New South Wales Court of Appeal CITATION: Azkanaad Pty Limited v Galanos Bros Pty Limited [2008] NSWCA 185 HEARING DATE(S): 7 July 2008 JUDGMENT DATE: 11 August 2008 JUDGMENT OF: Hodgson JA at 1; Ipp JA at 70; Handley AJA at 71 DECISION: Appeal dismissed with costs. CATCHWORDS: LANDLORD AND TENANT – Agreement for lease – Whether concluded agreement for lease contained in correspondence – Whether concluded agreement for long-term lease constituted by entry into possession and payment of rent – Whether landlord waived entitlement to rent increase. - SPECIFIC PERFORMANCE – Requirement of proof of readiness, willingness and ability. LEGISLATION CITED: Conveyancing Act 1919 (NSW) s 127 CATEGORY: Principal judgment Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540 Hali Retail Stores Pty Limited v Havaz [2007] NSWSC 412 CASES CITED: Legione v Hateley [1983] HCA 11, (1983) 152 CLR 406 Marshall v The Council of the Shire of Snowy River (1994) 7 BPR 14,447 Pirie v Saunders (1961) 104 CLR 149 PARTIES: AZKANAAD PTY LIMITED (Appellant) GALANOS BROS PTY LIMITED (Respondent) FILE NUMBER(S): CA 40146/08 COUNSEL: M V SAHADE (Appellant) G P McNALLY SC (Respondent) SOLICITORS: Philip Goldman & Co (Appellant) VA Lawyers (Respondent) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 2454/08 LOWER COURT JUDICIAL OFFICER: Gzell J LOWER COURT DATE OF DECISION: 16 May 2008 LOWER COURT MEDIUM NEUTRAL CITATION: Azkanaad v Galanos (No 2) [2008] NSWSC 476 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40146/08 SC 2454/08 HODGSON JA IPP JA HANDLEY AJA 11 AUGUST 2008 AZKANAAD PTY LIMITED v GALANOS BROS PTY LIMITED Judgment 1 HODGSON JA: On 16 May 2008, Gzell J gave his decision in proceedings in which the appellant had, by its amended summons sought the following orders against the respondent: 1. A declaration that the Notice to Quit dated 19 March 2008 served on the plaintiff by the defendant in respect of the property known as Lot 1 Captain Cook Drive, Woolooware being the whole of Lot 1 in Deposited Plan 226839 ("the Subject Property") is of no force and effect. 2. A declaration that the defendant is bound by the terms of a lease embodied in the correspondence between the parties' solicitors dated 29 May 2002, 20 June 2002 and 6 September 2002 in respect of the Subject Property. 2A. A declaration that the plaintiff is not liable to pay to the defendant any amount pursuant to the rent reviews under the lease from 4 March 2005 up to and including 4 March 2008. 3. An order that the said lease in respect of the Subject Property be specifically performed and carried into execution. 3A Further and in the alternative, the plaintiff seeks relief against forfeiture in respect of the lease of the Subject Property. 4. Such other order as to the Court seems just. 5. Costs. 2 Gzell J dismissed the summons and ordered the appellant to pay the respondent's costs. The appellant appeals from that decision. Circumstances 3 On 29 May 2002, solicitors for the appellant wrote the following letter to solicitors for the respondent: We act for the lessee and understand that you act for the lessor. We are instructed that our respective clients have negotiated the terms of a proposed new lease in respect of the above premises. As you are no doubt aware, our client has had previous dealings in relation to the service station site at 2 Acacia Avenue, Ruse which to date is still an incomplete matter. We note that you ceased to communicate with this office shortly after our client submitted the duly executed Lease and to date, we have not yet received our client's registered copy of the Lease. We can only assume that you are without instructions and have ceased to act in the matter. Notwithstanding, we have been asked to write to you although a copy of this letter will be forwarded direct to your client. Clearly, if you do receive instructions in this new matter, we ask that you also seek instructions in relation to the previous matter. We summarise below the terms of the proposed new lease: 1. Lessee - Azkanaad Pry Limited (ACN 076 318 280) as trustee for the Magar Sons Trust. 2. Rent - $180,000.00 per annum plus GST fixed for the first two years. 3. Term - 5 years. 4. Options to renew - 5 x 5 x 5 x 5 (the lease will provide a maximum possible tenancy of 25 years). 5. Rent reviews including upon exercise of any option lease -annual CPI reviews not exceeding 3% of the previous year's rental. 6. User - service station, convenience store, workshop, car wash, fast food outlet and other ancillary services associated with a service station site. 7. Public liability -$10,000,000.00. 8. Outgoings - tenant to pay Council rates and water rates. 9. Option to purchase - to be exercised within the first three years. We await instructions regarding the purchase price and we understand that discussions are taking place between our respective clients on this point. 