Laserbem Pty Ltd v Gainsville Investments Pty Ltd [2004] VSC 62

Supreme Court of Victoria|2004-03-03|Before: KAYE J.

Lease - Agreement to lease - Instruments Act s.126 - Property Law Act 752, 53, 53 (2) - part performance- equitable relief.

The plaintiff, Laserbem Pty Ltd ("Laserbem") is the owner of premises at 45 Chifley Drive, Preston ("the premises"). Those premises are zoned "general industrial" and have a lettable area of approximately 42,000 square feet. The plaintiff claims that in 2001 it leased, or agreed to lease, the premises to the first defendant, Gainsville Investments Pty Ltd ("Gainsville Investments") for a period of fourteen months from 1 January 2001. Gainsville Investments vacated the premises on 1 June 2001, and ceased to pay rent to Laserbem thereafter. Laserbem claims it is entitled to rent and outgoings, or damages for the period 1 June 2001 to 28 February 2002.

By a lease dated 4 February 1997 Laserbem let the premises to BTR Nylex ("BTR Nylex") for a period of five years from 1 January 1996. The initial rent was $250,000 per annum in the first year and $271,297 in the second year. Thereafter the rental was to be adjusted according to the consumer price index. For the fifth year of the lease, from 1 January 2000 to 31 December 2000, the rent was $286,600 per annum.

On a date unknown to Laserbem, BTR Nylex sublet the property to Gainsville Investments without the initial consent of Laserbem. As a result Gainsville Investments was in occupation of the premises from about 1998.

The plaintiff also owned the property which adjoined the premises, known as 1-3 Raglan Street, Preston ("the Raglan Street property"). Laserbem leased the Raglan Street property to ALM Pty Ltd pursuant to a lease which was due to expire on 31 March 2002. During 2000 Laserbem decided to combine the two properties, and to offer them for lease together. As part of that proposal Laserbem decided to demolish the Raglan Street property and construct an office building on it. The plan was to combine the new office building with the existing warehouse at the premises, so as to make it attractive as a head office for manufacturing corporations. By that means Laserbem considered that it would secure a higher rental rate for the two properties.

During 2000 Mr Paul Banks, a director and the project manager of the plaintiff, had discussions with ALM with a view to securing the surrender of ALM of its lease of the Raglan Street property in January 2001. From mid 2000 Mr Banks decided that if Gainsville Investments wished to take a lease of the premises for a period until the expiration of a current lease on the Raglan Street property in March 2002, he would delay development of the two sites until that time. On the other hand if Gainsville Investments did not wish to take a lease of the premises, then he would commence the development in January 2001.

From June 2000 Gray and Johnson, estate agents, as agents on behalf of Laserbem, entered into discussions with Gainsville Investments with a view to leasing the premises to Gainsville Investments after the expiration of the BTR Nylex lease on 31 December 2000. Gray and Johnson wrote an initial letter on 22 June 2000 to Gainsville Investments seeking the latter's advice whether it was interested in continuing the BTR Nylex tenancy. Thereafter Mr Colin Roebuck, the Principal of Gray and Johnson, had discussions with Mr George Gainsmith, the Director of Gainsville Investments. Following those discussions Mr Roebuck wrote a further letter dated 27 October 2000 to Gainsville Furniture. In that letter Mr Roebuck stated that Laserbem was prepared to grant a new tenancy for the period 1 January 2001 to 28 February 2002 to Gainsville Furniture at an annual rental of $250,520 plus outgoings. Mr Roebuck sought Mr Gainsmith's urgent advice whether he wished to accept Laserbem's offer. In response Mr Gainsmith made a verbal counteroffer of $200,000 per annum for the premises. Laserbem instructed Mr Roebuck to reject that proposal and to withdraw the offer of the tenancy to Gainsville Furniture. Accordingly Mr Roebuck wrote a letter dated 21 November 2000 to Gainsville Furniture, rejecting its counteroffer, and advising that Laserbem had instructed him to withdraw its offer. By a further letter to Gainsville Furniture dated 23 November 2000 Mr Roebuck advised that Laserbem would require vacant possession of the property on expiration of the BTR Nylex lease on 31 December 2000.

Messrs Cain and Lamers, solicitors for Gainsville Furniture (the business name of Gainsville Investments), then wrote a letter to Gray and Johnson dated 29 November 2000. In that letter it was noted that Gainsville Furniture had always been interested in continuing its occupancy of the premises, and, following the letter of Gray and Johnson of 27 October 2000, Gainsville Furniture felt confident that its occupancy would continue and relied on it on the offer that had been made to it. Cain and Lamers' letter then stated that Gainsville Furniture was prepared to pay annual rental of $250,520 and continue for twelve months or a shorter period of six months.

