Patrick Stevedores Operations (No 2) Pty Limited v Melbourne Port Lessor Pty Ltd
[2016] VSC 528
•9 September 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2015 000210
| PATRICK STEVEDORES OPERATIONS (NO 2) PTY LIMITED (ACN 056 292 687) | Plaintiff |
| v | |
| MELBOURNE PORT LESSOR PTY LTD (ACN 610 924 626) and | Defendant |
| MELBOURNE PORT LESSOR PTY LTD (ACN 610 924 626) | First Plaintiff by Counterclaim |
| PORT OF MELBOURNE OPERATIONS PTY LTD (AS TRUSTEE OF THE PORT OF MELBOURNE UNIT TRUST (ABN 83 751 315 034) v PATRICK STEVEDORES OPERATIONS (NO 2) PTY LIMITED (ACN 056 292 687) | Second Plaintiff by Counterclaim Defendant by Counterclaim |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 and 16 August 2016 | |
DATE OF JUDGMENT: | 9 September 2016 | |
CASE MAY BE CITED AS: | Patrick Stevedores Operations (No 2) Pty Limited v Melbourne Port Lessor Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 528 | REVISED 16 November 2016 |
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LEASES AND TENANCIES – Covenant – Renewal, for – Renewal for, once only – Lease renewed – Whether covenant for renewal incorporated in supplementary lease – Rent – Whether designated improvement rent payable during renewed term – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 – Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd [1970] 1 WLR 52 – Cobram Laundry Services Pty Ltd v Murray Goulburn Co-operative Co Ltd [2000] VSC 353 – Elesanar Constructions Pty Ltd v Queensland (2007) ANZ ConvR 369.
EQUITY – Rectification – Whether relevant common intention established – Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd [1970] 1 WLR 52 – Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 – Pukallus v Cameron (1982) 180 CLR 447 – Cobram Laundry Services Ply Ltd v Murray Goulburn Cooperative Co Ltd [2000] VSC 353 – Newey v Westpac Banking Corporation [2014] NSWCA 319.
EQUITY – Declaration – Whether utility in grant of declaratory relief – Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 – Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334 – CGU Insurance Ltd v Blakeley (2016) 327 ALR 564 – FQM Australia Nickel Pty Ltd v Bullen (2011) 191 FCR 261.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Peters | Thomson Geer |
| For the Defendant | Mr C. Caleo QC with Mr J. Tsalanidis | Minter Ellison |
TABLE OF CONTENTS
East Swanson Dock Leases............................................................................................................... 1
The leases and associated agreements.............................................................................. 1
Rent and fees provided for under the Leases.................................................................. 3
Options to Renew under the Leases................................................................................. 5
Events subsequent to Patrick’s exercise of the Option............................................................... 6
The Pleadings..................................................................................................................................... 8
Questions to be Answered............................................................................................................... 9
Did the Renewal Deeds grant Patrick the Further Options?................................................... 11
Would POMC be entitled to rectification of the Renewal Deeds if, on a true construction, there was a grant of Further Options?.............................................................................................. 24
Was Patrick obliged to pay Improvements Rent under a renewal lease?............................. 40
Conclusions and orders.................................................................................................................. 49
HIS HONOUR:
The Plaintiff (“Patrick”) is a subsidiary of Asciano Ltd (“Asciano”), a listed public company. The Defendant (“POMC”) is a statutory body continued by s 141B of the Transport Integration Act 2010 (“Act”). The Victorian Government is involved in POMC’s financial arrangements—for example, the Treasurer determines POMC’s dividends to be paid to the State under s 161 of the Act.
Patrick relied on the evidence of Lyndall Stoyles (“Stoyles”), a solicitor who, since 1 September 2014, has been Group General Counsel and Secretary of Asciano and Elias Anastasiou (“Anastasiou”), National Real Estate Manager for Asciano. POMC relied on the evidence of Paul Alexander Saleeba (“Saleeba”), POMC’s Major Property Account Manager and that of Anthony Gerard Poynton (“Poynton”), a partner in the firm of Minter Ellison, the solicitors for POMC.
East Swanson Dock Leases
The leases and associated agreements
For over 20 years Patrick or its predecessors have conducted a container terminal operation on land owned by POMC at East Swanson Dock (“ESD”). In order to conduct that operation, Patrick has had the benefit of Lease 20452,[1] Lease 20506[2] and preferential berthing licence (“PBL”) 17040[3] (collectively, “Leases”). The areas covered by the Leases are shown in the plan annexed to these reasons.[4] Prior to entry into the Leases, there were the seven POMC improvements at ESD (including various buildings and works, the latter including two roads) listed in Annexure B[5] of Lease 20452 (“POMC Improvements”). For convenience, unless otherwise indicated, reference is made in these reasons to the provisions of Lease 20452—as varied at the relevant time—as its provisions are relevantly reflected in the provisions of Lease 20506. General references to the lease, leases or lease terms—including the term demised—are on the same basis.
[1]Court Book 80–123 (as subsequently varied by the deeds from Court Book 129–85).
[2]Court Book 262–9 (as subsequently varied by deeds from Court Book 262–301).
[3]Court Book 302–30 (as subsequently varied by deeds from Court Book 331–433).
[4]Court Book 449.
[5]Court Book 121.
Leases 20452[6] and PBL 17040[7] were, for 21 years, expiring on 31 December 2013. Lease 20506 commenced in 1998 but also expired on 31 December 2013[8]. A number of other agreements were associated with the Leases, agreements in relation to matters intrinsic to the operation of container port operations at East Swanson Dock; including the PBL (referred to in the Lease as the “Berthing Agreement”). These related agreements were with respect to matters which would not have relevance or utility were the Leases to terminate, hence the provisions of cl 4.7 of Lease 20452:
[6]Court Book 84.
[7]Court Book 308.
[8]Court Book 264.
4.7Cross-termination
without prejudice to the accrued rights or remedies of the parties, this Lease shall terminate if the Development Agreement, the Berthing Agreement of even date between the parties to this Lease (“Berthing Agreement”) or the Crane Sale Agreement (including, for this purpose, the related Deed of Novation) of even date between the parties to this Lease (“Crane Sale Agreement”) is terminated, rescinded or otherwise determined.
Other provisions to which the operation of the Leases was intrinsic, as their provisions indicate, are cls 2.26 and 2.28 of Lease 20452:
2.26To maintain proportion of throughput
to maintain through the Premises a minimum percentage of Melbourne’s international import/export container trade discharged or loaded at East Swanson Dock and measured in Twenty-foot Equivalent Units or such other internationally recognised measure as the Landlord may utilise from time to time in accordance with the following formula:
M = P – 10
Where
M =the said minimum percentage of Melbourne’s international container trade throughput through the Premises; and
P =the area of the Premises, expressed as a percentage of the total area (designated by the Landlord, acting reasonably) for international container trade from time to time;
…
2.28Not to become related body to operator of West Swanson Dock
not to –
2.28.1accept or give a controlling or relevant interest in; or,
2.28.2become an “associate” in respect of Swanson Dock or a “related body corporate” (within the meaning of the Corporations Law) of;
the operator (or any of the shareholders thereof), of the terminal situated at West Swanson Dock during the course of this Lease.
Rent and fees provided for under the Leases
The rent payable under cl 1.1[9] of Lease 20452 was the “Yearly Rent” which was “comprised of” “Ground Rent” and “Improvements Rent”; with provision for both the actual amounts payable in respect of each of these elements, and as to the manner of payment.
[9]Court Book 83–4.
Provision is made in cl 1.2 for market review of Ground Rent, with a ratchet. Clause 1.3 provides for Improvements Rent to be increased by the CPI (All Groups for Melbourne).
Clause 1.2 made provision for the timing of the review of the Ground Rent in the following terms:
1.2.1subject to this clause 1.2 and clause 1.5 the Ground Rent in each of the second and third years of the term hereof shall be $2,155,500.00 and notwithstanding anything to the contrary herein contained or implied the Landlord may at any time not more than 90 days prior to nor (subject to clause 1.2.8) more than 90 days after the last day of January in each of the years 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010 and 2012 (each date being respectively called the “Review Date”) give a notice to the Tenant (the “Notice”) stating the revised Ground Rent (in the Landlord’s opinion);
Clause 1.3.2 also made specific provision with respect to Improvements Rent payable in the second and third years of the lease term—and then for annual CPI adjustment by reference to the dates which are each described as the “Review Date” in cl 1.2.1.
Clause 1.2 contained the familiar rent review process whereby POMC would initially provide its assessment of Ground Rent. Patrick could then accept or reject POMC’s assessment of the Ground Rent and if the parties, after meeting, could not agree, the Ground Rent was to be determined ultimately by a jointly appointed determining valuer.
Clause 1.2.2 of Lease 20452 made express provision for the basis of the Ground Rent:[10]
… the market rent of the Premises at the relevant Review Date … . The market rent shall be based on land only subject to the conditions and covenants of this Lease and shall not take into account the value of any buildings or other improvements erected by [Patrick] or any other person on the Premises during the term of this lease.
[10]Court Book 85 (emphasis added).
Under cl 1.3.8 of Lease 20452,[11] Patrick could extinguish its obligation to pay Improvements Rent by paying the “current cost accounting written down value” of the POMC Improvements at the date of payment in accordance with the following provision:
1.3.8At any time during this Lease, the Tenant may give notice in writing to the Landlord of its intention to pay all or any part of the Improvements Rent in advance on a date which is not less than 30 days after the date such notice is given (the “Prepayment Date”). Upon receiving such notice, the Landlord shall forthwith calculate, and give notice in writing to the Tenant of, the amount (the “Prepayment Amount”) which, if paid by the Tenant on the Prepayment Date, would satisfy all future obligations in respect of Improvements Rent hereunder. The Prepayment Amount for any date shall be the current cost accounting written down value of the relevant improvements on that date calculated for that date by the Landlord. The Landlord and the Tenant acknowledge that the Prepayment Amount on 31 December 1992 would have been $10,205,234 determined as set out in Annexure B. The Tenant may on a Prepayment Date pay the Landlord all or any part of the Prepayment Amount calculated for the Prepayment Date and, in the case of part payment of a Prepayment Amount, the timing and amount of the Improvements Rent payable thereafter shall, at the election of the Tenant, be adjusted or reduced (as the case may be) to take account of any such part payment and, in the case of part payment of a Prepayment Amount which the Tenant wishes to be applied only in respect of certain improvements, the Tenant shall nominate those improvements at the time of the payment.
