- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
Tropical Meat Packers P/L v Schultz  QSC 164
TROPICAL MEAT PACKERS PTY LTD (ACN 097 366768)
BS6436 of 2005
|Supreme Court, Brisbane|
3, 4 July 2006
Supreme Court, Brisbane
8 and 9 December 2005
Application dismissed. Applicant ordered to pay the respondent’s costs of the proceedings, including reserved costs, assessed on the standard basis.
LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENTS – TERM OF LEASE OR TENANCY – DURATION – GENERALLY – OPTIONS AND AGREEMENTS TO PURCHASE – CONSTRUCTION OF PARTICULAR AGREEMENTS – where applicant subleases a lot from the respondent – where sublease had an option to purchase and an option to renew – where applicant did not exercise its rights within the time frame stipulated in the lease – whether applicant still has right to exercise option to purchase under the sublease while relationship of sublessor and sublessee persisted - whether applicant has properly exercised its right to purchase under the sublease – meaning of “during the term of this lease or any extension thereof”
PROCEDURE – COSTS – DEPARTING FROM THE GENERAL RULE – ORDER FOR COSTS ON INDEMNITY BASIS – where offer of compromise made more favourable than final order – whether indemnity costs should be ordered
Property Law Act 1974, s 128(1)(a)(ii), s 137
Uniform Civil Procedure Rules 1999, r 361
ACCC v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618, cited
Alijade and MKIC v OCBC  VSC 351, cited
Griffith v Pelton  Ch 205, cited
Manfield Ltd v Botchin  QB 612, cited
Muller v Trafford  1 Ch 54, referred
Sherwood v Tucker  2 Ch 440, cited
Smec Testing Services v Campbell Town City Council  NSWCA 323, cited
Sydney Markets Limited v Sydney Flower Market Pty Ltd  FCA 283, cited
Tector v FAI General Insurance Ltd  2 Qd R 463, cited
Tsaoucis v Gallipoli Memorial Club Ltd (Supreme Court of New South Wales, Equity Division No 1694 of 1998, 27 May 1998, unreported), cited
Westpac v Commissioner of State Revenue  QSC 019, cited
Woodall v Clifton  2 Ch 257, cited
Dr A J Greinke for the applicant
Ms D C Spence for the respondent
Shannon Donaldson Province Lawyers for the applicant
Murdoch Lawyers for the respondent
Douglas J: The applicant held a sublease of Lot 98 on Crown Plan DY228 in the County of Derby Parish of Daandine, Title reference 50137883 from the respondent. Mr Schultz, the respondent, at the relevant times, had an option to purchase lot 98 from its registered owner, a Mr Peter Lever, from whom he leased the lot. Lot 98 is associated with several adjoining blocks that form two properties. Two lots, lot 98 and lot 14, were known collectively as “Lincoln Park” and lots 1, 97 and 125 were known collectively as “Lincoln Park South”. The applicant purchased Lincoln Park South and, as part of that transaction, also leased Lincoln Park. The applicant’s sublease of lot 98 commenced on 3 March 2003 and expired on 8 June 2005. It was dated 6 March 2003. Clause 30 of the sublease contained an option to purchase the property while clause 24 contained an option to renew. The two clauses’ relevant terms read as follows:
“24. OPTION TO RENEW
If the Sublessee shall desire to take a renewed Sublease of the said lands and improvements for a term commencing on the expiration of the original term of this Sublease and expiring on the 3rd March, 2008 and of such desire [sic] shall prior to the expiration of the said term give the Sublessor not less than three months previous notice in writing and shall in the meantime duly and punctually pay the rent reserved by the Sublease at the times therein appointed for payment thereof and duly perform and observe the covenants restrictions and agreements by and on the part of the Sublessee contained by [sic] this Sublease up to the expiration of the term hereby granted the Sublessor will at the cost and expense of the Sublessee grant to the Sublessee a further Sublease of the said lands and improvements for a further term commencing on the day after the date of expiration of the original term hereof expiring on the 3rd March, 2008 upon the same terms and conditions as are herein contained so far as the same are capable of application save and except the provisions of this clause which shall be deleted and at the rental calculated in accordance with clause 1 hereof.
