Lindsay William Gillard & Anor v Lifoon Pty Limited & Ors

Supreme Court of NSW|2005-03-31|Before: Bergin J, Young J

Introduction 1 The plaintiffs, Lindsay William Gillard (Mr Gillard) and Kristin Elizabeth Gillard (Mrs Gillard), are lessees of premises at 34 Allonby Avenue, Forest Hill (the premises) of which the first defendant, Lifoon Pty Ltd (the Company), is the lessor. As at the date of the commencement of the hearing on 29 March 2005 these proceedings involved issues relating to whether the plaintiffs had exercised the option to renew the Lease, whether the Lease was varied to include two further options to renew and whether a Notice to Vacate served on the plaintiffs is valid.

2 On the third day of the trial, 31 March 2005, Mr ID Roberts SC, then appearing for the plaintiffs, sought an adjournment of the proceedings on the basis that he, his junior and solicitors, had given the plaintiffs certain advice overnight and that the plaintiffs wished to seek independent legal advice. The trial was adjourned and leave was subsequently granted to the plaintiffs to amend the pleading to sue their solicitor, Frederick Commins (Mr Commins), who had by then given evidence in their case. There was no objection to the leave being granted and when the trial resumed on 8 June 2005, the members of the firm of solicitors of which Mr Commins was a member, Commins Hendricks, were joined as defendants (the solicitors) and were represented for the balance of the trial, limited in the case of the solicitors to a trial on liability only. The claims against the solicitors include claims in negligence and contract for failing to implement the plaintiffs' instructions and failing to advise them properly in respect of a Contract for the sale of business. 3 The proceedings were heard on 29, 30 and 31 March 2005, 8, 9 and 16 June 2005 and 4 July 2005. Mr ID Roberts SC, leading Mr SB Loughnan of counsel, appeared for the plaintiffs until 31 March 2005 and thereafter Mr I Wales SC appeared for the plaintiffs. Mr JS Drummond of counsel appeared for the Company and Mr G Curtin, of counsel, appeared for the solicitors. The Facts 4 Forest Hill is a town approximately 15 kilometres east of Wagga Wagga, New South Wales. Mrs Gillard's aunt and uncle, Gary and Carole Burns, entered into a lease of the premises with the Company in 1998 and operated the business known as "Forest Hill General Store and Newsagency" (the Business) from the premises. It was in the year 2000 that the plaintiffs became interested in purchasing the Business from Mr and Mrs Burns. 5 The plaintiffs instructed Mr Commins to act for them in relation to the purchase of the Business. In an undated file note Mr Commins noted "considering" a variation to the Lease whereby the Lessee was to assume "responsibility for building maintenance excepting pest infestation and all insurance claims damage" with a "trade-off" that Robert Quarmby (Mr Quarmby), the managing director of the Company and also a real estate agent with Raine & Horne in Wagga, "is to offer variation by way of extension of Lease". It is not clear from the file note when such instructions were given to Mr Commins and, from the earlier entries within it referring to "sell the business", it appears the note may relate to instructions given to Mr Commins by Mr and Mrs Burns. 6 On 5 June 2000 Mr Commins wrote to Mr Quarmby, in the following terms: Re Lease of Forest Hill General Store and Newsagency There is a young couple by the name of Gillard who are related to Gary and Carole Burns and who are considering the prospect of purchasing the business referred to above. I have been asked by the Gillards to write to you and ascertain whether you would be prepared to vary the existing lease so as to incorporate 2 x 5 year option periods so that the lease (sic) would have the right therefore of continuing for that extended period of time with the existing terms and conditions otherwise then applicable. I have also been asked to enquire whether there would be any circumstances where you might consider granting an option to purchase. Could you please get back to me with advices in this regard. 7 On 7 June 2000 Mr Quarmby wrote to Mr Commins in the following terms: Further to your correspondence of the 5th inst in relation to giving 2x5 year further option periods, Mr Gillard attended my office and I discussed the matter with him and to grant the 2x5 option periods on the following conditions: 1. Rent is agreed to by the parties. 2. That the Lessee is responsible for all and any work whether of a structural nature or otherwise including both internal or external and roof of the property unless Insurance covers such work. It might also be noted that the Liquor License belongs to the building and cannot be removed giving a long period to recoup any outlay. Further to your other request I would be prepared to give the first right of refusal but not such as an option to purchase. 8 It would appear from this letter that Mr Quarmby discussed with Mr Gillard the conditions on which the Company was willing to grant to the plaintiffs two extra option periods, each of five years. The second last paragraph emphasises the security of the existence of the liquor licence to suggest that although there may have to be some "outlay" to comply with the conditions there was a "long period" during which to "recoup" the outlay, especially assisted by the security of the liquor licence. 9 When the letter of 7 June 2000 from Mr Quarmby was provided to the plaintiffs, Mrs Gillard, after discussion with Mr Gillard and before faxing it to Mr Commins, wrote on it: The following conditions also apply:

Termite damage is to be repaired by Lessor 4. Underground fuel tanks to be maintained by Lessor. 10 It was not until 2 January 2001 that Mr Commins wrote further to Mr Quarmby in the following terms: Gary and Carol Burns have agreed upon the sale of their business conducted in the premises owned by your company to their niece Kristen Gillard and her husband Lindsay. One of the terms of sale is that (naturally) owner's consent to transfer of lease No 5698404 is to be received - that being the lease from your company which terminates on 31 July 2003 and which incorporates an option to renew for five years. The contract also prescribes that the entry into the contract by the purchasers was subject to the owner agreeing to a variation of the lease so as to prescribe for a further five year option period. From correspondence which I have seen inclusive of your letter to me of 7th June last you appear to be agreeable to the variation but on condition that the tenants assume responsibility for maintaining the interior and exterior of the premises excepting:

a. that you are to be responsible for rectifying termite damage; and

b. the tenants are not to inherit any form of liability in terms of soil contamination or any other matter associated with the presence of the underground fuel tanks associated with the business and its premises. I wonder if you would mind letting me have a response to this letter indicating whether the foregoing accurately reflects your understanding and indicating additionally what further information you may require as to the personal details of Mr and Mrs Gillard. 11 On 18 January 2001 Mr Quarmby wrote to Mr Commins in the following terms: Further to your letter of 2nd instant, owners' consent is granted to transfer of Lease No 5698404. A variation of the Lease so as to prescribe for a further five years option period is subject to my letter of 7th June 2000, which a copy is attached. The only amendment acceptable to the owners is paragraph (b) of your correspondence of the 2nd instant. Such option will be subject to GST and rental increases by CPI.

12 The letter of 2 January 2001 suggested that Mr Quarmby had agreed to be responsible for rectifying termite damage which clearly he had not. The plaintiffs had instructed Mr Commins to put that condition to Mr Quarmby effectively as a counter offer. There was a further problem with this letter. It failed to request confirmation of Mr Quarmby's willingness to grant to the plaintiffs two additional option periods of 5 years each. Rather it concentrated on Special Condition 6 of the Contract which provided for only one additional option period of 5 years. 13 The condition of the Contract for the sale of business (the Contract) to which Mr Commins referred in his letter, was Special Condition 6 as follows: 6. This contract is entered into by the parties hereto subject to them securing the consent of Lifoon Pty Limited to Transfer of Lease No. 5698404 (to the premises 34 Allonby Street, Forest Hill in which the business is conducted) from the vendor to the purchaser. The parties hereto also agree that the purchaser enters this contract on condition of securing from Lifoon Pty Limited an agreement to vary Lease No. 5698404 so as to provide for a further option right of five (5) years commencing as and from 1 August 2008. 14 The plaintiffs commenced operating the business in late January 2001 and settled the purchase of the business on about 27 March 2001 for the sale price of $340,000, fully financed. 15 The Transfer of the Lease from Mr and Mrs Burns to the plaintiffs was signed on 26 July 2001 and stamped on 15 October 2001. The Lease recorded the agreement that the Liquor licence attached to the Off Licence Retail Area remained at all times the Company's property and that it reverted to the Company on termination of the Lease (clause 9(i)). Clause 12 of the Lease is as follows: 12. Option to Renew If the Lessee shall desire to take a renewed Lease of the demised premises for a further term of Five (5) years from the expiration of the term of this Lease and of such desire shall prior for the expiration of such term give to the Lessor not more than six month' (sic) and not less than three months' notice in writing and shall in the meantime duly and punctually pay the rent reserved by this Lease at the times appointed for payment and shall duly perform and the covenants and agreements by and on the part of the Lessee contained in this Lease up to the expiration of the term granted the Lessor will at the expense of the Lessee demise to the Lessee the Premises for a further term of five (5) years at a rental to be the amount of the previous year's rental increased by the amount of the Consumer Price Index. Such further Lease shall be subject to the same conditions and covenants as this Lease except for rental and apart from this Clause. 16 On 28 September 2001 Mr Commins wrote to the plaintiffs in the following terms: I refer to my phone conversations with Lindsay and note that the matter of formalising your purchase documentation lain in limbo in our file. At the end of March when your purchase was finalised in terms of transfer of funds etc etc you elected to defer paying your stamp duty of $10,790.00 for the bulk of the permissible so as to give you savings time in which to generate funds etc etc. It seems that you have overlooked paying stamp duty and in consequence then your documentation has remained inactive within the file. I have checked the matter of Lease as promised and note that as yet there is no direct Lease between Mr Quarmby's company and you as the transaction of purchase involved the transfer of Garry and Carole's lease to you. I enclose herewith a copy of Garry and Carole's Lease which you will see was for a term maturing on 31 July 2003 and which incorporated a right of renewal for a further term of five years which would conclude it on the 31st of July 2008. You will also recall that Lindsay had discussions with Mr Quarmby in which he agreed subject to other agreements as occurred between you that he would grant you a right of variation of the Lease incorporating a further right of renewal for a further term of 5 years which would take the lease up to the 31st of July 2013. I can't see anywhere (and I may have missed it) where you are to reimburse rates and insurance but I enclose herewith a full copy of the Lease which should be retained by you and invite you to run through it carefully to see if I have missed any obligation in that regard. To get your documentation in order I do need to receive the sum to cover stamp duty from you. There will be an interest factor payable to Office of State Revenue however I am hoping that that sum will not be too significant. As you will recall the mortgage documentation which you provided to the lenders including a Bill of Sale over the business complimented by a guarantee given by Garry and Carole which in turn was supported by a mortgage over their household premises. … As I see it I need to get your house in order in terms of your proprietary rights in respect of the lease as essentially that constitutes your security not only for borrowing but more importantly for the future potentiality for selling the business. Once I stamp your contract and transfer of the lease I can then go back to Mr Quarmby and do the variation of lease extending the term for the additional five years as per his letter but the first step must be the stamping of your contract and the transfer of the lease. Bearing in mind that we have a way to go please be gentle with Mr Quarmby. 17 The next communication with the Company after Mr Quarmby's letter of 18 January 2001 was not until 28 November 2002 when Mr Commins wrote to Mr Quarmby in relation to an "urgent matter" which had arisen "associated with the lease" regarding the issue of a sullage assessment issued to the plaintiffs by the local council. In that letter Mr Commins also wrote: In earlier correspondence you agreed to vary the terms of lease by way of extension subject to the tenants accepting an enlarged responsibility for maintaining the premises and I believe it would be appropriate to formalise terms of that agreement. 18 On 3 December 2002 Mr Quarmby responded to Mr Commins' letter advising that he was "more than prepared to have a conference in reference to queries regarding the above lease with Mr Gillard". Mr Quarmby invited Mr Commins to contact him on his mobile telephone to make a time and date convenient to both parties for that conference. 19 It was not until 10 March 2003 that Mr Commins wrote to Mr Quarmby in the following terms: The Gillards would like us to have a joint conference which they would like me to come along and at which you too should feel free to have your solicitor should you wish in an attempt to try and explore avenues for agreements in terms of the occupancy of the Forest Hill Store premises etc. Could you please contact me at a time of your convenience so that we might discuss this. 20 On 17 March 2003 Mr Commins wrote to the plaintiffs in the following terms: re: Lease from Bob Quarmby Bob Quarmby has responded to my recent letter and agrees that it would be a good idea to have a joint conference - his suggestion is either or both of you, himself and me. Bob suggested he would be happy to have the conference at a time that was most convenient to you in terms of running the store etc and I therefore ask that you might get back to me or one of my secretaries indicating what time and/or day would best suit you (my next appointed time to go to Wagga is next Wednesday but you should not feel bound to that).

