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[2017] WASCA 84
General information, not legal advice.
Court of Appeal (WA)
2017-05-01
Murphy JA
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : PALLAS BRIDE AND FASHION PTY LTD -v- EVANS [2017] WASCA 84
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Citation : EVANS -v- PALLAS BRIDE AND FASHION PTY LTD [2016] WADC 85
Repudiation of lease agreement - Whether tenant entitled to terminate lease under terms of lease agreement - Construction of further agreement between parties - Whether trial judge erred in construction of further agreement - Whether further agreement provided for an extension of lease for a fixed term of 12 months at a fixed rental or whether it provided for monthly tenancy - Whether trial judge erred in having regard to extrinsic evidence - Whether trial judge erred in failing to consider whether there was a right of termination under the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA) - Whether trial judge erred in finding that an oral agreement was made between parties
Practice and procedure - Whether respondents' pleadings sufficient - Whether trial judge erred in permitting respondents to run alternative cases - Whether appellant deprived of opportunity to meet the alternative cases at trial
Rectification of contracts - Whether trial judge erred in holding that he would have ordered rectification if he were wrong on the question of construction - Whether trial judge erred in finding that there was a common intention between the parties
Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA)
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Equuscorp Pty Ld v HG Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29
Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133
McCourt v Cranston [2012] WASCA 60
RCR Tomlinson Ltd v Russell [2015] WASCA 154
Robinson Helicopter Co Inc v McDermott [2016] HCA 22; (2016) 90 ALJR 679
Southern Properties (WA) Pty Ltd v Executive Director, Department of Conservation and Land Management [2012] WASCA 79; (2012) 42 WAR 287
1 The first appellant, Pallas Bride and Fashion Pty Ltd (Pallas Bride) leased premises in Subiaco, from which it conducted its business of manufacturing and selling bridal gowns. The lease of the Subiaco premises (Lease) was due to expire on 2 January 2015. The respondents purchased the premises, subject to the Lease, on 11 September 2014.
2 In November 2014, a letter providing for Pallas Bride's continued occupation of the Subiaco premises under lease (November Letter Agreement) was signed by the respondents and the second appellant, Trevor Morris. Mr Morris was the sole director of Pallas Bride, and was guarantor of Pallas Bride's obligations under the Lease.
3 On 4 March 2015, Pallas Bride purported to give one month's notice of termination of the Lease. On 6 March 2015, Pallas Bride relocated its business to new premises in Claremont, and vacated the Subiaco premises.
4 The respondents claimed that Pallas Bride had repudiated the Lease. The respondents sued for damages and, if necessary, rectification of the November Letter Agreement.
5 A critical issue at trial was whether the November Letter Agreement provided for:
6 The trial judge found that the November Letter Agreement provided for a fixed 12-month tenancy. The trial judge also indicated that, if he were wrong in construing the November Letter Agreement in that manner, he would have ordered rectification of that agreement to provide that the term of the lease is to continue to 2 January 2016. The trial judge therefore found for the respondents, and awarded damages, which had been agreed in the sum of $72,070.
7 The appellants now appeal against the trial judge's decision. They contend, in effect, that the respondents did not plead the case on which they succeeded. The appellants further contend that the trial judge erred in the manner in which he had regard to extrinsic evidence in construing the November Letter Agreement. They also contend that the trial judge erred in finding that the November Letter Agreement should be rectified if his construction of that agreement was in error.
8 For the following reasons, none of the appellants' grounds of appeal succeed and the appeal must be dismissed.
9 The Lease was made on 15 December 2009 by Pallas Bride and the former owner of the Subiaco premises (described in the Lease as the Landlord). Clause 3 of the Lease provided for the Landlord to lease the Subiaco premises to Pallas Bride for the 'Term' at the 'Rent' from the commencement date of 3 January 2010 for use as a bridal fashion retail store.
10 Clause 1.1.20 of the Lease defined the 'Term' as follows:
"Term" means the period specified in Item 3 of the Schedule and includes any extension or renewal of it;
11 Item 3 in the Schedule to the Lease provided for an initial two-year term expiring on 2 January 2012. Clause 15.2 of the Lease provided for two options for Pallas Bride to renew the Term of the Lease for periods of two years and one year respectively. Pallas Bride exercised those options. The Second Renewed Term expired on 2 January 2015.
12 Clause 4.1 of the Lease provided for the payment of an annual rent in monthly instalments. Clause 4.2 provided for the Rent to be reviewed on Rent Review Dates which were specified as:
The Lease provided for the Rent payable from Market Rent Review Dates to be as agreed or, failing agreement, to be at the Current Market Rental Value determined in accordance with the provisions of the Lease. The annual Rent was increased by 3% at Fixed Percentage Rent Review Dates.
13 Clause 13 of the Lease provided for the Landlord to terminate the Lease, in essence for breach by the Tenant. Clause 14 provided for either party to terminate the Lease if the Subiaco premises were destroyed or damaged so as to be unfit for occupation.
