LUBO MEDICH HOLDINGS PTY LTD v D and A LU PTY LTD and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, MAHONEY P and BEAZLEY JA 8 May 1996, 8 May 1996 [1996] NSWCA 332 CONTRACTS LANDLORD AND TENANT — whether lessee had exercised option to renew — whether correspondence constituted agreement as to the continuation of the lease. CONTRACTS ESTOPPEL — whether lessee estopped from denying existence of a certain state of affairs. CONTRACT LEASE A lessor and a lessee were in dispute as to whether the lessee had exercised an option to renew. Against that background there was an exchange of correspondence which was said to constitute an agreement in writing as to the continuation of the lease - HELD - The correspondence did not constitute such an agreement. ESTOPPEL Alternatively it was argued that the respondent was estopped from denying that a certain state of affairs existed - HELD - No basis for such estoppel had been shown. ORDERS Appeal dismissed with costs. Gleeson CJ This is an appeal from a decision of his Honour Judge Dent QC in the District Court. His Honour dismissed an action brought by the appellant against the respondent corporation and two individuals who were guarantors of the liabilities of the respondent corporation, claiming a liquidated sum of $97,322.81. The claim related to the occupation by the respondent of certain commercial premises owned by the appellant. The circumstances of that occupation will be referred to in more detail later. In this appeal the appellant seeks to maintain its unsuccessful claim against the respondent corporation, but does not pursue its claim against the two individuals who were also named as respondent parties to the appeal. In those circumstances those two individuals may be ignored for the purposes of this judgment, and the corporation will be referred to as the respondent. The background to the matter may be summarised as follows. By an instrument of lease entered into between the appellant and the respondent, the appellant, as lessor, let to the respondent as lessee, certain commercial premises at Cabramatta. The term of the lease was three years, commencing on 17 December 1985 and terminating on 16 December 1988. Because of the circumstances surrounding the execution of the lease, and uncertainty that existed as the completion of the document by the insertion of the commencing date, it appears that the respondent, the lessee, was, at all material times, unaware of the precise date of the commencement and termination of the lease, and, perhaps for that reason, failed to give proper notice of the option to which reference will shortly be made. 2 UNREPORTED JUDGMENTS The initial rent payable under the lease was $23,936.64 per annum; that rent was payable by calendar monthly instalments in advance of $1,994.72. The lease contained the following provisions: "17. RENT REVIEW That annual rent hereby reserved shall be reviewed at each anniversary of the date of the commencement of the term of this lease so that the rent for the year commencing on each such anniversary shall be the rent obtained by multiplying the annual rent for the year immediately preceding such anniversary by a fraction obtained by dividing the Index Number as determined immediately prior to such anniversary by the Index Number as determined immediately prior to the commencement of the year immediately preceding such anniversary PROVIDED THAT the rent payable by the Lessee shall not be less in any year during the term than the highest rent payable by the Lessee during any previous year of the term hereby reserved. The annual rent so determined shall be payable by calendar monthly instalments calculated to the nearest cent by dividing the annual rent by twelve and the references in this lease to the monthly instalments of rent payable by the Lessee to the Lessor shall be varied accordingly. 18. OPTION TO RENEW If the Lessee shall deliver to the Lessor a written request not less than three (3) months prior to the expiration of the term hereby granted and so long as there shall not then be any existing breaches or non-observations of any of the covenants, conditions, agreements and provisions on the part of the Lessee herein contained the Lessor will at the expense of the Lessee grant to the Lessee a lease of the demised premises for a period of THREE (3) years from the expiration of the said term on the same covenants, conditions, agreements and provisions herein contained other than this clause. The rent in respect of the first year of such renewed term shall be the rent agreed between the parties and in default of agreement the proper rent as determined by the president for the time being of the Real Estate Institute of New South Wales sitting as a determinator and not an arbitrator and any expenses included in arriving at the rent of any such year shall be borne by the parties hereto in equal shares PROVIDED THAT such rent shall in no circumstances be less than the rent for the last year of the term hereby reserved. The rent in respect of each succeeding year of such new term shall be determined at the beginning of each such succeeding year by multiplying the annual rent for the year immediately preceding such year by a fraction obtained by dividing the Index Number as determined immediately prior to the