Ostron Pty Ltd v Rose Dion Pty Ltd

The plaintiff is the lessee of premises owned by the second defendant at 37 Flinders Street, Wollongong. The lease term expired some time ago. The plaintiff is holding over as a monthly tenant. The plaintiff conducts a car detailing business from the premises.

The adjoining land at 35 Flinders Street is a vacant site owned by the first defendant. The defendant companies are part of the Dion Group, the managing director of which is Mr Les Dion.

In late 2014, negotiations took place between the plaintiff and the defendants for the possible leasing of both properties to the plaintiff so as to enable the plaintiff to expand its business operations. The plaintiff claims that the negotiations gave rise to a binding and enforceable agreement for lease made on about 25 September 2014. An estoppel precluding the defendants from denying the existence of the agreement is also propounded. The defendants deny that any binding agreement for lease was made, and deny that they are bound by any estoppel as alleged.

By its Summons filed on 27 April 2015, the plaintiff seeks declaratory relief and a decree of specific performance. The matter was promptly prepared, and the hearing was able to be accommodated in the Duty List.

The plaintiff, for whom Mr P Menadue of Counsel appeared, read an affidavit sworn by Mr Steven Juric, who is the sole director of the plaintiff, and an affidavit sworn by Mr Anthony Joseph, a building designer who assisted the plaintiff in the preparation of a development application in relation to the transaction. The defendant, for whom Mr S Chapple of Counsel appeared, read affidavits sworn by Mr Dion, Ms Tracy Preston, Ms Gabrielle Wilson and Ms Anna Massi. Ms Preston and Ms Wilson are respectively a Commercial Manager and a Leasing Executive at the defendant’s leasing agents Martin, Morris and Jones (“MMJ”). Ms Massi is a partner of Hansons Lawyers of Wollongong. No affidavits were read in reply.

Notwithstanding that a number of conversations deposed to by Mr Juric and Mr Joseph were denied by Ms Preston, none of the deponents were required for cross-examination. In these circumstances the following statement of the facts is derived from the documentary evidence and the affidavit evidence insofar as it was not sought to be contradicted.

In about June 2014, Mr Juric began negotiations with MMJ for a new lease of 37 Flinders Street and a lease of 35 Flinders Street. A number of letters were prepared by MMJ during the course of these negotiations and submitted to Mr Juric or to his solicitor Mr Danny Lagopodis of Good Legal, Wollongong. The last of such letters (which Ms Wilson, who was involved in the negotiations, referred to as “term sheets”) was dated 25 September 2014. This document is of central significance to the plaintiff’s case.

The letter is curiously headed “Without Prejudice”, as well as “Subject to Lease Execution” and “Subject to Lessor Approval”. The letter is marked to the attention of Mr Juric and commences with the following:

There is then set out in the letter a table that lists a number of items that were clearly the subject of the negotiations (including Premises, Lease Term, Rental, Lease Commencement, Special Conditions, Security/Bank Guarantee and Initial Deposit). The table apparently records the outcome of the negotiations concerning such items. In relation to Lease Commencement, the following is stated:

In relation to Initial Deposit, the following is stated:

Under the table, under the heading “Acknowledgement”, the following appears:

At the foot of that page, space is provided for the addressee of the letter to sign, and thereby indicate agreement with “the terms and conditions outlined in the above letter of offer”. There is also a space on page 4 for the lessee or its representative to sign and date the document.

Mr Juric signed the Acknowledgement at the foot of page 3 and also appears to have initialled some handwritten changes to the Security/Bank Guarantee and Initial Deposit items of the table. The handwritten changes reduced the amount of the bank guarantee from 3 months gross rent to 2 months gross rent, and introduced a cap on the legal fees and expenses the lessor can recover out of the deposit in the event that the lessee does not execute the lease. It seems that prior to the making of those changes, Mr Lagopodis spoke to Ms Wilson about them and was told to change the letter of offer, have Mr Juric sign it, and get it back to MMJ “to get the ball rolling”.

