Missing Link Network Integration P/L v Olamte P/L

[2005] NSWSC 430

CITATION:	Missing Link Network Integration P/L v Olamte P/L [2005] NSWSC 430
HEARING DATE(S):	13/04/05, 15/04/05
JUDGMENT DATE :	4 May 2005
JUDGMENT OF:	White J
DECISION:	See paragraph 79 of judgment.

CATCHWORDS:	CONTRACT - Construction - Termination of lease - Whether development application falls within term of lease permitting termination if council approval is not obtained - Held that lessor consented - Cross-claim for repayment of "incentive rent" - Unambiguous terms in direct conflict - Held that earlier clause prevails.
LEGISLATION CITED:	Supreme Court Act 1970 (NSW)
CASES CITED:	Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Lewison, "The Interpretation of Contracts" 3 ed Forbes v Git [1922] 1 AC 256 Joyce v Barker Bros. Builders Ltd (1980) 40 P & CR 512 Durban v Perpetual Trustee Co. Ltd (1995) NSW Conv R 55-725
PARTIES:	The Missing Link Network Integration Pty Ltd v Olamte Pty Ltd
FILE NUMBER(S):	SC 1011/05
COUNSEL:	Plaintiff: J Trebeck Defendant: R Tregenza
SOLICITORS:	Plaintiff: Bruce MacDonald Lawyers Defendant: T H Walker Solicitors

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Wednesday, 4 May 2005

1011/05 THE MISSING LINK NETWORK INTEGRATION PTY LTD v OLAMTE PTY LTD

JUDGMENT

1 HIS HONOUR: The principal issue in these proceedings is whether the plaintiff has validly terminated a lease which it entered into on 2 July 2004 with the defendant.

The Lease

2 The defendant is the owner of a building at 53/55 Herbert Street, Artarmon. The building is on the corner of Herbert Street and Clegg Street. On 2 July 2004, the defendant entered into a lease with the plaintiff of premises described as:

“ Part of the land described in Certificate of Title Folio Identifier 53/524004 being Ground Floor, 53-55 Herbert Street, Artarmon .”

3 The leased premises were further defined by clause 1.01(g) and by item 2 of the Reference Schedule as:

“Ground Floor of the building at 53-55 Herbert Street, Artarmon including the shared loading dock and access to the common areas, and including 10 (ten) car parking spaces being those spaces approved by Council in the side of the car park furthest from Clegg Street. ”

4 The lease was for a period of five years commencing on 1 August 2004, with an option to renew for a further five years.

5 Clause 16.13 required the lessee to provide a bank guarantee in the sum of $90,750, equivalent to six months’ gross rent, as security for the performance of its obligations under the lease.

6 Clause 12.01 was in the section headed “Use of Premises”. It provided:

“The Lessee shall not use the Premises otherwise than for the purpose stated in Item 11 of the Reference Schedule. Should the use of the Premises by the Lessee be permissible only with the consent of a statutory, public, municipal or other proper authority the Lessee shall obtain such consent at the expense of the Lessee. If consent is not given or if consent is given on conditions unsatisfactory to the Lessee, the Lessee may terminate this Lease at any time after giving 30 days’ notice in writing to the Lessor and upon and after termination no further rent, outgoings or other moneys, charges, damages or compensation shall be payable by the Lessee.”

7 Item 11 of the Reference Schedule provided that the permitted use of the premises was as “warehousing, assembly and distribution of computer equipment and systems and associated office use.”

Moving the Loading Dock

8 It is common ground that the proposed use of the premises by the lessee was permissible only with the consent of the Willoughby City Council. The land is zoned industrial. The building has three levels: a basement used for car parking, a ground floor and first floor. The last plans of the building approved by the Council included an area on the ground floor depicted as a common loading dock with driveway access to Clegg Street. However, the area depicted on the last approved plans as a loading dock was not used for that purpose. A previous tenant of the ground floor had converted the area into office space. The area opened onto Clegg Street via a roller shutter door. A glass partition with attached glass doors had been built immediately inside the roller shutter door. The floor was carpeted and the area was fitted out with office furniture. This was the area described in item 2 of the Reference Schedule to the lease as the “shared loading dock”. Although the evidence is not entirely clear, it appears that the Council had required that the loading dock be available for use by the other tenants in the building. That is why it was described as a “shared loading dock”. In an email dated 8 June 2004, from Mr Matthews of Colliers International, the defendant’s leasing agent, to Ms Drewitt, the plaintiff’s business manager, Mr Matthews advised that:

“… the shared loading dock is for DA purposes only, we can have it written into the contract that you are the only people who have access.”

9 Prior to the lease being entered into, the parties discussed the need for an application for development consent. Both parties intended that the Council’s consent would be sought to the loading dock being relocated from the ground floor to the basement car park, so that the plaintiff would have exclusive use of the ground floor, including the area which had been designated on the plans approved by Council as a shared loading dock, but which was not fitted out or used for that purpose.

10 The chairman of the board of directors of the defendant is Mr Alma. He has day-to-day control of the affairs of the defendant. He attended a meeting with Mr Matthews of Colliers, and with Ms Drewitt, in about May or June 2004. According to Mr Alma, he told Ms Drewitt that:

“There is a potential problem with regard to the shared loading dock and Council. Being an industrial zoning, Council required that a loading dock be in place, even if the tenants do not require the use of it as is the case with the tenant upstairs. The last Council approved DA specifically designated the area behind the roller shutter door, which a previous tenant carpeted and had a glass door installed. Council may therefore require you to re-install the loading dock to the approved state.”

