Murphy v Worland & Anor

Mr Gibb SC Plaintiff COUNSEL : Mr Darke (Defendants) Emery Partners (Plaintiff) SOLICITORS : Slade Wanwaring (Defendants) CATCHWORDS : Summary judgment - exercise of an option LEGISLATION CITED : Real Properrty Act 1900 (NSW) Supreme Court Rules Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA Dey v Victoria Railway Commissioners (1948-49) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 Ballas v Theophilos [No 2] (1957) 98 CLR 193 Oliver v Oliver (1958) 99 CLR 20 Lamont v Heron (1970) 126 CLR 239 CASES CITED : Quadling v Robinson (1976) 137 CLR 192 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Suiga Pty Ltd v Onisforou (1999) 47 NSWLR 473 Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd [1999] NSWSC 1203 Hardy v Young [2001] NSWSC 225 Young v Lamb [2001] NSWCA 225 Johnson v Bones [1970] 1 NSW 28 Ballas & Theophilos [No 2] (1957) 98 CLR 193 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 DECISION : (1) The plaintiff's notice of motion filed 27 April 2001 is dismissed; (2) The plaintiff is to pay the defendants' costs as agreed or assessed.

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13183/00 - L M MURPHY PTY LIMITED v DONALD ALLAN WORLAND & ANOR

1 MASTER: By notice of motion filed 27 April 2001 the plaintiff seeks an order of the court for summary judgment and an order that the cross claim be dismissed. 2 The parties had entered into an informal lease arrangement from 1995. It is common ground between the parties that on 21 November 1995 the parties entered into a written agreement whereby the plaintiff agreed to grant to the defendants a registered lease of premises known as the BP Service Station at the corner of Wallsend Street and Mulbring Road Stanford Merthyr. The commencement date of the lease was 21 November 1995 and the duration of the term was to be five years, with an option for a further term of five years to be exercised no later than 21 August 2000. (see the Heads of Agreement - Ex A) 3 The rental during the term was set at $375.00 per week from the date upon which a new self-service system and bowsers were operational and was to be increased in accordance with the Consumer Price Index at 12 monthly intervals during the term. The rental for the further term was to be mutually agreed, or, in the event of disagreement, determined by a nominee of the President of the Valuers Association. This was to be reviewed annually. The plaintiff had an obligation to prepare a lease but this did not happen. The defendants entered into possession of the premises under the agreement for lease without a lease of the premises having been registered under the Real Property Act 1900 (NSW). By letter dated 19 September 2000 the plaintiff advised the defendants that as at 1 October 2000, they would require rent payable of $3,500 per month plus GST payable on the first of each month. 4 There is a factual dispute as to whether Mr Vickers had authority to act as agent for the plaintiff. The defendants' case is that Mr Vickers had ostensible authority to act as agent. For the purposes of this application, I have accepted that Mr Vickers had ostensible authority to act on behalf of the plaintiff although it is acknowledged that at trial this issue would be strongly disputed.

The law in relation to summary judgment 5 The relevant parts of Pt 13 r 2 (SCR) says: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and

(b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed,

the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 6 In a recent decision Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb. 7 In General Steel Barwick CJ, who heard the application alone stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 8 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 9 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 10 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 11 The issue for determination is whether the claim by the defendants that they exercised the option for a further term is hopeless. 12 It is established law that the communication by which an option is exercised should be clearly and unequivocally state the fact that the grantee then and there elected to exercise the option on terms upon which it was granted (see Ballas v Theophilos [No 2] (1957) 98 CLR 193; Oliver v Oliver (1958) 99 CLR 20; Lamont v Heron (1970)126 CLR 239; Quadling v Robinson (1976) 137 CLR 192; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673; Suiga Pty Ltd v Onisforou (1999) 47 NSWLR 473; Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd [1999] NSWSC 1203; Hardy v Young [2001] NSWSC 225; and Young v Lamb [2001] NSWCA 225 13 Where an option does not express any means for its exercise, no particular form of words is required and even oral notice is sufficient provided that there is a clear unequivocal election to exercise the option for a further term communicated to the plaintiff: Johnson v Bones [1970] 1 NSWR 28 14 In relation to the exercise of an option, the principle was expressed by Dixon CJ in Ballas & Theophilos [No 2] (1957) 98 CLR 193 at 196 and 205 as:

