Paulyn Investments P/L v Collins Foods Group P/L

[1] Wilson J: The applicant is the landlord and the respondent is the tenant of commercial premises at Newmarket, which the respondent uses for the administration of its fast food business.

[2] The lease is for eight years from 1 September 2007.

[3] The parties' agreement is contained in two documents dated 14 May 2007: the Refurbishment Deed and the Lease.

[4] They are in dispute as to the calculation of the rent for the premises. It is to be calculated at so much per square metre but they disagree as to the area upon which it is to be calculated.

[5] The applicant seeks a declaration that upon the proper construction of the Lease and the Refurbishment Deed, the gross rent (as defined in the lease) payable by the respondent to the applicant as at the commencement of the lease is $872,025 per annum, calculated upon a total leased area of 2,265 square metres. The respondent does not oppose the making of such a declaration.

[6] The respondent has been paying rent calculated on a smaller area. The applicant seeks an order that the respondent pay it $27,438.11 comprising the difference between the rent paid to date and that due pursuant to the lease (plus interest). The respondent opposes the making of such an order.

[7] Pursuant to clause 2.3(b) of the Refurbishment Deed:

The Tenant hereby irrevocably authorises the Landlord and Canning Weil, jointly and severally to:

(b) insert into the Lease the amount of the Gross Rent payable under the Lease as at the commencement date of the Lease being an amount calculated by multiplying $385.00m² pa by the floor area of the ground, first and second floors of the Building (as calculated by the Landlord's surveyor in accordance with the Property Council of Australia March 1987 method of measurement of gross lettable areas for single tenancy buildings."

[8] Under the Lease the "Gross Rent" is defined as "the amount per annum specified in schedule 1 as varied from time to time under the Provisions" unless the contrary intention appears, and in Schedule 1 - Lease Details to the lease there is an item, "Gross Rent", against which there is a dollar sign then a blank and then the words "per annum".

[9] The respondent contends that it entered into the agreement under a mistake (either a unilateral mistake or a common mistake) as to the calculation of the lettable area or that it entered into the agreement in reliance on misleading and deceptive conduct by the applicant. Yesterday it commenced a proceeding claiming rectification and declaratory relief (S637/2008).

[10] The respondent is willing to pay the $27,438.11, and accruing shortfall in the rent into an interest bearing trust account pending the determination of that proceeding. This is unacceptable to the applicant which contends that the claims made in that proceeding are weak, and that even if the respondent succeeds in that proceeding it will be able to setoff excess rent paid against subsequently accruing rent.

[11] On 6 February 2007, the respondent's property agents made a written offer to lease the premises. In that Letter of Offer the net lettable area was stated as 2,013 square metres and the rent $385 per square metre per annum. The offer was subject to agreement on the terms of the lease and approval by the respondent's board.

[12] On 12 February 2007 the applicant's solicitor advised Mr Ross Brown of the respondent that the applicant "agree[d] to the final letter" and Mr Brown responded that he would "now have my people start reviewing the lease".

[13] The lettable area of premises may be measured in different ways. In accordance with "the gross lettable area for single tenancy" methodology of the Property Council of Australia, the lettable area of the premises is 2,265 square metres. But the net lettable area (i.e. excluding areas such as lift wells, fire stairs and toilet areas) is 2,013 square metres.

[14] In its statement of claim in proceeding S637/2008 the respondent alleged that there had been three letters of offer (30 January 2007, 2 February 2007 and 6 February 2007) in all of which the net lettable area had been stated as 2,013 square metres and the commencing gross rent as $385 per square metre per annum. Only the third of these letters is in evidence.

[15] It is correct that in the letter of offer of 6 February 2007 the net lettable area was stated as 2,013 square metres and the commencing gross rent as $385 per square metre per annum. But there was subsequent correspondence in the course of which some amendments were agreed upon. Draft documents were first submitted on 9 February 2007 and further drafts were submitted on 20 and 27 February 2007. When the agreement was first drafted the leased premises were the various floors of the building, but that changed to the whole of the land. On 5 March 2007 the solicitor for the applicant advised the solicitor for the respondent that clause 2.3(b) would need amendment to reflect this. Later that day the solicitor for the applicant emailed to the solicitor for the respondent a draft clause 2.3(b) in the same terms as subsequently appeared in the document which was executed. The solicitor for the respondent advised later that day that the clause was acceptable and that the respondent's board had approved the Lease and Refurbishment Deed as negotiated.

