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- ChongHerr Investments Ltd v Titan Sandstone Pty Ltd[2007] QCA 167
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ChongHerr Investments Ltd v Titan Sandstone Pty Ltd[2007] QCA 167
ChongHerr Investments Ltd v Titan Sandstone Pty Ltd[2007] QCA 167
SUPREME COURT OF QUEENSLAND
CITATION: | ChongHerr Investments Ltd v Titan Sandstone P/L [2007] QCA 167 |
PARTIES: | CHONGHERR INVESTMENTS LTD ACN 054 161 821 (applicant/appellant) v TITAN SANDSTONE PTY LTD ACN 105 299 223 (respondent) |
FILE NO/S: | Appeal No 10600 of 2006 SC No 9145 of 2006 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 25 May 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 1 May 2007 |
JUDGES: | de Jersey CJ, Keane JA and Philippides J Separate reasons for judgment of each member of the Court, each concurring as to the orders made |
ORDER: | 1.Appeal allowed 2.Judgment below set aside 3.Appellant to recover possession of the land 4.Respondent to pay the appellant's costs of the application and appeal |
CATCHWORDS: | LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENTS – TERM OF LEASE OR TENANCY – DURATION – INTERPRETATION OF PARTICULAR PROVISIONS – where respondent sub-leased appellant's mining lease – where sub-lease agreement provided for option to renew – interpretation of option clause in sub-lease LANDLORD AND TENANT – RENEWALS AND OPTIONS – EXERCISE OF OPTION – VALIDITY OF EXERCISE – whether option remained exercisable after notice to quit –whether respondent remaining in possession of land amounted to exercise of option – whether respondent had otherwise validly exercised option Mineral Resources Act 1989 (Qld), s 10, s 234, s 235, s 273, s 276, s 308, s 312 Associated Minerals Pty Ltd v NSW Rutile Mining Company Pty Ltd & Ors (1961) 35 ALJR 296, applied Blomidon Mercury Sales Ltd v John Piercey's Auto Body Shop Ltd (1981) 129 DLR (3d) 630, disapproved Trustees Executors and Agency Co Ltd v Peters (1960) 102 CLR 537, considered Tsaoucis v The Gallipoli Memorial Club (No 1) (1998) 9 BPR 16, 265, considered Wade v New South Wales Rutile Mining Company Pty Ltd & Ors (1970) 121 CLR 177, considered |
COUNSEL: | P O'Shea SC, with S Moody, for the appellant L D Bowden for the respondent |
SOLICITORS: | Hemming + Hart for the appellant James Byrne & Rudz for the respondent |
- de JERSEY CJ: I have had the advantage of reading the reasons for judgment of Keane JA. I agree with the orders proposed by His Honour, and with his reasons.
- KEANE JA: The respondent, Titan Sandstone Pty Ltd ("Titan"), is in possession of land at Helidon known as "Zack's Quarry" ("the land") where it has conducted a quarrying business. Titan's rights in respect of the land stem from a sub-lease agreement made on 6 May 2004 with the appellant, ChongHerr Investments Pty Ltd ("ChongHerr"). A dispute arose between the parties relating to Titan's right to continue in occupation of the land pursuant to the alleged exercise of an option for renewal. This dispute led to an application by ChongHerr to recover possession of the land. On 7 December 2006, the learned primary judge dismissed that application on the footing that Titan validly exercised an option for renewal of its tenancy.
- ChongHerr appeals from this decision, contending that Titan's tenancy had been validly terminated before Titan purported to exercise its right of renewal and that any subsequent purported exercise of the right of renewal was ineffective. I will discuss the arguments involved in these contentions after first setting out the material terms of the sub-lease, the relevant communications between the parties and the reasons for the decision of the learned primary judge.
The sub-lease agreement
- It is important to note at the outset that the sub-lease agreement in respect of the land was, in substance, a sub-lease of a mining lease granted to ChongHerr under the Mineral Resources Act 1989 (Qld). The sub-lease agreement was in the following terms:
"THIS SUB-LEASE AGREEMENT is made on the 6th day of May 2004.
BETWEEN:ChongHerr Investments / Australian Sandstone Industries
A.C.N.: 054 161 821 A.C.N.: 062 269 318
ANDTitan Sandstone Pty Ltd
A.C.N.: 105 299 223
A.B.N.: 62 105 299 223
WHEREAS:
A.The Sub-Lessor is the lessee of mining lease ML50013 issued pursuant to The Mineral Resources Act 1989 of the State of Queensland on land described as lot 130 on Crown Plan CA311458 county Cavendish, Parish Helidon and being the property shown on Survey Plan Catalogue Number MP36037.
B.The sub-lessor has agreed to grant a sub lease agreement of an agreed area of not more than 10 hectares of Mining Lease ML50013 to the sub-lessee on the terms and conditions contained in this agreement, and subject to the provisions of the Act.
THE PARTIES AGREE:
1 That a minimum of $2,500 for 25 loads (approximately 25 tons per load) per calendar month.
2 Thereafter $90.00 per 25 tons load.
3 Extraction period will be from 10th May 2004 to 10th May 2005 with the option to renew after that date every year for a period of 5 (five) years so long as all terms and conditions of agreement are met.
4Rent payment to be paid monthly in advance.
5 Bond payment of 3 months rental in advance;
6Titan Sandstone Pty Ltd are to fax to ChongHerr Investments Ltd/Australian Sandstone Industries head office the exact number of loads each month;
7Accounts are payable by the 7th of the following months.
