Eureka Operations Pty Ltd v Viva Energy Australia Ltd
[2016] VSCA 95
•10 May 2016
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0134
| EUREKA OPERATIONS PTY LTD | Applicant |
| v | |
| VIVA ENERGY AUSTRALIA LTD | Respondent |
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| JUDGES: | SANTAMARIA, FERGUSON and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 8 March 2016 |
| DATE OF JUDGMENT: | 10 May 2016 |
| MEDIUM NEUTRAL CITATION: | [2016] VSCA 95 |
| JUDGMENT APPEALED FROM: | [2015] VSC 648 (Croft J) |
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CONTRACT – Commercial leases and licences – Interpretation – Respondent leased sites to applicant to operate service stations and convenience stores – Proposed assignment of lease to third party and concurrent lease by third party in favour of respondent – Effect of concurrent lease to confer right on respondent to use and occupy leased area at end of Lease – Lease stated ‘[a]fter the date of this Lease and until the Lease comes to an end, [the respondent] may not grant to any person any right to use or occupy and part’ of leased area without applicant’s prior written consent – Whether clause prohibited grants made during term of lease but taking effect after end of lease – Relevance of context and purpose where text said to be unambiguous.
CONTRACT – Interpretation – Agreement provided that party could assign ‘all or any part’ of certain rights and obligations – Whether ‘all or any part’ identified minimum content of obligations that could be assigned – Appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P H Solomon QC with Dr C O H Parkinson | Mills Oakley |
| For the Respondent | Mr S G Finch SC with Ms T L Wong | Quinn Emanuel Urquhart & Sullivan |
SANTAMARIA JA
FERGUSON JA
McLEISH JA:
On 27 May 2003, The Shell Company of Australia Ltd and Coles Supermarkets Australia Pty Ltd, along with other related companies, entered into an ‘Alliance Agreement’ for the operation of service stations and associated convenience stores. The applicant, Eureka Operations Pty Ltd (‘Eureka’), which was the principal Coles vehicle for giving effect to the alliance, alleges that steps now proposed to be taken as a result of a corporate reorganisation involving the Australian operations of the Shell group of companies will be in breach of provisions of the Alliance Agreement and related agreements. The respondent, Viva Energy Australia Ltd (‘Viva’), is the company formerly called The Shell Company of Australia Ltd.
Eureka sought declaratory and injunctive relief from a judge in the Trial Division. Its claim was dismissed on 27 November 2015. It now seeks leave to appeal. For the reasons that follow, leave to appeal should be granted but the appeal should be dismissed.
Alliance Agreement and Site Leases
The Alliance Agreement recites that the applicant and the respondent, under their former names, believed that it was in their respective interests to form an alliance under which, among other things:
(a) Eureka would operate on its own account and for its own benefit certain service stations and associated convenience stores within Australia;
(b) Viva would supply its motor fuels to Eureka to sell under Viva’s trade marks and brands at service stations operated by Eureka; and
(c) Eureka may offer to customers of certain Coles entities discounted prices for Viva’s motor fuels purchased from service stations operated by Eureka.
Clause 2 provides that the parties entered into and formed the alliance on the terms set out in a series of project agreements (including the Alliance Agreement itself).
Clause 3.2 of the Alliance Agreement provides that, subject to its earlier termination, the Alliance Agreement will terminate on the 20th anniversary of the ‘Phase 2 Rollout Date’. Clause 3.5 provides that, if the alliance is continuing on the 15th anniversary of that date, representatives of the parties must meet together and discuss in good faith a continuation of the alliance beyond the 20th anniversary, with the proviso that this does not impose any right or obligation with respect to the continuation of the alliance after that date.
Clause 4 provides that Eureka will be responsible for the conduct of the ‘Business’ and will conduct the Business on its own behalf and for its own account and will be entitled to all profits made, and will bear any losses incurred, in its conduct of the Business. The ‘Business’ is defined to mean the business of operating service stations and associated convenience stores that is conducted, or is to be conducted, by Eureka at the leased or licensed areas of ‘Alliance Sites’.
There are two kinds of ‘Alliance Sites’: ‘Alliance Lease Sites’ and ‘Alliance Licence Sites’. The ‘Alliance Lease Sites’ are, generally speaking, sites owned by Viva or sites leased by Viva and leased as to part by Viva to a person other than Eureka. The ‘Alliance Licence Sites’ are those Alliance Sites other than Alliance Lease Sites.
The relationship between Viva and Eureka in respect of individual sites is governed by a series of Site Leases and Site Licences. Viva may grant leases or licences in respect of sites it owns, and sub-leases or licences in respect of sites it leases; predominantly, it leases the sites it owns and grants licences in respect of the leased sites.
Under the Site Leases, Viva owns or leases the Site, and owns or is entitled to use the ‘Fuel Equipment’ (as defined). Viva agrees to grant Eureka a lease of the relevant area and the right to use the Fuel Equipment for the conduct of the Business on the terms set out in the lease.