The letter as signed by Mr Juric was sent by Mr Lagopodis to MMJ under cover of a letter dated 3 October 2014. The letter contained the following:

The letter signed by Mr Juric, and the covering letter of 3 October 2014, were sent by MMJ to Mr Dion on 9 October 2014. Mr Dion, in an email sent later that day to Ms Wilson, stated that he could “run with” Mr Juric’s offer and was prepared to “sign off” on it, subject to a final acknowledgement that any development application must be acceptable to the lessor. There is no evidence that such an acknowledgement was later sought or obtained.

Ms Wilson deposed that on or about 10 October 2014, she forwarded the letter signed by Mr Juric to Ms Preston, in accordance with the MMJ protocol that the Commercial Manager was responsible for giving instructions for any leases to be prepared. That she did so is supported by a handwritten note to that effect on the front page of the letter. Ms Preston, for her part, thought that she became involved following a request made by Mr Lagopodis that “lease documents be provided as development consent was required”.

Mr Dion deposed that on about 30 October 2014, he gave instructions to Ms Preston for the preparation of lease documentation in respect of the two properties. Ms Preston in turn gave instructions to Ms Massi to prepare the documents.

The instructions to Ms Massi are contained in an email sent to her by Ms Preston on 30 October 2014. She was requested to arrange leases on the commercial terms set out in the email. The commercial terms included lease commencement on the date of development consent by the Council, and a “sunset date” whereby the development application had to be lodged by 28 November 2014, and a further three months was allowed from the date of lodgement to obtain the Council’s consent, failing which the lessor would have the right to rescind the lease (and retain up to $1,000 from the initial deposit to cover its reasonable costs). There was no mention of lease commencement being subject to a development approval satisfactory to the lessee. The commercial terms also included a bond (not a bank guarantee) equivalent to two months gross rent, and provision for the lessee to pay legal fees and registration costs.

Mr Juric deposed that he was not informed and did not receive any communication from Mr Lagopodis regarding acceptance of the handwritten amendments made to the letter of 25 September 2014 “until […] Hansons Lawyers submitted lease documents and personal guarantees for signing on 11 November 2014.”

Each of the leases prepared by Ms Massi contain a clause 24 in the following terms:

The lease for 35 Flinders Street also contained a clause 25 which provided that if the Development Application is not granted by 28 February 2015, then the lessor will be entitled to retain the sum of $1,000 from the “first month’s rent paid in respect of 35 Flinders Street, Wollongong”.

The leases were sent by Ms Massi to Mr Lagopodis under cover of a letter dated 10 November 2014. Ms Massi’s letter included the following:

Mr Juric deposed that he attended upon Mr Lagopodis and signed all the documents on 13 November 2014. No signed leases were adduced in evidence. In any event, no leases executed by the plaintiff were ever returned to Hansons Lawyers.

Nevertheless, Mr Juric then commenced the preparation of a development application. On about 15 November 2014, he engaged Mr Joseph to assist with that task. Mr Juric deposed that he believed that the application had to be lodged by 28 November 2014 in order to comply with the Heads of Agreement (that is, the letter of 25 September 2014). According to Mr Joseph, Mr Juric did not, however, inform him that there was any deadline. In any case, as it turned out, the application was not able to be lodged by 28 November 2014.

In the course of the preparation of the development application, Mr Juric made contact with MMJ. On about 25 November 2014, he asked for a survey report. Ms Preston deposed that she had a conversation with Mr Juric which included the following:

Ms Preston then made contact with Mr Joseph. She says that she told him that the development application needed to be lodged by 28 November 2014 and that Mr Joseph told her that it would take three or four days to be ready. Mr Joseph does not recall being advised by Ms Preston of any deadline. He says that she told him to do his best to get the documents done as soon as possible. Ms Preston denies that. She also denies Mr Juric’s evidence that she told him, in effect, that the delay in providing the documents was not a problem but he should get them to her as quickly as possible.

Mr Juric deposes to a number of other conversations with Ms Preston in the period from late November to about mid December 2014. Ms Preston accepts that she had about three telephone conversations with him in that period but denies Mr Juric’s account of the conversations. She denies, for example, that she told Mr Juric to get the documents to her as quickly as he could, or that he had until Friday 12 December 2014 to get the documents to her. Ms Preston says, however, that on 2 December 2014 and also on 9 December 2014, she told Mr Juric that the development application was now “overdue”.

