Missing Link Network Integration P/L v Olamte P/L [2005] NSWSC 430

New South Wales Supreme Court

CITATION : Missing Link Network Integration P/L v Olamte P/L [2005] NSWSC 430

HEARING DATE(S) : 13/04/05, 15/04/05

JUDGMENT DATE : 4 May 2005

JUDGMENT OF : White J

DECISION : See paragraph 79 of judgment.

CATCHWORDS : CONTRACT - Construction - Termination of lease - Whether development application falls within term of lease permitting termination if council approval is not obtained - Held that lessor consented - Cross-claim for repayment of "incentive rent" - Unambiguous terms in direct conflict - Held that earlier clause prevails.

LEGISLATION CITED : Supreme Court Act 1970 (NSW)

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Lewison, "The Interpretation of Contracts" 3 ed CASES CITED : Forbes v Git [1922] 1 AC 256 Joyce v Barker Bros. Builders Ltd (1980) 40 P & CR 512 Durban v Perpetual Trustee Co. Ltd (1995) NSW Conv R 55-725

PARTIES : The Missing Link Network Integration Pty Ltd v Olamte Pty Ltd

FILE NUMBER(S) : SC 1011/05

Plaintiff: J Trebeck COUNSEL : Defendant: R Tregenza

Plaintiff: Bruce MacDonald Lawyers SOLICITORS : Defendant: T H Walker Solicitors

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WHITE J

Wednesday, 4 May 2005

1011/05 THE MISSING LINK NETWORK INTEGRATION PTY LTD v OLAMTE PTY LTD

JUDGMENT 1 HIS HONOUR: The principal issue in these proceedings is whether the plaintiff has validly terminated a lease which it entered into on 2 July 2004 with the defendant. The Lease 2 The defendant is the owner of a building at 53/55 Herbert Street, Artarmon. The building is on the corner of Herbert Street and Clegg Street. On 2 July 2004, the defendant entered into a lease with the plaintiff of premises described as: " Part of the land described in Certificate of Title Folio Identifier 53/524004 being Ground Floor, 53-55 Herbert Street, Artarmon ." 3 The leased premises were further defined by clause 1.01(g) and by item 2 of the Reference Schedule as: "Ground Floor of the building at 53-55 Herbert Street, Artarmon including the shared loading dock and access to the common areas, and including 10 (ten) car parking spaces being those spaces approved by Council in the side of the car park furthest from Clegg Street. " 4 The lease was for a period of five years commencing on 1 August 2004, with an option to renew for a further five years. 5 Clause 16.13 required the lessee to provide a bank guarantee in the sum of $90,750, equivalent to six months' gross rent, as security for the performance of its obligations under the lease. 6 Clause 12.01 was in the section headed "Use of Premises". It provided: "The Lessee shall not use the Premises otherwise than for the purpose stated in Item 11 of the Reference Schedule. Should the use of the Premises by the Lessee be permissible only with the consent of a statutory, public, municipal or other proper authority the Lessee shall obtain such consent at the expense of the Lessee. If consent is not given or if consent is given on conditions unsatisfactory to the Lessee, the Lessee may terminate this Lease at any time after giving 30 days' notice in writing to the Lessor and upon and after termination no further rent, outgoings or other moneys, charges, damages or compensation shall be payable by the Lessee." 7 Item 11 of the Reference Schedule provided that the permitted use of the premises was as "warehousing, assembly and distribution of computer equipment and systems and associated office use." Moving the Loading Dock 8 It is common ground that the proposed use of the premises by the lessee was permissible only with the consent of the Willoughby City Council. The land is zoned industrial. The building has three levels: a basement used for car parking, a ground floor and first floor. The last plans of the building approved by the Council included an area on the ground floor depicted as a common loading dock with driveway access to Clegg Street. However, the area depicted on the last approved plans as a loading dock was not used for that purpose. A previous tenant of the ground floor had converted the area into office space. The area opened onto Clegg Street via a roller shutter door. A glass partition with attached glass doors had been built immediately inside the roller shutter door. The floor was carpeted and the area was fitted out with office furniture. This was the area described in item 2 of the Reference Schedule to the lease as the "shared loading dock". Although the evidence is not entirely clear, it appears that the Council had required that the loading dock be available for use by the other tenants in the building. That is why it was described as a "shared loading dock". In an email dated 8 June 2004, from Mr Matthews of Colliers International, the defendant's leasing agent, to Ms Drewitt, the plaintiff's business manager, Mr Matthews advised that: "… the shared loading dock is for DA purposes only, we can have it written into the contract that you are the only people who have access." 9 Prior to the lease being entered into, the parties discussed the need for an application for development consent. Both parties intended that the Council's consent would be sought to the loading dock being relocated from the ground floor to the basement car park, so that the plaintiff would have exclusive use of the ground floor, including the area which had been designated on the plans approved by Council as a shared loading dock, but which was not fitted out or used for that purpose. 