8Royalties of stone extracted from this agreement to the Department of Natural Resources and Mines to be paid by Titan Sandstone Pty Ltd
9Cancellation of this Agreement:
(A)ChongHerr Investments Ltd/Australian Sandstone Industries has the right to demand all extraction operations cease after 14 days of the non-payment of monies after the due date of the account;
(B)ChongHerr Investments Ltd/Australian Sandstone Industries has the right to demand extraction operations be stopped and removal of all machinery and equipment of the site, after 30 days if Titan Sandstone Pty Ltd do not comply with the requirements of the Department of Natural Resources and Mines, and rectify any notices received from the Department of Natural Resources and Mines;
(C)Titan Sandstone Pty Ltd has the right to cease operations and cancel this agreement after 30 days of written notice to ChongHerr Investments Ltd/Australian Sandstone Industries, and all monies owing are paid in full;
10A Plan of Operations is to be submitted to and accepted by the Environmental Protection Agency. Copy of the Plan of Operations to be submitted to ChongHerr Investments Ltd/Australian Sandstone Industries;
11Titan Sandstone Pty Ltd to appoint a Site Senior Executive Officer for ML50013. A copy of the appointment to be submitted to ChongHerr Investments Ltd/Australian Sandstone Industries;
12ChongHerr Investments Ltd/Australian Sandstone Industries has the right of inspection of the site each month of this agreement;
13On the ending of this agreement between ChongHerr Investments Ltd/Australian Sandstone Industries and Titan Sandstone Pty Ltd, Titan Sandstone Pty Ltd is to leave the site in a clean and tidy manner, and agree to inspection by the EPA and ChongHerr Investments Ltd/Australian Sandstone Industries Staff."
- The option to renew conferred on Titan by cl 3 of the sub-lease was exercised for the first time by letter dated 22 April 2005. That letter was in the following terms:
"We wish to exercise our option to re-new our lease as per our lease agreement dated 6th May 2004, which entitles us to the same terms and conditions as per the original agreement."
- On 12 May 2005, ChongHerr sent Titan a letter in the following terms:
"Further to my letters dated 20 April and 3 May 2005, and as per discussions amongst you, Patrick Ng and myself in a meeting on 22 April 2005, I propose that the Agreement between ChongHerr Investments Limited (ChongHerr) and Titan Sandstone Industries Pty Ltd (Titan) dated 6th May 2004 to remain effective for a further 12 [months] to expire on 6 May 2006 pending your agreement to the following additions and amendments:
- Titan will ensure that operation will be within area assigned by ChongHerr / ASI and that the operation comply with conditions imposed by a standard EMOS;
- Titan is to submit to ChongHerr by 31 May 2005, a bank guarantee of $10,000 showing ChongHerr as the beneficiary, as a provision for rehabilitation expenses related to Titan's extraction activities within ML50013;
- Titan is to submit A Plan of Operation and have it approved by the relevant government departments / agencies by 15 August 2005. Failure to obtaining approval of the said Plan of Operation by 15 August 2005 will automatically terminate the original (dated 6 May 2004) and this Amendment to Agreement.
- Within 14 days of approval of the Plan of Operation, the bank guarantee amount will be adjusted by either party to reflect the EPA required amount. The Bank Guarantee will be released at termination of the sub-lease agreement and when Titan has rehabilitated its disturbed area to the satisfaction of EPA;
- Commencing 1 May 2005, monthly minimum payment will increase to $3,000 inclusive of GST for up to 30 loads taken from ML50013 within one month. The fee is prepaid and payable on the 1st day of the month;
- $100 per load inclusive of GST will be charged for any additional loads in excess of 30 taken within one month. Titan will fax to ChongHerr a worksheet by the 7th of each month, detailing number of loads taken from ML50013 during the previous month. Payment is due by the 14th of the month.
- In order to ensure that correct load numbers are being charged each month, ChongHerr is to set up a monitoring system by installing a security camera at the entrance to ML50013. The record will be cross-referenced with the reported load numbers by Titan. Any discrepancies should be discussed and dealt with in a timely manner.
- Commencing May 2005, ChongHerr is to send to Titan a monthly invoice for royalties due based on previous month's extraction figures at $0.50 per ton. Royalty is due and payable within 14 days of the date of invoice.
- Royalty from July 04 to April 05 totalling $8175 is due and payable by 30 June 2005 (Invoice No 19376 attached, please disregard the one faxed on 6 May 05).
- Should the parties fail to agree on this Amendment to Agreement by 31 May 2005, the Sublease Agreement dated 6 May 2004 will cease immediately and all outstanding accounts including royalties and a provisional rehabilitation bond of $10,000 will become due immediately.
- This letter serves as a supplementary document to the Agreement dated 6 May 2005."
- This letter was signed by Mr Ebsworth on behalf of Titan below the words "accepted by". To the extent that the agreement concluded by the signing of this letter by both parties was apt to effect an amendment to the original sub-lease agreement as the charter of the parties' rights and obligations inter se, nothing was said to turn on whether this first extension of the sub-lease expired on 6 or 10 May 2006.
- By letter dated 19 April 2006, Mr Ebsworth, on behalf of Titan, wrote to ChongHerr in the following terms:
"We refer to a telephone conversation with Jing-Jing of your company and myself last week.
In order for our operation to remain viable we need to extract more rock, to process all material removed from the ground and to purchase new and update existing plant & equipment.
Therefore in order for us to reach our objectives we have to spend a considerable amount of money in upgrading our existing plant and to purchase screening and crushing facilities. This considerable cost can only be implemented if we have the security of tenure at [Zack's].
As the lease agreement stands now we feel we require added security and a longer term in order for us to achieve our planned objectives.
Also we have spoken with our investors and would like to raise the possible freehold purchase of [Zack's] quarry. Jing-Jing was contacting your accountant to discuss this also.
As this matter is most urgent for our viability we would appreciate a meeting to formalize the above matters."
- Mr Ebsworth wrote to ChongHerr again on 2 May 2006. That letter was relied upon by Titan as effecting the exercise of the option to renew. It was in the following terms:
"Sorry I've taken so long to put this proposal in writing – it is in reference to our conversation of last Thursday.
As I have said previously in order for us to run a viable mining operation at [Zack's] we need an extension of time to 10 years perhaps a 3 x 3 x 4 year option or negotiate the freehold purchase and mining lease from [ChongHerr] Investments and/or Australian Sandstone Industries.
I'd like to formalize the freehold purchase if this is to be the case as soon as is possible. We would need at least ninety (90) days due diligence. We would also require the EPA extraction permit on the mining lease to be in place before settlement which we would envisage to be approximately ninety (90) days after the above matters are in place.
