Payce Properties v BBC Hardware

[1999] NSWSC 968

CITATION:	Payce Properties v BBC Hardware [1999] NSWSC 968
CURRENT JURISDICTION:	Equity Division - Commercial Division
FILE NUMBER(S):	50033/99
HEARING DATE(S):	14 September 1999
JUDGMENT DATE:	24 September 1999
PARTIES :	Payce Properties Pty Limited (Plaintiff) BBC Hardware Limited (Defendant)
JUDGMENT OF:	Einstein J

COUNSEL :	Murray H. Tobias QC & David J. Hammerschlag (Plaintiff) John N. West QC & Guy Parker (Defendant)
SOLICITORS:	Morgan Lewis Alter (Plaintiff) Allen Allen & Hemsley (Defendant)
CATCHWORDS:	Landlord and tenant - Construction of lease - Next review clause in long term lease - Whether provision for rent review is one in respect of which time is of the essence - Evidence - Admissibility of surrounding circumstances to aid construction where language ambiguous - Reach of s.55 Evidence Act 1995 does not extend to overcome efficacy of principles laid down in Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337 being principles of substantive contract law.
ACTS CITED:	Conveyancing Act s.13 Evidence Act s.55
CASES CITED:	Amherst v James Walker Goldsmith & Silversmith Ltd (1983) Ch 305 Bank of New Zealand v Simpson (1900) AC 182 Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 GR Mailman and Associates v Wormald (Australia) Pty Ltd (1991) 24 NSWLR 80 Louinder v Leis (1982) 149 CLR 509 Manukau CC v Fencible Court Howick Ltd (1991) 3 NZLR 410 Maritime Services Board of NSW v Australian Shipping Commission (1991) 27 NSWLR 258 National Mutual Life Association of Australasia Ltd v Ampol Ltd (1983) 3 BBR 9101 Payce Properties Pty Ltd v Harrisons Timber Pty Ltd (Supreme Court of New South Wales, 14 December 1990, unreported) Peabody Resources Ltd v Macquarie Generation [Einstein J, Supreme Court of New South Wales, Equity Division, 23 November 1998, unreported] Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Plinth Property Investments Ltd v Mott Hay & Anderson (1979) 38 P & CR 361 Reardon Smith [Line Ltd v Hansen-Tangen (1976) 1 WLR 989 Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR 1296 SA Service Stations Pty Ltd v BP Australia Ltd (1989) ATPR 40-949. United Scientific Holdings Ltd v Burnley Borough Council (1987) AC 904 United Scientific in MLC Life Ltd v Edmond Barton Chambers (Level 43) Co-operative Ltd (Supreme Court of NSW, Commercial Division, 17 August 1990, unreported; BC 9002123). Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd (1983) 47 P & CR 607
DECISION:	Short Minutes to be brought in.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LIST

EINSTEIN J

24 September 1999

50033/99 - PAYCE PROPERTIES PTY LTD v BBC HARDWARE LTD

JUDGMENT

Background to the Proceedings

1    By lease dated 21 January 1987 registered with the Land Titles Office as dealing No X239979 (“the Lease”), the property known as 3 Bennelong Road, Homebush Bay being Lot 1 in Deposited Plan No 226755 (“the property”) (now part of Lot 9 in Deposited Plan No 776611) was leased by the Maritime Services Board of New South Wales (“the Board”) to Montague L Meyer (NSW) Pty Ltd which subsequently changed its name to Montague L Meyer (Australia) Pty Ltd (“Meyer”). The term of the Lease was forty years to commence on 1 March 1984. 2    The plaintiff, Payce Properties Pty Ltd (“Payce Properties”) purchased the property from the Board by contract completed in March 1989. A transfer dated 18 August 1993 of Meyer’s interest as lessee of the property to the defendant, BBC Hardware Limited (then named Burns Philp Hardware Limited) (“BBC”) was registered on 20 October 1993 (Cf Dealing No I735241). 3    The following are the material provisions of the Lease:

“20. That the said demised premises shall be used by the Lessee solely for the purposes of the business of the Lessee as now carried on and/or for such other business purposes as the Lessee may hereafter from time to time intend and the Board may in writing approve but such approval shall not be unreasonably withheld.”
“30. That the Lessee shall pay in the manner hereinbefore provided the following rents namely:
(i) during the first three years of the term an annual rental of ninety six thousand dollars ($96,000);
(ii) during the next following three year period of the term an annual rental equal to the rental provided for in paragraph (i) of this clause increased by an amount equal to ten per centum or such less factor as the Board may determine of the amount of increase (if any) in the valuation of the demised premises for rental purposes as determined by the Valuer-General for the State of New South Wales at any time during the year immediately preceding the date of commencement of such period of three years;
(iii) thereafter for each and every succeeding period of three years at an annual rental equal to the rental which applied during the year immediately preceding the respective dates of commencement of each three year period increased by an amount equal to ten per centum or such less factor as the Board may determine of the amount (if any) by which the valuation of the demised premises for rental purposes as determined by the Valuer-General at any time during such immediately preceding year exceeds the immediately preceding valuation for rental purposes.
PROVIDED THAT the valuation of the demised premises for rental purposes at the commencement of this lease shall be taken and accepted as One million two hundred thousand dollars ($1,2000,000.00 (sic)).”

4    A dispute arose as to the operation of clause 30 of the Lease as a result of which proceedings were commenced. The dispute concerned whether the valuation called for by clause 30(iii) of the Lease (which was required to fix the rental for the period commencing on 1 March 1991) properly included the lessee’s improvements to the property. 5    That dispute was settled by the execution of a deed dated 31 May 1991 (and registered on 20 October 1993)(“the Deed”) entered into by Payce Properties as lessor and Meyer as lessee. The Deed recites that the parties had agreed to vary the Lease. Clauses 4 and 5 of the Deed provide as follows:

“ 4. Agreed rental
Despite clause 30 of the Lease, the Lessee will on the dates listed in column 1 pay the annual rent amounts listed in column 3 in respect of the years ending on the dates listed in column 2.”
[There follows a list of specified amounts due on specified dates in respect of six years, the first ending on 28 February 1991 and the last on 28 February 1996 (in respect of which $550,000 was payable).]
“ 5. Rent review
(a) For the purposes of clause 30 of the Lease the parties agree that:
(1) before 1 March 1996, the annual rent may not be varied except in accordance with clause 4 of this deed,
(2) from 1 March 1996 to 28 February 1999, the annual rent then payable will be the sum of $550,000 plus an amount equal to 10% of the amount, if any, by which the valuation of the demised premises for rental purposes as determined by the Valuer General at any time during the year ending 28 February 1996 exceeds $5,250,000, and
(3) from 1 March 1999, the annual rental payable will be determined in accordance with clause 30(iii) of the Lease.
(b) The parties acknowledge that neither the execution of this deed nor the discontinuance of the Proceedings amounts to an admission by either party in relation to their dispute in respect of the interpretation of clause 30 of the Lease.”

