Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd
[2014] VSC 479
•30 September 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2013 1722
| ECOSSE PROPERTY HOLDINGS PTY LTD | Plaintiff |
| v | |
| GEE DEE NOMINEES PTY LTD | First Defendant |
| and | |
| PETER HAROLD MURRAY MORRIS | Second Defendant |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 September 2014 |
DATE OF JUDGMENT: | 30 September 2014 |
CASE MAY BE CITED AS: | Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd & anor |
MEDIUM NEUTRAL CITATION: | [2014] VSC 479 |
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LANDLORD AND TENANT – Long term farm lease – Liability of tenant to pay rates, taxes, assessments and outgoings, including land tax – Construction of lease provisions.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Bloch | Goldhirsch & Shnider |
| For the First Defendant | Mr S Hopper | DHP Lawyers Pty Ltd |
HIS HONOUR:
Background
This case concerns a rather unusual lease. It is unusual in many respects. Its unusual features include its term of 99 years, provisions which exclude the proviso for re-entry on default in favour of the landlord and a statement of intention by the parties which, in the context of the surrounding circumstances, indicates that but for planning scheme restrictions on freehold subdivision the land the subject of the lease would have been the subject of a freehold sale in the usual way. The other unusual feature in this digital age is that the lease provisions are contained in a three-page standard form “Farm Lease” which was still in use in the 1980s when the lease was entered into. This standard form lease was, at about this time, sold as a printed form by Harston, Partridge & Co Pty Ltd, printers and legal stationers; well known to generations of legal practitioners in Victoria.
More particularly, the lease, which is dated 19 November 1988, was made between Westmelton (Vic) Pty Ltd (Receiver and Manager Appointed), as landlord, and Mr Peter Harold Murray Morris, as tenant, whereby the subject land was leased for a term of 99 years commencing on 1 November 1988 (“the Lease”). Gee Dee Nominees Pty Ltd (referred to in these reasons as “the defendant”)[1] is currently the tenant under the Lease.
[1]There being no appearance at trial by Mr Morris, the second defendant.
The land the subject of the lease is delineated and coloured red on a plan annexed to the Lease, being part of the land described in Certificate of Title volume 7484 Folio 127 (“the leased land”). The area of the leased land is 12.15 hectares, which was part of a larger area of land. This larger area of land was, in turn, one of three larger contiguous areas of land. These larger, “broadacre” lots, were, in the 1980s, being subdivided by Westmelton (Vic) Pty Ltd (‘Westmelton’) in staged developments. The leased land is part of a broadacre lot which was described in a plan of the three broadacre lots as section ‘C’. The relationship of the leased land to these three broadacre lots is not of significance save as part of the story of broadacre subdivisions and residential development in the Melton area for which the leased land was ultimately to be utilised. The staged development and subdivision of these broadacre lots has not, however, yet reached the leased land which remains rural land on which, as was indicated during the trial, is erected a nineteenth century farmhouse and probably, it seems, another house. In any event, the state of buildings or improvements to the leased land is not presently relevant. Perhaps the only respect in which improvements might have been relevant would have been in circumstances where there was an issue as to whether the leased land was ‘retail premises’ for the purposes of the Retail Leases Act 2003. Nevertheless, there is no evidence to suggest that the operation of this legislation might be enlivened in the present circumstances. Moreover, counsel for the plaintiff and the defendant said that it was common ground that the leased land was not ‘retail premises’ and that this legislation has no application. In the present context the significance of this legislation is that if it were applicable land tax would not be recoverable by the landlord.
Westmelton, as indicated by the style in which it is named in the Lease, had apparently encountered financial difficulties at about the time the lease was entered into. Mr Ernest Niemann was then appointed Receiver and Manager and apparently exercised his powers in this capacity to grant the Lease. Moreover, at this time the original tenant, Mr Morris, was Mr Niemann’s step-son. As discussed in more detail in the reasons which follow, Mr Malcolm John Hastings, solicitor, acted for Mr Morris in relation to the Lease when he was a member of the firm of Pearce & Webster, solicitors, which had an office in Melton. That firm has since merged with other entities and its ultimate successor is the firm Pearce Webster Dugdales. Mr Hastings is now a solicitor and consultant to that firm. These background facts are relevant in relation to some evidentiary and other matters which are discussed further below and are referred to solely in this context. I should and do emphasise that there is no suggestion whatsoever that Mr Niemann, Mr Morris, Mr Hastings or anybody else acted in any way that was improper or inappropriate in relation to the transaction which led to the execution of the Lease; and no adverse inference should be drawn in this respect.
By a Transfer of Lease dated 15 October 2004, the tenant, Mr Morris, assigned and transferred the lease term to the defendant, effective on that date. The assignment and transfer of the Lease was effected pursuant to a Contract of Sale of Business, dated 28 May 2004. The only asset the subject of this contract appears to have been the balance of the term of the Lease, the standard form provisions with respect to goodwill and stock, having been deleted. The consideration specified in this contract is $210,000. Although there was no evidence on this point, it seems that having regard to the terms of this contract the stated consideration reflects something like the value of the leased land in terms of its enjoyment as something akin to freehold for a further 83 years; the then residue of the lease term.
In the meantime, the leasehold reversion was, in about 1993, sold by Westmelton to the plaintiff, which is now entitled to the reversion immediately expectant on expiry of the Lease.
It is against this background that the issues remaining between the parties at trial were confined to the proper construction of the provisions of the Lease with respect of the payment of rates, taxes, assessments and outgoings; and, in this context, namely, rates and land tax and the consequences in terms of any declaratory and monetary relief. In relation to the latter, the plaintiff sought to establish quantum through the evidence of Mr John Iacovangelo, an accountant acting for the plaintiff, on the basis of a document which summarised claimed rates and land tax liability calculated proportionately with respect to the area of the leased land. This means of proving quantum was the subject of objection on behalf of the defendant. As a result, the course adopted at trial was to confine the matters to be determined in this judgment to the proper construction of the Lease and, if the plaintiff were successful, the grant of declaratory relief as sought in paragraph B of the prayer for relief. The proving of the plaintiff’s monetary claim in these circumstances would be reserved for further hearing and determination, either by the Court or by a special referee appointed by the Court. Other matters which were subject to the defendants’ pleadings which were not pressed were the claim for rectification and also the defendants’ estoppel and waiver claims. Moreover, Mr Hopper, in announcing his appearance, specifically said that he did not announce an appearance for the second plaintiff by counterclaim, namely Mr Morris.
Lease terms
As indicated previously, the Lease is a printed standard ‘Farm Lease’ which has been engrossed and executed by a process of handwritten and typed additions together with extensive striking out by hand of many of the printed provisions.
As it is important, as discussed in more detail in the reasons which follow, to have regard to the provisions of the Lease as a whole together with the deletion of, in this instance, standard form printed provisions, it is helpful to set out the relevant lease provisions (and struck out lease provisions), as follows:
1. THE term of the tenancy hereby created shall be from the First ……. Day of November 1988
to the ………..day of2.
THAT rent for the said term shall be at the clear ……..rental the first or the said payments to be made on the ……day of …….next. And the said Lessee covenants with the Lessor as follows –3. THAT the Lessee will pay the rent hereinbefore reserved on the days and in manner hereinbefore appointed for payment hereof. And in the event of the said term being determined be re-entry under the proviso hereinafter contained will pay to the Lessor a proportionate part of the said rent for the fraction of the current year up to the day of such re-entry.
