Stormriders P/L & Ors v Copperart P/L

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1676/04 STORMRIDERS PTY LIMITED & 2 Ors v COPPERART PTY LIMITED JUDGMENT 1 HIS HONOUR: This is a suit for rectification of a lease of retail premises at 107 Horton Street, Port Macquarie to correct what the plaintiffs claim to be errors to the schedule in the lease setting out the times when, and the basis upon which, rent under the lease or renewed terms thereof can be reviewed. 2 The plaintiffs are the owners of the property in question and the defendant is the lessee. The lease was registered on 20 May 2002. It is for a term of five years with a commencement date of 1 December 2001, with two options for renewal, each for the period of five years. 3 The defendants purchased the property in question in 2001. Negotiations for leasing took place between real estate agents retained by the plaintiffs, namely Raine & Horne of Port Macquarie, and various officers of the defendant, in particular the defendant's managing director, Mr Aart Van Roest. Much of the negotiation was by correspondence. 4 It is not necessary to refer to any of the detail of the commencement of the negotiations save to say that sometime after July and before 23 August 2001 Mr Horton of Raine & Horne had approached the local manager of a Copperart store, and that that set negotiations in train. 5 On 19 October 2001 Raine & Horne sent to Mr Standley, the general manager of Homeart-Copperart in Glendinning, a letter setting out proposed terms for a lease of the premises. They proposed an initial rental of $120,000 per annum. They also proposed that in the initial five year term there be annual rent reviews at six per cent for the first two years, then a review to market at the third review date, and then an increase of four per cent in the last year of the initial term. They proposed that the rent be increased again for the first year of the option period, if the option were exercised, by four per cent and thereafter annual increases of four per cent until 12 December 2009 when they again proposed a review to market, and again a four per cent rent increase in the final year of the first option term, if the option were exercised. 6 The proposal was expressed as an offer which was subject to contract and the building owners' final approval. On 7 November 2001 the defendant responded by returning by fax the letter of 19 October 2001 to Raine & Horne, but making by hand alterations to the terms of the offer. The alterations included the reduction of the initial rental from $120,000 to $115,000 per annum, and the striking out of the proposed annual fixed increases in rent and the proposed reviews to market in 2004 and 2009. 7 Instead, the defendant in what was a counter-offer, proposed annual increases in rent during the initial term and during the terms of the options, if they were exercised, such annual increase to be in accordance with changes to the Consumer Price Index, or three per cent. 8 The document was signed by a person who was not identified by name on the document, but a comparison with the signature to the executed lease suggests that it was the signature of Mr Van Roest. He signed against the following statement: "On behalf of Copperart Pty Limited we accept the financial terms and conditions contain therein (sic) but always subject to the final lease and disclosure documents not yet presented to us."

9 On 8 November 2001 Mr Wilson, who is the sole director of the first plaintiff, Stormriders Pty Limited, gave instructions to Raine & Horne. He did so on behalf of all of the plaintiffs. His instructions were that there be a final offer which so far as the rent was concerned would comprise an annual rental of $120,000 per annum gross, with four per cent increases in each year of the initial and option terms, but with market reviews at the commencement of the first year of each term. 10 After sending that letter he had a telephone conversation with either Mr Horton or Mr Garrett of Raine & Horne, in which he was advised that that offer had been rejected and that Copperart were not prepared to move on their offer of $115,000 as the starting rent, and that they had previously rejected the plaintiffs' proposed annual rent increases. 11 After speaking with the second plaintiff, Mr Garthon, Mr Wilson gave instructions to Raine & Horne that the plaintiffs would accept $115,000 as the initial rent, that they would accept Consumer Price Index rent increases during the term, but would require market reviews for each option in the first year. 12 Hence on 14 November 2001 Mr Horton of Raine & Horne wrote to a Ms Rhonda Quillan of the defendant setting out revised terms of the offer. Against the item "Rent reviews" the letter stated as follows: "Initial Term: 1/12/2002 CPI 1/12/2003 CPI 1/12/2004 CPI 1/12/2005 CPI Market at Option Option Periods: Same as Initial Term."