21 The meeting took place on 24 March 2003 (the Meeting). The conversations at the Meeting are pivotal to the outcome of this litigation. The plaintiffs allege that at the Meeting the Company: (a) waived the necessity for the plaintiffs to exercise the option in writing; and (b) agreed to a variation of the Lease to include two further options each of 5 years, additional to the option already contained in the Lease (the Variation). The parties are at issue as to what was said at the Meeting and I will consider the detailed evidence in relation to these matters later in this judgment. The plaintiffs claim that Mr Quarmby advised them that it was not necessary to send him a letter to exercise the option. The Company claims that Mr Commins' suggestion at the Meeting that he would send Mr Quarmby a letter in case he was "hit by a bus" was an essential requirement for the exercise of the option. There was discussion at the Meeting concerning a proposed development of the site and whether the plaintiffs would be interested in either a joint venture with the defendant or selling the Business to the defendant.

22 In December 2003 the Company lodged a Development Application (DA) with the Council of the City of Wagga Wagga. The description of the proposal was "to erect five shops on the corner of Allonby Avenue and Fife Street, Forest Hill replacing the current shopping complex" as a "two stage development". The covering letter to the Council from Mr Quarmby included the following: 2. The Development will be done in two stages. Stage 1 will be demolition of house on 1 Fife Street and construction of the bank of four shops. The current business will then shift the takeaway into the shop shown and balance into shop shown as Hardware. 3. Stage 2 will be demolition of current shop and erecting of new Supermarket building, which will then house the new Supermarket, Newsagency, Bottle shop and Post Office. The Hardware shop shall then be vacant. 23 At some stage after the Meeting the plaintiffs decided that they did not wish to become joint venturers in the development and decided to negotiate with Mr Quarmby for the sale of the Business. 24 On 1 March 2004 the plaintiffs' accountants wrote to Mr Quarmby advising that the plaintiffs had discussed with them "the possibility of selling their business to you following your recent enquiries into the possibility of purchasing the business". The accountants informed Mr Quarmby that, based on a number of factors including "a long term lease in a prime location", they had advised the plaintiffs only to sell the Business if the purchase price was $500,000 plus stock at valuation. The accountants also advised that there was a significant opportunity cost for the plaintiffs because they would be selling the potential to make very good levels of profits for the remaining term of the lease. 25 It was some time after the plaintiffs' accountants had written to Mr Quarmby that he visited the premises and asked Mr Gillard to provide him with "the figures in relation to the purchase price". It was at this visit that Mr Quarmby informed Mr Gillard that the plaintiffs did not have "a proper lease". When Mr Gillard informed Mrs Gillard of this conversation contact was made with Mr Commins. 26 On 7 April 2004 a meeting took place at the offices of the Company's solicitors in Wagga, Friedlieb Byrne, at which Mr Friedlieb, solicitor, was present with Mr Quarmby, Mr Commins and the plaintiffs. Mr Friedlieb's evidence was that the following conversation took place. Friedlieb: Mr Quarmby does not agree that you have renewed your lease. Commins: My clients believe that they have as Bob agreed to it at the meeting. Quarmby: You said at the meeting that you were going to send a letter exercising the option. Friedlieb: By not sending that letter your clients ensured that the rent would not go up but would remain the same. Bob has made you a good offer. Quarmby: No I haven't yet as I can't get the figures from Lindsay. I have been out there on a number of occasions. I also want to know what he paid for the business but he won't tell me. Commins: If this ends up in equity the first thing you will be directed to do is give those figures to Mr Quarmby so I think you should give them a copy and see if you can negotiate some settlement. I will make myself available if you want me. Gillard: I will have to go the accountant to get the figures to give to Bob. We are heading up to Sydney for the Easter weekend so we won't be able to do anything until sometime next week. 27 Mr Friedlieb gave evidence that after the plaintiffs left the meeting, the following conversation took place. Friedlieb: It looks like we are going to have a fight. Why didn't you send the letter. Commins: Because Bob told me not to. Friedlieb: Bob says that you told him that you would send him the letter just in case he got hit by a bus. Commins: It's time for me to go. 28 On 16 April 2004 Mr Commins wrote to the Company's solicitors in the following terms: I refer to the discussions which occurred at your office on 6 April last (sic) and note that after the clients had left you indicated that Mr Quarmby had stated to you that at our joint conference on 23 March 2003 I indicated that I would write to him and you indicated that he recalled that I mentioned the words "in case you get hit by a bus". That recollection of Mr Quarmby is completely accurate as it is clearly recalled by the Gillards and by me. The statement which I made to Mr Quarmby must however be put in a context. In the course of verbal discussions which were deliberately held within the Option to Renew exercise period the Gillards advised Mr Quarmby of their intention to renew the lease and as Mr Quarmby admitted he agreed that their notification of intention to renew as occurred in those conversations was sufficient and the parties then went on to discuss what was more significant in the mind of Mr Quarmby that day, namely whether or not the parties might be able to get together to join forces in a joint venture to develop the locality and the suggestions made that day were that Mr Quarmby would provide the land and the existing building, that the Gillards would provide the finances for an extension to existing building, that the existing residence was to be demolished to make room and that the general expectations were that the costs of such extension would be in the vicinity of approximately $300,000. 00. These matters have been recorded in my notes of the day. In this context then and after Mr Quarmby had indicated that he accepted that the right of renewal had been exercised I said to him words to the effect "I will write to you confirming this in case you get hit by a bus". At present I am unable to locate a letter written in that vain and we are going back to old computer records to see what might be found in that regard. What is relevant of course is that earlier in the conversations Mr Quarmby did not say words to the effect of "I will accept your renewal subject to you confirming it" as the fact was that he (as he admitted at our conference) acknowledged the lessees' exercise of right of renewal. Correspondingly when I indicated to Mr Quarmby that I would write to him confirming the operative words - as have been clearly recalled by all parties - were "in case you get hit by a bus". The significance of this remark was that clearly Mr Quarmby had acknowledged exercise of renewal rights and we were then walking down a different path that may conceivably have led to the joint venture referred earlier in this letter. The point being made was that clearly as Mr Quarmby admits we verbally acknowledged due exercise of the Option to Renew however my statement was made in the context that should Mr Quarmby be killed or die unexpectedly then there was need for records to be made of the agreement for the purposes of protecting the Gillards' right with the legal or personal representatives of a deceased Mr Quarmby. I note that we have agreed to provide a break-up of trading figures from the various components of the business to be used as a starting point for further negotiations. 29 On 3 May 2004 Mr Friedlieb responded to Mr Commins' letter of 16 April 2004 in the following terms: We note previous correspondence and discussions in respect of this matter. In particular, we note your letter of 16 April 2004, which, with the greatest of respect, may be regarded as somewhat self serving. The history of this matter would appear to be that pursuant to Lease dated 24 August 1998 number 5698404A, Lifoon Pty Limited leased premises under that Lease to Gary Francis Burns and Carole Burns. The period of that Lease being 1 August 1998 to 31 July 2003. Clause 12 of that Lease provided a specific option for a further 5 year period. Should the lessee seek to exercise that option Clause 12 set out the manner in which that option was to be exercised. It would appear that during the course of 2001 the aforementioned Lease was assigned to Lindsay and Kristin Gillard. We do not wish to raise at this stage certain aspects that may become necessary in due course to raise concerning the manner in which that assignment took place. Documentation in respect of that assignment would appear to be somewhat wanting at this stage subject to any documentation which may eventuate which we are not privy to at this stage. It would appear, however, that certain documentation may not have come into effect in respect of the assignment of the Lease and in that regard we specifically draw attention to Clause 9 (q), (r) and (s). As to whether or not there has been a breach of the Lease we reserve our client's rights in that regard should it become necessary to address that issue. Pursuant to the terms of the Lease, the option provided in Clause 12 was required to be exercised in writing somewhere between the period 31 January 2003 and 30 April 2003. It appears that there was no issue that discussions took place between the principal of Lifoon Pty Limited, the Gillards and Mr Commins of your office during that option exercise period. In that regard, we note your letter of 16 April 2004 wherein it is confirmed "the Gillards advised Mr Quarmby of their intention to renew the Lease". There is an issue, however, as to whether Mr Quarmby agreed that that notification of intention to renew was sufficient for the purpose of exercising formally the option. It is submitted that the notification of intention to renew submitted by the Gillards in that discussion was merely a notification of intention to renew. It is conceded by your correspondence that the notification of intention to renew the Lease would be confirmed in writing no doubt so as to satisfy strict compliance with the terms of the Lease. No such conduct/action took place. It is argued therefore that the option was not exercised. Mr Quarmby may certainly have acknowledged your clients' notification of intention to renew the Lease. That, however, did not constitute an exercise of the option to renew. The Statement to our client that the notification would be put in writing was a clear indication/acknowledgment that it was necessary to put the notice of exercise of option in writing. Accordingly, it is our opinion that if your client has a Lease at all (which is not conceded) it is no more than a month to month tenancy. 30 On 3 May 2004 Mr Friedlieb wrote another letter to Mr Commins conveying the Company's offer to purchase the Business (exclusive of stock) for $300,000. On 6 May 2004 Mr Quarmby attended the premises and made an offer to Mr Gillard to purchase the Business "for $400,000 plus newsagency stock". 31 On 14 May 2004 the plaintiffs wrote directly to Mr Quarmby in terms that included the following: We wish to advise that the offer you made on 6 May 2004 of $400,000 for our business exclusive of stock has been considered and is getting closer to a figure that we may all agree on, ideally $440,000. As mentioned in our earlier discussions we wished to sell all of the stock at the time of sale. We cannot see any other way for the stock to be disposed of which would not adversely affect us. We also would like to have further discussions with you referrable to the question of rent where the construction processes begin to impact on trading within the shop. 32 On 28 May 2004 Mr Friedlieb advised Mr Commins that the plaintiffs had written directly to Mr Quarmby and that he had been instructed to reject the plaintiffs' offer. He also advised that the Company was not prepared to make any counter offer and withdrew any previous offers. Mr Friedlieb finally advised that he had been instructed to issue Notice of Termination of the Lease which would be served formally. A Notice to Vacate was served on the plaintiffs in June 2004 in the following terms: Pursuant to Lease No 5698404A which expired on 31 July 2003. You have been holding over as a tenant on a month to month basis at premises 34 Allonby Avenue, Forest Hill being the land in Folio Identifier 1/207179 and Folio Identifier 1/535133. You are hereby given notice that the landlord, Lifoon Pty Limited, terminates your holding over the abovementioned premises. You are hereby notified you are required to vacate the premises at 34 Allonby Avenue, Forest Hill at the expiration of one (1) month after the date hereof namely 21 July 2004. 33 On 13 July 2004 the Company lodged a second DA with the Wagga Council for "three speciality shops plus a supermarket". The covering letter to that DA advised that the Company wished to build in two stages because it wanted to give the people of Forest Hill "services that will be equivalent to what they have now". The letter also advised that the newsagent and post office area would be open space, but should that change, the Company would submit a further DA. 34 The plaintiffs did not vacate the premises and they commenced these proceedings on 14 July 2004.

