Tziallas v Barnsley

Proceedings at First Instance

1. The appellant instituted proceedings on 20 May 2020. On 26 May 2020 the Tribunal made interim orders in the nature of relief against forfeiture and restrained the respondent from taking possession of the premises pending further order of the Tribunal. Thereafter various hearing times were fixed but were vacated and an unsuccessful mediation was conducted.
2. The issues identified for determination at first instance were, first, what were the terms of the lease under which the appellant had occupied the property, in particular what were the terms governing the option; and secondly whether the option had been exercised.
3. As to the first issue, the Tribunal referred to the evidence of the appellant contained in his affidavit sworn on 2 June 2020, concerning certain conversations which took place in approximately May 2019. In the first of these conversations the appellant claims to have said to the respondent: I'm not sure when the option kicks in so I need some clarity about that.
4. The respondent allegedly said: When I come there we'll discuss it.
5. The appellant also relied upon a second conversation which he asserted took place about a week after the above conversation. The appellant claims he said to the first respondent: I need to speak to you about the option because I want some certainty about a long tenure.
6. The first respondent allegedly said: This is not the time to discuss this. It is a long way off. I have no plans to sell or occupy the Premises so you don't have to worry about it. As far as we're concerned you're here for a long while - stay as long as you want.
7. In his affidavit the appellant claimed: I always believed (prior to swearing this affidavit) that the option would automatically kick in.
8. The appellant, in an affidavit sworn on 10 August 2020 also stated: "When [the first respondent] said I had a three-year option I was always going to elect to do it". But subsequently the appellant stated: I was always under the impression that the option to renew under the lease would automatically kick in… I always knew my option was for three years.
9. The Tribunal considered the evidence extensively. It noted that on 12 September 2019 the appellant sent the respondents an email stating that he was making contact "in relation to the lease and when it expires and the option kicks in". That email then raised the prospect of two lease agreements being entered into, being one for the butcher shop on the corner and one for the shed at the rear where a fruit shop was located. The reason for the proposed two leases was explained. The appellant planned to sell the fruit shop business but keep the corner shop business.
10. On the same day the request for separate leases was declined by the respondent.
11. On 19 September 2019 the appellant sent another email referring to his ill-health and stating: With the two-year option coming up Gina [the appellant's daughter] has indicated that this should be okay with you that a further three plus two option be set up or negotiated between you. The respondent did not grant that request. There was no evidence of further communications between September 2019 and November 2019 or indeed until 2020.
12. On 17 January 2020 the appellant sent an email thanking the respondent for his consideration for a rent reduction due to the severe bushfires, and stated: I also think that it might be the right time to discuss the situation with the lease moving forward. I would like to see if we can set up a new formal lease agreement with some options. As I only suspect the lease has lapsed can you please update me with the dates and the new arrangement to move forward. This i [sic] need for my own security moving forward in the business.