Clause 2.4 of each Site Lease states that the lease is subject to, among other things, ‘Third Party Interests’. The expression ‘Third Party Interest’ is relevantly defined in the Site Leases as follows:
Third Party Interest means any lease or licence of part of the Site … to any person other than [Eureka], any representative of [Eureka], or any [Viva] entity, that:
(a) is in force, or takes effect, as at the date of this Lease; or
(b) is granted by [Viva]:
(i) after the date of this Lease; and
(ii)if Clause 2.6 applies in relation to the proposed granting of the lease or licence, in accordance with Clause 2.6,
that is disclosed by [Viva] to [Eureka] in writing and includes those, if any, described in Item 5 of Schedule 1.[1]
[1]Clause 2.6 gives Viva and its authorised representatives the right to enter onto the relevant area in specified circumstances.
Clause 2.7 further provides:
Granting of further licences or leases
After the date of this Lease and until the Lease comes to an end, [Viva] may not grant to any person any right to use or occupy any part of the Leased Area (other than a further term in accordance with a Third Party Interest) or to use the Fuel Equipment except with [Eureka]’s prior written consent.
Clause 10.1 of each Site Lease provides for a restriction on the ability of Viva to dispose of its interests in the Site, in the following terms:
No disposal without consent or unless permitted
Without limitation to anything in the Alliance Agreement, [Viva] may not sell, transfer, assign, surrender, declare itself a trustee of or part with the benefit of or otherwise dispose of all or any part of its right, title or interest in the Site or, if the Site is Leased, the Head Lease, or attempt or purport to do so except as permitted under the Alliance Agreement or with [Eureka]’s prior written consent which may not unreasonably be withheld, and any transaction by which [Viva] does so, or attempts or purports to do so, in breach of this Clause 10.1 will be void and of no effect.
Clause 11.1 provides for a right of first refusal on the part of Eureka if Viva intends to sell, transfer or otherwise dispose of all or part of the Site. It provides as follows:
Offer by [Viva]
(a)If [Viva] intends to sell, transfer or otherwise dispose of (sell) all or part of the Site or, if the Site is Leased, assign or surrender its interest in the Head Lease, at any time while the Lease continues, [Viva] must first offer to sell all or part of the Site, or assign its interest in the Head Lease, as applicable, to [Eureka] by delivering to [Eureka] a form of Contract (in each case an Offer).
(b)[Viva] will be taken to have made an Offer at the time when it delivers a form of Contract to [Eureka] under Clause 23.1(a).
(c)[Viva] may enter into a contract to sell the Site or, if the Site is Leased, to assign its interest in the Head Lease, that is conditional on [Eureka]’s right of first refusal under this Clause 11.1 not having been exercised.
Under the Site Licences, Viva again owns or leases the relevant site and owns or is entitled to use the Fuel Equipment. Viva agrees to grant Eureka a licence to use and occupy the relevant area and to use the Fuel Equipment for the conduct of the business. Clauses 2.6, 11.1 and 12.1 of the Site Licences are in effect in the same terms as clauses 2.7, 10.1 and 11.1 of the Site Leases set out above. Clause 2.3 of the Site Licences, like cl 2.4 of the Site Leases, provides that the licence is subject to all ‘Third Party Interests’.
As contemplated by the Alliance Agreement and related agreements, the parties entered into over 300 leases and more than 80 licences in or around 2003 in the terms of the Site Lease and Site Licence scheduled to the Alliance Agreement. While the terms of the leases and licences are relevantly the same, they differ in obvious respects as a result of the fact that they relate to different areas of land upon which different kinds of businesses are conducted. In many, but not all, of the sites there are ‘Third Party Interests’, as defined, described in Item 5 of Schedule 1 of the relevant lease or licence. In some cases, for example, restaurants, fast food businesses or vehicle repair services are operated by third parties.
As well as the rights of first refusal and the limitations on disposal of individual sites contained in the Site Leases and Site Licences, the Alliance Agreement provides for a further right of Eureka upon termination of the Alliance Agreement in certain circumstances. Clause 29.12 relevantly provides:
Elections after termination by agreement
If the Alliance is terminated:
(a) by agreement …; or
(b) …
then:
(i) …; or
(ii)… [Eureka] may by notice to [Viva] elect to purchase all Owned Alliance Sites and to take an assignment of [Viva]’s interest in the Head Lease of all Leased Alliance Sites ….
‘Owned Alliance Sites’ and ‘Leased Alliance Sites’ are those sites owned or leased, respectively, by Viva.
Clause 27.1 of the Alliance Agreement, as originally executed, provided that Viva must not cease to be a member of the Royal Dutch/Shell group of companies without Eureka’s prior written consent. However, Viva was permitted to assign its rights and obligations to another member of that group of companies, provided it satisfied cl 36.1(f) of the Alliance Agreement.
