Sze Tu v Jam Studios Pty Ltd; Jam Studios Pty Ltd v Sze Tu

1. [1]

   HIS HONOUR: By a further amended statement of claim filed on 21 December 2015, Margaret Sze Tu (“the first plaintiff”), together with, Shiu How Sze Tu, Shiu Shing Sze Tu and Helen Sze Tu (collectively, “the plaintiffs”) commenced proceedings against the first defendant, CH Real Estate Pty Ltd trading as Raine & Horne Commercial Campbelltown (“CH Real Estate”) and the second defendant, Jam Studios Pty Ltd (“Jam”).

2. [2]

   The plaintiffs are the registered proprietors and owners of Lot 2367 in Deposited Plan 730219 (“the property”). Jam was in possession and occupation of part of the property otherwise known as Shop 5, 42-44 Queen Street, Campbelltown (“the premises”). The plaintiffs sought, inter alia, the following relief:

   1. (1)

      judgment for possession of the premises;

   2. (2)

      leave to issue a writ of possession forthwith;

   3. (3)

      further and/or in the alternative, an order requiring Jam to vacate the premises and do all things necessary to restore the plaintiffs to possession of the premises;

   4. (4)

      mesne profits;

   5. (5)

      damages for use and occupation;

   6. (6)

      arrears of rent; and

   7. (7)

      costs.

3. [3]

   The CH Real Estate aspect of the claim settled.

4. [4]

   By an amended statement of cross-claim filed on 25 February 2016 (“the cross-claim”), Jam sought the following relief:

   1. (1)

      a declaration that it entered into a lease with the plaintiffs on or about 11 or 12 July 2013;

   2. (2)

      an injunction restraining the plaintiffs from evicting it from the premises;

   3. (3)

      an injunction requiring the plaintiffs to install air-conditioning in the premises;

   4. (4)

      an injunction requiring the plaintiffs to consent to a Development Application (“DA”) by Jam to Campbelltown City Council (“the Council”), that includes a proposed use of the premises as a café; and

   5. (5)

      damages for alleged breaches of “the lease”.

THE ESSENCE OF THE PARTIES’ CASES

1. [5]

   There was no dispute that the premises were a “retail shop” for the purposes of the Retail Leases Act 1994 (NSW). Further, there was no dispute that, in early July 2013, CH Real Estate (on the plaintiffs’ behalf) negotiated with Jam for a proposed lease of the premises.

2. [6]

   However, the plaintiffs denied the existence of a lease. Specifically, the plaintiffs contended that:

   1. (1)

      CH Real Estate had no authority to enter into any binding lease on their behalf;

   2. (2)

      they consented to no more than a license for Jam to enter the premises for limited purposes prior the conclusion of negotiations for a lease, which negotiations broke down without agreement;

   3. (3)

      Jam’s evidence is capable of establishing no more than the existence of an implied “tenancy at will” in accordance with s 127(1) of the Conveyancing Act 1919 (NSW); and

   4. (4)

      any such licence or tenancy at will was validly terminated in February 2014 or, alternatively, May 2014.

3. [7]

   In the alternative, the plaintiffs also contended, if there was a lease, that:

   1. (1)

      it required Jam to pay rent in the amount of $4,125 per month, which it had not done since April 2014. It may be noted that it was common ground that Jam had paid no rent in relation to its possession and occupation of the premises since April 2014;

   2. (2)

      the plaintiffs were thereby entitled to terminate the lease and did so by notices to vacate issued on their behalf in February 2014, or alternatively May 2014; and/or

   3. (3)

      the plaintiffs were entitled to re-enter the premises and determine the lease, which, if successful, they will be deemed to have done on service of the further amended statement of claim for the purposes of s 20 of the Civil Procedure Act 2005 (NSW).

4. [8]

   In summary, Jam contended that:

   1. (1)

      The plaintiffs, through their agent CH Real Estate, granted Jam a “retail shop lease” of the premises (“the lease”), as defined in s 3 of the Retail Leases Act;

   2. (2)

      it acted in reliance of the express representations made by CH Real Estate and entered into possession of the premises, on or about 11 or 12 July 2013, as a tenant under a retail lease;

   3. (3)

      the plaintiffs breached an essential term of the lease because it never installed any air-conditioning on the premises;

   4. (4)

      the plaintiffs caused loss and damages to Jam as a result of the breach of the essential terms of the lease; and

   5. (5)

      it requested the plaintiffs’ consent to Jam’s DA to the Council, and the plaintiffs ignored, refused or neglected to provide consent to the DA, which led to the Council issuing an order to cease the use of the premises for the sale of musical instruments and the provision of ancillary services.

THE ISSUES

1. [9]

   From those primary positions of the parties, the following commonly agreed issues may be distilled as the issues requiring resolution in these proceedings:

   1. (1)

      Whether the plaintiffs and Jam entered into a retail shop lease for the premises on or about 11 or 12 July 2013?

   2. (2)

      If there was no retail shop lease, on what basis did Jam occupy the premises from about 12 July 2013?

   3. (3)

      If there was no retail shop lease, was a valid notice to vacate the premises given to Jam on behalf of the plaintiffs on either:

   4. (4)

      Are the plaintiffs thereby entitled to possession of the premises?

   5. (5)

      If there was no retail shop lease, are the plaintiffs entitled to damages, mesne profits or any other form of compensation from Jam in relation to its occupation of the premises, and if so, in what amount?

   6. (6)

      If there was a retail shop lease, what terms did it include:

   7. (7)

      If there was a retail shop lease, and if it included a term in relation to the payment of rent by Jam, had Jam breached that term?

   8. (8)

      If there was a retail shop lease, and if it included a term in relation to the use of the premises by Jam, had Jam breached that term?

   9. (9)

      If there was a retail shop lease, and if it included a term that would require the plaintiffs to consent to a development application by Jam that involved a proposed use of the premises as a café, had the plaintiffs breached that term?

   10. (10)

       If the plaintiffs have breached such a term, what if any damages are they liable to pay to Jam?

   11. (11)

       Is Jam entitled to the injunction that it seeks to require the plaintiffs to consent to its DA?

   12. (12)

       If there was a retail shop lease, and if it included a term in relation to the provision of air-conditioning by the plaintiffs, had the plaintiffs breached that term?

   13. (13)

       If the plaintiffs have breached such a term, what if any damages are they liable to pay to Jam?

   14. (14)

       Is Jam entitled to the injunction that it seeks to require the plaintiffs to install “adequate” air-conditioning and, if so, what type of air-conditioning is required?

   15. (15)

       If there was a retail shop lease, are the plaintiffs entitled to:

2. [10]

   In light of the discussion of issues 1 and 2, later in this judgment, and my findings with respect to the same, I will find that no lease came into existence between the parties but rather a tenancy at will, which was properly terminated. I will nonetheless resolve the balance of issues 3 to 15.

THE EVIDENCE

1. [11]

   The plaintiffs relied upon an affidavit of the first plaintiff, who also gave evidence and was cross-examined by Mr Mathew Irsak, the sole director and secretary of Jam, who appeared in person on behalf of Jam.

2. [12]

   Jam relied upon affidavits of Mr Gordon Irsak dated 26 September 2016, Mr M Irsak dated 4 April 2014 and Ms Suelen McCallum dated 28 January 2015 (which annexed an expert report the purposes of quantifying Jam’s damages: the “Report of Suelen McCallum” dated 23 January 2015 (“the report”)). Mr M Irsak was cross-examined by counsel for the plaintiffs. Mr G Irsak and Ms McCallum were not cross-examined by counsel for the plaintiffs.

3. [13]

   In addition to the above, Jam sought to lead evidence as to causation, loss and damage, which was in substantial parts ruled inadmissible. Parts of Ms McCallum’s expert report were ruled inadmissible on the bases that, inter alia, the opinion expressed was outside her expertise, and the opinions were based on information which was not identified and to which no evidence was adduced or intended to be adduced. Material annexed to Mr M Irsak’s affidavit was also ruled inadmissible, namely, material from an accountant, Mr Gregory Kehlet of Warby Kehlet & Hawkings Accountants, on the basis that it was hearsay of Mr Kehlet’s opinion. (It should be noted that Jam sought to re-tender the material from Mr Kehlet, and sought tender material regarding weather conditions in Campbelltown after the evidence for both parties had closed, and it was rejected on that basis).

FACTUAL FINDINGS

1. [14]

   The plaintiffs made a detailed submission as to the relevant factual background. The following derives from that background but also deals with particular factual issues as they emerged in the proceedings.

The Agency Agreement

1. [15]

   The plaintiffs appointed CH Real Estate as their agent under a “Management Agency Agreement – Commercial and Industrial” dated 8 March 2006 (“the Agency Agreement”). The Agency Agreement was in the standard form produced by the Real Estate Institute of New South Wales (June 2005 edition) and was stated to have commenced from 15 November 2005. The relevant clauses of that agreement, for the purposes of these proceedings, are extracted below.