10. Rent free period - two months. Generally, the remainder of the lease will be on the same terms and conditions as the existing lease for the service station site at Ruse. We are instructed that this is a brand new site which is nearing completion. We ask that you obtain your client's instructions as to the status of the building works and whether it will be necessary for the parties to enter into an Agreement for Lease. We are instructed that the rent free period will begin after the lessor has completed all necessary works and handed over the keys to our client during which time our client will begin its fitout which will include the installation of pumps, signage, the counter unit and the fitout of the convenience store. We are instructed to prepare the Lease although we have no objection if your firm wishes to prepare the Agreement for Lease, if this is required. Clearly, this depends upon the status of the building works. 4 The appellant had previously negotiated a lease from the respondent of a service station site at Ruse. There was no copy of that lease in evidence below. 5 On 20 June 2002, the respondent's solicitors replied: We refer to the above matter and are awaiting return of the lease documentation for the Ruse property from our client so that we may finalise the matter. Our client had previously signed the lease and hand delivered it to his mortgagee and is awaiting its return. In the meantime, we are instructed as follows in relation to the Woolooware property: 1. Noted. 2. The rent will be fixed tor the first year only. 3. Term – 7 years. 4. Maximum tenancy will be 27 years. 5. Agreed. 6. Agreed. 7. Agreed. 8. Agreed. 9. Not agreed -our client will grant to your client a right of first refusal. 10. One month rent free. 11. The lessee shall obtain the consent of the lessor to the fitout of the premises. 6 On 6 September 2002, the appellant's solicitors wrote again to the respondent's solicitors, as follows: We refer to your facsimile dated 20 June 2002. We understand that further discussions have taken place between our respective clients in relation to the proposed terms of the new lease. In addition to the matters which have already been agreed upon, we are instructed that the following outstanding matters are now agreed upon between the parties: 1. Rent will be fixed for the first two years during the first term of the lease. 2. The first term of the lease will be 7 years. 3. The maximum tenancy will be 27 years. 4. The lease will contain an option to purchase which will be exercisable during the third and fourth year of the lease. The purchase price will be $2,150,000.00 plus GST. Thereafter, the lessee will have a right of first refusal. 5. The lease will provide a rent free period of one month. In addition to the above, our client seeks the following: (i) An indication as to the proposed commencement date. (ii) Is the service station complete? Our client will require a Section 149D Building Certificate to ensure that all Council requirements have been met prior to executing the lease. (iii) Prior to the commencement of the lease, our client requires a copy of the plans and drawings for the building, the underground tanks, the electrical layout plan and the engineer's drawings as to drainage. Upon receiving confirmation that your client agrees to these matters, we will commence preparation of the lease. Please note, we will require particulars of title including a description of the premises to be leased. 7 On 24 September 2002 the respondent's solicitors replied, enclosing a copy of the letter of 6 September 2002 signed on each page on behalf of the respondent, and on which was written on behalf of the respondent, adjacent to the paragraph seeking an indication as to the proposed commencement date, "10/10/2002". 8 On 28 October 2002, the appellant's solicitors sent to the respondent's solicitors "a copy of the draft Lease for your client's approval". This draft lease was said to be based on the lease for the service station site at Ruse, and it is in evidence. 9 In the draft lease, the property is identified as "Lot 1 Captain Cook Drive, Woolooware"; and there is in evidence a copy of a title search of Lot 1 in Deposited Plan 226839, which is said to be that property. 10 The document provided for a guarantee of the appellant's obligations under the lease by a Mr Magar (apparently, Adil Magar, a director of the appellant) (Combined Book 104, 119-121); and although there is no evidence of Mr Magar's willingness to give that guarantee, no point has been taken about this. 11 Clause 5.2 of the draft lease provided that rent was payable monthly in advance; and clause 5.2A provided for a rent-free period of one month beginning at the Commencing Date (this being left blank in the draft lease). 12 Clause 5.4 of the draft lease provided for annual rent reviews, to the lesser of an amount determined by reference to the Australian Statistician's Consumer Price Index (All Groups) for Sydney or a three per cent increase on the previous year's rent. 13 Clause 12.1 provided for re-entry on default (default occurring inter alia on rent being unpaid for fourteen days after the due date); and clause 12.4 provided that it was an essential term of the lease that the lessee pay rent no later than fourteen days after due dates. 