Riltang Pty Limited v L Pty Limited

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2945/2001 RILTANG PTY LIMITED A.C.N. 080 820 546 v L. PTY LIMITED A.C.N. 075 256 398 JUDGMENT 1 HIS HONOUR: The plaintiff, Riltang Pty Limited ("Riltang") is the lessee of premises on the second floor of premises at 34-46 Oxford Street, Darlinghurst, in which Riltang conducts a licensed bar known as the "Q Bar". A dispute has arisen between Riltang and L Pty Ltd ("L"), the owners of a part of the premises, as to whether Riltang effectively exercised an option available to it to renew its lease for a further seven years. 2 Riltang has not joined in the proceedings Cremorne Arcade Pty Limited ("Cremorne") and Lampsac Pty Limited ("Lampsac"), the other owners of the premises, as Cremorne and Lampsac are content to accept that Riltang did renew its lease. However, L has joined Cremorne and Lampsac as respondents to a cross claim in which it seeks a declaration that Riltang failed to exercise its option to renew, that on the expiry of the lease Riltang continued in occupation under a monthly tenancy and that the monthly tenancy was validly determined, so far as the portion of premises owned by L is concerned, by a notice to quit dated 22 May 2001. 3 The original lease was between Oscty Pty Limited ("Oscty") as lessor and Riltang as lessee. It described the demised premises as Level 2, 34-36 Oxford Street and Level 2, 38-46 Oxford Street, Darlinghurst being part of the land in Folio Identifiers 15/6064 and 13897/203. The lease was for a term of seven years commencing 13 October 1993. At some stage during the currency of the lease, the premises were sold, with Cremorne and Lampsac becoming the owners of that part of the premises situate at 34-36 Oxford Street being Lot 15 on a plan of subdivision, and L becoming the owner of that part of the premises which was situate at 38-46 Oxford Street, which was known as Lot 8. 4 The lease contained the following relevant provisions: "1.1 UNLESS the context otherwise requires: …. 'lessor' means the person identified in Item 1 of the Summary of Lease Particulars and includes the lessor its successors and assignees and where not repugnant to the context its servants and agents. 3.7 OPTION FOR RENEWAL. If the lessee desires to have a lease of the premises granted to it for the further term of years specified in Item 6 of the Summary of Lease Particulars to commence immediately after the expiration of the term hereby demised and gives the lessor not less than six (6) months and not more than twelve (12) months notice in writing to that effect prior to the expiration of the term hereof then (provided that at the date of the giving of such notice and at the expiry of the term hereby demised the lessee shall not be in default in complying with any proper notice given by the lessor to the lessee requiring the lessee to remedy any breach committed by the lessee of the covenants terms conditions and restrictions herein contained or implied) the lessor subject to the execution by any guarantor of a guarantee in the form contained in this lease shall grant the lessee a lease of the premises for the further term of years aforesaid commencing on the date of expiration of the term hereby demised at the rent equal to the rent which would have been payable during such term if this lease had been granted for the aggregate of the term hereof and the term of the further lease granted pursuant to this option and otherwise upon and subject to like covenants terms conditions and restrictions as are contained in this lease except this Clause. 18.1 EXECUTION OF LESSOR'S NOTICE. Any notice or other document or writing to be served delivered or given by the lessor hereunder shall be valid and effectual if signed by any managing agent, manager of properties, director, secretary, attorney or solicitor for the time being of the lessor or any other person or persons nominated from time to time by the lessor. 18.2 SERVICE OF NOTICES. Any notice or other document to be served delivered or given hereunder may be served delivered or given in any manner mentioned in Section 170 of the Conveyancing Act 1919 or may be served on the lessee or the guarantor by:- (i) leaving the same addressed to the lessee or guarantor at or by forwarding the same by prepaid ordinary post to: (a) the address of the lessee or guarantor as shown herein; or (b) the last known place of business or place of residence of the lessee or guarantor; or (c) the lessee's or guarantor's registered office if the lessee or guarantor is a corporation; or (d) the premises; or (ii) sending same by telex or facsimile machine to the lessee'S (sic) or guarantor's telex or facsimile machine. " 5 On 20 December 1999 Riltang forwarded the following notice to the agent for the premises, Metro Commercial Sales and Management Pty Limited ("Metro"):

