Westpac Banking Corporation v Tanzone Pty Ltd

Westpac Banking Corporation (Westpac) sought to recover possession of premises leased to Tanzone Pty Ltd (Tanzone) under a commercial lease. The dispute centred on the interpretation of a rent review clause within the lease agreement. The matter came before the Court of Appeal of New South Wales.

The primary legal issue before the court was whether the rent review clause, as drafted, should be interpreted in a manner that avoided an absurd or unworkable outcome. Specifically, the court had to determine if the "absurdity rule" of contractual interpretation was applicable in this instance and, if so, how it should be applied to the clause in question.

The court reasoned that the rent review clause, if interpreted literally, would lead to a commercially absurd result where the rent could potentially decrease significantly upon review, contrary to the usual intention of such clauses in commercial leases. Applying the absurdity rule, the court found that it was permissible to depart from the literal meaning of the words to give effect to the presumed intention of the parties, which was to ensure a reasonable and predictable rent adjustment. The court considered the context of the lease and the commercial realities to ascertain this presumed intention.

The appeal was allowed, and the orders of the lower court were set aside.