Nathan Elali v Carl Frederik Reinhold Mahrs & Anor

The Plaintiff's Representation Case - Term of Lease 7The plaintiff's case has narrowed somewhat from the way it was foreshadowed late last week. It is only now put on the plaintiff's behalf in the following way: that the defendants' agent, a Mr Ramsey, represented in the course of lease negotiations to the plaintiff, that even though the written form of the Residential Tenancy Agreement being signed in October 2012 would be for one year, the tenancy that would be provided by the Mahrs to Mr Elali would be in fact for a period of two years. Put another way, the plaintiff says that the defendants represented (and the plaintiff assumed) that the defendants would not insist on their strict right to terminate the lease after twelve months. 8The plaintiff seeks a declaration to that effect or, if it were necessary, an injunction to restrain the defendants from terminating the tenancy created by the Residential Tenancy Agreement after twelve months and before the expiry of two years. Were the declaratory relief to be available, an injunction may not be required. If declaration is sufficient, the discretionary issues that the defendants raise as possible bars to relief would not arise.

Applicable Legal Principles 9The legal rationale for the plaintiff's claim for relief on the first question is not controversial. Essentially the plaintiff makes an equitable estoppel case based on the principles stated in the Waltons Stores (Interstate) Ltd v Maher & Anor (1988) 164 CLR 387; [1988] HCA 7 ("Waltons Stores"). The principles that apply in cases such as Waltons Stores were set out by Brennan J, as his Honour then was, at 428 and 429: "In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs." 10In Austotel Pty Limited v Franklins Self-Serve Pty Limited (1989) 16 NSWLR 582 ("Austotel"), Priestly JA, although in the minority, on appeal, abbreviated the applicable principles even further. He said the following (at 610): "For equitable estoppel to operate there must be the creation orencouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." 11But this case, like almost all such cases, depends upon facts as to what was represented to the plaintiff; what assumptions the plaintiff was induced to adopt; whether there were any acts of reliance upon those assumptions, and whether the plaintiff will suffer detriment if the assumption the plaintiff adopted is not fulfilled. 12The Court directed that the parties file affidavits in a tight timeframe and did not require them to file pleadings, which would ordinarily be done in such a case. But the parties were asked to identify the issues in their written submissions, which they have done.

Conversations between Mr Ramsey, Mr Elali and the Mahrs 13The plaintiff's representation case is entirely based on conduct between the plaintiff and Mr Ramsey, an agent for the defendants. So far as the representations are concerned, Mr and Mrs Mahrs did not have any direct contact with Mr Elali. Although the defendants' dealings with Mr Ramsey, their real estate agent, are of some relevance in the Court determining the probabilities. 14Ms Oliak, counsel for the defendants, disputes all the major elements of the plaintiff's case. She says that the representations alleged, that there would be a tenancy for two years were not made, that no such assumption was made on the plaintiff's part, and that there was no reliance, or detriment suffered, by the plaintiff. 15The Court has been provided with a considerable amount of evidence: about the course of the CTTT proceedings referred to in the principal judgment; about how the subject property was acquired by the defendants; and about other matters that is not necessary for the Court to go into at any length. 16As it is desirable to complete the case within one day, these reasons simply focus on the important conversations and interactions about which findings must be made to determine the case. 17The short facts are these. In August 2012 Mr and Mrs Mahrs contracted to acquire the Connells Point property for $1.965 million. The agent acting on the sale of the property was Mr Brett Ramsey of Belle Property South Hurstville. In the course of negotiating the purchase of what in the short-term, was to be an investment property, Mrs Mahrs said to Mr Ramsey that after completing the purchase they would be interested in finding a tenant. Through Mr Ramsey's intervention Mr Elali and his wife, Elissa Meredith, were introduced as potential tenants to the property. 18Between mid August and late September 2013 there were exchanges between Mr Ramsey and Mr Elali and between Mrs Mahrs and Mr Ramsey about a possible tenancy. The precise dates of meetings between Mr Ramsey and Mr Elali do not matter much. There were a number of such meetings. Suffice it to say by 10 October 2012 a Standard form Residential Tenancy Agreement had been signed between Mr and Mrs Mahrs as landlords and Mr Elali as tenant for 52 weeks. 19The Residential Tenancy Agreement is in evidence. Its principal features show that initially both Mr Elali and Ms Meredith were to be named as tenants on the Residential Tenancy Agreement. But after the agreement was prepared apparently Ms Meredith declined after the agreement was prepared to sign to be a tenant. Her name was crossed out and this change was initialled.