The Valuations

6    There was some delay in obtaining the 1996 valuation from the Valuer General. It was received on 18 February 1999 and valued the property at $8,500,000 (“the First Valuation”). If correct, it leads to an annual rental for 1996-1999 of $875,000. 7    The First Valuation reads inter alia:

“INSTRUCTIONS:
To provide the Ministry for Forests and Marine Administration with a valuation of the land described herein, being a ‘valuation of the demised premises for rental purposes’ in accordance with clause 30 of Lease Registered Number X 239979.
DATE OF INSPECTION:
5th February 1999.
DATE OF VALUATION:
28th February 1996.
…
TOWN PLANNING:
Enquiries indicate that land use is controlled by Sydney Regional Environmental Plan No 24 - Homebush Bay Area, published in the government Gazette 24 September 1993. Map 1 attached to SREP 24 shows the Consent Authority for the subject land as Auburn Council, except where development applications involve land/water interface.
Clause 10(4) of SREP 24 applied to the subject land. At the date of the valuation it stated;
‘(4) An application for consent for development of land, shown on the Homebush Bay Area Map as land to which this clause applies, is not to be determined by the granting of consent without the concurrence of the Homebush Bay Development Corporation, except as provided by subclauses (5) and (6).
(5) the concurrence of the Homebush Bay Development Corporation is not required to the granting of consent to a development application if the development is in accordance with a development control plan.
(6) The concurrence of the Homebush Bay Development Corporation ceases to be required to the granting of consent to a development application if:
(a) a copy of the application has been served upon the Corporation by the consent Authority with a request to advise whether its concurrence is granted or refused; and
(b) the Corporation has not within forty days of service of the request, advised the consent authority whether its concurrence is granted or refused.’
The Homebush Bay Structure Plan was prepared in accordance with SREP 24 and was adopted in August 1994. Detailed development standards for the subject and adjoining lands are set out in Development Control Plan No 2 which took effect from January 26, 1994. This document is complemented by guidelines for development issued by Homebush Bay Development Corporation.
Objectives of DCP 2 include amongst other things, …… to;

· recognise the continuation of the existing 4(e) Waterfront Industrial uses whilst providing for a longer term upgrading of the future development of the land as benefiting the Area’s changing role and the land’s location; · facilitate a wide range of uses ranging from general to advanced technology industries, including related wholesale, storage, distribution, servicing, research and administration), commercial, office, tourist-related and recreational uses.

…
VALUATION BASIS AND OBSERVATIONS:
Clause 4.1 of DCP 2 in part states
‘The Regional Plan does not zone the land for particular uses. Whilst recognising the constraints of existing leases and land uses and their continuation in the short to medium term, it is the Council’s intention that the industrial nature of the existing land use be upgraded over time and that the land should be redeveloped in accordance with the regional plan and the structure plan.
The structure plan has identified the future uses of the Bay West Precinct as being mixed commercial/industrial uses with plazas, streets and lanes giving direct physical and visual access to the water, and with people intensive eating, entertainment and recreational activities on the foreshores.
While, in the longer term, residential uses within this precinct may be appropriate, this would need to be subject to detailed investigations.’
This was the official view at the time this valuation is to be made.
Since that time the Homebush Bay Waterfront Draft Development Control Plan was placed on exhibition in June 1998, it was adopted 10th February 1999. It repeals DCP 2. It identifies more precisely the development capabilities of the precinct including the subject land. Figure 3 of the draft plan showed a strip of mixed uses along Bennelong Road with the remainder of the subject land being residential. The DCP as adopted appears to show all of the subject land as residential, with leisure uses at the waterfront. Clearly the land’s potential for residential development is now capable of realisation, but at the relevant date for this valuation, viz. 28 February 1996 it was a distant potential. Sales at or about the relevant date would reflect the market’s appreciation of this potential.
Having regard to the foregoing comments the valuation as at 28 February 1996 has been approached on an industrial basis.
VALUATION:
For the purpose of a rent review in accordance with the relevant clauses of the subject lease; the value of a vacant possession basis as at 28th February 1996 of the subject land including sea wall, reclamation and together with all fixed improvements erected thereon is determined to be EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($8,500,000).”

8    The 1999 valuation, received from the Valuer General on 23 February 1999, is $12,000,000 (“the Second Valuation”). If correct, it leads to an annual rental of $1,225,000 payable from 1 March 1999.

9    The Second Valuation reads inter alia:

“INSTRUCTIONS:
To provide the Ministry for Forests and Marine Administration with a valuation of the land described herein, being a ‘valuation of the demised premises for rental purposes’ in accordance with clause 30 of Lease Registered Number X 239979.
DATE OF INSPECTION:
5th February 1999.
DATE OF VALUATION:
23rd February 1999.
…
TOWN PLANNING:
Enquires indicate that land use is controlled by Sydney Regional Environmental Plan No 24 - Homebush Bay Area, published in the Government Gazette 24 September 1993, as amended. Map 1 attached to SREP 24 shows the Consent Authority for the subject land as Auburn Council, except where development applications involve land/water interface.
Clause 10(4) of SREP 24 applies to the subject land. It states:
‘(4) An application for consent for development of land, shown on the Homebush Bay Area Map as land to which this clause applies, is not to be determined by the granting of consent without the concurrence of the Homebush Bay Development Corporation.’
The Homebush Bay Structure Plan has been prepared in accordance with SREP 24 and was first adopted in August 1994. Detailed development standards for the subject and adjoining lands are set out in the Homebush Bay Waterfront Development Control Plan, which took effect from 10 February 1999. This document repealed DCP 2 - Homebush Bay (Waterfront District - Bay West and Head of Bay Precincts) which had been in force from January 26, 1994.
At page 3 the DCP states;
‘In the preparation of this DCP due regard has been given to the existence of various current development consents for sites throughout the land shown in figure 1. The identified consents include:

· the office and automotive parts development by Astre in Bayswater Drive; · the Mariners Cove residential development fronting Bennelong Road; · the Homebush Bay Hotel development in respect of Part Lot 7 DP 270113; · Millennium Waters residential development in respect of Lot 10 DP 776611; · In addition, regard has been given to Master Plan Development Application submitted, prior to the public exhibition of this DCP, being in respect of land known as 19-25 Bennelong Road, Homebush Bay.”

Figure 3 attached to the DCP is a Concept Plan which identifies Permissible Land Uses within the Precinct. It shows the subject land as residential. The DCP is complemented by guidelines for development issued by Homebush Bay Development Corporation.
…
VALUATION BASIS AND OBSERVATIONS:
The Homebush Bay Waterfront Draft Development Control Plan was placed on exhibition in June 1998, it was adopted with amendments on 10th February 1999. It repeals DCP 2. It identifies more precisely the development capabilities of the precinct including the subject land.
The DCP as adopted shows all of the subject land as residential, with leisure uses at the waterfront. (The latter an indicative location only.)
Having regard to the foregoing comments the valuation as at 23rd February 1999 has been approached on a residential basis. On this basis the existing improvements, although possessing some utility, add no value.
VALUATION:

For the purpose of a rent review in accordance with the relevant clauses of the subject lease; the value on a vacant possession basis at 23rd February 1999 of the subject land including sea wall, reclamation and together with all fixed improvements erected thereon is determined to be TWELVE MILLION DOLLARS ($12,000,000).”

10    Relying on these valuations Payce Properties sent to the defendant on 25 February 1999 a notice requiring payment of $2,200,000.