Clause 36.1(f) was relevantly in the following terms:
[Viva] may assign all or any part of its Alliance Rights and Obligations to another member of the Royal Dutch/Shell Group if:
(i)the assignee fully and effectively assumes the obligations to be assigned to it; and
(ii)[Viva] guarantees to [Eureka] the performance by the assignee of the obligations to be assigned to it …
The ‘Alliance Rights and Obligations’ of a member of the Alliance are defined as that member’s rights, title, interest and benefits in, to and under a project agreement and its obligations and liabilities under a project agreement, from time to time. The project agreements include the Site Leases and Site Licences.
Sale of Viva to the Vitol group
On 13 December 2013, pursuant to cl 27.1 of the Alliance Agreement, Eureka consented to Viva being divested from the Royal Dutch/Shell group and being sold to any of three named bidders, including Vitol Holding BV (‘Vitol’). In return for that consent, a Shell group entity agreed to pay Eureka $15 million, in addition to an amount of $10 million it had already agreed to pay in return for Eureka’s consent to the sale in principle.
Eureka gave its formal consent by deed poll dated 21 January 2014. At the same time, the reference in cl 36.1(f) of the Alliance Agreement to the ‘Royal Dutch/Shell Group’ was agreed to be changed to the ‘Vitol Controlled Group’, as defined.
It was further agreed by Eureka under the deed poll, for the avoidance of doubt, that the restrictions in cls 10 and 11 of the Site Leases and cls 11 and 12 of the Site Licences were not to apply to any sale, transfer, assignment, surrender, declaration as trustee or any other disposal of any right, title or interest in any Site Lease or Site Licence, provided that such disposal is made consistently with cl 36.1(f) of the Alliance Agreement.
In February 2014 Vitol agreed to purchase the entire share capital of Viva.
Proposed real estate investment trust
In June 2015, Viva provided to Eureka details of a proposal under which Viva would establish a listed real estate investment trust, into which it would transfer the land and assets of its service station network. By a revised implementation plan dated 3 September 2015, Viva relevantly proposes the following steps:
(d) Viva will incorporate a company and settle a property trust, both with nominal capital, whose securities will ultimately be stapled and quoted on the Australian Stock Exchange;
(e) the newly incorporated company will establish a subsidiary (‘the sub-trust trustee’) which will settle a sub-trust;
(f) Viva and the sub-trust trustee will enter into a sale agreement in relation to the land and related assets of Viva;
(g) upon completion of the sale contract, the sub-trust trustee will assume all obligations under the Site Leases and Site Licences assigned to it, by execution of an assumption deed poll in favour of Eureka, and Viva will guarantee to Eureka the performance by the sub-trust trustee of those obligations;
(h) the sub-trust trustee, as owner of the land and related assets, will then grant Viva concurrent leases in relation to the land and related assets; and
(i) upon commencement of the concurrent leases, Viva will assume all obligations under the Site Leases and Site Licences acquired by it by virtue of the concurrent leases, by execution of a further assumption deed poll in favour of Eureka, and the sub-trust trustee will guarantee to Eureka the performance by Viva of those obligations. However, the obligations under cl 11.1 of the Site Leases and cl 12.1 of the Site Licences which relate to the right of first refusal granted in favour of Eureka will be excluded from the concurrent leases and so will remain obligations of the sub-trust trustee rather than Viva.
In order to understand the final step mentioned above, and the arguments raised by Eureka in respect of the proposal, it is necessary to say more as to the effect of the proposed concurrent leases.
As the trial judge explained, a concurrent lease is a lease granted by a lessor who has already granted a lease over the property in question, in circumstances where the terms of the leases are partly or wholly concurrent.[2] During the period of concurrency, the concurrent lease operates as an assignment of the lessor’s reversion immediately expectant on the existing lease. The concurrent lessee is, in effect, interposed between the lessor and the existing lessee so that the concurrent lessee becomes the landlord under the existing lease. On expiry or termination of the existing lease, the lessor resumes the position of landlord and the concurrent lessee becomes entitled to possession.
[2]See Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2015] VSC 648 [44]–[47] (‘Reasons’). See also Waterhouse v Waugh [2003] NSWCA 139 [27]–[28] (Handley JA); Chief Commissioner of State Revenue (NSW) v Centro (CPL) Ltd (2011) 81 NSWLR 462, 475 [72]–[73] (Sackville AJA).
In the present case, it is proposed that the sub-trust trustee will succeed to the obligations of Viva as lessor under the Site Leases, and will then grant concurrent leases back to Viva. The effect will be that Viva will be interposed as lessor in the leases between the sub-trust trustee and Eureka, and that Viva will be entitled to possession at the expiry or termination of the Site Leases. It may be taken from the terms of the proposal, at least for the purposes of the present proceeding, that a corresponding result will be achieved in respect of the Site Licences.