The price discussed of 1.2 million dollars would be for the whole freehold property, mining leases, extraction permits and whatever other associated documents would be required to finalize the purchase.
As this matter is most urgent for us to continue our operations we would like to formalize the extension of our existing lease agreement or purchase the mining lease, freehold land and extraction permit as soon as possible. If you could let me know what way we are heading we can have contracts drawn up immediately and therefore start the due diligence process."
- In these proceedings at first instance, Mr Ebsworth filed an affidavit on behalf of Titan. In that affidavit he asserted that Titan "exercised its option to renew the lease by letter … dated 2 May 2006". He also said that:
"… on or about 19 April 2006 I had a telephone conversation with Jing-Jing [Chen]. I told her that we would be staying on the property for the next three years of the lease. I said further that we needed to upgrade our machinery and buy more machinery and equipment to be used on site and I would like to extend the lease beyond the next three years. I said I would prefer to extend for a period of an additional seven years over and above the three years we had remaining. She said she would ask the director."
- Ms Chen, on behalf of ChongHerr, filed an affidavit in which she said that she does not recall "discussing the exercise of the option to renew the current lease" as Mr Ebsworth had asserted in his affidavit but said that she would not have entertained the proposal allegedly put by Mr Ebsworth because she believed that Titan was in breach of the sub-lease.
- After 2 May 2006, Titan remained in occupation of the tenancy, continued its quarrying operations, and paid rent to ChongHerr.
- On 19 July 2006, ChongHerr wrote to Titan in the following terms:
"Further to the meeting between Patrick Ng of our office and yourself on 11 July 2006, I would like to confirm the following:
- In relation to the sale of [Zack's] Quarry, the company will only consider offers above $1.5 million;
- We have offered Titan the priority in purchasing the property, however, the price you have offered so far falls short of our reserve price;
- As our sublease agreement expired in May 2006, there is currently no formal lease agreement in place between the 2 companies. While we consent to a temporary arrangement with no specific terms based on conditions contained in the sublease agreement (dated 12/05/05) and [its] amendments (dated 12 May 05), we would require Titan's agreement to the following points while the property is offered for sale:
a.Titan is to pay the $10,000 rehabilitation bond still outstanding within 5 working days from the date of this letter;
b.As there is no specific term of lease in the current arrangement, each party can terminate the current arrangement by giving the other party a notice of one calendar month;
c.Upon leaving the site, Titan is to restore the site to EPA's satisfaction;
d.Commencing 1/8/06, the monthly rental payment is to increase to $5500 per month inclusive of GST, which will entitle Titan to take away from [Zack's] a maximum of 50 loads (truck and dog) of boulders per month. Anything in excess of 50 loads will be charged at $110 per load including GST.
The above points are the minimum requirements which Titan has to meet in order to continue to operate in [Zack's] until further notice.
- Please sign for your acceptance by Friday 21 July 2006. Please call me or Patrick to discuss if you have any questions."
- Titan did not sign this letter. Mr Ebsworth wrote back to ChongHerr by letter dated 27 July 2006 proposing a negotiation with a view to Titan purchasing the land. That letter was relevantly in the following terms:
"In response to your letter dated 19th July 2006 I would like to thank you for the opportunity in purchasing [Zack's] quarry.
Would it be possible to organize a time to meet where we could discuss this with you and perhaps Pattrick our intentions to purchase [Zack's].
Our company's understanding is that our sub-lease agreement is valid and will be so until May 2009. We have undertaken certain infrastructure works in [Zack's] quarry at a considerable expense which will enable us to mine sandstone for the next three (3) years or so.
…"
- ChongHerr replied by letter dated 1 August 2006 stating that it would not be interested in any offer to buy the land for less than $1.5 million, and denying that any tenancy was in place between the parties.
- On 29 August 2006, Titan again wrote to ChongHerr. The relevant terms of that letter were as follows:
"I apologise for the delay in replying to your letter of 1st August, but have been busy investigating the means to further our negotiations for the purchase of the freehold.
In the meantime, to deal with the lease matters I say:
1. Titan's occupancy is under a lease or sublease the terms of which were agreed on 6 May 2004.
2. Titan has complied with all of those conditions and is entitled to five annual renewals presently current to 9 May 2007.
…
6. On the understanding that you would honour our agreement for tenure totalling five (5) years up till 9 May 2009, we have expended considerable sums in purchasing plant and machinery and have entered into long term contracts for supply of product. We have extracted ready for further processing a large volume of material and have developed the quarry in a professional manner to the satisfaction of the authorities. Such works have cost well over $350,000.
7. We have paid our royalties and rent to you as agreed, yet you have attempted to force us into agreeing to an unsustainable increase of 60% in our monthly payments.
8. Such an attitude is not conducive to good relations and is oppressive. We object strongly to your advising EPA that there is no lease arrangement between our companies when that is clearly not correct.
If we leave the premises, your company cannot just assume ownership of material which we have produced. We are entitled to receive full compensation for that and damages to cover losses incurred not just by us but by those to whom we have contracted for long term supply.
Densen, we would prefer not to get lawyers involved which would only lead to expense for each party but if necessary we will fight to protect our rights.
Instead we should direct our efforts to a successful negotiation for the sale and purchase of the quarry."
- On 29 August 2006, ChongHerr's solicitors wrote to Titan enclosing a notice in Form 8 under s 131 of the Property Law Act 1974 (Qld) requiring delivery up of possession of the land by 6 October 2006, or at the expiry of the next period of the tenancy.
- Titan failed to comply with this demand. On 6 September 2006, Titan's solicitors wrote to ChongHerr relevantly as follows:
"We act for Titan Sandstone Pty Ltd and Paul Ebsworth to whom your letter dated 29 August 2006 was sent on behalf of ChongHerr Investments Ltd.
The Sub-lease agreement does not specify that any formal notice must be given for the annual renewal.
Our client's continuation of the rental and royalty payments after 6 May 2006 is clear evidence of its intention to continue its tenancy for the current year, of which your client was informed by
Mr Ebsworth.
