Lifoon Pty Ltd v Gillard & Ors; Hendriks & Ors v Gillard & Anor [2006] NSWCA 182 | Case summary

7 JULY 2006 LIFOON PTY LTD v LINDSAY WILLIAM GILLARD & ORS HENRI HENDRIKS & ORS v LINDSAY WILLIAM GILLARD & ANOR Judgment 1 HANDLEY JA: This appeal concerns an option of renewal in a commercial lease and the respondents' claim that it was exercised and the appellant's claim that it was not. In a real sense it arises from the gross incompetence of the then solicitor for the respondents who failed again and again over an extended period to take proper steps for the protection of his clients. General 2 The lease which was registered under the Real Property Act 1900 was granted by the appellant to the respondents' predecessors in title for a term of five years expiring on 31 July 2003. Clause 12 contained an option of renewal for a further five years in familiar terms which required that the tenants who wished to renew: "… shall prior to the expiration of such term give to the Lessor not more than six months' and not less than three months' notice in writing …" 3 The respondents Mr and Mrs Gillard purchased the lease and the business for $340,000, which was fully financed, and settled the purchase on 27 March 2001. The transfer of the lease was duly registered. 4 The option had to be exercised between 1 February and 30 April 2003. A notice exercising the option of renewal could have been a short and simple document. The solicitor for the Gillards should have had such a document prepared and signed by his clients and arranged for it to be served on the landlord. An ideal opportunity for doing this arose when the Gillards' solicitor arranged a meeting with Mr Quarmby, the managing director of the appellant, on 24 March 2003 to be attended by himself and the Gillards. Incredibly the solicitor went to this meeting without a written notice exercising the option for service on the appellant. 5 The Gillards claimed that the solicitor exercised the option orally during this meeting, that Mr Quarmby accepted his statement as an exercise of the option, and waived the requirement for a written notice, and as a result the appellant was estopped from relying on the absence of such a notice. Mr Quarmby denied any conversation to this effect. 6 Although the option lapsed, if not validly exercised, on 30 April 2003 the Gillards remained in possession, and the appellant did not claim that they were monthly tenants until March 2004. This led to a meeting between the parties and their solicitors on 7 April 2004 during which Mr Quarmby and his solicitor denied that the option had been exercised orally on 24 March 2003. The Gillards and their solicitor challenged this and these proceedings followed. 7 The Gillards sought specific performance of the exercised option for renewal, and claimed to have acquired two further options of renewal under informal arrangements that had not been properly documented. The appellant cross-claimed for possession. 8 The proceedings were heard by Bergin J. On the third day of the trial the Gillards, until then represented by the same solicitor, obtained an adjournment to seek independent legal advice. In due course they joined their former solicitors as defendants claiming damages for professional negligence. The Judge's decision on the claims against the solicitors and the issues raised on their application for leave to appeal are considered later in this judgment. The landlord's appeal 9 The Judge upheld the Gillards' claim, based on estoppel, that their solicitor had validly exercised their option, but dismissed their claims to the further options. She granted specific performance of the contract for a renewed lease for five years from 1 August 2003 and dismissed the appellant's cross-claim for possession. 10 Evidence about the meeting of 24 March was given in affidavit form and orally by the Gillards, their solicitor, and Mr Quarmby. The solicitor made some notes of the meeting which did not refer to an exercise of the option and he made other notes, bearing the same date, which he said, and the Judge accepted, were made a year later. The Judge found that the absence of any reference to an exercise of the option in his contemporaneous notes was of little assistance because all four witnesses recalled a conversation about the solicitor sending a letter in case Mr Quarmby was "hit by a bus". Unfortunately that letter was never sent. 11 The Judge referred to Mr Quarmby's evidence, which changed more than once, but he agreed that there had been a conversation about sending a letter in case he was hit by a bus. She accepted the Gillards' evidence that at the start of the meeting their solicitor told Mr Quarmby that they were there to exercise the option. She had no doubt that Mr Quarmby knew this. 12 The Judge said there was no need to mention the possibility of Mr Quarmby being hit by a bus if the parties understood that the option would be exercised in writing after the meeting. This could have been done during the five weeks remaining for its exercise whatever happened to Mr Quarmby in the meantime. 13 Her Honour accepted the evidence of Mr Gillard and the solicitor in preference to that of Mr Quarmby on this question. She found that Mr Quarmby did say that it was not necessary for the tenants to exercise the option in writing [red 143 G-H]. 14 These findings are clearly supported by evidence and it was not suggested that they were glaringly improbable or inconsistent with facts incontrovertibly established. Mr Rayment QC for the appellant focussed on what were said to be errors in the Judge's reasons which required this Court to order a new trial on this issue. 15 Reliance was placed on the fact that Mrs Gillard had not given evidence that Mr Quarmby said that there was no need to exercise the option in writing (black 1/58). Although she did not recall those words being said she remembered the conversation about the possibility of Mr Quarmby being hit by a bus and the solicitor's statement that he would therefore send a letter in case and Mr Quarmby's reply "don't worry about it" (blue 1/31, 61, black 1/72). 