The proposed steps do not include any change to Eureka’s right to elect, under cl 29.12 of the Alliance Agreement, to purchase the Owned Alliance Sites from Viva and to take an assignment of Viva’s interest in the head leases of all Leased Alliance Sites upon termination of the Alliance Agreement. However, the effect of the proposal would be that Viva would not own any sites and would only have leasehold interests in them. Accordingly, under cl 29.12 Eureka would only be able to exercise the right to obtain an assignment from Viva of its leasehold interests, and would not have any right to acquire ownership from the sub-trust trustee.
Relief sought by Eureka
Eureka commenced proceedings against Viva by originating process dated 18 August 2015, seeking to restrain Viva from participating in any step by which a lease is granted to any person in respect of any part of the area leased under any Site Lease, without Eureka’s prior written consent. Eureka further sought a declaration that, by virtue of cl 2.7 of the Site Leases, the proposed concurrent leases could not be entered into without its prior written consent.
The claim was subsequently amended to seek as well an injunction restraining Viva from taking any steps to assign its rights under the Alliance Agreement to the sub-trust trustee without the sub-trust trustee fully and effectively assuming Viva’s Alliance Rights and Obligations assigned to it, together with a further declaration that, by virtue of cl 36.1(f) of the Alliance Agreement, the proposed transactions failed to satisfy that requirement. In particular, the transactions do not contemplate the sub-trust trustee assuming the obligations of Viva, as owner of Owned Alliance Sites, to sell those sites to Eureka upon exercise of its right to purchase under cl 29.12 of the Alliance Agreement.
The issues for determination were therefore:
(j) whether the proposed grant of concurrent leases would breach cl 2.7 of the Site Leases; and
(k) whether, by virtue of the failure of the sub-trust trustee to assume Viva’s obligation to sell sites to Eureka if Eureka elected to purchase them under cl 29.12 of the Alliance Agreement, the proposed assignment of Viva’s obligations under the Site Leases and Site Licences would fail to satisfy the requirements of cl 36.1(f) of the Alliance Agreement.
After a two day hearing, the trial judge dismissed the proceeding with costs. He held that cl 2.7 of each Site Lease prohibits the grant of immediate rights to use and occupy the leased area.[3] A grant, during the term of the Site Lease, of a right to use and occupy the leased area after the Site Lease has come to an end falls outside cl 2.7. He held further that Viva is entitled to choose which of its obligations it wishes to assign, and that cl 36.1(f) applies only to those obligations. It was therefore open to Viva to assign to the sub-trust trustee its interests in the properties, together with the Site Leases and Site Licences, without assigning its obligations under cl 29.12 of the Alliance Agreement.[4]
[3]Reasons, [84].
[4]Reasons, [97].
The proposed grounds of appeal assert that the trial judge erred:
(l) in failing to hold that cl 2.7 of each Site Lease prohibits, during its term, the grant to any person of any right to use and occupy the leased premises at any time; and
(m) in failing to hold that cl 36.1(f) of the Alliance Agreement prohibits Viva’s sale of sites without the purchaser assuming Viva’s obligations to Eureka under cl 29.12(b)(ii) of the Alliance Agreement.
Construction of cl 2.7 of the Site Leases
Eureka submitted that cl 2.7 of the Site Leases has a plain meaning. The opening words ‘After the date of this Lease and until the Lease comes to an end’ refer to the time during which the prohibition upon the act of granting a right to use or occupy any part of the leased area applies. The judge was wrong to, in effect, move the opening words so that they instead qualified the words ‘use or occupy’.
Because the ‘ordinary meaning’ of the text was clear, it was not necessary to go further and consider matters of context (meaning the remainder of the lease instrument) or the purpose of the provision. However, Eureka submitted that considerations of context and purpose reinforced its interpretation. Eureka’s right of first refusal on sale of a site by Viva, under cl 11.1, would be rendered almost nugatory if Viva could without Eureka’s consent grant to a third party a long term concurrent lease amounting in economic terms to a sale. Eureka pointed to similar rights in the Alliance Agreement, including under cl 29.12. Reliance was also placed on cl 3.5 of the Alliance Agreement, which contains the good faith negotiation provision regarding the continuation of the alliance beyond its initial 20 year term. Eureka submitted that its construction of cl 2.7 complemented this right, rather than undermining it, by preventing Viva from granting leases, having effect after the expiry of the Alliance Agreement, while the alliance is still on foot and before the good faith negotiations for its extension have commenced.
Next, Eureka contended that the purpose of cl 2.7 was not to prohibit the grant of interests to third parties during the term of the lease, because cl 2.4 already makes it clear that the lease is subject to all ‘Third Party Interests’. The definition of that expression should, it was submitted, be read as extending to interests which are in force at the date of the lease or which are later granted to an entity who holds such an interest at the date of the lease’s entry into force (for example, by way of renewal of an interest in force at the date of the lease).