Tribunal Findings

1. The Tribunal found: 1. That the applicant was not provided with a copy of the original lease to Mr Oba before entry into possession of the premises or at any time before 14 November 2019; 2. That while the 19 October 2018 email contained "a clear suggestion that the intention of the respondents was for the terms of the original lease to Mr Oba to apply, there is no evidence to suggest that that was also the intention of the [appellant]"; 3. the effect of clause 4.4 of the lease between the respondents and Mr Oba was that he was required to serve a notice of exercise of option not earlier than 14 May 2019 and no later than 14 August 2019; 4. that a retail lease (governed by the provisions of the Retail Leases Act 1994 (NSW) (RLA)) arose between the parties by the exchange of emails on 19 October 2018 and by the appellant entering into possession of the premises and commencing to pay rent; 5. that clause 4.4 of the lease to Mr Oba did not apply as between the appellant and the respondents; 6. that instead, the term relating to the option was as set out in the respondent's email dated 19 October 2018 which stated: Your current term ends on 14 November 2019, and you have an option of renewal for a further term of three years. 1. that the assertion by the appellant that the option to renew under the lease "would automatically kick in", even though not challenged in cross examination, was inconsistent with the appellant's own evidence in that in his second affidavit of 10 August 2020 the appellant asserted that, when the first respondent informed him that he had a three-year option, "I was always going to elect to do it"; secondly, in the email of 18 October 2018 the appellant used the words: "I hope that we may be able to renew when the time comes"; and thirdly, in his email of 17 January 2020 to the respondent the appellant stated that he "suspected that the lease had lapsed". 2. the submission of the appellant that he believed the option would "automatically kick in" was rejected, the Tribunal noting the extensive retail experience of the appellant; 3. the second strand of the appellant's case namely that the option had been exercised by virtue of the appellant's emails to the respondents of 12 September 2019 and 19 September 2019, referred to above, was rejected because those emails did not contain words indicating that the appellant was exercising the option: a fact borne out by the appellant's subsequent emails which did not reflect a belief on the part of the appellant that the option had been exercised; 4. that the appellant's email of 17 January 2020 referring to a discussion to see "if we can set up a new formal lease agreement" did not constitute the exercise of an option; 5. that there was insufficient evidence to suggest that the appellant exercised the option orally. There were two paragraphs of the appellant's first affidavit (of 2 June 2020) in which the appellant set out the conversations relied upon. In the first the appellant sought no more than to seek clarification. In the second alleged conversation, whilst the appellant claims to have expressed a desire for certainty; the respondent replied "This is not the time to discuss this" and the appellant said nothing further.
2. As the Tribunal stated, the law concerning the exercise of an option is clear: the purported exercise of an option to renew must clearly and unequivocally express the fact that it is intended to exercise the option: see Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 196 per Dixon CJ; see also Burrell v Cameron (1997) 8 BPR 15,443 at 15,445-6.

Grounds of Appeal

1. The Notice of Appeal contains numerous grounds of appeal. Mr Aboud who appeared for the appellant submitted that the appellant's case was encompassed within three propositions: 1. In accordance with the principle referred to in Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210; (2019) 100 NSWLR 394 (Darzi), it is necessary to ascertain the common intention of the parties determined objectively from the conduct and communications between them, having regard to the surrounding circumstances known to each of them: see Darzi at [141]; and the common intention of the parties was that the option had been exercised; 2. That the decision was not fair and equitable considering the weight of the evidence. We note that this does not raise a question of law and that the appellant would require leave to appeal on this ground. 3. That the Tribunal erred in law by not finding that the respondent was guilty of unconscionable conduct, having regard to the decision in Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261, in that the Tribunal found that the first respondent admitted to promising a long tenure and that the respondent, being a retired solicitor, acted in a manner that was contrary to how he would have acted for a client in a similar position.
2. Subsidiary matters were referred to in the notice of appeal but were not argued: namely that the Tribunal did not give sufficient weight to the lessors' failures to comply with the RLA, particularly in not complying with the duty to provide disclosure and a retail tenancy guide and the effect those omissions had on the appellant's understanding of his rights under the lease;

