Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Toga Pty Ltd v Perpetual Nominees Ltd (RLD) [2013] NSWADTAP 2
• Hearing dates: 20 September 2012
• Decision date: 15 January 2013
• Jurisdiction: Appeal Panel - Internal
• Before: M Chesterman, Deputy President; K Rickards, Judicial Member; T Tyler, Non-judicial Member

Decision

1. Declare that the Appellant / Cross Respondent is obliged to pay to the Respondents / Cross Appellants the Annual Rent and the Lessee's Contributions from 13 November 2010 to 12 November 2011 under the renewed lease that came into existence upon the exercise by the Appellant / Cross Respondent of the option contained in the registered Sublease AA989655B.

2. The proportion of Annual Rent and Lessee's Contributions held in escrow in the Macquarie Bank Open Legal Investment, Account number 104563, is to be paid to the Respondents / Cross Appellants.

3. Any application by the Respondents / Cross Appellants for the costs of the appeal and cross appeal must be filed and served within 28 days, along with supporting submissions and any additional submissions they may wish to make as to the costs of the Tribunal hearing. Any submissions in reply by the Appellant / Cross Respondent must be filed and served within a further 28 days. These matters of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Appeal Panel decides that a hearing is required.

4. Liberty to apply within 28 days for clarification and/or amendment of Order 2.

• Catchwords: Retail lease - construction - terms of option lease - Tribunal's powers in relation to rectification
• Legislation Cited: Administrative Decisions Tribunal Act 1997; Retail Leases Act 1994
• Cases Cited: Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No 2) (1998) 9 BPR 16,515; Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Lewis v Stephenson (1898) 67 LJQB 296; Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67; Phoenix Commercial Enterprises Pty Limited v City of Canada Bay Council [2010] NSW CA 64; Riltang P/L v L P/L [2004] NSWSC 977; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5; Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548; Toga Pty Limited v Perpetual Nominees Limited and CFS Managed Property Limited [2012] NSWADT 80; Trade Practices Commission v Tooth & Co Ltd (1979) 142 CLR 397; Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528; [2007] HCA 45
• Texts Cited: Meagher, Gummow and Lehane, Equity: Doctrine and Remedies (Butterworths, 4th edn, 2002)
• Category: Principal judgment
• Parties: Toga Pty Ltd (Appellant / Cross Respondent); Perpetual Nominees Ltd (First Respondent / Cross Appellant); CFS Managed Property Ltd (Second Respondent / Cross Appellant)
• Representation: M Leeming SC and S Cirillo (Appellant / Cross Respondent); J Simpkins SC and M Ellicott (Respondents / Cross Appellants); Corrs Chambers Westgarth (Appellant / Cross Respondent); Minter Ellison Lawyers (Respondents / Cross Appellants)
• File Number(s): 129010, 129014

Decision under appeal

• Citation: Toga Pty Limited v Perpetual Nominees Limited and CFS Managed Property Limited [2012] NSWADT 80
• Date of Decision: 2012-04-30 00:00:00
• Before: Retail Leases Division
• File Number(s): 115048, 115056

decision

Introduction

1 This decision relates to an appeal and a cross-appeal filed against the decision of the Retail Leases Division of the Tribunal in Toga Pty Limited v Perpetual Nominees Limited and CFS Managed Property Limited [2012] NSWADT 80.

2 The Appellant / Cross Respondent, Toga Pty Limited ('Toga') was the sublessee under registered Sublease No. AA989655B ('the Sublease') relating to retail shop premises near Central Railway Station, Sydney.

3 The First Respondent / Cross Appellant, Perpetual Nominees Limited ('Perpetual'), and the Second Respondent / Cross Appellant, CFS Managed Property Limited, were the sublessors.

4 Perpetual is the trustee of a Managed Investment Scheme called the Colonial Commercial Property Trust. CFS Managed Property Limited is the Responsible Entity and Manager of the Scheme.

5 In line with the terminology of the Tribunal's decision, we use the term 'Colonial' to describe both sublessors.

6 It has been common ground throughout that the Sublease was governed by the Retail Leases Act 1994 ('the RL Act'). It had a term of 10 years commencing on 13 November 2000 and terminating on 12 November 2010.

