DARLING POINT SECURITIES PTY LTD v INDUSTRIAL EQUITY PTY LTD DARLING POINT SECURITIES PTY LTD v REALTY PROPERTY GROUP HOLDING CO PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, CLARKE and HANDLEY JJA 7 June 1991, 9 July 1991 [1991] NSWCA 296 AGREEMENT FOR LEASE — CONSTRUCTION OF AGREEMENT — UNCERTAINTY INTENTION TO CONTRACT — COMMENCEMENT DATE — BINDING AGREEMENT Priestley JA The material facts are set out in the reasons of Clarke JA. I agree with him about the meaning of CL7 of the Heads of Agreement. In the circumstances known to all the parties when they made that agreement, the meaning of CL7 as explained by Clarke JA seems to me clearly the most appropriate; that is, it fits better than any other with the words used by the parties, in the light of their various business interests and the commercial factors then known to them all. T agree with Clarke JA's comments concerning the appeal books, and with the orders he proposes. Clarke JA On 5 April 1990 the appellant, the first and second respondents, andJohn Howard Lyons entered into an agreement under seal described as Heads of Agreement. As the preamble evidences the document was executed as a means by which the joint venture and other arrangements between the parties could be dissolved in an orderly fashion. The present dispute concerns the proper construction of CL7 of the Heads of Agreement which reads: "Darling Point Securities Pty Limited will continue to operate its Hotel business at The Golden Sheaf from the current premises at a rental of $9,000 per week. If IEL/RPG retains the building or develops along pre-existing designs, Darling Point Securities Pty Limited or nominee shall be granted a first right of refusal to continue to conduct the Golden Sheaf Tavern in the retained premises or in any new development AND if IEL/RPG sells or otherwise develops other than in accordance with pre-existing design considerations, it or they will use their best: endeavours to ensure that any purchaser, partner, joint venturer or other participant shall first offer to Darling Point Securities Pty Limited or nominee the right to continue to conduct the Golden Sheaf Tavern as above. In the event of a sale of the Golden Sheaf the goodwill will be to the account of the Lessors and the Liquor licence will revert back to the Lessors. Darling Point Securities Pty Limited will be granted a new lease for a term of six (6) months and any holding over thereunder will continue on a monthly tenancy basis. If the business is still being conducted in twelve month's time from the existing premises, a rental review shall then take place." The trial judge, Young J, described the main debate between the parties as concerning the commencement date of the six month lease. In one suit 5797/90 between the first and second respondents as plaintiffs and the appellant and John Howard Lyons as respondents the plaintiffs sought a declaration as to their 2 UNREPORTED JUDGMENTS obligations to grant a lease and, if so, on what date the term commenced. In the other suit No 5806/90 the appellant sought an order for specific performance of the agreement to grant a lease against the first and second respondents. By agreement the two sets of proceedings were heard concurrently. At the hearing before the trial judge the appellant submitted that the court should find that there was an agreement whereby the first and second respondents would, within a reasonable period of time, procure the third respondent to grant a lease to the appellant for a term of six months. In his judgment his Honour noted the following three material matters: (1) On 15 March 1988 the third respondent had granted to the appellant a lease of the relevant premises for a term of one month commencing on 8 February 1988. As at the time of the execution of the Heads of Agreement the appellant was in possession of the land pursuant to the holding over provisions in that lease. (2) The third respondent while not a party to the Heads of Agreement was under the control of the second respondent who was therefore in a position to direct it to do what was envisaged in the seventh head of agreement; and (3) Prior to and during the hearing issues as to the other terms of any lease to be granted pursuant to the seventh head of agreement were resolved between the parties. Further his Honour noted that there were five possibilities as to the commencement date of the term of the lease which had been canvassed before him. They were: (1) That the promise to grant the lease was void for uncertainty; (2) That the lease was to commence on the date of execution of the Heads of Agreement, ie, 5 April 1990; (3) That it was to commence within a reasonable time after 5 April 1990; (4) That it was to commence on or about 25 September 1990; (5) That it was to commence on the date on which the lease to be