Mr Roebuck then sent a letter to Gainsville Investments dated 5 December 2000 addressed to Gainsville Investments which stated as follows:

"Dear George 45 Chifley Drive, Preston We refer to our telephone discussion this afternoon and our previous correspondence of 27 October 2000 and confirm that our client, Laserbem Pty Ltd, is prepared to grant a lease to your company on the following terms and conditions. Lessor: Laserbem Pty Ltd (address given) Lessee: Gainsville Investments Pty Ltd (ABN and address given) Commencement Date: 1 January 2001 Expiry Date: 28 February 2002 Rental: $250,520 per annum Outgoings: All building and statutory outgoings will be payable by the lessee on a monthly basis to be paid with the monthly rental payment. Special Conditions: 1. The lessee is to provide a bank guarantee for $250,000 being the equivalent of 12 months rental and this amount may be reduced by the equivalent of each monthly payment provided that the bank guarantee is always equivalent to the amount of the remaining rental plus $100,000 which is to be provided against any damage to the building during the course of the tenant's occupancy. Our client will provide an estimate of all outgoings for the term of the lease and at the termination of the lease period will adjust the amount to the actual outgoings assessed for the period. 2. The lessee shall be responsible for the lessor's cost of preparing the lease and any stamp duty payable under the lease. We trust that this arrangement is acceptable to your company and if so could you please confirm in writing at the earliest opportunity so that we can arrange for the lessor's solicitors, Foster Hart ... to prepare the necessary lease document."

By letter dated 8 December 2000 to Gray and Johnson, Cain and Lamers responded that, although their client definitely wished to proceed with the lease and the lessor's solicitors could be instructed accordingly, nevertheless Gainsville Investments had made enquiries concerning the bank guarantee and the provision of that guarantee did present Gainsville Investment with some difficulty. Cain and Lamers suggested a possible alternative by way of an additional security bond paid by Gainsville Investments.

By facsimile transmission dated 11 December 2000 to Cain and Lamers, Gray and Johnson responded that Laserbem had instructed them that the terms contained in the letter of 5 December were "non-negotiable". Gray and Johnson concluded its letter by stating:

"We can only proceed with the lease if all the conditions including the bank guarantee are included. Would you please advise urgently of your client's position."

In response, Cain and Lamers sent a facsimile transmission dated 13 December 2000 to Gray and Johnson which stated as follows:

"We refer to previous correspondence and in particular your letter dated 8 December 2000. We are now instructed by our client to accept the terms set out in your letter of 5 December 2000 including the bank guarantee. Please arrange for the lease to be prepared and forwarded. We are instructed that our client has taken immediate steps to arrange the bank guarantee but that it will be necessary for our client's banker to obtain valuations of assets in order to provide same."

In his witness statement which was tendered in evidence Mr Banks stated that as a result of the acceptance by Gainsville Investments of the terms proffered by Laserbem, such acceptance being expressed in the solicitor's letter of 13 December 2000, Mr Banks decided to pursue the lease of the premises and to postpone the development of the premises and the Raglan Street property until the expiration of both leases in 2002.

By letter dated 22 December 2000 Gray and Johnson advised Gainsville Investments that the leases for the property would not be prepared in time for Gainsville Investments to sign before occupation. Gray and Johnson in the meantime requested Gainsville Investments to pay the January rent to a bank account nominated by it. The letter stated the amount of rental including outgoings to be paid by Gainsville Investments, including an amount for Goods and Services tax.

Gainsville Investments remained in possession of the premises until 1 June 2001. On 18 February 2001 Mr Banks sent a tax invoice to Gainsville Investments. That company paid the rental nominated by the tax invoice until the end of May 2001. Gainsville Investments vacated the premises on about 1 June 2001 and thereafter ceased to pay rent.

In the meantime, by letter dated 5 January 2001 the plaintiff's solicitors, Messrs Foster Hart, enclosed a lease in triplicate for execution by Gainsville Investments. The letter noted that the lease commenced on 1 January 2001, and requested, at the earliest convenience of Gainsville Investments, an executed lease in triplicate, signed stamped duty letter, a cheque for the stamp duty, a cheque payable to Foster Hart for reimbursement of costs and expenses, and the bank guarantee. In a further letter dated 17 January 2001 addressed to Gainsville Investments, Foster Hart requested the executed lease and accompanying documents at "your earliest convenience". A secretary of Foster Hart made a follow-up telephone conversation on 31 January 2001 to the accountant of Gainsville Investments, who advised that Mr Gainsmith was overseas until the following week. Mr Hart, the solicitor handing the matter at Foster Hart, sent a letter to Mr Hall dated 1 February 2001 enclosing copies of the letters of 5 January and 17 January, and noting that an annexure had been now inserted into the original lease documents. On 13 March 2001 Mr Hart's secretary made a follow-up telephone call to the first defendant, and was advised by Mr Hall that he would chase up what was happening with the lease. Mr Hart then sent a letter dated 19 March 2001 to Mr Hall of Gainsville Investments requesting the signed lease and supporting documentation "as a matter of urgency".

On 18 April 2001 Mr Hart sent a further letter to Gainsville Investments. The letter set out the history of correspondence which had been sent to the first defendant without producing any response. The letter then stated:

"You are in breach of these tenancy arrangements. Without limitation you have failed to execute and return the lease documents within a reasonable period of time. You have failed or refused to provide the bank guarantee as specified in the landlord's agent's letter of 5 December 2000. Unless the executed lease together with the signed stamp duty letter, the cheques to the State Revenue Office and this firm and the bank guarantee (in accordance with Clause 2.36 of the lease) are returned to us by 4.00 pm on Tuesday 24 April 2001 our client will consider the default referred to in the above paragraph as a repudiation on the part of Gainsville Investments Pty Ltd of the tenancy agreement."

