Jackson McDonald Services Pty Ltd v WOH HUP (Australia) Pty Ltd - [2004] WASC 257

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: JACKSON McDONALD SERVICES PTY LTD & ANOR -v- WOH HUP (AUSTRALIA) PTY LTD [2004] WASC 257

CORAM: MASTER SANDERSON

HEARD: 5 NOVEMBER 2004

DELIVERED : 1 DECEMBER 2004

FILE NO/S: CIV 2038 of 2001

BETWEEN: JACKSON McDONALD SERVICES PTY LTD (ACN 008 837 009)
First Plaintiff
JACKSON McDONALD (A FIRM)
Second Plaintiff
AND
WOH HUP (AUSTRALIA) PTY LTD (ACN 053 394 451)
Defendant

Catchwords:

Practice and procedure - Application for leave to amend defence - Turns on own facts

Legislation:

Nil

Result:

Amendment allowed

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr M J McCusker QC
Second Plaintiff            :     Mr M J McCusker QC
Defendant:     Mr C J Colvin SC

Solicitors:

First Plaintiff                :     Freehills
Second Plaintiff            :     Freehills
Defendant:     Hotchkin Hanly

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Cox v Journeaux (No 2) (1935) 52 CLR 713
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Gilleland v Chandler (1986) NSW ConvR 55-292
Hooker Corp Ltd v Commonwealth (1986) 65 ACTR 32
Hunter v Chief Constable of Westlands Midlands Police [1982] AC 529
McKechnie v Campbell (1996) 17 WAR 62
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35
Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146
Re McCafferty [1994] 2 Qd R 538
Ropart Pty Ltd v Kern Corporation Ltd and Superannuation Fund Investment Trust, unreported; SCt of NSW; BC9101696; 8 August 1991
The State of New South Wales v SAS Trustee Corporation, unreported; SCt of NSW; BC9705327; 22 October 1997
Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323
West & Ors v Jackson McDonald (A Firm) [2001] WASC 198

