Servcorp WA Pty Ltd v Perron Investments Pty Ltd
[2016] WASCA 79
•18 MAY 2016
SERVCORP WA PTY LTD -v- PERRON INVESTMENTS PTY LTD [2016] WASCA 79
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASCA 79 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:46/2015 | 4 DECEMBER 2015 | |
| Coram: | MARTIN CJ BUSS JA MURPHY JA | 18/05/16 | |
| 52 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed Cross-appeal dismissed | ||
| A | |||
| PDF Version |
| Parties: | SERVCORP WA PTY LTD PERRON INVESTMENTS PTY LTD APF MANAGEMENT PTY LTD as Trustee for THE CENTRAL PARK LANDHOLDING TRUST |
Catchwords: | Landlord and Tenant Lease agreement Rent review clause Proper construction of the clause Implied terms Implied duty to cooperate Whether the prescribed contractual machinery for the rent review was an essential and indispensable part of the contractual bargain |
Legislation: | Nil |
Case References: | ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] NSWCA 224; (2005) 12 BPR 23,717 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Alucraft Pty Ltd (in liq) v Grocon Ltd (Exhibition Hall Contract) (Unreported, VSC, 22 April 1994) Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth of Australia [1977] HCA 71; (1977) 139 CLR 54 Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 BBC Hardware Ltd v Payce Properties Pty Ltd [2000] NSWCA 262; (2000) 50 NSWLR 66 Biki v Chessells [2004] VSCA 70; [2004] ANZ Conv R 296 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 Butt v M'Donald (1896) 7 QLJ 68 Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267 Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Carlton & United Breweries Ltd v Tooth & Co Ltd (1985) 6 IPR 319 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 Darin Nominees Pty Ltd v Franklin's SelfServe Pty Ltd [1999] NSWCA 209 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Elliott v Reading [1999] WASCA 11 Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003) 134 FCR 522 Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469 Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556 Hart v MacDonald [1910] HCA 13; (1910) 10 CLR 417 Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691 Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; (1974) 132 CLR 1 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521 Ling v Commonwealth of Australia (1994) 51 FCR 88 Little v Courage Ltd (1994) 70 P & CR 469 Liverpool City Council v Irwin [1977] AC 239 Mackay v Dick (1881) 6 App Cas 251 Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235 Marcus Clark (Victoria) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540 Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales [2003] NSWCA 151; (2003) 57 NSWLR 212 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 MSAS Cargo International Pty Ltd v Agfa-Gevaert Ltd [2000] VSCA 197 Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635 Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 Peters American Delicacy Co Ltd v Champion [1928] HCA 27; (1928) 41 CLR 316 Programme Holdings Pty Ltd v Van Gogh Holdings Pty Ltd [2009] WASC 79 Ray v Davies [1909] HCA 51; (1909) 9 CLR 160 Re Batiste; Ex parte Commonwealth Bank of Australia (Unreported, FCA, P 2657 of 1987, 27 April 1989) Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 Roxborough v Rothmans of Pall Mall Australia Ltd [1999] FCA 1535; (1999) 95 FCR 185 Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 State of New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178; (2002) 54 NSWLR 503 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 The Moorcock (1889) 14 PD 64 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Vickery v Waitaki International Ltd [1992] 2 NZLR 58 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : SERVCORP WA PTY LTD -v- PERRON INVESTMENTS PTY LTD [2016] WASCA 79 CORAM : MARTIN CJ
- BUSS JA
MURPHY JA
- Appellant
AND
PERRON INVESTMENTS PTY LTD
First Respondent
APF MANAGEMENT PTY LTD as Trustee for THE CENTRAL PARK LANDHOLDING TRUST
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : BEECH J
Citation : PERRON INVESTMENTS PTY LTD -v- SERVCORP WA PTY LTD [2015] WASC 78
File No : CIV 1501 of 2014
Catchwords:
Landlord and Tenant - Lease agreement - Rent review clause - Proper construction of the clause - Implied terms - Implied duty to cooperate - Whether the prescribed contractual machinery for the rent review was an essential and indispensable part of the contractual bargain
Legislation:
Nil
Result:
Appeal dismissed
Cross-appeal dismissed
Category: A
Representation:
Counsel:
Appellant : Mr B A J Coles QC & Mr M A MacLennan
First Respondent : Mr M G Lundberg & Mr J Y Wang
Second Respondent : Mr M G Lundberg & Mr J Y Wang
Solicitors:
Appellant : Bennett + Co
First Respondent : King & Wood Mallesons
Second Respondent : King & Wood Mallesons
Case(s) referred to in judgment(s):
ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] NSWCA 224; (2005) 12 BPR 23,717
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Alucraft Pty Ltd (in liq) v Grocon Ltd (Exhibition Hall Contract) (Unreported, VSC, 22 April 1994)
Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth of Australia [1977] HCA 71; (1977) 139 CLR 54
Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
BBC Hardware Ltd v Payce Properties Pty Ltd [2000] NSWCA 262; (2000) 50 NSWLR 66
Biki v Chessells [2004] VSCA 70; [2004] ANZ Conv R 296
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Breen v Williams [1996] HCA 57; (1996) 186 CLR 71
Butt v M'Donald (1896) 7 QLJ 68
Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Carlton & United Breweries Ltd v Tooth & Co Ltd (1985) 6 IPR 319
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226
Darin Nominees Pty Ltd v Franklin's SelfServe Pty Ltd [1999] NSWCA 209
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Elliott v Reading [1999] WASCA 11
Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215
Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003) 134 FCR 522
Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469
Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556
Hart v MacDonald [1910] HCA 13; (1910) 10 CLR 417
Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539
Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691
Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; (1974) 132 CLR 1
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190
Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521
Ling v Commonwealth of Australia (1994) 51 FCR 88
Little v Courage Ltd (1994) 70 P & CR 469
Liverpool City Council v Irwin [1977] AC 239
Mackay v Dick (1881) 6 App Cas 251
Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235
Marcus Clark (Victoria) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540
Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales [2003] NSWCA 151; (2003) 57 NSWLR 212
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990
MSAS Cargo International Pty Ltd v Agfa-Gevaert Ltd [2000] VSCA 197
Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635
Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Peters American Delicacy Co Ltd v Champion [1928] HCA 27; (1928) 41 CLR 316
Programme Holdings Pty Ltd v Van Gogh Holdings Pty Ltd [2009] WASC 79
Ray v Davies [1909] HCA 51; (1909) 9 CLR 160
Re Batiste; Ex parte Commonwealth Bank of Australia (Unreported, FCA, P 2657 of 1987, 27 April 1989)
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989
Roxborough v Rothmans of Pall Mall Australia Ltd [1999] FCA 1535; (1999) 95 FCR 185
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206
State of New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178; (2002) 54 NSWLR 503
Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444
The Moorcock (1889) 14 PD 64
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Vickery v Waitaki International Ltd [1992] 2 NZLR 58
Table of Contents
MARTIN CJ 7
BUSS JA 7
The relevant background facts 7
The relevant provisions of the Agreement 8
The rent during the original term 13
The exercise of the option to renew 13
The description of the appellant and the respondents in the balance of these reasons 13
The determination of the Current Market Rent 13
The parties' contentions before the trial judge 15
The trial judge's decision and reasoning 16
The trial judge's orders 21
The grounds of the Lessee's appeal 21
The ground of the Lessor's cross-appeal 22
The Lessee's notice of contention in the Lessor's cross-appeal 22
The critical issues before this court 22
Issue 1: the Lessor's pleaded case 23
Issue 1: the trial judge's reasoning in relation to Issue 1 23
Issue 1: overview of the applicable legal principles 23
Issue 1: the relevant terms of the Agreement 29
Issue 1: overview of the Lessee's submissions 31
Issue 1: was the Lessor's primary contention tantamount to a term requiring the Lessee to agree to ask the President to appoint an independent Valuer? 32
Issue 1: was the rent review process to determine the Current Market Rent on 1 November 2013 solely for the benefit of the Lessor? 32
Issue 1: was the rent review process to determine the Current Market Rent on 1 November 2013 compulsory? 37
Issue 1: was the implied term necessary to give business efficacy to the Agreement? 38
Issue 1: was the implied term reasonable and equitable? 40
Issue 1: did the implied term contradict the express terms of the Agreement? 41
Issue 1: was the implied term not so obvious that 'it goes without saying'? 44
Issue 1: did the implied term lack clarity? 46
Issue 1: conclusions 46
Issue 2: did the trial judge err in deciding that, if the specific machinery provisions in cl 6.3 of the Standard Conditions for the determination of the
Current Market Rent failed, a court could not determine the Current Market Rent and thus the New Rent, for the purposes of cl 6.3? 47
Issue 2: conclusion 52
The outcome of the appeal and the cross appeal 52
MURPHY JA 52
1 MARTIN CJ: The appeal and the cross-appeal should each be dismissed for the reasons given by Buss JA with which I agree.
2 BUSS JA: The appellant appeals and the respondents cross-appeal from a judgment of Beech J in relation to the proper construction and application of a rent review provision in a lease agreement relating to commercial premises in the Perth central business district.
3 I would dismiss the appeal and the cross-appeal. My reasons are as follows.
The relevant background facts
4 The lease agreement (the Agreement) which governs the rights and obligations of the appellant as lessee and the respondents as lessor is dated 2 December 2003.
5 The Agreement comprises terms and conditions in:
(a) a formal instrument of lease dated 2 December 2003;
(b) Schedule 1 - Lease details;
(c) Schedule 2 - Special conditions (the Special Conditions);
(d) Schedule 3 - Operating expenses;
(e) Schedule 4 - Guarantee and indemnity;
(f) Schedule 5 - Trustee conditions;
(g) Schedule 6 - Building rules; and
(h) Standard conditions of lease (the Standard Conditions).
6 The first respondent and Government Employees Superannuation Board were the original lessor. The interest of Government Employees Superannuation Board was assigned to the second respondent on or about 30 June 2005.
7 The appellant was not the original lessee. The lessee's interest was assigned to the appellant on or about 12 July 2006.
8 The leased premises comprise the whole of level 18 in the building known as Central Park at 152 - 158 St Georges Terrace, Perth.
9 The lease was for a term of 10 years commencing on 1 November 2003 and expiring on 31 October 2013. The appellant had an option to renew the original term for a further term of five years commencing on 1 November 2013 and expiring on 31 October 2018. The option was exercised.
The relevant provisions of the Agreement
10 In these reasons all references to the Standard Conditions are to the Standard Conditions as amended by the Special Conditions.
11 The Agreement refers to the lessor in the first person (we, us and our) and the lessee in the second person (you and your).
12 Clause 5 of the Standard Conditions is concerned with rent. The provision reads:
5.1 Paying Rent
You must pay the Rent in equal monthly instalments, in advance, on or before the first day of each month. We will tell you, by Notice, how we want you to pay the Rent and other monies due to us.