2. [16]

   Clause 1 provided:

3. [17]

   Clause 3 provided:

4. [18]

   Clause 5.1 provided for a “Leasing Fee” as follows:

5. [19]

   Clause 5.2 provided:

6. [20]

   Clause 7 provided:

7. [21]

   There were no “Special Instructions” attached to the Agency Agreement.

8. [22]

   Clause 16 of the Agency Agreement provided for an additional “Management Fee” (in substance an ongoing commission) of 3% plus GST on rent “collected from time to time”.

Preliminary negotiations

1. [23]

   On about 3 July 2013, Mr M Irsak and his father and business advisor, Mr G Irsak, were shown around the premises by CH Real Estate’s then “Director, Sales and Leasing”, Mr Daniel Krobot. There was a discussion about air-conditioning on that day.

2. [24]

   Shortly after midday on that same day, Mr M Irsak sent an email to Mr Krobot in the following terms:

3. [25]

   Later that day, Mr Krobot spoke by telephone with the first plaintiff. She gave evidence that the conversation was in the following terms:

4. [26]

   Her account of that conversation was supported by her contemporaneous file note. It was also consistent (as to the rental sought by Jam’s previous landlord) with evidence given by Mr M Irsak in cross-examination.

5. [27]

   That evening, Mr Krobot sent an email to the first plaintiff in which he said:

6. [28]

   On 4 July 2013 at 12:19 pm, the first plaintiff sent an email to Mr Krobot in the following terms:

7. [29]

   Mr Krobot responded to the first plaintiff, that same day, by email sent at 3:59 pm. He stated:

8. [30]

   It should be noted, the cross-claim also referred to an “offer letter” from Mr Krobot dated 7 July 2013. No such letter was adduced in evidence. Mr Krobot did, however, send an email on 7 July 2014 to Mr M Irsak, which was in the following terms:

9. [31]

   The evidence before the Court is that that “offer” was rejected, negotiations continued and that various counter offers were made.

10. [32]

    Mr G Irsak gave evidence of a telephone conversation that he had with Mr Krobot. Mr G Irsak recalled he said:

11. [33]

    His evidence was that Mr Krobot responded:

12. [34]

    On 8 July 2013 at 11:37 am, Mr M Irsak sent an email to Mr Krobot in the following terms:

13. [35]

    It is not immediately clear what email Mr M Irsak was referring to.

14. [36]

    On 8 July 2013 at 11:50 am, the first plaintiff sent an email to Mr Krobot in which she said:

15. [37]

    That afternoon at 5:59 pm, Mr Krobot sent an email to the first plaintiff in the following terms:

16. [38]

    The first plaintiff’s evidence was that she did not respond to that email because she was waiting for Mr Krobot to respond in relation to the air-conditioning quotes that she had instructed him to obtain in her email sent earlier that day.

17. [39]

    Mr G Irsak gave evidence that he had another conversation with Mr Krobot on about 8 or 9 July 2013 in the following terms:

The Lease Advice Sheet

1. [40]

   On 11 July 2013 at 7:30 pm, according to the evidence of Mr G Irsak, Mr Krobot sent an email to Mr M Irsak attaching a “Lease Advice Sheet” (which is referred to as the “Heads of Agreement” in the cross-claim at para 7).

2. [41]

   The email stated:

3. [42]

   The Lease Advice Sheet was dated 12 July 2013 and, relevantly, in the following terms:

4. [43]

   It also included the following statement immediately above the place for execution on behalf of the parties:

5. [44]

   On 12 July 2013 at 12:39 pm, Mr Krobot sent a copy of the Lease Advice Sheet to the first plaintiff. His email said:

6. [45]

   The first plaintiff’s evidence was that she never instructed Mr Krobot to prepare the Lease Advice Sheet and that she neither approved it, signed it, nor instructed Mr Krobot to send it to Jam. She stated she was not aware until after 15 July 2013 that Mr Krobot had sent it to Jam. I accept that evidence.

7. [46]

   The email dated 12 July 2013 from Mr Krobot to the first plaintiff does not indicate that the Lease Advice Sheet was provided to Jam and it is unsigned. On 15 July 2013, Mr Krobot sent an email to Holman Webb Lawyers (“Holman Webb”), the solicitors for the plaintiffs (at that time), copying in the first plaintiff which said, inter alia, “I have attached a copy of our Lease Advice (Sheet), outlining the essential terms and conditions of the agreement”. Holman Webb responded to that email on 16 July 2013 requesting amendments to the Lease Advice Sheet. On 17 July 2013, Mr Krobot responded to Holman Webb and then attached the signed Lease Advice Sheet. From this, the Court may infer that, by 17 July 2013, both Holman Webb and the first plaintiff were aware that the Lease Advice Sheet had been signed by Jam, and it follows that they must have known by 17 July 2013 that the Lease Advice Sheet had been provided to Jam.

8. [47]

   Broadly, I accept the first plaintiff as a reliable witness who was candid and responsive to questions asked of her in cross-examination. She was not shaken as to this evidence in cross-examination and her evidence included documents in support. Any confusion by the first plaintiff in cross-examination was as a result of confusion arising from the questioning. Further, in an email dated 12 July 2013, from Mr Krobot to the first plaintiff, the attached Lease Advice Sheet was unsigned. No mention was made of the document provided to Jam, let alone the fact that, by that stage, Mr M Irsak had signed the Lease Advice Sheet.

9. [48]

   The first plaintiff’s evidence is that she instructed Mr Krobot, that before she would agree to the term in relation to air-conditioning, he was to obtain relevant quotes from air-conditioning contractors. CH Real Estate did not do that until after Mr Krobot sent the Lease Advice Sheet to Jam.

10. [49]

    On 12 July 2013, after Mr Krobot had sent the Lease Advice Sheet to Mr M Irsak, Ms Denise Egan of CH Real Estate, sent instructions to Ultimate Air Conditioning Pty Ltd (“Ultimate Air”) and New Edge Group Pty Ltd (“New Edge”) requesting quotes for air-conditioning for the premises.

Occupation, fit out and rent

1. [50]

   The first plaintiff’s evidence was that she received a telephone call from Ms Egan in the late afternoon on 11 July 2013 and that they had a conversation to the following effect:

2. [51]

   The first plaintiff’s file note of that conversation recorded:

3. [52]

   Mr M Irsak’s evidence was that he signed the Lease Advice Sheet on Jam’s behalf on 11 July 2013. However, the version he confirmed signing was dated 12 July 2013. The plaintiffs correctly submitted that it is more likely that Mr M Irsak signed the Lease Advice Sheet on 12 July 2013 after having discussed it with Mr G Irsak. Mr M Irsak accepted, in cross-examination, that when he received the Lease Advice Sheet, he discussed the document with Mr G Irsak, and Mr G Irsak had explained to him what the whole of the Lease Advice Sheet meant. The following is an extract from the cross-examination of Mr M Irsak:

4. [53]

   Mr M Irsak also stated that, on 11 July 2013, he attended CH Real Estate’s offices where:

   1. (1)

      Jam paid $8,250 to CH Real Estate representing the deposit described in the Lease Advice Sheet;

   2. (2)

      Mr Krobot provided him with the keys to the premises; and

   3. (3)

      he returned the signed Lease Advice Sheet to Mr Krobot.

5. [54]

   However, given the dates and times printed on the relevant emails and other documents, including the Lease Advice Sheet itself, the plaintiffs correctly contended that it is more likely that Mr M Irsak attended CH Real Estate’s offices on 12 July 2013.

6. [55]

   The plaintiffs accepted that the amount of $8,250 was paid into CH Real Estate’s Trust Account on 12 July 2013 and that Mr M Irsak returned the signed Lease Advice Sheet and obtained the keys to the premises on that day.

7. [56]

   Soon after that, Jam took possession of the premises and commenced its fit out. Mr G Irsak gave evidence, by 19 July 2013, that “we moved some of the items from our previous location” into the premises and began work on the fit out of the premises. The fit out works continued throughout the remainder of July and into early August 2013.

8. [57]

   The plaintiffs submitted that it was clear that Jam took possession of the premises and commenced work on its fit out without the consent, or even knowledge, of either the plaintiffs or CH Real Estate. That submission was supported by reference to the following:

   1. (1)

      All of the communications between 7 and 12 July 2013, including the Lease Advice Sheet itself, envisaged that the lease would commence on 1 August 2013, with the first month (August) being rent free.

   2. (2)

      The terms of the conversation between Mr Krobot and Mr G Irsak referred to in [39] above (and as explained by Mr M Irsak as extracted at [52] above) envisaged that the lease would commence and Jam would commence its fit out on 1 August 2013, though there was a request for access prior to that to “store stuff”. Mr Krobot was to take instructions

   3. (3)

      The Lease Advice Sheet stated that the “[l]andlord will provide immediate access to the premises upon the lease being executed, provision of 1 months rental in advance, bond and evidence of public liability insurance for the Lessee to commence fit out works”.

   4. (4)

      There was no evidence to suggest that either Mr Krobot or Ms Egan were told by either of Messrs G or M Irsak that Jam intended to do anything other than store equipment at the premises prior to the formal lease being executed.

