Riltang Pty Ltd v L Pty Ltd

[2004] NSWSC 977

CITATION:	Riltang P/L v L P/L [2004] NSWSC 977
HEARING DATE(S):	07/09/04, 29/09/04
JUDGMENT DATE:	25 October 2004
JUDGMENT OF:	White J
DECISION:	See page 25 of judgment.
CATCHWORDS:	LANDLORD AND TENANT - Option for renewal - New lease to be on like terms and conditions of old lease - Whether clause required identical reproduction of covenant to contribute to increases in rates, taxes and outgoings from commencement of term. - CONTRACTS - Interpretation - Clause mistakenly included in new lease in identical terms to old lease - Clause having plain meaning - No absurdity or inconsistency - Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, [1998] 1 All ER 98 considered. - PRACTICE AND PROCEDURE - Jurisdiction to make supplementary order where parties mistakenly implemented order for specific performance - Where liberty to apply or reservation of cause for further consideration not reserved.
CASES CITED:	Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 Ashington Holdings Pty Ltd v Wypema Services Pty Ltd (1999) 9 BPR 17,315 Houssein v Under Secretary of Industrial Relations and Technology (NSW) (1982) 148 CLR 88 Bruce v Cole (1998) 45 NSWLR 163 Gerraty v McGavin (1914) 18 CLR 152 Fitzgerald v Masters (1956) 95 CLR 420 Darin Nominees Pty Ltd v Franklins SelfServe Pty Ltd [1999] NSWCA 209 South Sydney Council v Royal Botanic Gardens (1999) 10 BPR 18,961 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98 Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (Cth) (1981) 147 CLR 297 Royal Botanic Gardens v South Sydney County Council (2002) 76 ALJR 436 Optus Vision Pty Ltd v Australian Rugby League Football League Ltd [2004] NSWCA 61 Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 Prenn v Simmonds [1971] 1 WLR 1381 Reardon Smith Line Limited v Yngvar Hansen-Tangen [1976] 1 WLR 989 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25 Australian Broadcasting Commission and Australasian Performing Right Association Ltd (1973) 129 CLR 99 Professor McLauchlan, "The New Law of Contract Interpretation", (2000) 19 New Zealand Universities Law Review 147 Credit and Commerce International SA v Ali [2002] 1 AC 251 Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213 European Bank Ltd v Citibank Ltd [2004] NSWCA 76 Bailey v Marinoff (1971) 125 CLR 529 DJL v Central Authority (2000) 201 CLR 226 Phillips v Walsh (1990) 20 NSWLR 206 Fritz v Hobson (1880) 14 Ch D 542 Penrice v Williams (1883) 23 Ch D 353 Chandless-Chandless v Nicholson [1942] 2 KB 321 J A G Investment Pty Ltd v Strati [1981] 2 NSWLR 600 Fry on Specific Performance (6 ed paras 1170-1181) Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Harvey v Hall (1873) LR16Eq 324 Gilbert v Gilbert [1955] Qd R 245 Singh (Sudagar) v Nazeer [1979] Ch 474
PARTIES :	Riltang Pty Ltd & Anor v L Pty Ltd & 2 Ors
FILE NUMBER(S):	SC 6391/03
COUNSEL:	Plaintiff: W Hodgekiss, T Bors Defendant: S Epstein SC
SOLICITORS:	Plaintiff: D C Balog & Associates Solicitors Defendant: Baron & Associates

I N THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
ONE DAY LIST

WHITE J

Monday, 25 October 2004

6391/03 RILTANG PTY LTD & Anor v L PTY LTD & 2 Ors

JUDGMENT

1 HIS HONOUR: The first plaintiff (“Riltang”) is the lessee of the 2nd floor premises at 34-46 Oxford Street Darlinghurst. The defendants are the registered proprietors of the property. The lease under which Riltang is in occupation was executed on 21 August 2002. It is for a term of seven years commencing on 13 October 2000.

2 Riltang seeks a declaration that upon the proper construction of the lease the lease date for the calculation of “outgoings” is the year 2000. The defendants filed a cross-claim. They sought a declaration that the base date for calculation of the increases in rates, taxes and outgoings is the year 1993 and an order for payment of moneys outstanding if Riltang is liable to pay a proportion of increases in rates, taxes and outgoings from those assessed in 1993 rather than 2000.

3 The lease was executed in compliance or purported compliance with an order made by Davies AJ on 17 July 2002 in proceedings number 2945/01. Davies AJ ordered that an option for renewal contained in clause 3.7 of an earlier lease between Riltang and Oscty Pty Limited, a predecessor in title to the defendants, be specifically performed. That lease was for a term of seven years commencing on 13 October 1993 and expiring on 12 October 2000. Clause 4.2 contained a covenant by the lessee to:

“RATES AND TAXES. To pay twenty five per centum (25%) of all increases in rates taxes and outgoings of the land and on the buildings erected on it (including the premium for the policy of insurance referred to in Clause 13.3) whatsoever now assessed or charged upon the land and or the buildings erected on it or the hotel or upon the lessor on account thereof or upon the lessee.”