14 On 5 November 2002, the appellant's solicitors wrote to the respondent's solicitors referring to further negotiations between the appellant and the respondent, and to an agreement that the appellant would be entitled to the use of vacant land adjacent to the service station throughout the term of the lease, including any options. The letter proposed that a draft clause would be forwarded for inclusion in the lease. 15 On 20 December 2002, the appellant's solicitors wrote again to the respondent's solicitors seeking a reply to the letter of 5 November 2005. 16 On 17 January 2003, the appellant's solicitors wrote again to the respondent's solicitors as follows: We refer to our letters dated 5 November and 20 December 2002 and we still await your reply. Our clients wish to complete the formalities in relation to the preparation and signing of the lease. This is a longstanding matter and we would appreciate the professional courtesy of a response to our letter to you dated 5 November 2002. We are instructed that our clients have with your client's consent, commenced work on the site having installed signage worth approximately $120,000.00 and completed the shop fittings of the convenience store. Our clients have now received their pumps which are ready for installation. Please obtain urgent instructions in relation to this matter. Should it be the case that you are without instructions, we ask that you state whether you continue to be instructed in the matter. 17 On 30 January 2003, the respondent's solicitors replied as follows: We refer to previous correspondence relating to the above matter and have received instructions from our client in relation to same. We are instructed as follows: 1. The option to purchase can only be exercised after the expiration of three years from the commencement date and prior to the expiry of 30 days from the three (3) year anniversary. The time frame for settlement on that Contract should be three (3) months. 2. Your client is to obtain all relevant approvals for its required use and the use set out in the lease. 3. Our client has practically completed all the work on the site except for some work on the road way and some landscaping. Once our client completes this work then, it proposes, subject to the documentation being in order, to hand the keys to the property to your client and at that time the one (1) month rent fee period is to commence. 4. In relation to the adjoining land (approximately 300 square meters) your client shall be entitled to use this land and indeed it will form part of the leased property on the proviso that your client does in fact use this land prior to the expiration of the option exercise period. If your client has not so commenced to use this land and the period in which to exercise the option has passed, then this land will be removed from the leased property by way of a variation of lease. Please confirm your instructions in due course. 18 On 4 March 2003, there was a further letter from the respondent's solicitors to the appellant's solicitors, as follows: We refer to the above matter and our letter to you dated 30 January 2003 to which we do not appear to have received a reply We are today instructed that the work has been completed so far as our client is concerned and the premises have been ready for hand over to your client since March 2003. We understand your client has continued to carry out works on the premises but our client has experienced great difficu1ty in contacting your client to make arrangements for the hand over of the property and the keys and to confirm the commencement of the rent free period. Accordingly, we ask you have your client contact our client direct to sort out these outstanding issues and let us have a reply to our letter dated 30 January 2003 as soon as possible. 19 The appellant moved into possession of the premises on or about 4 March 2003. 20 On 6 March 2003, the appellant's solicitors wrote as follows to the respondent's solicitors: We refer to your letters dated 30 January and 4 March 2003. Our client was surprised to learn that your client has experienced difficulty in establishing contact. Our client received only one telephone message last Friday on his pager and we understand that he has since been in contact with Mr Tony Galanos. In relation to your earlier letter dated 30 January 2003, we are instructed as follows: 1. Option to Purchase -the period of 30 days to be extended to 3 months. The period in which our client can exercise its option to purchase is unreasonably short. The time frame for settlement on the contract of three months is agreed. 2. We understand that your client is about to obtain the necessary approvals for the premises to be used as a service station including the LPG installation. Please advise whether your client can provide any documentary evidence that such approvals have been obtained. Our client will be obtaining council approval in relation to the proposed signage. 