13 The offer also provided for initial gross rental of $115,000 per annum exclusive of GST. 14 The letter started by saying that the revised lease terms and conditions which it set out were terms and conditions which had been agreed, and, by inference, agreed in recent discussions. It is Mr Horton's evidence that he was not anticipating any amendment to the document. The document itself was expressed however to be subject to contract and the building owners' final approval. 15 On 19 November 2001 the document was faxed back to Raine & Horne by the defendant. Again it was signed by a person who I infer was Mr Van Roest on behalf of the defendant. No relevant changes were made to the provisions regarding rent, although there was inserted by hand a term: "The Lessor provide us with a GST Tax Invoice."

16 No amendment was made to the term concerning rent reviews. Apart from the amendment relating to the provision of GST tax invoices, the other amendments to the documents were the deletion of the description of the use of the premises and the deletion of a requirement that references be provided. Against the item "use of premises" the defendant wrote: "Refer to attached Special Conditions."

17 Mr Van Roest described his acceptance of the terms and conditions as being subject to the attached standard special conditions. One of the standard special conditions was that the offer was subject to the approval of the board of directors of the defendant. Otherwise there is nothing in the standard special conditions which touches upon the issues before me. 18 Mr Horton contacted Mr Wilson to discuss the amendments made by the defendant, and he was instructed that the amendments were acceptable. 19 On the same day, that is 19 November 2001, Mr Horton wrote to the plaintiffs' solicitors, Messrs Walker Smith of Taree, advising them that details had been finalised for the granting of a new lease of the premises to Copperart Pty Limited in accordance with an attached schedule of principal terms and conditions, and with the attached standard special conditions. 20 The standard special conditions were those which had been provided by the defendant. The schedule of principal terms and conditions reflected for the most part the letter sent by Raine & Horne on 14 November 2001 to the defendant, as amended and returned by the defendant. There was no relevant change to the terms so far as they affect the present application. 21 It appears that the partner of Walker Smith having the conduct of the matter, Mr Peter Smith, arranged for his secretary to complete the schedule of items to be included in a standard form lease. 22 Clause 5.1 of the lease as drawn by Walker Smith and as ultimately executed by both parties provides that the tenant must pay the rent stated in item 12 of the schedule (cl 5.5.1). It provides that the rent is to be reviewed on the rent review dates set out in item 15 of the schedule (cl 5.4). It provides that if a further period commencing when the lease ends, is stated in item 11A in the schedule, then the tenant has the option to renew the lease for that period (cl 4.2) and for further renewals if item 11B in the schedule is completed (cl 4.3). 23 Clause 4.6 says that a new lease will be the same as the lease, except for the new rent, the commencement date and the termination date, and various other adjustments which are referred to in clause 4.6, to which it is not necessary to refer. Clause 4.6 says that if the new rent is to be current market rent it will be decided in the same way the current market rent is to be decided in method 3 stated in clause 5, subject to certain assumptions. 24 Clause 5 provides that there are three different methods described in the lease for fixing the new rent on a rent review date, and that the method agreed by the landlord and tenant is stated at item 15 in the schedule. The three methods are either by a fixed amount or percentage, or by reference to the Consumer Price Index, or by reference to current market rent. 25 Hence the operation of the lease turns upon the completion of the schedule of items. Item 12 in the schedule of items provides that from the commencement date to the first rent review date the rent will be $115,000 a year. Prior to the execution of the lease, but after its first being drawn, the parties added a provision that the lessor granted a rent-free period from 1 December 2001 to 28 February 2002. 26 Item 15 is headed "Rent review". It stipulates only two rent review dates, namely 1 December 2006 and 1 December 2011. It specifies the method of rent review as number 2, being review by reference to the Consumer Price Index. 