Burnie Port Corporation Pty Ltd; v Bank of Western Australia Limited and Anor
[2003] TASSC 73
•22 August 2003
[2003] TASSC 73
CITATION: Burnie Port Corporation Pty Ltd
v Bank of Western Australia Limited & Anor [2003] TASSC 73
PARTIES: BURNIE PORT CORPORATION PTY LTD
(ACN 087 720 279)
v
BANK OF WESTERN AUSTRALIA LIMITED(ACN 050 494 454)
RENTWORKS LIMITED (ACN 003 421 136)
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 28/2002
DELIVERED ON: 22 August 2003
DELIVERED AT: Hobart
HEARING DATES: 29, 30 April, 1, 2 May 2003
JUDGMENT OF: Underwood J
CATCHWORDS:
Statutes – Acts of parliament - Interpretation – Consideration of extrinsic matters – Legislative history of the Act – Ambiguity in power created by recent amendment – Ambiguity resolved by reference to legislative history.
Marine Act 1976 (Tas), ss64, 65(1).
Aust Dig Statutes [5]
Statutes – Acts of parliament - Interpretation – Consideration of extrinsic matters – Second reading speech – Ambiguity in power created by recent amendment – Ambiguity resolved by reference to legislative history.
Marine Act 1976 (Tas), ss64, 65(1).
Aust Dig Statutes [5]
Statutes - Acts of parliament – Statutory powers and duties – Construction – Whether power conferred – General power cut down by later restriction on exercise of that power.
Marine Act 1976 (Tas), ss64, 65(1) and 87 - 89.
Anthony Hordern and Sons Limited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1; Leon Fink Holdings Proprietary Limited v Australian Film Commission (1979) 141 CLR 672; Saraswati v R (1991) 172 CLR 1; Grofarm Pty Ltd v Australia and New Zealand Banking Group Ltd (1993) 117 ALR 669, applied.
Aust Dig Statutes [91]
Contracts – General contractual principles – Construction and interpretation of contracts – Other matters – Attempt to make commercial sense of meaningless clause.
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 referred to.
Aust Dig Contracts [109]
Contracts – General contractual principles – Construction and interpretation of contracts – Other matters – Presumption against option clause intended to create a lease in perpetuity.
Baynham v Guy's Hospital (1796) 3 Ves 295: 30 ER 1019; Moore v Foley (1801) 6 Ves 232: 31 ER 1027; Iggulden v May (1804) 9 Ves 325: 32 ER 628; Caerphilly Concrete Products Ltd v Owen [1972] 1 WLR 372, followed.
Aust Dig Contracts [109]
REPRESENTATION:
Counsel:
Plaintiff: A L J Bannon SC and S B McElwaine
First Defendant: R J Forster SC and I E Davidson
Second Defendant: D J Porter QC and M E O'Farrell
Solicitors:
Appellant: S B McElwaine
First Defendant: Gunson Williams
Second Defendant: Dobson Mitchell & Allport
Judgment Number: [2003] TASSC 73
Number of Paragraphs: 104
Serial No 73/2003
File No 28/2002
BURNIE PORT CORPORATION PTY LTD (ACN 078 720 279)
v BANK OF WESTERN AUSTRALIA LIMITED (ACN 050 494 454)
RENTWORKS LIMITED (ACN 003 421 136)
REASONS FOR JUDGMENT UNDERWOOD J
28 August 2003
Introduction
Upon its enactment, the Marine Act 1976, s13(1), continued the existence of the Marine Board of Burnie. It also conferred jurisdiction on the Board "in and over all ports, harbours and waters comprised within the limits of the coastline … set forth in Schedule 2". Section 13 was repealed and a new s13 was enacted by Act No 39/1996. It renamed the Marine Board of Burnie as the Burnie Port Authority. On 31 July 1997, the Port Companies Act 1997 commenced. It empowered the formation of companies limited by shares under the Corporations Law to replace the Burnie and other port authorities. The plaintiff was incorporated pursuant to its provisions. The Port Companies Act, s32, Sch2, repealed the Marine Act 1976. Schedule 1 contains transitional provisions. The events that gave rise to this litigation began at the end of 1992. Although the plaintiff changed its name three times during the course of the relevant events, it is convenient to simply encompass all three names with the single appellation, "the plaintiff".
At the end of 1992, the plaintiff was interested in acquiring a crane for its port. At that time a Melbourne company called Deer Park Engineering Pty Ltd was building two cranes for the Port of Melbourne Authority pursuant to an agreement that they had entered into in August 1990. The Authority had in turn, entered into deeds of novation with Strang Patrick Stevedoring (ESD) Pty Limited with respect to both cranes. It would seem that Strang Patrick changed its mind about needing one of them, a Paceco Post Panamax crane. This crane was designed to handle 6.1 metre (20') and 12.2 metre (40') ISO containers, as well as pick up other cargo with a boom. The plaintiff was interested in acquiring it.
The plaintiff made inquiries about financing its purchase. Commencing in November 1992, the plaintiff inquired of Esanda Finance and other finance companies, but nothing came of these enquiries. Subsequently, the plaintiff approached the second defendant ("Rentworks") which was then called Kimberley Finance Pty Ltd. Rentworks was, and is, a finance broker. It had an agency agreement with the first defendant ("the bank"). In 1993 the bank was called R & I Bank of Western Australia Limited but, in common with all the parties to this litigation, it changed its name during the occurrence of the relevant events.
Rentworks put together a financial package that the plaintiff and the bank accepted. The negotiations culminated in the execution of a document in June 1993 called a "rental plan". This agreement was signed by Rentworks as agent for the bank, and the plaintiff. It provides for the rental of the crane by the plaintiff from the bank from 30 June 1993 until 31 January 2004. The rental plan is the critical document in this litigation and will be examined in detail. For the purposes of this introduction, it suffices to say in general terms, that:
· the rent payable over the life of the rental plan is equal to the capital cost of the crane, plus interest at commercial rates; and
· the rental plan contains no residual purchase clause.
The plaintiff's concern is that at the expiry of the rental plan, it will have paid the capital cost of the crane, plus interest on that capital but will have to hand the crane back to the bank even though it will then still be worth in excess of a million dollars. In the event of the crane being handed back to the bank, Rentworks contends that, by virtue of the terms of the agency agreement between it and the bank, Rentworks can compel the bank to sell the crane to it for $1; this notwithstanding that Rentworks was paid substantial fees for its role in negotiating the deal between the plaintiff and the bank.
As the litigation progressed, it became clear that there was no substantial end dispute between the plaintiff and the bank, for the plaintiff accepted that whatever the outcome of the litigation, it should pay the bank the full capital and interest provided for in the rental plan. The bank, of course, has no interest in getting the crane bank, because if it did, it would have to sell it to Rentworks for $1. So, the real dispute is between the plaintiff and Rentworks.
The issues
The primary contention for the plaintiff was that the Marine Act did not give the plaintiff power to enter into the agreement and consequently, it was void.
The secondary contention for the plaintiff was that the transitional provisions of the Port Companies Act did not operate to, in effect, deem that the plaintiff had authority to enter into the rental plan.
The third issue only arises if the rental plan is not void, proceeds to full term, and the plaintiff exercises option (a) in cl 22 of the agreement. In that event, the issues for determination are:
· does the word "term" in the rental agreement mean the period of ten years, plus the one year extension so, in effect, it can be renewed in perpetuity; and
· does the rental calculation for any period renewed after ten years plus one, produce a figure of zero dollars or some other figure?
The fourth and last issue, not keenly disputed, was what consequential order should the Court make in the event of it finding that the rental plan is void, but that the title in the crane passed to the bank other than by way of that agreement, viz:
· that upon payment to the bank of a sum equal to the last two instalments that would have been due under the agreement had it not been void, the title to the crane be passed to the plaintiff; or
· that upon the bank paying the plaintiff present value of the crane, less a sum equal to the last two instalments that would have been due under the agreement had it not been void, the title to the crane be passed to the plaintiff.
The facts leading up to the making of the rental plan
At its meeting on 15 February 1993, the plaintiff resolved to proceed with an extension of No 7 Wharf and the acquisition of the crane. The next day the plaintiff wrote to Strang Patrick advising it of this decision and that it was proposed to "finance the crane through a lease arrangement".
On 14 April 1993, the plaintiff lodged a return with the State Treasurer advising him of its capital works program for the next financial year. The return made no reference to the crane. In a letter dated 2 June 1993, the Treasurer questioned this. The plaintiff's response was to advise that the crane would be "leased under an operating lease arrangement". The plaintiff went on to express the view that this was the most cost effective form of acquiring the crane and that it understood that there was no legal requirement to seek prior approval from Treasury for such leasing. I interpolate here that there was evidence of accounting standards in 1992 that described leases by which all the benefits of ownership eventually passed to the lessee as "finance or capital leases" and all others as "operating leases". This distinction is picked up in the agency agreement between Rentworks and the bank that is dated 18 January 1993. Clause 26 provides in effect, that at the end of an operating lease the bank must, upon request, sell the equipment to Rentworks on a "where is as is" basis for $1, provided that Rentworks is not in default of the agency agreement.
In June 1993, Rentworks sent the plaintiff its "proposal for a financing facility". It set out in summary form the proposed terms of an agreement. The proposal made it clear that at the end of the "rental term", the plaintiff would have three alternatives, viz:
· purchase the crane at fair market value;
· continue to rent;
· return the equipment to Rentworks.
By letter dated 15 June 1993, the plaintiff accepted the proposal and paid the requested "commitment fee" of $57,500. The next day, Rentworks offered the proposal to the bank. The letter of offer explained that the transaction was structured upon the basis of a "ten year fully amortised facility from 31 January 1994 with a cash margin of (.95%) above the 180 day Bank Bill Rate". The bank undertook a very extensive risk analysis of the proposal.
There was a flurry of activity during the last days of the 1992/1993 financial year. On 22 June 1993, the Port of Melbourne Authority raised an invoice with respect to the crane seeking payment from Rentworks in the sum of $10.2m. I infer that even though the crane was incomplete at this time, the Port of Melbourne Authority or Strang Patrick, had made periodic payments to Deer Park Engineering during the course of construction. The following day, Rentworks faxed a copy of the rental plan to the plaintiff for execution by it. That day, there was a meeting of the bank's "credit committee". It sought clarification by external counsel (inter alia) that the plaintiff had "the necessary powers to enter into the transaction". No doubt as a result of this request, Mallesons Stephen Jacques, Sydney, faxed a letter to Messrs Crisp Hudson & Mann, the plaintiff's solicitors in Burnie. The letter advised that Mallesons acted for both Rentworks and the bank. It observed that the firm was not licensed to practice in Tasmania and sought advice from Crisp Hudson & Mann that the documentation had been properly executed by the plaintiff and "is valid and binding on the [plaintiff] under the laws of Tasmania".
On 25 June 1993, the bank's credit committee agreed to proceed with the facility, subject to receipt of counsel's opinion. The same day the plaintiff signed a document presented to it by Rentworks, which, at this stage of proceedings was called Multilease Limited. It provided as follows:
"acknowledgment [sic] of ownership
andacknowledgment [sic] of deliver & authority to pay
to: multilease limited
In respect of the Rental Agreement and Equipment referred to below the Renter hereby further acknowledges that under the terms of the Rental Agreement ownership of the equipment will remain with Multilease Limited during the term and upon expiration and/or termination of the Rental Agreement.
Rental Agreement
Date: 30.6.93
Owner:Multilease Limited (as agent for R&I Bank of Western Australia Ltd)
Renter: Burnie Port Authority
Goods/Equipment: 1 Post Panamax Contaner [sic] Crane as detailed on Rental Agreement
Supplier: Deer Park Engineering Pty Ltd
It is also hereby declared:
*(a) …
*(b) I/We will obtain delivery of the goods and have them ready for operation as provided in Clause 1 of the said Agreement.
This declaration is made for the purposes of authorising payment by your Company to the abovenamed supplier.
Signed S L Tyson Date 25/6/93"
Mr Tyson was the plaintiff's manager, administration and finance. Also on 25 June 1993, the plaintiff sealed the rental plan and raised an invoice for Rentworks, "to the purchase of one (1) Post Panamax Container Gantry Crane from Deer Park Engineering ¾Contract No 33/90 for the Burnie Port Authority". The amount of the invoice was $10.2m.
By letter dated 29 June 1993, Crisp Hudson & Mann advised Mallesons (inter alia):
"We confirm that the Burnie Port Authority has power under s65(1) (zg) of the Marine Act 1976 to enter into an agreement for the lease or hire of chattels."
It appears that that advice was not entirely satisfactory to Mallesons, for at that firm's request, that paragraph was altered to read:
"We confirm that the Burnie Port Authority has power under s65(1) (zg) of the Marine Act 1976 ('Act') to enter into this Agreement and it is enforceable, valid and binding on it. In our view, s88 of the Act does not apply in this case."
I will refer to those sections in due course.
On 30 June 1993, Deer Park Engineering, the Port of Melbourne Authority, Strang Patrick and the plaintiff entered into a deed of novation. Relevantly, that deed contained the following provisions:
· The deed of novation from the Port of Melbourne Authority to Strang Patrick is terminated.
· The plaintiff will pay the Port of Melbourne Authority $10.2m on 30 June 1993 and $300,000 on 31 December 1993.
· The Port of Melbourne Authority novates the construction contract between Deer Park Engineering and the Port of Melbourne Authority from it to the plaintiff. Notwithstanding the novation, the Port of Melbourne Authority will project manage the completion of the construction contract.
· The construction contract will apply as between the plaintiff and Deer Park Engineering as if the plaintiff were a party to it in the place of the Port of Melbourne Authority.
· The plaintiff can request the Port of Melbourne Authority to initiate variations to the construction contract but will be obliged to meet the cost of such variations.
· "Ownership of the equipment shall not pass to the [Port of Melbourne Authority]. Ownership of the equipment will pass from [Deer Park Engineering] to the [plaintiff] free of any security interest as follows:
(a)for completed components of equipment for which [Deer Park Engineering] has been paid, property shall pass from [Deer Park Engineering] to the [plaintiff] upon payment of $10,200,000 to the [Port of Melbourne Authority]; and
(b)for components of the equipment which are either not completed on [30 June 1993] or for which [Deer Park Engineering] has not been paid, property shall pass upon completion and payment to [Deer Park Engineering]."
The deed of novation from the Port of Melbourne Authority to Strang Patrick which was terminated by the deed of novation just referred to, did not form part of the evidence.
On 30 June 1993, Rentworks, as agent for the bank, executed the rental plan and thereby fixed that day as the commencement date of that rental plan. Finally, at 8pm on 30 June 1993, the bank paid $10.2m to the Port of Melbourne Authority.
The foregoing, perhaps over-detailed, resume leads to the conclusion that no legal significance attached to the invoice raised by the Port of Melbourne Authority to Rentworks. The deed of novation operated to pass the title in the completed and paid for portion of the crane to the plaintiff and to pass title in the incomplete portion of the crane to the plaintiff upon construction and payment. I will return to the issue of when and how the title passed from the plaintiff to the bank.
The nature of the rental plan and the assumptions that underpin it
Work on the construction of the crane continued after the commencement date of the rental plan. In addition, works were executed on the plaintiff's wharf to prepare the wharf for the installation of the crane. Further, costs were incurred by the plaintiff's officers and others visiting Deer Park Engineering during the final stage of construction, by shipping the crane over from Melbourne, and by installing and testing it. All these costs were added to the construction costs so that the total capital sum upon which interest and monthly rentals were calculated was $12,857,966.67. Senior counsel for the plaintiff, Mr Bannon SC, submitted that all the circumstances surrounding the making of the rental plan and the terms of the rental plan itself were such that the rental plan was, in reality, a financial facility and as such the plaintiff was not authorised by its statute to enter into it.
The front page of the rental plan describes the parties and the equipment. The equipment is the crane, described by reference to its primary specifications. The front page states that the commencement date is 30 June 1993 and provides that the term of the agreement will be "From the Commencement Date until 31 January 2004". It provides that the "Primary Rental Payments are to be made on July 31 and January 31 of each year". It specifies that there are to be 20 primary rental payments of $800,723.15. However, the front page of the agreement goes on to provide:
"First Interim Daily Rental Payment: As advised by the Owner under clause 27.3
Second Interim Daily Rental Payment: As advised by the Owner under clause 27.3"
It must be remembered that although the commencement date of the rental plan is shown as 30 June 1993, the crane had not then been completed, delivered and installed, so the final costs were not ascertainable at that time. Acknowledging this state of affairs, cl 27.3 provides:
"Once the actual amounts and dates for payment of the purchase price by the Owner for the Equipment are known (and subject to the application of clause 27.4), the Owner must calculate and advise the Renter of the First Interim Daily Rental Payment and the Second Interim Daily Rental Payment, as the case may be, using the same methods and criteria specified by the Owner to the Renter on or before the date of this Agreement."
The "methods and criteria specified by the [bank] to the [plaintiff] on or before the date of the [rental plan]" are the assumptions upon which the whole deal had been calculated. A key assumption is the "floating rate". This is defined in the rental plan to mean:
"… for the start of a Rent Period means the rate of discount, expressed as a yield per centum per annum, which the Owner certifies to be the average of the buying rates quoted at or about 10.10am (Sydney time) on that day on page BBSY of the Reuters monitor system for the purchase of bank accepted bills having a tenor equal to that Rent Period. …".
Clause 27.4 of the rental plan, referred to in cl 27.3 set out above, provides that if, at the start of any rental period, the floating rate is not 5.223 per centum per annum, the plaintiff "must recalculate the Rentals using the same methods and assumptions as were originally used in calculating the Rentals so as to provide the Owner with the same effective return as it was earning under this agreement before [a change in the rate]."
Tendered in evidence were two pages of calculations made by the bank. They set out the assumptions on which the deal was based and disclose the methods and criteria/assumptions referred to in cls 27.3 and 27.4 of the rental plan. Mr Bannon submitted that these pages show that, in reality, the rental plan was not a lease but a financing proposal. Mr Forster SC, senior counsel for the bank, and Mr Porter QC, senior counsel for Rentworks, submitted that the two pages were no more than a method of calculating a commercial rent for the lease of the crane over a ten-year period.
The two pages of calculations ("the assumptions") are divided into two parts. The first part covers the period from 30 June 1993, when $10.2m was paid to the Port of Melbourne Authority, until 31 January 1994, when it was envisaged that the crane would be delivered to, and installed on the Burnie wharf. At the time the assumptions were drawn, it was anticipated that the original balance purchase price of $300,000 would be paid on 31 December 1993, and a further $1m (presumably the then anticipated cost of extras, installation costs and so on) would be paid on 31 January 1994. The assumptions describe this period as "the Drawndown Phase" and provide for the payment of interest only during this time. The interest rate was 6.7559 per cent calculated:
| · 180 day bank bill rate · [bank] margin · Total rent to client | 5.2233 per cent 1.5326 per cent 6.7559 per cent |
The second part of the assumptions calculates 20 equal payments, payable on 31 July and 31 January in each year for ten years commencing on 31 January 1994 and concluding on 31 January 2004. The assumptions upon which the 20 equal payments are calculated are:
(a)a capital sum on 31 January 1994 of $11.5m;
(b)payments every 182.5 days on the last days of January and July during the above period;
(c)interest calculated on the 180 day bank bill rate of 5.2233 per cent, plus 0.95 per cent (bank's margin), plus 0.5826 per cent (Rentworks' margin);
(d)the capital sum amortised over the ten year period;
(e)interest calculated every 182.5 days upon unpaid capital.
The two pages of assumptions tendered in evidence are photostats and, in parts, are a little difficult to read. According to my hand written note of Mr Bannon's submissions, the margins over the 180 day bank bill rate were .95 per cent for the bank and .441 per cent for Rentworks. However, this does not accord with my understanding of the exhibit which provides for a margin for the bank of .95 per cent and for Rentworks of .5826 per cent, a total of 1.5326 per cent. However, the actual percentages are immaterial to the issues. For the plaintiff it was contended that the fact that:
· the capital sum included costs in addition to the actual cost of constructing the crane;
· the whole capital sum was amortised over ten years;
· the interest payable by the plaintiff was calculated with reference to the 180 day bank bill rate from time to time,
showed that the rental plan was, in reality, a loan facility repayable with interest over ten years and, so the argument went, the plaintiff had no statutory power to enter into such an agreement.
In the end, the capital sum turned out to be $12,857,966.67. In 1994, Rentworks received from the bank all its entitlement under their agreement, discounted for early payment.
Clause 1 of the rental plan provides that:
· it is the plaintiff's obligation to obtain the equipment;
· the ownership of the equipment "will remain" with the bank during the term and upon expiration or termination of the rental plan, the plaintiff is a bailee of the equipment; and
· the plaintiff will use the equipment for business purposes.
With respect to the last point, I observe that it is a little difficult to envisage for what else this crane could be used! Clause 2 deals with the commencement of the agreement and the position of the parties in the event of the equipment being delivered before the agreement is executed.
Clause 3 makes provision for the payment of the first and second Interim Daily Rental Payments. It provides for a penalty in the event of late payment "at the rate of 4% greater than the rate implicit in this Agreement …". The implicit rate is clearly a reference to the assumptions to which I have referred. Clause 3 also provides for the plaintiff to make other payments upon the happening of specified events such as the bank retaking possession of the equipment.
Clause 4 imposes wide-ranging obligations on the plaintiff to keep the equipment in good order and repair, to indemnify the bank and generally to look after the equipment. The clause is obviously a standard form for quite a lot of it is inappropriate for a crane, eg, to ensure that the tyres have at least 50 per cent tread on them when the equipment is returned.
Clause 5 concerns insurance. The plaintiff must insure the equipment and must notify the bank in the event of loss or damage. Clause 5 also provides that in the event of the crane being damaged beyond repair, the plaintiff is obliged to pay forthwith the aggregate of all rentals not then payable, discounted by 85 per cent of the rate of interest "implicit in this Agreement", less any moneys the plaintiff receives from the insurer or person responsible for the damage. Mr Bannon submitted that this clause supported his submission that in reality, the rental plan was a financing agreement. However, I do not accept this submission. Although total loss or damage early in the life of the agreement might prove to be expensive for the plaintiff, the provisions of cl 5 do not detract from the primary provisions of the document which speak of renting the equipment.
Clause 6 defines a "default". It includes a failure to make a payment in time and other matters such as the plaintiff being unable to pay its debts when they fall due or a receiver being appointed.
Clause 7 defines what constitute essential terms of the rental plan and provides that the plaintiff will repudiate the agreement if it breaches an essential term.
Clause 8 provides that in the event of repudiation, the plaintiff must return the equipment, pay all rentals due and pay the "termination" value, being that referred to in cl 5 and defined in the appendix. The latter is described as "liquidated loss of bargain damages". Although this provision would provide what appears to be excessive damages in the event of an early repudiation, again the provisions of this clause do not detract from the primary provisions which provide for the renting of equipment by the plaintiff from the bank.
Clause 10 provides that following acceptance of repudiation or other termination of the agreement, the plaintiff must do everything necessary to ensure that the bank immediately regains possession of the equipment and, if necessary, authorises the bank to enter onto its land to do so.
Clauses 11 – 21 deal with exclusion of representations and warranties, notices, taxes, waiver and the like, and are the kind of clauses that would be likely to be found in any ordinary commercial equipment leasing agreement.
Clause 22 makes provision for renewal at the expiration of the term. I will deal with this clause later as a separate issue.
Clauses 23 – 26 deal with completion of blanks in the agreement, the law that governs the agreement, maintenance of the equipment and indemnity of the owner by the lessor with respect to personal injury, property damage and so on, arising out of the use of the equipment. Again, all of these clauses are the sort of clauses that one would expect to see in an ordinary commercial leasing agreement.
Clause 27 refers to rent periods and adjustments to rent and although I have already set out cl 27.3, it is appropriate to set out the whole of the clause here:
"27.1The first Rent Period for the Equipment starts on and includes the Commencement Date and ends on and includes 30 June 1993. The next Rent Periods until 31 January 1994 either start:
(a)on and including 1 July 1993 for such amounts of purchase price paid by the Owner for the Equipment; or
(b)on and including each actual date for payment of the purchase price by the Owner for the Equipment,
and each of them end on 31 January 1994. Subsequent Rent Periods start on and include the day after the previous Rental Period ends, and end on and including the day before the next Primary Rental Payment date.
27.2A Rent Period which would otherwise end on a day which is not a Business Day ends on the next Business Day and a Rent Period which would otherwise end after the end of the Term ends at the end of the Term.
27.3Once the actual amounts and dates for payment of the purchase price by the Owner for the Equipment are known (and subject to the application of clause 27.4), the Owner must calculate and advise the Renter of the First Interim Daily Rental Payment and the Second Interim Daily Rental Payment, as the case may be, using the same methods and criteria specified by the Owner to the Renter on or before the date of this Agreement.
27.4If:
(a)the Floating Rate at the start of any Rental Period is not 5.2233% per annum; or
(b)an Increased Costs Event occurs,
the Owner must recalculate the Rentals using the same methods and assumptions as were originally used in calculating the Rentals so as to provide the Owner with the same effective return as it was earning under this Agreement (as certified by the Owner) before any of these things happened. The Owner must notify the Renter of the Revised Rentals at least two Business Days before the next Rental Payment date. Once the revised Rentals are notified to the Renter, this Agreement is to be taken to have been amended by substituting the revised Rentals for the Rentals then specified in the Schedule. The Renter is then bound to pay the revised Rentals so notified.
27.5The Renter can ask the Owner to quote it fixed Rentals which could apply to the Equipment after 31 January 1994. The procedure is as follows:
(a)the Renter can ask for quotes at any time except within two Business Days before a Primary Rent Payment Date. The Renter's request must be in writing;
(b)the Renter can ask for a quote to fix the Rentals for any period equal to 1 or more Rent Periods up to the end of the Term;
(c)The Owner must keep the Renter informed by way of indicative quotes up to 11.00am on the relevant Primary Rent Payment Date;
(d)the Renter must tell the Owner by 11.00am on the relevant Primary Rent Payment Date whether the Renter wants for the period to which the indicative quotes related, to pay future fixed instalments of Rentals;
(e)if the Renter does, the Owner agrees to determine the fixed Rentals not later than 12.00 noon on the relevant Primary Rental Payment date. In doing so the Owner agrees to use its best efforts to determine fixed Rentals as near as possible to the indicative fixed Rentals the Owner last quoted to the Renter (but the Owner is not bound by an indicative quote). The Owner will notify the Renter promptly of the fixed Rentals;
(f)Rent for the period quoted will then be payable at the fixed Rentals.
27.6Once the period for which a Fixed Rate applies expires then Rentals are to be calculated by reference to the Floating Rate."
Clause 28 is the final clause before the appendix and it provides as follows:
"28.1The Renter agrees to complete the construction of the Equipment and to have it in service before 31 January 1994 or such other date as the Owner approves and must ensure that any replacements, additions, alterations or modifications to the Equipment during the course of its construction become the property of the Owner.
28.2The Owner agrees to pay for the construction costs of the Equipment at the times and in the amounts the Owner approves from time to time."
It must not be overlooked that all of these clauses are driven by the following words set out in the first page of the rental plan:
"[Rentworks] as agent for [the bank] hereby rents to Renter [sic] described in the Schedule, and Renter hereby rents from Owner at the Rental set out in the Schedule, the personal property described in the Schedule (herein called 'Equipment') upon the terms and conditions set out in the Rental Agreement ('Agreement') above and on the reverse hereof:-"
The passing of title
At the commencement of the rental plan, the plaintiff acquired title to the completed component(s) of the crane and contractual rights to enforce completion of its construction by virtue of the novation agreement. Clause 28.1 of the rental plan imposes an obligation on the plaintiff to enforce its contractual rights to complete construction of the crane, but is silent with respect to the passing of title to either the completed components, for which the bank has paid $10.2m, or to the whole crane after completion at the end of January 1994. Clause 28.1 appears to proceed upon the assumption that the title in the completed crane will pass to the bank by a means other than the rental plan, for cl 28 speaks of the plaintiff's obligation to "ensure that any replacements, additions, alterations or modifications to the Equipment during the course of its construction" become the property of the owner. Further, cl 1(b) of the rental plan also speaks upon an assumption that title to the equipment will pass to the bank by a means other than the agreement, for it refers to ownership of the equipment remaining with the owner during the term. It is inconceivable that the parties intended title to pass to the bank by virtue of the rental plan, but made no direct reference to this in any part of the document.
It is clear that, by virtue of the novation agreement:
· property in those components that were complete at the time $10.2m was paid passed to the plaintiff upon payment of that sum; and
· property in the balance of the components passed upon their completion and payment.
It seems to me either that:
· property in the components that were complete at the time $10.2m was paid, passed to the bank upon the making of that payment and the title to the balance of the components passed upon their completion and payment; or
· title to the whole crane passed upon its completion and final payment.
Whichever is the correct view, title did not pass by virtue of the rental plan itself. The most likely intention was that property would pass to the bank upon the payment of the $10.2m and subsequent amounts. This view is consistent with the terms of the rental plan that commenced the day $10.2m was paid. An obvious inference is that the crane was constructed of various parts with the intention of them being transported to the Burnie wharf and there assembled. There is no reason for assuming the plaintiff would not, or could not, rent the component parts as they were manufactured and paid for. Further, it seems unlikely that the bank would expend large sums of money without intending to obtain ownership of the component parts. Clause 28 imposed an obligation on the plaintiff to in effect, ensure that the components were assembled into a working crane of the dimensions set forth in the construction contract between the Port of Melbourne Authority and Deer Park Engineering.
Mr Porter submitted that in all its dealings with the Port of Melbourne Authority and Deer Park Engineering, the plaintiff was acting as agent for the bank and acquired title in that capacity. He submitted, "This is the usual way such leasing and similar transactions occur". The difficulty with that submission is that the subject matter of the usual leasing agreement is not in the course of construction at the time the lease is entered into. In the majority of commercial leasing transactions, collateral contracts aside, there is no contractual relationship between the supplier and the ultimate consumer, notwithstanding that there were lengthy negotiations between them with respect to the sale price and other matters concerning the goods to be leased. In such instances, contractual relations commence at the conclusion of those discussions with a cash sale from the supplier to the financier and end with a leasing agreement between the financier and the consumer. There is nothing in the written material to indicate that in its dealings with the Port of Melbourne Authority and Deer Park Engineering, the plaintiff was acting as agent for the bank. In the present case the goods were provided in pieces over a period of time and although title passed as the pieces were paid for and rented to the plaintiff, delivery was postponed until all the pieces had been completed and were ready for assembly.
Is the rental plan void?
The plaintiff's primary argument was that it did not have statutory power to enter into the rental plan and consequently, it is void. On 30 June 1993, the plaintiff's powers were prescribed by the Marine Act 1976 ("the Act"). The Act, PtVIII, is headed "General Duties and Powers of Boards". The duties were contained in s64 which provides:
"64 ¾ Every Board shall, within its own jurisdiction ¾
(a) …
(b) …
(c)construct and maintain all such works, and do all such things as may be found desirable for ships, shippers, stevedores, and cargo handling and for the improvement of navigation and cargo handling and the accommodation or convenience of shipping, cargo handling, shippers, and stevedores, and all other persons resorting to any port or using any works belonging to the board."
Work was defined by the Act, s4(1), to include:
"(a) any wharf, jetty, pier, or dock and any building, structure, or appliance constructed or set up or maintained; …
(b)…
by any board for the purposes of and in accordance with the provisions of this Act."
The plaintiff's powers were prescribed by the Act, s65(1). This subsection contained no less than 34 specific powers and one concluding general power. Relevant to the matter at hand, s65(1) provided power:
"(r) to enter any contracts for services or for the supply of goods or the execution of works;
…
(zh)to do all things necessary or convenient to be done in connection with the performance of its functions and duties, and the exercise of its powers, under this or any other Act."
The defendants submitted that having regard to the width of the duties of the board, as enacted in s64(c), and the width of the powers conferred by ss65(1)(r) and (zh), the plaintiff's execution of the rental plan was clearly within power.
For the plaintiff, it was contended that although it had power under the Act to lease or to rent a crane, and although it had power under the Act to build a crane, central to this transaction was the borrowing of money to fund the construction, transportation and installation of a crane. This transaction, it was submitted, was in substance, a financing facility involving the borrowing of money and its repayment with interest and this was ultra vires the Act. Although the plaintiff conceded that the powers conferred by the Act, s65(1)(r) and (zh), were very wide, it contended that these provisions were constrained by other provisions in the Act.
The Act, PtX, was headed "Borrowing Powers" and comprised ss87 - 89 inclusive. Section 89 is immaterial for present purposes. Section 87(1) provided:
"A board may borrow money on security of its revenues within the limits and in the manner authorized in this Part."
Section 88 provided:
"88 ¾ A board may borrow in the following ways: ¾
(a)with the approval of the Treasurer, by temporary overdraft from a bank, building society or credit union;
(b)under the provisions of the State Loans to Local Bodies Act 192;
(c)with the approval of the Treasurer where the interest on the amount to be borrowed does not exceed one-third of the ordinary net revenue of the board (taking an average of 3 years preceding, as certified to by the Auditor-General) such net revenue being arrived at after deducting any existing charge of interest and all maintenance and administration expenses, by the issue of debentures or in such other manner as the Treasurer may approve;
(d)with the sanction of a resolution of both Houses of Parliament, and in accordance with the terms of such resolution."
The plaintiff submitted that the wide powers conferred by s65(1)(r) and (zh) had to be read down so as not to include a power to borrow other than as authorised by the Act, PtX.
It is a general proposition of statutory interpretation that where an enactment contains a provision of general application and a provision of specific application, the former gives way to the latter. In Anthony Hordern and Sons Limited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1, the joint judgment said at 7:
"When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power."
The proposition was put this way in Leon Fink Holdings Proprietary Limited v Australian Film Commission (1979) 141 CLR 672 at 678:
"It is accepted that when a statute confers both a general power, not subject to limitations and qualifications, and a special power, subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power."
See also Saraswati v R (1991) 172 CLR 1 at 24; Grofarm Pty Ltd v Australia and New Zealand Banking Group Ltd (1993) 117 ALR 669 at 674 – 677.
The Act, s65(1)(r) and (zh), conferred extremely wide powers and, standing alone, clearly would have authorised the plaintiff to borrow money to pursue the duties imposed upon it by the Act, s64(c). However, they must be construed in the light of ss87(1) and 88 which governed the borrowing power of the plaintiff. Section 87(1) authorised borrowing, but only "within the limits and in the manner authorised in this Part". Section 88 prescribed four ways in which money may be borrowed. The first was from a bank, building society or credit union by way of overdraft, but only with the approval of the Treasurer. The second was from the State of Tasmania in accordance with the State Loans to Local Bodies Act 1929. This Act has remained substantially unamended since its first enactment. By virtue of s5, its provisions were deemed to be incorporated in the Act. It provides for a detailed and comprehensive regime that must be complied with in the event of local bodies (defined to include the plaintiff) borrowing from the State of Tasmania. The third way in which money could have been borrowed also required the approval of the Treasurer, but this power did not constrain a local body to borrowing from identified lenders. However, the size of any borrowing was limited by reference to the amount of interest that could be paid, expressed as a percentage of the local body's net revenue. Finally, s88 authorised a borrowing with the sanction of both Houses of Parliament.
In the light of these detailed provisions, there is no doubt that that the powers that were conferred by the Act, s65(1)(r) and (zh), must be read down and be limited by the provisions of the Act, PtX. Not to do so would set the provisions of the Part at nought.
However, senior counsel for both defendants submitted that the rental plan could not be described as a loan or a borrowing in the ordinary commercial meaning of that term.
I respectfully adopt as the appropriate approach to this issue the following passage from the advice of the Privy Council in Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 216 – 217:
"It must first look at the nature of the transaction which the parties have agreed. If in form it is not a loan, it is not to the point to say that its object was to raise money for one of them or that the parties could have produced the same result more conveniently by borrowing and lending money. But if the court comes to the conclusion that the form of the transaction is only a sham and that what the parties really agreed upon was a loan which they disguised, for example, as a discounting operation, then the court will call it by its real name and act accordingly."
This passage was cited with approval in the joint judgment in Hardeval Pty Ltd v Comptroller of Stamps (Vict) (1985) 157 CLR 177 at 194 – 195. The approach adopted in Chow Yoong Hong v Choong Fah Rubber Manufactory was endorsed by Gleeson CJ in Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1996) 42 NSWLR 505 at 512. Even if the commercial arrangements between the parties to this litigation can be described by such imprecise terms as "a package of obligations" or a "financing facility" or some other similar term, the first question is whether those arrangements constituted a borrowing within the meaning of the Act, PtX, or not. If it was a borrowing, then the powers conferred upon the plaintiff by s65(1)(r) and (zh), must be read down to exclude the power to borrow money except in accordance with PtX.
The submission put on behalf of the plaintiff that the transaction was a loan or a borrowing was akin to that put and rejected by the appellant in Inland Revenue Commissioners v Rowntree & Co Ltd [1948] 1 All ER 482. In that case, Sommervell LJ said, at 487:
"… he said that there is a lending whenever a person makes or undertakes to make available for another person money which that other person subsequently has to pay back to someone. The answer I would give to that is that, in my view, that is not an accurate definition of lending. I think that the Solicitor-General's argument rather proceeded on the basis that any 'raising' of money must be regarded as a 'borrowing' of money. There I think it fails, and I agree with the learned judge, for the reasons which he gives, that Erlangers cannot be regarded as lenders."
The same kind of submission was also put and rejected in In re H P C Productions Ltd [1962] 1 Ch 466.
It was not suggested that the rental plan is a sham. To describe the transaction between the parties as a borrowing is to give that document no effect at all. The bank did not lend the money to the plaintiff, nor did the plaintiff have an obligation to repay that money. Its obligation under the rental plan was to rent the equipment and pay the rental instalments as provided in the document. It seems to me immaterial that the amount of the rental instalments were calculated in a way that would, in effect, end up with the plaintiff repaying the whole of the capital sum over the life of the agreement, together with interest. That was no more than a method of calculation. The rental plan clearly casts obligations upon the plaintiff and the bank as lessor and lessee. The bank did not pay the $10.2m to the plaintiff. That sum was paid to Deer Park Engineering to satisfy the plaintiff's contractual obligations to purchase the completed components of the crane. The evidence is unclear as to the payment of the balance. Some of the documentation suggests that it might have been paid to the plaintiff, in part, to reimburse the plaintiff for expenses it had incurred in connection with getting the crane to its location and in working order and, in part, to be paid to Deer Park Engineering for the construction of the remaining components. Whichever was the case, there was no borrowing or lending within the ordinary and natural meaning of those words. The rental plan was a commercial agreement entered into between commercial entities at arm's length. With respect to "finance leases", Carr J in Eastern Nitrogen Ltd v Commissioner of Taxation (2001) 108 FCR 27, observed, at 39, that they had been common place in Australia and elsewhere for 40 years and said:
"I accept the appellant's submissions that although the overall arrangement was a financing arrangement, it did not involve a loan. There was no obligation to repay a sum advanced. The authorities recognise that arrangements can be made for financial accommodation without a loan being involved: Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 216-217; Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1996) 42 NSWLR 505 at 511-512; Australia and New Zealand Savings Bank Ltd v Commissioner of Taxation (1993) 42 FCR 535 at 560; N.M Superannuation Pty Ltd v Young (1993) 113 ALR 39 at 56-58."
It is, of course, trite law to state that the primary object of the construction of a contract is to determine the intention of the parties. See River Wear Commissioners v Adamson (1877) 2 App Cas 743 at 763. In undertaking this task, the Court may have regard to the "factual matrix", or setting in which the contract was made. See Reardon Smith Line Ltd v Ynguar Hansen-Tangen [1976] 1 WLR 989 at 995. In Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, the majority pressed this proposition a little further by adopting (351) the following passage from D T R Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429:
"A court may admit evidence of surrounding circumstances in the form of 'mutually known facts' 'to identify the meaning of a descriptive term' and it may admit evidence of the 'genesis' and objectively the 'aim' of a transaction to show that the attribution of a strict legal meaning would 'make the transaction futile'…"
Further, extrinsic evidence may be admitted to prove the true nature of the agreement or the legal relationship between the parties even though this may vary the terms of the contract. In Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98, Windeyer J said, at 114:
"Of course if it can be shewn by parol evidence that both parties to a document adopted the form they did as a disguise, then their true intent and not the form will prevail. Thus agreements that were in form sales have sometimes been held to be mortgages when the form of a sale had been adopted as a disguise : for example, in Douglas v Culverwell (1862) 4 De GF & J 20 (45 ER 1089) , the purported sale at a price which preceded the conveyance was - Turner LJ said (1862) 4 De GF & J, at p 28 (45 ER, at p 1093) - 'contemplated merely as a device for securing to the defendant usurious interest' (that is, a rate of interest more than the law then allowed). Similarly in Williams v Owen (1840) 5 Myl & Cr 303 (41 ER 386) , Lord Cottenham, holding that what had occurred was a sale with a proviso for repurchase and not a mortgage, distinguished the case of Baker v Wind (1748) 1 Ves Sen 160 (27 ER 956) , which had been relied upon because there, he said, 'it was proved that the parties had throughout treated the transaction as a mortgage and had made it assume the appearance of a purchase to deceive the creditors of the mortgagor' (1840) 5 Myl & Cr, at p 308 (41 ER, at p 388)."
The reasoning of the judgments of the other members of the court disclose that the above proposition was common ground between them. In Karin Hope Bembridge & Ors v G-K-R Karate Australia Pty Ltd & Anor [1998] WASCA 15 there appears this passage in the judgment of Ipp J at par24:
"Ordinarily, effect would be given to a clause recording that an agreement on a particular issue did not form part of an agreement as to other matters. However, irrespective of the existence of such a clause, evidence may be admitted to establish the real or true nature of a transaction. Thus, for example, evidence may be given to establish that a transaction was a sham: Esanda Ltd v Burgess (1984) 2 NSWLR 139, or that an apparent sale was really a mortgage: Re Marlborough (Duke); Davis v Whitehead [1894] 2 Ch 133, or that a transaction was a sale with an option to repurchase and not a loan: Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98."
See also Ell v Cisera [2001] NSWSC 784.
There is nothing in the matrix of events surrounding the making of the rental plan to suggest that the plaintiff or the defendant intended to enter into anything other than an operating lease with respect to this crane. The document signed by Mr Tyson, the plaintiff's manager, administration and finance, on 25 June 1993 clearly shows that the parties intended to enter into such a lease. That document acknowledged that at the expiration of the term, the ownership of the crane would remain with the lessor. As I have observed, the so-called underlying assumptions underpinning the fixing of the rental payments were no more than one method of calculating the amount of those payments and do not undermine the clear intention manifested by the words of the rental plan. Unusual aspects of this operating lease are that at the time it was entered into the equipment was only partly constructed and that included in its cost (and reflected in the rent) were costs of advice, transportation, installation and so forth. However, this does not detract from the terms of the rental plan. There is no reason why the parties could not have included these costs in the total purchase price of the crane in the same way as the cost of modifying the tray of a truck, and the costs of its registration, insurance and delivery could all be included in the purchase price of the truck bought by a finance company and leased to a contractor. In such an instance there could be no suggestion that the lease was not really a lease but some other transaction.
The Act, s65(1)(zh), is clearly wide enough to authorise the plaintiff to enter into an operating lease for a crane. Standing alone, Mr Bannon did not contend to the contrary. However, he submitted that when one has regard to the other paragraphs of s65(1), par(zh) has to be read down to give them effect. For example, he submitted that although par(zb) authorised the plaintiff to "carry out any work for any … corporation … at its request and expense", the rental plan required the plaintiff to complete the construction of the crane (work as defined) for the bank at the plaintiff's ultimate expense. It was submitted that the wide power expressed in s65(1)(zh) had to be read down to exclude carrying out work for a corporation at the expense of the plaintiff, and in this case, the plaintiff, and not the bank ultimately had to bear the cost of constructing the crane. With respect to this argument, it totally overlooks plain fact that the bank did pay for the crane and the legal effect of the rental plan which gave the plaintiff exclusive use of the crane for the period of the rental plan upon it paying the rental instalments.
Section 65(1)(t) empowered the plaintiff to "let … any work … for a term not exceeding 3 years, or with the approval of the Governor, for a term not exceeding 20 years at any one time or 40 years in the aggregate". Paragraph (zf) empowered the plaintiff to "sell or dispose of plant … surplus to its requirements". Mr Bannon submitted that the wide power conferred by par(zh) must be read down so as not to breach the restrictions imposed by pars(t) and (zf). He contended that the sale of the crane to the bank after its purchase of the crane from Deer Park Engineering Pty Ltd was in breach of par(zf) as the crane was clearly not surplus to requirements and impliedly in breach of par(t) and consequently the sale to the bank was ultra vires the Act.
In order to construe the ambit of s65(1)(zh), it is necessary to have regard to its legislative history. It is lengthy. Legislation to control the numerous ports, harbours and navigable rivers in the State began in 1857. In 1889 several Marine Board Acts were passed. In 1921 these several Acts were all substantially repealed and the Marine Act 1921 was enacted. Section 62 of that Act described the duties of Marine Boards in terms that differ only slightly from the Act, s64, that I have already set out. Section 64 of the 1921 Act conferred 20 specific powers on Boards, many of which were enacted in terms identical to the Act, s65(1). This part of the 1921 Act, although amended a little through the years, remained substantially unaltered until the enactment of the Marine Amendment Act 1993 which introduced s65(1)(zh). The same Act conferred administrative duties upon Marine Boards and their chief executive officers, all largely to the effect that Marine Boards had to be effective, efficient and economically strong. This Act also required Boards to submit a strategic plan to the Minister annually. The Act imposed strict accounting protocols with which Boards had to comply. The Boards had to submit an annual report to the Minister. In addition, the Act imposed a requirement that Boards contribute to the finances of the State by payment of what the amending Act described as "taxation equivalents". In short, the Parliament that introduced s65(1)(zh) required Marine Boards to become modern efficient economic units contributing to the State and responsible to the Minister for fiscal management.
All this was in line with what was then (and has been since) the policy of the government of the day. On 16 January 1991, Royal assent was given to the State Authorities Financial Management Act, the preamble of which describes it as an Act:
"… to provide for the financial management of State Authorities in an economical and effective manner consistent with contemporary accounting standards and financial practices and to ensure adequate returns to the State from the assets and operation of State authorities."
It appears that Marine Boards were not included as a State Authority within the meaning of the State Authorities Financial Management Act. However, according to the Minister's second reading speech made with respect to the 1993 amendment to the Marine Act that introduced s65(1)(zh), "the commercialisation of the port authorities is a key element in the process of improving the efficiency and effectiveness of the ports system." The Minister said (Hansard, 11 May 1993, at 23549):
"By replicating as closely as possible the commercial forces and disciplines that are faced by firms in the private sector, the Government is aiming to encourage a more efficient ports system for the overall benefit of all Tasmanians."
The Minister went on to state the amendment to the Marine Act would introduce the same basic reforms for port authorities as had been introduced for State Authorities by the State Authorities Financial Management Act.
Next it is to be noted that although some of the paragraphs in s65(1) contain restrictions (par(t) is a good example), the whole section is couched in permissive terms. In the light of the legislative history that I have just outlined it is inconceivable that by the amending Act of 1993 the Parliament intended s65(1)(zh) to carry anything other than the widest possible meaning. In the light of the legislative history it is more than a little unlikely that Parliament intended that the prima facie wide meaning of its 1993 addition to s65(1) should be read down so as to conform with powers that were largely enacted in 1929. To construe it otherwise would defeat the whole of the legislative purpose sought to be achieved by the amending Act. The paragraphs that precede par(zh) prescribe powers in permissive terms. There was no need to repeal them. They are not confined as is the borrowing power by s87(1) which specifically provides that borrowing is authorised "within the limits and in the manner authorized in this Part". Paragraph (zh) was necessary to enable port authorities to become commercially efficient. The need to ensure good fiscal management was achieved in 1993, not by restrictions on powers, but by effective control by the Minister.
I hold that the plaintiff had the power to enter into the rental plan.
The renewal clause
There remains for consideration the meaning of the rental plan, cl 22, which provides:
"22 Renewal One hundred and twenty days (120) prior to the end of the Term, the Renter will be required to give the Owner notice as to which of the following alternatives it wishes to select: (a) To extend the Term for a further period of one (1) year in which case Rentals at the Floating Rate will continue to be paid every 180 days over this period; or (b) return the Equipment to a site designated by the Owner. If the Renter elects to return the Equipment then the Owner will require the Renter to extend the Term for a further six (6) months to achieve an orderly realisation of the Equipment. A Rental at the Floating Rate will be paid at the end of this period. If no notice is received by the Owner one hundred and twenty (120) days prior to the end of the Term, then the Renter will have been assumed to select option (a). The parties agree that for the purposes of the definition of Termination Value in Appendix A 'Rentals not yet payable' includes Rentals which would have been payable if this Agreement had not been terminated and alternative (b) above had been selected[u1]."
On the front page of the rental plan under the heading "Rentals" is written:
"Term: From the Commencement Date until 31 January 2004."
On behalf of the plaintiff, it was submitted that in the event of the plaintiff exercising option (a) in cl 22, not only will the term be extended for one year, but cl 22 will also be extended for one year so that the plaintiff will be entitled to obtain a lease in perpetuity provided it gives timely notice every 12 months of an intention to adopt option (a) in cl 22. This, it was submitted, would be consistent with the commercial nature of the transaction, namely, that after repayment of the capital cost of the crane, plus interest at a commercial rate, the plaintiff would be entitled to keep the crane.
I cannot accept this submission. If that was the intention of the parties, it is not reflected in either the matrix of the events leading up to the making of the rental plan, nor in the terms of the rental plan itself. As I have already observed, the task is to ascertain the intention of the parties. In carrying out this task, I bear in mind the following passage from the judgment of Kirby P (as he then was) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313 – 314:
"Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way."
It is a well established principle of the law of landlord and tenant that the courts will not construe an option clause as being capable of creating a lease in perpetuity unless the words used make it perfectly clear that that was the parties' intention. This proposition of construction has ancient roots. See Baynham v Guy's Hospital (1796) 3 Ves 295 at 298: 30 ER 1019 at 1020; Moore v Foley (1801) 6 Ves 232 at 237: 31 ER 1027 at 1029; Iggulden v May (1804) 9 Ves 325 at 330: 32 ER 628 at 630. It was described by Russell LJ in Caerphilly Concrete Products Ltd v Owen [1972] 1 WLR 372 in the following terms at 374:
"The approach to the question whether a lease is perpetually renewable is not in doubt. The language used must plainly lead to that result: though the fact that an argument is capable of being sustained at some length against that result does not of course suffice. As a matter of history, when a covenant by a lessor conferred a right to renewal of the lease, the new grant to contain the same or the like covenants and provisos as were contained in the lease, the courts refused to give literal effect to that language, which if taken literally would mean that the second lease would contain the same covenant (or option) to renew, totidem verbis, and so on perpetually. The reference to the same covenants was construed as not including the option covenant itself."
The judgment of Sachs LJ in that case makes interesting reading, albeit, not material for present purposes. This general proposition that option clauses should not, in the absence of clear words, be construed as being capable of creating leases in perpetuity was endorsed in Parkus v Greenwood [1950] 1 Ch 644.
There is every reason why this principle of construction should apply to leases of personalty as well as to leases of realty. It is a principle of commonsense. It is exceedingly unlikely that parties would intend to convey possession of chattels in perpetuity via the medium of an operating lease unless it was clearly so stated. Clause 22 does not clearly so state. It does not so state at all. It simply provides two options for the plaintiff at the end of the term as defined on the front page of the rental plan. The clause was probably inserted to give the bank time to make arrangements for the retaking of possession or other disposition of a large object not readily saleable on the open market.
If the argument advanced on behalf of the plaintiff is correct, then it will have to apply with equal force to the expression "extend the Term for a further six (6) months" as provided in option (b). This would be clearly inconsistent with the tenor of option (b) and the whole of cl 22.
The rental plan will come to an end 12 or 6 months after 31 January 2004, depending on whether or not the plaintiff exercises option (a) in cl 22. It does not give the plaintiff the capacity to continue the rental plan in perpetuity.
Submissions were made with respect to the rental payable pursuant to the provisions of cl 22. Although the language of this clause clearly contemplates that some rental is to be paid upon the happening of the events prescribed by cl 22(a) and (b), I have to confess that the words used by the parties totally obscure their intention with respect to the amount of that rent.
In the case of option (a), "Rentals at the Floating Rate will continue to be paid every 180 days". In the case of option (b), "A Rental at the Floating Rate will be paid at the end of this period". I have already set out the definition of Floating Rate as it appears in the rental plan. Assume that on 1 February 2004 (cls 27.1 and 27.2), the Floating Rate is 5.666 per cent per annum. Irrespective of whether option (a) or option (b) is exercised, cl 22 provides for a rental(s) "at 5.666%". That simply makes no sense at all.
For the plaintiff, Mr Bannon submitted that the rate should be applied to the "assumptions [that] were originally used in calculating the Rentals" (cl 27.4). The primary assumption was that interest would be payable on the capital sum amortised over the term, calculated at half-yearly rests. That capital sum has been amortised and so, according to the submission, the rental pursuant to cl 22 is zero dollars. Prima facie, the difficulty with that argument is that it runs counter to the direction in cl 22 that rentals "will continue to be paid over every 180 days" or, in the case of option (b), be paid "at the end of this period".
Mr Forster made no submissions with respect to cl 22. In his closing address, Mr Forster said that the bank's only interest was to uphold the validity of the agreement. However, Mr Porter did make submissions with respect to cl 22 and the calculation of the rental payable thereunder. His submissions were that the first page of the agreement referred to "Primary Rental Payments" of $800,723.15 each and that the adjustment mechanism in cl 27.4 in the event of a variation in the Floating Rate from 5.2233 per cent should be applied to that sum. However, it is clear that the figure of $800,723.15 was inserted in the rental plan before the final cost had been ascertained. That figure has to be read down in the light of cl 27.3 that provides for calculation of the rental "once the actual amounts and dates for payment of the purchase price by the Owner for the Equipment are known". The figure of $800,723.15 was inserted into the rental plan upon the assumption that the purchase price would be $11.5m. It turned out to be in excess of that. The figure was recalculated. To conclude that the rental referred to in cl 22 is to be calculated with reference to the sum of $800,723.15 referred to on the first page of the rental plan would be contrary to the provisions of cl 27.3 which, in conjunction with cl 27.4 govern the calculation of the rentals during the term.
Mr Porter's alternative submission was that rentals should be calculated by the application of the floating rate to the market value of the crane at the end of the term. This submission has pragmatic attraction, but I see no basis for it in the words of the rental plan.
Although it is a principle of construction that the parties did not intend the terms of their agreement to act unreasonably (F L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235), a court cannot reject a construction that the parties intended because in its view, that would produce an unreasonable result. See Charter Reinsurance Co Ltd v Fagan [1997] AC 313. On the other hand, in the case of a commercial agreement, a construction that "flouts business commonsense … must be made to yield to business commonsense", per Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191 at 201.
Although cl 22 of the rental plan simply describes the rental as "at the Floating Rate", the word "at" should be construed in the context of the agreement, as meaning the rental shall be calculated by an application of the floating rate to something. To accept Mr Porter's alternative submission that "something" means the market value of the crane on 1 February 2004 is to completely rewrite the agreement. Market value has no place in the rental plan. Further, it is an uncertain concept, and a likely source of dispute for which the agreement provides no resolution process.
Fundamental to the whole of the parties' bargain is the proposition that over the term the plaintiff will have possession of a crane provided (inter alia) it makes rental payments calculated to ensure that at the end of the term, the capital sum has been amortised and the bank has recovered a profit thereon calculated by reference to an interest rate that varies from time to time. That proposition was not disputed during the course of the hearing, only its legal consequences. That proposition is the cornerstone of cl 27. That proposition is steadfastly manifest throughout the matrix of events leading up to the execution of the rental plan. Although in the event of timely payments of rentals during the term, this means that the floating rate is to be calculated with reference to a capital sum of zero dollars, I am unable to come to any other conclusion with respect to cl 22. The position may well be different in the event of the plaintiff being in arrears on 1 February 2004.
Although it may appear that such a construction of the parties' intention is a little strange, it is no stranger than the abundantly plain intention of the parties that the plaintiff will pay by way of rentals the full purchase price of the crane, plus interest, but will be required to hand that crane back when it is still worth well in excess of $1,000,000.
Conclusion
By its statement of claim, the plaintiff claimed entitlement to six declarations. The first is:
"A declaration as [sic] that the agreement was void as not authorised by the Marine Act 1976 and ultra vires the BPA and the plaintiff."
The plaintiff's claim for that declaration is dismissed. In consequence, the next four declarations sought do not fall for consideration. The sixth declaration sought is in the following terms:
"In the alternative if the agreement is not void, then a declaration that the effect of clause 22 of the agreement is that the plaintiff may elect to renew the agreement, or is deemed to have renewed the agreement, in perpetuity after 31 January 2004, and without an obligation upon the plaintiff to pay any further rent for the crane to the defendant."
Counsel were agreed that the terms of any such declaration should be left until after delivery of reasons for judgment. Although the two parts of the six declarations sought are conjoined by the word "and", and therefore, in accordance with these reasons for judgment, the application for such a declaration should be dismissed, it seems appropriate, in the light of the submissions made, to reserve liberty to apply with respect to this aspect of the claim. Liberty to apply is so reserved.
[u1]
8
1