Wormald Australia Pty Limited v G R Mailman & Associates Pty Limited

[1991] HCATrans 279

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S75 of 1991

B e t w e e n -

WORMALD AUSTRALIA PTY LIMITED

Applicant

and

G.R. MAILMAN & ASSOCIATES PTY

LIMITED

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 OCTOBER 1991, AT 10.43 AM

Copyright in the High Court of Australia

Wormald 1 4/10/91

MR J.C. CAMPBELL, QC:  May it please the Court, I appear

with my learned friend, MR N.C. HUTLEY, for the

applicant. (instructed by Bruce & Stewart Turton)

MR D.F. LIBLING:  May it please the Court, I appear for the

respondent. (instructed by Henry Davis York)

BRENNAN J: Yes, Mr Campbell?

MR CAMPBELL:  Your Honours, this case is one which involves

one of the hundreds of thousands of commercial
leases that are in existence in Australia which

contain a provision for rent review during the

course of the lease. The rent review provision is

one which set out a machinery that was to be

followed to enable the rent to be reviewed from

time to time. It was a provision which contained

certain steps to be carried out. The critical

provisions, if I could take Your Honours to them in

the application book, appear first at page 3 where

the clause which first appears on the page permits

a lessor to give a notice in writing if he wishes

to increase the rent. (b) provides that:

Prior to the expiration of fourteen (14) days

from service of the notice from the Lessor,

the Lessee may -

dispute it and can nominate one of a panel of

valuers who are there set out.	(c) requires the
Lessor to appoint the valuer.	(d) says:

In the event that the Lessee does not serve notice of dispute on the Lessor within the

time prescribed -

the Lessee is deemed to have agreed that the amount

in the Lessor's notice is the current market rent.

(e) provides that:

If either the Lessor or the Lessee dispute the

the valuer - level of the current market rent determined by

then he is entitled to a further written opinion. (f) says that if after going through all of those steps the parties are still unable to agree, then the President of the Institute of Valuers appoints

someone who acts as an expert. What happened here

was that in a situation where the initial rent

under a lease had been $150,000, a notice was

served by the lessor increasing the rent to more
than double that amount and the lessee was late by

something of the order of three weeks in disputing

it.

Wormald 2 4/10/91

The lessee then sought to have an independent

determination and to require the lessor to
institute the proceedings for valuation and

determination of the market rent. One has here a

situation where at first instance the Chief Judge

in Equity, in what one would have thought was a

common and important conveyancing matter, held that

it was the appropriate thing to require the

valuation procedure to proceed. The Court of

Appeal came to an opposite conclusion.

The courts below all accepted that the general

approach to this matter was to be governed by the

decision of the House of Lords in the United

Scientific case. However, the differences of

approach that were revealed in the various

judgments below show that there is nothing like

unanimity or common understanding as to what is

involved in those principles.

This is a situation where in the courts in

England an approach to the construction of these

rent review clauses has arisen where, if there is a

deeming provision such as that which is contained

in paragraph (d), that is not regarded as being in

any way conclusive. There is still a question as

to whether the deeming provision is itself of the

essence. That is something which was recognized by

both His Honour Mr Justice Waddell and also by
His Honour Mr Justice Samuels, that the trend in

England is to regard these deeming provisions as

not in any way disposing of the matter.

If I could take Your Honours to what

His Honour Mr Justice Waddell says at 24,

His Honour says:

I must confess that my initial reaction to the

submissions for the plaintiff in this case was along the lines of the first approach taken by

Cole, J.	However, I think that this Court at
first instance is obliged, by the weight of

authority both in England and in Australia, to

consider whether, as a matter of construction,

the prima facie view that in the present case

in article 2.02(b) and (d) time is not of the

essence is inconsistent with a proper

construction of the review clause and of any
other relevant provisions of the lease taken

as a whole. I adopt the approach taken by

Wootton, Jin Martins House Pty Limited and,

in relation to deeming clauses, that of the

majority of English judges.