   5. (5)

      The instructions sent to both air-conditioning contractors by fax by Ms Egan on 12 July 2013 both direct the contractor to contact “Mathew” to arrange access (and as such the Court would infer, the plaintiffs submitted, that they were sent after he had collected the keys), but also state that “the tenant has not moved in yet”.

   6. (6)

      There was no evidence to suggest that, prior to 24 July 2013, anyone from CH Real Estate was, or that the plaintiffs were, aware that Jam had commenced fit out work. The first plaintiff’s evidence was that, consistent with her contemporaneous file note, she was shocked to see fit out work going on when she attended the premises on 24 July 2013. I accept her evidence.

   7. (7)

      Consistent with the first plaintiff’s instructions, Ms Egan sent emails to Mr M Irsak on 29 and 30 July 2013, directing Jam to cease all fit out work prior to signing the lease.

9. [58]

   On the weight of the evidence the submission for the plaintiffs, in that respect, must be accepted.

10. [59]

    The plaintiffs conceded, however, that from about September 2013 they accepted rent from Jam whilst they continued to negotiate the terms of a lease through their lawyers. In cross-examination the first plaintiff confirmed that the plaintiffs received rent from August 2013, although the CH Real Estate tenant ledger exhibited to her affidavit indicated that rent was, in fact, paid from September (that part of the deposit held in CH Real Estate’s trust account since July 2013 and representing the first month’s rent was applied for that purpose in September 2013).

11. [60]

    The first plaintiff also confirmed that CH Real Estate began deducting its management fee under cl 16 of the Agency Agreement from rent payments from about that time, though her evidence was that she never paid the “Leasing Fee” under cl 5.

12. [61]

    The plaintiffs also accepted that they took no action after the end of July 2013 (until February 2014) to require that Jam cease its fit out works or vacate the premises, although this was in the context of the continuing negotiations.

Negotiations

1. [62]

   On 14 July 2013, Mr Krobot sent an email to Mulally Mylott Lawyers (“Mulally Mylott”), the solicitors for Jam (at that time), which was copied to Mr M Irsak, attaching an unsigned copy of the Lease Advice Sheet. That email stated as follows:

2. [63]

   In cross-examination, Mr M Irsak was uncertain as to the precise time that Mulally Mylott were instructed by Jam. He said he believed that he met with Ms Ingrid Boon of Mulally Mylott by 15 or 16 July 2013; at which meeting Ms Boon gave advice to Jam in relation to the Lease Advice Sheet.

3. [64]

   Mr Krobot sent an email to Ms Robyn Chamberlain of Holman Webb attaching an unsigned copy of the Lease Advice Sheet at 10:16 am on 15 July 2013. That email stated:

4. [65]

   On 16 July 2013 at 11:51 am, Ms Chamberlain sent the following email to Mr Krobot:

5. [66]

   Mr Krobot responded on 17 July 2013 with an email in the following terms (to which he appears to have attached a copy of the Lease Advice Sheet that was signed by Mr M Irsak):

6. [67]

   Ms Chamberlain emailed a draft lease (“the draft lease”) to Mr Krobot and the first plaintiff on 18 July 2013 at 4:37 pm. The email stated:

7. [68]

   The first plaintiff’s evidence was that she had a telephone call from Mr Krobot on 22 July 2013 and that they had a conversation to the following effect:

8. [69]

   That same day, she recalled, Mr Krobot also sent her two drafts of Lessors’ Disclosure Statement. Her evidence was that she could not read either draft that Mr Krobot had sent her. The copy produced on subpoena by CH Real Estate includes the following provisions:

9. [70]

   Mr M Irsak’s evidence is that Mr Krobot also sent the draft Lessors’ Disclosure Statement to him on 22 July 2013.

10. [71]

    On 22 July the first plaintiff also spoke with Ms Egan by telephone and their conversation was as follows:

11. [72]

    Her file note of the conversation, relevantly, recorded:

12. [73]

    Holman Webb provided the draft lease to Mulally Mylott on 23 July 2013. It included the following terms:

    1. (1)

       Clause 1.1(33) provided that the “Permitted Use” was the use specified in Item 5. Item 5 appeared in the “Reference Schedule” and included: “Musical school and music retail outlet”.

    2. (2)

       Clause 11.1(2) dealt with “Permitted Use” and stipulated that: “[t]he Lessee must not use the Premises for any purpose other than the Permitted Use”.

    3. (3)

       Clause 16.15 said: “[t]he Lessor shall install air-conditioning to the Premises”.

13. [74]

    Mr M Irsak’s evidence was that “both parties continued to negotiate the terms of the lease”. He contended that this was because the draft lease “did not fully reflect the terms of” the Lease Advice Sheet.

14. [75]

    However, on 29 July, Mulally Mylott sent a letter to Holman Webb in relation to the draft lease and the draft Lessors’ Disclosure Statement in which they requested the following changes to the Lessors’ Disclosure Statement and the draft lease:

15. [76]

    Mr M Irsak accepted in cross-examination that he took advice from Ms Boon on both the draft lease and the above letter and that he approved that letter before it was sent:

Negotiations break down

1. [77]

   On 30 July 2013, Ms Egan provided the first plaintiff with air-conditioning quotes obtained from Ultimate Air and New Edge. The quotes, which were for a "ducted air-conditioning system" including outlets, ducting work and power circuits, as well a “54kw” “packaged unit”. The New Edge quote referred to, inter alia, the supply and installation of a “roof top packaged unit”, rigid sheet metal ductwork, flexible ductwork, a “roof platform” and a 50A power circuit “from the main switchboard to unit on [the] roof”.

2. [78]

   The quotes were as follows:

   1. (1)

      Ultimate Air – $44,773 plus GST; and

   2. (2)

      New Edge – $41,200 plus GST.

3. [79]

   The receipt of those quotes precipitated a further round of negotiations in relation to air-conditioning. During the course of negotiations, it would appear a proposal was made by Mr Krobot for the installation of a suspended ceiling, which the parties were advised would reduce the cost of installing an air-conditioning system. However, the parties were unable to agree on who would be responsible for the costs associated with installing the suspended ceiling.

4. [80]

   In addition, the parties were unable to agree about changes to the “permitted use” requested by Jam to enable it to use the premises as a café. If that was to occur, the plaintiffs required an increase to the rent. Further, there was a disagreement as to the need for Jam to obtain a DA from the Council.

5. [81]

   On 6 September 2013, Mulally Mylott wrote to Holman Webb as follows:

6. [82]

   Holman Webb wrote to Mulally Mylott on 9 September 2013 as follows:

7. [83]

   On 24 September 2013, Ms Egan reported to Ms Chamberlain:

8. [84]

   On 25 September 2013, Mr Krobot emailed Ms Chamberlain:

9. [85]

   Also on 25 September 2013, Holman Webb wrote to Mulally Mylott:

10. [86]

    On 27 September 2013, Holman Webb again wrote to Mulally Mylott:

11. [87]

    On 3 October 2013, Ms Chamberlain sent an email to Ms Egan as follows:

12. [88]

    On 9 October 2013, Mulally Mylott wrote to Holman Webb:

13. [89]

    Then, on 22 October 2013, Mulally Mylott wrote to Holman Webb asserting on Jam’s behalf that a retail shop lease had been agreed in July 2013 on the basis of the Lease Advice Sheet:

14. [90]

    Jam paid rent in the sum of $4,124 ($3,750 plus GST) for the month of October 2013 on 29 October 2013 (approximately one month later than required by the Lease Advice Sheet).

15. [91]

    On 30 October 2013, Holman Webb responded to Mulally Mylott Lawyer’s letter dated 22 October 2013 as follows:

The First Notice to Vacate

1. [92]

   Jam then paid rent as follows:

   1. (1)

      on 8 November 2013 in the sum of $4,124 ($3,750 plus GST) for the month of November 2013; and

   2. (2)

      on 9 December 2013 in the sum of $4,124 ($3,750 plus GST) for the month of December 2013.

2. [93]

   No rent was paid during the course of January 2014.

3. [94]

   On 26 February 2014, there occurred the following:

   1. (1)

      Jam paid rent in the sum of $4,124 ($3,750 plus GST) for the month of January 2014; and

   2. (2)

      CH Real estate issued the First Notice to Vacate to Jam.

4. [95]

   The First Notice to Vacate was in the following terms:

The Tribunal Proceedings

1. [96]

   Jam then, on 17 March 2014, commenced proceedings in the New South Wales Civil and Administrative Tribunal (“the Tribunal”), seeking:

   1. (1)

      an injunction to prevent eviction;

   2. (2)

      abatement of rent; and

   3. (3)

      compensation.

2. [97]

   On 19 March 2014, Jam paid rent in the sum of $500 ($454.54 plus GST) in part payment for the month of February 2014.

3. [98]

   On 28 March 2014, the Tribunal made orders refusing interim relief on the grounds of arrears of rent $7,750.