16 The appellant submitted that Mr Gillard had not given evidence that Mr Quarmby said there was no need to exercise the option in writing but he gave such evidence both by affidavit (blue 1/13) and orally (black 1/40-41, 45). 17 The appellant relied strongly on the solicitor's notes of this meeting and the absence of any reference to the option being exercised orally and Mr Quarmby's statement that a written notice was not necessary. However there can be no compelling argument from silence where all four witnesses remembered a conversation about the chance of Mr Quarmby being hit by a bus and the desirability of the exercise of the option being confirmed in writing. 18 Another submission for the appellant was that the evidence did not establish that the Gillards had actually exercised their option at the meeting. The most that had happened, it was said, was that they had indicated their intention of doing so. It is well established that a statement of intention to exercise an option in the future is not effective: Ballas v Theophilos [No 2] (1957) 98 CLR 193, 204-5, 209-10. However her Honour found that the solicitor did exercise the option orally at the meeting. As Ipp JA said in the course of argument (T 21) the evidence established that something of legal consequence had occurred at the meeting and had occurred orally. 19 In my judgment the appellant's written and oral submissions failed to establish any proper basis for this Court disturbing her Honour's findings as to what occurred at the meeting of 24 March 2003. 20 Mr Rayment also challenged the Judge's finding that the Gillards had relied on the statement of Mr Quarmby that it was not necessary to exercise the option in writing and submitted that an estoppel had not been established. After the meeting Mrs Gillard, who was aware of the terms of the option, asked the solicitor who was going to send the letter and he said he would. The substance of her evidence on this point was in her affidavit (blue 1/65) where she said she knew that the lease required the option to be exercised in writing and believed that the solicitor was going to send "the necessary letter". 21 The Judge was not satisfied that this demonstrated a lack of reliance on Mr Quarmby's representation that the option could be and had been exercised orally. Sending the letter was a matter of prudence and the tenants' failure to exercise the option in writing was a result of Mr Quarmby saying they did not have to do so. 22 Mr Rayment submitted that Mrs Gillard's affidavit evidence to this effect was inconsistent with the Judge's finding and with her earlier affidavit (blue 1/33) where she said that she understood after the meeting that Mr Quarmby did not require a formal letter to confirm that they had exercised their option. Although Mrs Gillard was referred to her later affidavit (1/65) in cross-examination (black 1/206) the alleged inconsistency based on her reference to "the necessary letter" was not put to her. 23 The reliance of the representee on the representation, which is an essential element in an estoppel, need only be a contributing cause of his change of position which completes the estoppel: Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84, 104; The Stolt Loyalty [1993] 2 Lloyds Rep 281, 291. 24 In the present case the inference that the Gillards relied on the representation of Mr Quarmby is overwhelming. If he had insisted on a written exercise of the option there is every reason for thinking that the necessary notice would have been sent in good time. The solicitor could have written it out, had it signed, and given it to Mr Quarmby on the spot. As it was the solicitor and the Gillards left the meeting without any sense that it was essential for an appropriate notice to be given as a matter of urgency within the time remaining for the exercise of the option. 25 It is well established that inferences of reliance and inducement can arise from circumstantial evidence. In Gould v Vaggelas (1985) 157 CLR 215, 236, 238, a case of fraud, Wilson J said: "If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into that contract there arises a fair inference of fact that he was induced to do so by the representation … In the general experience of mankind the facts speak for themselves …" 26 In my judgment the facts in this case speak for themselves, and inferences of reliance and inducement are not excluded by the conversation between Mrs Gillard and the solicitor after the meeting. The evidence as a whole establishes that this letter was to be sent as a precaution, to confirm what had already occurred, and was not to be an exercise of the option. In any event proof that Mrs Gillard did not rely on Mr Quarmby's representation would not exclude an estoppel if, as the facts establish, the solicitor and Mr Gillard did so. Contributory reliance is sufficient and this includes reliance by an agent or co-representee. 27 When Mr Rayment had concluded his oral submissions the Court, after briefly calling on counsel for the Gillards and the solicitors, announced that the appeal would be dismissed with two sets of costs to the respondents for reasons to be given later. For the reasons given above I would confirm the oral orders then pronounced. The solicitors' appeal 28 The second further amended statement of claim included causes of action in tort and contract against the solicitors for negligence (para 29(i)-(iii)) in failing to carry out their instructions to obtain two further options of renewal for five years each before they completed the purchase of the business. It also included causes of action in negligence for failing to advise them of their right to rescind the contract unless these options were obtained, and in completing the purchase without having done so (para 29(iv)-(vi)). 