Viva Plastic Pty Limited v Stoermer

• Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 CASES CITED : - Baulkham Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (1986) 40 NSWLR 622 - Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 - Godecke v Kirwan (1973) 129 CLR

PARTIES : Viva Plastic Pty Ltd - Plaintiff Christian Herbert Stoermer - Defendant

COUNSEL : G. Carolan - Plaintiff S.J. Burchett - Defendant

SOLICITORS : William Roberts Lawyers - Plaintiff Hartmann & Associates - Defendant

1 The Plaintiff seeks a declaration that it is entitled to a lease of factory premises at St Marys in which it is conducting a business. 2 The Defendant, the owner of the property, denies that there is a lease in existence. He says that the Plaintiff has been occupying the premises only as a monthly tenant, that the Plaintiff has been substantially in arrears of rent, that the Defendant has given to the Plaintiff a Notice to Quit, and that the Defendant is entitled to possession, that Notice having expired. 3 The Defendant has sold the property with vacant possession. The sale is due to be settled within a few days. The proceedings have, therefore, come into the Duty Judge List to be heard urgently on a final basis.

• did a binding agreement for lease come into existence on 13 December 2005 when the Plaintiff orally accepted the essential terms of a lease offered by the Defendant's agent, or was such an agreement subject to, and conditional upon, the formal execution and exchange of counterparts of the lease;

• did the Defendant, by his agent, represent to the Plaintiff in May 2006 that the Plaintiff was entitled to carry out substantial work on the premises so that the Defendant is now estopped from denying that a binding lease had come into existence, notwithstanding that counterparts of the lease had not been executed and exchanged;

• if there is a binding agreement for lease in existence, has the Plaintiff been in breach of its terms as to payment of rent so as to justify the Defendant in terminating the lease;

• is the Defendant presently entitled to the vacant possession of the property.

4 The facts which are relevant for the resolution of the dispute are not greatly in controversy. 5 The Plaintiff was incorporated to take over the business of Ausi-Plas Manufacturing Pty Ltd, which occupied the property under a lease from about December 2000 until it was wound up towards the end of 2005. Mr Nabil Grawi was a director of Ausi-Plas Manufacturing. His wife became sole director of the Plaintiff and he became its General Manager. The business of Ausi-Plas Manufacturing, which was acquired by the Plaintiff, continued to occupy the property. 6 The Defendant's letting agent for the property is Pullman & Williams Pty Ltd. Ms Dawn Ryan was the manager of that company responsible for the letting of the property. 7 After Ausi-Plas Manufacturing was wound up in about November 2005, Ms Ryan enquired of Mr Grawi what was happening about a lease. Mr Grawi said that he wanted a new lease in the name of the Plaintiff. Ms Ryan said that she would speak to the Defendant. 8 On or about 13 December 2005, Ms Ryan sent a letter addressed to the Plaintiff in the following terms: " RE: LEASE FROM CHRISTIAN HERBERT STOERMER PREMISES: 21 DUNHEVED CIRCUIT, ST MARYS

We confirm that we have ordered under the following terms and conditions:

Lessee: Viva Plastic Pty Ltd Commencement Date: 1st December 2005 Term: 2 (Two) years Option: Three (3) years Rent: $130,003.76 per annum (Plus GST) Outgoings: 100% Water Rates, Council Rates, Building Insurance and land Tax as a single holding (Estimated at $25,695.00 per annum plus GST) Annual Review: Annual C.P.I. increases, Market at review Usage: Injection Moulding - Plastics The tenant is responsible for all crane maintenance. Special Conditions: Bond of $13,189.00 As per existing lease

We would like to inform you that the solicitors for the lessor have been notified to submit a lease for the attention of solicitors acting for yourself, please find attached a copy of the lease summary sent to your solicitor.

Trusting that this matter will be completed to the entire satisfaction of all parties concerned."

Attached to the letter was a lease summary which contained particulars of the parties' respective solicitors and the principal terms of the proposed lease. 9 Mr Grawi says that on or about 13 December 2005 he received another letter from Ms Ryan containing an offer of a lease on terms similar to the first letter. He says that Ms Ryan came to the property and said, concerning the second letter: "Sign this letter and we will have the lease prepared for you and bring it to you."