- OPTION TO PURCHASE
- That in consideration of the premises the Sublessor doth hereby grant to the Sublessee a firm and irrevocable option of purchase of the said land and improvements thereon subject to and upon the following terms and conditions:
- The said option may be exercised by the said Sublessee at any time during the term of this lease or any extension thereof and prior to 3rd December, 2007 by the Sublessee giving to the said Sublessor notice in writing signed by the said Sublessee his solicitors or agent of his intention to purchase; such notice may be delivered personally to the said Sublessor or left at his usual or last known place of abode or business or sent through the medium of any post office addressed to the said Sublessor at his usual or last known place of abode.
- The purchase price for the said [sic] and improvements shall be the sum of ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00) (hereinafter called “the purchase price”). A deposit of TWO THOUSAND DOLLARS ($2,000.00) shall be payable to the Sublessor by the Sublessee on exercise of the option to purchase by the Sublessee ...”
On 21 July 2005 the applicant’s solicitor purported to serve a notice to exercise the option to purchase lot 98 on the respondent and handed to him the deposit money required in the amount of $2,000. At that stage the normal term of the sublease had expired. There had been no notice in writing of the renewal of the sublease in the form required by cl. 24.
The applicant’s submissions are that, on the proper construction of cl. 30, it has exercised the option to purchase. Alternatively, it argues that it would be unconscionable for the respondent to rely upon his strict legal rights to deny the applicant’s option to purchase. It seeks specific performance, not damages.
In mid 2004, Ms Melissa Raymond, the sole director of the applicant, was considering selling Lincoln Park South and her interest in lot 98. She decided to auction them on 20 July 2004. The sale of lot 98 would have required Mr Schultz to exercise the option to purchase it that he held from Mr Peter Lever, and the applicant to exercise its option to purchase contained in its sublease from Mr Schultz. There was correspondence directed to Mr Schultz by his solicitors and copied to the applicant’s solicitors dealing with the special conditions required in the auction terms to make the need for those steps clear to prospective purchasers. Mr Schultz advised Ms Raymond that he would attend the auction with a view to purchasing lot 98 and was prepared to pay $200,000 for it or, alternatively, give her $50,000 to waive her option to purchase it.
He had previously told her partner, Mr Lindsay Taylor, that he would terminate the applicant’s sublease over lot 98 if provided with a lawful opportunity to do so. That was said by him to Mr Taylor in December 2003 during an earlier dispute about damage to Mr Taylor’s vehicle and on another occasion after Mr Taylor had instructed a contractor to demolish a diversion hump that Mr Schultz had engaged the contractor to form on an easement along the eastern boundary of lot 98. Mr Taylor told Mr Schultz then that he did not have permission to access lot 98 or to perform the work on the easement. It was against that background that Mr Schultz says Mr Taylor told him, when he had told Ms Raymond that he wanted to buy lot 98, that he, Mr Taylor, would never sell lot 98 to him. That potential for friction between the parties lends colour to the subsequent events and to the manner in which I should view their evidence about their subsequent dealings with each other.
At the auction lot 98 was passed in on an auctioneer’s bid of $250,000 which Mr Schultz believed to be too expensive a price. Lincoln Park South did not sell at the auction either.
If one thing will become clear from the subsequent narrative it is that Mr Schultz, a bank manager in ordinary life, was careful, businesslike and familiar with the formal requirements of the contracts that bound him. By contrast, Ms Raymond, in spite of advice from her solicitors, did not take the simple steps required by the lease to allow the applicant either to exercise its option to renew the sublease or its option to purchase lot 98. Generally speaking, I believed Mr Schultz’s evidence in preference to that of Ms Raymond where there was a conflict. He was more careful about the detail of what had occurred and more precise in his attempts to recall relevant events.
Ms Raymond’s evidence was that towards the middle of February 2005 there were some serious potential purchasers of Lincoln Park South and lot 98. On the evening of 21 February 2005 she was reading through the lease documents over lots 14 and 98 because of the interest from potential purchasers and realised, when she was reading the lot 14 lease, that she had missed the time within which she was to exercise the option to extend the applicant’s lease over that property. On 22 February 2005, therefore, she rang Mr Schultz.