4 On 21 December 1993 Oscty Pty Limited and Riltang executed a variation of the lease which was subsequently registered.

5 The order of Davies AJ was that:

“ The defendant, L Pty Ltd, do all that is necessary to be done on its part to provide to the plaintiff’s solicitors within 21 days a new lease over [the] premises..…. which:
(i) is in registrable form;
(ii) is executed by the lessors;
(iii) is to commence from 13 October 2000 and to run to 12 October 2007 inclusive;
(iv) is with like covenants, terms, conditions and restrictions as contained in the lease and variation;
(v) excludes clause 3.7 of the lease and variation;
(vi) is at a commencing rent of $78,576.08 per annum being $6,548.01 per month for the demised premises to be reviewed in accordance with the terms of the lease and variation. ”

6 In purported compliance with these orders the new lease which was entered into between Riltang and the defendants included a clause 4.2 which was in precisely the same terms as in the earlier lease.

7 The issue in these proceedings is whether the plaintiff is required to pay 25% of the increases in rates, taxes and outgoings from that payable at the commencement of the term of the new lease, i.e. the increases from 13 October 2000, or, whether it is required to pay 25% of the increases in the outgoings, rates and taxes from those payable in 1993.

8 The order made by Davies AJ that the new lease contain “like covenants, terms, conditions and restrictions as contained in the lease and the variation” reflected the terms of the option of renewal contained in the old lease. Clause 3.7 of the old lease provided that if the lessee desired to have a lease of the premises granted to it for the further term of seven years and gave the requisite notice, the lessor should “grant the lessee a lease of the premises for the further term of years aforesaid commencing on the date of expiration of the term hereby demised at the rent equal to the rent which would have been payable during such term if this lease had been granted for the aggregate of the term hereof and the term of the further lease granted pursuant to this option and otherwise upon and subject to like covenants terms conditions and restrictions as are contained in this lease except this Clause.”

9 The defendants submitted that to give proper effect to Clause 3.7 the new lease should provide, or be construed as providing, that the lessee was required to pay 25% of all increases in rates, taxes and outgoings from those charged at the commencement of the original term, that is, from 1993. They submitted that the word “now” in clause 4.2 of the 2002 lease in which the lessee covenants “to pay 25% of all increases in rates, taxes and outgoings….. now assessed or charged…….” was a reference to the commencement of the 1993 lease. Riltang submitted that “now assessed or charged”meant assessed or charged at the commencement of the lease, that is, in 2000.

10 When the matter was first listed for hearing on 7 September 2004 I granted leave to the defendants to amend the cross-claim and adjourned the further hearing to 29 September 2004. The amendment made to the cross-claim was for an order supplementing the orders of Davies AJ made on 17 July 2002 by requiring Riltang to execute a variation of lease in registrable form varying the provisions of clause 4.2 of the lease by inserting the words “from 13 October 1993” after the word “increases” and deleting the word “now”.

11 In answer to that claim Riltang contended that:

(a) a clause in that form would not be a “like covenant” to clause 4.2 of the original lease;

(b) in any event it is not open to the defendants to seek an order supplementing the order of Davies AJ to correct what was done by the parties pursuant to his Honour’s order because:

(i) that would be tantamount to correcting a final order after it had been entered and would contravene the principle of finality of judgments, there having been no appeal from his Honour’s order;
(ii) it was not open to the Court to make a supplementary order by way of working out or enforcement of Davies AJ’s order because the order contained no reservation of liberty to apply, nor adjournment of the cause for further consideration;
(iii) only one of the three defendants, L Pty Ltd, was a party to the suit for specific performance heard by Davies AJ and it was not open to the other two cross-claimants (being the other two registered proprietors) to avail themselves of any jurisdiction the Court might otherwise have to make a supplementary order to work out or enforce of the order for specific performance made by Davies AJ; and
(iv) as the parties had agreed in 2002 on the terms of the lease which should be entered into to give effect to the orders of Davies AJ and executed the lease in compliance with his Honour’s order, the orders had been fully complied with.

12 The first task is to decide what clause 3.7 of the 1993 lease required.

Clause 3.7 of the 1993 Lease: “Like Covenants”

13 The expressions “like covenants” and “same terms and conditions” when contained in options for renewal of a lease have been considered on a number of occasions. (Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67; Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 570; Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (1999) 9 BPR 17,315 at 17,318, 17,322). Those authorities establish that such expressions do not permit the literal reproduction into the new lease of the terms of a covenant in the old lease if the effect is to change the position of the parties substantively.