" Q Level 2 44 Oxford Street Darlinghurst, 2010 PH: 9360 1375 Fax: 9380 6456 20th December 1999 Attention: Eduard Litver Metro Commercial Level 3, Suite 302 45-51 Cross Street Double Bay, 2028 Dear Sir, RE: OPTION TO RE-NEW LEASE We would hereby like to exercise our option to re-new the lease on the property at Lot 8, 38-46 Oxford Street, Darlinghurst, 2010, trading as Q, as set out in Item 5 of Annexure 'A' of the current lease commencing 13th October 1993, terminating 12th October 2000, with the option being for a further seven years. As per Clause 3.7 Option for Renewal - we are conveying our wishes with not less than six (6) months and not more than twelve (12) months notice in writing. Yours faithfully, Peggy Rutherford Per: Mr. T. Cahill Mr. G.I. Robertson Riltang Pty. Ltd ACN 080 820 546" 6 The notice was received by Metro and was seen by Mr Litver shortly thereafter. It was subsequently brought to the attention of Cremorne and Lampsac. 7 There was no response to that notice. Riltang continued in occupation paying the rent. On 25 September 2000, Ms Rutherford wrote to Mr Ritchie, the Commercial Property Manager of Metro as follows: "I believe we are due for a CPI increase in October, could you please advise what the new rates will be? I would like to be prepared up front. Also do you have a copy of our lease re-newel (sic)? Thank you." 8 Mr Ritchie replied by FAX as follows: "To: Q Bar Facsimile 02 9380 6456 Attention Peggy Rutherford Copy To From Tim @ Metro Commercial Regarding Rental Increase Property 8/38 Oxford Street Darlinghurst 2010 Date of Transmission 25th September 2000 …. Further to your facsimile of this date we advise your rental will be increased to $78,576.08 from the 13th October 2000. This equates to a monthly payment of $6,548.01. A summary of calculations has been included with this transmission for your reference.

We confirm receipt of your written notice exercising your option to renew the lease at the above property for a further period of seven years. Should you have any further questions or queries please do not hesitate to contact Tim Ritchie on 9362 8888 at any time." 9 Subsequently, on 22 December 2002 and 30 March 2001, solicitors for Riltang wrote enquiring about the lease. On 24 April 2001, solicitors for L responded as follows: "So far as concerns any exercise of the option conferred by clause 3.7 of Lease no. U134651, we are instructed that correspondence in that respect dated 20 December 1999 was directed by Peggy Rutherford of 'Q' to Metro Commercial, attention Eduard Litver. That correspondence referred only to Lot 8, 38-46 Oxford Street and did not refer to the balance of the premises described in Lease U134651, namely, the 34-36 Oxford Street property now owned by Cremorne Arcade and Lampsac. The terms of clause 3.7 do not confer any option upon the lessee to a renewal of lease in respect to part only of the leased premises. Accordingly, L Pty Limited does not regard Ms Rutherford's 20 December 1999 correspondence as having constituted a valid exercise of the option under clause 3.7 or as having been of any legal effect whatever." 10 As I have mentioned, Cremorne and Lampsac do not contend that Riltang failed to validly exercise its option of renewal. The Court was informed that Cremorne and Lampsac would abide the order of the Court. Service on Metro 11 The first issue is whether service of the notice of renewal upon Metro, the managing agent, was service upon the lessors. 12 In Kratzmann (Toowong) Pty Limited v Marjorie's Investments Pty Limited (1986) 67 Aust & NZ Conveyancing Reports 803, Moynihan J held that service on a managing agent was not valid service on the lessor. However, in Setena Pty Limited v Permanent Trustee Nominees (Canberra) Limited (1987) NSW Con VR par 55-322, McLelland J found to the contrary. His Honour said: "The management of property leased to tenants would ordinarily embrace the receiving of a notice from a tenant exercising an option of renewal of his lease, and in my view a managing agent of such property would, in the absence of proof of some relevant limitation to his authority, be presumed to have authority to receive such a notice (cf. Peers v Sneyd 17 Beav. 151, 51 E.R. 990, R v Chief Immigration Officer (1973) 1 W.L.R. 141)." 13 A like view was taken in Young v Lamb [2001] NSWCA 225. At par 36, Stein JA, with whom the President and Hodgson JA agreed, said: "What is plain about the definition of 'lessor' is that it does not preclude acceptance by the appellant's agent. It is silent on the matter. Given that the lease contains no address for the lessor, how is the lessee to effect service 'on the lessor'? It seems to me to make perfect sense to serve the letter on the lessor's duly appointed agent, Dedricks. The respondents had been notified that Dedricks had been appointed as managing agent. Dedricks wrote to the respondents on 21 April 1998 reminding them of the option. There was no evidence to suggest that the agent's authority was in any way limited. Indeed, that Dedricks had authority to accept any letter exercising the option is reflected by the course of dealings between the parties." 14 It follows that the agent's authority to accept service of a notice of renewal must be determined having regard to the circumstances of the case, including the terms of the lease and the part which the agent performs in the relationship between the lessor and the lessee. 15 In the present case, there are several factors which indicate that Metro was the appropriate recipient of the notice of renewal. First, the lessor was defined in the lease to include, in an appropriate case, the lessor's agents. Secondly, the address given for the lessor became irrelevant once Oscty had sold the premises. Thirdly, three companies were the lessors, each of which presumably had a different address. Fourthly, Metro, which was the managing agent even before L, Cremorne and Lampsac became the owners of the premises, was the conduit through which all transactions as between the lessors and Riltang took place. Fifthly, cl 18.1 empowered the managing agent to sign notices on behalf of the lessor. Sixthly, Mr Litver, the managing director of Metro was also the managing director of L. 16 It was appropriate for Riltang to serve the letter on Metro. Metro's address was the only address which Riltang had for the service of the one notice upon the three lessors. No evidence has been given suggesting that there was a limitation upon Metro's apparent authority or suggesting that service upon Metro was not effective to bring the notice to the attention of all the lessors. In his cross-examination, Mr Litver acquiesced in the proposition that, as managing agent, Metro had authority to accept documents relating to the lease which were served upon it.

