Fernkiln Pty Ltd v Australian Building Industries Pty Ltd [1999] Q.C.A. 179

Facts: This is an appeal against the decision of a trial judge dismissing the plaintiff/appellant’s action for a declaration that there was an agreement for lease between it and the defendant/respondent and for specific performance of that agreement. The appellant owned a parcel of land in Townsville. The respondent was a roofing manufacturer which wished to have a purpose-built building in Townsville. Discussions took place between Mr Hastie on behalf of the appellant and Mr Irwin on behalf of the respondent in relation to a proposal that the appellant construct such a building on part of its land and lease it to the respondent. On 17 July 1996 the appellant gave the respondent a written ‘design and construct’ proposal. Then under cover of a letter of 19 July 1996 the respondent gave the appellant a letter of intent. That letter was signed on behalf of the respondent by its executive officer, Mr Webb. Although there was provision for acceptance by the appellant, it was never signed on its behalf. The proposal in the letter of intent was for a lease of seven years from 1 January 1997 or one month after practical completion and handover of possession, together with an option to renew for five years. The gross rental proposed was $76,000 per annum, the appellant being responsible for outgoings. There were to be rent increases in accordance with movements in the CPI Index (to a maximum of 6%). Two x 6 tonne full travel cranes which were to be installed in the building were to be the subject of a separate lease for seven years at approximately $6,200 per annum. Construction was to be completed by 18 December 1996. Over the next two or three weeks Mr Hastie spoke with Mr Irwin on two or three occasions ‘to tell him how the progress on the project was going’. By letter dated 15 August 1996 the appellant’s solicitors (acting on their client’s instructions) responded to the letter of intent. Their letter amounted to a counter proposal. In particular they set out the appellant’s instructions that the respondent should be responsible for all outgoings and that CPI increases (to a maximum of 6%) were to apply to the whole rental with no concession for the value of the cranes. They made a proposal about the costs of the preparation of the lease. By fax dated 5 September 1996 solicitors purporting to act on behalf of the respondent replied accepting the counter proposal. However, their fax was sent without authority, and the appellant does not rely on it. On 9 September 1996 the appellant’s solicitors replied that they would now proceed with the preparation of the agreement to lease once the plan had been finalised. Sometime between 13 August 1996 and 7 October 1996 Mr Irwin rang Mr Hastie and asked if one of the cranes could be deleted. He was told this would not be possible. On 7 October 1996 Mr Hastie delivered a set of building plans to the respondent’s Townsville manager to have the positions of the power points marked. The plan was returned two days later, marked as requested. Also on 9 October 1996 Mr Irwin rang Mr Hastie wanting to decrease the size of the building. He was told this would not be possible. On 11 October 1996 Mr Irwin wrote to the appellant saying that there had been a major policy change within the respondent as a result of which it no longer required the proposed building. It offered to take a smaller building and one crane only. By this stage the land had been subdivided and the plan of subdivision had been registered; the earthworks had been completed; steel necessary for the building had been prefabricated; the cranes had been ordered and a deposit paid on them; approximately $300,000 had been expended. Further, the appellant had entered into a contract to sell the land, which was conditional upon execution of an agreement for lease between the appellant as lessor and the respondent as lessee. On 16 October 1996 the appellant replied that there was a binding agreement and that compliance with it was required. It proceeded to complete construction, and on 18 December 1996 advised the respondent that the building was in all respects complete save for some fitout which could not be completed until the respondent gave the appellant its specification. The next day the respondent’s solicitors wrote purporting to terminate the agreement.