14 In Mark Mayne Pty Ltd v Suburban Centres Pty Ltd the Court was asked to declare what was the proper construction of a renewal clause in a lease which required the renewed lease to contain the “like covenants and provisos” as were contained in the original lease except for the covenant for renewal. The original lease included a provision that the lessee would pay to the lessor a proportion of the amount by which the rates and taxes and assessments in respect of the land exceeded the amount of such rates, taxes and assessment “at the commencement of the term of this lease”. Holland J held (at 70) that the terms of the covenant for renewal contemplated that the relationship of lessor and lessee which existed under the original lease would continue or be renewed for a further period, without changing the status quo which then existed except as to the obligation to grant a further lease. His Honour held that to reproduce in the new lease precisely the same terms of the covenant for payment of a proportion of rates, taxes and assessments would produce a substantial change to the status quo existing at the expiry of the original term. His Honour held that the lease to which the plaintiff lessee was entitled on exercise of the option of renewal was one which provided for the payment of the relevant proportion of the excess of the rates, taxes and assessments from that obtaining from the date of commencement of the term of the original lease. That date was 16 November 1960. His Honour therefore declared that a clause in the new lease which substituted the date 16 November 1960 for the words “at the commencement of the term of this lease” would give effect to the requirement in the option for renewal that the new lease contain like covenants to the old.

15 Riltang sought to distinguish Mark Mayne Pty Ltd v Suburban Centres Pty Ltd by the difference between the expression “at the commencement at the term of this lease” in that case compared with the use of the word “now” in the present case. It was submitted that the word “now” connotes currency and variability. In other words, that it can have an ambulatory operation such that in the original lease it can refer to the commencement of the original lease and in the renewed lease can aptly refer to the commencement of the new lease. It was also submitted that unlike the position in Mark Mayne Pty Ltd v Suburban Centres Pty Ltd, in the present case the option of renewal expressly dealt with the rent by providing that the rent in the new lease should be that which would have been payable during the term of the renewed lease if the lease had been granted for the aggregate of the original term and the term of the further lease. Hence, it was submitted, one could discern that the parties intended to maintain the status quo in relation to rent. However so far as the lessee’s contributing to increases in rates, taxes and outgoings was concerned, that was not separately addressed in clause 3.7. Therefore, it was submitted, in relation to rates, taxes and outgoings, there was no intention to continue the status quo as at the expiry of the original term.

16 Riltang submitted that if a new lease were granted to a third party it would make perfect commercial sense for the new lessee to pay a contribution towards increases in rates, taxes and outgoings assessed from the date of commencement of the new term. It is true that to adopt such an interpretation puts the lessee in a better position than it was in at the expiry of the old term, but that was an appropriate inducement for the lessee to exercise the option for renewal.

17 These might be powerful considerations if the covenant for renewal required the terms of the new lease to be the same as those of the old. (Mark Mayne Pty Ltd v Suburban Centres Pty Ltd at 71). As Holland J there pointed out the word “like” requires similarity in substance and permits more latitude than might obtain if the word “same” were used. Nonetheless, in Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548, Giles J, (as his Honour then was), construed the expression “the same terms and conditions as are herein contained” in an option for renewal as apt to pick up what had occurred in accordance with those terms and conditions during the period of the lease up to the expiry of the original term. His Honour held that the initial rent payable under the renewed lease would be the rent payable at the expiry of the original lease, rather than the rent payable at the commencement of the original lease.

18 In my view, clause 3.7 of the original lease contemplated the continuation of the relationship between the lessor and the lessee in substantially the same terms as obtained at the expiry of the original term. The express provision in clause 3.7 in relation to the rent payable on the renewed term is confirmation of that intention. I see no substantial difference between the use of the word ”now” in clause 4.2 of the original lease, and the expression “at the commencement of the term of this lease” in Mark Mayne Pty Ltd v Suburban Centres Pty Ltd. At least when construed in the original lease, the word “now” can only mean either at the commencement of the term of the lease or at the time of its execution. It does not by itself connote variability. The word “now” would only have the ambulatory operation which Riltang seeks to give it if the option for renewal requires it to be replicated in the new lease. But that is the very question to be decided.

19 Nor am I persuaded that the fact that the continuation of the increased rental payments is expressly provided for in clause 3.7 implies that the lessee’s obligation to contribute to rates, taxes and outgoings is to be treated differently. The principle of construction which Riltang invokes must be used with caution and only where the intention it expresses is discoverable on the face of the instrument. (Houssein v Under Secretary of Industrial Relations and Technology (NSW) (1982) 148 CLR 88 at 94; Bruce v Cole (1998) 45 NSWLR 163 at 173). That is not the case here. To construe clause 3.7 in its application to clause 4.2 as requiring the continuance of the status quo gives the lease an harmonious operation.

20 For these reasons I agree with the defendants’ submissions as to the proper construction of clause 3.7 of the original lease.