The Residential Tenancy Agreement Form 20The tenancy term that is available on the face of the standard form Residential Tenancy Agreement is of some importance in deciding the issues in these proceedings. The standard form Agreement represents the "term" the following way: it states "the term of this agreement is", then there appears a box, which is blank apart from the words "weeks/months/years". Then a notation appears next to it, in small text as guidance for persons filling in the form. It says "for a fixed term agreement insert the term. Otherwise leave blank or write 'periodic'". Thus the standard form agreement does not prescribe a maximum term of one year for a residential tenancy. And this Residential Tenancy Agreement, under the heading "term", clearly provides for a twelve month term. There the following dates appear "starting on '10/10/12'", "and ending on '09/10/13'", with the rent nominated as $1,100 a week payable in advance starting on 10 October 2012. 21The rest of the agreement was a fairly unremarkable document but it was signed by the landlord's agent, Mr Beattie, another partner of the real estate agency, on one side and by Mr Elali as tenant on the other, witnessed also by Mr Ramsey.

Mr Elali's and Mrs Mahrs' Versions 22The central issue between the parties is what was said in the conversations leading up to the agreement. Mr Elali gives the following account of those conversation in paragraphs 9, 10 and 11 of his affidavit: "9. Mr Ramsay said in a particular conversation in late August words to the following effect: BR: 'Nathan we are about to sell a property at Connells Point that will suit you and your family'. I responded to the effect: NA: 'Brett, I don't want a short term tenancy. My family needs a settled place to live.' BR: 'The new owners will looking (sic) to rent it for two years and then possibly renovate it and move in themselves'. NA: 'That would be perfect, can I come and look at it'. BR: 'I will be there tonight at 7pm'. NA: What is the address, I will meet you tonight at 7pm'. BR: '[address at Connells Point]' 10. I viewed the property at [Connells Point address] that night and I said to him, 'I am interested, let me know how much'. 11. Brett rang me about 4 weeks later, the conversation was to the following effect: BR: 'The new owners want $1100.00 per week and they will not come down from that. They want the rental to start the day they settle'. NA: 'That is OK, when is the settlement?' BR: 'In a couple of weeks'. NA: 'So the lease will be for two years? That is important'. BR: ''No, the lease cannot be for more than 12 months. The owners are interested in leasing it for two years and then may renovate and move in'. NA: 'Brett, that is perfect, a two year lease is what I want'. BR: 'That is what they want as well'." 23Mrs Mahrs' evidence about the instructions she gave to Mr Ramsey, as her agent, was relatively uncontroversial. 24Mrs Mahrs sent an email to Mr Ramsey on 20 August 2012. Before this there had been an inquiry to Mr Ramsey, apparently from Mr Elali, which Mr Ramsey turned into an email to Mrs Mahrs. The inquiry contained some evidence consistent with Mr Elali's and Mrs Mahrs' evidence. The email of 18 August 2012 has Mr Ramsey saying to Mrs Mahrs: "Family I know [being Mr Elali's family] are interested as discussed (and are actually keener to move in immediately). 12 month lease as a minimum and they may like to sign another lease at the end of this term but will be flexible." 25Mrs Mahrs' email reply of 20 August 2012 picks up the last words in Mr Ramsey's text "...12 month lease as a minimum and they may like to sign another lease at the end of this term but will be flexible" and replies to that statement with the words "fine, week by week after 12 months is realistic to give the family flexibility with the build". 26This email exchange in my view is quite significant. It is an undeniable representation of the parties' positions about the term of the proposed lease in August 2012, when they first encountered one another. It assists the Court to decide some of the later conflicts between them. 27This text suggests that Mr Elali is at least partly right when he says that he was interested in leasing the property for 12 months as a minimum. But it also shows that Mrs Mahrs was quite firm in her view that a periodic lease would be appropriate after 12 months, and would be realistic to give flexibility. That is consistent with what she claims she said on 17 September. She says in her affidavit that on 17 September 2012 she said to Mr Ramsey words to the effect "we will consider the possibility of renting the property for two to three years and the maximum lease term we would approve would be 12 months". 28The rest of the contest of fact occurs directly between the accounts of the defenadnts' agent Mr Ramsey and Mr Elali. In the end that conflict was not very great. Under cross-examination from Mr Smith, Mr Ramsey conceded that much of what Mr Elali had said about their exchanges set out above in paragraphs 10 and 11 was accurate. But he baulked at agreeing with the two statements at the end of paragraph 11 in which Mr Elali says to Mr Ramsey "that is perfect, a two year lease is what I want" and Mr Ramsey says "that is what they want as well". 29I prefer Mr Ramsey's evidence about this conversation. Although, even if I did not, in my view the flavour of the way that those disputed words were spoken was more in the nature of a flowery expression of mutual goodwill. It is not uncommon in commercial negotiations for one or other side to express a general opinion that something is "what we all want" without anyone necessarily regarding it as a commitment of any kind upon which the other side could rely. Even if Mr Ramsey had said this, all he was representing to Mr Elali that the Mahrs probably had a desire for a two year lease and that was consistent with what Mr Elali wanted. But due to other things that Mr Ramsey does remember saying to Mr Elali, it was quite clear that the Mahrs were not going to commit themselves to two years at that time.