7 Item 14 in the Reference Table of the Sublease stated that the lessee, Toga, was not required to pay the annual rent or the 'Lessee's Contributions' (i.e., the lessee's contribution to outgoings - hereafter 'the outgoings') for the period up to the first anniversary of the Commencing Date of the Sublease. Item 14 was referred to as a 'Special Covenant'.

8 The Sublease also contained an option to renew for a further ten years. It was common ground that Toga validly exercised this option, thereby renewing the Sublease for a further term of 10 years commencing on 13 November 2010.

9 The principal issue in dispute was whether under the Sublease the parties agreed that the Special Covenant was to be included in the sublease (hereafter 'the Option Lease') that came into existence upon exercise of the option to renew.

10 In its Application, by which these proceedings were instituted, Toga maintained that the Special Covenant was to be included in the Option Lease and that it was therefore not liable to pay the rent and outgoings for the first year of this lease.

11 In a Cross Application, which was amended with leave at the Tribunal hearing, Colonial maintained that it was entitled to be paid this rent and outgoings.

12 In its decision, delivered on 30 April 2012, the Tribunal held in favour of Colonial. The reasoning by which it reached this conclusion is outlined below.

13 The hearing of Toga's appeal and Colonial's cross appeal took place before us on 20 September 2012. Mr Leeming SC addressed us on behalf of Toga and Mr Simpkins SC on behalf of Colonial.

Background

14 In its decision at [9 - 16], the Tribunal gave the following outline of the principal events leading up to the execution of the Sublease:-

9 In about 1997, Mr Robert Harris an agent with Jones Lang Wootton was retained by the NSW State Government to negotiate the sale of a long term leasehold interest in a 17,000 sq m site on Lee Street, Sydney, close to Central Railway Station which was largely undeveloped (the Site). The Site consisted of a number of unused railway sheds, tracks and a large building. There were no recognised retail activities in the area.

10 Toga and Australand made a joint offer for the Site. Toga entered into a 99 year lease for the former Post Office Building (which was part of the Site). Australand entered into a 99 year lease for the remainder of the Site.

11 Toga subsequently converted the former Post Office Building into a hotel known as 'Medina Central'. As part of this development, Toga provided for 8 specialty retail tenancies on the ground floor facing a plaza now known as the Henry Deane Plaza.

12 As part of the tender process, Australand had agreed to construct a Building called the SRA Building. On the ground floor of the SRA Building was about 585m² of retail space which faced Henry Deane Plaza. After further negotiations with Australand, Toga ended up leasing all the retail space around Henry Deane Plaza. The retail space left unlet was under the SRA Building (SRA Retail Space).

13 Australand engaged Baulderstone to construct the SRA Building and Australand sold that building prior to its construction to Colonial. As part of the sale Australand provided an 18 month rental guarantee to Colonial with respect to the SRA Retail Space.

14 Mr Harris was involved in the negotiations for the sale of the SRA Building to Colonial. Mr Harris sought tenants for the SRA Retail Space and offered the SRA Retail Space to Toga. The parties agreed to proceed.

15 Negotiations on the documentation took place between the solicitors for Colonial, Minter Ellison and solicitors for Toga, Freehills. On 16 November 1999, Toga and Permanent Trustee Australia Limited (the then trustee of the Colonial Commercial Property Trust) (Permanent) executed a deed which attached a proposed Sublease between the parties (Deed of Agreement).

16 Between execution of the Deed of Agreement and execution of the Sublease, Permanent was replaced as Trustee and as Sublessor by Perpetual. The Sublease was executed and dated 5 July 2002.

15 At [26 - 46], the Tribunal outlined a quantity of evidence relating to the negotiations leading to the execution of the Sublease. So far as is relevant to these appeal proceedings, this evidence was to the following effect.

16 Mr Allan Vidor, who was the Managing Director of Toga at that time, said that he was concerned about the possibility that the SRA Retail Space would have to be reconfigured after the expiration of the initial term of ten years. He therefore asked the estate agent, Mr Robert Harris, to propose to Colonial that in the event of renewal of the lease, the Option Lease should contain a rent-free year.