[11]Court Book 90.
The rent under Lease 20506 was the same on a per square metre basis as the Ground Rent under Lease 20452.[12] There was no Improvements Rent payable under Lease 20506. Under the PBL 17040 the annual fee was initially fixed[13] but was subject to CPI increases.[14] The fee was reduced to zero from 1 July 2003 under Variation of Berthing Agreement No 17040 dated 30 June 2003.[15]
[12]Court Book 265.
[13]Court Book 308.
[14]Court Book 317.
[15]Court Book 432.
Options to Renew under the Leases
Clause 4.6 of Lease 20452[16] contained an option for a further 21 year term commencing on 1 January 2014 (“New Term”) and relevantly provided that if Patrick exercised its option:
4.6 Option to renew
… [POMC would] … grant and execute a new lease to [Patrick] of the premises on the same terms and conditions as this Lease for a further term of 21 years at an annual rental determined in accordance with clause 1.2 hereof as if the date of commencement of the further term and each second anniversary of such date of commencement of the further term (or at such lesser interval as [POMC] may determine) were a Review Date as defined in clause 1.2.1 hereof PROVIDED FURTHER that the annual rental shall consist of Ground Rent only and that in fixing or determining the said rental the value of the buildings pavements and improvements erected, or alterations made thereto on the Premises shall not be taken into account and the said renewed Lease shall be subject to the same covenants agreements and provisions as are contained in this present Lease save and except this present agreement for the renewed Lease and the substitution in clause 4.3 of the years 2018, 2023, 2028 and 2033 PROVIDED ALSO that [Patrick] at its own costs and charges shall execute and deliver to [POMC] a counterpart of the said renewed Lease.
[16]Court Book 107–8.
As the terms of Lease 20506 were the same as those of Lease 20452 unless varied,[17] Lease 20506 contained the same option. Clause 9 of PBL 17040 contained an almost identical option to renew for the same 21 years.[18]
[17]Court Book 264.
[18]Court Book 316.
Events subsequent to Patrick’s exercise of the Option
It is common ground that:
(a)Patrick exercised the options in the Leases (“Options”) on 13 July 2011;[19]
[19]See Court Book 453; Further Amended Statement of Claim (22 December 2015) [14]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [14].
(b)after exercise of the Options, Patrick and POMC executed[20] the deeds of renewal and variation for the New Term dated 19 November 2013 (“Renewal Deeds”) for Lease 20452 (“20452 Renewal Deed”),[21] for Lease 20506 (“20506 Renewal Deed”)[22] and for PBL 17040 (“17040 Renewal Deed”);[23]
[20]See Court Book 186–95; Further Amended Statement of Claim (22 December 2015) [19]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [19].
[21]Court Book 186–95.
[22]Court Book 301.1-301.8.
[23]Court Book 434–43.
(c)cls 1 and 2 of the 20452 Renewal Deed[24] are:
[24]Emphasis added. Although there are slight differences, cls 1 and 2 of all of the Renewal Deeds are substantially the same. The focus is on the 20452 Renewal Deed, but what is submitted applies to all Renewal Deeds.
1.Renewal and variation of Old Lease
The Landlord leases the premises under the Old Lease to the Tenant for the Further Term starting on 1 January 2014 and ending at midnight on 31 December 2034 on the same conditions as are set out in the Old Lease, with only those variations set out in Schedule 1.
2.Landlord’s and Tenant’s obligations
The Landlord and the Tenant must each comply with their obligations under the Old Lease, as renewed and varied by this deed, in the same way as if those obligations were repeated in full in this deed, with only those changes necessary for them to apply to this deed.
(d)Schedule 1 of the Renewal Deeds did not exclude the Options;
(e)Schedule 1 of the 20452 Renewal Deed provided for Patrick to pay both Ground Rent and Improvements Rent, but left the quantum (ie the numerals) blank.[25] Item (e) of Schedule 1 to the 20452 and Item (d) of Schedule 1 to the 20506 Renewal Deeds authorised POMC to complete Schedule 1 after the determination of the Ground Rent;[26]
[25]See Further Amended Statement of Claim (22 December 2015) [17]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [17].
[26]Court Book 191, 301.5.
(f)after the Ground Rent for the commencement of the New Term was determined, POMC, with Patrick’s concurrence, completed the 20452 Renewal Deed by inserting numerals in Item (b) of Schedule 1 for both Ground Rent and Improvements Rent and completed the 20506 Renewal Deed by inserting the numeral for the Ground Rent;[27]
[27]Court Book 191; Further Amended Statement of Claim (22 December 2015) [21]–[23]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [21]–[23].
(g)Patrick first disputed its liability to pay Improvements Rent for the New Term on 11 September 2014;[28]
[28]See Court Book 1338–9.
(h)in September and December 2014[29] Patrick alleged that Improvements Rent was not payable for the New Term and requested that the figure in Item (b) of Schedule 1 for the Improvements Rent – $1,588,399.35 – be replaced with $0;
[29]Court Book 1342, 1349–51; Further Amended Statement of Claim (22 December 2015) [26], [29].
(i)POMC declined to amend item (b) and said that cl 4.6 of Lease 20452 entitled it to Improvements Rent on renewal;[30]
(j)Patrick made quarterly payments of Improvements Rent voluntarily until 11 September 2014[31] and thereafter under protest;[32]
(k)on 17 December 2015[33] Patrick’s solicitors, Thomson Geer, asked POMC’s solicitors, Minter Ellison, whether, on the assumption that in this proceeding this Court decided that cl 4.6 of Lease 20452 did not require Patrick to pay Improvements Rent for the New Term, POMC would agree to delete Patrick’s obligation to pay Improvements Rent from the 20452 Renewal Deed and to repay Improvements Rent received since 1 January 2014. Thomson Geer said they had instructions to commence a further proceeding alleging unconscionable conduct should POMC decline to abide a decision by this Court in Patrick’s favour;
(l)Minter Ellison relevantly said in their letter dated 18 January 2016[34] that even if Patrick was successful about the construction of cl 4.6, POMC had no intention of repaying the Improvements Rent or amending the 20452 Renewal Deed.
Moreover, as addressed by POMC in its submissions, recitals L and M of the 20452 Renewal Deed are of some relevance. These recitals, which follow recitals setting out the documentary history—in terms of further agreements and variations with respect to Lease 20452—are as follows:[35]
LClause 4.6 of the Old Lease gives the Tenant an option to renew the Old Lease for 21 years (Further Term).
MThe Tenant has exercised the option to renew the Old Lease and the Landlord has agreed to renew the Old Lease for the Further Term on the conditions of this deed.
[30]Court Book 1338, 1352–3; Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [26], [29].
[31]See Further Amended Statement of Claim (22 December 2015) [24]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [24].
[32]See Court Book 1344–5, 1346–7, 1356; Further Amended Statement of Claim (22 December 2015) [28], [31]–[34]; and Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [28], [31]–[34].
[33]Court Book 1365.
[34]Court Book 1370.
[35]Emphasis added. The reference in recital L was agreed to be intended as a reference to cl 4.6—and that the reference to cl 4.3 as appears in the Deed as executed is an error.
The Pleadings
Patrick seeks a declaration that upon its exercise of the Option in Lease 20452, Patrick should have been granted a new lease which did not contain an obligation that Patrick pays Improvements Rent (“Declaration”). POMC denies Patrick’s construction of cl 4.6 and alleges that granting the Declaration has “no utility” because Patrick is now bound by the 20452 Renewal Deed to pay Improvements Rent.[36]
[36]Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [35].
POMC alleges that, properly construed, the Renewal Deeds did not grant Patrick options for a further 21 year term commencing on 1 January 2035 (“Further Options”),[37] but says that if they did, they should be rectified to remove the Further Options.[38] Patrick contends that the Renewal Deeds did grant the Further Options,[39] POMC is not entitled to rectification, but if it is, the Court should impose conditions that POMC deletes the obligation to pay Improvements Rent from the 20452 Renewal Deed and repays Improvements Rent already paid to it, plus interest (“Conditions”),[40] and that there is utility in making the Declaration, not the least because the Court has to determine whether to impose the Conditions.[41]
[37]Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [65], [82], [102].
[38]Fourth Amended Defence to Further Amended Statement of Claim and Counterclaim (15 August 2016) [68]–[70], [85]–[87], [105]–[107].
[39]Reply to the Fourth Amended Defence and Defence to Counterclaim (15 August 2016) [65], [82], [102].
[40]Reply to the Fourth Amended Defence and Defence to Counterclaim (15 August 2016) [70A], [87A], [108].
[41]Reply to the Fourth Amended Defence and Defence to Counterclaim (15 August 2016) [35].
Questions to be Answered
It is also common ground that up to six questions arise for determination; which were formulated by Patrick as follows:
(1)first, did cl 4.6 of Lease 20452, properly construed, entitle Patrick on renewal to a lease for the New Term which did not oblige Patrick to pay Improvements Rent? Patrick contends the answer is “yes”;
(2)secondly, is there utility in making the Declaration? Patrick contends the answer is “yes”;
(3)thirdly, did the Options entitle Patrick, on renewal, to a lease or licence (as the case requires) containing the Further Options. The answer clearly is “no”;
(4)fourthly, properly construed, did cls 1 and 2 of the Renewal Deeds grant Patrick the Further Options? Patrick contends that the answer is “yes”;
(5)fifthly, if the answer to the fourth question is “yes”, then is POMC entitled to rectify the Renewal Deeds to remove the Further Options? Patrick contends that the answer is “no”;
(6)sixthly, if the answer to the fifth question is “yes”, then should the Court impose the Conditions? Patrick contends that the answer is “yes”.