27 So far as the rent payable for the renewed terms if the options are exercised is concerned, the schedule of items provides that for the further periods the rent payable from the commencement date to the first rent review date will be current market rent. The commencement date of each renewed term would, if the options were exercised, be 1 December 2006 and 1 December 2011. 28 There is therefore an evident mistake in the completion of the schedule. Those two dates are both the commencement date of new terms from which a current market rent will be payable to the first rent review date, but they are also themselves described as rent review dates. Moreover, reading item 12 and item 15 together, it would seem that if they are to be treated as rent review dates then until the next review date the rent would be determined by reference to changes to the Consumer Price Index rather than being current market rent. 29 The provisions are contradictory. They do not reflect the terms upon which the plaintiffs through Raine & Horne stipulated that rent should be reviewed and adjusted, they being terms which the defendant on 19 November 2001 accepted, albeit that the defendant's acceptance was expressed to be subject to the approval of its board of directors. 30 The lease containing the contradictory provisions to which I have referred was sent by Messrs Walker Smith to the defendant on 26 November 2001. On 17 December 2001 Ms Quillan, the defendant's Lease Administration Manager, proposed a number of changes to the lease document. None of the changes concerned the rental obligations or the basis upon which rent would be reviewed, or set at the commencement of new terms. 31 On 9 January 2002 the defendant returned the lease duly executed to the plaintiffs' solicitors. On 30 January 2002 Mr and Mrs Garthon, being two of the registered proprietors of the property, attended at the office of Walker Smith to sign the lease. Subsequently Mr Wilson, the director of Stormriders Pty Limited, also one of the registered proprietors, attended to affix the seal of the company. 32 Mr Wilson and Mr Garthon both deposed that when they signed the document they did not notice that provision was not made for Consumer Price Index increases to the rent in each year, nor did they notice the conflict in the provisions in relation to rent at the beginning of each option period. Mr Wilson, but not Mr Garthon, was cross-examined. He adhered to that evidence. He said that he did not read the lease before he signed it and did not notice what was stated in item 15 of the schedule of items. I accept that evidence. 33 As I have said, the lease was registered on 20 May 2002. The error, as such it was at least from the plaintiffs' perspective, was not detected until 9 August 2002 when it was picked up by the plaintiffs' solicitor, Mr Smith. Thereafter he spoke to and wrote to the defendant seeking to have the error corrected. 34 He forwarded to the defendant on 13 August 2002 a form of variation of lease. Subsequently he realised that the amendments proposed in the variation of lease document were themselves in error, and he forwarded a new version on 16 September 2002. 35 When speaking to Ms Quillan on 13 August about the mistake in the schedule he was told by Ms Quillan that she also did not pick up the mistake. He said to Ms Quillan that he would prepare a variation of the relevant page and submit it to her so that she could obtain the company's agreement, and that the plaintiffs would meet the costs of registration and of obtaining any other required consents. 36 On 26 September 2003 the defendant wrote to the plaintiffs and asserted that according to their records they had overpaid the rent from the period from 1 December 2002. The initial rent was $9,583.33 per month plus GST. From 1 December 2002 the defendant paid rent of $9.880.42 plus GST per month. It did so, it appears, for the months from December 2002 to September 2003. 37 In the meantime Mr Smith was chasing up officers of the defendant to have them attend to his request to execute the variation of lease. Ms Quillan ceased her employment with the company towards the end of October 2002, and said to Mr Smith that Mr Van Roest would deal with the matter. Mr Van Roest required Mr Smith to put the matter in writing again, which he did. Nothing further was heard until April 2003. There were further follow-ups in May and September 2003. 38 The position ultimately taken by the defendant was set out in an e-mail from a Ms Shiralee Collings, who describes herself as a Lease Executive, dated 15 October 2003. It was addressed to Mr Smith and it says: "After a discussion with the director who was involved with lease negotiations he has advised me that - We had argued with the agent regarding the market review dates as we wanted it to be set at CPI rather than market so when the lease arrived it was as verbally requested...The original lease is correct therefore there is no need to sign any variation."