14 Clause 9.2 of the Lease, which the appellants contend was engaged by the November Letter Agreement, is in the following terms:
9.2 Holding Over
9.2.1 If the Tenant, with the consent express or implied of the Landlord remains in occupation of the Leased Premises after the expiration of the Term, then the Tenant will do so as a monthly tenant at a rental equal to one-twelfth (1/12) of the aggregate of the Rent, the Tenant's proportion of variable outgoings and rates and taxes payable by the Tenant during the period immediately preceding the date of expiration of the Term increased by ten per cent (10%).
9.2.2 The monthly tenancy referred to in sub-clause 9.2.1 can be determined by one (1) month's written notice given by either party to the other.
9.2.3 The Tenant will be entitled to remain in possession of the Leased Premises subject to the rights and obligations contained in this lease.
15 The November Letter Agreement is a short document, the substantive parts of which are set out in full below:
Date: 8 November 2014
Dear Mr Morris
Re: Agreement to Hold Over Lease, 201 Railway Road, Subiaco, Western Australia 2008 ('Lease')
We refer to the lease that was assigned to Barbara Wolff and James Evans ('Assignees') on 8 September 2014.
The Second Renewed Term (exercised by the Tenants) is due to expire on 2 January 2015. The Assignees offer to hold over (i.e. continue) the Lease on the same terms and conditions as are contained in the Lease document, dated 15 December 2009, with the exception of the Rent, which shall remain at the current rate of five thousand, six hundred and sixty-five dollars, including GST ($5665.00), per calendar month. The Assignees reserve the right to increase the Rent on or before 2 January 2016, for rent applicable to any further period of the Lease offered by the Assignees beyond 2 January 2016.
Please sign and date both originals of this Agreement. Please return one original to us in the enclosed stamped self-addressed envelope, and keep one original for your records.
16 The respondents signed a formal execution clause on 8 November 2014. Mr Morris signed a formal execution clause on behalf of Pallas Bride on 14 November 2014.
17 The respondents' statement of claim pleaded a telephone conversation which occurred on or about 4 September 2014, emails dated 9 and 10 September 2014 and a meeting at Vans Café in Cottesloe on 27 October 2014. It was pleaded that, at the Vans Café meeting:
It was also pleaded that Mr Evans said that he would 'send papers to confirm this extension'.[1] The execution of the November Letter Agreement was pleaded.
18 In par 16 of the statement of claim, the respondents pleaded that, on the proper construction of the November Letter Agreement:
(a) the Lease continued until 2/1/16 on the same terms and conditions as the Lease with the exception of the rent remaining at $5,665.00 GST inclusive per calendar month;
(b) the [respondents] reserved the right to increase the rent for any further period beyond 2/1/16.
19 The respondents also pleaded that it was the parties' common intention 'for the Lease to continue until 2/1/16'.[2] The respondents pleaded that, if the November Letter Agreement was construed to provide for a monthly tenancy, then it should be rectified to correctly record that common intention.
20 In the alternative, the respondents pleaded an oral agreement to continue the Lease to 2 January 2016 which 'satisfies the requirements of the Statute of Frauds 1677'.[3]
21 The statement of claim goes on to allege a repudiation of the Lease by Pallas Bride, and the consequent loss and damage which the respondents suffered. It alleges that Mr Morris is liable as guarantor. Other claims, which need not be detailed in these reasons, were also advanced.
22 The respondents' defence essentially denied that an oral agreement was reached at the meeting on 27 October 2014 and denied the respondents' construction of the November Letter Agreement.
23 The trial judge made the following findings as to the primary facts.
24 Pallas Bride's business is to design, manufacture, fit and sell bridal gowns. It requires premises suitable for all of those purposes [21].
25 The appellants were aware that Pallas Bride's lease of the Subiaco premises was due to expire on 2 January 2015. From about June 2014, Mr Morris discussed with the then owners of the premises what would be happening when the lease expired. It was known to both parties that Pallas Bride wished to stay on in the Subiaco premises whilst it looked for other premises, which could take some time [22], [97].
26 On about 4 September 2014, Mr Evans telephoned Mr Morris and informed him that the plaintiffs had purchased the Subiaco premises [23] - [24]. Mr Evans told Mr Morris that Pallas Bride could extend the lease for 12 months [104].
27 The Subiaco premises settled on 8 September 2014 and the respondents became the registered proprietors on 11 September 2014. On 9 September 2014, Mr Evans informed Mr Morris that settlement had occurred [25] - [26].
28 On 10 September 2014, Mr Morris emailed Mr Evans asking to 'catch up ... to discuss the extension of lease for next year'. The email said, 'We appreciate your kind offer of allowing us to stay on for a further 12 months' [27].
29 Subsequent emails from Mr Evans advised Mr Morris that the plaintiffs wished to have some works performed on the Subiaco premises. These works would require access to those premises by their architects and required council planning approval [29].
