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  • Unreported Judgment

Transmetro Corp Ltd v Davy

 

[2005] QCA 239

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

DELIVERED ON:

28 June 2005

DELIVERED AT:

Brisbane

HEARING DATE:

28 April 2005

JUDGES:

McMurdo P, Muir and Philippides JJ

Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDER:

1.Appeal dismissed

2.The appellants whose names are listed in the schedule to these reasons pay the respondent's costs of the appeal to be assessed on the standard basis

CATCHWORDS:

CONTRACT – GENERAL CONTRACTUAL PRINCIPLES – OFFER AND ACCEPTANCE – ACCEPTANCE – GENERALLY – PARTICULAR CASES – appellants owners and lessors of individual lots in "Tower Mill" building – respondent operator of "Tower Mill Motor Inn" business and lessee of appellants’ lots under identical leases – leases commenced  30 September 1994 and expired 30 June 2004 –– respondent wrote to appellants on 2 July 2002 stating they had taken the liberty of continuing rental payments on a seventy per cent basis – letter included offer to continue the leases until expiry on 30 June 2004 and that the appellants would take back possession at that time – no time for acceptance stated in letter of offer – on 23 June 2004 appellants issued "notice to remedy breach of covenant" calling on the respondent to pay rent in arrears – by "notice to terminate lease" dated 30 June 2004 appellants purported to accept respondent's offer and terminate leases – respondents applied to Supreme Court for a declaration the notices were void or of no effect – primary judge granted declaration on the basis the offer was no longer open for acceptance – whether the notices of termination constituted acceptance of the respondent's offer

Baker v Taylor (1906) 6 SR (NSW) 500, applied

Ballas v Theophilos (No 2) (1957) 98 CLR 193, cited

COUNSEL:

Mr Ronald Davy appeared on behalf of Skafola Pty Ltd and Davy Investment Pty Ltd

No appearance for the other appellants

P D Hay for the respondent

SOLICITORS:

Mr Ronald Davy appeared on behalf of Skafola Pty Ltd and Davy Investment Pty Ltd

No appearance for the other appellants

Hillhouse Burrough McKeown for the respondent

[1]  McMURDO P:  I agree with Muir J that the appeal should be dismissed and that the appellants listed in the schedule to these reasons should pay the respondent's costs of the appeal to be assessed.  I agree with Muir J's reasons. 

[2]  MUIR J: The point at issue in this appeal is whether notices of termination of lease delivered by the appellants to the respondent dated 30 June 2004 constituted acceptances by the appellants of an offer to them by the respondent contained in letters from the respondent to the appellants dated 2 July 2002.

The relief sought at first instance

[3] The proceedings were commenced by an originating application filed by the respondent in which it sought, inter alia:

 

(a) A declaration that the notices dated 30 June 2004 to “terminate lease(s)” entered into between the respondent as lessee and the appellants as lessors are of no effect;

(b) A declaration that a purported acceptance in paragraph 3 of the notices, of an offer made by the respondent to the appellants in a circular letter dated 2 July 2002 is of no effect.

The parties

[4] The appellants contend that their respective leases of premises in the “Tower Mill”, to the respondent, were brought to an end on 30 June 2004, either by termination for breach or through acceptance of the offers referred to earlier.

[5] On the hearing of the appeal Mr Ronald Davy sought leave to appear on behalf of the other appellants. Mr Davy was not a respondent to the originating application but is named as an appellant in the notice of appeal. His joinder appears to have been made in error as the evidence does not disclose that he was a lessor of premises, in the Tower Mill, to the respondent at any material time. Two companies of which he is a director, Skafola Pty Ltd and Davy Investment Pty Ltd, were lessors, respondents to the application and appellants.

[6] Mr Davy was given leave to appear on behalf of Skafola Pty Ltd and Davy Investment Pty Ltd but refused leave to appear on behalf of the other appellants. Some of them had authorised Mr Davy to represent them on the hearing but there was no formal appearance by a number of the other appellants.