Whilst POMC agrees with the potential issues arising in this proceeding as set out in these questions, as formulated by Patrick, it submits that logic dictates that they ought be addressed in a different sequence (as set out below), as some issues may not require determination at all. By way of summary, POMC’s position in respect of the six issues is as follows:
(a)Question 1 – Consideration of this question is necessary only if POMC both fails in its argument that the Renewal Deeds did not confer on Patrick the Further Options and either fails in its claim for rectification or is only granted rectification subject to the pleaded Conditions;
(b)Question 2 – Whether there is utility in granting the Declaration will depend on the answer to questions 1, 4, 5 and 6, thus this question ought to be decided last;
(c)Question 3 – The Options did not entitle Patrick to a lease or licence containing the Further Options on renewal (we note that Patrick agrees with this position);
(d)Question 4 – Properly construed, the Renewal Deeds did not grant Patrick the Further Options;
(e)Question 5 – If the answer to question 4 is “yes”, POMC is entitled to rectification to remove the Further Options in the Renewal Deeds; and
(f)Question 6 – If POMC obtains rectification of the Renewal Deeds, such rectification ought not be subject to the Conditions sought by Patrick.
In my view, the matters raised by these questions—and in whichever order they might be addressed—resolve into two broad issues. The first is whether the Renewal Deeds, properly construed, did or did not grant Patrick options for a further 21 year term commencing on 1 January 2035—the “Further Options”. The subsidiary issue with respect to this question is if, on a proper construction of the Renewal Deeds, Further Options were granted to Patrick, whether POMC is entitled to rectification of the relevant provisions of the Renewal Deeds to remove provisions which would effect such grant. The second issue is whether, upon the exercise of the Option in Lease 20452, Patrick should have been granted a new lease which did not contain an obligation that Patrick pay Improvements Rent. The subsidiary issue with respect to this question is, in the event that I am of the view that the new lease should not contain any obligation to pay Improvements Rent, a declaration ought properly to be made to this effect.
In relation to the first issue, both Patrick and POMC agree that the Options did not entitle Patrick to a lease or licence containing the Further Options on renewal.[42] Thus, the first issue is confined to the effect of the provisions of the Renewal Deeds in this respect.
[42]Patrick’s Outline of Opening Submissions (2 August 2016) [30] and Defendant and Plaintiff by Counterclaim’s Outline of Opening Submissions (2 August 2016) [4].
Did the Renewal Deeds grant Patrick the Further Options?
Of obvious critical importance with respect to this issue are the terms of the Renewal Deeds. As observed previously, the terms of these deeds contain some slight differences, but the provisions of cls 1 and 2 are substantially the same—thus I will refer to the provisions of the 20452 Renewal Deed, which are set out above.
As the parties readily acknowledge, the principles of contractual construction are well known. They were restated recently by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[43] by French CJ, Nettle and Gordon JJ, as follows:
[43](2015) 256 CLR 104 at 116–7 [46]–[52]; applied in Victoria v Tatts Group Ltd (2016) 328 ALR 564 at 575 [51].
Applicable legal principles in these appeals
46.The rights and liabilities of parties under a provision of a contract are determined objectively,[44] by reference to its 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.[45]
47.In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[46] That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[47]
48.Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[48]
49.However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating“.[49] It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
50.Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.[50]
51.Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result“.[51] Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience“.[52]
52.These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[53] and Electricity Generation Corporation v Woodside Energy Ltd.[54] We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[55]
There is no doubt that these principles are equally applicable to leases and deeds, such as the Renewal Deeds.[56]
[44]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35].
[45]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 (quoting Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–6; [1976] 3 All ER 570 at 574), 352. See also Sir Anthony Mason, “Opening Address“ (2009) 25(1) Journal of Contract Law 1 at 3.
[46]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35].
[47]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656–7 [35].
[48]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352. See also Sir Anthony Mason, “Opening Address“ (2009) 25(1) Journal of Contract Law 1 at 3.
[49]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], quoting Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350, in turn quoting Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–6; [1976] 3 All ER 570 at 574.
[50]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–6; [1976] 3 All ER 570 at 574.
[51]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], quoting Re Golden Key Ltd (rec apptd) [2009] EWCA Civ 636 at [28].
[52]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], citing Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82].
[53](1982) 149 CLR 337.
[54](2014) 251 CLR 640.
[55](2011) 282 ALR 604.
[56]See also Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221, especially [25].
In relation to this issue, Patrick submits that cl 1 of the 20452 Renewal Deed identifies the terms for the New Term. Clause 1, it is contended, means what it says—Patrick receives the same document as Lease 20452 with the “only” amendments being those specified in Schedule 1. Patrick emphasises its point that since Schedule 1 does not exclude cl 4.6, on renewal cl 4.6 is repeated. In relation to cl 2, Patrick submits that its provisions do two things. First, it obliges POMC and Patrick to actually perform the terms (eg to pay the “annual rental”). Secondly, the concluding words—“as if those obligations were repeated in full in this deed, with only those changes necessary for them to apply to this deed”—relieve Patrick and POMC from re-typing Lease 20452. Those words, it is said, contain two concepts:
·First, every obligation from Lease 20452 is repeated in full; but
·Secondly, changes are necessary to some of the Lease 20452 obligations so that they “apply to this deed” (ie not so that “the option clause in the lease is satisfied”).
So, for instance, Patrick contends, had Schedule 1 to the 20452 Renewal Deed excluded cl 4.6, the effect of cl 2 is to treat cl 4.6 as not “repeated in full” in that deed.
POMC agrees that cl 1 of the Renewal Deeds provides for the creation of the renewed leases on the same conditions as are set out in the Leases, with only those variations set out in Schedule 1. However, it says, cl 2 of the Renewal Deeds makes provision for those changes that are necessary for them to apply to this deed (the Renewal Deed). Thus, it is contended that these words require the Court to construe the Renewal Deed so that, absent clear words, it does not provide for any obligation additional to those that the Leases required be undertaken pursuant to the renewal.
Applying the principles of contractual construction, POMC submits that the Court cannot read cl 1 of the Renewal Deeds in isolation, and must have regard to the terms of the Leases and the circumstances surrounding entry into the Renewal Deeds. The aspects of this broader context are, POMC contends, that:
(a)the Leases are for a significant tract of land at East Swanson Dock in the Port of Melbourne;
(b)the Leases, which were entered into in 1993, are for terms of 21 years plus an option, without any termination or other exit rights for the parties (save in circumstances of default);
(c)the Leases each only grant Patrick a single option to renew (which both parties accept); and
(d)in preparing and executing the Renewal Deeds:
(i)neither POMC nor Minter Ellison (who prepared the Renewal Deeds) intended to grant Patrick the Further Options,[57] to which Patrick was not entitled under the Leases; and
(ii)Patrick did not intend to obtain the Further Option[58] or, alternatively, only intended to obtain what it was entitled to under the Leases.[59]
Moreover, in construing the Renewal Deeds, POMC submits that the fact that cl 4.6 clearly conferred only one option is of particular importance contextually and a factor that justifies a narrower reading of the text in the Renewal Deeds; particularly in the absence of other evidence that the parties intended to grant a further option. In relation to intention, POMC also makes reference to recitals L and M of the 20452 Renewal Deed[60] in support of its position that there was never any intention to grant a further option. Rather, it is contended that these recitals indicate the intention of the parties to renew Lease 20452 in accordance with the provisions of cl 4.6 which gave Patrick only “an” option to renew for a further term of 21 years. One can, of course, “play” with the semantics and say that recital M contemplates or accommodates a variation to the single option for renewal referred to in recital L in the operative provisions of this Renewal Deed. However, I would not regard this as a fair reading of these recitals and am of the view that they are both consistent with the construction of the 20452 Renewal Deed for which I have found in the reasons which follow and to the extent that there is any ambiguity in the operative part of this Renewal Deed serve to address and clarify any such ambiguity in favour of the construction I have adopted.[61]
[57]Amended Witness Statement of Paul Alexander Saleeba (16 August 2016) [47]; Witness Statement of Anthony Gerard Poynton (16 August 2016) [9].
[58]Mr Anastasiou’s witness statement stated that “I did not intend Patrick to receive a further option in the Renewal Documentation, but that is what results if POMC’s defence document is correct”: Statement of Elias Anastasiou (23 October 2015) [92]. However, in Plaintiff’s list of evidence not to be Tendered and Objections (30 June 2016), Patrick has indicated an intention not to rely upon this paragraph.
[59]Statement of Elias Anastasiou (23 October 2015) [27], [63].
[60]See above, [13].
[61]As to the function of recitals with respect to “clarifying” the proper construction of the operative part of a deed, see Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 5th ed, 2011) 527–30 [10.13]; and see Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd [1970] 1 WLR 52 as to the treatment of recitals and their importance in this context.
In Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd,[62] the relevant option clause provided for the renewal of the lease for a further term of seven years “at the same rent and containing the like covenants and provisions as are herein contained with the exception of the present covenant for renewal”. The renewed lease that was subsequently prepared contained recitals and an operative cl 2 (not dissimilar to cl 2 of the Renewal Deed) that referred to the tenant’s right of renewal in the recitals and provided that the landlords and the tenant:
[W]ill respectively perform and observe the several covenants provisos and stipulations in the Lease expressed as fully as if the same covenants provisos and stipulations had been herein repeated in full with such modifications only as may be necessary to make them applicable to this demise.
After referring to this clause, Foster J observed:[63]
The question of construction comes down to this: The words of clause 2 are wide and general and clear and on their reading alone, without regard to any other circumstances or context, they are wide enough to include all the covenants in the previous lease, including the covenant for renewal. … [But there is a general] principle of construction that wide words can be cut down if the context leads the court to conclude that the words must be construed more narrowly. What, then, are the circumstances and the context at which I am entitled to look to decide whether they should be cut down or whether their wide meaning should remain? It is common ground that I can look at the whole of the words used in the 1963 lease. It is also common ground that I can look at the 1957 lease because of the word “supplemental” in the first recital, which has the effect of bringing in the whole of the 1957 lease by way of recital into the 1963 lease. It has been submitted on behalf of the tenants that I cannot look at the letters which I have referred to, those of 21 June, 1963 and 3 July, 1963, but in my judgment they are clearly part of the surrounding circumstances and it is permissible for me to look at them. The effect of the letter of June 21, 1963, was to exercise the option which had been granted to the tenants by the 1957 lease, and that option was for seven years only, but a request was made that instead of taking it for seven years, as the option required, the term should only be for four years and that was agreed to by the then landlords. When I turn to the 1963 lease, and particularly recital (b), I find these words. “ … [I]n satisfaction of the tenant’s rights of renewal which the landlords have agreed to do.” The only right of renewal which the tenants had was once and once only, for seven years, and it was that option which they were exercising by the letter although they were asking for something less than that to which they were entitled under clause 4 (D) of the 1957 lease.
