Royal Botanic Gardens & Domain Trust v South Sydney City Council

[2001] HCATrans 313

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S263 of 2000

B e t w e e n -

ROYAL BOTANIC GARDENS AND DOMAIN TRUST

Appellant

and

SOUTH SYDNEY CITY COUNCIL

Respondent

GLEESON CJ
GAUDRON J

McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 6 SEPTEMBER 2001, AT 11.17 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC:   May it please the Court, I appear with my learned junior, MR A.S. BELL, for the appellant.  (instructed by Minter Ellison)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR P.J. BRERETON, for the respondent.  (instructed by Pike Pike & Fenwick)

GLEESON CJ:   Yes, Mr Gleeson.

MR GLEESON:   Your Honours, there are three main submissions that we wish to put in this case.  The first is a submission that on the plain meaning of the 1976 deed of lease it conferred on the trustees as lessor a broad power to determine every three years the rent for the next three-year period and, to use the language which appears in some of the US writings, this was a power to specify a term of the contract, that is, to specify the content of the lessee’s obligation to pay rent.  We submit that clause 4(b)(iv) operated as a guide in the exercise of that power but not as a fetter.  That will be the first matter that I will seek to go to, the lease itself.

The second submission we wish to make is that, in the exercise of that broad power to specify a term of the contract, the trustees were subject to an implied obligation to exercise the power honestly, but also fairly and reasonably.  That implication we propound primarily as an implication of law.  As an implication of law, there will be three bases that we will put forward.  The first is that this Court should recognise that there is an implied covenant of good faith and fair dealing which runs through all contracts.  The second, and narrower, basis is that such a covenant at least runs through contracts where government bodies are conferred powers ‑ ‑ ‑

GUMMOW J:   Yes, but government bodies in relation to other public bodies or ‑ ‑ ‑

MR GLEESON:   Government bodies generally, whether ‑ ‑ ‑

GUMMOW J:   I understand what you say if it is government bodies dealing with citizens. 

MR GLEESON:   Yes. 

KIRBY J:   Is this inherent in the nature of legislation, that legislation setting up government bodies therefore being their root of title, one assumes that they must act on the basis of honesty and fairness? 

MR GLEESON:   Our basic point is that the trustees, the original lessors, have no beneficial title to the land.  They had a title solely for a public purpose of advancing public recreation in New South Wales.  Since they had only such a purpose to advance, it follows that in all their actions, whether directly under the statute itself, or under contracts they might make, they would be governed by such a duty. 

GUMMOW J:   We have to start at the beginning, do we not?  What are the terms of the trust on which the lessor held this land?

MR GLEESON:   Your Honour, could I just complete the opening basis, and then come fairly shortly to that matter?

I have identified two bases which we put forward for the implication at law.  The third, and the narrowest basis, is that it is an implication in a particular class of contract, and that class of contract is one where the contract confers an interest in property where the contract has been partly executed and where one party has a power to determine the content of the obligation by another under that contract.

GLEESON CJ:   Your propositions two and three look like the sugar‑coating on the pill of proposition one.

MR GLEESON:   There are three ways we put forward for an implication in law, your Honour.  They are, as I say; broader, narrower and narrowest.

GLEESON CJ:   To paraphrase a story about the farmer in a rural area, when I hear my neighbour talking about honesty, fairness, reasonableness, good faith and fair dealing, I count my cattle.

MR GLEESON:   Your Honour, we put those as the implication of law and we have an alternative, brief submission that the same result would be reached ad hoc under the “business efficacy” test.  That is the second matter that I wish to deal with.  The final matter will be the relevance of the prior negotiations and, on that matter, our submission is that they should be excluded from view in construing this formal lease, and we submit that they should be excluded not only for the purpose of adding, subtracting or varying from the terms of the lease, but also in being used under the guise of interpretation.

We will finally submit, however, that even if the prior dealings are looked at, in the present case they are of no assistance on the interpretation question.

In short, there are two main reasons for that conclusion.  The first is that the final lease executed in 1976 represented a distinct departure from the earlier arrangements.  The second matter is that it turns out that there was, in fact, no communication between the parties after 23 January 1975 when the Council received the draft lease as to whether the new language in the lease was meant to in any way keep alive earlier understandings, so that, essentially, one is left with the lease.  Could I turn then to first topic which is construction, bearing in mind your Honour Justice Gummow’s question.

GLEESON CJ:   What is the most convenient place to find that?

MR GLEESON:   Volume 3, page 629.

KIRBY J:   Give me the page again?

MR GLEESON:   Page 629.  Commencing at 629 we have a lease between named persons who are identified as “the Trustees of the Domain” area, on the one hand, and a local government body, on the other hand.

GUMMOW J:   What does that mean, “Trustees of the Domain”?  I am asking you, because it is not explained in either of the judgments below.  It seems to me the starting point.  If you have a lease by trustees, you want to know why they are trustees and what their powers are.

MR GLEESON:   The sequence is this, and the papers are annexed to Mr Jackson’s submissions.  The first step was that the land was dedicated for public purposes in 1916.

CALLINAN J:   Do we have that dedication?  Was it done by conveyance or how was it done?

MR GLEESON:   Your Honours, I am looking at the annexures to Mr Jackson’s submissions.  The first document is a Notification of Dedication of Lands for Public Purposes under the Crown Lands Consolidation Act, 1913.

GUMMOW J:   They are at section 24 of the Crown Lands Consolidation Act?

MR GLEESON:   Yes, your Honour.  And the second step in the chain of title is the next document, which is a Notice Vesting Land in Trustees under the “Public Trusts Act, 1897”.

GUMMOW J:   Public Parks Act, is it not?

MR GLEESON:   Yes.

GUMMOW J:   Where do we see that?

MR GLEESON:   Does your Honour have the Lands Department Notices, New South Wales Government Gazette 29th December 1916?  If your Honours have that document it recites certain matters and then said “it is desired to vest the land” in trustees “in accordance with the . . . “PublicTrusts Act, 1897”.

CALLINAN J:   Mr Gleeson, the first document that was annexed to Mr Jackson’s submissions is the original dedication, is that correct?

MR GLEESON:   Well, which is the subject land?  There are a number of parcels of land dedicated for various purposes.

CALLINAN J:   I am looking for the purpose specified in connection therewith.

MR GLEESON:   Yes.  Your Honours, it is on the second page of that document at page 3221 at about point 3, immediately beneath the diagram there is a reference to Sydney, County of Cumberland, Parish of St. James (Botanic Gardens and Outer Domain)  ‑ ‑ ‑

CALLINAN J:   Public recreation.

MR GLEESON:   Public recreation, yes.

CALLINAN J:   Thank you.

HAYNE J:   And that is in the 1955 gazette, the document you have just taken us to.  I think the 1916 document is the third leaf, at least in the bundle as I have it.

GUMMOW J:   Page 7726 of the gazette.

HAYNE J:   Presumably the Domain is the last piece of land appearing in the schedule to the notification appearing in the middle of that page.

MR GLEESON:   Yes, your Honours, that is the document of 22 December, 1916 – the “Dedication of Lands for Public Purposes” recreation.

CALLINAN J:   That is why legislation was required, was it, because this would not have been a public recreation purpose.