[7] Regrettably a mistake by Quinn & Scattini, solicitors, resulted in confusion concerning the representation of some of the appellants. After the institution of the appeal, Quinn & Scattini received instructions to act for Mr Davy and filed a notice of change of solicitors, not in respect of Mr Davy only, but in respect of all appellants. Walsh Halligan Douglas Lawyers, the original solicitors on the record, on being served with the notice of change of solicitors, treated their retainer as having been terminated. To complicate matters further, Mr Davy filed a notice of intention to act in person on or about 15 April 2005.

[8] Neither firm of solicitors had written instructions from any of the appellants other than Mr Davy and his company but understood that Mr Davy had the authority of other appellants. That understanding was probably accurate.

[9] Prior to the hearing of the appeal, a solicitor in the employ of Quinn & Scattini made urgent attempts to contact the appellants with a view to ascertaining whether they intended to proceed with the appeal. The attempts met with mixed success and it was directed that the Registrar write to each appellant, other than Davy Investments Pty Ltd and Skafola Pty Ltd, informing each appellant of the hearing and the availability of a transcript. It was directed also that each appellant file and serve a statement indicating whether it intended to continue with the appeal, and if so, whether it intended to rely on Mr Davy’s submissions or make further submissions.

[10]  19 appellants, including Mr Davy and Davy Investments Pty Ltd, wrote to the Registrar indicating expressly or by necessary implication that they wished to pursue the appeal. They variously adopted Mr Davy’s submissions, made submissions of their own, or supplemented Mr Davy’s submissions. No response to the Registrar’s letter was received from 15 appellants.

The dealings between the parties

[11]  The wording of the letter of offer and of the 30 June 2004 notices is central to the determination of the issues raised by the appeal. However, it is desirable to record some of the related dealings between the parties in order to provide context for the critical documents and assist in the explanation of other issues which arose in the course of the hearing.

[12]  At relevant times, the respondent ran the Tower Mill Motor Inn business on Wickham Terrace. There is a building units plan for the building and the individual lots were owned by various persons and corporations, including the appellants, who leased their respective lots to the respondent under identical leases.

[13]  In a letter to the lessors dated 5 June 2002, the respondent complained that its business was loss making and unsustainable given the rentals it was obliged to pay lessors. The letter foreshadowed that the respondent would be putting before lessors a proposal which would involve, amongst other things, a rent reduction.

[14]  The foreshadowed proposal was contained in the respondent’s circular letter of 2 July 2002 which relevantly provided:

 

“We propose continuing to operate the building, with as minimal impact on the current rent as possible. Whilst we indicated in our last letter a level that could be sustained would be 70% of the existing rent, we are uncertain as to the longer term outlook.  Owners may wish to seek alternative uses, even on an individual basis. At this stage there are 2 years remaining on the lease, however as foreshadowed previously we believe it in the owners interests to address the longer term future of the building now.

 

Our position is that we need a lower rental for the business to be viable. In reducing the return now, it may well be the longer term use of the property can be secured. As we are not in a position to deal with 75 different owners, and as time is a serious factor, we have taken the liberty of continuing rental payments on the 70% basis.

 

To offset this we propose two alternatives to owners:

 

(i)For you to make alternative arrangements for use of your unit. One possibility would be for you to have the unit for your own use. Another would be to let, or lease it to a long, or short term corporate tenant. We of course would be prepared to surrender our lease on your unit if this was a course of action you wished to take.

 

(ii)To continue on the basis of us paying you 70% of the current rent. In terms of the longer term future we are prepared to execute a new lease of your unit for an additional 3 years to extend the current term to 5 years at the proposed (70%) rental, while preserving the existing options of renewal. Alternatively the variation could be struck so that a market rent review be taken in 2 years time.

 

The object is to provide you with a secure tenure for 5 years at a set rent, or a rent for 2 years, then a market reviewed rent. The alternative is to take your unit back, or continue for 2 years only.

 

Whilst we are trying to balance up the owners interests, we are also mindful of structuring an arrangement that can be sustained. To this extent if the number of units in the pool were to reduce this would lend weight to the business becoming viable. In this respect we should alert you to the fact that for those that do not elect to enter into a new lease now, it is by no means certain that we will take up the option to renew in two year’s time.