10 The chairman of the board of directors of the defendant is Mr Alma. He has day-to-day control of the affairs of the defendant. He attended a meeting with Mr Matthews of Colliers, and with Ms Drewitt, in about May or June 2004. According to Mr Alma, he told Ms Drewitt that: "There is a potential problem with regard to the shared loading dock and Council. Being an industrial zoning, Council required that a loading dock be in place, even if the tenants do not require the use of it as is the case with the tenant upstairs. The last Council approved DA specifically designated the area behind the roller shutter door, which a previous tenant carpeted and had a glass door installed. Council may therefore require you to re-install the loading dock to the approved state." 11 Ms Drewitt denied that Mr Alma made any reference to a potential problem or possibility that the plaintiff may have to re-install the loading dock to a Council-approved state. However, before the lease was entered into, it must have been clear to all concerned that the existing plans made provision for a loading dock on the ground floor, but the area had not been used or fitted out for that purpose. 12 If it were necessary to resolve this conflict in the evidence, I would prefer the evidence of Ms Drewitt. For the reasons below, I do not regard Mr Alma as a reliable witness. Even though I do not find that the words to which Mr Alma deposed were said, nonetheless, by the time the development application was lodged, this was clearly a potentially problematic area. The plaintiff's application for development consent provided for the relocation of the loading dock. 13 The plaintiff engaged Mr Michael Smyth to prepare its application for development consent in respect of the property. On 16 June 2004, he met with Mr Alma. They discussed moving the loading dock from the ground floor to the car park level. They both agreed that the car park area was the most appropriate place for a loading dock. Mr Smyth gave evidence, which I accept, that they agreed upon the location for the loading dock, to be shown on the plans to be submitted to Council. The area agreed on as the proposed loading and unloading area comprised car parking spaces in the basement on the Clegg Street side of the building, immediately adjacent to the fire stairs on that side of the building. Mr Alma denied that this particular location in the basement was discussed or agreed to. However, I prefer the evidence of Mr Smyth. That is so for a number of reasons. First, the plans Mr Smyth drew after this meeting and which were submitted to Council, depicted the loading and unloading area in that location. Secondly, although the final version of the plan lodged with the Council was not shown to Mr Alma, an earlier version of the plan depicting the same area was shown to him, at the time he gave the owner's consent to the application. Thirdly, after the Council had rejected the request to relocate the loading dock, Mr Smyth discussed with Mr Alma the terms of a letter to be provided to the Council, urging reasons in support of the relocation and attaching a copy of the plan showing how the vehicles would manoeuvre inside the car parking area. The draft letter and plans were shown to Mr Alma. The plans showed the proposed loading and unloading area as using car parking spaces adjacent to Clegg Street. Mr Alma did not object to those plans or express any surprise about them. Rather, he wished Mr Smyth good luck and told him that he hoped he would get Council approval. Finally, Mr Alma was in many respects not a satisfactory witness. For example, early in his cross-examination, he denied knowing at the time he had signed the development application as owner, that the application provided for the loading dock to be located in the car park. He was later forced to retract that evidence in the face of clear contemporaneous documents to the contrary. His explanation for his original evidence was not satisfactory. His answers to questions in cross-examination were often not responsive to the questions which were asked. 14 On 25 June 2004, Mr Alma sent an email to Ms Drewitt and others. In the email Mr Alma said: " Michael has indicated he does not expect any serious impediments in having the DA approved. I understand that the document he is filing will propose having the loading dock in the basement, which is the only logical place where vehicles can safely enter and leave the building without reversing across a sidewalk. The DA does need to be signed by us as owners, under council regulations ." 15 Mr Alma was to be away on an overseas trip. However, he attended a meeting with Mr Smyth on Monday 28 June 2004. Mr Smyth reported on that meeting to Ms Drewitt in the following terms: "I met with Charles Alma today and he insisted we cover our bases regarding the possible need to provide a loading dock on your level, despite the fact that we are going to show a loading area in the car park. To cover ourselves in case we need the loading dock I have left out the "Gym" walls. … I still have to finish the car park plans and will take the attached plans to Charles to get him to sign off tomorrow or Wednesday am at the latest." 