FEDERAL COURT OF AUSTRALIA

ACME Properties Pty Ltd v Perpetual Corporate Trust Limited as trustee for Braeside Trust [2019] FCA 1189

File number:

VID 672 of 2019

Judge:

MOSHINSKY J

Date of judgment:

30 July 2019

Catchwords:

CONTRACT – intention to create contractual relations – offer to lease commercial premises – where offer document was signed by both parties – where offer document was expressed to be subject to formal approval of the landlord (to be given or withheld in its absolute discretion), and execution of all legal documentation by the landlord and tenant – whether the offer document constituted a binding agreement to lease

Legislation:

Competition and Consumer Act 2010 (Cth), Sch 2, Australian Consumer Law, s 18

Cases cited:

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471

Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95

Masters v Cameron (1954) 91 CLR 353

RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] 1 WLR 753

Date of hearing:

23 July 2019

Registry:

Victoria

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Category:

Catchwords

Number of paragraphs:

108

Counsel for the Applicant:

Mr MD Wyles QC with Mr E Moon

Solicitor for the Applicant:

WL Lawyers

Counsel for the Respondent:

Mr PD Corbett QC

Solicitor for the Respondent:

Mills Oakley

ORDERS

VID 672 of 2019

BETWEEN:

ACME PROPERTIES PTY LTD (ABN 56 123 579 788)

Applicant

AND:

PERPETUAL CORPORATE TRUST LIMITED AS TRUSTEE FOR BRAESIDE TRUST (ABN 84 434 540 201)

Respondent

JUDGE:

MOSHINSKY J

DATE OF ORDER:

30 JULY 2019

THE COURT ORDERS THAT:

1.    The applicant’s application be dismissed (while reserving the position of the respondent to bring a cross-claim).

2.    The costs of the proceeding to date be reserved.

3.    The respondent have liberty to apply in relation to its foreshadowed cross-claim and costs.

4.    The matter be listed for case management at 9.30 am on 6 September 2019.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The applicant, ACME Properties Pty Ltd (ACME), is a wholly owned subsidiary of ACME Engineered Holdings Pty Ltd. ACME Operations Pty Ltd, another wholly owned subsidiary, conducts business under the name “Ajax Engineered Fasteners”. The business involves the manufacture of nuts and bolts, referred to as Ajax fasteners.

2    In 2016, ACME entered into a three-year lease of premises described as Part Warehouse B, Warehouse D and Office, Braeside Distribution Centre, at 41-51 Mills Road, Braeside, Victoria (the Original Premises). The Original Premises comprised approximately 17,000 square metres. The termination date for the lease was 30 June 2019. The lease was entered into with the then registered proprietor of the premises. The respondent, Perpetual Corporate Trust Limited as trustee for the Braeside Trust (Perpetual), subsequently became the registered proprietor of the premises.

3    During 2018 and the early part of 2019, negotiations took place between Perpetual and ACME regarding a new lease of all or part of the Original Premises for the period commencing 1 July 2019. Perpetual was represented by its agent, ARAM Australia Pty Ltd, trading as ARA Australia (ARA Australia).

4    On 25 March 2019, ARA Australia on behalf of Perpetual, provided a document styled “Offer to Lease” (the 25 March 2019 Offer to Lease). In brief terms, the document proposed two successive leases:

(a)    first, a lease commencing 1 July 2019 for one year (referred to as the “Lease”); and

(b)    secondly, a lease commencing 1 July 2020 for four years (referred to as the “New Lease”).

5    The two proposed leases related to premises described as Office & Amenities B and Tenancy B warehouse, being an area of approximately 9,000 square meters. This reflected the fact that ACME did not want to continue to lease all of the Original Premises. For ease of reference, the part of the Original Premises that ACME wanted to continue to lease (and that was the subject of the 25 March 2019 Offer to Lease) will be referred to as “Warehouse B”; the part that ACME no longer wished to lease will be referred to as “Warehouse D”. It was proposed that either party could terminate the Lease on six months’ notice and that, should either party terminate the Lease during the term of that lease, the New Lease would also be terminated.

6    The terms of the 25 March 2019 Offer to Lease are set out later in these reasons. Critically, for the purposes of this proceeding, the document included the following statement (next to the heading “Approvals”):

This offer is subject to:

-    Formal approval of the Landlord to be given or withheld in its absolute discretion; and

-    Execution of all legal document documentation (sic) by the Landlord and Tenant.

7    On 27 March 2019, ACME provided to ARA Australia a copy of the 25 March 2019 Offer to Lease signed by ACME.

8    On 3 April 2019, ARA Australia provided to ACME a copy of the 25 March 2019 Offer to Lease signed by ARA Australia on behalf of Perpetual under the words “Accepted for and on behalf of the Landlord”.

9    On 30 April 2019, ARA Australia gave notice to ACME that Perpetual would be accepting an offer from a third party to lease the premises. ARA Australia stated that, although the existing lease had a termination date of 30 June 2019, Perpetual was open to extend the lease to 31 July 2019 should ACME require additional time to relocate. ARA Australia noted that the 25 March 2019 Offer to Lease was subject to Perpetual’s absolute discretion and execution of all legal documentation by both parties. As at 30 April 2019, the legal documentation for the proposed leases had not been executed.

10    By originating application dated 21 June 2019, ACME seeks to enforce the 21 March 2019 Offer to Lease (as signed by ACME and accepted by Perpetual) as a binding agreement to lease. Alternatively, ACME seeks relief on the basis that Perpetual has engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act 2010 (Cth)).

11    The matter was set down for a speedy trial, given the impending deadline of 31 July 2019.

12    The main issue is whether the 25 March 2019 Offer to Lease, as signed by ACME and accepted by Perpetual, constitutes a binding agreement to lease. For the reasons that follow, in my view, it does not constitute a binding agreement to lease. This is principally because the offer was expressed to be subject to the execution of all legal documentation. In those circumstances, the parties’ intention (objectively ascertained) was not to create a binding agreement to lease.

13    In relation to ACME’s misleading or deceptive conduct case, for the reasons that follow, in my view the alleged representations are not established.

Procedural matters

14    The matter proceeded on the basis of a concise statement and a response to the concise statement, rather than pleadings.

15    The proceeding was listed for hearing on all issues other than damages and any cross-claim. Thus, Perpetual reserved the right to bring a cross-claim against ACME (for example, in relation to its make good obligations under the three-year lease).