 

We are conscious that what we propose will disadvantage owners, however having looked at the options we genuinely believe this is the best way forward, with owners continuing to receive the bulk of their rent, secured for at least the next 5 years. Following that, with market rent reviews every five years, the future of the building will be assured.

 

We will need to prepare a lease document for those that wish to take up the offer, and on what basis (fixed rent, or review to market in 2 years).

 

Please signify your intentions by ticking one of the following:

 

1) We would like to take up the offer of a new 3 year lease on    the following basis:

 

a)the proposed rent fixed for the next 2 years, and the following 3 years, with a market rent review to take place prior to the commencement of each option period.

b)the proposed rent fixed for the next 2 years, then a market rent review prior to the commencement of the new 3 year lease, and then prior to the commencement of each option period.

 

2)We prefer to take the unit back as at the end of this month (31 July 2002), and request a surrender of our lease.

 

3)We wish to continue our lease unit (sic) the expiry of 30 June 2004, at which time we shall take possession back ourselves, unless a new lease is on offer for us to consider at that time.

 

Please return the photo-copy of this letter in the stamp addressed envelope provided.” (emphasis added)

[15]  In a number of separate letters to the respondent, many lessors rejected the respondent’s offer and gave notices requiring the respondent to remedy breaches of covenant. Other lessors demanded payment of the rent due under their respective leases and reserved their rights.

[16]  The evidence is largely silent as to the dealings between the parties between September 2002 and April 2004.

[17]  Mr Davy wrote to the respondent on 8 April 2004 stating, inter alia:

 

“What I would like to do today is to notify you that I am terminating the lease (due to finish on the 30th June 2004) of unit 608/Lot 88 as at the 30th June 2004. As per the letter from Kim Shultz dated the 5th June 2002 I accept that offer to take back possession.”

[18]  On 14 April 2004 the respondent, in a circular letter to the lessors, including the appellants, observed that: a number of proprietors had taken up offers contained in the 2 July 2002 letter, some 15 proprietors had rejected the offers and that other owners “elected to consider the situation at the time of expiry”. The letter asserted that, “Almost all owners elected to continue on the reduced rent basis, although, again as mentioned earlier, a number wrote letters of dissent”. The letter continued:

 

“Nonetheless we appreciate the acquiescence of owners in the rent matter and, having made commitments to a number of owners to continue for at least three years we are now prepared to extend that to the five year option term, and to extend the commitment to all owners. Thus, in accordance with the lease we have requested the President of the Australian Property Institute (formerly the Institute of Valuers and Land Economists) in Queensland to nominate a valuer to make an independent determination of the rent that shall apply from 1 July 2004.”

The letter went on to foreshadow an intention to pay the full rent for the final quarter of the term of the leases “when the lift will be fully functional”.

[19]  In letters to the respondent dated 11 May 2004 which were identical in substance, some lessors purported to accept the offer made in the 2 July 2002 letter “with the consideration that possession of the [these] unit[s] be handed back at the end of the lease on 30th June 2004 …”. Earlier in the letter it was stated:

 

“Due to the circumstances and conditions imposed by MH at that time most owners decided that the only acceptable option was to agree with the third alternative where owners would wait until the end of the lease before making a decision. On that basis owners reserved their rights relating to rent arrears and the termination of their lease. Your letter dated 14th April confirms that the lease expires on 30th June 2004. It also confirms, in paragraph 3, that options were offered in 2002.”

[20]  On 28 May 2004 Mr Davy, on behalf of himself and the other appellants, wrote to the respondent alleging breaches of lease, including failure to pay rent in accordance with the leases.  The letter contained the suggestion that a meeting be held between a representative of the respondent and Mr Davy, on behalf of the appellants, to discuss the matter and noted “other Notices of Breach are to follow”.

[21]  The respondent’s solicitors, in a letter to Mr Davy of 11 June 2004, asserted that the subject leases had been renewed automatically for a term expiring on 30 June 2009 as a result of the respondent not having given notice of termination under each lease before 1 July 2004. The letter also advised that the respondent had requested the President of the Australian Institute of Valuers and Land Economists (Qld Division) to nominate a valuer to determine the rent and that a valuer had been nominated. Mr Davy “as issuer of the form letters” was requested to inform lessors that the respondent would continue with the leases and that the lessors had “no ability to now take possession [of the] … suites”.