29 They alleged that in May 2004 the landlord initiated negotiations to resolve the dispute by offering the Gillards $400,000 for their business plus an amount for stock. They rejected this offer. They alleged (para 42) that the solicitors negligently failed to advise them, before they rejected the offer, that "there was a strong argument available to the [landlord] … that the option had not been validly exercised" and they had become monthly tenants. They alleged (para 43) that they were advised not to worry about the landlord's claim that the option had not been validly exercised and that in these respects the solicitors had been negligent (para 46). 30 They alleged they suffered loss and damage when they completed their purchase without having secured the options (para 29B). Had they been given proper legal advice they would have accepted the landlord's offer (para 45) and they had lost this opportunity (para 48(a)) or the opportunity of reaching a commercial settlement on other terms (para 48(b)). 31 They said in evidence that if they had been advised that the landlord had a strong case on their claim that the option had been exercised they would have accepted the landlord's offer. The Judge found that the Gillards would not have purchased the business if they had known that they could not obtain the options (red 168), and the solicitor had been negligent in failing to do so (red 168, 169). Because the option had been validly exercised she said it was not necessary to consider the claim that the solicitor had been negligent in the advice he gave and failed to give during the negotiations in April 2004. 32 The trial as between the Gillards and their former solicitors was limited to the issue of liability. Consequently in her first judgment on 13 July 2005 the Judge directed the parties to bring in short minutes of order to include a reference to an Associate Justice for the assessment of the Gillards' damages. 33 On 20 July the Judge heard an application by the Gillards to reopen to seek a wider inquiry based on negligent advice given by the solicitor in April 2004 which she granted in part. She ruled that the Gillards' claim for negligent advice was limited to the dispute about the exercise of the option and had not extended to their unsuccessful claim to the further options. As to the dispute about the exercise of the option she said: "A prudent solicitor would know that … nothing had been recorded in writing. A prudent solicitor would know of the necessity of compliance with the relevant statute to ensure there was writing evidencing the interest in land. A prudent solicitor would also know that circumstances in which a change is made by agreement to the terms of a lease should be evidenced by some note … A solicitor in the circumstances of this case would know that none of that was done. A prudent solicitor in these circumstances would also know that a year after the event when negotiations are occurring where there are no proper notes and no letter confirming either to the client or to the lessor what had taken place in respect of the exercise of the option, a lessor would have a reasonably strong argument that the plaintiffs had become tenants on a month to month basis." 34 She found that the solicitors had breached their duty in failing to advise the Gillards that the company had a strong argument that they were tenants on a month to month basis and in telling them not to worry about it. She also found that the Gillards had established that if they had received that advice they would have accepted the landlord's offer. 35 The short minutes of order then adopted by the Judge (para 6) entered judgment for the Gillards against the solicitors, and (para 10) referred the issue of damages to an Associate Justice. 36 The solicitors filed a summons for leave to appeal from the decision to reopen, the order directing the wider inquiry and the orders for costs. Leave to appeal was required against the order directing the wider inquiry because it was interlocutory. The draft notice of appeal alleged error in finding that the solicitor had been negligent in failing to advise that the landlord had a strong argument that the Gillards had become monthly tenants, and the finding that, given appropriate advice, they would have accepted the landlord's offer. 37 The solicitors' first point was that the wider claim the Judge allowed on 20 July had not been pleaded. There is no substance in this objection. The Judge ruled, correctly, that the claim by the Gillards that they had been given negligent advice about the exercise of the option in 2004 had been pleaded (see para [29]). She also ruled, correctly, that the Gillards had not pleaded claims for negligent advice about their right to the further options, and for failing to advise them to "grab [the offer] and run". The wider inquiry as to damages which she ordered did not extend to either of those claims. 38 The solicitors' argument that this claim had not been pleaded was not correct and this part of their case fails. 39 The second challenge was directed to the Judge's finding that the solicitor had breached his duty by failing to advise the Gillards that the landlord had "a strong case" that they had become monthly tenants. The solicitors' written submissions are directed to the strength of the Gillards' case on the facts. They demonstrate that, even at that stage, their factual case was objectively quite strong, and of course it succeeded at the trial and this Court has declined to interfere. 40 The solicitors' submissions did not deal with one of the Judge's findings directed to the legal weakness of the Gillards' case. She said: "A prudent solicitor would know that at that time nothing had been recorded in writing. A prudent solicitor would know of the necessity of compliance with the relevant statute to ensure there was writing evidencing the interest in land (sic)." 41 The landlord did not rely on s 54A(1) of the Conveyancing Act and plead the absence of any agreement for a renewed lease or some note or memorandum thereof in writing signed by the landlord or its agent. The Gillards had remained in possession after their fixed term had expired but they continued to pay the same rent and their conduct was consistent with a monthly tenancy and thus there had been no part performance. 