30 Eventually the parties agreed to meet at Vans Café in Napoleon Street on 27 October 2014 [30]. The respondents and Mr Morris were present at the meeting [31]. At that meeting, it was discussed and agreed that the parties would extend the lease for a term of 12 months at a fixed rental [98], [118]. The parties completely agreed upon all of the terms of their bargain (identified the parties, the property, the lease terms, the rent). They intended to be bound immediately by the terms that had been agreed, whilst expecting to execute a formal document at a later date [150], [154]. The November Letter Agreement was a note or memorandum evidencing the oral agreement made by the parties at the Vans Café meeting [155].
31 After the meeting on 27 October 2014, the respondents prepared the November Letter Agreement, which was typed by Ms Wolff.
32 On 7 November 2014, Ms Wolff sent an email to Mr Morris in the following terms:
Hi Trevor, I am ready to mail you the agreement to hold over the lease until January 2016 and want to ensure I have your correct mailing address.
Mr Morris responded by asking for the agreement to be sent to him in New South Wales [45] - [46].
33 The respondents executed the November Letter Agreement on 8 November 2014. The appellants executed the agreement on 14 November 2014 [51]. Mr Morris knew that the November Letter Agreement was a fixed 12-month agreement and shared a common intent that it was for a fixed 12-month term. Mr Morris executed the November Letter Agreement on that basis [174]. Mr Morris changed his mind sometime after signing the November Letter Agreement when suitable premises were, somewhat surprisingly to him, found promptly [139].
34 On 27 November 2014, Mr Evans extended a lease for the respondents' business premises at Nedlands from 4 January 2015 to 3 May 2016 [52]. If the lease on the Subiaco premises was monthly, he would not have extended the lease for the Nedlands premises for 12 months [111]. At the time of trial, the respondents were still carrying on their business from the Nedlands premises [53].
35 The appellants paid land tax and council rates to the end of June 2015, which acts were unequivocally referable to the oral agreement and inconsistent with the appellants' contention of a monthly tenancy [156].
36 After Mr Morris executed the November Letter Agreement, he contacted his real estate agent to find new premises. Mr Morris was always concerned about the difficulties in finding suitable premises for his business and did not expect those premises to be found quickly. In November or December 2014, Mr Morris told his real estate agent that he had signed a letter of agreement with the landlord allowing Pallas Bride 'to stay on until January 2016'. He entered into negotiations for the Claremont premises in early 2015 [107] - [109], [176].
37 On 3 March 2015, Mr Morris advised Mr Evans that Pallas Bride intended to vacate the Subiaco premises. He sent a notice of termination on 4 March 2015, claiming that there was a monthly tenancy pursuant to cl 9.2.2 of the lease agreement and in effect giving one month's notice [60]. Mr Morris, knowing he had approximately eight months left on the Subiaco lease, moved to new premises thereby exposing Pallas Bride to paying two rents for eight months [115].
38 This conduct was accepted by the respondents as repudiation of what they say was the 12-month lease expiring on 2 January 2016, constituted either by the November Letter Agreement or by the oral agreement made on 27 October 2014 at Vans Café [61].
39 On 6 March 2015, Pallas Bride vacated the Subiaco premises and relocated its business [62].[4]
The trial judge's approach to the construction of the November Letter Agreement
40 The trial judge held, in effect, that a reasonable construction of the November Letter Agreement was that it provided for a lease for a 12-month period expiring on 2 January 2016 [89] - [92]. He found that ambiguity exists in the use of the words 'hold over' in the November Letter Agreement, and that:
As it is defined in the November agreement to mean 'continue ' the lease it could reasonably mean to continue the term of the lease. It could also reasonably mean to hold over pursuant to cl 9.2.2 without a new tenancy term having been agreed [93].
41 Noting that both parties' interpretations of the November Letter Agreement were reasonable, the trial judge found that the agreement was reasonably susceptible of more than one meaning. He said:
Making the inquiry of what reasonable business persons would have understood the terms to mean bearing in mind the language used in both the November agreement and the lease, the circumstances addressed by the contract and the commercial purpose or objects secured by the contract leads inevitably to the conclusion that it is a fixed 12-month tenancy.
Only the events, background, circumstances, things external to the agreement mutual known to the parties may be considered. The court must also look at the genesis of the transaction, the market in which the parties are operating and the commercial purpose of the November agreement [95] - [96].
42 After finding that it was agreed at the Vans Café meeting that the lease would be extended for 12 months at a fixed rental, the trial judge said:
Clearly that agreement was an objectively known fact for both parties [118].
The commercial purpose or objects to be secured by the contract were to extend the lease at a fixed rent for a fixed period. The commercial purpose of the lease means that the 12-month extension requested by the defendants could only be achieved by a fixed term; otherwise they could be evicted on one month's notice.