The Claim to Arrears of Rental

11    Payce Properties claims that the arrears of rental (after taking into account payments made) are:

(a) $975,000 for the period 1 March 1996 to 28 February 1999; and

(b) $675,000 for the year commencing 1 March 1999.

These proceedings are brought by Pace Properties seeking to recover the arrears contended for.

The Two Issues

12    It is common ground that two issues only are raised on the pleadings. 13    The first issue goes to the timing of the 1996 valuation. BBC asserts that upon the proper construction of clause 5(a)(2) of the Deed, the First Valuation was not determined by the Valuer General “during the year ended 28 February 1996”. 14    The second issue, again a question of construction, goes to whether the two valuations were valuations of the demised premises “for rental purposes” within the meaning of clause 30(iii) of the Lease (see clause 5(a)(3) of the Deed). BBC’s contention is that the Lease as varied by the Deed, on its true construction required that any valuation of the property, to be effective for rent review purposes, be made “on the basis that the premises continue to be used as a timber yard (or such other use as the parties might agree upon)” (paragraph c 11, Contentions in Cross-Claim).

Reserved rulings on admissibility

15    The evidence comprised:

(1) The affidavit of John Graham Angel of 14 August 1999 read by BBC. Subject to the rejection of portions of para 6(c), the affidavit being objected to on the grounds of relevance, was admitted subject to rulings on relevance to be given as part of the judgment.

(2) Exhibit P1/D1 comprising a volume of materials with an index recording:

(a) which documents were tendered by the respective parties;
(b) which documents were admitted without objection;
(c) which documents, being objected to, were admitted subject to rulings on relevance to be given as part of the judgment

Mr West QC for BCC seeks to rely in support of the suggested admissibility of many of the P1/D1 materials, upon the following statement of principle.

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.”
[ Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337 at 352 per Mason J]

16 Plainly the mere contention by a litigant party that language in a contract is ambiguous or susceptible of more than one meaning, will not mandate a holding to that effect. Hence the initial step in determining the admissibility question is for the court to examine the Lease and the Deed to determine whether the language used is ambiguous or susceptible of more than one meaning. 17 As will appear from the judgment which follows I am satisfied that certain of the language used in the lease is ambiguous or susceptible of more than one meaning. Nevertheless, the precise character and nature of the evidence said to be tendered as “evidence of surrounding circumstances” requires to be closely examined to discern whether, even within the wide ambit of the definition of relevance in s 55 of the Evidence Act, this material is relevant. 18    I note that in Peabody Resources Ltd v Macquarie Generation [Einstein J, Supreme Court of New South Wales, Equity Division, 23 November 1998, unreported] the court dealt with a submission that s 55(1) of the Evidence Act ought now permit the adducing into evidence of a post contractual document the submission being that that document, if admitted, “could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”. 19    That judgment includes the following:

“The matter turns … upon whether or not Mason J in Codelfa Constructions laid down a principle of substantive contract law or alternatively simply dealt with the matter on a procedural basis as going to the admissibility of evidence and in particular treated with the exceptions to the parole evidence rule.
To my mind, Mason J in Codelfa did lay down a principle of substantive contract law and the reach of s 55 of the Evidence Act does not extend to overcome the continued efficacy of that principle.”
[Judgment para 436 and 437 on p 168]

20 In similar fashion and in relation to the present tender of evidence by the defendant, the reach of s 55 of the Evidence Act ought not be held to extend to overcome the efficacy of the principles of substantive contract law laid down in Codelfa. 21    In note the following passages from the judgment of Mason J in Codelfa:

“It is apparent that the principle on which the Judicial Committee acted in Simpson [a reference to Bank of New Zealand v Simpson (1900) AC 182] is that where words in a contract are susceptible of more than one meaning extrinsic evidence is admissible to show the facts which the negotiating parties had in their mind …
Lord Wilberforce returned to the same theme in Reardon Smith [Line Ltd v Hansen-Tangen (1976) 1 WLR 989]. In a speech concurred in by a majority of the members of the House of Lords he acknowledged that it is legitimate to have regard to … ‘the surrounding circumstances’. He went on to say:
‘In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’”
[149 CLR at 350]

22    Mason J in Codelfa at 351 further cited the following passage from the speech of Lord Wilberforce in Reardon Smith:

“ … what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed.”

23    Finally, at 351 Mason J in Codelfa cited DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 where Stephens, Jacobs and Mason JJ following Prenn, in a joint judgment said:

“A court may admit evidence of surrounding circumstances in the form of ‘mutually known facts’ ‘to identify the meaning of a descriptive term’ and it may admit evidence of the ‘genesis’ and objectively the ‘aim’ of a transaction to show that the attribution of a strict legal meaning would make the transaction futile …”

24 I am clearly satisfied that it is legitimate to adduce evidence to establish what was the identity and use of the property which was demised at the time of the lease. I am also satisfied that evidence restricted to the factual background known to the parties at or before the date of the contract is admissible. Clearly also in a case where the meaning of a descriptive term required to be identified, evidence of mutually known facts may be admitted for that purpose. 25 The difficulty is that many of the documents sought to be tendered by the defendant either fall outside the above described parameters or, although, and sometimes only in part, falling within those parameters, have either no weight at all or such slight weight as not to affect the construction issues at all. In that circumstance it may be thought that the provisions of s s 135 of the Evidence Act are enlivened. That section provides:

“The court may refuse to admit evidence if its probative value, is substantially outweighed by the danger that the evidence might:
(a) be unfairly prejudicial to a party, or
(b) be misleading or confusing, or
(c) cause or result in undue waste of time.”

26 Mr Tobias QC made plain that the plaintiff did not rely upon this section or any part of it in support of its objection to the admission into evidence of the material in focus. Notwithstanding that that is the plaintiff’s position I am not persuaded that the court in the circumstances is not permitted of its own instance to simply refuse to admit evidence if satisfied, for example, that the provisions of s 135(b) are enlivened. The ambit of the definition of ‘relevance’ in s 55 must be regarded as integrally related to the discretions to reject evidence granted by s 135. 27 Ultimately the question of admissibility is simply one of discretion informed by the above principles. 28 In addressing the question of rulings as to admissibility it should be recalled that the Maritime Services Board’s history of granting leases of the subject property or part thereof extends back to March 1959. Indeed, on the evidence sought to be tendered, it appears that the Board first granted a lease to A Hudson Ltd of 7 acres at 3 Bennelong Road in April 1965 which was followed by a further lease to that company of March 1969 and that in December 1970 the name of A Hudson Ltd was changed to Montague L Myer (NSW) Pty Ltd. Hence the lease presently before the court is the last of a succession of leases between essentially the same parties. 29 In those circumstances a somewhat more expansive view of the entitlement of the defendants to tender material seems to me appropriate. 30 The rulings as to admissibility are as follows:

(1) I read the whole of the affidavit of Mr John Graham Angel of 14 August 199 excluding in para 6(c) the words “Weyerhausen and Homebush Bay Timbers” and the words “to the best of my recollection the Ralph Symonds site was independently owned”.

I admit the extract from the Maritime Services Board’s “municipality book” dealing with the subject site which appears behind TAB 1 in P1/D1.