The plaintiffs' claims against the Company 35 The plaintiffs filed a Second Further Amended Statement of Claim during the trial on 8 June 2005 in which they allege that at the Meeting the Company dispensed with and waived the requirement under Clause 12 of the Lease that the plaintiffs' exercise of the option to renew was to be in writing. They allege that at the Meeting they exercised the option to renew the Lease. It is also alleged that at the Meeting the Company agreed to the Variation.

36 The plaintiffs make an alternative claim that on or about 18 January 2001 the Company consented to the assignment of the Lease to the plaintiffs and agreed to grant to the plaintiffs two further options to renew the Lease each for a term of 5 years in addition to the existing option to renew the Lease upon terms (the 2001 Agreement). 37 There is a further claim that the Company represented to the plaintiffs that: (a) it had accepted the plaintiffs' exercise of the option to renew contained in the Lease; (b) it did not require the plaintiffs to comply with the provisions in the Lease that exercise of the option to renew be in writing; and (c) it had agreed to the Variation. The plaintiffs claim that they were induced by the representations and relied upon them and did not give to the Company notice in writing of the exercise of their option to renew under the Lease. In those circumstances the plaintiffs claim that the Company is estopped from denying that (a) the plaintiffs have validly exercised their option to renew the Lease; (b) that the Company waived compliance with the requirements of Clause 12 of the Lease; and (c) that the Company agreed to the Variation. The plaintiffs claim that the Notice to Vacate is invalid and of no effect.

The Company's cross claim 38 The Company seeks by way of cross claim against the plaintiffs a declaration that the Notice to Vacate is valid and effective and also seeks an order for judgment for possession of the premises.

The plaintiffs' claims against the solicitors 39 The second to tenth defendants are the partners of the firm Commins Hendricks (CH) of which Mr Commins, the second defendant, was a partner. There is no issue that in mid 2000 the plaintiffs retained CH to act on their behalf for the purpose of acquiring the Business with the assets, including the Lease. There is also no issue that the plaintiffs wished the Lease to provide for two further options each of 5 years (the Variation). It is alleged the plaintiffs instructed CH to negotiate the Variation. 40 The plaintiffs' claim that the solicitors owed to them a duty to exercise reasonable care, skill and diligence in the discharge of their duties and the implementation of their instructions including to negotiate and conclude the Variation. Alternatively the plaintiffs claim the solicitors had a contractual duty in the same terms. It is alleged that the solicitors breached their duty of care and their contractual obligations by failing to prepare and execute a new Lease in a registrable form. It is also alleged that the solicitors failed to implement the plaintiffs' instructions to negotiate the Variation and they failed to take reasonable steps to ensure that the Lease was lawfully varied in the manner sought by the plaintiffs. 41 It is also alleged that the solicitors failed to advise the plaintiffs of their rights under Special Condition 6 of the Contract, in circumstances in which the plaintiffs would not have completed the Contract but for their belief that the Lease had been amended so as to include the Variation. 42 It is also alleged that the solicitors breached their duties to the plaintiffs in causing or permitting settlement of the Contract to occur without obtaining from the Company a new or varied Lease in the approved form embodying the plaintiffs' instructions. It is further alleged that the solicitors breached their duties in advising the plaintiffs that it was safe to complete the Contract when there was no new or varied Lease in place. It is alleged that such conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 42 of the Fair Trading Act 1987. The plaintiffs claim damages from the solicitors, but the trial as between the plaintiffs and the solicitors was limited to liability.

The exercise of the Option 43 Mr Gillard's evidence was that at the Meeting Mr Commins said, "what we are here for is to take up the option in the lease" and that Mr Quarmby responded "that's fine". Mr Gillard claims that he then said, "can we get the extra 10 years put on top?" to which Mr Quarmby responded, "wasn't it for 5 years?". Mr Gillard said, "it was for 10 years, 5 years plus 5 years". Mr Gillard claims that Mr Quarmby then said "that's right". 44 Mr Gillard's evidence was that there was then some discussion about the building of a new shop at the premises with Mr Quarmby putting forward a number of options and ideas about redeveloping the land that the parties then discussed. Mr Gillard said that towards the end of the Meeting Mr Commins said to Mr Quarmby "I will send you a letter to confirm the exercise of lease" to which Mr Quarmby responded "that isn't necessary". Mr Gillard said that Mr Commins later said to Mr Quarmby "I will send you a letter anyway in case you get hit by a bus". He was not able to say what Mr Quarmby said in response to this and when it was suggested to him in cross-examination that Mr Quarmby said "okay", he was not able to deny that this was said. 45 Mrs Gillard's evidence of the Meeting was that Mr Commins said, "we are here to take up the option", to which Mr Quarmby responded, "I have no problem with that and no problem with the extended term". Mrs Gillard remembered her husband saying that the option was for 10 years, 5 plus 5 years, and that Mr Quarmby said that there was no problem with that. Mrs Gillard's recollection also included Mr Commins saying to Mr Quarmby that he would send him a letter "in case you get hit by a bus" but she had a recollection that Mr Quarmby said "don't worry about it". 46 Mr Commins' first affidavit of 16 July 2004 did not include evidence of what was said at the commencement of the Meeting. His affidavit of 24 February 2005 in reply to Mr Quarmby's affidavit of 8 November 2004 included evidence that when the Meeting started "I immediately raised the issue of the option" and said, "we've come here to exercise the option" to which Mr Quarmby responded, "yes, yes, that's fine". Mr Commins also gave evidence in this affidavit that he said to Mr Quarmby, "the lease requires the exercise to be in writing, do you want it in writing?" to which Mr Quarmby responded, "no - it's alright". Mr Commins also claimed that at the end of the meeting he said to Mr Quarmby, "Now you don't want it confirmed in writing?" to which Mr Quarmby responded, "No." It appears from this affidavit that it was not until the following year in April 2004 that Mr Commins remembered, when reminded by Mr Quarmby, that he had said "I'll give you a letter in case you get hit by a bus." 47 Mr Commins gave evidence in relation to some notes that were produced from his files, the first of which was headed "24.3.03" (the first note) and the second of which was headed "23.3.03" (the second note). The first note was in the following terms: Bob suggests Joint Venture He provides land + bldg. Gillards provide a new building House behind the shop gets knocked down. Suggested cost of a shop $300k 48 The second note with the date "23.3.03" was in the following terms: Meeting CH Bob, Lindsay, Kristin, FJC Acknowledged:

Right to renew. 2. Agreement as to the 5 x 5 as per Bob's letter of 7/6/2000 to CH.