Taking all these things into consideration, that is to say, the former lease, the exercise of the option and the 1963 lease, I am constrained to hold that the covenants in clause 2 must be given a narrow construction so as not to include the covenant for renewal. I therefore propose to dismiss the action and, as rectification does not arise, to make no order on the counterclaim.
[62][1970] 1 WLR 52.
[63]Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd [1970] 1 WLR 52 at 55–6.
As is clear from this passage from Plumrose, Foster J emphasised that the tenant’s right of renewal was “once and once only” for seven years and it was “that option” which was exercised by the tenant when it gave written notice of its intention to exercise the option.[64] His Honour concluded that, having regard to the terms of the option in the former lease, the exercise of the option and the renewed lease, cl 2 of the renewed lease should be given a narrow construction so as not to include the covenant for renewal.
[64]Plumrose Ltd v Real and Leasehold Estates Investment Society Ltd [1970] 1 WLR 52 at 56.
This approach in Plumrose is consistent with the proposition stated in Halsbury that: “Covenants to renew are collateral to the relationship of landlord and tenant and will not be incorporated in the new lease unless it is clearly shown that this was the parties’ intention.”[65] More particularly, Bruce J in Lewis v Stephenson (the principal authority cited by Halsbury, together with Plumrose) said:[66]
But then it is said that if the terms of the renewed lease are to be the same as the terms of the original lease, the renewed lease must contain a stipulation for renewal, and so on in perpetuity. But such a construction is, I think, manifestly unreasonable. “With option of renewal” does not mean with continued options of renewal after renewal. There is, I think, sufficient authority to support the view that an express provision that all covenants in the original lease shall be inserted in the renewed lease will not include a covenant for a further renewal.[67] The Court leans against a construction for perpetual renewal unless there be express words to shew that it is clearly intended.[68]
Moreover, I accept that, as submitted by POMC, the distinction at law between the covenant to renew a lease and the conditions and obligations intrinsic to the demise itself is evident in the language of clauses 1 and 2 of the 20452 Renewal Deed. There, cl 1 refers to the “… same conditions as are set out in the Old Lease …” and cl 2 refers to the compliance by the parties “… with their obligations under the Old Lease, as renewed and varied by this deed”. The language of these provisions is not cast in the more general language of “terms” or “provisions” but, rather, uses language—“conditions” and “obligations”—which is inapt to describe a covenant for renewal. Moreover, to the extent that the covenant for renewal imposes any obligation on POMC under the lease that is the subject of an exercise of the option to renew, that obligation is spent on the grant of the renewed lease.[69]
[65]Lord Mackay (ed), Halsbury’s Laws of England (LexisNexis, 5th ed, 2008) vol 62, Landlord and Tenant, 177 [140]. Lewis v Stephenson (1898) 67 LJQB 296 (with an additional reference to Plumrose) is cited for this proposition.
[66]Lewis v Stephenson (1898) 67 LJQB 296 at 300.
[67]See Iggulden v May (1804) 9 Ves Jr 325; 32 ER 628; Hyde v Skinner (1723) 2 P Wms 196; 24 ER 697.
[68]Baynham v Guy’s Hospital (1796) 3 Ves Jr 295; 30 ER 1019.
[69]As to the nature of options to renew leases and for an analysis of the process of renewal, see B S Stillwell & Co Pty Ltd v Budget Rent-a-Car System Pty Ltd [1990] VR 589.
It is acknowledged by POMC that the lease in Plumrose did not contain a provision equivalent to cl 1 of the Renewal Deeds, but it is said that, nevertheless, the provisions of cl 2 are, in effect, explanatory of the scope and extent of cl 1. Thus it is submitted by POMC that as cl 2 requires POMC and Patrick to comply with their obligations under the Leases “with only those changes necessary for them to apply to” the Renewal Deeds, it follows that one of those necessary changes is that there is no further option to renew; consistent with there being only one further term of 21 years because that option was spent or “exhausted” when it was exercised.[70]
[70]See Benbow v Synod of the Church of England in the Diocese of Adelaide Inc [1954] SASR 320 at 327; and see above, [27].
The principle of construction applied in Plumrose was approved by Warren J (as the Chief Justice then was) in Cobram Laundry Services Pty Ltd v Murray Goulburn Co-operative Co Ltd.[71] Her Honour referred to the judgment of Foster J in Plumrose and stated that it will often be the case where the terms of a contract are extended or an option to renew is exercised that the original terms of the contact must be interpreted consistently with such option or extension.[72] More particularly, Warren J said, after setting out the passage from the judgment of Foster J in Plumrose, which is set out above:[73]
[71][2000] VSC 353, [31]–[33].
[72]Cobram Laundry Services Ply Ltd v Murray Goulburn Cooperative Co Ltd [2000] VSC 353, [33]. Lord Mackay (ed), Halsbury’s Laws of England (LexisNexis, 5th ed, 2008) vol 62, Landlord and Tenant, 177 [140].
[73]Cobram Laundry Services Pty Ltd v Murray Goulburn Co-operative Co Ltd [2000] VSC 353, [33]–[35].
33.It can be concluded from Plumrose that it will often be the case where the terms of a contract are extended or an option to renew is exercised that the original terms of the contract must be interpreted consistently with such option or extension. Applying that approach to the present case the effect of the extension of the contract period would be rendered nugatory should the terms of clause 7 of the contract be interpreted in accordance with the defendant’s position.
34.Similarly, in Update Constructions Pty Ltd v Rozelle Child Care Centre Limited[74] the Court of Appeal of New South Wales was concerned with a building contract that provided for the deletion of a standard term. As a consequence of the deletion other provisions in the contract were rendered meaningless. The Court of Appeal held that in the circumstances there was no inconsistency with the intention of the parties in simply ignoring the quoted words so as to preserve otherwise the remaining provisions of the clause as agreed between the parties. In NGL Properties Pty Ltd v Harlington Pty Ltd[75] Kaye J was called upon to consider the construction of the terms of a lease, in particular, the words “per annum” in the lease for the purposes of determining the appropriate rental payable per calendar month. In considering the terms of the lease and the intention of the parties Kaye J held that the particular words “per annum” were superfluous and ought be rejected for the purposes of construing the lease. The learned judge observed:[76]
[74](1990) 20 NSWLR 251.
[75](1979) VR 92.
[76]NGL Properties Pty Ltd v Harlington Pty Ltd (1979) VR 92 at 95.
It is a rule of construction, moreover, that whatever expression found in a written instrument is inconsistent with the real intention of the parties, as it appears from the language of the instrument, ought to be rejected as superfluous.[77] The rule was stated by Sir John Romilly, MR in Re Strand Music Hall,[78] as follows: “The proper mode of construing any written instrument is to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in the deed, unless it be impossible to reconcile it with another and more express clause in the same deed.”
In Gwyn v Neath Canal Navigation Co,[79] Kelly, CB expressed the rule in these words: “[W]hen a court of law can clearly collect from the language within the four corners of a deed, or instrument in writing, the real intentions of the parties, they are bound to give effect to it by supplying anything necessarily to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention so discerned.”
35.From the judgments in Update Constructions and NGL Properties it can be concluded that wherever an expression is found in an instrument which is inconsistent with the real intention of the parties, as it appears from the language of the instrument, it is to be rejected as superfluous.[80]
Warren J then made reference to a variety of other cases which reaffirmed and reinforced the position that the courts will seek to construe instruments with a view to giving business efficacy to the parties’ intentions expressed in commercial agreements—and thereby effect rather than destroy their bargains.[81]
[77]Walker v Giles (1848) 6 CB 662; 136 ER 1407; Re O’Brien [1975] 1 NZLR 688.
[78](1865) 35 Beav 153; 55 ER 853 at 856.
[79](1868) LR 3 Ex 209 at 215.
[80]See also D W Greig and J L R Davis, The Law of Contract (Lawbook Co, 1987) 401–72; A G Guest (ed), Chitty on Contracts (Sweet and Maxwell, 25th ed, 1983) vol 1, General Principles, 420–1 [765]–[766].
[81]See Cobram Laundry Services Pty Ltd v Murray Goulburn Co-operative Co Ltd [2000] VSC 353, [36]–[42].
Patrick seeks to distinguish Plumrose.[82] Primarily, Patrick relies on the fact that Foster J in Plumrose considered the presumption against the grant of a lease in perpetuity as a relevant circumstance, and that no such relevant circumstance is present in this case.[83] That circumstance, however, was not critical to the principle of construction applied in Plumrose and that principle is not inconsistent with the approach taken by the Queensland Court of Appeal in Elesanar Constructions Pty Ltd v Queensland[84] in light of the particular circumstances of that appeal. The context in Elesanar Constructions was provided by a sale and lease back arrangement associated with the desire of the State of Queensland to extend the railway from Robina to the New South Wales border. Thus, Fryberg J (with whom McMurdo P and McInnes JA relevantly agreed) said:[85]
22.In my judgment his Honour erred in failing to give due weight to these considerations and in assessing the objective intention of the contracting parties only from the point of view of the State. This was a lease which the parties plainly expected would eventually come to an end. On the evidence there was no doubt that sooner or later the land would be required for the railway. They did not envisage a perpetually renewable lease and by reason of cl 6, this was not, when looked at from a commercial viewpoint, such a lease. It is quite possible to imagine practical reasons which would lead the parties to enter into such a lease. The State might be happy to have a continually renewable lease, knowing that it could put an end to it whenever it needed the land for the railway and that there was no practical chance that such a need would not arise. Elesanar might require such a clause in return for giving up title to potentially valuable land without having a right of first refusal in the event that the railway did not proceed. A continually renewable lease would ensure that it had the means to secure for itself a share of any premium in the unlikely event of a resale. It is not for the court to the judge the parties’ motives. If, after the surrounding circumstances known to the parties and the purpose and object of the transaction are considered, there is nothing to displace the plain meaning of the words used, the court should give effect to that meaning. As Gibbs J said in Australian Broadcasting Commission v Australasian Performing Right Association Ltd, “The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust.”[86]
Whilst in more unusual circumstances application of the ordinary rules of construction are more likely to militate against a construction in favour of a continually renewable lease, Elesanar Constructions indicates not that this is not generally going to be the more usual position but, rather, that particular—albeit more unusual circumstances—may indicate otherwise.[87] As these reasons indicate, I am not, however, of the view that the present proceedings raise the sorts of considerations which would enliven the reasoning in Elesanar Constructions.
