Re Noelani Pty Ltd
[1997] QSC 89
•21 May 1997
IN THE SUPREME COURT
OF QUEENSLAND
O.S. No. 2407 of 1997
Before Mr Justice J A Dowsett
[Re Noelani Pty Ltd]
IN THE MATTER of the Rules of the Supreme Court of Queensland
and
IN THE MATTER of an Application by NOELANI PTY LTD ACN 011 011 608
REASONS FOR JUDGMENT - DOWSETT J
Judgment delivered 21 May 1997
CATCHWORDS: CONTRACT - construction of terms - "open market rent" ‑ relevance of incentives
EQUITY - circumstances in which court will intervene to provide declaratory relief
Counsel:D J S Jackson QC for the applicant
P A Keane QC with him P D T Applegarth for the respondent
Solicitors:Corrs Chambers Westgarth for the applicant
Allen Allen & Hemsley for the respondent
Hearing date: 23 April 1997
IN THE SUPREME COURT
OF QUEENSLAND
O.S. No. 2407 of 1997
Before Mr Justice J A Dowsett
[Re Noelani Pty Ltd]
IN THE MATTER of the Rules of the Supreme Court of Queensland
and
IN THE MATTER of an Application by NOELANI PTY LTD ACN 011 011 608
REASONS FOR JUDGMENT - DOWSETT J
Judgment delivered 21May 1997
The applicant, Noelani Pty Ltd ("Noelani") is the assignee from the original lessee of a lease executed on 24 April 1989. The respondents, Queensland Investment Corporation and CPQ Ltd are assignees from the original lessor. Noelani seeks declarations as to the proper construction of terms contained in Part Four, Section A of the lease. The lessee is obliged to pay what is called the Base Rent. This is defined in cl.4.7 to be:
"4.7The Base Rent shall be:
4.7.1Until the first Review Date the amount set out as such in Item 1 of the Particulars, and
4.7.2.During each successive Review Period an amount equal to the open market rent at the relevant Review Date ascertained in accordance with this Part."
Other relevant provisions are as follows:
"4.3"Open Market Rent" means the rent that would be paid for the Premises on a free and open market having regard to the terms of the Lease and assuming that all structures or other improvements whatsoever installed under Part 2(A) of the Landlord's Work under the Agreement for Lease pursuant to which this Lease was granted (if any) and all improvements installed by the Tenant had not been installed."
"4.8The open market rent at the relevant Review Date shall be the sum determined following a notice in writing being given by either party to the other at any time but not earlier than sixty (60) days prior to the relevant Review Date ("the Review Notice"). The sum shall be determined as follows:
4.8.1If the party receiving the Review Notice communicates in writing acceptance of the sum specified therein to the party which served the Review Notice within ten (10) days of the service of the Review Notice, then the sum shall be that specified in the Review Notice; or
4.8.2If the party receiving the Review Notice does not communicate acceptance of the sum specified in the Review Notice as required under Clause 4.8.1, then the sum shall be that which is agreed between the parties within sixty (60) days of the date of service of the Review Notice in substitution for the sum specified in the Review Notice, or
4.8.3If the parties fail to agree upon a sum within sixty (60) days of the date of service of the Review Notice pursuant to Clause 4.8.2, the sum determined pursuant to Clause 4.10."
"4.10.1Each party shall appoint a qualified valuer (hereinafter called "the Appointed Valuers") being registered members of the Queensland Division of the Australian Institute of Valuers to determine the open market rent. The Appointed Valuers (where two are appointed) shall act as experts and not as arbitrators and the unanimous decision of the Appointed Valuers shall be final and binding on both parties. If any party shall not have appointed a valuer and advised the other party of such appointment in writing within twenty (20) days following the expiry of the time limit prescribed under Clause 4.8.3, the right of the party in default to appoint shall be ipso facto lost and the sole valuer appointed by the other party shall determine the open market rent alone as an Expert and not as an arbitrator. He shall give his decision in writing and the reasons upon which such decision have been based shall be set out therein and his decision shall be final and binding on both parties.
4.10.2In default of the Appointed Valuers reaching an unanimous decision within thirty (30) business days of the date when the last of them was appointed, the Appointed Valuers or either of them shall request the Expert to determine the open market rent at the relevant Review Date. The Appointed Valuers shall each have the right to make a submission in writing to the Expert within ten (10) days of the Expert's appointment but not thereafter. The Expert shall following the expiration of the ten (10) day period forward a copy of any submission received to the other Appointed Valuer. Each Appointed Valuer may respond in writing to the other Appointed Valuer's submission (if any) within ten (10) days of receiving a copy of that submission but not thereafter. Save as aforesaid, neither Appointed Valuer shall make any other written submissions to the Expert however the Expert shall be free to confer with both Appointed Valuers to determine any information he may require. The decision of the Expert shall be given in writing and the reasons upon which the decision have been based shall be set out therein and such decision shall be final and binding on both parties.
4.10.3If both parties fail to appoint an Appointed Valuer, the open market rent at the relevant Review Date shall be the sum stated in the Review Notice."