Messrs Cain and Lamers on behalf of Gainsville Investments then sent a reply to Foster Hart dated 20 April 2001. In essence Gainsville Investments sought to vary the lease by paying rental two months in advance in lieu of the provision of the bank guarantee. Foster Hart responded by a letter dated 24 April 2001 stating that Laserbem expected the matter to be finalised by 4.00 pm Monday 30 April 2001. The letter stated that Laserbem required the bank guarantee for the full amount. Cain and Lamers responded by a letter dated 30 April 2001 requesting whether Gainsville Investments would agree to three months' rental in advance in lieu of the bank guarantee. By reply dated 1 May 2001 Mr Hart stated:

"... our client's position remains as stated in our letter to you of 24 April 2001 and we note that unless the executed lease documents, together with stamp duty letter, the cheques to the State Revenue Office and this firm and the bank guarantee, are returned by 5.00 pm on Wednesday 2 May 2001, our client will proceed in the manner advised in our letter to your client's director of 18 April 2001."

Subsequently further correspondence ensued. By letter dated 1 June 2001 Cain and Lamers wrote to Foster Hart stating:

"We are instructed that because of the disputation over occupancy of the premises and your client's instructions to you that possession would be retaken. Our clients have vacated the premises and returned the keys to the agent."

The primary claim made by the plaintiff is based on a lease which it alleges took effect by the entry to possession of the premises by Gainsville Investments on 1 January 2001. The plaintiff claims that the lease was implied from the taking of possession of the premises and payment of rent by Gainsville Investments. The plaintiff alleges that the terms of the lease were contained in the correspondence which I have referred to, and in particular the letter of its solicitors dated 5 December 2000, and the letter of Gainsville Investments solicitors dated 13 December 2000. Alternatively the plaintiff claims that the parties entered into an agreement to lease which was constituted by that correspondence. The plaintiff claims outstanding rent and outgoings for the period 1 June 2001 to 28 February 2002 totalling $227,330.

At the commencement of the trial the plaintiff also made claims against both Gainsville Investments and the second defendant, George Gainsmith, pursuant so s.52 of The Trade Practices Act 1974 and in s.11 of the Fair Trading Act 1986. After the completion of openings it was agreed between the parties that those claims would be discontinued by the plaintiff. Accordingly I made orders, by consent, that the proceedings against the second defendant, George Gainsmith, be dismissed with no orders as to costs.

The principal defences relied upon by Gainsville Investments are as follows:

1. There was no concluded lease, or agreement to lease, constituted between the plaintiff and the first defendant. In particular, it was argued that, at most, any arrangement reached between the parties should be characterised as the "third class" of arrangement identified in Masters v Cameron [1], namely, an arrangement whereby the parties did not intend to make a concluded bargain at all unless and until they executed a formal lease document.

2. If there was a concluded lease or agreement to lease, any claim for damages in respect of a breach of the lease or agreement to lease was unenforceable pursuant to s.126 of the Instrument Act 1958, or alternatively pursuant to ss.52 and 53 of the Property Law Act 1958.

3. The plaintiff has not established acts of part performance unequivocally referable to any such lease or agreement to lease, on which the plaintiff might rely in order to avoid the operation of s.126 of the Instruments Act and ss.52 and 53 of the Property Law Act.

4. If such acts of part performance have been established, the plaintiff would only be entitled to equitable relief. The plaintiff has not claimed specific performance. Nor could it, since it has accepted the first defendant's repudiation of any lease or agreement to lease and has determined that lease or agreement to lease.

5. In any event equity would not grant a decree of specific performance because it would be futile to do so, given that the term of the intended lease is now expired. Accordingly equitable damages, pursuant to s.38 of the Supreme Court Act, may not be afforded in lieu of any such decree.

6. The plaintiff acted unconscionably and does not come to the Court with "clean hands". It was alleged that the plaintiff threatened to lock-out the first defendant from the premises. Accordingly it is not entitled to seek equity from the Court.

7. If the plaintiff is no longer in a position to complete its bargain and therefore, as a matter of mutuality, is not entitled to equitable relief against the first defendant.

8. The lease was surrendered by operation of law and thus all the residual obligations on record under it were brought to an end.

The first question is whether, in December 2000, the parties entered into an agreement to lease the premises to Gainsville Investments. In my view it is clear that the correspondence between the parties in December 2000, and in particular the letter of Gray and Johnson to Gainsville Investments dated 5 December 2000, and its acceptance by the letter from Cain and Lamers dated 13 December 2000, sufficed to constitute an agreement at law between the plaintiff and the first defendant. It is beyond argument that there was an intention between the parties that they create legal relations. The content, tenor and subject matter of the correspondence make that conclusion inevitable. The correspondence sufficiently identifies the essential requirements of an agreement, namely, the parties, the subject matter, the period of the lease and the rental. Mr Connor, who appeared on behalf of Gainsville Investments, did not argue to the contrary, other than to suggest that the rental was uncertain because the letter of Gray and Johnson of 5 December 2000 did not specify whether the rental included the amount of goods and services tax payable in respect of it. I reject that submissions. The terms of the Gray and Johnson letter are clear. It specifies a rental of $250,520 per annum. It requires of payment of no other sum. In particular, it requires no other payment of any additional amount in respect of goods and services tax.