11 Ms Drewitt denied that Mr Alma made any reference to a potential problem or possibility that the plaintiff may have to re-install the loading dock to a Council-approved state. However, before the lease was entered into, it must have been clear to all concerned that the existing plans made provision for a loading dock on the ground floor, but the area had not been used or fitted out for that purpose.

12 If it were necessary to resolve this conflict in the evidence, I would prefer the evidence of Ms Drewitt. For the reasons below, I do not regard Mr Alma as a reliable witness. Even though I do not find that the words to which Mr Alma deposed were said, nonetheless, by the time the development application was lodged, this was clearly a potentially problematic area. The plaintiff’s application for development consent provided for the relocation of the loading dock.

13 The plaintiff engaged Mr Michael Smyth to prepare its application for development consent in respect of the property. On 16 June 2004, he met with Mr Alma. They discussed moving the loading dock from the ground floor to the car park level. They both agreed that the car park area was the most appropriate place for a loading dock. Mr Smyth gave evidence, which I accept, that they agreed upon the location for the loading dock, to be shown on the plans to be submitted to Council. The area agreed on as the proposed loading and unloading area comprised car parking spaces in the basement on the Clegg Street side of the building, immediately adjacent to the fire stairs on that side of the building. Mr Alma denied that this particular location in the basement was discussed or agreed to. However, I prefer the evidence of Mr Smyth. That is so for a number of reasons. First, the plans Mr Smyth drew after this meeting and which were submitted to Council, depicted the loading and unloading area in that location. Secondly, although the final version of the plan lodged with the Council was not shown to Mr Alma, an earlier version of the plan depicting the same area was shown to him, at the time he gave the owner’s consent to the application. Thirdly, after the Council had rejected the request to relocate the loading dock, Mr Smyth discussed with Mr Alma the terms of a letter to be provided to the Council, urging reasons in support of the relocation and attaching a copy of the plan showing how the vehicles would manoeuvre inside the car parking area. The draft letter and plans were shown to Mr Alma. The plans showed the proposed loading and unloading area as using car parking spaces adjacent to Clegg Street. Mr Alma did not object to those plans or express any surprise about them. Rather, he wished Mr Smyth good luck and told him that he hoped he would get Council approval. Finally, Mr Alma was in many respects not a satisfactory witness. For example, early in his cross-examination, he denied knowing at the time he had signed the development application as owner, that the application provided for the loading dock to be located in the car park. He was later forced to retract that evidence in the face of clear contemporaneous documents to the contrary. His explanation for his original evidence was not satisfactory. His answers to questions in cross-examination were often not responsive to the questions which were asked.

14 On 25 June 2004, Mr Alma sent an email to Ms Drewitt and others. In the email Mr Alma said:

“ Michael has indicated he does not expect any serious impediments in having the DA approved. I understand that the document he is filing will propose having the loading dock in the basement, which is the only logical place where vehicles can safely enter and leave the building without reversing across a sidewalk. The DA does need to be signed by us as owners, under council regulations .”

15 Mr Alma was to be away on an overseas trip. However, he attended a meeting with Mr Smyth on Monday 28 June 2004. Mr Smyth reported on that meeting to Ms Drewitt in the following terms:

“I met with Charles Alma today and he insisted we cover our bases regarding the possible need to provide a loading dock on your level, despite the fact that we are going to show a loading area in the car park. To cover ourselves in case we need the loading dock I have left out the “Gym” walls.
… I still have to finish the car park plans and will take the attached plans to Charles to get him to sign off tomorrow or Wednesday am at the latest.”

16 The plans which Mr Smyth drew, and provided to Ms Drewitt, showed the area on the ground floor previously depicted in the plans approved by the Council as loading dock, as storage area.

17 The reference in this email to walls for a “gym”, was a reference to a plan which had been prepared by an interior designer. A copy of this plan had been given to Mr Smyth. It provided for the location of a “gym” in an area generally at the rear of the “storage” or the “loading dock” area furthest from Clegg Street. Initially Mr Smyth prepared a draft plan to provide for walls around the area designated as a gym. Mr Alma said to Mr Smyth that although the loading dock was to be shown on the car park level, the gym walls should be removed from the plan to cover their bases about providing a loading dock on the ground floor. Mr Smyth removed those walls in the plans which he sent to Ms Drewitt on 28 June.

18 On 29 June 2004, Mr Alma signed the two-page Council application form. He said the form which he filled in was otherwise blank. I prefer Mr Smyth’s evidence that it was not, but nothing turns on the difference. It is clear that when Mr Alma signed the development application as owner giving his consent to the application, the plans were not attached to the form. However, I accept Mr Smyth’s evidence that Mr Alma had seen and discussed the earlier version of the ground floor plan the previous day, and had instructed Mr Smyth to leave out the “gym walls”. This was done in the plan which was attached. I am also satisfied that the plan for the basement which was attached to the development application reflected the substance of the discussions which Mr Alma had had with Mr Smyth about the plan for that area and the location in that area of the proposed loading dock.