[22]  On 23 June 2004, the then solicitors for the appellants wrote to the respondent enclosing, on behalf of each of their clients, a notice to remedy breach of covenant calling on the respondent to pay the arrears of rental and outgoings within seven days. The notice was in Form 7 of the schedule to the Property Law Act 1974 (Qld) and contained the following note:

 

“[NOTE: LESSOR WILL BE ENTITLED TO RE-ENTER OR FORFEIT THE LEASE IN THE EVENT OF THE LESSEE FAILING TO COMPLY WITH THIS NOTICE WITHIN A REASONABLE TIME – see section 124 of the Property Law Act 1974].”

[23]  The respondent failed to comply with the notices and the appellants, by their then solicitors, gave the notice dated 30 June 2004 which the appellants contend constitute acceptances of an offer made in the 2 July 2002 letter. Each such document is headed “NOTICE TO TERMINATE LEASE” and relevantly provides:

“With reference to the lease of the premises dated on or about 12 October 1994 for a term expiring on 30 June 2004 and your fundamental breach of that Lease in that, amongst other things:-

 

1.You are in breach of Clause 5.5 of the Lease Agreement to pay the guaranteed income and outgoings quarterly the (sic) in arrears on the last days of March, June, September and December and to pay CPI increases;

 

2.You have failed to remedy a breach of covenant as outlined to you in a Form 7 Notice to Remedy Breach of Covenant dated 22 June 2004;

 

3.You have, in correspondence directed to the lessee dated 2 July 2002 and 14 April 2004, as well as by other actions offered and/or agreed to a novation of or variation of the Lease Agreement such that it is terminated on 30 June 2004, which is accepted and agreed to by the lessor;

 

I hereby give you notice that the Lease Agreement is terminated and forfeited and that you are required to provide possession and control of the premises to me forthwith such that I and my authorised representative may re-enter into possession of the premises immediately.”

The findings at first instance

[24]  The learned primary judge found that a reasonable time had expired after the making of the offers and before 30 June 2004 and that they had lapsed in consequence. His Honour relied on the statement of principle in that regard by Dixon CJ in Ballas v Theophilos (No 2)[1] and on the observations of Williams J in that case.[2] There is no dispute as to the correctness of those principles. His Honour considered that the period between the making of the offers and 30 June 2004 was “excessive and unreasonable”. One basis for that conclusion was that the offeror sought a response in a stamped addressed envelope accompanying the letter of offer. That, in his Honour’s view, suggested the necessity for a timely response. Another basis for his Honour’s conclusion was his view that if the offer were to be accepted, “the lease would have to be brought to an end on 30 June 2004 in some regular way”. His Honour had in mind the execution of an instrument of surrender and considered that, if the offer were to be accepted on 30 June 2004, the documentation of the surrender would be impractical.

Did the offers contained in the letter of 2 July 2002 remain open for acceptance until 30 June 2004?

[25]  The provision of a stamped addressed envelope with a letter of offer may tend to suggest that an acceptance is required sooner rather than later.  But the weight to be given to such an act needs to be determined in light of the common commercial practice of providing offerees with stamped addressed envelopes in order to encourage and facilitate the forwarding of acceptances or other appropriate responses.

[26]  The considerations and circumstances addressed in the letter of 2 July 2002 strongly suggests that a reasonable time for acceptance of the offers is to be calculated in weeks rather than months, let alone years. The letter explains the difficulties allegedly faced by the respondent in maintaining a profitable business. It formulates proposals by the respondent with a view to achieving sufficient certainty to enable the future planning of its business. The letter states that the respondent believes “it is in the owner’s interests to address the longer term future of the building now” and makes plain that the rent is being reduced forthwith. The unilateral rent reduction, in itself, is not suggestive of a state of affairs which the parties contemplated being allowed to drift for two years or so.