I consider the proper construction of the November agreement after considering the commercial purpose, mutual known background and context and agreement reached at the Vans Café meeting leads to the conclusion that it is a fixed 12-month tenancy in that it provides for a fixed term of 12 months at the rental therein specified incorporating the terms and conditions of the lease. The November agreement meant the term of the lease continued for another 12 months. The holding over cl 9.2 did not apply until the new term expired or alternatively the meaning of the words in the November agreement must exclude the operation of cl 9.2.1 and cl 9.2.2 [120] - [121].
44 The trial judge went on to consider the claim for rectification, in case he was wrong about the proper construction of the November Letter Agreement. He found that the parties shared a common intent to lease the Subiaco premises for a fixed 12-month period at the stipulated fixed rent but otherwise subject to the terms and conditions of the Lease. On the assumption that the November Letter Agreement did not so provide, it reflected a mistake in recording the parties' common intention and does not reflect the true agreement between the parties [138]. The trial judge said that, if he was wrong on the construction issue, he would order rectification of the November Letter Agreement to provide that 'the term of the lease is to continue until 2 January 2016' [141].
45 The trial judge also found that there was an oral agreement for a lease for a 12 month fixed term, but that the oral agreement had no independent effect 'as it is subsumed in the construction and rectification arguments' [149].
Ground 1: pleadings issues Ground of appeal
46 Ground 1 and the submissions advanced in support of that ground are somewhat confusing. Ground 1 contends that:
The learned trial judge erred in law and fact at [76] - [78] of the Reasons by finding that the respondents' case was sufficiently pleaded and the appellants provided with an opportunity to meet that case at trial, when:
(a) His Honour should not have permitted the Respondents to run alternative cases, as the alternative cases were not pleaded nor was the evidence capable of supporting alternative cases (Reasons at [87]); and
(b) the appellants were denied the opportunity to meet the fixed term extension case at trial, despite that case forming the basis of His Honour's ultimate findings in favour of the Respondents.
47 The first aspect of this ground of appeal is a contention that the respondents' case was not sufficiently pleaded.
48 As noted above, par 16(a) of the statement of claim pleaded that, on its proper construction, the November Letter Agreement provided for the Lease to continue until 2 January 2016 on the same terms and conditions as the Lease, with the exception of the rent remaining at $5,665 per calendar month. The appellants' submissions are based on their construction of this paragraph of the respondents' pleading.
49 The appellants' submissions contended for the following two allegedly different ways in which this paragraph of the pleading could be read:
50 There is no material substantive difference in these two constructions of the respondents' pleading identified by the appellant. On either construction, the November Letter Agreement provided for Pallas Bride to occupy the Subiaco premises under lease for a period ending on 2 January 2016. On either construction of the pleading, the respondents were contending that, absent breach or destruction or damage to the premises, neither the respondents nor Pallas Bride could determine the tenancy at an earlier time. On either construction of the pleading, the respondents were contending that the rent would remain at its current level at the time of entry into the November Letter Agreement, and the terms and conditions of the Lease would otherwise apply. What the appellants seek to describe as two alternative and inconsistent constructions of the pleading are no more than two different ways of describing the same material effect of the November Letter Agreement.
51 The appellants' counsel also contended that par 16 of the statement of claim should be read as pleading what may be referred to as an 'unmodified holding over case'. On that case, the November Letter Agreement merely provided for Pallas Bride to hold over on a monthly tenancy without any increase in the Rent. This construction of the November Letter Agreement is no different from that advanced by the appellant. At the hearing of the appeal, the appellants' counsel maintained (albeit faintly) that par 16(a) should be construed as pleading only the unmodified holding over case (appeal ts 15). That submission is without merit. It ignores the reference in par 16(a) to the Lease continuing 'until 2/1/16'. Further, par 16(a) cannot reasonably be read as advancing a construction on which the respondents must necessarily fail at trial when alternative constructions of the pleading are at least reasonably open.
52 The trial judge construed par 16(a) of the statement of claim in the following manner:
The [respondents'] pleaded case is that the lease continued until 2 January 2016 and the other terms and conditions of the lease apply with the exception that the rent is as specified in the [November Letter Agreement]. It does not mean the lease continued until 2 January 2016 unless determined by one months' written notice or the lease could continue until 2 January 2016. Clause 9.2 only applies if after the expiry of the term of the lease the [appellants] remained in possession with the [respondents'] consent. The [respondents] plead effectively that the term of the lease has been continued until 2 January 2016. Clause 9.2 does not need to be modified on the [respondents'] pleaded case as it only applies if the [appellants] continued to occupy the Subiaco premises after the expiration of the 2 January 2016 term [77].
53 The trial judge was correct to construe the respondents' statement of claim as encompassing the fixed term extension case. The natural meaning of the language used in par 16(a) of the statement of claim, considered in light of the pleading about the terms of the Lease and the November Letter Agreement, accommodates that argument.