Mr Connor's principal point, in support of his submission that the correspondence of December 2000 did not constitute a legally binding agreement, was that the intention of the parties was not to make and conclude an agreement until they had executed a formal lease. Mr Connor referred to the last sentence of the letter of 5 December 2000, and the second last paragraph of the letter of Cain and Lamers dated 13 December 2000, each of which referred to the preparation of a lease for execution by the parties. Mr Connor contended that the reference, in the correspondence, to the preparation of a lease, brought the agreement within the third category of cases referred to in the joint judgment of the High Court in Masters v Cameron[2], namely, an arrangement in which the intention of the parties is not to make a concluded bargain at all unless and until they execute a formal contract. I also reject that submission. It is clear by the correspondence, and in particular the letters of 5 December 2000 and 13 December 2000 to which I have referred, that the parties made an agreement for the lease of the premises. The purpose of such an agreement is to provide for the preparation and execution of a lease. The fact that an agreement to lease refers to the preparation and execution of a lease does not make the agreement to the lease conditional upon the preparation and execution of the lease. Accordingly I accept that the plaintiff and the defendant, in the correspondence of December 2000, did enter into an agreement to lease the premises to the first defendant.

The next question is whether the plaintiff and the first defendant, subsequent to the making of that agreement, in fact entered into a lease on 1 January 2001. The plaintiff claims that such a lease was partly written, consisting of the two letters to which I have just referred, and partly implied, from the continuation in possession by the first defendant as a tenant from 1 January 2001 and the acceptance by the first defendant of the request to pay rent as set out in the letter of 22 December 2000 from Gray and Johnson to the first defendant.

The letter by Gray and Johnson to Gainsville Investments dated 22 December 2000, by its terms, permitted Gainsville Investments to remain in occupation of the premises, notwithstanding that the lease had not been executed by the parties. The first defendant remained in occupation of the premises, but, in doing so, assumed a direct liability to pay rental to the plaintiff, rather than continue in the role of a sub- tenant to BTR Nylex. Further the first defendant paid the rental specified by the letter of Gray and Johnson of 22 December 2000. I consider that those circumstances lead to the conclusion that, from 1 January 2001, the first defendant was in possession of the premises pursuant to a relationship between the plaintiff and itself of landlord and tenant.

Mr Connor submits that there was not then a binding lease between the plaintiff and the first defendant, since any such lease agreement between the parties was subject to and conditional upon the execution by the parties of a formal lease document. There is no correspondence between the parties which contains such a condition. Nor was any conversation proven in evidence to the same effect. In my view there is nothing in the circumstances of the first defendant remaining in possession of the premises after 1 January 2001 which rendered its status as a tenant of the plaintiff subject to and conditional upon the execution of the lease.

The next issue is what were the terms of the tenancy relationship constituted between the plaintiff and the defendant as from 1 January 2001. The plaintiff contended that the lease constituted between the plaintiff and the defendant as from 1 January 2001 was partly implied and partly in writing. Insofar as it was in writing, the plaintiff claims that the terms were those set out in the Gray and Johnson letter dated 5 December 2000, which terms had been accepted by the letter of Cain and Lamers dated 13 December 2000. Mr Connor did not contend that, at law, a lease may not be constituted by a process of implication deriving from, first, an antecedent agreement to lease, and secondly, from the payment and acceptance of rent, and thirdly from the entry or remaining in possession of the demised premises by the tenant. Rather, Mr Connor contended that, in the present case, the facts did not give rise to such an implied lease. I consider that the evidence establishes that the relationship of landlord and tenant which existed between the parties from 1 January 2001 was on the terms of the Gray and Johnson letter dated 5 December 2000 which had been accepted by the letter of Cain and Lamers dated 13 December 2000. The facts of the present case go beyond a mere agreement to lease, entry into possession by a tenant, and payment of rental by the tenant. The relevant facts include the following. By December 2000 the defendant had an urgent need to lease a warehouse for its large stock of furniture. When the plaintiff had withdrawn from negotiations, the defendant, by its solicitor's letter of 29 November 2000, contended that it had relied on the plaintiff's previous offer "as to its security of tenure". In the ensuing negotiations, the plaintiff insisted that the terms proffered by it be accepted by the defendant. In particular, it peremptorily rejected any attempt by the defendant to renegotiate the terms of the offer of 5 December 2000. Accordingly the agreement to lease was concluded on those terms. By that time, it was evident that the proposed tenancy would commence before the parties were able to have prepared and executed formal leases. The letter of Gray and Johnson dated 22 December 2000 stipulated the rental to be paid by the defendant from 1 January 2001, which rental was clearly referable to the terms of the agreement to lease, but also included goods and services tax. That rental was paid by the defendant and accepted by the plaintiff as from January 2001 to May 2001. In that context it is implicit in the circumstances that the tenancy of the first defendant, after 31 December 2000, was on the basis of the terms agreed between the parties in December 2000. Accordingly, I conclude there was, between the parties, a lease of the premises from 1 January 2001, the principal terms of which were contained in the Gray and Johnson letter dated 5 December 2000.

For the purposes of completeness I should refer to two matters of law which were not the subject of submission before me. First, it is well established at common law that entry into occupation followed by payment of rent under an agreement for lease brings into existence a common law tenancy from year to year, so long as the payment of rent is referable to a yearly tenancy, as where it is for an aliquot part of a year. Such a tenancy is imputed as a matter of law, as distinct from being implied or inferred from the facts of the case; Doe d Thomson v Amey [3](per Patteson J); Moore v Diamond [4](per Knox CJ, Rich and Dixson JJ), and at 122 (per Isaacs J); Chan v Cresdon Pty Ltd[5]. Neither party sought to rely on such a doctrine in this case. The authorities do not exclude a process of implying a lease, and the terms of that lease, from the background circumstances of the case, including an antecedent agreement to lease. Rather the doctrine applies where that process of implication is either not available or not relied upon, and provides for an imputation as a matter of law; Beattie v Fine[6]; Dennis and Copley v Edie[7]; Morison v Edmiston[8]; Moore v Dimond (above)[9].

