on any verbal or written representation, warranty or undertaking (that is not set out in this letter) which influenced you in considering a lease of the premises you should immediately advise us in writing (eg. by amending the attached disclosure statement) otherwise it is agreed by implication that no such events occurred.

We enclose:

(1) A photocopy of this letter of offer and request that you sign each page and return the duplicate letter of acceptance duly executed as acceptance to proceed. [My emphasis]

(2) Floor plans - general area

(3) A copy of our standard Memorandum of Provisions consistent with the Commercial and Retail Lease Code of Practice. The Memorandum of Provisions is to be read in conjunction with the letter of offer, and will, on execution of the leasing documentation, form an integral part of the lease. You should consult with your solicitor in the event that you are unclear as to the interpretation of any of the material provided.

(4) A copy of the Centre's fitout manual.

(5) The disclosure statement completed on behalf of the Lessor (two copies) and request that in acknowledgment of receipt sign and date the last page of both copies of the disclosure statement and return one completed copy along with the signed copy of this letter.

(6) A lease information form. We request you complete this self-explanatory form and return it to us.

(7) Collection of Information Statement by QIC regarding personal information.

We further acknowledge that the Lessor of the premises and the proposed Lessee are in no way bound until the lease documentation prepared by the Lessor's Solicitors is signed by the Lessee and the Lessor, and accordingly no contract is implied by this proposal and the acceptance of terms and conditions outlined. The acceptance of any offer is at the total discretion of the Owners. [My emphasis]

We await your reply in this matter at your earliest convenience. However, in the interim should you require any further information, please do not hesitate to contact the writer.

This proposal is open for your consideration for fourteen days from the date of this letter. Your response is therefore requested no later than 24 May 2004. [My emphasis]

Yours sincerely

[Sgd]

Glen Campbell

Retail Manager

For Tony Taylor, Leasing Manager, ACT and NSW

Encls.

Terms agreed as set out [Sgd] Dated: 10/6/04

11. There was then a purported acceptance by the tenant by a letter dated 10 June 2004 in a letter from the tenant's solicitors in these terms:

Thursday, 10 June 2004

Mr Paul Crawford

Mallesons Stephen Jaques

DX 5610

CANBERRA

Dear Sir

QUEENSLAND INVESTMENT CORPORATION AND CANBERRA CENTRE INVESTMENTS PTY LIMITED LEASE TO KINGSLEYS CHICKEN PTY LIMITED

SHOP CL15B CANBERRA CENTRE

We refer to your letter to us of 7 June 2004 and QIC Real Estate's letter of 4 June 2004 to our client Mr Varr of Kingsley's Chicken Pty Limited.

Our client is a monthly tenant, and that lease commenced on 31 October 2003. That lease entitles it to a right of preference.

We are also instructed to respond to QIC Real Estate's letter of 4 June 2004 which confirmed that the proposal for a lease renewal dated 10 May 2004 is available for acceptance on or before 5.00 pm on 11 June 2004. That proposal consists of a summary of the terms and conditions of an offer of a new lease. [My emphasis]

We are instructed to advise you that our client accepts this offer of a new lease subject to the rent being at market rent. Our client remains of the view that the rental does not represent market rent for the premises. [My emphasis]

We enclose the signed letter of 10 May 2004 and the Disclosure Statement.

Yours faithfully

COLQUHOUN MURPHY

[Sgd]

RIC LUCAS

ric.lucas@cmsolicitors.com.au

12. In response, the Retail Manager of the Canberra Centre, by letter dated 2 July 2004, advised that the solicitors were to draw up a lease and submit it for execution. I assume that this was done, although there is no evidence to this effect before me.

13. This correspondence formed the basis for an application to the Magistrates Court by the lessors, apparently pursuant to s 52 of the Act, to resolve the issue of market rent referred to in the above letter. The application did not specifically refer to s 52 but was said to be predicated on "Setting of initial rent on renewal of Lease of the Premises, pursuant to Item 10 of Section 17 of the Leases (Commercial and Retail) Act 2001". The reference is to Table 17 contained in s 17 of the Act "Table of disputes to which Act applies". Item 10 refers to "any other matter not covered ... in relation to a lease or negotiations for entering into a lease or in relation to the use or occupation of premises to which the lease relates".

The initial rent proposed by the lessor to be charged under the renewed lease exceeds the market rent for the premises, taking into account the Fixed Increase Review amounts proposed for 13 October 2004, 13 October 2005, 13 October 2006, and 13 October 2007.