[82]Patrick’s Outline of Opening Submissions (2 August 2016) [33].
[83]Patrick’s Outline of Opening Submissions (2 August 2016) [33.2]–[33.3]. See Elesanar Constructions Pty Ltd v Queensland (2007) ANZ ConvR 369; [2007] QCA 208.
[84]Elesanar Constructions Pty Ltd v Queensland [2007] QCA 208; (2007) ANZ ConvR 369.
[85]Elesanar Constructions Pty Ltd v Queensland [2007] QCA 208; (2007) ANZ ConvR 369 at 376 [22].
[86](1973) 129 CLR 99 at 109.
[87]And see Elesanar Constructions Pty Ltd v Queensland [2007] QCA 208; (2007) ANZ ConvR 369 at 378 [30], [31].
In the present case, the parties did not intend to grant the Further Options. The parties agree that the Leases provided only for a single option. Patrick has pointed to no evidence that Further Options were intended. If the construction advanced by Patrick is upheld, POMC will be bound by an additional 21 year term (that is, until 31 December 2055) for a major Port terminal without an exit clause of the kind that existed in Elesanar.[88]
[88]See Elesanar Constructions Pty Ltd v Queensland [2007] QCA 208; (2007) ANZ ConvR 369 at 372 [13].
In my opinion, the matters advanced by POMC with respect to the construction of the 20452 Renewal Deed as a whole and in context of the provisions of Lease 20452 to which reference has been made support the view that on its proper construction, no additional 21 year term was conferred. In other words, the operation of cl 4.6 of the 20452 Lease was not affected by the provisions of the 20452 Renewal Deed and, as in Plumrose, the renewal was “once and once only”.
Moreover, the principles of construction to which reference has been made would not, in my view, aid Patrick’s position. The claim for an additional term of 21 years which was pressed in these proceedings is indicative of the position that a lease of 21 years of East Swanson Dock is, undoubtedly, a very valuable right. As such, it is simply not credible to suppose that the parties, if they had agreed to confer such a valuable right, would not have done so clearly and expressly. A court would hardly be giving commercial efficacy to the agreement between the parties, constituted by Lease 20452 and the 20452 Renewal Deed, in inferring the grant of such a right on the basis of ambiguous words on occasions in the 20452 Renewal Deed, as contended by Patrick.
Finally in this respect, further indications that, properly construed, the 20452 Renewal Deed does not confer an additional 21 year term are provided by the provisions of the deed itself.
Clause 4.3 of Lease 20452 makes specific provision for review and variation with respect to the covenants contained in cls 2.26 and 2.28 of the Lease. These provisions contain covenants to maintain container throughput and for Patrick not to become a related body to the operator of West Swanson Dock, respectively.[89] These provisions are also specifically designated and agreed to be fundamental terms under the provisions of cl 4.4. The provisions of cl 4.3 of Lease 20452 are in the following terms:
[89]These provisions are set out above, [4].
4.3Review and variation
the Landlord or the Tenant may at any time after the 1st day of January in each of the years 1998, 2003, 2008 and 2013 by notice in writing to the other instigate a review of the continuing suitability of the covenants and agreements contained in clauses 2.26, and 2.28 hereof and the Tenant’s compliance therewith and after consideration of the review the Landlord and the Tenant will use their best endeavours to agree on appropriate amendments to clauses 2.26 and 2.28. If the Landlord and the Tenant are unable to agree on appropriate amendments, the matter shall be referred to an expert/arbitrator (appointed in accordance with clause 7) who, in determining the appropriate amendments (if any), to the said covenants and agreements shall have regard to, amongst relevant factors, any structural change or anti-competitive developments in the stevedoring industry. Any amendments arising from such review shall not materially alter the arrangements between the Landlord and the Tenant as set out in clauses 2.26 and 2.28;
Clause 4.6 of Lease 20452 as varied makes provision for the substitution of new dates in cl 4.3—namely 2018, 2023, 2028 and 2033—which have the effect of providing for or enabling its continued operation for one further 21 year lease term.[90] Thus, cl 4.3 will continue to operate and provide for the review and variation of the essential terms contained in cls 2.26 and 2.28 of Lease 20452—but for one additional term only. Moreover, the Renewal Deeds also effect the same variation of these dates in cl 4.3—in Schedule 1, para (d). Without the benefit of these provisions and cl 4.6 as varied, the provisions of cl 4.3 would not operate during a renewed lease term with the consequence that the designated essential, and clearly significant and important provisions of cls 2.26 and 2.28 would not operate during the renewed term. The limitation of the amendments to cl 4.3 to one only additional lease term is a strong indication, in my view, that the effect of the Renewal Deeds is only to effect renewal in accordance with cl 4.6 for one additional 21 year term. In my view, it is no answer to this construction point in the face of carefully drawn express provisions to say, as did Patrick, that the parties might be expected to negotiate further amendments to overcome these difficulties under the “good faith” provisions of cl 6.15 of Lease 20452.
[90]Clause 4.6 as varied is set out above, [12].
The significance of these issues with respect to cl 4.3 were emphasised by POMC by reference to the provisions for rent review during the further term which are contained in cl 4.6,[91] with reference to cl 1.2;[92] and by reference to para (e) of Schedule 1 of the 20452 Renewal Deed. As will be seen, the provisions of cl 1.2 make provision for rent review by reference to “Review Dates” which are stated years, rather than specified intervals of unstated years. However, the provisions of cl 4.6 effectively provide an “automatic amendment” of these “Review Dates” in cl 1.2 with the words “… at an annual rental determined in accordance with clause 1.2 hereof as if the date of commencement and the further term and each second anniversary of such date of commencement of the further term … were a Review Date as defined in clause 1.2.1”. Consequently, there was no need to include as para (d) of Schedule 1 of the 20452 Renewal Deed the following provision:
(d)In clause 1.2.1, replace “after 1 July in each of the years 2006, 2009 and 2012” with “after 1 January in each of the years 2016, 2018, 2020, 2022, 2024, 2026, 2028, 2030 and 2032”.
Although it might be said that this amendment would not affect the ambulatory, automatic, adjustment of rent review dates by reason of the operation of cl 4.6, if that provision did subsist in the renewed term it is, in my view, consistent with and in context does support the view that the parties only intended to provide for one additional 21 year lease term—the last Review Date being after 1 January 2032. The same observation arises in this context in relation to Patrick’s contention as to the “remedial” qualities of the good faith obligations under Lease 20452.
Would POMC be entitled to rectification of the Renewal Deeds if, on a true construction, there was a grant of Further Options?
[91]See above, [12].
[92]See above, [7].
POMC submits that, if the Renewal Deeds are construed so as to grant Patrick the Further Options, the Renewal Deeds should be rectified to accord with the common intention of the parties that no Further Options be granted.
The principles regarding the remedy of rectification are well settled, at least in general terms.[93] A written document executed by the parties is presumed to be a true record of the parties’ agreement.[94] However, if there is clear evidence of a mistake in the recording of the parties’ agreement, the equitable remedy of rectification is available to reform the parties’ document.[95] The rationale of rectification in equity is that it is unconscientious for a party to seek to apply the contract inconsistently with what that party knows to be the common intention of the parties at the time the written contract was entered into.[96] A party seeking rectification must adduce “clear and convincing evidence” the actual or true common intention of the parties has failed to be embodied in the written contract.[97] This may be satisfied by an outward expression of accord. However, it is not a requirement for a grant of rectification that there be an external manifestation of the parties’ intention, provided that the party seeking rectification can prove that both parties shared the necessary common intention.[98] The principles require that there must be an intention, common to both parties, to include in their bargain a term which, by mutual mistake, is omitted.[99] That intention must prevail until the time of execution of the contract.
[93]Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1918) 26 CLR 410 at 427; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at 530–1 [14]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 710–11 [443]-[446]; Newey v Westpac Banking Corporation [2014] NSWCA 319, [168]-[180]; Caringbah Investments PtyLtd v Caringbah Business and Sports Club Ltd (in liq) [2016] NSWCA 165, [39]–[42].
[94]Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 [33].
[95]Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350.
[96]Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 667 [315].
[97]See, eg, Newey v Westpac Banking Corporation [2014] NSWCA 319, [19].
[98]Slee v Warke (1952) 86 CLR 271 at 280–1. Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 641 [177]; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at 530–1 [12]–[14], 539 [38]; and see J W Carter, Contract Law in Australia (LexisNexis Butterworths, 6th ed, 2013) 476 [21-04]; and Peter W Young, Clyde Croft and Megan Louise Smith, On Equity (Thomson Reuters, 2009) 748 [11.310], 753 [11.360].
[99]Newey v Westpac Banking Corporation [2014] NSWCA 319, [171]; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655 [259].
As is made clear in the authorities to which reference has been made, rectification on the basis presently under consideration does not depend on a pre-existing agreement between the parties but, rather, a “common intention”. Generally speaking, however, the authorities do not elaborate on the requirements of common intention—as it is often the case that there has been some communication between the parties with the result that they are both aware of the intention of each other. Where this communicated intention is relevantly the same, it may be said to be “common”. This point is well illustrated and explained in the context of a review of the law and the rejection of the notion that a concluded prior agreement between the parties was necessary by Crockett J in Johnstone v Commerce Consolidated Pty Ltd:[100]
[100][1976] VR 463 at 466–7.