Her version of the conversation was that she told Mr Schultz that she wanted to extend “the leases”, the plural usage in her mind meaning the leases over both lots 14 and 98. She also said that she told Mr Schultz that there were parties seriously interested in purchasing the property, meaning Lincoln Park South and lot 98, but that she would still want to lease lot 14 anyway. She wanted somewhere to keep her horses and other stock. She also says that she told Mr Schultz that, if she sold, she would not need the lease on lot 98 but if she did not sell she would need it.
Her recollection was that Mr Schultz said he understood her situation and said: “Its fine, not a problem” or words to that effect. He also said, according to her, that he was not worried about the notice (concerning the exercise of the option to renew the lease over lot 14) being late. She says that he said: “As long as we understand between us what’s happening, it’s okay” to which she said: “Thank goodness for that. Now the paperwork is just a formality then”. She says that he reassured her about that, suggesting she ask her solicitors to send the paperwork directly to him rather than his solicitors. She also said that Mr Schultz said they had a “good relationship” and that it was good that he and she could still sort things out when he and Mr Taylor did not get on.
Mr Schultz’s evidence of this significant conversation was very different. He remembers Ms Raymond saying she had sold lot 98, apologising for not having renewed the sublease over lot 14 and saying she wanted to extend the sublease over that lot for a further period of 2 years. He advised her that he would permit her to renew the lot 14 lease in spite of her failure to renew it within the appropriate time frame. He denies that she said she wanted to “extend the leases” and the part of the conversation which had him saying “its fine not a problem” or reassuring her that the paperwork was a formality or asserting that they had a good relationship in spite of Mr Taylor.
My assessment of Mr Schultz is that it would be most unlikely that he would treat paperwork as a formality at the best of times but even more so in this context where he wished to determine the lot 98 sublease if he could do so lawfully. I am also satisfied that no reference was made by Ms Raymond to extending the sublease over lot 98 in that conversation. I base that partly on my view that Mr Schultz’s memory is more accurate but also on Ms Raymond’s subsequent conduct, particularly later conversations with her then solicitors to which I shall refer.
She says she contacted those solicitors on 23 February 2005 and “asked them to formalise things”. Their file note records an instruction that she had spoken to Mr Schultz, erroneously described in the note as “Peter Lever”, and that he was “quite happy for her to extend the term of the lease, even though the time for giving notice pursuant to the option clause” had passed. It was only the lease over lot 14 where the time for giving notice had passed at that stage.
The solicitors sent her a copy of a letter by them to Mr Schultz dated 28 February 2005 confirming the agreed extension of the lease over lot 14 and enclosing a deed of variation for signing by him. Their covering letter to her of the same date is more significant. They noted that the sublease over lot 98 was due to expire on 8 June 2005, said that it contained an option to renew and that the applicant must give not less than three months notice in writing, “no later than 8 March 2005” if it wished to take up the option. They went on to say:
“As this time is fast approaching, we shall await your instructions as to whether we should prepare a Notice of Exercise of Option.
There is also an option to purchase which can be found in Clause 30. This option may be exercised by you at any time during the term of the lease or any extension of the lease and prior to 3 December 2007.”
She said in an affidavit that she collected this letter on 4 March 2005 and went straight in to see the firm and ask the relevant solicitor “if he could send the paperwork on lot 98 to Peter Schultz also”. The solicitor’s file note records an attendance on 3 March 2005 where she gave instructions that she intended to take up the option for the “other Lot”, meaning lot 98, and asked whether there was anything she needed to sign. The file note goes on to say:
“After discussion we have resolved that she will write a letter to Peter Schultz advising him that she does take up the option and asking him to write back to acknowledge receipt.”
She accepted in her oral evidence that it was her task to write to Mr Schultz, not the solicitors. She did not do it. There was no practical difficulty preventing her from doing so. The lack of evidence explaining her failure to take this step was notable. Perhaps, one may speculate, she believed it was unnecessary, thinking that she had a purchaser for the property, that the option to purchase was all she needed and that it could be exercised later than the option to renew the sublease.