(2) I reject the document which appears behind TAB 6 of the exhibit.

(3) I reject the document which appears behind TAB 7 of the exhibit.

(4) I reject the document which appears behind TAB 9 of the exhibit.

(5) I reject the document which appears behind TAB 10 of the exhibit.

(6) I reject the document which appears behind TAB 11 in the exhibit.

(7) I admit the document which appears behind TAB 12 in the exhibit.

(8) I admit the document which appears behind TAB 13 in the exhibit.

(9) I admit the document appearing behind TAB 14 in the exhibit.

(10) I admit the document which appears behind TAB 15 in the exhibit.

(11) I reject the document which appears behind TAB 16 in the exhibit. In particular there is no evidence that this document was ever communicated to the lessee.

(12) I admit the document which appears behind TAB 17 of the exhibit.

(13) I admit the document which appears behind TAB 18 of the exhibit.

(14) I note, of course, that there may be a suggested relevance of documents between 1 March 1984 and 21 January 1987 there having been such an extended period of time in which the leave to commence on 1 March 1984 was actually dated 21 January 1987.

(15) I see no relevance whatever to any of the issues in the case in the documents numbered 23 to 34 and 36 in the exhibit. These documents are rejected.

31    Finally, before moving from the rulings on admissibility it is perhaps pertinent to note that Mr Tobias having objected to the admissibility of the 25 June 1959 document which appears behind TAB 9 of the exhibit and which deals with proposed allocation of sites on the Homebush Bay reclamation, sought, should the document be admitted, to draw strong support for the lessor’s case from the document. Had the document been admitted and were it permissible to refer to the document on questions of construction it may be thought that the document suggests that the Maritime Services Board was concerned about procuring maximum revenue [see particularly para 2 where the committee acknowledged “that care should be exercised in the allocation of sites … particularly in view of the 30 or 40 applications received from many various types of industry.” See also the reference to “ … careful selection of industries which the committee considered should be allocated areas in order of preference, according to the anticipated contribution of revenue the Board might derive from each.”] 32    To my mind these references in the document which is rejected and is not taken into account on the construction issues, simply points up the danger of allowing into evidence material which can and should be totally disregarded in construing the lease. The whole exercise of seeking to have a court construe a document by reference to relevantly ancient internal documents of a party or third party not proven to have been seen by the parties negotiating for a lease or containing information known by those parties, is fraught with peril.

The Time Issue

33    BBC’s contention contains two assumptions. The first is that the Lease required the First Valuation to be determined during the year ended 28 February 1996. The second is that, unless the requirement was a condition precedent, the requirement was one in respect of which time was of the essence under the lease. 34    In my view BBC’s submissions on the first issue are without substance. There are virtually no indicia, outside of the actual language used in the clause (ie use of the word “at”), which suggest that the clause should not be read in conformity with the submissions of Payce Properties, namely that the clause requires to be read as if the words “as at” had been used. BBC’s submissions on this issue are rejected.

Time of the Essence

35    It is then strictly unnecessary to deal with the question which would only arise if BBC’s submission had been accepted, namely whether the suggested requirement would have been one in respect of which time was of the essence under the Lease. 36    In deference to the submissions on this issue, I propose to deal shortly with the question which only arises, if I be incorrect in the above holding. 37    It is well established that a provision for rent review is not one in respect of which time is of the essence unless it is expressly or by necessary implication made so. The line of authority, at least since 1977, commences with United Scientific Holdings Ltd v Burnley Borough Council (1987) AC 904. The relevant holding is summarised in the headnote to the following effect:

“In the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the timetable specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”

38    The oft quoted analysis of Lord Diplock is in the following terms:

“My Lords, although a lease is a synallagmatic contract it may also contain a clause granting to the tenant an option to obtain a renewal of the lease upon the expiration of the term thereby granted. Such a clause provides a classic instance of an option to acquire a leasehold in futuro , and it is well established that a stipulation as to the time at which notice to exercise the option must be given is of the essence of the option to renew. Although your Lordships have not been referred to any direct authority upon the converse case of a ‘break clause’ granting to the tenant an option to determine his interest in the property and his contractual relationship with the landlord prematurely at the end of a stated period of the full term of years granted by the lease, there is a practical business reason for treating time as of the essence of such a clause, which is similar to that applicable to an option to acquire property. The exercise of this option by the tenant will have the effect of depriving the landlord of the existing source of income from his property and the evident purpose of the stipulation as to notice is to leave him free thereafter to enter into a contract with a new tenant for a tenancy commencing at the date of surrender provided for in the break clause.
The rent review clauses that have given rise to the two instant appeals, as well as nearly all those which have been considered in the reported cases, if they result in any alteration of the rent previously payable can only have the effect of providing for the payment of a higher rent than would be payable by the tenant if the review clause had not been brought into operation. So the only party who can benefit from a review of rent under these clauses is the landlord. It is accordingly unlikely that the tenant would take the initiative in obtaining a review of the rent, even where the clause contains provision for his doing so - as it does in the second of the instant appeals.
It was this concentration of initiative and benefit in the landlord that led the Court of Appeal in the second appeal to regard the rent review clause as conferring upon the landlord a unilateral right to bring into existence a new contractual relationship between the parties. This they regarded as sufficiently analogous to an option, to make time of the essence of the occurrence of each one of the events in the timetable laid down in a review clause for the determination of the new rent. For my part, I consider the analogy to be misleading. The determination of the new rent under the procedure stipulated in the rent review clause neither brings into existence a fresh contract between the landlord and the tenant nor does it put an end to one that had existed previously. It is an event upon the occurrence of which the tenant has in his existing contract already accepted an obligation to pay to the landlord the rent so determined for the period to which the rent review relates. The tenant’s acceptance of that obligation was an inseverable part of the whole consideration of the landlord’s grant of a term of years of the length agreed. Without it, in a period during which inflation was anticipated, the landlord would either have been unwilling to grant a lease for a longer period than up to the first review date or would have demanded a higher rent to be paid throughout the term than that payable before the first review date. By the time of each review of rent the tenant will already have received a substantial part of the whole benefit which it was intended that he should obtain in return for his acceptance of the obligation to pay the higher rent for the succeeding period.
My Lords, I see no relevant difference between the obligation undertaken by a tenant under a rent review clause in a lease and any other obligation in a synallagmatic contract that is expressed to arise upon the occurrence of a described event, where a postponement of that event beyond the time stipulated in the contract is not so prolonged as to deprive the obligor of substantially the whole benefit that it was intended he should obtain by accepting the obligation.
So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contra indications in the express words of the lease or in the inter relation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the timetable specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”
[1978 AC at 929-930]