He is there referring to the majority of English

judges not regarding these deeming clauses as being

the end of the matter.

Wormald 3 4/10/91

BRENNAN J:  How do you put the argument? What is the course

of analysis which leads to the conclusion

favourable to your client?

MR CAMPBELL:  The way that we put it is that the approach

that one adopts is the United Scientific approach

where one regards these clauses as being pure

matters of mechanics, that if there is a failure to

comply with a time stipulation in something that is

a mere matter of mechanics, then the essential

benefit of the agreement is not being denied to the

other party.

DAWSON J: That cannot be right, can it? It must be a

matter of construction of the agreement. If you

approach it that way, you are construing 14 days to

mean 14 days more or less. You cannot do that in

the face of the deeming clause.

MR CAMPBELL:  What we would submit, Your Honour, is that

this is a situation where equitable relief is

available, that one has here a situation which is
analogous to the situation that there is in any

contract for the sale of land where - - -

DAWSON J: What is the equitable relief you are talking

about?

MR CAMPBELL:  It is an order in the nature of specific

performance that a valuer be appointed

notwithstanding that the strict time for compliance

has passed.

BRENNAN J:  Is that in protection of some proprietary right?

If not, where is the analogy?

MR CAMPBELL:  It is the protection of a right to have the

benefit, we would submit, of the substance of the contract, and that is sufficiently analogous to a proprietary right. Just as in an ordinary contract

for the sale of land equity will grant specific

performance notwithstanding that the contractual

date for completion has passed, so here
notwithstanding that the strict date for compliance

with the notice-serving provisions has passed, so

there can be an order for the appointment of a

valuer.

TOOHEY J: The analogy is not a very happy one, is it? In

the sale of land cases you are dealing with

purchasers ordinarily who failed to meet a payment

on a particular date and who, if equitable relief

is not granted, stand to lose their equity in the

contract.

MR CAMPBELL:  Yes.

Wormald 4 4/10/91

TOOHEY J:  How do you draw an analogy between those cases

and the particular one we are concerned with here?

MR CAMPBELL:  Here one has a situation where part way

through a lease a lessee is in a situation where he

is in a position where for the balance of the term

of the lease he is entitled to pay a rent which is

a market rent. The whole basis on which the lease

is entered is that the lessee will pay a market

rent and the parties recognize at the outset that

their powers of prediction just are not good enough

to see them all the way through the lease. So the

lessee, by being deprived of the opportunity to

have a valuation, has taken away from it the
opportunity which he otherwise would have had under

the contract to be in the premises and paying a

market rent.

DAWSON J:  You have got to really take it in two steps.

The sort of case that His Honour was talking about

is a case where someone is under an obligation

under a contract to do something within a

stipulated time and he does not do it. The

question arises whether the time is of the essence

or is not of the essence, or in other words whether

it was a condition or a warranty. This is not this

type of case because here it is not an obligation

to do something at a particular time; it is an

opportunity to do something within a particular
time.

But by analogy you can apply the rules relating to time in the other situation and you

ask:  "Was this particular clause" - if I can put

it in those terms - "a condition or a warranty?"

When you look to the consequences which have been

provided which is that the rent contained in the

notice given by the landlord shall be deemed to be

the fair market rent, then that is the equivalent

of saying time is of the essence because the

consequence is a sudden death consequence.

MR CAMPBELL: There are two answers to that, with respect,

Your Honour. The first is one which arises as a

construction of paragraph (f) of the clause which

appears on page 5 of the application book. That

says that:

If the parties are still unable to agree as to

the current market rent after the procedures

in paragraphs (a) to (e) -

then the lessor has still got the opportunity to

have a valuer appointed.	We would submit that one
needs to - - -

Wormald 4/10/91

DAWSON J: But that is a situation that has not arisen here.

The situation that has arisen here is that notice

was not given within the time stipulated by the

lessee. The question in that situation is: what

do you do with the deeming clause? You cannot read

it out of the contract.