The subsequent file notes of her then solicitors assist with what occurred later. On 24 March 2005 she told another solicitor at the firm that the prospective purchasers were not proceeding with the purchase and instructed that she wished to exercise the option to renew the sublease and asked that they give Mr Schultz notice. On the same date, that solicitor rang her and asked her whether she had written to Mr Schultz in relation to lot 98, as she had said she would do on 3 March 2005. She told the solicitor that she had not written but had contacted Mr Schultz and advised him that the property had sold – a version consistent with Mr Schultz’s memory of the conversation of 22 February 2005. She asked the solicitors to write to Mr Schultz informing him that the sale did not proceed and that she wished to exercise the option.
They did that by their letter of 29 March 2005 which, significantly, did not assert that agreement had been reached for an extension out of time to exercise the option to renew the sublease of lot 98 contained in cl. 24. Their earlier letter of 28 February 2005 made such an assertion in respect of the lease of lot 14. Those solicitors then wrote a further letter on 15 April 2005 proposing, if Mr Schultz was agreeable, to prepare an amendment to the sublease of lot 98 in similar terms to the one for lot 14 that he had by then returned to them.
Mr Schultz responded to the applicant’s solicitor’s letters of 29 March 2005 and 15 April 2005 and said in a letter of 29 April 2005:
“Notwithstanding the option to renew was not exercised in time, consideration will be given to granting a new lease.”
Ms Raymond says she did not see that letter until 27 June 2005 when her then solicitors also showed her a letter from Mr Schultz’s solicitors dated 20 June 2005. The later letter made it clear that, where Mr Schultz spoke of a new lease, he meant one that did not include an option to purchase. The sublease had expired by then, on 8 June 2005.
The applicant’s rent for lot 98 was due to be paid by early June 2005 together with the rent for lot 14 in an amount totalling $2,750 for the two blocks. Ms Raymond says she sent a cheque numbered 1986 in payment of that amount to Mr Schultz dated 1 June 2005 but he says that he did not receive it. Ms Raymond was unable to produce a stub for the relevant cheque.
Mr Schultz did not seek to evict the applicant from the property immediately after the sublease expired on 8 June 2005. He wanted to retake possession but faced difficulties in doing so because of the number of stock on the property and problems he anticipated in removing them. His solicitors gave the applicant notice to leave the property by their letter of 17 August 2005.
On the evening of 11 July 2005, after Mr Schultz had inspected lot 98, he telephoned Ms Raymond and asked her whether the applicant was willing to take a new lease over lot 98 in accordance with his solicitors’ letter of 20 June 2005 that had made it clear that no option to purchase would be included or whether she would be vacating the property. Ms Raymond said to him then that she did not know and needed more time to make up her mind. He asked her how long she needed, whether a week or two weeks, to which she replied “only a week, two at the most”. He had no chance to respond to this and she ended the conversation by hanging up the phone.
On 21 July 2005 the applicant’s solicitors served a notice purporting to exercise the option to purchase lot 98 on Mr Schultz with a cheque for the deposit of $2,000. On 22 July 2005 the deposit was returned in cash by Mr Schultz’s solicitors.
The applicant’s solicitors proposed to settle the purchase of lot 98 on 4 August 2005 and presented transfer documents for execution by Mr Schultz under cover of a letter dated 1 August 2005. The firm had received a bank cheque for the purchase price of $150,000 on 3 August 2005 and Ms Ryan, a partner of the firm, swore that the firm was in a position to transfer the funds telegraphically on 4 August 2005 or to provide a bank cheque by 5pm on that day.
The respondent had previously made it clear that it would not accept or agree to a transfer. Its solicitors also put in issue, by their letter of 5 August 2005, whether the applicant was ready, willing and able to settle on 4 August 2005, on the basis that the applicant’s solicitors’ facsimile sent on 4 August 2005 did not confirm that the funds they had received into their trust account by bank cheque were cleared funds.
These proceedings were commenced by the applicant by its originating application on 8 August 2005.
The proper constructionof the lease
Dr Greinke’s submission for the applicant concerning the proper construction of cl. 30.2 focuses on the words:
“The said option may be exercised by the said Sublessee at any time during the term of this lease or any extension thereof and prior to 3rd December 2007”
His argument is that the option may be exercised before 3 December 2007 and while the parties are in the relationship of sublessor and sublessee. His submission is that the common law rule is that, prima facie, an option to purchase can be exercised during a holding over of a lease and that the word “extension”, in the context of the sublease, does not refer to the renewal of the sublease contemplated under cl. 24.