39    Some of the reasoning relied upon by Lord Diplock in the first of the appeals included the following:

“If the new rent had not been determined by the stipulated date, what is the benefit that it was intended the tenant should obtain from the contract but of which he will have been deprived by its not being determined until later? The Court of Appeal took the view that it was a detriment to the tenant not to know what his new rent was going to be in advance of the date when it started to accrue, as he might not be able to afford the additional rent and might feel compelled to assign the residue of the term to someone else. For my part, I find this unrealistic, if only because under this particular clause the tenant can initiate the review procedure himself and unless there is some unforeseen delay on the part of the arbitrator, has it in his power to ensure that the new rent is determined before the stipulated date. Apart from this, delay in the determination of the new rent until after the first rent day following the stipulated date works to the economic benefit of the tenant since until the higher rent has been determined he has the use of the money representing the difference between the higher rent and the new rent which he would otherwise have been compelled to pay.
The absence of any serious detriment to the tenant if the determination of the new rent is postponed until some time after the commencement of the ten years period to which it will relate is to be contrasted with the detriment to the landlord if strict adherence to the date specified in the review clause is to be treated as of the essence of the contract. If it were determined even slightly late [and I interpolate that this might involve a one day situation] the landlord would lose his right to the additional rent for the whole period of ten years until the next review date.
So far from finding any contra-indications to displace the presumption that strict adherence to the timetable specified in this rent review clause is not of the essence of the contract, the considerations that I have mentioned appear to me to reinforce the presumption.”
[(1978) AC at 931-932]

40    In dealing with the second of the appeals Lord Diplock referred to a circumstance which is not unlike the fact situation now before this Court. His Lordship said:

“The tenant’s position under this clause thus differs from the tenant under the rent review clause that is the subject of the first appeal in as much as he has no right under his contract to initiate the procedure or to apply for the appointment of a valuer if the landlord himself fails to do so within the stipulated times. But this difference has not in my view any significant practical consequences so far as concerns any detriment to the tenant from the landlord’s failure to do any of these things within the stipulated time. If the tenant reckons that the advantage of knowing before the review date exactly how much higher his new rent will be outweighs the economic benefit of having the use of the money representing the difference until the new rent has been determined, he has the remedy in his own hands. Quite apart from the fact that he can get a pretty good idea of what the market rent is from his own surveyor or can himself offer to enter into negotiations with the landlord before the stipulated time for serving a lessor’s notice has expired, so as soon as that time has elapsed he can give to the landlord notice specifying a period within which he requires the landlord to serve a lessor’s notice if he intends the market rent to be determined and payable instead of the former rent for the ensuing seven years … “.
[1978 AC at 933-934]

41    The approach taken in United Scientific has been followed by Clarke J in the National Mutual Life Association of Australasia Ltd v Ampol Ltd (1983) 3 BBR 9101 where Clarke J identified the broad rationale behind the decision in United Scientific as follows:

“(a) that the right accorded to lessors in leases, particularly long term leases, to revise the rent upward is an important and unseverable part of the consideration for the granting of the lease;

(b) the parties should not be taken to have contemplated that that right be lost by a failure to comply with the timetable activating the change."
[at p 9105]

42    At 9106 his Honour said:

“There is not to be found in this lease, in contra-distinction to the leases in some of the decided cases, any time pressures, created by later steps in the contractual procedures required to be followed to achieve a determination of the new rental, which tend to suggest that compliance with the time provided for the giving of the notice is essential; nor an express provision, or, indeed any clear indication of intention that the time for any later steps is to be of the essence. Once, according to the terms of the lease, the procedures are put in motion then it matters not that they are not completed quickly.
The dominant considerations which influenced their Lordships in United Scientifc Holdings apply equally here. If Ampol’s argument be right then the giving of a notice one day out of time would mean that the lessor forfeited all right to an increase for a five year period. It is hard to contemplate that this was the parties’ intention.”

43    Cole J accepted the principles stated in United Scientific in MLC Life Ltd v Edmond Barton Chambers (Level 43) Co-operative Ltd (Supreme Court of NSW, Commercial Division, 17 August 1990, unreported; BC 9002123). In that case on the facts Cole J found that a contrary intention was contained within the terms of the relevant clause of the lease to the effect that the particular period provided for be a strict contractual time limit. This was particularly because the clause provided for what was to occur if there was a failure to appoint a valuer within 21 days by one party. There is no similar provision providing for what is to occur if the time period stipulation is not complied with in the case presently before the court. 44    Yet again in GR Mailman and Associates v Wormald (Australia) Pty Ltd (1991) 24 NSWLR 80 reference was made with approval by Gleeson CJ, as also by Samuels JA, to United Scientific. 45 Drawing from the analysis of Lord Salmon, Gleeson CJ set out at 86-87 a detailed examination of the judicial solution to a practical commercial problem which had been achieved in United Scientific:

“The decision in United Scientific Holdings Ltd v Burnley Borough Council was, and was expressed to be, a judicial response to a practical commercial problem relating to the fixing of the rental for leases, and especially long leases, in times of inflation. The expectation of inflation and the probability of variations in the rates at which it will occur, make it commercially impractical in many cases for the parties to a lease to agree upon a single figure which will be an acceptable rent for the whole of the term of the lease. To overcome this difficulty they commonly establish a machinery for rent review at various stages during the term of the lease, the substantial object of the machinery usually being to ascertain the current market rent for the subject premises and to make that the operative rent. The market rent may be established by agreement, or in default of agreement, by some procedure for dispute resolution.
Lord Salmon said (at 948):
‘In a period of acute inflation, such as we have experienced for the last 20 years or so, and may well continue to experience for many years to come, what is a fair market rent at the date when a lease is granted will probably become wholly uneconomic within a few years. Tenants who are anxious for security of tenure require a term of reasonable duration, often 21 years or more. Landlords, on the other hand, are unwilling to grant such leases unless they contain rent revision clauses which will enable the rent to be raised at regular intervals to what is then the fair market rent of the property demised. Accordingly, it has become the practice for all long leases to contain a rent revision clause providing for a revision of the rent every so many years. Leases used to provide for such a revision to be made every 10 years. Now the period is normally every seven and not infrequently every five years. To my mind, it is totally unrealistic to regard such clauses as conferring a privilege upon the landlord or as imposing a burden upon the tenant. Both the landlord and the tenant recognise the obvious, viz, that such clauses are fair and reasonable for each of them. I do not agree with what has been said in some of the authorities, namely, that a rent revision clause is for the benefit of the landlord alone and not at all for the benefit of the tenant. It is plainly for the benefit of both of them. It is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises. Accordingly the landlord and the tenant by agreement in their lease provide that at stated intervals during the term, the rent should be brought up to what is then the fair market rent. The revision clause itself lays down the administrative procedure or machinery by which the fair market rent shall be ascertained.’
Much litigation and uncertainty arose out of a particular difficulty that was encountered in the wording of rent review clauses. Such clauses commonly specify times within which various steps are to be taken towards crystallising and resolving any dispute as to what is to be the new rent. However, the possibility of a failure strictly to observe the stipulations as to time, whether as a result of neglect or accident or for some other cause, is always present. Griffiths LJ in the later case of Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd (1983) 47 P & CR 607 at 616, said:
‘When they enter into a lease such as this the expectation of both landlords and tenants is that a fair market rent will be paid throughout the lease and unless driven to do so by the wording of the lease I am loth to construe the machinery provided for arriving at a fair market rent as forcing either the tenant to pay an exorbitantly high rent or the landlord to receive a ridiculously low rent, neither of which bears any relation to a fair market rent because one or other of them was one day late in observing the timetable set out in the rent review provisions of the lease.’
The solution to the problem was found by invoking principles (whether they are properly described as principles derived from law or equity or some process of ‘fusion’ is a question upon which I do not intend to enter) according to which stipulations as to time may be treated as inessential. This is exemplified in Lord Salmon’s speech in United Scientific Holdings Ltd v Burnley Borough Council (at 950-951) where his Lordship said:
‘I recognise that the lease relates to what could be fairly described as a commercial transaction. In commercial transactions, provisions as to time are usually but not always regarded as being of the essence of the contract. They are certainly so regarded where the subject matter of the contract is the acquisition of a wasting asset or of a perishable commodity or is something likely to change rapidly in value. In such contract, the buyer may well be seriously prejudiced. The time provision in a rent revision clause of the present kind, even in a lease concerning a commercial transaction, is however, different in character and I regard it as not being of the essence of the contract unless it is made so expressly or by necessary implication. In the present case it is certainly not made so expressly nor, in my view, by implication. …
I do not regard the leases in either of the present appeals, nor in Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR 1296 (to which I shall return), as vesting any option in the landlord to have the rent revised. In my opinion each lease constitutes, amongst other things, an agreement between the parties that, at stated intervals, the rents shall be revised so as to bring them into line with the then open market rent. The rent revision clauses specify the machinery or guidelines for ascertaining the open market rent. These provisions as to time are not, in my opinion, mandatory or inflexible; they are only directory.’”