…
Any attempt to so determine the tenancy and / or interfere with our client's machinery, stock piles or other rights associated with its operation will be met with the appropriate court action, including recovery of damages for consequential loss suffered by our client with its head contractors and financiers to whom our client is committed until 2009.
…"
- On 18 September 2006, ChongHerr's solicitors sent a facsimile transmission to Titan's solicitors. The fax included the following:
"We acknowledge receipt of your letter of 6 September 2006 which we have referred to our client.
We do not agree that you [sic] client's continuation of the rental and royalty payments after 6 May 2006 is clear evidence of its intention to continue its tenancy for the current year.
Exercise of options in leases requires an unequivocal and unconditional acceptance of the offer of a new lease term. Your client's letter of 2 May 2006 to our client (a copy of which is attached) does no more than allude to the possibility of purchasing the land or seeking an extension of the existing arrangements for up to 10 years.
A clear, unequivocal and unconditional acceptance of the offer of a further term would require that notice to be in writing, or at least unequivocally communicated to our client.
We are instructed that our client's dealings with your client could not reasonably have allowed your client to believe that the option to renew was exercised. In fact, our client by letter of 19 July 2006 to your client (a copy of which is enclosed) makes point that the sub-lease arrangements expired in May 2006 with no formal lease agreement in place between the parties.
Our client will continue to rely on its rights pursuant to the Form 8 'Notice to Tenant' and requires vacant possession to be delivered up on 6 October 2006. Our client's rights continued to be reserved generally."
- On 7 November 2006, Titan gave ChongHerr a formal notice expressly exercising the option.
The decision of the learned primary judge
- At first instance, Titan contended that it had exercised the option for renewal by the conversation of 19 April 2006 between Mr Ebsworth and Ms Chen or by the letter of 2 May 2006 or by a combination of these communications understood against the background of Titan's continued occupation of the land. It was held that "the option has been effectively exercised" by Titan.[1] The kernel of the reasoning of the learned primary judge is in the following passage:
"There is, in my opinion, no warrant for an approach that the option must be exercised in writing, nor is any formality whatever indicated. It seems to me that an oral exercise of the option would be permissible, and even an exercise by other conduct which might be continuing in possession and payment of rent.
The respondent has the advantage here that those matters occurred against a background of what was said on the 19th of April 2006, if that was the true date - which wouldn't seem to matter much - and the letter of the 2nd of May 2006. Although Ms Moody says it may be difficult to understand from those communications exactly what the respondent is about, particularly against the background of the formality resorted to for the first renewal, it strikes me as unrealistic, in the present circumstances, to contemplate that the respondent had in some way elected not to exercise the option while embarking on negotiations for different arrangements for the long-term future.
The judgment of Young J in Tsaoucis v. the Gallipoli Memorial Club Ltd (No 1) (1998) 9 BPR - Butterworths Property Reports - 16265 acknowledges that there may be some differences of approach when Australia is compared with other jurisdictions in which more indulgence may be shown to those seeking to exercise options. In some respects, at least, his Honour favoured the adoption of a similar approach in this jurisdiction. I respectfully would agree subject, of course, to regard being had to any binding authorities.
One of the respects in which his Honour thought it was open to follow overseas decisions concerns the exercise of options after the expiration of a term. There is plenty of authority in other jurisdictions for that, including Gardner v. Blaxill [1960] 1 Weekly Law Reports 752. In that case, there was not even any provision for notice to be given exercising an option. Ms Moody contends that the landlord there had done much more than her client by way of acquiescence, but this is a distinction in degree only.
Clause 3 in the present context may be odd, but in referring to the 'option to renew after that date' (being 10th of May), there is a total absence of anything to indicate that the option should be exercised earlier.
These considerations may go to save the exercise attempted today, unless it is precluded by the expiration of a valid notice to quit. I do not see how the notice to quit could be valid if the option had already been exercised effectively."[2]
- The learned primary judge was of the view that there was "room for argument" as to whether ChongHerr's notice to quit was effective to oblige Titan to deliver up possession of the land on 6 October 2006.
The arguments on appeal
- On the appeal, ChongHerr argued that, if the agreement had not expired on 10 May 2006, then, even on the view most favourable to Titan as to when the notice to quit could take effect, the notice to quit was effective to terminate the tenancy on 10 October 2006. Titan did not argue to the contrary, but argued that the option to renew remained exercisable by Titan even after the notice to quit had taken effect. On this footing, Titan submitted that the notice of 7 November 2006 was effective as an exercise of the option. For reasons which will appear, I do not accept this submission.
- On the hearing of the appeal, ChongHerr accepted that the option in cl 3 of the sub-lease could be exercised orally, so that written notice of the exercise of the option was not required. ChongHerr contends, however, that the learned primary judge erred in failing to appreciate that there was no clear and unequivocal communication by Titan to ChongHerr that Titan was exercising the option at any time before 7 November 2006, which was too late.
- Once again, Titan contended that the option was exercised orally in the conversation between Mr Ebsworth and Ms Chen on 19 April 2006 or by the letter of 2 May 2006 or by continuing in occupation of the land and acting in conformity with the terms of the lease after 10 May 2006. Titan also sought to rely upon a number of other pieces of correspondence written between July and November 2006 as effecting the exercise of the option. In particular in this regard, Titan relied upon the letters from Titan to ChongHerr of 27 July 2006 and 29 August 2006. Titan also relied upon the letter from its solicitors to ChongHerr's solicitors of 6 September 2006, and the formal exercise of the option on 7 November 2006.
- While it was conceded that the option in cl 3 of the sub-lease agreement might be exercised orally, it was also common ground between the parties that, however "indulgent" one may be of the informality which may attend the exercise of an option, it is essential that there be, in fact, an unequivocal expression of an intention to exercise the option.[3]
- I turn now to discuss the arguments of the parties.