Dr Greinke also submits that the objective background facts supported the conclusion that the option to purchase could be exercised at any time before 3 December 2007 while the parties were in the relationship of sublessor and sublessee.
The common lawrule
An option to purchase is only collateral to and not an incident of the leasing relationship and does not survive the term of the lease; Halsbury’s Laws of Australia at [245-1675] and the cases referred to there. As the Court of Appeal said in Woodall v Clifton  2 Ch 257, 279:
“The covenant is aimed at creating, at a future time, the position of vendor and purchaser of the reversion between the owner and the tenant for the time being. It is in reality not a covenant concerning the tenancy or its terms … It is, to our minds, concerned with something wholly outside the relation of landlord and tenant … And allowing such a provision to come within the purview of the statute [of Henry VIII], and to be enforced as running with the land, would lead to very anomalous and, to our minds, most undesirable results as to perpetuities, conversion, and otherwise, which this Court should not validate unless it is obliged to do so.”
One rationale for distinguishing an option to purchase from an option to renew, which has been held to run with the reversion, was expressed by Lord Pollock MR in Sherwood v Tucker  2 Ch 440, 445 as follows:
“It is quite clear that a landlord may be prepared to give to his tenant an option to purchase at a fixed price for a limited period of time. The circumstance of value may enable both parties to fix upon a sum which will stand good for a definite time. It is quite another thing to say that the same considerations apply where there is an extension and a renewed extension of the term … [I]t is another matter altogether to say that the option is to continue for an extended period unless clear words are used for that purpose. It seems to me that the learned judge points out the antithesis between a fixed price within a limited time and a fixed price which is to be carried on for a very much longer period.”
Bearing those differences in mind, I need to deal with Dr Greinke’s submission that the option to purchase may be exercised while the relationship of sublessor and sublessee existed between the parties. He made that submission in reliance on a number of authorities to the effect that options to renew leases may be exercised in those circumstances if the lease does not fix any time for the exercise of the option; see Tsaoucis v Gallipoli Memorial Club Ltd (Supreme Court of New South Wales, Equity Division; No. 1694 of 1998, 27 May 1998, Young J, unreported, BC 9802159) where Young J examined the authorities including some Australian decisions which he distinguished.
Whatever be the proper resolution of that area of dispute, it does not affect this case and is not a reliable principle for the resolution of a dispute about when an option to purchase may be exercised. Here cl. 30.2 does specify the time for exercising the option to purchase, namely “at any time during the term of this lease or any extension thereof”.
The use of the word “extension”
There was no exercise of the option during the term of the sublease nor has there been an extension of the term. Dr Greinke was at pains to distinguish an extension of the sublease from a renewal of it. Clause 24 refers to a renewal. The distinction is valid. He went on to submit, however, that the word “extension” did not refer to a formal extension of the lease by amendment as occurred with lot 14. His reason for that submission was that, upon such an amendment being formalised, the word “extension” was redundant as the option would be exercised within the terms of the lease as extended.
I disagree. In my view the use of the word makes clear that which might otherwise have been unclear or arguable because of decisions such as Woodall v Clifton referred to earlier, namely that the power to exercise the option to purchase was not limited to the original term of the sublease before the extension was granted.
An extension of a lease can also be granted separately from a renewal of the type envisaged by cl. 24. One can imagine that the parties might have agreed to extend this lease for a term of one year but not to renew it in the terms envisaged by cl. 24 for a further three year period. For example, it was held in Muller v Trafford  1 Ch 54, 60-62 that a covenant to grant an extension of a sublessee's term on an underlessee obtaining a further term from the freeholder is not a "covenant to renew". Also the Property Law Act 1974, in s. 128(1)(a)(ii), speaks of renewal or extension of a lease or the grant of a further lease “whether the right is conferred by the lease or by an agreement collateral to the lease”. Those words, “renewal”, “extension” and “grant of a further lease” each bear different meanings, and the parties could have arrived at any of those results on the conclusion of their existing sublease.
What seems to me to be important is that there be some agreement between the lessor and the lessee to constitute an extension, not merely a holding over during a period when the right to renew has been lost, a new lease has been offered, without an option to purchase, and otherwise the lessor was attempting to negotiate when the lessee should vacate the property. During that period there may well have been a tenancy at will determinable on reasonable notice; see Manfield Ltd v Botchin  QB 612, 617 and s. 137 of the Property Law Act. There does not seem to me, however, to have been an extension of the lease.
