Dukemaster Pty Ltd v Bluehive Pty Ltd [2001] FCA 180 (5 March 2001)

Last Updated: 6 March 2001

FEDERAL COURT OF AUSTRALIA

Dukemaster Pty Ltd v Bluehive Pty Ltd [2001] FCA 180

CONTRACT - Whether binding agreement reached - Note of understanding signed by parties followed by sequence of correspondence reopening various matters - Formal agreement contemplated by parties - Regard to be had to all correspondence and all facts when determining whether agreement binding.

PRACTICE AND PROCEDURE - Conduct of case at trial - Concession by respondent to application - Unsuccessful respondent appeals - Seeks leave to withdraw concession on appeal.

Trade Practices Act 1974, ss 51A, 52

Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd [1978] HCA 8; (1978) 139 CLR 231 applied

Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1907] HCA 79; (1908) 5 CLR 647 applied

DUKEMASTER PTY LTD v BLUEHIVE PTY LTD and GAN HOLDINGS PTY LTD

VG 754 of 2000

SUNDBERG, EMMETT and CONTI JJ

5 MARCH 2001

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 754 OF 2000

BETWEEN:	DUKEMASTER PTY LTD (ACN 050 275 226) APPELLANT
AND:	BLUEHIVE PTY LTD (ACN 073 073 300) FIRST RESPONDENT GAN HOLDINGS PTY LTD (ACN 080 258 635) SECOND RESPONDENT

JUDGES:	SUNDBERG, EMMETT and CONTI JJ
DATE OF ORDER:	5 MARCH 2001
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The appeal against the judgment for the second respondent be allowed.

2. The judgment for the second respondent be set aside and in lieu thereof it be ordered that so far as it concerns the second respondent the application be dismissed.

3. The matter the subject of the appeal against the judgment for the first respondent be remitted to the primary judge for the making of findings on the issues referred to in paragraph 21 of the Court's reasons.

4. Pending the making of the findings referred to in paragraph 3 hereof the appeal be stood over.

5. Costs be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 754 OF 2000

BETWEEN:	DUKEMASTER PTY LTD (ACN 050 275 226) APPELLANT
AND:	BLUEHIVE PTY LTD (ACN 073 073 300) FIRST RESPONDENT GAN HOLDINGS PTY LTD (ACN 080 258 635) SECOND RESPONDENT

JUDGES:	SUNDBERG, EMMETT and CONTI JJ
DATE:	5 MARCH 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

1 This is an appeal from the decision of the primary judge that the first respondent ("Bluehive") was entitled to damages for loss suffered as a result of misleading and deceptive conduct engaged in by the appellant ("Dukemaster"), and that the second respondent ("Holdings") was entitled to damages for breach by Dukemaster of a compromise agreement of 18 September 1997, alternatively by reason of Dukemaster's misleading and deceptive conduct. Bluehive was awarded $315,095.94 and Holdings $32,685.13.

BACKGROUND

2 Bluehive alleged that various representations were made by Dukemaster which induced it to take up the tenancy of Shop 5 in the food court of the Paramount Shopping Centre, a retail apartment complex in Melbourne. Shop 5 was conducted as an Italian takeaway food outlet known as "Azzurro". The business was a failure, and Bluehive sought to recover damages for the loss it claimed to have suffered as a result of its reliance on the representations. The representations were alleged to be written and oral. Insofar as they were oral they were said to have been made at a meeting on 21 August 1996 by Mr A Singh Hii, a director of Dukemaster, and Mr Peter Cook, a consultant retained by Dukemaster to procure retail tenants for the Centre. Also present at the meeting were Mr Jonathan Gan and Mr Darren Sayers, the directors of Bluehive.

3 The representations (written and oral) were as follows:

(a) that the Centre would offer a three level retail arcade;

(b) that the Centre would have a tenant mix including a supermarket and 55 specialty shops;

(c) that the 55 specialty shops were rapidly being leased and the Centre would be fully tenanted when it opened;

(d) that there would be a bistro/gaming venue located on the Upper Bourke Street level of the Centre which would be open to 1.00 am every night of the week;

(e) that there would be a food court with eight shops having access to Little Bourke Street, in which Bluehive's business would have exclusivity in the sale of Italian cuisine;

(f) that Bluehive's business would be one of only two tenants permitted to sell all types of coffee;

(g) that the grand opening date of the Centre would be in December 1996;

(h) that Bluehive could easily meet its rental of $50,000 per annum;

(i) that Bluehive would have a turnover of about $8,000 per week;

(j) that there would be 450 seats for patrons in the food court and each seat would generate about $14,000 per annum, making a total annual income of about $6,300,000 for the eight shops in the food court; and

(k) that the figure for turnover rent of $780,000 per shop was quite easily achievable.

4 Each representation was claimed to relate to a "future matter" within s 51A of the Trade Practices Act 1974 ("the Act"). Dukemaster admitted representing that the Centre was a retail development incorporating 5,747 square metres of leaseable area over three main levels, but otherwise denied having made representation (a). It said that if it made representation (a), it was true. It admitted representing that 55 shops were proposed in the project, including a supermarket and food court, but otherwise denied having made representation (b). The primary judge treated Dukemaster as having admitted representations (a) and (b). Representation (c) was claimed to have been made by Mr Hii and Mr Cook during the meeting. Dukemaster denied having made the representation. Representation (d) was alleged to have been made in a brochure provided to Mr Gan during the meeting and in a book of Tenancy Fit Out Guidelines shown to him on the day of the meeting and subsequently provided to Bluehive, and by Mr Cook at the meeting. Dukemaster denied having made it. Representation (e) was alleged to have been made by Mr Cook during the meeting, and to have been repeated in an undated letter of offer concerning the possible lease of the shop later sent by Dukemaster to Bluehive. Dukemaster admitted having represented that the food court would be located on the Little Bourke Street level, but otherwise denied having made representation (e). It said that if it made the representation, it was true. The primary judge treated Dukemaster as having admitted representation (e). Representation (f) was alleged to have been made in a letter of 10 September 1996 sent by Dukemaster to Bluehive, and in a draft lease dated 23 September 1996 prepared by Dukemaster. Dukemaster denied having made the representation. The primary judge treated Dukemaster as having admitted the representation. Representations (g) to (k) were alleged to have been made orally at the meeting. Representation (j) was also said to have been made in the brochure. Dukemaster denied having made these representations. The disparities between the pleadings and the primary judge's treatment of Dukemaster's position as to representations (a), (b), (e) and (f) were not explained.

THE 21 AUGUST 1996 MEETING

5 Mr Gan gave evidence in which he said that Mr Cook told him at the meeting or during a tour of the Centre that formed part of the meeting

* that the grand opening would be in December 1996 and that the Centre would be fully tenanted by then

* that negotiations were being finalised for Brashs to take a large tenancy at the Centre

* that there would be a bistro/gaming area on the Upper Bourke Street level where pokies would be open until 1.00 am

* that the tenants of the food hall would benefit from the presence of the bistro/gaming area

* that Bluehive should "do between $8,000 and $15,000 per week in turnover".

Mr Gan said that Mr Hii told him

* that if the actual turnover exceeded those mentioned by Mr Cook, Mr Hii would want an additional percentage of turnover for rental

* that there would be 450 seats in the food hall, and that he expected each seat to generate $14,000 per annum.

6 Mr Sayers' evidence was that Mr Cook told him

* that there would be a bistro and gaming area on the Upper Bourke Street level that would be open until 1.00 am

* that the leasing program was proceeding satisfactorily

* that the Centre would be opened in December 1996 and would by then be fully let

* that Brashs would almost certainly take a large tenancy facing Bourke Street

* that there would be 450 seats in the food court, and that Dukemaster had done a calculation on the turnover the food hall would generate

* that Shop 5 "would have a minimum turnover of $8,000 per week and that we would expect to do $15,000 a week".

7 Mr Hii said he did not have any discussion about the likely turnover of any business in the food court, did not say anything about the number of seats that would be available or how much money those seats would generate. He denied that there had been any discussion of the rent to be paid for Shop 5. He denied any mention of an annual turnover figure on which turnover rent could be based. Mr Cook said he asked Mr Gan what sort of turnover he would expect. Mr Gan replied that he would expect, in the early days, to generate at least $8,000 per week, rising to $10,000 per week in a reasonably short period of time. Mr Cook could not recall having mentioned a bistro or gaming area. He denied having discussed the likely turnover of Shop 5. He also denied having said anything about the number of seats in the food court or what income each seat would generate.

MR GAN'S LETTER OF 22 AUGUST 1996

8 After the meeting on 21 August Mr Gan prepared a letter of offer that he and Mr Sayers discussed and faxed to Dukemaster the next day. The primary judge attached great importance to the letter, and accordingly we will set out the material parts of it:

"Further to our meeting yesterday, I hereby submit our offer to lease shop 5 for the use of Italian Cuisine. I envisage that the following terms and conditions will meet with your approval:

...

Use of premises:	Exclusivity for the sale of Italian Cuisine
Term of Lease:	Seven (7) years
Date of Lease Commencement:	Centre Opening - Estimated December 1996
Rental Commencement:	Four (4) months after lease commencement
...
Gross Rent per annum	$55,000.00 (Fifty Five Thousand Dollars) This is a Gross Rent and includes all outgoings.
Percentage Rent	10% of Annual Turnover in excess of $780,000.00.

..."

PRIMARY JUDGE'S FINDINGS

9 His Honour noted the stark conflict in the evidence concerning what took place at the 21 August meeting. He said that experience indicated that the most reliable evidence of what was said at a meeting that had occurred many years earlier was a contemporaneous note of what transpired. He was of the view that Mr Gan's letter was analogous to such a note. His Honour said:

"The letter of offer referred specifically, and in terms, to a `Percentage Rent' which was nominated to be `10% of Annual Turnover in excess of $780,000'. The figure of $780,000 equates precisely to $15,000 per week. That figure of $15,000 per week, equates in turn, with what both Mr Gan and Mr Sayers say they were told was either the upper range of, or expected weekly turnover of, Shop 5. As noted earlier, Mr Cook could provide no explanation as to how that figure of $780,000 had found its way into Mr Gan's letter of offer. There was no reason for Mr Gan to volunteer to pay a rental figure in excess of the required base rent. His offer to do so had to be in response to something said about that subject during the course of the meeting. It seems obvious therefore that at some stage a weekly turnover figure of $15,000 had been mentioned. The figure could only have been mentioned by Mr Hii, or by Mr Cook."

10 His Honour went on to say:

* it was inherently improbable that Mr Cook would have asked Mr Gan what turnover he expected Shop 5 to be able to produce

* it was even less likely that Mr Gan would have proffered turnover figures of $8,000 to $10,000 per week; he would have had no idea what the turnover of a shop selling Italian food in this particular court might be

* it was reasonable to assume that Dukemaster would have conducted some research into the likely turnover of shops in the food court

* Mr Cook's recollection of what occurred at the meeting was "at best hazy"

* it was difficult to accept Mr Cook's evidence that he had not mentioned Brashs taking a lease at the Centre; how else would Mr Gan and Mr Sayers have known the details of Brashs' tenancy unless Mr Cook had mentioned it

* the probability was that Mr Cook would have tried to present the food court as an attractive and viable business opportunity, since in August 1996 Dukemaster's plans for the Centre were in virtual disarray

* it was difficult to accept that at the meeting neither Mr Cook nor Mr Hii said anything at all about turnover or rent.

11 His Honour then noted various factors that might cast doubt on the credibility of Mr Gan and Mr Sayers, including that the turnover representations had been made for the first time in the application to the Court, though there had been earlier occasions when it would have been expected that they would be raised. However his Honour concluded that when these factors were balanced against the considerable weight that had to be given to Mr Gan's letter of offer, the only conclusion that was available on the evidence was that Mr Gan's account of what occurred at the meeting was substantially accurate. Where his account conflicted with that of Mr Hii and Mr Cook, his Honour preferred the evidence of Mr Gan. His Honour concluded by saying: "It follows that I am satisfied that representations (g), (h), (i), (j) and (k) were all made". It will be recalled that he treated representations (a), (b), (e) and (f) as admitted. His Honour did not mention representations (c) and (d), which were denied.

12 The representations relied on all related to future matters for the purposes of s 51A. The primary judge noted that it was understandable, given Dukemaster's case was that it had not made the oral representations, that it led no evidence to show that it had reasonable grounds for making them. Accordingly those representations were to be taken to be misleading. He added:

"The same conclusion may be applied to a number of the other representations relied upon by Bluehive. Having regard to my findings regarding the oral representations, however, it is unnecessary for me to pursue that issue further."

13 The primary judge found that Bluehive had relied on the projected weekly turnover representations. Dukemaster had not submitted that if the turnover representations were made out, he should not find reliance. His Honour said it was scarcely likely that Bluehive would have entered into contractual arrangements with its architects about the fit out of the shop, arranged bank finance for the fit out, and entered into occupation of the premises, had Mr Gan not been led to believe that the shop would generate the kind of weekly turnover that either Mr Hii or Mr Cook had mentioned. His Honour accepted Mr Gan's evidence that the representations as to projected weekly turnover were an important factor in his decision to proceed. He found that Bluehive had suffered loss as a result of the appellant's contravening conduct, which he assessed at $315,095.94.

HOLDINGS' CLAIM

14 When it became apparent that the turnover at Shop 5 was insufficient to meet Bluehive's rental obligations, the parties exchanged allegations and letters in the course of which Dukemaster suggested that Mr Gan might be interested in Shop 11 on the Bourke Street level of the Centre. After some negotiations, on 18 September 1997 the parties signed a handwritten note of an "understanding" they had reached. It was as follows:

"Party A: Dukemaster P/L

Party B: Bluehive P/L

Date: 18.9.1997 6.00 pm

Understanding reached as follows.

1. Party A will provide a mutually acceptable agreement to lease Shop 11 in line with an offer dated 13^th Sept. 1997 by Party B.

2. Party B will allow Shop 3 - ie. Reef Fish & Chips to continue selling espresso coffee for the term of Party B's lease with a compensation of $20,000 from Party A.

3. Rental for Party B will commence as per lease agreement but rental is to be proportional to the area leased in respect to the Bourke Street level leasable area only.

4. Both parties to keep absolute confidentiality on above agreement."

The offer referred to in clause 1 was an offer made by Mr Gan on 13 September 1997 to lease Shop 11 for two years at a rental of ten per cent of turnover in the first year and $45,000 per annum in the second year. The letter described the proposed lessee as "Mr Joseph Haddad/Mr Jonathan Gan and/or nominee". It proposed six months free rental, and that the lessor pay for the cost of fit-out, the items involved in the fit out being itemised. Shop fit-out was to be completed by Dukemaster by 15 November 1997. There is no clear evidence about how Holdings became entitled as nominee or otherwise to enforce the undertaking or agreement, if it was enforceable. However the matter proceeded, both at trial and on appeal, on the basis that if the document was enforceable, Holdings was entitled to the benefit of it.

15 After having arrived at the understanding, Mr Gan assumed that the dispute about Shop 5 had been settled. In October 1997 he and Mr Haddad went to Europe to purchase stock for the retail clothing outlet they proposed to run in Shop 11. Mr Gan believed that in their absence Shop 11 would be fitted out. When they returned they discovered it had not been, and Holdings was left with a large quantity of clothing that it had to sell at a substantial loss. Holdings claimed to recover its loss as damages for breach of the 18 September agreement or as damages for misleading and deceptive conduct, namely a representation that the fit out would be completed prior to Christmas 1997.

16 The primary judge concluded that the note of understanding amounted to a binding agreement that Dukemaster would carry out the fit-out of Shop 11 in time to ensure that trading could commence shortly after Mr Gan returned from Europe. His Honour awarded damages of $32,685.13 for breach of the agreement, alternatively as loss suffered by reason of conduct contravening s 52 of the Act.

BLUEHIVE'S APPEAL

Representations (g) to (k)

17 It was submitted that the primary judge should have inferred from all the circumstances that none of the above representations was made. It will be recalled that his Honour accepted Mr Gan's account of the meeting because it was supported by the letter of offer. Mr Gan's and Mr Sayers' evidence was that Mr Cook told them during a tour of the Centre that the grand opening was expected to be in December 1996. Mr Cook denied taking Mr Gan on a tour of the Centre, but did not deny having said the Centre was expected to open in December. In the circumstances it is not surprising that the primary judge found that representation (g) was made. No attempt was made to persuade us that he should not have so found. However nothing turns on this finding because Bluehive conceded that it had not relied on the representation when entering into the lease. Representation (h) does not appear to us to be supported by any evidence. Neither Mr Gan nor Mr Sayers claimed that he had been told by Mr Hii or Mr Cook that Dukemaster could easily meet its rental of $50,000 per annum. We were told that at first instance the case proceeded on the basis that this representation was made out on the evidence. On appeal, senior counsel for Dukemaster sought to withdraw this concession so as to be able to contend that there was no evidence to support the representation. A party who has conceded an issue at trial will be allowed to contest that issue on appeal only in the clearest case and on the most cogent grounds: Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd [1978] HCA 8; (1978) 139 CLR 231 at 241. No grounds, let alone cogent grounds, were put before us, and we decline to allow the matter to be agitated. Representation (i) is supported by Mr Gan's evidence that Mr Cook told him he should manage a weekly turnover of between $8,000 and $15,000. Mr Sayers' evidence was to much the same effect - a minimum of $8,000 per week and that "we would expect to do $15,000 per week".

18 Representation (j) is supported by Mr Gan's evidence that Mr Hii told him there would be 450 seats in the food hall and that he expected each seat would generate $14,000 per annum, though there is no clear evidence that Mr Hii went on to say that this would make a total annual income of about $6,300,000 for the eight shops in the food court. In the course of cross-examination Mr Gan was asked whether there was anything in writing saying there would be 450 seats for patrons in the food court, each seat generating about $14,000 per annum "making a total annual income of about $6.3 million for the eight shops in the food court". He replied that there was not, but that it had been said to him at the meeting. We think it likely that Mr Gan would have understood the reference to total annual income to be counsel's interpolation rather than something that had been said at the meeting. Mr Sayer's evidence partially supports the representation in that he said Mr Cook told him there would be 450 seats in the hall and that Dukemaster had done a calculation on the turnover the food hall would generate. He did not say what the calculation was. Mr Hii and Mr Cook both denied having said anything about the number of seats that would be available or how much they would generate. We need not dwell on the fact that the second part of the representation may not have been sustained by the evidence. The case below was conducted on the basis this representation (j) was made out.

19 Neither Mr Gan nor Mr Sayers provided any support for representation (k). It is true that Mr Sayers said Mr Cook told him they could expect a turnover of $15,000 a week, and that Mr Gan said Mr Cook told him he would expect a turnover of between $8,000 and $15,000 a week. Even though $15,000 multiplied by 52 weeks equals $780,000, that does not sustain a representation that turnover rent of $780,000 per shop was quite easily achievable. Although the letter of offer refers to $780,000, it does not sustain the representation pleaded. On the appeal counsel for Bluehive informed the Court that they did not seek to support the finding that representation (k) had been made.

20 If the primary judge had preferred the evidence of Mr Gan and Mr Sayers over that of Mr Hii and Mr Cook because he disbelieved the latter, or because the accounts of the former accorded more with the probabilities, we would have no difficulty in concluding that he was entitled to do so. But his Honour's reason for accepting Mr Gan's account is that one aspect of it was supported by the letter of offer. This was representation (i), though not as pleaded, which was that Bluehive would have a turnover of about $8,000 per annum. The evidence that emerged at trial differed from the pleading in that Mr Cook was alleged to have specified a turnover range of between $8,000 and $15,000. It was the multiplicational link between $15,000 and $780,000 that founded the primary judge's use of the letter of offer to choose between the two accounts of what occurred at the meeting. In explaining why he regarded the letter as critical in this respect his Honour said, first, that Mr Cook could provide no explanation as to how the $780,000 figure came to be in the letter. We are not sure why the fact that someone in the Dukemaster camp could not explain it is a matter of significance. Then his Honour said there was no reason for Mr Gan to volunteer to pay a rental figure in excess of the required base rent. This overlooks the fact that in May 1996 Bluehive negotiated with Dukemaster and its real estate agent about Shop 1 in the Centre. In the course of these negotiations Mr Gan discovered that Dukemaster's standard offer to lease provided for a percentage rent when turnover exceeded a specified amount. Accordingly, if it wanted Shop 5, there was a good reason for Bluehive to offer a turnover rent. We are thus unable to agree with the primary judge's conclusion that Mr Gan's offer to pay a turnover rent "had to be in response to something said about that subject during the course of the meeting", and that it was therefore obvious that $15,000 turnover had been mentioned by Mr Hii or Mr Cook. Given Mr Gan's awareness that Dukemaster wanted a turnover rent for space in the Centre, it is just as likely that Mr Gan and Mr Sayers, in the course of their discussion after the meeting, fastened upon $15,000 of their own volition.

21 It is not clear whether, independently of the letter of offer, the primary judge would have accepted Mr Gan's account of what occurred at the meeting. His Honour noted aspects of Mr Cook's account that he found improbable, and that one part of his evidence was "difficult to accept". But he also noted matters that "may cast doubt upon the credibility" of Mr Gan and Mr Sayers. He mentioned disparities between their accounts and the fact that Mr Gan did not mention any of the representations about projected turnover until the application was filed in December 1998. The turnover representations were not mentioned by Bluehive's solicitors in their letter to Dukemaster's solicitors of 28 August 1997 setting out in detail the misrepresentations allegedly made to Mr Gan to induce him to take a lease of Shop 5. The representations did not feature in proceedings instituted by Bluehive, Holdings and Mr Gan against Dukemaster in 1998 in the Victorian Civil and Administrative Tribunal. Bluehive's pleading in the Tribunal was almost word for word the same as that appearing in its statement of claim in the present case, save for the absence of representations (h) to (k). Mr Gan's explanation for this was that he assumed that Mr Hii and Mr Cook would deny having made the turnover representations, and that in order to avoid getting into a slanging match with them he had raised only those matters that could not be the subject of any dispute. Understandably, the primary judge found this explanation "not wholly convincing". We entertain considerable doubt whether, but for the letter, his Honour would have accepted Mr Gan's account of the facts relevant to representations (h), (i) and (j). Counsel were in agreement that if we thought the letter of offer too fragile a basis for preferring Mr Gan's account of what was said at the meeting, as we do, we should not attempt to assess what the primary judge would have done had he not attached the importance he did to the letter, or to form our own view, but should remit the matter to his Honour in order for findings to be made about those representations in light of our conclusions about the letter of offer, and about the other pleaded representations. In view of this, it would be inappropriate for us to deal with that part of the appeal concerned with the primary judge's assessment of damages, or with Dukemaster's cross-claim for rent which the primary judge dismissed.

HOLDINGS' APPEAL

22 Holdings contends that the note of understanding, or at least clause 1 thereof, is not a concluded agreement. The primary judge dealt with this question as part of his consideration of Bluehive's claim to recover $20,000 under clause 2 of the note. In the course of dismissing the contention that clause 2 was too uncertain to constitute a binding agreement, his Honour said that other parts of the note were "far from vague or uncertain", and he instanced clause 1.

23 Two weeks after the note, on 3 October Mr Cook sent Mr Gan for signature by him a document in which Dukemaster agreed to lease shop 11 to Mr Gan "under the terms stated in the Offer to Lease attached" and to contribute to fit-out costs in accordance with the attachment. The document concluded:

"On agreeing to the above, Mr Jonathan Gan will sign the Lease for Shop 5 (Little Bourke Street Level) as presented by The Paramount Centre as well as the Lease for Shop 11 (Bourke Street Level)."

The attached Offer to Lease differed from that proffered by Mr Gan on 13 September. Fit out was to be completed by 28 January 1998 (instead of 15 November 1997). If fit out was not completed by then, the lessor would compensate the lessee by paying $500 per day for a maximum of seven days and $1,000 per day for a maximum of seven days. Agreement for lease and lease documents prepared in Dukemaster's standard form were to be executed by Holdings. The list of landlords' works was extended from twelve to twenty three items. There were other differences.

24 Bluehive's solicitors responded on 10 October that the "arrangements proposed" in the 3 October document were acceptable subject to certain conditions that were set out. Two related to shop 5. One was that the $20,000 coffee compensation had to be paid immediately. The other was that rent was to be calculated proportionately to the area leased rather than the number of shops leased. There were three conditions relating to Shop 11. Only two are of present relevance. The first was that the "lease as submitted must include the amendments previously agreed in respect of Shop 5, without any additional legal costs". The second was that the tenant's fit out obligations were limited to three items. The solicitors then conferred by telephone and the result was recorded in Bluehive's solicitors' facsimile of 14 October. Dukemaster was not prepared to pay the $20,000 until leases were exchanged. Mr Gan contended that the money was to be paid as soon as the lease of Shop 5, in the form previously agreed, was executed and handed over. Executed copies of the leases were, they said, now available, and unless the money was paid by 15 October "the previous offer" would be withdrawn and Mr Gan would sue for damages.

25 On 15 October Dukemaster's solicitors wrote to Bluehive's solicitors recording that agreement had been reached on matters that were then set out. In substance the agreement was that Dukemaster would pay the $20,000 compensation when its solicitors received written confirmation that Bluehive agreed to the matters set out in pars 2 to 6 of the letter, and received executed leases of Shop 5 and Shop 11. On 19 November the parties had a meeting at which it was agreed, amongst other things, that the $20,000 would be paid "on signing Shop 5". By facsimile of 17 December Bluehive's solicitors informed Dukemaster's solicitors that

"Bluehive is prepared to continue leasing Shop 5, and Gan Holdings is prepared to execute a lease of Shop 11, BUT ONLY on the terms and conditions set out in the documentation following this facsimile.

We are instructed that unless we have written confirmation of your client's acceptance of these terms, by 4 pm on Friday 19 December 1997, all deals are off.

If we receive the written acceptance by 4 pm on Friday, then the duly executed leases of Shop 5 can be delivered to your office immediately. It seems likely that amendments will be required to the document you have submitted in respect of Shop 11."

The documentation following the facsimile was a letter from Bluehive to its solicitors dated 16 December setting out various terms and conditions upon which the lease of Shop 5 would be executed. One was that Dukemaster would grant a lease of Shop 11 to Holdings "based on" an attached offer to lease document. That document was a copy of Dukemaster's offer to lease that accompanied its letter of 3 October, altered in manuscript to signify the changes Mr Gan required. These included amending the fit out completion date to 28 March 1998, making minor adjustments to the landlord's works, and altering the dates for the payment of compensation if the fit out was not completed on time. There was no change to the clause providing for agreement for lease and lease documents to be executed, save for the deletion of the requirement for a guarantee of Holdings' obligations as tenant.

26 Matters remained in limbo over the Christmas 1997 period. Hostilities resumed on 21 January 1998 with a facsimile from Dukemaster's solicitors to Bluehive's solicitors advising, amongst other things, that Dukemaster was "prepared to make agreements" with Holdings in relation to Shop 11 on the terms and conditions set out in an enclosed offer document. The document was in fact a completed schedule to Dukemaster's standard form lease. If the offer it contained was acceptable to Dukemaster, the terms would be incorporated into a formal lease which was to be signed by the lessee within five days of receipt. Bluehive's solicitors responded on 27 January that the "arrangements proposed" were "satisfactory" except in certain listed respects. One related to the rent free period for shop 11. Another objected to a proposed monetary limit to the cost of the lessor's works. Dukemaster's solicitors responded on 2 February, agreeing to some of Bluehive's requirements and rejecting others. The solicitors said that if agreement was not reached, it might be useful if the parties and their lawyers met in an endeavour to resolve issues. Between 6 February and mid March further correspondence ensued, but no agreement was reached. On 16 March Bluehive's solicitors advised that their client was no longer prepared to negotiate the leases, and that Shop 5 would be closing down.

27 The sequence of events outlined in the preceding paragraphs shows that the parties did not regard the note of understanding as constituting a binding agreement. In the course of the correspondence neither asserted that changes sought by the other could not be made because they already had a concluded agreement. They went on negotiating, agreeing with each other on some points but not on others. Their correspondence also showed that both sides accepted the need for the execution of formal agreements and leases. What Holdings seeks to do is take a snapshot of one particular stage of an ongoing negotiation, and isolate that shot from the unfolding scene of which it forms part. That is what the plaintiffs in Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1907] HCA 79; (1908) 5 CLR 647 unsuccessfully tried to do. Exercising the High Court's original jurisdiction, Higgins J (at 662) held that the correspondence relied on by the plaintiff did not establish the existence of a binding agreement. But, he went on:

"even if the letters from that of 24 January to that of 2 February inclusive could be treated as sufficient, if there were nothing else, to show a contract, the defendants are entitled to have the whole of the correspondence, and the whole of the facts examined: Hussey v Horne-Payne [4 App Cas 311 at 316]; and when these are examined, it is, to my mind, clear that there was not any contract. It is a case in which, as Lindley LJ said in May v Thomson [20 Ch D 705 at 722]:- `the parties corresponded intending to come to an agreement, fully expecting that they would come to an agreement, knowing perfectly well that the subject-matter of the sale was such that a formal agreement was absolutely essential, and that certain things of very great importance in matters of this kind ... would have to be discussed and finally settled when they signed the final contract'. In that case it was held that there was no agreement, although `the parties thought that they had agreed to all the more material terms'; as they did not intend to be bound until the final agreement was signed.

I accept also the view put by Lord Cranworth in the case of Ridgway v Wharton [6 HLC 238 at 263,268] that the fact of the parties contemplating a subsequent document of agreement is strong evidence to show that they did not intend the previous negotiations to amount to an agreement."

His Honour's judgment was upheld on appeal. See per Griffith CJ at 669, Barton J at 671, O'Connor J at 671 and Isaacs J at 672. Isaacs J said that the conduct of the parties after the correspondence relied on by the plaintiff as a binding agreement showed that it was not their intention to be bound to the exact terms in that correspondence. His Honour said that "Such a view would be inconsistent with the numerous departures from the terms in those letters": at 672.

28 In what we have said about the effect of the correspondence as a whole, we should not be taken to accept that, viewed in isolation, the note of understanding did amount to a binding agreement. We doubt that it did. The words of clause 1 themselves seem to us to contemplate the execution of an agreement to lease Shop 11 in a form acceptable to both sides.

29 Holdings' contractual claim should have failed. The alternative claim based on a representation by Dukemaster that fit-out would be completed in time to ensure that trading could commence shortly after Mr Gan returned from Europe must also fail. The representation was alleged to have been made in the context that Holdings had agreed to take a lease of Shop 11. As we have said, that did not happen.

CONCLUSION

30 The appeal must be allowed so far as it concerns Holdings' cause of action on the 18 September 1997 document. So far as it concerns Bluehive's claims, the matter should be remitted to the primary judge for the making of findings on the issues referred to in par 21, pending which the appeal should be stood over.

I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg, the Honourable Justice Emmett and the Honourable Justice Conti.

Associate:

Dated: 5 March 2001

Counsel for the Appellant:	A G Southall QC and R B Phillips
Solicitors for the Appellant:	Kliger Partners
Counsel for the Respondents:	J G Larkins QC and R Miller
Solicitors for the Respondents:	Taylor Splatt & Partners
Dates of Hearing:	15-16 February 2001
Date of Judgment:	5 March 2001