21 It follows that unless clause 4.2 of the new lease is to be construed as if the word “now” refers to the commencement of the original lease, the parties did not properly comply with the order of Davies AJ made on 17 July 2002 that the defendant, L Pty Ltd, do all that was necessary to be done on its part to provide to the plaintiff’s solicitors a lease executed by the lessors which was with “like covenants, terms, conditions and restrictions” as contained in the original lease as varied.

22 It should be noted that in Mark Mayne Pty Ltd v Suburban Centres Pty Ltd Holland J did not question the proposition that if the expression “at the commencement of the term of this lease” were replicated in the renewed lease, the increase in rates, taxes and assessments would be determined as from the commencement of the term of the renewed lease. Hence in order to give proper effect to the option for renewal in the original lease it was necessary to change the language of the covenant to contribute to increases in rates, taxes and assessments.

23 However the defendants submitted that properly construed clause 4.2 required the lessee to pay 25% of the increases in rates, taxes and outgoings from 1993.

Construction of Clause 4.2 of the New Lease

24 Riltang submitted that although brought into existence as a result of the exercise of the option for renewal, the 2000 lease is to be considered as a fresh demise with attendant fresh covenants. (Gerraty v McGavin (1914) 18 CLR 152 at 163). Hence when clause 4.2 spoke of the rates, taxes and outgoings which were “now assessed or charged upon the land” it referred to the rates, taxes and outgoings which were assessed or charged on the land at the commencement of the term, that is, in 2000. It submitted that there was no principle of construction or interpretation which permitted the phrase “now assessed or charged” to be read as “assessed or charged as at 13 October 1993”. Absent rectification of the instrument, the words can only be corrected to avoid absurdity or inconsistency and then only when it is clearly necessary to do so. (Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; Darin Nominees Pty Ltd v Franklins SelfServe Pty Ltd [1999] NSWCA 209 at [35].) There is no question of inconsistency between covenants in the new lease. Nor did the giving clause 4.2 a literal interpretation give rise to absurdity. Had a new lease been given to a third party it would be expected that the lessee’s contribution to increases in outgoings would be calculated from the commencement of the term, not from the commencement of the term of the previous lease. There is nothing absurd about the plaintiff being in the same position.

25 The defendants submitted that this was altogether too narrow an approach. They submitted that:

(a) the lease should be interpreted having regard to the surrounding circumstances not merely, if clause 4.2 is ambiguous, but whenever the intention of the parties is for whatever reason doubtful ( South Sydney Council v Royal Botanic Gardens (1999) 10 BPR 18,961 at 18,966 at [35] per Spigelman CJ;

(b) in any event the word “now” was ambiguous, as it could refer to the commencement of the term of the 2000 lease, or the date of execution of the 2000 lease, or the date of its registration;

(c) interpretation of the lease involves “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably been available to the parties in the situation in which they were at the time of the contract” ( Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 citing Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114; Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [66]);

(d) if one can conclude from the background against which the lease was entered into that the parties made a mistake in the language which they used in clause 4.2, then the document will be interpreted in a way which corrects the mistake ( Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913, 914; Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (Cth) (1981) 147 CLR 297 at 320-321;

(e) a literal interpretation of clause 4.2 of the new lease would be commercially nonsensical as it would return the parties at the commencement of the 2000 lease to the same position, so far as outgoings are concerned, as that which applied in October 1993;

(f) such a result would be contrary to the established authorities upon the construction of options of renewal on like terms and conditions of the old lease; and

(g) the new lease should be interpreted to conform with what clause 3.7 of the old lease required be provided in the new lease.

26 Riltang submitted that the principles of construction to be applied were as set out by Powell JA (with whom Meagher JA and Shepherd AJA agreed) in Darin Nominees Pty Ltd & Ors v Franklins SelfServe Pty Ltd [1999] NSWCA 209 at [35] where his Honour said:

“ 1. as a general rule, the meaning of a document such as a lease is to be sought for in the document itself;
2. the document is to be construed as a whole, the objective being so to construe the instrument as, if it be possible, to produce a consonant whole (see, for example, Hume v Rundell (1824) 2 S & S174, 177 per Leach V-C; Lloyd v Lloyd (1837) 2 My & Cr 192, 202 per Lord Cottenham LC);
3. if, in any case, it is clearly necessary so to do in order to avoid absurdity or inconsistency, then words may generally be supplied, omitted or corrected ( Fitzgerald v Masters (1956) 95 CLR 420, 426-427 per Dixon CJ and Fullagar J);
4. should the context in which it appears in the instrument render the meaning to be attributed to some word of phrase doubtful, then the court which is called upon to interpret the instrument may admit evidence of surrounding circumstances in order to identify the meaning to be attributed to that word or phrase (see, for example, Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989, 995-996 per Lord Wilberforce; D T R Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429 per Stephen and Jacobs JJ; Burns Philp Hardward Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642);
… ”

27 The proposition that as a general rule the meaning of the lease should be sought for in the document itself finds strong support in the judgment of Kirby J in Royal Botanic Gardens v South Sydney County Council (2002) 76 ALJR 436 at 449, [68]-[7]. Although his Honour was in dissent it does not appear that the reasoning of the majority differed on this point. The point was also emphasised by Santow JA, with whom Meagher JA and Stein AJA agreed, in Optus Vision Pty Ltd v Australian Rugby League Football League Ltd [2004] NSWCA 61 at [24], [32]-[33]. This consideration is of particular importance when construing leases, particularly long-term leases. The lease will mean the same thing for the original lessor and lessee as it does for those who take an assignment of the term or the reversion. This may limit the extrinsic evidence to which regard may be had to resolve ambiguities to evidence of the most obvious kind (Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 at 655).