[27]  As I have mentioned, none of the three options on offer to lessors expressly stated a time for acceptance. Plainly, the second option had to be exercised by 31 July 2002 at the latest. And unless the other two options were exercised promptly, the respondent’s objectives of securing a rent reduction in respect of the remaining leases, and of obtaining the certainty referred to earlier, could not be achieved. Moreover, the market conditions which gave rise to the need to make the offers were susceptible to changes, which could adversely affect the commercial value of the offers.

[28]  For these reasons, I agree with the primary judge’s conclusion that the offers had lapsed well before the events of 2004. Consequently, neither Mr Davy’s letter of 8 April 2004 nor the lessors’ letters of 11 May 2004 and 30 June 2004 notices were capable of constituting acceptances of the offers.

Did the respondent’s letter of 14 April 2004 renew or extend the offer?

[29]  A suggestion arose in the course of argument that the respondent’s letter of 14 April 2004 intimates that the offers in the 2 July 2002 letter remained open for acceptance. The third paragraph of the letter states:

 

“At the time we gave owners a number of options, and a number took those up. These included owners taking back their units and making use of them themselves, opting to continue with a guarantee of an additional three years lease, at either the then reduced rent, or at market rent. Other owners elected to consider the situation at the time of expiry.”

[30]  The final sentence appears to be a reference to the option numbered (3) in the letter but that was a reference to an option exercised or an election taken in the past. In other words, the paragraph under consideration speaks in terms of the prior conduct of offerees in response to the offer. It does not suggest that the offers remain open for acceptance. In my view, the tenor of the letter is inconsistent with the continuation of the July 2002 offers. On page two of the letter a fresh offer is made to proprietors.

[31]  The letter of 11 June 2004 to Mr Davy is also inconsistent with the continued existence of the subject offers. The evidence reveals that Mr Davy was acting as a representative of the appellants at the date of the letter and there is good reason to suppose that its contents were communicated to the appellants.

Was acceptance of the offer numbered (3) in the 2 July 2002 letter conditional on acceptance by the offeree of payment by the offeror of rent, at the rate of 70 per cent of that provided for in the lease until 30 June 2004?

[32]  It was argued at first instance on behalf of the respondent that the offers had been rejected well before 30 June 2004 and had thus lapsed. The primary judge, because of his conclusions on the arguments addressed in his reasons, found it unnecessary to decide this point. In view of the above conclusions, it is also unnecessary for this Court to decide it. But, as the point was argued and may be disposed of shortly, I propose to address it.

[33]  Whether the offers were rejected depends on whether it was implicit in offers (2) and (3) that the offerees accept a 30 per cent reduction in rent until 30 June 2004.

[34]  In my view the answer to this question is yes. The 2 July 2002 letter asserted that the respondent needed a lower rent “for the business to be viable”. It continued “in reducing the return now, it may well be the longer term use of the property can be secured … We have taken the liberty of continuing rental payments on the 70% basis”. The letter then proposed two alternatives to offset this (i.e. the rent reduction). One alternative was for the lessor to immediately terminate the lease. The other alternative was to continue to pay 70 per cent of the rent currently payable. The second option was expanded upon by the statement that the respondent was prepared to enter into a new lease for an additional three years at the reduced rental or, alternatively, subject to a market review at the end of two years. The second alternative was further explained:

 

“The object is to provide you with a secure tenure for 5 years at a set rent, or a rent for 2 years, then a market reviewed rent. The alternative is to take your unit back, or continue for 2 years only.”

[35]  That paragraph was by way of elaboration of the two alternatives proposed to offset the rent reduction.

[36]  Although the letter is far from clear, it is an improbable reading of it that option (3) was put forward on the basis that it could be accepted without acceptance of rent at the lower rate. The letter announced that there would be such a rent reduction and that such reduction was necessary to maintain the viability of the respondent’s business. The options, in part, were put forward as providing benefits to the lessors to compensate for the reduced rent.

[37]  Because it was implicit in offer (3) that the offeree accept the 30 per cent rent reduction there could be no acceptance of the offer unless that term or requirement was accepted also. It was, in fact, rejected by the appellants and the offer thus lapsed.[3]

Did the NOTICE TO TERMINATE LEASE constitute a purported acceptance  of an offer made in the 2 July 2002 letter?

[38]  Again, although it is not necessary to decide this issue in order to dispose of the appeal, the matter was argued at some length and it is desirable to make some observations in respect of it.