In summary: Bob would like vacant possession. Gillards are agreeable to go if the price is right - offered $500K plus stock. Supermarket and bottle licence to stay PO, newsagency to a new shop. Takeaway stand alone. 49 Mr Commins' evidence was that the first note was prepared at the Meeting and the second note was prepared the following year when he was preparing for the meeting to be held on 7 April 2004 at Mr Friedlieb's office. The source of the content of the second note was Mr Commins' memory of what took place at the Meeting and his knowledge of subsequent events. The first note makes no mention of the exercise of the option or discussion in relation to the Variation. It makes no mention of Mr Quarmby agreeing that the option could be exercised orally. This absence may well be of some significance in circumstances where the solicitor involved was a careful note taker. I am afraid this is not such a case and in any event it is beyond doubt from the evidence both in the plaintiffs' case and in the defendant's case that there was discussion of these two matters. 50 Mr Drummond suggested to Mr Commins that the second note was made at the Meeting. This was denied by Mr Commins. The entry: "offered $500K plus stock" in the second note tends to support the claim that the note was made the following year. The plaintiffs did not make that offer until 1 March 2004 when their accountants wrote to the Company. The second note states "acknowledged (1) Right to Renew". Mr Drummond cross-examined Mr Commins about this entry as follows (tr 147): Q. If Mr Quarmby had said, anywhere in that meeting, "You don't need to give me a letter in writing", may I suggest to you that would have been one of the first things, as a well practiced and experienced commercial lawyer, you would write on the document, wouldn't you? A. When dealing with a gentlemen who is - - Q. Mr Commins, as an experienced commercial lawyer, you are aware that what was occurring in this meeting, at least on your understanding, was an exercise of an option not in accordance with its terms and anything that was indicating an exercise of the option not in accordance with the terms is something that you would record because of its significant nature, wouldn't you? A. Not necessarily, no. Q. You say you would note if Mr Quarmby had said to you: Don't send me a letter, I don't want it? A. There was no need for me to record that. I remember it distinctly. Q. I am asking you whether it would be a significant matter you would record? A. I would not record it necessarily. Q. But these notes do not indicate, do they, apart from an acknowledgement, any exercise of the option by you, Mrs Gillard or Mr Gillard, in the meeting? A. The notes don't. Q. And nor do they indicate any acceptance by Mr Quarmby of the exercise of that option, do they? A. The notes don't. 51 The content of these notes and the absence of certain things from them is not of much assistance in this case having regard to the fact that all relevant witnesses on both sides recalled the conversation about sending a letter in case Mr Quarmby was "hit by a bus" and the two extra option periods.

52 Mr Quarmby swore an affidavit on 8 November 2004 in which he gave evidence that the conversation at the Meeting included Mr Commins saying that "the Gillards are considering exercising the option - now what about the options, as you know they want a 5 plus 5 years". Mr Quarmby said that he responded with the question "do they want a 5 year option on top of their current option period of 5 years?", to which Mr Gillard responded, "No. What we want are two 5 by 5 option periods on top of the current option giving us 15 years altogether". Mr Quarmby claims that he responded: If you want those options then as they will extend the Lease by 15 years then, as I have already told you, you will have to agree to undertake all repairs to the building no matter what they are. As previously indicated to you in my previous letter the Lessor will be liable for the contamination. The rental however will have to be adjusted to market at the beginning of each option period. 53 Mr Quarmby claimed that the conversation then continued as follows: Commins: Okay. Quarmby: What I want to do with the site is to knock down the old building and put up a new one. Mr Gillard: Where would we operate from while that was happening? Quarmby: You would have to lease some of those transportable buildings. Mr Gillard: I don't think that would be much good. Quarmby: Something will be able to be worked out. If you don't agree to that would you be interested in being partners in the construction of the new building? It will cost you about $300,000. Mr Gillard: I will have to think about that. Quarmby: If those alternatives aren't of any interest I would prefer to get vacant possession of the site so I can proceed with the development. Are you interested in selling? Mr Gillard: We would consider any offer if the price was right. Commins: There are a number of things to think about. I will send you a letter to exercise the option just in case you get hit by a bus. Quarmby: Okay. 54 On 7 June 2005 Mr Quarmby swore another affidavit correcting the content of his affidavit of 8 November 2004. The only amendment made to the above evidence was that he claimed that Mr Commins said, "I will send you a letter just in case you get hit by a bus" instead of, "I will send you a letter to exercise the option in case you get hit by a bus". Mr Quarmby had also sworn an affidavit on 4 March 2004. I have already set out the evidence Mr Quarmby gave in his 8 November 2004 affidavit. The affidavit sworn on 4 March 2005 referred to the affidavits of Mr Gillard (25 February 2005), Mrs Gillard (25 February 2005) and Mr Commins (24 February 2005). In particular Mr Quarmby agreed that Mr Commins said to him, "I will send you a letter in case you get hit by a bus" and denied that he responded, "don't worry about it". In dealing with Mr Gillard's evidence Mr Quarmby denied that Mr Commins said, "I will send you a letter to confirm the exercise of lease" and claimed that Mr Commins said, "I will send you a letter in case you get hit by a bus." This evidence then put Mr Quarmby's evidence at odds with his earlier evidence in his 8 November 2004 affidavit. That appeared to be the reason that he swore his correcting affidavit of 7 June 2005 in which he adopted the evidence in the 4 March 2005 affidavit with a slight change and withdrew the words "to exercise the option" that appeared in the 8 November 2004 affidavit. However Mr Quarmby rejected this as the reason (tr 301-302). 55 There was a suggestion in the Company's evidence that the plaintiffs recognised that the letter was necessary to exercise the option and that the failure to send the letter to Mr Quarmby was intentional. Mr Friedlieb said to Mr Commins in the meeting on 7 April 2004, "by not sending that letter your clients ensured that the rent would not go up but would remain the same". It seemed this evidence was tendered to suggest that the plaintiffs benefited by not exercising the option. Mr Friedlieb was cross-examined about this aspect of his evidence. He agreed that he had drafted the Lease and knew that at the end of the term of the Lease, if the tenants held over, they would pay rent at the same rate as the last calendar year. He was cross examined as follows (tr 292): Q. You knew as at the time of 7 April 2004 that a landlord could increase the rent to a tenant holding over month to month provided adequate notice was given? A. No. Q. You did not know that? A. That's correct. Q. Do you know that? A. If you say so. I have heard that since, yes. Q. Was your expertise in commercial aspects up until April 04? A. Part of it was, yes. Q. I take it Mr Quarmby said nothing to the effect of, "hang on Peter, that's not quite right", or anything of that sort? A. He did not. 56 Mr Quarmby was also cross-examined about this aspect of the discussion at the meeting with Mr Commins on 7 April 2004. He gave the following rather unsatisfactory evidence (tr 302-303): Q. Could I take you to the events of 7 April 2004. You remember being asked by Mr Wales questions about Mr Friedlieb's statement to the Gillards to the effect of, "By not sending the letter you ensured your rent would not go up"? A. Yes. Q. You knew that that statement was not strictly correct, didn't you? A. Well, it was up to me or the company whether the rent went up or whether it didn't. Q. That's not the question I asked you, Mr Quarmby. You did not answer my question, wouldn't you agree? A. I thought I did. Q. My question was when Mr Friedlieb made that statement to the Gillards about, "If you didn't send the letter to make sure your rent wouldn't go up", you knew that that statement was not strictly correct? A. No. Q. No, you agree with me? A. No, I don't agree with you. Q. Do you remember you agreed with Mr Wales that a landlord could, with a short period of notice, increase the rent for a tenant on a month to month lease? A. Yes. Q. You knew that on 7 April? A. Yes. Q. You knew that if you gave the Gillards one month's notice you could put their rent up? A. Yes. Q. You knew that the failure to send the letter that Mr Friedlieb referred to did not ensure that the Gillards rent would not go up? A. No. Q. No, you agree, or no you disagree? A. No, I agree. Q. So you knew that Mr Friedlieb's statement was not strictly correct? A. If you put it that way. Q. I do put it that way? A. Yes. Q. And you did not at that meeting correct Mr Friedlieb? A. No. Q. You were content for your solicitor in your presence to say something about your view of the Gillards' existing legal rights which you knew to be not strictly correct? A. Well, I don't believe it's my place to correct people at a meeting like that. Q. Well, he was your solicitor putting your company's position, wasn't he? A. Well, he's representing that company, yes. Q. In your presence? A. Yes. Q. Saying something which you knew not to be strictly correct? A. Yes I knew that it wasn't correct. Q. Not only did you not say anything to Mr Friedlieb, you know, "hey Peter, that's not correct", you didn't say, "Could I have a quiet word to you outside?", or take any steps to correct this statement? A. No. 57 It is clear beyond any doubt that whatever the reason was that the letter was not sent to Mr Quarmby, it had nothing to do with the plaintiffs seeking to take some advantage of a situation in which there could be no rental increase. 58 The plaintiffs were badly let down by Mr Commins in that he did not make a careful note of the Meeting and he did not follow up either with them or the defendant after the Meeting with any note or letter. If a careful note had been made or a confirmatory letter written the plaintiffs would have been assisted by some contemporaneous record. However the plaintiffs were quite firm in their evidence that at the commencement of the Meeting Mr Commins advised Mr Quarmby that they were there to take up the option. That firmness was not shaken in cross-examination (tr 22, 28, 32, 72-74 & 222). Mr Commins' evidence that he advised Mr Quarmby that the plaintiffs were there "to exercise the option" suffers from the criticism that it was not put in an affidavit until February 2005 and I have taken that into account. I accept the plaintiffs' evidence that Mr Commins advised Mr Quarmby that the plaintiffs were at the meeting to "take up" the option. 59 I have no doubt that Mr Quarmby knew the plaintiffs were at the Meeting to exercise the option and I do not believe that Mr Commins' letter of 10 March 2003 with its hopelessly vague reference to exploring "avenues for agreement in terms of the occupancy" affected Mr Quarmby's understanding that the plaintiffs were there to exercise the option. I do not accept that Mr Commins advised Mr Quarmby at the Meeting that the plaintiffs were only "considering" exercising the option. Both Mr Gillard and Mr Commins gave evidence that Mr Quarmby informed Mr Commins and the plaintiffs to the effect that it was not "necessary" to exercise the option in writing. Mrs Gillard did not give evidence about this aspect of the matter and Mr Quarmby denied that he informed Mr Commins that it was "alright" and that he did not have to exercise the option in writing. 60 In determining who to accept between Mr Commins and Mr Gillard on the one hand and Mr Quarmby on the other on this aspect of the matter, I have had regard to what everyone at the Meeting accepts was said towards the end of the Meeting - that Mr Commins would send a letter to Mr Quarmby "just in case he got hit by a bus". There was no need to mention the event of a possible demise of Mr Quarmby under a bus if what was required was an exercise of an option in writing. If that were the case, the letter would have to be sent irrespective of any incidents with a bus. I am satisfied that the context of this conversation towards the end of the Meeting is clearly an indication that Mr Quarmby had indicated that he did not wish the plaintiffs to exercise the option in writing and that Mr Commins added that he would send the letter in case of Mr Quarmby's possible demise. I accept that Mr Quarmby did say that it was not necessary for the plaintiffs to exercise the option in writing. 61 Mr Drummond referred to a number of authorities in relation to the exercise of an option to renew a lease including: Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894; Parras & Ors v FAI General Insurance Company Limited [2001] NSWSC 1077; and Webb & Anor v Ryleen Pty Limited, unreported, Young J, 8 November 1994. These cases are all quite distinguishable and have little to do with the facts of this case. 62 Mr Drummond submitted that if I were to find, as I have found that Mr Quarmby stated that it was not necessary to write to him for the purposes of exercising the option, then there was no reliance by the plaintiffs on that statement. This submission was based upon the fact that after the Meeting, Mrs Gillard asked Mr Commins who was going to send the letter that had been described as the letter in case Mr Quarmby was hit by a bus. Mr Commins advised Mrs Gillard that he would send the letter. I am not satisfied that this discussion demonstrates a lack of reliance on Mr Quarmby agreeing to the oral exercise of the option. The letter was not a necessary step in the exercise of the option in the circumstances. Mr Commins did not have to send a letter to exercise the option. Indeed his evidence was that if he had sent a letter it would have merely confirmed that the option was exercised orally at the Meeting pursuant to Mr Quarmby's agreement for the exercise to occur in that fashion. It was a matter of prudence. The plaintiffs did not exercise the option in writing because Mr Quarmby advised them that they did not have to do so. It was in reliance on that statement that the plaintiffs continued on in occupation of the premises without giving written notice which would be to their detriment if the Company were permitted to require exercise of the Option in writing. 63 I am quite satisfied that Mr Quarmby knew that he had represented to the plaintiffs that they did not need to exercise the option in writing. I am also satisfied that Mr Quarmby formed the view at the Meeting that the plaintiffs had exercised their option to renew the Lease for the 5 year period. Mr Quarmby would have the Court believe that he knew that the plaintiffs had not exercised their option, that the Lease term expired on 1 August 2003 and that he kept that to himself until April 2004 when he decided to put a counter offer to purchase the Business. I do not accept that at all. I am of the view that Mr Quarmby well knew that the plaintiffs had orally exercised their option pursuant to the representation he made that it was not necessary to exercise the option in writing. He, on the Company's behalf, gave up the right to rely upon the requirement in the Lease to exercise the option in writing. It would be quite inequitable to now allow the Company to enforce its previous right to require the exercise in writing. The Company is estopped from denying that the option has been validly exercised.