In a related submission, Eureka contended that its interpretation of cl 2.7 enables it to be read harmoniously with cl 10.1 of the Site Leases. Whereas cl 2.7 is concerned with the granting of lease interests, cl 10.1 deals with a broad class of disposals of Viva’s right, title or interest in the site which are prohibited without Eureka’s written consent. There is no overlap between the two. It cannot therefore be said that Eureka’s construction of cl 2.7 involves that provision doing nothing beyond that which cl 10.1 already does. Further, cl 11.1 (which restricts sales) complements cl 2.7, whose restriction on leases should be read as extending to leases taking effect beyond the term of the existing lease and potentially having the same effect, in economic terms, as a sale.
In response, Viva submitted that the Court needs in every case to look at the text, context and purpose of the contractual provision being construed, and that resort to expressions such as ‘ordinary meaning’ could not justify ignoring the context or purpose of the provision. For example, cl 2.7 is part of a larger set of provisions under the heading ‘Lease’ which deal with the rights of the parties to access and possession during the term of the lease. Only cl 2.7 contains the introductory words limiting time. The construction advanced by Eureka would give those opening words no operation at all, because it is obvious that when the lease expires the restraint on making a grant will itself be at an end. Instead, Viva contended, the imposition of a temporal limitation on the scope of cl 2.7 served to limit the extent to which it entered the field governed by cl 10.1, which contains a wider limitation on disposition of interests, whenever taking effect.
Viva submitted that cl 2.7 has work to do which is not done by cl 10.1. First, unlike cl 10.1, cl 2.7 addresses rights to use and occupy parts only of a site (such as parts the subject of Third Party Interests) and rights to use the Fuel Equipment. Secondly, cl 2.7 gives Eureka a stronger right, in respect of use and occupation, by permitting it to withhold consent whether or not it is reasonable to do so. Eureka’s right to withhold consent under cl 10.1 is conditioned on that course being reasonable. Viva submitted that, to the extent of the overlap between cls 2.7 and 10.1, cl 2.7 as the more specific provision would apply.[5] Clause 11.1 addresses sales only and does not cover the same ground as cl 2.7.
[5]In support of this proposition, Viva cited Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403 [171] (Wilcox J); RACV Insurance Pty Ltd v Unisys Australia Ltd [2001] VSC 300 [312] (Hansen J), affd Unisys Australia Ltd v RACV Insurance Pty Ltd [2004] VSCA 81.
Viva submitted that the proposed concurrent leases attracted cl 10.1, but not cl 2.7. The requirements of cl 10.1 will be satisfied, because the assignment will be in accordance with cl 36.1(f) and therefore ‘permitted under the Alliance Agreement’. This was an outcome negotiated when cl 36.1(f) of the Alliance Agreement was amended to refer to the Vitol Controlled Group, elaborately defined to include a range of entities, trusts, partnerships and investment vehicles. By this change, disposals to entities in that group are not subject to a right of first refusal under cl 10.1 and must only comply with cl 36.1(f). Inherent in the diversity of entities in the Vitol Controlled Group to which a disposal might be made was the prospect of a bifurcation of the interests currently held by Viva. Eureka’s construction of cl 2.7 would give it instead an unqualified right to withhold consent to grants by way of lease or licence taking effect after the existing leases.
Viva submitted that cl 2.4 of the leases, together with the definition of ‘Third Party Interest’, made it plain that Viva could grant leases or licences to third parties and that Eureka took its interest subject to such interests. However, cl 2.7 operated to protect Eureka against grants to third parties which did not fall within the definition of ‘Third Party Interest’, including grants during the term of a lease to persons other than by way of renewal of existing Third Party Interests. Eureka was therefore protected against incursions upon its rights of use and occupation without needing to read down the word ‘grant’ in the definition of ‘Third Party Interest’ in the manner for which Eureka had contended.
Finally, Viva submitted that its construction did not undermine the obligation to negotiate in good faith under cl 3.5 in respect of the continuation of the Alliance Agreement. Clause 3.5 itself makes it plain that this obligation goes no further than to require negotiation between the parties regarding continuation of the arrangement as it exists at the relevant time pursuant to the other provisions of the agreement.
Principles of construction
The High Court reaffirmed the approach to interpretation of commercial contracts in Electricity Generation Corporation v Woodside Energy Ltd, as follows:[6]
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 a commercial nonsense or working commercial inconvenience’.
[6](2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ) (citations omitted).
While accepting these principles, Eureka structured its argument on the footing that there was an ‘ordinary meaning’ of cl 2.7, and that considerations of context and purpose were equivocal at best and certainly insufficient to warrant departure from that ordinary meaning. Similarly, it was submitted that the language of cl 2.7 was unambiguous.
To approach the interpretation of a contract in this manner risks failing to apply the principles set out above. In the first place, the objective approach to contractual interpretation requires reference to the ‘text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’.[7] It follows that the meaning of a word or clause cannot be determined by reference to its own text alone. As such, resort to the ‘ordinary meaning’ of the word or clause can be no more than a starting point in a process which in every case requires the reader of the contract to look further to context and purpose. Nor is it necessary that there be ambiguity, however understood, before undertaking that further process. Context (as defined above) and purpose are always relevant, no matter how clear the ‘ordinary meaning’ is said to be.
[7]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 [46] (French CJ, Nettle and Gordon JJ); see also at [109] (Kiefel and Keane JJ).
Secondly, the objective approach calls for the relevant provision to be interpreted as a reasonable businessperson would have understood it, which is revealed by considering the language used in the contract, the circumstances the contract addresses and the commercial purpose or objects to be secured by it, each of which is ordinarily able to be identified by reference to the contract alone.[8] Again, the notion of ‘ordinary meaning’, while plainly a relevant aspect of this inquiry, cannot serve to foreclose consideration of these other elements. It is always possible that, despite the ‘ordinary meaning’, reference to context, the circumstances the contract addresses and its commercial purpose or objects will show that a reasonable businessperson would have understood a different meaning to apply. It is inherent in the test of the reasonable businessperson that he or she must be taken to be aware of more than just the text of the provision being construed.
[8]Ibid [47]–[48] (French CJ, Nettle and Gordon JJ), [109], [120] (Bell and Gageler JJ); Victoria v Tatts Group Ltd [2016] HCA 5 [71]–[72] (French CJ, Kiefel, Bell, Keane and Gordon JJ).
Construction in the present case should therefore be approached on the basis that the ‘ordinary meaning’ of the relevant provisions is only one aspect of the wider inquiry, and that there is no need to establish any ambiguity arising from the text before undertaking that inquiry. It may be that no reason emerges to depart from the ordinary meaning of the words used.[9] But the whole inquiry must be undertaken, whether or not the ordinary meaning can be described as unambiguous when read in isolation. Establishing ambiguity is not a threshold to be met before completing the inquiry.
[9]Moreton Bay Regional Council v Mekpine Pty Ltd [2016] HCA 7 [58] (French CJ, Kiefel, Bell and Nettle JJ).
The notion of ambiguity may have a role to play when reference is sought to be made to events or circumstances outside the contract.[10] Neither of the parties in the present case sought to place reliance on such matters, so it is not necessary to consider that aspect further.
[10]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 348–52 (Mason J); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 [49]–[52] (French CJ, Nettle and Gordon JJ), [108]–[113] (Kiefel and Keane JJ), [118]–[119] (Bell and Gageler JJ).
Construction of cl 2.7 — Analysis
Clause 2.7 contains a prohibition on certain action by Viva, if done without Eureka’s consent.[11] That action consists of any grant to a person to use or occupy any part of the leased area, or to use the Fuel Equipment. The question is whether the prohibition applies to any grant made during the term of the lease, whenever such grant takes effect, or whether it applies only to grants taking effect during the term of the lease. On the former interpretation, advanced by Eureka, the proposed grant of concurrent leases falls within cl 2.7 because they will, upon expiry of the existing leases, confer on Viva the right to use or occupy the leased area. On the latter approach, as held by the trial judge, cl 2.7 has no application because no right to use or occupy the leased area is granted with effect during the existing lease. During that time, the concurrent leases would operate only to affect the lessor’s interest in the reversion.
[11]The text of cl 2.7 is set out at [11] above.
Both readings are open on the language of cl 2.7. The opening words are capable of qualifying the word ‘grant’ so as to stipulate that the clause speaks only to grants made during the term of the lease. Or they can be read as qualifying the kinds of grants with which the clause is concerned, namely grants to use or occupy the leased area during the term of the lease. The placing of the expression at the beginning of the provision, while serving perhaps to emphasise its importance, does not indicate which of the two meanings was intended.
On either view, however, it can be seen that the prohibition applies only to grants made while the lease is on foot. That is either as a result of the opening words, or because there is nothing to suggest that the restriction on Viva is to survive the end of the lease. Eureka submits that this is the whole point of, and the only work done by, the opening words. Viva submits that this means that the opening words serve no purpose, because the prohibition would plainly not operate after the termination of the lease in any event. However, that rather overstates the position. If that is the work done by the opening words, they might be regarded as serving the purpose of avoiding doubt as to whether the prohibition survives the lease. Viva is correct in observing that such introductory words are not found elsewhere in cl 2. But it could well be said that the remainder of cl 2 does not give rise to similar doubt.
More assistance is derived from the treatment of ‘Third Party Interests’. Clause 2.7 provides that a further term in accordance with a Third Party Interest may be granted without Eureka’s consent. That is consistent with the fact that the lease is, by virtue of cl 2.4, subject to ‘all Third Party Interests’. When one turns to the definition of that expression, it is very wide. It includes any leases or licences in effect as at the date of the lease, and any lease or licence granted by Viva after the date of the lease and disclosed by Viva to Eureka in writing.
The width of the definition of Third Party Interests, read with cl 2.4, would expose Eureka to the risk that Viva could grant multiple leases or licences during the term of the lease adverse to Eureka’s interests. Evidently, cl 2.7 serves to ameliorate this risk. At the same time, it carves out from the class of grants for which Eureka’s consent is required any further term in accordance with a Third Party Interest. The effect is that consent is not required, either for leases or licences in place at the start of the lease or for ‘further’ terms granted in respect of such leases or licences. It is also not required for further terms of leases or licences that have been granted during the term of the lease (for which leases or licences Eureka will necessarily have provided its consent under cl 2.7). It is ‘fresh’ leases or licences for which Eureka’s consent is needed.
Eureka submitted that the width of cl 2.4 called for the definition of Third Party Interests to be read down so as to enable grants during the term of the lease only by way of renewal of leases or licences in effect at the start of the lease. But there is no warrant for adopting such a narrow construction of the definition in order to achieve protection of Eureka’s interests, because cl 2.7 serves expressly to achieve that object. Further, Eureka’s construction would produce the anomalous result that a grant during the term of the lease, with Eureka’s consent, of a lease or licence to a person not previously the holder of a Third Party Interest would not constitute a Third Party Interest and would therefore not be an interest to which the lease is subject under cl 2.4.
Moreover, cl 2.7 itself recognises that there may be fresh Third Party Interests beyond those granted by way of renewal, by referring to a ‘further term in accordance with a Third Party Interest’. On Eureka’s construction of the definition, all Third Party Interests granted during the term of the lease would be by way of further terms. Clause 2.7 would then better have excluded Third Party Interests generally, rather than only Third Party Interests by way of further term. Eureka’s reading of the definition strains its language and involves attributing a circuitous and awkward operation to cl 2.7.
This analysis reveals that an important purpose of cl 2.7 is to protect Eureka against the grant of fresh leases or licences to third parties, and the consequent diminution of Eureka’s interest in the lease under cl 2.4 without its consent. Being tied to Eureka’s interest in the lease, there is no apparent reason why this protection would be granted beyond the term of the lease.
Eureka next pointed to its right of first refusal under cl 11.1 if Viva intends to sell, transfer or otherwise dispose of an owned site, or to assign or surrender its interest in a leased site (along with allied rights in the Alliance Agreement). Eureka contends that cl 2.7 protects its commercial interest in how Viva deals with its sites so as to protect Eureka’s contractual right to acquire those sites if Viva intends to dispose of them. In response, Viva contends that the question of disposal of sites is addressed, not by cl 2.7, but by cl 10.1. This submission should be accepted.
Clause 2.7 is about the grant of leases and licences. It is concerned with grants in respect of only part of the leased area. In contrast, cl 10.1 prohibits sales and other disposals of any part of Viva’s rights, title or interest in the site. Clause 10.1 is addressed to the whole of the site. Notably, it also contains a requirement of consent, which must not be unreasonably withheld. Clause 2.7 confers a stronger measure of protection on Eureka, because it gives Eureka an outright power to refuse consent.
It is not necessary to decide whether the grant of a lease or licence in respect of the whole of a site would attract the provisions of cl 10.1, as well as (presumably) cl 2.7. If it did, it would be necessary to decide which provision applied. The larger point is that, if protection is required of Eureka’s commercial interest in having available to it sites in respect of which it might exercise the right of first refusal in cl 11.1 and allied provisions of the Alliance Agreement, then that protection is afforded by cl 10.1 rather than cl 2.7. Clause 10.1 concerns the kinds of transaction which enliven the right in cl 11.1. And it provides its own form of protection, which is conditioned on a requirement of reasonableness on the part of Eureka. It would be anomalous if cl 2.7 served to enable Eureka unreasonably to impede the grant of leases or licences (but not other interests) beyond the term of the lease, for the purpose of affording an added level of protection of its commercial interest in cl 11.1, while Eureka could only resist more substantial dealings (such as sales) under cl 10.1 if it had reasonable grounds for doing so.
When the purpose of cl 2.7 is understood by reference to cls 2.4 and 10.1, it becomes apparent that there would be no reason why a reasonable businessperson would regard it as affording to Eureka the ability to prevent, even without reasonable grounds, the grant to a third party of a lease or licence taking effect after the end of Eureka’s lease. Such a provision, additional to cl 10.1 and in more absolute terms, would lack any evident commercial purpose.
Instead, cl 2.7 is to be read as governing the grant of rights to use or occupy any part of the leased area that take effect during the term of the lease. The proposed concurrent leases involve no such grant.
This conclusion is not affected by the obligation of the parties to negotiate in good faith respecting the continuation of the alliance beyond its initial term. Not only is the obligation expressly subject to the proviso that there is no obligation or right on the part of either Eureka or Viva with respect to the continuation of the agreement, but the subject matter of the negotiation is the agreement itself. Necessarily the agreement precedes the negotiation about its continuation. The obligation to negotiate regarding the agreement cannot, as a matter of logic, assist in identifying what is the content of the agreement. In any event, it has not been shown that the construction advanced by Viva, and adopted by the trial judge, substantially deprives the obligation to negotiate of its content or commercial value.
The first proposed ground of appeal should therefore be rejected.
Construction of cl 36.1(f) of the Alliance Agreement
Turning to the second proposed ground of appeal, Eureka submitted that it was necessary to commence construction of cl 36.1(f) of the Alliance Agreement by noting the reference in its opening words to ‘all or any part’ of the Alliance Rights and Obligations.[12] The word ‘part’ was said to make it clear that there was a minimum content to that which was able to be assigned. Otherwise, the phrase ‘all or any’ would have sufficed. The minimum content in question could be discerned from the purpose of the clause, namely to enable the parties to have the ability to change the legal entity having rights or obligations, so long as no part of the rights or obligations was destroyed or ‘orphaned’. It was said that the words ‘fully and effectively’ in cl 36.1(f)(ii) reinforced that nothing was to be lost.
[12]The text of cl 36.1(f) is relevantly set out at [18] above.
Applying this construction to the present case, the relevant ‘part’ of Viva’s obligations consists of its obligations relating to the land the subject of the sale. That ‘part’ includes the obligation under cl 29.12 to sell its sites to Eureka if Eureka exercises its option to acquire them. On the trial judge’s construction, the obligation in cl 29.12 will be bifurcated upon the proposed sale so that the obligation subsists only in so far as it extends to leasehold interests; the obligation in respect of freehold interests is ‘orphaned’. The right subsists because Viva, as lessor from the sub-trust trustee, will still be bound by cl 29.12 in respect of its leasehold interests. The right is otherwise ‘orphaned’ because the sub-trust trustee, despite being the owner of the sites, will not be bound by cl 29.12 at all.
Viva submitted in response that it was not possible to divine what constituted a ‘part’ of the Alliance Rights and Obligations for the purposes of Eureka’s argument. Instead ‘any part’ simply meant ‘less than the whole’. The flawed approach of seeking to identify interdependence of rights and obligations was shown by the fact that Eureka had argued at trial for a larger ‘part’ than it did on appeal. If the parties had sought to protect Eureka against the assignment of only some of a set of interrelated rights and obligations, different language would have been used. For example, cl 36.1(e) contains a proviso against creation by Viva of security interests which would prejudice Eureka’s Alliance Rights and Obligations.
In any event, Viva submitted, cl 29.12 operated in an ambulatory way, fixing on the rights held by Viva in respect of each site at the time of termination. Over the course of the Alliance Agreement, the mix of leased and owned sites could be expected to change. There was never any guarantee that Viva would hold a particular combination of owned and leased sites, and Eureka cannot now insist on a right to purchase freehold, rather than leasehold interests, under the clause.
Eureka’s argument in respect of cl 36.1(f) should be rejected. The words ‘all or any part’ denote the whole of Viva’s Alliance Rights and Obligations, or any one or more of those rights and obligations. To speak of ‘any part’ of a collection of rights and obligations is to speak of ‘any’ of those rights and obligations. Whatever rights and obligations are selected are aptly described as a ‘part’. To read ‘part’ as stipulating a limitation on the selection of the rights and obligations to be assigned would place a significance, and impose a demand, upon the word which it cannot reasonably bear. As Viva submitted, the result would be to produce a criterion of highly uncertain application.
This conclusion is supported by the context in which cl 36.1(f) appears. The same expression, ‘all or any part of its Alliance Rights and Obligations’, is repeated in several of the paragraphs in cl 36.1, which deals generally with various prohibitions and conditional rights governing the assignment of Alliance Rights and Obligations. The difficulty caused in respect of cl 36.1(f), as described above, if Eureka’s interpretation were to be adopted, would therefore be exacerbated unless the expression were to have different meanings in different paragraphs. It is also relevant that cl 36.1(e) provides for a result similar to that for which Eureka contends under cl 36.1(f), by providing for a test of prejudice to Eureka’s Alliance Rights and Obligations, and yet similar wording does not appear in cl 36.1(f).
There is also force in Viva’s argument that, in any event, the obligation of Viva to dispose of its freehold and leasehold interests upon exercise by Eureka of the right of first refusal in cl 29.12 would not constitute an obligation in the relevant ‘part’ of Viva’s Alliance Rights and Obligations, because Viva will remain obliged by the terms of cl 29.12, notwithstanding the assignment of other rights and obligations to the sub-trust trustee, to assign or transfer whatever interests it happens to have upon termination and which Eureka elects to acquire. Because Viva’s obligation is intact, albeit that its content will be affected by the proposed transactions, it is only the field of operation of the obligation that is in issue. In circumstances where the combination of freehold and leasehold sites is inherently variable, Viva has no obligation under cl 29.12 to transfer or assign a right to acquire freehold, as distinct from leasehold interests. On that basis, it is difficult to see how, even if ‘part’ had the meaning for which Eureka contends, the relevant ‘part’ could include an obligation to transfer a freehold interest in any site.
However, since we have not accepted Eureka’s construction of cl 29.12, this issue does not strictly arise and it is not necessary to say any more about it. The second proposed ground of appeal should also be dismissed.
Conclusion
The application for leave to appeal should be granted, but the appeal should be dismissed.
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