The other doctrine which the parties did not resort to is the principle established in Walsh v Lonsdale[10]. I expect that the plaintiff may not have relied on that principle because of the limitations to it referred to in the judgment of the High Court in Chan's case (above)[11].

The first defendant next contends that s.126 of the Instruments Act 1958 has the effect that no action at law for payment of outstanding rent, or damages, may be brought by the plaintiff in respect of both the agreement to lease and the lease itself.

Section 126 of the Instruments Act 1958, which is derived from s.4 of the Statute of Frauds 1677, provides:

"An action must not be brought to charge a person upon a special promise to answer for the debts, default or miscarriage of another person or upon a contract for the sale or disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note."

Mr P Riordan SC, who appeared for the plaintiff with Ms A Hassan, correctly conceded that s.126 of the Instruments Act applies to an agreement for lease; Kewley v Ball[12]; Inman v Stamp[13]. However he contended that s.126 of the Instruments Act does not apply to a lease. On the other hand Mr Connor, for the defendant, contended that s.126 does apply to, inter alia, a lease, because of the reference in it to "or other disposition of an interest in land".

I consider that the submission of Mr Riordan is correct. Section 126 only applies to agreements for lease. On a proper construction of s.126, the phrase "or other disposition" is dependent on the phrase, immediately before it, "upon a contract for ...". In other words, s.126 provides that an action may not be brought to charge a person upon (inter alia) a contract for the sale, or a contract for other disposition of an interest in land. That construction follows from the following considerations:

(i) As a matter of syntax, the phrase "or upon a contract for the" must govern, not only the next word "sale", but also the phrase " or other disposition." If the words "or other disposition" were not governed by the words "upon a contract for the", s.126 would be unintelligible and would read as follows:

"An action must not be brought... upon ... other disposition ..."

(ii) The exception to the operation of s.126 - "unless the agreement on which action is brought, or a memorandum or note of the agreement ..." - clearly connotes that s.126 applies to agreements (or contracts), including contracts for the disposition of an interest in land, as distinct from the actual disposition of the interest itself.

(iii) The first part of s.126 relates to a "special promise to answer for the debt, default or miscarriage of another person". It thereby reinforces the notion that s.126 is intended to apply to promises or contracts.

(iv) Historically s.126 of the Instrument Act derives from s.4 of the Statute of Frauds 1677. That section was concerned with actions brought to enforce a variety of parol promises and contracts. On the other hand, ss.1, 2 and 3 of the Statute of Frauds, which were the predecessors of, but in different terms to, ss.53 and 54 of the Property Law Act were concerned with leases and other dispositions of land.

Mr Connor was unable to produce any authority for the proposition that s.126 of the Instruments Act applies to parol leases. Indeed, the authorities indicate quite the contrary. In particular, the reported authorities have assumed a dichotomy between ss.1 and 2 of the Statute of Frauds (and the successors to those sections) which were concerned with leases, and s.4 of the Statute of Frauds (and its successors) which has been regarded as being applicable to contracts for leases; see for example Ryley v Hicks[14]; Inman v Stamp (above); Edge v Strafford[15]. Further, there are dicta in the authorities which also expressed the view that ss.52 to 54 of the Property Law Act (or the equivalent thereto) apply to leases and dispositions of property, whereas s.126 of the Instruments Act only applies to agreements to lease; see Dennis and Copley v Eddie[16]; Abjornson v Urban Newspapers Pty Ltd[17]; Kewley v Ball [18](I note that an unrelated dictum in this last decision was disapproved by the High Court in Perpetual Executors and Trustee Association of Australia Limited v[19].

The next question is whether the lease was affected and by s52 and s.53(1)(a) of the Property Law Act. Section 52(1) provides that all conveyances (which is defined to include lease) of lands or any interest therein are void unless made by deed. Section 53(1)(a) provides that no interest in land can be created or disposed of except by writing signed by the person creating or conveying it, or by his lawful agent lawfully authorised in writing, by will, or by operation of law. Section 54(1) provides that all interests in land created by parol shall have the effect of interests at will only. Those provisions would apply to the lease in this case, unless s.54(2) applies to it. That sub-section provides:

"Nothing in the foregoing provisions of this Division shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine."

The critical question is whether the lease between the plaintiff and the first defendant was a lease "taking effect in possession" for the purposes of s.54(2) of the Property Law Act. Mr Connor for the defendant contends that the lease between the plaintiff and the first defendant did not take effect in possession. There were two steps to Mr Connor's argument:

(a) in order that a lease "take effect in possession", it must take effect in possession at the time of the making of the lease;

(b) any lease between the parties did not take effect at the time of the making of the lease. If there was any lease, it was constituted by 13 December 2000, and yet it did not take effect in possession until (at the earliest) 1 January 2001.