54 The appellants contend that, for the alleged breach to have been established, 'there had to be a complimentary plea that the right to terminate upon notice relied upon by the lessee as the basis for termination did not apply'. The appellants say that the respondents in fact expressly pleaded that the claimed right did apply, 'by pleading that the Lease continued after 2 January 2015 on the same terms and conditions (which necessarily included the right to terminate upon notice under 9.2.2)'.[5]
55 These submissions should not be accepted. Subject to presently immaterial exceptions, the respondents were required to plead the facts constituting their cause of action.[6] They did so by pleading the continuation of the Lease for a fixed term which Pallas Bride prematurely terminated. On the facts pleaded by the respondents, there was an extension of the Term of the Lease, and cl 9.2.2 did not apply to give Pallas Bride a right of early termination.
56 The second aspect of ground 1 is a contention that the trial judge should not have permitted the respondents to run alternative cases, as the alternative cases were not pleaded. The appellants also contend that the evidence was not capable of supporting the alternative cases. Those submissions are rejected for the following reasons.
57 First, for the reasons explained above, the respondents did not run alternative cases. The two ways in which the respondents sought to characterise the legal effect of the November Letter Agreement were not materially different.
58 Secondly, and in any event, there was no reason why the respondents could not advance alternative cases as to the proper construction of the November Letter Agreement even if (contrary to the view expressed above) those alternatives were mutually exclusive.
59 There is also no merit in the ground insofar as it asserts that the evidence was not capable of supporting the alternative cases. The state of the evidence may affect whether a pleaded case can succeed, but it does not preclude a properly pleaded case from being advanced.
Opportunity to meet the fixed term extension case
60 The appellants' submission that they were deprived of a reasonable opportunity to meet the 'fixed term extension case' is without merit. Any doubt about the meaning of the pleadings ought to have been dispelled by the respondents' witness statements and opening submissions. The respondents' witness statements referred to a common intention to extend the Lease for 12 months rather than a monthly extension, in support of their claim for rectification if the construction argument was not accepted.[7] The respondents' written opening submissions expressly contended that, by the November Letter Agreement, the parties were locked into a further fixed period of 12 months, and cl 9.2 of the Lease was not engaged.[8] The appellants' counsel accepted that he had understood at trial that the respondents were running the fixed term extension case (appeal ts 9).
61 The appellants rely on exchanges which occurred after the appellants' counsel asked Mr Evans whether, at the time of purchasing the premises or upon the expiry of the term of the Lease on 2 January 2015, he had provided Pallas Bride with a disclosure statement (ts 47). Counsel for the respondents objected to this question. His objection was made on the basis that the appellants had not pleaded any case that they had a right to terminate the Lease under the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act).
62 At this point in the trial, the appellants seemed to be attempting to raise an argument with the following elements:
63 The problem with this line of questioning was that the appellants had not pleaded the facts that would give them a right to terminate under the Retail Shops Act. It was not open to the appellants to put forward a basis for the lawful termination of the Lease based on facts which had not been pleaded. The appellants had not pleaded facts showing the November Letter Agreement to be a retail shop lease, or the absence of a disclosure statement.
64 The respondents' counsel objected to the question about the disclosure statement on the basis that the appellants had not pleaded a case under the Retail Shops Act. During the course of submissions on that objection, the respondents' counsel advanced the 'fixed term extension argument'. He contended that the November Letter Agreement 'did extend that lease, it did continue that lease for 12 months' (ts 54).
65 Ultimately, the appellants' counsel said that he would not pursue the issue if the respondents were not going to apply to amend their pleadings (ts 60).
66 Up to that point, the respondents' counsel had not abandoned the pleading that the effect of the November Letter Agreement was to continue the Lease. Nor had he adopted the appellants' counsel's construction of that pleading. A party cannot be taken to have abandoned a cause of action which is supported by the pleadings unless it is expressly abandoned, and unambiguous language is required for that purpose.[9] Nothing which the respondents' counsel said up to the point when the line of questioning about the disclosure statement was abandoned gave any objective justification for the appellants to think that the 'fixed term extension case' had been abandoned. Nor did the respondents' counsel abandon the fixed term extension case in subsequent submissions.
67 The trial judge's finding that the fixed term extension case was made out was consistent with the respondents' case as pleaded. There was no failure to accord procedural fairness or other error in the trial judge's approach. The appellants had a fair opportunity to respond to that case, including by pleading the exercise of a statutory right of termination under the Retail Shops Act. They did not take that opportunity, and did not seek leave to amend their pleadings to assert such a defence when the respondents' counsel objected to questions about the disclosure statement.
Opportunity to meet the modified holding over case
68 The appellants also complain that the modified holding over case was only raised by the respondents' counsel in closing submissions (at ts 201 - 202). However, the appellants' counsel was unable to point to any evidence which the appellants might have adduced if this argument was raised at an earlier time in the trial (appeal ts 27 - 28).
69 In these circumstances, the fact that this argument was raised in closing submissions did not occasion any practical unfairness in the trial which could justify allowing the appeal. The only opportunity which the appellants claim to have lost is the opportunity to advance legal submissions in relation to that construction of the November Letter Agreement. Submissions against that construction can be advanced on appeal. If accepted, those submissions will lead this court to reject the alternative construction to which the trial judge referred at [121] of his reasons. If the submissions are not accepted on appeal, then they would not properly have influenced the trial judge to find differently.