39 That e-mail contains serious errors of omission. Whilst it is true that Mr Van Roest at one stage in the negotiations argued that at review dates the rent should be adjusted according to changes to the Consumer Price Index, that was not the ultimate position which he negotiated in his dealings with Raine & Horne. 40 Nor does the lease provide for rent reviews except that it provides for changes to the rent at the commencement of each option period, if the options are exercised. It will be recalled that in the correspondence from the defendant in 2001, in which the terms of the lease were discussed, the defendant agreed to annual rental reviews. 41 Mr Van Roest did not give evidence. The e-mail of 15 October 2003 was not an accurate description of the negotiations. 42 The plaintiffs' claim for rectification was based on the principle that equity will rectify instruments so that they accord with the common intention of the parties, where that common intention can be demonstrated with appropriate clarity. The plaintiffs submit that their common intention in relation to the terms in question was clearly reflected in the terms signed by the agents and sent to the defendant, and the defendant's intention at the time in relation to those terms was clearly reflected in the document signed by Mr Van Roest and returned to Raine & Horne. 43 The position taken by the defendant was that I should infer, notwithstanding the fact that Mr Van Roest was not called to give evidence, that at the time the lease was executed the intention of the defendants had changed and that the defendant intended that the rent reviews would take place only in accordance with the lease document furnished by the plaintiffs' solicitors, whatever that document might on a proper construction mean. 44 It was submitted for the defendant that I should not infer that the defendant executed the lease under any mistake as to its terms. There was no suggestion that if the defendant did not labour under a mistake, it did anything to bring the mistake to the attention of the plaintiffs or those advising them. Whether the defendant's position be right in law or not, it does it little credit. 45 If rectification were ordered there must be an intention common to both parties at the time of the contract, to include in their bargain a term which by mutual mistake is omitted from it. (Pukallus v Cameron (1982) 180 CLR 447 at 452, 456.) The court will not order the rectification of a document embodying an agreement unless it is satisfied that the parties had a common intention which continued until execution of the agreement, which on its true construction does not accord with that intention. 46 Proof of such an intention is necessary in order to displace the hypothesis which arises from the execution of the written agreement, that it is the true agreement of the parties. (Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336 at 351.) It must be objectively apparent from the words or actions of each party that each party held and continued to hold a common intention on the point in question, so that each party's intention corresponds. (Bush v National Australia Bank Limited (1992) 35 NSWLR 390 at 406; Australasian Performing Right Association Ltd v Austarama Television Pty Limited [1972] 2 NSWLR 467 at 473.) 47 Although the standard of proof of such common intention remains the civil standard to the balance of probabilities, the authorities are replete with references to the need for a convincing proof, or clear and satisfactory proof, of that intent. (Pukallus v Cameron at 452; Crane v Heggemon-Harris Co. Inc. [1939] 1 All ER 662 at 669; The Olympic Pride [1980] 2 Lloyd's Rep 67 at 73.) Such evidence may include direct evidence that the parties' intention was not reflected in the written agreement, and it may also consist of facts occurring both before and after the contract was made from which inferences can be drawn as to the particular intention of the parties at the time the contract was entered into. (New South Wales Medical Defence Union Limited v Transport Industries Insurance Company Limited (1986) 6 NSWLR 740 at 752.) 48 The failure of a party to call a witness whose evidence is relevant to the issue may, in accordance with ordinary principles, give rise to the inference that the witness' evidence would not have assisted the case of the party who could be expected to call him. Other inferences available on the evidence can be drawn more readily from the failure of a witness to be called. (Winks v W H Heck & Sons Pty Limited [1986] 1 QdR 226 at 233; Anfrank Nominees Pty Limited v Connell (1989) 1 ACSR 365 at 396.) 49 I am satisfied that Mrs Garthon left the negotiation of the lease terms to her husband and to Mr Wilson. They each indicated that the terms as to the review of rent and as to the rent payable at the commencement of each option period should be as recorded in the correspondence between Raine & Horne and the defendant to which I have referred. That intention continued up to the time of the execution of the lease. 50 As the third plaintiff, Mrs Garthon, left matters of negotiation of the lease terms and content of lease documents to her husband and Mr Wilson, I am satisfied that all of the plaintiffs had the requisite intention that the lease should correspond in these respects to the terms which had been negotiated and agreed in November 2001. I am satisfied that as at 19 November 2001 that was also the defendant's intention through its relevant officer, Mr Van Roest. 51 As at 19 November 2001 there was no concluded agreement on those terms between the parties. There was some debate as to whether an agreement on terms could be inferred as having been made at the time the lessee moved into occupation of the premises in early December 2001. The defendant submitted that at that time the lease document had been forwarded to the defendant and hence the defendant's occupation of the premises in December could be referable to the terms of that document rather than the prior negotiations. That is a possible position, but in the absence of any evidence from anyone from the defendant, I do not think it is the correct inference to be drawn. 