MR GLEESON:   Yes, the view the Crown Solicitor took in 1957 was that there was unlikely to be any existing grant of power.  So in chain of order there is a dedicated ‑ ‑ ‑

GLEESON CJ:   That was the decision in Storey v North Sydney Municipal Council.  Was that not concerned with questions of whether or not that land could be made available for a scout hall on the basis that it was possibly inconsistent with the purpose of public recreation?

MR GLEESON:   I will need to look at that, your Honour.  In the vesting notice itself, which is 1916, the document in the government gazette on 29 December, there is the recital first of certain matters and then there is the vesting of the lands, this is about halfway down the lengthy left column, in certain named persons:

as Trustees as aforesaid, to hold the same for the purposes of Public Recreation, with the same powers and subject to the same limitations as are conferred and imposed by the “Public Parks Act, 1912” –

and the concern of the Crown Solicitor later in time was that those powers were not sufficiently wide.

GUMMOW J:   We do not seem to have the 1897 Act, do we, the Public Trusts Act?  We have the Public Parks Act 1912, but we need section 3 of the Public Trusts Act 1897, do we not?

MR GLEESON:   We will supply a copy of that, your Honour.  If I could return then to the lease at volume 3, page 629.  After identifying the parties, there are four recitals which we submit are of significance in understanding the lease, that the first recital is that the lessee with the consent of the then trustees constructed the building: 

for the purpose of accommodating vehicles on payment of a fee or charge. 

Now, if I could give your Honours a reference, the actual consent is in volume 2, at pages 419 to 420.  So the first recital indicates that it is intended that the Council will earn fees or charges for this facility. 

GUMMOW J:   Wait a minute.  I still do not understand.  What was the source of power of the trustees to enter into this instrument in 1976? 

MR GLEESON:   The answer to that question is the Domain Leasing Act 1961. If your Honours have the Domain Leasing Act 1961 ‑ ‑ ‑

GUMMOW J:   Yes. 

MR GLEESON: ‑ ‑ ‑ the relevant source of power is section 3(1)(a), power to grant leases over “such parts of the Domain as may be necessary” for specified purposes. Paragraph (b) is not relevant. Then the concluding words indicate that the term, the rentals, and the covenants and conditions are such:

as the trustees, with the approval of the Minister for Lands, may determine. 

GUMMOW J:   Thank you. 

GLEESON CJ:   Do these trustees pay tax? 

MR GLEESON: My instructions are no, your Honour, from an officer of the Trust present in Court. I should also refer the Court to section 4 of the Domain Leasing Act, which appears to be a statement that, retrospectively, the trustees were deemed to have had power to do whatever it is they had previously done with the Council in 1956.

If I could come then to the recitals. I have referred to the first recital, which is the fact of construction. The second recital, at about point 7 on page 629, is a recital that the power for the trustees resides in this Act and it requires the Minister’s consent, and the terms of section 3 of the Act have been cited fairly closely. Over the page to 630, the third recital is important. It is a recital that the trustees, with the Minister’s consent, have agreed to grant a lease:

for the term at the rentals and subject to the covenants and conditions hereinafter mentioned as determined by the Trustees. 

In our submission, that is a recital that the terms of the agreements between these parties will be those set out in the deed and it is a recital which deliberately directs attention away from any prior arrangements that may have been in force.  The fourth recital is to similar effect:  “the lessee has agreed to accept such lease” subject to the matters that are in the deed and it goes on to say “for the purposes hereinafter appearing”.  Our submission is that in the recitals the parties have said that all of the information that is needed, both to identify the terms expressly agreed and to interpret those terms, will be found in this document.  We would draw a distinction with the case where the deed might recite ‑ ‑ ‑

KIRBY J:   Where is that provision?  What page?

MR GLEESON:   At page 630.  I am directing attention to the last recital at about line 15 and the previous recital at about line 7.

KIRBY J:   I see, yes.

MR GLEESON:   So there is a world of difference between a deed which says the parties have reached an agreement in 1956 or 1965 and pursuant to that agreement they hereby record certain promises.  The parties here are saying, “Our promises are found and are to be construed in accordance with what follows”.  Clause 1 then is the basic clause granting the interest in land and it refers to the term at about line 31.  In respect to the rent at line 35, it specifies a yearly rent of $2,000 for the first three years and then says that the rent in respect to the following periods of three years at line 46:

shall be determined by the Trustees in respect of each and every such period as is hereinafter in Clause 4(b) provided.

GLEESON CJ:   In your submission, is it relevant that we know as a fact how that original rent was fixed?

MR GLEESON:   It is not relevant.

McHUGH J:   But does not the amount itself in 1976 indicate that it was really a nominal rent?

MR GLEESON:   In 1976 it indicates that the rent back in 1956 commenced at $2,000 for a three‑year period and thereafter was subject to review as provided by clause 4(b).  Accordingly, what has occurred in the intervening period is now to be treated as matters done pursuant to the powers under 4(b).

GLEESON CJ:   Is it material that it does not look like a commercial rent?

MR GLEESON:   We accept that the ultimate implication is that the rent is one fair and reasonable between the parties.  It is not a market rent.  It must take into account the interests of both.  So that the amount of that ‑ ‑ ‑

GLEESON CJ:   But this must be some of the most valuable land in Australia.

MR GLEESON:   Yes.  There is no doubt that the rent is that figure, which was such a figure in 1956.  Our submission is that it would not be the right inquiry to leave the lease and explore prior understandings to ascertain why the original figure was $2,000, and nothing in the lease directs or invites, or permits that inquiry.

GLEESON CJ:   You say we cannot take account of the fact that it looks like a nominal rent, and we know as a fact that it was worked out as an amount sufficient to pay the wages of a gardener.

MR GLEESON:   Our primary submission is that those matters would not be taken into account.  Our secondary submission is that those matters, even if taken into account, will not have any ultimate or decisive weight in construing clause 4(b).

GLEESON CJ:   The problem really is not so much one of construing clause 4(b), is it, as one of relating clause 4(b) to the rental covenant?  In other words, if you are right in saying that the rental provisions, read in the light of the following covenants, confer a broad power to determine rent, subject to the qualifications that you express, as I understand the argument against you it is that clause 4(b) is a very funny thing to say.

MR GLEESON:   Can I come to clause 4(b) on page 636.  We submit that it, at line 40, indicates that the rent for the succeeding three-year periods “may be determined by the Trustees at the commencement of each of” those periods.  At that point there it is, a matter of ordinary language, conferring a broad discretion, we submit, on the trustees to make that determination, to use that language, every three years looking forward for three years.  It then goes on to say “the yearly rent so determined shall be payable”.  So it, at that point, seems to have assumed that the grant of the power to determine rent has been made and when a rent is determined there is then an obligation to pay that rent during the next three-year period.

HAYNE J:   How does the contention that that on its face refers to power, sit with the words at page 630, line 46 or 47, “yearly rent which shall be determined by the Trustees in respect of each and every such period”?