70 Moreover, as we have said, the modified holding over case is not materially different from the fixed term extension case.
71 For the above reasons, none of the various aspects of ground 1 are established.
Ground 2: proper construction of the November Letter Agreement Ground of appeal
72 In broad terms, ground 2 contends that the trial judge misconstrued the November Letter Agreement. The appellants' primary submission is that the terms of the November Letter Agreement are unambiguous, so that extrinsic evidence was not an admissible aid to the construction of the agreement.
The learned trial judge erred in law and fact at [94], [95] and [121] of the Reasons in his construction of the November Agreement by failing to correctly apply the principles of contractual interpretation, in that His Honour:
(a) erred in finding that the 'ambiguity' test was met in relation to the November Agreement;
(b) alternatively, failed to:
(i) have proper regard to the relevant extrinsic evidence;
(ii) consider the application of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) to a fixed term extension;
(iii) take into account that there was no factual evidence to support His Honour's alternative finding as to the operation of clause 9.2 of the lease document, or that the Respondents' factual evidence was entirely inconsistent with that finding.
74 As explained by the appellants' counsel in oral submissions, there were three aspects to this ground:
75 Counsel for the appellants expressly accepted that, if the finding as to the oral agreement at Vans Café was open and ambiguity was established, the existence and terms of the oral agreement were part of the surrounding circumstances to which regard could be had in construing the November Letter Agreement (appeal ts 37).
76 We do not accept that the earlier oral agreement which the Trial Judge identified forms part of the 'surrounding circumstances known to the parties' which may be taken into account as extrinsic evidence assisting the construction of the November Letter Agreement. As Mason J observed in Codelfa Construction Pty Ltd v State Rail Authority of NSW:[10]
Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
77 On its face, evidence of a prior oral agreement and negotiations was not admissible as an aid to the construction of the November Letter Agreement. However, ground 2 does not raise any issue as to the admissibility and use of evidence of the oral agreement for the purpose of construing the November Letter Agreement if relevant ambiguity were established. Further, the appellants' counsel properly accepted that ground 2 could not succeed if, having regard only to the terms of the Lease and the November Letter Agreement, the judge's construction was correct. In that case, nothing in the extrinsic material would improve the appellants' position on the construction argument. In these circumstances, it is unnecessary to say anything more about the admissibility and use of evidence of an oral agreement reached at the Vans Café meeting for the purposes of construing the November Letter Agreement.
78 It is convenient, therefore, to begin by construing the November Letter Agreement on its terms, in conjunction with the terms of the Lease to which the November Letter Agreement refers. Clearly it is open to consider the terms of the Lease which are expressly referred to in the November Letter Agreement in construing that agreement.
Proper construction of the November Letter Agreement
79 The relevant general principles which must be applied in the construction of contracts are well established,[11] and need not be repeated in these reasons.
80 The phrase 'offer to hold over' within the November Letter Agreement does not have any fixed commercial or legal meaning. Contrary to the appellants' submissions, the phrase is not used in the body of the Lease. The words 'holding over' do appear in the heading to cl 9.2 of the Lease. However, cl 2.1 of the Lease provides that:
Headings and clause numbers are for convenience only and do not affect the interpretation of this lease;
Clause 2.1 of the Lease is inconsistent with the appellants' submission that the phrase 'hold over' is defined in the Lease.
81 Further, any ordinary meaning of the phrase 'offer to hold over' is qualified in the November Letter Agreement by the parenthesis: (i.e. continue). This indicates that the phrase 'hold over' is being used in the sense of continuing the Lease. The ordinary and natural meaning of a reference to continuing a lease is to continuing the term of the lease by renewal or extension. Reference to continuing the Lease in the November Letter Agreement, considered against the definition of 'Term' in the Lease, most naturally conveys an extension or renewal of the Term of the Lease in addition to the options for which the Lease provides.
82 In considering whether the November Letter Agreement engages cl 9.2 of the Lease, it is important to appreciate that the offer to hold over (i.e. continue) the Lease is an offer made by the Landlord. The action of the Landlord which cl 9.2.1 contemplates is to consent to the Tenant remaining in occupation of the Subiaco premises after the expiration of the Term (including any extension or renewal of the Term). The November Letter Agreement is written in terms of an offer by the Landlord, and does not refer to the giving of consent. The language of the November Letter Agreement more naturally indicates an extension of the Term of the Lease than it does an offer to consent to Pallas Bride remaining in occupation of the Subiaco premises after the expiration of the Term of the Lease.
83 It is also significant that the November Letter Agreement refers to the respondents reserving the right to increase 'rent applicable for any further period of the Lease offered by the [respondents] beyond 2 January 2016'. It is implicit in this statement that the November Letter Agreement constitutes an offer to lease for a period ending on 2 January 2016. That is inconsistent with the respondents having the right to determine the lease at any time on one month's notice.