19 The application which was submitted to Willoughby City Council on 30 June 2004 bore the owner’s consent. Mr Alma also signed a letter from the defendant addressed to the Council, confirming that the defendant authorised submission of the development application by the plaintiff for the premises, as lodged by Mr Smyth. Although the application form and plans were not complete at the time Mr Alma gave his consent, nothing was included in the application which differed in any material way to that which he had consented. I am satisfied that the defendant gave its informed consent to the application which was made to the Council.

Events After the Lodgment of the Development Application

20 The Council had concerns over the loading dock. On 9 August 2004, Mr Smyth wrote to Ms Drewitt and advised that Council had approved the existing position of the loading dock and was reluctant to allow a change to the lower level because of the tight manoeuvring space and the lack of a goods lift. The Council was prepared to consider a submission about the proposed change. Mr Smyth said that if Council did not accept the change, the fallback position was for the owner to build a wall to separate off the loading dock and remove the glazed partition. Mr Smyth said that “this area will then become a ‘loading dock’ but will actually become a store room.”

21 A submission was duly made to the Council on 11 August 2004, pointing out several advantages of having the loading dock located on the car parking level. However, the Council’s officers were unmoved. On 24 August 2004, Mr Smyth sent an email to Ms Drewitt recording that he had been advised by Council that the best option was to proceed with the approved loading dock in its present location and to submit a revision by way of a new DA later, if the plaintiff or the building owner wanted to pursue the relocation. The Council’s officers had advised that this would be a contentious issue, which would take some time to resolve.

22 Mr Smyth revised the plans to include an amended loading dock on the ground floor and remove it from the car park. On 31 August 2004, a Council officer advised Mr Smyth that there should be no increase in the existing approved floor area under the proposal, and that partitioning of the loading dock would be required, as it was a shared area between the tenancies. On 31 August, Mr Smyth sent to Ms Drewitt a revised plan showing a possible way that the space could be separated. Ms Drewitt and Mr Alex Gambotto both expressed to Mr Smyth, their unhappiness about the loss of space, which the Council’s requirement would impose.

23 Mr Smyth wrote to Mr Alma on 31 August 2004 about the problem. He wrote that Mr Alma would need to contact the plaintiff to sort out a solution and that he, Mr Smyth, was awaiting further instructions before submitting revised plans to the Council.

24 Following this email, Mr Alma asked Mr Smyth to speak to Ms Pendergast again. She was the officer at Willoughby Council dealing with the matter. The next day Mr Smyth confirmed to Mr Alma that he had done so, and that she had confirmed that the loading dock space must be allocated as a common area in accordance with previously approved uses in 1988 and 1992, with a separating wall between the loading dock and the tenancy area. He also said that according to the Council, the loading dock, which was to be a common area, was to stretch from the street to the fire stairs at the rear of the premises, thus occupying the whole width of the floor.

25 A number of meetings took place in early September 2004. On 6 September, Mr Alma told two of the plaintiff’s directors, Messrs Gambotto and Forsythe, that he would attend a meeting with the Council to try and convince them to approve of the loading dock being in the car park. On 7 September, he met with the Council. Later that day, he again met with Mr Gambotto and Mr Forsythe. He told them that the Council officer had advised him that the loading dock would not be approved, and that there were three options available in relation to the loading dock, as presently situated on the ground floor. Those three options all involved the erection of walls around the loading dock. Messrs Gambotto and Forsythe did not give a commitment about what course they would take.

26 On 8 September 2004, Mr Alma recommended that the first of the three options in relation to the reconfiguration of the space on the ground floor be pursued. This involved erecting a wall segregating the office space from the loading dock, enabling access via the rear fire stairs and entrance door. Mr Alma said that this would result in no loss of usable floor space.

27 On 15 September 2004, the plaintiff advised that none of the options was satisfactory for the plaintiff’s use of the premises. The plaintiff purported to accept what it said was an offer, which Mr Alma had made on 6 September 2004, to terminate the lease by mutual consent. Mr Alma denied that he had made any such offer. He also denied that the plaintiff was entitled to terminate the lease on the basis that Council approval had not been obtained. In his email of 16 September 2004, to Mr Gambotto, Mr Alma said:

“The only possible issue is on the subject of Council Approval, and we have informed you that Council have indicated that approval will be given subject only to compliance with their standing requirements as to regards to suitable loading docks which apply to every building in the vicinity with the same industrial zoning. The Missing Link was from the very outset notified that existing Council approvals were based on the positioning of the loading dock in the designated location before the existing roller shutter door, and this was made clear by us to yourself as well as to both the letting agent and the consultants you engaged to process the DA. Certainly, we had no objection to your consultant applying for the relocation of the loading dock, but the plans lodged to Council showed that that area was designated as Storage, which is consistent with the usage that Council will approve. In fact, there would be no loss of usable area under the preferred option, with minimal loss of a few metres under the alternate two options that Council has indicated would be approved, subject to lodgement of SEPP 1.”

28 The evidence does not corroborate Mr Alma’s assertion that the designation of the area in question as “storage” was consistent with the usage that Council would approve. It is quite clear that the Council would only approve the usage of the relevant area as a loading dock and as a common area. The fact that some storage might be permitted within a loading dock, a matter about which there was no evidence beyond Mr Alma’s assertion, does not mean that the application as submitted to Council, was consistent with what Council was prepared to approve. The statement that there would be no loss of usable area under what Mr Alma described as a preferred option is not correct, unless one were to assume that the parties would act in disregard of the terms of the Council’s indicated approval.