3. Noted, subject to your client providing documentary evidence that the necessary approvals are in place. 4. Agreed. Would you kindly obtain your clients instructions in relation to the matters raised above. We look forward to hearing from you. 21 Following requests by the appellant's solicitors for a reply to this letter, sent on 17 March 2003 and 25 June 2003, the respondent's solicitors replied as follows on 2 July 2003: We refer to the above matter and your letters dated 6 & 17 March 2003 and 25 June 2003 and are instructed to reply as follows: 1. The period for the exercise of the option is not unreasonably short. Your client will have had three (3) years of trading in the premises and this is sufficient time within which to have made a decision in relation to the option. The exercise is purely a mechanical process. 2. Our client has obtained Development Consent for the service station usage and we understand the lessee's DA for LPG installation and signage has similarly been approved. 3. We understand the keys were delivered to your client in early March 2003 and your clients started trading from the premises on or before 1 April 2003. Your client has paid the first rental instalment for the period 1 April 2003 to 30 April 2003 but has not paid any other rentals. 4. Noted. In light of the above, would you kindly forward the lease documents as a matter-of urgency with the commencing date of 1 April 2003 and advise your client to pay to our client the rental for the months of May, June and July 2003. We look forward to hearing from you. 22 The appellant's solicitors replied on 14 August 2003, as follows: We refer to your last letter dated 2 July 2003. We are instructed that discussions have taken place between our client and Mr Tony Galanos yesterday afternoon. Our client has advised that Mr Galanos wishes to finalise the matter as he will be leaving for overseas within the next few days. We are instructed that an agreement has now been reached regarding the two outstanding matters which are as follows: 1. The commencement date of the lease will be 4 March 2003. In light of the rent free period of one month, the first rental instalment fell due on 4 April 2003, which has been paid by our client. 2. The period for the exercise of the option to purchase shall commence on 4 March 2005 and shall end at 4.00pm on 3 March 2006. Upon exercise of the option to purchase, our client will have a period of three months to settle. Would you kindly obtain your client's urgent instructions regarding the same. Provided an agreement has been reached, we will prepare the lease documentation. Please keep in mind that we still await to receive from you particulars of title including a description of the premises leased. That is to say, are the leased premises on the whole or part of the land? If part, we will require a sketch plan to enable us to identify in a concise way the leased premise including the adjoining land which our client is entitled to use as agreed between the parties in earlier correspondence. Is this adjoining land on a separate title? 23 There were further requests for finalisation of the matter from the appellant's solicitors on 24 November 2003 and 6 February 2004, but the lease document was never finalised or signed. 24 Between April 2003 and the commencement of the proceedings, the rent when paid was paid at the rate of $16,500 per month. A few times during this period, the respondent demanded an increase, the appellant said it could not afford an increase, and the demand was not pursued. 25 According to evidence from Anthony Galanos, a director of the respondent, which evidence was not challenged by the appellant, for about eighteen months prior to April 2008 the appellant failed to run the petrol station business as a going concern; and by 6 November 2007, it was five months in arrears of rent. On that day, the respondent wrote to the appellant requiring payment of rent and outgoings in excess of $100,000. 26 On 8 March 2008, Mr Galanos handed Mr Magar a schedule showing rent and outgoings then outstanding amounting to $150,647.21 (still calculated at $16,500 per month). 27 On 10 March 2008, the appellant paid $99,000 into the respondent's bank account. 28 On 19 March 2008, a letter was sent by the respondent's solicitors to the appellant enclosing a one-month notice to quit, alleging rental arrears as at 4 April 2008 of $51,647.21, and alleging that rent was accruing thereafter at $542.46 per day. 29 Following correspondence between the solicitors, these proceedings were commenced on 23 April 2008 by an application for short service of the summons. On 24 April 2008, the respondent gave an undertaking not to seek to take possession of the property before 28 April 2008. 30 On 28 April 2008, the appellant's solicitor handed a letter dated 23 April 2008 to the respondent's solicitor, together with a cheque for $67,378.55 said to be rental up to and including 3 May 2008. That was accepted by the respondent. Also on that day, an injunction was granted against the respondent taking possession of the premises until further order. 