MR GLEESON:   Justice Spigelman dealt with that at volume 5, page 1060, paragraph 7 where he said that it should be read as saying “shall be as determined by the Trustees”, that it was conferring a power clearly for the benefit of the trustees to recover an increased rent and we submit that that part of the judgment is correct.  So that in relation to page 636, having conferred that power, there are there four provisos.  The first three are expressed in the mandatory language “shall”.  The first is a requirement is to:

notify the Lessee of the yearly rent as so determined –

It assumes the power to determine has already been given.  The second requires “adjustment of rent shall be made” at certain intervals.  The third creates a minimum, as opposed to a maximum, rent.  Whatever is to happen, the trustees will not be determining “less than Two thousand dollars”.  Again, that refers to the yearly rent determined as aforesaid.  Then, when we come to (iv), in our submission, it opens with very permissive language and says:

in making any such determination the Trustees may –

that is, are permitted to –

have regard to –

certain factors which are then specified.

GLEESON CJ:   A possible point of view is that (iv) provides the answer to a very obvious question which up until then had been left unanswered.

MR GLEESON:   Our submission is that what has happened up until then is that the trustees have been given what I have described as the very broad discretion, a discretion which the law would naturally treat as being one to determine a fair and reasonable rent between the parties.

GUMMOW J:   It is a power.  Everyone these days is in love with this word “discretion”.  This is a power which may be conditional on certain maters, and (iii) tells you that the initial rent, which does not look very commercial, even in 1956, of $2,000 is not going to go down, and then you get to (iv).

MR GLEESON:   Yes.  The submission that we put is, as the trial judge found, that the power has been conferred.  The criterion to govern the exercise of the power has not been spelt out in page 636, line 40, that the law would naturally imply a criterion of a fair and reasonable rent, and then the purpose of (iv) on 637 in deliberately using the language:

in making any such determination the Trustees may have regard to –

certain matters is intending to say, whatever other matters it may be appropriate to look at in exercising the power, you will not be subject to challenge if you include these matters.

GLEESON CJ:   Why would you say such a thing like that?  What it says is, whatever else you may take into account, you are entitled to take into account the gardener’s wages.

MR GLEESON:   For this reason, your Honour, that a rent would normally be a sum conceived of as appropriately payable for the fact that the tenant has use of that piece of land and the landlord correspondingly is unable to earn a return on that land from someone else.  In the present case this is a factor which on its face ‑ ‑ ‑

GUMMOW J:   Yes, but this landlord is not earning returns, you see.  That is part of the problem.  These are not ordinary landlord and tenants.

MR GLEESON:   What we are submitting is that in respect to the gardener, they are additional costs which the lessor is incurring in respect to other land, not the land leased but its own land.  In determining a fair and reasonable rent, the intention was to exclude any argument which says it would not be right to take into account collateral costs which you are incurring in respect to your own land by reason of having leased other land to this tenant.

HAYNE J:   In this context what do you mean by “fair and reasonable”?

MR GLEESON:   A rent ‑ ‑ ‑

HAYNE J:   Where you have a trustee with statutory authority to have made this kind of lease and very limited powers – I do not know whether any other power – to make some alternative use of the land.

MR GLEESON:   The trustees are trustees of the entire Domain area for the purpose of advancing public recreation in New South Wales.

GAUDRON J:   But they would not be able themselves to conduct this operation, I take it?  Leaving speleological activities aside, there is not a lot of public recreation that can be engaged in underground.

MR GLEESON:   Your Honours, they are trustees of the entire Domain for that purpose.  This is one subterranean aspect of their land ‑ ‑ ‑

GLEESON CJ:   It is described as “strata”.

MR GLEESON:   Strata of their land which, pursuant to this particular statutory power in section 3(1), they are leasing to the Council for that purpose.

GAUDRON J:   Do we not need to know in this context whether they could themselves conduct the activity being conducted on the stratum; two, whether they could in any event lease to anyone else; three, whether, consistent with their duties, they could put this to any profitable account themselves or even whether they could turn it to account for the purposes for which they were constituted trustees?

MR GLEESON:   Your Honour, as the lease is structured, the ‑ ‑ ‑

GAUDRON J:   No, I think we have to look to the powers of the trustees.  We may have to find that in section 3(1) of the 1897 Act.

GLEESON CJ:   While you are doing that, Mr Gleeson, on another, as it were, judicial notice matter, are we entitled to know, and if so, to take account of the fact, that at about the time this lease was entered into there were many leases of strata by government authorities in Sydney, most notably the lease to Wynyard Holdings of the area on which Wynyard Station and the hotel above it exist, or the area of airspace let at North Sydney where there is a large construction and are we entitled to know and take account of the fact that when those leases were entered into on a commercial basis, as they were, there were most elaborate provisions for rent review which provided for arbitration which protected both parties to the contract, which enabled, for example, the lessee to call in question decisions by the lessor about the rent as ordered from time to time?  In other words, are we entitled to compare the striking simplicity of this document and its provisions in relation to rent with the elaborate provisions typical of strata leases at the time?

MR GLEESON:   In my submission, your Honour, that would go beyond the scope of judicial notice for the Court to be safely able to conclude that there was a typical form of lease that it took a particular character.  The Court is entitled to look at the “simplicity”, to use your Honour’s word, of the language of this lease.

GUMMOW J:   Suppose some of these arrangements were buttressed by legislation.  We can look at that, can we not?

MR GLEESON:   What we come back to is that the trustees were purporting to exercise a power pursuant to section 3(1) and the Minister was approving a particular lease.  Now, that is the context in which the lease is being construed and, in my submission, your Honour would then be inviting the assumption that the Minister for Lands in approving this lease had before his or her mind at that time the entirety of that legislation and arrangements and, in our submission, that would be an unsafe way to proceed.  It is certainly not the way that either the trial judge or the Court of Appeal was asked to proceed.

McHUGH J:   But these leases, and this lease in particular, were enacted in a political context.  Unless my recollection is very much astray, there was a great controversy in New South Wales at or about this time in respect of the leasing of areas of parks which were set aside for public recreational purposes and some of which had been leased to bowling clubs and the validity of those leases was, I think from recollection, held to be invalid.

GLEESON CJ:   That is certainly correct.  That is what Storey v North Sydney Municipal Council was about.

McHUGH J:   And in that context you have a special Act providing for the leasing of it, a nominal rent.  It is very difficult to think of this lease being tendered to allow the trustees of a park to obtain commercial‑type rents.  The document itself indicates that it is just a nominal rent, $40 a week in 1956.

MR GLEESON:   Your Honours, the rent we contend for, we do not use the word “commercial”; it is a rent that is fair and reasonable between the parties.  All we seek to ascertain from that is that, bearing in mind it is a 50‑year lease and bearing in mind the language used in clause 4(b), the intention expressed was that, if you have regard to that factor, being the cost factor, you will not be open to challenge in making your determination, but beyond that, that is a matter you may have regard to.  It is not saying to the trustees that is the sole matter you can have regard to and it is not saying that that must be the dominant matter in your consideration.  It is simply saying that is permissible and beyond that you will make your determination.

GAUDRON J:   Fairly and reasonably?

MR GLEESON:   Yes.

GAUDRON J:   Well, at some stage you are going to tell me what those simple words mean.  I have never understood, in any context.