The statutory use of the word “extension” in s. 128(1)(a)(ii) refers to a right conferred by the lease or by an agreement collateral to the lease and, in my view, its normal conveyancing use also anticipates some agreement conferring rights arising either from the lease or from some collateral agreement, not merely an indefinite holding over where the relevant right is merely to reasonable notice of termination.
Accordingly, as the notice of exercise of the option to purchase was not given during the term of the sublease or any extension, it was not validly exercised.
The background circumstances relied on by Dr Greinke to assist in his construction argument focussed on early negotiations for the purchase of lot 98 together with the other parcels of land comprising Lincoln Park and Lincoln Park South. There was an early suggestion that there be a “put/call option” contained in a proposed five year sub-lease of lot 98. That proposal came to nothing and does not assist me in construing the words of cl. 30.2.
On the findings of fact I have made there is no estoppel that would operate to render Mr Schultz’s refusal to accept the alleged exercise of the option unconscionable.
The version of the conversation of 22 February 2005 relied on by the applicant was not accepted by me. I do not believe that the respondent gave any assurances that the sublease over lot 98 would be renewed. It was quite opposed to his wishes for the property. Even putting that conversation at its highest for Ms Raymond, it required Mr Schultz to hear the word “leases”, not the word “lease” and to intuit that Ms Raymond wanted his consent to extend the lease over lot 14 and some prospective consent to the extension of the sublease over lot 98 where she had told him of the likely sale of lot 98 and was still in time to exercise her option to renew that sublease in any event. There was no need then for her to seek any indulgence from him in respect of the lot 98 renewal.
Her ability to exercise her rights was brought home to her by her solicitors in their letter of 28 February 2005 and during their meeting of 3 March 2005. She undertook to write the necessary letter and simply did not do it. She only has herself to blame for the loss of her rights.
The fact that Mr Schultz’s letter of 29 April 2005 did not state that the new lease he offered to discuss would not include an option to purchase is not, to my mind, relevant. She did not see the letter of 29 April 2005 until 27 June 2005 and there is no evidence about what effect, if any, that letter had on her then solicitors who did receive it earlier, apparently on 10 May 2005. The onus of proof lies on the applicant to establish this claim for relief and, in my view, she has not discharged that burden. In any event Mr Schultz pointed out in that letter that she had not exercised the option to renew in time, something she should have known anyway, and her ability to exercise the option to purchase within the term of the sublease continued until 8 June 2005.
In my view she was not operating under any erroneous belief induced by anything said by Mr Schultz to the effect that the sublease would be renewed. He did not say that to her in respect of lot 98. In any event I would not accept that her failure to exercise the option to renew was induced by any conduct by Mr Schultz. While she was still able to do so, within the terms of the contract, she received very explicit advice about what she had to do from her solicitors and told them she would do it.
There is no reason on the evidence for me to conclude that she did not follow their advice because of her claimed belief arising from her conversation with Mr Schultz. She really gave no evidence for ignoring that advice in the few days available to her before she could have exercised the option to renew, namely between 3 March 2005 and 8 March 2005. By 27 June 2005 she said that she believed her previous solicitors “were extending the option to renew the lease on lot 98” (T103 ll 27-29) but that mistaken view can hardly have governed her conduct between 3 and 8 March 2005. Perhaps there were other reasons for her inaction, such as concern about raising any necessary capital to exercise the option to purchase or lack of attention to detail generally. It is unprofitable to speculate, however, as I am satisfied that there was no conduct of Mr Schultz that led to her failure to exercise her rights.
The result is that the application should be dismissed. Had I been of a contrary view I would have ordered specific performance of the transfer of the land. The applicant’s ability to perform at the time nominated was proved satisfactorily, there was a reasonable argument in any event that time was not of the essence and otherwise specific performance would have been the appropriate remedy. .
Consequently the application is dismissed.