proffered by the lessor to the lessee was agreed to and executed. His Honour concluded that the parties had failed to agree upon a commencement date of the lease and for this reason the agreement failed for want of certainty. The appellant has challenged that conclusion and has put forward, as its primary submission, that, upon the proper construction of CL7 of the Heads of Agreement, 5 April 1390 was the agreed date of commencement of the lease. Its counsel has submitted, in the alternative, that the parties agreed that the lease should commence within a reasonable period of time after 5 April 1990 or on the date of execution of the written lease. There is no doubt that the identification of the commencement date and duration of the term of the lease are essential terms. (Halsbury (4th Ed) Vol 27, para 57). So much was conceded by the appellant. It would seem to follow that an agreement to procure the grant of a lease which did not nominate or sufficiently indicate the commencement date of the term of the lease would not satisfy contractual requirements of certainty. In any event the cases would indicate that this is the position and the appellant did not seek to argue to the contrary. It follows that the question which falls to be determined is whether the heads of agreement, properly construed, made provision for the date on which the lease which the first and second respondents agreed to procure was to commence. WRARLING POINT SECURITIES PTY LTD v INDUSTRIAL EQUITY PTY LTD DARLING POINT SECURITIES PTY LTD v REALTY PROPERTY GROUP HOLDING CO PTY LTD (Clarke JA) I would add that no special rule of construction applies. It appears to have been argued by counsel for the appellant at first instance that in the absence of an express statement of the commencement date of the term there is a rule to the effect that it should be implied that the date of the agreement to grant, or procure the granting of, the lease was intended by the parties to be the commencement date of the term. That view was mistaken and has not been pressed on the appeal. The leading case rejecting the proposition that such a rule existed is Marshall v Berridge, LR XIX ChD 233, in which the headnote reads: "An executory agreement for a lease does not satisfy the Statute of Frauds, unless it can be collected from it on what day the term is to begin, and there is no inference that the term is to commence from the date of the agreement in the absence of language pointing to that conclusion." That statement makes it plain that there is no specific rule in the terms earlier suggested and that the question falls to be determined upon the proper construction of the agreement to grant, or procure the grant of, the lease. Although it is unnecessary to refer to further authority it is perhaps helpful to recall the statement of Lord Denning MR in Harvey v Pratt, (1965) 1 WLR 1025, at 1026, that: "Tt has been settled law for all my time that, in order to have a valid agreement for a lease, it is essential that it should appear, either in express terms, or by reference to some writing which would make it certain, or by reasonable inference from the language used, on what day the term is to commence." Counsel for the respondents points to the language used in the final sentence of CL7 and points out that it speaks of the future. For this reason he submits that it could not have been in the contemplation of the parties that the lease would commence on the date of the agreement itself. What, in his submission, the parties had in mind was that the first and second respondent would procure the first respondent to grant, at some time in the future, a lease to the appellant for a term of six months. Because, however, there was nothing in the Heads of Agreement to indicate the time at which the lease was to commence, or even to provide guidance as to when it would commence, the agreement failed for lack of certainty. Mr Jucovic QC, counsel for the appellant, submitted that the parties had clearly expressed an intention that they were to be legally bound to comply with the Heads of Agreement as at 5 April 1990 and that the obligation undertaken by the first and second respondents under the last sentence of CL7 was to procure the grant of a six month lease by the third respondent to date from the date of the agreement itself. To this end he pointed to the allowance of 45 days for John Howard Lyons to remove his files (CL4) and submitted that this period must necessarily run from the date of the agreement. Likewise when the parties used the phrase "in 12 months time" in CL7 they were seeking to convey a period of 12 month; from the date of the agreement. As Mr Jucovic pointed out even in those clauses which dealt with future action the parties expressed themselves in such a way as to indicate that they intended to be bound upon