84 The appellants submitted that the reference to the terms and conditions of the Lease applying 'with the exception of the Rent, which shall remain at the current rate', is inconsistent with an extension of the Term. The appellants submitted that the Lease did not provide for any change in the rent after 2 January 2015. They submit that the exception was only required to avoid the operation of that part of cl 9.2.1 which provided for a 10% increase in the Rent in circumstances to which that clause applied. This, on the appellants' submission, indicates that the November Letter Agreement offered a monthly tenancy to which cl 9.2 would apply.
85 While the use of this language may be seen as supporting the appellants' construction of the November Letter Agreement, it does not demand acceptance of the appellants' submissions. The Lease provided for annual rent reviews on 3 January of each year of the potential Term of the Lease up to 3 January 2014. It did so in a context where the Lease did not provide for an extension of the Term beyond 2 January 2015. There is room for dispute as to how the provisions of the Lease relating to Rent operate on an extension of the Term beyond 2 January 2015. The 'exception' in the November Letter Agreement may be seen as putting the matter beyond doubt and excluding any implication of a rent review on 3 January 2015.
86 The effect of the November Letter Agreement, on the appellants' submission, was to simply avoid the 10% increase in Rent provided by cl 9.2.1 of the Lease, but to leave the operation of the Lease otherwise unaffected. However, that construction deprived the respondents' 'offer to hold over (i.e. continue) the Lease' of any legal effect. A reasonable business-person would reasonably have anticipated a mere 12-month stay of the 10% increase in Rent provided for by cl 9.2.1 to be expressed more simply.
87 Having regard to the features noted above, the better view is that the November Letter Agreement offers to continue the Lease for a period ending on 2 January 2016 at the current rent on the terms and conditions contained in the Lease. That has the effect of extending or renewing the 'Term' of the Lease, and excluding the operation of cl 9.2 of the Lease. That is the manner in which a reasonable business-person would have understood the terms of the November Letter Agreement, in light of the terms of the Lease but without reference to the other extrinsic evidence relied on by the trial judge.
88 For these reasons, even if the appellants' complaints about the trial judge's use of extrinsic evidence were made out, it would not justify allowing the appeal. Use of extrinsic evidence does not assist the appellants. The trial judge's construction of the November Letter Agreement can be seen to be correct without reference to the extrinsic evidence. Even if the trial judge erred in having regard to the earlier oral agreement, the same construction follows if attention is confined to the written terms. It is unnecessary to determine whether it was permissible to have regard to the prior oral agreement, or other extrinsic evidence, in construing the November Letter Agreement in order to dismiss this ground of appeal.
89 Four further matters relating to this ground of appeal may be noted.
Ground 3: rectification Ground of appeal
90 Ground 3 challenges the trial judge's finding that, if he were wrong in his construction of the November Letter Agreement, he would have granted rectification of the agreement. Ground 3 is expressed in the following terms:
The learned trial judge erred in law and fact at [141] of the Reasons by finding in the alternative that the November Agreement should be rectified to provide that the term of the Lease was to 'continue' until 2 January 2016, in that:
(a) His Honour's order as to the manner in which the document should be rectified was not consistent with his primary findings as to the construction of the document;
(b) In any event, His Honour should have found that the Agreement could not be rectified, as:
(i) His Honour did not correctly apply the legal principles relating to rectification;
(ii) His Honour found that the parties had a common intention and understanding of the November Agreement when that was not supported by the evidence.
91 This ground can only assist the appellants if the trial judge's construction of the November Letter Agreement was incorrect. We have found that the trial judge's construction was correct, so the issue of rectification does not arise for determination. However, for completeness, we will deal with this ground.
92 The principles applicable to a claim for rectification were summarised in RCR Tomlinson Ltd v Russell,[12] in the following passage quoted by the trial judge:
The equitable doctrine of rectification enables a court to rectify an instrument if it does not reflect the intention of the party or parties to it. The parties' intention refers to what the parties intend to be given effect to by the instrument. The object of rectification is to reform the instrument so that it reflects the true agreement of the parties or the intention of the sole party.
A claim for rectification requires proof of disconformity between the common intention of the parties, continuing to the time of execution of the instrument, and the terms of the instrument.
Disconformity between the continuing common intention and the instrument may result from a mistake in recording the parties' common intention, or from a mistake about the meaning or effect of words deliberately chosen. In either case, rectification is available.
Courts begin with the presumption that an instrument reflects the true agreement of the parties to it. A party seeking rectification must displace that presumption by demonstrating that the instrument does not reflect the true agreement of the parties. The need to displace that presumption is often said to require that the party seeking rectification must establish the parties' common intention by clear and convincing proof.
The parties' common intention refers to the actual subjective intention of the parties. However, in order to constitute a common intention the intention of the parties must have been disclosed in some way, although not necessarily by a direct communication that gives rise to an outward expression of accord between them.