Mr Grawi says that he signed the letter and returned it to Ms Ryan. He does not have a copy of the letter which he says he signed. 10 In her affidavit Ms Ryan says that there was no second letter dated 13 December 2005 and no written offer of a lease other than that contained in Exhibit P1. She denies having the conversation with Mr Grawi in which he says he signed a copy of a letter. 11 The Plaintiff did not give sufficient notice requiring Ms Ryan to attend for cross examination and she was not available to give evidence when the matter was called on. Her affidavit was read without objection notwithstanding that she was unavailable for cross examination. No other letter dated 13 December 2005 signed by Mr Grawi has been produced. In those circumstances, I cannot be satisfied that there was such a letter. 12 The Defendant's solicitor prepared a lease and sent it in duplicate to the Plaintiff's solicitor under cover of a letter dated 11 January 2006, stating: "For approval and if approved for execution by your client".

In that letter, the Defendant's solicitor also requested cheques for stamp duty, registration fees, lessor's solicitor's costs and disbursements. Those amounts total a little in excess of $2,800. 13 The lease required a bond of $13,189 to be paid by the Plaintiff no later than 13 January 2006. 14 Mr Grawi says that he received the lease and sent it to his solicitor for advice. This evidence does not seem to accord with the letter of the Defendant's solicitor to the Plaintiff's solicitor dated 11 January 2006. Nevertheless, Mr Grawi says that he signed the lease in January 2006, as did his wife and his brother. He says that "due to complacency and probably laziness" he did not send the executed lease back to Ms Ryan or to his solicitor for exchange. Neither did the Plaintiff pay the stamp duty, registration fees, lessor's solicitor's costs on preparation of the lease or the bond of $13,189 which was due on 13 January 2006. 15 On 3 March 2006, the Defendant's solicitor wrote to the Plaintiff's solicitor requesting advice as to whether the lease was to be signed or whether there were any queries. There was no response. 16 From January 2006 onwards the Plaintiff paid a monthly rent in respect of the property at the rate prescribed in the letter of 13 December 2005. However, the Plaintiff was often late in paying the rent and at least six of the monthly rent cheques were dishonoured between January and August 2006. 17 On 1 June 2006, the Defendant's agent wrote to the Plaintiff complaining about late payment of rent and the sequence of dishonoured cheques. Notice was given that unless the two months' arrears of rent then outstanding was paid by 26 June 2006 the Plaintiff would be required to vacate the property. The outstanding rent was not paid within the time stipulated. 18 On 6 July 2006, the Defendant's solicitor wrote to the Plaintiff's solicitor as follows: "My client has instructed me to withdraw the lease sent with my letter of January 4, 2006. Please return the documents to my office.

I have also been instructed to serve a Notice to Quit on your client, a copy is enclosed."

The attached Notice to Quit gave one month for the Plaintiff to vacate the property. 19 Mr Grawi says that when he received the letter of 6 July he rang Ms Ryan and queried what was happening. In telephone conversations on that day, Ms Ryan explained that the Defendant had sold the building and wanted the Plaintiff to give vacant possession. Mr Grawi protested that he had a lease. Ms Ryan observed "You did not sign it and give it back" . Mr Grawi said, "It is already signed and I will send it to you this afternoon" . Ms Ryan said that communications thenceforth would have to be with the Defendant's solicitors. 20 It is apparent from this evidence that the Plaintiff did not endeavour to return the lease, which he says he had executed, until after having received a Notice to Quit.

21 I turn now to the submissions which the Plaintiff makes in support of its case. 22 The first issue is whether the parties evinced a common intention to be bound on 13 December 2005 when Mr Grawi says that he orally accepted the terms of the lease offered in the agent's letter of that date. 23 The law in this regard is clear. In a conveyancing transaction of this type - and it was a substantial transaction, the annual lease rental being in excess of $130,000 - the normal expectation of parties is that documents evidencing the transaction will be prepared by solicitors, that the parties will receive the advice of their solicitors as to the terms of their agreement embodied in the documents, and there will be no binding agreement between the parties until formal execution and exchange of counterparts of the documents. That, as I say, is the normal expectation that parties to a conveyancing transaction in this State have. 24 However, evidence can be adduced to demonstrate that the parties had a common intention that, despite the normal expectation as to how a conveyancing transaction would proceed, they actually intended that the agreement informally reached between them should be immediately binding, although its terms may later be amplified and embodied in formal documents to be exchanged by their solicitors. 25 The law in this regard has often been stated: see, for example, Godecke v Kirwan (1973) 129 CLR 629, at 638; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9254 ff; Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; and Baulkham Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (1986) 40 NSWLR 622, at 627, and on appeal at 631, 634. In such cases, there are three elements of which the Court must be satisfied in order to find that an informal agreement was intended to be immediately binding:

• first, the parties must have arrived at a consensus as to the terms of the agreement;

• second, the terms must be sufficiently clear and certain to be capable of forming a binding contract;

• third, the parties, by their words and conduct taken in the context of the surrounding circumstances, must evince a common intention that the consensus at which they arrived should constitute an immediately binding agreement. 26 In the present case I am satisfied that the first and second of these three elements have been proved, but not the third. 27 From the inception of the transaction the parties contemplated that solicitors would be acting for each of them. The very terms of the offer contained in the letter of 13 December 2005 make it clear that the lessor contemplated that a formal lease would be prepared, forwarded to the Plaintiff's solicitor for advice, and then executed if found acceptable by the Plaintiff. The attached lease summary emphasises this common expectation by providing full particulars of the parties' respective solicitors. Accordingly, if one looks at the terms of the document setting out the offer of the lease, one finds that it conforms with the common expectation in this State that such a transaction will become binding only after formal exchange of executed counterparts of a lease. 28 I cannot take this case out of the common rule merely by virtue of the fact that from January 2006 onwards the Plaintiff paid rent in accordance with the rate stipulated in the 13 December letter. This is not a case in which one can see a lessor evincing an intention to be bound immediately by an informal agreement for lease by reason of having let a lessee, or putative lessee, into possession of premises and thereafter accepting rent at the agreed rate. Here, the Plaintiff had already been occupying the premises for some time prior to 13 December 2005, consequent upon its taking over conduct of a business formerly carried on in the property by Ausi-Plas Manufacturing. Therefore, the parties' respective positions did not change as a result of the oral acceptance of the offer contained in the 13 December 2005 letter. 29 Further, it seems to me that something is to be drawn from the fact that the Plaintiff waited such a long time before even attempting to send back an executed copy of the lease and, in fact, did not do so until a Notice to Quit had already been received. 30 It is clear that the Plaintiff was in some financial difficulty all throughout 2006 up to the date of the Notice to Quit. This is clear enough from the evidence of dishonoured cheques and late payment of rent. I think that an inference can fairly be drawn that the Plaintiff did not wish there to be a formal exchange of these documents, not because it believed that a binding lease already existed, but because exchange of counterparts would entail payment by it of a substantial sum of money, being not only lessor's solicitors costs, stamp duty and registration fees but a substantial bond of some $13,000. 31 In those circumstances, I cannot be satisfied that there was a common intention between the parties that the consensus at which they had informally arrived on 13 December 2005 should constitute an immediately legally binding agreement.

32 I turn now to the contention that the Defendant is estopped from denying the existence of such an agreement by a representation made to the Plaintiff in mid-May 2006. 33 The facts may be stated briefly. The Plaintiff wished to bring a new heavy piece of equipment into the property. Installing the machinery required considerable strengthening to the floor of the property and the floor had to be excavated to some depth for that purpose. 34 The Plaintiff concedes that it did not inform the Defendant of its intention to carry out such work, nor did it receive any permission to carry out the work, prior to commencing the excavations in May 2006. 35 The Plaintiff says that in May 2006 the Defendant's agent visited the property with a prospective purchaser and, in the course of inspection, saw the work on the floor of the property being carried out. 36 There was then some conversation about the existence of a lease. Mr Grawi says that he wanted to be assured that there was a lease in existence. The agent denies the conversation in the terms that Mr Grawi asserts but concedes that when Mr Grawi asserted that there was a lease in existence he did not deny that proposition. That is the sum total of the evidence said to found the estoppel. 37 There is insufficient evidence, in my opinion, to found the estoppel which the Plaintiff claims. There is no evidence at all that prior to the Plaintiff undertaking the work on the floor of the property it was informed either expressly or tacitly by the Defendant that there was a lease in existence and that in reliance upon such an assurance the Plaintiff then commenced the work. All the evidence suggests is that prior to May 2006 the Plaintiff made its own decision to carry out the work, regardless of the attitude which the Defendant might have had.

38 For those reasons I have come to the conclusion that there is no binding agreement for lease in existence, that the Plaintiff has been occupying the property since January 2006 only as monthly tenant, and that the Defendant was entitled, accordingly, to terminate the tenancy on one month's notice. That month's notice has been given and has expired. The Defendant is therefore presently entitled to vacant possession of the property. - oOo -

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