42 However there was a sufficient note or memorandum of the contract in writing in the form of the registered lease and option clause. It is well established that a written offer signed by the party to be charged and accepted by parol by the offeree is a sufficient memorandum or note of an agreement to satisfy s 54A: Reuss v Picksley (1866) LR 1 Ex 342; O'Young v Walter Reid & Co Ltd (1932) 47 CLR 497, 508, 513. 43 An option is in substance an irrevocable offer which can be accepted in accordance with its terms: Helby v Matthews [1895] AC 471, 477, 480; Ballas v Theophilos [No 2] (1957) 98 CLR 193, 207-8. It has also been characterised as a conditional contract: Ballas v Theophilos [No 2] (above). In whatever way it is characterised the registered lease and option clause constituted a sufficient memorandum of the contract for renewal to bring this case within the oral acceptance principle. 44 Her Honour therefore erred in law in holding that the landlord had a potential defence to the Gillards' claim under s 54A. This was a significant error and this Court must make its own findings on the facts. 45 The question is whether a prudent solicitor, with the knowledge available to him in April 2004, would have considered that the landlord had a strong case, and advised the Gillards accordingly. There were three witnesses who would give evidence that Mr Quarmby had said that there was no need to exercise the option in writing and Mr Quarmby had no corroboration. 46 However the decisive fact in my opinion is that at the meeting on 7 April 2004 Mr Quarmby acknowledged the conversation about being hit by a bus in the presence of his solicitor, the Gillards, and their solicitor. He was locked into this concession that really established the Gillards' case that, with his agreement, the option had been exercised orally. Another matter of importance was the landlord's open offer to purchase the business for $400,000 plus stock. This was far more than the business was worth if the Gillards only had a monthly tenancy. It was a significant admission that they had a contract for a renewed lease under the option. 47 In my judgment therefore the Gillards did not establish that the solicitor breached his duty by failing to advise that the landlord had a strong case on this issue. 48 Since there was no breach of duty in this respect there is no need to consider the solicitors' argument that the Gillards had failed to prove reliance and causation. I would therefore grant leave to appeal against the order directing an inquiry as to damages in respect of this claim for negligent advice, and allow the appeal to that extent. 49 The solicitors also challenged the orders for costs on the ground that they were inconsistent with a Calderbank letter sent to the solicitors for the Gillards on 20 May 2005. Mr Davies SC for the solicitors submitted that the rejection of that offer was unreasonable and that the overall relief obtained by the Gillards at the trial was less favourable than that offered in the letter. The Judge should have made orders for costs which properly reflected these matters. 50 The letter proposed in short that the Gillards discontinue against the solicitors and continue the proceedings against the landlord alone. If they succeeded against the landlord there would be no need to pursue their claim against the solicitors, but they would be free to do this if "they did not succeed against the [landlord]". The letter stated that if they had to resurrect their claim against the solicitors the latter would admit liability in accordance with the allegations then pleaded against them and would not take an estoppel point. 51 The letter did not deal with the position in which the Gillards found themselves as a result of the trial where they had succeeded in relation to the exercise of the option but failed in relation to the two further options. There was no agreement by the solicitors to admit liability in that situation and no agreement that they would not take an estoppel point. In the result acceptance of the offer would have created real difficulties for the Gillards. 52 The estoppel point could only be an estoppel of the Anshun type (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) but this could not be a problem where the solicitors had invited the Gillards to take the course they did. However the solicitors' promise did not go nearly far enough. If they remained parties to the action they would be bound by the findings against the landlord. As it was those findings, so far as they related to damages, would have to be re-litigated against the solicitors. The Gillards were entitled to be protected against the risk and expense that this would occasion. 53 The real difficulty however is that the offer did not apply in the events that happened and strictly the Gillards would have had to litigate all issues of liability and damages against the solicitors. The offer also required them to bear their own costs of the proceedings against the solicitors up to that date. The Gillards were entitled to those costs and in the result recovered them under the Judge's orders. The Gillards are far better off under the judgment than they would have been under the offer and the solicitors have no grounds for challenging the costs orders made by the Judge. I would refuse leave to appeal from those orders. 54 The orders for an inquiry as to damages made by the Judge, pursuant to the short minutes brought in by counsel for the Gillards, were unsatisfactory. Order 6 which provided that there be verdict and judgment for the Gillards against the solicitors did not identify the causes of action on which they obtained judgment. This was an interlocutory judgment for damages to be assessed, but subject to that assessment, it should have decided all questions of liability. The only issue for the inquiry should be the assessment of the Gillards' damages. 55 In my view the Gillards succeeded on the following causes of action in contract and tort:

Lifoon Pty Ltd v Gillard & Ors; Hendriks & Ors v Gillard & Anor

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Judgment (39 paragraphs)

Cases Cited (5)