28 The words “now assessed or charged” when used in a lease whose term commenced on 13 October 2000 and which was executed in 2002, if read in their literal or ordinary sense, cannot be interpreted as meaning “assessed or charged in 1993”. It is true that the phrase is ambiguous and if read alone is capable of more than one meaning, namely, as referring either to the commencement of the term or the date of execution of the lease. When read in the context of the whole document the former construction would plainly be preferable. However the defendants say that one can always have regard to the background, against which the lease was entered into, to ascertain the meaning which the document would convey to a reasonable person having knowledge of that background. They submit that as a matter of interpretation, when the lease is read having regard to the background that it was entered into pursuant to the orders of Davies AJ to give effect to clause 3.7 of the old lease, then it is plain that the parties mistakenly used the wrong words. They submit that, short of rectification, the Court can decide that clause 4.2 means what it does not literally say. Unless a literal interpretation would be absurd, this submission does not conform with Powell JA’s third and fourth propositions in Darin Nominees Pty Ltd & Ors v Franklins SelfServe Pty Ltd [1999] NSWCA 204 at [35].

29 Support for it can be found however in the speech of Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912-914. His Lordship said that as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1384-1386 and Reardon Smith Line Limited v Yngvar Hansen-Tangen [1976] 1 WLR 989, “almost all the old intellectual baggage of ‘legal’ interpretation has been discarded”. His Lordship summarised the principles as follows:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and the declarations of subjective intent. …
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meanings’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. …..” (at 912-913)

30 His Lordship continued (at 914):

“ …. Leggatt L.J. said that the judge’s construction was not an ‘available meaning’ of the words. If this means that judges cannot, short of rectification, decide that the parties must have made mistakes of meaning or syntax, I respectfully think he was wrong. ”

31 Lord Hoffmann did not confine the admissibility of the evidence of the “background” to the identification of the meaning of a descriptive term (Prenn v Simmonds [1971] 1 WLR 1381 at 1383-4), or to show the “genesis” or “aim” of the transaction to show that the attribution of a literal meaning would make the transaction futile (Reardon Smith Line Limited v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 429), or to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352). In Codelfa Mason J (as his Honour then was) said (at 352) that evidence of surrounding circumstances is not admissible to contradict the language of the contract when it had a plain meaning. Lord Hoffmann included no such qualification to the use which might be made of evidence of the “background”.

32 Moreover on Lord Hoffmann’s formulation of the principles, as a matter of interpretation and not rectification, the background can be used to correct the words the parties have used wherever it is seen that they have expressed themselves mistakenly, not merely to avoid inconsistency or absurdity (compare Fitzgerald v Masters (1956) 95 CLR 420 at 426; Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25 at [19]-[22], [37].)

33 It is difficult to reconcile Lord Hoffmann’s statement of the principles for interpretation of contracts with the decision of the High Court in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99. There Gibbs J (as his Honour then was) said (at 109):

“If the words used are unambiguous the Court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The Court has no power to re-make or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. ”

Stephen J said (at 114):

“The learned primary judge concluded that the words of the second sentence of the proviso was susceptible of two possible meanings. Were I of the same view I would have little hesitation in choosing that meaning which his Honour preferred; however, with great respect to his Honour’s conclusion, I have been unable to give that sentence any meaning other than the one which I have already described.
The agreement is one in which, in my view, two corporations have determined, in unambiguous terms and in a formal document obviously prepared with legal assistance, their quite complex contractual relationship for a considerable term of years into the future. The approach of courts to the construction of such documents, when they contain no ambiguity nor any other patent error or omission, cannot be other than that of an uncritical rendering of the meaning of the text.”

34 Lord Hoffmann’s fifth point would relegate the principle that words should be given their natural and ordinary meaning to a presumption or a strong indication that they were used in that sense. It would permit unambiguous words to be corrected where the background pointed to the parties having used wrong language to express their true intentions, without any inquiry into their actual intentions. (See generally, Professor McLauchlan, “The New Law of Contract Interpretation”, (2000) 19 New Zealand Universities Law Review 147).