16    At the hearing of the proceeding, senior counsel for ACME stated that the alleged representations relied on by ACME for the purposes of its misleading or deceptive conduct case were those set out in [31] of ACME’s written submissions for trial. That paragraph is in the following terms:

Further to the overwhelming contractual rights in favour of Acme Properties, Perpetual represented to Acme on 27 March 2019 that it would continue to lease the Premises to Acme Properties until 30 June 2024 and to give Acme 6 months’ notice to vacate if did not wish the 4-year lease from 1 July 2020 to commence. That is, Perpetual represented to Acme Properties that it would lease the 9,000 square metres premises until at least 31 December 2019. Acme Properties relied upon that representation and ordered its affairs accordingly. After he received Mr Bowen’s email on 3 April 2019, Mr Murphy instructed Mr Thompson to cease negotiations with other prospective landlords and Mr Thompson gave effect to that direction.

(Footnotes omitted.)

17    On the basis of this paragraph, I take ACME to be alleging (for the purposes of its misleading or deceptive conduct case) that:

(a)    on 27 March 2019, Perpetual represented to ACME that it would continue to lease Warehouse B to ACME until 30 June 2024 and give ACME six months’ notice to vacate if it did not wish the four-year lease from 1 July 2020 to commence; and

(b)    on 27 March 2019, Perpetual represented to ACME that it would lease Warehouse B to ACME until at least 31 December 2019.

18    In ACME’s concise statement it claims, in addition to the claims based on contract and misleading or deceptive conduct, that Perpetual engaged in unconscionable conduct. However, ACME did not refer to unconscionable conduct in its written submissions before trial, its oral opening submissions, or its oral closing submissions. In response to a question from the Court, senior counsel for ACME said that the unconscionable conduct claim was not pressed.

Evidence

19    ACME called two witnesses:

(a)    Justin Craig Murphy, the General Manager of ACME; and

(b)    Dale Leigh Thompson, the financial controller for the Ajax group of companies.

20    Both Mr Murphy and Mr Thompson were cross-examined. There was no attack on their credit as witnesses. I generally accept their evidence.

21    Perpetual relied on three affidavits of Michael Tandora, an employee solicitor at Mills Oakley, the solicitors acting for Perpetual. These affidavits annexed relevant documents. Mr Tandora was not cross-examined.

22    Perpetual did not call any person involved in the relevant dealings to give evidence. In particular, it did not call Harley Bowen, Asset Manager at ARA Australia as a witness. Mr Bowen was involved in nearly all of the relevant communications between ARA Australia and ACME.

Factual findings

23    There is little dispute about the relevant facts. Most of the communications between the parties were in writing.

24    On 14 October 2016, ACME entered into a lease of the Original Premises with Goodman Industrial Funds Management Ltd (Goodman). The Original Premises comprised 17,010 square metres. The term of the lease was 3 years commencing on 1 July 2016. ACME had an option to enter into a further term of 3 years. ACME was required to provide 12 months’ written notice if it wished to exercise the option.

25    Soon after entering into the 2016 Lease, ACME sub-let 5,000 square metres of Warehouse D to Graphic Packaging International Australia Converting Ltd (Graphic). The term of the sub-lease expired on 30 June 2019.

26    On 12 December 2016, Gallop Australia Sub TC Pty Ltd was registered as the sole proprietor of the Property.

27    On 30 November 2016, Perpetual was registered as the sole proprietor of the Property.

28    On October 2018, ARA Australia, on behalf of Perpetual, provided ACME with a document styled “Offer to Lease” in respect of the Original Premises (the First Offer to Lease). The document took the form of a letter from ARA Australia to ACME. The First Offer to Lease related to the whole of the Original Premises and proposed a five-year lease of those premises. The First Offer to Lease contained the following statements regarding documentation and approvals:

DOCUMENTATION

The Lease will be in the form of the Landlord’s current standard. These precedent documents will be modified to reflect the commercial terms herein and will be prepared by the Landlord’s solicitors. The Tenant undertakes to finalise and execute all required lease documentation within 14 days of receipt of the draft Lease.

APPROVALS

This offer is subject to:

-    Formal approval of the Landlord to be given or withheld in its absolute discretion; and

-    Execution of all legal document documentation by the Landlord and Tenant.

29    The First Offer to Lease included the following paragraphs near the end of the letter:

This offer is open for acceptance for a period of 30 days from the date of submission and is subject to availability of the premises and the final written approval of the Landlord.

This proposal is offered on a non-exclusive basis and the Landlord reserves the right to continue negotiations with other parties until this lease proposal is agreed by both parties. If you wish to accept this offer, please sign every page of the attached copy, sign and date the last page, and return to sender via email.

30    At the end of the letter, provision was made for the letter to be signed by ACME and then accepted by Perpetual.

31    The First Offer to Lease was not acceptable to ACME.

32    On 26 February 2019, Mr Thompson (of ACME) sent an email to Mr Bowen (of ARA Australia) stating that the existing sub-tenant of Warehouse D would be vacating on 30 June 2019 and there had been no interest from anyone else in the market. The email indicated that ACME was prepared to evaluate a longer term option for Warehouse B only. The email stated in part:

We are prepared to evaluate a longer term option over warehouse B only, but due to time constraints we propose an interim option, as follows

$550,000 gross rent on existing occupied area for 12 months,

    6 month notice on Warehouse B

    3 month notice on Warehouse D

    The notice is applicable to both parties

We will facilitate a clearing of Warehouse D to allow a more favourable leasing opportunity in its entirety. This will be subject to discussion that will be held between both parties, as to the extent.

If the interim option or similar is a viable solution we need to have this confirmed by 5th March 2019.

This interim option in effect will allow both parties time to evaluate a longer term proposal that you may present regarding Warehouse B only.

33    Mr Bowen responded by email on 1 March 2019 that he would “revert as soon as possible”.

34    On 8 March 2019, Mr Bowen sent an email to Mr Thompson and Mr Murphy with a new form of Offer to Lease (the Second Offer to Lease). In the covering email, Mr Bowen stated that the Offer to Lease “looks to address your short and longer term future at 41-51 Mills Road, Braeside”. In the email, Mr Bowen stated that he had “pushed hard to ensure both parties are afforded flexibility with tenure and commercial terms that reflect the market, applicable timeframes and the property in question”.

35    The Second Offer to Lease referred to two lease terms: a one-year lease commencing on 1 July 2019 (described as the “Lease”); and a four-year lease commencing on 1 July 2020 (described as the “new Lease”). The document took the form of a letter from ARA Australia to ACME. It stated that the two leases “form part of an all-encompassing Letter of Offer” and that they were not open for acceptance in isolation. The document stated that “ARA Australia is pleased to provide you, the Tenant, with the below offer to vary the Existing Lease on the following terms and conditions”. The premises were described as “Office & Amenities B and Tenancy B Warehouse” and the area was stated to be 9,072.40 square metres. The Offer to Lease contained statements regarding “Documentation” and “Approvals” as follows:

DOCUMENTATION

The Existing Lease will form the base of the Lease and New Lease. These precedent documents will be modified to reflect the commercial terms herein and will be prepared by the Landlord’s solicitors. The Tenant undertakes to finalise and execute all required Lease documentation within 14 days of receipt of the draft Lease.