5.2 Adjustment in Rent
(a) We will review the Rent on:
(i) 1 November 2004;
(ii) 1 November 2005;
(iii) 1 November 2006;
(iv) 1 November 2007;
(v) 1 November 2008;
(vi) 1 November 2009;
(vii) 1 November 2010;
(viii) 1 November 2011;
(ix) 1 November 2012;
(x) 1 November 2014;
(xi) 1 November 2015;
(xii) 1 November 2016; and
(xiii) 1 November 2017,
and the New Rent will be:
New Rent = R + (3.75% x R)
where:
R = the Rent payable immediately before the relevant Review Date.
(b) We will review the Rent on 1 November 2013 and the New Rent will be the highest [sic] of:
(i) the Rentyou had to pay immediately before the relevant Review Date; and
(ii) the Current Market Rent, as determined under clause 6.
(c) You must pay the New Rent from each Review Date.
6.1 We will tell you our Assessment
(a) We must:
(i) on each Review Date, review the Rent based on clauses 5.2(a) and 5.2(b) or any other criteria we agree with you, in writing; and
(ii) within 3 months before or after each Review Date tell you, by Notice, our Assessment, which is then treated as the New Rent. We can give you this Notice late, but, if we do, clause 6.1(d) applies.
(b) Until we tell you ourAssessment, you must pay the OldRent but it will be increased to the New Rent from the relevant Review Date.
(c) If we have not given you the Notice in accordance with clause 6.1(a) before the Review Date, you can give us written notice of your intention to have the rent reviewed and require us to give you our Assessment of the New Rent within 28 days.
(d) If we are late giving you the Notice in clause 6.1(a)(ii) or 6.1(c), you must pay the NewRent from the day we gave you the Notice.
6.2 If you disagree with our Assessment
(a) If you disagree with our Assessment, we must both follow the procedure in clause 6.3.
(b) The time limits in clause 6.3:
(i) follow each other; and
(ii) are of the essence so, if either of us do not do something within the time allowed, we may not do it afterwards.
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6.4 Other conditions which apply to Valuers
(a) If the Valuers (including the independent Valuer, if we agree to appoint one) agree that ourAssessment was correct, we must share equally all the Valuer's Costs (including the independent Valuer's costs, if we agree to appoint one) in connection with the valuation procedure in clause 6.3.
(b) If the Valuers (including the independent Valuer, if we agree to appoint one) agree that ourAssessment was wrong, we must share equally all the Valuer's Costs in connection with the valuation procedure in clause 6.3. We must each pay our share of these costs as soon as they are due.
(c) Subject to clause 6.4(a), we must share equally all the independent Valuer's (if we agree to appoint one) costs. We must also each pay our share of these costs as soon as they are due.
(d) Each Valuer must give detailed written reasons for his or her decision.
(e) The Valuers act as experts and not as arbitrators.
6.5 Adjusting the Rent
(a) You must pay the Old Rent until the New Rent is agreed or determined in the way set out in this clause 6.
(b) We will calculate the necessary Rent adjustment (if any) as soon as possible after we know the New Rent.
(c) You must pay any adjustment on the next Rent Day.
Each party must sign and deliver all documents and do all other acts reasonably required of it to carry out and give full effect to this Lease and the rights and obligations of the parties under it, and must cause their respective agents to do the same.
15 Clause 26.8 is an entire agreement clause. It reads:
This Lease is the entire agreement of the parties on the subject matter. The only enforceable obligations and liabilities of the parties in relation to the subject matter are those that arise out of the provisions in this Lease. All representations, communications and prior agreements in relation to the subject matter are merged in, and superseded by, this Lease.
16 Clause 1.1 of the Standard Conditions contains numerous definitions. In particular:
(a) 'Current Market Rent' is defined to mean the highest current open market annual rent that the lessor could get for the leased premises on stipulated assumptions, taking into account certain specified matters and ignoring other specified matters.
(b) 'New Rent' is defined to mean the rent the lessee must pay after a Review Date.
(c) 'Old Rent' is defined to mean the rent the lessee paid immediately before a Review Date.
(d) 'Review Date' is defined to mean each of the dates in item 9 of Schedule 1 of the Agreement, those being the dates on 1 November each year from 2004 to 2017 inclusive.
(e) 'Valuer' is defined to mean a property valuer who is licensed under the Land Valuers Licensing Act 1978 (WA).
17 So, during the original term, the rent reserved under the Agreement was reviewed annually on 1 November. The first review was on 1 November 2004 and the last on 1 November 2012. The Agreement provided for the rent to be increased during the original term by 3.75% on each Review Date.
18 The Agreement provided that if the option to renew was exercised then, on 1 November 2013, the Current Market Rent would be determined. The New Rent payable as from 1 November 2013 would be the higher of the rent the lessee had to pay immediately before that date, on the one hand, and the Current Market Rent as determined under cl 6 of the Standard Conditions, on the other. The Agreement also provided for the New Rent to be increased on each subsequent Review Date during the renewed term by 3.75%.
The rent during the original term
19 The rent payable by the lessee under the Agreement during the period 1 November 2003 to 31 October 2004 was $300 per sqm plus GST, being $471,240 plus GST per annum.
20 During the period 1 November 2004 to 31 October 2012, the rent payable by the lessee was increased on 1 November each year by 3.75%.
21 The rent payable by the lessee under the Agreement during the period 1 November 2012 to 31 October 2013 was $417.84 per sqm plus GST, being $656,349.40 plus GST per annum.
The exercise of the option to renew
22 By letter dated 5 November 2012, the appellant gave notice to the respondents that it wanted to exercise the option to renew.
The description of the appellant and the respondents in the balance of these reasons
23 It is convenient, in the balance of these reasons, to refer to the appellant as 'the Lessee' and the respondents as 'the Lessor'.
The determination of the Current Market Rent
24 The following account of the rent review process to determine the Current Market Rent, after the Lessee had exercised the option to renew, is taken from the trial judge's reasons [25] - [37].
25 By letter dated 27 September 2013, pursuant to cl 5.2 and cl 6.1(a) of the Standard Conditions, the Lessor gave the Lessee a notice of the assessment by the Lessor of the New Rent as at 1 November 2013. The Lessor assessed the New Rent in the amount of $865 per sqm plus GST, being $1,358,748 plus GST per annum (the Lessor's Assessment).
26 By letter dated 2 October 2013, pursuant to cl 6.2(a) and cl 6.3 of the Standard Conditions, the Lessee disagreed with the Lessor's Assessment.
27 The parties then followed the process set out under cl 6.3 of the Standard Conditions. The Lessor and the Lessee tried, in good faith, to agree on the New Rent within 10 days of 2 October 2013. No agreement was reached.
28 The Lessor and the Lessee then agreed to extend to 1 November 2013 the time in which to try, in good faith, to agree on the New Rent, before making a further extension to 15 November 2013. No agreement was reached.
29 On or about 22 November 2013, the Lessor appointed a Valuer (being Marc Crowe of Knight Frank Australia Pty Ltd) and instructed him to establish the New Rent.
30 On or about 22 November 2013, the Lessee appointed a Valuer (being John Del Dosso of Colliers International) and instructed him to establish the New Rent.
31 By emails on 22 November 2013, each party informed the other of the appointment of its Valuer, and of his name, address and contact details.
32 The Valuers then tried to agree on the New Rent. By on or about 5 December 2013, Mr Del Dosso and Mr Crowe were unable to agree on the New Rent.
33 By letter dated 12 December 2013, the Lessor:
(a) informed the Lessee that the Valuers appointed by the parties had not agreed on the New Rent;
(b) informed the Lessee that, pursuant to the Agreement, the Lessor agreed to the making of a request to the President of the Australian Property Institute (WA Division) (the President) to appoint an independent Valuer to decide the New Rent; and
(c) requested that the Lessee agree to ask the President to appoint an independent Valuer to decide the New Rent.
34 By letter dated 13 December 2013, the Lessee informed the Lessor that the Lessee did not agree to ask the President to appoint an independent Valuer to decide the New Rent. The letter also stated that the Lessee would continue to pay the Old Rent until the New Rent was agreed by the parties.
35 At all material times from on or about 13 December 2013:
(a) the Lessor has been ready and willing to agree to ask the President to appoint an independent Valuer to decide the New Rent; and
(b) the Lessee has continued to refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent.
36 The Lessee has paid rent for the period 1 November 2013 to 31 October 2014 in the same quantum as the Old Rent.
37 The Lessee has paid rent on and from 1 November 2014 in the same quantum as the Old Rent escalated by 3.75%.
The parties' contentions before the trial judge
38 At the trial, the Lessor contended that:
(a) on a proper construction of cl 6.3 of the Standard Conditions, there was an implied term that each of the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent for the purposes of cl 6.3; or
(b) alternatively, on a proper construction of cl 5 and cl 6 of the Standard Conditions, the main purpose of cl 5.2(b) and cl 6 of the Standard Conditions was that on 1 November 2013 the rent was to be reviewed to the Current Market Rent and, if the machinery provisions in cl 6.3 for the determination of the Current Market Rent failed, the court may determine the quantum of the Current Market Rent and thus the New Rent for the review date of 1 November 2013.
39 At the trial, the Lessee disagreed with the Lessor's contentions. On the Lessee's construction:
(a) the Lessee was free to choose whether to agree to ask the President to appoint a Valuer, and that freedom was not limited by any implied term requiring reasonable grounds for choosing not to agree; and
(b) if for that or any other reason the machinery in cl 6.3 failed to produce an agreed or determined Current Market Rent, that was the end of the market rent review process, and the New Rent would be the same as the Old Rent.
The trial judge's decision and reasoning
40 The seventh paragraph of cl 6.3 of the Standard Conditions reads:
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41 The trial judge said that the proper construction of cl 6.3 must take into account 'two conspicuous features of the language of its crucial seventh paragraph' [60]. His Honour elaborated:
First, cl 6.3 gives each party a choice about whether to agree to the appointment of an independent Valuer by the President. Agreement is a matter of choice; it may or may not happen. That is reinforced by the eighth paragraph of cl 6.3 '[i]f we agree to appoint …' and by the words in brackets in each of cl 6.4(a), cl 6.4(b) and cl 6.4(c) '(if we agree to appoint one)'.
A construction that in substance the Lessee is obliged to agree to ask the President to appoint an independent Valuer would run directly against the language of cl 6.3. Neither an implied obligation to cooperate, nor the express words of cl 26.7, should be construed in a way that is inconsistent with the express terms of the Lease (Campbell v Backoffice InvestmentsPty Ltd [2009] HCA 25; (2009) 238 CLR 304 [168] (Gummow, Hayne, Heydon & Kiefel JJ); EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 PtyLtd [2010] WASCA 78; (2010) 41 WAR 23 [109] (Buss JA, Owen & Newnes JJA agreeing); Heugh v Central Petroleum Ltd[No 5] [2014] WASC 311 [100] (Le Miere J)). Similarly, a term cannot be implied in fact if it is inconsistent with the express terms of the Lease (BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon of Glaisdale, Viscount Dilhorne, Lord Keith of Kinkel); Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 347 (Mason J, Stephen & Wilson JJ agreeing), 404 (Brennan J)).