64 The plaintiffs gave the Company notice of their desire to renew the Lease at the Meeting in the form that Mr Quarmby advised was acceptable to the Company. I am satisfied that the plaintiffs are entitled to the declaration sought that the Company waived the requirement to exercise the option in writing. I am also satisfied that the plaintiffs are entitled to the declaration that they validly exercised the option to renew. In those circumstances the plaintiffs are entitled to a declaration that the Notice to Vacate is invalid. The Company's cross claim will therefore be dismissed. The 2001 Agreement 65 Mrs Gillard suggested in her evidence that she thought that there had been agreement to the two extra option periods as early as 2001. That suggestion emerged only in cross-examination when Mrs Gillard gave evidence that Mr Quarmby would have known the plaintiff accepted the terms offered in the letter of 18 January 2001 because "we were already practicing these terms" (tr 79). Mrs Gillard gave evidence that she informed Mr Commins that the plaintiffs accepted the terms offered by the Company, but did not ask Mr Commins to inform Mr Quarmby. Mrs Gillard's evidence was that she did not know that she had to ask Mr Commins to do that (tr 80). Similarly Mr Gillard gave evidence in cross-examination that the plaintiffs "started the terms from the day I took over" (tr 17). However Mr Gillard accepted that he did not convey acceptance of the terms to Mr Quarmby and he did not ask Mr Commins to inform Mr Quarmby (tr 17). 66 It was suggested to Mrs Gillard that there was no need to have a meeting with Mr Quarmby in March 2003 if all that was to happen was the exercise of the option. Mrs Gillard accepted that the option could have been exercised by sending a letter without the necessity for a meeting. It was also suggested to Mrs Gillard that the reason the plaintiffs wanted to meet with Mr Quarmby was to "put some different terms" to him (tr 79). Mrs Gillard denied this suggestion. 67 The suggestion that there were different terms to be put to Mr Quarmby seems to stem from what Mr Drummond submitted was the "major difference" between the parties, identified by him as being the Company's requirement that the plaintiffs take responsibility for rectifying termite damage. In support of this submission reliance was placed on the letter from Mr Commins to Mr Quarmby dated 28 November 2002 in which reference was made to the agreement "in earlier correspondence" to vary the terms of the Lease "subject to the tenants accepting an enlarged responsibility for maintaining the premises" and Mr Commins' belief that "it would be appropriate to formalise terms of that agreement". This was contrasted to the terms of Mr Commins' letter of 10 March 2003 which suggested a meeting to "attempt to try and explore avenues for arrangement in terms of the occupancy" of the premises. The terms of this letter certainly suggest a different position to that suggested in the letter of 28 November 2002. Mr Commins claimed in cross-examination that this letter was "badly worded" (tr 124). Mr Commins was cross-examined about this claim and, as with much of his other evidence, I found his evidence on this topic quite extraordinary. It included the following (tr 124-127): Q. And you agree, you were asking Mr Quarmby to come to a meeting with or without his solicitor, in an attempt to try and explore avenues for agreement? A. That's very badly worded. Q. It may well be, Mr Commins, but it is clear from the letter that the purpose of this meeting, as far as you were concerned, and as conveyed by this letter, was so that a meeting could take place to try and come to some agreement about the terms upon which the lease would be varied. That is correct, isn't it? A. The purpose of my letter there, despite being badly worded, were to have a meeting to formalise the arrangements which had been in place since the letter of 18 January 2001, and that was the purpose of that letter. Q. What arrangements were in place from 18 January 2001? A. Not from that date but from the - in the letter of 18 January 2001, if I might go to that please. Q. You will find it at page 4 of Exhibit 2, Mr Commins. A. Thank you. Historically the Gillards - - Q. Mr Commins, please, come back to the letter of 18 January? A. Yes. Q. You just said a moment ago, did you not, that as and from 18 January there was some form of agreement in respect of - - A. I said that, yes. Q. Well, had you, either before or shortly following 18 January 2001, notified Lifoon or Mr Quarmby of any acceptance, by your client, of the terms contained in the letter of 18 January 2001. A. No, no, I didn't, and I didn't think it necessary to do so. Q. Well, Mr Commins, why would it not be necessary to do so, when you knew that on 18 January Mr Quarmby had responded to your letter of 2 January and had told you on what terms Lifoon would be prepared to vary the lease and you understood that the terms that he was putting in that letter varied from those which were contained in your letter dated 2 January 2001? A. That's right. Q. So he had an offer by the Gillards as put forward by you in your letter of 2 January 2001, correct? A. Sorry I wasn't thinking. Q. The letter of 2 January 2001 puts forward an offer, being the terms upon which the Gillards would be prepared to vary the lease to obtain two extra option periods? A. I think it is more appropriate to look at the final paragraph of my letter of 2 January 2001 which said, "I wonder if you would mind letting me have a response to the letter indicating whether the foregoing accurately reflects your understanding and indicating, additionally, what further" - it goes on as to the character references of the Gillards. My interpretation of Mr Quarmby's letter of 18 January was: I consent to the transfer of lease. The terms of my consent and renewal will be subject to this (indicating); in other words, those matters set out, going back in the letter of 7 June, qualified by the matter set forth in the second paragraph. Now - may I continue? Q. Continue, Mr Commins. A. I believe that is a statement of the condition under which the Gillards could take possession of the property in terms of transfer of the lease and their acceptance of what the terms would be as to whether they proceeded with the contract or not. I took that as a statement of fact what it would be, not an offer. Q. Well, you see, Mr Commins, if you go back to page 2 of the Exhibit 2? A. Yes. Q. You received that letter from Mr Quarmby, correct? A. Yes. Q. And he sets out the terms there, upon which Lifoon will agree to the variation to the lease, correct? A. Yes, yes. Q. And then you received instruction from Mr or Mrs Gillard, or both, that those terms were not acceptable to them. Correct? A. I received this letter - look, it can't be as black and white as that. Q. Mr Commins, let me put this: Did you receive instructions from Mr and Mrs Gillard that they were not prepared to accept the terms as set out in the letter of 7 June 2000 because they wanted those terms varied? A. I can't say that. I have thought about this. I can't say that. I don't know whether my letter of 2 January was written on my, just on my observation of that or not. I can't recall. Q. Did somebody attend upon you to provide you with instructions, in accordance with what appears in handwriting at the bottom of page 2 of Exhibit 2? A. I can't recall. Q. But surely, Mr Commins, you wouldn't write a letter dated 2 January 2001 without having received express instructions from your client, would you? A. It's public - - Q. Oh, Mr Commins, surely you don't suggest that you would put forward the proposal contained in paragraph 3, with the specificity that it contains, without getting direct instructions from Mr and Mrs Gillard? A. I can't recall how that happened. Q. But, Mr Commins, it is obvious, isn't it? It is obvious that you got instructions to put a counter offer? A. It is obvious that I wrote a letter mentioning two things that were on the bottom of that letter of 7 June and I can't recall. Q. But would you agree it must have taken place because you wouldn't normally write letters putting counter offers on matter of such significance regarding a lease which had and may have up to 15 years to run, a letter of this type, without express instructions? A. All I can say is I can't recall the circumstances of how it was written. Q. Well, then, when you got the letter of 18 January 2001, page 4 of Exhibit 2, I assume you read carefully the letter? A. Yes. Q. You understood what it meant? A. Yes. Q. You understood that Lifoon was saying: We don't agree with the terms put forward in your letter of 2 January 2001, correct? A. I took it that consent was given to the transfer of lease. Q. I am dealing with the question of variation? A. I'm sorry. Sorry. Ask again please. Q. You understood, from paragraph 2 of the letter of 18 January 2001, that this was Mr Quarmby's counter offer to that contained in your letter dated 2 January 2001, didn't you? A. I took it as being his determination as to what the term would be. Q. It is an offer, isn't it, Mr Commins? A. You say so. I say it was the determination. Q. You had to take that offer back to your clients, didn't you? A. In my mind what was set forth in that letter satisfied the requirements of the Gillards or/and me, as solicitor for the Gillards, as to the agreement that the lease would be renewed for an additional five years. Q. How did you know that Mr and Mrs Gillard would accept the terms contained in the letter of 18 January 2001 if you never sought their instructions? A. I don't recall. But I do say, what I do say is that the further five years reflected what was in their contact, their purchase contract. 68 The further cross-examination on this topic included the following (tr 139-141): Q. Mr Commins, we both know from the questions I put to you before there was at this stage no agreement whereby -- A. I believe - - Q. Mr and Mrs Gillard had expressed to Lifoon any acceptance of the terms? A. I believe there was no written agreement but I believe there was certainly complete action and recognition. Q. Can I suggest to you that this is quite a carefully drafted letter, the one of 28 November, when you stating to Mr Quarmby "this is what you have agreed to offer to our clients and we would like to formalise it", correct? A. Yes. Q. You do not say anywhere in the letter that your clients accept the terms, correct? A. I have said that consistently. Q. If you now go to - - A. In writing. Q. Go to the 10 March letter on page 35, you are speaking of "we need to have a meeting in an attempt to explore avenues for agreements", correct, that's what it says? A. Yes. Q. That means, does it not, in plain English, that there are matters which are not agreed upon and there needs to be a meeting in order to attempt to resolve them? A. I don't agree with that. My intentions there were - - Q. Would you read the plain words? A. I have read the plain words, thank you. Q. Do you agree the plain words convey that clear meaning? A. My intention was to formalise. Q. Mr Commins, come back to the words? A. I agree that the words are there. Q. If you intended any other purpose you were freely able to include it in the letter, weren't you? A. As the author, yes. Q. And you chose not to, correct? A. Not deliberately, yes, probably, yes. Q. You were then saying to Mr Quarmby it is not just merely formalising of this agreement we need to do, we need to have a meeting to get an agreement, correct? A. No, no, no. Q. Do you agree that it is exactly what the words in that letter, the meaning of the words in that letter convey? A. It was not the intention, the -- Q. Come back to my question, the words in the letter convey that clear meaning don't they? A. The words in the letter convey that. Q. At no time between the date of this letter and 24 March did you convey to Mr Quarmby any other purpose for this meeting other than that you had stated in your letter of 28 November 2002 and that of 10 March 2003, did you? A. That's true. Q. So you conveyed to Mr Quarmby that there needed to be a meeting, firstly to resolve the terms of the variation of this lease and secondly any agreement reached in that meeting would be formalised, correct? A. Yes. Q. And you understand, being a commercial lawyer of long standing experience, what the term formalise means when dealing with leases, correct? A. Yes. Q. And that means to your understanding and did so at the relevant time back in March 2003 that it would be reduced to writing, correct? A. Yes. Q. It would be then conveyed to the other side, correct? A. Or discussed with the other side. Q. And then it would be, if agreed upon, executed? A. Yes. Q. And there would be no binding legal effect until that execution had taken place, correct? A. No. I believe - - Q. No, is that not what you understand by to formalise an agreement regarding an interest in land? A. In the context of you asked question, I say I agree, but I am not being given a chance to speak on what my understanding and my intentions in that correspondence were. Q. Mr Commins, your counsel Mr Roberts will get a chance to re-examine you? A. Okay. Q. As far as the term formalise is concerned - - A. Formalise is to reduce to writing. Q. And to then [complete] the written documents? A. Yes. Q. And then to get them executed? A. That's true. Q. And that you understood there would [be] no binding legal effect to those documents until they were executed? A. In terms of the execution of documents, yes. In terms of our arrangement, I believe there was recognition. Q. And the recognition you rely upon is simply Mr and Mrs Gillard taking up occupation of the premises and conducting the business, is that correct? A. No, no. Q. What else? A. Mr and Mrs Gillard from the time they took up possession of the business did things in recognition of those letters, the enlarged responsibility for maintenance - - Q. Do you know whether any of this was conveyed to Lifoon? A. No. Q. How do you know Lifoon even knew about it? A. I don't 69 The correspondence from the plaintiffs to Mr Commins and their oral instructions to him were consistently that they wished to have two 5 year options additional to the option for 5 years already contained in the Lease. Mr Commins correctly conveyed that request to Mr Quarmby in his letter of 7 June 2000, however his letter of 2 January 2001 sought only "a further five year option". Mr Quarmby gave evidence that it appeared to him that the plaintiffs wanted two further options of 5 years each, but when he received the 2 January 2001 letter asking for only one further option he did not "delve into that, because I believed that to be their concern" (tr 264). When Mr Quarmby responded in his letter of 18 January 2001 he referred to the "one" additional option period and set out the conditions on which that option would be granted. In any event there was no response to Mr Quarmby's letter offering one additional option period.