[39]  The learned primary judge answered this question in the negative. He said:

 

“The terminology of the notices does not readily suggest the acceptance of an offer leading to an agreement to change the state of the legal relations between the parties. The notices are peremptory in tone. They are not couched in the language of agreement or consent, or reciprocal promises, but rather of individual and unilateral action. The whole tenor of the document is to assert that the applicant was in breach of important terms of the leases, giving rise to a right in the first respondents to terminate for breach, which right was being exercised.”

[40]  The appellants rely, as they must, on that part of the paragraph numbered 3 in the notice which states that a novation or variation “of the Lease Agreement such that it is terminated on 30 June 2004…[was] accepted and agreed to by the lessor.”  That paragraph gives rise to some confusion. If it were intended to be an acceptance of an offer contained in the 2 July 2002 letter, it is a little curious that it does not refer to the relevant terms of that letter. It is also the last of three numbered paragraphs which, having regard to the introductory words, are given the role of describing those matters alleged to constitute “fundamental breach”. And, as the learned primary judge pointed out, the concluding words of the notice are quite inconsistent with acceptance of an offer. If the option numbered (3) in the 2 July 2002 letter was being accepted, it would have been inappropriate to allege breaches of the lease, termination and forfeiture.

[41]  Careful analysis of the document, however, reveals that it was intended to be a composite notice asserting termination for breach and acceptance of offers contained in letters of 2 July 2002 and 14 April 2002. I note that paragraph three of the originating application adopts this construction of the notice. It seeks:

 

“A declaration that … notices dated 30 June 2004 (contained in paragraph 3 of the notices …) purportedly accepting an offer by the applicant to terminate the leases on 30 June 2004 are void or of no effect.”

[42]  The drafter of the notices lost his or her way and included the purported acceptance of offers as part of the particulars of breach of contract rendering an already unclear paragraph three even more obscure in meaning. The two components of the document are not expressed in the alternative and the exercise of option, if there be one, is incompatible with the purported immediate termination of the lease. But, it is unnecessary to consider the matter further as the subject offer was not open for acceptance on 30 June 2004.

Conclusion

[43]  On the hearing of the appeal, Mr Davy sought leave to rely on fresh evidence but, as he did not establish any impediment to the placing of that material before the primary judge, leave was refused.

[44]  A difficulty which Mr Davy and the other appellants face is that the argument before the primary judge was advanced on quite a specific and limited ground, based on very few documents. The only issue, as their counsel acknowledged, was whether the notices of 30 June 2004 constituted acceptances of the offers made in the 2 July 2002 letter. It is not possible now to advance different and broader arguments based on different evidence.

[45]  For the above reasons, I would dismiss the appeal and order that those appellants whose names are listed in the schedule to these reasons pay the respondent’s costs of the appeal to be assessed on the standard basis.

[46]  PHILIPPIDES J:  I agree with the reasons for judgment of Muir J and with the orders proposed.


Schedule of Appellants

Lot

Appellant’s Name

16

Davy Investment Pty Ltd

31

Skafola Pty Ltd

32

DP Faggotter

33

NT & R Clements

35

Delta Investments Pty Ltd

45

PJ Hunter

49

BW Shepherdson

50

Sukhvinder Singh

53

JL Wharton

60

JA Sargeant

65

RV Williams

67

PJ Hart

69

CF Chambers

73

TG Lord

77

RG & DF Melbourne

78

I & RH Townsend

83

LP Flahavin

84

N Saxena

87

CS & VJ Carmichael

Footnotes

[1] (1957) 98 CLR 193 at 197.

[2] At 199.

[3] Baker v Taylor (1906) 6 SR (NSW) 500.

Close

Editorial Notes

  • Published Case Name:

    Transmetro Corp Ltd v Davy & Ors

  • Shortened Case Name:

    Transmetro Corp Ltd v Davy

  • MNC:

    [2005] QCA 239

  • Court:

    QCA

  • Judge(s):

    McMurdo P, Muir J, Philippides J

  • Date:

    28 Jun 2005

Litigation History

No Litigation History

Appeal Status

No Status