BCCM Group Pty Ltd v ASAP23 Pty Ltd
[2022] SASCA 139
•21 December 2022
Supreme Court of South Australia
(Court of Appeal: Civil)
BCCM GROUP PTY LTD v ASAP23 PTY LTD
[2022] SASCA 139
Judgment of the Court of Appeal
(The Honourable President Livesey, the Honourable Justice Doyle and the Honourable Justice Bleby)
21 December 2022
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - DURATION - OTHER MATTERS
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - CONSTRUCTION AND INTERPRETATION
REAL PROPERTY - TORRENS TITLE - LEASES - DETERMINATION
The appellant is the lessee of premises within a Shopping Centre.
The respondent became the registered proprietor of the Shopping Centre, and thereby lessor of the premises in November 2019.
The appellant seeks leave to appeal against the dismissal by a single judge of an appeal against orders made by a magistrate that the appellant vacate the premises.
The respondent proposes to demolish the existing car and dog wash and construct a retail fuel outlet with associated amenities.
The respondent purported to issue a notice to terminate the lease under clause 25 which operates where the respondent lessor has in contemplation development including “reconstruction” that “cannot be carried out practicably without vacant possession of the Premises”. The central issue on appeal was the breadth of the meaning of the word “reconstruct”.
The Court held (Livesey P and Bleby JA, Doyle JA) dismissing the appeal:
1.The natural and ordinary meaning of the word "reconstruct" when read within the lease as a whole, having regard to the commercial context in which the clause was intended to operate, included the proposed development such that the notice served under clause 25 was valid.
2.There are insufficient indications in the lease or the commercial context more broadly to support circumscription of the ordinary meaning of the word "reconstruct" in clause 25 notwithstanding the absence of the word "demolition" in the same clause.
3.It has not been shown that the appeal judge erred in his approach to the appeal from the decision of the magistrate. It has not been shown that he made any material error of fact or law.
4.The issues raised by this appeal are of sufficient difficulty and importance to warrant the grant of leave to appeal.
Retail and Commercial Leases Act 1995 (SA) ss 3, 39, 68, referred to.
Agar v Nokes (1905) 93 L.T. 605; Alcatel Australia Ltd v Scarcella (1988) 44 NSWLR 349; Advance Fitness Corp Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264; Australian Mutual Provident Society v 400 St Kilda Road Pty Limited [1990] VR 646; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; Ashworth v Gloucester [2002] 1 All ER 377; Bamford v Pozenel [2001] SASC 414; BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141; BCCM Group Pty Ltd v ASAP23 Pty Ltd [2021] SAMC 140; BCCM Group Pty Ltd v ASAP23 Pty Ltd (No 2) [2022] SAMC 17; Bickmore v Dimmer [1903] 1 Ch 158; Birmingham v Ross (1888) 38 Ch D 295; Blackler v Felpure Pty Ltd (2000) 9 BPR 17,257; Cody v J H Nelson (1947) 74 CLR 629; Craig, Williamson Prop Ltd v Barrowcliff (1915) 21 Argus LR 349; Commercial & General Corporation Pty Ltd v Manassen Holdings Pty Ltd & Anor [2021] SASCFC 40; Darwil Pty Ltd v May (1993) ANZ Conv R 608; Downward Bricklaying Pty Ltd v Goulburn-Murray Rural Water Authority (2003) 8 VR 61; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; Fraser v L O’Malley & Son Pty Ltd (1975) 2 BPR 9133; Henley & Grange v Abbott [1946] SASR 270; Ireland v Wightman [2013] SASCFC 116; In Re Disraeli Agreement [1939] Ch 382; Joel v Swaddle (1957) WLT 1094; Killick v Second Covent [1973] 2 All ER 337; McDonald v Attorney-General for State of South Australia [2022] SASCA 43; Maye v Colonial Mutual Life Assurance Society (1924) 35 CLR 14; Minister for Sustainability, Environment and Conservation v Zander [2013] SASCFC 129; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Nelson v Walker (1910) 10 CLR 560; Opalsearch Pty Limited v Mitton [1987] 2 Qd R 232; Project Blue Moon v Fairway Trading [2000] FCA 127; Pacific Carriers v PNB Paribais (2004) 218 CLR 451; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Royal Botanic Gardens v South Sydney City Council (2002) 240 CLR 45; R v Regos and Morgan (1947) 74 CLR 613; Realestate.com.au v Hardingham [2022] HCA 39; Southern Cross Assurance Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618; Spathis v Hanave [2001] NSWSC 265; Stockdale v City of Charles Sturt (2000) 76 SASR 225; St Edmundsbury Ipswich Diocesan Board of Finance v Clark (No 2) (1975) 1 All ER 772; Southend-on-Sea Estates Co Ltd v Inland Revenue Commissioners [1914] 1 KB 515; Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; Thorman v Dowgate Steamship Co. Ltd. (1910) 1 K.B. 410; Walsh v Pitman [2016] SADC 143; Waterways v Coal & Allied [2007] NSWCA 276; Watson v Haggitt [1928] AC 127, considered.
BCCM GROUP PTY LTD v ASAP23 PTY LTD
[2022] SASCA 139Court of Appeal – Civil: Livesey P, Doyle and Bleby JJA
LIVESEY P and BLEBY JA:
Introduction
This appeal concerns a narrow but difficult point of construction concerning a commercial lease.
On 1 July 2021 the respondent lessor gave the appellant lessee written notice of termination pursuant to clause 25, which is headed “Redevelopment”. If effective, that notice provided the appellant with six months’ notice before termination, bringing to an end a lease over the commercial property from which it conducts its business (the Premises) that might not otherwise have expired until 27 February 2030.
The appellant seeks leave to appeal against the dismissal by an appeal judge,[1] of an appeal against orders made by a magistrate,[2] requiring that the appellant lessee vacate the Premises. The hearing of this appeal was brought on urgently because the appellant is required to deliver up vacant possession on 16 December and the respondent has engaged a third party to commence works from 31 December 2022.[3]
[1] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141 (29 November 2022), final orders were made on 5 December 2022.
[2] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2021] SAMC 140; BCCM Group Pty Ltd v ASAP23 Pty Ltd(No 2) [2022] SAMC 17.
[3] Following argument before the Court of Appeal on 13 December 2022, and on condition that the usual undertaking as to damages was given by the appellant, a stay of the orders of the appeal judge was granted until 4pm on Friday, 30 December 2022.
Leave to appeal is required by s 50(4)(a)(ii) of the Supreme Court Act 1935 (SA); see also r 213.1(1)(b) of the Uniform Civil Rules 2020 (SA). The requirements for the grant of leave in connection with a second appeal are well understood.[4]
[4] McDonald v Attorney-General for State of South Australia [2022] SASCA 43, [21] (Livesey P and Bleby JA). See also Bamford v Pozenel [2001] SASC 414, [27]-[28] (Wicks J); Minister for Sustainability, Environment and Conservation v Zander [2013] SASCFC 129, [7] (White J); Ireland v Wightman [2013] SASCFC 116, [4] (Gray, Anderson and Stanley JJ).
For the reasons that follow, leave should be granted but the appeal dismissed.
Background facts
The leased Premises are presently utilised by the appellant as a car and dog wash within the Centro Hollywood Shopping Centre in Salisbury Downs (the Centre).
The respondent became the registered proprietor of the Centre, and thereby lessor of the Premises, on 27 November 2019, having acquired its interest from CPT Custodian Pty Ltd (CPT).
CPT had initially granted a lease over the Premises to Waywood Pty Ltd (Waywood) for a period of 15 years between 1 December 2005 and 30 November 2020 (the Lease). The Lease contemplated that Waywood would construct, at its own expense, a car wash and reimburse CPT for any necessary works undertaken by CPT to facilitate construction of the car wash (see clause 7A of the Special Covenants).
On 7 March 2008 the appellant purchased Waywood’s business. By a Deed of Assignment dated 28 March 2008, the appellant became the lessee under the original Lease. On 12 November 2009, the appellant entered into a Deed of Variation by which it agreed to construct, at its own expense, an additional car wash as well as a dog wash.
Having acquired its interest in 2019, the respondent now proposes to undertake a major redevelopment of the Centre, at its own cost, including in the area where the Premises are located. It proposes to demolish the existing car and dog wash and construct a retail fuel outlet comprising a control building with a burger bar, fuel canopy, petrol bowsers and a drive-through. There will be associated car parking and landscaping.
Underlying the appellant’s case was the assumption, which the respondent did not contest, that the notice of redevelopment given by the respondent under clause 25 is effective only if what is proposed comes within the words “substantially repair, renovate or reconstruct the building in which the Premises are located” and those works “cannot be carried out practicably without vacant possession”.
The appellant submits that the evidence before the magistrate and the appeal judge showed that the proposed redevelopment will include new buildings on the location of the leased Premises as well as a car wash in a different part of the Centre, all of which is said to fall outside the proper scope of clause 25.
The terms of the Lease
It is first helpful to notice certain provisions of the Lease.
By clause 1.2(c), “Interpretation”, headings are included “for ease of reference” but the Lease “will not be construed or interpreted by reference to them”.
The following clauses address reservations by the lessee or the lessor in the case of damage to the premises where repair is impracticable, or where repair cannot be undertaken within a reasonable time:
12.4If the Lessor notifies the Lessee in writing that the Lessor considers that the damage to the Premises is such as to make its repair impractical or undesirable, the Lessor or the Lessee may terminate this Lease by giving not less than seven (7) days’ notice in writing to the other and no compensation is payable in respect of that termination;
12.5If the Lessor fails to repair the damage within a reasonable time after the Lessee requests the Lessor in writing to do so, the Lessee may terminate this Lease by giving not less than seven (7) days’ notice in writing of termination to the Lessor without right or claim for damage by reason of the termination of this Lease …
The respondent’s capacity to undertake works in areas of the Centre apart from the Premises, which may affect the appellant’s quiet enjoyment and trade, is reserved by clause 13.4 in the following terms:
13.4The Lessor may increase or decrease the size of, alter or reconstruct the Centre or any part of it - other than the Premises.
Whatever the breadth of the covenant as to quiet enjoyment (clause 15.1), and whatever expectation the appellant may have had about the composition and layout of the Centre, together with the nature of the trading undertaken by other tenants, by this clause the respondent reserved to itself the right to “increase or decrease the size of … the Centre”, as well as to “alter or reconstruct the Centre or any part of it”. On one view of it, this clause might assist the lessor to meet any argument by the lessee that there has been a breach of the implied covenant not to derogate from the grant.[5]
[5] Birmingham v Ross (1888) 38 Ch D 295, 312 (Bowen LJ), “a grantor having given a thing with one hand is not to take away the means of enjoying it with the other”; Nelson v Walker (1910) 10 CLR 560, 572; Project Blue Moon v Fairway Trading [2000] FCA 127, [9]-[13] (Gallop, Matthews and Sundberg JJ).
By clauses 13.5 and 13.6 the respondent reserved to itself the rights to enter and view the Premises and its state of repair and either, require that the appellant repair any defect (clause 13.5) or, “carry… out any repairs, alterations or works of a structural nature” itself (clause 13.6(b)):
13.5Viewing and Signs
The Lessor may:
(a) at all reasonable times enter the Premises and view its state of repair and may serve on the Lessee a notice in writing of any defect requiring it within a reasonable time to repair that defect in accordance with any term of this Lease; and
(b) exhibit the Premises to prospective lessees and put on the Premises a “To Let” sign or notice during the three (3) months prior to the expiration of the term and the Lessee will not remove or obscure any such sign or notice.
13.6Lessor May Repair
This Lessor may at all reasonable times and after reasonable notice (except in the case of an emergency) enter the Premises for any one or more of the following purposes:
(a) complying with the terms of any law affecting the Premises and any notices served on the Lessor or Lessee by any statutory, licensing, municipal or other competent authority;
(b) carrying out any repairs, alterations or works of a structural nature;
(c) installing any services such as air-conditioning apparatus, automatic fire sprinklers, gas pipes, water pipes, drainage pipes, cables or electrical wiring;
(d) making any repairs which the Lessor may think necessary to the Premises;
(e) making any Improvements or alterations to the adjoining premises or to the Centre which the Lessor may consider necessary;
(f) taking inventories of fixtures; and
(g) exercising the powers and authorities of the Lessor under this Lease.
In carrying out any works referred to in this clause the Lessor will not cause unnecessary interference with the use of the Premises by the Lessee.
It is noteworthy, and a point of contrast with clause 25, that repairs by the lessor under clause 13.6 “will not cause unnecessary interference with the use of the Premises by the Lessee”.
The key clauses of relevance to this appeal are the “relocation” clause, clause 24, and the so-called “redevelopment” clause, clause 25. As the appeal judge observed, these are the “twin provisions” which address the capacity of the respondent lessor to effect termination of the exclusive possession otherwise granted to the appellant lessee before expiry of the term, other than for breach:[6]
[6] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [19].
24. RELOCATION
If at any time during the term the Lessor provides the Lessee with details of a proposed refurbishment, redevelopment or extension (“Development Works”) sufficient to indicate a genuine proposal to carry out the Development Works within a reasonably practicable time after the Lessee is required to relocate in accordance with this clause 24 and the Development Works cannot practicably be carried out without vacant possession of the Premises then:
24.1 the Lessor may give the Lessee not less than 3 months’ notice in writing (“the Lessor’s Notice”):
(a)advising the Lessee that the Lessor requires the Lessee to vacate the Premises by not later than the expiry date of the Lessor’s Notice;
(b)proposing that the Lessee relocate to alternate premises within Centre identified by plans and specifications provided to the Lessee with the Lessor’s Notice (“the Alternate Premises”); and
(c)specifying the minimum rent payable for the Alternate Premises.
24.2 If a Lessor’s Notice is given:
(a)the Lessee may terminate this Lease within one (1) month after the Lessor’s Notice is given by giving written notice of termination to the Lessor, in which case this Lease is terminated three (3) months after the Lessor’s Notice was given unless the parties agree that it is to terminate at some other time; and
(b)the Lessee will not be entitled to recover any monies from the Lessor by way of compensation or otherwise on termination of this Lease but without prejudice to the rights of either party in respect of any antecedent breach matter or thing;
…
25. REDEVELOPMENT
25.1 If the Lessor proposes to substantially repair, renovate or reconstruct the building in which the Premises are located and the Lessor decides that the work cannot be carried out practicably without vacant possession of the Premises, the Lessor may give the Lessee at least six months’ written notice terminating this lease (“Termination Notice”).
25.2 The Termination Notice must: –
(a)detail the plans for the building works; and
(b)state the date of termination.
25.3 After receiving the Termination Notice the Lessee may terminate this Lease on giving 7 days written notice. The Lessee must execute and deliver to the Lessor with such notice those documents listed in clause 25.4(a) and 25.4(b).
25.4 If the Lessee has not exercised its right to terminate the Lease within 1 month of the termination date then the Lessee must execute and deliver to the Lessor prior to the termination date:
(a)a surrender of this Lease in registrable form by mutual consent and for no monetary consideration; and
(b)the original “Lessee’s copy” of this Lease.
25.5 All costs except the Lessee’s legal costs of surrendering this Lease are to be paid by the Lessor.
25.6 All documents are to be prepared by the Lessor’s solicitor.
It is immediately apparent that there is considerable scope for these clauses to cover similar if not the same areas of operation: for example, there is little to distinguish between “refurbishment” in clause 24 and “substantially repair” or “renovate” in clause 25. Likewise, there is little to distinguish between the ordinary meanings of “redevelopment” in clause 24 and “reconstruct” in clause 25.[7] Both words are capable of extending to situations where that which existed is demolished and replaced by something which is different if not also larger in size and better in quality. That is, the word may bear a meaning as wide as redevelopment and extend to the putting together or creation of something better than that which it replaced.[8]
[7] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [23]-[24].
[8] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [24].
Though the word “demolition” does not appear in clause 25, the parties are effectively in dispute as to whether this clause is what is sometimes referred to as a “demolition” or “break” clause.
Indeed, the parties before us and in the courts below referred to the terms of the Retail and Commercial Leases Act 1995 (SA) (the Act), particularly ss 3 and 39. The parties have proceeded on the basis that the respondent was obliged to observe the requirements of s 39 of the Act. Section 3(1) of the Act defines “demolition” to mean:
demolition of a building of which a retail shop forms part includes a substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop;
Section 39 of the Act provides:
39–Demolition
(1)If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:
(a) the lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated;
(b) the lease cannot be terminated by the lessor on that ground without at least six months written notice of termination;
(c) if notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than seven days written notice of termination at any time within six months before the termination date notified by the lessor.
…
(3)If a retail shop lease is terminated on such a ground and demolition of the building is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish the premises within that time.
As the appeal judge recorded, the magistrate construed clause 25 by reference to the s 3(1) definition of “demolition” and s 39 of the Act: his Honour also recorded that the appellant had submitted that the magistrate was “correct to do so”.[9] His Honour observed that clause 25 mirrors s 39 though it does not replicate s 39(3) of the Act nor reflect the persuasive onus in it.
[9] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [26].
The appeal judge rejected, with respect correctly, any suggestion that the Lease should be construed by reference to s 39, or the s 3(1) definition of “demolition”, where the parties did not incorporate those terms expressly or by necessary implication.[10]
[10] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [30]. See also Spathis v Hanave [2001] NSWSC 265, [9] (Bryson J).
It may be seen that ss 3(1) and 39 of the Act and clause 25 of the Lease use the same terms, though clause 25 of the Lease does not use the word “demolition”. As the evidence showed that the respondent lessor’s proposed development included “demolition” (as defined by the Act) it was necessary that there be compliance with the requirements of s 39 of the Act. That circumstance did not assist with the proper interpretation of clause 25.
The reasons of the trial magistrate
The trial concerned the validity of two termination notices, described as the First and Second Termination Notices. The Second Termination Notice relied on clause 25.
The trial magistrate found that there was no valid exercise of renewal rights by the appellant pursuant to the terms of the Lease and so the First Termination Notice was valid with the effect that the appellant had, since 30 November 2020, been holding over as a monthly tenant. Notwithstanding this finding, the trial magistrate also found that the respondent was estopped from denying that there had been an extension of the Lease for a further term of 10 years, expiring on 30 November 2030.[11]
[11] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2021] SAMC 140, [142].
Of relevance to the present appeal are the findings by the trial magistrate that the Second Termination Notice was valid because it satisfied all of the requirements laid down by clause 25 of the Lease and s 39 of the Act. Although all improvements on the Premises were owned by the appellant, that was not regarded as relevant to the validity of the Second Termination Notice.
The magistrate’s brief reasons for finding that the word “reconstruct” was not limited to the repair, renovation or erection of a similar building were as follows:[12]
I do not accept the Applicant’s submission that there is any ambiguity in respect of clause 25.1 of the Original Lease and therefore the contra proferentem rule has no application in this matter.
I consider that a reasonable businessperson would understand that the plain and ordinary meaning of clause 25.1 of the Original Lease provides that if the lessor decides to redevelop the Premises, the lessor can give six months’ notice to the lessee to vacate the premises.
(Citations omitted.)
[12] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2021] SAMC 140, [170]-[171].
In his second judgment, the trial magistrate found that though s 68(2) of the Act provided a “generously framed discretion”, it did not permit the court to grant relief or make orders conflicting with the terms of the Act.[13] Following District Court authority, the trial magistrate also found that s 68(2) did not empower the court to grant relief from a provision of the Act itself.[14] It is not necessary for the purposes of this appeal to determine whether these conclusions are correct.
[13] BCCM Group Pty Ltd v ASAP23 Pty Ltd(No 2)[2022] SAMC 17.
[14] Walsh v Pitman [2016] SADC 143 (Tilmouth DCJ).
In any event, the trial magistrate found that he would not have exercised his discretion in favour of the appellant lessee because the respondent lessor was exercising a lawful contractual right where the appellant must be taken to have been aware of the risk that the respondent might do so.
The reasons of the appeal judge
The appellant appealed to the Supreme Court, arguing that the magistrate erred in finding that the Second Termination Notice was validly issued under clause 25 and, in addition, in failing to grant relief pursuant to s 68(2) of the Act. Section 68 of the Act provides:
68—Jurisdiction of the Magistrates Court
(1)An application for an order under this section may be commenced by application to the Magistrates Court by a party (or former party) to a retail shop lease or a collateral agreement.
(2)The Magistrates Court may on application under this section, by order—
(a) restrain an action in breach of this Act, a retail shop lease or a collateral agreement; or
(b) require a person to comply with an obligation under this Act, a retail shop lease or a collateral agreement; or
(c) order a person to make a payment (including a payment of compensation) that is payable under this Act, a retail shop lease or a collateral agreement; or
(d) order the payment of compensation for loss or damage resulting from a breach of this Act, a retail shop lease or a collateral agreement; or
(e) relieve a party to a retail shop lease or a collateral agreement from the obligation to comply with a provision of the lease or agreement; or
(f) reinstate rights under a retail shop lease that have been forfeited or have otherwise terminated; or
(g) require the payment of rent under a retail shop lease into the Magistrates Court until the lease has been performed or an application for compensation has been determined; or
(h) require that rent paid into the Magistrates Court be paid out and applied as directed by the Magistrates Court; or
(i) require a tenant to surrender possession of premises to the lessor; or
(j) do anything else necessary or desirable to resolve a dispute between the parties to the retail shop lease.
The appeal judge dismissed the appeal, finding that notice of termination pursuant to clause 25 was validly given and that there was no error made in the exercise of discretion under s 68(2) of the Act.
The appeal judge accepted that when exercising the discretion available under s 68(2) of the Act it was appropriate to have regard to general equitable principles governing relief against forfeiture in respect of leases.[15] Equitable relief against forfeiture avoids injustice by relieving against unconscionable or unconscientious conduct, and relief of that kind is available under s 68(2)(f) against “any termination”.[16] The appeal judge also held that the trial magistrate was right to conclude that s 68(2)(j) was a matter of “last resort”. He rejected the proposition that it was a “standalone omnibus provision”.[17]
[15] Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315.
[16] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [48].
[17] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [48].
Whilst accepting that the appellant would encounter difficulty relocating, would lose a substantial part of the value of its property in the structure and plant and equipment associated with the car and dog wash when delivering up vacant possession and “making good”, and that the net present value of the anticipated profit likely lost during the balance of the Lease until 2030 was in the order of $2.5 million, the appeal judge affirmed the magistrate’s decision declining to grant relief.[18]
[18] BCCM Group Pty Ltd v ASAP23Pty Ltd [2022] SASC 141, [49]-[51].
No appeal is pressed in relation to the exercise of discretion under s 68(2) of the Act.
The appeal judge commenced his review of the challenge to the notice given under clause 25 by considering various, earlier clauses of the Lease before addressing clause 24 of the Lease. His Honour held that clause 24 operated only where the respondent lessor was “able to offer alternative premises”,[19] or “can offer alternative premises”.[20]
[19] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [19].
[20] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [41].
In relation to clause 25, the appeal judge held that on its proper construction the word “reconstruction” must be given its ordinary, wide meaning both to advance commercial certainty and because its context did not provide clear circumscription of its meaning.[21] There was no context which allowed for the reading down of clause 25.[22] Clause 25 therefore operated to include the demolition of an existing structure and the construction of a different building altogether and, indeed, “it may bear a meaning as wide as redevelopment”.[23]
[21] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [8].
[22] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [39].
[23] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [8], [24].
The appeal judge referred to the observations of Wootten J regarding the meaning of the word “reconstruction” in a different context in Fraser v L O’Malley & Son Pty Ltd:[24]
… I have not found the provision easy to construe because the word “reconstruction” is capable of very varying meanings according to the context in which it is used. In some contexts it may import an obligation to adhere as faithfully as possible to the past state of affairs… On the other hand, it may import a desire to get away from the past situation to a considerable degree… the cases pointed up the fact that the meaning of the word will depend to a considerable extent on the context in which it is used, including both the purposes of the provision in which the words appear and the words with which it is associated. The most relevant consideration in deciding the width of meaning to be accorded the word seems to me to be the purpose of the clause as derived from what it says as a whole against the context of the surrounding circumstances.
[24] Fraser v L O’Malley & Son Pty Ltd (1975) 2 BPR 9133, 9137-9138 (Wootten J).
The “principal matter of context” telling against giving “reconstruct” its ordinary meaning was, said the appeal judge, the “tension” between the lessee’s grant of exclusive possession during the term and the lessor’s “unilateral power” of termination:[25]
… the tension between the grant of exclusive possession for a period of initially 15 years under the original lease, and an option for a further period of 10 years under the Lease (as varied) on the one hand, and the conferral of a unilateral power on the Lessor to terminate the lease on no more than six months’ notice.
On the other hand, the term on its face appears to so empower the Lessor. Waywood entered into the original lease subject to clause 25 and then [the appellant] BCCM too entered into the Lease (as varied) subject to that clause.
[25] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [36].
When examining the commercial context, the appeal judge considered that it was “notorious” that shopping centres must be refurbished and redeveloped:[26]
Looking more broadly at the commercial context, I observe that a premises in a shopping centre, generally speaking, has a commercially advantageous location, for which a higher rent is commonly extracted. However, in order to maintain that advantage, it is notorious that from time to time shopping centres must be refurbished and redeveloped, and particular shops repaired, renovated, and reconstructed in order to continue to attract higher levels of custom. That marketing imperative, and the inclusion of clauses like clause 25 in shopping centre leases, is the mischief addressed by s 39 of the Act. CPT, ASAP23, Waywood, and BCCM must be taken to have been aware of that commercial reality when entering into the original lease and the Lease (as varied) and to have understood that clauses 24 and 25 were intended to give CPT, and then ASAP23, powers to undertake such redevelopments.
[26] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [38].
The appeal judge explained that he was not reasoning by assuming that the respondent must be permitted to redevelop as it sees fit:[27]
I acknowledge that it is an error to proceed from the preconception that the clauses must be construed to facilitate any redevelopment which the Lessor in its discretion sees fit to adopt. I do not reason in that way. The point I seek to make is that there is no contextual reason to substantially constrain the ordinary meaning of the words of clauses 24 and 25 such that they have an impractical, if not incoherent, operation.
[27] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [42].
The appeal judge concluded “on balance” that the “plain words of the provision, the requirements of commercial certainty” concerning the entry of leases and “the difficulty in identifying an obvious or uncontentious reading down”, warranted the conclusion that clause 25 and the word “reconstruction” must be given their plain meaning.[28]
[28] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [43].
The contentions of the parties
The appellant contends that the proposed redevelopment does not involve repair, renovation or rebuilding of the existing car wash and associated buildings in any relevant sense. That is to say, entirely new buildings will be erected and the car wash will be moved to a different location. These comprise, it is submitted, a material extension to the existing buildings because there will be an increase in the size and scale of the buildings.
The appellant submits that these works comprise a “redevelopment” of the centre, together with an “extension” of it, which does not come within the words used in clause 25 of the Lease. According to the appellant, to “reconstruct” the building, when read as part of the compendious phrase involving “repair, renovate or reconstruct the building”, in context, means to “construct, build, form, or put together again”. The act of “reconstruction” is confined to the process of “rebuilding”.[29]
[29] The Oxford English Dictionary (Oxford University Press, 3rd Ed, 2009; most recently modified version published online 2022) defines “reconstructing” to mean “[t]o construct or put together again, esp. following damage or destruction, or by way of renovation”. It defines “reconstruction” to mean “[t]he action or process of reconstructing something … [t]he rebuilding of something …”.
The appellant submits that what is proposed is more naturally accommodated by the words used in clause 24, the “relocation” clause. Under that clause the respondent could with three months’ written notice seek vacant possession but only if it also offered the appellant alternative premises within the Centre.
The respondent submitted that the appeal judge adopted the orthodox process of construing the Lease as a whole by giving effect to the natural and ordinary meaning of the word “reconstruction”, having regard to the commercial context in which the Lease is intended to operate.
As will be seen, the respondent’s submissions must be accepted.
Construing the terms of a Lease
The determination of the rights and liabilities of the parties to a commercial contract requires that the court interpret the contract objectively.[30] This process requires that the terms be determined according to how reasonable business-people would have understood them. The process extends beyond a consideration of the text and extends to considering the surrounding circumstances known to the parties, together with the purpose and object of the transaction.[31]
[30] Pacific Carriers v PNB Paribais (2004) 218 CLR 451, 461-462 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[31] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, [46]-[52] (French CJ, Nettle and Gordon JJ), [107] (Kiefel and Keane JJ).
The transaction in this case is a commercial lease. Generally speaking, “the ordinary principles of contract law apply to contractual leases”.[32] A lease must be interpreted like any other commercial contract. It must be construed at the date it is made.[33] It is necessary to consider the whole of the lease, recognising that the meaning of any one part of it may be revealed by other parts and giving effect to all parts and every clause so as to render them all harmonious with one another.[34] Where a word is used in one part of the lease that word will usually be construed as having the same meaning in another part of the lease.[35]
[32] Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 53 (Deane J). See also, 29 (Mason J), 40-41 (Brennan J).
[33] Waterways v Coal & Allied [2007] NSWCA 276, [215] (McColl JA).
[34] Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109 (Gibbs J).
[35] Bickmore v Dimmer [1903] 1 Ch 158, 166 (Vaughan Williams LJ), regarding “alteration”; Craig, Williamson Prop Ltd v Barrowcliff (1915) 21 Argus LR 349, 350 (Hodges J). Cf Watson v Haggitt [1928] AC 127, 131 (Lord Warrington): “no such rule of general application … A difficulty or ambiguity may be solved by resorting to such a device…”.
Whilst one may have regard to the commercial circumstances operating at the time the lease is negotiated, evidence of antecedent negotiations cannot be used to displace the words used to record the bargain struck by the terms of the lease.[36] Preconceptions as to what the transaction involves, or what the parties were likely to have intended, ought not be allowed to deprive the language of its natural meaning and effect.[37]
[36] Mt Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104, [48] (French, Nettle and Gordon JJ).
[37] Southern Cross Assurance Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618, 636 (Rich, Dixon, Evatt and McTiernan JJ).
The presence of poor drafting may warrant the court avoiding conclusions based on “semantic niceties” as distinct from giving careful attention to the approach of honest and reasonable business-people.[38]
[38] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, [98] (Nettle J). See generally, Commercial & General Corporation Pty Ltd v Manassen Holdings Pty Ltd & Anor [2021] SASCFC 40, [63]-[68] (Livesey J, with whom Stanley and Nicholson JJ agreed).
There are examples of cases where ambiguities in leases have been construed against the lessor, relying on the contra proferentum rule of construction.[39] However, as Starke J warned in Maye v Colonial Mutual Life:[40]
But that canon is nothing more than an aid to construction in case of ambiguity, and ought not to be used for the purpose of creating an ambiguity.
[39] Killick v Second Covent [1973] 2 All ER 337, 340 (Cairns LJ), over-ruled in Ashworth v Gloucester [2002] 1 All ER 377; Stockdale v City of Charles Sturt (2000) 76 SASR 225, 233 [30] (Wicks J).
[40] Maye v Colonial Mutual LifeAssurance Society (1924) 35 CLR 14, 47 (Starke J).
That rule has in any event not been applied where a conveyance contains an explicit reservation in favour of the grantor.[41] Some commentators have suggested that the court should strictly construe the terms of a “break clause” which set out the reasons upon which the notice may be based.[42] That approach was not followed in Opalsearch Pty Ltd v Mitton, where ambiguity was addressed by reference to the surrounding circumstances and other parts of the lease when determining the nature and extent of the redevelopment contemplated at the time of entry into the lease.[43]
[41] St Edmundsbury Ipswich Diocesan Board of Finance v Clark (No 2) (1975) 1 All ER 772, 780: the “presumption can only come into play if the court finds itself unable on the material before it to reach a sure conclusion on the construction of the reservation”; it is in any event a rule of “last resort”, McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 600-603 [74] (Kirby J).
[42] William Duncan and Sharon Christensen, Commercial Leases in Australia (Thomson Lawbook Co, 8th ed, 2017) 551.
[43] Opalsearch Pty Limited v Mitton [1987] 2 Qd R 232, 240-241 (Shepherdson J).
It was not suggested that there was any evidence of relevant surrounding circumstances and both parties pointed to the inferences that might legitimately be drawn from the terms of the documents comprising the Lease.
As neither party addressed the contra proferentum rule, or any related or similar principle, it is appropriate to proceed without making any assumption about the way in which ambiguity should be addressed, relying instead upon the ordinary principles of construction: that is to say, by construing the lease according to the natural and ordinary meaning of the words used within the lease as a whole, read against the commercial context in which the clauses were intended to operate.
Clauses 24 and 25 of the Lease: determination of the appeal
Having regard to the terms of the Lease in this case, earlier set out, particular attention must be given to clauses 24 and 25. Consistently with the way in which argument proceeded, it is appropriate to consider the text of each clause before moving to the way in which these clauses were intended to operate within the commercial context apparent at the time of entry into the Lease.
Both clauses require the giving of written notice by the lessor, in the case of clause 24 it must be three months and in the case of clause 25 it must be six months.[44]
[44] Though a stipulated period of notice may not be essential, In Re Disraeli Agreement [1939] Ch 382, 388-389 (Crossman J).
Clause 24 operates where the Development Works comprise “proposed refurbishment, redevelopment or extension” and the lessor offers alternate premises. This is what is sometimes referred to as a “relocation” clause.[45] The notice under clause 24 must be accompanied by the offer of a proposed relocation “to alternate premises within Centre”, together with relevant plans and proposed alternate rent. The lessee must then decide whether to accept the Alternate Premises or terminate.
[45] Darwil Pty Ltd v May (1993) ANZ Conv R 608, 611 (Owen J).
By contrast, clause 25 operates where “the Lessor proposes to substantially repair, renovate or reconstruct the building in which the Premises are located”, but there is no offer of alternate premises, merely a longer period of notice before termination.
The appellant correctly deprecated the description of clause 25 based on its heading as one concerned with “Redevelopment”, relying on the prohibition against using headings to construe the Lease (clause 1.1(c)) and pointing out that that word was only used in clause 24. In addition, the appellant relied on the rejection in the courts below of the proposed works as capable of coming within the words “substantially repair” or “renovate”.
The weight of this case therefore falls on the breadth of the meaning of the word “reconstruct” in a clause which does not also contain the word “demolish”.[46]
[46] As is seen with some standard precedents, see William Duncan and Sharon Christensen, Commercial Leases in Australia (Thomson Lawbook Co, 8th ed, 2017) 550.
It is not unfair to the appellant’s case to describe it as dependent upon the application of the ejusdem generis principle of construction: whereas the words used in clause 24 are capable of applying in a broad way to “redevelopment”, it is submitted by the appellant that the use of the words “repair” and “renovate” in clause 25 necessarily confine the meaning of the word “reconstruct”, cutting back the reach of its ordinary meaning.
Whilst there is an evident linguistic attraction in that approach, this is not a case where the relevant clause contains any “general words” such as “and other purposes of the lessor”.[47] In Cody v J H Nelson, a case involving war-time regulations, Starke J explained:[48]
But where there are general words following particular or specific words the general words should be confined to things of the same kind as those specified. This “rule of construction is subordinate to the real intention of the parties, and does not control it; that is to say, that the canon of construction is but the instrument for getting at the meaning of the parties, and that the parties, if they use language intimating such intention, may exclude the operation of this or, I suppose, any other canon of construction”.[49]
[47] R v Regos and Morgan (1947) 74 CLR 613, 623-624 (Latham CJ, with whom McTiernan J agreed).
[48] Cody v J H Nelson (1947) 74 CLR 629, 639 (Starke J). See also, 647-648 (Dixon J, with whom McTiernan J agreed).
[49] Thorman v Dowgate Steamship Co. Ltd. (1910) 1 K.B. 410, 419.
This is not a case for the application of the ejusdem generis principle of construction.
Rather, the meaning of the word “reconstruct” must be determined in the context of the lease as a whole. That reveals the use of the same word “reconstruct” in clause 13.4, albeit in that instance referable to the Centre:
The Lessor may increase or decrease the size of, alter or reconstruct the Centre or any part of it - other than the Premises.
The use of the word “reconstruct” in this way in this clause tends to negate the contention that the word can only mean something akin to repair, renovate or replace. The word “reconstruct” clearly has a broader reach in clause 13.4.
That is consistent with the natural and ordinary meaning of the word “reconstruct”. It is broader than both “repairs” or “renovate” and is capable of accommodating demolition and rebuilding or remodelling. That was the approach taken in Henley & Grange v Abbott, another case concerning war-time regulations, where Mayo J explained that “reconstruction” was broader than “repairs”, extending to “total alteration… and …structural … transformations”:[50]
The second ground refers to sub-clause (l): “that the premises are reasonably required by the lessor for reconstruction.” Now “reconstruction” is given various significations. It may denote constructing anew, rebuilding or remodelling, in the sense of a total alteration of the premises or some part of the premises, and so involving structural changes and transformations. It may include reparations of a particular kind; renovations, viz., that of rebuilding some part of the premises more or less in it; previous form; but the word is also used to cover what, are simply repairs. I apprehend the true intendment of the regulation is that the last-mentioned meaning is not included: compare Agar v Nokes.[51] The evidence does not indicate that the premises are required by the plaintiff for “reconstruction” but for very urgent and extensive repairs.
[50] Henley & Grange v Abbott [1946] SASR 270, 272 (Mayo J).
[51] Agar v Nokes (1905) 93 L.T. 605, 609.
On its natural and ordinary meaning read within the Lease as a whole the word “reconstruct” may be equiparated with “redevelop”.
When considering the likely commercial operation of these clauses it is convenient for the purposes of these reasons to describe the activity by the lessor which is contemplated by both clauses 24 and 25 as forms of “development”. Both clauses 24 and 25 operate where the respondent lessor has in contemplation development that “cannot be carried out practicably without vacant possession of the Premises”.[52]
[52] Which is the phrase used in clause 25, whereas to the same effect clause 24 refers to “Development Works [that] cannot practicably be carried out without vacant possession of the Premises”.
Clause 24 refers to this development as a “genuine proposal [to be carried] out within a reasonably practicable time after the Lessee is required to relocate [within the Centre]” which that clause describes as “Development Works”. Though clause 25 does not describe the development activity, it must be to “the building in which the Premises are located”.
Therefore, whilst any development under clause 25 must be to “the building” (a term which is not defined), development under clause 24 is not so constrained, though as it must be something which cannot be carried out practicably without vacant possession of the Premises, it may well affect the building occupied by he lessee and associated with the leased Premises.
Accordingly, the development captured by clause 24 may be of other buildings or other premises within the Centre but it will at least require vacant possession of the Premises, whereas the development captured by clause 25 must directly affect the building in which the Premises are located and likewise require vacant possession of the Premises.
Whilst only clause 24 refers to “a genuine proposal to carry out the Development Works”, it has long been held that a lessor must have a bona fide intention to develop,[53] absent which the lessor’s right to exercise the power may be challenged.[54] Although not stipulated, it would generally be advisable for the lessor to give to the lessee any plans or other evidence of the proposed development together with any notice served under clause 25 so as to allay concerns about whether the proposal is bona fide.
[53] Southend-on-Sea Estates Co Ltd v Inland Revenue Commissioners [1914] 1 KB 515, 524 (Swinfen Eady LJ); affirmed [1915] AC 428, 432 (Lord Parker of Waddington).
[54] See for example, Retail and Commercial Lease Act 1995 (SA) s 39(1)(a). Cf Blackler v Felpure Pty Ltd (2000) 9 BPR 17,257, 17,271 (Bryson J) where the court found as a fact that the lessor genuinely intended to renovate at the time of notice, absent which there may have been a lack of good faith. Generally speaking, attempts to imply a term of good faith in leases have failed, see Alcatel Australia Ltd v Scarcella (1988) 44 NSWLR 349 (Sheller JA, with whom Powell and Beazley JJA agreed), Advance Fitness Corp Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264, [121]-[122] (Austin J); but see Australian Mutual Provident Society v 400 St Kilda Road Pty Limited [1990] VR 646 (McGarvie J), and Downward Bricklaying Pty Ltd v Goulburn-Murray Rural Water Authority (2003) 8 VR 61 (Williams J). The High Court found it unnecessary to address that issue in Royal Botanic Gardens v South Sydney City Council (2002) 240 CLR 45, [40] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ), [87]-[91] (Kirby J), [146]-[147] and [156] (Callinan J).
There was some debate on the hearing of the appeal as to the reach of clause 25 on its proper construction. It most obviously applies where the Premises are located within one building, particularly where there are a number of leased premises within one building, such as where a number of different shops are housed within one shopping centre complex. By contrast, in this case the Premises comprise an area on which sit different buildings or improvements (that is, the car wash and the dog wash are housed in separate buildings, connected by an apron providing vehicle access). The appellant accepted that clause 25 was not limited in its application to a case where the Premises were only located within one or more buildings, and it extended to a case such as this where portions, though not the entirety, of the Premises are located within one or more buildings or improvements.
Nonetheless the appellant challenged the proposition that the word “building” could be read as simply meaning “the Premises”. It may be accepted that there is no textual support for that reading. It is necessary that the development contemplated by clause 25 be to a building and not merely to the Premises.
The appellant next pointed to what it contended was the absurdity of the respondent wishing to “substantially repair, renovate or reconstruct the building”, or any building, which had been constructed by the lessee at its cost and which therefore belonged to the appellant lessee and not to the respondent lessor. It may be accepted that in the ordinary case the development contemplated by both clauses 24 and 25 will be to Premises within the Centre which will include or at least affect buildings owned by the respondent lessor. That cannot be invariably so. Clause 25 cannot be read in a manner that literally requires that the lessor, and only the lessor or its agent, undertake all of the repair, renovation or reconstruction and associated demolition which is proposed.
It must be recalled that clause 25 was incorporated into the Lease at a time when it was expected that the lessee would construct whatever buildings were required on the Premises the subject of the Lease. The parties must be taken to have intended that clause 25 would have a realistic field of operation.[55] What is required is that the lessor demonstrate that the development, whether under clause 24 or clause 25, come within the scope of the words used and that it cannot be carried out without the lessee giving vacant possession of the Premises. It is not necessary that any demolition which is required be undertaken by the lessor before it can be concluded that the lessor intends to carry out “redevelopment” (under clause 24) or “reconstruction” (under clause 25). Were it otherwise, neither clause could operate where some or all of the buildings or improvements belonged to the lessee. In this case both the notice and the specified development assume that the appellant lessee must demolish and make good before giving up vacant possession.
[55] Realestate.com.au v Hardingham [2022] HCA 39, [16]-[17] (Kiefel CJ and Gageler J).
Whilst it may readily be accepted that the commercial context assumes that shopping complexes must from time to time be redeveloped, and that this was within the contemplation of the parties at the time of entry into the Lease, that does not really advance the question of construction: both clauses may be taken to assume that this will be so. Where a lessor wishes to redevelop the entire Centre, notices can be given to each lessee of Premises under clause 25 to permit that to occur. That course may remain available to a lessor even if the word “reconstruct” were to be given a narrow meaning. Even if each building were to be “reconstructed”, demolition may be required before or after vacant possession is taken, with something different put into place.[56] Equally, where development under clause 24 is in contemplation, redevelopment of the entire Centre may require that it be approached on a “rolling” basis, ensuring that the lessor is in a position to offer each notified lessee the opportunity to assess the offer of alternate premises and alternate rental.
[56] Joel v Swaddle (1957) WLT 1094, 1100 (Evershed MR) where walls were demolished and spaces were left, replaced with girders resting on pillars.
Part of the difficulty in this case is created by the fact that there are two separate clauses addressing similar if not the same subject matter, but using different words which do not clearly delineate when each clause should operate; as earlier indicated, these clauses appear to cover similar if not the same areas of operation. In that respect these clauses could have been better drafted so as to render it clear beyond argument that they cover the same areas of operation.
The clear words of each provision read within the Lease as a whole, together with their likely intended commercial operation, do not support the contention that they must have different areas of operation and, particularly, that the word “reconstruct” used in clause 25 cannot mean “redevelop” even though that word only appears in clause 24.
The appellant in argument tended to emphasise that clauses 24 and 25 were alternatives, though it was submitted that it was not accurate to describe them as giving rise to a choice or option available to the lessor. It is difficult to regard these clauses as creating true alternatives, apart perhaps from the existence of the obligation to offer alternate premises under one clause and not the other and the correspondingly different notice requirements. Whilst it may in a sense be helpful to describe these clauses as representing alternatives, they really amount to alternative rights which on the facts and circumstances of any case might both remain available to be exercised by the lessor. That is, the lessor may be free to choose which right it invokes, provided the requirements of each clause are observed and the lessor has a bona fide intention to undertake the proposed development.
The ultimate issue in this case is whether the word “reconstruct” when used in clause 25 should be construed other than in accord with its natural and ordinary meaning. It is difficult to regard the narrow meaning offered by the appellant as representing or according with business common-sense and efficacy. Even allowing for the importance of the lessor’s grant in favour of the lessee, it is difficult to see why commercial parties would have assumed that the lessor must necessarily be confined to clause 24 where what was contemplated was demolition and redevelopment. The potential effect of both clauses is termination of the Lease. Though it is perhaps difficult to regard the appellant’s approach as necessarily leading to an incoherent operation, it is at the least both impractical and inconvenient.
When used in clause 25 of this Lease the word “reconstruct” must be given its natural and ordinary meaning, notwithstanding the absence of the word “demolition” in the same clause. As the appeal judge found, there are insufficient indications in the Lease or the commercial context more broadly to support any clear circumscription of its ordinary meaning.[57]
[57] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141, [8].
It was never suggested that the respondent was other than bona fide in wishing to pursue the proposed development.
The facts of this particular case do suggest an unfairness where it was the lessee who paid for the improvements and where, as the respondent conceded on appeal, it would seem that the lessor could have accommodated the lessee with alternate premises. However, those were matters best suited to evaluation in the context of arguments about equitable or other relief under s 68(2) of the Act and they are not now before this Court.
Conclusion
It has not been shown that the appeal judge erred in his approach to the appeal from the decision of the magistrate. It has not been shown that he made any material error of fact or law.
Whilst the issues raised by this appeal are of sufficient difficulty and importance to warrant the grant of leave, the appeal must be dismissed.
DOYLE JA: I adopt the summary of the facts and circumstances giving rise to this application for permission to appeal in the joint reasons of Livesey P and Bleby JA. I also adopt the summary of the relevant provisions of the Lease, and the defined terms, set out in those reasons.
I agree generally with the joint reasons, and so propose to confine myself to setting out the essential steps in my reasons for joining in the orders proposed by their Honours.
As explained in the joint reasons, the appeal turns on the meaning of the word “reconstruct” in clause 25 of the Lease, and in particular whether it encompasses the respondent’s proposal to demolish the existing car and dog wash, and to construct a retail fuel outlet comprising a control building with a burger bar, fuel canopy, petrol bowsers and a drive-through. The appellant contends that the primary judge and appeal judge erred in construing clause 25 as extending to building works of this nature. As I understand the appellant’s argument, it is that the meaning of “reconstruct” is confined to a rebuilding that is substantially similar in size and general character to the original building.
The principles governing the construction of a commercial lease are not in dispute, and have been conveniently summarised in the joint reasons.
The words “reconstruct” and “reconstruction” are capable of variable meaning, with their meaning in a particular clause to be informed by the context in which they are used. As Wootten J explained in Fraser v L O’Malley & Son Pty Ltd:[58]
The next argument by the defendant was that the application lodged by the plaintiffs was not an application to develop the property by “reconstruction” but was a proposal for development by way of the erection of a different building to that which had previously occupied the site. I have not found the provision easy to construe because the word “reconstruction” is capable of very varying meanings according to the context in which it is used. In some contexts it may import an obligation to adhere as faithfully as possible to the past state of affairs … On the other hand, it may import a desire to get away from the past situation to a considerable degree … Counsel did not seriously suggest that any of the decisions were really in point and, indeed, the cases pointed up the fact that the meaning of the word will depend to a considerable extent on the context in which it is used, including both the purposes of the provision in which the word appears and the words with which it is associated. In the present case I cannot find much assistance by an examination of particular words in conjunction with which the word “reconstruction” is used, and the most relevant consideration in deciding the width of meaning to be accorded the word seems to me to be the purpose of the clause as derived form what it says as a whole against the context of the surrounding circumstances. …
[58] Fraser v L O’Malley & Son Pty Ltd (1975) 2 BPR 9133 at 9137-9138 (Wootten J).
After explaining why the context of the clause in that case suggested that the word had been used in a “deliberately restrictive manner”, Wootten J gave the word a relatively narrow meaning:[59]
In these circumstances, I think that the fair meaning to put on the word “reconstruction” is the construction of a building substantially similar in size and general character to that which had been burnt down, and that the word was intended to exclude the submission of an application for erection of a building substantially more ambitious in size and nature.
[59] Fraser v L O’Malley & Son Pty Ltd (1975) 2 BPR 9133 at 9138 (Wootten J).
Similarly, in Henley & Grange v Abbott,[60] in a passage from his Honour’s reasons set out in the joint reasons, Mayo J acknowledged the potential breadth of the word “reconstruction”, noting that it extended well beyond repairs to include “constructing anew, rebuilding or remodelling, in the sense of a total alteration of the premises or some part of the premises, and so involving structural changes and transformations”.
[60] Henley & Grange v Abbott [1946] SASR 270 at 272-273 (Mayo J).
Turning to the use of the word “reconstruct” in clause 25 of the Lease under consideration in the present case, the appellant emphasises the tension between, on the one hand, the grant of exclusive possession for a period of initially 15 years under the original lease, and an option for a further period of 10 years under the Lease (as varied) and, on the other hand, a construction of clause 25 that would make it tantamount to a unilateral power on the part of the Lessor to terminate the Lease with six months’ notice.
Against this, the commercial context, of which the parties must be taken to have been aware when they executed the Lease, included the fact that it related to Premises within a shopping centre (referred to in the Lease as “the Centre”). This context is apparent from several of the terms of the Lease itself, which acknowledge that the Premises in question exist within a larger Centre. The significance of this context is that it supports a construction that accommodates an expectation by the parties that it may be commercially advantageous for the Centre, or the premises or building within it, to be renovated or redeveloped from time to time. As the appeal judge explained, this commercial reality, and expectation, not only explains s 39 of the Retail and Commercial Leases Act 1995 (SA), but also explains the existence, and informs the interpretation of ‘break’ clauses like clauses 24 and 25 in the present Lease:[61]
Looking more broadly at the commercial context, I observe that a premises in a shopping centre, generally speaking, has a commercially advantageous location, for which a higher rent is commonly extracted. However, in order to maintain that advantage, it is notorious that from time to time shopping centres must be refurbished and redeveloped, and particular shops repaired, renovated, and reconstructed in order to continue to attract higher levels of custom. That marketing imperative, and the inclusion of clauses like clause 25 in shopping centre leases, is the mischief addressed by s 39 of the Act. CPT, ASAP23, Waywood, and BCCM must be taken to have been aware of that commercial reality when entering into the original lease and the Lease (as varied) and to have understood that clauses 24 and 25 were intended to give CPT, and then ASAP23, powers to undertake such redevelopments.
[61] BCCM Group Pty Ltd v ASAP23 Pty Ltd [2022] SASC 141 at [38] (Kourakis CJ).
Whilst I accept the force of the appeal judge’s reasoning in relation to the commercial expectation of the parties, it is relevant that both clauses 24 and 25 appear to be directed towards building works (to use a neutral phrase) of the type contemplated in the above passage. This commercial expectation is of little assistance in determining the difference, if any, between the fields of operation of those two clauses.
In determining the field of operation of clause 25, the appellant emphasises both the co-location of the word “reconstruct” with the words “repair” and “renovate” within the compendious phrase (“substantially repair, renovate or reconstruct”) in clause 25, and the comparison with the use of the apparently broader words within the compendious phrase in clause 24 (“refurbishment, redevelopment, or extension”). The appellant contends that these textual and contextual considerations support a meaning of “reconstruct” that connotes something more narrow than a redevelopment, with the proposal in the present case being for a redevelopment rather than a reconstruction.
A textual and contextual analysis of this type would ordinarily be persuasive. However, in the particular circumstances of clauses 24 and 25 in the present Lease, I consider that would be to give too much credit to the draftsperson for their selection of the words used in the two compendious phrases. It seems to me that the particular words used are more likely to be an instance of poor drafting than a careful attempt to mark out two differing fields of operation for clauses 24 and 25.
As to the relevance of the co-location of the word “reconstruct” with the words “repair” and “renovate” in clause 25, I agree with the reasons of Livesey P and Bleby JA for rejecting the application of the ejusdem generis principle of construction.
As to the comparison with the use of the word “redevelopment” in clause 24, I accept that it is not appropriate to have regard to the use of the heading “Redevelopment” in construing clause 25.[62] However, it is difficult to discern the commercial purpose or sense of a construction that seeks to distinguish between the words used in clauses 24 and 25 in the manner contended for by the appellant.
[62] Given the proscription against this use in clause 1.2(c) of the Lease.
Having studied clauses 24 and 25 – in their own terms, as adjacent or ‘twin’ break provisions, and in the context of the Lease as a whole – I am not persuaded that they are intended to mark out significantly different fields of operation, let alone two mutually exclusive fields of operation. Rather, it seems to me that both are intended to be of potential application where the Lessor proposes to undertake building works (again, to use a neutral phrase) which require the vacant possession of the Premises occupied by the Lessee. Under clause 24, the Lessor may terminate the Lease with three months’ notice, but with an offer of alternative premises. Under clause 25, the Lessor may terminate the Lease with six months’ notice, but without any requirement of an offer of alternative premises. Whilst attention must be paid to the differing descriptions of the proposed building works in the two clauses (“refurbishment, redevelopment, or extension” in clause 24, and “substantially repair, renovate, or reconstruct” in clause 25), I am unable to discern a clear difference between the two compendious phrases, let alone a difference with a clear commercial rationale or purpose.
It is to be observed that clause 25 requires that the building works relate to “the building in which the Premises are located”. This is an additional requirement that is not included within clause 24. It might be argued that this supports a construction of clause 25 that contemplates building works of a relatively significant nature (that is, works that affect the building within which the Premises are located, as opposed to works that merely affect the Premises or some of the premises within the relevant building). This makes some commercial sense. If the works affect only the Premises, or some of the premises within the relevant building within a shopping centre, then it would make sense that the Lessor be required to give the Lessee the option of alternate premises within the Centre. On the other hand, if the works affect the whole building within which the Premises exist, it may not be realistic to expect that there will be alternative premises that could be made available. At the same time, I do not think that the inclusion of these additional words in clause 25 was intended to indicate significantly different fields of operation for clauses 24 and 25. The language used in clause 24, whilst capable of application to premises-specific works, is also capable of application to works affecting the entirety of a building or the Centre.
The appellant submits that the words used in clause 24, together with what it contends is the ‘restriction’ of the works in clause 25 to works relating to the building, rather than the Centre as a whole, suggest that clause 25 was intended to have a narrower operation than clause 24. I am unable to discern any clear textual support, let alone any commercial rationale, for this construction of the clauses and of their respective fields of operation.
I would also note at this point in the analysis that, as mentioned by Livesey P and Bleby JA, the word “reconstruct” is used in clause 13.4 of the Lease in a context that is consistent with, if not supportive of, a broad meaning (“The Lessor may increase or decrease the size of, alter or reconstruct the Centre or any part of it – other than the Premises.”)
In the end, I have come to the view that clauses 24 and 25 are intended to have largely overlapping fields of operation. Whilst the contemplated building works must affect the building within which the Premises are located in order to trigger the Lessor’s entitlement to proceed under clause 25, I would give the word “reconstruct” in that clause its natural breadth of meaning, rather than confine it to building works of a nature that, in contradistinction to a “redevelopment”, involve a rebuild of substantially the same nature as the original building. Accepting that the Lease provides the Lessor with an entitlement to bring the Lease to an end (with six months’ notice, but without any offer of alternate premises) in circumstances where the Lessor is proposing to demolish and rebuild the building in which the Premises are located, there seems no sensible rationale for confining the Lessor to a rebuild of substantially the same nature as the original building.
In my view, this is sufficient to dispose of the appellant’s arguments on appeal. However, for completeness I mention that the respondent in this case invoked clause 25 in circumstances where the appellant’s premises are standalone premises (that is, they are not in a building within the Centre containing other premises), and where the building that is on the Premises was constructed by the Lessee after the commencement of the Lease. It may be acknowledged that clause 25 would apply more naturally to a lease of other premises within the Centre which are co-located within a particular building, and hence within a building that was constructed prior to the commencement of the relevant Lease and owned by the Lessor. But I am not satisfied that the relative awkwardness of applying clause 25 to the appellant’s Premises either renders clause 25 inapplicable to the appellant’s Premises, or otherwise affects the meaning to be given to the word “reconstruct” in that clause. The requirement in clause 25 that the proposed works relate to the building within which the Premises are located is met by reason that the proposed works will affect, and require vacant possession of, the building that is presently on the Premises.[63] In my view, just as clause 25 is capable of applying to a standalone premises within a shopping centre, it is also capable of applying to premises within a shopping centre where the building on that premises does not cover the entirety of the leased premises. Put another way, it makes commercial sense to construe clause 25 as extending to circumstances where the leased premises are not, strictly speaking, entirely within a building; that is, as extending to circumstances where part, but not necessarily all, of the relevant premises is within the building to be reconstructed. Further, and in any event, as this was not an issue pursued on appeal, I do not think it provides any basis for impugning the decision under appeal.
[63] Assuming that the building includes the entirety of the improvements, it is, on one view, almost coextensive with the Premises.
For the reasons given, I agree with the reasons of Livesey P and Bleby JA that, whilst there should be a grant of permission to appeal, the appeal should nevertheless be dismissed.
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