The Contest between Mr Elali's and Mr Ramsey's Evidence 30Firstly, as to Mr Elali's evidence. At one point in his cross-examination Mr Elali was asked to focus on what Mr Ramsey had said to him about the defendants' leasing intentions. He replied saying that the defendants were, according to Mr Ramsey, "looking to rent out the property for two years". Mr Elali agreed that Mr Ramsey did not say to him that they "will rent it out for two years". 31Mr Elali struck the Court as an intelligent man, used to the nuances of commercial negotiation. The difference between words such as 'will' and 'looking to' were not lost on him. In my view on his own evidence he understood that he was getting a general declaration of goodwill from the Mahrs but not any kind of commitment upon which a commercially-minded individual could rely to order his or her affairs. 32And in my view Mr Ramsey also said to Mr Elali, in their conversations that the maximum term that the Mahrs had said to Mr Ramsey that Mr Elali could have in writing was a 12 months lease. Mr Ramsey conveying his instructions from his principals in this way would put a person such as Mr Elali on notice that the Mahrs were prepared only to bind themselves to a 12 months lease, and no longer. 33Mr Ramsey gave an account of the conversations between himself and Mr Elali which were in different words but were largely consistent with most of what I have set out above from Mr Elali's affidavit. Mr Ramsey said that Mr Elali expressed to him a view that in a longer term than 12 months would be of interest to Mr Elali and his wife and that he would check with Mr and Mrs Mahrs as to what term would be available. He got those instructions and they were consistent with what Mrs Mahrs indicated that she said to him. Mr Ramsey's evidence was that he told Mr Elali that the Mahrs would only agree to a 12 month maximum. 34I find Mr Ramsey said what he claims, for two main reasons: first, because it is consistent with Mrs Mahr's evidence, which I accept; and secondly, because it is consistent with what he later did. I accept his evidence when he says that a 12 month lease was on offer and said to Mr Elali that the owners "did not want to lease for more than two years", that there was "a good opportunity of leasing for two years" but that they "were only prepared to sign a lease for 12 months". In my view he was clearly conveying through these statements, in his evidence, which I accept, that Mr Elali had a 12 months lease but he would have to take his chances with respect to a two year lease, although currently things looked fairly good in that direction. Mr Ramsey says, and I accept, that Mr Elali then said that he agreed and wanted to go ahead with the lease. 35After those statements, in my view, it was quite clear that Mr Elali was prepared to sign a 12 month lease on the basis that he would assume the risk that he would not get a longer lease. But the prospects looked good at that time and that he still might get a two year lease, if the Mahrs' attitude did not change. Were it otherwise, in my view, a man of Mr Elali's apparent commercial sophistication would have asked for a longer-term lease. 36When asked in the witness box why he did not ask for a longer lease he said that he assumed that all that was available under the residential tenancy agreement was a 12 month period and that that was what he was used to. To some extent that evidence may be consistent with common experience: leases more than 12 months are rare. But as the standard form of residential tenancy agreement I have indicated makes clear there does not appear to be any 12 months limitation, in the standard form. It is surprising that Mr Elali did not ask for a confirmation of the longer term, if he thought that that was what was available. Moreover, if he thought, as he says he did, that it was important that the lease be for two years, and if he had wanted to press the point rather than take the risk, in my view he is not someone who would have been afraid to ask for a two year lease then and there. But he did not, in my view, because he did not believe that it was available on what Mr Ramsey had represented. 37Mr Smith of counsel submitted that I should accept Mr Elali's evidence. First he emphasises the general consistency between Mr Ramsey and Mr Elali's evidence. He points out that Mr Ramsey was cross-examined and largely agreed with much of what was stated in paragraphs 9 and 11 of Mr Elali's affidavit of 17 December 2013, apart from the last two lines. Secondly, he points out that there was not too much of formal reliance evidence that sometimes appears in these affidavits and that this instead was a fairly blunt unvarnished account of their conversation. 38As to the second point Mr Smith rightly points to the fact that the affidavit does not contain apparent exaggeration. But that is not to escape the fact that much of the difference between Mr Ramsey and Mr Elali emerges from evidence that they both gave orally in addition to what was in that affidavit. And this oral evidence made it clear that only a commitment for a 12 month lease was available. I accept all Mr Ramsey's oral evidence where he declined to accept the correctness of those last two lines of paragraph 11 of Mr Elali's affidavit. 39The effect of this, in my view, is that the representations of a two-year lease or, as the way the case is now put, of non-termination of a lease after 12 months, were not representations that were made. Really, even on Mr Elali's own evidence, there was no indication from Mr Ramsey that the Mahrs would not insist on their strict rights to terminate the lease after 12 months. Nor, in my view, was Mr Elali entitled to draw such an assumption from anything that was said to him. Nor, in my view, did he rely upon any such thing.

