Ecosse Property Holdings Pty Ltd(Appellant) v Gee Dee Nominees Pty Ltd

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Kiefel,Bell,Gordon JJ.,Gageler J.,Nettle J.
• Judgment Date: 29 March 2017
• Neutral Citation: [2017] HCA 12
• Docket Number: M143/2016
• Date: 29 March 2017

[2017] HCA 12

HIGH COURT OF AUSTRALIA

Kiefel, Bell, Gageler, Nettle and Gordon JJ

M143/2016

Ecosse Property Holdings Pty Ltd

Appellant

and

Gee Dee Nominees Pty Ltd

Respondent

Representation

M J Colbran QC with G D Bloch for the appellant (instructed by Goldhirsch & Shnider)

N C Hutley SC with A Hanak for the respondent (instructed by SBA Law)

Contract — Construction and interpretation of contracts — Long-term lease — Standard form contract — Where parties entered lease because unable to effect sale and purchase of land due to planning restrictions — Where standard form lease amended by parties — Where clause pertaining to payment of rates, taxes, assessments and other outgoings ambiguous — Whether parties intended lease to resemble sale and purchase of land — Whether lessee liable to pay all rates, taxes, assessments and other outgoings or only liable to pay those payable in lessee's capacity as tenant.

Words and phrases — ‘commercial purpose and objects’, ‘commercial sense’, ‘deletions from standard form contract’, ‘in respect of the said premises’, ‘payable by the tenant’, ‘reasonable businessperson’.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside orders 2 to 5 of the Court of Appeal of the Supreme Court of Victoria made on 4 March 2016 and in their place order that the appeal to that Court be dismissed with costs.

1 Kiefel, Bell and Gordon JJ. The facts surrounding the making of the lease that is the subject of this appeal and its terms are set out in Gageler J's reasons. The original lessor was the owner of land which included the land the subject of the lease. Had it not been for town planning restrictions, a subdivision of that land would have taken place and the land the subject of the lease sold to the original lessee. When the parties were unable to achieve a sale and purchase they entered into a lease for a long term, ninety-nine years. The rental for the entire term was paid on entry into the lease.

2 The issue on which the Court of Appeal of the Supreme Court of Victoria divided concerned the significance of cl 13 of the lease to the construction of an ambiguous provision governing liability for the payment of rates, taxes and other outgoings.

3 Clause 13 contained the following information:

‘The parties acknowledge that it was the intention of the Lessor to sell and the Lessee to purchase the land and improvements hereby leased for the consideration of $70,000.00 and as a result thereof the parties have agreed to enter into this Lease for a term of ninety-nine years in respect of which the total rental thereof is the sum of $70,000.00 which sum is hereby acknowledged to have been paid in full.’

4 It is common ground that the consideration there mentioned was more or less equivalent to the market value of the land.

5 The clause on which the appellant relied in bringing the proceedings in the courts below as lessor, for recovery of rates, taxes and other outgoings, from the respondent as lessee, is cl 4, which is in these terms:

‘AND [the Lessee] also will pay all rates taxes assessments and outgoings whatsoever excepting land tax which during the said term shall be payable by the Landlord or tenant in respect of the said premises ( but a proportionate part to be adjusted between Landlord and Tenant if the case so requires).’

6 On the appellant's case, cl 4 obliges the lessee to pay all rates, taxes, assessments and outgoings in respect of the land. On the respondent's case, cl 4 obliges the lessee to pay only those imposts that are levied on it in its capacity as the tenant, leaving the lessor liable to pay those imposts that may be levied on it as owner of the land. For the reasons to be given, the appellant's construction is to be preferred and it follows that the appeal must be allowed.

7 The appellant's argument focuses on cl 13, which is said to identify the genesis and aim of the transaction between the original lessor and lessee 1. Adopting what was said by Kyrou JA, who dissented in the Court of Appeal 2, it is said that it was clearly the intention of the parties to recreate, as far as possible, in a lease, the conditions which would have obtained following a sale. On that approach, the position of the lessee under the lease would have more closely resembled that of a purchaser, upon whom liability for rates, taxes and other outgoings would fall.