46    Gleeson CJ summarised the effect of the decision in United Scientific in the words used by Slade LJ in Trustees of Henry Smith’s Charity v AWADA Trading and Promotion Services Ltd (1983) 47 P & CR 607 at 619 as follows:

“(1) Where a rent review clause confers on a landlord or tenant a right for his benefit or protection, as part of the procedure for ascertaining the new rent, and that right is expressed to be exercisable within a specified time, there is a rebuttable presumption of construction that time is not intended to be of the essence in relation to any exercise of that right.

(2) In a case where the presumption applies, the other party concerned may, if he wishes to bring matters to a head after the stipulated time for the exercise of the right has expired, give to the owner of the right a notice specifying a period within which he requires the right to be exercised if at all; the period thus specified will if it is reasonable then become of the essence of the contract …

(3) The presumption is rebuttable by sufficient ‘contra indications in the express words of the lease or in the inter relation of the rent review clause itself and other clauses or in the surrounding circumstances’ …

(4) Though the best way of rebutting the presumption is to state expressly that stipulations as to the time by which steps provided for by the rent review clause are to be taken are to be treated as of the essence … this is not the only way. Any form of expression which clearly evinces the concept of finality attached to the end of the period or periods prescribed will suffice to rebut the presumption. The parties are quite free to contract on the basis that time is to be of the essence if they so wish.”

47    There is plainly no express provision making time of the essence in relation to the clause presently before the court and the terms of the clause in my view imply the contrary. Of very particular significance in relation to the analysis is the fact that the subject clause does not make any provision at all as to the effect, if any, which the parties intended to attach by way of consequences of non compliance with the time limit. This matter was stressed by Meagher JA in Mailman & Associates at 99:

“Once a contract expressly spells out the consequences of non compliance with a time limit I cannot see how it can be argued that the time limit is non essential …”

48    Finally, it is noteworthy that in Amherst v James Walker Goldsmith & Silversmith Ltd (1983) Ch 305 the Court of Appeal held that in the absence of time being of the essence, there was not to be read into the lease even an implied term that the notice be given within a reasonable time. Even delay plus hardship to the tenant would not disentitle the landlord to exercise the right, which he has, on the true construction of the contract, unless the combination amounted to an estoppel (per Laughton and Oliver LJJ). This I note was followed in Maritime Services Board of NSW v Australian Shipping Commission (1991) 27 NSWLR 258 at 278-9.

Conditions Precedent

49    In an attempt to avoid the impact of this line of authority BBC’s counsel argued that the requirement that the First Valuation be determined during the year ended 28 February 1996 amounted to a condition precedent to the lessor’s entitlement to the benefit of the rent review adjustment which would, had the valuation been determined timeously, been clear. 50    Samuels JA had wrestled with this problem in Mailman at 93-95:

“I must confess that if I were not guided by authority, I would, by the application of the general principles of the law of contract, have little difficulty in construing the notice requirements in par (b) as being of the essence. The paragraph provides that the lessee may dispute the lessor’s assessment of the current rent if it wishes. It does not require the lessee to do so. If the lessee does give notice in writing within the period specified then the lessor is obliged to appoint the valuer nominated by the lessee. If the lessee does not do so, then, by dint of par (d), it is deemed to have accepted the lessor’s assessment of the current market rent set out in the notice contemplated by par (a). It would have been unnecessary to include this last-mentioned provision if the lessee were obliged to dispute the lessor’s valuation. It follows that the stipulation in par (b), requiring the giving of notice in writing to the lessor within fourteen days of the lessor’s notice, is not a promissory term of the contract. It simply lays down an act by the lessee as a condition precedent to the lessor’s obligation, under para (c), to appoint the valuer nominated by the lessee. There is authority for the proposition that the expression of a provision in the form of a non-promissory condition precedent gives that provision the character of essentiality, thereby requiring strict compliance before it can be said to have been fulfilled: Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR.
The learning at common law and in equity (to which reference was made in United Scientific) as to whether a time stipulation is of the essence of the contract is traditionally relevant to situations where there has been a breach of a time stipulation of promissory character. This is implicit in the decision of the High Court in Louinder v Leis (1982) 149 CLR 509. That case concerned a contract for the sale of land which contained a time stipulation which was not of the essence. Mason J, with whom Stephen J and Wilson J agreed, discussed (at 524-525) the effect of s 13 of the Conveyancing Act:
‘The true position is that equity and common law differed not so much in the construction of the contract as in the consequences which they assigned to a breach of it … Equity departed from the common law in insisting that a breach of a stipulation as to time only entitled the innocent party to rescind where time was of the essence of the contract. It was otherwise at common law. Consequently, equity would intervene in appropriate cases to prevent the innocent party from enforcing his common law right to rescind and to assert her own rule. It follows that in such cases the operation of s 13 converts the character of a time stipulation from essential to non-essential; it does not otherwise alter its terms or its construction. Thus the time stipulation is not read as if it called for performance by the stipulated date or “within a reasonable time” or “within a reasonable time thereafter”.’
See, also, per Gibbs CJ (at 513-514). His Honour referred with approval to passages in United Scientific from the speeches of Lord Diplock and Lord Simon to the effect that in equity, and now under the judicature system, a non-essential time stipulation can be made essential by a notice calling for performance. Moreover, what was implicit in Louinder was made explicit in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537. In that case Gibbs CJ (at 545-546) and Brennan J (at 569), with whom Stephen J agreed, accepted that the equitable rules concerning time stipulations (including notices to complete) had no application where the time stipulation in the contract was a non-promissory condition precedent to the existence of a contractual obligation, even where the condition precedent required an act or event to occur within a reasonable time.
Whether a stipulation is a non-promissory condition precedent or a promissory term of the contact is a matter of construction, the answer to which, as Louinder decides, does not differ in equity or at common law. It would seem to follow from Perri that s 13 of the Conveyancing Act, properly construed, has no application to non-promissory conditions precedent since equity follows the law in this regard. The effect of the failure to fulfil a non-promissory condition precedent remains that the obligation or obligations which presuppose its fulfilment will not arise. As I said in Tricontinental (at 704D) of my judgment:
‘ … Where a provision lays down an act by one party as a condition precedent to the existence of an obligation on the part of the other party, the condition precedent will not be fulfilled until the former party does an act that strictly matches that described in the contract.’
Be that as it may, it seems to me that the High Court has accepted the authority of United Scientific in Australia. In Gollin & Co Ltd v Karenle Nominees Pty Ltd (1983) 153 CLR 455, a case in which the court had to consider the effect of the lessor’s failure to appoint a valuer under a rent review clause, the court (at 468) cited United Scientific with approval. Accordingly, our analysis must begin with the assumption that the law as stated in United Scientific applies to time stipulations in rent review clauses. This is so even accepting that it seems somewhat inapposite to speak of ‘breach’ of a right to seek a rent review, or that one can issue a notice to complete to make the exercise of an adversary right within a specified time essential to a contract. Yet, these matters are implicit in the speeches of their Lordships in United Scientific.” [emphasis added]