APPROVALS

This offer is subject to:

-    Formal approval of the Landlord to be given or withheld in its absolute discretion; and

-    Execution of all legal document documentation by the Landlord and Tenant.

36    In relation to the Lease, the Second Offer to Lease stated that the landlord (Perpetual) was permitted to terminate the Lease at any time during the lease term, and that the landlord was required to provide the tenant (ACME) with six months’ written notice. It was stated that, should the landlord terminate the Lease at any time within the lease term, the New Lease would also be terminated.

37    The Second Offer to Lease stated, next to the heading “Redecoration”, that the tenant was to redecorate the premises within two months of the expiry date should the landlord terminate the Lease within the lease term. The obligation would be transferred to the New Lease should the landlord not terminate the Lease.

38    The Second Offer also stated, next to the heading “Make Good”, that the tenant was to make good Tenancy D Warehouse, Office & Amenities D and Canopy B & C prior to the lease commencement date; and that, should the tenant be found to be in breach of cl 17 of the existing lease (being the lease entered into in 2016), the tenant would be required to pay $50,000 per calendar month that it was found to be in breach, in addition to other rights afforded to the landlord under the existing lease.

39    In relation to the New Lease, the “Make Good” provision stated: “The Tenant’s Make Good obligations stipulated in the Existing Lease will carry into the New Lease Term for the Premises.”

40    The Second Offer to Lease included concluding paragraphs as follows:

This offer is open for acceptance for a period of 14 days from the date of submission and is subject to availability of the Premises and the final written approval of the Landlord.

This proposal is offered on a non-exclusive basis and the Landlord reserves the right to continue negotiations with other parties until this Lease proposal is agreed by both parties. If you wish to accept this offer, please sign every page of the attached copy, sign and date the last page, and return to sender via email.

41    As with the First Offer to Lease, at the end of the Offer to Lease, provision was made for the document to be signed by ACME and then accepted by Perpetual.

42    On 12 March 2019, Mr Thompson sent an email to Mr Bowen requesting a telephone call to discuss the offer. Mr Thompson stated that he did not believe the offer provided any flexibility for ACME. He also stated that he did not like the $50,000 penalty added to the make good obligation.

43    The evidence does not describe any call that took place following the Second Offer to Lease.

44    On 15 March 2019, Mr Bowen sent an email to Mr Thompson and Mr Murphy attaching a further Offer to Lease (the Third Offer to Lease). The document was broadly similar in form and content to the Second Offer to Lease. The main difference was that the Lease (i.e. the one-year lease commencing on 1 July 2019) could be terminated by either party (rather than just by Perpetual) on six months’ written notice. The “Redecoration” and “Make Good” provisions were in the same terms as the Second Offer to Lease.

45    On 21 March 2019, a meeting took place between Mr Murphy, Mr Thompson and Mr Bowen. During the meeting, Mr Murphy asked Mr Bowen to delete the redecoration term contained in the Third Offer to Lease and said that he needed clarification around the make good obligations, including being provided with a copy of the original condition report. Mr Bowen agreed to seek instructions about deleting the redecoration term. Mr Murphy also asked Mr Bowen to delete the clause regarding payment of $50,000 if ACME did not make good and vacate Warehouse D. Mr Bowen said he wanted a penalty to make sure ACME vacated on time.

46    Later that day, at 5.12 pm, Mr Bowen sent an email to Mr Thompson and Mr Murphy stating that, “[d]isappointingly, I’m informed legals will be required to sign off from our end prior to reissuing” and that the offer should be returned the next day. He asked ACME to confirm that there were no further amendments requested, as this would assist in finalising the offer to lease as soon as possible.

47    Mr Murphy responded by email at 7.21 am on 22 March 2019. He stated that he believed they had covered all the points in their conversation. He also stated that he did not believe the offer document would cover all of the points of discussion, and that the sooner the revised document was provided the sooner it could be discussed and a decision made.

48    A short time later, Mr Murphy sent a further email to Mr Bowen stating that ACME had requested the original “condition report” from the original Goodman lease, but that this was never supplied. Noting that Mr Bowen had been at Goodman at that time, Mr Murphy asked whether Mr Bowen could obtain and supply the report. Mr Murphy noted that, alternatively, the contractor who prepared the report should have retained a copy. Mr Murphy stated that he believed that a report was also prepared when the property transferred from Goodman. He concluded his email by stating that it was essential to have a copy of this report.

49    On 25 March 2019 at 9.49 am, Mr Bowen sent an email to Mr Murphy and Mr Thompson attaching the 25 March 2019 Offer to Lease. The covering email stated as follows:

Please find attached as requested.

I note the following:

    My contact at Goodman has advised they are not in possession of a Condition [Report] (I am exploring other avenues however);

    The definition of Outgoings now reflects Clause 5.1 of the Existing Lease (applies a percentage on basis of your GLA);

    Definition of Make Good in New Lease to be mutually agreed by parties at drafting of Lease (strictly defined as youve requested); and

    Make Good Report being procured in the next seven (7) day, which will form the basis of said drafting.

The reference to “GLA” is to the Gross Leased Area.

50    The 25 March 2019 Offer to Lease is a six-page document. As the terms of the offer are critical to the issues in dispute, I set out in full the text of the first five pages (the sixth page is a survey plan):

OFFER TO LEASE | OFFICE & AMENITIES B AND TENANCY B WAREHOUSE |
41-51 MILLS ROAD, BRAESIDE, VIC

 

[Photograph omitted.]

 

ARA Australia acting as the agent for the Landlord refer to the Lease between Perpetual Corporate Trust Limited as Trustee for Braeside Trust (ACN 000 341 533) (“Landlord”) and ACME Properties Pty Limited (ACN 123 579 788) (“Tenant”) at Part Warehouse B, Warehouse D and Office, Braeside Distribution Centre, 41-51 Mills Road, Braeside, Victoria (“Premises”) dated 14 October 2016 (“Existing Lease”).

 

The two (2) Lease Terms detailed herein form part of an all-encompassing Letter of Offer. Both individual Lease Terms and all associated terms are not open for acceptance in isolation.