15. Section 52 of the Act provides the procedure to resolve disputes about market rent and the circumstances in respect of which those procedures could be invoked. Judging by what happened, it seems that the parties accepted, at that stage, that this was the procedure to be adopted. The relevant provisions of s 52 provide:

52 Market rent--rent reviews, options and renewals

(1) Subsection (2) applies in relation to a lease if--

(a) the lease states that market rent is to be charged for premises; or

(b) ...

(2) The lessor or tenant may ask the Magistrates Court to refer a dispute about market rent for the lease for mediation if the lessor and tenant cannot agree on the market rent for the premises within 14 days after either tells the other that it disputes the proposed rent.

(3) The lessor or tenant may also ask the Magistrates Court to refer a dispute about the rent to be paid under a renewal to mediation if--

(a) the lessor--

(i) proposes to renew the lease and makes an offer to renew the lease in response to a request under section 107 (Lessor's intentions about renewal); or

(ii) ...

(iii) ...

(b) the tenant accepts the lessor's offer to renew the lease subject to the rent for the lease being market rent.

(4) On request under subsection (2) or (3), the Magistrates Court must--

(a) if the court considers that mediation would not be productive or if the parties agree--after consultation with the parties, appoint a valuer to work out the market rent; or

(b) refer the dispute to a mediator for mediation.

16. At the request of the parties the Magistrates Court, after consultation with the parties, appointed a valuer to work out the market rent in accordance with s 52(4)(a) of the Act.

17. However, when the valuer submitted his report the tenant sought to have the valuer disqualified and a new valuer appointed. Section 58 of the Act provides:

58 Appointment of new valuer in other cases

(1) A party to a lease may apply to the Magistrates Court for the appointment of a new valuer if the party has reasonable grounds for believing that--

(a) the valuer appointed to work out the market rent for the lease has failed to comply with section 57; or

(b) the valuer has failed to conduct a valuation in accordance with this Act.

(2) On application under subsection (1), the Magistrates Court may disqualify the valuer and appoint a new valuer.

It appears that the tenant's contention was that the valuation had not been conducted in accordance with the Act. This was based on what appears to me to be the surprising submission that the valuer had based his valuation on the market rent as at 13 October 2003, the date from which the lease was to be renewed. Apparently, according to the appellant, the valuation should have been made at the same date the valuation was made because s 56 of the Act provided that while the market rent was "being worked out", the original lease "is taken to continue on the same terms until 14 days after the rent for the renewed lease is worked out and the parties are told about it".

18. I would have thought that such a provision cannot affect the proper date of valuation of the market rent, that being the date fixed for the renewal of the lease, no matter what argument might be put for or against its application to the renewed lease. However, in the course of submissions on this issue as to the disqualification of the valuer, it transpired that the tenant wished to maintain that the tenant did not regard that it was bound to take a new lease in any event.

19. That submission that the tenant was not bound to accept the proposed renewal of the lease caused the magistrate to question the jurisdiction of the Magistrates Court to appoint the valuer in the first place. If the tenant did not consider that it was bound, then that called into question whether there was an offer to renew the lease that the tenant had accepted. As an offer to renew the lease and its acceptance is the condition precedent to the exercise of the Magistrates Court jurisdiction to appoint the valuer, that appointment was put in question. Neither party sought this result but it seems to me an inevitable consequence of the attitude adopted by the tenant, an attitude which directly went to the jurisdiction of the Magistrates Court to deal with the matter.

20. The tenant had not, it appears, executed the formal lease forwarded to it by the lessor's solicitors. The matter was therefore left for the appropriate characterisation to be given to the lessor's correspondence of 10 May 2004 and the tenant's letter of 10 June 2004. The issue was whether the lessor's correspondence constituted an offer to renew the lease for the purposes of s 52(3)(a)(i) of the Act and whether the tenant's letter in response constituted an acceptance of that offer for the purposes of s 52(3)(b) of the Act.

21. Like the magistrate, I am quite unable to construe the lessor's correspondence as constituting an offer to renew the lease having regard to the conditions and qualifications that are involved.

22. The magistrate, in his decision, analysed this correspondence in terms of whether it constituted a contractual offer. In particular, he cited a passage from the judgment of Dixon CJ, McTiernan and Kitto JJ in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360 where the court said:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

It is in the third case that the court held that the terms of agreement are not intended to have any binding effect of their own. The court went on to say that may be simply because of a wish to reserve a right to withdraw at anytime until the formal document is signed (Masters v Cameron (supra) at 360).