17 Mr Harris, who was called by Toga, testified as follows: (a) he received this request from Mr Vidor; (b) he passed it on to Mr Michael Ganci, who was a senior investment manager with Colonial until a date in 1999, in the course of negotiations about the Sublease; (c) Mr Ganci agreed to it; and (d) on 10 December 1998, Mt Harris sent a letter ('the Harris letter') to Mr Ganci (with copy to Mr Vidor) confirming the terms of the Sublease.

18 The Harris letter included the following passages of particular importance for these proceedings:-

I have pleasure in confirming that terms have been agreed with the Toga Group for a lease of the above retail tenancy as follows:...

The Agreement is subject to Toga receiving one year's gross rent free to be adjusted in the last month....

The Lease is subject to agreement that the services as attached, marked "A", will be provided. The cost of providing these extra services was quoted by Baulderstone at $57,000.00. It has been agreed between the parties that Colonial will allocate $40,000.00 to all these services and the balance of $17,000.00 will be provided by Australand (the developer) and deducted from the one year's gross rent free allowance, in the last month of that period.

19 Mr Vidor said that he understood this letter to indicate that Colonial had agreed to the terms that he had discussed with Mr Harris, including the provision of rent-free years at the commencement of both the Sublease and (if the option was exercised) the Option Lease. But in cross-examination, he acknowledged that Toga's contribution of $17,000 to the cost of the 'extra services' to be provided by Baulderstone was to 'come out of' the rent free allowance being granted for the first year of the Sublease.

20 In cross-examination, Mr Harris, while maintaining that it was Mr Vidor's 'prime concern' to obtain two rent-free periods of one year, conceded that the Harris letter was 'sloppy' and that the intended condition that there should be a rent-free period in the Option Lease as well as the Sublease itself was 'missing'.

21 Mr Ganci denied having agreed with Mr Harris, or with anyone else representing Toga, that there should be a rent-free period in the Option Lease. In a passage in his affidavit (quoted by the Tribunal at [39]), he said:-

(d) I would not have agreed to grant a rent free period for the first year of an option term commencing in ten years time as this would have been inconsistent with my then commercial practice and approach because:

(i) the inclusion of a term to that effect in the lease would have been a very unusual practice and imprudent;

(ii) I would not have agreed to such a deal because something like that would have been left by me to be negotiated at the time the option was exercised or immediately prior thereof;

(iii) I would have insisted on any term to that effect being expressly documented; and

(iv) it was my usual practice at the time for me to record any arrangements I made in my notebook, which I took with me to meetings, and in a responsive letter to the party with whom the arrangement was made and I did not do that in this case. This would be an even more important consideration if I had agreed to an unusual term such as the grant of a rent free period in the first year of the option term. I have no record in my notebook of having ever discussed or agreed to a rent free period in the first year of an option term.

22 Mr Nicholas Gray, who was the fund manager of Colonial between 1998 and 2000, also denied having agreed that there should be a rent-free period in the Option Lease. His affidavit included the following passage (quoted by the Tribunal at [41]:-

(15) (i) I understood, at the relevant time, that Toga was to receive one year's gross rent free in the first year of the initial term to be adjusted in the last month;

(ii) The cost of the provision of extra services by Baulderstone (the Builder), in connection with the development, was $57,000.00, of which, Colonial was to pay $40,000.00 and the balance of $17,000.00 was to be provided by Australand and was to be deducted from the gross rent free allowance. This had the result that in the first year of the initial term, Toga paid rent of $17,000.00 to Colonial, putting Colonial in funds to pay Baulderstone.

In my opinion, a rent free concession would not sensibly have been applicable in the first year of any Option Lease because an equivalent service provision by Baulderstone would not have been provided in the first year of any further term. The services payment to Baulderstone specifically related to the initial construction and building of the premises by them.

23 Mr Geoffrey Cohen, formerly a partner in Minter Ellison, was instructed by Colonial to act for it in the preparation of the Deed of Agreement and the Sublease. Mr Andrews, of Freehills, acted for Toga.