51    To my mind the argument put by BBC’s counsel is foreclosed by the decision in Mailman, and particularly by the above observations of Samuels JA. 52    In any event, as a matter of construction of the clause here in question, in my view, the clause cannot be characterised as a condition precedent to the entitlement of the lessor to achieve a higher rent by the enlivening of the review procedure. Seen in context there are no, or no substantial, indicia to support the contrary view.

The Construction Issue - “Valuations … for rental purposes”

53    Senior Counsel for BBC drew attention to the fact that the expression “for rental purposes” appears three times in clause 30 of the Lease, namely in sub-clauses (ii) and (iii) and in the proviso to clause 30. The submission is that the expression “directs attention to the purposes for which the lease permits user of the demised premises”. Put another way the submission was that the clause directed attention “to the purposes of the lease, that is the purposes of the business which is conducted under it” [transcript p 49].

54    BBC’s submission directed attention to the restriction upon user which appears in clause 20 of the lease earlier set out.

55    The argument put for BBC also directed attention to clause 4 of the Lease which obliged the lessee to at all times insure and keep insured all buildings on the demised premises in the joint names of the lessee and the lessor. This was said to be a further indication in the Lease that the lessor was taking a particular interest in the nature of the business which was being conducted on the property. To my mind no inference of this kind can be drawn, it being clear that the lessor’s interest in improvements being buildings would require to be identified as an insurable interest. 56    Attention was also directed to clause 13 as including covenants which reflected aspects of the permitted user. Clause 13 provided that the lessee should not “permit, suffer or allow any ashes, coal, ballast, oil, refuse or other material to be thrown or discharged or to fall or flow into the Port from the demised premises or from any vessel which may be berthed or moored thereat”. 57    BBC’s submissions sought to pray in aid as admissible to assist, in the construction of the Lease, evidence going to the history of the site from the early part of the century. The submission was that the lease was the product of a scheme promoted by the Sydney Harbour Trust in the early part of the century and followed on by the Maritime Services Board which is said to have seen the establishment on the site, of reclaimed land at Homebush Bay, of an early version of what has become known as an “industrial park”. The submission was that the particular purposes of the industrial park of which the property is but a part, was the establishment and consolidation of industry which used water, transport and facilities. It is said to have been typically timber yards or depot type industries. 58    Senior counsel for BBC took the court to legislation forming part of Ex P1/D1 said to demonstrate that from about 1904 after the Sydney Harbour Trust was established with powers to resume land and to set up areas for development (which powers are said to have been taken over by the Maritime Services Board upon its formation and continued under its regime until the time of occupation of the subject property) it was policy to establish an industrial park to cater for the operations of businesses which required harbour access. It was put that there was a financial incentive in this because it would no doubt have produced harbour fees and the like for the Maritime Services Board. Counsel for BBC submitted that the documents sought to be relied upon as part of P1/D1 and the affidavit to which I have referred, “demonstrate … that this area at Homebush Bay was attractive to timber yards in particular. There were some other businesses, but it seems that the majority of them were timber merchants, saw millers and the like. There was a logic about all of that because logs could be brought into the harbour and then floated upstream … and moored alongside the pillions and the like adjacent to these lots of land”. (transcript 42) 59    The document behind TAB 1 in exhibit P1/D1 relied upon by BBC’s counsel and now admitted is said to have been an extract from the Maritime Services Board “Municipality Book” dealing with the subject site. The document purports to give details of tenancies in relation to this site for a number of years from 1959. It is said to be a convenient collection of the history of the particular property from the date when Rozelle Timber acquired possession of the land. The submission is that the document assists in enabling the court to discern a logical progression in accordance with a policy which the MSB is said to have followed, namely the relocation of timber mills and the like to this area. The submission is that Rozelle Timber “was just one of a number of businesses of the same kind which were swept up in this policy of location to an industrial park of saw mills and what [might be called] the waterfront industries or depot industries which were located in this area”. The submission is that “what the MSB was doing and these companies were swept up in it and … was part of the factual matrix at the time that Montague Meyer came along and at the time that we acquired our rights under the instrument which your Honour now is concerned with”. (transcript 45) 60    The document behind TAB 15 which was received by the lessee and is dated 30 March 1984 and was written by the Board does not assist in any material way. 61    Returning to BBC’s submissions they were, inter alia, as follows:

“The expression “for rental purposes” suggests that the rent review is to be carried out so as to derive a figure which recognises and accommodates the user of the premises as a timber yard. The task is not to be approached upon the basis of assessing “the highest and best use” of the land or as having regard to its potential as a development site or for residential occupation - see Plinth Property Investments Ltd v Mott Hay & Anderson (1979) 38 P & CR 361; Manukau CC v Fencible Court Howick Ltd (1991) 3 NZLR 410; SA Service Stations Pty Ltd v BP Australia Ltd (1989) ATPR 40-949.
Neither of the valuations upon which the plaintiff seeks to rely conforms to such a principle nor pays regard to the user of the premises as identified in the lease. Neither valuation is one which is envisaged by the lease or the variation of the lease.”