Mr Juric eventually delivered the development application documents to Ms Preston on 10 December 2014. He was told that the documents would be presented to Mr Dion.

On 17 December 2014, Mr Dion informed Ms Preston that the defendants would not be proceeding to lease the properties to the plaintiff. Ms Preston then gave instructions to Hansons Lawyers. Hansons Lawyers sent a letter to Good Legal on that day in the following terms:

On 10 February 2015, the $3,666.66 deposit paid by the plaintiff in September 2014 was refunded. In the meantime, the plaintiff had lodged caveats in respect of the two properties, claiming an interest pursuant to an agreement for lease dated 25 September 2014. On 27 April 2014, the Court made an order extending the operation of the caveats until 14 May 2015.

Mr Menadue submitted that the parties reached an agreement for lease on the terms of the Heads of Agreement letter of 25 September 2014, as fleshed out by the formal lease documents sent by Hansons Lawyers to Good Legal. He further submitted that the conduct of the parties after the sending of the formal lease documents, in particular the discussions between Ms Preston and Mr Juric concerning the need to lodge the development application by 28 November 2014, varied the agreement by incorporating a term that the parties would enter into the formal lease documents once the requirements of clause 24 were satisfied. It was then submitted that the requirement to lodge the development application by 24 November 2014 was not an essential term of the agreement, and even if it was essential, the defendants waived their rights to treat it as such by not strictly insisting that the 24 November 2014 was a deadline and by receiving the development application documents on 10 December 2014 without demur.

In the alternative, Mr Menadue submitted that an estoppel arose in circumstances where the conduct of the defendants amounted to a representation that if the plaintiff provided the development application documents, the defendants would enter into leases on the basis of the lease documents that had been provided to the plaintiff. It was put that the plaintiff acted to its detriment in proceeding to pursue the development application, and it is unconscionable for the defendants to refuse to enter into the leases. Mr Menadue submitted that the Court should give effect to the plaintiff’s expectation that leases would come into existence on the terms of the documents provided.

Mr Chapple submitted that the terms of the Heads of Agreement letter of 25 September 2014 could not be construed as giving rise to a binding agreement to lease, and at most embodied an offer to enter into leases. He submitted that even if the signed Heads of Agreement constituted an offer by the plaintiff to enter into leases on the terms specified, the offer was not accepted by the defendants. In that regard, Mr Chapple pointed to Mr Juric’s evidence to the effect that there was no acceptance of the handwritten amendments until the lease documents were submitted by Hansons Lawyers. Mr Chapple then referred to the terms of the Hansons Lawyers letter of 10 November 2014 which were clearly against the notion that they were thereby accepting any offer. Mr Chapple also submitted that the terms of that letter were entirely against the existence of any representation by the defendants in the terms alleged by the plaintiff.

The central question is whether the parties at any stage entered into a binding contract to enter into leases of the premises at 35 and 37 Flinders Street. Such questions are commonly answered by the application of traditional offer and acceptance analysis. In some cases, however, a binding agreement may be found from the conduct of the parties despite the lack of a discernible acceptance by one party of the terms offered by the other (see the discussion of the principles in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [71]-[81]). It is always necessary to consider the conduct of the parties objectively. It is relevant to enquire whether, in all the circumstances, an agreement can be inferred, whether mutual assent has been manifested, and whether reasonable persons in the position of the parties would conclude that a binding contract had been made (see Brambles Holdings Limited v Bathurst City Council (supra) at [81]).

The negotiations between the parties gave rise to the letter of 25 September 2014 sent by MMJ on behalf of the defendants. The table set out in the letter embodies the outcome of the negotiations concerning the various items that had been discussed. Included amongst those items were all of the matters upon which it would be essential to agree for a binding agreement for lease to come into existence. However, I do not think that the letter can be regarded as an offer by the defendants to enter into leases on the terms described. The letter was clearly intended to be signed and returned by the plaintiff if the plaintiff found it acceptable, but it appears that no concluded agreement would thereby be formed. The second paragraph of the letter highlights that the intention of the document was to reach an Agreement in Principle (or Heads of Agreement) and that “no binding relationship will occur until lease documentation is executed”. The terms Agreement in Principle and Heads of Agreement must be understood as not amounting to a binding agreement for lease.