17 Neither clause 18.2 nor s170 of the Conveyancing Act 1919 limited the manner in which notice may be served. On the contrary, their terms were wide. In the circumstances of the case, Metro's address was the most suitable address for service of notice upon the lessors and it was effective, for service upon Metro brought the notice to the attention of all the lessors.

Notice by Riltang 18 There were several submissions of Mr S. Epstein SC, counsel for L which, turning upon niceties or subtleties of language, were a contrast to the impression conveyed by some of the witnesses. The first submission of this nature was that, as the letterhead of the notice of 20 December 1999 referred only to "Q", the recipients of the notice could not readily determine that the notice was a notice from the lessee Riltang. It was submitted that Peggy Rutherford of "Q" could be anyone. 19 In my opinion, the letter had the character of a letter from Riltang, the lessee, seeking to renew the lease. It was a notice of renewal and, according to its terms, it was written by Peggy Rutherford on behalf of Riltang with the authority of the two directors Mr Cahill and Mr Robertson.

Notice to Lessors 20 It was submitted by Mr Epstein that the notice was not expressed as a notice to the lessors but only as a notice to the managing agent. 21 The notice was, however, plainly a notice of the exercise of the option to renew. It was not addressed to the lessors, for Miss Rutherford was not aware who the lessors were, but the character of the document was that it was a notice of renewal given by the lessee to the proprietor or proprietors of the premises. 22 In fact, Mr Litver, who was named as the person to whose attention the notice should be drawn, was the managing director of L, the only one of the lessors who contends that there was a defect in the notice.