The High Court, in Slee v Warke[101] approved the view expressed by Clauson J, in Shipley Urban District Council v Bradford Corporation,[102] and Simonds J, in Crane v Hegeman Harris Co Inc[103] that if, in the course of negotiation, a firm accord has been expressly reached on a particular term of the proposed contract, and both parties continue minded that the written instrument should record that term, it matters not that the accord was not part of an antecedent concluded oral contract.
[101](1949) 86 CLR 271 at 280–1.
[102][1936] Ch 375.
[103][1939] 1 All ER 662.
A similar view commended itself to the Court of Appeal in Joscelyne v Nissen,[104] although the court was there strongly pressed to reach the contrary conclusion. The defendant in that case was encouraged so to contend, not only because of support gained from the earlier cases, but also from what was said by Denning LJ, as a member of the Court of Appeal in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd.[105] His Lordship, in the course of his judgment, used language that might well be thought to suggest that an antecedent complete concluded agreement is necessary. What, however, Denning LJ, does make clear is that, in determining whether an accord has been reached:[106] “You look at their [the parties’] outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they had signed. … He [the plaintiff] is allowed to prove, if he can, that they agreed something different … but not that they intended something different.”
[104][1970] 2 QB 86.
[105][1953] 1 QB 450.
[106][1953] 1 QB 450 at 461–2 (emphasis in original).
Hudson J, in Re Streamline Fashions Pty Ltd[107] expressed the requirement in these terms—“It must be taken, therefore, that the common intention which it is necessary to establish as a basis for rectification is an intention that has been manifested in the words or conduct of the parties and not merely an intention which was not disclosed in the course of the negotiations.”
[107][1965] VR 418 at 420.
With this formulation of what is necessary to be established I would respectfully agree.
Faced with the binding authority of the decision of the High Court in Slee v Warke,[108] the defendant submitted, first, that there had not been shown to be an outward expression of accord and, secondly, that, if there was an accord, it did not continue concurrently in the minds of the parties down to the time of the execution of the formal contract.
[108](1952) 86 CLR 271.
This position was reaffirmed and approved by the Full Court:[109]
[109]Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724 at 728–30.
The critical question is whether there was also a consensus between the parties, which they had communicated to each other, with respect to the date from which interest was to run. It will be appreciated from the statement of the facts set out earlier that there had been no explicit communication between the parties on this point, but the learned trial Judge nevertheless found as a fact that there was a common communicated intention between the parties, by 19 November 1973 or thereabouts, that the interest should run from the date possession was given to the appellant, which was to be 1 May 1974.
He arrived at this conclusion, in essence, as we understand his reasons for judgment, upon the basis that both parties did in fact take it for granted that the purchaser was to pay interest from the time he obtained possession of the property sold, on so much of the purchase money as was then unpaid. His Honour’s view was that, as it was agreed that the purchaser was to be entitled to possession of the land sold before it had paid the whole of the purchase money, the parties could only have understood the agreement to pay interest at 8 per cent on the purchase money then outstanding as an agreement to pay such interest from that time, as, from then on, the purchaser and not the vendors had the benefits of possession. His Honour clearly thought that the parties, as persons bargaining for the sale and purchase of land, proceeded upon the assumption that, whereas a purchaser is normally required to pay the whole of the purchase price to be entitled to possession, when he is to be allowed an extended time for the payment of the purchase price and is to be allowed into possession upon payment of part of the price, then he has to pay interest on the balance during the period for which it is outstanding as a quid pro quo to the vendor, who otherwise has ceased to be entitled to the rents and profits and yet has not got all his purchase money.
His Honour said that he had no doubt that the parties understood the bargain they had made to mean that the interest was payable from the time when, as he expressed it, the vendors made a loan to the purchaser of the amount of the balance of the purchase money. He added that “it was unnecessary to spell out in actual words the obvious, namely, that when you borrow money on interest, that interest accrues over the whole currency of the loan”.
It is true that his Honour said that no other meaning was possible for a term of this nature, but, in our opinion, in saying that, he was not regarding himself as merely attributing an intention to the parties, by a process of construction or otherwise, whether it accorded with the parties’ actual intention or not, but correctly addressed himself to a consideration of what was the parties’ actual intention with respect to the date from which interest should be paid. And, in our opinion, he was amply justified in coming to the conclusion he did.
Therefore, the respondents established the starting point for their case, ie that they formed a consensus, a common intention, communicated to each other, that interest at the rate of 8 per cent, with yearly rests, was to be payable on the balance of the purchase money, from 1 May 1974, that being the date upon which the purchaser was to be entitled to possession of the property sold.
The evidence shows that this continued to be the intention of the respondents up to and including the time when the executed parts of the contract of sale were exchanged on 9 April 1974. The evidence is that the respondents were unaware until after that date that condition 1 of the contract of sale provided for payment of interest from 1 May 1975, although possession was to be given on 1 May 1974. The learned Judge accepted the respondents evidence on these matters, and as we have said, this finding was not challenged on appeal. Thus, the finding was that the respondents executed the contract in the mistaken belief that it provided for interest to be paid from 1 May 1974. There was nothing to suggest that, up to the time when its director received the contract on or about 4 April 1974, the appellant departed from the intention that interest should run from 1 May 1974.
…
Counsel for the appellant accepted that rectification of a written document could be granted by the Court where there was either a concluded binding antecedent agreement between the parties or where the parties had reached a common intention before the execution of the written contract and that common intention continued up to the time of the execution of the written document, and he was clearly correct in so doing.[110]
[110]See Shipley UDC v Bradford Corporation [1936] Ch 375; Crane v Hegeman Harris Co Inc [1939] 1 All ER 662; Slee v Warke (1952) 86 CLR 271; A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555; [1961] 2 All ER 545; Re Streamline Fashions Pty Ltd [1965] VR 418; Joscelyne v Nissen[1970] 2 QB 86; Australasian Performing Right Association Ltd. v Austarama Television Pty Ltd [1972] 2 NSWLR 467; Hooker Town Developments Pty Ltd v Director, War Service Homes (1973) 47 ALJR 320; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Riverlate Properties Ltd v Paul, [1975] Ch 133.
The extent to which there must be some outward expression of the requisite “common intention” has been explored by the courts in a variety of cases; decisions which, generally, follow from the clarification in the authorities that no antecedent concluded agreement is necessary to found rectification on this basis. There are, naturally, tensions in the formulation of any statement of the law in this respect, having regard to the caution with which the courts approach the treatment of subjective intention. This tension is evident in the statement on applicable principles by Wilson J in Pukallus v Cameron:[111]
The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom.[112] So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the views expressed to the contrary in Joscelyne,[113] and Maralinga.[114] The opposing view is argued by Mr Bromley QC in an article in the Law Quarterly Review.[115] It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord.
The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance “convincing proof”[116] that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms.[117] The Court must not assume for itself the task of making the contract for the parties.
[111](1982) 180 CLR 447 at 452.
[112]Crane v Hegeman Harris Co Inc[1939] 1 All ER 662 at p 664; Slee v Warke (1949) 86 CLR 271 at 280; Joscelyne v Nissen [1970] 2 QB 86 at 98; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350.
[113]Joscelyne v Nissen [1970] 2 QB 86 at 98.
[114]Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR at 350.
[115]Leonard Bromley, “Rectification in Equity” (1971) 87(348) Law Quarterly Review 532.
[116][1970] 2 QB 86 at 98.
[117]Australian Gypsum Ltd v Hume Steel Ltd (1930) 45 CLR 54 at 64; Slee v Warke (1949) 86 CLR at 281; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 349.
In the Law Quarterly Review article by Bromley, to which Wilson J refers, the position reached is that the question must, ultimately, be resolved in terms of burden of proof—a position which is, in my view, entirely consistent with the statement of Wilson J in Pukallus which is set out above. Thus, Bromley says, in conclusion:[118]
It may be that the statement in Joscelyne v Nissen[119] that some outward expression of accord is required for rectification of an agreement stems from two sources, first, the fundamental common law principle that in the construction of contracts the courts seek to ascertain the meaning of the words used (adopting an objective approach), rather than searching out the subjective intention of the parties,[120] and second that without some outward expression of accord there could be no certainty at all in business transactions.[121] So far as the first is concerned, it is submitted that any such extension into rectification is contrary to both principle and authority and is simply erroneous. As to the second, the extension is unnecessary in practice to safeguard the sanctity of business contracts because of the high standard of proof required—what is needed is, per the American Restatement on Contracts,[122] “clear and convincing evidence.” As Pearce LJ said in Earl v Hector Whaling Ltd,[123] “It is a question of fact and degree what weight of evidence is needed to overcome the inherent probability that the parties meant what they wrote and to establish that contrary to it the parties did not mean what they wrote.” The presence or absence of an outward expression of accord may well go to whether the burden of proof can be discharged. It is not, it is submitted, per se a requirement of rectification.
[118]Leonard Bromley, “Rectification in Equity” (1971) 87(348) Law Quarterly Review 532 at 537–8.
[119]Joscelyne v Nissen [1970] 2 QB 86.
[120]See Lovell and Christmas Ltd v Wall (1911) 104 LT 85 at 89.
[121]See Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450, 461–2.
[122]American Law Institute, Restatement of Contracts (1932) §511; see also §504.
[123][1961] 1 Lloyd’s Rep 459, 468.
Having regard to these matters, the following provides a helpful statement of the position:[124]
The common intention to be established is a subjective (or actual) intention; all of the objective and subjective evidence must be considered.[125] There was formerly much debate as to whether it was necessary for the plaintiff to show that the accord between the parties found some form of outward expression. In Australia, the authorities favour the view, first advanced by the English Court of Appeal in Joscelyne v Nissen,[126] that the plaintiff must be able to demonstrate that the parties’ mutual intention was “manifested” by, or “objectively apparent” from the words or conduct of the parties, and was not merely one which remained undisclosed in the course of negotiations. The courts have, however, resisted the notion that the plaintiff must be capable of adducing evidence of direct, formal communications passing between the parties as to that common intention.[127]
Post-contractual words and conduct are relevant to the extent that they assist the court in determining the original concurrent intention of the parties.[128] Thus, the fact that parties have acted as if the document stood in the form into which it was sought to be rectified provides strong evidence that it was the intention of those parties to execute an instrument in the rectified form.[129] In such cases, the court must exercise appropriate caution to ensure that the evidence received relates to the parties’ original intention and not to later, different, intentions: NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd;[130] and Anfrank Nominees Pty Ltd v Connell.[131]
[124]Peter W Young, Clyde Croft and Megan Louise Smith, On Equity (Thomson Reuters, 2009) 753 [11.360].