The Second Notice to Vacate

1. [99]

   On 25 March 2014, Jam paid rent:

   1. (1)

      in the sum of $3,625 ($3,295.46 plus GST) in payment for the balance due for the month of February 2014; and

   2. (2)

      in the sum of $4,124 ($3,750 plus GST) for the month of March 2014.

2. [100]

   On 28 March 2014, the Tribunal refused a further application for interim relief.

3. [101]

   On 14 April 2014, Jam paid rent in the sum of $2,000 ($1,818.18 plus GST) in part payment for the month of April 2014. This was the last rental payment made by Jam.

4. [102]

   On 19 May 2014, Holman Webb issued the Second Notice to Vacate to Jam. That notice was in similar terms to the First Notice to Vacate.

Proceedings for possession

1. [103]

   These proceedings were commenced by the plaintiffs against CH Real Estate in the District Court on 2 June 2014. An amended statement of claim was filed on 10 June 2014 joining Jam to the proceedings, but seeking only damages.

2. [104]

   On 12 June 2014, orders were made in the Supreme Court removing the Tribunal proceedings from the Tribunal to the District Court to be heard together with those proceedings. Jam filed a defence to the amended statement of claim in these proceedings on 8 July 2014 and its original statement of cross-claim on 29 July 2014.

3. [105]

   These proceedings were transferred to the Supreme Court where, as earlier mentioned, the further amended statement of claim was filed on 21 December 2015, seeking orders for possession of the premises, and the Tribunal proceedings were dismissed by consent.

4. [106]

   On 25 February 2016, Jam filed a defence to the further amended statement of claim and an amended statement of cross-claim in these Proceedings.

5. [107]

   On 25 March 2016, Jam purported to exercise an option for a further 3-year term under the alleged lease.

WAS THERE A LEASE? – ISSUES 1 & 2

1. [108]

   In paras 5-11 of the cross-claim Jam pleaded that:

   1. (1)

      there was an agreement to that effect on or about 11 or 12 July 2013; or

   2. (2)

      alternatively, that a lease came into existence by reason of an estoppel which arose from “representations” which Jam says CH Real Estate made on the plaintiffs’ behalf.

2. [109]

   It is common ground that no formal lease document was ever agreed or executed. It follows that any lease, whether it arose by agreement or on the basis of an estoppel, was in the terms set out in the Lease Advice Sheet. The plaintiffs submitted in order for an agreement to exist between the plaintiffs and Jam, Mr Krobot must have had either actual or ostensible authority.

3. [110]

   Jam submitted that intention to enter into a lease could be implied by a party’s behaviour, and it contended that the following factors were demonstrative of an intention to enter into a contract:

   1. (1)

      an email from Mr Krobot dated 3 July 2013 as to Jam being a prospective tenant;

   2. (2)

      an email from the first plaintiff to Mr Krobot dated 4 July 2013 including instructions as to the anticipated terms and conditions, such as commencing fit out works as soon as practical;

   3. (3)

      money was paid by Jam to the plaintiffs as rent, and that money was not refunded; and

   4. (4)

      the plaintiffs allowed Jam entry into the building before 1 August 2013.

4. [111]

   Jam submitted that the first plaintiff’s words, intentions and delegations to her agent demonstrated an intention to enter into a lease.

5. [112]

   In addition, Jam contended that the plaintiffs entered into a lease when it was provided with the keys because it entered and occupied the building, thereby falling under the definition of “retail shop lease or lease” under s 3 of the Act (which is extracted below).

6. [113]

   The plaintiffs denied that there was any such agreement or that they were estopped from denying such an agreement. Specifically, the plaintiffs contended that:

   1. (1)

      CH Real Estate had no authority, either actual or ostensible, to enter into such an agreement on their behalf;

   2. (2)

      when the evidence is considered as a whole, it is apparent that there were negotiations for a lease, but no "agreement" was ever concluded; and

   3. (3)

      the plaintiffs say that, at most, Jam was allowed into possession of the premises under a tenancy at will, in anticipation of such an agreement.

Relevant legislation

1. [114]

   The relevant sections of the Conveyancing Act are extracted below:

2. [115]

   Section 3 of the Retail Leases Act defines a “retail shop lease or lease” in the following terms:

3. [116]

   The definition of a “lease”, however, is qualified by s 6A of the Retail Leases Act, with respect to short-term leases. It, relevantly, provides:

4. [117]

   Further, s 8 of the Retail Leases Act provides:

5. [118]

   Counsel for the plaintiffs properly accepted that the effect of s 3 of the Retail Leases Act (as qualified by s 6A) is that, if Jam established an oral or implied agreement that falls within the definition of “a retail shop lease” under s 3, that agreement would not be ineffective by reason of non-compliance with ss 23C(1)(a), 23D(1) and/or 54A(1) of Conveyancing Act, i.e. want of writing.

CH Real Estate’s authority

1. [119]

   CH Real Estate was appointed as the plaintiffs’ agent under the Agency Agreement. Under that agreement CH Real Estate had authority to manage the premises and to negotiate with prospective tenants on the plaintiffs’ behalf (cll 1-5).

2. [120]

   However, it was an express term of the Agency Agreement (cl 7) that:

3. [121]

   As mentioned earlier, there were no “Special Instructions” attached to the Agency Agreement.

4. [122]

   Hence, the plaintiffs contended that Jam can only succeed in establishing that there was an agreement, for the purposes of s 3 of the Retail Leases Act, if it can establish that CH Real Estate had ostensible authority to enter into such an agreement on the plaintiffs' behalf or that any agreement that was purportedly made by CH Real Estate (without authority) was subsequently ratified by the plaintiffs. In the light of the terms of the Agency Agreement, as described immediately above, and the evidence summarised at [23]-[49] as showing no other bases to demonstrate actual authority, I agree with that submission. The question remains: did CH Real Estate have ostensible authority?

5. [123]

   Jam contended that CH Real Estate had ostensible authority for the following reasons:

   1. (1)

      Jam reasonably believed that CH Real Estate had authority to act on the plaintiffs’ behalf and was never told by CH Real Estate that it was not authorised to act for the plaintiffs;

   2. (2)

      Jam had no information to suggest the lease agreement was not reasonable, equitable and believable;

   3. (3)

      the plaintiffs’ accepted money from Jam as rent which was not refunded; and

   4. (4)

      real estate agents represent landlords and tenants.

6. [124]

   The “usual position” is that a real estate agent does not have the ostensible authority to enter into binding agreements on behalf of its principal. The position was stated by the High Court in Petersen v Moloney (1951) 84 CLR 91, at 94-95 (per Dixon, Fullagar and Kitto JJ) as follows:

7. [125]

   The position as outlined in the Petersen v Moloney was considered in Celermajer Holdings Pty Ltd v Kopas (2011) 16 BPR 30,735; [2011] NSWSC 40 (“Celermajer Holdings”) at [294]-[299] per Ward J. In that case her Honour distinguished Petersen v Moloney, but was concerned with a different set of facts. A notice of termination had been issued in relation to a residential tenancy agreement, following which proceedings were commenced on behalf of the owner in the former Residential Tenancies Tribunal. Those proceedings were prosecuted on behalf of the owner by its real estate agent (consistent with the practice in that Tribunal). It was subsequently alleged that, during the course of settling that dispute, the agent had agreed on behalf of the owner to grant a life tenancy to the respondent tenant.

8. [126]

   Her Honour ultimately found that the agent made no such agreement, but on the issue of whether or not the agent had ostensible authority to do so, her Honour observed as follows (at [298]-[299]):

9. [127]

   Jam has not outlined a basis upon which it says that CH Real Estate had ostensible authority to enter into a lease on behalf of the plaintiffs, either in the cross-claim or in its evidence. No conduct by the plaintiffs amounting to a relevant representation or “holding out” was identified by Jam and no evidence of any reliance upon such conduct by Jam has been adduced (cf Celermajer Holdings at [294]-[299]; see also G E Dal Pont, Law of Agency (LexisNexis Butterworths, 3rd ed, 2014) at [20.29]-[20.34] and [20.38]). I accept the plaintiffs’ submission that the usual position referred to in the authorities must, therefore, be taken to apply.

10. [128]

    Further, Jam has not pointed to any conduct by the plaintiffs that might amount to ratification of an agreement made with it by CH Real Estate. Having regard to matters discussed at [57]-[76] above and [137]-[139] below, I also accept the plaintiffs’ submission that no such ratification may, on the evidence, be properly found.

11. [129]

    Unless the agreement said to be struck with Mr Krobot was subsequently ratified by the plaintiffs (and I will find no such ratification occurred), in the absence of demonstration of CH Real Estate’s ostensible authority, the contention that there was an agreement to lease must fail. There was no ostensible authority and, as I will discuss below, negotiations continued after 12 July 2013 given that no agreement was reached.

An “agreement”?