70 Mr Drummond submitted that the reason Mr Commins allowed the plaintiffs to settle the purchase of the Business without Special Condition 6 being satisfied was that the plaintiffs did not accept the term offered by the Company that the plaintiffs had to be responsible for the repair of damage caused by termites. That may or may not be so. What is clear is that no notice was given to Mr Quarmby prior to the plaintiffs completing the purchase of the Business and entering into possession of the premises, that they accepted the terms offered by the Company in the letter of 18 January 2001. 71 Mr Curtin, on behalf of the solicitors, also submitted that an agreement had been reached in 2001. It was submitted that "there is no consequent conduct of the plaintiffs that is inconsistent with the acceptance of the offer". That however is not enough to prove acceptance of an offer. In Industrial Rollformers Pty Ltd & Anor v Ingersoll-Rand (Australia) Ltd (2001) Aust Contract Rep 90-129, Giles JA, with whom Priestley and Meagher JJA agreed, said: 136. There is no doubt that a contract may be found in a course of conduct. In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 one party declined to sign a formal contract proposed by the other party, but it was held that it had by its conduct agreed to be bound by its terms. McHugh JA, with whom Samuels JA agreed, said (at 535) that the question is one of fact, and that - … where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted in accordance to its terms … The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted. 137. It may be artificial to analyse the conduct of the parties in the traditional terms of offer and acceptance, and sometimes analysis in those terms is not possible: see the detailed discussion by Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001) NSWCA 61 at [71]-[80]. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117 McHugh JA, with whom Hope and Mahoney JJA concurred, said that the question in a contract by conduct case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement, but emphasised that the conduct of the parties must be capable of proving all the essential elements of an express contract. 138. It is necessary, if one party is to be held to have bound itself in contract by its conduct, to be able to identify within the conduct of both parties the terms of the contract, and to be objectively satisfied that both parties agreed to be bound by those terms. 72 It was submitted that there was no denial in the Company's letter of 3 December 2002 in response to Mr Commins letter of 28 November 2002 that "in earlier correspondence" it had "agreed to vary the terms of Lease by way of extension subject to the tenants accepting the enlarged responsibility for maintaining the premises". The letter of 18 January 2001 was a communication in which the Company advised that it was willing to extend the term by one additional term, but that it was not willing to agree to the plaintiffs' request that the Company be responsible for termite damage.