29 The fact that the plaintiff was notified that the existing Council approval was based on the positioning of the loading dock in the designated location on the ground floor, is not to the point. Clause 12.01 of the lease made express provision for the lessee to terminate the lease if the required Council approval for its usage of the premises was not obtained, or was obtained on conditions which were not acceptable to it. The question is whether the application which was made, and to which the defendant consented, was such an application within the meaning of clause 12.01.

30 There followed correspondence between the parties as to whether the lease had been terminated by mutual consent. The plaintiff has not maintained in the proceedings before me that it was.

31 On 6 October 2004, Mr Smyth wrote to the Council and confirmed that the plaintiff wished to have its application determined on the basis of the original document submitted, showing the location of the loading dock on the car park level. He noted that he understood that the application would be rejected. On 8 October 2004, the Council refused the development application. Its reasons for refusal were as follows:

“1. Pursuant to Section 79C(b) & (c) of the Environmental Planning and Assessment Act 1979, the removal and relocation of the existing ground floor loading bay to the basement level is not adequate. The proposed new loading bay is not satisfactory in terms of access, manoeuvring, and the lack of connection between the bay and each tenancy within the building (including transfer of goods).
2. Pursuant to Section 79C(a)(iii) of the Environmental Planning and Assessment Act 1979, the application fails to demonstrate that the new basement loading arrangement complies with the provisions of DCP 14 or with the provisions of DCP2.
3. Pursuant to Section 79C(a)(i) of the Environmental Planning and Assessment Act 1979, the proposed increase in floor area exceeds the maximum floor space ratio permitted for the site under Clause 43 of Willoughby LEP 1995 and no SEPP 1 has been lodged with the application in relation to the non compliance.
4. Pursuant to Section 79C(b) & (e) Environmental Planning and Assessment Act 1979, the loss of the existing loading dock sets an undesirable precedent for existing buildings within the industrial zone and is not in the long term public interest as it will have an adverse impact on the retention of legitimate industrial activities within the zone.”

32 It will be noted that three of the reasons for refusal expressly related to the proposal to relocate the loading bay. The other reason for refusal was that the proposed increase in floor area exceeded the maximum floor space ratio permitted for the site. However, the increase in floor area was attributable to the area otherwise designated as a loading bay being designated as an area for storage. It was this, which caused the Council to form the view that the maximum permitted floor space ratio was exceeded. This appears from an email from Mr Smyth to Ms Drewitt of 28 October 2004, in which he records that Ms Pendergast of the Council had told him that there needed to be shared access to the loading dock which would not form part of the tenancy space, otherwise there would be an increase in the floor space. Accordingly, all four reasons relate to the relocation of the loading dock.

33 On 5 November 2004, the plaintiff gave thirty days’ notice pursuant to clause 12.01 of the lease, of its intention to terminate the lease. On 7 December 2004, it gave notice of termination pursuant to that clause. The defendant has not accepted that termination. In a letter to the plaintiff’s solicitor dated 9 December 2004, Mr Alma repeated the reasons he had previously given for disputing the plaintiff’s right to terminate. In that letter, he added that the only amendment required to the development application for it to be approved was the installation of a loading dock at the Clegg Street roller shutter door entrance which, he said, the plaintiff had been told would be paid for by the defendant.

34 The question of whether the defendant did offer to pay for the installation of the loading dock was explored in the cross-examination of Mr Alma. I do not think it is a relevant question. However, I should record that I do not accept Mr Alma’s evidence that such an offer was made. There is no record of it having been made in any of the preceding correspondence. Mr Alma said that it was implicit in what he wrote. It plainly was not.

Was the Development Application Made Under Clause 12.01?

35 The defendant submitted that the application made to the Council was not in accordance with clause 12.01 of the lease. The defendant submitted that that was so, because the application went beyond seeking consent to the use of the leased premises for the warehousing assembly and distribution of computer equipment and systems and associated office use. Instead, it also sought a relocation of the loading dock, which, as events proved, was the reason for the Council’s rejection of the application.

36 I do not accept that submission. The area to be leased to the plaintiff was the ground floor. This was how the property leased was described on the front page of the lease. Item 2 of the Reference Schedule described the premises as the ground floor “including shared loading dock”. The shared loading dock was part of the leased premises. It was not to be a common area excluded from the tenancy. The objective circumstances in which the lease was entered into can be taken into account in construing the lease. Those circumstances include the physical layout of the premises at the time the lease was entered into, and the development application lodged two days before the lease was entered into. This material confirms that the area on the ground floor which was leased to the plaintiff comprised the whole of the ground floor, including the area described in item 2 of the Reference Schedule as “shared loading dock”. That description referred to an area, which, on previous plans submitted to the Council, had been described in that way. But at the time of the lease, it was not a loading dock. It was not shared. It was not described in the lease as a common area. The lease gave no rights of access over the area in favour of any other tenant in the building, unless such a grant could be implied from its designation as a “shared loading dock”. For the reasons I have given, I do not think that it can.