1. [130]

   In the plaintiffs’ submission, the evidence does not establish a clear case of an offer having been made by one party and accepted by the other, and the existence of an agreement (as distinct from its proper construction) can therefore only be inferred, in the circumstances of this case, objectively and consistently with the principles set out by the Court of Appeal in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [71]-[81] (per Heydon JA) and [171]-[173] (per Ipp JA), that is, by asking what the reasonable bystander would conclude from the parties’ words and conduct, including conduct that might in other circumstances be considered “post-contractual”, when considered against the surrounding circumstances. I agree. (See also Priestley v Priestley [2017] NSWCA 155 at [5] (per Macfarlan JA) and [104]-[105] (per Emmett AJA, with whom McColl JA agreed); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369] (per Allsop J, with whom Drummond and Mansfield JJ agreed); County Securities Pty Limited v Challenger Group Holdings Pty Limited [2008] NSWCA 193 at [7]-[8] (per Spigelman CJ).

2. [131]

   The plaintiffs further submitted, correctly in my view, when all of the objective facts are considered, it is apparent that, to the extent that the Lease Advice Sheet and the associated correspondence between CH Real Estate and Jam constituted any “agreement”, it was an agreement in the nature of the third category referred to by Dixon CJ and McTiernan and Kitto JJ in Masters v Cameron (1954) 91 CLR 353 (at 360), being “one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”.

3. [132]

   As to how the distinction should be drawn, in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Gleeson CJ observed (at 547):

4. [133]

   His Honour continued (at 547-549):

5. [134]

   His Honour stated further (at 549-550):

6. [135]

   After referring to both Brambles Holdings Ltd v Bathurst City Council and Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd, Giles JA (with whom Hodgson and Campbell JJA agreed) made the following observations in Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 (at [101]-[105]):

7. [136]

   I shall apply these principles to the question of whether an agreement for or constituting a lease was reached between the plaintiffs and Jam.

8. [137]

   The plaintiffs correctly submitted that the language of the Lease Advice Sheet itself presupposed negotiations for a formal lease, and that the matter may “not proceed”. It was clearly intended to be a “statement of intention”.

9. [138]

   From 13 July 2013, the evidence established that the parties entered into a series of negotiations, including through their respective solicitors, for a formal lease. In the context of those negotiations Jam sought the inclusion of a terms in the lease that were at variance with those in the Lease Advice Sheet, including:

   1. (1)

      that it would be “conditional” on the approval of its DA by the Council;

   2. (2)

      that the permitted use would be expanded to include use as a café; and

   3. (3)

      for the reservation of a specific number of car spaces available at the property, to itself.

10. [139]

    Further, the parties continued to negotiate in relation to the provision of air-conditioning, the rent and a “suspended ceiling”. Those negotiations began to break down in about October 2013, when for the first time, Jam proposed that it had already been granted a lease on the basis of the Lease Advice Sheet.

11. [140]

    There was, in my view, no agreement for or constituting a lease reached between the parties.

Estoppel

1. [141]

   The cross-claim refers to "representations" made by CH Real Estate on behalf of the plaintiffs at para 11. It was claimed that:

2. [142]

   The particulars to that paragraph refer to "email and oral correspondence” with Mr Krobot and Ms Egan but do not specify the precise conversations or correspondence.

3. [143]

   The plaintiffs correctly submitted that the estoppel asserted by Jam could only arise in equity and then only on one of two possible bases, being either:

   1. (1)

      a "proprietary estoppel" in the nature of that referred to by Lord Kingsdown in his dissenting judgment in Ramsden v Dyson (1866) LR 1 HR 129 (see also Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19; Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84 at [21] (per Handley JA with whom Allsop P and Giles JA agreed); Milling v Hardy [2014] NSWCA 163 at [50]-[52] (per Macfarlan JA, with whom Beazley P and Sackville AJA agreed); Priestley v Priestley [2016] NSWSC 1096 at [109]-[116] (per White J)); or

   2. (2)

      a "promissory estoppel" in the nature of that held by Mason CJ and Wilson and Brennan JJ, to have bound the prospective tenant in Walton Stores (Interstate) Ltd v Mahr (1988) 164 CLR 387; [1988] HCA 7 (“Walton Stores”).

4. [144]

   The relevant passage from Lord Kingsdown’s speech in Ramsden v Dyson was as follows (at 170):

5. [145]

   To establish that a lease arose by reason of an estoppel, consistently with the reasons given by Brennan J in Walton Stores (at 428-429), (which his Honour stated were relevant to all species of equitable estoppel), Jam would, similarly, need to establish that:

   1. (1)

      Jam assumed that a particular legal relationship existed between Jam and the plaintiffs, or expected a particular legal relationship would exist between them and, in the latter case, that the plaintiffs would not be free to withdraw from the expected legal relationship;

   2. (2)

      the plaintiffs induced Jam to adopt that assumption or expectation;

   3. (3)

      Jam has acted, or abstained from acting, in reliance on the assumption or expectation;

   4. (4)

      the plaintiffs knew or intended that Jam do so;

   5. (5)

      Jam’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and

   6. (6)

      the plaintiffs have failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

6. [146]

   Further, the following statement by French CJ, Kiefel, Bell and Keane JJ in Sidhu v Van Dyke (at [58]) must be kept in mind:

7. [147]

   In the same case, Gageler J stated (at [91]-[92]):

8. [148]

   Situations in which a prospective tenant is allowed into premises prior to the conclusion of a formal lease, and in the anticipation that a lease will be concluded are not unknown to the law. Such a situation was considered by the Victorian Court of Appeal in Kellow-Falkiner Motors Pty Ltd v Nimorakiotakis [2000] VSCA 1 at [39]-[41], per Charles JA (with whom Ormiston and Buchanan JJA agreed). The Court there considered that, in the absence of a concluded lease or agreement for a lease, it should be slow to infer that a lease arose by reason of an estoppel arising from representations made during the course of negotiations. The Court of Appeal of England and Wales has similarly held that “caution” must be exercised in such circumstances: see Javad v Aqil [1991] 1 WLR 1007 at 1012-1013 (per Nicholls LJ with whom Mustill and Ralph Gibson LJJ agreed); see also Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2008) 35 WAR 520; [2008] WASCA 23 at [28], per Pullin JA (dissenting).

9. [149]

   In a similar vein, Jacobson J made the following points in Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91 (at [668]):

10. [150]

    Mr M Irsak’s evidence was that “in reliance upon the representations in the [Lease Advice Sheet] I signed the [Lease Advice Sheet]”. Mr M Irsak also gave evidence that he relied on the representations of CH Real Estate when he signed the Lease Advice Sheet. Other than those factors, he gave no evidence of having relied upon any other consideration. The only change of position that he directly gave evidence of having made was a reliance on the Lease Advice Sheet was that he signed it.

11. [151]

    There was no clear articulation of an assumption. The “assumption” Messrs G and M Irsak appear to have made was that a lease had or would be granted on the basis of the terms set out in the Lease Advice Sheet. In cross-examination, Mr M Irsak confirmed that, as at 12 July 2013 when he signed the Lease Advice Sheet, he understood that Jam had a binding agreement with the plaintiffs because he had signed the document, been given the keys and gained possession of the premises:

12. [152]

    Notwithstanding the Court’s warning to Mr G Irsak during Mr M Irsak’s cross-examination that it was not his role to assist Mr M Irsak with his evidence, counsel for the plaintiff did not make submissions as to Mr M Irsak’s credit as a witness. On the issue of credit, it is worth noting that Mr M Irsak conceded that he failed to refer to an email from Mr Krobot dated 11 July 2013 attaching the Lease Advice Sheet in his affidavit which deposed to receiving the Lease Advice Sheet, however that omission is of little significance.

13. [153]

    The relevant detriment appears to be that, having taken possession of the premises, Jam commenced to undertake its fit out.

14. [154]

    However, it was an express term of the Lease Advice Sheet, signed by Mr M Irsak that “the Landlord will provide immediate access to the premises upon the lease being executed”. Further, the Lease Advice Sheet made it clear that the lease may not proceed, in which case, the deposit would be re-funded, save for any legal costs reasonably incurred in relation to the preparation of the lease. In addition, the evidence is inconsistent with an assumption being made because Jam continued to negotiate the terms of the lease.

15. [155]

    Mr M Irsak accepted in cross-examination that that the language used in the Lease Advice Sheet was not consistent with the assumptions he said that he made and proceeded upon:

16. [156]

    Further, his evidence was that he had the benefit of legal advice in relation to the Lease Advice Sheet from about 15 or 16 July 2013 before Jam’s fit out work began.

17. [157]

    Having obtained entry to the premises, Jam took possession of them and proceeded with its fit out without the permission or knowledge of either the plaintiffs or CH Real Estate. The evidence of the first plaintiff was that she initially gave permission for Jam to enter the premises prior to the conclusion of a lease, for the limited purpose of storing equipment and other items of personal property. Upon being directed by CH Real Estate to cease work on the fit out, once the plaintiffs and CH Real Estate became aware of the situation, Jam continued.