The conversation of 19 April 2006
- In relation to the conversation of 19 April 2006, Mr Ebsworth's version of that conversation (which was not supported in the crucial respect by the letter of 2 May 2006) was disputed by Ms Chen. That dispute was not resolved by any finding of fact by the learned trial judge. It would appear that his Honour did not consider that a resolution of this issue was necessary in order to reach his ultimate conclusion in Titan's favour. In any event, on the appeal, ChongHerr was content to proceed on the footing that this Court could accept Mr Ebsworth's evidence of the conversation of 19 April 2006 as accurate. ChongHerr's submission was that Mr Ebsworth's evidence did not demonstrate an unequivocal expression of an intention to exercise the option.
- The particular statement by Mr Ebsworth of 19 April 2006 on which Titan relied was the statement that "we would be staying on the property for the next three years of the lease". On behalf of Titan, it was submitted that this statement necessarily expressed an intention to exercise the option in cl 3 of the sub-lease agreement. In my respectful opinion, the submission cannot be accepted.
- At best for Titan, Mr Ebsworth's statement to Ms Chen can be seen as an indication of a present intention on the part of Titan to exercise three years' worth of options for renewal of the sub-lease agreement. But that course was not open to Titan at that time. The option to renew was exercisable "every year", that is to say, annually. What the sub-lease granted Titan was the right to extend the "extraction period" year by year. There can be no doubt that, if the sub-lease agreement were to be terminated, for example, for breach by Titan in the year following an effective renewal, the remaining options would not remain exercisable by Titan. Titan was entitled to renew the extraction period under the sub-lease agreement for a year at a time. The other side of the coin was that Titan was obliged to commit itself to a year's renewal on the footing that this was the extent of its entitlement each year.
- Mr Ebsworth's statement to Ms Chen was not expressing an intention on the part of Titan to commit itself to one further year of the extraction period; it was asserting a claim to a three year extension. To that it had no right. Nor could Mr Ebsworth's statement be construed as encompassing the right of renewal for one year which was available to Titan: Titan was distinctly not expressing an intention to bind itself to a renewal for one year only. Titan's letter of 19 April 2006 also makes that clear. Titan clearly communicated the position that it considered a longer term was necessary to justify the expenditure required to upgrade its plant.
The letter of 2 May 2006
- The letter of 2 May 2006 expressly states that an extension of time to 10 years is needed to enable Titan "to run a viable mining operation". The letter of 2 May 2006 appears to be an attempt by Titan to extract from ChongHerr a longer tenure than was available to Titan under the option conferred by the sub-lease agreement. That conclusion on the part of a reasonable reader would be confirmed by reflecting upon the terms of the letter of 19 April 2006, and Titan's clear and explicit exercise of the option in the previous year by the letter of 22 April 2005. A reasonable reader of that letter would regard it as taking the position that renewal for the balance of the period of the sub-lease agreement would not be sufficient to enable Titan to run a viable business at Zack's Quarry. In other words, a reasonable reader would regard the letter of 2 May 2006, especially considered in the light of Titan's letter of 19 April 2006, as distinctly inconsistent with a desire on the part of Titan to commit itself irrevocably to a further one year extension without a binding assurance of a longer term of operation.[4] To the extent that Titan relies upon the letter of 2 May 2006 as the communication of Titan's exercise of the choice to renew or not to renew the extraction period, a reasonable reader would regard it as an election not to renew.
- In relation to the learned primary judge's observation that it is "unrealistic" to regard Titan's continuing occupation and use of the land after the letter of 2 May 2006 as not reflecting an intention to exercise the option for renewal, it seems to me, with respect, that Titan's continued occupation and use of the land and payment of rent is explicable objectively as part of its attempt to improve its commercial position, perhaps in anticipation of agreement on terms whereby Titan would purchase the mining lease outright. As I have said, Titan's letter of 2 May 2006 cannot be regarded as an unequivocal exercise of the option to renew conferred by cl 3 of the sub-lease agreement. Titan's mere continuing in possession of the land cannot add to the effect of the letter of 2 May 2006.
Renewal subsequent to 10 May 2006
- ChongHerr made its position clear by its letter of 19 July 2006 that the sub-lease agreement was at an end. In this Court, ChongHerr also argued that the subsequent pieces of correspondence on which Titan sought to rely were not apt to effect the exercise of the option. While ChongHerr accepted that the notice of 7 November 2006 might have been adequate in its terms, it contended that this notice was too late. I am inclined to accept the submission made by ChongHerr; but, strictly speaking, it is unnecessary to rule upon this submission. It would be necessary to consider whether Titan's subsequent communications were apt to exercise the option only if the right of renewal conferred by cl 3 of the sub-lease agreement remained exercisable by Titan after 10 May 2006. I turn, therefore, to consider the question whether the right of renewal could be exercised after 10 May 2006.
- The crucial question here is whether, when the extraction period under cl 3 of the sub-lease agreement was not renewed by 10 May 2006, Titan's right of renewal came to an end. Titan submitted that this question should be answered in the negative and that the right of renewal survived so as to be exercisable within a reasonable time.[5] In my respectful opinion, the crucial question must be answered in the affirmative for the reasons which follow.
The letter of 12 May 2005
- The first reason for the conclusion I have reached is that the letter of 12 May 2005 expressly contemplated that the sub-lease agreement would expire if not renewed on 6 May 2006. The effect of the letter of 12 May 2005 did not loom large in the arguments of the parties, but it cannot be ignored as an expression of their intention.
- By this letter, which the parties had expressly agreed should "supplement" the documentation of the sub-lease agreement, it was explicitly stated that the sub-lease agreement should expire at the end of the first extension of the extraction period.
The construction of the sub-lease agreement
- Even if one ignores the letter of 12 May 2005 and focuses upon the terms of the sub-lease agreement in isolation, it is, I think, tolerably clear that it was the parties' intention that the sub-lease agreement should cease as the charter of rights and duties if the extraction period was not renewed annually.
- When cl 3 of the sub-lease agreement speaks of the option to renew "after that date", it is distinctly not stating that the date for the annual exercise of the right of renewal is any date so long as it is after 10 May in the year of a putative renewed term or within a reasonable time after that date: it is simply saying that the right of extraction may be renewed by Titan every year after 10 May 2005 by Titan's exercise of the option to renew. But it is also saying that the right of extraction must be renewed every year if the sub-lease agreement is to continue to bind the parties after the date for renewal.