The Lessor's case is not that the Lessee is obliged to agree to ask the President to appoint an independent Valuer. Rather, the Lessor's case is that the Lessee must not unreasonably refuse to agree in that respect …
The Lessor's primary claim involves implying words into cl 6.3. In my view, the implied term contended for by the Lessor is properly seen as involving an implication of fact, rather than an implication of law (As to the distinction, see Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 88 ALJR 814 [23] - [25], [28] - [29] (French CJ, Bell & Keane JJ), [56] (Kiefel J), [113] (Gageler J)). One of the requirements for the implication of a term in fact is necessity. A term can be implied in fact only if, among other things, it is necessary to give business efficacy to a contract. The term must also be reasonable, equitable, capable of clear expression and so obvious that it goes without saying (Codelfa Constructions (347) (Mason J, Stephen & Wilson JJ agreeing)).
The second important feature of the seventh paragraph of cl 6.3 is that it includes the phrase '[i]f you and we agree … that we want to resolve the dispute in this way'. That phrase invites attention to how else the dispute is to be or might be resolved. It appears to involve an assumption that there are other ways to resolve the dispute. However, cl 6.3 is silent in that respect. It does not make any provision for how the dispute as to the New Rent is to be otherwise resolved or how the New Rent is to be otherwise determined [61] - [65].
42 His Honour held that the Lessor's primary contention of an implied term was the correct construction of cl 6.3. His Honour said that cl 6.3 included an implied term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer. His Honour's reasoning was, in summary, as follows:
(a) given that under cl 5.2(b) the rent cannot be reduced, the rent review process to determine the Current Market Rent on 1 November 2013 was solely for the benefit of the Lessor: [42] - [44], [68], [70] - [73];
(b) the rent review process was compulsory: [68], [74] - [76];
(c) the Lessee's construction would permit the Lessee unilaterally to bring the rent review process, to determine the Current Market Rent on 1 November 2013, to an end by refusing to ask the President to appoint an independent Valuer, and that outcome was uncommercial and unlikely objectively to have been intended by the parties: [68], [77] - [78], [99]; and
(d) the implication of the term primarily relied on by the Lessor was necessary to give business efficacy to the Agreement, and the other requirements for the implication of the term were satisfied: [61] - [64], [68], [79], [85] - [86].
43 The Lessee submitted, in effect, that:
(a) cl 6.2 and cl 6.3 permitted the parties to choose to bring the market rent review process to an end, so that cl 6.3 had an 'essentially elective' character [75]; and
(b) if the Lessor assessed the Current Market Rent as being less than the Old Rent, then the Lessor had no obligation to give notice of its assessment, and the process under cl 6 was not engaged [76].
The trial judge rejected those submissions.
44 His Honour said that 'the Lessee's construction does not involve giving the [Agreement] a "businesslike interpretation on the assumption that the parties … intended to produce a commercial result" (Electricity Generation Corporation v Woodside Energy Ltd [[2014] HCA 7; (2014) 251 CLR 640] [35] (French CJ, Hayne, Crennan & Kiefel JJ))' [77]. His Honour explained:
The scheme of the Lease as I have summarised it means that, in entering the Lease, the parties would have contemplated as follows. The market rent review process is capable of benefiting only the Lessor; the rent can go up but it cannot go down. Thus, the Lessee has no commercial incentive to facilitate the process of determination of the Current Market Rent. The parties would have contemplated that the individual Valuers appointed by them in the fourth stage of the process may both consider that Current Market Rent exceeds the Old Rent, but disagree as to the extent. The consequence of the Lessee's construction is:
(1) the Lessee has an unfettered right to choose not to agree to ask the President to appoint an independent Valuer;
(2) there being no other mechanism in cl 6.3 for the determination of the New Rent, the decision of the Lessee not to agree to that course would bring the market rent review process to an end, with the result that the New Rent would be equal to the Old Rent.
On that construction, the evident purpose of the single market rent review, arising on the exercise by the Lessee of its option for a further term, would be liable to be defeated by the unfettered choice of the Lessee, in whose interest it lies for the process to fail, so that the New Rent will equal the Old Rent. The only limit on the ability of the Lessee to prevent any determination of the Current Market Rent, thereby ensuring that the rent does not increase, is the prospect of the individual Valuers appointed by each party agreeing the rent at the fifth stage of the process. To my mind, that construction produces an uncommercial result that is very unlikely to have been objectively intended by the parties [77] - [78].
45 The trial judge concluded that:
(a) in order to give business efficacy to the contractual scheme in cl 5 and cl 6 for the market rent review on 1 November 2013, it was necessary to imply in the Agreement a term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer under cl 6.3;
(b) the other requirements for the implication of the term were met; and
(c) in particular, the term was 'reasonable, equitable and so obvious that it goes without saying' and the term was also 'capable of clear expression and consistent with the express terms of [the Agreement]' [79].
46 His Honour then addressed the Lessor's alternative construction, namely that:
(a) on a proper construction of cl 5 and cl 6, the purpose of those provisions was for the Current Market Rent to be agreed by the parties or otherwise determined, and the specific machinery in cl 6.3 was subsidiary to that purpose; and
(b) in those circumstances, where, as in the present case, the specific machinery provisions had failed, the court could determine the Current Market Rent [88].
47 The trial judge preferred the Lessor's alternative construction to the Lessee's construction [91]. However, his Honour adopted the Lessor's primary contention of an implied term in preference to its alternative construction [91].
48 His Honour observed that it might be said, in support of the Lessor's alternative construction, that cl 6.3 reveals an apparent assumption that alternate means of resolving the dispute about the New Rent existed. That, in turn, might be taken as an indication that the parties intended that, if the specific machinery provisions in cl 6.3 broke down, the court could resolve the dispute by determining the Current Market Rent. However, his Honour was not persuaded that cl 5 and cl 6 should be construed in that fashion. In particular, his Honour said:
Two features of the contractual scheme seem to me to militate against [the Lessor's alternative] construction. First, cl 6.3 provides a series of short and strict time limits for the taking of the various steps towards determining the New Rent. A construction that suggests the parties intended that, if none of the specific provisions bore fruit, the Current Market Rent could be determined by a court following litigation between the parties involving competing expert evidence does not sit easily with the expeditious process articulated in cl 6.3.
Secondly, and in any event, cl 5.2 does not say simply that the New Rent will be the highest of the Old Rent and the Current Market Rent. It provides that the New Rent will be the highest of the Old Rent and 'the Current Market Rent, as determined under clause 6'. Thus, the substantive provision defining the New Rent specifically directs attention to cl 6 as the means of determination of the Current Market Rent. I am not persuaded that cl 5 and cl 6 can be construed in such a way that determination by a court of the Current Market Rent can be characterised as determination of the Current Market Rent 'under cl 6'.
In my view, these two features of the contractual scheme in cl 5 and cl 6 reveal an objective intention that Current Market Rent would be determined in the time and manner stipulated in cl 6. Thus the machinery in cl 6 cannot be characterised as subsidiary [94] - [96].
49 After observing that cl 6.3 was 'less than exhaustive in several respects', and that refusal by the Lessee to agree to ask the President to appoint an independent Valuer was not the only way in which the machinery provisions in cl 6.3 could break down, the trial judge continued:
The Lessor's alternative construction would deal with all of the ways in which the machinery provisions of cl 6 might break down, whereas the [Lessor's] implied term fills only a part of one of several apparent gaps. That might be thought to be an advantage of the alternative construction over the implied term. The presence of gaps may also be an indication that the machinery in cl 6.3 is merely a means of ascertaining what is capable of being ascertained objectively as the Current Market Rent (Booker Industries (616) (Brennan J)). Moreover, there may be a question as to whether, in those circumstances, implication of a term that the parties may not unreasonably refuse to agree to request the President to appoint an independent Valuer is justified.
In my view, refusal by the Lessee to agree to ask the President to appoint an independent Valuer without any reasonable grounds raises unique considerations that justify the implication of a term to preclude it. The other gaps in cl 6.3 do not create a unilateral right on the part of the Lessee to defeat the market rent review process. For example, if no party appoints a Valuer, and the process thereby comes to an end, each party is responsible for its own omission to appoint a Valuer. None of the other potential breakdowns in the machinery provisions of cl 6.3 can be brought about by the Lessee acting alone.
A freedom on the part of the Lessee to refuse to ask the President to appoint a Valuer without any reasonable grounds for doing so would permit the Lessee to defeat the market rent review process. As I have said, that is a wholly uncommercial outcome that is unlikely to have been intended by the parties. Avoidance of that outcome is necessary to give business efficacy to the provisions of cl 5 and cl 6, sustaining the implication of the term relied on by the Lessor [97] - [99].
The trial judge's orders
50 The trial judge noted, in considering the relief that should be granted to the Lessor, that the Lessee did not assert any grounds for its refusal to agree to ask the President to appoint an independent Valuer other than that the Agreement permitted it to not agree if it chose to do so [104].
51 His Honour made a number of orders including that:
(a) the Lessee sign a letter asking the President to appoint an independent Valuer to decide the New Rent for the Review Date of 1 November 2013;
(b) the Lessee do all things reasonably necessary to enable the President to appoint an independent Valuer to decide the New Rent for the Review Date of 1 November 2013 for the purposes of the Agreement; and
(c) the amount decided by the independent Valuer as the New Rent for the Review Date of 1 November 2013 be the New Rent for that Review Date.
The grounds of the Lessee's appeal
52 The Lessee relies on two grounds of appeal.
53 Ground 1 alleges, in effect, that the trial judge erred in holding that the Agreement contained an implied term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent, for the purposes of cl 6.3 of the Standard Conditions, in that the conditions essential to the implication of the term were not established.
54 Ground 2 alleges, in effect, that his Honour erred in ordering the Lessee to take steps to ask the President to appoint an independent Valuer, notwithstanding that the Lessee and the Lessor had not agreed in writing to do so, whether within the period of time made essential by the Agreement or at all.
The ground of the Lessor's cross-appeal
55 The Lessor relies on one ground in its cross-appeal.
56 The ground alleges, in effect, that the trial judge erred in holding that the Current Market Rent could only be determined in the manner stipulated in cl 6 of the Standard Conditions 'such that, in circumstances in which those machinery provisions fail, a Court could not determine the Current Market Rent'.
57 The Lessor's cross-appeal was advanced on the premise that this court, contrary to the Lessor's primary case, allows the Lessee's appeal.