MR CAMPBELL:  One cannot read it out of the contract but it

has work to do in the contract in a way which does
not require it to have the Draconian operation.

DAWSON J: Only if you read the other clause as meaning 14

days more or less. That never was the principle

which lay behind the "time is of the essence"

cases.

MR CAMPBELL:  With respect, it is not only in that

situation, Your Honour. The situation in which (d)

has clear work to do is where a landlord serves a
notice stipulating a rent which the lessee is quite
happy to go on with. (d) then says all right, that

in that situation that is deemed to be the rent for

the rest of the period. (f) picks up the

situation, about what is to happen, if after going

through all these procedures the parties are still

unable to agree. That is one way in which I would

answer the point that Your Honour put to me.

The other is to say that it is not necessary

to treat the 14 days as being 14 days more or less,

that one can still read the contract in the way it
reads but say that there is an equity which enables

a valuer to be appointed, notwithstanding that the

14 days has passed, in precisely the same way that

specific performance is regularly granted when the
contractual date for completion has passed, in

precisely the same way that equity allows there to

be redemption of a mortgage when the contractual

date for redemption has passed.

DAWSON J: But that is a different thing. That is a relief

against forfeiture, is it not?

MR CAMPBELL:  It is relief against forfeiture but where one

has here something which is a machinery provision,

a means of getting at the substantial promissory
matters that are contained in the contract, the

essence of the contract is the promise to allow the

tenant to remain in possession, the promise to pay
the rent, we would submit that what one has here is

machinery which is aimed at quantifying the

essential promissory matters in the contract.

DAWSON J: But it comes down to the fact you are asking us

to regard the initial provision as a condition and
not a warranty. Perhaps in the face of - absent

the deeming provision, one could do that, but when

Worrnald 6 4/10/91

one looks at the deeming provision, one cannot

unless one reads the deeming provision out of

existence.

MR CAMPBELL:	We would submit that it is open to read it as being - even the condition warranty distinction is,
we would submit, one which does not sit altogether
happily in this context.
DAWSON J:	It does not matter if you use that terminology,

if you say whether time is of the essence or is

not, but that is something to be gleaned either

from an express provision or by implication from

the contract. Looking at the deeming provision,

there is only one implication one can draw.

MR CAMPBELL:  We would submit, Your Honour, that the courts

in England have looked at deeming provisions and

have regularly drawn quite different -

DAWSON J: Yes, they have construed some of the cases,

construed a clause such as this, as meaning 14 days

more or less, but that is a construction which is

just not available.

MR CAMPBELL: With respect, Your Honour, that is not the method of approach that the English courts have

adopted.

DAWSON J: But it is the result.

MR CAMPBELL: Again, we would submit that that is not so,

that what the English courts are in substance doing

is providing equitable relief, notwithstanding that

the strict contractual provisions have not been

complied with because that is the way of allowing

the substance of the contract to be adhered to.

That is the sort of thing equity does every day.

DAWSON J: But the equitable relief in this context depends

upon whether you can view the term as essential or

non-essential, that is all. It is a matter of
construction.	To view it as non-essential is to

read out the deeming clause. For example, if the

parties provide that time is of the essence in this
respect, then there is no equitable relief

available, is there?

MR CAMPBELL:  We would agree with that.

DAWSON J: And if you do not use those words but use

something tantamount to those words, the effect is

the same.

MR CAMPBELL:  Here we would say that the words are not

tantamount to those.

Wormald 7 4/10/91

DAWSON J:  How do you read the deeming provision?

MR CAMPBELL: It is a provision that operates in

circumstances where the lessee does not have an

objection that it seeks to activate (f) under and

also it really does no more, we would submit, than (b) does. (b) requires service of a notice within 14 days if it is to be acted in accordance with,

yet if the deeming provision were not there, there

would be no difficulty, we would submit.

DAWSON J:	No, there would not.
MR CAMPBELL:	If that be the case, then we would submit that

(d) really does not take the matter any further.