62    BBC’s submissions were that no assumption could be made in relation to the subject clause that the fee simple was to be valued at its highest and best use. The submission was that the argument put by Payce Properties did not attribute a sensible meaning to the words “valuation for rental purposes”. The submission was that the Payce Properties proposed construction must result in the words “valuation for rental purposes having no sensible meaning”. Plinth Property Investments, a decision of the United Kingdom Court of Appeal, concerned a very different form of rent review clause to that presently before the court. The underlease of office premises there under consideration contained a covenant by the underlessees “not to use the demised premises or any part thereof or suffer the same to be used otherwise than as offices … in connection with the [underlessees] business of consulting civil engineers”. The underlease also contained a rent review clause providing that there was to be a rent review for the last eight years of the term, that the rent for that period was, in the absence of agreement, to be determined by an arbitrator and that “the amount to be determined by the arbitrator shall be of [sic] such amount as shall in the opinion of the arbitrator represent the fair rack rental market value for the demised premises … having regard to rental values of property then current and to the provisions of this underlease … “. (emphasis added) 63    Agreement not having been reached between the parties, the question of rent to be paid for the last eight years of the lease was remitted to an arbitrator for determination, and before the arbitrator it was agreed that, without the restrictive covenant as to user, the full market rental of the premises would be £130,200 but that, with that restriction, it would be £89,200. The underlessors contended for the former sum, the underlessees contended for the latter sum. The arbitrator ruled in favour of the underlessees. On a special case stated by the arbitrator for the opinion of the High Court the material being question being “whether the arbitrator can take into account the fact that the landlord might consent to a change of user … “, Slynn J affirmed the arbitrator’s award. 64    To my mind the decision is not to the point in relation to the clause presently before the court. As Brandon LJ said in Plinth:

“It seems to me that, when a lease provides that the arbitrator is to have regard to the provisions of the lease it means the provisions that give rights to and impose obligations on each of the parties to it. What the arbitrator has to consider is what those rights and obligations are on either side and assess the rent in the light of them … “.

65    The lease presently before the court for construction merely uses the words “the valuation of the demised premises for rental purposes”, and makes no express reference to regard being required to be had to the provisions of the lease itself. 66    Nor do I gain any assistance from the decision of the Court of Appeal in Manukau which refers to Plinth as an authority requiring “the valuer to have regard to such use restrictions as may be contained in the lease and not to assess value on the basis that the lessor will, or even might, relax or waive any restrictive user clause”. 67    I derive no particular assistance from the references to Plinth in SA Service Stations.

Circularity

68    Mr Tobias QC sought to rely on the decision of Cole J in Payce Properties Pty Ltd v Harrisons Timber Pty Ltd (Supreme Court of New South Wales, 14 December 1990, unreported) where his Honour held that absurdity was produced on the submissions of the defendant. 69    In that case clause 30 provided:

“30. That the lessee shall pay in the manner hereinbefore provided the following rents namely:
1. (i) During the first five years of the term an annual rent of Ten thousand seven hundred and twenty five dollars ($10,725,000) and it is hereby agreed that this sum is the equivalent of six dollars fifty per centum of the value of the said land at the commencement of the term hereby granted such value being One hundred and sixty five thousand dollars ($165,000.00).
(ii) During the next and each succeeding five year period of the term an annual rent equivalent to six dollars fifty per centum of the value of the said land at the commencement of each five year period.
2. For the purpose of this clause the expression ‘the value of the said land’ shall mean the value as mutually agreed upon or failing agreement as determined by the Valuer General for the State of New South Wales of the land above described with the seawall and reclamation thereon and having regard to any facilities or services from time to time affecting or relating to the said land but not including nor having regard to the value of any buildings structures roads drains fences or gates plants or machinery made constructed or installed by or at the cost of the Lessees.”

70    His Honour at pages 4-5 said:

“The defendant contended that clause 30 required determination of ‘the value of the said land’ which meant ‘the land above described with seawall and reclamation thereon’ plus services but disregarding tenants improvements. Thus it was said the valuation should have been of the land subject to the encumbrance of the existing lease. That it is not what had been valued.
I reject that argument. The clear intent of clause 30 is to fix a rental each five years equivalent to 6.5% of the value of the land at the commencement of each five year portion of the forty five year lease period. At the commencement of the lease obviously the land was unencumbered by any lease. ‘Value of the said land’ where used in the first paragraph of clause 30 means valuation of the fee simple. It has the same meaning in both sub paragraphs of the first paragraph of clause 30. It is inconceivable that, the rental for the initial five year term being based upon a value related to the fee simple unencumbered by the lease, subsequent rentals are to be based upon the land valued subject to the existing lease.
Further, the introductory words to the lease which I have quoted above describe the land of the Maritime Services Board as being an estate in fee simple. A distinction is drawn between that estate and ‘the demised premises’; which comprise the lessee’s estate. The clear intent of clause 30 is to value the totality of the lessor’s and the lessee’s estate for the purpose of rent fixing.
The alternative view produces an absurdity. The extent of affectation of the land by encumbrance of the lease, and thus the land’s value, would depend upon the rental fixed for a review period which in turn would affect the valuation of the land. Insoluble circularity would be produced in the valuation exercise,
The clear purpose of clause 30 is to value the land unencumbered each five years to fix a rental such that the lessor receives and the lessee pays a figure equivalent to 6.5% of the land comprising the fee simple.”

71    Here the clause is of course in different terms. I do not accept that a necessary obstacle in the path of BBC’s construction involves insoluble circularity. The parties were free to agree that the subject valuation for the purposes of fixing the rent could be based on the premises being used as a timber yard (or such other use as the parties might agree upon). The question is one of construction.

Ruling on Construction

72    In my view there is substance in the plaintiff’s submission that clause 30(iii) requires valuation of “the demised premises” - that is, the land demised by the Lease which is described on the cover page of the Lease. Hence what is required is a valuation of the largest interest in the specified parcel of land which the then owner could have granted, ie the fee simple - not of a lesser interest such as the lessee’s interest or the reversion: Payce Properties Pty Ltd (supra) at p 4; 73    On the commencement of the Lease the land was unencumbered by any lease. It would be, I accept, to say the least unusual, if the term in the proviso had a different meaning than in clauses 30(ii) and (iii). 74    A further substantial hurdle to the defendant’s proposed construction is of course that there is nothing to suggest that the parties assumed at commencement of the lease that the use at the time of commencement having been a timber yard, would for the next forty years continue to be the use of the demised premises. Clause 20 clearly contemplates that that use may change as the business of the lessee from time to time (including situations of assignment), might change. Why one may rhetorically ask, would the parties, especially the Maritime Services Board, contemplate over a forty year period at three yearly intervals, a valuation which might be based on an underutilisation of the premises for a use that may from time to time have been so limited in its nature that if the land could only be valued by reference to that use, it would result in a relatively low valuation of the land. 75    The whole purpose of the rent review provision for a very long term lease such as the present lease is, I accept, to enable the lessor to obtain the benefit of higher rents based on increasing land values, that is to say, increasing land values which accord with permissible lawful uses from time to time. 76    In my view the true meaning of the term “for rental purposes” is a reference to the reason or purpose of the valuation. 77    The defendant’s contention that the words “the valuation of the demised premises for rental purposes” requires a valuation in order to be effective for rent review purposes to be made on the basis that the premises continue to be used as a timber yard or for such other use as the parties might agree upon, is rejected. The parties did not use those words but used only the words “valuation … for rental purposes”. 78    The basis of BBC’s detailed submissions in relation to the valuations falls away once BBC’s approach to the construction question is rejected. Clearly enough the valuations do not proceed upon the basis that the property was required to be used for the purposes stipulated in Clause 20 of the lease. The first valuation was plainly approached on an industrial basis. The second valuation was plainly approached on a residential basis. The Valuer General was entitled to value the fee simple upon the basis of its highest and best use and proceeded accordingly. 79    In the result the plaintiff has made good the construction for which it contends. 80    Short minutes of order should be brought in accordingly.

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Last Modified: 10/12/1999