The Lessee's notice of contention in the Lessor's cross-appeal
58 The Lessee has filed a notice of contention in the Lessor's cross-appeal.
59 The Lessee seeks to uphold the trial judge's decision that the machinery provisions in cl 6 of the Standard Conditions could not be characterised as subsidiary and non-essential, on the additional ground that his Honour 'should have found that Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 and other authorities to similar effect are distinguishable', in that in the present case the machinery in cl 6.3 of the Standard Conditions did not break down.
The critical issues before this court
60 The critical issues before this court, as distilled from the grounds of the Lessee's appeal, the ground of the Lessor's cross-appeal and the Lessee's notice of contention in the Lessor's cross-appeal, are as follows.
61 Issue 1: did the trial judge err in deciding that the Agreement contained an implied term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent, for the purposes of cl 6.3 of the Standard Conditions?
62 Issue 2: did his Honour err in deciding that if the specific machinery provisions in cl 6.3 of the Standard Conditions for the determination of the Current Market Rent failed, a court could not determine the Current Market Rent and thus the New Rent, for the purposes of cl 6.3?
63 I will deal with each of the critical issues in turn.
Issue 1: the Lessor's pleaded case
64 The Lessor's primary contention of an implied term was pleaded in its amended statement of claim as follows:
(a) There was an implied term to the effect that 'each of the parties agreed to do all things as were reasonably necessary on its behalf to enable the other party to have the benefit of the [Agreement]': par 9 of the amended statement of claim. The particulars of this plea alleged that the term was 'implied by law from the nature of the [Agreement], and the obligations imposed and benefits granted by the [Agreement]'.
(b) There was an implied term of the Agreement, implied by law, alternatively, implied in fact, to the effect that 'each of the parties must not unreasonably refuse to agree to ask [the President] to appoint an independent "Valuer" to decide the "New Rent" for the purposes of clause 6.3 of the [Standard Conditions]': par 10 of the amended statement of claim. The particulars of this plea alleged that the term was implied by law from the nature of the Agreement, and the obligations imposed and benefits granted by the Agreement; alternatively, the term was implied in fact as it was necessary for 'the reasonable or effective operation of the [Agreement] in all the circumstances' and was reasonable and equitable; necessary to give business efficacy to the Agreement; was obvious; was capable of clear expression; and did not contradict any express term of the Agreement.
Issue 1: the trial judge's reasoning in relation to Issue 1
65 The trial judge decided that cl 6.3 of the Standard Conditions included the implied term pleaded by the Lessor as its primary contention in the amended statement of claim. I have summarised his Honour's reasoning at [40] - [49] above.
Issue 1: overview of the applicable legal principles
66 A number of different forms of implied term are well established. They include:
(a) A term deduced by implication or interpretation from the express terms of the contract. See Marcus Clark (Victoria) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540, 553 - 554 (Higgins J); Vickery v Waitaki International Ltd [1992] 2 NZLR 58, 64 (Cooke P, Richardson & Gault JJ agreeing); Carlton & United Breweries Ltd v Tooth & Co Ltd (1985) 6 IPR 319, 320 (Hodgson J); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [28] (Heydon JA).
(b) A term which is a legal incident of a particular class of contract. See Liverpool City Council v Irwin [1977] AC 239, 254 - 255 (Lord Wilberforce); Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 345 - 346 (Mason J, Stephen & Wilson JJ relevantly agreeing); Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 448 - 452 (McHugh & Gummow JJ).
(c) A term specifically implied ad hoc in a particular contract. See BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 283 (Lord Simon of Glaisdale, Viscount Dilhorne & Lord Keith of Kinkel); Codelfa (345 - 347). This term is invariably described as an implied term necessary to give business efficacy to a particular contract. It is implied in fact and based upon the presumed intention of the parties.
67 A term generally applicable to every contract, and arising by a process of construction applied to the express terms of the contract, that each party will do all that is reasonably necessary to secure performance of the contract, including enabling the other party to have the benefit of the contract, is also well established. See Mackay v Dick (1881) 6 App Cas 251, 263 (Lord Blackburn); Butt v M'Donald (1896) 7 QLJ 68, 70 - 71 (Griffith CJ, Cooper & Power JJ agreeing); Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 - 608 (Mason J, Gibbs, Stephen & Aickin JJ agreeing). This term is invariably described as an implied duty to cooperate.
68 The distinction between terms which are implied in fact and terms which are implied by law was explained by Gaudron and McHugh JJ in Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 102 - 103.
69 In the present case, the Lessor submitted, in effect, that the term on which it relied should be implied ad hoc to give business efficacy to the Agreement and that, by virtue of the implied duty to cooperate, the Lessee was bound to agree to ask the President to appoint an independent Valuer.
70 It is therefore necessary to examine the circumstances in which a term may be specifically implied ad hoc in a particular contract and, also, the nature and content of the implied duty to cooperate.
71 In BP Refinery, the majority of the Privy Council stated that, for a term to be implied in a specific contract, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; and (5) it must not contradict any express term of the contract (283). Those conditions are applied cumulatively in determining whether the implication should be made.
72 The High Court has adopted and applied the criteria in BP Refinery in cases in which there was a formal written contract, complete on its face. See Secured Income Real Estate (605 - 606); Codelfa (347); Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539, 571 (Deane J); Byrne (422) (Brennan CJ, Dawson & Toohey JJ).
73 In the present case, the Agreement was no doubt a formal written contract, complete on its face.
74 A term may not be specifically implied ad hoc in a particular contract merely because the court might think that the term is a desirable improvement to the contract or that it is reasonable in the circumstances to make the implication. See Codelfa, where Brennan J said:
When the court picks up a written contract in order to construe the writing, it must 'place itself in thought in the same factual matrix as that in which the parties were' as his Lordship said in Reardon Smith Line v Hansen-Tangen ([1976] I WLR. 989, at p 997; [1976] 3 All ER, at p 575). But, having construed the writing, the court cannot take its pen and add a clause merely because it thinks the addition would be reasonable or fair or prudent. Though the parties are assumed to be reasonable and that hypothesis governs the construction of the express terms on which they have agreed, their hypothetical reasonableness warrants no alteration in their contractual rights by imputing to them an agreement to an additional term to which they have not agreed in fact and which is not implicit in the terms to which they have agreed (401).
75 I turn to the implied duty to cooperate.
76 In Mackay v Dick, Lord Blackburn said:
I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances (263).
- That statement was cited with approval by Isaacs J in Ray v Davies [1909] HCA 51; (1909) 9 CLR 160, 170.
77 In Secured Income Real Estate, the parties were agreed that the contract between them imposed an implied duty on each party to do all that was reasonably necessary to secure performance of the contract. Mason J (Barwick CJ, Gibbs, Stephen and Aickin JJ agreeing), after referring to Lord Blackburn's statement of principle in Mackayv Dick, said:
It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract (607).
78 Mason J then referred (607), with approval, to this observation of Griffith CJ in Butt v M'Donald:
It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract (70 - 71).
79 Mason J continued:
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself (607 - 608).
80 In Byrne, McHugh and Gummow JJ suggested that some implied terms, including the implied duty to cooperate, are 'perhaps more usefully identified as rules of construction applied to the express terms of the contract, particularly to the written terms thereof' (448). Their Honours cited, in support of that proposition, the reasons of Mason J in Secured Income Real Estate (607 - 608).
81 This general rule of construction, according to which parties are taken to agree to do all that is reasonably necessary to secure performance of their contract, was reiterated in Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 [38] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ). See also Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993)177 CLR 635, 659 (Deane, Dawson & Gaudron JJ); Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997)189 CLR 215, 219 (Dawson & Toohey JJ), 226 (McHugh & Gummow JJ); Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 [36] (Gleeson CJ, Gummow, Kirby & Hayne JJ).
82 The implied duty to cooperate does not, however, rise above the promises made by the parties to the contract. In other words, the duty 'cannot over-ride the express provisions of the contract': Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 368 (Sheller JA, Powell and Beazley JJA agreeing). See also Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235 [49] (Bergin J); Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 [92] (Buss JA, Martin CJ agreeing).
83 Similarly, a duty to cooperate cannot be imposed on a party so as to compel that party:
(a) to bring about a circumstance or result which the contract does not require: Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, 124 - 125 (Mason P, Beazley & Stein JJA); or
(b) to do something which the contract, on its proper construction, would relieve him or her from doing: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [167] - [170] (Gummow, Hayne, Heydon & Kiefel JJ).
84 In Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169, the High Court examined, in a contractual context, the distinction between implications of fact and implications of law.
85 French CJ, Bell and Keane JJ observed in relation to a term specifically implied ad hoc in a particular contract:
Implication of a term in fact in a contract, by reference to what is necessary to give it business efficacy, was described in Codelfa Construction Pty Ltd v State Rail Authority (NSW) as raising issues 'as to the meaning and effect of the contract' ((1982) 149 CLR 337 at 345 per Mason J; Stephen J agreeing at 344; Wilson J agreeing at 392). Implication is not 'an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision' ((1982) 149 CLR 337 at 345 per Mason J; Stephen J agreeing at 344; Wilson J agreeing at 392). It is nevertheless an 'exercise in interpretation, though not an orthodox instance' ((1982) 149 CLR 337 at 345 per Mason J; Stephen J agreeing at 344; Wilson J agreeing at 392). The implication of terms in fact was also characterised in Attorney-General (Belize) v Belize Telecom Ltd ([2009] 1 WLR 1988; [2009] 2 All ER 1127) as an exercise in construction. Lord Hoffmann, delivering the judgment of the Privy Council, said ([2009] 1 WLR 1988 at 1994 [22]; [2009] 2 All ER 1127 at 1134):
'[I]t is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.'
The distinction thus drawn is appropriate even though the scope of the constructional approach adopted by Lord Hoffmann has been debated (Hooley, 'Implied Terms After Belize Telecom',Cambridge Law Journal, vol 73 (2014) 315; Courtney and Carter, 'Implied Terms: What Is the Role of Construction?', Journal of Contract Law, vol 31 (2014) 151, at pp 160 - 163) [22].
86 Their Honours then mentioned Mason J's observation in Codelfa (345 - 346) that the implication of a term in law is based upon 'more general considerations' than those covered by the concept of business efficacy [23]. That distinction was approved in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226, 237 (Gibbs CJ, Mason, Wilson, Brennan & Dawson JJ).
87 Next, French CJ, Bell and Keane JJ referred to Lord Blackburn's statement of principle in Mackay v Dick and said that his Lordship's language was indicative of a rule of construction rather than of implication, and noted that Lord Blackburn's principle had been characterised as a rule of construction by Mason J in Secured Income Real Estate (607) and by McHugh and Gummow JJ in Byrne (448 - 449) [25]. Their Honours added that Mason J had nevertheless referred to the rule of construction as defining an implied 'duty to co-operate' (607) [25].