Notice 23 Mr Epstein submitted that the document on its face was merely an expression of a desire to renew the lease and not a notice of the exercise of the option to renew. Reference was made to the opening words, "We would … like to exercise our option". It was submitted that, having expressed its desire to renew, Riltang did nothing further about the matter. 24 However, there are several indications in the letter of 20 December 1999 showing that it was a formal notice of the exercise of the option to renew. The word "hereby", used in the first sentence, is a very strong indication that notice of the exercise of the option was being given by that letter. The letter further made clear by the words "we are conveying our wishes with not less than six (6) months and not more than twelve (12) months notice in writing" that the notice was intended to be a notice in writing given in accordance with clause 3.7 of the lease. 25 Similarly, in Young v Lamb, at paras [28] and [30], Stein JA said that the words "we intend to exercise the option to renew the lease" were "sufficiently clear to amount to an operative act as opposed to a mere statement of future intention" and "constituted a clear and unequivocal act to exercise the option. The recipient would have so understood it." See also Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) NSW Conv R 55-862, where the letter states, inter alia, "we are keen to continue ….". Description of the Premises 26 The letter described the property as "Lot 8, 38-46 Oxford Street, Darlinghurst, 2010, trading as 'Q'". That description was inserted in error. Ms Rutherford has given evidence that, not being aware of the precise description of the premises, she adopted a description contained in a letter received from Metro. That letter has not been produced, but there are in evidence two facsimiles from Metro, one of 25 September 2000, which is set out above, and one of 9 August 2000, both of which refer to the premises as "8/38 Oxford". 27 In dealing with a similar issue, McLelland J said in Della Imports Pty Limited v Birkenhead Investments Pty Limited (1987) NSWSC 21 July 1987: "The primary question is whether the option conferred by CL18 was effectively exercised by Della. As Gibbs J in Quadling v Robinson 137 CLR 192 at 201 said '… it is not always easy to determine whether the purported exercise of an option should be understood as attempting to vary the terms of the option or as intending to accept its terms without modification, notwithstanding that they may have been misdescribed, or notwithstanding that the grantee of the option may have indicated that he intends to perform the contract in a manner for which the terms of the option do not provide. Thus although a notice misstates the terms of the option which it purports to exercise, it may nevertheless amount to an unqualified and unconditional exercise of the option: see Carter v Hyde (1923) 33 CLR 115 at 121-122, 126, 133. On the other hand, if the grantee of an option sets out his own erroneous understanding of the option, and then purports to exercise the option as so understood, there will (speaking generally) be no effective exercise of the option: see Cavallari v Premier Refrigeration Co Pty Ltd (1925) 85 CLR 20, at 26-27. It must of course depend upon the proper construction of the document by which the grantee purports to exercise an option whether it amounts to an absolute and unqualified acceptance of the rights and liabilities conditionally created by the option.' The question is whether, on its true construction, the notice given on 22 December 1986 fulfils the description in CL18 i.e. a notice of Della's desire to take a renewed lease of unit 6 for a further term for a period of five years. The true construction of an instrument of this kind must be ascertained from the instrument as a whole considered in the light of the surrounding circumstances, i.e. the facts and matters which were or ought reasonably to have been in the contemplation of both parties at the date of the instrument. The circumstances surrounding the delivery of the notice in the present case include the existence and the terms of the lease of 1 September 1986, the fact that there was no other relevant lease between the parties, and the fact that Della had never occupied, leased or had any connection with unit 5. The appropriate question is, in my opinion, an objective one, namely, what would a reasonable person in the position of Birkenhead, and aware of the surrounding circumstances, fairly understand to be the meaning of the notice in the circumstances of its receipt. I have adapted this formulation from the judgment of Isaacs J. in Carter v Hyde 33 CLR 115 at 126 and of Bryson J in Health Minders Pty Ltd v Prudential Assurance Co Ltd 24 February 1987 (unreported). In my opinion a reasonable person in the position of Birkenhead, and aware of the surrounding circumstances to which I have referred, would have regarded 'unit 5' as an obviously mistaken reference to unit 6 and would have regarded Della as indicating its desire to take renewed lease in accordance with CL18 and erroneously stating the period of renewal therein provided as three years instead of five years. The repugnancy between the period of renewal provided for in CL18 read with the Reference Schedule and the period stated in the notice is, in my opinion, to be resolved, from a consideration of the whole of the instrument in the light of the surrounding circumstances, by disregarding the latter period as falsa demonstratio." 28 I agree entirely with and adopt the approach taken by McLelland J. In my opinion the recipients of the letter of 20 December 1999 would have been under no misapprehension that the lessee was intending to renew the lease for the whole of the premises. The letter makes no suggestion that the premises would be divided, or that Riltang desired to exercise its option in relation to part only of the premises. The description of the premises was an error which was patent on its face. No one would have been misled thereby. 29 I may add that, apart from the oral evidence of Mr Litver and Mr Ritchie, which on this point I reject, there is nothing in the evidence to suggest that any one was mistaken about the fact that Riltang exercised its option to renew the lease for the whole of the premises. The facsimile from Mr Ritchie of 25 September 2000, which is set out above, in which Mr Ritchie notified an increase in rent for the whole of the premises, makes it plain that he understood the notice to exercise the option to renew the lease for the whole of the premises. He himself described those premises as "8/38 Oxford Street". 30 I should add that I consider the evidence of Mr Litver that he understood the notice to be seeking renewal of the lease in respect of a part only of the premises to be untruthful. The facts are plain. No one sought clarification of the letter. Mr Ritchie's facsimile of 25 September 2000 recognized the letter to be "written notice exercising your option to renew the lease". However, nothing was done about the renewal because, as Mr Litver conceded in his evidence, Mr Litver and L did not wish to renew the lease. The point about the description of the premises appears to have emerged when L consulted its solicitors in April 2001, eighteen months after the notice had been given. It was a lawyer's point. I consider that Mr Litver and Mr Ritchie, in general, gave answers which they considered would advance L's case, rather than speaking from their honest recollection. 31 It follows that the notice exercising the option to renew the lease was a valid notice. It was an unqualified and unconditional exercise of the option to renew. Quadling v Robinson (1976) 137 CLR 192 at 200-1; Bava Holdings Pty Ltd v Pando Holdings Pty Ltd. Estoppel 32 I need not consider the issues of estoppel relied upon by Mr M.J. Heath, counsel for Riltang.

