New South Wales Supreme Court CITATION : The Leasing Centre (Aust) Pty Limited v Massey Bailey Services Pty Limited & Ors [2006] NSWSC 53 HEARING DATE(S) : 14 February 2006 JUDGMENT DATE : 20 February 2006 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Malpass at 1 DECISION : See paragraphs 23 - 24. CATCHWORDS : Construction of rental agreement and variation - variation did not extinguish automatic renewal entitlement. The Leasing Centre (Aust) Pty Limited (Plaintiff) PARTIES : Massey Bailey Services Pty Limited (First Defendant) Daniel John Massey (Second Defendant) Marion Moe Bailey (Third Defendant) FILE NUMBER(S) : SC 15310/05 COUNSEL : Mr P Taylor SC (Plaintiff) Mr T Bors (Defendants) SOLICITORS : Swaab Attorneys (Plaintiff) MasseyBailey (Defendants) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 5919/2005 LOWER COURT JUDICIAL OFFICER : O'Shane LCM - 5 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Associate Justice Malpass 20 February 2006 15310 of 2005 The Leasing Centre (Aust) Pty Limited v Massey Bailey Services Pty Limited & Ors JUDGMENT 1 His Honour: The plaintiff is engaged in the business of, inter alia, renting equipment. The first defendant carries on a legal practice. 2 These parties (respectively as "owner" and "renter") entered into two rental agreements. One had the number R001924632 and was dated 26 September 2001. The other was numbered R001925770 and dated 21 February 2002. 3 The period of the first agreement was due to expire in September 2004. The period of the second agreement was due to expire in February 2005. 4 Both agreements contained similar terms and conditions including a provision as follows:- 23 renewal This Agreement shall be automatically renewed following the expiration of the initial term for a new term being either the period of the initial term or twelve (12) months whichever is the lesser unless the Renter:- (a) Delivers to the Owner written notice ninety (90) days prior to the expiration of the said initial term; and (b) Delivers at the Renter's expense the Equipment to the Owner in accordance with the provisions of clause 4(l) hereof on or before the expiration of the initial terms of this Agreement. (c) In the event the Renter requests a variation ("Variation") of the Term or of the Equipment rented under this Agreement, the Owner may in its absolute discretion agree to such Variation and forward Acknowledgment of Variation of Rental Agreement to the Renter setting out the details of any such change. Any Variation shall be effective from the date specified therein and shall be binding on the Renter upon signing of the Acknowledgment by the Renter. In the event that a copy of the Acknowledgment signed by the Renter is not received by the Owner within seven (7) days of Acknowledgment, the Owner may elect not to be bound by the Variation. 5 In respect of both agreements, the parties effected a written variation pursuant to (c) thereof. There is no dispute between the parties that its provisions were validly invoked. 6 The variation had the following heading:- ADJUSTMENT NOTE – R001928320 ACKNOWLEDGMENT OF VARIATION Beneath that heading appeared, inter alia, the following:- Pursuant to Rental Agreement numbers R001924632; and R001925770 dated 26/09/01, 21/02/02 respectively, the following variations of Agreement are acknowledged. To be effective the attached copy should be signed where indicated and returned within (7) days of the date hereof. In all other respects the terms and conditions of the Rental Agreement remain unchanged. 7 The plaintiff has described the variation as being in a sense an aggregation of the two agreements. It saw the leasing of additional equipment and an increase in the quantum of rental instalments. The expiry date of the rental period expressed in each of the agreements was varied. The effective date of the variation was expressed to be 10 December 2002. The period of rental term remaining from that effective date was expressed to be 24 months (accordingly, the expiry date was 10 December 2004). 8 It is common ground that the first defendant did not take either of the steps contemplated by (a) and (b) of clause 23. The expiry date passed and the equipment remained with the first defendant. The equipment was used at least during January and February 2005. The first defendant then sought to pay for the use of the equipment during those months and return it. 9 A dispute arose between the parties as to whether or not there had been an automatic renewal of the term of the leasing arrangements for a period of 12 months. 10 The dispute was not resolved and proceedings were brought in the Local Court. The matter came before O'Shane LCM. Her Honour found against the plaintiff. She made no order as to costs. 11 It is unnecessary to dwell on what was said by her Honour in the judgment. On any view, there was misconception. In that respect, I mention only two matters. One concerns the nature of the renewal provision. It seems to me that it is more accurately described as a provision intended to benefit both parties. The other matter concerned a rule of construction relied on by her Honour. What she said on that matter was clearly erroneous. 12 On 15 November 2005, the plaintiff filed a summons in this court. The summons seeks to bring an appeal from the decision in the Local Court. It contends that there has been an error in point of law and that the decision of the Magistrate (to enter judgment for the defendants) should be set aside. 13 The issue between the parties turned on questions of construction. There was no dispute that it embraced a point of law. The defendants maintained the view that the result was not erroneous and should not be disturbed. 14 It may not be in dispute that the draftsmanship of the rental agreement would have critics. There may be problems with consistency of terminology and a failure to define terms that appear therein. 15 What is in issue falls within a small compass. The question to be determined is whether or not the effecting of a variation pursuant to clause 23(c) has impact on the operation of the automatic renewal provision. 16 Although clause 23 is headed "renewal", structurally it has two components. 17 The first component concerns an automatic renewal of the initial term. In my view, it contemplates one automatic renewal only (that is, of the initial term). Unless the steps contemplated by (a) and (b) of clause 23 are taken, there will be an automatic renewal of the initial term for a period of 12 months. A renter is armed with the power to avoid an automatic renewal. 18 The second structural part concerns a matter of variation of the rental agreement. It provides a variation procedure and may be thought to be surplusage. In substance, any variation is dependant on further agreement being reached between the parties (there has to be, inter alia, a request and the exercise of an "absolute discretion"). The scope of the variation is restricted to the term or of the equipment rented under the agreement. Where the term is varied, it may operate to vary the initial term. 19 In this case, there was not only a variation of both the term and the equipment, but also of the rental. Therefore, in part, there was a variation that fell outside the scope of 23(c). What impact (if any) the variation of the rental may have had in this case has not been the subject of submissions. Accordingly, I put it to one side. 20 In my view, it was not intended by parties to a rental agreement that a variation pursuant to clause 23(c) would operate to extinguish the automatic renewal entitlement. 21 Further, it seems to me that the terms of the variation unambiguously provide that the terms and conditions of the rental agreement which were not dealt with therein were to remain unchanged ("in all other respects, the terms and conditions of the rental agreement remain unchanged"). I do not consider that the variation was intended to extinguish the automatic renewal entitlement. 22 The plaintiff bears the onus of satisfying the court that there has been error in point of law which justifies the disturbing of the decision of the Magistrate. In my view, that onus has been discharged in this case. 23 The judgment and orders made by the Local Court on 19 October 2005 are set aside. At present, there is no consensus between the parties as to what should happen in these circumstances. There is the prospect that the quantum of the relief to which the plaintiff is entitled may be in dispute. If that is the case, the matter will probably have to go back to the Local Court. The parties can make further submissions on that question. 24 The defendants are to pay the costs of these proceedings. If so entitled, they are to have a certificate under the Suitors' Fund Act 1951. ********** 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.