In addition, the Acknowledgement signed by Mr Juric states that “this offer” was subject to “the formal written approval of and acceptance by the Lessor and no legal rights or obligations will arise unless and until execution and exchange of leases between the Lessor and the lessee”. This is a firm indication that binding obligations to grant or take leases would not exist prior to execution and exchange of lease documents. Insofar as the letter might be considered to be an offer, it could only become an offer by the plaintiff to enter into leases on the terms described in the letter. I note that elsewhere in the Acknowledgement the letter is referred to as an “application” which the Lessor would decide whether to accept.

The plaintiff signed the Acknowledgement and initialled certain handwritten changes to the letter. The letter, along with a cheque for $3,666.66 for the “initial deposit”, was returned to MMJ by the plaintiff’s solicitor under cover of a letter dated 3 October 2014. That letter itself noted that no legal obligations arise “until we receive confirmation that all the proposed terms are accepted and agreed to by the Landlord”. In my view, it is clear that no binding agreement for lease had been entered into when the letter of 25 September 2014 (the Heads of Agreement) was so submitted to the defendants.

That is not to say that obligations did not arise in relation to the money paid as a deposit. The defendants should be taken to have accepted that money on the basis that it would be dealt with in accordance with the provisions of the Heads of Agreement concerning “initial deposit”.

The plaintiff did not receive any formal confirmation that the defendants had accepted the handwritten amendments made to the Heads of Agreement. The lease documents sent by Hansons Lawyers to Good Legal on 10 November 2014 contained terms concerning the provisions of a bond equivalent to two months’ rent (clause 20.1) and an entitlement of the lessor to retain $1,000 if the development application was not granted by 28 February 2015 (clause 25). These provisions were similar to, but not the same as, that which was provided for by the handwritten amendments. Accordingly, the sending of the leases could not itself amount to an acceptance of the handwritten amendments. Moreover, the leases did not entirely reflect the Heads of Agreement. For example, they contained no provision to the effect that lease commencement was subject to a development approval satisfactory to the Lessee.

In any event, the leases submitted by the defendants have to be considered in the light of the covering letter of 10 November 2014. By that letter, the solicitors for the defendants made it clear that the leases were submitted subject to confirmatory instructions by the defendants, and that the submission of the leases was “not to be taken as an offer or as acceptance of an offer to lease”. The letter further stated that the return of duly executed leases would constitute an irrevocable offer by the Lessee to enter into the proposed leases. In my opinion, it is clear that no binding agreement for lease had been entered into when the lease documents were submitted to the plaintiff on 10 November 2014. There was no mutual assent manifested by the conduct of the parties.

It remains necessary to consider the later conduct of the parties. Mr Menadue relied upon the subsequent conduct as giving rise to a variation of the agreement he alleged, to the effect that the parties would enter into the lease documents once the requirements of clause 24 were satisfied. I turn now to consider whether an agreement to that effect (or some other agreement for lease) was made in the course of the conduct of the parties after 10 November 2014.

The plaintiff executed the leases on 13 November 2014, but did not return them. Even if it had returned the leases duly executed, the terms of the 10 November 2014 letter would mean that such act would not itself give rise to a binding agreement for lease. At most, it would constitute the making of an offer by the plaintiff to enter into leases on the terms of the executed documents.

The plaintiff did, however, proceed with the preparation of a development application. Mr Juric gave evidence that he believed that the application had to be lodged by 28 November 2014 in order to comply with the Heads of Agreement. The precise basis and nature of his understanding was not made clear in the evidence. The Heads of Agreement itself makes no mention of 28 November 2014, although the Lease Commencement item suggests that there would be a condition that the development application would be lodged within 28 days, failing which the Lessor would have a right to rescind. Each of the leases prepared by Ms Massi contains a clause 24 which refers to 28 November 2014. That clause would be a condition of the kind envisaged by the Heads of Agreement if those leases were entered into on 1 November 2014, but not if the leases were entered into later.

In any case, consistent with my conclusion that no binding agreement had been made on the terms of the Heads of Agreement or the terms of the leases submitted by the defendants, there was no requirement for the plaintiff to lodge a development application by a certain time failing which the defendants would be entitled to rescind the agreement. If Mr Juric believed the plaintiff was under an obligation to lodge a development application by 24 November 2014, he was mistaken.