35 In Maggbury Pty Ltd v Hafele Pty Ltd (2001) 210 CLR 181 Gleeson CJ, Gummow and Hayne JJ cited Lord Hoffmann’s first principle with approval, namely that interpretation of a written contract involves ascertaining the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, (at 188 [11]). However their Honours referred also to the remarks of Mason J in Codelfa at 350-352 as well as those of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259.

36 In Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213 the High Court repeated that the construction of a commercial contract is to be determined by what a reasonable person in the position of the parties would understand the document to mean and that requires consideration not only of the text of the document, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. (at 221, [22]).

37 In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said that it was unnecessary to determine whether Lord Hoffmann in the Investors Compensation Scheme case and Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali took a broader view of the admissible “background” than was taken in Codelfa or, if so, whether those views should be preferred to those of the High Court in Codelfa. Their Honours said that until that determination is made by the High Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa. (At 39).

38 It follows that evidence of surrounding circumstances or “background” should not be admitted to contradict the language of clause 4.2 of the lease if that clause has a plain meaning. (Codelfa Construction Pty Ltd v State Rail Authority NSW at 352). In European Bank Ltd v Citibank Ltd [2004] NSWCA 76 at [7] Spigelman CJ accepted that the effect of the High Court’s direction in Royal Botanic Gardens v South Sydney City Council was that a Court’s entitlement to take into account the background knowledge depended upon the words of the contract being sufficiently ambiguous. In Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Santow JA, with whom Meagher JA and Stein AJA agreed, noted that no Australian authority had gone so far as to allow unambiguous language to be contradicted by context (at [25]). His Honour disapproved of the notion that context may override text, absent ambiguity or obvious anomaly. (at [33]). His Honour emphasised that extrinsic materials, where they can be had regard to, are subordinate to the text itself. (at [24], [32]-[33]).

39 The relevant background relied on by the defendants is that the 2000 lease was entered into pursuant to an order for specific performance of the contract brought into existence on the exercise of the option to renew contained in clause 3.7 of the 1993 lease. It includes the terms of clause 3.7 of the 1993 lease which was reflected in the order for specific performance that the new lease be on like covenants, terms and conditions of the old. For the reasons I have given one can discern that the parties made a mistake in the words they chose to give effect to the order for specific performance. I also accept that to adopt any available ordinary meaning of the words “now assessed or charged” in the 2000 lease creates an anomaly that following the exercise of the option of renewal the lessee’s contribution to outgoings would be substantially reduced. However for the reasons set out in paragraphs 16 and 24 that cannot be characterised as an outcome which is absurd.

40 The question is whether, short of rectification or the making of a supplementary order to enforce the order made by Davies AJ, the mistake can be corrected by giving the words “now assessed or charged” an interpretation which they cannot literally bear.

41 I do not think that the principles of interpretation, at least as applied in this country, permit that course. In my view the words “now assessed or charged” in clause 4.2, when read in the context of the 2000 lease, have a plain meaning. That is so, even though when standing alone the words are susceptible to two meanings. (Burns Philp Hardware Ltd v Howard Chia Pty Ltd at 646, 657). Neither of the two available meanings of the words, standing uncorrected, would assist the defendants. In the context of the lease the words refer to its commencement. To use the evidence of surrounding circumstances as to how the lease came to be executed to propound a different construction, is to contradict the plain language of the lease. That is not permissible. (Codelfa Construction Pty Ltd v State Rail Authority NSW at 352).

42 Nor can the words be corrected to avoid absurdity, or inconsistency within the text of the instrument, as neither exists.

43 For these reasons I consider Riltang’s submission as to the construction of clause 4.2 is correct. I regard this as an entirely reasonable outcome. If the lease had been assigned, could it seriously be contended that the new lessee should assess its liability to contribute to outgoings, not by reference to the lease, but by reference to the option of renewal in the former lease to which it had no need to give any attention?

44 It does not follow however that I should make the declaration that Riltang seeks as to the meaning of clause 4.2. The defendants contend that if the proper construction of clause 4.2 is as I have found it to be, Riltang should be directed to execute a variation of lease to correct the mistaken implementation of Davies AJ’s orders. If it is entitled to that relief, a declaration as to the meaning of the existing clause 4.2 would not be useful and may produce confusion.

Supplementary Order to Enforce the Orders of 17 July 2002

45 The first objection to the jurisdiction to make such an order was that to do so would contravene with the principle that once a judgment or order is regularly entered the role of the Court is at an end subject only to rights of appeal (Bailey v Marinoff (1971) 125 CLR 529; DJL v Central Authority (2000) 201 CLR 226). However this case does not involve the correction or variation of the order made by Davies AJ. Rather it involves the enforcement of the order.

46 Nor is the absence of reservation of liberty to apply fatal to the application. In Phillips v Walsh (1990) 20 NSWLR 206 McLelland J (as his Honour then was) said (at 209-210):

“……. subsequent to a final order, application can be
made in the proceedings for the purpose of dealing with a matter involved in, or arising in the course of, working out that order; for example, by making more specific provision for its implementation or by modifying its operation to take account of some subsequent change of circumstance or by enforcing it. This exception or qualification [to the principle of finality of orders] does not, however, extend to an application made for the purpose of giving substantive relief not sought in the statement of claim or which is substantially different to that given by the final order: [citation of authorities omitted].