HAYNE J:   Fair to whom?  Reasonable between whom?  Reasonable by what standard?  Fair by what standard?  You say it is not market.  What is our comparator?

MR GLEESON:   It is fair and reasonable as between these parties, bearing in mind their position.  I want to come ‑ ‑ ‑

HAYNE J:   Forgive me, Mr Gleeson, that does not tell me a great deal.

MR GLEESON:   It is a concept which has been considered as appropriate in a number of cases and ‑ ‑ ‑

HAYNE J:   In commercial dealings where there is a market in such transactions, I can understand it, for “fair and reasonable” can find reflection in market transactions, but we are outside market transactions here, are we not, or do you say that we are somehow within them?

MR GLEESON:   It is not simply a market rent.  It is a rent, as I sought to put, fair and reasonable between the parties.  What I wish to do is to finish moving through the lease and then come to some of the cases which have dealt with “reasonableness” as a concept, in particular in relation to leases.

KIRBY J:   Have any of them done so in the context of authorities such as the present parties, or not?  What is the closest case, because what would have been regarded as fair and reasonable as between these parties in 1956 or 1960 or even 1980, before what Mr Jackson is pleased to call “revisionism”, would have been different to what would be fair and reasonable today.

MR GLEESON:   The closest case may well be the decision of the Privy Council in Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205. It is not identical, but it has some similarities. If your Honours have that case, it concerned the coal mines in Queensland and there was an agreement for a supply of coal for a 15‑year period. For the first five‑year period it contained a scale of prices and an escalation or price variation provisions, but after the first five years the general terms were to continue, but in terms of pricing those matters were simply to be agreed. It did contain an arbitration clause. Paragraph (4) of the headnote records a finding that:

by the agreement the parties undertook implied primary obligations to make reasonable endeavours to agree on the terms of supply beyond the initial five year period and failing agreement and upon proper notice to do everything reasonable necessary to procure the appointment of an arbitrator; and it was implicit in the agreement that the terms of the new price structure were to be fair and reasonable.

In the report itself it is interesting that at page 207, in the second column, there is reference to clause 9, which did contain some indicia that might govern the determination.  Page 209, in the second column, sets out the contractual provisions I have just summarised.

Your Honours might note that clause 2.5 contained the basic requirement that the parties would agree, and 8.7 said that the new pricing structure beyond that period was to reflect certain matters.  The decision is on page 210, in the first column.  At about point 5, it was said: 

it is implicit in a commercial agreement of this kind that the terms of the new price structure are to be fair and reasonable as between the parties.  That is the criterion or standard by which the arbitrator is to be guided. 

If the aim was not an “objectively fair and reasonable” result but merely “some result which appeals to him subjectively” that would be a rare case.  Then statements of intention in the recitals supplemented:

the ordinary implication of a fair and reasonable test.

GLEESON CJ:   Now, in a commercial arrangement, there are standards that may be able to be applied, but if you have a dispute as to whether the barristers who park in the Domain parking station are receiving the benefit of some form of cross‑subsidisation from ratepayers generally, then it is difficult to apply standards of that kind, is it not? 

MR GLEESON:   Examples can be thought of, your Honour, but it is a concept that is used in respect to leases.  A distinction is drawn between a market rent and a rent fair and reasonable between the parties.  That is well drawn in the cases.  It is then a matter of what are the factors that might be taken into account as between the parties.  The short position is here that in the early years of the lease a fair and reasonable rent may well have been limited to a modest amount, for reasons such as the fact that the Council had paid for construction of the parking station.  But once one reaches a period where the station is simply a cash cow, the question is whether it would be fair and reasonable for the trustees, having regard to their concern to advance public recreation over the entire Domain, to say, “We will take a rental which in part compensates us for the simple cash surplus you are generating”. 

GLEESON CJ:   As I understand the facts of this case – and I may be mistaken – what caused it to turn nasty, as it were, was that they put in a service station down there and the City Council began to make profits out of leasing the service station.  Have I misunderstood that? 

MR GLEESON:   It is not quite as simple as that.  The lease was signed in 1976 and depending upon the view one takes of extrinsic material, to which I will come, the only material that might actually be relevant is that in 1977, when they engaged in the first rent review, the trustees said to the Council, “It is open to us to take into account other matters”, and the Council did not object to that.  It was then in about 1980 – your Honour is correct – that a question arose of a sub‑licence. 

GLEESON CJ:   Mr Gleeson, it looks as though the 1961 legislation might have been a response to the decision of this Court in Council of the Municipality of Randwick v Rutledge 102 CLR 54, which was decided in late 1959, in which Justice Windeyer said in relation to land that was to be used for public recreation:

The land must be, in the relevant sense, open to the public generally as of right. 

MR GLEESON:   Yes. 

GAUDRON J:   Mr Gleeson, I simply do not know the answer to this, but does the Contracts Review Act have anything to do with a lease?  And would not the Contracts Reviews Act – the details of which I simply do not know – bear upon any questions of the implication, as a general matter, of a “fair and reasonable” clause? 

MR GLEESON:   There is an exclusion in the Contracts Review Act for contracts entered in the course of a trade, business or profession.  That may be one matter.  That Act was passed in, I believe, 1983, in New South Wales.  It applies in limited circumstances, as I have indicated, not to all contracts and primarily not to business contracts. 

GAUDRON J:   This primarily is not a business contract. 

MR GLEESON:   Yes. 

GAUDRON J:   Prima facie, it is not a business contract. 

MR GLEESON:   And it is in the area which is a true discretion conferred on the court to make an order varying the contract, having regard to a whole list of matters, so that it is a means by which a similar result may be achieved in some cases, but not an identical route or result. 

GAUDRON J:   I just wonder whether you might take that into account in your submissions as to the implications of terms generally.

MR GLEESON:   Yes, your Honour, if I could take that ‑ ‑ ‑

GAUDRON J:   There is nothing that says it does not apply to contracts with respect to interests in land.

MR GLEESON:   I will need to check that, your Honour.

KIRBY J:   Is your theory that “fair and reasonable” is fixed as at the time of the lease, or that one could take into account the fact that since it was determined, and since it was to be decided on three yearly rests that one can take into account the changing social views about what is fair and reasonable, including that nowadays, unless you are to have cross‑subsidisation, you have to make true economic provision for bargains of this kind?

MR GLEESON:   The latter, your Honour.

KIRBY J:   In a sense that is reinforced by the review provision, is it not?

MR GLEESON:   Yes, and those matters will reconsidered each three years as to what are now the factors which are fair and reasonable between these parties.

KIRBY J:   So revisionism slips in after all?

MR GLEESON:   Yes.

CALLINAN J:   Mr Gleeson, there is no clause in the lease, is there, for providing for arbitration or evaluation?

MR GLEESON:   That is correct, your Honour.

CALLINAN J:   Is that significant, that there is not any such clause?

MR GLEESON:   On our case ‑ ‑ ‑

CALLINAN J:   Particularly having regard to the very long term of the lease.