When one has the strong presumption that is referred to in the United Scientific case

concerning the giving effect to of the real

commercial intention that underlies these clauses,

then we would submit that (d) just does not go far

enough. It is very relevant here, we would submit,

Your Honours, that this is a - - -

BRENNAN J: Your analysis is simply that the substance of

the contract is to give possession of the premises

in exchange for the rent and the rent is to be the

amount which the parties either agree on by the

process of not objecting to the lessor's notice or

having it determined, and that this is mere

machinery for achieving that result.

MR CAMPBELL: Precisely, Your Honour, yes.

BRENNAN J: That is a matter of construction of the contract

and the question of the availability of equitable

relief if your construction of the contract is

right.

MR CAMPBELL:  But it is a question of construction which

needs to be judged against a background of how one

applies the relevant principles in this case, as to

what is the appropriate approach to make.

DAWSON J:  What is the principle of construction you are

seeking to employ?

MR CAMPBELL: 

It is that one ought to be able to construe

these so that the equitable relief is available
unless - - -

DAWSON J: 

What equitable relief?

MR CAMPBELL: 

The equitable relief in the nature of specific

performance for the appointment of a valuer.

DAWSON J: But equity never gave specific performance where

time was of the essence.

Wormald	4/10/91
MR CAMPBELL:	Of course, but we would submit that in

deciding whether time is of the essence in this

particular case, that there are very strong

presumptions, there is a very real commercial

problem.

DAWSON J: There must be some principles of construction

which you seek to employ in deciding time - by

analogy anyway - is not of the essence here.	What
are they?

MR CAMPBELL:  They are the principles that were laid down in

the United Scientific case.

DAWSON J: What is that?

MR CAMPBELL: That is that - if I could hand to Your Honours

the relevant portions of that case, if Your Honours

could go to 928 in the speech of Lord Diplock which

was the leading speech in the House. His Lordship

had earlier referred to the very real commercial

problem that there was in dealing with these rent

review clauses. He set out some principles at 928

which derived from the Hongkong Fir case:

(1) Stipulations as to the time at which a

party was to perform a promise on his part

were among the contractual stipulations which
were not regarded as "conditions precedent" if

his failure to perform that promise punctually

did not deprive the other party of

substantially the whole benefit which it was

intended that he should obtain from the

contract;

(2) When the delay by one party in performing

a particular promise punctually had become so

prolonged as to deprive the other party of

substantially the whole benefit which it was

intended that he should obtain from the

contract it did discharge that other party

from the obligation to continue to perform any

of his own promises which as yet were

unperformed;

(3) Similar principles were applicable to

determine whether the parties' duties to one

another to continue to perform their mutual

obligations were discharged by frustration -

et cetera.

BRENNAN J:  In each of those cases His Lordship was

referring to a promise to perform an obligation.

MR CAMPBELL:  Over the page at 930, following the long

paragraph, the principle is:

Wormald 9 4/10/91

My Lords, I see no relevant distinction

between the obligation undertaken by a tenant

under a rent review clause in a lease and any

other obligation in a synallagmatic contract

that is expressed to arise upon the occurrence

of a described event, where the postponement
of that event beyond the time stipulated in
the contract is not so prolonged as to deprive
the obliger of substantially the whole benefit
that it was intended he should obtain by

accepting the obligation.

He goes on to say:

So upon the question of principle ..... ! would

hold that in the absence of any

contra-indications in the express words of the
lease or in the interrelation of the rent
review clause itself and other clauses or in

the surrounding circumstances the presumption

is that the time-table specified in a rent

review clause for completion of the various

steps for determining the rent payable in
respect of the period following the review

date is not of the essence of the contract.

DAWSON J: Right, so it is a matter of construction and you

are faced here with a deeming clause which is

tantamount to saying "time is of the essence".

MR CAMPBELL:  We would submit that the deeming clause does

not have that effect, that it has not been so
regarded in the English cases, and that also

paragraph (f) is a reason why - - -

DAWSON J:  So that you read the deeming clause on your

construction to operate only where the lessee
intends it to operate and not where he does not

intend it to operate.