The parties' common intention must be clear and well-defined enough to be stated in words that can be incorporated into the instrument. (citations omitted)
93 One aspect of ground 3 is a challenge to the trial judge's factual finding as to the existence of a common intention. This aspect of the ground, pleaded in par (b)(ii) of the ground, is critical to the appellants' success. The appellants' counsel said that par (b)(i), which alleged an incorrect application of principle, did not add anything to par (b)(ii) (appeal ts 49 - 50).
94 Ground 3(a) relates to the form of the order which the trial judge contemplated making. It is unnecessary to deal with this aspect of the ground. The appellants' counsel accepted that, unless ground 3(b) succeeds, ground 3 must fail (appeal ts 51). The trial judge's and this court's construction of the November Letter Agreement means that the occasion for making an order for rectification does not arise. If an order for rectification became more than hypothetical, its precise terms could be appropriately formulated.
95 Therefore, the critical question in resolving this ground concerns whether the challenge to the trial judge's factual finding succeeds.
96 The High Court recently restated the principles governing an appeal on a question of fact in the following terms in Robinson Helicopter Co Inc v McDermott:[13]
A court of appeal conducting an appeal by way of rehearing is bound to conduct a 'real review' of the evidence given at first instance and of the judge's reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. But a court of appeal should not interfere with a judge's findings of fact unless they are demonstrated to be wrong by 'incontrovertible facts or uncontested testimony', or they are 'glaringly improbable' or 'contrary to compelling inferences'. (citations omitted)
97 The trial judge's finding of primary facts was that the parties agreed to extend the lease for a term of 12 months at the Vans Café meeting, and intended that agreement to be reflected in the terms of the November Letter Agreement. That finding is not demonstrated to be wrong by incontrovertible facts or uncontested testimony. Rather, the evidence of both respondents supported the existence of such an agreement at Vans Café. The trial judge's findings are also supported by the language used in contemporaneous email correspondence.
98 The appellants point to the fact that the respondents' witness statements were in materially identical terms, yet each claimed that their own words were used. That aspect of the respondents' evidence was a factor relevant to the assessment of the credibility of their evidence. However, it does not demonstrate the substance of the respondents' evidence to be glaringly improbable.
99 The factual dispute between Mr Morris and the respondents essentially concerned whether discussions at the Vans Café meeting:
100 The trial judge found in favour of the respondents' evidence, for the following reasons:
101 Far from revealing error, the trial judge's use of contemporaneous statements of the parties made at or about the time of the alleged agreement as an aid to resolving a conflict between their evidence was both conventional and appropriate. It was clearly open to the trial judge to prefer the version which best accorded with the contemporaneous statements, where there was no contention that the statements were not made. The trial judge's conclusion as to the content of the oral agreement reached at Vans Café, and the common intention that the November Letter Agreement give effect to that oral agreement, is neither glaringly improbably nor contrary to compelling inferences. Given the respondents' evidence, the conclusion cannot be said to be demonstrated to be wrong by incontrovertible facts or uncontested testimony. The appellants' challenge to the trial judge's findings of fact as to the existence of a common intention fails.
102 Ground 4, which relates to an issue of costs, was abandoned at the hearing of the appeal (appeal ts 55).
103 Various arguments are raised by the respondents under a notice of contention. Given the failure of the grounds of appeal, it is unnecessary to deal with the notice of contention.
104 For the above reasons, the appeal must be dismissed.
[1] Paragraph 8 of the statement of claim.
[2] Paragraph 18 of the statement of claim.
[3] Paragraphs 20, 21 of the statement of claim.
[4] Paragraph 30 of the statement of claim, which was admitted in the defence, pleaded that Pallas Bride vacated the Subiaco premises on 16 March 2015 rather than 6 March 2015. In this appeal, nothing turns on this discrepancy between the dates.
[5] Paragraph 9(a) of the appellant's submissions dated 11 August 2016.
[6] Order 20 r 8 of the Rules of the Supreme Court 1971 (WA).
[7] Paragraphs 23, 32 - 33 of the statement of Mr Evans (exhibit 1); pars 17, 24 - 26 of the statement of Ms Wolff (exhibit 2).
[8] Paragraphs 8 - 11 of the plaintiffs' submissions dated 20 April 2016.
[9] Southern Properties (WA) Pty Ltd v Executive Director, Department of Conservation and Land Management [2012] WASCA 79; (2012) 42 WAR 287 [115], [323] - [324], [336].
[10] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352; see also Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133, 139, 143 - 144; Equuscorp Pty Ld v HG Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [33] - [36]; McCourt v Cranston [2012] WASCA 60 [24]; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [80].
[11] See Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42].
[12] RCR Tomlinson Ltd v Russell [2015] WASCA 154 [49] - [54].
[13] Robinson Helicopter Co Inc v McDermott [2016] HCA 22; (2016) 90 ALJR 679 [43].
(1919) 27 CLR 133
(2012) 42 WAR 287
(1982) 149 CLR 337
(2004) 218 CLR 471
(2012) 45 WAR 29
(2016) 90 ALJR 679