37 The land was zoned industrial. Both parties understood that by reason of that zoning, the Council would require the provision of a loading dock for the use of the tenants in the building. It was necessary that the development application provide for the relocation of the loading dock. Such a relocation was a necessary and integral part of the application by the lessee for Council approval, for the use of the whole of the premises which were the subject of the lease, for the purposes in item 11 of the Reference Schedule. It was not, as the defendant submitted, an extraneous consideration which was prejudicial to the only application authorised by clause 12.01.

38 The plaintiff needed the Council’s consent to the tenancy of the whole of the ground floor. One of the reasons that consent was refused, was that by omitting the common loading bay on the ground floor, the development application breached maximum permitted floor space ratios. However, the application submitted to the Council had to be lodged, if the plaintiff were to obtain the Council’s consent to the use of the whole of the premises leased.

39 The defendant relied on the conversation between Mr Alma and Mr Smyth on 28 June 2004, which Mr Smyth communicated by email to Ms Drewitt on that day. It was submitted for the defendant that the conversation showed that although Mr Alma supported the application to move the loading dock to the basement car park, he also intended that if the relocation was not approved, the loading dock would stay on the ground floor and the plaintiff would have to arrange its tenancy around it. The email does carry that implication, although that is not how it was understood by Ms Drewitt. However, the conversation and email cannot be used in construing the lease, to determine what, subjectively, either of the parties intended or expected. (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352).

40 The defendant also contended that the plaintiff was not entitled to terminate the lease pursuant to clause 12.01, because the application made to the Council provided that the loading dock on the basement car park would be in an area of the premises not leased to the plaintiff. Under the lease, the plaintiff was to occupy ten car parking spaces on the side of the car park furthest from Clegg Street. The development application provided for the loading and unloading area to be on a car space or spaces adjacent to Clegg Street. I have not understood what significance the defendant attributes to this. It simply asserts that the plaintiff was not entitled to include in its application to the Council, the proposal that a part of the car park which was not leased to it be used as a loading and unloading area. Whatever the legal relevance of the submission might be, it fails at a factual level. The defendant, through Mr Alma, knew that the plans to be submitted to the Council with the development application would show the space for loading and unloading in the area they did. With that knowledge, the defendant consented to the application.

Estoppel Against Defendant’s Construction of Clause 12.01

41 The plaintiff submitted that the defendant was estopped by its conduct from denying that the development application to which it consented was an application for consent in accordance with clause 12.01. Having regard to my findings above, it is not necessary to decide this question, but it is desirable that I express my views on it. The plaintiff said that the defendant knew that, as part of the development application, the plaintiff sought approval for the relocation of the loading dock. The defendant represented to the plaintiff that that was the only logical place for it. It consented to the development application that was made.

42 I accept that if the defendant had not consented to the plaintiff making the development application in the form in which it did, the plaintiff would not have entered into the lease. The plaintiff had insisted that development consent be obtained in respect of the premises. Before the lease was entered into, Mr Alma had suggested to Ms Drewitt that the plaintiff not worry about a DA, as lots of people did not bother. She replied that, because the plaintiff was going to spend a lot of money fitting out the premises, they did not want to take the risk of wasting their money. The plaintiff’s directors understood that the plaintiff was to have the use of the whole of the space on the ground floor. As their later conduct reveals, they would not have been prepared to accept a lease which provided for less than that.

43 If the loading dock were not relocated to the car park in the basement as depicted in the development application, the plaintiff would not have got what it thought it was bargaining for, unless, with the connivance of the landlord, it was prepared to ignore the terms of Council’s consent and fit out the premises in a way which ignored the requirement for a loading dock on the ground floor area. This, indeed, was what the defendant later suggested in a meeting on 6 September 2004. At that time, the parties were discussing the Council’s requirement for the loading dock to remain on the ground floor and for a dividing wall to be installed to seal the area off from the rest of the leased premises. Mr Alma suggested that the plaintiff could install the dividing wall to get the DA approved and then take it down once it moved in. However, the plaintiff’s directors rejected that, as negating the purpose of the DA. The plaintiff would not have cut corners.

44 However, the defendant made no express representation that its consent to the lodging of the development application was to be taken as an acceptance that the application lodged was in conformity with clause 12.01. The implication from Mr Alma’s conversation with Mr Smyth, which was relayed to Ms Drewitt, is that Mr Alma thought that if the relocation of the loading dock was not approved, the plaintiff would have to work around that.

45 Ms Drewitt gave evidence that she did not know exactly what Mr Alma meant by “cover our bases” as referred to in Mr Smyth’s email, and that she assumed that it was some sort of ratio that had to be complied with. She was not cross-examined on that evidence and I accept it. However, that does not mean that the email loses its significance. Whilst the email cannot be used to construe the lease, it can be used to consider whether, in all the circumstances, the defendant conveyed a clear representation to the plaintiff about the plaintiff’s rights, such that it would be unconscionable for the defendant to deny these rights. I do not consider that a sufficiently clear representation was conveyed by the defendant.

46 However, because of my earlier finding as to the construction of the lease, the plaintiff does not need to rely on such an estoppel.

Implied Terms

47 The defendant pleaded that the lease contained two implied terms with which the plaintiff failed to comply in making its application to the Council. The first was that the plaintiff would do all such things as were necessary on its part to permit the defendant to have the benefit of the lease. I do not doubt that such a term is to be implied. (Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607.) However, it has no relevant application to the circumstances of this case. The contract of lease of which the defendant is to have the benefit, includes the right of the plaintiff to terminate the contract if the conditions in clause 12.01 are satisfied. The implied term does not qualify the right of the plaintiff to bring the lease to an end in accordance with its express terms.