88 Finally, in this overview of the applicable legal principles, I should remark that an entire agreement clause in a contract is not an agreement that there are no implied terms in the contract. See Hart v MacDonald [1910] HCA 13; (1910) 10 CLR 417, 421 (Griffith CJ), 427 (O'Connor J), 430 (Isaacs J); Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190, 196 (McLelland J).
Issue 1: the relevant terms of the Agreement
89 The relevant express terms of the specific contract must be established before the implication of a term can be considered according to the criteria specified in BP Refinery. See MSAS Cargo International Pty Ltd v Agfa-Gevaert Ltd [2000] VSCA 197 [17] (Brooking JA, Charles & Batt JJA agreeing).
90 Also, the relevant express and implied terms of the specific contract must be established before any question concerning an implied duty to cooperate is considered.
91 The construction of a written agreement involves ascertaining what a reasonable person would have understood the parties to the agreement to mean. The rights and liabilities of the parties under a provision of the agreement are to be determined objectively. Consideration should ordinarily be given not only to the language of the agreement, but also to the apparent purpose and object of any transaction created by or evidenced in the agreement. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 [8] (Gleeson CJ), [53] (Gummow, Hayne, Heydon, Crennan & Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 [46] (French CJ, Nettle & Gordon JJ).
92 The words of a clause in a written agreement are to be given the most appropriate meaning which they can legitimately bear. A court must have regard to all of the provisions of the agreement with a view to achieving harmony among them. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 - 110 (Gibbs J).
93 In BBC Hardware Ltd v Payce Properties Ltd [2000] NSWCA 262; (2000) 50 NSWLR 66, Giles JA said that the normal commercial purpose of a rent review provision in a long term lease is:
[T]o keep the rent in line with current property values. Changes in the locality, in the planning instruments relevant to the land, and in the economically advantageous use of the land could be expected. No doubt the lessee would want to be protected from paying a greatly increased rent while still restricted in the use of the land. But the lessor would not want to be left with an inadequate return from land of greatly increased value. Their bargain must be found in the words they used [26].
- See also ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] NSWCA 224; (2005) 12 BPR 23,717 [23] (Ipp JA, Mason P & Bryson JA agreeing).
94 As the trial judge noted in the present case, the process stipulated in cl 6.1, cl 6.2 and cl 6.3 of the Standard Conditions involves seven stages [48] - [53].
95 First, the Lessor must give the Lessee its notice of assessment in relation to the New Rent (cl 6.1(a)).
96 Secondly, if the Lessee disagrees with the Lessor's assessment, the Lessee must give the Lessor notice of its disagreement within 14 days after the Lessor has given its notice of assessment (cl 6.2(b) and cl 6.3).
97 Thirdly, the parties must negotiate, for a period of 10 days, to endeavour in good faith to agree on the New Rent. If the parties agree on the New Rent then, subject to cl 6.1(d), the Lessee must pay the New Rent (as agreed by the parties) from the relevant Review Date (cl 6.3).
98 Fourthly, if the parties do not agree on the New Rent then the Lessor and the Lessee may each appoint a Valuer and instruct the Valuer to establish the New Rent. This must be done within 10 days after the end of the third stage (cl 6.3).
99 Fifthly, the Valuers must each decide on the New Rent and then endeavour to agree on the New Rent. This must be done within 14 days after the end of the fourth stage. It is to be deduced by implication or interpretation, from the express terms of cl 6.1, cl 6.2 and cl 6.3, that if the Valuers agree on the New Rent then the Lessee must pay the New Rent (as agreed by the Valuers) from the relevant Review Date. If the Lessor or the Lessee does not appoint a Valuer, or if one of the appointed Valuers does not decide on a New Rent within the specified period, then the New Rent as decided by the other Valuer must be paid by the Lessee from the relevant Review Date (cl 6.3).
100 Sixthly, if both of the appointed Valuers do not agree on the New Rent within the specified period, and the Lessor and the Lessee 'agree, in writing, at that time that [they] want to resolve the dispute in this way, [the Lessee] or [the Lessor] may ask the President … to appoint another independent Valuer to decide the New Rent'. All of this must be done within 10 days after the end of the fifth stage (cl 6.3).
101 Seventhly, if the Lessor and the Lessee 'agree to appoint an independent Valuer, the independent Valuer must decide the New Rent' within 14 days or any other period agreed upon by the parties (cl 6.3).
102 Clause 6.3 does not expressly provide for what is to happen at the sixth stage if:
(a) the Lessee and the Lessor do not agree, in writing, that they want to resolve the dispute as to the New Rent by the Lessee or the Lessor asking the President to appoint another independent Valuer to decide the New Rent; or
(b) the Lessor and the Lessee agree, in writing, that they want to resolve the dispute in that way, but neither of them asks the President to appoint another independent Valuer to decide the New Rent.
103 No doubt, as the trial judge pointed out, there are other gaps in cl 6.3 including contingencies for which provision is not expressly made [55] - [59]. For example, no express provision is made for the eventuality that the President fails to appoint another independent Valuer to decide the New Rent despite the Lessee or the Lessor having asked him or her to make the appointment or the person appointed by the President to decide the New Rent is not an independent Valuer [58].
104 The critical issue, in the context of Issue 1, is whether the relevant gap in the express provisions governing the sixth stage of the process may be filled by the implied term pleaded as the Lessor's primary contention.
Issue 1: overview of the Lessee's submissions
105 Counsel for the Lessee submitted that the implied term pleaded as the Lessor's primary contention in the amended statement of claim was tantamount to a term requiring the Lessee to agree to ask the President to appoint an independent Valuer.
106 It was also argued on the Lessee's behalf, in essence, that the trial judge erred for the following reasons:
(a) the rent review process to determine the Current Market Rent on 1 November 2013 was not solely for the benefit of the Lessor;
(b) the rent review process was not compulsory;
(c) the implied term was not necessary to give business efficacy to the Agreement;
(d) the implied term was not reasonable and equitable;
(e) the implied term contradicted the express terms of the Agreement;
(f) the implied term was not so obvious that 'it goes without saying'; and
(g) the implied term lacked clarity.
Issue 1: was the Lessor's primary contention tantamount to a term requiring the Lessee to agree to ask the President to appoint an independent Valuer?
107 The submission made on the Lessee's behalf that the implied term pleaded as the Lessor's primary contention was tantamount to a term requiring the Lessee to agree to ask the President to appoint an independent Valuer is without merit. That submission was part of the Lessee's case at trial and was rejected by the trial judge [86]. His Honour held, correctly, that the implied term 'leaves the Lessee free to decline to agree on reasonable grounds' [86]. The Lessee did not adduce any evidence at trial that it had any reasonable grounds for refusing to agree to ask the President to appoint an independent Valuer. It was not suggested on behalf of the Lessee in the appeal that any reasonable grounds existed.
Issue 1: was the rent review process to determine the Current Market Rent on 1 November 2013 solely for the benefit of the Lessor?
108 The trial judge held that the objective purpose of the rent review process to determine the Current Market Rent on 1 November 2013 was solely for the benefit of the Lessor by adjusting the rent to accord with the market, subject to the Current Market Rent exceeding the Old Rent [70] - [71].
109 Counsel for the Lessee asserted in the appeal that his Honour was in error, for two reasons, in holding that the objective purpose of the rent review process was solely for the benefit of the Lessor. First, the rent review process conferred rights and benefits on the Lessee. Secondly, resort to the apparent purpose of the rent review process was of little assistance in construing the Agreement.
110 As to the first reason advanced by counsel for the Lessee, it was asserted on the Lessee's behalf at trial and in the appeal that under cl 6.1(c) of the Standard Conditions the Lessee can require the Lessor to give a notice of assessment and, therefore, the Lessee has a right to initiate the rent review process.
111 The trial judge considered and rejected that submission [72] - [73]. His Honour's decision on that point was, in my opinion, correct.
112 Counsel for the Lessee's submission is erroneous because it does not properly characterise the rent review process. In particular:
(a) The rent review process to determine the Current Market Rent on 1 November 2013 is initiated by the Lessor. By cl 6.1(a)(ii), the Lessor must give to the Lessee a notice of its assessment of the New Rent within three months before or after the Review Date.
(b) If the Lessor fails to give to the Lessee a notice of its assessment before the Review Date, cl 6.1(c) permits the Lessee to give to the Lessor a notice requiring the Lessor to give to the Lessee a notice of its assessment of the New Rent within 28 days.
(c) The Lessee's rights under cl 6.1(c) merely enable it to accelerate the date by which the Lessor must give to the Lessee a notice of its assessment.
(d) Nothing in cl 6.1(c), or any other provision of the Agreement, confers on the Lessee a right to initiate the rent review process.
113 Further, as to the first reason advanced by counsel for the Lessee, it was asserted on the Lessee's behalf that the Lessee would not always endeavour to avoid the rent review process to determine the Current Market Rent on 1 November 2013.
114 Counsel for the Lessee submitted that, in a falling market, a hypothetical lessee may want a 'joint valuation' of the Current Market Rent because such a valuation may assist the hypothetical lessee to negotiate a better outcome in relation to existing or future leases. That submission is without merit. In particular:
(a) There was no evidence at trial and no factual foundation to support the submission.
(b) The submission, in effect, invites the court to have regard to matters that are irrelevant to the commercial transaction documented by the Agreement. Those matters are extraneous and must not be taken into account in determining the proper construction of the Agreement.
(c) The submission disregards the rent review process embodied in the Agreement. Pursuant to that process, the Lessee must pay the New Rent, which is the higher of the Old Rent and the Current Market Rent. The objective purpose of the procedure specified in cl 6.3 is to facilitate the determination of the New Rent. The ratchet provision in cl 5.2(b) of the Standard Conditions ensures that the rent cannot be reduced.
115 As to the second reason advanced by counsel for the Lessee, counsel relied on his Honour's observations in an earlier case, namely Programme Holdings Pty Ltd v Van Gogh Holdings Pty Ltd [2009] WASC 79 [48] - [50]. In the present case, his Honour set out those observations in his reasons [42]. The observations are as follows:
More generally, it seems to me that the nature and purpose of a rent review clause means that consideration of whether a particular construction is unjust or unreasonable will often be of little assistance. The reasons for that were explained by Ipp JA in ADC Buildings as follows [21] - [23]:
'In United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (cited by Gleeson CJ in GR Mailman and Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 at 86) Lord Salmon said (at 948):
"[A rent review clause] is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises. Accordingly the landlord and the tenant by agreement in their lease provide that at stated intervals during the term, the rent should be brought up to what is then the fair market rent. The revision clause itself lays down the administrative procedure or machinery by which the fair market rent shall be ascertained."
I accept that fairness, to the extent described by Lord Salmon, would ordinarily be the general purpose underlying a rent review clause. Nevertheless, the competing interests of ADC and Barana, as lessor and lessee, as to whether or not the land is to be valued without regard to encumbrances or restrictions on use, are irreconcilable. It is difficult - if not impossible - to attempt to resolve their opposing submissions on this issue by reference to fairness. The focus must be, rather on the actual meaning of the words used in their particular context.
