BHP Billiton Group Operations Pty Ltd v QV Pty Ltd
[2004] VSC 447
•8 November 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2052 of 2004
| BHP BILLITON GROUP OPERATIONS PTY LTD (ABN 73 004 165 075) | Plaintiff |
| v | |
| QV PTY LTD (ABN 91 092 065 195) AND ORS | Defendants |
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JUDGE: | DODDS-STREETON J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 25 October 2004 | |
DATE OF JUDGMENT: | 8 November 2004 | |
CASE MAY BE CITED AS: | BHP v QV | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 447 | Revised 22 November 2004 |
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REAL PROPERTY – Commercial Lease – Agreement for lease – Construction of terms.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C.M. Scerri Q.C. with Mr P.D. Crutchfield | Arnold Bloch Leibler |
| For the Defendants | Mr E.N. Magee Q.C. with Ms C. Harris | Deacons |
TABLE OF CONTENTS
INTRODUCTION AND BACKGROUND.................................................................................... 2
RELEVANT PROVISIONS OF AGREEMENT FOR LEASE.................................................... 3
CONSTRUCTION OF TERMS....................................................................................................... 7
The plaintiff’s contentions............................................................................................................... 8
The defendants’ contentions.......................................................................................................... 10
Construction of “QV Complex”.................................................................................................... 11
“the buildings and land (other than the Owner’s works) to be constructed on the whole of the land shown on the site plan [attachment 10]”.................................................................................. 12
“as described in the Planning Approval”............................................................................... 12
“summarised in Attachment 12”.............................................................................................. 15
Separate treatment of the Northern Site...................................................................................... 17
CONCLUSION................................................................................................................................. 21
HER HONOUR:
INTRODUCTION AND BACKGROUND
The present proceeding involves the construction of a term of an agreement for lease dated 19 February 2001 (“agreement for lease”) pursuant to which the first defendant, (QV Pty Ltd) as owner, Grocon Pty Ltd (“Grocon”), the plaintiff (BHP Billiton Group Operations Pty Ltd) as tenant and BHP Billiton Limited agreed that the owner would grant the tenant a lease of premises situated at levels 17 to 28, and some basement areas, of a building known as the BHP Billiton Centre,180 Lonsdale Street, Melbourne (“the premises”) for a ten year term from commencement date, which was defined to mean the later of the day after the date of practical completion and 14 October 2003.
The premises form part of the development known as the Queen Victoria Complex, which has been constructed on land owned by the first defendant. The second to sixth defendants and Grocon, by deed poll dated 3 May 2002 in favour of the plaintiff, agreed, inter alia, that the fifth defendant would be bound by, and the second, third, fourth and sixth defendants would do everything reasonably necessary to permit the first and fifth defendants to comply with, the agreement for lease.
The validity of the agreement for lease is not disputed.
A dispute has arisen over the amount of rental payable for the premises by the plaintiff pursuant to the agreement for lease. Clause 9B.1 of the agreement for lease provides, broadly, that the owner was obliged to ensure that “the whole of the QV Complex (excluding zones A to C)” had achieved substantial completion by the commencement date (“the clause 9B.1 obligation”). Pursuant to clause 9B.2 of the agreement for lease, a reduced rental would be payable if the clause 9B.1 obligation were not satisfied. If substantial completion were not achieved by commencement date, the rental payable by the plaintiff for the premises is $170 per square metre per annum until compliance is achieved. If substantial completion were achieved, the rental payable by the plaintiff for the premises is $270 per square metre per annum.
The plaintiff alleges that a residential tower in an area known as Zone G on the site is still under construction, that cranes, scaffolding, builder’s sheds and building debris have not been removed from Zone G and the pedestrian laneway between Zones G and H, and that scaffolding is present in Jane Bell Lane.
The plaintiff contends that Zone G, including the residential tower, comprises part of the “QV Complex” the subject of the clause 9B.1 obligation, and that as the obligation has not been satisfied, the rental payable for the premises is only $170 per square metre.
The defendants do not dispute that the state of the residential tower on Zone G does not conform to the requirements of “substantial completion” as defined in clause 1.1. However, they contend that Zone G, or alternatively the residential tower, is not part of the “QV Complex” as defined in clause 9B.1 and accordingly, the rental payable is $270 per square metre. The defendants have demanded that the plaintiff pay rent at the rate of $270 per square metre and contend that the failure to do so will constitute a default event under the lease.
The determination of the amount of rental payable pursuant to clause 9B.2 depends upon whether any or all of Zone G, including the residential tower, comprises part of “the QV Complex” within the meaning of that term in clause 9.B1 of the agreement for lease.
RELEVANT PROVISIONS OF AGREEMENT FOR LEASE
The principal relevant provisions of the agreement for lease are set out below:
“Clause 1.1: Definitions
‘QV Complex’ is defined to mean ‘the buildings and improvements (other than the Owner’s Works) to be constructed on the whole of the land shown on the Site Plan, as described in the Planning Approval, and summarised in attachment 12’.
‘Site Plan’ is defined to mean the ‘plan in Attachment 10’.
‘Northern Site’ is defined to mean ‘Zone G and Zone H’.
‘Planning Approval’ is defined to mean:
‘(a)… a planning permit authorising the development and use of QV Complex (excluding the Northern Site but including the development and occupation of the Owner’s Works for the Permitted Use), in the form set out in attachment 11 or such other form as the Tenant may approve under clauses 2A.5(b) or 9B.4; and
(b)includes all plans endorsed as part of that planning permit.’
‘Planning Approval Date’ is defined to mean the date ’30 days after the date of this deed’. (Item 10 in Schedule 1.)
‘Substantial Completion’ is defined to mean that stage where:
‘(a)all buildings and other improvements within the boundaries of the QV Complex (including all roads, paving and landscaping within these boundaries) have been completed, other than:
(i)works which are wholly to be carried out within the completed structure of buildings or improvements;
(ii)rectification of Defects; and
(iii)paving works in Zone E; and
(iv)works to be carried out in Zones A to C and Zone F;
(b)all cranes, scaffolding, builder’s sheds and building debris have been removed from all external surfaces of the QV Complex other than:
(i)Zones A to C and Zone F; and
(ii)to the extent required for rectification of Defects; and
… ‘
‘Owner’s Works’ is defined to mean ‘the works to be carried out by and at the cost of the Owner to construct the Building (excluding works within Lettable Areas not forming part of the Premises) in accordance with the Owner’s Plans and the Specifications.’
‘Premises’ is defined to mean, subject to clause 20, ‘the Office Premises and the Non-Office Premises’.
‘Office Premises’ is defined to mean ‘that portion of the Premises described in item 4(a) of schedule’.
‘9B QV Complex
9B.1The Owner must ensure that the whole of the QV Complex (excluding Zones A to C) has achieved Substantial Completion by the Commencement Date.
9B.2If the Owner does not fully comply with its obligations in clause 9B.1 then, from the Commencement Date until the Owner fully complies with those obligations, the Rent payable by the Tenant under the Lease shall be calculated under clause 2.6 as if the rate of $170 per square metre is inserted in item 3(a) of schedule 1.
…
9B.4Despite any other provision of this deed, the Owner must not develop or permit any other person to develop any buildings or improvements on the QV Complex (excluding Zones A to C) in any manner which varies materially from the nature, style or form of development contemplated:
(a)in attachment 12; or
(b)the Planning Approval,
unless the Owner obtains the prior written consent of the Tenant to the variation (which consent may be given or withheld in the Tenant’s reasonable discretion).
9B.5 If, any time prior to Substantial Completion of the QV Complex (excluding Zones A to C):
(a) the QV Complex is developed in a manner which varies materially from the nature, style or forms of development contemplated in attachment 12; or
(b)the Tenant has not consented in writing to such conflict or breach in accordance with clause 9B.4,
the Rent payable by the Tenant under the Lease shall be calculated under clause 2.6 as if the rate of $170 per square metre is inserted in item 3(a) of schedule 1.
…
9CDevelopment of Northern Site
9C.1Despite any other provisions of this deed, the Owner must not develop or permit any other person to develop any buildings or improvements on the Northern Site in any manner unless:
…
(e)the Owner obtains the prior written consent of the Tenant to any proposed breach of the restrictions set out in paragraphs (a) to (d) above (which consent may be given or withheld in the Tenant’s absolute discretion).
9C.2If any time after the date of this deed:
(a)the Northern Site is developed in a manner which conflicts with or breaches any of the Northern Site Development Restrictions;
and
(b)the Tenant has not consented in writing to such conflict or breach in accordance with clause 9C.1(e),
the Rent payable by the Tenant under the Lease shall be calculated under clause 2.6 as if the rate of $170 per square metre is inserted in item 3(a) of schedule 1.
9DInterim Development of Northern Site
9D.1Despite anything contained in clauses 9B and 9C, the Owner may elect, by written notice to the Tenant not to proceed with development of a premium grade residential tower on Zone G (as described in clause 9C.1) within a construction program which would achieve Substantial Completion by the Commencement Date.
9D.2If the Owner gives a notice under clause 9D.1:
(a)the Owner will be deemed to have achieved Substantial Completion of Zone G for the purposes of clauses 9B.1 and 9B.9 if it achieves Substantial Completion in respect of the proposed retail podium levels on Zone G, as described in attachment 12 (‘the Podium’); and
(b)the Owner must not commence or permit any other person to commence construction of the premium residential tower or any other substantial development on Zone G during the period:
(i)commencing on the date on which the Owner achieves Substantial Completion of the Podium or the Commencement Date, whichever is the earliest date; and
(ii)expiring on the date which is 10 years after the Commencement Date.
9D.3The Owner acknowledges that any breach of its obligations in clause 9D.2 will substantially detract from the amenity of the Premises and the Tenant’s entitlement to quiet enjoyment of the Premises.
9D.4If, at any time during the period specified in clause 9D.2(b), the Owner commences or permits any other person to commence construction of the premium residential tower or any other substantial development on Zone G, the Owner must pay liquidated damages to the Tenant:
(a)for the period:
(i)commencing on the date such developmental commences;
and
(ii)expiring on the earlier of:
(A)the date such development is completed; and
(B)the tenth anniversary of the Commencement date;
(b) calculated at the rate of $100 per square metre of Lettable Area of Office Premises per annum; and
(c)payable monthly in arrears”.
CONSTRUCTION OF TERMS
The applicable principles of construction are not disputed.
In Pacific Carriers Ltd v BNP Paribas[1] the High Court re‑affirmed that the meaning of commercial documents must be determined objectively by reference to “what a reasonable person in the position of [the third party] would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction.”[2]
[1](2004) 208 ALR 213.
[2]Ibid, at 221.
The plaintiff’s contentions
The plaintiff argued that the definition of “QV Complex” in clause 1.1 contained three elements. The first element was a composite element of “the buildings and improvements … to be constructed on the whole of the land as shown on the site plan in attachment 10” (that is, all the buildings and improvements contained within the boundaries of the land). Mr Scerri, senior counsel for the plaintiff, argued that the second element (“as described in the Planning Approval”) and the third element (“summarised in attachment 12”) were consistent with the inclusion of Zone G and the buildings it contained. First, the Planning Approval (the planning permit in the form of attachment 11) included verbal descriptions and photographic or sketched depictions of the entire site, including Zone G, with the residential tower drawn in. Therefore, Zone G and the residential tower were referred to and described, although the residential tower was not the subject of the planning permit. The third element of the definition, “summarised in attachment 12”, was a descriptive narrative of the entire development in general terms, which referred to the project as a staged process of construction, including “residential, if successful” use. Attachment 12 also included Zone G as “proposed to include retail on the lower levels with residential uses on the upper levels.” Thus, the plaintiff contended that attachment 12, although it did not define particular buildings, clearly included Zone G and described, referred to or summarised its uses, including “upper level residential use”.
The plaintiff contended that the definition of “QV Complex” in clause 1.1 was cumulative and layered. The first element of the definition of “QV Complex” in clause 1.1 was paramount and inclusive, and the two remaining elements had a general, descriptive, rather than specifically definitional, function. They added perspective. The description in the Planning Approval and the summary in attachment 12 were consistent with, and supportive of, the inclusion of Zone G and the residential tower it contained.
Further, the plaintiff contended that if the Northern Site (comprising Zones G and H) were excluded from the “QV Complex”, the obligation of “substantial completion”, as defined in clause 1.1, would operate only in relation to Zone D and Zone E (save for paving). Mr Scerri contended that it would be anomalous if “substantial completion” had unqualified application only to one zone, which was more distant from the premises than Zones G and H. The obligation to ensure substantial completion would have minimal content if Zones G and H were excluded. The plaintiff contended that because the Queen Victoria Complex project involved an integrated development, the amenity of particular buildings was affected by the state of those adjoining them. A construction whereby “substantial completion” applied to Zones G and H supported the commercial purposes of the agreement to lease and reflected the practical concerns of the tenant.
The plaintiff also relied on clause 9B, which provides for protection to the tenant in the event that the development of the “QV Complex” (except Zones A to C) fails to conform to attachment 12. Mr Scerri submitted that it would be anomalous if that protection did not apply to Zones G and H, but applied to other zones more distant from the premises.
Although clause 9C applied specifically to the Northern Site (defined to comprise Zones G and H) and applied specific restrictions on its development (most importantly, limiting development in Zone G to a residential tower, in the absence of the tenant’s consent) the plaintiff argued that clause 9C did not constitute an exhaustive treatment of the Northern Site, but simply imposed special conditions.
Further, Mr Scerri argued that clause 9D, which deals with interim development of the Northern Site, necessarily assumed that if the owner elected to construct a residential tower, it would be subject to an obligation to achieve substantial completion by commencement date, as clause 9D.1 would otherwise have no purpose. Clause 9D.1 (which is stated to prevail over anything contained in clauses 9B and 9C) was thus irreconcilable with the view that Zone G, including the residential tower, did not comprise part of the “QV Complex” within the meaning of clause 9B.1.
The defendants’ contentions
The defendants, at the hearing of the interlocutory injunction application and in their written submissions, principally argued that the construction of “QV Complex” in clause 9B.1 excluded the Northern Site, including Zone G, in which the existing state of works do not satisfy the requirements of “substantial completion’ as defined.
At the trial of the proceeding, Mr Magee, senior counsel for the defendants, developed an alternative argument that even if the entire Northern Site were not excluded, those buildings and improvements which were not the subject‑matter of the Planning Approval as defined in clause 1.1 (in this case, the Planning Approval in the form of attachment 11) were excluded.
The defendants argued that the residential tower was not the subject‑matter of the Planning Approval in the form of attachment 11. The residential tower thus, on any view, fell outside the definition of the “QV Complex” in clause 9.B1.
In that context, the defendants contended that the first element in the definition in clause 1.1 (“the buildings and improvements … to be constructed on the whole of the land on the site plan” (attachment 10)) simply identified the location of the buildings and improvements, but did not describe them. The third element, (“summarised in attachment 12”) also failed to describe the buildings and improvements but “simply sets out in brief terms the selected uses of each zone”. The defendants contended that the criterion governing comprehension by the definition was the second element (“as described in the Planning Approval”) but argued that that element should be construed to mean, in effect, “included as the subject‑matter of authorisation in the Planning Approval”.
Mr Magee conceded that certain buildings and improvements on the Northern Site, namely, the under‑croft and the retail level on Zone G, were the subject‑matter of authorisation in the Planning Approval. They were thus part of the “QV Complex” and subject to the clause 9B.1 obligation. The defendants argued that, in contrast, the residential tower was not the subject of authorisation in the Planning Approval. It was thus excluded from the “QV Complex” and was not subject to the clause 9B.1 obligation.
The defendants also argued that although separate provisions of the agreement for lease governed the height, use, position and type of building the owner could construct on the Northern site, the separate treatment of the Northern Site in clauses 9C and 9D was consistent with the view that the Northern Site was not subject to the clause 9B. 1 obligation.
The defendants contended that the fundamental purpose of the agreement for lease was to regulate the construction of the premises in accordance with the tenant’s specifications. It was not intended to impose detailed requirements in relation to the surrounding buildings. As such, only a construction of the term “QV Complex” which excluded the Northern Site, or at least the residential tower, supported the commercial purpose of the agreement for lease.
Construction of “QV Complex”
Clause 9B.1 indicates that Zones A to C would ordinarily be included in the “QV Complex”, as their express exclusion would otherwise be unnecessary.
Clause 1.1 of the agreement to lease (the definition clause) provides that “the following words have these meanings in this deed unless the contrary intention appears”.
The definition of “QV Complex” in clause 1.1 will therefore apply to clause 9B(1) unless a contrary intention appears.
Clause 1.1 defines “QV Complex” to mean “the buildings and improvements (other than the Owner’s works) to be constructed on the whole of the land shown on the site plan, as described in the Planning Approval, and summarised in attachment 12”. The definition thus comprises three distinct, cumulative elements.
They are:
(a)the buildings and improvements (excluding the Owner’s works) to be constructed on the whole of the land on the site plan;
(b)as described in the Planning Approval;
and(c) summarised in attachment 12.
“the buildings and land (other than the Owner’s works) to be constructed on the whole of the land shown on the site plan [attachment 10]”
Clause 1.1 defines “Site Plan” as the plan in attachment 10. Attachment 10 depicts all of Zones A to H, laneways, connected land and the proposed BHP Headquarters, contained within the block of land bounded by Lonsdale, Swanston, Little Lonsdale and Russell Streets. Although the defendants contend that the first element merely states the location of the buildings and improvements rather than describing or defining them, the distinction is not persuasive. In my opinion, the first element defines the buildings and improvements by reference to their location. All buildings and improvements within the site plan boundaries (save for Owner’s works) are comprehended.
“as described in the Planning Approval”
Clause 1.1 defines “Planning Approval” as
(a)means a planning permit authorising the development and use of the QV Complex (excluding the Northern Site but including the development and occupation of the Owners Works for the Permitted Use), in the form set out in attachment 11 or such other form as the Tenant may approve under clauses 2A.5(b) or 9B and
(b)includes all plans endorsed as part of that planning permit.
The Planning Approval as defined in clause 1.1 is not necessarily restricted to a planning permit in the form of attachment 11. It may be in such other form as the tenant approves. Despite the terms of the definition, by clause 2A.1 of the agreement for lease, the deed was subject to a condition precedent that the owner procure the Planning Approval in the form of attachment 11 by the Planning Approval Date. Clause 2A.2 provided that the condition in clause 2A.1 enured wholly for the benefit of the tenant and could be waived in whole or in part by the tenant in its absolute discretion.
It is not disputed that a planning permit in the form of attachment 11 was procured and the condition precedent in clause 2A.1 was thereby satisfied.
The definition of “Planning Approval” in clause 1.1 refers to a planning permit which authorised the development and use of the “QV Complex” (excluding the Northern Site and including Owner’s Works for the Permitted Use). The definition of “Planning Approval” therefore indicates that the Northern Site is otherwise part of the “QV Complex” (necessitating its express exclusion) and that the “Owner’s Works” are not (necessitating their express inclusion). That is consistent with the exclusion of Owner’s Works in the first element of definition of “QV Complex” in clause 1.1. Clause 1.1 defines the Northern Site to mean “Zone G and Zone H.”
The defendants’ construction of “QV Complex” accords primary significance to the subject‑matter of the Planning Approval itself, as distinct from the definition of the term “Planning Approval” in clause 1.1. The definition of “Planning Approval”, which indicates that no part of the Northern Site will be the subject‑matter of the Planning Approval, does not accord with the Planning Approval in the form of attachment 11, which includes some parts of the Northern Site as its subject‑matter. That Planning Approval, rather than one which conformed to the definition, was specified to be a condition precedent of the agreement for lease. The fact that attachment 11 did not entirely conform to the definition of “Planning Approval” was not explained.
The defendants contended that the subject‑matter of the Planning Approval was the crucial determinant and that on that basis, the residential tower was excluded. Clearly, given the undisputed inclusion of some parts of the Northern Site, that submission was irreconcilable with the defendants’ alternative contention that the entire Northern Site was excluded from the clause 9B.1 obligation.
The second element of the definition of “QV Complex” is, in terms, “as described in the Planning Approval”. In my opinion, the requirement is clearly one of description in the Planning Approval in the form of attachment 11, rather than inclusion as subject‑matter of the Planning Approval. The defendants, however, contended that the residential tower was not specifically described.
The Northern Site is described, depicted or referred to in the Planning Approval in several ways.
The podium and the retail level situated in Zone G are included as subject‑matter of the Planning Approval.
The address of the entire development site, including the Northern Site, is given as “the Queen Victoria Hospital site, 172-254 Lonsdale Street, Melbourne”. The permit is to allow “the development and use of the land for specified purposes in accordance with the attached endorsed plan”. There is a reference to the “Queen Victoria Village”, and to proposed residential uses and mixed use development on land known as the former Queen Victoria Hospital site located at 172-254 Lonsdale Street, Melbourne, which “comprises retail, residential and office components with associated car parking”.
The entire development site is depicted in an aerial photograph. It is also described as a large area of land comprising 18,008m2 with frontages to Swanston, Lonsdale, Russell and Little Lonsdale Streets. The Planning Approval also depicts Zone G, colour coded as “high rise”. A tower on Zone G is sketched, and is marked “residential”.
In summary, the Northern Site, including Zone G and the residential tower, is broadly depicted and described in the Planning Approval, although the residential tower is not the subject‑matter of the Planning Approval.
The defendants’ construction of the second element of the definition is not, in my view, persuasive. Viewed in isolation, it requires the substitution of a specific condition of authorisation in the Planning Approval for the more general descriptive function conveyed by the literal terms employed. Viewed in context, it accords an unjustified pre-eminence to a single element of a composite definition, which, if upheld, would render the other constituents of the definition otiose.
There is an element of circularity in the compound definition of “QV Complex” in clause 1.1. It works by reference to distinct components. The second element itself refers to the “QV Complex” and by its express exclusion of the Northern Site from the “QV Complex”, indicates that it would ordinarily be included. Although the terms of the definition of “Planning Approval” foreshadow that no part of the Northern Site will be included as subject‑matter of the Planning Approval, that would not preclude the description of the Northern Site, or parts thereof, in the Planning Approval. Parts of the Northern Site are in fact included as subject matter of the Planning Approval in the form of attachment 11, contrary to the terms of the definition.
The terms of the second element should be construed according to their ordinary meaning and in the context of the definition as a whole.
If the requirement that “the buildings and improvements … to be constructed on the whole of the land as described in the Planning Approval” is given literal effect, in my opinion, the Planning Approval in the form of attachment 11 satisfies that requirement in relation to the entirety of the Northern Site, including Zone G, the podium, the retail level and the residential tower.
“summarised in Attachment 12”
Attachment 12 is headed “QV Complex Definition”. It states that:
“The QV Complex (QVC) is intended to be a mixed use, multi-level development, inclusive of commercial, residential (if successful) and retail uses, with all components serviced by a proposed multi-level basement car park.
The proposed development is to be constructed on a 1.8 hectare CBD block, bound by Russell, Lonsdale, Swanston and Little Lonsdale Streets … “
The attachment states that “the proposed QVC development is to be broken into zones of activities or uses. Each proposed zone has selected uses”. It lists all zones, including Zone G, stating that “This zone is proposed to include retail on the lower levels, with residential uses on the upper”.
Zone F is described in attachment 12, but is expressly stated to be “excluded from QVC”. The attachment states that QVC is “also proposed to include laneways/arcades, which will connect the proposed zones. These laneways/arcades will accommodate mixed retail uses”.
Attachment 12 thus summarises the buildings and improvements on all of the land shown on the site plan by reference to the entire 1.8 hectare CBD block, the general character of the whole development and the proposed, as distinct from approved, uses for individual zones, which uses necessarily presuppose buildings or improvements. Attachment 12 expressly excludes Zone F, but the “QV Complex Definition” it contains otherwise comprehends the entire complex within the boundaries of the relevant city block. That accords with the inclusive statement of the first element of the cumulative definition in clause 1.1.
In my opinion, on the better construction, the definition of “QV Complex” in clause 1.1 comprehends all zones and their proposed buildings and improvements, save for Zone F.
Further, the definition of “substantial completion” in clause 1.1 does not exclude that construction. “Substantial completion” is defined as a stage, where, inter alia, all buildings and other improvements have been completed (other than for certain works in specified zones), and cranes, scaffolding and debris have been removed from specified zones.
The definition of “substantial completion” begs the question whether Zones G and H, and the buildings they contain, are included in the “QV Complex”, although, as the plaintiff contends, if Zones G and H are excluded, the benefit to the tenant of the clause 9B.1 obligation is of very limited application. Further, if, as the defendants contend, some buildings or improvements within a particular zone form part of the “QV Complex” but others do not, the stage at which “all buildings … within the boundaries of the QV Complex .. .have been completed” is not an apt definition of substantial completion.
Separate treatment of the Northern Site
The defendants also relied upon the separate treatment of the Northern Site in clauses 9C and 9D in support of their construction. They contended that the imposition of the same time frame for substantial completion of the buildings and improvements authorised by the Planning Approval, and an adjoining building that the owner was not obliged to construct, did not accord with the commercial purposes of the agreement for lease.
Whether the specific regulation of the Northern Site in clauses 9C and 9D is exclusive and exhaustive, as distinct from additional and cumulative, again begs the question whether clause 9B.1 applies to the Northern Site, and in particular, to the buildings to be constructed on it.
For the reasons set out above, I consider that the “QV Complex”, in the context of clause 9B, includes Zones G and H and the residential tower on Zone G.
If that be correct, clause 9B.4 would prohibit the owner from developing, or allowing development of, any buildings on the “QV Complex” (including Zone G and its residential tower) in a manner which varies materially from the nature, style or form of the development contemplated in attachment 12 or the Planning Approval, unless the tenant consented.
Under clause 9B.5, if the “QV Complex” (excluding Zones A to C) is developed other than as contemplated in attachment 12 at any time prior to substantial completion, a reduced rental is payable. (Clause 9B.5 does not refer to non‑conformity with the Planning Approval, but only to non‑conformity with attachment 12.)
By clause 9B.6, the owner and guarantor are prohibited from transferring their estate or interest in the “QV Complex” to a third party prior to substantial completion without first procuring the third party to enter a deed with the tenant in the form of clause 9B.
The owner’s obligations under clause 9B.4 and 9B.6 lapse upon the owner achieving substantial completion.
If the “QV Complex” includes Zones G and the residential tower, then clause 9B prohibits the owner from, inter alia, developing Zone G in a manner materially different from the Planning Approval or in attachment 12; and any third party transferee taking prior to substantial completion would have to undertake the same obligation.
Clause 9C prohibits (in the absence of the tenant’s consent) the development of any buildings or improvements on the Northern Site unless they comply with a number of specified requirements set out in in 9C.1(a) - (d) (collectively, the “Northern Site Development Restrictions”.). The major requirement, contained in clause 9C.1(d)(ii), is that the buildings or improvements comprise a premium grade residential tower.
By clause 9C.2, if the Northern Site is developed in a manner which breaches the Northern Site Development Restrictions, a reduced rental is payable.
By clause 9C.3, neither the owner nor guarantor may transfer its interest in the Northern Site to a third party prior to substantial completion of the Northern Site unless it first procures the third party to enter a deed with the tenant in the form of clause 9C.
Subject to clause 9D, the obligations of the owner under clause 9C.1 lapse upon the owner achieving substantial completion of the Northern Site in a manner consistent with clause 9C.1.
Clause 9C thus provides for the way in which the Northern Site may, if at all, be developed. Its terms prevail over clause 9B in the case of inconsistency.
In my opinion, clause 9C is not incompatible with the application of clause 9B to the Northern Site (including the residential tower). Compliance with clause 9B.4 and clause 9B.5 is consistent with the observation of the Northern Site Development Restrictions contained in Clause 9C. Clause 9C merely imposes additional detail and specific requirements, which conform to the broad generality of the Planning Approval and attachment 12, both of which contemplate a residential use for Zone G.
Clause 9B.7 provides for the option of payment by the owner of lump sum damages in respect of non‑compliance with clause 9B.1 for the period of non-compliance and for the term of the lease (10 years from commencement date) where a reduced rental would apply due to non‑conformity with attachment 12 or the Northern Site Development Restrictions.
If clause 9B applies to the Northern Site, there is potentially a degree of overlap between clauses 9B.5(a) and (b) and 9C.2(a) and (b) (as development of the Northern Site contrary to the Northern Site Development Restrictions would, in some circumstances, also invoke clause 9B.5) but no necessary inconsistency.
However, if (as the defendants contend) clause 9B.1 does not apply to the Northern Site and, more specifically, to the high rise residential tower, there are lacunae. Although clause 9C contemplates the application of the concept of substantial completion to the residential tower (eg: clause 9C.3 and clause 9C.4) clause 9C does not provide any definition of substantial completion or any mechanism for determining the date for substantial completion.
That circumstance indicates that clause 9C does not provide exhaustive regulation of the Northern Site, but assumes the application of clause 9B and other relevant provisions, to which it adds specificity.
That conclusion is fortified by clause 9D.1, which prevails over the terms of clauses 9B and 9C.
Clause 9D.1 entitles the owner, by written notice to the tenant, to elect not to proceed with the development of a premium grade residential tower on Zone G (as described in clause 9C.1) “within a construction program which would achieve substantial completion by the commencement date”.
As there is no mandatory requirement that the owner construct a premium grade residential tower (although it is the sole permitted construction in Zone G), the procedure in clause 9D.1 must operate as an exemption from an obligation to build any such tower within a construction programme which would achieve substantial completion by commencement date.
Clause 9D.1 therefore necessarily assumes that the clause 9B.1 obligation applies to the residential tower, should the owner elect to construct it.
Clause 9D.2 provides that the owner will be deemed to have achieved substantial completion of Zone G for the purposes of clauses 9B.1 and 9B by achieving substantial completion only of the proposed retail podium levels on Zone G as described in attachment 12, on condition that it makes an election under clause 9D.1.
If the owner does so elect, clause 9D.2(b) prohibits the owner from constructing, or permitting any other person to construct, the residential tower or any other substantial development on Zone G for a ten year term, which commences on substantial completion of the podium or commencement date, whichever is the earlier.
By clause 9D.3, the owner expressly acknowledges that breach of the obligations in clause 9D.2 will “substantially detract from the amenity of the premises and the tenant’s enjoyment” of them.
Clause 9D.4 provides for the payment of liquidated damages if the owner constructs, or permits a third party to construct, a tower, or other substantial development on Zone G, within the ten year period. In my opinion, clause 9D makes clear that the entirety of Zone G, including the residential tower if constructed, are prima facie included as subject‑matter of the clause 9B.1 obligation. Further, clause 9D.3 expressly acknowledges that construction work in Zone G substantially detracts from the amenity of the premises. The purpose of clause 9D is plainly to ensure that the tenant is protected from the effects of construction work on Zone G throughout the term of the lease. Consistently with that aim, the owner must complete construction of the residential tower by commencement date, or, if it elects not to do so, must ensure that no substantial construction is undertaken during the ten year term of the lease.
The defendants contended that the restrictions applicable to Zone G could be avoided by transfer or mortgage to a third party. However, the breach of the Northern Site Development Restrictions by any person will result in liability to pay a reduced rental (clause 9C.2) and, pursuant to clause 9B.8, a failure to comply with the obligations in, inter alia, clause 9C, due to default by a mortgagee, chargee or its transferee, renders the owner or guarantor liable for the default.
In my opinion, the treatment of the Northern Site in clause 9C is consistent with the view that the Northern Site, including the residential tower if constructed, are subject to the clause 9B.1 obligation. Further, the provisions of clause 9D are explicable only if the Northern Site, including the residential tower, is subject to the clause 9B.1 obligation.
CONCLUSION
It follows that, in my opinion, the definition of “QV Complex” in clause 9B.1 of the agreement for lease includes Zone G and the residential tower situated upon it. As the failure to achieve substantial completion of the residential tower by commencement date is undisputed, clause 9B.2 applies. The payment of rental for the premises at the rate of $170 per square metre until the date of compliance with the clause 9B.1 obligation does not constitute a breach of, or default under, the agreement for lease. The plaintiff is entitled to the relief sought in the statement of claim.
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CERTIFICATE
I certify that this and the 21 preceding pages are a true copy of the reasons for Judgment of Dodds-Streeton J of the Supreme Court of Victoria delivered on 8 November 2004.
DATED this eighth day of November 2004.
Associate
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