"4.6"Expert" means an independent valuer appointed by agreement between the Appointed Valuers but in default of agreement within ten (10) days of the first person proposed as an Expert by one of the Appointed Valuers to the other then the person nominated by the President on application of either party or its valuer being a Fellow of the Australian Institute of Valuers (or if there is no Fellow able or willing to act then an Associate of the Australia Institute of Valuers of at least five (5) years' standing) and currently practising as a registered valuer of the kind of Premises demised by this Lease and having at least three years' experience in valuing such kind of premises in the Central Business District of Brisbane."
The amended originating summons seeks declarations that:
"1In determining open market rent at 22 August 1994 a valuer or expert appointed pursuant to subclause 4.10 of the Lease should have regard to the effective rents payable pursuant to leases of comparable premises and not merely the nominal or face rentals, so that the valuer or expert will have regard to any premia, incentives or other collateral advantages or disadvantages in respect of those comparable premises.
2In determining open market rent at 22 August 1994 a valuer or expert appointed pursuant to subclause 4.10 of the lease should not add any component representing the value of any incentives provided to the original lessee amortized over the term of the lease or otherwise; and/or
In determining open market rent at 22 August 1994 a valuer or expert appointed pursuant to subclause 4.10 of the lease should not have regard to whether the rent to be paid during the term of the lease would return to the lessors a reasonable rent having regard to the said incentives."
Although the material is not particularly informative on the topic, it appears that a rent review is overdue, and that the parties have negotiated pursuant to cl.4.8 but failed to reach agreement. As I understand it, neither party has taken the step contemplated by cl.4.10.1. In the course of their discussions, disagreement arose as to matters properly to be taken into account in calculating open market rent. The applicant seeks to resolve that disagreement by this application.
It is well-known that property owners regularly offer to prospective lessees incentives designed to induce them to take leases. In a number of reported decisions, the courts have considered the relevance of such incentives in calculating market rental. For example, in Re McCafferty [1994] 2 Qd R 538, the Full Court considered the treatment of such incentives in evaluating the relevance of rentals paid for comparable premises. This is the question adverted to in para.1 of the present application. The applicant also believes that the respondents are asserting that incentive payments made by the original lessor for the benefit of the original lessee should be taken into account in quantifying the open market rent. This issue is addressed in para.2 of the application. At the hearing, it became clear that there was no longer any dispute between the parties sufficient to justify the orders contemplated by para.1 or the first part of the amended para.2 of the application, leaving for consideration only the order sought in the second part of para.2.
The respondent's position is to be found in Mr Brindle's affidavit at para.4(e) where he says:"... I believe that whether an expert gives consideration to incentives which were paid or allowed to the applicant's predecessors in consideration for them entering into the lease (such incentives were in the order of $6,000,000) in determining open market rent in the context of the lease is a matter for the expert in his professional judgment. To the best of my recollection I have not expressed a view contrary to the above to the applicant and its predecessors although I have said to representatives of the applicant and its predecessors on occasions words to the effect that it was the commercial understanding of the parties at the time the lease was entered into that the rent to be paid during the term of the lease would return to the lessors a reasonable rent having regard to the incentives paid by them."
The circumstances in which the court will intervene to provide declaratory relief are wide and ill-defined. Reference is often made to the judgment of Gibbs J (as his Honour then was) in Forster v. Jododex Aust Pty Ltd (1972) 127 CLR 421 at p. 435 where his Honour said:
"The jurisdiction to make a declaration is a very wide one. Indeed it has been said that, ‘... the power of the court to make a declaration, where it is a question of defining the rights of two parties is almost unlimited; I might say only limited by its own discretion’ ... however, the jurisdiction may be ousted by statute ..."
At pp. 437-8 his Honour continued:
"It is neither possible nor desirable to fetter the broad discretion ... by laying down rules as to the manner of its exercise. It does, however, seem to me that the Scottish Rules summarized by Lord Dunedin in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd ... should in general be satisfied before the discretion is exercised in favour of making a declaration:
‘The question must be a real and not a theoretical question; the person raising it must have a real interest to raise; he must be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought.’
"Beyond that, however, little guidance can be given. As Lord Radcliffe said in Ibeneweka v. Egbuna ...:
‘After all, it is doubtful if there is more of principle involved than the undoubted truth that the power to grant a declaration should be exercised with a proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making. Beyond that there is no legal restriction on the award of a declaration.’"
In many cases in which construction of a document is sought by way of declaration, the "real interest" or "circumstances that call for (its) making" will lie in the fact that a declaration will determine how the parties should act to discharge their mutual obligations pursuant to the document. Where there is genuine disagreement as to the proper construction of mutual rights and obligations, but the parties wish to honour those obligations, there is clear utility in making a declaration to resolve the disagreement. In the present case it is not easy to see any such benefit. Even after piercing the non‑committal language used by Mr Brindle in his affidavit, and assuming that there is a true dispute between the parties as to the relevance of past incentive payments and commercial expectations of the lessor, such a dispute is of no current relevance. The parties having failed to agree, they are obliged to leave the matter to the valuers. There is no reason to believe that any difference of opinion between the parties will affect the valuation process.
In the circumstances, no useful purpose would be served by resolving whatever dispute has arisen between Mr Brindle and Mr Twemlow. The application will be dismissed.
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