24 In his affidavit, Mr Cohen referred to a request by Mr Andrews that the market rent review, originally contemplated in the Harris Letter to be on the 5th and 10th anniversary of the commencement date, be moved to the 4th and 9th anniversary of the commencement date. This was to ensure that the rental payable in year 1 of the Option Lease would be known to Toga at the commencement of year 10, before it decided whether or not to exercise the option to renew. Mr Gray, from whom Mr Cohen sought instructions on this matter, indicated that Mr Andrews' request should be granted. The Sublease, as finally executed, made provision accordingly.

25 Mr Cohen's affidavit included the following observations (quoted by the Tribunal at [45]) on this specific aspect of the Sublease and on Toga's claim that there should be a rent-free period in the Option Lease. We might add that we find nothing surprising in Mr Cohen's comments regarding the unusual nature of such a claim:-

I understand this to mean that the rent payable by Toga in year 1 of any Option Lease would be the market rent determined at the end of year 9 (or at the commencement of year 10) plus a fixed percentage increase of 2.5% provided for in item 16(1) of the Sublease). Had a rent free period in the first year of any Option Lease been in the parties contemplation, the formula described above, would not have been workable or applicable...

Again in my opinion based upon my experience and knowledge of this particular transaction, I am surprised that Toga is now asserting an entitlement to a rent free period in the first year of the Option Lease for the following reasons:

(i) a rent free period in an Option Lease was a very unusual practice and rarely given;

(ii) a gross rent free period (rent and outgoings) was even more unusual and rare;...

26 Mr Andrews was not called as a witness.

The Sublease

27 The relevant provisions of the Sublease were as follows. Most of them, but not all, were set out in the Tribunal's decision at [18].

28 The cover page included the following items:

1.TERM: Ten (10) years

2. COMMENCING DATE: 13 November 2000

3. TERMINATING DATE: 12 November 2010

4. With an OPTION TO RENEW for a period of 10 years set out in Clause 16 of Annexure (sic)

29 A Reference Table, located after the Table of Contents, included the following items:-

Item 8: Term: 10 years

Item 9: Commencement date: 13 November 2000

Item 10: Termination Date: 12 November 2010

Item 11: Annual Rent:

Annual Rent: Year 1: $520.00 per square metre per annum

Item 12: Rent variation:

(1) Fixed Percentage Increase Rate: 2.5%

(2) Fixed Increase Dates: Each Anniversary of the Commencement Date

(3) Market Review Date:

(i) On the fourth anniversary of the Commencement Date.

(ii) On the ninth anniversary of the Commencement Date.

Item 14: Special Covenants: 1.The Lessee is not obliged to pay the Annual Rent or the Lessee's Contributions for the period up to the first anniversary of the Commencing Date.

Item 15: Option for a Further Term:

Term: 10 years

commencing on:

and terminating on:

Item 16: Rent Variation in Further Term:

(1) Fixed Percentage Increase Rate: 2.5%

(2) Fixed Increase Dates: Each anniversary of the Commencement Date.

(3) Market Review Date: On the 5th anniversary of the Commencement Date of the renewed Term.

30 Within Annexure A, the following provisions should be quoted:-

2.1 Commencement and termination

The Term commences on the Commencement Date and terminates on the Expiration Date.

13.7 Special Covenants

(a) Subject to clause 13.7(b), the special covenants (if any) specified in Item 14 of the Reference Table bind the parties ('Special Covenants').

(b) If there is an inconsistency between any of the Special Covenants and any other provision of the Lease, the Special Covenants will prevail.

16 OPTION FOR A FURTHER TERM

16.1 Lessee's Notice Requesting Renewed Lease

If the Lessee wishes to take a renewed lease for the further term specified in Item 15 of the Reference Table then the Lessee must give written notice to the Lessor not more than 6 months and not less than 3 months before the Termination Date.

16.2 Terms of Renewed Lease

The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease:

(a) will exclude this clause 16 and Item 15 and 16 of the Reference Table;

(b) will contain rent variations as specified in Item 16 of the Reference Table.