[125]Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; see generally the discussion of “objective intention” and “subjective intention” in this case.
[126][1970] 2 QB 86.
[127]See Re Streamline Fashions [1965] VR 418 at 420; Hooker Town Developments Pty Ltd v Director, War Service Homes (1973) 47 ALJR 320 at 323–4; and Johnstone v Commerce Consolidated Pty Ltd [1976] VR 463 at 467 (affirmed in Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724). See also Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429 at 431; Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 30; and Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 405–6.
[128]NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 at 752; and Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365 at 388.
[129]Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31; and Terceiro v First Mitmac Pty Ltd (1997) 8 BPR 15,733 at 15,738 (NSW SC).
[130](1986) 6 NSWLR 740 at 752.
[131](1989) 1 ACSR 365 at 388 (WA SC).
As is made clear in some more recent cases, the issue with which the courts have grappled is how to reconcile the sufficiency of subjective intention with objective proof.[132] This is made particularly clear in the statement by White J in Muriti v Prendergast:[133]
109.The defendants submitted that the plaintiffs must establish an identical corresponding contractual intention in both parties, evidenced by acts or conduct sufficient to establish their consensual relationship in an objective way.[134] That is to say, the defendants submitted that it must be objectively apparent from what the parties have said or done that they each held a continuing common intention that all loan accounts be repaid on settlement, so as to effect a separation of the parties’ business interests. The suggested need for such an outward expression of the parties’ intentions appears to have developed when it was uncertain whether rectification was only available to give effect to an antecedent agreement between the parties, as distinct from giving effect to their common subjective intentions where the instrument sought to be rectified constitutes the only agreement between the parties. I doubt that in all cases this is a separate requirement. In Pukallus v Cameron[135] Wilson J said that so long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression.[136] However, in many cases, including the present, such objective evidence of the parties’ intentions will be necessary, as a practical matter, to provide the clear and convincing evidence of the parties’ intentions sufficient to displace the presumption that they intended to be bound by the agreement expressed in the document which they signed.
The position of POMC in this respect does, of course, only take matters so far and does not address the effect of the provisions of the 20452 Renewal Deed as potentially effecting a variation of the renewal provisions of cl 4.6 of Lease 20452. However, an argument along these lines would be at odds with the position that POMC has taken in these proceedings with respect to the operation of the renewal provisions of cl 4.6 on the provisions broad issue which has been considered—whether the 20452 Renewal Deed granted an additional 21 year lease term. For the reasons I have already indicated with respect to this first broad issue, I have found that the 20452 Renewal Deed operated to give effect to the renewal provisions of cl 4.6 of the Lease—no more and no less. Moreover, the evidence of Saleeba, relied upon by POMC, was clear that if Improvements Rent was not payable on renewal by reason of the operation of the renewal provisions of cl 4.6, then POMC accepted that it was not entitled to such rent for the period of the present term and would repay to Patrick any money previously paid by way of Improvements from the commencement of the renewal term. Given the importance of this statement by Saleeba, a Senior Officer of POMC, it is desirable to set out this evidence verbatim:[166]
[166]Transcript 125–6.
Yes. Mr Saliba, do you have in front of you an email from yourself to Mr Lai dated 22 September 2014?---Yes.
Could I ask you to read that document to yourself and let me know when you’ve had an opportunity to read it?---Yes.
Mr Lai is the executive at the Port of Melbourne to whom you report?---At the time.
You understood at this time, 22 September 2014, that Patrick was claiming that improvements rent was not payable during the option term?---Yes.
And you’ve been in the property management industry for 40 years, I think your statement says?---Yes.
And by 2014 you’d been engaged in lease work with Patrick for at least seven years?---Yes.
You had good relations with the executives at Patrick?---Yes.
In the last paragraph, second line, you'll see the sentence commencing, “If Patrick is correct in its interpretation the Port of Melbourne would be required to refund the improvements rent and would not receive improvements rent for 21 years.” You formed the view based on your experience and relationship with Patrick that if Patrick was correct the proper commercial thing to do was to return the money and remove the obligation to pay improvements rent, didn’t you?---No.
Why would the port be required to refund the money if Patrick’s interpretation of the lease was correct if it were not for the fact that that was the right commercial thing to do?---No, what I’m stating there is, “If.” I hadn’t formed a view; I was just stating if Patrick were correct.
Yes. And you formed the view that assuming Patrick was correct the port would be required to refund the improvements rent and would not receive it in the future and the requirement was because that was the right thing to do commercially with a stakeholder that the port had good relations with?---Yes.
Having regard to the position I have indicated with respect to the construction of the renewal provisions of cl 4.6 of Lease 20452 and the provisions of the 20452 Renewal Deed and the position taken in this respect by POMC, it is not necessary to refer in any detail to the submissions of Patrick in support of its position that Improvements Rent is not payable during the renewal term.[167] In case it is of assistance in the event that this proceeding goes further, I should indicate that, for the preceding reasons, I accept these submissions.
[167]See Patrick’s Outline of Opening Submissions (2 August 2016) [19]–[27].
In light of the above, the question remains as to what, if any, relief should be granted with respect to the Improvements Rent issue. The provisions of the 20452 Renewal Deed with respect to Improvements Rent are as follows:[168]
1. Renewal and variation of Old Lease
The Landlord leases the premises under the Old Lease to the Tenant for the Further Term starting on 1 January 2014 and ending at midnight on 31 December 2034 on the same conditions as are set out in the Old Lease, with only those variations set out in Schedule 1.
[168]Court Book 190–1.
…
Schedule 1 – Variations to Old Lease
The parties agree to vary the Old Lease as follows:
…
(b) in clause 1.1 replace:
‘$2,901,553.00 (comprised of ground rent in the sum of $2,054,408.00 [the Ground Rent] and improvements rent in the sum of $847,145.00 [the Improvements Rent]) payable by equal quarterly instalments in advance of $725,388.25’,
with:
‘$6,353,597.39 (comprised of ground rent in the sum of $5,537,400.00 [the Ground Rent] and improvements rent in the sum of $816,197.39 [the Improvements Rent]) payable by equal quarterly instalments in advance of $1,588,399.35.
…
(e) Insert a new clause 1.6 as follows:
‘The parties irrevocably authorise the Landlord to complete the amounts of rent to apply from 1 January 2014 in clause 1.1 once those amounts have been determined as set out in clauses 1.2 and 1.3 of the Lease.’
…
Quite apart from the typed or printed provisions for Improvements Rent—including the provisions empowering POMC to write in the monetary figure when it was known—the 20452 Renewal Deed contains a handwritten dollar amount for such rent. Against this background, the parties have canvassed both rectification of the Renewal Deed and declaratory relief—Patrick seeking one or both in support of its position.
The possibility of relief by way of a grant of rectification was raised by Patrick in the context of POMC’s submission that if the Renewal Deeds are construed so as to grant Patrick the Further Options, the Renewal Deeds should be rectified to accord with the common intention of the parties that no Further Options be granted.
Patrick correctly concedes that, in order for the Court to impose the Conditions on the grant of rectification, it must demonstrate some concrete legal or equitable right that warrants the Court’s intervention.[169] The question that would arise for the Court’s consideration and determination if there were any necessity for ordering rectification as foreshadowed by POMC in the event identified is: what present legal or equitable right does Patrick have that founds a basis for equity’s intervention by way of the imposition of the Conditions? Although, for the preceding reasons, I have found that there is no necessity for ordering such rectification—though if there were such relief would be granted—it is helpful to consider the position with respect to Conditions as part of the analysis of possible relief and the basis or bases for any grant in relation to the Improvements Rent provisions of the 20452 Renewal Deed.
[169]Patrick’s Outline of Opening Submissions (2 August 2016) [50]. Langman v Handover (1929) 43 CLR 334; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 294–5 [67]; Mercanti v Mercanti [2015] WASC 297, [199].
In my view, however, Patrick’s pleading does not purport to identify any such present right to the imposition of the Conditions. That fact alone requires, as POMC contends, that Patrick’s contention that the Conditions should be imposed must be rejected.
Rather, in the particulars to para 70A of its Reply, Patrick states:
It is unconscionable for PoMC to take advantage of Patrick’s mistaken execution of the Renewal Deed containing an obligation to pay Improvements Rent yet at the same time seek to see [sic] Equity’s assistance to rectify the Renewal Deed to cure the mistake PoMC alleges that it has made.
It is unclear what is meant by the reference to Patrick’s “mistaken execution”. It is commonly accepted that there are two forms of relevant mistake: unilateral mistake[170] and common mistake.[171] Patrick has never pleaded a cause of action of unilateral mistake. Patrick initially relied upon a common mistake, but later discontinued that part of its claim.[172] No cause of action for mistake is now raised by Patrick.
[170]See, eg, Taylor v Johnson (1983) 151 CLR 422; Tutt v Doyle (1997) 42 NSWLR 10.
[171]See, eg, Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603.
[172]Plaintiff’s Amended Statement of Claim (19 June 2015) [40]-[44]. These paragraphs were deleted in Plaintiff’s Further Amended Statement of Claim (22 December 2015).
One of the Conditions that Patrick seeks is the rectification of the Renewal Deeds so as to remove the obligation on Patrick, as provided for in the terms of the 20452 Renewal Deed, to pay Improvements Rent. In this way, POMC says, Patrick seeks to achieve through the imposition of a condition what it has conceded could not be achieved by any cause of action. Moreover, POMC submits that by deleting paras 40 to 44 of Patrick’s Amended Statement of Claim, Patrick recognised that it did not have any right that warranted equity’s intervention. POMC contends that Patrick is not entitled to obtain relief relating to Improvements Rent indirectly (by means of the Conditions) when it could not do so directly.