Joinder of Parties 33 Mr Epstein submitted that an order for specific performance could not be made because Cremorne and Lampsac had not been joined as defendants. Mr Epstein relied upon authorities which show that, if an order for specific performance is sought, then all the persons who are to be subject to that order should be joined in the proceedings. Mr Epstein relied, inter alia, upon remarks by Megarry V-C in Tito v Waddell (No 2) [1977] Ch 106 at 323-5. 34 In my view, it would have been preferable for Cremorne and Lampsac to be joined in the proceedings. However, there appears to be no dispute between them and Riltang and they have not been joined. In my opinion, they are not necessary parties to the claim and an order for specific performance may be made. It should be expressed so as to be directed solely to L, the defendant in the proceedings notwithstanding that Cremorne and Lampsac have indicated their preparedness to abide by any order which the Court may make. If the plaintiff had wished Cremorne and Lampsac to be bound by the order made, it should have joined them as defendants. Notice to Quit 35 The last issue that I should mention is that, in May 2001, L served on Riltang a notice to quit the premises being "Level 2, 44-46 Oxford Street, Darlinghurst - Lot 8 in Strata Plan 4974" at the expiration of one month from the date of the notice. I need not discuss the notice at any length for it was invalid. L, as the proprietor of a part of the demised premises, did not have power to give a notice to quit to the lessee in respect of the part of the premises which it owned. Only the lessors as a whole could give notice to quit. L was not authorized to give a notice to quit with respect to the whole of the premises and the notice did not purport to be a notice to quit in respect of the whole of the demised premises. It may be noted that the description "44-46 Oxford Street" was itself a misdescription as L owned Lot 8, 38-46 Oxford Street. Orders 36 For the reasons I have given, I shall make the following orders:

1. A declaration that clause 3.7 of the lease, registered number U134651 as varied by U134652 ("the lease and variation") ought to be specifically performed and carried into execution as against the defendant. 2. An order that the defendant L Pty Ltd do all that is necessary to be done on its part to provide to the plaintiff's solicitors within 21 days a new lease over premises Level 2, 34-36 Oxford Street and Level 2, 38-46 Oxford Street Darlinghurst being part of the land in Folio Identifier 15/6064 and Lot 8 in Strata plan 49764 (being the premises formally known as the second floor level of the premises contained in Folio Identifier 13897/203 ("the demised premises") which: (i) is in registrable form; (ii) is executed by the lessors (iii) is to commence from 13 October 2000 and to run to 12 October 2007 inclusive; (iv) is with like covenants, terms, conditions and restrictions as contained in the lease and variation. (v) excludes clause 3.7 of the lease and variation; (vi) is at a commencing rent of $78,576.08 per annum being $6,548.01 per month for the demised premises to be reviewed in accordance with terms of the lease and variation. 3. An order that the cross claim be dismissed. 4. An order that L Pty Ltd pay the costs of the plaintiff and of the cross defendants.

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