execution of the heads of agreement and not upon the happening of the future event. (See para3 and para9.) There is, in my opinion, a general principle of construction which applies to the present agreement. This principle has been described in a number of ways but is to the effect that courts should be astute, if possible, to adopt a construction which upholds the validity of the contract. As Barwick CJ said in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd, 118 CLR 429, at 437: "In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial 4 UNREPORTED JUDGMENTS arrangements." (See also Hillas and Co Ltd v Arcos Ltd, (1932) All ER Rep 494, at 499; Meehan v Jones, 149 CLR 571, at 589; Biotechnology Australia Pty Ltd v Pace, (1988) 15 NSWLR 130, at 132, 135, 140-143.) To similar effect was the observation of Williams J in York Airconditioning and Refrigeration (A/asia) Pty Ltd v The Commonwealth, 80 CLR 11, at 26, as follows: "Tf the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise." There is no doubt that these parties intended to conclude a contract for CL10 of the Heads of Agreement read: "It is intended that this Heads of Agreement be legally binding on the parties." At the time of the Heads of Agreement the appellant was in occupation of the Golden Sheaf premises as a monthly tenant holding over under the 1988 lease and then paying $9,000 per week rent. Under the agreement it was to be granted a new lease for a six monthly term with a holding over provision entitling it to remain in possession on a monthly tenancy upon the expiry of the term at the same rent as it was paying at the date of the Heads of Agreement. The parties also provided that if the appellant was still in possession, and conducting its business upon, the premises at the expiry of 12 months from that date a rental review should take place. In circumstances where it was clearly the intention of the parties that other periods mentioned in the Heads of Agreement should run from the date of the Heads themselves it is not difficult, in my opinion, to conclude that under CL7 the first two respondents were promising to procure the grant of a lease for six months to run from the date of the Heads of Agreement. Although the language used in the critical sentence refers to the future that language was necessary in view of the fact that the promise was to procure the grant of a lease by a company which was not a party to the Heads of Agreement. It was almost a matter of necessity that the lease would be executed in the future. But that does not preclude the court from finding that the parties intended that the term of the lease which was executed would be six month, and would run from the date of the Heads of Agreement notwithstanding that when the lease was executed that date had already passed. In the circumstances the appeal should be upheld. There was some discussion during the hearing as to the terms of the order which should be made if the appeal were upheld. Mr Downes QC, who appeared for the respondents, submitted that it would not be appropriate to make an order of specific performance in view of the fact that the term of the lease had expired. My initial reaction was that this submission was correct. However, Mr Jucovic pointed out that Young J had only decided one of the questions in the litigation before him and there was an outstanding dispute concerning that part of CL7 which purported to grant a first right of refusal. He also advised the court, and this was not a matter of contention, that the third respondent had since the hearing before Young J served a notice to quit upon the appellant and sought an order for possession of the premises. In these circumstances he submitted that difficulties may arise if the court simply made a declaration that the first two respondents had been legally bound to procure the grant of the relevant lease. During the discussion Mr Downes indicated that his instructions at the trial had been that if the court were of the view that his clients were legally bound to procure the grant of the relevant lease the third respondent would be prepared to execute such a lease and he also said that he had no reason to believe that his instructions had changed. UWRARLING POINT SECURITIES PTY LTD v INDUSTRIAL EQUITY PTY LTD DARLING POINT SECURITIES PTY LTD v REALTY PROPERTY GROUP HOLDING CO PTY LTD (Clarke JA) I do not think that it is appropriate in the circumstances of this case to order specific performance of the agreement. The court should, in my view, make a declaration reflecting its decision upon the issues debated in the appeal. That declaration should not, however, resolve a dispute which has arisen between the parties as to whether the lease should include a term incorporating para7 of the heads of agreement for the simple reason that it was not an issue