In a final order, liberty to apply is often expressly reserved as authority to make a subsequent application for the purpose of dealing with a matter involved in or arising in the course of working out the order; but the absence of an express reservation of liberty to apply does not preclude such an application: see Penrice v Williams (1883) 23 Ch D 353; Light v West & Sons Ltd [1926] 2 KB 238; Chandless-Chandless v Nicholson [1942] 2 KB 321 and Re Porteous [1949] VLR 383 at 391; [1950] ALR 89 at 91.”

47 In Fritz v Hobson (1880) 14 Ch D 542 Fry J said at (561) that all orders of the Court carry with them in gremio liberty to apply to the Court. In Penrice v Williams Chitty J qualified this observation in relation to final orders which can be worked out without any further order. However in the case of orders for specific performance or orders of a similar kind (for example orders for relief against forfeiture on specified conditions), the grant of liberty to apply or reservation of the matter for further consideration will ordinarily be implied. (Chandless-Chandless v Nicholson [1942] 2 KB 321 at 323; JAG Investment Pty Ltd v Strati [1981] 2 NSWLR 600 at 604, 607).

48 I do not think that Riltang should be allowed to take advantage of the fact that the second and third defendants and cross-claimants were not parties to the suit for specific performance. It appears from the reasons of Davies AJ that the dispute as to whether Riltang had validly exercised the option for renewal was one which only existed between it and the first defendant, L Pty Ltd. The second and third defendants (Cremorne Arcade Pty Ltd and Lampsack Pty Ltd) were content to accept that Riltang had renewed the lease. In opposing the order for specific performance counsel for L Pty Ltd submitted that no order for specific performance could be made because Cremorne and Lampsack had not been joined as defendants. Counsel submitted to Davies AJ that if an order for specific performance was sought all persons who were to be subject to that order should be joined in the proceedings. His Honour held:

“ 34. In my view, it would have been preferable for Cremorne and Lampsack to be joined in the proceedings. However, there appears to be no dispute between them and Riltang and they have not been joined. In my opinion, they are not necessary parties to the claim and an order for specific performance may be made. It should be expressed so as to be directed solely to L, the defendant in the proceedings notwithstanding that Cremorne and Lampsack have indicated their preparedness to abide by any order which the Court may make. If the plaintiff had wished Cremorne and Lampsack to be bound by the order made, it should have joined them as defendants. ”

49 Thus the second and third defendants did not execute the renewed lease because they were bound to do so, but because they chose to do so. Therefore it was submitted by Riltang that if the lease is to be rectified at their suit that must be done on a claim for rectification, rather than by an order seeking to work out or enforce the order for specific performance made by Davies AJ. There is force in this proposition. However I do not see why that consideration can preclude the first defendant, L Pty Ltd, from invoking such jurisdiction as the Court may have to make further orders by way of enforcement or working out of the orders of 17 July 2002. It is true that the consequence of its being able to invoke such a jurisdiction would be for the benefit of not only itself but of the other two cross-claimants. However this position only arises because Riltang elected to join only the first defendant in its action for specific performance and persuaded Davies AJ to make the order without having joined the other defendants. I do not think the plaintiff can then be heard to complain that the defendant which it joined to its suit can invoke such jurisdiction as the Court may have to require correction of the instrument which the parties have executed.

50 The principal question then is whether the Court does have such a jurisdiction. Mr Epstein SC who appeared for the defendants submitted that since the 2002 lease was made pursuant to an order for specific performance, the future exercise of the parties’ rights and the performance of their obligations under the lease were placed under the control of the Court. (JAG Investment Pty Ltd v Strati [1981] 2 NSWLR 600 at 604-5).

51 It is well established that where a plaintiff obtains an order for specific performance the Court may substitute other forms of relief where a decree of specific performance is not complied with. (Fry on Specific Performance (6 ed paras 1170-1181)). Where the purchaser has gone into possession such substituted relief may include the appointment of a receiver, an injunction to restrain the purchaser from continuing possession of the land, and an order for sale of the land with the vendor to have liberty to bid. Where either plaintiff or defendant wishes to rescind a contract pursuant to a contractual right to do so, or terminate if for breach, he must obtain leave, or more appropriately, vacation of the order for specific performance. (Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260; JAG Investment Pty Limited v Strati at 603-604). Whilst not directly in point these cases illustrate the width of the Court’s jurisdiction to superintend the enforcement or working out of an order for specific performance.