His mistaken view may well have been reinforced by the statements apparently made to him by Ms Preston to the effect that the development application had to be lodged by 28 November 2014. It seems that Ms Preston may have shared Mr Juric’s mistaken view although I note that Ms Preston also stated that any development application would have to be approved by the Lessor before it was lodged. The subjective beliefs or understandings held by Mr Juric and Ms Preston are of course not relevant to the question whether a binding contract was formed. Nonetheless, a question remains whether a binding contract should be found to exist due to the way in which the parties conducted themselves towards each other, including by stating verbally that a development application needed to be lodged by 28 November 2014, and by the subsequent provision of development application documents to MMJ.

In my opinion, such conduct, when viewed in the context of what had hitherto passed between the parties, does not lead to the conclusion that a binding agreement for lease had been reached. The parties sought to record the outcome of their commercial negotiations in the letter of 25 September 2014. The terms of that letter or Heads of Agreement clearly contemplated that any lease would be embodied in formal lease documents that would be executed and exchanged. When such documents were produced by the defendants, it was made plain that the defendants were not thereby making or accepting any offer, but were indicating that the plaintiff could, by executing and returning the documents, make an offer to the defendants. The parties were dealing with each other about their future legal relationship formally and in writing, and ultimately through their respective solicitors.

Viewed objectively, the statements made by Mr Juric and Ms Preston about a need to lodge a development application by 28 November 2014 do not indicate that, despite the position reached in the written communications, the parties had agreed in certain events to enter into leases on the terms of those that had been submitted by Hansons Lawyers. Whilst the statements might be seen as broadly consistent with the existence of such an agreement, they were not made as part of any discussion about the terms upon which the parties would be prepared to be legally bound. There was no suggestion that what was said was intended to supersede the position reached in the written communications. The statements should be regarded as little more than reflections of the subjective understandings held by Mr Juric and Ms Preston. Moreover, as noted earlier, Ms Preston also stated that any development application would have to be approved by the Lessor. That reservation (which Ms Preston repeated when Mr Juric gave her the documents on 10 December 2014) rather suggests that the defendants were not bound to proceed.

I therefore do not accept that the parties reached a binding agreement to enter into the lease documents upon fulfilment of the requirements of clause 24, or otherwise. Reasonable persons in the position of the parties would not conclude that any such agreement had been made.

The Hansons Lawyers letter of 17 December 2014, in which it is repeated that the plaintiff was required to lodge the development application by 28 November 2014, does not advance the plaintiff’s position. Whatever criticisms may be made of the legal accuracy or suitability of the language of the letter, it can only be sensibly understood as a statement that the defendants are not bound to proceed to enter into leases with the plaintiff.

I am also of the opinion that no estoppel arises that would preclude the defendants from asserting that they are not bound to enter into leases with the plaintiff. I do not think that the conduct of the defendants (including the statements made by Ms Preston about the need to lodge a development application by 28 November 2014) amounted to a representation that if the plaintiff provided the development application documents, the defendants would enter into leases on the basis of the lease documents that had been provided. Viewed objectively, in the context of what had occurred up to 10 November 2014, the conduct of the defendants after 10 November 2014 does not convey such a representation. For the reasons set out above, a reasonable person in the position of the plaintiff would not conclude from the conduct of the defendants that they had agreed to enter into leases on such terms.

In addition, the evidence does not establish that the plaintiff acted to its detriment in reliance upon any representation made by the defendants. Mr Juric commenced taking steps towards the lodgement of a development application well before he made contact with Ms Preston on about 25 November 2014. Further, Mr Juric gave no evidence to the effect that he only continued to pursue those steps due to a belief or understanding derived from what he was told by Ms Preston. In those circumstances, I would not draw an inference from the evidence that the plaintiff relevantly acted in reliance upon the conduct of the defendants. Detrimental reliance in the context of equitable estoppel is not a matter to be presumed; it must be proven by the party asserting the estoppel (see Sidhu v Van Dyke [2014] HCA 19; (2014) 251 CLR 505 at [58], [61] and [90]-[93]).

For the above reasons, the plaintiff’s claims fail. The Summons must be dismissed with costs.