MASTER SANDERSON: This is a pleading summons. The defendant seeks leave to amend its defence in terms of a minute of proposed amended substituted defence ("the minute") dated 1 November 2004. After extended discussions between the parties, the matter resolved itself into two short but important points. To put the dispute in context, it is necessary only to give the briefest summary of the facts.
The defendants were at all material times the owners of certain office premises. The plaintiffs were tenants of these premises. There was in existence a lease agreement between the plaintiffs and the defendants which provided for a particular rental. There was then a variation to the lease agreement which provided for a reduction in rental with respect to a period for which the previous lease would have operated and provided for stepped increases in the rental to extend beyond the previous term. As a consequence then of the variation, the term of the lease was extended and there was a considerably higher rental payable at the end of the term, compared to the beginning of the term.
The principal claim raised by the plaintiffs is that there was a provision in the lease which required a refurbishment to the standard of comparable buildings that attracted similar rentals. It is this provision in the lease which provides the background to the present dispute.
By par 14 of the statement of claim, the plaintiffs plead cl 18 of the deed of extension and variation of lease. That clause is in the following terms:
"REFURBISHMENT OF THE BUILDING
18.The Lessor shall maintain the Building in a state at least equal to that of similar and comparable buildings in the Perth Central Business District which attracts similar rents to those received by the Lessor from the Lessee and at such time as in the reasonable opinion of the Lessor seems appropriate shall undertake a refurbishment of the Building including but not limited to improvements to the lift cars and lift lobby on the ground floor." (My underlining)
By par 6 of the minute the defendant, relevantly, pleads:
"Upon a proper construction of the term pleaded in paragraph 14, in the context of the whole of each of the Deed of Extension and Variation, the Deed of Variation and the Lease Agreement,
(a)…
(b)…
(c)…
(d)the term 'similar rentals to those received by … (the defendant) from … (the first plaintiff)' meant the average rentals received by the defendant over the extended term for which rentals were provided for by the Deed of Extension and Variation, namely 1 September 1994 to 31 August 2004."
It is the plaintiffs' contention that this interpretation of cl 18 is not open. Counsel pointed out that cl 18 imposed upon the lessor two separate and distinct requirements. First, there was a requirement that the building be maintained. That is the part of the clause that is relevant to the plea found in par 6(d). It is the section of the clause underlined above. The second obligation is as to refurbishment. That is a one‑off undertaking and is not presently relevant.
The dispute between the parties can really be expressed in this way. The plaintiffs say that the obligation to maintain the building varied from time to time, depending upon the rent being received at any particular time. Suppose then over a five‑year period there was no rent payable in the first year, $100,000 payable in the second year and so on, so that in the fifth year, $500,000 was payable as rent. On the plaintiffs' interpretation of the clause, in the first year the obligation on the owner would be to maintain the building in the same way as a building for which no rent was being received. In other words, there would be no obligation to maintain. In the fifth year, however, when the rental might well be equal to the highest paid anywhere in the central business district, the standard of maintenance required - not repair but maintenance, would be to the highest possible standard.
The defendant on the other hand says that what might be called a "whole of lease term approach" is to be adopted. That is to say, what is taken into account is the whole term of the lease and the amount it recovered by way of rental over that period. Then regard is had to other buildings where that amount of rental is recovered over the entire period of the lease and a comparable standard of maintenance is required.
It is not for me to determine which of these two interpretations is to be preferred. However, I am satisfied that the defendant's plea is arguable. I would accept that it does not sit entirely happily with the wording of the clause. But I do not think that it is so clearly at odds with the intended meaning of the clause that it ought be struck out. I would allow the plea to stand.
The second point relates to pars 12, 13 and 14 of the minute. It is convenient if I quote these paragraphs in full:
"12.By the terms of the Deed of Extension and Variation:
(a)the rental payable under the Lease Agreement was varied to provide for a significantly lower rental in the period 1 September 1994 to 30 April 1998;
(b)the rental payable during the period from 1 September 1994 to 31 August 2000 was less than the average of the total rentals provided for by the terms of the Deed of Extension and Variation to be paid during the period of 1 September 1994 to 31 August 2004;
(c)the rent review dates under the Lease were varied (cl 20(d)); and
(d)the term of the Lease was extended (cl 20(b)).
13.By reason of the matters pleaded in paragraph 12 herein, part of the rental paid during the period 1 September 1998 to 31 August 2004 was in consideration of the occupation of the Leased Premises in the period between 1 September 1994 to 31 August 1998 on the terms of the Lease Agreement as varied by the Deed of Extension and Variation.
14.If the defendant has suffered loss and damages as alleged in paragraph 18 (which is denied) then by reason of the matters pleaded in paragraphs 12 and 13 herein, in calculating any such loss the plaintiffs must bring to account the extent to which the rental payable during the period 1 May 1998 to 31 August 2004 was consideration for:
(a)the reduction in rental that would otherwise have been payable from 1 September 1994 to 30 April 1998 under the Lease Agreement; and
(b)the difference between the rental payable from 1 September 1994 to 30 August 2000 and the average rental payable during the period 1 September 1994 and 31 August 2004 under the terms of the Lease Agreement as varied by the Deed of Extension and Variation."
The plaintiffs' position can be summarised in this way. The deed itself provides for rental for the period 1 September 1994 to 31 August 1998 and rental from 1 September 1998 to 31 August 2004. It is said there is nothing in the deed that would support the proposition that part of the rental for the later period was in consideration for the occupation for the earlier period at a reduced rental. It is said then that as a matter of construction, what is pleaded in pars 13 and 14 cannot stand and that as a consequence, par 12 is of no utility and falls away.
The dispute over this aspect of the pleading raises a very interesting point. Rent‑free periods in commercial leasing arrangements are not uncommon. They are seen by both landlords and tenants as being an inducement for the tenant to enter into the lease. How are they properly to be regarded? It may well be the case that a landlord is prepared to forego part of the rent in the early years of a lease because the higher rent towards the end of the lease compensates for the initial reduction. In my view, that circumstance particular to an individual landlord is not a matter which necessarily need be dealt with in the lease. It may be a matter which, as background fact, conditions the proper interpretation of the lease agreement between the parties.
Once again it is not for me to determine whether or not the defendant can make out its argument. However, I am satisfied that the plea is proper and can stand. I would not strike out pars 12, 13 and 14.
I would allow the defendant to amend in terms of the minute. I will hear the parties as to the precise form of orders and as to costs.