Royal Botanic Gardens and Domain Trust v South Sydney City Council

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gaudron,McHugh,Gummow,Hayne JJ,Kirby J,Callinan J
• Judgment Date: 14 February 2002
• Neutral Citation: 2002-0214 HCA C,[2002] HCA 5
• Court: High Court
• Docket Number: S263/2000
• Date: 14 February 2002

[2002] HCA 5

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ

S263/2000

Royal Botanic Gardens and Domain Trust

Appellant

and

South Sydney City Council

Respondent

City of Sydney Act 1988 (NSW).

Crown Lands Consolidation Act 1913 (NSW).

Public Parks Act 1912 (NSW).

Public Trusts Act 1897 (NSW).

Domain Leasing Act 1961 (NSW).

Royal Botanic Gardens and Domain Trust Act 1980 (NSW).

Royal Botanic Gardens and Domain Trust v South Sydney City Council

Contract — Construction of lease — Determination of rent by lessor — Lease provided that, in determining amount of rent payable, lessor ‘may have regard to’ certain additional costs and expenses — Whether lessor limited to consideration of those factors — Use of surrounding circumstances to assist in interpretation of written contract in case of ambiguity — Both parties public bodies operating under particular legislative regimes — Whether statutory powers of lessor relevant to the meaning of the lease and the exercise of the determination of the amount of rent payable under the lease — Transaction of a non-commercial nature and designed to provide a public facility — Whether covenant of good faith and fair dealing implied in contractual dealings.

Precedent — Application of Codelfa Construction Pty Ltd v State Rail Authority of NSW — Status in other Australian courts of subsequent English authority.

Construction and interpretation — Contract — Deed of lease — Primary duty to construe language of the lease — Use of surrounding circumstances to assist in interpretation of written contract in case of ambiguity — Both parties public bodies operating under particular legislative regimes — Whether statutory powers of lessor relevant to the construction of the lease — Whether covenant of good faith and fair dealing implied in contractual dealings.

Words and phrases — ‘may have regard to’.

1 Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. This appeal from the New South Wales Court of Appeal1 concerns the construction of a deed (‘the Lease’) dated 15 May 1976 between, on the one part, four persons collectively identified as ‘the Trustees of the Domain’ and called ‘the Lessors’ and, on the other part, the Council of the City of Sydney called ‘the Lessee’. The Lease was registered under the provisions of the Registration of Deeds Act 1897 (NSW) (‘the Registration of Deeds Act’) on 17 March 1984. By force of subsequent statute, the present appellant, the Royal Botanic Gardens and Domain Trust, stands in the place of the Trustees of the Domain and, where appropriate, in these reasons will be called ‘the Lessor’, and the respondent, South Sydney City Council, stands in the place of the Council of the City of Sydney and, where appropriate, in these reasons will be called ‘the Lessee’.

Gleeson CJ

2 It will be necessary later in these reasons to say something further respecting the legislative antecedents of the Lessor and the Lessee. However, it should be noted at the outset that the Domain referred to is part of that area set apart and identified as such from the earliest days of European settlement. The history of the matter is detailed, particularly by Barton ACJ, inWilliams v Attorney-General for New South Wales2. His Honour points out that at least since the time of Governor Darling portions of the Domain have been reserved for public purposes including recreation3.

3 The Lease recites the construction by the Council of the City of Sydney with the consent of the then Trustees of the Domain in the strata of the land identified in the Schedule as ‘the demised land’ of a building used for the purpose of accommodating vehicles on payment of a fee or charge and a footway leading thereto. The former is defined as ‘the Parking Station’ and the latter as ‘the footway’. The strata identified as ‘the demised land’ is leased to the Lessee for a term of 50 years commencing some 18 years before the date of the deed, that is to say on 1 May 1958. As will appear, this lapse of time is significant for the issue of construction with which this appeal is concerned.

4 Clause 1 of the Lease, which contains the demise, continues:

‘YIELDING AND PAYING during and in respect of the first three years of the said term the yearly rent of Two thousand dollars ($2,000.00) AND YIELDING AND PAYING thereof after the first three years of the term and during and in respect of each of the fifteen periods each of three years and the remaining period of two years comprising in all the residue of the said term a yearly rent which shall be determined by the Trustees in respect of each and every such period as is hereinafter in Clause 4(b) provided’.