MR GLEESON: Yes. On our case the parties have attempted to follow relatively closely section 3(1) of the Domain Leasing Act, and decided that there may need to be a review at regular intervals, and have decided that the trustees would be the persons with that responsibility, which in pure contractual terms, is a very broad responsibility that has been conferred upon them.  Had the intention been simply to make a once-and-for-all decision in 1976, that there would only be one set of factors which would govern, automatically as it were, without need for any element of determination, we submit that very different language would have been used in the lease.  The language chosen, quite deliberately, is seeking to free up the determination made every three years, rather than to say it shall simply be these factors and nothing else which shall govern for 50 years.

KIRBY J:   Why did you retreat from the notion which would be fairly orthodox of a commercial rent?  It may be that back at the time that the lease was agreed that would not have been fair and reasonable, but that today under that rubric, if you accept that as the definitive phrase, that you would take into account a commercial rent.  That at least gives a way of finding it.  Otherwise what you are really saying to us, fair and reasonable as between these parties means a fair, reasonable commercial rent, less something, or discounted in some way.  That is very vague and very difficult to ascertain in dollars and cents.

MR GLEESON:   We do accept that as time marches on and each three‑year review comes up that the relevant factors to take into account may, depending upon where you are, include those type of matters.

GLEESON CJ:   How can you have a commercial rent in the absence of a market?  What does the work “commercial” mean in a situation where there is no possibility of a market?  There is no possibility of a market here because the lessor required special legislation even to be permitted to enter into this particular lease.  What would be the market factors that would be taken into account in assessing commercial standards for determining a new rent?

MR GLEESON:   One example is this, your Honour, that when the rental increase occurred in 1976/1977 and the Council was considering whether it was reasonable, one of the things the Council said in their internal document was this:  “We have assessed this review and we consider it to be reasonable and in doing so we have compared it with the rental we are paying in respect to the Goulburn Street car park”.

KIRBY J:   That is the market that came to my mind.  There are markets over public facilities.

MR GLEESON:   Yes.  The evidence disclosed that they were paying 8 per cent of revenue as their rental on the Goulburn Street car park, so what they did, internally at least, was to say, “This is a figure being propounded and it is a figure that by reference to a range of factors, including what we are paying on Goulburn Street, is a reasonable figure.  We do not object.”  Now, they are the sort of matters that we submit, if one takes this inquiry, were in contemplation at the time.

GLEESON CJ:   But there is no competition for this tenancy.  There is no other possible alternative ‑ ‑ ‑

MR GLEESON:   It depends how broadly one can seize of the market, your Honour.  If the literal question is, “Does section 3(1) permit a re‑leasing to someone else?”, that has a certain answer.  There are other possibilities, of course.  The first is there is the possibility of subleasing which requires consent of the Council.  The second possibility is that over the 50‑year period the scheme of legislative power may change, as it in fact did, because when this property was transferred to the current appellant in 1980 under the Royal Botanic Gardens and Domain Trust Act, what then occurred was that there was a transfer of the property, there was a continuation in force of the existing deed.  The powers to thereafter act, in answer to your Honour Justice Gaudron’s question, are in fact found in that Act, Royal Botanic Gardens ‑ ‑ ‑

GLEESON CJ:   But does not that just reflect the political fact which is that both the parties to this lease are ultimately under the control of the New South Wales State Government?  Whether there is some form of cross‑subsidisation going on between some citizens and other citizens of New South Wales is a political issue.

MR GLEESON:   I am simply seeking to answer a question which says the fact that 3(1) was limited in terms of power in 1976 means that either there could never be market considerations or there could never be a basis for the trustees seeking a return on the land other than a recovery of their extraneous costs.  Our submission is simply that over a 50‑year lease it is quite proper and reasonable to think that there may be a range of factors which become relevant in that determination.

Could I conclude a review of the lease by referring to some other provisions?  The first is on page 631, clause 2(c).  It contains adequately the purpose for which the lease transaction was being implemented.  Chief Justice Spigelman discussed that clause and the statutory context at volume 5 page 1066 and he concluded that the fact that the Council could generate a surplus on the parking station under that statute would be a factor which, taken on its own, would point in favour of the appellant’s construction.

Secondly, we would draw attention to the fact that the word “may” throughout the lease tends to be used in the permissive sense.  If I could give an example, on page 632 at line 25, 637 at line 36, and then on page 640 clause (j) indicates that the power conferred here could be delegated to the Department of Agriculture officers.  Clause (k) is a broad power to form opinions on such material as are thought sufficient.  Clause (l) says the lease governs the rights from 1958, and clause (m) indicates that the lease will end if the dedication of the land is revoked.

HAYNE J:   It may or may not be relevant to know, but what happens to the revenue that the Trust derives?

MR GLEESON:   The Trust’s revenue is used for the purposes of public recreation, being the three sets of gardens which are under its control:  the Botanic Gardens in Sydney, Mount Tomah and Mount Annan.

GAUDRON J:   But not for the Domain?  Not even grass for the Domain, as I said.

MR GLEESON:   Could I be precise, your Honour?  The money is used as part of revenue to carry out the entirety of those operations.  Those operations include the maintenance and upkeep of the Domain itself, including the surface area of the Domain.

KIRBY J:   Is the Domain - I assume from the parties – part of the Royal Botanic Gardens?

MR GLEESON:   Yes.

KIRBY J:   So that to the extent that it is revenue for the Royal Botanic Gardens, it is available in the trustee’s discretion for use in respect of the Domain?

MR GLEESON:   Yes, the Trust ‑ ‑ ‑

KIRBY J:   There is always a rather nasty area, mainly caused by footballers, I think, that needs repair.

MR GLEESON:   The Court can take judicial notice that in the last rainstorm the top of the Domain was very badly flooded and extensive work is needed on the surface soon.  The area vested in the appellant is an area which includes what we know as most of the Botanic Gardens and the Domain area itself.  It is a composite vesting, excluding some parts such as the Boy Charlton Pool and areas like that.  So it is the entire area which it maintains and its revenue goes to its conduct and maintenance of that area.

KIRBY J:   How is the service station authorised?

MR GLEESON:   There is a power in the lease to sublease with the consent of the lessor.

KIRBY J:   Could that be subject to conditions?

MR GLEESON:   Yes.

KIRBY J:   Do you get part of the revenue from the garage?

MR GLEESON:   I will have to get precise instructions on that.  I am not sure the answer to that is in the evidence.  The evidence includes considerable dealing about whether there would be such a sublease and what the terms and conditions of that would be.  I will try and ascertain a precise answer to that if I may.  Your Honours, could I then move to the ‑ ‑ ‑

KIRBY J:   You could have pressed the envelope on that, I suppose, and said, “We’re going to load up the condition next negotiation.  You want a service station.  You’ve got to pay a large fee for that sublease”.  Anyway, you can tell us what the evidence says.

MR GLEESON:   Yes, your Honour.  The second area that I need to deal with is the question of the implication of the term that we contend for, which is this, that on the reading we propound of the lease it is silent in two respects.  The first respect is that it does not expressly state the criterion or standard at which the trustees must aim in determining a rent other than that it must be a rent and, secondly, in the contention we put the lease does not expressly state that the factors in clause 4(b)(iv) are exhaustive.

GLEESON CJ:   It also says it is to be not less than $2,000, does it not?

MR GLEESON:   It says it must be not less than $2,000.

GUMMOW J:   Which is the initial rent.