31 On 29 April 2008, there was a letter from the respondent's solicitors to the appellant's solicitors claiming that, if the lease asserted by the appellant existed, the appellant was obliged to pay increases in rent; and the letter gave a calculation of $68,450.36. 32 On 2 May 2008, there was a letter from the respondent's solicitors to the appellant's solicitors alleging that the appellant was in fundamental breach of the lease it asserted, and stating that the respondent accepted that repudiation by seeking possession. 33 On 5 May 2008, a further $16,500 was sent to the respondent's solicitors. They responded that this amount would be held on trust, or returned if the appellant did not accept that position. 34 The proceedings were heard by Gzell J on 13 May 2008. Although it seems an affidavit by Mr Magar had been served, it was not read in the proceedings, and the only affidavit evidence on behalf of the appellant were affidavits by the solicitor for the appellant annexing correspondence and other documentation. Decision of primary judge 35 Gzell J addressed the question of whether the exchange of letters between 29 May 2002 and 24 September 2002 constituted an agreement for lease, and concluded that it did not. 36 He supported this by referring to the absence of a provision as to purchase by option and right of first refusal, to the requirement for the building certificate and plans and drawings prior to execution of the lease, and to negotiations concerning the adjacent vacant land. 37 He rejected the submission for the appellant that it was unlikely that there was no concluded agreement, in circumstances where the appellant was put into possession, having expended a significant amount on installation of bowsers and a fit-out of the convenience store. 38 The primary judge also held that, if there had been an agreement for lease, the respondent had not lost its right to the increased rent, the appellant's conduct in non-payment of rent was repudiatory, and accordingly the appellant would not in any event be entitled to specific performance. Issues on appeal 39 The appellant relies on the following grounds of appeal: 1. That his Honour ought to have found that the correspondence of 29 May 2002, 20 June 2002, 6 September 2002 and 24 September 2002 formed a concluded agreement between the parties as at 24 September 2002. 2. That his Honour erred in treating the conduct of the parties post 24 September 2002 as evidence of no concluded agreement as at 24 September 2002. 3. That his Honour ought to have found that conduct of the parties post 24 September 2002 had the effect of varying the commencing date of the lease to 4 March 2003. 4. That in the alternative to grounds 1, 2 and 3, his Honour ought to have found that the parties had reached a concluded agreement as at 4 March 2003 and severed from the agreement the clauses relating to the purchase of the land. 5. That his Honour ought to have found that the defendant was estopped from demanding the arrears of rental increases. 6. That his Honour ought to have found that the defendant's forbearance to insist upon rental increases under the lease precluded the defendant from treating the failure of the plaintiff to furnish the said rental increases as repudiatory conduct. 7. That his Honour ought to have found that the defendant's forbearance to insist upon rental increases constituted a waiver of the forfeiture of the lease and or an election by the lessor to keep the lease on foot. 8. That in the alternative to grounds 5, 6 and 7, his Honour erred in finding that relief against forfeiture was not open to the plaintiff, and ought to have granted relief against forfeiture in the exercise of his discretion. 40 I will consider in turn the following issues: (1) Was there an agreement for lease? (2) Was the respondent entitled to claim the increased rent? (3) Did the respondent terminate the agreement for lease? (4) Should specific performance be granted? Was there an agreement for lease? 41 The primary judge addressed the question whether there was a contract constituted by the correspondence. This was the question posed by the amended summons. Unfortunately, there was in this case no pleading and no statement of issues. However, in addresses, counsel for the appellant put this: The critical issue is not whether a contract was brought into existence at the point of returning that letter signed, but more so whether there was a contract brought into existence or whether there was a contract in existence at the time that the plaintiff took possession of the premises which was the commencing date of a proposed lease and in the circumstances being 4 March 2003. 42 Accordingly, in my opinion, it was and is necessary to address the question of the existence of an agreement for lease at two points of time: on or about 24 September 2002 and on or about 4 March 2003. 43 In the primary judge's judgment, there is no clear separation of these two times. On the one hand, he posed the question as addressing only the effect of the correspondence; but on the other hand, he took into account later negotiations in concluding that important issues had not been resolved. 