For the avoidance of doubt, the following definitions will apply:

-        Lease Commencing 1 July 2016 (“Existing Lease”)

-        Lease Commencing 1 July 2019 (“Lease”)

-        Lease Commencing 1 July 2020 (“New Lease”)

With that in mind, ARA Australia is pleased to provide you, the Tenant, with the below offer to vary the Existing Lease on the following terms and conditions:

 

 

PERIPHERALS

 

 

 

LANDLORD

Perpetual Corporate Trust Limited as Trustee for Braeside Trust ACN: 000 341 533

 

 

TENANT

ACME Properties Pty Limited ACN: 123 579 788

 

 

PREMISES

Office & Amenities B and Tenancy B Warehouse

41-51 Mills Road, Braeside, VIC3195

 

 

AREA

9,072.40 m²

 

 

PERMITTED USE

Administration, Manufacturing, Warehousing and Distribution.

 

 

INSURANCE

The Tenant’s obligations under the Existing Lease apply.

 

 

GOODS AND SERVICES TAX

The Tenant acknowledges that the base rent and all other items contained within this Letter of Offer (noted or otherwise) have been negotiated without any allowances for Goods and Services Tax (GST). The Tenant will pay or reimburse the Landlord for the GST calculated on the rent and other amounts payable under the Lease and New Lease.

 

 

DOCUMENTATION

The Existing Lease will form the base of the Lease and New Lease. These precedent documents will be modified to reflect the commercial terms herein and will be prepared by the Landlord’s solicitors. The Tenant undertakes to finalise and execute all required lease documentation within 14 days of receipt of the draft Lease.

 

 

COSTS

Each party will be responsible for its own legal costs associated with the drafting and execution of this Lease and New Lease.

 

 

CONFIDENTIALTY

Both the Landlord and the Tenant must keep the terms of this proposal confidential and may not disclose them except where required by law or with the written consent of the other party.

 

 

APPROVALS

This offer is subject to:

-      Formal approval of the Landlord to be given or withheld in its absolute discretion; and

-      Execution of all legal document documentation by the Landlord and Tenant.

 

 

LEASE

 

 

 

LEASE TERM

One (1) Year

 

 

LEASE COMMENCEMENT DATE

1 July 2019

 

 

EXPIRY DATE

30 June 2020

 

 

OPTION

Nil

 

 

TERMINATION RIGHT

Either party is permitted to terminate the Lease prior to the Expiry Date. Either party must provide the other with six (6) months’ written notice.

Should either party terminate the Lease at any time within the Lease Term, the New Lease is also terminated.

All obligations set out in the Lease will remain in place for the remainder of the Lease Term.

 

 

NET RENTAL

$70.00/m² per annum plus GST

 

 

ANNUAL NET RENT

$635,068.00 plus GST payable in equal monthly instalments in advance by Electronic Funds Transfer directly to the Landlord’s specified account on the first day of the month.

 

 

INCENTIVE

The Landlord will provide an Incentive of $79,383.50 plus GST, to be taken as rental abatement evenly across the Lease Term.

 

 

OUTGOINGS

The Tenant is responsible for all outgoings charges as defined under Clause 5.1 of the Existing Lease.

 

 

BANK GUARANTEE

The Landlord will retain the Bank Guarantee required under the Existing Lease for the duration of the Lease Term.

 

 

MAKE GOOD

The Tenant is to Make Good Tenancy D Warehouse, Office & Amenities D and Canopy B & C prior to the Lease Commencement Date. Should the Tenant be found to be in breach of Clause 17 of the Existing Lease, the Tenant will be required to pay $50,000.00 (ex GST) per calendar month it is found to be in breach, in addition to the other rights afforded to the Landlord under the Existing Lease. The specified amount is due in full on the first day of the following month. The Tenant’s Make Good obligations stipulated in the Existing Lease will carry into the Lease Term for the Premises.

 

 

NEW LEASE

 

 

 

LEASE TERM

Four (4) Years

 

 

LEASE COMMENCEMENT DATE

1 July 2020

 

 

EXPIRY DATE

30 June 2024

 

 

OPTION

Nil

 

 

NET RENTAL

$70.00/m² per annum plus GST

 

 

ANNUAL NET RENT

$635,068.00 plus GST payable in equal monthly instalments in advance by Electronic Funds Transfer directly to the Landlord’s specified account on the first day of the month.

 

 

RENT REVIEWS

The Rent will be reviewed on every anniversary of the Commencement Date of the New Lease by a fixed 3.50% increase over the term of the New Lease.

 

 

INCENTIVE

The Landlord will provide an Incentive of $390,363.07 plus GST, to be taken as rental abatement evenly across the New Lease Term.

 

 

 

 

OUTGOINGS

The Tenant is responsible for all outgoings charges as defined under Clause 5.1 of the Existing Lease.

 

 

BANK GUARANTEE

The Landlord will retain the Bank Guarantee required under the Existing Lease for the duration of the New Lease Term.

 

 

MAKE GOOD

The Tenant’s Make Good obligations are to be mutually agreed by the parties following the procurement and consideration of a third party independent Make Good Report.

 

 

This offer is open for acceptance for a period of 14 days from the date of submission and is subject to availability of the Premises and the final written approval of the Landlord.

This proposal is offered on a non-exclusive basis and the Landlord reserves the right to continue negotiations with other parties until this Lease proposal is agreed by both parties. If you wish to accept this offer, please sign every page of the attached copy, sign and date the last page, and return to sender via email.

Please let me know should you have any queries regarding this Letter of Offer.

 

 

Yours faithfully

 

 

 

[signature]

 

 

 

Harley Bowen

 

Asset Manager | ARA Australia

 

[Mobile number and email address omitted.]

 

 

Signed for and on behalf of the Tenant

 

 

 

 

 

 

 

 

Signed (Tenant)

Name

Position Held

 

Date

 

 

 

 

 

 

 

 

 

 

Accepted for and on behalf of the Landlord

 

 

 

 

 

 

 

 

Signed (Landlord)

Name

Position Held

 

Date

 

 

 

 

 

 

 

 

51    The 25 March 2019 Offer to Lease was similar in format and content to the Third Offer to Lease. The main differences were: the deletion of the provision regarding “Redecoration”; and the wording of the “Make Good” provision in relation to the New Lease.

52    On 27 March 2019, at 11.36 am, Mr Murphy sent an email to Mr Bowen attaching the 25 March 2019 Offer to Lease, now signed by Mr Murphy on behalf of ACME. Mr Murphy’s covering email stated that, although the negotiations had taken approximately four weeks, he felt that they had produced “a good result for both parties”. Mr Murphy referred to “the clause that the offer is subject to final written approval of the landlord” and stated that he required ARA Australia to certify acceptance as soon as possible and return the signed copy for ACME’s records. Mr Murphy also stated:

Due to time constraints and other offers we have at hand, we need to ratify this immediately, subject to the final lease and make-good discussion noted below.

As the property has changed hands twice in our tenure, it must be noted the initial condition that the property was undertaken in and that this be reflected in the finalization of the lease.

Make good will be under taken to industry standards, and defined in the forth coming discussions and new lease signing.

53    I note that in this email, Mr Murphy recognised that the 25 March 2019 Offer to Lease required acceptance by Perpetual and proceeded on the basis that this would be indicated by signature and return of the Offer to Lease. This is consistent with the form of the document, which made provision for the document to be “[a]ccepted for and on behalf of the Landlord”.

54    I note also that Mr Murphy’s email, at least on one view, recognised that the document was “subject to the final lease” and discussion in relation to the make-good obligation.

55    On 28 March 2019, at 12.38 pm, Mr Bowen sent an email to Mr Murphy stating that he would “work to have [a] countersigned copy with you ASAP – this does require a few further steps, so bear with me”. Mr Bowen also stated that he was seeking a draft lease from his legal counsel, which would be provided shortly thereafter.

56    Mr Murphy responded by email at 1.15 pm on the same day. Mr Murphy stated that he needed the 25 March 2019 Offer to Lease “ratified and locked in quickly, as I have the other 2 options still open”. Mr Murphy stated that: his concern was “the clause that allows the landlord to reject the acceptance”; “[t]his does not give me a lot of comfort”; and, accordingly, “some indication of approval acceptance is required” as he needed to finalise the other options.

57    The two other options that were open to ACME were:

(a)    a property at 894-906 Taylors Road, Dandenong owned by the Pellicano Group and represented by Colliers International; and

(b)    a property at 11 Tarnard Drive, Braeside, represented by Morrisons Commercial.

58    Mr Murphy had inspected both properties and was in discussions with agents. Both properties were available, but his preference was to remain at Mills Road.

59    On 28 March 2019, at 1.56 pm, Mr Bowen sent an email in response. This was as follows:

I certainly understand should you need to continue exploring said options.

As always, I am doing my best to ensure you’re afforded a prompt response (regardless of correspondence designed to accelerate the process).

For clarity, here is what is required:

    Letter of Offer needs to be drafted, sent to third-party independent Legal Counsel, finalised and sent to Tenant for review.

    Any amendment requires a restart of that process.

    Once finalised and executed by the Tenant, the Letter of Offer is sent back to the third-party independent Legal Counsel to provide a Legal Certification Letter.

    Said letter confirms that approved drafting has not been amended, non-negotiables are included and that the party signing on behalf of the Tenant is authorised to do so.

    This is required before the Trustee will countersign (on behalf of the Trust / Landlord).

    Once procured, the Legal Certification Letter is sent to the Trust Manager (in Singapore) to then meet with the Trustee to execute.

    It is then filtered back down to me to forward on to you.

This is the exact same process with any institutional property owner, with an owning entity set up in a trust / fund.

Unfortunately, there is little I can do to comfort you in the interim.

I note that the first two steps outlined in the email had already been completed by this stage.

60    Later the same day, at 3.08 pm, Mr Thompson sent an email to Mr Bowen. Mr Thompson stated that, although ACME had now accepted the offer, the offer allowed Perpetual the right to continue negotiations with other parties until the lease proposal was agreed by both parties. Mr Thompson stated that, given there was an information memorandum on the property with many agents, and there had been a secret “contractor visit” the day before, “we have an uneasy feeling the landlord has the potential to drag out the signing process and take a potentially better offer, leaving Ajax high and dry!!” Mr Thompson stated that he understood that the process would take some time and he accepted that, “but some comfort [at] our end would come from knowing that from now you are no longer marketing the full 17,000 m2”.

61    On 3 April 2019, Mr Bowen sent an email to Mr Murphy and Mr Thompson attaching a copy of the 25 March 2019 Offer to Lease, now signed on behalf of Perpetual. In his covering email, Mr Bowen stated that he attached the countersigned letter of offer for ACME’s records. He stated that, given the time constraints, he had obtained approval from Perpetual to execute on its behalf. He stated that he was pushing his legal counsel to have the draft “Deed of Variation to Lease” and “New Lease” for ACME’s review as soon as possible. (It appears that the “Lease” described in the Offer to Lease was to be effected by a Deed of Variation of Lease.) As indicated in the email, the 25 March 2019 Offer to Lease was signed by Mr Bowen on behalf of Perpetual in the space provided under the words “Accepted for and on behalf of the Landlord”. Mr Bowen’s email and its attachment, being the 25 March 2019 Offer to Lease as signed by ACME and accepted by Perpetual, are annexure “JCM-12” to Mr Murphy’s first affidavit.

62    Upon receiving the countersigned 25 March 2019 Offer to Lease, Mr Murphy ceased all discussions to rent the other properties.

63    On 5 April 2019, Mr Bowen sent an email to Mr Murphy and Mr Thompson attaching a draft Deed of Variation of Lease “for our concurrent review”. It is apparent from the draft document attached to the email that it related to the “Lease” referred to in the 25 March 2019 Offer to Lease. Mr Bowen also stated in the email that the Lease would follow. This would appear to refer to the draft “New Lease”. Mr Bowen also stated that “Make Good will be with you prior to our meeting”.

64    On 8 April 2019, Mr Bowen sent an email to Mr Thompson and Mr Murphy attaching a Schedule of Make Good prepared by Knight Frank (the Knight Frank Report). This was stated to be “for our concurrent review”. The report related to both Warehouse B and Warehouse D. Mr Bowen commented in his email that he had not yet reviewed the report at length, but understood “the headline figures are likely to be of concern – rest assured noting they are only QS driven”. Mr Bowen asked ACME to try to locate the condition report procured during its dealings with prior landlords, as this would assist greatly.

65    On 9 April 2019, a meeting took place between Mr Murphy, Mr Thompson and Mr Bowen. They discussed the make good of Warehouse D, including that part of the Knight Frank Report that concerned that warehouse on a line-by-line basis. They discussed Warehouse D because it was being vacated and Mr Murphy wanted to provide Graphic with information about its make good obligations. During the meeting, Mr Murphy said words to the effect that many items in the Knight Frank Report were existing prior to the commencement of the then-current lease. Mr Murphy states in his affidavit, and I accept, that they reached agreement on most, but not all, items referred to in the Knight Frank Report.

66    Later on 9 April 2019, Mr Bowen sent an email to Mr Thompson and Mr Murphy. Mr Bowen asked them to please provide any comments regarding the draft Deed of Variation “when you have a moment”. Mr Bowen attached a spreadsheet document listing various make-good items in relation to Warehouse D and including ARA Australia’s comments. Mr Bowen also provided a link to a condition report from November 2016.

67    On 18 April 2019, Mr Thompson sent an email to Mr Bowen attaching an updated version of the spreadsheet with ACME’s comments inserted, and a traffic light coding to indicate where there were differences of opinion. There were two yellow items that Mr Thompson indicated simply needed Mr Bowen’s review in light of the condition report. There was only one red item.

68    There were public holidays on 19, 22 and 25 April 2019.

69    On 29 April 2019, at 11.06 am, Mr Bowen sent an email to Mr Thompson and Mr Murphy. Mr Bowen apologised for the delay in responding and explained that he had been on leave. Mr Bowen thanked Mr Thompson for the spreadsheet and requested an equivalent document for Warehouse B “today if possible”.

70    Shortly afterwards, at 11.18 am, Mr Thompson responded that he would send through the document relating to Warehouse B that day. He attached minor revisions to the spreadsheet relating to Warehouse D.

71    At 11.36 am on 29 April 2019, Mr Thompson sent an email to Mr Bowen attaching a make-good spreadsheet in relation to Warehouse B, including ACME’s comments, and adopting a similar colour coding system.

72    Then, at 2.24 pm on 29 April 2019, Mr Bowen sent an email to Mr Thompson stating that he had just left a voicemail message for Mr Thompson. Mr Bowen stated: “We’ve had an offer for the site – need to speak with you on this. Nothing formal at this stage, but I want to continue being transparent noting the timeframes and where we are at with the documentation”.

73    A telephone conversation took place between Mr Thompson and Mr Bowen. Mr Bowen then sent the following email at 4.13 pm on 29 April 2019:

Thanks for speaking with me just now.

As discussed, we have a group interested in the site. I will update you when I have any clarity.

We note that the proposed Deed of Variation (originally supplied 5 April 2019) is yet to be reviewed / agreed from your end.

Justin – I am of the understanding you have been withholding this due to the queries around Make Good of Tenancy D.

I write to confirm we are in agreeance with the mark ups in the attached spreadsheet. Please let me know if you require anything further.

The “attached spreadsheet” referred to in this email would appear to be the spreadsheet relating to Warehouse D.

74    Later that afternoon, at 4.45 pm, Mr Thompson responded to Mr Bowen’s email. Mr Thompson wrote:

I appreciate you being upfront.

As I said during our call you need to ensure the interested party are aware of the terms in the Deed of Variation. Although not signed, both parties have agreed on a deal through the letter of offer.

Justin is in the U.S, but has passed on the Deed of Variation for legal review.

As I mentioned in the call, the make good report needed a resolution from your end, which you have now mentioned below. But I’m a little unsure what is being agreed. Are you agreeing with all Ajax comments?

75    On 30 April 2019, at 11.49 am, Mr Bowen sent an email to Mr Thompson as follows:

Called unsuccessfully earlier to discuss.

It has this morning been requested of me to accept an offer received by another party for the Premises on behalf of the Landlord.

I regretfully write to outline the following:

-    The Lease has a Terminating Date of 30 June 2019, though the Landlord is open to extending to 31 July 2019 should AJAX require additional time to relocate;

-    Justin has reiterated discussions are being held regarding alternate sites and that he does not foresee the task of relocating to be difficult (as outlined in the attached);

-    The draft Deed of Variation is rescinded and will be superseded to reflect the above extension (should you require said time);

-    The Letter of Offer you reference is subject to the Landlord’s absolute discretion and execution of all legal documentation by both parties (as you also outline in the attached); and

-    To date, AJAX elected not to exercise its option; rejected initial offers; requested a large space requiring significant expenditure and subdivision to be returned to the Landlord; and did not execute (or revert with comments) the proposed Deed of Variation (issued 5 April) leaving the Landlord at risk.

I have been asked to communicate that these factors contributed to the Landlord’s decision to act promptly.

Understandably, you will wish to discuss. I am in and out of meetings today, but will endeavour to return your call should I not be available at the time.

As indicated in this email, as at 30 April 2019, ACME had not yet provided its comments on the draft Deed of Variation of Lease (that had been provided on 5 April 2019).

76    Later that day, at 2.43 pm, Mr Thompson responded to Mr Bowen’s email. Mr Thompson stated:

Obviously extremely disappointed with the way we have been treated.

We can’t possibly accept this type of notice. We have had protracted negotiations and eventually reached an agreement that was then further delayed due to you requiring Landlord approval and the preparation of legal documents. The variation of lease was sent to our Solicitor just to confirm it recorded our final agreement as it is a very complicated document. We told our Solicitor of the final agreement.

Possible alternatives are no longer available.

We wish to proceed with our final agreement. The last thing we want is to turn this into a legal battle.

We want to complete the variation of lease without further delay.

Although Mr Thompson stated in this email that possible alternatives were no longer available, there was no real basis for saying this. Indeed, it appears that, as at the time of the trial, both of the other properties referred to at [57] above were still available.

77    On 1 May 2019, at 12.24 pm, Mr Bowen sent an email to Mr Thompson. Mr Bowen stated that he “completely comprehend[ed] and sympathise[d] that this is not a desirable outcome, but need to stress that the original proposal is not open for acceptance”. Mr Bowen indicated that he had spoken with appropriate leasing agents and they had confirmed that there were “plenty of properties currently available in the area between 5,000sqm - 10,000sqm”. Mr Bowen offered to work with ACME in relation to a new site.

78    Mr Thompson responded by email at 3.34 pm on the same day. The email referred to ACME’s requirements. Among other things, Mr Thompson stated:

Also, you continue to point out we indicated a move to be painless and not difficult, That is somewhat true, but a move still requires considerable time, time we have not been afforded.

You have put us in a difficult position, one that we weren’t prepared for. From this point an orderly move with a minimum disruption to the business will take approximately 8-12 months.

Although this email refers to a period of approximately 8-12 months for an orderly move with minimum disruption to the business, it appears from cross-examination of Mr Thompson that a move can be carried out in less time if necessary (although this may entail some disruption to the business).

79    On 10 May 2019, Mills Oakley, solicitors, sent a letter on behalf of ARA Australia to ACME. The letter noted that the lease would expire on 30 June 2019 and stated that the new tenant of the premises would be entitled to access the premises on and from 1 August 2019. The letter required ACME to vacate and make good the premises by the expiry date.

80    On 15 May 2019, WL Lawyers, on behalf of ACME, sent a letter to Mills Oakley. The letter stated that it was impossible for ACME to vacate the premises by 30 June 2019, and referred to some of the background facts. The letter included a proposal that Warehouse D would be vacated by 30 June 2019; the balance would be vacated by 31 October 2019; and ACME would pay $13,000 in lieu of completing the make good.

81    Further correspondence was exchanged between the lawyers, but it is not necessary to set this out. Perpetual agreed that ACME could remain in Warehouse B until 31 July 2019. Warehouse D was vacated by 30 June 2019.

Applicable principles

82    There is no real dispute between the parties as to the applicable principles, which have been authoritatively stated by the High Court of Australia.

83    Both parties referred to Masters v Cameron (1954) 91 CLR 353. In that case, the Court, comprising Dixon CJ, McTiernan and Kitto JJ, stated at 360-363:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: “… as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed: see also Sinclair, Scott & Co. Ltd. v. Naughton. A case of the second class came before this Court in Niesmann v. Collingridge where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made “on the signing of the contract”. Rich and Starke JJ. observed that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, “and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion”: see also O’Brien v. Dawson.

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v. Petch. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v. Parker or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v. Miller. Lord O’Hagan said: “Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made”. And Lord Blackburn said: “parties often do enter into a negotiation meaning that, when they have (or think they have) come to one mind, the result shall be put into formal shape, and then (if on seeing the result in that shape they find they are agreed) signed and made binding; but that each party is to reserve to himself the right to retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say. Whenever, on the true construction of the evidence, this appears to be the intention, I think that the parties ought not to be held bound till they have executed the formal agreement”. So, as Parker J. said in Von Hatzfeldt-Wildenburg v. Alexander in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract.

The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: Farmer v. Honan. Nor is any formula, such assubject to contract”, so intractable as always and necessarily to produce that result: cf. Filby v. Hounsell. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v. Marchioness of Ely: “if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation”. Again, Sir George Jessel M.R. said in Crossley v. Maycock: “if the agreement is made subject to certain conditions then specified or to be specified by the party making it, or by his solicitor, then, until those conditions are accepted, there is no final agreement such as the Court will enforce.

This being the natural meaning of “subject to contract”,subject to the preparation of a formal contract”, and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract.

(Footnotes omitted.)

84    As indicated in the above passage, the question depends on the intention disclosed by the language the parties have employed. This is consistent with more recent discussion of the principles concerning intention to create legal relations: see, eg, Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 (Ermogenous) at [24]-[25] per Gaudron, McHugh, Hayne and Callinan JJ. As their Honours emphasised, the search for the “intention to create contractual relations” requires an objective assessment of the state of affairs between the parties, as distinct from the identification of any uncommunicated subjective reservation or intention that either harbour. Their Honours also stated (at [25]) that “[a]lthough the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.”

85    The passage from Masters v Cameron quoted above makes clear that the words ‘subject to contract’ are not so intractable that they always and necessarily produce the result that there is no contract. As noted in Heydon JD, Heydon on Contract: The General Part (Lawbook Co, 2019) at [3.150], fn 107, despite the existence of a clause functionally equivalent to a ‘subject to contract’ clause, an operative contract was found in, for example, RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] 1 WLR 753 (RTS Flexible Systems). Nevertheless, as Masters v Cameron also makes clear, the natural meaning of ‘subject to contract’ and similar expressions is such that, prima facie, they create an overriding condition, “so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract”.

Consideration

Contract

86    ACME submits that, Perpetual having made an offer in writing (that is, the 25 March 2019 Offer to Lease) and that offer having been unequivocally accepted by ACME (by ACME signing the 25 March 2019 Offer to Lease and providing this to ARA Australia), a binding contract was created on 27 March 2019. ACME submits that: Perpetual was already bound to lease the 17,000 square metres to ACME until 30 June 2019; on 27 March 2019 Perpetual became contractually bound to lease Warehouse B to ACME as and from 1 July 2019; and Perpetual was not free to change its mind after 27 March 2019.

87    ACME submits that: Perpetual’s proffering of the 25 March 2019 Offer to Lease evidences a clear intention to contract on the terms set out therein; likewise, the signing of that letter and initialling of each page of the 25 March 2019 Offer to Lease evidences an unequivocal intention on the part of ACME to become legally bound to lease the 9,072.4 square metres at 41-51 Mills Road (the subject of the offer) for a period of five years commencing 1 July 2019; and all of the essential terms of the new leases (1 July 2019 and 1 July 2020) were set out in the 25 March 2019 Offer to Lease and accepted by ACME.

88    ACME submits that: the objective offer of Perpetual was that it wanted to contract to lease Warehouse B to ACME; upon ACME returning the signed 25 March 2019 Offer to Lease and thereby accepting Perpetual’s “all-encompassing Letter of Offer”, both ACME and Perpetual had “reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms”: Masters v Cameron at 360.

89    ACME notes that the 25 March 2019 Offer to Lease included the statement: “If you wish to accept this offer, please sign every page of the attached copy, sign and date the last page, and return to sender via email.” ACME notes that this is precisely what it did on 27 March 2019.

90    ACME submits that: the intention of Perpetual to contract is further evidenced by the fact that the 25 March 2019 Offer to Lease is extremely detailed; all terms of the one-year lease commencing 1 July 2019 and all terms of the four-year lease commencing 1 July 2020 were set out (in the 25 March 2019 Offer to Lease and in the Existing Lease, which was to be varied).

91    ACME submits that: Perpetual’s express right to continue negotiations with other parties was limited until the 25 March 2019 Offer to Lease was agreed by both parties; that happened on 27 March or, at the latest, 3 April 2019; after it approved Mr Bowen to sign the 25 March 2019 Offer to Lease on its behalf, Perpetual was contractually bound to lease the premises to ACME from 1 July 2019; Mr Bowen had authority to create legal relations between Perpetual and ACME; Perpetual’s offer was capable of acceptance and it was accepted.

92    ACME submits that: Perpetual further authorised Mr Bowen to execute the 25 March 2019 Offer to Lease on its behalf after it received ACME’s signed counterpart and thereby waived the alleged second condition (namely that the offer was subject to … [e]xecution of all document documentation (sic) by the Landlord and Tenant”); the fact that the draft Deed of Variation of Lease was not executed before Perpetual sought to repudiate the agreement does not affect the question of whether that agreement was formed.

93    ACME submits that: any reasonable businessperson placed in the position of ACME and Perpetual would readily come to the view that a lease agreement was entered into on 27 March 2019 (or 3 April 2019, by the latest); having made the offer, which it invited ACME to accept, Perpetual is bound by that offer and bound by the contract that resulted from ACME’s acceptance of that offer on 27 March 2019; Perpetual cannot now say that it is not bound by that contract, having not been induced to enter into it by fraud, mistake or misrepresentation: see Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [33]. ACME accepts that, in part, the wording of the 25 March 2019 Offer to Lease might be “less than felicitous”, but submits that, when the objective theory of contract is applied, the lack of felicity in expression gives way to the understanding of a reasonable businessperson placed in the position of the parties: see Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16].

94    In my view, while these submissions would have considerable force if the 25 March 2019 Offer to Lease did not state that the offer was subject to execution of all legal documentation by the Landlord and Tenant, they fail, with respect, to grapple with the significance of these words.

95    As set out above, the 25 March 2019 Offer to Lease contained a statement, next to the heading “Approvals”, that the offer was subject to “[f]ormal approval of the Landlord to be given or withheld in its absolute discretion” and “[e]xecution of all legal document documentation (sic) by the Landlord and Tenant”. There is an obvious typographical error in the use of both “document” and “documentation”, but nothing turns on this. Clearly, the use of both words was unintended. I will proceed on the basis that the statement refers to “legal documentation”.

96    The first part of the “Approvals” statement states that the offer is subject to “[f]ormal approval of the Landlord to be given or withheld in its absolute discretion”. Contrary to submissions made by Perpetual, in my view this was satisfied upon the 25 March 2019 Offer to Lease being “accepted” on behalf of Perpetual on 3 April 2019. The document was prepared with a specific space for it to be “Accepted for and on behalf of the Landlord”. This space came after the space for the document to be signed by ACME. The document takes the form of an offer by ARA Australia (on behalf of Perpetual) to ACME. The structure of the document is consistent with the signature of ACME indicating its acceptance of the offer, and then the further signature by the Landlord signifying its approval for the purposes of the “Approvals” statement.

97    The second part of the “Approvals” statement is that the offer is subject to “[e]xecution of all legal … documentation by the Landlord and Tenant”. In my view, the natural sense of these words (read in their context) is that the offer is subject to execution of the legal documentation described alongside the word “Documentation”, namely the Lease and the New Lease. Further, in my view, the intention of the parties (objectively ascertained) was that there was to be no contract independent of this stipulation.

98    I have reached this view primarily on the basis of the natural meaning of the words used (read in their context). The words “[t]his offer is subject to: … [e]xecution of all legal … documentation by the Landlord and Tenant” are in my view quite clear. They signify that no contract was to come into existence independently of the legal documentation. Given the detail that attends commercial lease documentation, and the negotiation that may well attend the finalisation of such documentation, it is unsurprising that the parties would intend that no contract would come into existence independently of the formal lease documentation.

99    It is true that the 25 March 2019 Offer to Lease was expressed as an “offer” that was “open for acceptance” and that the document was signed by both parties. It is also true that the document covers most, if not all, of the commercial terms for the proposed one-year lease and four-year lease. These matters tend to support the view that the parties’ intention (objectively ascertained) was to enter into a contract upon the document being signed by ACME and then accepted by Perpetual. However, I consider the second part of the “Approvals” statement to indicate a contrary intention in such strong terms as to outweigh these factors.

100    Although I would not place as much weight on this matter, a further indication that the intention of the parties was that there was to be no contract independent of the execution of all legal documentation, is that the “Make Good” obligations in relation to the New Lease remained to be agreed. The document stated that the “Tenant’s Make Good obligations are to be mutually agreed by the parties following the procurement and consideration of a third party independent Make Good Report”.

101    One contextual factor that might be seen to support a view that the parties intended a contract to be formed upon signing and acceptance of the 25 March 2019 Offer to Lease is the commercial need for certainty on the part of ACME as to its premises after 30 June 2019, having regard to the difficulty of moving its plant and equipment. However, I note that: there was still some time (between 3 April 2019 and 30 June 2019) to finalise legal documentation; and the 25 March 2019 Offer to Lease provided that the Tenant undertook to “finalise and execute all required Lease documentation with 14 days of receipt of the draft Lease”. In any event, the wording of the “Approvals” statement indicates a contrary intention in such strong terms as to outweigh this factor.

102    The present case can be distinguished from RTS Flexible Systems. In that case, a binding contract was found to exist in circumstances where draft contractual documentation, which was not executed, contained a ‘subject to contract’ provision. An important factor in RTS Flexible Systems was that there had been substantial performance of the contract by both parties, notwithstanding that the draft contract was not executed. The Supreme Court of the United Kingdom held that the unequivocal conduct of both parties indicated that they had waived the ‘subject to contract’ provision and had reached a binding agreement. Unlike in RTS Flexible Systems, in the present case there is an absence of such unequivocal conduct by both parties. At all relevant times, Perpetual’s conduct was consistent with reserving to itself the right not to enter into a binding agreement. Further, Perpetual’s conduct in authorising Mr Bowen to execute the 25 March 2019 Offer to Lease did not evidence an intention to waive the ‘subject to contract’ provision in circumstances where that provision itself remained intact in the executed document.

103    For these reasons, in my view, the 25 March 2019 Offer to Lease (as signed by ACME and accepted by Perpetual) did not constitute a contract.

Misleading or deceptive conduct

104    As noted above, ACME relies, for the purposes of its misleading or deceptive conduct case, on two representations. ACME alleges that:

(a)    on 27 March 2019, Perpetual represented to ACME that it would continue to lease Warehouse B to ACME until 30 June 2024 and give ACME six months’ notice to vacate if it did not wish the four-year lease from 1 July 2020 to commence; and

(b)    on 27 March 2019, Perpetual represented to ACME that it would lease Warehouse B until at least 31 December 2019.

105    In my view, neither of these representations is made out. As discussed above, the offer contained in the 25 March 2019 Offer to Lease was subject to execution of all legal documentation by the Landlord and Tenant. These words (read in their context) conveyed that no contract would come into existence independently of the formal lease documentation. It follows that Perpetual did not, by providing the 25 March 2019 Offer to Lease (or otherwise), make either of the representations alleged by ACME.

106    A further reason why Perpetual did not (at least, on or before 27 March 2019) make the representations alleged by ACME is that the offer contained in the 25 March 2019 Offer to Lease was subject to the written approval of the Landlord, to be given or withheld in its absolute discretion. As at 27 March 2019, that approval had not yet been given. It follows that Perpetual did not, on or before 27 March 2019, make either of the alleged representations.

107    For these reasons, ACME’s misleading or deceptive conduct case is not made out.

Conclusion

108    It follows that ACME’s application is to be dismissed. I will hear from the parties as to the form of orders (noting that Perpetual earlier reserved its position on bringing a counterclaim). [Discussion with counsel then took place.]

I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

Associate:

Dated:    2 August 2019