4. AND also will pay all rates taxes assessments and outgoings whatsoever
excepting land taxwhich during the said term shall be payable by theLandlord ortenant in respect of the said premises (but a proportionate part to be adjusted between Landlord and Tenant if the case so requires).5.
AND also will at all times during the said term will and substantially repair maintain scour cleanse and keep in good repair and condition the said premises hereby demised and all fence walls gates hedges ditches drains water courses holes and other improvements of or belonging to the said demised premises fair wear and damage by fire only excepted.6. AND also will at his own cost and expense during the said term destroy and use his best endeavours to keep the said land free from rabbits and other vermin thistles and other noxious weeds and will comply with the Vermin and Noxious Weeds Act 1958 and any statutory amendments or re-enactments thereof for the time being respectively and without any notice or notices or order or orders to be served or made thereunder respectively.
7. AND also will not cut down fell ring-bark damage or destroy any timber or trees now or hereafter during the said term growing or standing on the said land except for fencing and domestic purposes.
8.
AND also will permit and power is hereby given to the Lessor or its agent with or without workmen or others twice or oftener in every year to enter into and upon the said demised premises or any part thereof to examine the condition thereof and the Lessee agrees to forthwith repair according to notice.9.
AND also will not assign transfer sublet or otherwise part with possession of the said premises or any part thereof without on each occasion first obtaining the consent in writing of the Lessor.10. AND also will at the expiration
or sooner determinationof the said term quit and deliver up possession of the said premises in good repair and generally in such state and condition as shall be consistent with the due performance and observation of the foregoing covenants.11.
AND also will use the said land and premises as a farm in a proper and husband-like manner and subject to all usual terms covenants and agreements contained in a lease of a farm in addition to those specially contained herein.12. AND also will not commit any nuisance on the said land nor do nor suffer to be done anything that might prejudice any insurance of the said premises or any part thereof or render necessary the payment of any additional premium beyond the ordinary rate.
13.
AND also will cultivate………………………………..of the said land during the currency of this Agreement.13. The parties acknowledge that it was the intention of the Lessor to sell and the Lessee to purchase the land and improvements hereby leased for the consideration of $70,000.00 and as a result thereof the parties have agreed to enter into this Lease for a term of ninety-nine years in respect of which the total rental thereof is the sum of $70,000.00 which sum is hereby acknowledged to have been paid in full.
14. Notwithstanding anything contained herein or any act of Parliament Federal or State Regulation or By-law whether as a result of any breach or default of the Lessee or otherwise that the Lessor shall not have the power of earlier determination of this Lease or have any power of right of re-entry whatsoever thereby allowing the Lessee quiet and peaceful enjoyment of the land and improvements as aforesaid for the full term of this Lease, regardless of whether or not the Lessee is in breach or default herein.
15. The Lessee shall have the right to assign, transfer, sub-let or grant licences in respect of the premises without obtaining the consent of the Lessor.
16. The Lessee shall without obtaining the consent of the Lessor have the right to repair, rebuild or replace any dwellings, out-houses or other improvements or build further dwellings and out-houses upon the land whether for personal, commercial purposes or otherwise.
PROVIDED ALWAYS and these presents are upon the express condition that in case the said rent hereby reserved or any part thereof shall at any time be in arrear for fourteen days after becoming due through no legal or formal demand shall have been made for payment thereof or in case of the breach or non-observance of any of the covenants by the Lessee herein contained or if the Lessee shall become insolvent or liquidate his estate by arrangement or execute any deed or arrangement within the meaning of the Bankruptcy Act 1924-66 it shall be lawful for the Lessor or……agent or any person authorized by ……in his behalf thereupon at any time thereafter notwithstanding the waiver or non-exercise of any previous default or right of re-entry to distrain for such rent or proportionate part thereof as aforesaid and to re-enter upon the said premises or any part thereof with a view to determine this lese and thereupon the lease and the term hereby granted shall cease and determine accordingly but without releasing the Lessee from any liability in respect of the breach or non-observance of any covenants on the Lessee’s part herein contained.PROVIDED LASTLY and it is hereby agreed and declared that in the event of any rates agreed to be paid by the Lessee as aforesaid being unpaid at any time or times when due to the Shire or Borough or otherwise it shall be lawful for the Lessor to make payment thereof and to distrain sue for or recover as if same rent in arrears under the Landlord and Tenant Acts.
[Additions are in italics]
The critical provision upon which the plaintiff relies, and in relation to which the parties disagree, is the proper construction is clause 4, which provides for the payments of rates, taxes, assessments and outgoings. As would be expected, clause 4 follows the covenant to pay rent in accordance with the provisions of the Lease, a covenant which is contained in clause 3. The operation of the rent covenant is, however, effectively governed by clause 13, which provides for a once-off payment of the total rental, in the sum of $70,000; which is acknowledged as having been paid in full. Thus the periodic payment of rent is not something for which the Lease provides and, consequently clause 3 has no work to do.
Other notable features of the Lease provisions are the statement of intention by the parties as set out in clause 13, the exclusion of the landlord’s right of re-entry in clause 14, and a general and unfettered right to assign, transfer, sublet or grant licences without obtaining the consent of the landlord under clause 15. The consent of the landlord is not required either by the tenant to repair, rebuild or replace any dwellings or other buildings on the leased land; provisions in this respect are made in clause 16.
The exclusion of the proviso for re-entry in terms of clause 14 is reflected in the striking out of the first proviso of the Lease covenants. However, it should be noted that the final proviso, which contains an agreement and declaration by the parties that it shall be lawful for the landlord to sue for or recover any unpaid rates “agreed to be paid by the lessee as aforesaid being unpaid at any time or times” as though the sum or sums owing were rent in arrears, has been retained.
Approach to construction
It is common ground between the parties that it is now well established that it is permissible for a court to refer to deleted words in a standard form contract for the purpose of determining the meaning of ambiguous words in a printed term which remains. References were made by the defendant to a number of authorities in support of this proposition,[2] including the most recent consideration of the authorities by the Western Australian Court of Appeal in A Goninan & Co Pty Ltd v Direct Engineering Services Pty Ltd (No 2).[3]In this respect, Buss JA (with whom Martin CJ and McLure JA agreed) said in that appeal:[4]
[2]See Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411; (1989) V ConvR 54-350 per Ormiston J; Postle v Sengstock [1994] 2 Qd R 290 per Macrossan CJ, McPherson JA and Derrington J at 298; Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 per Sheller, Beazley and Stein JJA at [137]; A Goninan & Co Ltd v Direct Engineering Services Pty Ltd (No 2) [2008] WASCA 112 per Martin CJ, McLure and Buss JJA at [37] to [40]; cf: Tuckey v Lawfield (unreported, Queensland Court of Appeal per Shepherdson, Williams and Ambrose JJ, 14 December 1990, BC9003248 at 10).
[3][2008] WASCA 112.
[4][2008] WASCA 112 at [37] to [40].