44 As at 24 September 2002, there was no uncertainty or disagreement either as to the terms of the option (the respondent had signified its agreement to the appellant's proposal) or as to the property to be included in the lease (the question of the adjoining vacant land had not yet been raised). However, there was some uncertainty as to the commencement date of the lease: the date of 10 October 2002 was only the respondent's indication of a proposed commencement date, and in any event, there was no suggestion that this was accepted by the appellant so as to bind both parties. 45 If there is agreement as to the terms of a lease, apart from a starting date, agreement as to an event that will trigger the start of the lease, and also manifestation of an intention to enter into a binding legal relationship, then the absence of an agreed starting date would not prevent there being an agreement for lease: cf Pirie v Saunders (1961) 104 CLR 149 at 152. 46 However, in this case there was not, as in Pirie, an agreement that commencement should be "on completion of property". The commencement could have been when "the lessor has completed all necessary works and handed over the keys to our client" (letter of 29 May 2002), or when the lease is executed following provision of a s149D certificate (letter of 6 September 2002), or some other date subsequently agreed between the parties. If an intention then and there to enter into a binding agreement had been manifested, the court could have construed the correspondence and determined a date or event; but the absence of a clearly identified date or event militates strongly against a finding of an intention then and there to enter into a binding agreement. 47 That view is confirmed by the raising and non-pursuit of the question of an agreement for lease (letter of 29 May 2002), the clear contemplation of entry into a formal lease, the size and length of the proposed transaction, and the requirement of a s149D certificate before making the final commitment by signing a lease: cf Hali Retail Stores Pty Limited v Havaz [2007] NSWSC 412 at [15]-[28]. In my opinion, no binding agreement came into existence on or about 24 September 2002. 48 I would add that I would infer that the terms of the Ruse lease required a guarantee by Mr Magar; and that also points against a commitment by the respondent, in the absence of a commitment from Mr Magar. This was not relied on; and I mention it only as confirming a view I have arrived at independently. 49 Subsequent communications can be relevant to the question whether a contract has been formed: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540 at 547-9. In the present case, the later negotiations about the option and the inclusion of additional land could possibly tend to suggest that no contract had been entered into on or about 24 September 2002, if only by suggesting an otherwise unproved matrix of underlying negotiations between the appellant and the respondent at the time of the correspondence, against which the correspondence was to be construed; thus possibly tending against construction of the correspondence as manifesting an intention to be bound then and there. However, again, this is at most something that might confirm a view I have arrived at independently. 50 The letters concluding with the letter of 24 September 2002 did display a consensus as to all the essential terms of a lease, apart from the commencement date. The giving and taking of possession on 4 March 2003 manifested an intention to enter into binding legal relations of some kind; and the question is whether this was an intention to enter into binding legal relations on the terms as to which there had been consensus as at 24 September 2002, or on some other terms for a long-term lease; or merely on terms that they be landlord and tenant on a short-term basis (consistent with s 127 of the Conveyancing Act 1919) pending finalisation of the long-term lease. 51 By 4 March 2003, it appears that the appellant had spent large sums of money on signage, petrol bowsers and a fit-out; but that money was spent without there being in place any lease or agreement for lease, but rather in the confident expectation that there would be a lease in due course. 52 Also by 4 March 2003 there had been further negotiations concerning the option and the adjoining vacant land; and thus a question arises, in relation to any possible intention to be bound by the terms of a long-term lease, whether this was on the terms as to which there had been consensus as at 24 September 2002, or as to those terms apart from that concerning the option. Consideration of whether an intention was manifested to be bound by the terms of a long-term lease is also affected by the circumstance that the appellant's prior expenditure showed confidence that agreement would in due course be reached. The granting of a "rent holiday" for the first month, consistently with clause 5.2A of the draft lease, is also consistent with a confident expectation on both sides that agreement would in due course be reached. 