- The sub-lease agreement was an agreement for the extraction of minerals which was renewable each year up to a maximum of five years. The terms of the sub-lease agreement, and in particular cl 3, expressly contemplated that the extraction period might be renewed every year. The option was exercisable annually. This tends to suggest, though perhaps not decisively, that the option had to be exercised before the yearly renewal. The circumstance that the right to exercise the option was expressed to be dependent on "all terms and conditions of agreement [being] met" is also of some relevance here. While s 128 of the Property Law Act 1974 (Qld) limits the extent to which a default on the part of Titan in compliance with its obligations under the sub-lease agreement might preclude the exercise of the option, the language which the parties have used provides support for the view that the right of renewal is intended to be exercisable only while the other terms of the sub-lease agreement are being complied with. Shortly put, the language in which the option was cast supports the view that, as a matter of construction, the right of renewal cannot outlive the other terms of the sub-lease agreement.
- It is important to appreciate that we are concerned with a sub-lease of a mining lease. The principal benefit and burden of a mining lease is the extraction of minerals.[6] The rights of occupancy of the land, and, indeed, all other rights under the sub-lease agreement, are ancillary to this principal right and obligation. That this is so is reflected in the circumstance that cl 3 of the sub-lease agreement does not refer to the term of the sub-lease but to the "extraction period". The centrality of the extraction of minerals to the life of the sub-lease agreement is confirmed by a brief summary of the legislative scheme governing mining leases in Part 7 of the Mineral Resources Act 1989 (Qld) ("the Act").
- As Windeyer J said of the Act's New South Wales' analogue in Wade v New South Wales Rutile Mining Company Pty Ltd & Ors,[7] the policy of the legislation is "to encourage mining".[8] Section 234 of the Act provides that a mining lease may only be granted for the purpose of mining and "such purposes necessary to effectually carry on that mining" or for purposes "associated with, arising from or promoting" mining. It is the "working and winning" minerals which is the substantial purpose of a mining lease under the Act.[9] A mining lease may include surface land,[10] which the lessee has the right to enter to enable the mining operation to be carried out;[11] but the lessee must use the land bona fide for that purpose only.[12] Importantly, the grant of a mining lease does not create an estate or interest in the land.[13] The effect of the mining lease is to vest ownership of any minerals and property brought onto the land in the State.[14] The lessee is obliged to pay compensation to the owner of the land[15] and to pay rental, royalties, rates and security deposits.[16] If the lessee fails to comply with these conditions the Minister may cancel the lease.[17] A lessee must not sublease the mining lease without the written consent of the Minister.[18]
- As is apparent from this brief summary of the provisions of the Act, the intent of the Act is to ensure that, under a mining lease, the operation of mineral extraction takes place for the benefit of the State as well as of a sub-lessor: both derive direct benefits from the extraction operation.[19] When the extraction operation ceases, the sub-lessor's return from the sub-lease is limited to the minimum payment referred to in cl 1 of the sub-lease agreement; and the State's interests are adversely affected in terms of royalties and the public interest in the promotion of mining. The sub-lessor may even be exposed to the cancellation of the lease by the Minister. The intention of the parties, understood objectively in context, was that the sub-lessee's rights and obligations in relation to the extraction of minerals should continue without interruption throughout the period contemplated by the sub-lease agreement. An entitlement in the sub-lessee to "keep its options open" for any period after the "extraction period" has ceased is thus inconsistent with the essential entitlements of the sub-lessor.
- It is unlikely, speaking objectively, that the sub-lease permits Titan to insist on retaining its rights under the sub-lease agreement while not performing the fundamental obligation to extract minerals from the land. A fortiori, it is unlikely that the sub-lease can be construed to permit the sub-lessee to allow the extraction period to expire while at the same time retaining the right for some indeterminate, albeit reasonable, period to resume extraction operations when it should suit it to do so. If the annual right of extraction were to expire without being renewed, an uninterrupted extraction operation could not be assured to the sub-lessor or to its lessor. In short, the right of renewal conferred by cl 3 of the sub-lease agreement cannot be understood as being available so as to produce a hiatus in the extraction operation.
- To the extent that it was argued that it is to be implied, from the absence of any express provision as to when the option to renew may be exercised, that it is exercisable within a reasonable time of 10 May in each year the option falls to be exercised, there are two compelling responses to this argument. First, such an implication is not necessary to give business efficacy to the sub-lease agreement. Indeed, for the reasons I have set out, I consider that such an implication is not only not necessary to give business efficacy to the sub-lease agreement, but is the very antithesis of what the sub-lease agreement contemplates as a matter of business. Secondly, the sub-lease agreement must be understood to be subject to the implication of an obligation on the part of Titan to do all things reasonably necessary on its part to give ChongHerr the benefit of its bargain.[20] That implication is inconsistent with the unilateral imposition by Titan upon ChongHerr of a hiatus in the extraction which fixes the rent ChongHerr receives.
- For the sake of completeness, I note here that no argument was advanced to the effect that the express provisions of cl 9(B) of the sub-lease agreement relating to cancellation of the sub-lease exclude by implication the automatic termination of the sub-lease if the option for renewal is not exercised by 10 May. In my view, such an argument could not be accepted because the cancellation provisions of the sub-lease are concerned with a subject different from the non-exercise of the option for renewal.
- In Associated Minerals Pty Ltd v NSW Rutile Mining Company Pty Ltd & Ors,[21] the High Court held that a dredging lease granted under the Mining Act 1906 – 1952 (NSW) could not be renewed after the original term had expired. While the case was decided by reference to the effect of the provisions of the statute, the approach taken by the Court in relation to the possibility of "renewal" after the expiration of the original term affords strong support for the view that the sub-lease agreement, even considered in isolation from the letter of 12 May 2005, did not contemplate the possibility of renewal of the extraction period after a current period had expired. Dixon CJ, Kitto, Taylor and Menzies JJ said:
"The next question is whether expired leases can be renewed. The course of events here is that some five years after leases were applied for they were granted for three months only, notwithstanding the power to grant a lease for any term not exceeding twenty years. Whatever may be the reason for this, the course that was followed was one that made it quite likely that an application for renewal would not be dealt with within the currency of the term, and we were told that in the administration of the Act it has been assumed that an expired lease could be renewed if an application for its renewal had been made during its currency. This assumption is, we think, wrong. It hardly seems to matter whether the renewal is to be regarded as a renewal of the lease (s 86(4)) or of the term (s 86A), for the words 'the term of which has been renewed' in s 86A relate back to what is described in s 86(4) as the 'renewal of a lease for a further term'. What is of prime importance is that the relevant provisions as a whole point towards continuity so that a lease and its renewal or renewals can be treated as one extended term. The word 'renewed' itself suggests the same thing, and we think the words of Lindley LJ in R v Licensing Justices of Crewkerne (1888) 21 QBD 85 at p 87 quoted by Myers J are pertinent:- 'What is the meaning of applying for a renewal of a licence? It can only mean that the licence holder is applying to renew that which is in existence and is on the point of expiring.' This construction accords with what seems to be the plan of the Act that, upon the expiration of an original or a renewed term, the lease is at an end and others have or can acquire rights that the existence of a lease would preclude. For instance, the owner holds his land free from the lease and any person seeking a lease may take steps to get a lease that the continued existence of another lease would prevent. Neither a gap between the original term and the renewed term, nor a renewed term dating back to the expiration of the original term, coupled in either case with the termination or the destruction ab initio of rights acquired in the meantime, seem to have been within the contemplation of the legislature."
- Applying this approach to construction to the language of the sub-lease agreement, I consider that neither a gap between the original period of extraction and the renewed period, nor a renewed term dating back to the expiration of the original period of extraction, coupled in either case with the termination or the destruction ab initio of rights acquired in the meantime, seem to have been within the contemplation of the parties.
Tsaoucis v The Gallipoli Memorial Club
- The learned primary judge referred to the discussion by Young J (as his Honour then was) in Tsaoucis v The Gallipoli Memorial Club (No 1)[22] of English, Canadian and New Zealand authorities which, contrary to statements in Australian authority also referred to by his Honour, support the proposition that, where there is no time specified in the lease for exercising an option for renewal, the option may be exercised during a period of holding over on the footing that, while the relationship of landlord and tenant is allowed by the landlord to persist between the parties, the lessee remains entitled to elect to extend the tenancy until called upon to do so by the landlord.
- Young J also referred to the decision of the Newfoundland Supreme Court Trial Division in Blomidon Mercury Sales Ltd v John Piercey's Auto Body Shop Ltd.[23] The head note of that decision seems to take the position a step further, to the effect that an option for renewal is validly exercised by the very fact of the tenant's continuing in possession. In my respectful opinion, if that were the position actually taken in Blomidon, it is plainly unjustified by the authorities on which it claims to be based and wrong in principle. Counsel for ChongHerr made the compelling point on the appeal that it would be surprising (not least to the tenant) if a tenant who merely continued in occupation of land after the expiration of a lease were to be held to have bound itself to the obligations involved in a further term of a lease.
- If it were necessary for the determination of the present case to choose between the Australian authorities and the foreign approach, I would, with respect, prefer to follow the view of Menzies J in Trustees Executors and Agency Co Ltd v Peters[24] that "it is highly improbable that [the parties] would intend that after that relationship [of landlord and tenant] had ended, the tenant could exercise an option to renew a lease that had already come to an end". As Anglin J recognised in Guardian Realty Co v John Stark & Co:[25]
"… convenience and certainty in regard to the position of the landlord and tenant on the expiry of the original term would have been promoted by holding that the right of election for the renewal of a lease, under an option in which no time therefore [sic] is fixed, must be exercised before the expiry of the term to be renewed."
Indeed, it appears that this is the view which has prevailed in the United States of America.[26] It is not, however, necessary to decide which approach is to be preferred. In my respectful opinion, this is not a case in which the occasion arises for applying a rule of construction which applies in default of a sufficient expression of the intention of the parties.
- The foreign authorities discussed by Young J proceed on the basis that, where an option for renewal of a lease is unconfined as to time, it may be exercised at any time while the landlord allows the tenant to remain in possession of the leasehold estate. One should be wary of the assumption that all doctrines associated with leases at common law apply by analogy to mining leases and sub-leases of mining leases. In Wade v New South Wales Rutile Mining Co Pty Ltd & Ors,[27] Windeyer J said:
"A mining lease of this kind is really a sale by the Crown of minerals reserved to the Crown to be taken by the lessee at a price payable over a period of years as royalties. The terms 'mining lease' or 'mineral lease', used in that way, have been long known in the law. In Gowan v. Christie ((1873) LR 2 Sc & Div 273, at p 284) Lord Cairns said:
'What we call a mineral lease is really, when properly considered, a sale out and out of a portion of land. It is liberty given to a particular individual, for a specific length of time, to go into and under the land, and to get certain things there if he can find them, and to take them away, just as if he had bought so much of the soil.'
And Collins M.R. in In re Aldam's Settled Estate ([1902] 2 Ch 46 at p 56), said that a mining lease 'is really in its essence rather a sale at a price payable by instalments than a demise properly so called'. It is thus in accordance with usage to describe a right given by the Crown to extract minerals belonging to the Crown as a lease - a term used in the statutes since 1894."
- In the light of this understanding of a mining lease, it is doubtful that when the "liberty" granted by a mining lease expires, any relationship at all, much less a relationship of landlord and tenant, persists between the lessor and lessee under a mining lease or a sub-lease of a mining lease. But, however this may be, for the reasons stated above, there is no occasion to seek to apply a rule which only applies in default of a sufficient expression of the parties' intention.
- In any event, as I have said, the foreign authorities to which Young J referred contemplate only that the tenant may keep his or her options open until called upon by the landlord to exercise the option. In this case, Titan's letter of 2 May 2006 was not only not an exercise of the option to renew the lease, it was an explicit indication that it was not intending to do so. There was no occasion for ChongHerr to call upon Titan to indicate its intentions in relation to the exercise of the option.