MR CAMPBELL:  Indeed, that is so.

TOOHEY J:  Mr Campbell, in your answers to various

questions, you have made no reference to any

statutory provision. Are we to take it that there is no relevant statutory provision in this matter?

MR CAMPBELL:  There is of course the provision of the

Conveyancing Act that says that the provisions of

equity as to time prevail, but that is the only

one.

TOOHEY J: When you say it is the only one, do you place any

reliance on it or not?

MR CAMPBELL:  It is something that we place reliance upon

because it is part of the reasoning in United

Wormald 10 4/10/91

Scientific v Burnley Council. I believe it is

section 13 of the Conveyancing Act in New South

Wales. We would submit that this is the sort of

situation in which, because equity would regard

there as being the opportunity for the granting of relief in the nature of specific performance, that that is the approach to the construction of the

provisions of time that matters.

BRENNAN J:  You have put your argument in a variety of ways

in answer to questions put to you.	Do you wish to
sum it up in any particular fashion?

MR CAMPBELL:  Your Honours, one thing I ought say is that

this is a case that the Court of Appeal has

admittedly found very difficult. The Chief Justice

in the Court of Appeal referred at page 53 of the

application book to this as being a case where - at

Bon the page:

The problem of where to fit a rent review

clause which contains a deeming provision such

as Article 2.02(d) within the principles laid

down in United Scientific Holdings Ltd v

Burnley Borough Council is one that has caused

the English Courts considerable difficulty.

He sets that out. Over on the next page he says

that he has had a lot of difficulty too. He says:

The difficulty which the English Courts have

had with this particular problem arises at

least in part, I think, because the reasoning

of the House of Lords in United Scientific

represents something of a victory of

commercial common-sense over strict legal

logic. This, in turn, makes it difficult to
work out how far it is possible to go in

taking that reasoning to its logical

conclusion.

He does not find it an easy matter.

Mr Justice Samuels taking a quite different One has

approach to the matter. His Honour

Mr Justice Samuels at page 61E starts off by

saying:

I must confess that if I were not guided by

authority, I would, by the application of the

general principles of the law of contract,

have little difficulty in construing the
notice requirements in paragraph (b) as being

of the essence.

He goes on to deal then with various provisions

that concern conditions precedent to promissory

Wormald 11 4/10/91

obligations being of the essence. But over at 64,

after expressing those doubts, he says:

Be that as it may, it seems to me that the

High Court has accepted the authority of

United Scientific in Australia.

He goes on to deal with the application of that.

The way that His Honour Mr Justice Meagher

approaches the question is set out at page 74

where, having adverted to the distinction between

the effect of time being of the essence in common

law and the effect in equity, he says in the middle

of the page at J that it does not involve any

consideration of whether the stipulation is a

condition or warranty, because no party is seeking

specific performance of any contract. That, with
respect, we would submit is incorrect.

What we would submit, Your Honour, is that this is a case where the application of these

provisions as to time in machinery provisions is

one which this Court has not considered at all.	It
is a matter of, we would submit, very great public
importance; that the principles that have been
worked out where one is applying equitable

principles direct to promissory provisions in a
contract rather than to machinery provisions need
to be looked at carefully. They need to be altered
in their application, in their application to this

different context, and that the court below, the Court of Appeal, has not correctly applied those

principles. If the Court pleases.

BRENNAN J:  We need not trouble you, Mr Libling. The

decision of the Court of Appeal in favour of the

respondent in this case is not attended with

sufficient doubt to justify the grant of special

leave to appeal. Accordingly, special leave to

appeal will be refused.

MR LIBLING:

We ask for costs, Your Honour.

MR CAMPBELL: It is not opposed, Your Honour.

BRENNAN J:  It will be refused with costs.

AT 11.14 AM THE MATTER WAS ADJOURNED SINE DIE

Wormald 12 4/10/91