52 If the relevant date of contract is the date at which the lessee moved into occupation, I would conclude that at that time it was the lessee's intention also that the terms as to rent and rent review should be as set out in the correspondence. 53 There is no direct evidence that the defendant picked up the disconformity between the terms to which it had acceded on 19 November 2001, and the schedule to the lease. Indeed there are two pieces of evidence which suggest that that was not the position. The first is the statement of Ms Quillan to Mr Smith on 13 August 2002 that she had not picked up the mistake. She witnessed the signatures of the directors of the defendant to the execution of the lease. It would be surprising if the mistake or disconformity had been picked up by the directors but Ms Quillan, who was the Leasing Administration Manager, had not been told about the matter. 54 The second piece of evidence which suggests that the mistake escaped the defendant at the time it executed the lease was that even after the issue had been raised in 2002 the defendant for some ten months paid rent on the higher basis, which would only be consistent with there having been a rental review date on 1 December 2002. In the absence of any evidence being called by the defendant on the matter, I think the better view is that the document was executed under a mistake common to both parties. 55 Even if that conclusion is wrong the plaintiffs are still entitled to the rectification which they seek. It is well established that where a party enters into a contract under mistake on a fundamental matter, and the other party is aware of that mistake or indeed is aware that the first party is entering into the contract under some serious mistake or misapprehension about the subject matter of the term, then if the party who is not ignorant deliberately sets out to ensure that the first party does not become aware of the existence of his mistake, the mistaken party will be entitled to equitable relief as may be appropriate, including relief by rectification. (Taylor v Johnson (1983) 151 CLR 422 at 431, Riverlate Properties Limited v Paul [1975] Ch 133 at 145; Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259.) 56 If Mr Van Roest had picked up the mistake in the schedule of items to the lease when the defendant executed the document, he must have been aware that the plaintiffs were proposing to execute the lease under a serious mistake or misapprehension about the terms upon which rent would be payable after the first year. That must have been apparent both because of the disconformity between the document and what had previously been negotiated and agreed, and because the document is itself self-contradictory. 57 In those circumstances for the defendant to have remained silent about the matter, and more, to have suggested amendments to the lease which did not address the mistake which on this assumption it was aware of, is for it to have engaged in conduct deliberately to ensure that the plaintiffs did not become aware of the existence of the mistake. 58 For those reasons, even if the defendant's contention that there was no common mistake or common intention is correct, the plaintiffs are still entitled to the relief which they seek. 59 The order which is sought in para 2 of the summons, after its amendment this morning, would provide for the insertion into item 15 of the schedule of items of the dates from 1 December 2002 to 1 December 2015, including the dates 1 December 2006 and 1 December 2011. In respect of those dates the proposed order would provide for rent to be reviewed according to method 3, that is to say, to current market rent. 60 However, I do not think that that is the appropriate form of amendment. The schedule of items draws a distinction between commencement dates of the term and of the renewed term on the one hand, and rent review dates on the other. Item 12 also provides that the rent from the commencement date of each renewed term will be the current market rent. 61 The amendment which is appropriate to be made to give effect to the common intention of the parties, or to relieve the plaintiffs from their mistake of which the defendant has taken unconscientious advantage, is to amend item 15 by including all of the dates specified in order 2, except the two dates in question. 62 I might add that I think it is sufficient in order to obtain rectification in the case of common intention that the Court can conclude with appropriate clarity both the substance and the detail of the precise variation that needs to be made to the wording of the instrument to give effect to that intention. (Bush v National Australia Bank Ltd at 407; Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467 at 15,470.) 63 I do not think it necessary to make the declaration sought in para 1 of the summons, particularly as the plaintiffs' right to the order for rectification can be put on alternative bases. I make an order in terms of para 2 of the summons as amended this morning, but deleting from that paragraph the lines "1.12.2006 3" and "1.12.2011 3". I make an order in terms of para 3 of the summons. 64 At the request of counsel for the plaintiffs I also reserve further consideration of the matter before me in the event that it becomes necessary. 65 The defendant submits that each party should be ordered to pay its own costs. In my view that is inappropriate. I regard the position taken by the defendant, particularly that expressed in the e-mail of 15 October 2003, as being unconscionable, and falling well below the standards of commercial morality which the community is entitled to expect. 66 I will therefore order that the defendant pay the plaintiffs' costs of the proceedings, including any reserved costs.

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