73 Mr Curtin submitted that the reasonable bystander would regard the plaintiffs as having accepted the Company's offer in the letter of 18 January 2001 and that such acceptance had been signalled to the Company by the plaintiffs' entry into possession of the premises and the commencement and continuation of the operation of the Business. I do not agree with that submission. The letter of 18 January 2001 also contained the "owner's consent to transfer of the Lease". The entry into the Contract and the operation of the Business was conduct equally consistent with the plaintiffs accepting the owner's consent to the transfer of the Lease with the then five year option available in clause 12 of the Lease. There was no conduct of the Company that a reasonable bystander would say was a clear indication that the Company had a tacit understanding that the plantiffs had accepted the offer in the letter of 18 January 2001. There had been requests for two additional option periods and then only one additional option period. There had been offers and counter offers as to the breadth of the plaintiffs' obligations for maintenance of the premises. Mr Quarmby was not advised that the plaintiffs were willing to accept that enlarged responsibility. 74 The question Mr Gillard asked Mr Quarmby at the Meeting as to whether the plaintiffs could "get the extra 10 years put on top" indicates clearly that by that time Mr Gillard knew that there had been no agreement reached. If there had been an agreement in 2001 for the additional "one" option of 5 years, Mr Gillard would only have been asking for 5 years "on top" at the Meeting. I am satisfied that no agreement was reached in relation to a variation of the Lease in 2001. The Variation 75 Mr Drummond submitted that, by Mr Commins' letters of 28 November 2002 and 10 March 2003, the plaintiffs set the agenda for the Meeting, being that the parties were to agree upon the terms upon which the Lease was to be varied and the agreement was to be "formalised". It was submitted that Mr Quarmby was entitled to approach the Meeting on the basis that it was to be a meeting to "explore" whether an agreement could be reached and, if reached, the agreement was to be formalised. It was also submitted that Mr Quarmby was entitled to expect that any statements made during the Meeting would not be binding until formalised. 76 Mr Gillard's evidence in relation to what he said at the Meeting in relation to the Variation is set out in paragraph 45 above. Mrs Gillard's evidence was that Mr Gillard said to Mr Quarmby, "the option is for 10 years, 5 years plus 5 years" to which Mr Quarmby said, "I have no problem with that." Mr Commins' evidence was that Mr Gillard said, "wasn't it two five year options you agreed to?" to which Mr Quarmby responded, "That's right" and "I have got no problem with any of that." 77 Mr Quarmby's evidence in relation to what was said at the Meeting about the Variation is set out in paragraphs 52 and 53 above. In cross-examination Mr Quarmby gave the following evidence (tr 298): Q. You had no doubt that they wanted an extra ten years added to the lease? A. I was aware of that. Q. You were in no doubt that's what the Gillards wanted? A. Wanted, yes. Q. You required that that extra period would be on the same terms as the existing lease, with a couple of variations, or with a number of variations? A. Yes. Q. Those variations were those which were disclosed in the correspondence from 7 June 2000 up to and including your letter of 18 January 2001. A. Correct. Q. When you wrote your letter of 18 January, you yourself were clear about the terms upon which the further periods would be granted? A. Yes. Q. So that at the meeting of 24 March you were communicating in substance that you would be prepared to grant the further option periods on the terms that you had earlier communicated, culminating in your letter of 18 January 2001? A. Some nearly three years prior, that I hadn't received any indication that it was acceptable. Q. I'm not asking you about that, I'm asking you about your state of mind as at 24 March. That is you were agreeable to providing the extra time on the terms which were certain by the time of your letter of 18 January 2001? A. Yes, as on 7 June 2000, the same letter. Q. You were in no doubt when you left this meeting that the Gillards wanted that for ten years? A. Yes, I believe they did want it. Q. At this meeting they had, on your version, requested an extra ten years? A. They wanted two five by fives extra. Q. At this meeting in substance you agreed to provide that on the terms we have discussed? A. They had never accepted those terms. Q. Why don't you answer my question, Mr Quarmby? A. Sorry. Q. Why don't you answer my question? A. I said I'm sorry I didn't answer it. Q. They requested this extra time, and you agreed to give it to them on the terms we have previously discussed, that's true isn't it? A. Providing they accepted those terms. Q. They indicated their acceptance, didn't they? A. No, they didn't. 78 It was submitted that at the Meeting the plaintiffs did not convey to Mr Quarmby that they accepted those terms. Mr Quarmby's affidavit of 8 November 2004 set out the conversations that he claimed occurred at the Meeting. In paragraph 19 the following appears: Quarmby: "If you want those options then as they will extend the Lease by 15 years then, as I have already told you, you will have to agree to undertake all repairs to the building no matter what they are. As previously indicated to you in my previous letter the Lessor will be liable for the contamination. The rental however will have to be adjusted to market at the beginning of each option period". In referring to the "letter" I was referring to the letter from Messrs Commins Hendricks to Raine & Horne dated 2 January 2001 and my response on behalf of Raine & Horne dated 18 January 2001. The conversation to the best of my recollection then continued as follows: Commins: "Okay". 79 Mr Gillard denied that this part of the conversation, as set out in paragraph 19 of Mr Quarmby's affidavit, occurred at the Meeting. Mr Gillard maintained that Mr Quarmby said that he had "no problem" with the plaintiffs having the two further options each of 5 years but that the term "15 years" was not mentioned at the Meeting. Mrs Gillard also denied the conversation that Mr Quarmby claimed occurred as set out in paragraph 19 of his affidavit. Mr Commins also denied this conversation. If Mr Quarmby had referred to market rental at the Meeting it was clearly different from the conditions that he had offered in the letter of 18 January 2001. In that letter the condition offered was that the option "will be subject to GST and rental increase by CPI". 80 It is clear that at the Meeting Mr Quarmby was keen to see if he could interest the plaintiffs in the development that he planned for the Company's property that included the premises. Indeed he said in cross- examination that he thought they were coming in to the new building and that it was his "hope" and "fervent hope" that they would come into the building (tr 260). The Business was attractive to Mr Quarmby because the plaintiffs had the newsagency licence, the post office licence and the liquor licence and "in any complex that would be an ideal tenant mix" (tr 274). The question of whether the plaintiffs were interested in going into the development or the new building was discussed at the Meeting, as was the question of whether the plaintiffs would be interested in selling the Business to Mr Quarmby. These were the aspects of the discussion about which the plaintiffs were to get back to Mr Quarmby. 81 Mr Quarmby agreed that by December 2003 he knew that the plaintiffs did not wish to become co-developers with him and he decided to put an offer to them for the purchase of the Business. He agreed that in May 2004 he made an offer to the plaintiffs to purchase the Business for $400,000. He agreed that this was $220,000 above the value he placed on the newsagency and post office licence (tr 282). He then gave the following evidence (tr 282-283): Q. You did so because you recalled that you had said to them words to the effect of, "Don't worry about a letter in terms of the option"? A. It had no bearing on it whatsoever. Q. When the Gillards wouldn't … sell for that amount of money, you thought the next best thing was to evict them, isn't that right? A. Yes. … Q. Can I suggest to you that in broad terms up until the Gillards told you that one they were not interested in moving to stage two, and also that they were not interested in being a co-developer, you were negotiating with them on a warm and friendly basis? A. Yes. Q. Because you wanted to get on with either prospective tenant or co-developer, is that right? A. Yes. 82 The evidence establishes that the plaintiffs had done some structural work on the premises by way of concreting (tr 53). It is also clear that between 2001 and the Meeting, Mr Quarmby (and thus the Company) noticed that the concreting had been done (tr 253). Prior to the plaintiffs becoming lessees, the Company used to pay for pest inspections. There is in evidence material from which the irresistible inference arises that from 2000 the Company ceased to pay for the inspections. However there was no evidence that the plaintiffs organised or paid for any pest inspections. 83 Mr Quarmby, on the Company's behalf, was always willing to grant the extra options to the plaintiffs on the conditions that he had offered. I have no doubt that at the Meeting Mr Quarmby said that he had "no problem" with the plaintiffs having the two options additional to the option in the Lease. However it is unclear upon what terms those two options were to be granted. Neither the plaintiffs nor Mr Commins advised Mr Quarmby at the Meeting that the conditions that the Company wished to impose in consideration of the grant of the two extra options were acceptable to the plaintiffs. The plaintiffs had not been willing to accept the Company's counter offer that they be responsible for the rectification of the termite damage (tr 13; 18; 63; 81-82). Mrs Gillard said that the plaintiffs were not willing to accept that enlarged responsibility until some time after they had commenced operating the Business, but accepted that such change of position was never communicated to Mr Quarmby. 84 I am satisfied that at the Meeting Mr Quarmby was far more interested in persuading the plaintiffs to become co-developers with him, or if not, to find out whether they were willing to sell the Business, rather than discussing the detail of the extra options. I do not accept that Mr Quarmby said the words he claimed he said in paragraph 19 of his affidavit extracted above. Of course had the plaintiffs agreed that this was said it would have meant that there was some evidence of the detail of the conditions being discussed and, on one view of it, being accepted by Mr Commins saying "okay", as Mr Quarmby claimed he said. The plaintiffs certainly do not suggest that at any stage they accepted a variation of the Lease with market rental on the additional options. 85 Mr Commins was cross-examined as follows (tr 151): Q. Leaving that aside, and also at a meeting where you had told Mr Quarmby that anything discussed in it would be formalised, correct? A. Yes. Q. Well, what you meant by that term "formalised", when Mr Quarmby attended at the meeting, was anything discussed at that meeting would be reduced in writing and prepared in proper agreement for execution, correct? A. By his solicitor. Q. By anybody? A. No, it can't be by anybody. By his solicitor. Q. You see, to say to Quarmby you are going to formalise this agreement in a letter of 28 November 2002 - - A. Yes. Q. - - is entirely inconsistent with how you say the meeting was conducted on 24 March 2003, isn't it? A. I don't believe so. Q. But you would agree that you had said to him, "We need to formalise this lease variation", correct? A. We need to formalise these arrangements, yes, I agree with that. Q. When were you going to do that? A. At the meeting. Q. When were you are going to formalise the lease variations, Mr Commins? A. I believe the lease variations were formalised at that meeting on 23rd - on the 24th of March. Q. When you were going to take steps to reduce them to writing in an agreement? A. The responsibility of taking steps and reducing that to writing was Mr Quarmby's. Mr Quarmby is a real estate agent. He is in the commercial side of real estate, including leasing, and he knows more, as well as I do, that it was up to him to go back to his solicitor and get that job done. Q. Couldn't you do it? A. It is not my job to do it. Q. Your clients wanted the variation. A. But that's not the way leasing works. 86 After the Meeting Mr Gillard enquired of Mr Commins as to whether he had "spotted the new lease". Mr Commins informed Mr Gillard that it was up to Mr Quarmby's solicitors to draft the lease. In a subsequent enquiry of Mr Commins Mr Gillard was advised, "Everything is alright. It's up to them to send it to us" and "Everything's alright, it's a done deal". At no stage after the Meeting did Mr Commins follow up by letter or telephone call requesting the Company to provide a new lease with the additional options in it. It was not until 2004 that the Company, through Mr Quarmby and Mr Friedlieb, informed the plaintiffs that they did not have a "proper Lease" and it was only then that Mr Commins commenced writing letters setting out what he understood had occurred at the Meeting. 87 After Mr Quarmby said that he had "no problems" with the plaintiffs having "10 on top", the discussion moved very quickly to the topic of redevelopment and possible purchase. I accept that when Mr Commins left the Meeting he said to Mr Quarmby that there were a number of things to think about - as there were. These included whether the plaintiffs were willing to become co-developers, whether they were willing to move into the new development, and/or whether they were willing to sell the Business. There is a paucity of evidence as to what happened after the Meeting, but it is clear that Mr Commins did not write to Mr Quarmby or the plaintiffs confirming what had happened at the Meeting or what was to happen after the Meeting. 88 I am not satisfied that there was a tacit understanding between the parties that the plaintiffs were willing to accept the enlarged responsibility for the maintenance of the premises. I am not satisfied that there was an agreement reached at this Meeting on the terms by which the Lease was to be varied and extended. There was no agreement reached as to the rental that was to be paid or the mechanism for determining the rental. There was no agreement reached as to who was to be responsible for termite damage. 89 I am not satisfied that the plaintiffs have established that the defendant agreed to the Variation at the Meeting.