8 The respondent denies cl 13 the effect for which the appellant contends, observing that the clause does not contain a statement that it was the parties' intention to replicate the conditions of sale and purchase. The respondent points to other reasons for inclusion of cl 13: it was necessary to state the amount of the rent (a need created by the deletion of cl 2), and it was prudent to record that the sum had been paid in full. More generally, the respondent's submission, which found favour with the Court of Appeal majority, is that when the lease is read as a whole there is no warrant for treating cl 13 as an instruction as to its interpretation.

9 It was not disputed in the Court of Appeal that cl 4, as settled by the parties, is ambiguous 3 and argument in this Court proceeded upon that acceptance. And it was not disputed that in the circumstances it is open to the court to take account of the words crossed out of the standard form as an aid to the proper construction of the clause 4. The deletions do not evidence a prior

intent, which could have changed, but rather they identify a matter which, on the face of the document, was rejected by both parties 5.

10 The respondent's argument draws on the structure and language of cl 4. The words ‘Landlord’ and ‘tenant’ in the unamended text are not found elsewhere in the lease. Their employment here is suggested to reflect the function of the clause in allocating liability for such enforceable obligations as arise independently of the lease to the lessor and lessee in their respective capacities as landlord and tenant.

11 In the original form of cl 4, the words ‘AND also will pay’, when read with cl 3, identified the party to whom the obligation applied. The words ‘all rates taxes assessments and outgoings whatsoever excepting land tax’ identified the subject of the clause. The words ‘which during the said term shall be payable by the Landlord or tenant in respect of the said premises’ identified the characteristics of the imposts to which the clause applied. The amendments are said by the respondent not to have altered the grammatical structure of the clause, which remains adjectival. The imposts to which the clause applies must have two characteristics: they must be ‘in respect of the said premises’ and they must be ‘payable by the tenant’. It is said the words ‘payable by the tenant’, in their natural and ordinary sense, convey a liability which the tenant is under an enforceable obligation to pay, and which arises independently of the lease.

12 The respondent's construction lays emphasis on the deletion of the words ‘Landlord or’ as signifying the parties' intention that the lessee's obligation be confined to those imposts levied on it as tenant. The respondent also contends that, given the land formed part of a larger parcel, it is to be expected that the mechanism for apportionment contained in parentheses would have been retained had it been the parties' intention to make the lessee liable for the payment of all rates, taxes and other outgoings.

13 The last-mentioned submission directs attention to the concluding words of the clause, ‘in respect of the said premises’. The appellant observes that on the respondent's construction, these words are redundant: if the lessee's liability is confined to the payment of those imposts that are ‘payable by the tenant’ they will necessarily be imposts ‘in respect of the said premises’. The appellant's argument points to the retention of this phrase as a recognised means of conveying that the lessee's liability to pay land tax assessed on the whole of the

lessor's landholdings is confined to the demised land 6. On the appellant's construction, the words ‘payable by the tenant in respect of the said premises’ reiterate the lessee's obligation, tying it to the leased premises. It is a construction which the appellant submits rendered the reference to the landlord and the mechanism for apportionment in parentheses in the standard form unnecessary and confusing.

14 The choice to amend cl 4 by crossing out words in the printed text is apt to lessen the force of arguments that depend upon analysis of its grammatical structure. This standard form of farm lease imposed liability on the lessee for the payment of all imposts on the land, save for land tax. As amended, cl 4 reads:

‘AND [the Lessee] also will pay all rates taxes assessments and outgoings whatsoever which during the said term shall be payable by the tenant in respect of the said premises.’

15 As each of the judges below rightly acknowledged, each of the constructions proposed by the parties is plausible. The determination of the proper construction is not advanced by observing that on the appellant's case the phrase ‘payable by the tenant’ is redundant or that on the respondent's case the phrase ‘in respect of the said premises’ is redundant. The amendments to the standard form of lease were poorly crafted. The only explanation for the deletion of the lessee's covenant to the lessor (in relation to all succeeding covenants) in cl 2 and for the retention of cl 3, which in light of the deletion of cl 2 is redundant, is inadvertence. In the circumstances it hardly assists the determination of the proper construction of cl 4 to observe that the effect for which the appellant contends might have been achieved economically by simply deleting the words ‘excepting land tax’.

16 It is well established that the terms of a commercial contract are to be...