37. In Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VicRp 36; [1990] VR 411, Ormiston J considered whether and, if so, in what circumstances the deletion of words or clauses from a standard or common form contract may be referred to as an aid to construing a clause in the agreement actually entered into by the parties. His Honour said:
Many of the cases deal with the deletion of words or clauses from a standard or common form, such as a charter party, letter of credit or building contract. Perhaps the preponderance of authority favours the view that the court should not take those deleted clauses into account in interpreting a contract: see, eg, Scrutton on Charter Parties (19th ed), p. 21 and compare the many cases in footnotes 47 and 48, but excluding Stanton v Richardson(1874) LR 9 CP 390 and Glynn v Margetson[1892] 1 QB 337; [1893] AC 351: see the useful note by ER Hardy-Ivamy in (1959) 22 MLR 333, at p. 336. An earlier version of the passage in Scrutton (16th ed) has been cited with approval or qualified approval in a number of cases: see, eg, Louis Dreyfus and Cie v Pamaso Cia Naviera SA[1959] 1 QB 498, at p. 513; Building and Engineering Constructions (Aust) Ltd v Property Securities No 1 Pty Ltd [1960] VicRp 104; [1960] VR 673, at p. 681 and Mobil Oil Australia Ltd v Kosta(1969) 14 FLR 343, at 348, cited in Harrod v Palyaris Construction Pty Ltd(1973) 8 SASR 54, at p. 58. However, as pointed out by Pape J in the Building and Engineering Constructions Case, at p. 681, the passage in the 16th edition of Scrutton on Charter Parties reflected in part the benevolent view of Scrutton LJ in looking at words and clauses stuck out, and even in that edition it was doubted whether the view there expressed was good law. The 19th edition accepts that the weight of authority is now against looking at deletions. Expressions on high authority consistent with that view contained in A and J Inglis v John Buttery and Co(1878) 3 App Cas 552, at p. 569; Ambatielos v Anton Jurgens Margarine Works[1923] AC 175, at p. 185 and in particular in Viscount Sumner's judgment on behalf of the Judicial Committee in MA Sassoon and Sons Ltd v International Banking Corporation[1927] AC 711, at p. 721 were relied upon by Blackburn J, when sitting in the Supreme Court of the Northern Territory, so as to conclude that he should construe an agreement, in the absence of extrinsic evidence, without resort to any words struck out: Mobil Oil Australia Ltd v Kosta, at pp. 348-9. The same view was accepted by Jacobs J in Harrod v Palyaris Construction, at pp. 58-9. On the other hand, courts in recent years have looked, from time to time, at deleted clauses, although few of the dicta contain any analysis of authority: see, eg, Louis Dreyfus and Cie v Pamaso Cia Naviera SA, at pp. 512-13, per Diplock J; TJ Watkins Ltd v Cairns Meat Export Co Pty Ltd[1963] Qd R 21, at p. 27; London and Overseas Freighters Ltd v Timber Shipping Co SA[1972] AC 1, at pp. 15-16, per Lord Reid and Mottram Consultants Ltd v Bemard Sunley and Sons Ltd[1975] 2 Lloyd's Rep 197, at p. 209, per Lord Cross: cf Odgers on Deeds and Other Instruments (4th ed), pp. 64-5 and Chitty on Contracts (25th ed), para 782.
A distinction drawn in the authorities appears to have been given some significance. On the one hand there is no case of which I am aware in which a court has looked for the purpose of interpretation to a draft contract or term which has been rejected in the course of negotiations, although in several cases, some of which have been cited above, a court has been prepared to look at a clause or words which have appeared on, but which have been struck out of, a standard form contract. This distinction has been justified by saying that evidence of negotiations is always irrelevant to the process of construction, but that a deliberate and mutually agreed deletion of a standard form term may throw light on the parties' intentions in cases of ambiguity: cf City and Westminster Properties (1934) Ltd v Mudd[1959] Ch 129, at pp. 140-1 and London and Overseas Freighters Ltd v Timber Shipping Co SA[1972] AC 1, at pp. 15-16. In many ways there is robust common sense in looking at terms which undoubtedly all parties have deliberately chosen to strike out, certainly where part of the structure of a conventional or well known form is deleted. The distinction is, however, one which is hard to justify, for in an era of word processors standard agreements take many forms, and it may be just as clear from other extrinsic evidence that both parties have agreed not to include a term normally found in a standard contract or in a contract which the parties have frequently used for earlier transactions, which for brevity I have called 'conventional' contracts.
Moreover, it is unrealistic to assert that the decision to exclude a term in the one case should be characterised only as negotiations but not in the other case, merely because in the latter one it can be seen from the form what the parties rejected in the course of those negotiations. The significance, but essential irrelevance, of negotiations to the process of interpretation has long been accepted, though challenged in the recent work of Greig and Davis, The Law of Contract (1987), Ch 8, especially pp. 404-10 and 469-72. It is unfortunate that that chapter, instructive though it is, contains no discussion of the effect of deleted clauses and terms, which in my experience are the most frequent manifestation of the process of negotiation raised for consideration in the courts (421 - 422).
38 In Australia there is authority to the effect that deleted words or clauses from a standard or common form agreement, such as a building contract, may be taken into account in ascertaining the proper construction of ambiguous words or an ambiguous clause in the agreement actually made. See Postle v Sengstock[1994] 2 Qd R 290, 298 (Macrossan CJ, McPherson JA, Derrington J); Burger King Corp v Hungry Jack's Pty Ltd[2001] NSWCA 187 [137] (Sheller, Beazley and Stein JJA); 260 Oxford Pty Ltd v Premetis[2006] NSWCA 96 (Tobias JA [99], Basten JA [127] and Young CJ in Eq [132] - [134]).
39 In Burger King Corp, the High Court granted special leave to appeal: Burger King Corp v Hungry Jack's Pty Ltd(2002) 23(7) Leg Rep SL2. Special leave was not granted, however, on the issue of the circumstances in which words or clauses which have been struck out from a standard or common form agreement are admissible as an aid to construction. It appears that the proceedings in the High Court were discontinued in that there is no reported (or, as far as I have been able to ascertain, unreported) decision on an appeal pursuant to the grant of special leave.
40 It is unnecessary, in this appeal, to determine the precise ambit, having regard to the decisions of the High Court in Pacific Carriers and Toll, of the rule relating to the circumstances in which deleted words or clauses from a standard or common form agreement may be taken into account in ascertaining the proper construction of the agreement actually made. It is sufficient, for present purposes, to note that the rule at least permits the deleted words or clauses to be referred to as an aid to construing ambiguous words or an ambiguous clause in the concluded agreement.
See also the discussion of the authorities by Lewison and Hughes in support of the proposition that “despite older authority to the contrary, the court will nowadays often look at words which the parties have deleted from their contract in order to resolve ambiguity in the words which remain, although they are often an unsafe guide to meaning”.[5]
[5]Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co. 2012) 62-68, [30.4].
In relation to surrounding circumstance the defendant submitted that it is also well established that a court can have regard to pre-contractual communications if the contract is ambiguous[6] and that a court may also be entitled to look outside the instrument in the absence of ambiguity.[7] In the present circumstances, the relevant law is conveniently summarised by Allsop P (as he then was) in Franklins Pty Ltd v Metcash Trading Ltd[8] as follows:
The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 AT 188 [11]; Pacific Carriers v BNP Paribas (at 461 [22]); Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm (at 179 [40]) and International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and objective of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances.
[6]Referring to Codelfa Construction Pty Ltd v State Rail Authority in New South Wales (1982) 149 CLR 337.
[7]Referring to Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 (CA).
[8](2009) 76 NSWLR 603 at 616, [14].