The first step of Mr Connor's submission is well supported by authority. The principal and most applicable case is the decision of Mr James Mundy QC sitting as a Deputy High Court Judge in Long v Tower Hamlets London Borough Council [20]. That case concerned a lease constituted by a letter of offer of the plaintiff lessor dated 4 September 1975, on which the defendant tenant endorsed his acceptance. The letter provided that the tenancy was to commence on 29 September 1995. The question was whether the letter constituted a "lease in writing" for the purposes of the Limitation Act 1980 (United Kingdom). Mr Mundy QC held that, in order that it be a lease in writing, it must be effective at law. The tenancy agreement was not constituted by a deed. Accordingly, in order that it be effective, it must come within s.54(2) of the Law of Property Act 1925 (which is the equivalent to s.54(2) of the Property Law Act). Mr Mundy QC considered the history of the relevant legislation at some length. He concluded that, in order that a lease take effect in possession for the purposes of s.54(2), the lease must take into effect in possession at the time of the actual making of the lease. The decision in Long's case is consistent with obiter dicta in Haselhurst v Elliot [21]and at Abjornson v Urban Newspapers Pty Ltd [22](per Kennedy J) and (by Franklyn J).

Thus I accept the first step of Mr Connor's argument. However, for the reasons which I have already set out above when considering the question whether a lease was constituted between the parties, I reject the second step in Mr Connor's submissions. Mr Connor's submission was, basically, that any lease constituted between the parties was made in the correspondence in December 2000. However, as I have already determined, no such lease was then constituted. I have concluded that the December correspondence constituted an agreement to lease, but not a lease. The lease agreement itself was not constituted until the defendant had possession of the premises as direct tenant to the plaintiff as from 1 January 2001. As I have already held, the fact of that possession, and the payment of rental by the defendant to the plaintiff thereafter, gave rise to an implied tenancy, the terms of which were in accordance with the antecedent agreement to lease. Accordingly, I conclude that s.54(2) of the Property Law Act does apply to the lease constituted between the plaintiff and the defendant. It therefore follows that that lease was enforceable at law between the plaintiff and the defendant.

The defendant proffered three defences to the claim under the lease, namely:

(a) There was a surrender of the lease from 1 June 2001 which put an end to any obligations under it;

(b) It is unconscionable for the plaintiff to now rely on its legal rights under the lease;

(c) In any event the plaintiff was allowed to mitigate its loss.

Surrender

The defendant contends that if there was a concluded agreement it came to an end by surrender. It was argued that the surrender by operation of law took effect on the plaintiff taking possession and activating its plans to renovate its premises before the end of the term.

As the facts reveal, the defendant unilaterally departed from the premises on or about 1 June 2001. Thereafter the plaintiff did seek, first, to relet the premises, and then, to put into effect its plans to renovate the premises in the Raglan Street premises. No authority was cited to me how such actions could, at law, constitute a surrender of the lease. In my view, none of the facts relied on by the defendant constituted any form of surrender or putting an end to the obligations of the defendant under the lease.

In defence both to the claim under the lease, and the claim in equity under the agreement to lease, the defendant alleged that it left the premises because of threats made to it by the plaintiff to lock it out of the premises. In defence of the claim under the lease the defendant claimed that such alleged conduct, if established, constituted unconscionable conduct disentitling the plaintiff to rely on this remedy of law under the lease.

The defendant claimed that the threats made to it were both in writing and verbal. So far as the threats were said to be in writing the defendant relied on the letter sent by the plaintiff's solicitors to the defendant dated 18 April 2001 in which it stated that unless the relevant documentation was executed and returned the plaintiff would consider the default of the defendant in doing so as a "repudiation" of the tenancy agreement. The defendant also referred to the letter of the plaintiff's solicitors dated 1 May 2001 which stated that, unless the documents were returned by 2 May 2001, the plaintiff would "proceed in the manner advised in our letter to your client's director of 18 April 2001."

Neither of those letters contained any express threat to evict or lock out the defendant from the premises. Further I do not consider that they contained any implied threat to do so. Indeed, it seems plain from the letters that the plaintiff's solicitors, on behalf of the plaintiff, were keeping the options of the plaintiff open.

The defendant also relied on two alleged verbal threats of eviction made to it in the months preceding its departure from the premises on 1 June 2001. First, it relied on the evidence of its director, Mr George Gainsmith, who stated that in April 2001 he had telephone conversation with Mr Banks, a director of the plaintiff. Mr Gainsmith gave evidence that Banks said to him words to the effect that unless Gainsville Investments was prepared to fully agree with the terms of the lease there would be no lease agreement and Gainsville Investments would be locked out of the warehouse at 45 Chifley Drive, Preston without having any access to remove its furniture stored in the premises. Mr Banks, in evidence, denied that conversation. Both witnesses were cross examined in relation to that conversation. Having seen both witnesses cross examined, and considered the evidence, I do not accept, as a matter of probability, Mr Gainsmith's evidence that the conversation occurred, for a number of reasons. Mr Banks' evidence was clear and unequivocal. By contrast Mr Gainsmith clearly had a poor ability to recall conversations. He was unable to recall a number of other important conversations which are referred to in the correspondence. It is significant that Mr Gainsmith, in his witness statement, stated that on 4 May 2001 his solicitor, Mr Peter Lamers, informed him that the plaintiff's solicitor had told him (Lamers) that if Gainsville Investments did not give Laserbem a bank guarantee and sign the lease, Laserbem would take the view that any arrangement between Laserbem and Gainsville Investments was void. For reasons which I shall set out below, I do not accept that any such conversation occurred between Mr Lamers and the solicitors for the plaintiff. However, and in any event, when cross examined on this aspect of his witness statement, and without reference to the witness statement, Mr Gainsmith did not recall any conversation with Mr Lamers concerning the conversation which Mr Lamers had with Foster Hart on 4 May 2001. Yet, when he was shown his witness statement, he professed to have a recall of the conversation. On any view, it seemed clear to me that Mr Gainsmith's ability to accurately recall conversations was not good. Further, and as a matter of credit, Mr Gainsmith stated in evidence that he was unable to give the bank guarantee requested because it was not approved by the bank. He said that he did not sign the lease and return it because "we were unable to get the bank guarantee at the time." (Transcript page 125). On further cross examination that answer was clearly incorrect. The bank in fact offered a guarantee, but for commercial reasons, Mr Gainsmith did not wish to give the security requested of him by the bank. There were other contradictions in Mr Gainsmith's evidence. Accordingly I do not accept the evidence of Mr Gainsmith that, in April 2001 or at any time thereabouts, Mr Banks on behalf of the plaintiff made threat to lock the defendant out of the premises.