After I ordered that the application be dismissed I received further submissions as to costs. The respondent had offered to settle the proceeding on 14 November 2005 by paying the applicant $100.00 with each party agreeing to discontinue their respective proceedings and bear their own costs. His solicitors’ letter concluded by pointing out that if the applicant elected to reject the offer the respondent would ask the Court to assess his costs on an indemnity basis at the conclusion of the trial. The respondent relied on that offer to seek indemnity costs since that date. He also argued that the proceeding should have been commenced by a claim and statement of claim instead of an application because there were substantial factual issues and no urgency because the applicant had lodged a caveat over its interests. The merits of the applicant’s case were also attacked on the basis that the law that an option to purchase did not survive the term of the lease was settled in Australia.
That is so but the applicant advanced another argument that failed, that it was entitled to relief in reliance on the doctrine of equitable estoppel. In my view that argument was weak factually, but not unarguable. There is no evidence that its factual weaknesses were brought home to the applicant by the respondent, but Ms Raymond should have known that her previous solicitors’ file notes did not assist her significantly and that the result of this argument would depend on whether her oral evidence was accepted; see exhibits 8 and 9.
The applicant does not resist an order for costs in favour of the respondent on the standard basis but resists an order for indemnity costs on the basis that r. 361 of the Uniform Civil Procedure Rules 1999 does not apply or mandate such an order and there is no unreasonable conduct of the applicant or any special or unusual feature in the litigation warranting a departure from an award of costs on the standard basis; see Tector v FAI General Insurance Ltd  2 Qd R 463, 464 at .
The Australian authorities dealing with the award of costs after the making of a Calderbank offer were also recently examined by White J in Westpac v Commissioner of State Revenue  QSC 019 especially at -. Her Honour concluded at  that all the circumstances must be considered whether an order should be made and at  appeared to accept the view expressed by Giles J in Smec Testing Services v Campbell Town City Council  NSWCA 323 at  that: “In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure.” See also the useful analysis by Redlich J in Aljade and MKIC v OCBC  VSC 351 where his Honour concluded at -:
" The adoption of a “rule” to determine when indemnity costs should be granted was decried by Chesterman J in Emanuel Management Pty Ltd v Fosters Brewing Group Ltd. His Honour rejected both any presumption that a party should have its costs on the indemnity basis unless it could be shown that the offeree had some good reason why another order should be made, but also criticised the view that the offeror “must show that the offer was rejected unreasonably, judged in the circumstances known at the time it was made”. If [it] were necessary for me to do so I would adopt the same approach.
 To speak as the Plaintiffs did, of a rule, presumption or disposition in favour of a special costs order where an informal offer is rejected places the free exercise of the discretion at risk. The weight of authority to which I have referred, strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order. It will do so where it is concluded that the rejection of the offer was unreasonable.”
Here the applicant’s conduct in rejecting the offer, which effectively gave her nothing, and in seeking to test Ms Raymond’s credibility against that of Mr Schultz in a trial where the evidence extended only over two days, does not seem to me to warrant a departure from the ordinary rule as to costs. The offer was characterised by the respondent as seeking a capitulation, rather than a compromise by reference to Sydney Markets Limited v Sydney Flower Market Pty Ltd  FCA 283 at , and as an offer effectively only as to costs and not the type of offer that should be treated as a compromise within the meaning of the Calderbank authorities discussed in ACCC v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at -, in a situation where her case was not “manifestly hopeless”.
That seems to me to be a valid analysis of the situation facing the applicant and I shall order that the respondent have his costs of the proceedings on the standard basis.
The bringing of the proceeding by application arguably required an unnecessary interlocutory application in a matter that clearly required pleadings and where a caveat protected the applicant’s interests pending trial. The costs of that application were reserved by Byrne J but the draft order on the file shows that the applicant gave an undertaking in respect of the payment of rent and the respondent also gave undertakings in respect of not re-entering the property. Directions as to the conduct of the action were also given. It seems to me, therefore, that the application was of some utility in respect of the overall conduct of the action and the costs ordered in respect of it should not be ordered on an indemnity basis.
Accordingly my orders are that the application is dismissed and the applicant is ordered to pay the respondent’s costs of the proceedings, including reserved costs, to be assessed on the standard basis.
- Published Case Name:
Tropical Meat Packers P/L v Schultz
- Shortened Case Name:
Tropical Meat Packers Pty Ltd v Schultz
 QSC 164
04 Jul 2006
- White Star Case:
No Litigation History