16.3 Lessor to Grant Further Lease

The Lessor must subject to clause 16.4 grant to the Lessee a lease for the further term of years stated in Item 15 of the Reference Table if:

(a) the Lessee exercises its option of renewal for the further term within the time required under clause 16.1; and

(b) there is no existing breach of the Lease by the Lessee at the Termination Date.

16.4 Lessor's Entitlement to Refuse to Grant Further Term

The Lessor may refuse to grant a lease for the further term if the Lessee ... [the rest of the clause defined breaches by the Lessee of its obligations under the Sublease that would entitle the Lessor to refuse to grant a renewed lease]

21.1 Definitions

....

'Commencement Date' means the date specified in Item 9;...

'Term' means the period specified in Item 8 of the Reference Table commencing on the Commencement Date and expiring at midnight on the Termination Date subject to:

(a) earlier termination under Section 11, and

(b) any period of holding over under clauses 2.2;

'Termination Date' means the date specified in Item 10 of the Reference Table;...

31 Amongst these provisions, those of prime importance are Items 14 and 16 of the Reference Table and clause 16.2 of Annexure A. In the ensuing discussion, they will be referred to from time to time as the 'contentious' provisions' of the Sublease.

The orders sought by the parties

32 In its Application to the Tribunal, Toga sought the following orders (reproduced in the Tribunal's decision at [19]):-

(1) An order requiring Perpetual to grant to Toga, and to do all things necessary to bring into effect, a Sublease of the Premises (Option Lease) for a period of 10 years commencing 13 November 2010 on the terms of registered Sublease AA989655B, save that:

(i) the Annual Rent to be inserted in Item 11 be $246,750.00 (GST exclusive);

(ii) Clause 16 be deleted;

(iii) Item 15 of the Reference Table be deleted;

(iv) Item 16 of the Reference Table be deleted;

(v) the Commencement Date in Item 9 of the Reference Table be changed to 13 November 2010;

(vi) the Commencing Date in Item (H)2 on the cover page be changed to 13 November 2010;

(vii) the Termination Date in Item 10 of the Reference Table be changed to 12 November 2020;

(viii) the Terminating Date in Item (H)3 on the cover page be changed to 12 November 2020;

(ix) Item (H)3 on the cover page be deleted;

(x) Item 12 of the Reference Table be replaced with the following:

Item 12: Rent Variation

(1) Fixed Percentage Increase Rate: 2.5%

(2) Fixed Increase Dates: Each anniversary of the Commencement Date

(3) Market Review Date: On the fifth anniversary of the Commencement Date

(2) A declaration that, on the proper construction of the Option Lease, Toga is not obliged to pay the Annual Rent or the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011.

(3) Costs

33 In the Amended Cross Application, Order (2) sought by Colonial was the same as Order (1) in Toga's Application, except that the subparagraphs of this order were labelled differently and an additional subparagraph was included in the following terms:-

That Items 12 and 14 of the Reference Table be deleted;

34 Colonial also sought the following orders (quoted in the Tribunal's decision at [21]):-

(1) A declaration that Toga is to pay the Annual Rent and the Lessee's Contribution (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011.

(3) An order that the proportion of Annual Rent held in escrow in the Macquarie Bank Open Legal Investment Account number 104563 be paid to the Cross Applicants.

(4) Further and, in the alternative, an order that the terms of the Sublease be rectified to correctly reflect the common intention of the First Cross Applicant and Cross Respondent, upon execution of the Sublease, that Toga is obliged to pay the Annual Rent and the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011 by substituting for Clause 16.2 of the Sublease the following Clause:

16.2 Terms of Renewed Lease

The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease:

(a) will exclude this clause 16 and Items 12, 14, 15 and 16 of the Reference Table;

(b) will contain rent variations as specified in Item 16 of the Reference Table.

(5) Further and, in the alternative, a declaration that if this Tribunal had the power to order rectification then it would order that based upon the facts determined, the terms of the Sublease be rectified to correctly reflect the common intention of the Cross Applicant and Cross Respondent, upon execution of the Sublease, that Toga is obliged to pay the Annual Rent and the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011 by substituting for Clause 16.2 of the Sublease the following Clause:

16.2 Terms of Renewed Lease

The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease:

(a) will exclude this clause 16 and Items 12, 14, 15 and 16 of the Reference Table;

(b) will contain rent variations as specified in Item 16 of the Reference Table.

