Supreme Court New South Wales Medium Neutral Citation: Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited [2011] NSWSC 716 Hearing dates: 4 and 5 July 2011 Decision date: 06 July 2011 Jurisdiction: Equity Division Before: Pembroke J Decision: Claim dismissed with costs Catchwords: LANDLORD & TENANT - option to renew - test for validity - characterisation - significance of context - relevance of subsequent conduct NOTICE - electronic communications - whether email "signed" - whether required to be physically delivered Cases Cited: Ballas v Theophilos (No 2) (1957) 98 CLR 193 Burrell v Cameron (1997) 8 BPR 15,443 Carter v Hyde (1923) 33 CLR 115 Comdox v Robins [2009] NSWSC 367 McLaughlin v Dungowan Manly Pty Ltd [2011] NSWSC 215 Mackay v Wilson (1947) 47 SR (NSW) 315 Maggbury Pty Ltd v Halefe Australia Pty Ltd 210 CLR 181 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 Pacific Carriers v BNP Paribas (2004) 218 CLR 451 Quadling v Robinson (1976) 137 CLR 192 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Royal Botanic Gardens & Domain Trust v South Sydney City Council (2009) 240 CLR 45 Toll FGCT Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Whitegum Petroleum Pty Ltd v Bernardini Pty Ltd [2010] WASCA 229 Young v Lamb & Ors [2001] NSWCA 225 Texts Cited: Address by the Hon JJ Spigelman AC, Chief Justice of New South Wales to The Risky Business Conference, Sydney, 21 March 2007 - "From Text to Context: Contemporary Contractual Interpretation" Category: Principal judgment Parties: Kavia Holdings Pty Limited (plaintiff) (first cross-defendant Suntrack Holdings Pty Limited (defendant) (cross-claimant) Rocks Catering Pty Limited (second cross-defendant) Representation: Counsel A J Meagher SC with Dr E M Peden - for the plaintiff/first cross-defendant I M Jackman SC with T M Faulkner - for the defendant/cross-claimant Solicitors Bruce Stewart Dimarco - for the plaintiff/first cross-defendant Middletons - for the defendant/cross-claimant File Number(s): 2011/00188704 Judgment Introduction 1The plaintiff is the lessee pursuant to a registered lease of premises in the Harbourside Shopping Centre in Darling Harbour, Sydney. The business carried on at the premises is known as "Jordons". The defendant is the lessor. The term of the lease is ten years commencing 1 July 2001 and the terminating date is 20 June 2011. The lease incorporates Memorandum X758927 filed at the Land and Property Information Service New South Wales. 2The lease contains an option to renew in the following relevant terms: 7.2 If the Lessee desires to have a further Lease of the Premises for the further term of years set out in Item 4B of the Reference Schedule and provided: 7.2.1 in respect of the further lease the Lessee shall give to the Lessor written notice to that effect not more than twelve (12) months nor less than six (6) months prior to the expiration of the immediately preceding term; the Lessor shall grant to the Lessee a Lease of the Premises for such further term of years commencing on the day following the date of expiry of the immediately preceding term ... 3The further term set out in item 4B of the reference schedule is twenty (20) years commencing 1 July 2011 and expiring 30 June 2031. 4The primary issue is whether the plaintiff has exercised the option to renew. It relies on a sentence in an email sent by Mr Crawley on its behalf on 18 August 2010. The sentence has a context which I will shortly explain, but in isolation the sentence is as follows: I would like to have at least another 20 years with Jordons lease and tie that in with Cohibar and Watershed so that they are a composite asset in the books of Kavia." The Context 5The context includes a number of salient features that I should mention. First, the email covered a number of separate matters. Second, the relevant sentence appeared in the sixth numbered paragraph of the email headed "New Lease documents". Third, the subject of the sixth numbered paragraph concerned multiple leases, only one of which was the Jordons lease. Fourth, neither in the sixth numbered paragraph nor elsewhere in the email did the writer make express reference to any option to which the lessee may be entitled. 6Importantly, the email sent on 18 August 2010 was in response to an email sent on 6 August 2010 by Mr Andrews on behalf of the lessor in which he inquired "Could I please have the leases executed or at least feedback? So we may move forward." It is notable that Mr Andrews added "I appreciate you are busy but the stalling and manipulation to suit your agenda is now impacting on myself personally and creating unrequired anxiety not in the spirit of the relationship." 7The full text of the sixth numbered paragraph in Mr Crawley's email is as follows: I am just considering and it is probably worth the lessors while as well, that we tie all the leases up for the full term that we can expect. I would like to have at least another 20 years with Jordons lease and tie that in with Cohibar and Watershed so that they are a composite asset in the books of Kavia. There are benefits both ways by doing such an agreement. 8To the considerations that I have mentioned should be added the following. By its terms, the sixth numbered paragraph of the email suggests that Mr Crawley contemplated further negotiation. This is clear at least from the first and third sentences and probably also from the second sentence. The first sentence is tentative, seeking to explore a possible arrangement. The second sentence proposes two distinct qualifications in relation to the Jordons lease. And the third sentence seeks to persuade the lessor that there are benefits to both parties "by doing such agreement" relating to all three leases. Finally, Mr Crawley reinforced the point towards the end of his email by stating: "My schedule has been extremely busy, however I intend that this week we finalise all the arrangements in respect of Cohibar, Watershed and Jordons". 9The two qualifications in relation to the Jordons lease were as follows. First, Mr Crawley stated he would like to have "at least another 20 years". Second, he wished to tie in the Jordons lease with the other two leases so that the three leases became "a composite asset in the books of Kavia." This would involve alteration to some or all of the leases to ensure, among other things, that their expiry dates became coincident. 10The true nature of Mr Crawley's email sent on 18 August 2010, and the way in which a reasonable person in the position of the lessor would have been expected to understand it is, I think, reflected in Mr Andrew's actual response. On 23 August 2010 he wrote, responding to the sixth numbered paragraph: 6. I will not enter into new lease discussions re Jordons and made this clear previously, We need to settle the valuations as a matter of priority. 11Of course, Mr Andrews' subjective beliefs do not matter and are not in themselves relevant, except to the extent that I form the opinion that a reasonable person in the lessor's position would have reacted in the same way. I should add that Mr Andrews gave oral evidence consistent with his contemporaneous response to the plaintiff's email. That evidence was as follows: Q Did you regard the 18 August email as an exercise of the option? A No. Q Did you believe that Mr Crawley thought that his 18 August email was an exercise of the option? A Prior to the affidavit, no. Options to Renew 12The reason why Mr Andrew's subjective beliefs do not matter is because the issue is an objective one. It is well established that in circumstances such as this, the appropriate question to ask is what a reasonable person in the lessor's position would have clearly understood. That question must be determined both by the language of the email and the circumstances of its receipt: Carter v Hyde (1923) 33 CLR 115 at 126 (Isaacs J); Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 209-210 (Williams J); Quadling v Robinson (1976) 137 CLR 192 at 201 (Gibbs J); Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677 (Kirby P), 681 (Samuels JA); Young v Lamb & Ors [2001] NSWCA 225 at [21] - [27] (Stein JA); Whitegum Petroleum Pty Ltd v Bernardini Pty Ltd [2010] WASCA 229 at [32] - [37] (Buss JA). 13In other words, as is so often the case, the context is essential for the purpose of characterising the written communication. I repeat what I said in McLaughlin v Dungowan Manly Pty Ltd [2011] NSWSC 215 at [22]: For those reasons, the cardinal significance of context, and the dangers of adopting an approach too literal, have been authoritatively recognised by the High Court of Australia: Royal Botanic Gardens & Domain Trust v South Sydney City Council (2009) 240 CLR 45 at [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ); Maggbury Pty Ltd v Hafele Australia Pty Ltd 210 CLR 181 at [11]; Pacific Carriers v BNP Paribas (2004) 218 CLR 451 at 461-2; Toll FGCT Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179. See also " From Text to Context: Contemporary Contractual Interpretation" (address by the Hon JJ Spigelman AC, Chief Justice of New South Wales to The Risky Business Conference, Sydney, 21 March 2007). 14Of course, the question in this case is not one of contractual interpretation. Rather it is one of factual characterisation, which is a different juridical concept. Nonetheless the context is equally relevant in both cases. Because the characterisation of the lessee's written communication is an objective question, it does not matter what particular misconceptions, errors or oversights may have affected the understanding or intention of either the lessor or the lessee. All that matters is that the written communication satisfy the contractual requirements. 15The contractual requirements are set out in clause 7.2 of the lease. They do not expressly, or by necessary implication, require the particular lessee to understand or intend that his written communication has the actual legal effect which the terms of the lease may or may not give to it. He need only give notice in language that would be reasonably clear to a reasonable person in the lessor's position that he desires to take a further lease of the premises for the further term of years set out in the reference schedule. 16Clarity as to legal effect is not required. That may be a matter for lawyers to debate and courts to resolve. All that needs to be clear to a reasonable person in the lessor's position is that, having regard to the context, the lessee is giving notice of a desire to take a further lease of the premises for the further term set out in the reference schedule. 17A reasonable person in the lessor's position would, of course, be familiar with the terms of the lease, including that the lessor is bound to grant a further lease for the stipulated term if the lessee gives the requisite notice. The lessor would also know in this case that the lessee had until 31 December 2010 to exercise the option if it wished to do so. 18It does not matter whether the lessee erroneously thought that there would be a two step process and that another more formal notice would be required. Comdox v Robins [2009] NSWSC 367 is an example of a case involving a different lease where the option clause required the lessee to give both notice of its desire to take a renewed lease and notice of exercise of the option. Nor does it matter that the lessor did not believe that the communication was legally effective. All that is necessary is that the written communication comply with the contractual description. It must be fairly and reasonably characterised in its context as a notice by the lessee of its desire to have a further lease for the further term. Characterisation 19The notice on which this case turns is contained in the email sent on 18 August 2010. The email, let alone the single sentence which is said to constitute the notice, is not a contractual document in the sense of a document that embodies the mutual agreement of both parties. It is a unilateral document of one party which, when properly characterised, either does or does not meet the contractual description specified in clause 7. 20In the process of characterisation, any notion of strict construction has no part to play. In any event, the adjective "strict" adds nothing. And, with the greatest respect to its author, I am wary of the defendant's resort to equally meaningless but colourful phrases such as that "a[n] option is nearly always a ticklish thing..." Mackay v Wilson (1947) 47 SR (NSW) 315 at 318 (Jordan CJ). In my opinion, it is sufficient if the meaning and effect of the notice is reasonably clear in its context in the way that I have explained. I adopt unreservedly the following statement of Bryson J in Comdox v Robin (supra) at [23]. : I do not see any value in speaking of strict compliance or exact compliance; compliance is required, the fair meaning of the contractual requirement should be understood and given effect, and undue exactitude or the creation of difficulties which the language does not yield on a fair reading are not appropriate. 21Lord Hoffmann expressed similar general sentiments in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 776. 22Nonetheless, the lessee cannot hedge its bets, impose its own qualifications, or point to the need for further negotiations. This is the sense in which it is sometimes said that the notice must be "absolute and unqualified": Quadling v Robinson (supra) at 200-201 (Gibbs J). This is the problem in this case. But even these words may lead to undue exactitude and are probably best avoided. The primary issue and the only real issue is whether, in the particular context, a reasonable person in the lessor's position would have clearly understood that the lessee was giving notice of a desire to take a further lease for the further term. 23The parties may have agreed in this lease to a formula for the exercise of an option by the lessee that is relatively undemanding. But there are minimum requirements and sound policy reasons to support them. Foremost among the minimum requirements is the need for reasonable clarity in the context and the absence of any qualification. After all, by its unilateral action, properly formulated, the lessee can bind the lessor for a further twenty (20) years. As I have mentioned, no separate notice of the exercise of the option is required to be served. Nor is there any necessity for solemnity or formality in the statement of the lessee's desire to take a further lease. And common expressions such as "I want", "I would like to have", "I seek" or "I wish" are just a few of the many formulations that will suffice to reflect the contractual requirement. However, as I have said, if the context indicates any qualification or ambiguity, the minimum requirements will not have been met. This is no doubt why Dixon CJ referred in Ballas v Theophilos (No 2) (supra) at 196 to the need for the notice in that case to be expressed "clearly and unequivocally". Subsequent Conduct 24I should add one further observation. I have already made it clear that the issue in a case such as this is one of factual characterisation, not contractual interpretation. Nor is the issue whether the actions of the parties, taken together, constitute the formation of a contract. This was not a bilateral process. The only issue under consideration is the unilateral action of the lessee. The conduct of the lessor, let alone its intention or belief, are irrelevant to the proper characterisation of the lessee's purported notice. For this reason I doubt very much whether subsequent inconsistent conduct by the parties is relevant or probative on the primary question of factual characterisation. 25In this case there was considerable inconsistent subsequent conduct on which the defendant relied. For example, the parties took no steps to implement the supposed exercise of the option. The lessor did not prepare any new lease documents for the Jordons premises. The lessee did not ask for any. A new Jordons lease was never referred to in any subsequent email or letter or document. The term of the Jordons lease was never discussed after 18 August 2010 other than in a conversation in December whose terms were disputed. 26Further, in March 2011 Mr Crawley on behalf of the lessee instructed an employed solicitor to draft a formal notice of exercise of the option. On 20 March 2011 Mr Crawley told Mr Andrews that he had to give him the exercise of the option. On 25 March 2011 Mr Crawley and another solicitor met with Mr Andrews, presented him with the formal notice of exercise of option and asked him to sign an endorsement which not only confirmed receipt, but which would also have confirmed that a new lease would be issued. On 29 March 2011 Mr Crawley couriered another copy of the formal notice of exercise of option to Bevillesta Pty Limited. 27I do not think it is appropriate to base my decision on this conduct. In any event, for the reasons I will explain, I do not need to do so. The evidence made clear that both parties laboured under a multiplicity of misconceptions, misunderstandings, uncertainties and errors as to the correct legal analysis. Neither Mr Andrews nor Mr Crawley was familiar at the relevant times with the precise terms of the option clause. Both had certain beliefs but neither knew, or could be expected to have known, whether the option had been validly exercised. 28In Mr Crawley's case in particular, his evidence and his conduct were affected by self interest. His subsequent conduct is not determinative one way or another. The clearest illustration was his conduct in March 2011 in giving the subsequent formal notice. As a matter of rational analysis, the fact of this notice says nothing about the factual characterisation of the prior notice purportedly contained in the 18 August 2010 email. Mr Crawley's decision to give the March 2011 notice could have been informed by a variety of subjective beliefs and unjustified concerns. His reasons do not need to be resolved. It simply does not matter whether Mr Crawley genuinely thought that his 18 August 2010 email was not good enough. What matters is whether it in fact conformed to the contractual description, not what Mr Crawley thought about it. Notice Invalid 29It will now be clear that I have reached the conclusion that the relevant sentence in the plaintiff's 18 August 2010 email does not amount to a notice within the meaning of clause 7 of the lease. Properly understood, and objectively characterised in its context, it would not, in my view, have been understood by a reasonable person in the lessor's position as being an unqualified statement of a desire to take a further lease of the premises for the further term of years set out in the reference schedule. It would not have been seen by such a person as the exercise of the lessee's contractual option to renew provided for in clause 7 of the lease. 30I repeat the contextual considerations that I explained in paragraphs [5] - [9] above. Having regard to those considerations, a reasonable person in the lessor's position would have regarded the relevant sentence in the email as no more than a step in a negotiation in which all three leases (Jordons, Cohibar and Watershed) were in play. Such a person would also have been well aware that the lessee did not need to make a commitment to renew the Jordons lease on 18 August, but had until 31 December 2010 before finally deciding to do so. That additional consideration would have reinforced the otherwise obvious understanding that the 18 August email was not itself a notice pursuant to clause 7. Non Compliance with Formalities 31If the 18 August email is characterised as a notice pursuant to clause 7 of the lease, the defendant contends that the formalities for service of the notice have not been satisfied. Clause 7 of the lease requires that the lessee give to the lessor written notice. This formality engages clause 16.6 of registered memorandum X758927. It provides as follows: All demands, requisitions, consents, elections or notices shall be in writing and may be given to or served upon a party hereto by being left at that address specified as that party's address in the relevant Item of the Reference Schedule (which address may be amended from time to time by prior written notice to the other party). Any such demand, requisition, consent, election or notice if posted shall be deemed duly served at the expiration of three (3) business days after the time of posting. In proving the giving of the same it shall be sufficient to prove the envelope containing the same was properly addressed stamped and registered or put into a post office box in Australia. Any demand, requisition, consent, election or notice may be signed on behalf of the party giving the same by a director, manager, secretary or acting secretary of such party. 32In the resolution of this issue there is no question of "strict adherence". I should repeat that the adjective "strict" adds nothing. Nor is it appropriate to invoke notions such as that "in the sphere of options it is a cold hard world": Burrell v Cameron (1997) 8 BPR 15,443 at 15,446 (Windeyer J). That seemingly attractive aphorism is devoid of content. The question is a mundane one of construction. I have reached the view that the operative requirements are permissive and that the 18 August 2010 email does not infringe the notice requirements in clause 16.6 of the memorandum. 33The primary requirement is that the notice be in writing. The email satisfies this requirement. The clause then provides that the written notice "may be given or served upon a party hereto by being left at that address specified as that party's address in the relevant item of the reference schedule." I do not read this language as imposing a mandatory requirement for physical delivery. By its express terms it is permissive. As to the requirement for signing, there are two answers. In my view the inclusion of the sender's name on the email amounted to "signing" for the purpose of the clause. The requirement for signing is intended to identify the sender and authenticate the communication. That is sufficiently achieved in an email by the setting out of the sender's name together with the email address from which the email is despatched. The name of the sender and his email address are readily and rapidly verifiable. Any other conclusion would produce a capricious and commercially inconvenient result that might have wide-reaching and unintended consequences in modern day trade and commerce. 34In addition, even if I am wrong, I consider the requirement for signing to be facultative. I do not regard the mere fact that the clause states that the notice may be signed by certain persons as meaning that all notices must be signed. The latter is neither a necessary nor a logical corollary of the former. Conclusion 35For those reasons there should be judgment for the defendant and relief in accordance with the cross-claim. oOo 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. Decision last updated: 12 July 2011