Consideration

1. In Darzi the parties had signed Heads of Agreement on 13 October 2014 for a lease in respect of premises owned by the respondent, Nolde Pty Ltd (Nolde). The appellant, Darzi Group Pty Ltd (Darzi) entered into possession on 20 October 2014 and commenced paying rent to Nolde. After a protracted period of negotiation, the parties' solicitors exchanged correspondence in May 2016. In that correspondence Nolde's solicitors indicated that Nolde "was agreeable" to a term of five years with an option for a further term of five years three months. Darzi's solicitors replied that Darzi agreed to a lease with a term of five years with an option of five years three months. The letter from Darzi's solicitors stated that Darzi wished to have the lease signed before its director travelled overseas in mid-June and that the solicitors would submit a lease for execution. The letter also stated that Darzi "reserved all rights". In June 2016 Darzi executed a form of lease including the agreed term and option and its solicitors forwarded it to Nolde's solicitors. The document was never executed by Nolde.
2. At first instance the trial judge held that, although the parties had reached consensus on the terms of the lease, that was not sufficient to create a binding agreement and that, considered objectively, the communications between and conduct of the parties did not establish that they intended to be legally and contractually bound until a formal lease agreement had been executed and exchanged.
3. The Court of Appeal reversed that decision, with the result that the parties were bound to the terms agreed in May 2016 and the term of the lease was five years with an option for a further term of five years and three months.
4. Emmett AJA held (at [141] and [148] - [152]: 141 The question is whether the parties intended to make a concluded bargain. Where parties have reached consensus on all relevant terms of a proposed lease between them, but have also agreed that a formal lease instrument is to be executed by each of them, there may still be a question as to whether the parties intended to be bound at that point. Whether there is a concluded and binding agreement depends upon the intention of the parties to be determined, objectively, without regard to the subjective intention of either one of the parties. Thus, the Court must ascertain the common intention of the parties, determined objectively from their conduct and the communications between them, having regard to the surrounding circumstances known to each of them. That question is different from the question of whether the parties had reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract, although the two questions may often be closely related. Thus, even though the parties may have reached consensus as to all of the terms of their bargain, they may nevertheless not have intended, at that point, to enter into legally binding relations. … 148 In circumstances where the parties were already in a legally binding relationship, there is no reason to assume that they did not intend to be bound by an executory contract, formed by correspondence, that would be completed by the execution and registration of a formal lease instrument. While the two letters that constituted the critical exchange did not speak in terms of "offer" or "acceptance", the earlier correspondence clearly did. The parties were clearly striving for consensus, albeit in the absence of total goodwill. That striving continued under the cloud of the threat by Pigott Stinson on behalf of Darzi to make a claim of unconscionable conduct under the Leases Act. Whether there was a concluded agreement for lease depends on the intention of Nolde and Darzi, determined objectively without regard to the subjective intention of either of them, but having regard to the commercial circumstances, which included that they were already in a binding relationship. Both parties were represented by solicitors who would, in due course, attend to the process of execution of a formal lease instrument and its subsequent registration, by way of completion of their executory agreement. 149 The primary judge erred in referring to an execution and exchange in accordance with "the usual practice". It may be that the Court should take judicial notice of the almost invariable conveyancing practice in New South Wales, in relation to the sale and purchase of land, that there is no intention to enter into legally binding relations until there is an exchange of signed counterparts of a contract for sale, by whatever mechanism that exchange may be effected. That process, of course, does not fit happily with the conventional concept of "offer" and "acceptance". Nevertheless, the point at which buyer and seller are taken to have intended to enter into legal relations is the point at which the buyer has a counterpart of the contract for sale executed on behalf of the seller and the seller has a counterpart of the contract for sale executed by the buyer. 150 However, it is not entirely clear whether there is a similar practice in New South Wales in relation to agreements for the grant of commercial or retail or residential leasehold interests. In certain circumstances, the Leases Act pre-empts the necessity for an agreement and the entry by a tenant into possession of proposed demised premises gives rise to the juridical act of creating a tenancy. The character and terms of the tenancy, of course, will depend upon any agreement between the parties that may have been made before the tenant entered into occupation. The grant of possession is, in a sense, analogous to the delivery of a duly executed conveyance or transfer together with the payment of the price, by way of completion of an executory contract for the sale of land. 151 While there will be many instances where there is a formal agreement for the grant of a lease prior to the actual grant and entry into of possession, it is by no means invariable that there will be a prior binding and enforceable contract for the grant of a lease prior to a leasehold interest being brought into existence. It is not uncommon for a landlord to allow a tenant into possession upon the execution of a lease by the tenant and the payment of the landlord's costs, prior to the landlord executing the lease. 152 In the present case, Darzi was allowed into occupation prior to the execution of a formal lease instrument, on the basis of the Heads of Agreement, and had the benefit of the statutory lease under the Leases Act. In the circumstances that existed between the parties, the correspondence between them, objectively considered, evinced a clear intention that, once consensus was reached as to the terms of the lease that was to bind them, there would be a binding and enforceable agreement that they would enter into a formal lease instrument in those terms. The primary judge erred in concluding otherwise. [Footnotes omitted.]
5. See also the judgments of Bathurst CJ at [16] - [17] and Basten JA at [45] - [49].
6. In the present case, there is no consensus that can be pointed to by the appellant. To the contrary, all the evidence concerning the requirement for the exercise of the proposed option was, at best, vague. At no stage were there events or facts from which it could be said that any binding agreement had been reached that the option should be treated as having been exercised.
7. The evidence disclosed an agreement to grant a three year option but did not establish that the parties agreed that the option would not need to be exercised but would "automatically kick in". The decision in Darzi has no relevance in that context.
8. The evidence established, as the Tribunal referred to, that the appellant, in conversation with the first respondent, said that he was "always going to elect to do it"; that on 18 October 2018 he stated that he hoped "that we may be able to renew when the time comes"; and in his email of 17 January 2020, after the date for the exercise of the option had passed, he stated that he "suspected the lease had lapsed".
9. Against this evidence, the Tribunal was entitled to reject the appellant's assertion that he thought the option would "automatically kick in". Such a conclusion is entirely inconsistent with the expressions used by the appellant as set out above.
10. Further, the above evidence shows that the appellant was aware, at all material times and especially on 17 January 2020, that he had not exercised the option contained in the lease.
11. The Tribunal made no error of law in concluding that the option had not been exercised nor could it be said that that conclusion was not fair and equitable or against the weight of evidence.
12. In respect of the third principal ground of appeal, namely that there has been some unconscionable conduct on the part of the respondents by encouraging the appellant to believe he was to have a long tenure, even if words to that effect were used by the first respondent in initial discussions when the appellant became the tenant, the appellant's email dated 18 October 2018 clearly demonstrated his understanding that: [T]he agreed two (2) year lease with a three (3) year option in my favour is acceptable to me. On a longer term I hope that we may be able to renew when the time comes…. The appellant clearly understood the terms of his occupation.
13. On 19 October 2018 the first respondent expressed the tenure specifically, stating inter alia: Your current term ends on 14 November 2019, and you have the option for renewal for a further term of three years.
14. In circumstances where the Tribunal was satisfied the appellant understood the terms of the option and that he needed to exercise it, we do not consider that the failure to provide a disclosure document or tenant's guide could make the respondents' conduct unconscionable.
15. The first respondent acknowledged in his evidence that he would not have advised a client to act as the respondents had. However, we fail to see how that could make the respondents' conduct unfair or unconscionable. A solicitor's obligation is to protect the interests of their own client. The fact that the first respondent may have been careless of his own interests (and no such finding is made) does not make his conduct unfair to the appellant.
16. Against these facts, it is apparent that there has been no unconscionable conduct on the part of the respondents.