The defendant's solicitor, Mr Lamers, also gave evidence that, in a telephone conversation with Mr David Hart of Foster Hart on 4 May 2001, Mr Hart told Mr Lamers that unless Gainsville Investments gave a bank guarantee and signed the form of lease proffered by the plaintiff, his client would consider any arrangement between Laserbem and Gainsville Investments to be void and that Laserbem would retake possession of the premises. Mr Hart denied that conversation and his evidence was not adversely affected by cross examination. On the other hand Mr Lamers, in evidence, produced his diary note of the conversation. That diary note (Exhibit 341) contained no reference to Mr Hart stating that his client would consider the arrangement is void and would retake possession of the premises if the defendant failed to provide the lease documents to it. The only relevant entry on the diary note were the words "repudiating behaviour". Mr Laser candidly stated that he had no independent memory of the conversation apart from that recorded in the diary note. In those circumstances, I do not accept that the plaintiff's solicitor did make the threat attributed to him in the telephone conversation in 4 May 2001.

In those circumstances the factual basis for the defence of unconscionability is not made out. In any event, if such threats were made, I do not consider that the making of such threats, or anything similar to them, would have constituted unconscionable conduct in the circumstances. For a number of months the plaintiff had patiently pressed the defendant to provide these documents and the bank guarantee. The defendant had stalled in doing so. In that context, if the threats attributed to the plaintiff and its solicitors had been made, I do not consider that those threats would have constituted unconscionable conduct disentitling the plaintiff to rely on its legal rights under the lease.

The plaintiff's claim under the lease is for unpaid rental and outgoings for the balance of the term from 1 June 2001 to 28 February 2002. That claim is not for damages. Accordingly no issue of mitigation of loss arises; Meridakis v Kauvaris[23].

It follows from the foregoing that I concluded there was a valid and binding lease between the plaintiff and the defendant, the defendant breached that lease, and the plaintiff is entitled to cover the outstanding rent and outgoings under the lease from the period 1 June 2001 to 28 February 2002. The defendant did not contest that the amount of rent and outgoings, if payable, was to be calculated in accordance with the rates referred to in the Gray and Johnson Letter dated 22 December 2000.

The conclusion which I have reached renders it unnecessary for me to consider and determine the plaintiff's claims in equity which were made on the basis that the plaintiff is not entitled to recover at law under the lease. Nevertheless I shall, albeit briefly, consider the claims in equity made by the plaintiff and the responses made to them by the defendant.

The plaintiff relied on the doctrine of part performance in order to claim equitable relief in respect of the agreement to lease made in December 2000, should it fail in its claim under the lease. The plaintiff also relied on the doctrine of part performance should I hold that the lease constituted between itself and the defendant was not saved by s.54(2) from the operation of ss.52 and 53(1) of the Property Law Act.

The principal acts of that part performance on which the plaintiff relied are, firstly, the plaintiff permitting the defendant to remain in possession of the premises after 1 January 2001 thereby constituting the defendant a tenant of the plaintiff, and, secondly the acceptance by the plaintiff from the defendant of an amount of rental less than that payable under the BTR Nylex lease as at 31 December 2000.

The principles in relation to the doctrine of part performance are well established in the authorities. In particular in order that the act or acts of part performance relied upon are sufficient the following must be satisfied:

(a) The act relied on must be unequivocally and its own nature referable to "some such agreement as that alleged";

(b) By "some such agreement as that alleged" is meant some contract of the general nature alleged;

(c) The act or acts of part performance must be those of the plaintiff who is a party to the agreement;

(d) There must be a completed agreement between the parties;

(e) The act or acts must be done under and pursuant to the terms of the agreement.

See McBride v Sandland [24](per Isaacs and Rich JJ); Maddison v Alderson [25](per Earl Selborne LC); Thwaites v Ryan [26](per Fullagar J).

In the present case each of the above criteria have been fulfilled. There was an agreement to lease constituted between the parties in December 2000. Further there was a lease constituted as of 1 January 2001. The acts of part performance were those of the plaintiff. On the evidence, it is clear that those acts were done by the plaintiff in furtherance of and in performance of the agreement to lease and the lease. In order that the acts unequivocally or of their own nature be referable to "some such agreement as alleged", the acts in question need not point to the "very contract alleged". Francis v Francis[27]. Hence it has been held that retention of existing possession by a tenant is sufficient part performance by the tenant, if coupled (on behalf of a tenant) with payment of an increased rent; See Darter Pty Ltd v Malloy[28]. A fortiori, permission to continue in possession, coupled with the acceptance of a decrease in rent, is sufficient part performance of an agreement to lease or alternatively a lease by a lessor. Further, before 31 December 2000, BTR Nylex was interposed between the plaintiff as lessor and the defendant as sub-lessee. From 1 January 2001 the relationship between the plaintiff and the defendant was direct. By permitting the defendant to remain in possession the plaintiff accepted a direct relationship between the plaintiff and the defendant. That act unequivocally refers to an agreement to lease or alternatively a lease between the plaintiff and the defendant.