commencement of each succeeding year by the Index Number as determined immediately prior to the commencement of the year immediately preceding such succeeding year provided that the rent payable by the Lessee shall not be less in each succeeding year of the renewed term than the highest rent payable by the Lessee during any previous year of such renewed term. The annual rent so determined shall be payable by monthly instalments calculated to the nearest cent by dividing the annual rent by twelve (12) and the references in the renewed lease to monthly instalments of rent payable by the Lessee to the Lessor shall be changed accordingly." In 1989, after the expiration of the time by which the respondent should have exercised the option to renew the lease contained in CL18, there arose a dispute between the parties concerning the option. The respondent commenced proceedings in the Common Law Division of the Supreme Court claiming, hopelessly, that the respondent had exercised the option or, alternatively, that by reason of some conduct on the part of the appellant, the WRBXBO MEDICH HOLDINGS PTY LTD v D and ALU PTY LTD and ANOR (Gleeson CUB nature of which does not emerge with particular clarity from the Statement of Claim, the appellant was estopped from denying that the respondent had exercised the option. The appellant in those proceedings filed a defence and cross-claim. In its defence it denied the allegations to which I have just referred. In its cross-claim it claimed damages based upon the market rental of the premises arising out of the continued occupation of the premises by the respondent. Those Common Law proceedings have never been heard and determined. To this day they remain on foot. The consequences for those proceedings after the outcome of this appeal will, I trust, be for somebody else to work out. Against the background of those proceedings, and of the assertions and counter-assertions made in them, there took place an exchange of correspondence between the parties, which is contended by the appellant to constitute a written agreement. That forms the first basis of the claim which the appellant brought in the District Court and which, ultimately, came on for hearing before Dent DCJ. The alternative basis of the claim was estoppel. That is a matter to which I shall return in due course. The primary contention of the appellant before Dent DCJ and in this appeal appears in para20 of the Amended Statement of Claim, where it was expressed in the following terms: "Notwithstanding that (the respondent) may not in law have exercised the option to renew the lease... in or about February, March and/or April 1990 (the appellant) accepted, and (the respondent and the appellant) agreed that (the respondent) should be permitted to remain in occupation of (the appellant's) premises and be deemed to have continued in occupation therein as and from 17 December 1988 as though the said option had been lawfully exercised by (the respondent) and according to the terms applied thereto." Particulars of that allegation were given. The agreement was said to be wholly in writing. The writing was said to consist of a series of letters beginning on 9 February 1990 and ending on 11 May 1990. Those were letters between the solicitors for the respective parties, and I shall refer to each of them presently. Before going to that exchange of correspondence certain other background facts should be mentioned. As at February 1991 the respondent was continuing in occupation of the subject premises and was paying a monthly amount of $2,963.00 into the appellant's bank account. That amount represented the original monthly rent paid under the instrument of lease referred to earlier, as increased pursuant to the provisions of CL17. Thereafter, so long as the respondent remained in occupation of those premises, it continued to make monthly payments of $2,968.00. Ultimately the respondent, in circumstances that are not presently material, left the premises in September 1992. As I understand it, the liquidated sum claimed in the District Court proceedings represented the difference between what was said to be a proper market rental for the premises and the amount paid for their occupation by the respondent. The correspondence relied upon as constituting the written agreement referred to in para20 of the District Court Statement of Claim commenced with a letter from the appellant to the respondent. That letter referred to what was described as the "current impasse" which was the subject of the proceedings in the Supreme Court. The letter noted the monthly payments of $2,968.00 that were being received, and asserted that those payments were being, accepted on account of the damages claimed in the Supreme Court proceedings for the respondent's occupation of the 4 UNREPORTED JUDGMENTS premises. The letter re-asserted that acceptance of those payments was not to be interpreted as putting into effect any fresh tenancy between the parties or as waiving the appellant's right to immediate possession of the subject property. The letter concluded: "The damages claimed by us in the cross-claim in the Supreme Court proceedings will be calculated by reference to the rent that we would be able to obtain for the premises on the open market had you not continued to occupy