As Giles JA in BBC Hardware Pty Ltd v Payce Properties Pty Ltd (2000) 50 NSWLR 66 at 72 noted, the normal commercial purpose of rent review provisions in long term leases is:
"to keep the rent in line with current property values. Changes in the locality, in the planning instruments relevant to the land, and in the economically advantageous use of the land could be expected. No doubt the lessee would want to be protected from paying a greatly increased rent while still restricted in the use of the land. But the lessor would not want to be left with an inadequate return from land of greatly increased value. Their bargain must be found in the words they used."'
For corresponding reasons, resort to the evident purpose of a rent review clause will often be of little assistance in resolution of a construction issue. Viewed from the tenant's perspective one might ask why rent should be paid calculated on the basis of a use not permitted by the tenant. From the landlord's perspective, however, the considerations are different. A landlord has a legitimate commercial interest in ensuring that its return on a long-term lease reflects the market value of the land based on the (possibly changing) most advantageous use of the land [48] - [50].
116 However, in the present case, the trial judge distinguished, correctly, between the evident purpose of a rent review clause in dealing with:
(a) questions of construction concerning the basis of a valuation process in reviewing the rent, and the assumptions to be made by a valuer in that context (as was the case in Programme Holdings); and
(b) questions of construction as to whether, and in what circumstances, a market rent review should take place at all (as was the case in Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556 and as is the case here) [43] - [44].
117 His Honour's ultimate conclusion on this point was that the commercial purpose, objectively ascertained, of a rent review provision is a relevant factor in determining the proper construction of the provision [44].
118 Counsel for the Lessee also relied on the following comments by Mason J in Secured Income Real Estate:
It is not quite so easy to [imply a duty to cooperate] when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract (607).
119 However, it is apparent, when those comments are read in their context, that Mason J was expressing the view that, at least ordinarily, it will be easier to imply a duty to cooperate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under a contract than it will be when the relevant acts are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Ultimately, as Mason J noted in Secured Income Real Estate, '[in the latter case], the correct interpretation of the contract depends … on the intention of the parties as manifested by the contract itself' and not so much on the application of the general rule of construction referred to by Lord Blackburn in Mackay v Dick (607 - 608).
120 In the present case, the trial judge was correct in deciding that the intention of the Lessor and the Lessee was properly to be ascertained by reference to the objective purpose of the market rent review process as discerned by the application of orthodox principles of construction to the language of the Agreement.
121 I am satisfied, having regard to cl 5.2(b) of the Standard Conditions (which stipulates that the New Rent is to be the higher of the Current Market Rent and the Old Rent) and the Agreement as a whole, that the objective purpose of the market rent review process is solely to benefit the Lessor by ensuring that, in the context of a long term lease, the New Rent reflects the market, provided that the Current Market Rent exceeds the Old Rent as at 31 October 2013.
122 His Honour was correct in concluding that the objective purpose of the rent review process to determine the Current Market Rent on 1 November 2013 was solely for the benefit of the Lessor.
Issue 1: was the rent review process to determine the Current Market Rent on 1 November 2013 compulsory?
123 The trial judge held that the rent review process to determine the Current Market Rent on 1 November 2013 is 'generally speaking, compulsory' [74].
124 Counsel for the Lessee advanced four propositions as to why, in his submission, his Honour was in error in that respect. The first proposition was that each of the stages in the procedure specified in cl 6.3 is not compulsory. The second was that the express terms of the Agreement allow for the prospect of the rent review process not generating a Current Market Rent. The third was that, in some circumstances, the Lessor may not wish to obtain an external market assessment. The fourth was that, in some circumstances, the Lessee may wish to initiate a market rent review.
125 As to the first and second propositions, counsel failed to distinguish between the compulsory character of the rent review process generally, on the one hand, and the absence of a requirement that the rent review process must produce an outcome, on the other. The trial judge did not hold that each stage in the rent review process is compulsory [55] - [59], [79]. Also, his Honour did not hold that the rent review process must generate a Current Market Rent [55] - [59].
126 His Honour's conclusion that the rent review process is, generally speaking, compulsory was only one of the factors which his Honour considered in determining that, on a proper construction of the Agreement as a whole, cl 6.3 included the implied term pleaded by the Lessor as its primary contention.
127 The third proposition advanced by counsel for the Lessee is without merit. The proposition is based on the premise that the rent review process is optional. That premise is inconsistent with the text of cl 6.3, properly construed.
128 Counsel for the Lessee argued that if it were known that the market had either remained unchanged or had fallen significantly, the Lessor might prefer not to incur the cost of an independent valuation, the outcome of which would not produce any increase in rent.
129 However, the Lessor will only incur the cost of an independent valuation if the Lessee disputes the Lessor's notice of assessment. Prior to that stage, the Lessor is entitled to assess the New Rent itself. If the Lessor were to form the view that the Current Market Rent is lower than the Old Rent and, therefore, give the Lessee a notice of assessment that the New Rent is to be equal to the Old Rent, it is inconceivable that the Lessee would dispute the Lessor's assessment.
130 Counsel for the Lessee also argued that the Lessor may prefer to avoid obtaining an independent valuation if it was negotiating other tenancies in the building or considering the sale of the building. This argument, in effect, invites the court to have regard to matters that are irrelevant to the commercial transaction documented by the Agreement. Those matters are extraneous and must not be taken into account in determining the proper construction of the Agreement.
131 The fourth proposition advanced by counsel for the Lessee is without merit generally for the reasons I have given at [108] - [122] above in the course of considering whether the rent review process to determine the Current Market Rent on 1 November 2013 was solely for the benefit of the Lessor.
132 The trial judge was correct in concluding that the rent review process to determine the Current Market Rent on 1 November 2013 is 'generally speaking, compulsory' [74].
Issue 1: was the implied term necessary to give business efficacy to the Agreement?
133 The trial judge held that the Agreement should be given a businesslike interpretation on the assumption that the parties intended to produce a commercial result [40], [77]. His Honour then held that it was necessary to imply into the Agreement the term pleaded as the Lessor's primary contention in that:
(a) the purpose of the rent review process to determine the Current Market Rent on 1 November 2013 was solely for the benefit of the Lessor;
(b) the Lessee had no commercial incentive to facilitate the process of determining the Current Market Rent; and
(c) the evident purpose of the single market rent review, arising upon the Lessee exercising its option for a further term, would be liable to be defeated by the unfettered choice of the Lessee, who had an interest in the process failing so that the New Rent would equal the Old Rent [77] - [79], [99].
134 Counsel for the Lessee submitted that the Agreement has commercial efficacy without the implied term, even though the Agreement would be less beneficial to the Lessor without it. The submission is flawed because it fails properly to apply the 'business efficacy' requirement to the scheme embodied in cl 6.1, cl 6.2 and cl 6.3 in the context of the Agreement as a whole.
135 The requirement that an alleged implied term be 'necessary … to give business efficacy to the contract' demonstrates that it is insufficient that the implication of the term is reasonable. See Codelfa (346).
136 Further, as to the concept of 'business efficacy':
(a) The word 'business', at least in the context of a business-related contract, emphasises that whether the alleged term is to be implied must be evaluated, objectively, by reference to the commercial purpose of the contract as revealed by the objective framework of facts within which the contract came into existence, including the nature and character of the subject matter of the contract and the market in which the parties are operating. See Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995 - 996 (Lord Wilberforce); Codelfa (350); Byrne (448).
(b) In The Moorcock (1889) 14 PD 64, Bowen LJ (Fry LJ agreeing) said 'what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men' (68).
(c) In Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691, Jordan CJ (Nicholas & Owen JJ agreeing) observed:
[T]he test of whether [an alleged implied term] is clearly necessary is whether the express terms of the contract are such that both parties, treating them as reasonable men - and they cannot be heard to say that they are not - must clearly have intended the term, or, if they have not adverted to it, would certainly have included it, if the contingency involving the term had suggested itself to their minds (695).
(d) In Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267, Dixon CJ, Williams, Webb and Kitto JJ said 'the law raises an implication from the presumed intention of the parties where it is necessary to do so in order to give to the transaction such efficacy as both parties must have intended that it should have' (280).
(e) In Con-Stan Industries, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said that implied terms were not necessary for the business efficacy of the contract in question because 'the contract is capable of sensible operation in the absence of the implied terms' (241). That is, the terms were not 'necessary to make the contract work' (241). See also Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 66 (Gibbs CJ), 95 (Mason J), 118 (Wilson J), 121 - 122 (Deane J), 139 - 140 (Dawson J).
137 In the present case, the case advanced on the Lessee's behalf in effect frustrates the rent review process under the Agreement by asserting that the Lessee is entitled to refuse to agree, without reasonable cause, to ask the President to appoint an independent Valuer to determine the New Rent. On the Lessee's construction of cl 6.1, cl 6.2 and cl 6.3 of the Standard Conditions, the Lessee would only be required to pay rent that had been adjusted, in some years, by the fixed percentage of 3.75%, without any adjustment by reference to the Current Market Rent. Further, on the Lessee's construction, if (as in the present case) the Lessee exercises the option to renew then the rent during the first year of the renewed term (that is, from 1 November 2013 to 31 October 2014) would not be adjusted at all (even by the fixed percentage of 3.75%).
138 I am satisfied that the trial judge correctly understood and properly applied the business efficacy requirement.
Issue 1: was the implied term reasonable and equitable?
139 A term will not be implied unless the term operates reasonably and equitably as between the parties. It is not sufficient that the term is reasonable from the viewpoint of one party or reasonable in relation to the specific contract. See Peters American Delicacy Co Ltd v Champion [1928] HCA 27; (1928) 41 CLR 316, 324 (Knox CJ, Isaacs & Gavan Duffy JJ); BP Refinery (284).
140 In my opinion, taking into account the objective framework of facts within which the Agreement came into existence and the parties' presumed intention in this setting, and generally for the reasons I have given in concluding that the business efficacy requirement was satisfied, the implied term pleaded as the Lessor's primary contention was reasonable and equitable as between the parties.
Issue 1: did the implied term contradict the express terms of the Agreement?
141 The trial judge held that the implied term pleaded as the Lessor's primary contention left the Lessee free to decline to agree to ask the President to appoint an independent Valuer if the Lessee had reasonable grounds for refusing to agree [79], [99], [104].
142 Counsel for the Lessee asserted in the appeal that the implied term pleaded as the Lessor's primary contention in effect contradicted the express terms of the Agreement in that:
(a) the Lessee's discretion to decline to agree to ask the President to appoint an independent Valuer is unconditional and unqualified; and
(b) the substance of the implied term in effect obliges the Lessee to agree to ask the President to appoint an independent Valuer.