18. [158]

    The plaintiffs submitted the evidence adduced by Jam does not address the requirements for establishing an estoppel. Specifically, the plaintiffs contended:

    1. (1)

       the assumption made in Walton Stores could be distinguished because in that case, the form of lease had been concluded and executed by one of the parties, whereas in the current case the parties continued to negotiate the terms of the lease which is inconsistent with reliance having been placed on the terms set out in the Lease Advice Sheet;

    2. (2)

       there was no “encouragement” by or on behalf of the plaintiffs for Jam to take possession of the premises and begin its fit out;

    3. (3)

       there was no “unequivocal representation” by or on behalf of the plaintiffs to the effect either that a lease had been granted on the basis of the Lease Advice Sheet, or that such a lease would be granted in due course;

    4. (4)

       there was no encouragement or representation either to the effect that the plaintiffs had committed to a lease or that they were “no longer free to withdraw”;

    5. (5)

       Jam’s conduct in attempting to renegotiate the terms of a lease was inconsistent with any reliance having been placed on the representations in the Lease Advice Sheet;

    6. (6)

       to the extent that reliance was placed on the Lease Advice Sheet (or any other conduct) to found an assumption that a lease had or would be granted, it was unreasonable because the Lease Advice sheet was not an unequivocal statement of the terms of a lease (as that was not what the Lease Advice Sheet said); and

    7. (7)

       there was nothing unconscionable about the plaintiffs’ conduct – they were not aware (nor was CH Real Estate) that Jam had taken possession and commenced its fit out until late July 2013, by which time both Jam’s possession and the fit out had become a fait accompli.

19. [159]

    Jam contended in its oral submissions that express representations were made in the form of an offer from CH Real Estate, the Lease Advice Sheet and the final documents to which they said everything was agreed to; although Jam did not expand on whether any reliance was placed on those representations. Further in written submissions, Jam left it open to the Court “to consider all aspects of ‘estoppel’” in the context of the plaintiffs’ overall argument.

20. [160]

    Jam has not, in my view, established an estoppel. The plaintiffs have established that a representation was not made that the plaintiffs would enter into a lease with Jam. The reliance by Jam upon the Lease Advice Sheet was misplaced that document was neither an unequivocal statement of the terms of the lease nor that a lease would be entered into. It presupposed negotiation of a formal lease (which in fact occurred). Any reliance by Jam upon the Lease Advice Sheet was, therefore, unreasonable. Further, it is apparent that Jam did not itself place reliance upon the Lease Advice Sheet as it attempted (consistently) to renegotiate the terms of a lease.

21. [161]

    There was no representation by the plaintiffs that Jam was prohibited from withdrawal from the lease as the execution of the Lease Advice Sheet called for a confirmation to execute a lease in terms contained in the Lease Advice Sheet but in the context of a provision which stated that a lease may be finalised.

22. [162]

    I agree with the plaintiffs that their conduct was not unconscionable as they were not, on the evidence given by the first plaintiff, aware that Jam had taken possession and commenced a fit out until late July 2013.

Tenancy at Will

1. [163]

   The plaintiffs contended that Jam was only ever expressly granted a limited licence to store equipment on the premises and that it took possession of them without their consent or agreement.

2. [164]

   The plaintiffs further contended that Jam’s evidence can establish no more than that an implied tenancy came into existence, which tenancy was terminable by either the plaintiffs or Jam at will in accordance with s 127(1) of the Conveyancing Act (see Turner v York Motors (1951) 85 CLR 55; [1951] HCA 52 per Dixon J at 64-65). In that regard, the plaintiffs were prepared to accept that, whatever the position prior to August 2013, upon accepting rent and by not taking action to evict Jam after they became aware that it had taken possession and commenced its fit out, any more limited licence must have become a tenancy at will. Having regard to the foregoing conclusions as to the existence of an agreement on an estoppel (or the lack thereof) together with the true circumstances, as I have found, in which Jam came to take possession of the premises (it was permitted only to “store”). I consider that submission must be accepted.

3. [165]

   Such a tenancy could not constitute a “retail shop lease” for the purposes of either ss 3 or 6A of the Retail Leases Act (see Lin v State Rail Authority of NSW [2006] FCAFC 42 at [7]-[9] (per Heerey, Dowsett and Conti JJ)) unless either:

   1. (1)

      a lease was ultimately agreed which, by virtue of s 8 of the Retail Leases Act, extended for a term of more than 6 months from the date on which the Jam went into possession: Aspromonte Pty Ltd v Zagari (1999) 9 BPR 17,247; [1999] NSWSC 831 at [48]-[53] (per Hodgson CJ in Eq); or

   2. (2)

      if no lease was ultimately agreed, the tenancy at will subsisted for 12 months for the purposes of s 6A(2) of the Retail Leases Act: Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 at [33].

4. [166]

   There was no subsequent agreement for the reasons stated above. Further, as I will discuss, the tenancy was validly terminated with one month’s notice in February 2014 such that s 6A(2) had no application.

TERMINATION OF THE IMPLIED TENANCY – ISSUES 3, 4 & 5

1. [167]

   As the tenancy was one at will, pursuant to s 127(1) of the Conveyancing Act, the plaintiffs were entitled to terminate it for any reason upon giving one month’s notice in writing to Jam, which they did by serving Jam with the First Notice to Vacate on 26 February 2014. The First Notice to Vacate was sufficient to terminate the tenancy at will for the purposes of s 127(1) because:

   1. (1)

      it was in writing in the form of a letter from CH Real Estate on behalf of the plaintiffs to Jam at its last known business address (see s 170(1)(b) of the Conveyancing Act); and

   2. (2)

      it gave 30 days notice to vacate, which was more than one month’s notice considering it was served in February 2014 (see s 21 of the Interpretation Act 1987 (NSW)).

2. [168]

   Jam had refused to vacate and, on that basis, the plaintiffs correctly submitted that they are entitled to judgment for possession of the premises.

3. [169]

   The plaintiffs are also entitled to claim unpaid rent for the period up until the relevant notice expired, being 28 March 2014, and mesne profits thereafter (which are claimed at the same rate as payable prior to termination of the tenancy). The quantification of the unpaid rent and the mesne profits was without submissions or development in the course of the proceedings.

IF THERE WAS A LEASE, WHAT WERE ITS TERMS? – ISSUE 6

1. [170]

   This and related issues do not arise for determination in the light of the above conclusion. However, given the issues were fully argued, I shall, for completeness, briefly dispose of each such issue.

2. [171]

   If there was a lease as alleged, it could only have incorporated the express terms set out in the Lease Advice Sheet in relation to:

   1. (1)

      payment of rent – i.e. $45,000 gross per annum plus GST, payable in monthly instalments, in advance, at the beginning of each month;

   2. (2)

      permitted use – i.e. as a “musical school and music retail outlet”; and

   3. (3)

      air-conditioning, i.e. the plaintiffs “will install at their expense an air-conditioning unit that is suitably adequate for [the premises]”.

3. [172]

   The plaintiffs correctly submitted that there is absolutely no warrant for implying a term in relation to Jam’s DA and that such a term would be inconsistent with the above term in relation to permitted use.

4. [173]

   However, in accordance with s 85(1)(d) of the Conveyancing Act, a power of re-entry would be implied into the lease for the plaintiffs’ benefit in the event of non-payment of rent as follows:

Failure to pay rent

1. [174]

   If there was a lease as alleged in the cross-claim, the plaintiffs contended they were entitled to terminate that lease and sue for possession of the premises (and unpaid rent and/or mesne profits) because of the failure of Jam to pay any rent after April 2014.

2. [175]

   If the alleged lease existed as claimed by Jam, then that alleged lease would have included a provision for the payment of rent on a monthly basis for a particular amount as set out in the Lease Advice Sheet. Once that obligation to pay rent existed, s 85(1)(d) of the Conveyancing Act operated to give the plaintiffs the power of re-entry where rent has not been paid for one month. This power of re-entry would be independent of any notice of termination.

Abatement or recoupment

1. [176]

   Jam contended that there was an entitlement to withhold rent on the basis of an alleged failure by the plaintiffs to:

   1. (1)

      consent to its DA to the Council; and/or

   2. (2)

      install an air-conditioner suitable to the size of the premises.

2. [177]

   However, no express term providing for the abatement of rent was asserted in the cross-claim and, in the absence of damage to the premises, it is difficult to see how the abatement provisions in either s 84(1)(a) of the Conveyancing Act or s 36 of the Retail Leases Act could have any application.

3. [178]

   Further, no evidence has been advanced to permit a determination of whether or not the value of the lease itself had been reduced as a result of any breach and if so, by what amount (see M J Weir, ‘A Tenant’s Right of Set-off’ (1994) 68 Australian Law Journal 857 at 860).

4. [179]

   The plaintiffs submitted that the evidence of Mr M Irsak at para 37 of his affidavit was not a sufficient basis to reach any conclusion in that regard. Mr M Irsak’s evidence was that Jam relied on the plaintiffs’ promises that the premises would be adequately air-conditioned, and in reliance on that promise it negotiated the rent at $45,000, and contended the rent should have been no more than $28,309 exclusive of GST (the estimate of which was based on a comparable premises used by a business associate).