"Clearly enough, however, it was the business of the plaintiff to exercise the option. The clause contains no express provision saying how he is to do it and any definitive communication of an election would suffice. But it was necessary that the communication should express clearly and unequivocally the fact that the surviving partner, the plaintiff, then and there elected to acquire the deceased's interest upon the terms of the clause." 15 In Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673, Kirby P picked up the above principle at point 1 and helpfully summarised the other applicable principles governing options, as being: "1. The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that this is what is intended: see Dixon CJ in Ballas v Theophilos (No 2) … ; see also R Fox, "Options" (1950) 24 ALJ 7 at 11. However because clarity and lack of equivocation are matters of opinion and impression, because inflexible insistence on form could lead to plain injustice and because fact situations vary almost infinitely a number of elaborations of this primary rule have been developed by the Courts. 2. It is not necessary , for example, for the effective exercise of an option, that terminology conforming precisely to the terms of the option should be used: see Williams J in Ballas v Theophilos (No 2) … cf Gower-Chapman v Morris [1987] NSW Conv R No 55-341. 3. The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt: cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Issacs J of the phrase "in the circumstances of its receipt", adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 t 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at lease up to the time for the exercise of the option had expired. 4. Although a notice may mis-state the terms of the option which it purports to exercise, it may nevertheless amount, depending on the circumstances, to an unqualified and unconditional exercise of the option: Quadling v Robinson (1976) 137 CLR 192 at 201. On the other hand, if the grantee of the option sets out an erroneous understanding of it and then purports to exercise the option as so understood, the exercise will, generally speaking be ineffective … see also Oliver v Oliver (1958) 99 CLR 20 5. Nonetheless, every case depends ultimately upon its own facts and the proper construction of the document which is in dispute. Accordingly care must be observed in laying down general rules suggested to be of inflexible operation: see Gibbs J in Quadling v Robinson … and cf Hope J in Johnson v Bones … The foregoing guiding principles are more readily stated than applied in a way that produces but one answer. They contain within their words the necessities of evaluation and impression which typically make the conclusion reached in such cases argumentative." 16 Recently, the principle was restated in Young v Lamb [2001] NSWCA 225 at paras 22 and 24. 17 The first defendant's version will be disputed at trial. However, for the purposes of this application I have accepted the first defendant's evidence. It is that: "On 16 July 2000 the service station premises was [sic] severely damaged by a fire. The building was largely gutted at the rear and there was extensive water damage throughout. I recall that on 18 July 2000 I had a discussion with Kel and Anne Vickers at their house about the fire. There was some discussion about insurance. I went to the site the next morning to meet with an insurance assessor. Darryl Parker was also there. Later in the morning Kel Vickers came over to the site. We had a conversation during which words to the following effect were said Vickers: "Are you going to stay on? I though you would pull the pin and walk away" Worland: "No, it is our option to stay on. We are here for the long haul". I recall that there was then some discussion concerning the making of repairs to the buildings and the erection of a temporary shed. Approximately 2 weeks later Kel Vickers again came over to the site and spoke to me. A conversation to the following effect took place: Vickers: "I am really surprised you want to stay on after all this. I thought you would just sell the stock and give it away" Worland: "No we are here for the long haul. We have some long term staff. We have obligations to them and we intend to follow through on that." 18 The defendants submitted that the option to take a renewed lease constituted a standing offer made by Murphy which was capable of acceptance by the lessees at any time prior to 21 August 2000. Whether the means of communicating acceptance of the offer was acceptable is a question of construction of the offer. As previously stated no mode of acceptance was prescribed or even contemplated. Accordingly, it was sufficient that acceptance of the offer be merely communicated to the offeror, particularly where the history of the dealings between the parties has been conducted with a high degree of informality. It is my view that it is arguable that the words "No it is our option to stay on. We are here for the long hall" state clearly and unequivocally that the defendant was exercising the option for a further five year lease. Clarity and lack of equivocation are matters of opinion and impression. It may be that anybody hearing the purported conversation would have understood the defendant to be saying that he intends to operate the service station for years to come. Indeed, in October 2000, after these words were uttered and one month before the lease expired, the plaintiff wrote a letter increasing the rent. It could be argued that the plaintiff understood that the defendants had exercised that option. The defendants' case cannot be said to be hopeless and it should go to trial. The notice of motion is dismissed. 19 Costs are discretionary. Costs should follow the event. The plaintiff is to pay the defendants' costs as assessed or agreed.

(1) The plaintiff's notice of motion filed 27 April 2001 is dismissed.

(2) The plaintiff is to pay the defendants' costs as agreed or assessed. **********

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