in the appeal. The question whether a term to that effect should have been included in the lease should, in my view, be reserved for the consideration of the court which determines the outstanding issues. Finally, two things should be said about costs. First, Mr Downes submitted that in the event the appeal should be upheld the court should make a special order to reflect the fact that the appellant had shifted its ground from the position it took at trial. While I recognise the force of this submission I am of opinion that the usual order should be made. Secondly, the occasion has arisen to consider whether some particular order should be made in relation to the costs of printing of the appeal books in view of the fact that bulky appeal books of about 450 pages were prepared in which much material was reproduced more than once and when no occasion could have arisen during the appeal which would have required the court to consider more than 80 to 100 pages. The additional material printed represents a considerable waste of the litigants moneys. Neither counsel was able to provide any satisfactory explanation to the court for this unnecessary expense. Unfortunately, this is not the first occasion when an event of this nature has occurred. Far too often the Court is presented with very bulky appeal books in appeals involving restricted questions and in which the court's attention is directed to a few pages only. There is undoubtedly an obligation on the courts to take all proper steps to minimise the costs of litigation. Of course, the courts must necessarily accord to the legal advisors of the parties considerable latitude for they are the persons who are alive to the issues in the appeal and they also have to guard against the contingency that the argument might traverse a wider ground than they contemplated. Nonetheless, in the present case there is no reason why the appeal books should have contained all the material which is to be found in them. In these circumstances I am of opinion that the appellant should recover only one quarter of the costs of printing the appeal book. I would propose the following orders: (1) Appeal allowed; (2) Order No 2 made by Young J on 5 April 1991 be set aside; (3) Declare that upon the true construction of the "Heads of Agreement" document executed between the parties to this litigation (other than the third respondent in Appeal No 40219/91) the first and second respondents agreed to procure the third respondent in 40219/91 to grant to the appellant a lease of the land and premises known as the "Golden Sheaf Hotel" at 429 New South Head Road, Double Bay, being the land contained in Folio Identifier 2/82306, Certificate of Title Volume 14001 Folio 45 commencing on 5 April 1990 for a term of six months at a rental of $9,000 per week payable weekly in advance; (4) Reserve to the parties liberty to make submissions to the court hearing the outstanding issues on the question whether the lease should contain a covenant in the terms of CL7 of the Heads of Agreement; UNREPORTED JUDGMENTS (5) (6) The respondents to pay the costs of the appeal, such costs to include only one quarter of the costs of printing the appeal books, and, if qualified, to have a certificate under the Suitors Fund Act. The costs of the first instance hearing to be reserved for determination together with the outstanding issues. Handley JA I agree with Clarke JA. q) (2) (3) (4) (5) (6) Appeal allowed; Order No 2 made by Young J on 5 April 1991 be set aside; Declare that upon the true construction of the "Heads of Agreement" document executed between the parties to this litigation (other than the third respondent in Appeal No 40219/91) the first and second respondents agreed to procure the third respondent in 40219/91 to grant to the appellant a lease of the land and premises known as the "Golden Sheaf Hotel" at 429 New South Head Road, Double Bay, being the land contained in Folio Identifier 2/82306, Certificate of Title Volume 14001 Folio 45 commencing on 5 April 1990 for a term of six months at a rental of $9,000 per week payable weekly in advance; Reserve to the parties liberty to make submissions to the court hearing the outstanding issues on the question whether the lease should contain a covenant in the terms of CL7 of the Heads of Agreement; The respondents to pay the costs of the appeal, such costs to include only one quarter of the costs of printing the appeal books, and, if qualified, to have a certificate under the Suitors Fund Act. The costs of the first instance hearing to be reserved for determination together with the outstanding issues. Counsel for the Appellant: TM JUCOVIC QC AND BJ PRESTON Counsel for the Respondent: GK DOWNES QC AND KE LINDGREN Solicitors for the Appellant: NORTON SMITH AND CO Solicitors for the Respondent: FREEHILL HOLLINGDALE AND PAGE