5 The litigation turns on the correct construction of cl 4(b), in particular of par (iv). Clause 4(b) provides:

‘That the yearly rent payable during and in respect of each of the fifteen periods each of three years and the remaining period of two years comprising in all the residue of the said term after the first three years thereof (each of such periods being hereinafter referred to as “the affected periods”) may be determined by the Trustees at the commencement of each of the affected periods and the yearly rent so determined shall be payable during and in respect of the then succeeding three years of the term PROVIDED that –

• (i) the Trustees shall notify the Lessee of the yearly rent as so determined as soon as practicable after the commencement of each of the affected periods;

• (ii) any necessary adjustment of rent shall be made between the Trustees and the Lessee on the next day for payment of rent following such notification to the Lessee;

• (iii) the yearly rent determined by the Trustees as aforesaid shall not in any event be less than Two thousand dollars ($2,000.00); and

• (iv) in making any such determination the Trustees may have regard to additional costs and expenses which they may incur in regard to the surface of the Domain above or in the vicinity of the parking station and the footway and which arise out of the construction operation and maintenance of the parking station by the Lessee.’

6 The respondent, as the current Lessee, instituted a proceeding in the Equity Division of the Supreme Court of New South Wales seeking declaratory relief respecting the construction of cl 4(b). The relief sought was to the effect that the appellant, as Lessor, in determining any amount of yearly rent in excess of the yearly rental payable over the three year period immediately prior to that inquestion, was constrained by cl 4(b) only to do so by having regard to any additional costs and expenses which the Lessor might incur during the three year period for which the yearly rent was being determined in respect of the surface of the Domain above or in the vicinity of the Parking Station and footway and which arise out of the construction, operation and maintenance of the Parking Station by the Lessee. However, the primary judge (Hodgson J) did not accept that construction of the Lease. Rather, his Honour granted a declaration that the Lease had ‘an implied term that in making a determination of rent pursuant to clause 4(b), the lessor must act bona fide for the purposes of determining a rent which is no more than a fair and reasonable rent’. In his reasons for judgment, Hodgson J identified the operation of par (iv) of cl 4(b) as making:

‘it clear that the lessor can take into account the matters referred to there, without thereby raising any question as to whether they are acting fairly and reasonably’.

7 The relief by Hodgson J did not reflect the constraint which the Lessee maintained was imposed by cl 4(b)(iv) and favoured the interests of the Lessor. The Lessee accordingly appealed to the Court of Appeal (Spigelman CJ, Beazley and Fitzgerald JJA) and was successful. The relief granted by the Court of Appeal included a declaration: ‘that clause 4(b)(iv) of the lease dated 15 May 1976 between the Trustees of the Domain as lessor and the Council of the City of Sydney as lessee (“lease”) specifies exhaustively the considerations material to a determination by the lessor of the rent payable pursuant to the lease’.

8 In this Court, the appellant Lessor seeks the setting aside of the orders of the Court of Appeal and in place thereof an order that the appeal from the primary judge be dismissed. In our opinion, the Court of Appeal reached the correct result and the appeal to this Court should be dismissed.

9 In his judgment, Fitzgerald JA referred to well-known passages in the judgment of Mason J inCodelfa Construction Pty Ltd v State Rail Authority of NSW4 respecting the admissibility of evidence of surrounding circumstances to assist in the interpretation of a written contract if the language be ambiguous or susceptible of more than one meaning. In the present case, the difficulty concerns the phrase in par (iv) of cl 4(b) ‘the Trustees may have regard to

additional costs and expenses’. Does this mean that the Trustees, in making a determination, cannot have regard to matters other than those additional costs and expenses? If the Trustees may have regard to other matters, what are they? In a context such as cl 4(b), to specify a particular matter to which a party may have regard without expressly stating either that it is the only such matter or, to the contrary, that the specification does not limit the generality of the matters to which regard may be had is likely to result in ambiguity. It does so in the present case. The resolution of the ambiguity requires the application of settled principles of construction.

10 Incodelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities5 which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances...