Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd Matter No 1830/98 [1998] NSWSC 304 (1 July 1998)

Last Updated: 2 September 1998

LOLLY POPS (HARBOURSIDE) PTY LTD V WERNCOG PTY LTD

1830/98

1 July 1998

Young J

The Supreme Court of New South Wales Equity Division

JUDGMENT

HIS HONOUR: This is a dispute between a landlord and tenant. The principal matter for resolution is whether the tenant has renewed its lease though as will be seen, there are many subsidiary issues.

The plaintiff, at least up until recently, was the defendant's tenant of Shop 283 in Festival Markets, Darling Harbour, Pyrmont ("the Centre"). In actual fact, there is a head lease and the defendant is a mesne lessor, but this is of no moment.

There was a first lease entered into between the parties which plays little part in this dispute. The plaintiff entered into its current lease, sometimes called "the second lease", on 15 September 1994. The second lease was for three years from 1 May 1994, and thus it terminated on 30 April 1997. The lease contained two options, an initial option for four years, followed by a further option for three years. Pursuant to clause 23 of the lease, the plaintiff was entitled to exercise its initial option not more than six nor less than three months prior to the end of the lease, that is, between 1 November 1996 and 31 January 1997.

The plaintiff's case is that it exercised its option by notice bearing date 13 January 1997 which it says was delivered to the defendant on 14 January 1997. On the other hand, the defendant says that the notice was only received on 26 February 1997, and even then it was defective in that the only document received by the lessor was a covering letter referring to a "lease renewal notice" which was supposed to be enclosed but which was not enclosed.

The defendant gave the plaintiff notice to quit on 26 February 1998, that is, about a year after the purported exercise of the option. The lessor alleged that the plaintiff was holding over from month to month after the second lease's expiry. The notice required the plaintiff to vacate its shop by 31 March 1998. The present proceedings were commenced on 25 March 1998. On 27 March 1998, Bryson, J granted an interim injunction to preserve the status quo and on 9 April 1998, Santow, J approved an interim arrangement that the plaintiff would vacate its shop by 15 April 1998, but that the shop would be preserved in such a way that it would be available if the plaintiff succeeded in these proceedings. Arrangements were then made for me to hear the case at an early date.

Apart from the present proceedings, there are also proceedings IRC 1830 of 1998 currently pending before the Industrial Relations Commission of New South Wales. Those proceedings were commenced by the plaintiff on 31 March 1998, initially to have the second lease declared an unfair contract under s 106 of the Industrial Relations Act 1996 (s 106 of the current Act is in similar form to s 88F of the Industrial Arbitration Act 1940 which is the subject of many judicial decisions). The primary claim was for an order declaring wholly or partly void or varying the second lease. Then on 4 May 1998, a draft amended application was served on the defendant deleting references to avoiding or varying the lease and merely asking that the lease be declared to be an unfair contract. The basic relief now sought before the Industrial Relations Commission is compensation.

With one major exception, the facts are relatively undisputed, though there are problems as to the legal effect of some of those facts. The area of dispute is in the matter of whether the option was exercised. It seems to me that it is most efficient to deal with the case under various headings, and to consider matters of fact and law relating to those headings separately.

Accordingly, I will deal with the matter under the following headings:

1. Did the plaintiff exercise the initial option?

2. What is the effect, if any, of the proceedings in the Industrial Relations Commission on the plaintiff's entitlement to specific performance?

3. Is the plaintiff ready, willing and able to perform a new lease?

4. Should specific performance be granted?

5. Does the Retail Leases Act, 1994 apply to the lease and, if so, what is its effect?

6. Is the plaintiff entitled to any relief against forfeiture?

7. Is the defendant cross claimant entitled to $26,289.14 for rent, plus mesne profits from 1April 1998?

8. Has the plaintiff over paid rent under the existing lease and, if so, is it entitled to a refund and, if so, in what amount?

9. Has there been any actionable breach of covenant for quiet enjoyment and, if so, what damages flow therefrom?

10. Was there any agreement between the parties for a reduced rent and, if so, what adjustment should be made in the accounts between the parties?

11. Has the defendant been guilty of any breach of the Trade Practices Act in particular ss 51AA and 52?

12. What, if anything, is the effect of the notice to quit of 26 February 1998?

13. What orders should be made?

1. Did the plaintiff exercise the initial option?

This raises two matters, (a) whether the option was exercised in time; and (b) whether the documents which were served on the lessor were sufficient to exercise the option.

(a) The controlling director of the plaintiff is Mr Stephen Gary Spring. He says he delivered a notice to exercise the option together with its covering letter into the mail room of the shopping centre on 14 February 1998.

The defendant had instituted a system whereby it set up a room in which were a set of mailboxes, some for the landlord, and one for each of the shops in the Centre. The tenants were encouraged to communicate with each other and with the landlord by inserting the appropriate communication into the relevant mailbox.

At the request of both parties I had a view of the Centre including the mail room. The mail room at the Centre is on the ground floor of a separate building to that in which the plaintiff's shop is situated. The mail room is a small room which is kept secure, and whose walls up to about shoulder height are covered with about 250 metal mailboxes. The mailbox for management is on the left hand wall at the top right hand corner as one goes in the door and is double the size of the ordinary tenant's mailbox. The management's office is on the 3^rd floor of another part of the shopping centre.

Clause 16.6 of the lease, provides that "All demands, requisitions, consents, elections or notices shall be in writing and may be given to or served upon a party hereto by being left at that address specified as that party's address in the relevant Item of the Reference Schedule (which address may be amended from time to time by prior written notice to the other party). Any such demand, requisition, consent, election or notice if posted shall be deemed duly served at the expiration of three (3) business days after the time of posting. ..."

Several things could be said about clause 16.6. The first is that this sort of clause is usually read as being facultative only. That is, it does not prescribe an exclusive method for the service of notices but only one which may be availed of by a party wishing to give a notice if he, she or it so wishes; see Wilson's Laundry Pty Ltd v Patmoy (1961) 78 WN (NSW) 636 and Tsaoucis v Gallipoli Memorial Club Ltd - Young J, 27 May 1998, as yet unreported.

The second thing that should be said is that the reference schedule did not contain the defendant's name and address, but rather the previous mesne lessor who transferred the reversion to the defendant after the second lease commenced. The defendant says, but the plaintiff denies, that it sent to all tenants a standard notice, for all intents and purposes a notice of attornment, specifying an address being the 3^rd floor office. The plaintiff says it never received this notice. The plaintiff did know, however, because of its dealings with the defendant's representatives that the defendant was now the mesne lessor of the Centre. It does not seem to me to be particularly useful to follow this matter through any further because this was not the way in which the tenant purported to give notice of exercise of the option.

The third thing to be noted about the clause is that it does set up a regime whereby the mere posting of a notice to the prescribed address is all that the tenant need to establish. Receipt by the landlord is deemed to have occurred three days after posting. There are other provisions in clause 16.6 which I have not set forth which make that construction of the clause clear even though that may not appear from the path that I have set out above.

I will mention a fourth thing to be noted about clause 16.6 in due course.

Before dealing with the question as to whether the notice actually did get into the landlord's mailbox on or about 14 January, I should first deal with an argument put by Mr Lever and Mr Gooley, who appeared for the plaintiff tenant, that the landlord had directed that notices be given to it by leaving them in its mailbox in the mail room. This submission is based on a document headed "Marketing Guidelines" (the June 1996 edition of which is in evidence (PA02/293)) which tells tenants where mailboxes are and then says "Mailboxes are the most appropriate way to distribute information in a timely manner. Please make sure you clear your mailbox regularly so that you do not miss out on important information."

I cannot see how this document could be a direction to use the mailboxes for communications, or if it was, that it extended to a direction to give a formal notice in such a way. It would seem that the management was setting up a scheme that might be called "a poor man's e-mail" whereby it was possible for management to inform all tenants of information, particularly marketing information, relatively cheaply, merely by duplicating a number of circulars and having a member of staff insert them in 250 mailboxes. This is reinforced by the fact that the information was contained in a marketing document and tenants were asked to clear their mailboxes regularly so that they would receive such information. Accordingly, I do not accept this submission.

I now turn to the evidence as to the delivery and receipt of the document(s).

Mr Spring gave evidence (PA02/67) as follows:-

"Annexed hereto and marked QQ is a copy of my letter dated

14 January 1997 addressed to Werncog. Annexed to that

letter was a notice of lease renewal dated 13 January 1997.

On about 14 January 1997 I delivered to the letter and the

notice to the mail room at the Centre."

Annexure QQ is a two page document. The first page is a letter bearing date 14 January 1997, the first two paragraphs of which make various complaints. The third paragraph is as follows:-

"The enclosed lease renewal notice is therefore subject to me

knowing precisely what is likely to happen over the short to

medium term, what is the plans in terms of merchandising mix'

and how is Lolly Pops to be affected any more than it is

already."

The last paragraph reads:

"What really irks me is that I am still being asked to pay for

rental on a property that is obviously in trouble and as far

as I am concerned I am renewing my lease oblivious to the

future. Please contact me at the earliest possible time."

The second sheet is headed "Notice of Lease Renewal". It commences "Pursuant to the terms of the lease be advised that Lolly Pops (Harbourside) Pty Ltd hereby elects forthwith to continue with the second further term and exercises the option to renew the lease of shop 283 Festival Market Place at Darling Harbour." The document then sets out the name of the lessee, lessor, commencement and terminating date and is then signed on behalf of the lessee by Stephen Spring director with the date 13/1/97.

The original of the first page is in evidence as DX15. The letter was marked "Attention: Kevin Bevitt and commenced `Dear Kevin'." This is rather odd as Mr Bevitt had not been directly involved with the plaintiff's tenancy for some time. A further singular matter is that the document bears no mark at all of any other document ever having been pinned or stapled to it. It bears a red "received" stamp with date 26 Feb 1997.

Alisa McCutcheon gave evidence that she was working as a marketing assistant/receptionist for the defendant in February 1997. In her affidavit (DA14) she says she brought back the mail from the Centre management's mailbox to its office on the 3^rd floor where she opened the mail and date-stamped it, and either gave it to Mr Quinlivan or placed it in the appropriate pigeon hole in the office for the addressee. She said she had no recollection of the envelope which contained Exhibit DX15 and she could not recall whether she collected it from the mailbox or it was delivered by someone to her. Her affidavit was sworn on 12 May 1998.

When she got into the witness box her evidence changed quite considerably. She said that she believed that the document was handed to her at the reception desk, though she could not remember who had handed it to her. She also then recollected that it was she who put the date stamp on the document. I agreed at the time with the submissions of Mr Robinson, who appeared with Mr Murr for the defendant, that Miss McCutcheon could not be fairly accused of lying either in her affidavit or in the witness box. It is, however, quite extraordinary that her recollection was so improved in giving evidence on 18 May 1998 before me to what had been in her affidavit.

The other people who gave evidence for the defendant on the issue were Mr Quinlivan and his subordinate, Mr Melville. Mr Quinlivan was the defendant's general manager. Mr Quinlivan says that he can remember seeing Exhibit DX15, that is a one page document bearing date 14 January 1997, on 26 February 1997 when it was shown to him by one of the defendant's employees. He noticed that the document was addressed to Kevin Bevitt which surprised him as Mr Bevitt had ceased employment in early 1997 and had not been responsible for the plaintiff's tenancy since April 1996 when Mr Melville took over. In cross examination (T143), Mr Quinlivan said that he could not remember which employee gave the letter to him, but he does remember discussing it with Mr Melville. He said he had no doubt in his mind from Exhibit DX15 that Mr Spring was purporting to exercise the option. He remembers that someone pointed out to him that the letter was dated 14 January and he was seeing it for the first time on 26 February. He would have received it in the afternoon of 26 February because the mail was opened at lunchtime. He didn't understand what was meant by "enclosed renewal notice"; he assumed that the letter was the enclosed renewal notice. He instructed Mr Melville to respond that the exercise was outside the period.

Mr Melville said that he got DX15 from his pigeon hole in the management office. He cannot remember speaking to Mr Quinlivan about it at all. He then wrote a letter to Mr Spring.

Before dealing with Mr Melville's reply, I should note that Mr Bevitt gave evidence to say that he had never seen a copy of DX15 or the notice which was supposed to be annexed to it up until some time this year.

Mr Melville's letter of 26 February 1997 is as follows:

"We refer to your correspondence of 14 January 1997 received

today 26 February 1997 by another tenant of Harbourside

Shopping Centre. It seems to have been inadvertently put

in their mailbox.

I would hope that our meeting of Monday 24 February 1997

may have addressed some of these major concerns that you

have. We would not be prepared to grant to you Lease

Option in your current location, as advised Shop 283 will

be incorporated into the Alfresco dining, Eat-Street

precinct.

We certainly are prepared to transfer the balance of your

Lease being four (4) years with a three (3) year option to a

new tenancy agreed between yourself and the writer.

We look forward to finalising all these matters in due course.

Do not hesitate to contact me when you have further

questions or would like to discuss new design, concepts, etc."

What is rather bizarre about Mr Melville's letter of 26 February is the first paragraph which suggests that the document was inadvertently put into another tenant's mailbox. No-one can remember today anything about that at all. Mr Melville says he may have enquired from the receptionist or general manager's secretary: he certainly did not make it up. Mr Quinlivan has no recollection at all of anything being said to him about the document having been put in someone else's mailbox.

Mr Robinson suggested to Mr Spring that he had not exercised the option on 14 January at all, a suggestion which Mr Spring repudiated. Mr Robinson then cross examined Mr Spring to the effect that it was just inconceivable for him to exercise his option when he did not know what the rent would be for the new period and he did not know what effect there would be generally of the renovations that were being carried out to the Centre.

If I can digress at this stage. When the plaintiff took its first lease in the Centre, it was thought by the cognoscente that Darling Harbour Festival Market Place was a very upmarket site for a retail establishment and that it would attract a considerable proportion of the tourist trade. The market place is constructed in two main sections, a south pavilion and a north pavilion, and in between them is a staircase and skylight felicitously known as "The Crystal Galleria". There are two levels of shops in each pavilion. Part of the shopping area is occupied by what is called "Eat Street" which consists of a series of take-away type fast food outlets with tables and chairs for people purchasing those products to consume them on the premises. Other shops sell consumables such as the plaintiff's shop which sells confectionery. Other shops in the Centre, some gathered into groups, others spread around the Centre sell clothing, souvenirs, toys, books etc. If one walks through from the Crystal Galleria, into the north pavilion and out the far end of the north pavilion, one will get to the monorail station and to an entrance to Pyrmont Bridge where one can walk back to the city. Mr Spring says that there was quite a through movement of people between the Crystal Galleria and the monorail station exit which passed by his shop which is on level 1 just inside the northern pavilion from the Crystal Galleria.

Mr Spring says that by 1993 his sales turnover was only half what it was in 1988 despite the fact that he and his staff had worked hard on promotions. The people were just not coming to the Centre. More and more tenancies fell by the wayside whose shops were closed up, the maintenance of the Centre got worse and worse and stock was becoming damaged through vermin infestation with excreta left around the Centre. It was thus welcome when the defendant purchased the right to operate the Centre and became the mesne lessor and when the defendant indicated that it would make considerable renovations.

However, the defendant's renovations virtually meant completely removing all the existing shops, demolishing whole floors of one or other of the pavilions and then rebuilding in quite a different configuration. The plaintiff says that it bore the inconvenience for a while without complaint, but became more and more impatient when it was apparent that promised new tenants were not coming into the building and that the landlord was adopting a strategy of either repositioning tenants by agreement or finding a way of removing them from the Centre.

In 1997, the renovations got to the stage where the escalators which had passed from level 1 on which the plaintiff's shop is situated to level 2, which was part of the throughway between the monorail station and the Crystal Galleria past the plaintiff's shop, were repositioned by turning them 90 degrees. Then, access to the Crystal Galleria was blocked so that the plaintiff's shop was in a dead end. These alterations effectively removed any passing trade from the plaintiff's shop.

On 17 July 1996, the plaintiff wrote to the defendant, a letter, the key part of which was as follows:-

"I refer to our recent meeting and correspondence regarding

occupancy costs for June, July, August, September and

October 1996. As discussed and agreed, the adjusted amount

will be $3300 per month gross."

There is no dispute that the rent or occupation fee was reduced to $3300 from a basic $4500 for those months. The landlord says that apart from those five months, strictly speaking, the rent remained as it was under the lease. However, the landlord was prepared to accept rent after that period on the same basis. The tenant did not even pay anything like this rate of rent.

There is some conflict in the evidence as to when it was that Mr Quinlivan and Mr Melville realized that the plaintiff's shop was due to be demolished and would in future form part of the relocated Eat Street part of the Centre. On any version of it, the plaintiff does not appear to have become aware of such a proposal until at least 24 February 1997.

On 1 December 1997, Mr Melville sent to Mr Spring a letter that he would be required to hand over his tenancy effective at the end of trading on 31 May 1998.

There was considerable cross examination about this letter, it being suggested by Mr Lever that the fact that the letter was written six months before 31 May 1998 was no coincidence, but rather that the landlord recognized that the Retail Leases Act applied and accordingly gave six months' notice. There was also cross examination to the effect that the usual coding on the letter did not appear. Part of the cross examination was to suggest that by December it was known to Mr Quinlivan and Mr Melville that the plaintiff's shop would be disappearing under the renovations, but they never told the plaintiff that.

On 24 February 1997, Mr Spring and Mr Melville walked around the Centre. Mr Spring says that for the first time Mr Melville advised him about the Centre's future plans. Mr Melville said, "Please don't be concerned about the present state of the Centre. Be patient, your area will be attended to in due course. Lolly Pops is the sort of tenancy we want in a Centre like this and you are here to stay. We are doing the best we can." I note that Mr Spring denies that this meeting was so extensive. It really does not matter that much whether this is so or not, though I would prefer the evidence of Mr Melville on this issue. The important fact is that by this date at the latest, Mr Spring knew of the proposed relocation of the plaintiff's shop.

There was voluminous correspondence between the parties, but there is very little more that needs be set out because the majority was complaints by Mr Spring that the renovations were ruining his business. However, it should be noted that in his letter of 12 March 1997 (PA02/379) Mr Spring reiterated that the plaintiff had exercised its option and that when he had exercised the option he was unaware that Shop 283 was to be part of a redevelopment.

Arguments were put both ways as to whether it was more likely than not that the option had been exercised.

On the plaintiff's side it was put that -

(a) the plaintiff realized that the option needed to be exercised to preserve its business;

(b) that the plaintiff consistently maintained that the option had been exercised;

(c) that the plaintiff did not know anything about the relocation of its shop until at least 24 February;

(d) that the defendant's three witnesses gave inconsistent stories;

(e) that the defendant never comes out and says that the option was not exercised in time in correspondence (despite the fact that Mr Quinlivan says that he instructed Mr Melville to say this);

(f) there is the strange story about the notice being put in another mailbox.

On the other hand, the defendant says -

(a) that no respectable businessman would have exercised the option without knowing what the rent was;

(b) when one looks at the exhibit DX15 one can see that there could not have been anything annexed to it in the sense of being physically attached to it;

(c) Mr Spring is the only witness who gives evidence as to delivering the notice and his evidence must be discarded as unreliable;

(d) it was not suggested that Miss McCutcheon had anything to gain by forging, nor did she forge, the date stamp on the letter, DX15.

So far as credit is concerned, I did find it difficult to believe any of Messrs Spring, Quinlivan or Melville or Miss McCutcheon. Of those, the only one whose demeanour affected his credibility was Mr Melville who appeared to be treating the giving of evidence as rather a joke. The way in which he smiled and delivered his evidence gave me the impression that he was a man who was confident that he was in a controlling position, that everybody was really wasting their time about this case and it really did not matter too much whether he was careful about his evidence or not.

As is obvious from what I have said earlier, the evidence of Mr Melville and Mr Quinlivan conflicted. It is quite impossible to accept that a person whose superior tells him to inform a tenant that the option had not been exercised in time declines to follow that advice. Even if that had happened, one would have expected as soon as Mr Quinlivan realized that his subordinate had disobeyed him, he would have taken corrective measures. Yet this did not occur. Rather what happened was that there was this odd story about the notice having got into someone else's mailbox.

Miss McCutcheon's change in tune was sufficient to make me think that I should pay scant regard to her evidence.

Although Mr Robinson put formally to Mr Spring that he had not in fact delivered the letter on 14 January, the defendant's main answer was that the letter had been delivered before 26 February but not in the right mailbox.

On the other side, Mr Spring was not a good witness at all. I think on occasions Mr Robinson had to put a proposition to him eight times before he got him to actually answer the question rather than make a comment that Mr Spring obviously thought would advance his case.

In his submissions, Mr Lever said I was being very unfair to Mr Spring and that some of the answers which I indicated during the trial were unresponsive were indeed a true answer to the question. I certainly did not seek to be unfair to Mr Spring, nor do I think I was unfair to him. I assessed him as a shrewd businessman who doubtless in his day to day activity did not answer a question if he did not have to. However, Mr Robinson was one of those counsel, unfortunately relatively few still exist, who would not permit the witness to treat him in that way, but asked the question over and over and over until he got an answer.

The background to Mr Spring's business activities was that he invented and patented a lolly dispenser and incorporates the patented article into his shops. At one stage he had 14 shops, though now his venture is reduced to two, one in Darling Harbour and one in the Queen Victoria Building. He has not a good record in paying his debts and indeed, appears still to be working out an arrangement with the taxation authorities about paying his employees' group tax, which he deducted from their pay but failed to pay over to the Commissioner. His questionable business activity in this connection is, however, probably something that works a little in his favour rather than against him. This is because it explains in part why he was not worried about the rent that might be fixed under the new lease because he was experienced enough in the ways of business not to pay it if it became too burdensome. Indeed, the evidence under the first lease was that he was some $50,000 in arrears but was able to do a deal with the landlord to write off some of that money because the landlord needed a shop like Lolly Pops in the Centre. It may be, however, that by 1997, that had changed because another confectioner was interested in opening.

However, despite Mr Spring's imperfection as a witness or his past business habits, it seems to me more likely than not that the letter, DX15, was delivered to the lessor's mailbox on 14 January 1997.

There is no-one who actually corroborates Mr Spring in this regard, but on the other hand, there is no-one who contradicts him either. It seems to me that the factors that I have outlined earlier point to the conclusion that it is more likely than not that the letter was delivered on 14 January rather than the other way around.

I worried for quite a long while as to why the defendant did not actually say that it had not received the letter and perhaps also the notice exercising the option until after the option period. If that were the situation it would have been very easy to do so. Even if there had been a rumour in the office or stronger that the letter had been delivered from another tenant put in his or her mailbox by mistake, one would have thought that someone would have made a note of that because it was such an important matter. It must be remembered that the defendant was not just some ordinary person, it was a company whose sole task was to manage a shopping centre and was dealing with leases day after day. It must have known the importance of the exercise of the option. Why then, circulate the story that the envelope and the letter must have been put in the wrong tenant's box?

Logically there is only one answer to this and that is, that at 26 February the landlord did not know how many witnesses there were to the tenant depositing the letter in the mailbox in January. It would have been extremely awkward to it had it written to say that the letter had only just been received that day if, for example, the tenant had delivered the letter on his way to cricket practice with ten other members of his cricket team. The landlord just did not know. Accordingly, the only safe way was not to make any direct allegation of non-receipt before 26 February at that point in time, but rather to make it plain that it did not intend to offer any new lease.

It must also be remembered that the lessor was in a rather awkward position. The shopping centre was in a very rundown position and people were apparently no longer visiting it. It needed to be renovated in order to reverse that trend, but there were sitting tenants who could not be moved. The landlord seems to have taken the view that it was legitimate to use as much bluff and persuasion as necessary in order to achieve its purpose. Legalities were a secondary consideration.

Accordingly, in my view the letter was delivered to the mailbox on 14 January 1997 on the balance of probabilities.

Mr Robinson says that this is not enough. The plaintiff must establish that the acceptance was communicated and this is shown by the letter coming to the notice of an appropriate officer of the defendant. He says that a letter deposited in a mailbox endorsed with the name of Mr Bivett was not such an officer in January or February 1997.

It is certainly true that any acceptance of an offer including the exercise of an option must ordinarily be communicated to the offeror. This is a general principle of contract law; see Chitty on Contracts 27^th ed (Sweet & Maxwell London 1994) Vol 1, para 2-027. The same appears in Treitel's book The Law of Contract (Sweet & Maxwell/Stevens & Sons, London, 1991) 8^th ed at p 40, which is not surprising seeing that Treitel wrote both passages. However, it should be noted that Corbin on Contracts Vol 1 (West, St Paul, 1963) section 67, says there is no such rule though he acknowledges that such a principle does apply in certain cases.

The Australian position is that communication of acceptance is ordinarily required. This was decided in Batt v Onslow [1892] NSWLawRp 22; (1892) 13 LR (NSW) (Eq) 79. Owen, CJ in Eq said at 86 that the question for him was whether acceptance was communicated "for until communicated to the maker of the offer the acceptance does not make a contract". This has been the position adopted in Australia since, for instance, see the Court of Appeal's decision in Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79, 81 (where Jacobs, JA with whom Sugerman and Walsh JJA agreed, said "The ordinary rule is that a contract is not made, that an offer is not accepted, until the acceptance of the offer has been communicated"). See also in Victoria Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] VicRp 3; [1994] 1 VR 74.

McLelland, J in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251, 9255, again proceeds on the basis that the ordinary rule is that communication of acceptance is necessary.

I accordingly must follow the decision of the Court of Appeal, though it does not really matter too much whether there is a rule with a series of exceptions or a series of independent subrules.

The cases relied on by Corbin are of some relevance to the instant case. The first of these is Starr v Holck 28 NW (2d) 289 (Mich) (1947) which is reported with annotations in Volume 172 Am LR 413. In that case the Court adopted the rule that if an option is exercised by mail it must be shown that the acceptance was received by the grantor. It thus comes to the same view as the English case of Holwell Securities Ltd v Hughes [1973] EWCA Civ 5; [1974] 1 WLR 155 to which I will refer shortly.

The other main case relied on by Corbin is Hoban v Hudson 152 NW 723 (Minn) (1915). In that case, the plaintiff was given the option to demand a refund of the amount paid for shares provided he gave written notice of his election before a certain date. He posted the notice two days before the deadline but it was only received two days after the deadline. The Supreme Court of Minnesota held that the notice had not been given. It said at 724 that the authorities made it clear "that in a case of this kind, where either a right to money or property or a forfeiture thereof depends upon the giving of a written notice, such notice, in the absence of custom, statute, estoppel, or express contract stipulation means a personal notice to the proper party within the stipulated time, and that if it is sought to make use of the United States mail as a means of service the service is not effected until the notice comes into the hands of the one to be served.

"This is not a case where there is room for inference that the parties had selected the mail as a medium of giving notice ...". The Court contrasted Reed v St John 2 Daly (NY) (1867) 213, where a mailed notice to exercise an option to renew a lease was held served in time because the Court found that the service was according to the suggestion of the landlord and an assurance from him that a notice mailed at the appropriate time would reach him in time.

Section 170 of the Conveyancing Act provides, inter alia, that any notice required to be served by any instrument affecting property if served otherwise than by post, may be delivered personally or left at the last known business address of the person to be served. The section applies to the exercise of an option; see Bressan v Squires [1974] 2 NSWLR 460 and Tsaoucis v Gallipoli Memorial Club supra.

There is a dispute as to whether the last known address of the mesne lessor is the third floor of the building or its mailbox. Section 170(1)(b) actually provides there shall be sufficient service -

"(b) if left at or sent by post to the last known residential

or business address in or out of New South Wales of the

person to be served."

That would suggest that where a person has an address at which he or she has a post box in one part of the site and an office in another part of the site it is sufficient if the document is placed in the post box at the address. It was the post box of the address into which Mr Spring put the letter on the 14 January. Once the document is placed into the post box, then the cases show that that is sufficient service and it is not necessary for the giver of the notice to show that it actually came to the attention of the addressee.

This is starkly shown by Newborough v Jones [1975] Ch 90. In that case, the landlord served a notice to quit under the door of the farm house but the notice actually slid under the linoleum inside the farm house so that the tenant did not actually receive it. It was held properly served under s 92(1) of the English Agricultural Holdings Act 1948.

To like effect is Cannon Brewery Co Ltd v Signal Press Ltd (1928) 139 LT 384. That case involved a notice to remedy breach under the English equivalent of NSW s 129 of the Conveyancing Act. The notice was handed to a forewoman employed by the defendant. Humphreys, J held that under the English equivalent of our s 170, that the notice was served. This was because a document is "left at" premises if it "is left in the hands of some person who is in fact on the premises, and in regard to whom there is reasonable ground for supposing that he or she will hand it to the lessee, if the lessee should be available for that purpose."

In Joseph Maynard Ltd v Maynard [1964] EGD 330, a tenant needed to give notice to a landlord who was overseas without any address. It gave the notice to him through his bank. Wilberforce, J held that that was sufficient and that the risk of non-receipt must be with the landlord. However, the case is fairly sketchily reported and it is not too clear whether this is a case under s 170 or whether, as Mr Murr, who appeared with Mr Robinson and argued a discrete part of the case put, it is just an illustration of the rule that equity does not permit a person who has granted an option to avoid the consequences by being absent from the country at the time for exercise; see eg Bragg v Alam [1981] 1 NSWLR 668.

The decision of the English Court of Appeal in Holwell Securities Ltd v Hughes [1973] EWCA Civ 5; [1974] 1 WLR 155 is illuminating. In that case the tenant wished to exercise an option and his solicitors posted to both the landlord's solicitors and the landlord personally a notice of exercise of option. The notice reached the solicitors, but the landlord had departed for Ireland the same day to fulfil some previous commitment and even after he returned, the letter had not been delivered to him.

The tenant said that the postal rule applied so that proof of posting of the exercise was sufficient, or alternatively the landlord had some notice of the exercise through his solicitors. The tenant failed.

The Court held that the English equivalent of s 170 applied to the notice of exercise of option and it was inconsistent with the postal rule. The letter had to be left at the defendant's premises. Accordingly, it was inconsistent that there be an acceptance before this time.

The Holwell case was followed by Kearney, J in Levitt v Illawarra Seafood Pty Ltd (No 2) (1983) 3 BPR 9137. A similar case is Afolabi v Polymera Industries [1967] 1 All Nigeria LR 144. No copy of this decision appears to be available in Sydney, but it is digested in Sagay: Nigerian Law of Contract (Sweet & Maxwell, London, 1985) at p 33.

It follows from this line of authority that if I am satisfied that the letter was put into the mailbox of the Centre on 14 January, it matters not whether it came to the attention of the people in charge of the defendant company.

However, even if this were wrong, in the case of a company, the rule that communication of acceptance is required is satisfied when the relevant letter is opened "in the ordinary course of business or would have been so opened if the ordinary course were followed": Eaglehill Ltd v J Needham Builders Ltd [1973] AC 992, 1011. See also Curtice v London City and Midland Bank Ltd [1908] 1 KB 293, 300-301. See also The Pendrecht [1980] 2 Lloyd's Rep 56, 66. Mr Murr seeks to distinguish this line of cases by saying that it is based on specific provisions of the bills of exchange legislation. The Pendrecht would tend to give support to that submission. However, it seems to me that the law in the Eaglehill case is very close to the situation as it was accepted in the Cannon Brewery Company case and that when one is giving a notice which needs to be left at the office then the rule in the Eaglehill case applies.

On the balance of probabilities I accept that Mr Spring delivered the notice to the defendant's mailbox on 14 January. I have left the words "the notice" deliberately vague at this stage. This was sufficient to exercise the option.

I should now add the fourth point about clause 16.6, namely that the parties have agreed that the risk of non-receipt of any notice is on the recipient rather than the sender and that generally there should be a deemed receipt day. These matters make it easier to infer that any accident that befalls a notice after it has left the sender's hands is at the cost of the recipient.

It should also be said that if the defendant had relied on the evidence that the notice had not been put into the lessor's mailbox but rather the mailbox of another tenant, the onus was on it to prove that fact. There is just no evidence on this at all and the only evidence on the matter is from Mr Spring who says that he placed the envelope in the lessor's mailbox. Having seen the mail room it is very difficult to see how a mistake could be made because the lessor's mailbox is in a special position and is double the size. There were some mumbles of a suggestion that Mr Spring had deliberately put the letter in the wrong mailbox in order to get the best of both worlds, but not only is this highly improbable, there is just no evidence to support such an underhanded trick.

1. (b) There is a doubt on the evidence as to whether what was delivered on 14 January was the covering letter which is DX15 or both that letter and a formal notice of exercise.

Although in his affidavit Mr Spring deposed that the formal notice was annexed to the covering letter, when one views the exhibit DX15 it is clear that nothing was ever physically attached to it. However, looking at the oral evidence it seemed to me that I might be reading too much into the word "annexed" to construe it as a physical attachment and this is reinforced by the fact that there was no cross examination directed on this point. None of the evidence of the defendant's witnesses assist on this point as they just say they only received the document DX15.

Under cross examination, Mr Spring indicated that it was his view that the letter would not be enough to exercise the option but that something more would be needed. This is not, of course, conclusive and it would be open to a court to hold that the letter itself was a sufficient indication of an intention to exercise the option. However, the significance of the evidence is that knowing that something more was required something more would have been given.

Although there is really little evidence on the matter, it seems to me the balance of the evidence points to the two notices being given together. There was no reason at all why only one should be given and not the other. Mr Melville's letter of 26 February merely refers to "your correspondence"; it does not take the point that the letter alone was received and that it would not in any event have constituted an exercise of the option.

Accordingly, in my view it is more likely than not that both documents were delivered on 14 January.

The next matter is whether the documents did constitute an exercise of the option or whether they were merely a conditional acceptance which the cliché says is no acceptance.

The covering letter says, amongst other things, "The enclosed lease renewal notice is therefore subject to me knowing precisely what is likely to happen over the short to medium term ...".

It is not every acceptance which appears to have a condition attached to it that should be classed as a qualified acceptance. There may be an acceptance which asks for matters to be reviewed so long as it is clear from the whole of the context that if the request is refused, the acceptor is prepared to carry out the original contract. Furthermore, there may be an acceptance coupled with an offer to enter into a further collateral contract; see Treitel op cit at p 18.

It seems to me that the "subject to" matters referred to in the letter DX15 are in the category of a general request for consideration in view of all the problems that the lessee has been experiencing through the renovation works of the lessor and should not be taken to be a condition qualifying the acceptance.

Accordingly, the tenant has exercised its option.

2. The Effect of the Industrial Relations Commission proceedings

The defendant submits that the fact that the plaintiff filed a summons seeking that the Industrial Relations Commission vary the lease means that it is not ready willing and able to fulfil the contract so far as the same remains to be fulfilled on its part (quoting from the old form of statement of claim for specific performance). The plaintiff says that this is not so, but even if it were originally an argument available to the defendant the present form of application to the Industrial Relations Commission is merely for money compensation for past problems.

The law has been that the plaintiff must show as at the date of commencing the proceedings that he was ready, willing and able to perform the contract from now onwards. The summons in the present proceedings was filed on 25 March 1998. The initial application to the Industrial Relations Commission was filed on 31 March 1998.

The origin of the rule that a plaintiff seeking specific performance must be ready, willing and able to perform the contract on his part seems to be connected with the ancient rule that it was only those who had respected the contract that could enforce it in equity. An allied principle applied in divorce in the ecclesiastical courts; see Blunt v Blunt [1943] AC 517.

However, in more modern times, the rule seems to have been applied less strictly; see Bahr v Nicolay [No 2] [1988] HCA 16; (1988) 164 CLR 604, 640. These days, the issue is to be resolved as one of substance, and not in any technical way looking at the pleadings. The plaintiff must be ready, willing and able to perform the contract in the sense that at the date of hearing its evidence shows that it has that desire and is capable of fulfilling it.

Again, more modern cases show that whilst past breaches of the plaintiff may disentitle him or her to specific performance, this is not necessarily so and the court usually looks to see a close relationship between the breach and the contract that is now being enforced.

Fry on Specific Performance 6^th ed (Sweet & Maxwell London 1921) at pp 446 and following deals with the cases on inability to perform future acts, but considers that these cases are mainly ones where the plaintiff has become insolvent.

There is not as far as I know any case where the plaintiff's application to vary a contract under the Industrial Relations Act or the Trade Practices Act or similar legislation has been considered. It would seem to me on principle that if there is an application to vary, then specific performance should be refused either because the plaintiff is not ready, willing and able to perform the contract as written or else because equity does not grant specific performance of only part of a contract: Measures Bros Ltd v Measures [1910] 2 Ch 248.

It seems to me that if the application in the Industrial Relations Commission had not been amended, such an application would have been a bar to specific performance. However, in the instant case as at the date of commencement of the proceedings there was no such application on foot, and as the date of hearing, the application had been varied so as to ask for compensation for past problems only. Such an application does not amount to a refusal to perform in the future. Accordingly, the application before the Industrial Relations Commission does not create a bar to specific performance.

The final matter to consider is whether the plaintiff by having part of its case in this court, and part in the Industrial Relations Commission, has not duly submitted itself to this court. The overriding principle in specific performance cases is that the plaintiff gives up any legal rights it may have so that it may take advantage of the equitable relief that can be given. Accordingly, a plaintiff in equity may have to give up technical claims such as might be availed of under the Moneylending Act in order to assert equitable rights. However, it does not seem to me, no matter how broad this principle is, that in a situation where a person is given statutory rights to compensation one must abandon those rights before maintaining a suit in equity to obtain specific performance.

3. Is the plaintiff ready, willing and able to perform a new lease?

The other matters of readiness, willingness and ability refer to the problem that the plaintiff has in meeting the preconditions of clause 23 of the lease. These are:

(a) That the notice is given in time; and

(b) "The Lessee shall neither at the date of such exercise of option nor

at the date of expiry of the immediately preceding term be in

default in respect of the performance of the terms, covenants

and conditions by and on the part of the Lessee hereincontained."

As at the two dates, the tenant was in arrears with rent. This is partly because the tenant assumed that the reduction of rent applied for periods other than June through October 1997, and secondly, because in any event it was not paying the rent on time.

Up until the enactment of ss 133C and following of the Conveyancing Act, 1919, if a tenant was in breach of a lease, even though the breach was remedied the option in a form like the present could not be availed of by the tenant: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122. Section 133E of the Conveyancing Act now requires the lessor to give a prescribed notice if it wishes to take advantage of such a breach. However, I held in Brennan v Kinjella (1993) 6 BPR 13,168 at 13,174 that

s 133E only applies to breaches up to the date of the tenant's notice.

What then, happens with respect to breaches between the date of the exercise of the option, in this case 14 January 1997 and the termination of the lease, 30 April 1997?

The problem has been reviewed in a number of earlier cases.

The first of these cases is my own decision in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1989) 4 BPR 9575. This decision went on appeal on another point, see (1990) 21 NSWLR 459.

I said in that case that one must construe the clause conferring the option. If it does not contain a true condition precedent then the rule in the Gilbert J McCaul case does not apply and one deals with any non-compliance on a discretionary basis. If on the other hand, the clause does contain a condition precedent, then in a situation where one has a notice to be given before the end of the lease, one treats it as operating as at the date at the end of the lease and it is at the end of the lease that the landlord must either give a notice under s 133E of the Conveyancing Act or ignore the breach.

In Nessmine Pty Ltd v Devuzo Pty Ltd (1989) NSW Conv R 55-496, Hodgson, J took the same view.

However, in Rethmeier v Pioneer House Pty Ltd (1990) 6 BPR 13,245, Bryson, J took a different approach. At p 13,249, his Honour came to the view that s 133E had no application to breaches after the giving of the notice and that accordingly the Gilbert J McCaul principle continued to apply.

The only other case that need be mentioned on s 133E is Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447, a decision of the Court of Appeal, which is consistent with the first of the principles referred to in Beca.

Mr Murr submitted that I should follow what Bryson, J did in the Rethmeier case. With respect to his Honour, I do not think that I should. The whole purpose of the legislature which appears from the extract from the Minister's Second Reading Speech set out in the judgment of Kirby, P in the Snowy River case at p 14,455 is that the artificial rule in the Gilbert J McCaul case was to be put to rest and that a more flexible position adopted whereby in the first instance the parties, and in the second instance the court, could do justice in each situation. It seems to me that the approach which Bryson, J took virtually means that the remedial measures taken by the legislature can be completely thwarted merely by the form of the clause requiring a notice of exercise to be given prior to the expiry of the lease. It seems to me that the construction taken in Beca and Nessmine accord far more with what the legislature intended. Anything contrary to this in Brennan v Kinjella may be disregarded.

Thus, in the instant case, even though there were breaches, the landlord did not give any notice under s 133E. The breaches are thus not a complete bar to the tenant succeeding, they are merely matters which the court takes into account in its discretion as to whether to grant specific performance.

As to the discretionary factors, it is extremely important to realize that the landlord's activities in reconstructing the Centre while the existing tenancies were in place must have had a profound effect on trade and the ability to pay rent. Accordingly, the non-payment of rent or the late payment of rent, whilst it may be a breach, is not to be seen in the light of a tenant who is deliberately not performing what is required under the lease. It does not seem to me that these breaches in themselves are sufficient grounds to decline specific performance should it otherwise be available.

The next factor to be considered is the tenant's attitude to the Retail Leases Act. I deal with this submission in section 4. It is really the most significant matter affecting readiness, willingness and ability.

4. Specific Performance

Although the plaintiff has not been a model tenant, and although I strongly suspect that the plaintiff's main complaint is that it has not been offered compensation for the adverse trading conditions of the last two years, I do not consider these matters are sufficient to prevent specific performance. With contracts in relation to land, ordinarily damages are not a sufficient remedy and specific performance should be granted.

The fact that the plaintiff's shop is to disappear on the revised plans of the lessor is no reason why specific performance should be refused. The court may grant specific performance and order the lessor reinstate the shop and if that happens not to be in accordance with the lessor's plans, that is just bad luck for the lessor which went ahead on the basis that it would take the risk. There may be some town planning complication that enters into the matter, but if that is so, then that can be dealt with when short minutes are brought in.

However, the Retail Leases Act matter is in a different category.

The evidence clearly shows that at the time when the 1994 lease was being negotiated, the landlord took the view that the Act did not apply.

The first lease between the parties or their predecessors took effect from March 1988, though it was dated 31 October 1988 and provided for a lease for two years with two further options, each of two years, which were duly exercised. The last of these renewed leases thus came to an end in March 1994.

On 13 May 1994, the defendant's predecessor in title offered a new lease. The plaintiff remained in possession. The Retail Leases Act came into force on 1 August 1994 and the lease was actually signed on 15 September 1994 to date from 1 May 1994. No point seems to have been taken by either side that the Retail Leases Act might apply until an interlocutory stage of the present proceedings.

The defendant argues that it would be quite unjust to foist it with a lease subject to the terms of the Retail Leases Act when it was never its intention that those matters should be included in the lease. On the other hand, the plaintiff says that if a piece of legislation of general application varies the terms of a contract in existence, then the parties are entitled to the benefit (or be subject to the detriment) of that legislation.

No authority was cited to me on either side. On first principles my view is that the defendant's submission is correct. The defendant never intended to contract in a way which involved the provisions of the Act and it was merely fortuitous that the Act was passed some six weeks before the lease was actually signed. It would be quite unconscionable to now grant a lease subject to all the terms of the Retail Leases Act against such a defendant.

This fact, together with the fact that it would seem that the plaintiff's main concern is over money make me decline to grant to specific performance.

However, as I have held in section 5 of these reasons, the Retail Leases Act does not apply to the lease. It does not seem to me the mere fact that the tenant has vigorously maintained that it does apply is enough to deprive it of specific performance because it is only if a person indicates that he or she will only perform a contract if a particular (wrong) interpretation of the lease is given effect to that there will be a repudiation: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423.

Accordingly, there should be an order for specific performance in favour of the plaintiff. However, when the short minutes are brought in, great care will have to be taken as to the exact form of the decree.

5. The application and effect of the Retail Leases Act 1994

The Retail Leases Act came into force on 1 August 1994. Section 6 of the Act provides that the Act does not apply to five situations including:

"(c) Leases entered into before the commencement of this

section,

(d) leases entered into under an option granted or agreement

made before the commencement of this section."

The question is then whether this lease was entered into under an agreement made before the commencement of the Act?

The plaintiff says that the agreement for lease was not concluded until 15 August 1994 and the lease was executed on 15 September 1994.

The correspondence is annexed to the affidavit of Mr Gardner (PA05). This shows that on 13 May a proposal to lease was submitted. The copy annexed to Mr Gardner's affidavit contains amendments which are initialled, and I can only assume that amendments were made before 20 May when Mr Spring and his co-director signed a document that they agreed to the terms and conditions in the attached letter. On 29 July the then mesne landlord sent to the tenant a letter agreeing that if Lolly Pops entered into a new lease effective from 1 May 1994, certain arrears of rent would be removed.

On 15 August 1994, Harris & Company, Solicitors, wrote a letter to themselves. This was because Mr Mitchell of that firm was acting for the then lessor and Mr Hayson of that firm was acting for the lessee. There were amendments of a significant nature made in that a second four year option was added and adjustments were made to the percentage increase of rents that would apply during the initial new lease and two four year option periods. The lease, as I have said, was signed on 15 September.

The only direct consideration of this matter was made under the Victorian Retail Tenancies Act by Hayne, J in Rialta Pty Ltd v Handbags International Pty Ltd (1993) V ConvR 54-469 at p 65481. In that case counsel for the landlord said that so long as the lease ultimately made between the parties was for the same subject matter, for the same term and at the same rent as required by the agreement for lease, the lease was under that agreement. On the other hand the tenant said that the lease was only under an agreement if, and only if, the lease made was that which would have resulted had a court ordered specific performance of the agreement for lease. His Honour found that he did not have to decide this matter, as whichever test was applied, the lease was made under an agreement. In Bradbrook and Croft, Commercial Tenancy Law in Australia 2^nd ed (Butterworths Sydney 1997) pp 496-7, it is said that the Rialta case "does suggest that a degree of latitude may be permitted between the terms of any pre-existing agreement for lease and the lease as finally executed. However, the extent of any permitted variation is not clear. Generally, decisions such as Pascoe Webbe v Nusuna Pty Ltd (1985) 3 BPR 9620 indicate that a relatively slight alteration to a lease will effect a surrender and regrant rather than a mere variation ... If a lease purportedly executed effecting a pre-existing agreement for lease differs from the agreement to such an extent that it would, as a matter of general law, be held to effect a surrender and regrant, it is difficult to see how it would be said to be a lease made under a pre-existing agreement...".

The Pascoe Webbe case is a decision of mine. I said at p 9622 of the report that "Up until fairly recently courts would usually take the view that unless there was some relatively minor alteration in the terms of the lease the parties must have intended a surrender and a regrant ...". However, I went on to say that that was a question of fact "and courts have been more ready to infer a mere variation, especially in cases of adjustment to the rent, in the last twenty years and the present law was probably accurately summed up in the 4^th edition of Halsbury Volume 27 para 448." That paragraph is now 529 in the 4^th ed reissue Vol 27 (1). The learned authors there say that an extension of the land covered by the lease or its term involves a surrender and a regrant. "Other agreed alterations do not necessarily involve a surrender and regrant. If the parties wish, they may increase the rent payable under a tenancy without creating a new tenancy; and the old tenancy continues at the increased rent. The rent may be reduced in the same way. Other minor variations may be effected without a surrender and regrant. Where the agreement between the parties does not affect the terms of an existing tenancy, there is no reason to imply a surrender and regrant. Where, however, the parties intend that their altered relationship is to amount to a new tenancy, there will be a surrender of the previous tenancy."

Returning to the words of s 6(d) of the Retail Leases Act, the word "under" was considered by O'Bryan, J in R v Clyne; ex parte Harrop [1941] VicLawRp 47; [1941] VLR 200. At 201 his Honour said one must always have regard to the context to determine in which sense the word is used but in the case before him the word "under" meant "pursuant to" rather than "by virtue of". An illustration where the word meant "by virtue of" is given in Arnold v Wood (1996) 135 FLR 343. The word also can have the meaning "in accordance with"; see Gilbert v Western Australia [1962] HCA 7; (1962) 107 CLR 494.

In Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, there was a guarantor of the lessee's obligations "under this lease". The lease was not registered. The majority of the High Court held that the lessee's obligation to pay rent did not arise "under this lease" and accordingly the guarantor was not liable. This was because the lease was equivalent to a s 127 tenancy under the Conveyancing Act and not under the document.

In Elmslie v Commissioner of Taxation [1993] FCA 549; (1993) 46 FCR 576, the question was whether shares had been acquired under a contract which had been made before the cut-off date. At 592, Wilcox, J said that the cases "demonstrate that the word `under' usually imports a direct connection between the relevant Act and the instrument. Chan is particularly telling. In that case, it was not enough that there was a contract (the lease) that envisaged that the lessee would go into possession and, indeed, required it to do so. It was not enough that, absent the lease, the lessee would not have gone into possession and the liability for rent not arisen. For the guarantors' liability to arise, the rental liability had to be incurred under the lease; that is, through its operation as an instrument that created a legal interest. In the same way, the contract under which an asset is acquired, within the meaning of s 160U(3) (Income Tax Assessment Act), is the contract through whose operation the asset changes ownership."

This line of thinking tends to suggest that a very stringent test is applied as to what happens under an agreement.

However, as O'Bryan, J said in Harrop's case, one must look at the context. Section 6(d) removes from the operation of the Retail Leases Act not only leases entered into under an agreement, but also those entered into under an option. The paragraph envisages that where the landlord virtually is bound to enter into the lease, then the Act should not apply. One reason for this may be that there is no room for any disclosure statement which has to be given before a lease is entered into where the parties are already bound to give a lease.

The obligations of a party under a contract brought about by the exercise of an option, may be relatively uncertain. In more recent days, courts try their utmost to supply all the blanks that the parties may have left in an agreement so that where the parties are purported to make an agreement at arm's length, there is not so much waste of energy because of some technicality. Thus even if the parties have made such a vague bargain as the case where the parties agreed that the lease would be at a rental to be determined by two senior real estate agents, it will not necessarily be void for uncertainty: Carter & Dart Prestige Cars Pty Ltd v Olsen (1980) 1 BPR 9647.

Furthermore, it is now recognized that there may very well be a contractual regime in which the parties constantly vary their detailed relationship. The prime statement on this matter is by McHugh, JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110. Even outside such a situation, it is now clearly recognized that it is not unusual for parties to bind themselves to a contract even though they expect that they will make a further contract in substitution for the first contract containing additional terms: Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622, affirmed (1986) 40 NSWLR 631. Where this happens, the parties' rights are still under the contract, that is the initial contract, because that was the contract that set up the contractual regime between them.

Accordingly, in my view, even though there were some altered terms after 29 July and the lease was not executed until 15 September, the lease was classed as one under an agreement made before the commencement of the Act. Accordingly the Retail Leases Act does not apply.

I should add that some arguments were placed before me that there was an estoppel because of the conduct of the parties which meant that had the lease otherwise been under the Retail Leases Act, the parties were estopped from so alleging. These submissions did not find favour with me in view of the difficulty in Barilla v James (1964) 81WN (Pt 1) (NSW) 457. I could not find that there was an estoppel in the face of a statute. It is an a fortiori case in the present situation because the Act specifically provides that it is to apply notwithstanding anything in the contract or the lease to the contrary.

Another argument on this point that I did not favour is that the lease should be deemed to have commenced on 1 May because that is what it says. It is very common to state in a lease that it commences at a past date. As Foa on Landlord and Tenant (Thames Bank Publishing Co London 1957) 8^th ed at p 90 says, the effect is that "It relates back to such day for purposes of computation only. The habendum in a lease only marks the duration of the tenant's interest, and its operation as a grant takes effect only from the time of delivery." This is well borne out by the cases; see Shaw v Kay [1847] EngR 828; (1847) 1 Ex 412; 154 ER 175 and Cadogan v Guinness [1936] Ch 515, 517-518. Accordingly, the date of the lease must be 15 September even though for the purposes of computation of time an earlier date is the commencement.

Mr Lever and Mr Gooley put one further proposition. They said that the letters of 13 May 1994 and 29 July 1994 were not an agreement for lease but rather an offer of a new lease. I would reject that proposition because the terms of 13 May were accepted on 20 May and the letter of 29 July confirmed an agreement made on 26 July. However, it is then said that under s 8 of the Retail Leases Act, a lease is entered into where a person enters into possession of the retail shop as lessee under the lease. It is said that although Lolly Pops was in possession earlier than 1 August 1994, it was not in possession under the lease.

The contrary argument is that "lease" under the Retail Leases Act includes an agreement for lease. If a person is in possession and has entered into an agreement for lease which is to operate as from 1 May 1994, then it would seem to me fairly arguable that the entry into possession is in this case made no later than 20 May 1994 when it was agreed in principle that there would be a new lease entered into. However, it is not necessary to make any final ruling on this point.

It follows that the Retail Leases Act does not apply to the current lease nor to the renewed term.

6. Relief against Forfeiture

The point being made under the head "Relief against Forfeiture" is that if there was a breach of the lease by the tenant not paying the full amount of rent, then it should be permitted to have the benefit of the option notwithstanding such breach. I do not consider this is properly classified as relief against forfeiture, but really a matter of discretion as to whether specific performance should be granted, a matter that I have already dealt with under section 4 of these reasons.

7. Cross claim for rent plus mesne profits

I now move to rights under the second lease as opposed to rights under the option.

The defendant's claim for $26,289.14 for rent plus mesne profits from 1April 1998 is simply stated in the defendant's submissions. It says that it was willing and is still willing to accept $3,300 per month in satisfaction of the rent and outgoings under the lease. It says that the contractual rent is $4,600 per month and that technically the agreement to accept the $3,300 expired at the end of October 1996. It says that the plaintiff made no payment in November 1996; it only paid outgoings since then and indeed in fact paid $1,516.22 per month until November 1997 and after that nothing.

The plaintiff attempts to answer this by saying that "It is irrational that the parties would agree to restore the rent provided for by the lease in the light of the steadily increasing encroachment of the works on Shop 283". Alternatively, the Retail Leases Act applies to reduce the rent. Neither of these propositions has any attraction.

Then it is put that after 14 January 1997, there was no entitlement on the landlord to demand a minimum rent because it failed to comply with its obligations to have the rent determined under the renewed lease. This may be of limited validity. The rent under the renewed lease will need to be fixed before a new lease can be signed and registered.

I believe that it is better to work out what the rent is under the new lease which may be more or less than $3,300 per month. There will then need to be, I would have thought, a lump sum payment made by the plaintiff before the lease is granted and it goes back into possession. Things will be complicated further by the fact that the plaintiff has been out of possession for a month or so and part of the plaintiff's loss under the second lease may be dealt with by the Industrial Relations Commission.

However, I think I should record that it seems to me that if the only guide was what is objectively reasonable $3,300 per month would appear to be that figure. If there is any further abatement thought to be required because of renovation works, then (apart from the period where the plaintiff was not in occupation after 16 April 1998) that abatement would be left to be determined as damages for breach of the covenant of quiet enjoyment or compensation under s 106 of the Industrial Relations Act 1996.

8. Is the plaintiff entitled to a refund for overpayment of rent?

The defendant simply says that the plaintiff has not overpaid rent and refers to clauses 20 and 21(c) of the second lease. Although there is a series of propositions put forward by Mr Lever and Mr Gooley in their submissions, I really cannot see how there has been any overpayment, no matter what test is applied.

Accordingly I answer this question "No".

9. Is there any actionable breach of the covenant for quiet enjoyment?

Mr Robinson and Mr Murr submit that there has not been any such breach because the covenant for quiet enjoyment, clause 15.1 of the lease, provides that it is to apply "Upon the Lessee duly and punctually paying the Rent and other moneys payable under this Lease and duly and punctually observing and performing the covenants, obligations and provisions contained in this Lease on the part of the Lessee to be observed and performed ...". They say that notwithstanding any problems caused by the renovations, the plaintiff is not entitled to sue because it has not fulfilled the precondition.

The covenant for quiet enjoyment in the instant case is in a common form.

However, this submission was rejected as long ago as 1833 in Dawson v Dyer [1833] EngR 814; (1833) 5 B & Ad 584; 110 ER 906 which has been followed ever since; see Edge v Boileau (1885) 16 QBD 117 and Batson v De Carvalho [1948] NSWStRp 21; (1948) 48 SR (NSW) 417, 420. The reason is that the covenants to pay the rent and to have quiet enjoyment are independent so that the payment of rent is not a condition precedent to the promise of quiet enjoyment.

Accordingly, there is nothing in this point.

The next submission put by the defendant is that the covenant is specifically made subject to interruption or disturbance specifically provided for pursuant to the lease. One of the matters pointed to by the defendant is clause 6.5 which gives the lessor the right to "improve, extend, add to, reduce, redesign, reconstruct, rebuild, alter or deal with the Festival Markets or any part thereof ... change the area, level, location and arrangement of, and the access to the Common Areas or any part thereof in any way or manner as the Lessor in its sole and absolute discretion shall determine."

Clause 15.2 provides that "... The Lessee agrees that it shall not object to, nor request compensation, rent abatement or injunctive or other relief in relation to (construction activity) provided that such of the construction activity that is in close proximity to the Premises is carried out without unreasonable disturbance to the operation of the Premises having regard to all the circumstances."

Neither of these provisions seems to me to provide any excuse to the landlord in the instant case. Clause 6.5 does not seem to suggest that the work is allowed to cause dust or noise or other disturbance to the tenancy and on the facts in this case the landlord has gone far beyond carrying on construction activity without unreasonable disturbance to the operation of the premises having regard to all the circumstances. It could scarcely be imagined that there was a worse case of a breach of covenant of quiet enjoyment than the instant one. With dirt and jack hammering and noise and blocking of passages the tenant has far less than it was entitled to under the lease; see eg Southwark LBC v Mills [1998] TLR 161.

I am satisfied that there has been a breach of the covenant of quiet enjoyment. It is best that I do not say much more as I may later have to consider the matter when assessing the damages or a Master may have to do that task.

During closing addresses, counsel for the plaintiff sought to amend by adding a claim that the damages claimed under the heading of breach of covenant for quiet enjoyment should also be dealt with under a covenant not to derogate from the grant which should be implied. It was put that such an implied covenant would not be subject to any condition precedent about payment of rent.

Mr Murr for the defendant objected to this amendment on the basis that it may very well have been the case that the defendant would have called further evidence on the issue had the amendment been made earlier. I disallowed it both for this reason and for the reason that although the plaintiff did not cite the authority of Dawson v Dyer, it seemed to me that there was a short answer to the defendant's principal submission which made the amendment completely unnecessary.

10. Was there any agreement between the parties for a reduced rent?

I have already dealt with this sort of problem under sections 7 and 8 of these reasons. The actual agreement recorded in Mr Melville's letter of 17 July 1996 expired in October 1996. The Retail Leases Act does not apply for reasons I have already given. There was no further agreement between the parties, though the landlord has agreed that it is prepared to accept $3,500 per month instead of $4,600 per month. However, this question can be answered "No".

11. Breach of Trade Practices Act

This raises the question of the Trade Practices Act. An initial question is how far there might be "triple dipping" in the claims made for breach of the covenant of quiet enjoyment, the Trade Practices Act and s 106 of the Industrial Relations Act. So far as the first two are concerned, the court will need to be careful to make sure that there is not "double dipping"; so far as the third is concerned, if the Industrial Relations Commission give judgment before the Master makes his final determination as to quantum, that can be taken into account. Doubtless contrariwise, if the Master makes his assessment first, then the Industrial Relations Commission will probably take that into account.

The claim made in the instant situation is that there has been unconscionable conduct under s 51AA of the Trade Practices Act, or false and misleading conduct under s 52 of that Act. It is said that this occurred for the following reasons:

(a) the defendant obtained consent for refurbishment works on level one which would have the result of the demolition of Shop 283 in August 1996;

(b) that plan never changed;

(c) Mr Spring was not told anything about that until, at the earliest, February 1997, perhaps not until September 1997;

(d) Mr Spring always thought that the plaintiff's shop was likely to remain, little attempt was made to minimize the impact of the works on the shop's business and Mr Spring and his employees put up with that thinking it would only be temporary and that they would be moving back to a shop in more upmarket conditions.

The plaintiff really relies on unconscionable conduct or misrepresentation by silence. However, it says that silence is no barrier to relief and cites Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83; Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31, 32 and Winterton Constructions Pty Ltd v Hambros Australia Ltd [1992] FCA 582; (1992) 39 FCR 97, 114.

Because of the unconscionable conduct or false and misleading conduct, Mr Spring continued to stay in the business. The plaintiff has spent a large sum of money developing it, and although the turnover was declining, it needed to remain there in order to get some return. Instead, the lessor continued to conduct its works knowing that the plaintiff would never go back into the shop and hoping that the plaintiff would take a bigger shop at a higher rent.

The defendant merely says that this is incomprehensible.

The Trade Practices Act does not define "unconscionable". Mr Lever and Mr Gooley referred to decisions under the general law such as Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447, 461. Although it is impossible to generalize accurately, it seems to me that s 51AA has, generally speaking, in mind a situation where there is a naïve person on the one hand who is taken advantage of by an astute person on the other. It does not cover the simple case of misrepresentation by silence which is well covered by s 52. Of course, s 52 was in the Act long before the 1992 amendments. It seems to me that this case is within s 52 or not within the Trade Practices Act at all.

I have little difficulty in finding that there was false and misleading conduct on the part of the lessor. Not to inform a tenant of the fact that his shop was not available after the reconstruction, yet permit him to continue occupying it in appalling conditions in the belief that there is only a temporary problem satisfies these words.

Where I do have a problem with this count is whether the plaintiff has proved that the loss or damage was suffered by the defendant's conduct. The authorities show that it is necessary for the plaintiff to prove a relevant nexus between the conduct complained of and the loss or damage suffered, but not necessarily that the plaintiff itself relied on that conduct: Janssen-Gilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526.

There is really no evidence at all in the instant case that Mr Spring or the plaintiff suffered any loss by the conduct of the defendant in keeping secret the fact that his business would be relocated. The plaintiff may have suffered damage through the renovation process, but that has been covered by the damages for breach of the covenant for quiet enjoyment. It has obtained specific performance with respect to its original shop so that the defendant's supposed strategy of moving it into larger premises at a larger rent has been stymied. It has certainly lost trade, but that is not something that flows from the secret, but from the renovations and perhaps also that the Centre has ceased to be a focus of the public's imagination. Furthermore, at no stage did Mr Spring give evidence that his conduct altered in any way because of the secret information that was hidden from him.

Accordingly, in my view the claim under the Trade Practices Act has not been made out.

12. The Effect of the Notice to Quit

In view of what I have already said, the effect of the notice to quit of 26 February 1998 is really of academic interest only. However, I will shortly deal with it.

The notice was contained in a letter signed on behalf of Mr Quinlivan to Mr Spring in a letter of 26 February 1998. It indicated that the lessor took the view that the plaintiff was holding over under clause 15.5 of the lease and that pursuant to such clause a one month's written notice, expiring at any time, would put an end to the lease. The notice contained in the letter was explicit enough in that it told the recipient that "You are required to vacate the tenancy by 31 March 1998".

It could be argued that the notice was invalid because it was directed to Mr Spring personally rather than the plaintiff, but this point was not taken in argument.

It seems to me that the notice to quit did put an end to the holding over tenancy, but that the equitable tenancy as a result of the specifically enforceable exercise of the option continued, so that for all intents and purposes the notice to quit had little effect on possession.

There is no need to go into the question as to whether possession was something which an equitable tenant was entitled to have. The parties clearly intended that the equitable lease would in this case carry the right to possession. This would continue until the formal lease by registered memorandum was executed by the parties pursuant to the exercise of the option.

13. Orders

The result accordingly is that the plaintiff is entitled to specific performance but care will need to be given to the form of the order. It may well be that some enquiries will have to be carried out before the court can decree that a lease in a particular form is executed by the parties. Consideration in this process will also have to be given to the plaintiff paying a fee to cover its occupation up until the date the lease is given. The plaintiff is also entitled to damages for breach of the covenant of quiet enjoyment, such damages to be assessed by a Master or possibly by myself, depending on the state of the Court's lists.

It seems to me that the plaintiff has succeeded on most issues, so that there would need to be an order for costs in favour of the plaintiff. The exact form of the order can be debated at a later stage.

It seems to me that what is probably the best way forward is to simply publish these reasons and stand the matter over for mention on a date about four weeks' hence. I will formally have the matter listed for mention at 9.30 am on 16 July 1998, but this date can be changed by arrangement between counsel and my Associate so long as the arrangement is made at least a week beforehand. On that occasion I would like to be told -

(a) what the parties consider needs to be done to allow a formal order to be made at this stage of the proceedings;

(b) a timetable as to preparing for the next stage of the proceedings, that is, the form of the new lease and the enquiry before the Master; and

(c) when the parties will be ready to argue costs.

At that stage a further date will be fixed for actual argument and I would be obliged if I could be given a ball park estimate of the time that that argument is likely to take.