(6) Costs.

35 The addition of Order 5 was the subject of Colonial's application at the Tribunal hearing to amend its Cross Application as originally filed. This application was opposed, but it is to be inferred that the Tribunal granted leave to amend.

The Tribunal's decision

36 In summary, the principal propositions contained in the Tribunal's decision were as follows:-

1. On its proper construction, the Sublease provided that Item 14 of the Reference Table, exempting Toga from liability to pay rent and outgoings up to the first anniversary of the commencement date of the renewed term, was to be included in the Option Lease if the option was duly exercised.

2. According to the 'common intention' of the parties and the 'bargain' agreed between them, however, Item 14 was to be omitted from the Option Lease. This intention was clearly discernible from the evidence relating to the negotiations between the parties, notably the crucial passages within the Harris letter.

3. An order for rectification of the Sublease, bringing it in line with the bargain that the parties had made, was therefore appropriate in principle.

4. Under section 72(1)(e) of the RL Act, however, the Tribunal has no power to order rectification of a retail shop lease unless the parties consent. Since Toga did not consent, an order of this nature could not be made.

5. Toga's refusal of consent amounted, however, to a breach of a term that is implied into all leases, to the effect that each party is bound to uphold 'the fidelity of the bargain' between them 'for the benefit of the other party'.

6. The Tribunal has a 'mandate' under the RL Act to resolve disputes relating to retail shop leases. Section 72(1)(f)(iii) of this Act confers upon it an express power to declare the rights and liabilities of the parties to such leases. This power was exercisable in the present proceedings.

7. The appropriate order in the proceedings was therefore a declaration that Toga was required to pay rent and outgoings during the first year of the Option Lease. This would give effect to the 'common intention' of the parties and to the 'bargain' that they had made with regard to the question in dispute between them.

37 Order 2 of the orders made by the Tribunal in its decision, delivered on 30 April 2012, was in the following terms:-

2. The Applicant [Toga] is obliged to pay to the Respondent [Colonial] the Annual Rent and the Lessee's Contributions from 13 November 2010 to 12 November 2011 under the Option Lease that came into existence upon exercise of the option in the Sublease.

38 Further details of the Tribunal's reasoning are supplied in the ensuing discussion of its decision.

The appeal and cross appeal

39 These appeal proceedings were initiated in the following manner during 2012. On 25 May, Toga filed a Notice of Appeal. On 14 June, Colonial filed both a Notice of Reply to Appeal and a Cross Appeal. On 28 June, it filed an Amended Cross Appeal. On 26 July, Toga filed a Notice of Reply to Amended Cross Appeal. Within these two sets of documents, the parties joined issue as follows.

40 Toga sought to support the first and fourth of the seven propositions in the foregoing outline of the Tribunal's reasoning, but claimed that all of the remaining propositions - including in particular the last - were erroneous in law.

41 Colonial claimed that the first proposition of the Tribunal was erroneous. It sought to support all of the remaining propositions except the fourth, which it did not query.

42 At the conclusion of its written submissions in chief on the appeal, filed on 3 August 2012, Toga contended that the appeal should be allowed, that Order 2 made by the Tribunal, along with an order giving directions as to costs, should be set aside and that in lieu there should be 'declarations in the terms of paragraphs 1 and 2 of Toga's application'.

43 We observe in passing that Order (1) of the orders sought by Toga in its Application (see above at [32]) was not a declaration, but an order for specific performance by Colonial of its agreement to grant a renewed lease following exercise of the option. The same general description applies to Order (2) of the orders sought by Colonial in its Cross Application (see [33]).

44 The documents filed by Colonial before the hearing of the appeal - i.e., the Reply to Appeal, the Cross Appeal, the Amended Cross Appeal and submissions relating to each of these proceedings - did not state whether it sought to sustain Order 2 of the Tribunal (a declaration) or to have it replaced by an order for specific performance, such as Order (2) of the orders that it had claimed in the Cross Application. The Amended Cross Appeal included clauses, not contained in the Cross Appeal, seeking an order that an amount representing the rent and outgoings for the first year of the Option Lease, which had been deposited by Toga into an interest-bearing controlled money account, should be paid out to Colonial.