16 The plans which Mr Smyth drew, and provided to Ms Drewitt, showed the area on the ground floor previously depicted in the plans approved by the Council as loading dock, as storage area. 17 The reference in this email to walls for a "gym", was a reference to a plan which had been prepared by an interior designer. A copy of this plan had been given to Mr Smyth. It provided for the location of a "gym" in an area generally at the rear of the "storage" or the "loading dock" area furthest from Clegg Street. Initially Mr Smyth prepared a draft plan to provide for walls around the area designated as a gym. Mr Alma said to Mr Smyth that although the loading dock was to be shown on the car park level, the gym walls should be removed from the plan to cover their bases about providing a loading dock on the ground floor. Mr Smyth removed those walls in the plans which he sent to Ms Drewitt on 28 June. 18 On 29 June 2004, Mr Alma signed the two-page Council application form. He said the form which he filled in was otherwise blank. I prefer Mr Smyth's evidence that it was not, but nothing turns on the difference. It is clear that when Mr Alma signed the development application as owner giving his consent to the application, the plans were not attached to the form. However, I accept Mr Smyth's evidence that Mr Alma had seen and discussed the earlier version of the ground floor plan the previous day, and had instructed Mr Smyth to leave out the "gym walls". This was done in the plan which was attached. I am also satisfied that the plan for the basement which was attached to the development application reflected the substance of the discussions which Mr Alma had had with Mr Smyth about the plan for that area and the location in that area of the proposed loading dock. 19 The application which was submitted to Willoughby City Council on 30 June 2004 bore the owner's consent. Mr Alma also signed a letter from the defendant addressed to the Council, confirming that the defendant authorised submission of the development application by the plaintiff for the premises, as lodged by Mr Smyth. Although the application form and plans were not complete at the time Mr Alma gave his consent, nothing was included in the application which differed in any material way to that which he had consented. I am satisfied that the defendant gave its informed consent to the application which was made to the Council. Events After the Lodgment of the Development Application 20 The Council had concerns over the loading dock. On 9 August 2004, Mr Smyth wrote to Ms Drewitt and advised that Council had approved the existing position of the loading dock and was reluctant to allow a change to the lower level because of the tight manoeuvring space and the lack of a goods lift. The Council was prepared to consider a submission about the proposed change. Mr Smyth said that if Council did not accept the change, the fallback position was for the owner to build a wall to separate off the loading dock and remove the glazed partition. Mr Smyth said that "this area will then become a 'loading dock' but will actually become a store room." 21 A submission was duly made to the Council on 11 August 2004, pointing out several advantages of having the loading dock located on the car parking level. However, the Council's officers were unmoved. On 24 August 2004, Mr Smyth sent an email to Ms Drewitt recording that he had been advised by Council that the best option was to proceed with the approved loading dock in its present location and to submit a revision by way of a new DA later, if the plaintiff or the building owner wanted to pursue the relocation. The Council's officers had advised that this would be a contentious issue, which would take some time to resolve. 22 Mr Smyth revised the plans to include an amended loading dock on the ground floor and remove it from the car park. On 31 August 2004, a Council officer advised Mr Smyth that there should be no increase in the existing approved floor area under the proposal, and that partitioning of the loading dock would be required, as it was a shared area between the tenancies. On 31 August, Mr Smyth sent to Ms Drewitt a revised plan showing a possible way that the space could be separated. Ms Drewitt and Mr Alex Gambotto both expressed to Mr Smyth, their unhappiness about the loss of space, which the Council's requirement would impose. 23 Mr Smyth wrote to Mr Alma on 31 August 2004 about the problem. He wrote that Mr Alma would need to contact the plaintiff to sort out a solution and that he, Mr Smyth, was awaiting further instructions before submitting revised plans to the Council. 24 Following this email, Mr Alma asked Mr Smyth to speak to Ms Pendergast again. She was the officer at Willoughby Council dealing with the matter. The next day Mr Smyth confirmed to Mr Alma that he had done so, and that she had confirmed that the loading dock space must be allocated as a common area in accordance with previously approved uses in 1988 and 1992, with a separating wall between the loading dock and the tenancy area. He also said that according to the Council, the loading dock, which was to be a common area, was to stretch from the street to the fire stairs at the rear of the premises, thus occupying the whole width of the floor.