90 Mr Drummond submitted that even if agreement had been reached on the Variation at the Meeting, there is no note or memorandum of the agreement so reached in compliance with s 54A of the Conveyancing Act 1919. The plaintiffs submit that an oral acceptance was made of the written offer. In Heppingstone v Stewart [1911] 12 CLR 126 Griffith CJ said at 131-132: Since the case of Reuss v Picksley , decided in 1866 it cannot be disputed that a written offer, containing all the terms of a proposed contract, may be accepted verbally, and if it is accepted verbally then there is a complete contract satisfying the Statute of Frauds . 91 Mr Drummond submitted that the first difficulty with the proposition that there was oral acceptance of a written offer is that there was no evidence of any oral acceptance. Additionally it was submitted that the plaintiffs and Mr Commins gave evidence that they understood that any agreement to vary the Lease required the preparation of a new lease and that, because it was a lease of commercial premises, the requirement to clearly specify the enlarged obligations of the plaintiffs rendered the agreement too imprecise for it to be enforceable: Fire & All Risks Insurance Co Ltd v Concorde Personnel Management Services Pty Limited (1987) NSW ConvR 55-330 at 57,024. 92 In Stonham The Law of Vendor and Purchaser (1964) the learned author said: 72. A writing, signed only by the party intended to be charged on the contract, or signed by his authorised agent, is a sufficient writing to comply with the section, as it is not necessary that both parties should sign. A signed offer, accepted by parol, is not merely a memorandum or note of the agreement, it is "the agreement" itself, and so it is immaterial that it was signed before the making of the contract and so the offeror may be charged therewith. It may be shown, however, that the offeror only intended to be bound if the offeree also signed. 93 In Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 Kearney J gave reasons for his previously-made orders for specific performance at 281: In giving my decision I made certain findings, one of which embodied the abovementioned qualification that the agreement for loan not being in or evidenced by writing would not be enforceable at law, but that it would be enforceable in equity by reason of part performance by the plaintiff. This finding was based upon the fact that Beneficial's loan offer in writing had not been accepted by the plaintiff in writing. Such finding is of course patently wrong in law, a parol acceptance of a written offer signed by the party to be charged sufficing to satisfy the requirements of the Conveyancing Act 1919, …

94 The problem the plaintiffs face is that the letter of 18 January 2001 referred to only "one" additional period. There is no writing which includes the offer of two additional periods and all the terms of any proposed extended Lease. The letter of 7 June 2000, in which the two periods were offered, stated that the rental had to be agreed to by the parties. There are also the notes Mr Commins made "subsequently" to the Meeting and, it appears, close to the meeting of 7 April 2004. There is mention in those notes to the letter of 7 June 2000, which of course required the parties to agree on rental. Although the writing can be a combination of documents (Tonitto & Anor v Bassal & Ors (1992) 28 NSWLR 564; and Baloglow v Konstanidis & Ors [2001] NSWCA 451) there is no evidence on which the two letters and/or the notes could be the writing evidencing an agreement claimed to have been reached at the Meeting. There was no express or implied acceptance of the terms contained in one or other of the letters or part of one and part of the other of the letters. It might suffice if there had been evidence that the parties agreed at the Meeting that the two extra options referred to in the letter of 7 June 2000 were to be granted on the terms contained in the letter of 18 January 2001 but for the mention of the "one" additional term. However as I have found there was no agreement reached on all these terms at the Meeting. 95 The plaintiffs are therefore not entitled to the declarations and consequential orders that they seek in respect of the Variation.

The case against the solicitors 96 In Trust Co of Australia v Perpetual Trustees WA Ltd & Ors (1997) 42 NSWLR 237, McLelland CJ in Equity said at 247: Not every mistake by a solicitor founds liability in negligence. There are many uncertain or difficult areas of the law and the expression of an opinion by a solicitor does not normally constitute a promise that the opinion is correct. The duty of care owed by a solicitor to his client is to exercise reasonable skill and care. What is required for the performance of this duty in a particular case depends on the scope of the solicitor's retainer, the scope of any additional responsibility assumed by the solicitor and relied on by the client, the nature of the task entrusted to, or undertaken by, the solicitor, and the circumstances of the case.

97 The scope of the solicitors' retainer in this case was to act for the plaintiffs on the purchase of the Business, to negotiate and conclude agreement for an extended term of the premises from which the Business was to operate and to exercise the option to renew the Lease. It was clearly obvious to the solicitors that the plaintiffs did not have any experience in operating their own business and Mr Commins described them as "a young couple" considering the prospect of purchasing the Business. The solicitors knew that the plaintiffs were borrowing 100% of the purchase price of the Business and would therefore need the security of an extended period of the Lease. 98 The conduct of Mr Commins over the period from June 2000 to 2004 demonstrates beyond any doubt that the solicitors breached their duty of care to the plaintiffs and their contractual obligations to the plaintiffs. It was not submitted that the solicitors did not owe a duty of care or contractual duty to the plaintiffs. Indeed, there was no submission made that the solicitors had not breached their duty of care or contractual obligations. Mr Commins gave evidence that he informed the plaintiffs that it was "safe" to settle the Contract. How he could have reached that conclusion when he had failed to ensure that Special Condition 6 had been complied with is not clear. His clients, the plaintiffs, had instructed him that they wanted two additional options each of five years. What Mr Commins did in January 2001 was to request one additional period and Mr Quarmby responded to that request. Thus as at January 2001 all that was offered was one additional period subject to the conditions referred to in the Company's letter of 18 January 2001. At no stage did Mr Commins follow that letter up in any formal or indeed informal manner with Mr Quarmby until November 2002. The change in approach between the letter of 28 November 2002 and the letter of 10 March 2003 is inexplicable other than that the latter letter was, according to Mr Commins' evidence, "badly worded". 99 Mr Commins' conduct at the Meeting also failed the plaintiffs dismally. Not only did he fail to make notes of what occurred at the Meeting in a coherent and careful manner, but he failed to follow up the very thing he said he would do, that is, to write to Mr Quarmby in case he got hit by a bus. Although I have found that such letter was not a condition precedent or a requirement for the exercise of the option, Mr Commins' failure to make any note or send to Mr Quarmby any letter referring to the additional two periods of five years is also a complete failure of his duty of care and his contractual obligations to the plaintiffs. Mr Commins knew that that the plaintiffs wanted the extra two option periods of five years each and he failed to negotiate the essential terms of those options for the plaintiffs either at the Meeting or at any other time. He failed to follow up with the Company either at the Meeting or otherwise to conclude an agreement as to the terms and conditions and applicable rental for those periods. 100 Mr Commins knew that the plaintiffs were reliant upon him for the negotiation and implementation of the extra options and he failed them at the Meeting and did nothing after the Meeting, even when he was contacted by the plaintiffs to see whether he had "spotted the new lease". Any reasonable solicitor would have at least followed up the matter promptly to ensure that the options could be agreed and put in place, but Mr Commins sat on his hands and failed to do anything to pursue his clients interests and instructions after the Meeting until the Company took advantage of his negligence and breach of contractual duty. 101 The problems stemmed from Mr Commins' failure to seek the two additional options in his letter of 2 January 2001. He knew his clients were fully financed and I accept that they purchased the Business on the basis that they would be able to obtain the two additional option periods, each of five years. Indeed I accept that if they knew that they could not obtain those additional periods they would not have purchased the Business. Mr Commins' attitude towards his role as the solicitor for the plaintiffs was uncovered in some of his rather extraordinary evidence, for instance, when he was asked why he did not write to the plaintiffs after the Meeting to confirm what had occurred at the Meeting, he said that he thought the plaintiffs were "every bit as familiar [as he was] with the events" of the Meeting. 102 Mr Commins failed to obtain for the plaintiffs any extension of the term of the Lease notwithstanding that the Company, as early as 2000, was willing to grant the very extension his clients wanted on certain conditions. The plaintiffs now have only three years left in the present Lease and if they are now unable to negotiate any extension of the term of the Lease with the Company, they will have lost the benefit of the income of those additional 10 years and/or lost the opportunity to sell the business at a price reflective of an extended term of the Lease. This situation is particularly onerous by reason of the fact that the purchase was fully financed. 103 There is a further claim against the solicitors in respect of breaches of their duty of care and contractual duties when retained to act for the plaintiffs in 2004, when the plaintiffs and the Company were negotiating for the sale of the Business in the context of the Company claiming that the plaintiffs did not have a "proper Lease". This pleading, paragraphs 34 to 48 of the Second Further Amended Statement of Claim, including a claim under the Fair Trading Act 1987, is limited to failures in respect of the exercise of the option and does not relate to the Variation. These claims need not be considered further because I have found that the option was validly exercised. There was an earlier claim in the pleading, paragraph 29A, under the Fair Trading Act 1987, in respect of the statement made to the plaintiffs that it was safe for them to complete the Contract when there was no agreement in place for the extended term. There were no submissions made in respect of this matter and therefore I will not deal with it.

104 I am satisfied that the solicitors breached their duty of care and their contractual obligations and caused damage and loss to the plaintiffs. The damages are to be assessed because this trial between the plaintiffs and the solicitors was, as I have said, limited to liability. Should the parties not be able to agree on quantum I shall refer to an Associate Justice the assessment of damages. Retail Leases Act 1994 105 I should, as I indicated to the parties on 7 July 2005 that I would, record that the question of the applicability of the Retail Leases Act 1994 in this case is a matter that all parties have asked that I do not express any view upon. Accordingly I express no view upon its applicability. Conclusion 106 The plaintiffs are entitled to the declaration and consequential orders that they validly exercised the option to renew the lease for a further five years until 1 August 2008. The Company's Cross claim is to be dismissed. The plaintiffs have failed to prove that there was an agreement reached with the Company for two additional option periods of 5 years each. The plaintiffs have proved that the solicitor defendants have breached their duty of care and their contractual obligations to the plaintiffs in failing to negotiate and conclude an agreement for the two additional option periods, causing damage to the plaintiffs. The damages are to be assessed by an Associate Justice if the parties are unable to agree on quantum. 107 The parties are to bring in Short Minutes of Order, including an agreed costs order and a reference to an Associate Justice for the assessment of damages at 9.30 on 20 July 2005. If the parties are unable to agree on a costs order I will hear argument at that time.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Lindsay William Gillard & Anor v Lifoon Pty Limited & Ors [2005] NSWSC 687

Baloglow v Konstanidis & Ors [2001] NSWCA 451 Fire & All Risks Insurance Co Ltd v Concorde Personnel Management Services Pty Ltd (1987) NSW ConvR 55-330 Heppingstone v Stewart [1911] 12 CLR 126 Industrial Rollformers Pty Ltd & Anor v Ingersoll-Rand (Australia) Ltd (2001) Aust Contract Rep 90-129 Parras & Ors v FAI General Insurance Company Ltd [2001] NSWSC 1077 CASES CITED : Tonitto & Anor v Bassal & Ors (1992) 28 NSWLR 564 Trust Co of Australia v Perpetual Trustees WA Ltd & Ors (1997) 42 NSWLR 237 Webb & Anor v Ryleen Pty Ltd, unreported, Young J, 8 November 1994 Wight v Haberdan Pty Ltd & Anor [1984] 2 NSWLR 280 Wallville Pty Ltd v Liristis Holdings Pty Ltd [2001] NSWSC 894

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