them as you have. As of 17 February, 1990, the rental figure that would be chargeable for those premises would be an amount of $5,740.00 per calendar month. If, which is denied by us, you are found to be entitled to continue to occupy the premises pursuant to the option as alleged, then that occupation would be on the terms of the previously existing lease agreement that was in effect, and we would, at that time, be notifying you of the increase in the rental in respect of the property to that amount, namely, $5,740.00 retrospectively to 17 February, 1990." It is material to observe, as that letter makes clear, that the establishment of the market rental of the premises was a matter of significance to both parties, and was of potential relevance of the competing stances which they were adopting in the pending Supreme Court proceedings. If the respondent was correct in its assertion that it must be taken to have exercised the option, then CL18 set out above would indicate the significance of the current market rental. Equally, however, if the appellant were correct and were entitled to pursue its cross-claim in the Supreme Court proceedings, the current market rental was of importance to the calculation of the damages it was entitled to claim. That is a significant matter of background to the remainder of the correspondence. On 16 February 1990 the solicitors for the respondent replied to the earlier letter, and noted that their client did not agree that $5,740.00 a month was the proper market rental of the premises. The solicitors requested a valuation of market rental to be made at the earliest possible opportunity. On 22 February 1990 the solicitors for the appellant wrote to the solicitors for the respondent and re-asserted their client's earlier position. That attracted a response dated 7 March 1990 which did likewise. On 13 March 1990 the solicitors for the respondent wrote to the solicitors for the appellant concerning the earlier correspondence. The letter included the following: "In relation to your letter of 16 February 1990, our client suggests that a market valuation of the rental be carried out by an Organisation such as Jones Lang Wootton or Baillieu Knight Frank. In the event that that valuation determines that the market rental is an amount in excess of that which your clients are currently paying, your clients should bear the costs of that valuation. In the event that the valuation comes in at or below the figure currently being paid then our client will bear the costs of the valuation. Would you please advise us of your client's attitude to such a proposition and its nominee as the appropriate firm to conduct the valuation." The letter was acknowledged on 21 March 1990 and on 2 April 1990 the solicitors for the respondent wrote to the solicitors for the appellant. In that letter they reminded the solicitors for the appellant of the provisions of CL13 of the lease and, by implication, of the stance that the respondent was taking in the Common Law proceedings about the exercise of the option. On 6 April 1990 the solicitors for the appellant wrote to the solicitors for the respondent: WBMBO MEDICH HOLDINGS PTY LTD v D and ALU PTY LTD and ANOR (Gleeson CJB "Notwithstanding our client's view that the lease has expired and your clients are unlawfully holding over in relation to the property, our client is prepared to appoint, in conjunction with your client, the President of the Real Estate Institute of New South Wales for the purpose of determining the proper market rental for the premises. We would be pleased if you could confirm in a letter to us that your clients agree with that appointment and acknowledge their responsibility to bear one half of the expenses incurred by that appointment. Please note that this appointment should not be seen as, in any way, constituting a waiver of the assertions made in the defence and cross- claim." I pause to observe that, without more, that last sentence might well be seen as fatal to the allegation contained in para20 of the District Court Statement of Claim. However, as will appear, there is more. Following that exchange of correspondence, the respective solicitors communicated with the President of the Real Estate Institute, a valuer was appointed, and ultimately he determined what he regarded as a fair market rental for the premises. That determination produced a figure that was evidently attractive, or at least acceptable, to the appellant, and unattractive to the respondent. That constitutes the exchange of correspondence said to be the agreement in writing referred to in para20 of the amended statement of claim. However, that exchange of correspondence was followed immediately by a letter which is also of significance. It is appropriate to have regard to the terms of that letter in resolving the dispute as to whether there was such an agreement as that alleged in para20 of the Statement of Claim, and in particular, whether it was the intention of the parties to the correspondence relied upon by the appellant, to contract about the subject matter referred to in para20 (see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550). The letter of 4 July 1990 from the solicitors for the appellant to the solicitors for the respondent was as follows: "We refer to the rent