143 The principle enunciated in BP Refinery referred, relevantly, to the implied term not 'contradicting' any express term, rather than the implied term and any express term not being 'inconsistent'. However, in the present case, as in Ling v Commonwealth of Australia (1994) 51 FCR 88, 'any shade of difference in meaning between these two concepts may be put to one side … as immaterial' (98) (Gummow, Lee & Hill JJ).
144 The requirement that an alleged implied term not 'contradict' any express term plainly includes a direct contradiction. However, the requirement has a broader connotation. For example, a term cannot be implied if it is apparent, on the face of the document, that the parties adverted to the point in question and either deliberately rejected it or deliberately refrained from dealing with it. See Darin Nominees Pty Ltd v Franklin's SelfServe Pty Ltd [1999] NSWCA 209 [35] (Powell JA, Meagher JA & Sheppard AJA agreeing).
145 Although the mere fact that an express term deals with a particular subject matter is not, of itself, decisive against an implication which involves the relevant subject matter being dealt with more extensively, an examination of the contract, in the context of the objective framework of facts within which it came into existence, may reveal that the express term was intended to cover the field that would otherwise be occupied, at least in part, by the alleged implied term. In those circumstances, there would be no room for the implication of the alleged term. See Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469, where Jordan CJ (Halse Rogers & Street JJ agreeing) made these comments:
The implied promise may also be negatived by an express provision which is inconsistent with it … This occurs where the contract is found to contain in the same field an express promise in different terms … The fact that there is an express provision dealing to some extent with the same subject is not, of itself, sufficient, in every case, to negative the implied promise … It may appear that the express term is intended only to supplement it … But if the express term appears to be intended to cover the field that would otherwise be occupied by the implied term, the implied term is excluded (476 - 477).
- See also Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; (1974) 132 CLR 1, 12 (Stephen J); Biki v Chessells [2004] VSCA 70; [2004] ANZ Conv R 296 [25] - [26] (Ormiston JA, Winneke P & Eames JA agreeing).
146 An implied term may grow out of an express contractual term. An implied term will not necessarily, in the relevant sense, contradict an express term merely because it modifies the effect of the express term, since every implied term will invariably have that effect. Similarly, an exception from the general effect of an express contractual term will not necessarily, in the relevant sense, contradict it. See Re Batiste; Ex parte Commonwealth Bank of Australia (Unreported, FCA, P 2657 of 1987, 27 April 1989) 37 (Burchett J).
147 In the present case, the implied term pleaded as the Lessor's primary contention does not contradict any express term of the Agreement. I am of that opinion for the following reasons.
148 First, the implied term expressly contemplates that there may be circumstances in which the Lessee can properly decline to agree to ask the President to appoint an independent Valuer. The implied term does not, either in substance or in effect, oblige the Lessee to agree to ask the President to appoint an independent Valuer, except where the Lessee has no reasonable grounds for refusing to agree.
149 Secondly, the Lessee's right under cl 6.3 to decline to agree to ask the President to appoint an independent Valuer is not expressed to be unconditional or unqualified. The absence of an express fetter on the Lessee's entitlement under cl 6.3 does not mean that the Lessee's right to refuse is unfettered. It is of some significance, in this context, that the further assurance provision in cl 26.7 requires each party to do all acts reasonably required of it to carry out and give full effect to the Agreement and the rights and obligations of the parties under it.
150 Thirdly, even if, contrary to my view, the Lessee's entitlement under cl 6.3 is unconditional and unqualified, it does not follow that the implied term contradicts any express term. An implied term which supplements or is an exception to the general effect of an express term will not necessarily contradict the express term. In the circumstances, the proper characterisation of the implied term in the present case is that it supplements, but does not contradict in the relevant sense, the express provisions embodied in cl 6.1, cl 6.2 and cl 6.3.
151 Fourthly, contrary to the Lessee's submission, the Lessee's right under cl 6.3 to decline to agree to ask the President to appoint an independent Valuer is not 'entirely eviscerated by the implied term'. The standard of 'reasonableness' which is imposed by the implied term applies by way of qualification. It is a familiar concept in the law and is readily capable of application to particular facts and circumstances. See, generally, Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [40] - [43] (French CJ, Hayne, Crennan & Kiefel JJ). In the present case, the implied term does not, as asserted on the Lessee's behalf, impose a standard that involves 'an elusive, indeterminate and controversy-prone regime'. As the trial judge rightly observed, a reasonable ground on which the Lessee may decline to agree would include, for example, any plausible ground for concern that an appointment by the President would not result in a truly independent assessment of the Current Market Rent [86]. Any alternative means of determining the Current Market Rent proposed by either party to the other would also be relevant in determining whether a refusal to agree to ask the President to appoint an independent Valuer was reasonable.
152 Fifthly, the Lessee's argument that the implied term effectively renders its 'contractual entitlement to act in its own interest [to be] disqualified as irrelevant' is not valid. His Honour did not hold that the Lessee could never act in its own interest. The standard of 'reasonableness' embodied in the implied term does not have that effect. It merely requires that there be a reasonable ground for the Lessee's refusal.
153 In the present case, on the relevant facts and pursuant to the implied term, the Lessee must agree to ask the President to appoint an independent Valuer because the Lessee has not advanced any basis (reasonable or otherwise) for its refusal and not because the effect of the implied term is tantamount to requiring the Lessee to agree.
Issue 1: was the implied term not so obvious that 'it goes without saying'?
154 The requirement that an alleged implied term must be so obvious that 'it goes without saying' has been approached by reference to the hypothetical 'officious bystander' who is present throughout the negotiations between the parties and intervenes before their conclusion. As Aickin J noted in Codelfa (373), this has been the formula used since MacKinnon LJ introduced it in Shirlaw v Southern Foundries(1926) Ltd [1939] 2 KB 206, 227.
155 However, as Aickin J went on to explain in Codelfa, the formula involving the 'officious bystander' (as distinct from the 'reasonable bystander') is not always a helpful or useful process (373 - 374). The difficulties adverted to by his Honour included:
The first problem is that the manner in which the officious bystander formulates his question will often determine the answer which the parties will give. In the present case if the question put was 'What will be the position if the Authority's legal advice about immunity is wrong?', the answer would be very different from that which might be received to the question 'What will happen if an injunction is granted?'. Yet it seems to me with respect that the former question is equally, if not more, appropriate. One may formulate a further query - must the officious bystander be satisfied with the first response or may he pose a second question, and if not, why not? (374).
- See also Bryan M and Ellinghaus MP, 'Fault Lines in the Law of Obligations: Roxborough v Rothmans of Pall Mall Australia Ltd' (2000) 22 Sydney LawReview 636, 640 - 648.
156 There are cases in which it has been suggested that the 'officious bystander' must be persistent as well as officious and may ask follow up questions of the parties in their hypothetical dialogue. See Little v Courage Ltd (1994) 70 P & CR 469, 479 (Millett LJ delivering the judgment of the Court of Appeal); Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 [162] - [163] (Kirby J). By contrast, for example, in Roxborough v Rothmans of Pall Mall Australia Ltd [1999] FCA 1535; (1999) 95 FCR 185, Hill and Lehane JJ said that the hypothetical dialogue between the 'officious bystander' and the parties 'does not proceed by stages, arriving first at a term and then, through a process of further hypothetical discussion, adding qualifications and exceptions': what is to be implied must meet the applicable tests and 'appear fully fledged' [53]. It is unnecessary, in the present case, to explore further this division in the authorities. As I will explain, the 'officious bystander' test is satisfied in the present case without it being necessary for the bystander to be persistent or to engage in an extended interrogation of or dialogue with the parties.
157 If a term is beneficial to only one party and detrimental to the other an implication which may be regarded as obvious to one party may not be so regarded by the other. See Con-Stan Industries (241).
158 An implied term will not be so obvious that it goes without saying if it is not possible to choose between several competing formulations. See Elliott v Reading [1999] WASCA 11 [37] - [41] (Ipp J, Malcolm CJ & Pidgeon J agreeing). As Mason J commented in Codelfa:
This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution (355 - 356).
159 However, it is not necessary that the alleged implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the express terms of the contract and the objective framework of facts within which it came into existence. See Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, where Lord Hoffmann, in delivering the advice of the Privy Council, said:
The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument [25].
160 In the present case, if the parties had intended that the Lessee should have an unfettered discretion to decide whether the rent should be reviewed by reference to the Current Market Rent, then the multi-step process set out in cl 6.3 would have been unnecessary. The rent review process would have been simple and involved only one step, namely: 'The New Rent shall be the higher of the Old Rent and any rent which the Lessee agrees, in its absolute discretion, to pay to the Lessor'. Instead, cl 6.3 embodies cascading procedures which are, on any reasonable view, intended to produce a Current Market Rent for the leased premises.
161 Finally, in relation to this issue, the Lessee's submission that cl 6.1, cl 6.2 and cl 6.3 should be construed contra proferentem should be rejected. It is sufficient to note that the contra proferentem rule only applies where there is doubt or ambiguity and only as a measure of last resort. In the present case, on a proper construction of cl 6.1, cl 6.2 and cl 6.3, by reference to orthodox principles of construction, there is no relevant doubt or ambiguity.
162 I am satisfied that the implied term pleaded as the Lessor's primary contention was so obvious that 'it goes without saying'.
Issue 1: did the implied term lack clarity?
163 The requirement that an alleged implied term be capable of clear expression overlaps with the requirement of obviousness. A term which is incapable of clear expression is unlikely to be so obvious that 'it goes without saying'. See Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth of Australia [1977] HCA 71; (1977) 139 CLR 54, 62 (Gibbs J); Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales [2003] NSWCA 151; (2003) 57 NSWLR 212 [181] (Handley JA); Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003) 134 FCR 522 [181] (Lander J, Hill & Jacobson JJ agreeing).
164 An implied term will not be incapable of clear expression merely because it operates by reference to a standard such as 'reasonableness'. See Alucraft Pty Ltd (in liq) v Grocon Ltd (Exhibition Hall Contract) (Unreported, VSC, 22 April 1994) 20 - 21 (Smith J); State of New South Wales vBanabelle Electrical Pty Ltd [2002] NSWSC 178; (2002) 54 NSWLR 503 [52] (Einstein J) and the cases there cited.
165 In the present case, the imposition of the implied term pleaded as the Lessor's primary contention does not, by the imposition of a standard of 'reasonableness', fail to satisfy the requirement of clarity of expression.
166 A term is not incapable of clear expression merely because one of the parties, in the context of litigation, disagrees on its formulation.
Issue 1: conclusions
167 The implication of a term in a commercial contract to the effect that a party is not unreasonably to withhold its consent to an action or conduct by the other party is not unusual and remarkable. A similar observation may be made in relation to the implication of a term in a commercial contract which contemplates that both or all of the parties will consent to a specified activity.
168 In my opinion, for the reasons I have given, the trial judge did not err in deciding that the Agreement contained an implied term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent, for the purposes of cl 6.3 of the Standard Conditions.