Subsidiary issues

1. On 16 October 2020, before the filing of the notice of appeal, the appellant made a proposal, on a without prejudice basis, concerning the parties' future relations with respect to the occupation of the subject premises. That proposal included the cancellation of "any appeal on my part", On 19 October 2020 the respondents agreed to accept the proposal. However, after the filing of the Notice of Appeal on 10 November 2020, the appellant forwarded an email on 13 November 2020 to the respondents advising that he had decided to appeal the decision.
2. The respondents acknowledge that they have not been disadvantaged by the appellant's abandonment of the agreement reached by the exchange of emails of 16 and 19 October 2020, and accordingly the Tribunal considers that it is not relevant to any issue before the Tribunal.

Conclusion

1. For the above reasons leave to appeal should be refused and the appeal must be dismissed.
2. The issue of costs has not been argued. The Appeal Panel notes that, although we have not received submissions on the issue, there do not appear to be special circumstances which would warrant the making of any order for costs. Nevertheless, we will make orders allowing submissions in support of an order for costs in the event that either party wishes to seek such an order.

Orders

1. The orders of the Tribunal are: 1. The time for filing the appeal be extended to 10 November 2020; 2. Leave to appeal is refused. 3. The appeal is dismissed; 4. There be no order as to costs, unless within 21 days of the date of these orders either party files submissions seeking a different order; 5. If there is to be any application for costs by either party then written submissions in support of such application are to be lodged with the Tribunal and served on the other side within 21 days, including submissions as to whether a hearing about costs can be dispensed with and any costs issues determined on the papers. Written submissions in response to any submissions from the other party are to be lodged with the Tribunal and served within 14 days thereafter.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 February 2021