MR GLEESON:   Yes.

GUMMOW J:   Where do we find in your outline the formulation of the term that you wish to be implied?

MR GLEESON:   It commences at paragraph 31, your Honour, which is the term as found by the trial judge which is the term in its narrowest sense.  As I sought to indicate there are three ways in which we propound that term at law and that might have a bearing on the precise formulation of the term.

GUMMOW J:   Well, I think if you are propounding a term you have to actually show the judge a text.

MR GLEESON:   Paragraph 31, your Honour.

GUMMOW J:   Is that the only text?  You said three ways.

MR GLEESON:   Yes.

GUMMOW J:   But is there one text?

MR GLEESON:   Paragraphs 38 and 39.

GUMMOW J:   You do not imply term unless the term has sufficient specificity and clarity about it, do you?

MR GLEESON:   Yes.

GUMMOW J:   You do not really imply a term to make things worse.  This just seems to make it worse in terms of a further fertile ground for additional disputation.

MR GLEESON:   No, your Honour.  In the present case there was no dispute that the rent that we determined was within the limits of a fair and reasonable rent.

GUMMOW J:   I do not understand that.  By what comparators?

MR GLEESON:   Simply as an indication that there is no such dispute.

GUMMOW J:   It did not shock the conscience of someone looking at it.  That is not the criterion.

MR GLEESON:   Your Honour, could I move to this point?  In terms of the implication we submit that the lease is silent in respect of those matters I mentioned and, in those circumstances, there are two alternative implications which are in issue.

The first implication is the one that we contend for and I have identified those paragraphs.  The alternative implication is that “may” means “may only”, and we submit that that result could only be reached by way of an implication into this lease and it was the result which the Council sought squarely on rectification and failed and also sought on construction.

So the key factor that we rely upon as being the basis for the implication at law is this, that under this contract the contract has conferred a wide power on one party to specify the content of an obligation of the other party. Such a power, if unqualified, could lend itself to abuse.  It could be used in a way which severely undermines the value of the benefits to be obtained by the other party under the contract and in those circumstances the law implies an obligation that the power must be exercised both honestly and fairly or reasonably.  That is the way in which we classify the issue that has arisen under this contract and we submit that the law implies that obligation in such a situation.

GLEESON CJ:   Now, what is the content of those three expressions - which presumably mean different things, otherwise there would not be three of them - honesty, fairness and reasonableness?

MR GLEESON:   Honesty is honesty as generally understood in the law.  If the power has been used for a purpose foreign to the power, that would be an example of dishonesty.  If the power was used to set a rent for the purpose of forcing the Council to surrender the lease, that would be dishonesty.  There could be other examples of dishonesty multiplied, but that would be a conventional understanding of the term, and at least going that far, we submit there could be little argument that where any power is conferred under a contract the law will imply, unless there are some special excluding provisions in the contract, that it must be exercised honestly.  Parties should not be left to pursue some collateral remedy in tort or section 52.  The law should not, as a matter of contract, sanction dishonest behaviour.

GLEESON CJ:   What if the power is exercised for the purpose of raising funds to add to the Mount Annan gardens?

MR GLEESON:   Of itself, that would not be a dishonest exercise of the power because it would be an exercise for the purpose of obtaining revenue in order to advance the public recreation.

GUMMOW J:   A dishonest use of the power would simply be beyond the statutory authority, surely.  You have a statute here, you do not have private individual actors.

MR GLEESON:   If your Honour is referring to originally the Domain Leasing Act, we have a statute which confers a power to create a private law arrangement recognised by the law of contract.

GAUDRON J:   And you still have that power, I take it, subject to the Minister’s approval pursuant to section 22(5).

MR GLEESON:   Yes, that is our submission that we have that power now.  The current appellant does under the 1980 Act.  So returning to your Honour the Chief Justice’s question, the second or perhaps third elements, are fairness and reasonableness.  In general terms, we submit that that means fair and reasonable having regard to the interests of the parties in the circumstances.

We are contending for an implication which qualifies all wide powers under contracts and what is fair and reasonable in respect to a particular situation will depend on the contract and on the issues that have arisen.  We submit the law would have no difficulty in applying that standard of fairness and reasonableness and we submit it is a proper standard for law to recognise and it is one where, if parties seek legal advice, “I wish to exercise my contractual right”, that there is nothing at all inapposite in the question being framed before the lawyer, “Would it be honest?  Would it be fair and reasonable?”.

HAYNE J:   Those are left at that level of generality perhaps little more than slogans.  Would you accept that the lessor could not set a rent beyond its capacity – I emphasise capacity – to spend the resulting receipt on purposes of the Trust?

MR GLEESON:   I think we would, your Honour.

HAYNE J:   Beyond that, what further limitation do you propound?  That is, is your limitation under the rubric “honesty, fairness, reasonableness” any narrower than saying these people cannot raise more than they could spend on purposes of the Trust, or object of the Trust?

MR GLEESON:   It is narrower than that, your Honour, because ‑ ‑ ‑

HAYNE J:   What is the narrowing element?

MR GLEESON:   It will depend upon the interests of the parties, but take this example.  The parking station is fully paid off and has been for many years.  It is operating on a simple basis of a cash surplus from year to year.  The cash surplus can be identified, and it is in the evidence in various places.

Now, in the current situation one can know, from looking at other car parks around the city, what are the type of rents which are being paid in those situations.  The rent may be 10 per cent of revenue, 20 per cent of revenue, et cetera.  For the appellant to say, “We are going to charge above those sort of figures merely to meet our own needs”, might well have difficulties in terms of fairness and reasonableness.

GAUDRON J:   But are they truly comparable even?  You would have to ask that.

MR GLEESON:   Yes, and that would be part of the process and, your Honours ‑ ‑ ‑

HAYNE J:   But market, you say, is another outer boundary?  Market rent represents another limit beyond which the landlord could not go?

MR GLEESON:   The difficulty with an answer “yes” to that question is that the Chief Justice’s question is that market cannot have an application here.  In broad terms, the answer is probably, yes, your Honour, but I keep emphasising, if I may, that the interests of the parties is not a meaningless concept in this sense that because the original construction was paid for by the City Council and because the lease provides, clearly, that on the expiry of the lease the parking station reverts to the lessor, which may or may not be a valuable asset in eight years time, that is a matter which would have to be taken into account.  It is a matter between these parties.  It is an example of the interests of the parties.

GLEESON CJ:   Would the standards of fairness and reasonableness require that in fixing a rent you took account of the requirements of the lessee to engage in capital works on restoring the condition of that parking station which is do not think is a defensible question

MR GLEESON:   Your Honour, the evidence records this and I will take the Court to it later that as, again, judicial notice does extend, the car park was in an extremely run down condition in the early 1990s – quite dangerous, in fact.  At that stage, after some controversy and delays and disputes, some renovations were done.  Now, at that time, when the parties were discussing what was the fair and reasonable rental, which is what the trust was contending for which was roughly a figure in the order of $500,000, the Council put that very argument that it ought to be able to bring to account its capital cost in order to preserve its income earning asset and that was a matter which was taken into account, debated and dealt with in the numbers.