review carried out by the nominee of the President of the Real Estate Institute of New South Wales. We presume that a copy of the determination has been forwarded to your client and that it is aware of the decision of the Arbitrator that a fair market rent for the property as of 17 December 1988 was an amount $55,680.00. Taking into account the increases in the CPI figure for the September quarter of 1989, namely 8.1%, the rental figure became, as at 17 December 1989, an amount of $60,190.08 per annum or a monthly rental of $5,740.00. Would you please advise your client that this is the amount that should be tendered in respect of future payments to our client whilst it continues to occupy the premises during the course of this dispute. You should also note that our client will be claiming from your client, regardless of the outcome of these proceedings, either by way of unpaid rent or damages on account of an occupation fee, the difference between the amount previously paid or tendered by your clients and the amount fixed by the Arbitrator, as a fair market rent. In our calculations that claim amounts to approximately $48,475.00." The reference to "these proceedings in the concluding paragraph of that letter is made clear by the heading, of the letter which is "LUBO MEDICH HOLDINGS PTY LTD ats D and A LU PTY LTD". That was the title of the Supreme Court Common Law Division proceedings. 6 UNREPORTED JUDGMENTS In my view the exchange of correspondence relied upon by the appellant does not constitute an agreement of the kind referred to in para20 of the District Court Statement of Claim. All that happened was that the parties to the pending Common Law proceedings in the Supreme Court, each for its own understandable purpose, agreed to have a valuation of the current market rental made and agreed upon the responsibility for payment for that valuation. It is unsurprising in the circumstances that each of the parties should have wished to pursue that course. If the respondent were correct in the contention it was making in the Supreme Court Statement of Claim, then CL18 of the lease made it both appropriate and necessary to have a valuation carried out. If the appellant were correct, and had the entitlement asserted in its cross-claim in the Supreme Court proceedings, then the amount of the damages to which the appellant was entitled would depend upon the current market value of the premises. These considerations were expressly recognised and referred to in the correspondence itself. If an agreement of the kind asserted in para20 of the District Court Statement of Claim were intended to be made by the appellant, then a number of the statements made by the appellant's solicitors in correspondence were inconsistent with the agreement which the appellant now says it intended to make; in particular the continued insistence by the solicitors for the appellant that the arrangements under discussion between the parties were without prejudice to their rights in the Common Law proceedings, was inconsistent in that respect. For those reasons the primary basis of the appeal must fail. As to the estoppel relied upon by the appellant as the alternative basis for the appeal, it is contended that by its conduct the respondent is estopped from denying that it exercised the option to renew the lease. The present case is curious in that the assertions that the respective parties to the District Court proceeding were making were almost the exact opposite of the assertions they were respectively making in the proceedings remaining on foot in the Supreme Court. There is undoubtedly an inconsistency in the attitude that the respondent was taking in the District Court as compared with the attitude that it was taking in the Supreme Court. Equally, however, there was a similar inconsistency in the attitude being adopted by the present appellant. Inconsistency may give rise to estoppels, but there needs to be more to the case than that. The critical question is whether or not it would be unjust to permit the respondent in the District Court to depart from the attitude it was taking in the Supreme Court in relation to its rights. This is not a case where the appellant is able to point to any conduct on its part that would produce such an injustice. It is true that both parties, by agreement, expended a modest sum of money, each for its own purposes. There was no change of position adopted by the appellant on the faith of assertions or representations being made by the respondent. On the contrary, the letters from the appellant's solicitors over the relevant period are replete with assertions and warnings that their client was not changing its position. In the circumstances the foundation for the asserted estoppel does not exist. Dent DCJ was correct to dismiss the appellant's claim as it was framed. The appeal should be dismissed with costs. Mahoney P I agree. Beazley JA I agree. URBUBO MEDICH HOLDINGS PTY LTD v D and ALU PTY LTD and ANOR (Beazley JA) 7 Gleeson CJ: The orders of the Court will be as I have proposed. Appeal dismissed with costs. 5 Counsel for the Appellant: MS Wilmott / JC Gibson Solicitors for the Appellant: Messrs Parish Patience Counsel for the Respondent: M Oakes SC / G Tabuteau 10 Solicitors for the Respondent: Messrs Watson and Watson