48 The second implied term for which the defendant contended was expressed as follows:

”In the event that the plaintiff made application for use of the premises to warehousing, assembly and distribution of computer equipment and systems and associated office use then, in the event of it making any other application, then such further application would not prejudice the said application for change of use.”

It was said that this term was implied to give business efficacy to the lease.

49 The defendant pleaded that by including in the application to the Willoughby Council for development approval the application to use part of the lower ground floor car park as a loading dock, which was not part of the premises leased to the plaintiff, the plaintiff prejudiced the application for the change of use of the premises. This was alleged to be a breach of the alleged implied terms. I do not think it necessary to imply the second term for which the plaintiff contended. The question is not one of implication of terms but whether, on the proper construction of clause 12.01, the application for consent fell within that clause, or whether the defendant is estopped from denying that it did. For the reasons I have given, I consider that the application which was made was one which fell within clause 12.01, because the application for the relocation of the loading dock was an integral part of the application which was made for approval for the use of the demised premises.

50 If, contrary to my view, it is necessary to imply a term to the effect which the defendant alleges, I consider that the defendant would be estopped from contending that the plaintiff was in breach of the lease. It consented to the plaintiff lodging the application. There is a difference between contending that the application lodged did not fall within the terms of clause 12.01 and contending that the plaintiff had breached the lease by lodging the application which it did. I have found that the defendant is not estopped from making the former contention, although I have rejected it.

51 However, by consenting to the application which was lodged and encouraging its being lodged and pursued, the defendant induced the plaintiff to assume that it was acting properly and in accordance with its contract with the defendant. It is unconscionable for the defendant now to contend that the plaintiff was in breach of the lease by making the application to the Council in the form which it did.

52 For these reasons, the plaintiff is entitled to the declaration sought in paragraph 1 of the summons, that the lease was terminated by the plaintiff by its notice of termination of 7 December 2004.

53 The plaintiff sought a consequential order that the defendant deliver up to the plaintiff the bank guarantee given by Westpac Banking Corporation to the defendant on 28 June 2004. Whether the plaintiff is presently entitled to that order depends upon whether, notwithstanding the termination of the lease on 7 December 2004, it has obligations under the lease to the defendant, for which the guarantee can stand as security.

The Cross-Claim

54 By its cross-claim, the defendant sues for rent due on 1 February 2005 and 1 March 2005 in accordance with the lease. As the lease was terminated on 7 December 2004, that claim fails. However the defendant also claims money in respect of rent and outgoings, even if it be held that the lease was validly terminated by the plaintiff.

Repayment of Incentive Rent

55 As I have said, the lease commenced on 1 August 2004. Clause 4.01 required the lessee to pay to the lessor “during the term of the Lease free from all deductions in each year the rent and other payments (if any) specified calculated and payable in the manner provided in the First Schedule hereto.”

56 The First Schedule provided that the rent payable by the lessee should include a base rent and, in addition thereto, a reimbursement of outgoings, being the lessee’s proportion of operating expenses relative to each year of the lease or part of the year. Clause A of the First Schedule provided that:

“The Lessee will during the Term pay to the Lessor without demand and without any deduction whatsoever rent (hereinafter called “Base Rent”) at the annual amount set out in item 9 of the Reference Schedule in advance by monthly payments of one twelfth of the Base Rent on the first day of each month in each year during the Term …..”

57 Item 9 of the Reference Schedule provided as follows:

“ Base Rent
One hundred and fifty thousand dollars ($150,000) per annum (plus GST) payable calendar monthly in advance at the rate of $12,500 per calendar month nett to the lessor (plus GST) with an incentive rent-free period for the first six months and the first payment commencing on 1st February 2005.
… In the event that the lease term of five (5) years is not completed for any reason whatsoever, the incentive shall be repayable at the rate of one month per year for the remaining term of the lease calculated from the time that rent payments commenced on 1st February 2005.
….”

58 Item 9 of the Reference Schedule is to be contrasted with clause 12.01 of the lease, which provides that upon and after termination of the lease, pursuant to that clause, no further rent, outgoings or other moneys, charges, damages or compensation shall be payable by the lessee.

59 The liability of the plaintiff to pay monthly instalments of rent during the term under clause A of the First Schedule quoted in paragraph 56 was qualified by item 9 of the Reference Schedule. By item 9, the plaintiff was not liable to pay monthly instalments of rent before 1 February, 2005. The obligation under item 9 to “repay” the “incentive” was to pay moneys calculated in accordance with item 9 consequent upon the lease term not being completed.

60 The lease was terminated on 7 December, 2004. The obligation under item 9 to repay the incentive could only have arisen upon or after the termination of the lease. Clause 12.01 provides that upon and after termination of the lease under that clause, the lessee is under no obligation to pay further rent, outgoings or other moneys. However, item 9 in the Reference Schedule imposes the obligation to repay the incentive if the lease term is not completed for any reason whatsoever. Each provision is unambiguous, but they are in direct conflict.