We have examples there of who paid for it originally, who did it return to and capital upgrades.  They are all matters where we submit one would look at the lease to see where the obligations lie on either side and one would give effect to those.  They, perhaps, illustrate the difference between what is sometimes called a pure market rent.  It does not always take into account the interests of each of the parties under the particular lease.

That is the distinction - I will try and come to some of the cases after lunch – which is often drawn, that if one thinks of a rent review, for example, on the MLC Centre in Sydney, which is usually a subject of dispute, if the clause has a market provision in it, it is usually held that because it is market you are required to shut out of your mind a number of the factors relevant to those particular parties and one is simply meant to ascertain what would the hypothetical willing lessor and lessee agree for that property for that period of time.

Now, that is the area where we say you move to the interests of these parties as secured by this lease and the figure that has been charged was in the order of half a million dollars and that is a figure which we submitted - bearing in mind the interests - did not offend the principle of fairness and reasonableness.

GUMMOW J:   Is there any statutory provision in the federal law that treats the income of your client as exempt?  Do they have any special taxation position, or do they simply say they do not have any income? 

MR GLEESON:   I will attempt to answer that question precisely, if I may, later, your Honour. 

GUMMOW J:   Yes, because that goes into this equation you are talking about, I think, probably.  Most commercial players that you are comparing all this with do not have a happy condition. 

HAYNE J:   At least not without a great deal of ingenuity. 

MR GLEESON:   And it may also then throw up the taxation position of the lessee, in respect to the same matter. 

GUMMOW J:   That is right. 

MR GLEESON:   So what I have sought to do so far is simply to say, in short, that where there is a wide power conferred under a contract, which, if unqualified, could lend itself to abuse, the ordinary result at law is to imply an obligation that would be exercised in the manner I have outlined.

GLEESON CJ:   Now, why do you limit it to a wide power which, if unqualified, could be abused?  Why do you not just say, if there is a power, it has to be exercised fairly and reasonably? 

MR GLEESON:   Well, it is at this point that the narrower and the broader ambit of our case need to be examined. 

GLEESON CJ:   I know, but this has very far‑reaching implications, and if we are to embrace your proposition, but to impose on it the qualification you suggest, then we have to have a reason for doing so.  Would you say, for example, that when one of these well‑known and highly contentious rent reviews for the MLC Centre comes up, although it is subject to an elaborate provision for what we might call dispute resolution, when the lessor initially exercises its power to fix a new rent – an exercise which is, of course, subject to review – why does not the exercise of the power in the first place need to be done fairly and reasonably, bearing in mind the interests of the tenants in question? 

MR GLEESON:   We have accepted that, consistently with Byrne v Australian Airlines, Justices McHugh and Gummow’s judgment, that terms implied by law are capable of being cut down in two fashions.  The first is by the express language of the lease.  The second is by inconsistency with the provisions of the lease.

Now, in a case where one has an elaborate and detailed rent review provision which specifies precisely when the power is triggered and, presumably, how it is first exercised and then a series of consequences that follow, then it would be a matter of construction of that lease in what manner it has cut down the broader power.  Your Honours, I use the words “wide power”.  The essential element I was seeking to capture was this, that it was a power which enables one party to specify the content of the obligation by another.

GLEESON CJ:   But why do you limit it to that?

MR GLEESON:   Only because that is the ‑ ‑ ‑

GLEESON CJ:   This just seems to be a particular instance of a more general and very far‑reaching proposition.

MR GLEESON:   We put it this way, your Honour.  We already have cases in the law where powers under contracts have been held to be subject to these types of constraints.  One of the classic examples is Pierce Bell v Frazer, where the vendor’s power to terminate for rescission, which, in terms, is unqualified and broad, is cut down so that it can only be exercised in these circumstances.  Now, that is an area where this sort of qualification has been recognised.

A second area to identify one is the position in Renard Constructions, which involves termination of standard‑form building contracts where, at least under New South Wales law, it has been recognised that the power to terminate, based on a “show cause” procedure, can only be exercised honestly, fairly and reasonably.  So, that is two situations.

We have what we have sought to classify as a third situation, which is where one party has the power to specify the content of another’s obligation.  We submit that to proceed cautiously, and by analogy to recognise the implication in that area, is not offensive.

GLEESON CJ:   And then one day in the contractual equivalent of Donoghue v Stevenson somebody will identify an overarching principle.

MR GLEESON:   No, I am seeking to do both, your Honour.  I am seeking to put the narrower proposition, that certainly in that area to take that step is a proper step.  We are also putting the broader proposition, which is paragraph 38 and 39 of our submissions, which is essentially the position that has now been reached in the New South Wales Court of Appeal in the trio of cases, Renard Constructions, Alcatel v Scarcella and the Burger King Case.  Most recently the position reached is that set out in paragraph 38, that all contracts contain, as an implication of law, an obligation that each party exercise powers in good faith and good faith includes honesty and fairness or reasonableness.  Now, that is the broader proposition and ‑ ‑ ‑

GUMMOW J:   But they are talking about cases, for example, to terminate, the power of termination.

MR GLEESON:   Renard was a case based on termination of a contract.

GUMMOW J:   Yes.

MR GLEESON:   Scarcella was not.  Scarcella was a case where under a lease the express term required the tenant to comply with requirements of the local authority.  The argument was that the landlord had been over vigorous in urging on the local authority the fire hazards of the premises, which had led to the local authority issuing notices which the tenant was unable to comply with, forcing the tenant to be in breach of its express obligation.

GUMMOW J:   I have some trouble with Scarcella.  What was the third one?

MR GLEESON:   The third one was Hungry Jack’s v Burger King.

GUMMOW J:   Well, that sounds promising.  Was that a franchisee/franchisor punch‑up, was it?

MR GLEESON:   Yes, your Honour.

GUMMOW J:   But what is the particular reasonableness and fairness involved in that dispute?  I know the judgments go forever, but what is the nub of it?

MR GLEESON:   It was a clause, clause 14, which set out the procedures by which a person was entitled to be franchised in respect of restaurants developed under the relevant agreement.

So, it was a forward looking clause which enabled extra restaurants to be brought under the provisions of the agreement and the relevant implication was what was found there.

GUMMOW J:   That what?

MR GLEESON:   That the powers conferred under that clause were to be exercised honestly and reasonably.

GUMMOW J:   I know that but in terms of concrete acts?  It is not sort of an academic debate.  You have to focus on a real case with real people with a real problem and what difference it makes to resolving a real problem.

The central point is, whatever that arrangement was, it was then replaced by – when a document comes out of the Crown Solicitor’s Office it looks different, it feels different, it smells different.  There is no one saying to each other, “We intend to preserve some part of the old arrangement”.  What they do is to sign this complete document.  That is the way we put that.  May it please the Court.

GLEESON CJ:   Thank you, Mr Gleeson.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, as is apparent from our written submissions, the first contention which we make is that as a matter of construction of the lease the matters to be taken into account by the appellant when determining rent in each three‑year period are, and are only, those referred to in clause 4(b)(iv).  We contend that result flows from two things:  first, the terms of the lease itself and, secondly, the terms of the lease in the light of the matters preceding entry into it.

