New South Wales Supreme Court CITATION : Landsmiths Pty Ltd v Hall [1999] NSWSC 735 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 2869/99 HEARING DATE(S) : 15/07/99 JUDGMENT DATE : 15 July 1999 PARTIES : Landsmiths Pty Limited (P) Enid Elizabeth Hall (D) JUDGMENT OF : Young J COUNSEL : I Sanderson (P) P W Gray and A Pearman (D) SOLICITORS : Philip L Higgins (P) Searson Shannon & Co (D) CATCHWORDS : Contracts [1]-Contract implied from conduct- Lease- Solicitor prepares draft lease as both parties intend- No contract until document signed and exchanged. Landlord & Tenant [11]- Creations of lease- Parties intending formal lease- In circumstances no lease until formal documents exchanged ACTS CITED : Conveyancing Act 1919, s 54A Arjay Investments Pty Ltd v Morrison's Outdoor Catering Pty Ltd (Young J, 1 May 1995, unreported) Blackburn Developments No 19 Pty Ltd v Downs Surgical (Australia) Pty Ltd (1974) 2 BPR 9141 CASES CITED : Kalnenas v Kovacevich [1961] WAR 182 Kassabian v Lagonicos (1993) NSW ConvR 55-690 Stewart Upton Pty Ltd v Pindar (1990) NSW ConvR 55-529 DECISION : Proceedings dismissed with costs THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG, J THURSDAY 15 JULY 1999 2869/99 - LANDSMITHS PTY LTD V ENID ELIZABETH HALL JUDGMENT 1 HIS HONOUR: This is a suit for specific performance of an alleged agreement for lease. Up until 30 June this year the plaintiff was a tenant of the defendant, and occupied shops 1 and 2, 73 Bold Street, Laurieton. The plaintiff had an option to renew, but it is common ground that it did not exercise that option. 2 The plaintiff made it clear to the defendant in the second quarter of 1999 that it wished to expand its business and would also wish to take a lease of shop 3 at that address, which is also owned by the defendant and which is currently occupied by a dentist who is holding over on a month to month basis. 3 Eventually the parties reached a consensus on a new lease at a rent of $1300 per month for five years with a five year option. There was then a conversation between them about 1 May in which Mr John Smith, who was negotiating on behalf of the plaintiff, told the defendant he only wanted a three by three lease now as his belief was the GST would not be coming into effect. The defendant said that she did not think she had much choice. There was then some discussion about air-conditioning and the parties left it on the basis that the defendant's solicitor, George Searson, would be submitting a formal lease. 4 Mr Searson did submit a lease on 25 May. The draft is not in evidence, but it would seem that the rent was $1400 per month and the draft had a GST related clause in it. Mr Smith wrote and phoned to the effect that he would like that clause removed and the rent stated as $1300 as agreed. Mr Searson's firm wrote back on 27 May enclosing an amended annexure A. 5 The evidence makes it clear that there was some conversation between the parties that the lease had to be signed and returned no later than Friday 28 May 1999. It is not completely clear to me what exactly was said, or what its effect was. 6 On the Friday between 10 and 11 in the morning, the plaintiff's representative delivered leases executed by himself and Mr Paul Hancox, the other director of the plaintiff, to the defendant's solicitor, together with a cheque for stamp duty and disbursements. Unfortunately, the clerk who received it merely put it on another clerk's desk and did not direct Mr Searson's attention to the fact that it had arrived. When the defendant rang the solicitors she was told that the lease had not arrived and over the following weekend she entered into, it would seem, binding arrangements with a third party. Accordingly, she has declined to sign the lease and the plaintiff wants specific performance. 7 The courts have on very many occasions had to deal with allegations that a series of conversations, or exchange of documents between parties, have amounted to a binding contract in circumstances where ordinarily parties perfect their negotiations by a formal contract. In particular these problems concern contracts for sale of land or contracts for leases. 8 The way in which all these problems are resolved is to see what were the intentions of the parties. However, to divine those intentions the court applies a series of guidelines and asks itself certain questions. 9 The cases show that the court is entitled to assume that where there is a contract for the sale of land or a lease for three years or more, the parties normally intend to have a formal document, in the case of a lease because it has to be registered. Again, the cases show that it is more likely than not that in such a situation the parties do not intend to be bound until the formal document has been exchanged. This is the case with leases: Blackburn Developments No 19 Pty Ltd v Downs Surgical (Australia) Pty Ltd (1974) 2 BPR 9141. I applied that case in Arjay Investments Pty Ltd v Morrison's Outdoor Catering Pty Ltd, 1 May 1995, unreported, and further said in that case that one also looks to see whether the parties have involved solicitors in the transaction, and that the mere fact that they have hit upon a price or have worked out the basic conditions of their agreement does not necessarily indicate that they have reached a legally binding agreement. 10 As McLelland CJ in Eq said in Kassabian v Lagonicos (1993) NSW Conv R 55-690, 55,943: "There must be more than the arrival by the parties at a consensus. The parties must intend that the consensus at which they have arrived should there and then constitute a binding contract." 11 With this background I look at the facts of the case. The facts are that both Mr Smith and Mrs Hall were very astute people, familiar with property transactions. They were intending that the defendant's solicitor would prepare a formal lease. It is more likely than not that the plaintiff, being an agent, knew that leases for three years with an option would need to be registered and be in proper form. 12 The defendant's solicitor on 25 May submitted a form of lease. The lease, as would be expected, contained clauses fleshing out the consensus that had been reached earlier in the month and was submitted on the basis that it was subject to the lessor's approval. The solicitor also reserved the right to make any alteration or additions to the lease. 13 The plaintiff felt no compunction in saying "we would like special condition 15.4 removed from the lease", but did not indicate that there was any pre-existing agreement that that was the case and, indeed, proceeded on the basis it had liberty to negotiate the conditions. 14 Mr Sanderson, who appeared for the plaintiff, puts some store on the fact that the defendant's solicitor's letter of 27 May did not continue to reserve the right to make alterations and that the document was subject to the lessor's approval, but in the flow of correspondence it does not appear to me that that omission has any significance. 15 The defendant's solicitor never had any authority to conclude a deal. His authority was only to submit a draft lease. This he did. It is not completely clear that even if the landlord had known that the lease had been returned on Friday the 28th that she necessarily would have signed it. She said in the witness box that she never allowed people to deal independently with her own property, she dealt with it herself. 16 In the circumstances I cannot see how the parties intended that what they said to each other in the conversation to which I have referred made a binding agreement to lease which then and there bound them both. The most it amounts to was a consensus as to the principal matters to which they would agree to be the subject of a formal lease and I do not consider that there was a lease until that event occurred. It never occurred. 17 Even if there had been an agreement for lease, it still would not have been enforceable, in my view, because of s 54A of the Conveyancing Act 1919. The only possible note or memorandum required by that section could be the solicitor's letter of 27 May, which impliedly republished the draft lease with an amended annexure A. The document was still not completely correct as the commencement date would have to be 7 July because the dentist's lease would not have expired until the 6th and there may have been other small drafting problems, but putting those aside there was no authority in the solicitor to enter into a lease as there was in Kalnenas v Kovacevich [1961] WAR 182. That authority seems to be the basis upon which Jackson SPJ held that the solicitor's letter in that case could constitute a note or memorandum in writing; see Stewart Upton Pty Ltd v Pindar (1990) NSW Conv R 55-529, p 58,939. 18 For these reasons the present proceedings must be dismissed with costs. The exhibit may be returned. ************ Last Modified: 07/22/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.