61 Probably neither party turned its mind to the eventuality which has arisen. The inconsistency between the two provisions arises because Item 9 was in the form of the lease prepared by the lessor’s solicitors. The last sentence of clause 12.01 was inserted at the request of the lessee’s solicitor, who did not request an amendment to item 9. By the same token, the lessor’s solicitors accepted the inclusion, without seeking to have the obligation to repay incentive rent under Item 9 excluded from the last sentence of clause 12.01. The inconsistency cannot be resolved by reading one or other provision contra proferentem.

62 Courts attempt to resolve such inconsistencies, by ascertaining the parties’ intentions from the language which they have used, considering the document as a whole, and endeavouring to harmonise the apparently conflicting parts so as to give effect to each of them. Item 9 deals with the case where the lease term of five years is not completed. There are numerous ways in which the lease term might not be completed. One of them is by the early termination of the lease by the lessee pursuant to clause 12.01. Others would be by termination of the lease by the lessor following the lessee’s breach of a covenant, or the reduction of the term by the lessor if it becomes entitled to re-enter or determine the lease. The parties might agree upon a surrender of the lease. The lease might be frustrated. Were it not for the words “for any reason whatsoever” in item 9, it is clear that clause 12.01, which specifically deals with the consequences of termination under that clause, would prevail against the more general provision in item 9. However, one cannot ignore the words “for any reason whatsoever” in item 9. Both provisions are equally emphatic. It is not possible to give effect to both.

63 It might be argued that the two clauses can be reconciled by reading item 9 as meaning “for any reason whatsoever except if the lease is terminated pursuant to clause 12.01”. But one could equally read the last sentence of clause 12.01 as if it concluded, “other than the incentive repayable in accordance with item 9 of the Reference Schedule”.

64 The defendant did not submit that rent was payable during the first six months of the lease, but the lessor waived that obligation on the condition that the lease term of five years was completed, such that the liability to “repay” the “incentive” should be characterised as the lifting of a suspension of an existing obligation to pay rent. In my view it was right not to do so. The effect of item 9 was that the liability to make monthly rental payments commenced on 1 February, 2005, by which time the lease had been terminated. However, it was submitted for the defendant that the two provisions could be read harmoniously by construing the third sentence of clause 12.01 as applying to rent, outgoings or other moneys referable to the occupation of the tenant after the termination of the lease, as distinct from obligations arising on or after termination to pay rent, outgoings or other moneys referable to events occurring prior to termination. Counsel submitted that the latter were not caught by the clause. I do not accept that submission. Clause 12.01 deals with the time at which a liability to pay rent, outgoings or other moneys arises. If the obligation to pay arises on or after termination of the lease by the lessee pursuant to clause 12.01, the third sentence exempts the lessee from any such liability. It is then in conflict with item 9 of the Reference Schedule.

65 Can the inconsistency be resolved by reference to the purpose of the incentive of the rent-free period, and the purpose of the requirement to repay a part of the incentive if the full lease term is not completed? Clearly enough, the purpose of the incentive was to attract the plaintiff to entering into the lease. Where the use by the lessee of the premises was only permissible with the consent of a public authority, the lessee would derive no benefit from entering into the lease, unless the consent was obtained. The parties recognised that in that event, or if the consent was given on conditions which were not satisfactory to the lessee, the lessee could terminate the lease. In such circumstances, it is improbable that the lessee would have derived any substantial benefit from entering into the lease. It would not have been permitted to use the premises. One may ask why, in those circumstances, should an intention be imputed to the parties that nonetheless the lessee should be required to pay a substantial part of the rent which would have been payable from the commencement date of the lease, but for the incentive rent-free period? The answer is that by entering into the lease, the lessor has given up the property to the lessee and has not been able to let it to any other tenant or use it itself. It is one thing to forego rent on the property for six months in the expectation of receiving rent under a long-term lease, it is quite another to do so when the lease can be terminated for reasons which may include that the lessee is not satisfied with conditions which may be attached to a consent to the use of the premises. Thus the inconsistency is not resolved by considering the purpose of the provisions.

66 Is it possible to resolve the inconsistency according to the reasonableness of the rival constructions? As Lewison says, in “The Interpretation of Contracts” 3 ed, para 7.15, p 234, “The reasonableness of the result of any particular construction is a relevant consideration in choosing between rival constructions”. This principle usually becomes relevant when the Court is asked to decide between rival constructions, where one produces a capricious, unreasonable, inconvenient or unjust result, or flouts business common sense. In the present case, neither party’s position is unreasonable. The plaintiff may ask why it should pay an amount as rent when it derived no benefit from the lease, but terminated it as it was entitled to do, and on the basis that on and from the termination it would have no liability. The defendant may say: “Why should I have to forego rent for the period while the lessee was pursuing its application to the Council and making up its mind, when I only agreed to forego rent as an incentive to the lessee taking a long-term lease and on the basis that I could claw it back if the lease period was terminated early?”.

67 Prima facie, and subject to any contrary agreement, a landlord expects to be paid rent for the period that the lessee is in possession. The lessee was in possession of the premises, even though it was not yet able to use them. If a lessee enters into a lease before it has the required permission to use the premises in the way for which the lease provides, it would ordinarily still be required to pay rent. This is subject to what the parties may have agreed. But here the lease contains inconsistent agreements which negative each other, and the question is, which is to prevail? They cannot be qualified so that effect is given to each. If the agreement in Item 9 prevails, effect would be given to what I consider to be the prima facie position, that the lessee should pay rent when it has possession. However, the Court cannot make a contract for the parties by choosing between two constructions, each of which is reasonable, to bring about a situation it considers the parties would generally expect.