Now, your Honours, if we are wrong about that we say – and your Honours will see this referred to in our written submissions in paragraph 1(d) – that we agree on the term to be implied.  It might not be much of a term but it will be good enough for us as second best.

HAYNE J:   It is the best you can do.

MR JACKSON:   But, your Honours will see, if one looks at our learned friends’ written submissions, that is the term for which they contend if the appeal is successful, that is, to restore the judgment of the primary judge, and in relation to our appeal to the Court of Appeal the notice of contention on behalf of the appellant was to maintain the judgment of the primary judge.  There was no cross‑appeal.  Now, could I deal with those matters in that order, meaning by that I come first to the question of construction looking purely at the terms of the lease.

One starts off, of course, with the fact that the parties to the lease are two public authorities with different constituencies.  Each is a creature of statute, statutes of the same Parliament, of course.  Now, there is no reason why the two bodies possessing that characteristic – there is no reason why the arrangements between them should be similar to those between commercial parties or in dealings between Government and commercial parties, as it were, at arms length.

Of course, one reason is that if either body is unhappy it can go to the relevant Minister and seek to persuade the Minister to persuade the government to move Parliament to obtain changes to the relevant legislation.

CALLINAN J:   Mr Jackson, Justice Fitzgerald placed weight upon the fact that they were both statutory authorities to reach a conclusion in your favour.

MR JACKSON:   Yes, your Honour, and it was appropriate for him to do so.  Your Honours, that does not involve going outside the lease.  I was looking at who are the parties to the lease.  Your Honours, could I go to the terms of the lease and your Honours have been taken to a copy of it that starts, I think, at page 629 in volume 3.  Immediately preceding that is one that is rather easier to read and it commences at page 614.

Now, your Honours, what I wanted to do, if I may, is to go through as quickly as I can a number of provisions of the lease which demonstrate, to put it shortly, that the position was we paid to build the car park.  We bore all the costs of operating the car park, maintaining it and refurbishing it as necessary throughout its life and we had a situation where, at the end of the life of the lease we had to either give up the car park to the appellant, of course, or bear the cost of taking the whole thing away so that, your Honour, it is a lease where, in our submission, every aspect of the cost of it was something that had to be borne by us and something in relation to which, that being so, one yet sees after the passage of time, that the lessor then, having no expenses in relation to it, other than those covered by the lease, seeks a piece of the action.

Your Honours, could I go to page 614, to the recitals to the lease.  Your Honours will see that it indicates that we, not the appellant, had constructed the car park and footway.  That commences about line 35.  They were underground in the sense of being under the Domain.  Your Honours will see the schedule at page 626 referring to the subterranean strata as described, and refers to it being part of the Domain.

The fact to which I adverted earlier, that at the end of the lease not only did the appellant get the car park but it also had the choice of requiring us to take it away at our expense, your Honours will see that in clause 4(c), page 622.  Clause 4(c) is divided into two parts, particularly in relation to the proviso.  The first proviso is lets us take away moveable things, moveable improvements.  Your Honours will then see at (ii) of the proviso at the bottom of the page, that if required “shall remove any building structure and improvement” et cetera, at our expense and cost, and “shall not be entitled to any compensation in respect of such removal”.  The lease could be brought to an end prematurely by the Crown.  Your Honours will see that in clause 4(m) in page 625.

GLEESON CJ:   Who actually created the strata in which the building is constructed?

MR JACKSON:   Your Honour, we did, I think.

GLEESON CJ:   It would involve earthmoving, I presume.

MR JACKSON:   Yes, your Honour.  May I give perhaps tomorrow the detail of it, but there is some correspondence indicating what had to be done to allow us access to it, and paths had to be relocated and things of that kind.

GLEESON CJ:   Is part of the strata that you occupy as lessee the moving footway that goes up to ‑ ‑ ‑

MR JACKSON:   Yes, it is, and your Honour will see that, actually ‑ ‑ ‑

GUMMOW J:   That is separately defined, is it not, on page 1? 

MR JACKSON:   Yes, your Honour, it is.  Your Honour will see, I think, the route, as it were, of the moving stairway at page 628 in the plan.  Now, there were other provisions of the lease which protected the appellant from financial risk.  May I take your Honours to those as quickly as may be.  I will go to clause 2 first.  Clause 2(b) is at page 616.  Now, we were to pay, to the extent to which there might be: 

rates and taxes charges and assessments payable in respect of the demised land. 

We would hardly likely to be paying rates to ourselves, of course, but what your Honours might well see is the cost, for example, of assessments in respect of water and things of that kind. 

McHUGH J:   Well, you would be paying them now ‑ ‑ ‑

MR JACKSON:   Yes, your Honour. 

McHUGH J:   ‑ ‑ ‑ would you not?  Is it within the Council of Sydney, or is it within your ‑ ‑ ‑

MR JACKSON:   No, your Honour – your Honours, when – I will give your Honours the year in just a moment – when South Sydney Council was split, as it were, from the Sydney City Council – this is one of the, I suppose, fingers or kidneys or whatever one likes to call it, in the plan that provides South Sydney Council with one of its sources of revenue.  It is really within the South Sydney area. 

McHUGH J:   That is so, yes. 

MR JACKSON:   Yes, it is ourselves.  Your Honours, if one goes to clause 2(g) on page 617 your Honours will see that we were responsible for maintenance and repair.  If one goes to clause 2(h) on the same page, we had to take the steps to protect the surface above.  Clause 2(l) on page 618 - your Honours, it is a lengthy clause but it is an indemnity provision – we had to indemnify the Crown, the Minister, the Trustees:

against all actions suits claims demands proceedings losses damages compensation costs (including solicitor and client costs) charges and expenses . . . in respect of the demised land or the parking station or the footway or any other building structure or improvement thereon or thereto or for or in respect of the user –

and your Honours will see it is a fairly ample indemnity.  We had to insure, your Honours, clause 2(m) against public risk liability in joint names with the lessor and the Minister.  Your Honours, in clause 2(n) on page 619 we had to pay:

the Trustees the amount of any excess premiums . . . in respect of‑

other premises which they had to pay because of the presence of the car park, et cetera.  Clause 2(p), your Honours, on page 620 we had to pay for all services.  Clause 2(q), we had to pay duties, if any, and clause 4(d) on page 623 is a slightly unusual clause.  Your Honours, what it means, if I could put it colloquially is that they were not liable to us for damage or loss which we might suffer which was caused by their default unless they had failed to comply with a notice we had given requiring them to comply with it.

Clause 4(e), on the same page, 623, they were not liable for any:

of the costs of erecting constructing or repairing or keeping in repair the parking station or the footway.

GLEESON CJ:   Mr Jackson, we will adjourn in a couple of minutes.  How long do you expect to be tomorrow?

MR JACKSON:   An hour, I think, your Honour.  An hour or perhaps a little more.

GLEESON CJ:   Mr Gleeson, how long would you be in reply?

MR GLEESON:   Ten minutes, your Honour.

GLEESON CJ:   We will say that the next case which will be in Court No 2 will not be taken before 11 am.  We will adjourn, now, until 10.15.

AT 4.19 PM THE MATTER WAS ADJOURNED
UNTIL FRIDAY, 7 SEPTEMBER 2001