45 In determining these appeal proceedings, we have found it convenient at each stage of our reasoning to commence by setting out our conclusions. After doing so, we summarise and comment on the arguments advanced by the parties in their written and oral submissions and the approach adopted by the Tribunal. We have found this somewhat unusual methodology to be convenient in proceedings that comprise both an appeal and a cross appeal and for that reason present the issues to be resolved in a somewhat complicated manner.

The phrases 'Commencement Date', 'Commencing Date' and 'Commencement Date of the renewed Term' in the Sublease

46 Having considered the wide-ranging submissions put to us, we have concluded that the most important factor influencing the interpretation of what we are calling the 'contentious provisions' of the Lease is the manner of use of the second and third of the above phrases within them.

47 A prior question, however, is whether the first and second of these three phrases should be interpreted as synonymous with each other. The phrase 'Commencement Date' was both defined and employed in clause 21.1 of the Sublease. It was employed in clause 2.1 and in Items 9, 12(2), 12(3) and 16(2) of the Reference Table. The phrase 'Commencing Date' was employed in Item 2 on the cover page and Item 14 of the Reference Table.

48 We consider it significant that both the 'Commencement Date' (in Item 9 of the Reference Table) and the 'Commencing Date' (in Item 2 on the cover page) were stated to be 13 November 2000. We discern no indication that the two phrases might nevertheless have different meanings. Our conclusion is that the draftsperson used them interchangeably. This conclusion appears to accord with Toga's submissions on the Cross Appeal: see paras 15 and 18.

49 We turn now to the two phrases that we have identified as especially significant: 'Commencement Date' and 'Commencement Date of the renewed Term'. These were used in close proximity to each other in Item 16 of the Reference Table, under the heading 'Rent Variation in Further Term'.

50 The natural implication of their use in this way is that they were intended to have different meanings. To ignore the difference between them would contravene the well-established principle of interpretation that the court or tribunal should 'strive to give meaning to every word of the provision'. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 335; [1998] HCA 28 at 382 [71], the High Court referred to this principle in the context of statutory interpretation, but it is equally applicable to the construction of contracts.

51 If, as would appear incontestable, the 'Commencement Date' of the Sublease is determined by taking account of the definition in clause 21.1 of the Sublease and the provision (Item 9 of the Reference Table) to which this definition referred, the date arrived at is 13 November 2000. To treat this date as the 'Commencement Date' in paragraphs (2), (3)(i) and (3)(ii) of Item 12 of the Reference Table (which deals with rent variation during the term of the Sublease) clearly accords with the intent of these paragraphs.

52 To identify 13 November 2000 as the 'Commencement Date' where this phrase is used in paragraph (2) of Item appears to accord with the intent of this paragraph also. This paragraph is to be construed as saying that within the 'Further Term' of the Sublease - i.e., the ten-year period from 13 November 2010 to 12 November 2020 - the dates on which the rent is to increase by the fixed percentage rate of 2.5% are to be 'each anniversary' of the 'Commencement Date' of 13 November 2000.

53 To achieve this result, there is no need to treat 'Commencement Date' as having a different meaning in Item 16(2) to the meaning stipulated by clause 21.1 and Item 9 and operating within Items 12(2) and 12(3).

54 On the other hand, the phrase 'the Commencement Date of the renewed Term' in paragraph (3) of Item 16 clearly identifies a different date. It means the date (13 November 2010) on which the Option Lease was to commence.

55 When Item 14 is construed with this differentiation in mind, and on the basis also that 'Commencing Date' and 'Commencement Date' were intended to mean the same thing, the rent (and outgoings) free period for which this Item provides must be taken to begin on 13 November 2000 and to operate until the first anniversary of that date.

56 To determine otherwise would be to attribute a meaning to 'Commencing Date', as used in Item 14, that is quite different from: (a) the meaning expressly given to this same phrase in Item 2 on the cover page; (b) the meaning expressly given to 'