Caratti Holdings Co Pty Ltd v Coventry Group Ltd
[2014] WASC 403
•31 OCTOBER 2014
CARATTI HOLDINGS CO PTY LTD -v- COVENTRY GROUP LTD [2014] WASC 403
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 403 | |
| Case No: | CIV:2482/2013 | 20 & 21 AUGUST 2014 AND ON THE PAPERS BY WRITTEN SUBMISSIONS OF 8 & 9 OCTOBER 2014 | |
| Coram: | KENNETH MARTIN J | 31/10/14 | |
| 54 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for defendant | ||
| B | |||
| PDF Version |
| Parties: | CARATTI HOLDINGS CO PTY LTD COVENTRY GROUP LTD |
Catchwords: | Civil law Contract Contractual construction Commercial lease Future development clause Implied constraint on future development clause Implied obligation of good faith and reasonableness |
Legislation: | Nil |
Case References: | Acton Real Estate Pty Ltd v Shemiran Pty Ltd [2011] WASCA 33 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Arhangelschi v Ussher [2013] VSC 253; (2013) 94 ACSR 86 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Automasters Australia Pty Ltd v Ross [1983] 2 VR 319 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 88 ALJR 814 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329 EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Government Employees Superannuation Board v Martin (1997) 19 WAR 224 Gray (t/as Clarence Valley Plumbing Services) v Ware Building Pty Ltd [2013] NSWCA 271 Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160; (2010) 4 ARLR 99 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113 Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 McCourt v Cranston [2012] WASCA 60 Newey v Westpac Banking Corporation [2014] NSWCA 319 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143 Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; (2013) 97 ACSR 183 Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164 Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86; (2008) 17 Tas R 320 Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433 United Group Rail Services Ltd v Rail Corporation of NSW [2009] NSWCA 177; (2009) 74 NSWLR 618 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd's Rep 526 Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
COVENTRY GROUP LTD
Defendant
Catchwords:
Civil law - Contract - Contractual construction - Commercial lease - Future development clause - Implied constraint on future development clause - Implied obligation of good faith and reasonableness
Legislation:
Nil
Result:
Judgment for defendant
Category: B
Representation:
Counsel:
Plaintiff : Mr D Ryan SC & Mr T O Coyle
Defendant : Mr P D Quinlan SC & Mr S P Crabb
Solicitors:
Plaintiff : Lavan Legal
Defendant : Clayton Utz
Case(s) referred to in judgment(s):
Acton Real Estate Pty Ltd v Shemiran Pty Ltd [2011] WASCA 33
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Arhangelschi v Ussher [2013] VSC 253; (2013) 94 ACSR 86
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Automasters Australia Pty Ltd v Ross [1983] 2 VR 319
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 88 ALJR 814
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23
Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Gray (t/as Clarence Valley Plumbing Services) v Ware Building Pty Ltd [2013] NSWCA 271
Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285
Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160; (2010) 4 ARLR 99
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113
Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
McCourt v Cranston [2012] WASCA 60
Newey v Westpac Banking Corporation [2014] NSWCA 319
Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143
Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237
Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84
Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; (2013) 97 ACSR 183
Stratton Finance Pty Ltd v Webb [2014] FCAFC 110
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164
Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86; (2008) 17 Tas R 320
Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433
United Group Rail Services Ltd v Rail Corporation of NSW [2009] NSWCA 177; (2009) 74 NSWLR 618
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15
Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd's Rep 526
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
Table of Contents
Overview 5
Clause 23 6
Construction dispute 8
Some required limited findings of fact 10
Some factual distractions 13
Construction contentions of Caratti 15
Caratti's statement of claim (FASC) 16
A brief review of some recent cases bearing upon principles of contractual construction 22
Surrounding circumstances and some witness evidence at the trial 24
General construction principles 25
The good faith and reasonableness implied term: some law 26
Detailed construction submissions of Caratti 30
Caratti: fallback implied term as to good faith and reasonableness arguments 36
Defendant's opposing arguments 38
Construction arguments 41
Context for the exercise 41
The arguments 43
General evaluation of implied term of good faith and reasonableness 48
Conclusion as regards implied term of good faith and reasonableness 49
Conclusion 51
- KENNETH MARTIN J:
Overview
1 I am concerned with an interpretation dispute arising under a commercial lease instrument (the Lease) entered into between the plaintiff (Caratti) as landlord and the defendant (Coventry Group) as tenant on 7 November 2007.
2 The Lease is before the Court uncontroversially as document 11 in the trial bundle, which was received in evidence as exhibit 1 (the Lease being numbered exhibit 1.11 therein).
3 The Lease entered by the parties concerns land owned by Caratti at 525 Great Eastern Highway, Redcliffe.
4 The Lease is for an initial period of 20 years, commencing on 29 December 2007. But there are two five-year term renewal options which are held to be exercised at the option of the tenant. The Lease is a lengthy instrument prepared in comprehensive terms by solicitors then trading as Mallesons Stephen Jaques.
5 The face page of the Lease instrument shows it was prepared on the basis of being registered as an encumbrance against the land by the tenant. The cover page at TB 288 discloses:
THE LESSOR HEREBY LEASES TO THE LESSEE the land above described subject to the encumbrances as shown hereon for the above term for the clear yearly rental of [$1,223,805] per annum payable as hereinafter set out and subject to review as hereinafter set out.
6 The comprehensive and elaborate agreed terms of the Lease were not perfected in an environment of urgency. The Lease instrument was perfected after some years of ongoing contact between representatives of the landlord and tenant (their negotiations per se obviously not being relevant to issues of contractual construction, with which I am concerned), then as a consequence of these ongoing exchanges by lead-up documentation, including:
• the initial written circulation proposal document issued on behalf of Coventry Group, seeking expressions of interest by 21 October 2004 in a proposal for Coventry Group to move part of its business from, and then to sell, existing premises in Morley, and to relocate that part of its business to new premises taken up and occupied by Coventry Group under lease agreements (exhibit 1.1)
• the proposal for the design and construction of a proposed head office and distribution centre for Coventry Group, prepared by its agent, McGees Property and sent to Caratti around February 2005 (exhibit 1.3)
• an amended proposal of April 2005 (exhibit 1.4)
• a formal agreement for lease perfected between Caratti and Coventry Group of 9 September 2005, prepared by solicitors Mallesons Stephen Jaques and containing the intended terms of their Lease (exhibit 1.7)
• a variation of the agreement for lease subsisting as between Caratti and Coventry Group of 3 July 2007, again prepared by Mallesons Stephen Jaques (exhibit 1.10) and
• finally, the Lease instrument, again prepared by Mallesons Stephen Jaques of 7 November 2007 (exhibit 1.11).
7 The parties' agreement for lease, as is customary in a sophisticated commercial leasing transaction, contained therein the agreed terms of what was to later become the eventual Lease instrument - see annexure C (TB 175 - 230).
8 I note the definition of 'Lease' under the interpretation clause seen in cl 13.1 in the agreement for lease (TB 159), as:
Lease means the lease of the Premises annexed to this deed as completed under clause 2.2 ('Completion of Lease').
9 A cl 23 in the Lease concerning future development at the site by the landlord at the behest of the tenant ('Future Development' clause) has given rise to the interpretation controversy in this litigation. It is apparent that cl 23 of the November 2007 Lease (TB 330 - 331) is in the same terms as found in the agreed lease terms of September 2005, seen within the parties' earlier agreement for lease (TB 213).
Clause 23
10 The text of the Future Development clause seen under cl 23 of the Lease does not appear to have altered between these parties in the period between 9 September 2005 and 7 November 2007.
11 It is necessary for me to set out cl 23 of the Lease in full below. I draw particular attention to cl 23(a) - (f) and (h).
23 Future development
(a) The Landlord acknowledges that the Tenant may in the future require the Landlord to carry out the Future Development.
(b) The Landlord must during the Term keep current all necessary development approvals required for the Future Development.
(c) At any time during the Term the Tenant may give the Landlord at least 12 months' notice that it requires the Landlord to carry out the Future Development.
(d) Upon receipt of the Tenant's notice, the Landlord is to prepare the plans, specifications and schedule of finishes for the construction of the Future Development Works for the approval of the Tenant, which plans, specifications and schedule of finishes are to be practically similar as far as is possible to the relevant areas in the Building taking into account changes in building design and materials subsequent to the construction of the Building.
(e) If required by the Tenant in its absolute discretion, the Landlord is to demolish the Existing Premises as part of the Future Development Works. The Tenant's right to require the Landlord to carry out the Future Development is not to be constrained by the Existing Premises either, at the Tenant's option, being demolished or incorporated into the Future Development.
(f) Upon the expiration of the Tenant's notice under subclause (c), the Landlord must have commenced construction of the Future Development Works in accordance with the agreed plans, specifications and schedule of finishes and completed that construction within 24 months of receipt of the Tenant's notice or earlier as mutually agreed.
(g) Commencing on the first Rent Day following the later of practical completion of the Future Development Works as certified by the Landlord's architect and the issue of the certificate of occupancy by the local Authority, the Tenant is to pay rent for the additional warehouse and office areas at the rate then payable under this lease for the Warehouse Area and Office Area respectively.
(h) The Landlord and the Tenant are to enter into a deed of variation of this lease prepared by the Landlord's solicitors at the reasonable cost of the Tenant upon completion of the Future Development Works.
(i) Any dispute in relation to the plans, specifications and schedule of finishes or the carrying out of the Future Development Works is to be determined under clause 26 ('Dispute resolution').
(j) The Landlord agrees to grant an easement to the Tenant for the exclusive use of the Adjoining Car Park Land for parking by motor vehicles for the purpose of the Future Development for the period commencing on date of completion of the Future Development and expiring on the date of expiration or earlier determination of the Term (including any extension or holding over of the Term) in the form of the easement in Schedule 2. The easement is to be prepared based on the form of the easement for the Right of Way under the Agreement for Lease modified for parking rights instead of access rights, completed and registered upon the execution of the variation of this lease. If it is not possible to register an easement for the use of the Adjoining Car Park Land, the Landlord agrees to grant to the Tenant a licence in place of the easement on similar terms as the proposed easement with necessary modifications to make it applicable to a licence and including:
(i) a covenant by the Landlord to procure any purchaser of the land containing the Adjoining Car Park Land to enter into a deed of covenant agreeing to comply with the Landlord's obligations under the licence; and
(ii) charging the land containing the Adjoining Car Park Land so as to enable the Tenant to lodge a subject to claim caveat to protect its interest under the licence.
12 The present interpretation dispute follows on from Coventry Group's attempted invocation of the Future Development clause, by a written notification given by it as tenant to Caratti as landlord, of 7 August 2013 (exhibit 1.18).
13 By that 7 August 2013 notification Caratti as landlord was advised by its tenant:
Notice of Future Development
In accordance with Clause 23 of the abovementioned lease, CGL gives notice to Caratti that CGL requires Caratti to carry out the Future Development (FD) as follows:
(i) the construction on the Land of a warehouse of 2,200m2; and
(ii) the construction on the Land of an office area of 2,000m2
together with the provision of additional car parking on the Adjoining Car Park Land (as defined in the Lease), with construction to commence by 18 August 2014 and be completed by 18 August 2015.
With respect to the FD, it is proposed that the additional warehouse will accommodate the distribution centre for our fasteners business (Coventry Fasteners) in Western Australia together with its administration. It is intended to relocate this facility from an existing location in Welshpool. The existing side warehouse will also be fully utilised by our existing businesses.
In relation to the additional office space it is anticipated that CGL staff will initially occupy a portion of the area. As Coventry Fasteners has a lease that will expire at around the time by which construction is to be completed, the timetable under Clause 23 of the Lease will need to be adhered to.
Attached is a site plan which outlines an indicative location of the 2 buildings associated with the FD.
I would be pleased to meet with you to discuss the process forward for the FD in accordance with the steps set out in clause 23 of the Lease.
Yours sincerely
Roger Flynn
Executive Chairman
14 Caratti contends by this action that Coventry Group held no right in the circumstances which prevailed at 7 August 2013 (which I will explain) to invoke cl 23 of the Lease, and that as a result, Coventry Group's notice of 7 August 2013 is invalid.
15 As is apparent, the 7 August 2013 notice was issued by Coventry Group at a point approaching the six year mark during the 20 year term (options aside) of the Lease.
16 Unsurprisingly, Coventry Group, under a counterclaim in the same action, contends strongly to the contrary. It argues it held every right to give its landlord a notice in accord with cl 23. Coventry Group says cl 23 was inserted in the Lease for its sole benefit. Caratti disagrees, as is later explained. Caratti says it benefited under cl 23 as well.
17 Coventry Group by its counterclaim seeks a declaration, in effect, that the notice it gave Caratti on 7 August 2013 was a binding and efficacious invocation of cl 23 of the Lease and which must be promptly acted upon by Caratti.
18 As may be inferred from the terms of the 7 August 2013 notice, the ramifications of this dispute over the validity of that notice, carry some pressing timing issues bearing upon both sides' obligations and entitlements under the Lease. Assuming the August 2013 notice is valid, the development work on behalf of the landlord Caratti will need to start around August 2014 and be finished in a year from then. Because of that, Caratti's solicitors, after arguments had concluded at trial, wrote to my Associate by email on 1 September 2014 and pressed the need for an urgent decision.
19 To that end, I have sought to assist the parties by truncating to some degree the scope of these reasons - their end positions being assisted more by an earlier determination - than by an exhaustive canvassing of contractual construction principles, a plethora of cases concerning the implied terms Caratti advocates for in the alternative, or a line by line trawl across what is largely uncontroversial lead-up documentation preceding the comprehensive Lease instrument.
Some required limited findings of fact
20 There was minimal factual disputation between the parties at the trial. That is understandable, bearing in mind the limited parameters of a cl 23 constructional dispute.
21 Nevertheless, for the purposes of the trial, the parties provided me with a statement of agreed facts (exhibit 3) and an agreed chronology (exhibit 4). To hasten these reasons, I will not recite their content in any detail. I will simply attach them to these reasons as Schedules A (the agreed facts) and B (the agreed chronology).
22 Nevertheless it remains necessary beyond those facts to render some further limited findings of fact arising out of the brief evidence adduced.
23 The findings essentially accord with propositions contended for by the defendant in closing. I find these factual matters to be clearly established by the evidence at trial:
1. Coventry Group is, and has at all material times been, a diversified company, including, inter alia, a number of businesses trading under the business names 'Coventrys', 'Coventry Fasteners', 'Konnect Shop' and 'Cooper Fluids Systems' (see the evidence of trial witnesses John Caratti, ts 59 - 60, and John Colli, ts 81 - 82).
2. A branch of Coventry Group's business was conducted under the name 'Coventrys' and 'Motor Traders'. This was a business of distributing automotive parts (Colli, ts 82).
3. Another branch of Coventry Group's business was conducted under the name 'Coventry Fasteners' and 'Konnect Shop'. This was a business of distributing industrial products (exhibit 7, Colli witness statement, par 16; Colli, ts 82).
4. The 7 August 2013 notice by Coventry Group to Caratti was issued, as I have already mentioned, at a point approximately 5 years and 9 months into the initial 20 year term of the Lease (exhibit 1.18).
5. At the point when Coventry Group issued the Future Development Notice (ie, August 2013):
(a) it intended that upon completion of what would be a new warehouse (see FASC par 11), this would be occupied by its industrial products business, namely Coventry Fasteners;
(b) it intended that upon completion of what would be new office space (see FASC par 11), a portion of that space (most likely the first floor) would be occupied by Coventry Group Ltd; and
(c) the intended use for the balance of the new office space was at this time undecided (see exhibit 3).
6. The Future Development Notice as issued required a construction of only a 2,200 sqm new warehouse. This space was a lesser area than that Coventry Group could have required under cl 23 of the Lease (ie, up to 5,000 sqm of new warehouse space).
7. There is no evidence the Future Development Notice was issued by Coventry Group for other than its own genuine commercial considerations. For instance, there was no cross-examination of Mr Colli, the Coventry Group company secretary at the trial:
(a) challenging such considerations;
(b) suggesting the Future Development Notice was issued for an improper purpose, or capriciously;
(c) as to the practicability of the Coventry Fasteners business occupying the existing warehouse; or
(d) as to potential uses Coventry Group considered it might make of the balance of the new office.
8. More generally it is established that:
(a) the term of the Lease will continue to run on until 29 December 2027 (for a further 14 years and 3 months beyond the date of the Future Development notice);
(b) Coventry Group's options under the Lease to extend its term by an additional 5 to 10 years, remain open to be exercised by it up until 29 June 2027; and
(c) there was no evidence that Coventry Group was or is more or less likely to exercise these options as to an extension of the term of the Lease in the future, by reason of its issue of the Future Development notice (Mr Colli was not cross-examined in that regard).
9. Any subleases granted to date by Coventry Group concerning parts of the premises under the Lease (including sub-subleases to Super A-Mart) have all been done with the consent of the landlord, Caratti.
10. An existing Warehouse constructed by Caratti in 2005 - 2007, at the initial handover of the premises to Coventry Group for occupation under the Lease, was previously an empty warehouse with some office space (John Caratti, ts 65).
11. Features of the existing warehouse were specifically installed to accommodate Coventry Group's occupation and use of that warehouse under the Lease between 2007 and 2011, were installed and paid for by Coventry Group, as part of the tenant's fitout (Caratti, ts 64 - 65; Colli, ts 79).
12. Coventry Group holds a right under the Lease, and the ability, to remove the features of its tenant's fitout (exhibit 6, witness statement of Peter Duffield of McGees Property, the agent of Caratti Group, at par 44).
13. Both parties were represented by solicitors in the preparation of the Lease (exhibit 6, Duffield statement, par 26).
14. Clause 23 was included in the Lease at Coventry Group's request. Caratti did not object to the inclusion of cl 23. At the time Caratti did not seek to modify the wording or otherwise seek to constrain Coventry Group's rights or the circumstances in which Coventry Group's rights might be exercised (exhibit 6, Duffield statement, pars 20 and 23).
15. There was no evidence at trial to suggest Coventry Group ever suggested (or agreed) that Caratti would only be required to carry out cl 23 Future Development works to accommodate an expansion in Coventry Group's automotive parts business. Nor was there evidence to suggest that Coventry Group's rights under cl 23 of the Lease were somehow dependent upon Coventry Group not exercising rights to sublet any part of areas or buildings created by Caratti carrying out the Future Development works, or that Coventry Group would have no entitlement to sublet any part of the new buildings when erected pursuant to Future Development work that is carried out under cl 23.
Some factual distractions
24 It is necessary to deal briefly with and to remove the following diversions.
(a) At the trial a small degree of factual tension emerged over whether or not the leased premises, prior to their initial occupation by Coventry Group under the Lease had been 'purpose' or 'custom' built for use of Coventry Group as tenant. On my assessment, very little, if anything, turns on that issue. But were it necessary to resolve such a controversy, my assessment is that the warehouse premises as initially handed over for occupation under the Lease were renovated and constructed on the basis of having a particularly level concrete floor. That evenness specification issued at the request of Coventry Group as the putative tenant - in order to facilitate the safe working of Coventry Group's high-reach forklifts or stock-pickers - which were envisaged to operate within the warehouse (Duffield, ts 73).
But this particular feature in relation to a highly level floor did not render the premises particularly unique or, for that matter, classifiable as purpose or custom built premises. There was no evidence that high racks or the equipment that works on them was any different to what would be found in a warehouse that stores whitegoods, or groceries, or anything else. The warehouse space for the occupation of Coventry Group still essentially remained generic warehouse premises once finished. Coventry Group also outlaid funds upon its tenant's fixtures to render the premises more suitable for its particular needs. But there is nothing novel about that under a commercial leasing arrangement. Every new tenant proposing to conduct its business from leased premises will bring their own unique characteristics and 'touch' to space they will occupy, including by adding their own, ultimately removable, tenant's fixtures. But there was otherwise nothing particularly unique about these warehouse premises that would suggest that they might only ever be viably occupied in future by one tenant or one class of future tenant.
(b) Another minor factual dispute flared over the nature of the business actually conducted by Coventry Group before it moved to the premises at Redcliffe under the arrangements documented by the agreement for lease and then the Lease. I reject a slight suggestion advanced on the part of Caratti that prior to occupation of the Redcliffe premises, the only dimension of the business of Coventry Group was the automotive parts business, or that this automotive parts business was its 'main business'. From the findings of fact I have now rendered, there were other dimensions to the overall Coventry Group operation going well beyond the automotive parts business. In particular, Coventry Group operated as well the significant business distributing industrial products, under the divisional business names, 'Coventry Fasteners' or 'Konnect Shop'.
(c) I also reject what may have been a faint or implied suggestion emanating from Caratti that over the course of the term of what was entered as a 20 year lease (then potentially, depending upon the exercise by Coventry Group of its two options, a 25 year, or even 30 year lease term) there existed some element of express, implied or inferred restraint in the Lease against Coventry Group - in terms of inhibiting that corporation from being permitted to sell off or, indeed, even alter the nature of the businesses which it conducted when the Lease began. There was only ever the faintest suggestion in this regard. But the inherent character of a minimum 20 year lease term, as a matter of commerciality, stands as commercially incompatible with finding such a business constraint under the Lease - unless such a limitation is found in clear and explicit terms. No such business status quo constraint, or limitation, has been identified in the Lease.
Construction contentions of Caratti
25 By its Further Amended Statement of Claim (FASC), Caratti seeks, in effect, to limit what otherwise presents textually as the prima facie unconfined linguistic breadth of Coventry Group's rights under cl 23(a).
26 Caratti seeks by construction arguments to establish two pre-conditions it says first need to be met by Coventry Group, before it may legitimately invoke cl 23. I will set them out in the next section of these reasons, in the context of considering the pleading by Caratti of its case.
27 Caratti next contends that Coventry Group did not meet either of these two key pre-requisites, in order to require Caratti to undertake what undoubtedly must be multi-million dollar capital development works at the Redcliffe land.
28 Accordingly, Caratti argues Coventry Group was not lawfully entitled as at August 2013 to require Caratti to implement such Future Development works under cl 23.
29 The two critical pre-requisites contended for are asserted to arise, primarily, as a matter of the proper construction of the Lease. However, if the primary contractual construction case of Caratti were not to be accepted, it then seeks to contend for an existence within this Lease of an implied term of good faith and reasonableness, binding each party.
30 That term is argued by Caratti to be implied into the Lease on a plenary basis in all commercial contracts or, in all commercial leases, as a matter of law. Alternatively again, such a term is sought to be implied ad hoc in this particular lease as a matter of business efficacy. Alternatively further again, the term is said to be implied as a matter of construction of the Lease.
31 Caratti's mutual implied term as to good faith and reasonableness arguments advance along the line that for Coventry Group to invoke cl 23 as it sought to on 7 August 2013, breached the implied term - thereby engaging certain rights of Caratti, including as to damages.
32 The two pre-requisite conditions are heavily criticised by Coventry Group as being misconceived, not to mention opportunistic, even fanciful. Basically, Coventry Group points to the express text of cl 23(a), which it says is crystal clear and speaks loudly for itself.
33 I move to consider first the construction arguments, in the starting context of what has been pleaded by Caratti under its FASC.
Caratti's statement of claim (FASC)
34 Paragraph 10 of Caratti's FASC says:
On a proper construction of the Lease, the defendant can only exercise its rights under Clause 23 if, at the time of giving notice under that clause:
10.1 The defendant intends to occupy the whole of the area (warehouse and/or office) specified in its notice, upon completion, for the conduct of its Business (First Requirement); and
10.2 The need for such further space (warehouse and/or office) for the conduct of its Business has not yet arisen by reason of the fact that any part of the Building is not available to the defendant to meet such a need as a result of the defendant having at any time subleased part of the Building or part thereof (Second Requirement).
35 These par 10.1 and par 10.2 fundamental requirements that Caratti contends bear upon and control the use of cl 23 (as a matter of the proper construction of the Lease), are not found in the text of cl 23 or, for that matter, found anywhere else within the comprehensive written terms of the Lease itself. How then do they arise? This emerges below.
36 It may be observed that the first (par 10.1) requirement contended for by Caratti raises an issue going to the state of the subjective corporate intention of the defendant corporation, Coventry Group, at a particular point in time, that is, as at 7 August 2013.
37 As seen earlier, Coventry Group does accept that it did not hold the intention to occupy all new office space to be created as a result of Caratti's carrying out of the Future Development works. The content of the notice of 7 August 2013 essentially says as much. But Coventry Group says that such an intent on its part is totally irrelevant to any valid exercise of its rights under cl 23.
38 The second (par 10.2) requirement that is said to govern cl 23 focuses upon the business 'need' of Coventry Group at the same temporal point, for 'further space'. This argument, in effect, is that since Coventry Group has subleased out some areas of the Premises (with consent of the landlord, under cl 13.3 of the Lease), Coventry Group consequently will be inhibited from contending in future that it has a need for further additional warehousing or office space when giving a cl 23 notice - unless the space already subleased out to third parties is first taken into account in assessing Coventry Group's need for more space.
39 Again, Coventry Group's response joins issue against the existence and relevance of any such 'need' constraint upon cl 23.
40 By par 12 of the FASC, Caratti contends, factually, that the first (par 10.1) requirement was not satisfied by Coventry Group, at 7 August 2013 because:
the defendant's intentions respecting the New Office were that upon completion of the New Office it would occupy the first level of the New Office but not the ground floor.
41 I have now found that as asserted intent, to be established. There was a conversation to that end between the plaintiff's director, Mr John Caratti, and the defendant's company secretary, Mr John Colli (both giving brief evidence at the trial) about a proposed relocation by Coventry Group of approximately 70 staff from Coventry Fasteners' Welshpool premises to the first level of the proposed new office space. However, the ground floor of the new office space was then intended by Coventry Group to remain vacant for the time being.
42 Caratti contends the second (par 10.2) 'need' requirement was also not satisfied. There had been, as is accepted, a sublease by Coventry Group as sublessor to Fantastic Holdings Pty Ltd as a sublessee - in respect of the whole of the existing warehouse area of approximately 12,609 sqm: see exhibit 1.16. That same space was later further sub-subleased by Fantastic Holdings to another corporation, Super A-Mart.
43 Consequently, Caratti argues that had Coventry Group not entered those earlier subleasing arrangements, it could have itself utilised the existing warehouse areas to accommodate all the personnel from the Coventry Fasteners business. In that event, Coventry Group says Caratti would have had no need for any additional space. Thus Caratti says there would then be no need in August 2013 for any cl 23 Future Development works to be carried out at Caratti's very substantial capital expense.
44 There appears little controversy over those core underlying intent or necessity facts as regards Coventry Group. The real issue is over the legitimacy of the attempted derivation in the Lease of Caratti's asserted first and second requirements, as constraints upon Coventry Group's exercise of rights under cl 23 of the Lease. This is first and foremost a controversy about the proper construction of cl 23 the Lease.
45 But a secondary basis upon which Caratti alternatively seeks to regulate Coventry Group's recourse to cl 23, is by a term of mutual good faith and reasonableness, which is said to be implied in the Lease - implied either generally as a matter of law, or alternatively by construction, or alternatively again, factually, on an ad hoc basis to the present circumstances, to give business efficacy to this Lease.
46 By such an implied term operating within the Lease (and howsoever derived) Coventry Group, according to Caratti, 'would only exercise the power conferred upon it by clause 23 in good faith and reasonably': FASC par 19.
47 Towards showing Caratti's ad hoc derivation arguments for that implicit term, it is contended here by Caratti that, factually, the five well recognised BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 threshold criteria for implication of terms in a contract are, in fact, are all met: see Caratti particulars at par 19 of the FASC. Caratti places a considerable reliance upon facts set out in par 4 of the further and better particulars provided to Coventry Group, on 28 November 2013. These are seen set out under par 4.1 - par 4.9:
4. Further or in the alternative to paragraphs 2 and 3 above and if it is found that Clause 23 of the Lease is susceptible of more than one meaning in that it is not clear whether the defendant's rights under Clause 23 are restricted by either or both of the First and Second Requirements, then the plaintiff seeks to rely on the following facts which were known to both parties:
4.1 As of late 2004, the defendant was conducting its automotive distribution centre which involved the storage and display of automotive and industrial parts, products and accessories including showroom and warehouse (Business) and corporate head office facilities from premises it owned at 253 Walter Road, Morley.
4.2 In around late 2004, the defendant resolved to seek proposals from developers or property owners by which the defendant could relocate its business operations from the Morley premises to new premises.
4.3 As of late 2004 or early 2005, the defendant's accommodation requirements for its Business (Existing Requirements) were as follows:
4.3.1 Warehouse space of approximately 13,000 m2;
4.3.2 Office space of 3,000m2.
4.4 As of early 2005, the defendant's Business was expanding and it anticipated that in the course of the next 2 or 3 decades it would require additional space for its Business operations (Future Requirements) as follows:
4.4.1 Additional warehouse space of up to 5,000 m2;
4.4.2 Additional office space of up to 1,000 m2.
4.5 With a view to relocating its Business to a new location under leasing arrangements, the defendant was prepared to enter into an initial agreement (Agreement) with a property owner on terms and conditions as follows:
4.5.1 Subject to satisfaction of various conditions, the parties would subsequently execute an Agreement for Lease and a Lease.
4.5.2 The defined use of the leased premises was:
The storage and display of automotive and industrial parts, products and accessories including the provision of Head Office accommodation, showrooms, administration office and any other use determined by the Lessee and permitted by the Local Authority.
4.5.3 The other party was to construct warehouse and office premises to meet the defendant's Existing Requirements.
4.5.4 Such buildings were to comply with the specifications set out in the defendant's document headed 'Coventry Group Ltd - Project Essex New Site Functional Specification' (Functional Specifications) which specified dimensions, structural requirements, materials, specialised systems including racking and storage facilities, and other such requirements specific to and required for the conduct of the warehouse operations as part of the Business, and further requirements for the office building.
4.5.5 The parties acknowledged that the defendant may in the future require the other party to construct further warehouse and/or office premises to cater for the defendant's Future Requirements, and provisions for additional rent to be payable by the defendant in connection with such new premises.
4.5.6 The other party was to obtain planning permission and a development approval providing for the construction of 18,000 m2 of warehouse space and 4,000 m2 of office space, ie comprising the defendant's Existing and Future Requirements.
4.5.7 The other party was to maintain all necessary planning approvals required for the construction of additional buildings to meet the Future Requirements.
4.5.8 Any buildings constructed by the other party to meet the Future Requirements had to comply with the Functional Specifications and had to be as practically similar as possible to the existing premises taking into account changes in building design and material subsequent to the construction of the original premises.
4.6 As to each of the matters referred to in paragraphs 4.5.1 to 4.5.8 above, the plaintiff relies on the brochure prepared by the defendant's agent McGees Property that was headed 'Proposed Head Office and Distribution Centre Design and Construct Development for Coventry Group Ltd' and which comprised a letter dated 25 February 2005 from McGees to the plaintiff together with various annexures including the Functional Specifications.
4.7 On 25 February 2005, the letter of that date was signed by Mr Duffield on behalf of the defendant and Mr John Caratti on behalf of the plaintiff.
4.8 On 9 September 2005, the plaintiff and the defendant entered into the Agreement for Lease, which contained the terms and conditions as pleaded in paragraphs 4.1 to 4.12 of the statement of claim.
4.9 On 7 November 2007, the plaintiff and the defendant entered into the Lease, which contained the terms pleaded in paragraphs 9.1 to 9.5 of the statement of claim.
49 The implied term of good faith and reasonableness is then pleaded by Caratti to have been breached by Coventry Group. The alleged breach was by the giving of the 7 August 2013 Future Development Notice under cl 23 of the lease, so it is put.
50 Particulars of that breach are given by Caratti under par 20.1 - par 20.7 of the FASC.
Particulars
20.1 The defendant did not intend to occupy the whole of the area to be constructed as the Future Development of the premises or to use the same for its Business, it having sold the same prior to the Notice.
20.2 The need for the further space the subject of the Notice only arose because the defendant had subleased part of the Building as pleaded in paragraph 13 above.
20.3 The Notice, if valid, would deprive the plaintiff of the benefit contemplated by the Lease in relation to clause 23 and would not be a Notice requiring the construction of the Future Development for the expansion of the defendant's Business.
20.4 The Notice required the construction of warehouse and office space that met the Functional Specifications, notwithstanding the proposed use of the new space by the defendant would not involve its Business.
20.5 The defendant sold its automotive parts business on or about 1 July 2011 and sublet most of the warehouse area of the premises and the ground floor offices to the purchaser of its Business and subsequently sublet the majority of the warehouse to Fantastic Holdings Pty Ltd and part of the office space to the Department of Main Roads, both events occurring before the Notice was given.
20.6 The agreed permitted use for the premises under the Lease was for the storage and display of automotive and industrial parts which business was sold by the defendant in July 2011.
20.7 The Notice would put an onerous and disproportionate obligation upon the plaintiff.
51 Such asserted breaches of the implied term of good faith and reasonableness can, on a close analysis, be seen to closely resonate with a breach of the asserted first and second pre-requisite requirements arising under par 10 (which were, as seen, said to arise by the proper construction of cl 23).
52 It is alleged again, that Coventry Group did not intend to personally occupy the 'whole' of the area of any future development, and that need for the further space, in effect, only arose because Coventry Group had subleased away many parts of the Premises.
53 Ultimately, it is contended by Caratti as regards Coventry Group breaching this implied term of good faith and reasonableness, that meeting the requirements of the 7 August 2013 notice as given under cl 23, would place an 'onerous and disproportionate obligation' on Caratti. In consequence, it is said that the notice was not reasonable, and thus not given in good faith, and thus, it is pleaded, in breach of the implied term: see FASC par 20.7 and par 21.
A brief review of some recent cases bearing upon principles of contractual construction
54 There was no disagreement at the trial between the parties over the applicable principles of contractual construction. I was referred by counsel for Caratti, Mr Ryan SC, to Leeming JA's recent observations in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113. I note the remarks especially at [71] and [86] by his Honour:
[71] To the extent that what was said in Jireh supports a proposition that 'ambiguity' can be evaluated without regard to surrounding circumstances and commercial purpose or objects, it is clear that it is inconsistent with what was said in Woodsideat [35]. The judgment confirms that not only will the language used 'require consideration' but so too will the surrounding circumstances and the commercial purpose or objects. Although the High Court in Woodside did not expressly identify a divergence of approach, Jireh was notoriously controversial in precisely this respect. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd (2013) 298 ALR 666; [2013] WASCA 66 at [107] McLure P referred to the 'heated controversy' created by Jireh; see further Kevin Lindgren’s analysis in 'The ambiguity of "ambiguity" in the construction of contracts' (2014) 38 Aust Bar Rev 153, pp 161–7. It cannot be that the mandatory words 'will require consideration' used by four Justices of the High Court were chosen lightly, or should be 'understood as being some incautious or inaccurate use of language': compare Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58 at [45].
…
[86] Accordingly, I agree with Mainteck’s submission that Woodside endorses and requires a contextual approach to the construction of commercial contracts. However, that falls far short from yielding success for Mainteck. First, it is quite plain that whatever view be taken of 'ambiguity' and 'susceptible of more than one meaning', Art II.1 of the second consortial agreement answered that description. Both parties were agreed that 'technical specification' did not mean the technical specification in the main contract. On any view of the matter, a contextual approach is required. Although the primary judge referred to Jireh, it is quite plain that his Honour applied a contextual approach. Indeed, his Honour expressly identified 'the error on the part of the referee in my opinion is that he did not pay sufficient or indeed any regard to the purpose and object of the transaction against the background of the knowledge of the parties': at [119]. That approach is unexceptionable, as is his Honour’s criticism at [120] of the referee's 'overly literal construction of Art II.1'. Finally, nothing in Woodside or any other decision entitles Mainteck to success based on the scope meetings; this is addressed in more detail in section (h) below, after dealing with other aspects of the construction of the second consortial agreement.
55 Since the trial there has followed on 2 September 2014, the Full Federal Courts (Allsop CJ, Siopis and Flick JJ) reasons in Stratton Finance Pty Ltd v Webb [2014] FCAFC 110. At [40] their Honours expressly agreed with what was said in Mainteck v Stein, in these terms:
Recently, in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184, the New South Wales Court of Appeal (Leeming JA, with whom Ward JA and Emmett JA agreed) expressed the view (at [71]) that [35] of Woodside was inconsistent with Jireh. We agree with that conclusion, and with the reasons in elaboration at [72] - [86], and in particular with the comments concerning Codelfa at [78] - [80].
56 Also since the trial ended, the Court of Appeal of Western Australia has delivered its reasons in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164, on 3 September 2014.
57 Concerning the scope of admissible extrinsic materials open to scrutiny as a part of the relevant surrounding circumstances, above and beyond the overall text of the instrument containing and surrounding the particular words under construction, I note from Technomin the observations of McLure P (with whom Newnes JA agreed), particularly the President's observations concerning the 'true rule' [45].
58 I also note the observations by Murphy JA, commencing at [171] in Technomin, concerning the parol evidence rule and Codelfa, ultimately culminating in his Honour's observations at [215] - [216]. At [215] his Honour said:
Also, the following observations might be made about the law post-Codelfa. First, the passage in Codelfa (352) does not appear to have been subject of express consideration in the High Court since Royal Botanic [39]. Secondly, it might be thought that the authorities up to the time of Electricity Generation are not necessarily inconsistent with a requirement of ambiguity. Thirdly, a case as significant as Codelfa in the operation of the commercial law in Australia for over 30 years is unlikely to have been impliedly overruled. Fourthly, in Electricity Generation, French CJ, Hayne, Crennan and Kiefel JJ 'reaffirmed' the High Court's earlier decisions. Electricity Generation does not appear to provide a departure from them. Fifthly, the question of whether evidence of surrounding circumstances is inadmissible in the absence of ambiguity does not appear to have been canvassed in argument in Electricity Generation, nor isolated for determination.
59 Following the Mainteck v Stein observations, I note the reasons in Newey v Westpac Banking Corporation [2014] NSWCA 319 at [17], [23] and [86] - [91], especially at [89] (delivered 11 September 2014).
Surrounding circumstances and some witness evidence at the trial
60 In the present case, a good deal of the trial evidence proposed from Caratti as to surrounding circumstances, was objected to by Coventry Group as irrelevant and inadmissible, in construing cl 23. Nevertheless, this evidence was received on the provisional basis suggested for first instance hearings, by the observations of Pullin JA in McCourt v Cranston [2012] WASCA 60 [26].
61 That approach was applied particularly in relation to the receipt of a number of paragraphs in a written statement of evidence tendered on behalf of the plaintiff, by its director, Mr John Caratti (exhibit 5). For Coventry Group there was some narrow trial evidence from a Mr Peter Duffield, a commercial director of McGee's Property Perth (exhibit 6). Mr Duffield had acted for McGee's as the agents for Coventry Group in facilitating a move by Coventry Group from the Morley premises. Evidence was also received from Mr John Colli, company secretary of Coventry Group (exhibit 7).
62 Additionally to that evidence, I received and as I said, have scheduled to these reasons the parties' agreed chronology, as well as the parties' agreed facts as to subleases and the intended use of the Future Development at the time of the defendant's notice. In the end, however, I would not assess this material as bearing to any great extent upon the construction exercise, given the clarity of and force of the presenting text of cl 23 of the Lease.
General construction principles
63 Generally, as to evidence of surrounding circumstances admissible in a construction exercise, I am respectfully guided by what has been recently said in Technomin, and also, without repeating them, the principles I discussed in Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160; (2010) 4 ARLR 99 [595].
64 As regards actually implementing the task of construction, once all permissible surrounding materials (if any) have been correctly assembled, the observations by Gibbs J (dissenting) in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 - 110, as cited by me at [594] in Hughes v St Barbara [No 4],are of perennial guidance.
65 More recently, a plurality in the High Court in Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447 has observed:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience' [35]. (footnotes omitted)
66 Towards adopting a business-like or commercial approach in a construction exercise where possible, I also mention from Technomin Murphy JA's references to McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530; and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 (IATA), and his Honour's explanation of the relevant paragraphs in these cases, as seen in Technomin [190] and [203] - [204].
The good faith and reasonableness implied term: some law
67 As regards Caratti's contended for implied term of mutual good faith and reasonableness arising in commercial contracts or, as a lesser plenary field, in commercial leases such as the Lease presently under consideration, I was referred to a veritable cornucopia of case authority (for such an implied term to be derived either by law on a plenary basis, or by a process of construction, or ad hoc factually in a particular case to advance business efficacy).
68 For this still unsettled area, the leading intermediate case authorities in this State are presently Court of Appeal decisions in Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 and Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433 [150] - [151] (Buss JA). I also note a recent and helpful first instance decision: Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 [267] (Edelman J).
69 Strzelecki concerned a memorandum of understanding document with a clause expressly providing for negotiations by the parties 'acting in good faith'. There is, of course, no explicit reference to good faith in the Lease in the present circumstances. Nevertheless, I respectfully refer to and adopt the comprehensive observations by Murphy JA at [78] - [92] in his Honour's reasons in Strzelecki, particularly concerning the three notions adverted to by Sir Anthony Mason for such an implied term in the much cited article 'Contract, Good Faith and Equitable Standards in Fair Dealing' (2000) 116 Law Quarterly Review 66: see Murphy JA at [83].
70 Strzelecki also mentions at [80] the earlier observations in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 by that plurality concerning such a term, if sought to be implied by law (ie, leaving that issue open) at [40].
71 In Royal Botanic Gardens Kirby J at [86] - [88] observed, without deciding, that such an implied term, if said to arise as a matter of law, would appear to conflict with fundamental notions inherent in common law conceptions of economic freedom and with the development of the law with respect to the implication of terms into written contracts. With respect, I would see it as difficult to resist the underlying wisdom of those observations.
72 In Royal Botanical Gardens Callinan J also found it unnecessary to address the issue: see [156].
73 I also mention in this area Gummow J's observations to the same end, made as a judge of first instance in the Federal Court in Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 (92).
74 During argument I was referred to a great many more case authorities. Many were relied on by both parties to support their respective arguments as to the availability or otherwise of this implied term on a plenary basis as a matter of law (that is, for all commercial contracts), or on a more limited basis (for all commercial leases) or, as the defendant contends, not at all.
75 The need for some expedition in the delivery of these reasons inhibits a more extensive analysis of all this assembled case law. But, apart from those mentioned above, I will collect here as cited to me the following decisions, namely Automasters Australia Pty Ltd v Ross [1983] 2 VR 319; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558; Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143; Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228; Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86; (2008) 17 Tas R 320; Acton Real Estate Pty Ltd v Shemiran Pty Ltd [2011] WASCA 33; Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900; and Arhangelschi v Ussher [2013] VSC 253; (2013) 94 ACSR 86.
76 These and many other cases addressing what remains a still unsettled issue are usefully discussed by L. Warnick in Thomson Reuters, Commercial Contract Clauses (20 October 2014) [60010] - [60980]. I mention in particular the concluding observations by Warnick, that apart from contracts of employment, most of the cases where a result was determined by a finding of both an existence and a breach of the implied obligation of good faith were cases involving franchise, distribution and licence agreements. Franchise relationships, of course, have a well-recognised historical capacity to manifest an imbalance of bargaining power between the parties.
77 At the close of submissions, Mr Ryan SC helpfully drew my attention to the line of recent NSW discussion of this area, including in United Group Rail Services Ltd v Rail Corporation of NSW [2009] NSWCA 177; (2009) 74 NSWLR 618; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329; Gray (t/as Clarence Valley Plumbing Services) v Ware Building Pty Ltd[2013] NSWCA 271; and Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; (2013) 97 ACSR 183. Finally, he mentioned what may be viewed as a 'courageous' (in the 'Yes Minister' sense) English first instance decision of Leggatt J in Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd's Rep 526, and discussed by Lady Justice Arden in 'Coming to Terms with Good Faith' (2013) 30 Journal of Contract Law 199.
78 Mr Ryan SC observed that, as is apparent, there are conflicting decisions at the Australian intermediate appellate court level as to the implication of a duty of good faith and reasonableness in commercial contracts (ts 136). That unsettled state of the law in this area leads me to some recent guidance in another area, but exhibiting some parallels from the High Court in Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 88 ALJR 814 (and which I discuss later) strongly indicates a need for great care in finding implied terms on a plenary basis in all contracts, or in a particular class of contract. At my invitation the parties provided me with some brief written submissions about this decision, after the trial concluded.
79 Observations by Murphy JA found at [92] in Strzelecki, after his Honour had examined the three notions of Sir Anthony Mason, with respect, also provide me with what I assess as considerable illumination to this still unsettled area of the law. His Honour said:
The first is that they are 'notions' which are 'related' to each other. It would be wrong in my view to regard them as, in effect, statutory criteria, each to be interpreted in its own right, and then applied independently of the other. The second and related matter is that the assessment of what is 'reasonable having regards to the interests of the parties' in the third notion, will itself in my view be informed by the identification of the 'contractual objects' and the scope of the obligation 'to cooperate in achieving [those] objects' with which the first notion is concerned, having regard to the proper construction of the contract as a whole. In this sense, the reference to the 'interests' of the parties in the third notion is to be understood as a reference to the 'legitimate' interests of the parties. The third is that the question for the court, in this case, is ultimately one of the proper construction of the contract, according to recognised principles. It would not, it seems to me, be appropriate, as at times the appellant's submissions tended to suggest, to substitute the interpretation and application of a predetermined and external formula for the process of construction of the terms of the contract [92]. (my emphasis in bold)
80 On my assessment, invoking the last observation of Murphy JA above, the key to a determination in the present case is found in the proper construction, in context, of cl 23 within the Lease as a whole. That approach takes account of the commercial purpose and object of a commercial leasing transaction, adopting a businesslike approach.
81 Moreover, in practical terms, if the construction of the Lease does not in the end yield up one or other of the two par 10 pre-conditional requirements upon cl 23 for which Caratti contends, I would struggle from that outcome to go on to assess that Caratti's fall back attempts to, in effect, create the same fetters upon cl 23, now re-constructed via the workings of an implied term of good faith and reasonableness. That fallback outcome looks to me to be difficult to achieve, conceptually. Conversely, of course, if the cl 23 outcome is reached by the process of pure contractual construction, then there presents no need for any work by such an implied term.
82 In summary then, it looks to me overall, on a closer analysis of the Caratti legal arguments, that Caratti's position here is really a case of all or nothing, in terms of it showing one or both of its asserted (par 10.1 and par 10.2.) requirements, on the proper construction of the Lease.
83 Furthermore, there looks to be an unspoken, but highly questionable, as I assess it, premise upon which the implied term argument proceeds. This is that the finding of an implied term within the Lease that imposes a mutual generic duty on the parties to act with respect to each other in good faith and reasonably - will axiomatically oblige Coventry Group to meet one or both of the first and second pre-conditional cl 23 requirements, for which it contends. That baldly assumed premise of the FASC must be questioned, in my view.
84 The unspoken premise as regards the existence, content and breach of implied but generic mutual obligations of good faith and reasonableness - looks on its face to me to be a self-fulfilling hypothesis. If the plaintiff's construction arguments do fail, in terms of Caratti not showing either of the two (par 10.1 and par 10.2) requirements, what is the logical basis to create via the 'back door', the same content requirements, in effect, via a bland implied term? There seems, with respect, to be an intellectual chasm separating such a bland, implied term and the elaborately crafted content of the Caratti par 10.1 and 10.2 conditions as argued for, and no discernible bridge to that destination.
85 If the par 10.1 and 10.2 requirements are shown to arise as a matter of the proper interpretation of the Lease, then there is, of course, no need. If not, calling in aid the generically framed, and wholly porous implied term of good faith and reasonableness, to deliver at the end what are the elaborately framed and detailed alleged cl 23 constraints against Coventry Group's right to invoke cl 23 must, despite the keen interest in clarifying the unsettled law as to implied terms in commercial contracts, manifest hallmarks of something like a conjurer's illusion.
86 Therefore, the case, as I assess it, is really one of success for Caratti on the basis of its contractual construction arguments as to cl 23, or nothing.
Detailed construction submissions of Caratti
87 As my short summary of what were very full written submissions, I will endeavour to identify the following substantive arguments of construction advanced by Caratti in seeking to make good the par 10.1 and 10.2 pre-conditional requirements bearing upon cl 23, particularly upon cl 23(a).
88 The exercise begins, somewhat surprisingly it might be thought, not at cl 23, but at the definition of 'Premises' in the Lease. The focus then moves to cl 13.3, dealing with the right of the tenant to sublease with the landlord's consent. It is here contended that Coventry Group was only entitled to sublet 'Premises', as defined in the Lease: FASC par 9.
89 It is put that Coventry Group will hold no rights to sublet any part of any new building space that is constructed as part of a Future Development.
90 The argument appears to be that the term 'Premises', as defined in the Lease (exhibit 1.11 TB 299) (and also in the agreement for lease, exhibit 1.7 TB 141) only extends to catch improvements that were present upon the Land at the time the agreement for lease and the Lease were respectively consummated, in either 2005 or 2007.
91 Clause 27.1 of the Lease defines multifarious terms on a basis that those definitions apply 'unless the contrary intention appears'.
92 For the word 'Premises', the definition (at TB 339) is:
Premises means that [sic] the premises described in item 3. The Premises include the Landlord's Property. (my emphasis in bold)
93 The meaning of 'Premises' in the Lease is then elaborated upon at the mentioned item 3 (at TB 299) as:
The Land located at Great Eastern Highway, Redcliffe and the Building comprising:
(a) Warehouse Area comprising a Lettable Area of approximately 12,343 m2; and
(b) the Existing Premises comprising a total area of approximately 2,439 m2 (for the purpose of calculating Rates and Taxes and other outgoings) and having a deemed Lettable Area of approximately 600 m2 (for the purpose of calculating Rent); and
(c) the Office Area comprising a Lettable Area of approximately 4,020 m2,
as shown on the attached survey plan marked 'A' in respect of the Warehouse Area and the Office Area.
94 The term 'Landlord's Property' is defined by the Lease as well (at TB 338) as:
Landlord's Property means all plant, equipment, fixtures, fittings, furniture, furnishings and other property the Landlord provides in the Premises.
95 'Building' is defined (at TB 337) as:
Building means the building erected on the Land comprising the Warehouse Area, Existing Premises and the Office Area and includes all other improvements on the Land.
96 Further terms, 'Warehouse Area', 'Existing Premises', 'Office Area' and 'Lettable Area' are all defined within the Lease as well (see TB 337 - 340). The survey plan marked A in respect of the warehouse area and office area, is found at TB 350 in the Lease.
97 This first Caratti construction argument then unfolds even further, shifting now to focus upon the subleasing permission clause of the Lease, cl 13.3. This clause provides:
The Tenant may sublet the whole or any part of the Premises with the consent of the Landlord, which consent is not to be unreasonably withheld except that the Landlord's consent is not required to a sublease of part of the whole of the Premises to a company which is a related corporation of the Tenant under the Corporations Act.
98 Finally, an argument emerges that any cl 23 Future Development works that will create new office and warehouse space, going beyond the space already available at the time the Lease was initially entered, will not result in the creation of any further new leasing space, that falls within the definition of Premises under the Lease. This result is said to follow because such space was not in existence at the time of the Lease (as may be accepted as a matter of time and physics), but more significantly that any newly created Future Development space would, according to the argument, not be an improvement for the purposes of meeting the phrase 'the improvements on the Land', used in the definition of 'Building' (under cl 27.1).
99 Caratti also contends that any new space created also does not fall under the definition of Landlord's Property, which is a part of the definition of Premises (at TB 299) and which includes 'other property the Landlord provides in the Premises'.
100 Hence the first construction argument by Caratti (see par 17 of the Caratti written outline of submissions) is:
Thus, if and when the Future Development takes place the express prohibition on Coventry subletting or parting with possession under the Lease will apply.
101 In other words, Caratti argues that the subleasing permission clause in the Lease (cl 13.3), only applies to the whole or any part of the 'Premises'. In contrast, any new warehouse area or office leasing space created as part of Future Development works, does not fall under cl 13.3, so it is put.
102 Hence, it would appear to be contended that there is an absolute prohibition in the Lease against Coventry Group subletting any new space created by the Future Development works. That outcome is used to fortify Caratti's construction approach toward showing the first and second requirements.
103 This first argument then expands onwards to embrace cl 23(h) of the Lease, as regards any postulated perfection of a future deed of variation as between landlord and tenant - following the completion of Future Development works. The negotiation provision suggests, so it is put, that new space created by Future Development works will need to be negotiated over as it is not yet addressed by the Lease. This is said to be because new office and warehouse space is not a part of the Premises as defined and, absent any future negotiated agreement over the new space, it cannot be sublet.
104 Caratti's first construction argument is summarised as follows (par 18 of its outline of submissions):
It made commercial sense for the Lease to permit Coventry, if it ceased to operate its Business, or reduced its scope, to sublease unwanted space. But that is a very different question to the question whether given such a cessation of the Business, Coventry could nevertheless require the Future Development on the basis that it claimed the right to sublease the same to third parties when built.
105 An express exclusion under cl 25.9(a) of the Lease of s 80 of the Property Law Act 1969 (WA) is next woven into the first submission - to contend that given cl 13.3, the exclusion of s 80 only makes sense if the parties intended there to be no such automatic right in relation to any premises erected under the Future Development clause: par 19 of Caratti's written submissions.
106 That is the culmination of the first construction argument, as I apprehended it.
107 As may now be better appreciated, the argument is a many-headed hydra - that commences, perhaps in denial, at the Lease's definition of the term 'Premises', rather than by confronting head on, the text of cl 23.
108 A second construction argument advancing Caratti's confined view of cl 23, turns on the definition of 'Future Development' as found in the Lease, under cl 27.1, and the asserted uncomfortable fit - once that definition is injected into the words of cl 23(a). To this end, it is necessary to set out the definitions of 'Future Development' and 'Future Development Works' under cl 27.1 at TB 338, which read:
Future Development means the proposed future development of the Land if required by the Tenant by the construction on the Land of an additional warehouse area of up to 5,000 m2 and additional office area of up to 2,000 m2 or additional office area as mutually agreed by the Landlord and the Tenant together with the provision of additional car parking on the Adjoining Car Park Land.
Future Development Works means the new warehouse and office areas to be constructed by the Landlord upon receiving notice from the Tenant under clause 23 ('Future development').
109 It will be remembered that cl 23(a) of the Future Development clause (at TB 330) says:
The Landlord acknowledges that the Tenant may in the future require the Landlord to carry out the Future Development. (my emphasis in italics)
110 Hence, the second construction argument of Caratti grafts the definition of 'Future Development' on to cl 23(a), the submission being that the aggregated clause is then reconstituted to read:
The Landlord acknowledges that the Tenant may in the future require the Landlord to carry out the proposed future development of the Land if required by the Tenant by the construction on the Land of an additional warehouse area of up to 5,000 m2and an additional office area of up to 2,000 m2 or additional office area as mutually agreed by the Landlord and the Tenant together with the provision of additional car parking on the Adjoining Car Park Land. (my emphasis in bold and italics)
111 Upon that aggregation, Caratti then points to a grating overlap of concept delivered by the words 'require' and 'required', as being somewhat doubled.
112 It is then contended the second phrase 'if required' would be (workwise) largely redundant - unless it is given a distinct meaning to the work done by the word 'require' - which speaks to the tenant's right to initiate such works. This argued meaning to be given to the otherwise redundant phrase 'if required' is essentially to the effect that Coventry Group must actually require (in the sense of 'have a need for') the additional space the subject of any cl 23 Future Development notice, at the time a notice is given - for Coventry Group's own occupation and use. In other words, Caratti says the phrase 'if required' does not signify a reference to these works required as being works to be carried out by landlord at the behest of the tenant. Rather, Caratti says 'required', to be of utility, must refer to extra leasing space which the tenant actually needs personally, for its own business use.
113 A third argument of construction by Caratti is fashioned around cl 23(e) of the Lease which, by contrast to cl 23(a), may if invoked compel the landlord to 'demolish the Existing Premises' - '[i]f required by the tenant in its absolute discretion' (my emphasis). It is observed that cl 23(e) is the only place in cl 23 where the term 'absolute discretion' is used and argued that this is significant - by way of juxtaposition with a more limited right of the tenant under cl 23(a) in contrast to the absolute discretion afforded the tenant by cl 23(e).
114 It is then negatively inferred by Caratti that a discretion in the tenant to require the landlord to carry out the Future Development, by cl 23(a), is not therefore absolute.
115 A fourth Caratti argument of construction hypothesises what are said to be some very unreasonable outcomes, arising out of a regime of open-endedness were Caratti's par 10 REASOC arguments not accepted to control that clause. Caratti says that any accepted right to require a demolition of the tenant's recently renovated existing premises (when the Lease commenced), by giving a Future Development notice under cl 23(a) at the commencement of the 20 year term would be a surprising result, were cl 23(a) to allow it.
116 Likewise highly unreasonable, Caratti says, would be to tolerate as valid a cl 23(a) notice issued at very close to the end of the 20 year term, which would then require Caratti to outlay possibly millions of dollars on development work with no guarantee that further five plus five year options would be exercised by Coventry Group, thereby potentially putting Caratti at risk thereafter of never recovering its significant outlaid expenditure from future rent payments from the tenant who caused it to incur all that expense.
117 In this realm of unreasonable outcomes if cl 23(a) is not controlled in the way Caratti advocates, it is also postulated by Caratti that a required demolition of the existing premises would not require Coventry Group even if it stayed on as tenant to pay any more than what is the existing rental rate (under cl 23(g)).
118 These potential unreasonable outcomes postulated by Caratti under an unconstrained reading of cl 23 lead, so it is put, to showing a need for and viability of the first and second construction requirements towards the pre-conditions it would erect under par 10 of the FASC.
119 This Caratti construction approach is summed up as follows (Caratti's written submissions, par 30):
The proper conclusion is that the power given to Coventry in clause 23 was not at large but circumscribed so as to give a coherent commercial construction to the Lease as a whole. The conditions on the exercise of the power that should be found by the construction process are those pleaded in FASC [10], namely:
(i) Coventry had to intend, at the time it gave the notice, that it would occupy the whole of the area (both warehouse and office sections) specified in the notice (defined as the 'First Requirement') for the conduct of its Business.
(ii) Further, the need for such extra space for the conduct of Coventry's Business had to arise other than by the fact that part of the Building was not available to Coventry because it had sublet part of the Building (the 'Second Requirement').
Caratti: fallback implied term as to good faith and reasonableness arguments
120 The alternate arguments of Caratti contend for an implied term within the Lease, to the effect cl 23 may only be exercised by Coventry Group reasonably and in good faith.
121 As I have earlier observed, Caratti's FASC and its written submissions both assume that an existence of such a generically framed implied term will necessarily then deliver with it, in effect, the substance of the two par 10 FASC requirements as constraints upon cl 23. This underlying assumption, as I have also observed, may be questioned as something of a leap in logic to the desired ends.
122 Caratti attempts to buttress its implied term position in further respects, as identified under particulars to par 19, namely: (a) by identifying some cl 23 benefit to Caratti; and (b) highlighting the significant multi-million dollar capital outlay expenditure necessarily incurred by Caratti in implementing such Future Development works.
123 The cl 23 benefit for Caratti (as opposed to cl 23 being assessed as exclusively for the benefit of Coventry Group) is contended for under the FASC par 19.1 particulars. This Caratti benefit, as articulated, appears to be the securing of a long term tenant, who will use custom built facilities and who is, thereby, more likely to remain as a long term tenant, and presumably, is a tenant more likely to extend the initial term of the Lease outwards, to 25 or 30 years.
124 Caratti's following particulars of asserted breach of this implied term of good faith and reasonableness (under FASC par 20) baldly allege Coventry Group issued the August 2013 Future Development notice without first meeting the dual FASC par 10 first and second cl 23 pre-conditional requirements - as Caratti contends for.
125 Then Caratti contends that Coventry Group's cl 23 notice of 23 August 2013 would deprive Caratti of a 'benefit contemplated by the Lease in relation to cl 23' (in the absence of an expansion of Coventry Group's business): FASC par 20.3.
126 The further contention seen under FASC par 20.4 is that the Coventry Group notice seeking to invoke cl 23 would require the construction of new space for a proposed use that will not involve the business of the defendant. If that contention was intended to convey anything more than to repeat the argument about taking account of the space subleased, I would need to reject the proposition as being not factually established by the trial evidence.
127 FASC par 20.5 seems to reiterate the history of subleasing arrangements by Coventry Group, all, of course, eventually consented to by Caratti.
128 FASC par 20.6 then contends that the permitted use of Premises under the Lease is limited to the storage and display of automotive and industrial parts, and then noting, significantly, that the automotive parts business division of Coventry Group was sold off in July 2011. However, that point must fail, when measured against the wide definition of 'Permitted Use', seen under item 3 of the Lease at TB 301. It will be recalled that item 3 uses an expansive phrase which includes 'and any other use determined by the Tenant and permitted by the local Authority'. There was no evidence at the trial (such as from the local authority) to suggest that the Coventry Group businesses and activities intended or proposed for future leasing space created under the Future Development notice were not a 'Permitted Use', as so defined by the Lease.
129 Finally, it is seen to be contended by Caratti at FASC par 20.7 that to comply with the August 2013 cl 23 notice of Coventry Group places an 'onerous and disproportionate obligation' upon Caratti. That baldly stated assertion is augmented by some particulars given under a letter of 20 August 2014, contending that the cost to Caratti of constructing the required new warehouse and office space would be approximately $6.7 million plus GST. That was information Caratti received by a quotation of 3 October 2013. There was a formal objection to that unqualified opinion evidence at the trial, which must be upheld. But it is nevertheless appropriate to proceed on the assumption that such works will be of a multi-million dollar magnitude for Caratti.
130 Hence, it is finally contended Caratti will not be receiving its cl 23 'benefit', if it needs to bear the capital obligation to undertake the future development - a point already made under par 20.3. This seems to hark back to Caratti being aggrieved about Coventry Group not yet committing to extend by its two options the initial 20 year term of the Lease - so as to allow Caratti to recover its capital outlay over a greater time period from guaranteed rental returns in a longer leasing time frame.
131 As I earlier indicated, the essence of Caratti's case must necessarily be founded on the proper construction of the Lease as regards cl 23 - so that if Caratti cannot make good that outcome under the process of contractual construction of the Lease (ie, to make good one or both of its critical FASC par 10 requirements controlling the ambit of cl 23) then a fallback attempt, in effect, to manufacture the same constraints via a general implied term of good faith or reasonableness does not, in my view, even get off the ground. On the other hand, if Caratti does establish the FASC par 10 requirements as a matter of contractual construction, then an exercise in term implication, is wholly unnecessary. That observation brings to mind Sir Anthony Mason's observation in Codelfaat 352 that an exercise in attempted implication of an ad hoc term is a form of contractual construction exercise in its own right- albeit not of an orthodox kind.
132 I can now move to briefly summarise the defendant's opposing submissions, before resolving the construction issue.
Defendant's opposing arguments
133 Coventry Group's construction approach begins from the premise that the words of cl 23 of the Lease, particularly at cl 23(a), are crystal clear. It says the Caratti's dual constructional 'requirements' upon cl 23 that are sought to be made via par 10 of Caratti's FASC, are nowhere found within the text of cl 23, or anywhere else in the Lease. They are, in effect, said to be opportunistic contrivances to thwart compliance with an inconvenient obligation, willingly assumed when the Lease was entered but now sought to be resisted.
134 At par 45 of its written submissions Coventry Group says:
Nowhere does [Caratti] demonstrate how the words of clause 23 are susceptible of the meaning it contends. It simply builds on the tendentious premise that Coventry was at all times intended to be confined to the use of the Future Development Works for the purpose of its automotive parts business, and the suggestion that the Future Development Clause was in some way asserted for [Caratti's] benefit, as a basis to introduce words into which would add to, vary and contradict the language of Lease.
135 Coventry Group would also reject as misconceived the core premise of Caratti's arguments, namely that cl 23 is somehow to be confined, by reference to a required particular purpose of Coventry Group. It contends that the efforts at a contractual construction seeking to generate the constrictive cl 23 outcomes for which Caratti contends is, in substance, a case of adding 'whole slabs of text along the lines of the wording of [Caratti's] pleading': written submissions, par 59. This amounts, in reality, it says, to an exercise in attempted rectification of cl 23 of the Lease, rather than one of contractual construction, and thus is conceptually misconceived.
136 As regards the alleged implied term of reasonableness and good faith, Coventry Group rejects that term at all levels. But it ultimately contends Caratti is not assisted by such a generic term, even if it were found to be implied. Coventry Group suggests the only available basis in law for a conceptual implication of such a term would be on an ad hoc basis - if that term fulfilled all five pillars of the classically established requirements as explained by BP Refinery (Westernport) Pty Ltd v Shire of Hastings (283) and then approved for Australia in Codelfa (347). Coventry Group says that none of those limbs, let alone all five, can be met by Caratti in present circumstances.
137 As regards any asserted breach of such an implied term, Coventry Group notes that Caratti does not suggest that by invoking cl 23 Coventry acted beyond its commercial interests, or capriciously, or for any ulterior purpose.
138 Coventry Group is particularly critical of Caratti's complaint of being denied a 'benefit' under which Caratti seeks to extract for itself from cl 23 a conferred entitlement. Coventry Group says cl 23, objectively read as it must be, was solely for its benefit, and that the potential future capital works obligation could hardly have been overlooked by a reasonable contracting party in the position of Caratti at the time the Lease was entered. When completed such Future Development Works will obviously create extra leasing space that will be occupied to constitute part of an increased overall 'lettable area' under the Lease - upon which the tenant will pay a proportional rent per square metre. Extra letting space must necessarily derive more aggregate rent for the landlord's direct and immediate economic advantage. Extra rent paid to Caratti for the extra leased space is the only consequential benefit to the landlord arising out of cl 23. Had there been any link between the cl 23 Future Development work and the exercise of the two five-year options held by the tenant it is objectively unthinkable that this would not have been expressly stated in the lease - and it is not.
139 Coventry Group also rejects the Caratti contention that it may not sublet any part of the new space created from the Future Development works, or that such space would not fall within the definition of 'Premises' in the Lease.
140 According to Coventry Group, the proper interpretation of the widely drawn terms 'Premises', 'Building' and 'Land' used in the Lease ultimately sees them address any new space created by any Future Development works, within the Lease. Coventry Group points in particular to the work of the phrase 'all other improvements on the Land' within the Lease's definition of 'Building'. It says that all newly created space must fall under the definition of 'Building' and so, by extension, then be part of 'Premises' under the Lease.
141 The Lease permits new space, like existing space, to be subleased via cl 13.3 of the Lease with the landlord's consent.
142 Coventry Group no longer presses under its counterclaim for a declaration that there be orders requiring the parties to enter a deed of variation, to accommodate cl 23(h) of the Lease. Nevertheless, it counterclaims for declaratory relief against Caratti by pars (i), (ii) and (iii) of its prayer for relief, seeking:
(i) A declaration that the Future Development Notice constitutes a valid notice under clause 23 of the Lease in respect of the works specified therein;
(ii) A declaration that [Coventry Group] is entitled to sublet any part of any building erected as part of the Future Development Works under clause 13.3 of the Lease; and
(iii) further or in the alternative to (ii) above, a declaration that, on a proper construction of the Lease, any building erected as part of the Future Development Works forms part of the Premises as defined in the Lease.
143 I can now proceed to render my conclusions as to the parties' rival positions concerning the construction arguments and then the implied term arguments.
Construction arguments
144 I am of the view that the construction of cl 23 of the Lease contended for by Caratti cannot be accepted. Correlatively, the contrary construction advanced for cl 23 by Coventry Group is preferable and must be accepted. I arrive at those conclusions as I will explain below.
Context for the exercise
145 First, I would assess the text of cl 23(a) in the Lease and, indeed, the rest of cl 23 as well, to be crystal clear. I can ascertain no relevant ambiguity, or more than one meaning for cl 23(a) of any arguable credibility that is sufficient to support a receipt of evidence of surrounding circumstances under the 'true rule' of contractual construction. And even if I had, my view is that no such surrounding circumstances evidence could alter the meaning of the clear and strong words of the text of cl 23.
146 It is of course necessary to interpret cl 23 of the Lease in the context of its overall place among the other clauses in the Lease. Likewise, cl 23 is to be assessed as well by reference to that instrument's commercial object, purpose and market and, indeed, its 'history', as Gleeson CJ affirmed in the IATA decision.
147 But here, my assessment is that all the necessary surrounding context and history are largely capable of being derived within the framework of the Lease instrument itself. It shall also be remembered that this lease was perfected between the parties as a deed which is 'the most solemn act that a person can perform with respect to a particular piece of property or other right': Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361, 369 (Young J). The Lease also contains in cl 25.16 (at TB 335) a whole agreement clause, which reads:
This lease and the Agreement for Lease constitute the whole agreement between the parties concerning the Premises and supersedes all previous negotiations and agreements concerning this transaction.
148 That clause ought be afforded a measure of respect in a construction exercise relating to a commercial instrument professionally drawn up at arms length.
149 It is, of course, permissible as part of the construction process to notice the earlier 2005 agreement for lease between the two parties, which is expressly referred to within the Lease instrument itself at cl 25.16.
150 As to the permissibility of having regard to referenced documents which are in existence at the time the instrument under construction was created see: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [104] (Buss JA); IATA [8], [22] (Gleeson CJ); Government Employees Superannuation Board v Martin (1997) 19 WAR 224, 236B (Ipp J).
151 As regards an instrument under interpretation sometimes containing almost all required contextual materials, see Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 606, Mason J applying and following Lord Wilberforce's approach to Prenn v Simmonds [1971] 1 WLR 1381, 1385; [1971] 3 All ER 237, 240. In Prenn Lord Wilberforce had said:
As to the circumstances, and the object of the parties, there is no controversy in the present case. The agreement itself, on its face, almost supplies enough, without the necessity to supplement it by outside evidence.
152 Here then the essential commercial purpose and object of a 20 year minimum term commercial leasing transaction, as I would assess it, are all rather self-evident. Caratti had available for rental its commercial leasing space upon the land it owned at Redcliffe, Perth. Coventry Group was moving from the Morley premises it owned and used for its automotive parts business. Coventry Group was subleasing the Morley premises and required leasing space for its established business. Preparatory work to ready the space for Coventry Group's occupation as a tenant was done. Over some years before perfecting an elaborate deal under their lease, these two commercially sophisticated and very well resourced parties negotiated at arms length over, and then ultimately resolved, with legal input and assistance, a complex and sophisticated 20 year minimum long term lease agreement of September 2005, which later became embodied in their solemn deed, registrable Lease as of 7 November 2007.
153 The parties' formal agreement for lease was finalised two years earlier and contained almost all of the same terms in the Lease as they ultimately came to be executed, and including all of cl 23.
154 The present is not a scenario where there has manifested an inequality of bargaining power by one side over another in the lead-up to the agreement for lease or the Lease itself. Nor is there is any suggestion of any shady kind of misleading or deceptive conduct by any person or agent involved somehow giving rise to the nowadays available armada of possible statutory remedies in trade or commerce under State or Federal legislation, such as from the Australian Consumer Law, scheduled to the Competition and Consumer Act 2010 (Cth), or from the parallel regime of the Fair Trading Act 2010 (WA).
155 This was not a consumer transaction. Nor was this a scenario of a franchise arrangement - which, as seen earlier, is an underlying setting for a great number of the good faith and reasonable implied term cases.
156 Here, I am dealing with commercially sophisticated, well resourced parties, legally represented, entering into at arms length a long term, 20 year, or even possibly 25 or 30 year commercial leasing relationship. The parameters of this future relationship were reduced to writing very carefully and elaborately, over at least two years, before ultimately being perfected solemnly under a deed as their Lease.
The arguments
157 The four main construction arguments, each elaborately fashioned by Caratti in order to generate its two contended (FASC par 10.1 and par 10.2) requirements it says arise as a matter of construction, all present to me, ultimately, as being unmeritorious.
158 Caratti's first 'hydra' argument, in my view, does not sufficiently respect, nor focus sufficiently, on the governing text of cl 23. It commences, somewhat illogically as I see it, from the Lease's definition of 'Premises'. From there it evolves across the subleasing permission clause, cl 13.3.
159 But I cannot and do not accept the underlying core contention of this argument that new space created as a result of an implementation of the Future Development works does not fall under the definition of 'Premises' in this Lease. The alternate approach as advocated by Coventry Group, extracted from the Lease definitions of 'Premises', 'Land' and 'Building' thereby creating 'improvements' to the Land, in my view, is the logical and preferred construction outcome.
160 Taking a step back, to view Caratti's first argument from a wider perspective, I would, in any event, be troubled by an outcome under which newly created warehouse and office space, arising as a result of a completion of Future Development works, falls outside of the definition of 'Premises'. That end result, as I see it, would be surprising and uncommercial. Whilst clear words might require that result, it is not a result to be otherwise reached lightly. Such an outcome would deliver something of a cut off and isolated, Cold War scenario of a 'West Berlin' like enclave applicable to this new space - albeit the new space only subsists at the behest of Coventry Group and within areas Caratti seems to accept is otherwise existing space leased to Coventry Group as Premises.
161 In the end, I reject the Caratti construction approach contending that the new leasing space created does not fall within the parameters of cl 13.3 - for the purpose of potentially being sublet by Coventry Group once created (with, of course, the landlord's consent). The true conclusion emerges in the end from a proper understanding of the meaning of the term 'Premises', as Coventry Group submits.
162 Next, I reject the second construction argument tied to an anomalous doubling up of definitions said to be delivered by incorporation of the definition of the term 'Future Development' into cl 23(a), and an initial appearance of the word 'require' then followed by the phrase, 'if required'. I do not accept that what is a grammatical wrinkle arising out of the inelegant modern day drafting technique of defining all and sundry to the point of exhaustion compels the phrase 'if required' to be interpreted (in order to avoid it being assessed as repetitive and essentially redundant workwise), as meaning 'if the new premises is needed by the tenant for its ongoing business needs at the Premises'. That rejection is assisted by viewing the proximate and related defined term 'Future Development Works' in cl 27.1. It also manifests the same underlying notice of the decision to require this Future Development work to happen as being at the election of the tenant. All that is occurring is, in my view, that this fundamental feature is being re-emphasised in each definition.
163 An explanation for the wrinkle arising out of an incorporation of the definition into the otherwise perfectly clear text of cl 23(a) is simply a product of the laborious modern day drafting technique of definitional incorporation by reference, towards what is the same concept underlying both cl 23(a) and the definition of 'Future Development' (and, as well, underlying the definition of 'Future Development Works'). This is a just matter of repetitive emphasis of the same concept. Future Deveopment Works are only implemented upon the tenant's requirement to the landlord to implement them. This is the clear and re-emphasised right afforded by the landlord to the tenant by cl 23. I can ascertain nothing surprising or odd about that, in the context of a 20 - 30-year, long term leasing relationship. And even if there was, the right is conferred upon the tenant in crystal clear and unfettered fashion by cl 23(a).
164 I must also reject the third Caratti construction argument, arising out of the term 'absolute discretion'. In short, this is far too much of a stretch.
165 By my assessment, the attempt to interpret cl 23(a) by reference to some purported contradistinction with cl 23(e), fails to cross a veritable construction minefield. If the Lease is construed as Caratti says it should be, cl 23(a) and (e) would simply make no sense, when operating in conjunction.
166 To start with, I need to emphasise a blatantly obvious point that cl 23(e) is found within cl 23, and it refers to demolition of the 'Existing Premises as part of the Future Development Work'. That is plainly a reference back to works initiated pursuant to the notice given under cl 23(a). Clause 23(e) is not some independent, stand-alone right, but a part of cl 23, to be engaged by the tenant's initial exercise of their Future Development commencement rights under cl 23(a).
167 There is, therefore, an illogicality in the argument that because cl 23(e) uses the words 'absolute discretion', cl 23(a) must, by contradistinction, be read down and constrained. If shackles are placed on the ambit of cl 23(a), then the tenant is also constrained at cl 23(e), by the same shackles. This produces what I assess as two interminable construction obstacles. First, it deprives the words 'absolute discretion' of real effect and contradicts the intentions of the parties, objectively ascertained. Second, following on from that, it shows any purported contrast as between cl 23(a) and (e), as being an illusion. On this reading, Caratti's cl 23(e) argument does not get off the ground.
168 No doubt Caratti would seek to avoid such problems by reading cl 23(e) as standing wholly apart within cl 23 and somehow unaffected by any constraints placed on cl 23(a). But that construction I would also not accept, again for two main reasons. First, that approach simply adds another layer of complexity to what is already a strained construction of the instrument. Second, the approach would deliver the situation in which the tenant's cl 23(e) right to have the landlord fully demolish and rebuild is accepted as being completely unlimited, yet the cl 23(a) right to require what would be more confined future works is heavily constrained. That is tantamount to saying that a doctor could amputate on a whim, but needs written permission of the whole of a family to remove the ingrown toenail. Such an outcome delivers the sort of 'commercial nonsense' the High Court cautioned against in Electricity Generation Corporation.
169 A better explanation for the presence of the words 'absolute discretion' in cl 23(e) is that, first, there subsist no unseen restrictions upon the tenant's exercise of rights to procure Future Development under cl 23(a). That position extends to, and is then emphasised and entrenched by cl 23(e) - even in the face of the more radical nature of the demolition works there contemplated - namely a demolition and reconstruction from the ground up. Both paragraphs are facultative in their effects and should be read as such.
170 I also reject the fourth construction argument, predicated upon the hypothetical examples by Caratti concerning asserted unreasonable giving of notice scenarios, either early in a 20 year lease term, or later at, say, the 19th year, or thereabouts. Such 'harsh outcome' arguments, in my view, are 'Straw Men', designed to fashion an environment of potential uncertainty, or alleged unreasonableness out of the workings of cl 23 for other wholly hypothetical fact scenarios - yet where on the presenting facts under consideration, there is none.
171 The Caratti invitation at this point to chase down and rationalise extreme fact scenarios, which do not present on the facts here, must be rejected. I note in passing that Caratti's contended for first and second requirements were expressed in plenary terms, applicable for the whole duration of the Lease, and not in any calibrated way so as to engage, and only engage, with an exercise of cl 23 either very early or very late in the 20-year term.
172 I reiterate again that these were two well resourced, sophisticated commercial parties who appear to have methodically progressed over some years towards their ultimate consensus to enter a minimum 20-year term commercial leasing transaction, negotiating at arms length with legal assistance. Clause 23 in the Lease was not some crafty afterthought, belatedly thrust upon a downtrodden, insane, illiterate, or inebriated landlord. The sheer scale of the future capital works for what might be required to be actioned in future as Future Development Works had been explicitly identified and laid out in the text of this Lease instrument. It is, objectively speaking, unthinkable that a reasonable landlord in the position of Caratti, up to the time the Lease was executed (in 2007) or, for that matter, at the time that the parties' elaborate agreement for lease was perfected in 2005, would not have turned their mind (objectively) to the cost and implications for it of being asked to implement such works - if it was ever required to carry them into effect by their tenant at a future time.
173 If a landlord in the position of Caratti did not cost out beforehand all the potential future economic implications of carrying out such works, in a context of assessing its long term income and expenditure returns over a 20 year lease term (or potentially a 25 or 30 year lease), then such an objectively unthinkable omission has to rest squarely upon its own shoulders.
174 Objectively speaking, if a reasonable potential landlord in the position of Caratti had wished to impose constraints or fetters or tied correlative obligations upon Coventry Group, as regards any future exercise of its rights under cl 23, then it would have been dead easy to just say that within the Lease - rather than leaving cl 23 wholly silent about such matters as it presents.
175 The two relatively elaborate Caratti requirement constraints, in relation to the tenant's objectively required occupational intention for the whole of all created new space, are not hinted at within cl 23 or, for that matter, anywhere else in the Lease. Nor is the notion of the tenant bringing to account all subleased space before it may legitimately exercise rights under cl 23. At this point I would simply opine that for commercial parties to choose as their governing criterion of operation for cl 23 the subjective intention of a corporation tenant about such an issue at a point in time (across a 20-year minimum term lease) might be thought to be a curious criterion - rather like selecting the state of a man's digestion on any particular day as the governing determinant.
176 To contrive such outcomes by construing cl 23 in the way contended by Caratti, in my view, would amount in reality to an attempted re-writing of cl 23 and that exercise thereby becomes in truth one of rectification, rather than one of true contractual construction of the existing instrument as drawn.
177 It would also have been at most a less than six minute drafting exercise for a competent legal draftsperson to expressly link by words Coventry Group's power to exercise rights under cl 23 to the required anterior exercise of its options to extend the original 20-year Lease term by a further five or 10 years. Such a linkage was not attempted either in the Lease or agreement for lease.
178 The silence upon these matters within cl 23 and in the Lease generally is absolutely and, in the end, fatally deafening for Caratti on these issues.
179 Accordingly, I reject the construction case of Caratti.
General evaluation of implied term of good faith and reasonableness
180 Since I reserved the reasons for decision after the hearing of the arguments in this matter the High Court delivered its reasons for decision on 10 September 2014 in Commonwealth Bank v Barker.
181 That appeal saw the High Court's rejection of a contended for implication, as a matter of law, in all employment contracts, of a term of mutual trust and confidence. It was held that such an implication was a step beyond the legitimate law-making function of the courts (see Commonwealth Bank v Barker [1] (French CJ, Bell & Keane JJ)). That, of course, is not the same implied term sought to be found in the present case, and those same Justices at [42] observed that they were not deciding whether there is a general obligation to act in good faith in performance of a contract.
182 The Barker reasons canvass at some length the basis upon which terms may be implied into contracts and, in particular, plenary terms by an implication of law, in contrast to ad hoc terms, implied as an issue of fact on a case by case basis, where needed to give business efficacy to a contract.
183 In Commonwealth Bank v Barker the observations by the plurality addressed the ad hoc implied term criterion of necessity, by reference to the earlier decision Byrne v Australian Airlines Ltd (1995) 185 CLR 410, emphasising again the rigour of that touchstone (see [29] particularly by reference to footnotes 64 and 65). The plurality observed:
Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justified functionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary. The same constraints apply whether or not such implications are characterised as rules of construction [29]. (footnotes omitted)
184 Kiefel J observed:
The question whether a standard of good faith should be applied generally to contracts has not been resolved in Australia. Neither that question, nor the questions whether such a standard could apply to particular categories of contract (such as employment contracts) or to the contract here in issue, were raised in argument in these proceedings. It is therefore neither necessary nor appropriate to discuss good faith further, particularly having regard to the wider importance of the topic [107]. (footnotes omitted)
185 Gaegeler J observed (by reference to a series of authorities collected in footnote 225) that:
Common law obligations in contract, like common law obligations in tort, ought not to be developed by courts other than in a manner that is sensitive to their interaction with legislation [118].
186 I draw three aspects of assistance from Barker, relevant to the present case. First, as regards the implication of a term of good faith and reasonableness in all commercial contracts as a matter of law, it is apparent from the observations of the plurality that the point still remains unresolved in Australia: see the plurality at [42]. The position has not then advanced beyond the observations made in Royal Botanic Gardens, which I mentioned earlier. Second, Australian courts should be and are cautious about taking the step of implying terms into contracts as a matter of law, on a plenary basis - such as for all commercial contracts or even, as I would see it, in all commercial leasing contracts. Third, as regards any exercise in ad hoc implication, the criterion of necessity is to be applied at a meaningful and rigorous level.
Conclusion as regards implied term of good faith and reasonableness
187 Having concluded that the construction arguments of Caratti fail as regards the FASC par 10 dual requirements, the alternate implied good faith and reasonableness obligation arguments also, on my assessment, derivatively fail as well. But even independently evaluated, they can be seen to be untenable at a number of levels.
188 First, there is an intellectual chasm, as I assess it, between first implying a duty of good faith and reasonableness into a commercial leasing transaction, and then somehow reaching the conclusion that such a generic term necessarily delivers with it, as a matter of a substantive obligation, the two cl 23 requirements under par 10 which Caratti has now failed to establish under its primary construction arguments. The submissions of Caratti, in effect, seek to ignore that step. They advance immediately to arguments about showing breach of the generic term.
189 Here, this prescient observation by L. Warnick in Thomson Reuters, Commercial Contract Clauses (20 October 2014) [60980] is borne out:
The lesson from the cases is that practitioners wishing to plead or argue an implied obligation of good faith must build their case on something more than the plaintiff’s instinctive feeling that he or she has been treated unreasonably. What will be required is a foundation of evidence showing that the defendant has gone beyond merely acting in its own commercial interests, and has used contractual powers arbitrarily, capriciously or for an extraneous purpose.
190 Second, given the clear and unambiguous text of cl 23 in the Lease, there is simply no basis to overlay that text with any extra requirements by way of constraint or inhibition against the breadth of that clause. For a court to take the paternalistic view that for Coventry Group to give notice under cl 23 as and when it did, without first meeting the FASC par 10 prerequisites, is contrary to an obligation of good faith or reasonableness - would grossly disrespect and violate the contractual freedom of these well resourced commercial parties to specify at arms length, the entire parameters of their final bargain, as they recorded it with legal assistance over some time and at some length. It also assumes that some years on, in 2014, that cl 23, which is a mere aspect of what was obviously a multi-faceted deal, can be isolated as a factor and evaluated on a stand alone basis - outside its place in what was the parties' overall end bargain. But commercial bargains invariably involve carefully weighed levels of interrelated 'give and take' from both sides over usually countless aspects of their end deal. One thread from the end garment is not readily picked out and to be isolated years later to be reweighed after the event and then readjusted to assuage views about generic fairness in a wake of how the bargain has played out years later. That would be a case of ratifying ex post facto a contracting party's efforts to resile from an aspect of an overall entire, interrelated bargain, which aspect is later regretted, under a condition of landlord's remorse.
191 Undertaking a compartmentalised 'fairness' assessment of one mere isolated aspect of a complex interrelated commercial deal, should not be lightly undertaken. Caratti's implied term arguments alleging breach, seek to superimpose its view about the cl 23 aspect of the Lease, it otherwise seeks to uphold. Essentially, Caratti seeks to cry 'unfair' to escape an aspect of a carefully negotiated, complex overall commercial bargain - which the parties have negotiated over time and then set down in solemn form by deed, adding that it was their whole agreement. This it may not do.
192 In any event, as a pure conclusion of fact, I do not assess in the present case that for Coventry Group to act in an advancement of its own commercial interests by exercising its rights under cl 23 as it did and when it did in August 2013, manifests as anything other than what it says it was fully entitled to require of its landlord as a wholly legitimate exercise of rights under cl 23. Even if this implied term could be found, it still would not in all the circumstances as I assess them, have been breached by Coventry Group.
193 Caratti's implied term arguments as regards breach of an implied term of good faith and reasonableness in the Lease concerning cl 23, are misconceived and must be rejected.
Conclusion
194 Caratti's construction case and implied term case, as regards the Lease and cl 23 therein, have failed. Conversely, the defendant's interpretation submissions towards cl 23 has been made out. Aside from now vindicating the construction towards cl 23 that is advocated by Coventry Group, I have also accepted its arguments in relation to its right to sublease any newly created space, in accord with the proper construction of cl 13.3 of the Lease. It is therefore appropriate to issue the three declarations sought on the amended counterclaim. That result flows out of the ascertained correct meaning of the term 'Premises' in the Lease, properly construed.
195 With the benefit of these reasons, Coventry Group should now confer with Caratti and, within 21 days of their publication, submit a minute of orders, hopefully agreed, giving effect to these reasons. Subject to my discretion to convene a further hearing, if that is required, I propose to deal with any subsisting disputation as to the terms of final orders, costs or the like, on the papers.
SCHEDULE A
At the time the Defendant issued the Notice referred to in the Further Amended Statement of Claim (FASOC) paragraph 11:
(a) The Defendant's intention regarding the New Warehouse (as defined in FASOC, paragraph 11) was that upon completion of the New Warehouse it would be occupied by the defendant's business Coventry Fasteners (now known as Konnect Shop);
(b) The Defendant's intention regarding the New Office (as defined in FASOC, paragraph 11) was that upon completion of the New Office a portion only of it (most likely being the first floor) would be occupied by the Defendant;
(c) The Defendant did not have a present intention as to the intended use of the balance of the New Office (which may or may not have included future occupation by the Defendant upon completion);
(d) The existing Warehouse Area on the Land (other than the Existing Premises as defined in the Lease) was sublet to Fantastic Holdings Pty Ltd pursuant to a Sub-Lease commencing on 1 November 2012 (the Fantastic Holdings Sub-Lease). The Fantastic Holdings Sub-Lease is for a term of 5 years and with an option to renew for a further 5 year term; and
(e) Part of the existing Office Area on the Land (being the Premises defined in Item 5 of the Schedule to the MRD Sub-Lease) was sublet to the Commissioner of Main Roads pursuant to a Sub-Lease commencing on 1 Novembe 2012 (the MRD Sub-Lease). The MRD Sub-Lease is for a term of 5 years with two options to renew for further 5 year terms.
SCHEDULE B
Date | Event | Reference [TB [tab number] and statements] |
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Duffield/8, 16 |
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Caratti/16 |
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Caratti/20 |
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4
40
1