53 In all these circumstances, I would not be satisfied that the giving and taking of possession on 4 March 2003 manifested an intention to be bound by the terms as to which there had been consensus as at 24 September 2002, or by those terms minus the term as to the option. The circumstance that the appellant could waive its rights under the option (and that the time for exercising the option has in any event passed), and also could waive and does not seek entitlement to the adjoining vacant land, does not remove the effect of continuing negotiations as to these terms on the question whether an intention was manifested to be bound then and there by an agreement for a long-term lease. 54 For those reasons, I would uphold the primary judge's decision that there was no agreement for a long-term lease, and on that basis dismiss the appeal. Was the respondent entitled to the increased rent? 55 The evidence shows that the respondent made demands for increased rent (required by clause 5.4 of the draft lease), that the appellant claimed it was unable to pay it, and that the respondent did not pursue the matter; and also that the demands made by the respondent for rent in the period between November 2007 and the commencement of the proceedings were for rent at the original rate of $16,500 per month. 56 There was no evidence from the appellant of any understanding that it would not be liable for the increased rent, if there was the agreement for lease that the appellant alleges; and apart from evidence that the rent was in fact paid and accepted at the original rate, there was no evidence that the appellant relied on, or changed its position because of, or acted to its detriment because of, any such understanding. 57 In those circumstances, in my opinion, there is no basis for finding that the respondent has waived altogether its entitlement to the rent increases or is estopped from claiming them. On the other hand, in my opinion, the respondent could not, without reasonable notice that it was now claiming the rent increases, treat the appellant as being in breach of the agreement for lease because the increases had not been paid. Did the respondent terminate the agreement for breach? 58 At the time the notice to quit was served on or about 19 March 2008, the appellant was in arrears of rent at the original rate to the extent of about $50,000. However, the notice to quit did not purport to put an end to the agreement for lease on the basis of breach, but rather was expressed so as to bring to an end, by one month's notice, the legal lease that arose by force of s 127 of the Conveyancing Act 1919 (NSW). 59 By 2 May 2008, it was clear that the respondent was claiming and exercising an entitlement to terminate the agreement for lease alleged by the appellant, by reason of default in payment of rent. However, by then the respondent had accepted rent at the original rate for the period up to 3 May 2008, so it was not then entitled to put an end to the agreement for lease on the basis of failure to pay rent at the original rate. 60 As regards the question whether the respondent could put an end to the agreement on the basis of failure to pay the rent increases, Mr Sahade for the appellant pointed out that, in final submissions below, he had conceded that, unless the appellant had the benefit of a conventional estoppel in respect of rent increases, it had repudiated the agreement. However, in my opinion, that would not relevantly affect the matter to be determined by this Court. As noted at the end of the previous section, I consider the appellant does have the benefit of a kind of estoppel in respect of payment of the increased rent; and in any event, in my opinion, there is no realistic possibility that the respondent would have conducted the case differently below if that concession had not been made in final submission. 61 In my opinion, the respondent was not entitled to terminate the agreement for lease for breach as at 2 May 2008. It was not contended that the respondent has since then become entitled to terminate the agreement for lease for breach, or that it has done so. 62 In these circumstances, it is not necessary to consider the jurisdiction to relieve against forfeiture, or questions arising from the decision of Marshall v The Council of the Shire of Snowy River (1994) 7 BPR 14,447, or the scope of the general equitable jurisdiction to relieve against forfeiture considered in Legione v Hateley [1983] HCA 11, (1983) 152 CLR 406. Should specific performance be ordered? 