Detriment 40There are difficulties, in my view, with the plaintiff's detriment case as well. Mr Smith sought to articulate it as well as the evidence would bear. He submitted that Mr Elali was deprived of the opportunity of looking for a two year lease elsewhere. But I think the answer to that claimed detriment is contained in Ms Oliak's submission. She gained admissions from him in cross-examination to the effect that he did not have a two year lease on offer from anywhere else and that he only had other leases on offer from six to 12 months up to the time that these discussions took place with Mr Ramsey. There does not seem to be any realistic evidence that a two year lease was available somewhere else, even if it had been looked for. 41In my view the claim of detriment is not made out. The Court of Appeal's recent authority says there still must be some substantial detriment shown in these cases: Delaforce v Simpson-Cook [2010] NSWCA 84; (2010) 78 NSWLR 483. In my view that has not occurred in this case. So the plaintiff's case fails on the first question.

Conclusion and Orders 42That makes it strictly unnecessary to consider the second question, unless some special question of costs arises. It may perhaps only be relevant for questions of costs. But, as the day is nearly over and the parties need to know their rights, the Court will determine these proceedings on the first question. Therefore the Summons is dismissed. 43The Court orders the plaintiff to pay the defendants' costs of these proceedings other than the costs specifically referable only to the conduct of the strike out application on Friday, 16 December 2013. 44I have been asked on behalf of the defendants to make an order under Civil Procedure Act, s 98(4)(c) which permits the Court to order a gross sum instead of assessed costs. That is the best course here, particularly in the light of the bill of costs, which the defendants' legal practitioners have now tendered (Exhibit A). 45While I was preparing my reasons for judgment I directed the parties to prepare a summary of their costs. The defendants' solicitors' fees are $15,433 inclusive of GST, and counsel $5,720 plus $550 inclusive of GST, making a total of $21,703. I have already ordered that costs specifically referable to last Friday will not be recoverable. 46Mr Smith submits on the s 94(4)(c) determination that a gross sum of only 60 percent of this figure should be awarded. Ms Oliak says I should order only 85 percent. In my view the Court should award 75 percent of this figure of $21,703 as a gross sum instead of assessed costs. Therefore, the Court enters judgment for costs in the defendants' favour in the sum of $16,277.25. But the Court notes that proceedings for enforcement of that judgment will not be taken other than by way of application to the plaintiff's trustee in bankruptcy. 47Accordingly, the Court makes the following orders and directions: (1)Summons dismissed. (2)Order the plaintiff to pay the defendant's costs of these proceedings other than the costs specifically referrable only to the conduct of the strike out application on Friday, 13 December 2013. (3)Enter judgment for costs in the defendants favour in the sum of $16,277.25 but note that proceedings for enforcement of that judgment will not be taken other than by way of application to the plaintiff's trustee bankruptcy. (4)I grant leave to the defendants to file in Court the Cross-Summons initialled by me, dated and placed with the papers. 48After further argument and the opportunity for negotiations between the parties was given, the Court made the following orders by consent: (1)The plaintiff is to withdraw caveat no A183164 in respect of the property described in the certificate of title folio identifier 13/401619 within three business days of these orders. (2)An order for possession of the property located at [Connells Point property], in favour of the defendants. (3)A stay of order 2 until 22 January 2014. It is a condition of the stay that the plaintiff pay the defendants $3,457 by 31 December 2013. (4)Otherwise dismiss the Cross-Summons. (5)Liberty to apply.

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. Decision last updated: 03 February 2014