In the present case, the plaintiff approached the construction of the Lease on the basis that there was an ambiguity, either within the provisions of clause 4 itself or in provisions of the lease which impinged upon the proper construction of clause 4. The defendant sought to disavow ambiguity but did, nevertheless, seek to rely on evidence of pre-contractual communications in support of its position. On the basis of the Franklins appeal decision this is not inconsistent with such disavowal and might be thought a “belt and braces” approach which is consistent with this position. In any event, for the reasons which follow, I am of the view that the provisions of clause 4 of the Lease are ambiguous. Consequently, it is not necessary to embark on any further consideration of whether the law requires any identification of ambiguity as a precondition to examining legitimate surrounding circumstances. Nevertheless, were it necessary to do so, the authorities referred to in the Franklins appeal decision by Allsop P indicate that there is no such precondition.[9]
[9]See Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 616-618, [14}-[18]; but see Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604; and see also Newey v Westpac Banking Corporation [2014] NSWCA 319.
Finally, in the context of evidence of legitimate surrounding circumstances, reference should be made to the approach to be adopted with respect to oral evidence in this respect, particularly in this case having regard to the time that is now elapsed since the Lease was entered into in 1988. In this respect, during the course of the trial, I made reference to the judgment of Lewison J (as he then was) in Food Co UK LLP (T/a Muffinbreak) v Henry Boot Developments Limited:[10]
4. Although some of the representations on which the tenants rely were made in writing, in all cases they allege that these representations were confirmed, expanded, or supplemented by oral representations. These oral representations were made in conversations and at meetings of which there is scant record. In approaching the evidence I have tended to place weight on contemporaneous documents and documents which came into existence before the problems emerged. In assessing the recollections of witnesses, it is also important to avoid the benefit of hindsight. I must try to assess what people did, said and thought at the time. In that connection I have borne in mind the words of Lord Pearce in his dissenting speech in Onassis v Vergottis [1968] 2 Lloyd’s Rep. 403, 431:
‘Credibility involves wider problems than mere “demeanour” which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person, telling something less than the truth on this issue, or, though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness, and motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process and in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.
[10][2010] EWHC 358 (Ch).
In my view, this statement of the law encapsulates the proper approach to be applied with respect to this evidence in the present circumstances. In relation to relevant documents I note that the only contemporaneous document available – and by contemporaneous I include the period prior to and subsequent to the execution of the Lease, prior to its assignment and transfer – is the Lease itself. No files are available from the Receiver and Manager or from the original tenant’s solicitors – all having been destroyed it appears in the course of the usual process of file disposal over time.
Extrinsic evidence
The extrinsic evidence sought to be relied on by the defendant as legitimate surrounding circumstances for the purpose of construing the Lease provisions was the oral evidence of Mr Hastings, of whom reference has already been made. As has been mentioned, Mr Hastings is a solicitor who was a member of the firm of Pearce & Webster. He acted for Mr Morris in relation to the Lease at which time his firm had an office in Melton. Mr Hastings swore an affidavit in this proceeding on 14 July 2014 in which he deposed as to the desire of the parties to the Lease to sub-divide the larger parcel of land of which the leased land then formed part and in relation to a meeting with Mr Sydney Silber of the firm S W Silber, solicitors, some time in 1988. Mr Silber was then acting as the the solicitor for the original landlord. In this respect, Mr Hastings said:[11]
14. I recall that the Lease was over a parcel of land that was contained within a larger parcel in a certificate of title, but that Mr Niemann was unable to sub-divide that parcel. I have checked the Lease and it is consistent with that recollection, as it leases to Mr Morris 12.15 hectares, as being part of land in certificate of title volume 7484 folio 127. I recall that there was a house on the leased land and that it was not in a residential zone.
15. I recall meeting Mr Silber to discuss drafting the Lease before it was executed. I think the meeting took place in his office, but I am not entirely certain. During that meeting, Mr Silber explained to me how the transaction came about. I recall that Mr Silber informed me that his client had come up with the idea of granting Mr Morris a long-term lease of the site. The Lease was prepared using a precedent lease that was available for purchase at the time and was then hand-amended by us. I recall that both Mr Silber and I said that we held instructions from our respective clients that the landlord was to be responsible for all rates, taxes and outgoings in respect of the leased land that were levied on it and that the tenant was only to be liable for rates, taxes and outgoings that were leveed on it as tenant. I understood this to mean that the landlord would not be invoicing the tenant for rates and taxed (sic) levied on the landlord. Mr Silber made the hand amendments to the Lease and I recall him asking whether those amendments would achieve the result that our clients wanted and I agreed that it did.
[11]Affidavit of Malcolm John Hastings (14 July 2014), [14]-[15].
Mr Hastings struck me as an honest and helpful witness. He impressed me as a solicitor well experienced in conveyancing and with a clear understanding of lease terms of the type contained in the Lease and, as one would expect, in relation to freehold conveyancing and the implications of planning scheme requirements or restrictions. Nevertheless, the events surrounding the drafting and execution of the Lease took place now nearly 26 years ago and this must strain human memory and raise the issues referred to by Lewison J in the passage from his Lordship’s judgment in the Muffinbreak case. I do, however, accept that Mr Hastings did have a recollection of the meeting because, as he explained, it was an unusual lease transaction and the other unusual circumstances to which I made reference in the background to these reasons are also factors which, in my view, would be inclined to fix the events in the lawyer’s mind; not that he seemed to remember or focus on some of the more unusual lease terms. Nevertheless, a recollection of the meeting is one thing, recollection of significant detail quite another. It became clear in the course of cross-examination that the account of the meeting in the affidavit provided by Mr Hastings was not entirely accurate in the sense that one needed to explore further what was meant by the sentence: “The Lease was prepared using a precedent lease that was available for purchase at the time and was then hand-amended by us”. In my view, this is a general and somewhat conclusionary description of the process only, as I think it is clear that his evidence was not that he and Mr Silber sat across a table, so to speak with a pen and ruler and crossed out parts of the standard form printed ‘Farm Lease’. Rather, it appears, they considered and discussed the document as prepared – with additions and strikeouts – by Mr Silber prior to the meeting.
The other difficulty with the evidence of Mr Hastings is that he sought to focus on the payment of rates, taxes and outgoings, hence the provisions of clause 4 of the Lease, and did not have regard to the effect of other provisions of the Lease; such as clause 13, clause 14 and the deletion of the proviso for re-entry, much less any recollection in respect of those provisions. He did, however, as indicated in his affidavit, recall and confirm that the reason for the parties adopting the lease structure to give effect to their transaction was because it was not possible to sub-divide the leased land from the larger parcel of land of which it then formed part because of restrictions in the relevant planning scheme.[12]
[12]Subdivision was, he said, only permitted into 40 hectare lots (see Transcript, p 44).
In other words, the evidence of Mr Hastings re-affirmed and reinforced the position that appears from clause 13 of the Lease, namely that that intention of the parties to the Lease and the purpose of the transaction was, in effect, to achieve a sale of the freehold – hence the once-off payment of $70,000 and the lease term of a century less one year. There was some discussion with Mr Hastings as to whether the $70,000 once-off rent payment represented freehold value at that time. It was conceded that Mr Hastings was not and is not a valuer and is not in a position to express an opinion on this point. Nevertheless, this does not detract from the position that a freehold transfer was what the parties were seeking to achieve and, given the length of the lease term, it would seem surprising if the sum of $70,000 was then substantially different from what would then have been a freehold price. In any event, this is not critical to the matters presently in issue as, of course, as the defendant submitted, the parties could have agreed to adopt a price, even for freehold land, on some other basis.