169 Further, I record, for the sake of completeness, that:
(a) the express terms of cl 6.1, cl 6.2 and cl 6.3 of the Standard Conditions read with the implied term that the parties would not unreasonably refuse to agree to ask the President to appoint an independent Valuer to decide the New Rent; and
(b) his Honour's finding that the Lessee did not assert any grounds for its refusal to agree to ask the President to appoint an independent Valuer (other than its erroneous contention that the Agreement permitted it to not agree if it chose to do so) [104],
compelled the conclusion that, by virtue of its implied duty to cooperate, the Lessee was bound to agree to ask the President to appoint an independent Valuer to decide the New Rent for the Review Date of 1 November 2013 and to do all things reasonably necessary to enable the President to appoint an independent Valuer to decide the New Rent.
170 These conclusions are sufficient to require that the Lessee's appeal be dismissed.
Issue 2: did the trial judge err in deciding that, if the specific machinery provisions in cl 6.3 of the Standard Conditions for the determination of the Current Market Rent failed, a court could not determine the Current Market Rent and thus the New Rent, for the purposes of cl 6.3?
171 The issue as to whether the trial judge erred in deciding that, if the specific machinery provisions in cl 6.3 of the Standard Conditions for the determination of the Current Market Rent failed, a court could not determine the Current Market Rent and thus the New Rent, for the purposes of cl 6.3, arises from the Lessor's cross-appeal and the Lessee's notice of contention in the Lessor's cross-appeal.
172 As I have mentioned, the Lessor's cross-appeal was advanced on the premise that this court, contrary to the Lessor's primary case, allows the Lessee's appeal.
173 It is strictly unnecessary to deal with Issue 2 in view of my conclusions that his Honour did not err in upholding the Lessor's primary contention of an implied term and that the Lessee was bound to agree to ask the President to appoint an independent Valuer and to do all things reasonably necessary to enable the President to appoint an independent Valuer. In the circumstances, it is open to this court to dismiss the cross-appeal and the notice of contention without adjudication.
174 I will, however, in deference to the submissions made by counsel for each of the parties, deal briefly with the issue.
175 Counsel for the Lessor argued that the contractual machinery in the Agreement for determining the Current Market Rent had failed because the Lessee had unreasonably refused to agree to ask the President to appoint an independent Valuer. The 'primary bargain' between the parties was that the Current Market Rent would be determined, using the objective criteria specified in the Agreement, at the commencement and for the purposes of the renewed term (subject to further adjustment each year thereafter by 3.75%). According to counsel for the Lessor, there was no reason to suppose from the text of the Agreement that the benefit of this primary bargain 'could so easily be denied by the capricious conduct of the Lessee'. The trial judge should have found that the prescribed contractual machinery was not an essential and indispensable part of the contractual bargain. The 'essential bargain' was that 'the [Current Market Rent] be determined'. Counsel for the Lessor relied, in support of his contentions, on the majority judgments of the House of Lords in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 and the High Court's decision in Booker Industries Pty Ltd v Wilson Parking (Qld) PtyLtd [1982] HCA 53; (1982) 149 CLR 600.
176 Counsel for the Lessee sought to uphold the trial judge's decision that cl 6 of the Standard Conditions could not be characterised as subsidiary and non-essential on the basis of his Honour's reasoning. In the Lessee's notice of contention, it was argued that his Honour's decision should be upheld on an additional ground, namely that Sudbrook and other authorities to similar effect are distinguishable in that in the present case the machinery in cl 6.3 did not break down.
177 In Sudbrook, by cl 9 in each of four lease agreements, the lessors granted the lessees an option to purchase the reversion in fee simple in the leased premises 'at such price … as may be agreed upon by two valuers one to be nominated by the lessor and the other by the lessee and in default of such agreement by an umpire appointed by the said valuers'. The lessees exercised their options to purchase but the lessors refused to appoint a valuer. The lessees brought proceedings for declarations that, upon the true construction of the lease agreements, the option clauses conferred upon them valid options to purchase at a valuation and that those options had been validly exercised. The lessees also sought orders for specific performance. The lessors argued that the contracts formed upon exercise of the options were uncertain because no price had been agreed for the sale and purchase of the property.
178 The majority of the House of Lords construed the contracts formed upon exercise of the options as contracts for sale at a fair price to be ascertained by the valuer or, in default, by the court. Lord Fraser of Tullybelton said:
I recognise the logic of the reasoning which has led to the courts' refusing to substitute their own machinery for the machinery which has been agreed upon by the parties. But the result to which it leads is so remote from that which parties normally intend and expect, and is so inconvenient in practice, that there must in my opinion be some defect in the reasoning. I think the defect lies in construing the provisions for the mode of ascertaining the value as an essential part of the agreement. That may have been perfectly true early in the 19th century, when the valuer's profession and the rules of valuation were less well established than they are now. But at the present day these provisions are only subsidiary to the main purpose of the agreement which is for sale and purchase of the property at a fair or reasonable value. In the ordinary case parties do not make any substantial distinction between an agreement to sell at a fair value, without specifying the mode of ascertaining the value, and an agreement to sell at a value to be ascertained by valuers appointed in the way provided in these leases. The true distinction is between those cases where the mode of ascertaining the price is an essential term of the contract, and those cases where the mode of ascertainment, though indicated in the contract, is subsidiary and non-essential: see Fry on Specific Performance, 6th ed (1921), pp 167, 169, paragraphs 360, 364. The present case falls, in my opinion, into the latter category. Accordingly when the option was exercised there was constituted a complete contract for sale, and the clause should be construed as meaning that the price was to be a fair price (483).
179 In Booker, the lessee under a lease agreement had an option to renew the term of the lease at a rent to be agreed with the lessor or, failing agreement, to be determined by an arbitrator appointed by a named person, such rent not to be less than that payable in the last year of the original term. The lessee exercised the option but the lessor refused to grant a new lease. The lessee brought proceedings for specific performance although the rent had not then been fixed. The High Court held that the option to renew was not void for uncertainty because the lease agreement specified the entire mechanism for determining the rent during the renewed term.
180 Gibbs CJ, Murphy and Wilson JJ said:
It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal 'at a rental to be agreed' there would clearly be no enforceable agreement. On the other hand, it is also well established that the parties to a contract may leave terms - even essential terms - to be determined by a third person: see the cases cited in Godecke v Kirwan ((1973) 129 CLR 629, at p 645). In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term. There is no further agreement required of the parties. It is true that if they do agree upon that rental, then there is no occasion to resort to the independent mechanism that the lease provides. But, there being no such agreement, all that is required is that the President name a person to fix a figure being not less than the minimum rental operative during the original term. No formality is required to effect the necessary appointment. Either party may request the President to facilitate the fulfilment of the agreement. It may be assumed that if he declines to do so, or if the person nominated declines to carry out the task assigned to him, then the renewal cannot be effected, and that Wilson's exercise of the option will have been fruitless. Nevertheless, in the circumstances as they stand at present, there is a valid agreement for the renewal of the lease subject to the fixation of a rental for the new term. The fixation of that rental is a condition precedent to the performance of the agreement (604 - 605).
181 Their Honours held that the lessee was entitled to an order that the lessor do whatever was reasonably necessary to ensure that the rent was fixed, and upon its being fixed, to grant a lease for a further term. In other words, a conditional or limited order for specific performance was made. Their Honours explained:
It may be that in the present case the President might nominate an arbitrator at the request of one of the parties, but he might decline to do so unless both parties requested him to act. Given an effective exercise of the option, both parties were under an obligation to request him to nominate an arbitrator, if such a request was reasonably necessary to procure the nomination.
In those circumstances there should be a limited decree for specific performance of the kind made in Butts v O'Dwyer and Kennedy v Vercoe … If a lessor agrees to renew a lease at a rent to be fixed by a third party, and agrees (expressly or impliedly) to do all that is reasonably necessary to ensure that the rent is so fixed, it is not right to say that there is no concluded contract until the rent is fixed. There is a contract which immediately binds the lessor to perform his obligation to do all that is reasonably necessary to ensure that the rent is fixed, although the performance of the further obligation to renew the lease is conditional on the rent being fixed. There is no reason in justice or in law why the court should not make an appropriate order for specific performance in such a case, that is, an order that the lessor should do whatever is reasonably necessary to ensure that the rent is fixed, and, if the rent is fixed, should renew the lease (606).
182 Gibbs CJ, Murphy and Wilson JJ referred to and approved the decision of the majority in Sudbrook to the extent that their Lordships' decision was consistent with earlier High Court decisions such as Butts and Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521.
183 In Booker, Brennan J would have ordered the lessor to grant the lessee a lease containing a clause relating to the fixing of the rent drawn in conformity with the renewal provision. That is, his Honour would have decreed specific performance without the condition or limitation in the order made by Gibbs CJ, Murphy and Wilson JJ. Brennan J referred to the decision in Sudbrook and said it was unnecessary to consider whether the law in Australia should be redefined in the light of the speeches in the House of Lords in that case. Brennan J held:
[N]either the synallagmatic contract which came into existence upon the exercise of the option nor the lease to be granted in performance of that contract is uncertain. If the contractual machinery for fixing the rental were to fail, the rental would be fixed by the court. There is therefore no impediment to granting a decree of specific performance of the contract and requiring Booker to grant to Wilson a lease containing a clause relating to the fixing of the rental drawn in conformity with cl 4.01. Such a lease would be valid, for if the machinery for fixing the rent should fail, the court's machinery will be available to fix it: certum est quod certum reddi potest (617).
184 If, contrary to my opinion, the trial judge erred in upholding the implied term pleaded as the Lessor's primary contention and in ordering the Lessee to sign a letter asking the President to appoint an independent Valuer and to do all things reasonably necessary to enable the President to appoint an independent Valuer, it would follow that the Lessee, in refusing to agree to ask the President to appoint an independent Valuer, was acting in accordance with, and not in breach of, the provisions of cl 6.3. There would have been no breakdown in the machinery embodied in cl 6.3 because, absent the implied term pleaded as the Lessor's primary contention, cl 6.3 permitted the Lessee not to ask the President to appoint an independent Valuer.
185 Alternatively, the trial judge was correct, generally for the reasons he gave, in deciding that the machinery in cl 6.1, cl 6.2 and cl 6.3 cannot be characterised as subsidiary and, accordingly, the basis for intervention by the court in the manner contemplated by the majority in Sudbrook does not exist [94] - [96]. It is unnecessary, in the present case, to consider whether the law in Australia has been or should be redefined by reference to the speeches of the majority in Sudbrook.
Issue 2: conclusion
186 The Lessor's cross-appeal should be dismissed.
The outcome of the appeal and the cross-appeal
187 I would dismiss the appeal and the cross-appeal.
188 MURPHY JA: I agree with Buss JA.
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