52 I see no reason in principle why the Court should not have jurisdiction to secure the proper performance of its own orders. A party may be precluded from obtaining the Court’s assistance to enforce its order where the parties have agreed to act differently from its requirements. (Harvey v Hall (1873) LR16Eq 324; Gilbert v Gilbert [1955] Qd R 245). That is not the present case. Even though the document which the parties executed was not that which the order required, there is no evidence that the parties agreed or intended to depart from the requirements of the order.

53 In Singh (Sudagar) v Nazeer [1979] Ch 474 Sir Robert Megarry VC said (at 481):

“ …. where….an order for specific performance contains not only the declaratory part but also the consequential directions…., those consequential directions regulate the performance of the contract so long as they stand and are not varied by the court. If those consequential directions are not complied with, then the Court may make an appropriate order in respect of the default, that default being a breach not so much of the still subsisting contract as of the order of the court as to how that contract is to be carried out: ”

In my view it makes no difference to the Court’s jurisdiction to deal with the matter that the default was mistaken rather that intentional, or that it was by both parties not one. Unless the order for specific performance is vacated, or a different order is subsequently made, the plaintiff as much as the defendant is bound to act in conformity with it.

54 Riltang submitted that the obligation to grant a lease containing “like covenants” was an obligation originating in the 1993 lease, not one arising, strictly speaking, from the orders of Davies AJ. Hence it was submitted that JAG Investment Pty Ltd v Strati was distinguishable. It was also submitted that for this reason the relevant common intention of the parties should not be characterised as an intention to give effect to his Honour’s orders.

55 The premise for this submission is not well founded. To adopt the words of Sir Robert Megarry VC in Singh (Sudagar) v Nazeer (at 481) the order for specific performance is not independent of the contract, but is the Court’s order as to how the contract is to be carried out which replaces the mode for which the contract provides as to how it is to be carried out, even if it speaks in the same terms.

56 For these reasons the defendants are entitled to the relief which they seek in paragraph 1A of the amended cross-claim. Because the instrument of variation will correct the mistaken implementation of Davies AJ’s order it should be expressed to operate from the commencement of the term of the new lease.

Rectification

57 The defendants did not put their case as one for rectification for common or unilateral mistake and no evidence was led as to the actual intentions of the parties. However, in my view, no party could be heard to say that it did not intend to act in accordance with the orders of Davies AJ. Riltang and the first defendant were bound by those orders. The second and third defendants had agreed to abide by them. Regarded in that light the case could be regarded as a simple one of rectification where the parties by mistake failed to give effect to their common intention to execute a document which conformed with the Court’s orders. The result would be the same.

Consequential Relief

58 The defendants sought an order that Riltang pay the sum of $26,895.67 being the amount of the unpaid liability for outgoings with respect to the new lease. There was no dispute that if the defendants were entitled to the declaration they sought, or to the order requiring Riltang to execute a variation of lease to give proper effect to the orders of Davies AJ, that Riltang is liable in the amount claimed. There is no claim for interest on that sum.

59 The hearing before me was a hearing as to the issues in paragraphs 1-12 of the statement of claim and the issues on the cross-claim. On 30 July 2004 Gzell J had ordered that those issues be tried separately and in advance of the other issues in the proceedings. Paragraphs 1-12 of the statement of claim were pleaded in support of the claim for the declaration in paragraph 1 of the summons. The orders which I make are:

(1) Refuse the declaration sought in paragraph 1 of the summons;

(2) Refuse the declaration sought in paragraph 1 of the amended cross-claim;

(3) Order that the cross-claimants and the cross-defendant execute a variation of lease in registrable form varying the provisions of clause 4.2 of the lease between the cross-claimants and the cross-defendant of the premises on the 2nd floor of 34-46 Oxford Street Darlinghurst, NSW, by inserting the words “from 13 October 1993” after the word “increases”, by deleting the word “now”, and by providing that clause 4.2 as so amended shall be taken to be operative from the commencement of the lease.

(4) Grant liberty to apply on 7 days’ notice in writing in relation to order 3;

(5) Order that the cross-defendant pay the cross-claimants the sum of $26,895.67.

(6) Exhibits may be returned after 28 days.

60 On the question of costs, the defendants have succeeded on the merits of the claim. However they have succeeded only on their claim which was introduced by an amendment on the day of hearing which had then to be adjourned. Both parties bear responsibility for not correctly implementing the orders of Davies AJ. My prima facie view is that there should be no order as to costs for the trial of the separate issues with the intent that each party should bear its own costs of those issues. I make that order, but direct it not be entered for 14 days, or until further order if within that period the proceedings are re-listed to hear further submissions on costs. If either of the parties contend that a different order as to costs should be made they should notify my associate within 14 days that they wish to make submissions on that question and I will re-list the proceedings to hear submissions on costs. If no such notification is received within 14 days, the order that there be no order as to costs of the trial of the separate issues will stand.

61 I stand over the balance of the proceedings into the Registrar’s list at 9.30am on 1 November, 2004.

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Last Modified: 10/25/2004