5. [180]

   Similarly, Jam adduced no evidence of expenditure reasonably incurred by it in connection with installation of air-conditioning in the premises in the nature of that which it alleges the plaintiffs were required to install. In those circumstances, no claim for recoupment can arise.

Set-off

1. [181]

   It appears Jam contended that it has a right to set-off a claim for unliquidated damages (or possibly for compensation under s 34(1)(d) of the Retail Leases Act) against the rent that would otherwise be payable under the lease that it contended was in place. That claim was predicated on the breaches of the lease set out in the cross-claim.

2. [182]

   However, as the claim is for unliquidated damages, the only basis upon which Jam could succeed in establishing a right of set-off is in equity. To do so, it would need to establish both:

   1. (1)

      an entitlement to damages in excess of the amount of the unpaid rent; and

   2. (2)

      that any breach of the lease (noting that none has been found) was so intimately connected with the claim for rent as to “impeach” that claim.

3. [183]

   The existence of a “counter-demand” is not sufficient of itself to give rise to an equitable right of set-off: Rawson v Samuel (1841) Cr & Ph 161 at 178; 41 ER 451 at 458. Any cross-claim must go to the root of the plaintiff’s claim. The classic example of a counter-claim giving rise to an equitable right of set-off was Piggott v Williams (1821) 6 Madd 95; 56 ER 1027 where a solicitor claimed fees from his client that were only incurred by reason of the solicitor’s negligence.

4. [184]

   In the case of a landlord's claim for arrears of rent, the plaintiffs submitted that the position is that held to have been the case by Forbes J in British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] 1 QB 137 (“British Anzani”).

5. [185]

   In that case, which has been cited with approval in Australia by both the New South Wales Court of Appeal and the Victorian Court of Appeal (see Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (receiver and manager appointed) (1997) 42 NSWLR 462 per Gleeson CJ, Handley JA and Brownie AJA (at 488) and Ozden v Commonwealth Bank of Australia [2014] VSCA 127 per Tait and Beach JJA and Sifris AJA (at [81]-[82]), respectively), the tenant was held to have been entitled to withhold rent, but only because the landlord's breach (of a separate agreement in relation to the design of the floors of two warehouses) was so serious as to require the evacuation of the building. Thereafter only part of the building was able to be used.

6. [186]

   Forbes J pointed out that the existence of a counterclaim for a breach of the lease would not give rise to a right of set-off in all cases. But in the case before him, he held that the tenant’s "equity" went to the root of the landlord's claim, because of the extent of the interference with the tenants use and enjoyment of the premises (at 152):

7. [187]

   The plaintiffs contended that any breach of a term for air-conditioning could not have given rise to an equitable right to off-set rent and that the circumstances of this case are simply not in the same category as those considered by Forbes J in British Anzani. Jam has retained the use of, and continued to use, the premises.

8. [188]

   The evidence in the defendant’s case does not prove, as I will discuss below, that it has been prevented from trading, or suffered any diminution in its ability to trade as a result of any breach of any term relating to the installation of air-conditioning (see [196]-[215] below).

9. [189]

   I find that Jam has not established a right of set-off because a breach of a term requiring the plaintiffs to install air-conditioning (as discussed below) is not intimately connected with the plaintiffs’ claim for rent because Jam retained the use of the premises. As such, the present case can be distinguished from the decision in British Anzani.

Permitted use

1. [190]

   The plaintiffs submitted that, if there was a lease on the basis of the Lease Advice Sheet, it must follow that the only permitted use under that lease was as a “musical school and music retail outlet”. The plaintiffs did not press the claim that they are entitled to possession for breach of the covenant as to permitted use. However, they did maintain that, if a lease was found to have existed, Jam was not permitted to use the premises as a café or to sell food and drink. On that basis, if a lease was found to have come into existence and to subsist, the plaintiffs contended that they would be entitled to serve a notice on Jam in accordance with s 129 of the Conveyancing Act, should Jam continue to use the premises in that manner.

2. [191]

   Those submissions may be accepted but given the nature of the submissions, no further finding is required.

Consent to the DA

1. [192]

   As noted earlier, there was no term in the Lease Advice Sheet which referred to consent to a DA. The plaintiffs submitted they did not understand the basis upon which it was alleged that there was a term in any lease requiring them to consent to a DA that included a “use” that went beyond the “permitted use” specified in the Lease Advice Sheet. As such the plaintiffs did not understand the basis upon which the claim for a breach of such a term was pursued.

2. [193]

   Jam did not provide an explanation as to why it contended that the permitted use of the premises should have been expanded to include a proposed use as a café. It only referred to the letter from the plaintiffs’ former solicitors to Jam’s former solicitors dated 30 October 2013 which indicated that the plaintiffs had permitted Jam “to serve pre-packaged food and light refreshments which was outside the original permitted use as a music school and music retail outlet”. Jam submitted that this demonstrated that terms relating to the use of the premises were finalised at that time.

3. [194]

   Furthermore, in cross-examination, Mr M Irsak gave evidence that either at the time of, shortly before or shortly after signing the lease advice sheet that he had no concern about not getting through a development application. A letter from Mulally Mylott to Holman Webb dated 29 July 2013 requested an amendment to the draft lease which would have made the lease conditional upon Jam’s DA being approved. When questioned about the requested amendment in that letter, Mr M Irsak conceded that his solicitor was “being overly cautious”, and he confirmed that he “didn’t instruct her” to request the amendment, rather it was “included in the letter and [Jam] agreed with her”.

4. [195]

   It is clear from the above analysis that there is no basis for finding that the alleged lease would have included a term regarding consent to a DA because such a term was not included in the Lease Advice Sheet and because Mr M Irsak confirmed that consent to the DA was an afterthought to signing the Lease Advice Sheet.

Air-conditioning

1. [196]

   The Lease Advice Sheet included a “Special Condition” to the following effect:

2. [197]

   The plaintiffs submitted that, if there was a lease based upon the Lease Advice Sheet, that provision could only require the installation of air-conditioning that was “suitably adequate” for the premises in the state in which they existed at the time Jam went into possession.

3. [198]

   However, it was submitted, Jam’s complaint seemed to be that the plaintiffs refused to install a sophisticated “ducted” air-conditioning system, at a cost of in excess of $45,000 (equivalent to almost an entire year’s rent) which they said was required to cool the premises in summer, as they had been fitted out by Jam during the course of late July and August 2013. That fit out involved the partitioning of the premises into numerous rooms.

4. [199]

   The plaintiffs submitted that the Special Condition in the Lease Advice Sheet, with respect to air-conditioning, even if it was found to have contractual force, could not possibly have had the effect contended for by Jam and that its claim for breach of the lease in that regard is not maintainable.

5. [200]

   The plaintiffs referred to the quotes regarding the air-conditioning as outlined at [77] and [78] of this judgment. The plaintiffs’ submitted that those quotes were for a ducted air-conditioning system which was much more significant in price and fit than an air-conditioning unit as specified in the Lease Advice Sheet. The quotes included references to supplying and installing flexible duct work and metal duct work, which went beyond an air-conditioning unit.

6. [201]

   Jam did not make any written or oral submissions as to this point, and I accept the plaintiffs’ submission based on the evidence.

7. [202]

   However, the plaintiffs properly conceded that they did not install air-conditioning at all and that, if that term is found to have had contractual force, they must therefore have been in breach of it. That fact gives rise to issues of causation and loss.

Causation and loss

1. [203]

   Jam sought to lead evidence as to the loss suffered as a result of the plaintiffs’ failure to install an air-conditioning system:

   1. (1)

      In his affidavit, Mr M Irsak deposed as to the losses incurred due to the lack of air-conditioning. However this was ruled to be inadmissible on an opinion basis.

   2. (2)

      Annexed to Mr M Irsak’s affidavit were complaints from customers. These complaints were ruled to be inadmissible pursuant to s 69(3)(a) of the Evidence Act 1995 (NSW) because they were documents prepared or obtained for the purposes of, in contemplation of, or in connection with an Australian proceeding, namely the Tribunal proceedings.

   3. (3)

      Also annexed to Mr M Irsak’s affidavit were financial documents prepared by Mr Kehlet. The Court ruled that those documents were inadmissible on the basis that annexing the report constituted hearsay of Mr Kehlet’s opinion. As noted above, Jam sought to further tender those documents after the evidence had closed, and the Court held that the documents were still inadmissible on the aforementioned ruling.

   4. (4)

      Mr M Irsak included evidence of the weather conditions in Campbelltown in his final submissions, and the Court ruled that evidence could not be admitted considering the evidence for parties had closed.

   5. (5)

      Sections of Ms McCallum’s report were also ruled to be inadmissible pursuant to ss 76 and 79 of the Evidence Act because, inter alia:

2. [204]

   As a result of those rulings, the only admissible evidence before the Court as to loss suffered as a result of a lack of air-conditioning was Mr Irsak’s evidence that the damage to guitars and music was approximately $7,370, and a quote from Heeler Guitars on an estimate of repairs to instruments damaged by heat or damp. However, there was no evidence as to whether the lack of air-conditioning caused the damage to the instruments.