Proper construction of lease terms
The plaintiff, as landlord, by virtue of its current ownership of the leasehold reversion, contends that it has a monetary claim for arrears of rates and land tax. The plaintiff contends that it is entitled to recover these arrears under clause 4 of the Lease. The defendant, the current tenant as assignee of the lease term, contends that clause 4 of the Lease only imposes an obligation on the tenant to pay outgoings levied on the tenant itself, but does not impose any obligation on the tenant to pay any outgoings levied on the landlord itself.
The defendant contends that the words of clause 4 are clear and unambiguous and that it is well established that a court should interpret a contract, such as the Lease, as an ordinary business person would interpret it. It follows, the defendant says, that the natural and ordinary construction of clause 4 is that the tenant pays what the tenant is obliged to pay and the landlord pays what the landlord is obliged to pay. On this basis, it is submitted that to interpret the clause otherwise would be inconsistent with the words of the clause and would mean that an amount is payable “by the tenant” because the landlord has elected to pass on the requirement for payment or to reimburse a payment already made.
The plaintiff, on the other hand, contends that there is significant ambiguity in the provisions of clause 4 of the Lease, a contention which I accept for the reasons which follow.
First, there are real difficulties, in my view, with the “natural and ordinary construction” of clause 4 as advocated by the defendant. As the plaintiff observes, the words “payable by” as used in clause 4 are not synonymous with the words “levied on” which is, in effect, the meaning which the defendant’s interpretation would give to the former words. As the plaintiff contends, had the parties really intended to limit the outgoings payable by the tenant to those “levied on” the tenant, they might have been expected to use those or similar words. They could also have described the lease as a “gross lease” and, alternatively, they could have inserted a simple clause to the effect that the tenant would not be responsible to pay outgoings. These are, of course, not matters decisive in themselves. Nevertheless, in the mix of the Lease provisions which are to be considered and approaching the process of construction in the usual and accepted manner, particularly in construing the document as a whole, they are matters which tend to support the plaintiff’s case rather than the defendant’s case. Moreover, they do, in my view, go to indicating ambiguity in clause 4.
The plaintiff also submits that the interpretation advocated by the defendant introduces two absurdities. The first is that there is no evidence that there ever were, or are now, any rates, taxes or assessments levied on the tenant in respect of the premises. Thus it is said that the only rates and taxes the contracting parties could possibly have had in contemplation when the Lease was entered into were rates and taxes levied on the landlord as proprietor of the freehold land of which the leased land formed only a small part. In this context, the plaintiff also made reference to the judgment of Gobbo J in Lang v Asemo Pty Ltd[13] to the effect that “rates, taxes and assessments in respect of land” are to be distinguished from costs and charges paid for services to be consumed by a tenant in the premises, such as gas, electricity and telephone. The second absurdity raised by the plaintiff was the commercial absurdity in requiring a landlord to pay all outgoings for a period of ninety-nine years when that is inconsistent with the expressed intention of the contracting parties, that the land and improvements subject to the lease were to be conveyed by the landlord to the tenant by way of sale and purchase. This intention, spelt out expressly in the provisions of clause 13 of the Lease, is clearly and strongly supported by the oral evidence of Mr Hastings.
[13][1989] VR 773 at 779 (FC) (with whom Murphy and Phillips JJ agreed).
The plaintiff also sought to reply upon the final proviso to the lease – the paragraph commencing “Provided lastly”, which was not struck out – as supportive of the plaintiff’s rather than the defendant’s interpretation of clause 4. This position is put on the basis that the final proviso refers, unambiguously, to “rates agreed to be paid by the Lessee as aforesaid” which must be a reference to clause 4. Moreover, to the extent that rates were not separately assessed it might be said that these provisions support the plaintiff’s position with respect to the construction of clause 4 because if “payable by” does not mean, as the defendant would have it, “levied on”, then the final proviso has no work to do. Interestingly, this final proviso only refers to “rates” and not also to “taxes, assessments and outgoings”. I do not, however, regard this as significant as the effect of the final proviso is merely to render arrears recoverable as “rent in arrears under the Landlord and Tenant Act”. Having regard to the history of landlord and tenant legislation in Victoria I think it is a fair supposition that this was intended to make available the summary proceedings for the recovery of rent; particularly as rates may be thought to be more in the nature of a periodic obligation than land tax or other assessments and the like. It is clearly a very old provision as distress for rent was abolished in Victoria on 13 August 1948.[14] Having regard to these matters, it seems that a provision of this nature would have been included merely to provide an additional remedy – additional to an ordinary action of the lease covenants in clause 4. As I indicated in the course of argument at trial, I am of the view that this final proviso is, as a matter of language, merely consistent with whatever interpretation might be placed on clause 4 and, in that sense, is subservient to rather than determinative of the proper construction of the earlier provision.
[14]See Landlord and Tenant Act 1958, s 12. Distress for rent remains abolished to this day, in spite of the subsequent repeal of s 12 of this Act (see Asian Pacific Holdings Corporation Pty Ltd v Sharon-Lee Holdings Pty Ltd [2013] VSC 11 at [24] (Garde J)).
There is another aspect of the provisions of clause 4 of the Lease which does in my view, as the plaintiff contends, indicate a significant ambiguity and, moreover, lends support to the interpretation of clause 4 contended by the plaintiff. The words on the first line of clause 4 which refer to “all rates taxes assessments and outgoings whatsoever” are necessarily qualified because outgoings were levied in respect of a large piece of land of which the leased land comprised only a small part, less than five per cent. Those words contemplate an apportionment of outgoings as between the leased land and the much larger balance of the land of which it formed part. The words “shall be payable by the tenant”, which appear immediately before the words “in respect of the said premises”, make it clear that the tenant will only be liable to pay that proportion of the outgoings apportioned to the leased land. A number of cases indicate that the expression “in respect of the said premises” is a form of words which does conventionally appear in outgoings clauses for the purpose of delineating precisely what rates, taxes, assessments and outgoings are being imposed on the tenant.[15] The parties to the Lease must, in my view, have contemplated possible need for apportionment as it is clear from the Lease itself that the leased land is only part of a larger piece of land. Whether they were aware of the intricacies of the machinery of rating, or land tax or other assessments is a matter of speculation now. Nevertheless, on the basis that, as the defendant submits, the Lease should be interpreted as an ordinary business person would interpret it, it is a reasonable inference that the parties were aware of the need for apportionment. In any event, for the reasons which follow, it is not necessary to pursue this point further as the provisions of the Lease do, in my view, when considered as a whole, indicate with reasonable clarity the proper construction of clause 4, a matter to which I now turn specifically.
[15]See for example ANZ Banking Group Ltd v 112 Acland St Pty Ltd [2000] VSC 428 and Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411.
The plaintiff submits that clause 4 of the Lease should be construed as imposing an obligation on the defendant, the tenant, to pay rates and land tax, having regard to a variety of matters and provisions of the Lease itself.
First, the plaintiff submits that there are no rates, taxes or assessments which are or have ever been levied on the tenant. Rather, it contends that all are levied on the landlord. This proposition of fact was not contested by the defendant in the sense that no instance of any rates etc levied on the tenant was identified. Moreover, this position appears to be supported by the bundle of documents which were, by consent, tendered into evidence at the commencement of the trial and also by the oral evidence of Mr Hastings. The plaintiff contends that as the words in clause 4 which require the tenant to pay “all rates taxes assessments and outgoings whatsoever…in respect of the premises” were not excised by the parties prior to the execution of the Lease – and at a time when the parties were liberally excising various other provisions of the Lease – an intention is indicated that the tenant is to pay rates and land tax. Reference is also made to the last proviso to the Lease, which was not excised, which provides for recovery of “any rates agreed to be paid by the Lessee as aforesaid”. However, for the reasons indicated previously, I regard this provision as accommodating of the proper construction of clause 4 rather than a provision determinative of the construction of the earlier provision.