23. In my view, this case falls to be determined in the manner approved by the High Court in Masters v Cameron where the court cited a passage from Winn v Bull (1877) 7 Ch D 29:

The effect of the early cases on the subject was stated by Sir George Jessel MR in Winn v Bull (1877) 7 Ch D 29 when he said in a passage which has become well-known: "It comes, therefore, to this, that where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says; it is subject to and is dependent upon a formal contract being prepared. When it is not expressly stated to be subject to a formal contract it becomes a question of construction, whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail" ((1877) 7 Ch D, at 32).

24. I agree with the magistrate's analysis of the correspondence as falling into the category of a case in which the intention of the parties must be taken to not make a concluded bargain unless and until the parties execute a formal contract. The correspondence was clearly marked "subject to lessor approval". The owner reserved the right to amend or replace the term of lease. What was put forward was put on the basis of a recommendation of acceptance to the Centre's owners and there was an unequivocal declaration that the lessor and the tenant are "in no way bound" until execution of the documentation. Further, the "letter of offer" was described as a "proposal". Although for the purposes of invoking s 52 of the Act, the actual proposal relied upon for invoking that section could fairly be said to be the earlier response by the lessor on 20 December 2002 to the tenant's request on 9 December 2002, that does not mean that could be the only proposal that was made. The lessor's correspondence could be characterised as such a further proposal and was expressed, in its very terms, as not binding on the lessor as an offer to renew the lease.

25. It follows that, in the circumstances of this case, in my view the respondent's offer to renew the lease was constituted by the proffering of the formal lease document for execution.

26. Mr Erskine sought to say that the Act used the terms "proposed lease", "proposal" and "offer" in a confusing and incoherent fashion. I do not agree. The example to which he referred in s 28(2) of the Act (which recognises the situation where a tenant may give a copy of a proposed lease to the lessor as relieving the lessor from the obligation to do so) does not imply, as he suggests, that it is envisaged that a tenant can offer a lease. Rather, it is consistent with the fact that a lease proposed by either the lessor or the tenant will take effect when it is offered by the lessor and accepted by the tenant. It makes sense to say that a lessor offers a lease and the tenant accepts that offer. The converse does not.

27. Mr Erskine kept referring to the lessor's correspondence as being an offer but not an offer in a strictly contractual sense. I do not understand the distinction that he seeks to make. What is proposed is either capable of resulting in a contract or not. In the present case, the real meaning and effect of what the lessor proposed does not amount to an offer to renew the lease because what is proposed is conditional upon approval of the lessor and upon entry into a formal agreement. It is not, in my view, as a matter of construction an offer to renew the lease. The question of whether the term "offer" is used in a contractual or non-contractual sense is strictly not to the point. The question is whether the particular circumstance fulfils the statutory description of what is required. In this case, I am satisfied that it does not.

28. Mr Erskine also sought to suggest an incongruity in s 53 of the Act which recognises the offer to renew the lease and its acceptance as constituting an interim agreement. Section 53(4), (5) and (6) of the Act provides:

(4) If the parties to a lease enter into an interim agreement about renewing or extending the lease--

(a) the lessor cannot withdraw the offer to renew or extend; and

(b) the tenant cannot withdraw the acceptance of the offer.

(5) However, subsection (4) does not apply if the parties agree, after the interim agreement is entered into, that the offer or acceptance may be withdrawn.

(6) For subsections (4) and (5), an interim agreement is entered into if the tenant has accepted the lessor's offer to renew or extend the lease subject to the rent being market rent and, under section 52 (3), requested the Magistrates Court to refer a dispute about the rent for mediation.

29. Mr Erskine submitted that s 53(6) of the Act only operated to provide an interim agreement where it was only the tenant who had asked the Magistrates Court to refer the dispute about the rent to be paid to mediation under s 52(3). In the present case, he said it was the lessor who had made the request. Hence there was no interim agreement.

30. I do not accept that s 53(6) of the Act has that effect. I consider that the request is intended to encompass that made by either the tenant or the lessor. The overall purpose of the provisions concerning interim agreements would be defeated if, because it was the lessor and not the tenant who had made the application under s 52 of the Act, it was open to the lessor to withdraw the offer to renew.

31. The respondent did not appear to be heard on the hearing of this matter. On the hearing before the magistrate, there was an order that there be no order as to costs. The respondent took no part in these proceedings but requested this court make no order as to the costs of this appeal or the proceedings below. The respondent explained its position in a memorandum to the court, taking the view that this court's view, whatever it might be, would be advisory only. I take it that is because the appellant took and would, presumably, maintain its attitude that the agreement was not binding. As it transpired, the correctness or otherwise of that assumption was not in issue in the proceedings before me. In the circumstances, I do not need to consider whether the respondent's position is well-founded.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

Solicitor for the respondents: Mallesons Stephen Jaques