[16] On 10 July 2007 the solicitors for the applicant wrote to the solicitors for the respondent enclosing plans showing the area of the three floors of the building and advising that pursuant to clause 2.3(b) of the Refurbishment Deed they would insert into the Lease the Gross Rent amount (as at the commencement of the lease) of $872,025 per annum. A week late the solicitors for the respondent replied taking issue with the calculation of the floor area. The applicant's solicitors promptly replied pointing to clause 2.3(b) of the Refurbishment Deed. On 18 July 2007 Mr Hogan of the solicitors for the respondent emailed the solicitor for the applicant in these terms:

"I refer to your facsimile letter of today's date as set out below for the benefit of the Lessee's representatives.

I must admit that I am not aware that the Property Council of Australia maintains multiple current descriptions of measurement methodology that relate to the same type of tenancies. For a start, please provide a copy of the 'method of measurement' document that you suggest your client's Surveyor has used in this case.

If it results in a different method of measurement than the one we provided to you yesterday, it is not acceptable to the Lessee in any event.

If it is different it appears that you have mistakenly included contrasting provisions in the 2 documents prepared by you. This again is not a matter that was noted by the Lessee's representatives, and was certainly not agreed to by them.

To make our client's position clear, it is only aware of one method of measurement applicable in these circumstances - this method excludes non-lettable areas such as liftwells, fire stairs, toilet areas and the like in accordance with the PCA document forwarded to you yesterday.

This method has previously resulted in the area of the 3 relevant floors of the building being measured at approximately 2013 square metres, as specified in the Letter of Offer accepted by the Lessor, which forms the reference point for the commercial agreement between the parties.

The commercial agreement cannot be overridden by someone (whether deliberately or mistakenly) adopting a separate measure of measurement not agreed to by the parties. Clearly, the documents creating the lease will need to be rectified if that is the case.

I now await receipt of the document referred to in the second paragraph above."

[17] In paragraph 22 of the statement of claim in proceeding S637 of 2008 the respondent alleged:

"Upon production of the lease and refurbishment deed, the Defendant's solicitors said nothing of the variation that would occur in respect of the lettable area as the basis of calculation of annual gross rental from that which had been agreed on 12 February 2007 and thereby represented that there was no such variation from the terms that had been so agreed between the parties."

[18] In so far as the respondent's claim is based on unilateral mistake, it is not enough for it to establish that it (or its solicitor) was unaware of the different measurement methodology. It must also show that the applicant was aware that it was labouring under this mistake, and that the applicant deliberately set out to ensure that it did not become aware of the mistake.[1] It has not done so on the evidence presently before the Court. It relies on an affidavit by its chief financial officer, Mr Perkins, who deposes that he has been involved in the day-to-day negotiation for the lease from January 2007 until the present and that the facts in the claim and statement of claim, so far as they are within his knowledge, are true. He gives no particulars of his involvement in the negotiations, or of which alleged facts are within his knowledge. I am unable to infer from his affidavit that the applicant was aware of the respondent's mistake or that it deliberately set out to ensure that the respondent did not become aware of it.

Similarly, there is no evidence from which I could infer that the parties acted under a common mistake or that the applicant engaged in misleading or deceptive conduct upon which the respondent relied.

In short, there is no evidence presently before the Court from which I could conclude that the respondent has good prospects of succeeding in any of its claims in proceeding S637/2008. This is a factor which weighs against an order for the payment of the shortfall into a trust account rather than to the applicant.

By clause 2.6 of the Refurbishment Deed the parties agreed to refer any dispute to mediation by a Queensland Law Society Incorporated approved mediator agreed upon, or in the absence of agreement, appointed by the President of the Queensland Law Society Incorporated and that neither would commence proceedings earlier than 21 days after the commencement of the reference. The respondent took the initial steps towards such a reference, but it became bogged down when its solicitor went on leave, and by the time the applicant paid half the Law Society's administration fee, the Law Society had closed its file. The applicant has since refused to go to mediation.

Counsel for the respondents submitted that his client's willingness to go to mediation was a sign of its acting reasonably and in good faith, and a factor which favoured an order for the payment of the shortfall into a trust account rather than to the applicant. I think it is of little significance given its earlier tardiness in referring the dispute to mediation.

In all the circumstances there is no good reason not to make an order for the payment of the shortfall to the applicant. I will hear counsel on the form of the order and on costs.

1. [1] See Taylor v Johnson [1983] HCA 5; (1982-3) 151 CLR 422.