3. [205]

   Furthermore, the evidence available to this Court does not permit a conclusion that a “suitably adequate” air-conditioning unit referred to in the Lease Advice Sheet required a ducted air-conditioning system for the purpose of the fit out installed by Jam.

4. [206]

   As a result, I consider that there are significant difficulties with respect to Jam’s contention on causation and loss arising from the failure of the plaintiffs’ to install an air conditioner. They were as follows:

   1. (1)

      Whilst there is some evidence of a reduction in the number of lessons and drop off in customer numbers during the period between August 2013 and November/December 2014, the evidence in the proceedings does not demonstrate that this was causally connected to a failure by the plaintiffs to install air-conditioning.

   2. (2)

      There is some evidence that might tend to suggest that the temperature in some parts of the premises exceeded 30 degrees Celsius on some days. However, there is no evidence of any consistent measurement or monitoring of temperatures inside the premises in the period between August 2013 and November 2014.

   3. (3)

      Nor was there admissible evidence in the form of records of customer complaints or other business records that would establish the extent to which temperatures inside the premises actually caused any reduction in customer numbers or lessons in the period between August 2013 and November 2014.

   4. (4)

      In my view, the only obligation under the lease advice argument was for the plaintiffs to install an air-conditioning unit "suitably adequate" for the premises as they existed prior to Jam taking possession. There is no expert or other relevant evidence that would allow the Court to conclude what type of air-conditioning unit would have been required for that purpose or whether such an air-conditioning unit would have made any difference, or had any effect upon the atmosphere inside the premises, having regard to the nature of the fit out subsequently undertaken by Jam.

   5. (5)

      In any event, to the extent that there was a reduction in customer numbers or lessons, it occurred immediately upon Jam moving from its previous premises. Mr M Irsak's evidence in cross-examination was that Jam elected to move out of its previous premises because the rent being charged by its previous landlord was almost double that which it had agreed to pay for the premises. Apart from that, there was no admissible evidence upon which the Court could draw any conclusion in relation to the comparability of the premises to Jam's previous premises.

5. [207]

   Having regard to those deficiencies in Jam’s case regarding the failure of the plaintiffs to install a suitably adequate air-conditioning unit (or an air-conditioning unit of a particular character), I do not consider that, if a lease existed, Jam has established a case for damages on that basis. The only evidence before the Court as to loss suffered by Jam was the damage to instruments, but there was no evidence that loss was as a result of a lack of a “suitably adequate” air-conditioning unit. In any event, even if the additional evidence as to losses suffered by Jam was admissible, there was no evidence to prove that the losses were caused by the lack of air-conditioning.

6. [208]

   For those reasons, if, contrary to my earlier conclusion, a lease was found to exist, and the lease required the plaintiffs to install air-conditioning, I agree with the plaintiffs’ submission that Jam's damages claim must fail.

The quantification of damages

1. [209]

   As earlier mentioned, Jam served the report of Ms McCallum, an accountant, for the purposes of quantifying its damages claim. However, the plaintiffs contended that none of the assumptions of fact upon which that report was based have been proved by Jam.

2. [210]

   Specifically, it was submitted that Jam had not adduced any evidence to prove that:

   1. (1)

      there was a lack of adequate air-conditioning at the premises (see para 1.3.1(c) of the report);

   2. (2)

      the lack of adequate air-conditioning caused reduced “customer satisfaction”, which in turn resulted in reduced cash flows and revenues (see paras 1.3.1(c) and 1.3.1(g) of the report);

   3. (3)

      Jam was an established business prior to moving to the premises that did not change its services and market offering on moving to the premises (see paras 1.3.1(d) and 1.3.1(e) of the report); or

   4. (4)

      the only material difference between the premises and Jam’s previous premises was the lack of adequate air-conditioning (see paras 5.1.14-5.1.21 of the report).

3. [211]

   On the evidence before the Court that submission must be accepted.

4. [212]

   Further, Ms McCallum’s report had been prepared on the basis of assumptions about the accuracy of financial information supplied to her by Jam (see paras 1.4.1-1.4.3 of the report). That information was described, in Appendix D of the report, as including:

   1. (1)

      “summaries” of financial statements for the financial years ending 30 June 2010, 2011, 2012, 2013 and 2014;

   2. (2)

      estimated “projections” of cash flows for the period January 2015 to July 2022; and

   3. (3)

      “discussions” with the “company director”, management and accountant.

5. [213]

   The “summaries” referred were produced and no evidence was adduced to explain how or by whom they were prepared. No evidence had been given in relation to the subject matter or content of the conversations between the expert and anyone on behalf of Jam. Further, it was not apparent that the expert was provided with access to any of the company’s primary or secondary accounting records, save for “historical records in relation to lessons and memberships”.

6. [214]

   Further, Ms McCallum's opinion in relation to Jam's "actual" and "but for" cash flows, as expressed at paras 4.3.9-4.7 of the report, was almost entirely based upon “forecasts of cash flows” provided to her by Jam together with information supplied by Jam concerning “key drivers of revenue and expenses” but which there was no evidentiary basis.

7. [215]

   Ms McCallum relied almost entirely upon projections of cash flows created by Jam in order to reach her conclusions in relation to both its “actual cash flows” for the period following January 2015 and its "but for cash flows” for the entire period following August 2013. At para 3.3.6(d) Ms McCallum stated (in substance) that, in order to have confidence in the reliability of Jam's forecasting in that regard, it was necessary to undertake a comparative analysis between its "historical financial forecasts" and corresponding "actual historical results". However, there was no indication that she has undertaken such an analysis.

8. [216]

   I do not consider Ms McCallum’s report constituted reliable evidence as to loss or damage experienced by Jam as a result of any pleaded breach of the lease.

IF THERE WAS A LEASE, ARE THE PLAINTIFFS STILL ENTITLED TO POSSESSION? – ISSUES 15 & 16

1. [217]

   Whilst I do consider, the First Notice to Vacate was effective to bring any lease to an end, the plaintiffs were, in any event, entitled to exercise the power of re-entry implied into such a lease by under s 85(1)(d) of the Conveyancing Act in circumstances in which the rent, significantly, was more than one month in arrears.

2. [218]

   On that basis (if there was a lease), upon service of the further amended statement of claim seeking possession of the premises, the plaintiffs were deemed to have exercised that power of re-entry so as to determine the lease: Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd (2010) 15 BPR 29,021; [2010] NSWCA 374 at [51] (per Sackville AJA, with whom Campbell and Young JJA agreed); McKinnon v Portelli (1959) 60 SR (NSW) 343 at 349-350 (per Myers J). They remain entitled to claim arrears of rent for the period prior to that time, and mesne profits in relation to the period following it.

3. [219]

   There is nothing in the Retail Leases Act that would alter that outcome.

UNCONSCIONABLE CONDUCT

1. [220]

   A further issue of unconscionable conduct was raised by Jam in its final written submissions. Jam contended that the first plaintiff’s actions were unconscionable pursuant to s 62B of the Retail Leases Act. It appeared that Jam contended that the plaintiffs’ conduct during the course of the proceedings was unfair and oppressive, and appeared to be an assertion that there was an intention infliction of economic loss by the plaintiffs onto Jam.

2. [221]

   The contention of unconscionable conduct was not pleaded in the defence or cross-claim. It was not raised until Jam’s final written submission were provided to the Court on the final day of the hearing. The plaintiffs correctly submitted that there was no evidence before the Court to support a conclusion that the plaintiffs’ conduct was unconscionable.

3. [222]

   In any event, the plaintiffs had no notice that the issue was to be raised and no opportunity to address it. I do not accept that Jam properly raised or made out a case of unconscionable conduct.

CONCLUSION

1. [223]

   Upon the basis of the Court’s finding that Jam’s possession of the premises was an implied tenancy at will, and further that the plaintiffs properly terminated that tenancy by serving the First Notice to Vacate, the plaintiffs are entitled to the claimed orders for possession of the premises and orders for arrears for rent up to the date of termination and mesne profits, subject to the appropriate quantification of the same. The cross-claim is thereby refused.

2. [224]

   As noted above, the Court received no submissions as to the exact quantification of the mesne profits (or for that matter, a precise calculation of arrears of rent). Further submissions are required on both matters. The question of costs will be reserved and shall be dealt with in conjunction with the resolution of the question of arrears for rent and mesne profits.

DIRECTIONS

1. [225]

   The Court makes the following directions:

   1. (1)

      The plaintiffs shall file and serve draft orders reflecting this judgment within 14 days;

   2. (2)

      Within the same time period, the plaintiffs shall file and serve proposed orders regarding claims for arrears of rent, mesne profits and costs. Those orders should be accompanied by a short submission in support of the orders sought by the plaintiffs;

   3. (3)

      The second defendant shall file and serve submissions in reply within 14 days of service of the proposed orders and submissions in (2) above.