Secondly, the plaintiff submits that the excision of the words “excepting land tax” from clause 4 is significant in two respects. First, it is contended that the standard form printed provisions excluded the tenant from paying land tax altogether and yet the parties sought fit to reverse the exception by deleting it. This, it is said, reflects their intention that land tax would indeed be paid by the tenant. Secondly, it is contended that the deletion indicates that the contracting parties understood that the word “taxes” in clause 4, but for the deletion, indeed included land tax. In my view, as a matter of logic, in the context of the provisions of clause 4 it is difficult to argue against this proposition.
Thirdly, the plaintiff submits that the excision of the words “(but a proportionate part to be adjusted between the Landlord and Tenant if the case so requires)” from clause 4 indicates that the parties intended that there be no proportionate adjustment of any outgoings but that all outgoings would be paid by the tenant. It is said that the deletion obviated any suggestion that the landlord should ever have to share any outgoing expense for the duration of the lease.
Fourthly, it is contended that in the context of a ninety-nine year lease with no provision for regular payment of rent, or the review of rent, during the term of the Lease it would be absurd, commercially improvident and hence highly unlikely, for a landlord to commit to paying all rates, taxes, assessments and outgoings in respect to demised premises when such a long lease is tantamount to an absolute conveyance. In support of this proposition, it is submitted, further, that a court will always prefer an interpretation “which will avoid consequences which appear capricious, unreasonable, inconvenient or unjust”.[16] Further, it is contended that, as a matter of construction, “words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency”[17] and “(a)s part of the process of construction the court has power to correct obvious mistakes and the written expression of the party”.[18] Continuing in this vein, the plaintiff submits:[19]
3.6 It is clear from their expressed intention in clause 13 that if, in 1988, the land comprising the demise had its own title, the tenant would have been a purchaser and the landlord would have been a vendor. Because they were hamstrung, they opted for the next best thing, namely a very long lease. but it is clear, from various deletions from the boilerplate clauses[20] and the addition of new clauses[21] that, so far as they practically could, they intended to create the conditions under which the tenant, as occupier of land would be able to enjoy the land as if it were the proprietor, for a very considerable length of time without any possibility of interruption by the landlord and without having to maintain any concern for the landlord’s ultimate interest in the land. It is consonant with that objective that the tenant should bear all outgoings relating to the premises for the foreseeable future, just as an owner would. It is entirely inconsistent with that objective that the landlord should do so.
[16]Australian Broadcasting Commission v Australian Performing Right Association Ltd (1997) 129 CLR at 99-109.
[17]Barbcraft Pty Ltd v Geobel Pty Ltd [2003] VCAT 1700 (3 November 2003) per M.F. Macnamara DP at paragraph 26 applying the High Court Judgment of Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420, 426-7. The inconsistency is the disparity between clause 4 and the last unnumbered provision and excision of the words “excepting land tax”; the absurdity is the lack of commerciality in a landlord paying rates and taxes for 99 years when the property is to be enjoyed by another person.
[18]Barbcraft at paragraph 44; and see Schloomp Pty Ltd v Carricks Ltd (1991) Q ConvR 54-402 (FC).
[19]Plaintiff’s Submissions (22 September 2014), [3.6].
[20]The deletion of the words “or sooner determination” in clause 10 of the lease; the deletion of clause 5 (tenant’s repair obligation); the deletion of clause 8 (landlord’s right to inspect and carry out works); the deletion of clause 9 (tenant’s obligation to secure landlord’s consent to assignment or sub-letting); the deletion of clause 11 (tenant’s obligation to use the premises in a proper way); and the deletion of the proviso appearing at the foot of the second page of the lease (the landlords’ right to re-enter and determine the lease). These deletions effectively remove the landlord from the picture for the next century.
[21]Clause 14 (no power of re-entry by landlord, regardless of tenant’s breach); clause 15 (tenant’s right to assign, sub-let, grant licences without the landlord’s consent); and clause 16 (tenant’s right to demolish and build without seeking landlord’s consent). These additions also effectively removed the landlord from the picture for the next century.
Moreover, the plaintiff contends that consistently with the objective of, in effect, effecting a freehold conveyance, the whole of the rent was paid upon commencement of the lease, effectively as a “purchase price” as the transaction was tantamount to an absolute conveyance. It is submitted that “because the rent was the equivalent of the value of the land at that time, the absurdity of the landlord paying all outgoings for the land for the next century is all the more stark”.[22] As I have indicated previously, there is no evidence which establishes that the $70,000 to which reference is made in clause 13 was equivalent to the then market value of the leased land as freehold. Nevertheless, in light of the expressed intention contained in clause 13 of the Lease, it appears more probable than not that this was the position, more or less. Moreover, having regard to the fact that the Lease was being entered into by a receiver and manager with obligations to deal properly with assets of the company for which he was receiver and manager and in the absence of any suggestion of a breach of any of these duties, this position is, in my view, reinforced. However, in this respect, the more decisive consideration flows from the plaintiff’s submission that if it had been the true intention of the parties that the tenant pay no outgoings, it would have been a simple matter for the parties to have expressed the lease as being a gross lease or words to that effect. For example, the plaintiff says that the lease could have included a provision that the tenant would not be required to pay any outgoings whatsoever. Instead, words imposing an obligation to pay all manner of outgoings were retained.
[22]Plaintiff’s Submissions (22 September 2014), [3.7].
Finally, the plaintiff points to the conduct of the defendant in relation to the impending assignment and transfer of the lease term as indicate of the position “of a reasonable bystander”:[23]
[23]Plaintiff’s Submissions (22 September 2014), [3.9].
3.9. It is informative that the Defendant (by extension a reasonable bystander) clearly understood clause 4 as imposing obligations on the tenant to pay rates and land tax -
(i) On 12/10/04 the Defendant’s solicitors obtained a Rate Certificate from the council and a Land Tax Certificate from the State Revenue Office to ascertain what the rates and taxes in respect of the land were.
(ii) On 15/10/04 being the date of settlement of the “purchase” of the “business” the Defendant reserved its “rights to require an adjustment…. in respect of outgoings which accrue on the Demised Premises in respect of all periods prior to the settlement date, should our client be called upon to attend a (sic) payment of these outgoings”.
(iii) On 6/8/04 when the Defendant was already contract bound to “purchase” the “business”, the Defendant’s solicitor wrote to the Defendant’s director advising that an adjustment of outgoings at settlement would be made.
The significance of the defendants’ conduct in this respect was not developed further in the oral and written submissions of the parties. It might be said that this conduct is in the nature of subsequent conduct which is not relevant to contractual interpretation or, alternatively, that it is conduct objective in nature and not objectionable on this basis.[24] Moreover, it might be said that the time the conduct occurred the defendant was not a party to the contract and, consequently, the constraints on the use of subsequent conduct by parties with the purpose of contractual interpretation is not applicable. Although it might be said that this is objective evidence of concurrence as between the now present parties to the Lease with respect to critical aspects of the construction of clause 4 of the Lease, I can, on the evidence, only regard it as consistent with but not decisive as to the position advocated by the plaintiff.
[24]See Lewison and Hughes, The Interpretation of Contracts in Australia, (Lawbook Co, 2012), 122-130, [3.15]; and see Jason (AMC) Pty Ltd v The Australis Marketing Corporation (Int) Pty Ltd [1995] VicSC 60 (23 February 1995) at 20 – 22 (Hayne J).
The defendant in its submissions focuses on the phrase ‘payable by the tenant’ reading it, in effect, as meaning ‘levied on the tenant’. In my view, as contended by the plaintiff, the expressions bear significantly different meanings. More particularly, the word ‘levied’ denotes something different from ‘payable’. The former, in my view, is a word which contemplates payment both as a result of some requirement for payment made by a governmental authority of some kind with authority based in statute to require payment. This is in contrast to an obligation to make payment of a sum levied on another person arising under a contractual (or lease) requirement. This, in my view, is clear from the definition of ‘levy’ contained in the Macquarie Dictionary:
7.Levy/lεvi/noun (plural levies) 1. a raising or collecting, as of money or troops, by authority or force. 2. that which is raised, as a tax assessment or a body of troops. – verb (t) levied, levying) 3. to make a levy of; collect (taxes, contributions, etc.). 4. to impose (a tax): to levy a duty on imported wines. 5. To raise or enlist (troops, etc.) for service. 6. to start, or make (war, etc.). – verb (i) 7. to make a levy. 8. Law to seize or attach property by judicial order. [Middle English, from French levee, from lever raise. SEE LEVER] – levier/’lεviә/, noun
‘Payable’, on the other hand, is almost a statement of a conclusionary position in the sense that money may be payable by a person either as a result of the levying of some charge or tax by a governmental authority exercising statutory power or as a result of a private contractual obligation entered into with, for example, a bank, an ordinary commercial party or, more specifically, a landlord under a lease to which the payee is a party as tenant.
The defendant also contends that the provisions of clause 4 may be viewed as something in the nature of a provision for the contingency that some rates or taxes in the future may be levied directly on the tenant, in which case they are payable by it. It is suggested, for example, this may include water rates or other levies. This contention appears to be consistent with the position put by the plaintiff that there are no rates, taxes, or assessments which are or have ever been levied on the tenant. Moreover, the defendant contends that clause 4 applies to assessments and outgoings as well as to rates and taxes and that there is no reason why rates and taxes should be singled out. It is difficult to see what follows from this contention as in terms of the operation of clause 4 as it does, at least, appear to be clear that it is an omnibus provision as indicated by the reference to ‘all the rates taxes assessments and outgoings whatsoever’.
The next point made by the defendant is that the Lease is a single document and is capable of operating sensibly, as it has for the last 26 years. It is said that there is no absurdity or obvious error in the document and there was no basis for effectively re-drafting it. Moreover, it is submitted that there was no basis in the text for limiting the operation of the clause to operate after the lease premises were separately rated, no evidence that the fact that when the lease was entered into rates and land tax were levied against the landlord and not against the tenant, and that in any event there is no reason for treating rates and taxes as different from other assessments and outgoings. In this vein, it is submitted that the construction of the lease advocated by the plaintiff is strained and involves the court re-drafting the words of the clause. In my view, these contentions do not advance the defendant’s case. First, the construction advocated by the plaintiff does not, in my view, involve re-drafting of any of the provisions of the Lease. It is merely an exercise in construction of the document, read as a whole, according to well accepted principles of construction. Secondly, whether, as the plaintiff pleads in its reply, “…outgoings in respect of the premises when the lease was entered into were council rates and land tax which outgoings were levied against the landlord and not against the tenant” was a matter in the minds of the parties at the time the lease was entered into is not a matter that needs to be explored at this stage having regard to the provisions of the Lease which, for the reasons I have and will indicate, determine the proper construction of clause 4.
The defendant also makes some further submissions with respect to the nature of long leases, commercial efficacy and party motives combined with a reference to the final (undeleted) proviso to the Lease, submissions which it is most convenient to set out in full:[25]
[25]Defendants’ Closing Submissions (22 September 2014), [7].
7. Further:
(a)the lease takes the form of a long term lease with no onerous obligations on the tenant. Long leases with no ongoing rent or onerous obligations are not alien to the law and were discussed by Deane J in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1988) 57 ALR 609 at 635-636;
(b)the landlord now complains that the transaction lacks commercial efficacy (see para 2.2.3 of the amended reply and defence to counterclaim). Parties regularly enter transactions that turn out to be a bad bargain. This does not give the Court power to re-draft the contract;
(c) further:
i.the Court cannot make any conclusions about the Receivers’ motives, as he is deceased and cannot be called to give evidence;
ii.the defendant has subpoenaed the Receivers’ files and nothing has been produced;
iii.the Court cannot speculate into why this transaction took place the way it did. In particular:
A.it may have taken place with the blessing of the landlord company and its creditors;
B.the land may have been viewed as unsalable (noting that it was not in fact sold until 1994, some 6 years later);
C.the transaction may have been part of a wider bargain;
D.the Receiver may have concluded that value of money now would outweigh the burden of rates and taxed in the future, particularly if the company was to be deregistered;
There is simply not enough evidence available to allow the Court to form any further conclusions;
(d)clause 13 shows that the original landlord and tenant intended to convey the freehold to the tenant. However, Mr Hastings gave evidence that he was prevented by planning laws from doing so. It does not follow that they must have intended the tenant to pay land tax and rates, particularly in light of the clear words of clause 4 and Mr Hasting’s recollection of his conversation with Mr Silber;
(e) the final paragraph of the leases states that (emphasis added):
… in the event of any rates agreed to be paid by the Lessee as aforesaid being unpaid at any time or times when due to the Shore or Borough or otherwise it shall be lawful for the Lessor to make payment thereof and to distrain sue for or recover as if same were rent in arrears under the Landlord and Tenant Acts.
This clause can only apply to rates agreed to be paid. It does not apply to taxes, outgoings or assessments. This cannot be used to change the clear words of clause 4 of the lease, in which the tenant agrees to pay only ‘rates taxes assessments and outgoings … payable by the tenant’. To do otherwise is circular.
8.Importantly, the plaintiff seeks to re-draft the clear words of clause 4 but has not sought rectification. If, as it suggests, the intention of the parties must have been that rates and taxes were payable, then it should have sought rectification.
In relation to these further submissions I accept that the law is clear that long leases with no ongoing rent or onerous obligations are not alien to the law and that the Progressive Mailing House case, particularly the discussion in the judgment of Deane J to which reference is made, is a good example in this respect. It is not suggested, however, there is any difficulty with a long term lease of which the Lease is an example. Rather, in the context of all the provisions of the Lease it is significant, in my view, that the lack of the usual onerous obligations on a tenant that one would more commonly find in leases, together with the provisions of clause 13 of the Lease, is significant and supportive of the plaintiff’s contentions as to the proper construction of clause 4. In the same vein, it is true as a general proposition that parties do regularly enter into transactions that turn out to be a ‘bad bargain’. However, in the present circumstances where the parties have taken the trouble to indicate their intention underlying the transaction which manifested itself in the form of a Lease, it would go beyond the usual risks of a ‘bad bargain’ to construe a document which was intended to be, in effect, a conveyance of freehold title, as imposing an obligation on the landlord for nearly a century which is absolutely at odds with the result that would have been produced if the parties had been able to give effect to their intention of a freehold conveyance by way of sale. As to motives, and speculation as to any wider bargain or related matters, it is not necessary to venture into that territory. The plaintiff does not do so and, in any event, the provisions of the Lease to which reference has been made provide the answers necessary for its proper construction.
In relation to Mr Hastings’ recollection of the intention of the parties, I am of the view that at its highest that evidence confirms the position as stated in clause 13 of the Lease and serves to emphasise that the parties sought to effect a sale of the leased land but could only give effect to their intention by entering into a long term lease because of the effect of planning laws then applicable. For the reasons previously indicated with respect to the evidence of Mr Hastings, I am of the opinion that this is the only reliable matter that can be taken from it in light of clear problems with recollection as to detail. Indeed the judgment of Lewison J in the Muffinbreak case supports this view as this aspect of the evidence is consistent with the only critical contemporaneous document available, namely the Lease itself. In this context, issues were raised by the defendant in relation to the fact that Mr Morris, the original tenant, was not called to give evidence in relation to these matters. Brief submissions were made with a view to invoking the rule in Jones v Dunkel[26] on the basis that he could have been called to give evidence: and, of course, he is a party to the proceedings.In my view, there are at least two problems with this submission. The first is that, even if Mr Morris’ recollection after 26 years was better than Mr Hastings’ recollection, if his evidence contradicted the statement of intention contained in the contemporaneous document, the Lease, it would follow, on the basis of the authorities to which reference has been made, that the court should prefer the evidence provided by the contemporaneous document. The second difficulty with the submission is that there is a pre-condition to the invocation of the rule in Jones v Dunkel, an authority which often appears to be invoked more as a slogan rather than an authority to be carefully applied. In Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd[27] the Court of Appeal said:[28]
[26](1959) 101 CLR 298.
[27][2012] VSCA 103.
[28][2012] VSCA 103, [154]-[156] (Nettle and Neave JJA, with whom Bell AJA agreed).
154Finally, under Grounds 9 and 10, counsel for the appellant submitted that the judge erred by refusing to draw a Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 inference adverse to the respondent on the basis of the absence from the witness box of the witnesses which the respondent had proposed to call.
155As to that aspect of the matter, the judge reasoned as follows:
Applying the reasoning in Jones v Dunkel, I am of the opinion that no inference can be drawn in the present circumstances unless and until the party bearing the burden of proof of its case (the plaintiff) has by the evidence it relies upon established a case for the defendant to answer. If and when the plaintiff were to establish its case, then the defendant may, if it did not call evidence to rebut the case, be left in the position of arguing its case against the plaintiff's unchallenged or uncontradicted evidence. This may of itself, or with the aid of inferences according to the rule in Jones v Dunkel, establish the plaintiff's case. However, I am of the opinion that the rule in Jones v Dunkel may not be resorted to by a party, in effect, to fill in the facts of its case before the threshold for the operation of the rule is reached, as explained in the passage from the judgment of Windeyer J above. Reasons, [17].
156With respect, there is no error in that analysis.[29]
In the present context, there is, in light of the evidence of Mr Hastings, no basis for application of the rule in Jones v Dunkel as there is no relevant case in relation to this issue which the plaintiff might be expected to rebut.[30]
[29]Reasons, [2011] VSC 153 (Croft J), [17].
[30]And see Transcript, pages 87 – 89.
Lastly, the defendant places reliance upon the final proviso to the Lease. In my view such reliance is misplaced, for the reasons already indicated. The proviso is accommodating rather than determinative. As to the concluding submission, as already indicated, the process of construction advocated by the plaintiff is just that and is not an exercise in re-drafting in any way contrary to the established principles of construction.
The defendant also makes reference in its submissions to the deletions from clause 4. The defendant says that the deletions are significant on various bases:[31]
[31]Defendants’ Closing Submissions (22 September 2014), [12].
12. The defendant says that the deletions are significant because:
(a)The words ‘
excepting land tax’ show that the parties expressly considered liability for land tax;(b)the words ‘
Landlord or’ show that the parties deliberately excluded from the clause ‘rates taxes assessments and outgoings … payable by the Landlord’. This is consistent only with the defendant’s thesis;(c) as land tax is payable only by the registered proprietor of the land, there can be no other explanation for the deletion of those two phrases other than a deliberate exclusion of the tenant’s liability for land tax;
(d)similarly, the words ‘
but a proportionate part to be adjusted between Landlord and Tenant if the case so requires)’ can only be explained by a deliberate decision to remove the tenant’s liability for outgoings levied on the landlord. The plaintiff contends that apportionment is exactly what was intended. However, those words are included in the standard form contract to avoid a tenant’s being held liable for outgoings that apply to land retained by the landlord. In this case, land was retained by the landlord (see the description of the leased premises in the lease). The plaintiff now seeks to apportion rates and land tax in the way that the parties rejected by deleting those words;(e)it is no answer for the plaintiff to say that the exclusion of liability for landlord’s outgoings applied only until the land was subdivided. The inclusion of a clause to that effect would have been a simple drafting exercise. In any event, the deletion of the words ‘(
but a proportionate part to be adjusted between Landlord and Tenant if the case so requires)’ is inconsistent with that thesis; and(f)the balance of the deletions are consistent with this being a long term lease in the manner considered by Deane J in Progressive Mailing House v Tabali and do not inform the construction of clause 4.
Many of the matters raised by the defendant in the submissions have already been dealt with in the preceding reasons but there are some further matters which require some comment.
I accept that the deletion of the words “excepting land tax” show that the parties were considering liability for land tax but it must be kept in mind, as emphasised by the plaintiff, that the deletion of these words is the deletion of an exception which, in the context of clause 4 does, in my view, show quite clearly that the expression ‘all rates taxes assessments and outgoings whatsoever’ does include land tax.
The deletion of the words ‘Landlord or’ do not, in my view, support the defendant’s thesis as to the proper construction of clause 4. In my view, the contrary is the position, particularly when regard is had to the difference in meaning between the words “payable by” and “levied on” as already discussed. Having regard to these matters, I am of the view that the deletion of these words is consistent with the position that the landlord was to pay nothing by way of “rates taxes assessments and outgoings whatsoever”. Moreover, contrary to the defendant’s submissions, I am of the opinion that the deletion of the words “(but a proportionate part to be adjusted between Landlord and Tenant if the case so requires)” is entirely consistent with and supports the view that the deletion of the words “Landlord or” indicate that the landlord is to pay nothing by way of rates taxes etc regardless of whether or not they are ‘levied on’ the landlord initially. Put simply, if only one party, the tenant, is liable to pay, regardless of the initial levying, then there is nothing to adjust, proportionately or otherwise, between them.
The further submission in relation to the deletion of the proportionate adjustment provision in parenthesis goes to the plaintiff’s submissions as to a suggested alternative series of revisions to clause 4 to accommodate what is said to be the parties’ possible intentions.[32] In my view the suggested alternatives require a re-drafting of the provisions of the Lease which go beyond the process of construction in which courts properly engage and, further, involve speculation as to party intent which is not supported either by the provisions of the Lease or other documentary material in evidence. In any event, for the reasons I have indicated previously it is not necessary for the plaintiff’s case to establish and succeed in relation to the suggested alternatives and so I take the matter no further.
[32]See Plaintiff’s Submissions (22 September 2014), [4]-[7].
Conclusion and orders
For the preceding reasons the plaintiff is entitled to a declaration that the Lease on its proper construction provides that the defendant shall pay all rates, taxes, assessments and outgoings whatsoever in respect of the leased land, including land tax.
The question of costs is reserved, as is the question of quantum with respect to the rates, taxes, assessment and outgoings, including land tax payable by the defendant.
The parties are to bring in orders to give effect to these reasons.
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