- In my respectful opinion, the right of renewal did not survive non-renewal on 10 May 2006. It was not available to Titan to be exercised at a later time. Titan's right to mine and the right of occupation of the land incidental thereto came to an end on 10 May 2006. Accordingly, it is not strictly necessary to consider the efficacy of any subsequent attempt by Titan to exercise the option to renew. ChongHerr is entitled to possession of the land.
Conclusion and orders
- I would allow the appeal, and set aside the judgment below.
- In lieu thereof, I would order that ChongHerr recover possession of the land, and that Titan pay the costs of ChongHerr's application and of this appeal.
- PHILIPPIDES J: The respondent, Titan Sandstone Pty Ltd, conducted a quarrying business under a sub-lease agreement with the appellant Chongherr Investments Limited dated 6 May 2004, which provided pursuant to cl 3 for a 12 month term from 10 May 2004 to 10 May 2005 with an option to renew annually for a five year period. The respondent, by letter dated 22 April 2005, exercised an option to renew for a one year period from May 2005. The issue for determination on this appeal is whether the learned primary judge erred in finding that the respondent had validly exercised an option to renew the sub-lease for a further one year term from May 2006.
- The relevant factual background is comprehensively set out in the judgment of Keane JA. I agree with Keane JA that the learned primary judge erred in finding that there had been a valid exercise of the option pursuant to cl 3 of the sub-lease agreement.
- Accepting that the option to renew could be exercised orally, there was no oral exercise of the option by the respondent’s manager, Mr Ebsworth, on 19 April 2006. The conversation between Mr Ebsworth and the appellant’s officer, Ms Chen, as deposed to by Mr Ebsworth in his affidavit (which for the purposes of the appeal was not disputed) was that he said the respondent:
“… would be staying on the property for the next three years of the lease … we needed to upgrade our machinery and buy more machinery and equipment to be used on site … would like to extend the lease beyond the next three years. I said that I would prefer to extend for a period of an additional seven years over and above the three years remaining.”
- While Mr Ebsworth’s statements indicated the respondent’s interest in remaining a lessee for a further three year period, it cannot be said that the respondent was through Mr Ebsworth committing to a renewal of the sub-lease confined to a one year period, which was all that the sub-lease agreement entitled the respondent to do. Rather, Mr Ebsworth’s statements point to the respondent seeking to explore the possibility of negotiating greater security in the form of a sub-lease for a longer term. So much is made clear by the respondent’s letter of 19 April 2006, in which Mr Ebsworth explained that, in order for the mining operation to remain viable, new and updated plant and equipment would be required with the consequent expenditure of a considerable amount of money. It was stated in that letter that:
“this considerable cost can only be implemented if we have the security of tenure at [Zack’s]. As the lease agreement stands now we feel we require added security and a longer term in order for us to achieve our planned objectives. Also we … would like to raise the possible purchase of [Zack’s] quarry.”
- Indeed, that the respondent was not exercising an option restricted only to a one year term requiring renewal annually, as specified in cl 3 of the sub-lease agreement, was made abundantly clear by the next written communication from Mr Ebsworth to the appellant of 2 May 2006 which stated:
“Sorry I have taken so long to put this proposal in writing – it is in reference to our conversation of last Thursday. As I have said previously in order for us to run a viable mining operation at [Zack’s] we need an extension of time to 10 years perhaps a 3 x 3 x 4 year option or negotiate the freehold purchase and mining lease …
…
We would like to formalise the extension of our existing lease agreement or purchase the mining lease freehold land and extraction permit as soon as possible. If you could let me know which way we are heading we can have contracts drawn up immediately and therefore start the due diligence process.”
- For the reasons stated by Keane JA, the option was not capable of being exercised after expiry of the preceding term on 10 May 2006.
- The appeal should be allowed and the orders proposed by Keane JA should be made.
Footnotes
[1] ChongHerr Investments Ltd v Titan Sandstone Pty Ltd [2006] QSC 366 at 14.
[2] ChongHerr Investments Ltd v Titan Sandstone Pty Ltd [2006] QSC 366 at 11 – 13.
[3] Ballas v Theophilos (No 2) (1958) 98 CLR 193 at 196; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; Tsaoucis v Gallipoli Memorial Club Ltd (No 2) (1998) 9 BPR 16,275 at 16,276.
[4] Cf Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677.
[5] Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 at 158 – 159, 164.
[6] Wade v New South Wales Rutile Mining Company Pty Ltd & Ors (1970) 121 CLR 177 at 193.
[7] (1970) 121 CLR 177.
[8] (1970) 121 CLR 177 at 195.
[9] Wade v New South Wales Rutile Mining Company Pty Ltd & Ors (1970) 121 CLR 177 at 193.
[10] Mineral Resources Act 1989 (Qld), s 273.
[11] Mineral Resources Act 1989 (Qld), s 235(1)(a).
[12] Mineral Resources Act 1989 (Qld), s 276(1)(a).
[13] Mineral Resources Act 1989 (Qld), s 10.
[14] Mineral Resources Act 1989 (Qld), s 312.
[15] Mineral Resources Act 1989 (Qld), s 276(1)(j).
[16] Mineral Resources Act 1989 (Qld), s 276(1)(k).
[17] Mineral Resources Act 1989 (Qld), s 308.
[18] Mineral Resources Act 1989 (Qld), s 276(1)(e).
[19] Wade v New South Wales Rutile Mining Co Pty Ltd & Ors (1970) 121 CLR 177 at 196.
[20] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607.
[21] (1961) 35 ALJR 296.
[22] (1998) 9 BPR 16,265 esp at 16,270 – 16,272.
[23] (1981) 129 DLR (3d) 630.
[24] (1960) 102 CLR 537 at 554.
[25] (1922) 70 DLR 333 at 344.
[26] Robertson v Drew (1917) 34 Cal App 143; Shaw v Bray (1918) 147 Ga 567).
[27] (1970) 121 CLR 177 at 192 – 193 (citations footnoted in original).