63 Having regard to my view as to whether there was a concluded agreement for lease, it is not essential that I decide this question. However, I think it appropriate for me to express my view on it. 64 There is a question whether the issue is open to the respondent on appeal. It did not file a notice of contention prior to the hearing. At the hearing, there was argument going to the exercise of the Court's discretion, and provision was made for the respondent to submit a notice of contention, and for the appellant to make additional submissions as to whether the respondent should be permitted to rely on discretionary considerations. The notice of contention merely asserted that relief against forfeiture should be refused on a discretionary basis; but pursuant to a memorandum from the Court, counsel for both sides accepted that the submissions at the hearing had also gone to the question of whether the respondent had proved it was ready willing and able to perform the contract. 65 The appellant by its further written submissions objected to the respondent relying on the notice of contention or any absence of readiness willingness and ability to perform the contract, on the basis that it was denied the opportunity to deal with a very important issue by oral argument. However, there was oral argument on the matter, and by reason of the lack of a timely notice of contention, the appellant was given and took the opportunity to provide supplementary written submissions. In all the circumstances, in my opinion, the issue is open to be considered. 66 There was uncontradicted evidence of repeated serious breaches of the appellant's obligation to pay rent, at the original rate; of failure to conduct the business of service station properly; and of failure to maintain the property in a reasonable condition. Rent at the original rate was brought up to date at the time of the proceedings, following a conversation from which it might be inferred that this payment indicated an improved financial position of the appellant since the time of the earlier breaches; and there was an offer made by the appellant's legal representatives to pay the arrears of the increased rent if the Court held that the appellant was obliged to do so. 67 However, there was no evidence led by any person on behalf of the appellant to the effect that the appellant was ready, willing and able to comply with the terms of the lease. There was uncontradicted evidence that Mr Magar had previously said that the appellant could not afford to pay rent of $230,000 per annum; and uncontradicted evidence that the current amount of the increased rent was about $228,000 per annum. 68 In those circumstances, I would not be satisfied that the appellant had proved it was ready, willing and able to perform its obligations under the lease to which it claimed entitlement, or that the appellant had made out a case for the Court to exercise its discretion in the appellant's favour to grant specific performance of the agreement for lease. On that ground also, I would dismiss the appeal. CONCLUSION 69 I propose the following order: Appeal dismissed with costs. 70 IPP JA: I agree with Hodgson JA. 71 HANDLEY AJA: In this appeal I have had the benefit of reading the reasons for judgment of Hodgson JA in draft. I agree with the orders he has proposed because I agree that the appellant failed to establish a case for specific performance. 72 The appellant did not call any director or shareholder to give direct evidence that it was ready willing and able to perform its obligations under the agreement for lease for the balance of the initial term of 7 years. Hodgson JA has referred to the uncontradicted and unchallenged evidence of Mr Galanos about the state of the premises, and the repeated inability of this service station, for days on end, to supply some of the standard products normally available at such outlets. This, unexplained as it was, pointed to the existence of serious and continuing financial difficulties. 73 Documents produced by ASIC disclosed the existence of pending winding up proceedings brought by a company claiming to be an unpaid creditor. The appellant's paid up capital is modest in comparison with its adjusted rental obligations under the lease. Its officers not only avoided the witness box, they failed to produce, as required by notices to produce, the financial records which should have revealed its current financial position. 74 In agreement with Hodgson JA therefore, I would refuse specific performance, and dismiss the appeal on that ground. 75 However, in dissent, I would hold that the appellant's expenditure on the property in the fit out of the convenience store and the service station, and the delivery and receipt of possession on 4 March 2003 were acts of part-performance, available as such to supplement the contractual terms evidenced by the correspondence. Delivery of possession to the appellant also fixed and rendered certain the starting date for the lease. The appellant had been in possession for over 5 years when the dispute arose and in such circumstances courts of law can generally find that there is a contract, and courts of equity can generally order its specific performance in favour of a tenant who has not been in breach. 76 In the present case none of this matters because the tenant is not entitled to specific performance. I agree with the orders Hodgson JA has proposed. ********** 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.