Accordingly, I conclude that there was sufficient part performance of the agreement to lease entitling the plaintiff to seek relief in equity in relation to it.

The defendant maintains that the plaintiff is not entitled to relief in equity for the following reasons:

(a) The plaintiff accepted the defendant's repudiation of the agreement to lease. Accordingly specific performance of that agreement may no longer be sought by the plaintiff. Thus the plaintiff may not claim equitable damages under s.38 of the Supreme Court Act in lieu of any such decree.

(b) It would be futile to grant a decree of specific performance and equity would decline to do so. That futility springs from the fact that the term of the intended lease has now expired.

(c) The plaintiff does not have "clean hands" and is thus disentitled from seeking equitable relief.

The defendant maintains that the plaintiff elected to accept the repudiation by the defendant of the agreement to lease. That election is said to be evidenced in the letter of the plaintiff's solicitors to the defendant dated 18 April 2001, the facsimile from the plaintiff's solicitors to the defendant's solicitors dated 1 May 2001, and the terms of the telephone conversation between the plaintiff's solicitor and the defendant's solicitor on 4 May 2001. I do not consider that either of the letters referred to contain an election to accept repudiation of the agreement by the defendant. Rather, as I have already stated, the plaintiff's solicitors kept their clients' options open. Further, I have already rejected the defendant's version of the telephone conversation between Mr Hart and Mr Lamers on 4 May 2001. Accordingly I reject the proposition that there was any election by the plaintiff to accept the repudiation of the defendant.

I also reject the proposition that the plaintiff is now disentitled from seeking the decree of specific performance and therefore may not seek damages pursuant to s.38 of the Supreme Court Act, because the time of performance of the agreed lease has expired. Certainly, if the time for performance of the lease had expired at the date of institution of the proceedings, the Court would not grant a decree of specific performance or equitable damages in lieu. However the Courts have recognised the right of a plaintiff to equitable relief where the proceedings in respect of that relief were instituted before the time of the performance of the agreement had expired, but, because of the business of the Court, the plaintiff had not been able to bring his suit on for hearing before that term expired; see McMahon v Ambrose[29] (per Murray J) and (per Marks J). Accordingly, the circumstance that the time for performance of the agreed lease has now expired does not disentitle the plaintiff to claim equitable damages pursuant to s.38 of the Supreme Act.

Finally, I reject the proposition that the plaintiff has acted unconscionably and does not come to the Court with "clean hands", and accordingly may not seek equity. I have already rejected the proposition that the plaintiff made the threats alleged by the defendant. I also have rejected the proposition that, if such threats were made, the plaintiff thereby acted so unconscionably as to disentitle it to legal relief. In my view the same proposition holds good for the plaintiff's entitlement to equitable relief.

Section 38 of the Supreme Court Act provides that if the Court has jurisdiction to entertain an application for an injunction or specific performance it may award damages in addition to or in substitution for an injunction or specific performance. Although, strictly, the measure of damages so awarded is not necessarily the same as at common law, generally the application of equitable principles gives rise to the result that the measure of damages in equity is the same as the measure of damages at law; see Johnson v Agnew [30](per Lord Wilberforce); Dillon v Nash[31]; Wenham v Ella 33(per Barwick CJ).

It was argued on behalf of the defendant that there should be some reduction of the damages awarded to the plaintiff on the basis that the plaintiff had not taken reasonable steps to mitigate its loss. The evidence about what steps the plaintiff took to replace the defendant as a tenant is rather limited. However, the plaintiff's agent, Mr Roebuck, did give evidence that he was engaged by the plaintiff to find a replacement tenant. He erected a notice outside the property and commenced media advertising in accordance with his firm's normal practices. However, a replacement tenant could not be found. The defendant suggested that a replacement tenant could have been found if a longer term had been offered. However, in my view the plaintiff did not act unreasonably in seeking a replacement tenant for a shorter term, in order to fit in with its overall strategy of renovating the premises together with the Raglan Street property. In those circumstances I consider that the plaintiff would be entitled to equitable damages rising out of the breach by the plaintiff of the agreement to lease, such equitable damages consisting of the amount of the unpaid rental and unpaid outgoings for the period 1 June 2001 to 28 February 2002.

I therefore conclude that the plaintiff is entitled to judgment for unpaid rental and unpaid outgoings in the amount claimed, namely $227,330. I have also concluded that if, contrary to the view which I have reached, there was no lease between the plaintiff and the defendant for the period 1 January 2001 to 28 February 2002, the plaintiff would be entitled to equitable damages against the defendant in the same amount arising out of the breach of the agreement to lease. Accordingly there shall be judgment for the plaintiff against the first defendant in the sum of $227,330. The defendant's counter claim will be dismissed. I shall hear counsel on other relief including interest and costs.

[18] (1913) VLR 413 at 415 and 416

[22] (1989) WAR 191 at 199 and 205

[30] (1980) AC 367 at 400-401

At a glance

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Before

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Judgment (114 paragraphs)

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Cases Cited (7)