68 There is a principle of construction, but it is one of last resort, that:

“If a clause in a contract is followed by a later clause which destroys the effect of the first clause, the later clause is to be rejected as repugnant and the earlier clause prevails.” (Lewison, The Interpretation of Contracts , 3 ed, para 9.08, p 299; Forbes v Git [1922] 1 AC 256 at 259; Joyce v Barker Bros. Builders Ltd (1980) 40 P & CR 512 at 513-514).

69 In Durban v Perpetual Trustee Co. Ltd (1995) NSW Conv R 55-725, Kirby P (at 55,604) described resort to this principle of construction as an expedient to which the Court should only have recourse reluctantly and when every other avenue of resolving apparent inconsistencies has been exhausted. I am in that position. Here, the earlier clause is clause 4.01, which requires payments to be made in accordance with the First Schedule, which in turn requires payments in accordance with item 9 of the Reference Schedule. The later clause is clause 12.01, which, in the circumstances of a termination under that clause, destroys the obligation created by clause 4.01 to repay the incentive if the lease period is not completed for any reason whatsoever. In this respect, clause 12.01 is to be rejected as repugnant to the requirement of clause 4.01 that the lessee repay the incentive rent.

What Rent is Payable Under Item 9?

70 The amount to be repaid is “the incentive”, calculated on a certain basis. The “incentive” is rent which would have been payable but for the rent-free period. Therefore, rent which would not in any event have become payable because the lease was terminated does not become repayable as “the incentive”.

71 If this were not so, one could have the absurd position that if the lease were terminated after one week under clause 12.01, the lessee could be liable to pay four and a half months’ rent as repayment of the incentive under Item 9.

72 Rent was payable monthly in advance. Therefore five months’ rent became payable before the lease was terminated. However, the incentive to be repaid is to be calculated at the rate of “one month per year for the remaining term of the lease calculated from the time that rent payments commenced on 1st February, 2005..” That period is four and a half years. Therefore four and a half months’ “incentive” is owing as rent under Item 9. It was payable on 7 December, 2004.

73 The rent was $12,500 per month plus GST. The defendant is entitled to judgment on its cross-claim for $61,875 plus interest pursuant to s 94 of the Supreme Court Act from 7 December 2004, to the date of this judgment.

Outgoings

74 The defendant by its cross-claim also claims outgoings for the period from 1 August 2004 to 10 March 2005. The obligation to pay outgoings is found in Part B of the First Schedule. The lessee is required to pay “the lessee’s proportion of Operating Expenses relative to such year or part”. This is described as “reimbursement rent”. Reimbursement rent is payable within 21 days of service of notice of the amount of such reimbursement rent by the lessor on the lessee. By clause B(4), the lessor may from time to time notify the lessee in advance of the lessor’s reasonable estimate of the lessee’s proportion of operating expenses for any period not exceeding twelve months in advance, whereupon the lessee is required to pay to the lessor during such period the estimated proportion by equal monthly instalments, in advance, on the days fixed for payment of the base rent. Provision is made to adjust any payments made on the basis of the lessor’s estimate against the actual operating expenses incurred by the lessor. The plaintiff was required to contribute 50% to the operating expenses applicable to the whole of the land and the whole of the building, and 100% in respect of the operating expenses attributable to the ground floor premises, such amounts to be calculated from the commencement date of the lease.

75 No notice was served on the lessee by the lessor for the payment of reimbursement rent in accordance with clause B(3) before the lease was determined. Nor had the lessor provided an estimate to the lessee of its proportion of operating expenses under clause B(4). The defendant submitted that such an estimate was provided in the Heads of Agreement, signed before the lease was entered into. Whilst that document contained an estimate, it was not an estimate given under clause B(4). Even if an estimate under clause B(4) had been provided, no amount was payable before the first day upon which the lessee was required to pay rent. That was 1 February 2005, and the lease was terminated before then. The lessee did not incur any obligation to pay a share of operating expenses, or Reimbursement Rent, as it was called. This conclusion is reinforced by clause 12.01.

76 For these reasons, the balance of the defendant’s cross-claim should be dismissed.

77 As the plaintiff has not yet discharged its obligations to the defendant, it is not yet entitled to the return of the bank guarantee.

78 The plaintiff has made a claim for damages. No evidence has been adduced of any damage suffered by the plaintiff.

79 Accordingly, I make the following declarations and orders:

(1) Declare that the Lease between the Plaintiff as lessee and the Defendant as lessor, a copy of which is annexure “A” to the Affidavit of Karen Drewitt sworn 6 January 2005, was validly and effectively terminated by the Plaintiff by notice of termination of lease dated 7 December 2004.

(2) Order that the remaining claims for relief in the summons and statement of claim be dismissed.

(3) Direct that judgment be entered for the defendant/cross-claimant against the plaintiff/cross-defendant in the sum of $61,875, together with interest on that sum at the rate prescribed by Schedule J to the Supreme Court Rules from 7 December 2004, to the date the Judgment takes effect.

(4) Order that the balance of the cross-claim be dismissed.

(5) Exhibits may be returned after 28 days.

80 I will hear the parties on costs.

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