Patrick’s pleading and its outline of opening submissions and submissions at trial indicate that Patrick seeks to contend that POMC may hereafter engage in conduct that it contends would be “unconscionable” within the terms of s 21 of the Australian Consumer Law.[173] In my view, POMC is quite correct in its submission that the imposition of Conditions on the premise that a statutory right may become available to Patrick is untenable and should not be entertained by the Court.
[173]Cf unconscionability under s 20 of the Australian Consumer Law, which preserves the general law.
As Russel LJ observed in Riverlate Properties Ltd v Paul:[174]
What is there in principle, or in authority binding on this court, which requires a person who has acquired a leasehold interest on terms on which he intended to obtain it, and who thought when he obtained it that the lessor intended him to obtain it on those terms, either to lose the leasehold interest, or, if he wish to keep it, to submit to keep it only on the terms which the lessor meant to impose but did not? In point of principle, we cannot find that this should be so. If reference be made to principles of equity, it operates on conscience. If conscience is clear at the time of the transaction, why should equity disrupt the transaction? If a man may be said to have been fortunate in obtaining a property at a bargain price, or on terms that make it a good bargain, because the other party unknown to him has made a miscalculation or other mistake, some high-minded men might consider it appropriate that he should agree to a fresh bargain to cure the miscalculation or mistake, abandoning his good fortune. But if equity were to enforce the views of those high-minded men, we have no doubt that it would run counter to the attitudes of much the greater part of ordinary mankind (not least the world of commerce), and would be venturing on the field of moral philosophy in which it would soon be in difficulties.
This passage has been applied in Australia in Casquash Pty Ltd v NSW Squash Limited [No 2][175] and P Ward v Civil and Civic,[176] both of which make it clear that unconscionability only arises by reason of a party’s knowledge of the other’s mistake before the transaction is completed. While it is acknowledged that the concept of unconscionable conduct within the terms of s 21 is potentially wider than in equity, no foundation exists for contending that it might be satisfied in the future circumstances posited by Patrick.
[174][1975] Ch 133 at 140–1 (emphasis added).
[175]Casquash Pty Ltd v NSW Squash Ltd [No 2] [2012] NSWSC 522, [7].
[176]P Ward Civil Engineering Pty Ltd v Civil and Civic Pty Ltd [1999] NSWSC 727, [397].
In any event, the suggestion that it would be unconscionable for POMC to act in accordance with the terms of the (unrectified) 20452 Renewal Deed requiring Patrick to pay Improvements Rent is without foundation. Unconscionable conduct has been variously described as “serious misconduct, something clearly unfair or unreasonable”,[177] “showing no regard for conscience; irreconcilable with what is right and reasonable”,[178] revealing “a high level of moral obloquy”[179] or being conduct “of such a type as to be deserving of significant moral opprobrium”.[180] The phrase is necessarily pejorative and requires a finding of some immorality or bad faith on POMC’s part.
[177]Cameron v Qantas Airways Ltd (1995) 55 FCR 147 at 179.
[178]Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262.
[179]A-G (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 [121].
[180]Landmark Operations Ltd v J Tiver Nominees Pty Ltd [2008] SASC 322, [756].
Moreover, there is, in my view, no reason to suppose that POMC would act in or respect to the matters the subject of this proceeding in any manner that could be said to be unconscionable or not according to the standards of propriety that would be expected from such an entity. Indeed, this position was reinforced by the references in submissions by Patrick in relation to the statutory and other requirements applicable to POMC as a “public entity”. Additionally, there is no basis to speculate as to the nature of any successor in title to POMC in the near or more distant future—and certainly no basis to assume that it would not conform to standards no less than now applicable to POMC.[181]
[181]See especially Public Administration Act 2004 ss 5, 7, 61, 63; Transport Integration Act 2010; Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 s 80; Code of Conduct for Victorian Public Sector Employees 2007; and Code of Conduct for Directors of Victorian Public Entities 2016; together with the Port Services Act 1995 and the Transport Integration Act 2010.
In terms of potential relief with respect to the broad issue of Improvements Rent, there remains the possibility of declaratory relief. The principles are well known and are helpfully summarised as follows:[182]
(1)This Court has jurisdiction to grant the Declaration.[183] The fact that only declaratory relief is sought is no impediment to granting relief;[184]
(2)The person seeking the declaration must have a real interest in obtaining it[185] and there must be a proper contradictor;[186]
(3)Declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions.[187] So such relief will not be granted if the question is purely hypothetical, it is claimed in relation to circumstances that have not occurred and might never happen or it will produce no foreseeable consequences for the parties;[188]
(4)A question is “hypothetical” and the Court’s opinion “advisory” if there are no concrete facts and no binding decision produced.[189] However, the fact that events have not occurred does not exclude the granting of relief; rather, the Court’s willingness to grant relief is predicated upon the likelihood of the specific event occurring;[190]
(5)Although this Court will always endeavour to avoid a multiplicity of proceedings,[191] the fact that a declaration may not finally conclude the dispute between the parties can hardly ever be, of itself, a proper ground for not making a declaration.[192]
[182]See Patrick’s Outline of Opening Submissions (2 August 2016) [28].
[183]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581; CGU Insurance Ltd v Blakeley (2016) 327 ALR 564 at 568–9 [13].
[184]Supreme Court Act 1986 s 36.
[185]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582, 596; CGU Insurance v Blakeley [2015] VSCA 153, [21]–[22].
[186]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 596.
[187]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582, 596.
[188]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582, 596.
[189]Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334 at 356 [48].
[190]Ansett Australia Ground Staff Superannuation Fund Pty Ltd v Ansett Australia [2003] VSCA 117, [15].
[191]CGU Insurance Ltd v Blakeley (2016) 327 ALR 564, [36], referring to Supreme Court Act 1986 s 29 and the Civil Procedure Act 2010.
[192]Quest Rose Hill Pty Ltd v White [2010] NSWSC 939, [198], approved by the Full Federal Court in FQM Australia Nickel Pty Ltd v Bullen (2011) 191 FCR 261 at 275 [44].
On the basis of these principles, Patrick contends:[193]
[193]Patrick’s Outline of Opening Submissions (2 August 2016) [29].
29.There can be no issue that Patrick has a real interest in obtaining the Declaration and that POMC is a proper contradictor. There is nothing hypothetical about the dispute about the construction of clause 4.6 of Lease 20452. Patrick and POMC take opposing views about whether it required Patrick to pay Improvements Rent during the New Term and all of the facts are concrete. The declaration has foreseeable consequences for the parties:
29.1first, the Court has to decide the point as part of determining whether to impose the Conditions on any relief by way of rectification it grants POMC;
29.2secondly, despite ME’s letter dated 18 January 2016, POMC may agree to amend the Renewal Deed and repay the Improvements Rent once it realises that it has obtained a windfall;
29.3thirdly, and alternatively, the declaration and POMC’s refusal to amend the Renewal Deed and repay Improvements Rent after the Declaration has been made will be the binding[194] platform for the unconscionable conduct proceeding foreshadowed in TG’s 17 December 2016 letter. That proceeding will probably involve negotiations at a mediation. As the High Court has recognised,[195] if a declaration is likely to advance either party’s position in negotiations, then the declaration has foreseeable consequences;
29.4fourthly, the fact that the Declaration may affect the value of a lease means it has foreseeable consequences for the landlord and tenant.[196] The 20452 Renewal Deed contains the Further Option. The current value of the lease recorded in the 20452 Renewal Deed will be affected by whether the Improvements Rent is payable on exercise of the Further Option. The Court’s declaration will resolve any debate.
[194]See CGU Insurance Ltd v Blakeley (2016) 327 ALR 564 at 582 [68], 590 [104]; and CGU Insurance Ltd v Blakeley [2015] VSCA 153, [22]–[27].
[195]Edwards v Santos Ltd (2011) 242 CLR 421 at 425 [1], 435 [36]–[39].
[196]Bullen v Western Australia [2010] FCA 900, [27] and on appeal, (2011) 191 FCR 261 at 275 [43].
POMC contends, on the other hand, that there is no utility in making the Declaration sought if cls 1 and 2 of the Renewal Deeds did not grant Patrick the Further Options or the Renewal Deeds are rectified so as to remove the grant to Patrick of the Further Options (without the imposition of Conditions), as there will be no Further Term in which the rights of the parties under cl 4.6 are relevant.
I accept the contentions of POMC in this respect and add that, in my view, the contentions of Patrick in support of the grant of the Declaration—which raise different issues and bases—must be rejected in the present circumstances. Acceptance of the POMC contentions follows from my findings with respect to the issues discussed in the preceding reasons, as does my rejection of the Patrick contentions. The latter also follows because of the position taken by POMC as to the proper construction and operation of cl 4.6 of Lease 20452 with respect to Improvements Rent and the position expressed by its senior officer, Saleeba, with respect to repayment of any Improvements Rent paid by Patrick under the present lease term. It has not been suggested that Saleeba’s evidence in this respect is not to be taken as a statement of position on behalf of POMC. Indeed, having regard to the “public entity” status of POMC and the obligations of propriety and good corporate and community citizenship which those obligations impose and require, it is inconceivable that the position could be otherwise.[197]
[197]See above, [58].
Nevertheless, the Improvements Rent issue is clearly an issue of considerable importance and one which, over a 21 year lease term, has significant financial implications. Given that declaratory relief is an equitable remedy, hence discretionary, it is, in my view, appropriate to exercise the discretion at this time against the grant of such relief—for the reasons indicated—but to reserve the discretion for the future in a manner which would not involve the parties in the time and expense of issuing fresh proceedings. In order to provide for this possibility, I will reserve the right to Patrick and any successors in title to its interest under the Leases to reinstate this proceeding for the purpose of pursuing its seeking the grant of declaratory relief with respect to the Improvements Rent issue in the present or some modified form. I should stress that I take this course not out of any apprehension, doubt or criticism of POMC, but having regard to the significance of the issue.
Conclusions and orders
For the preceding reasons, I find that Patrick is not entitled to an additional 21 year lease term and nor is it obliged to pay Improvements Rent during the renewal term.
The parties are to bring in orders to give effect to these reasons. I otherwise reserve the question of costs.
ANNEXURE
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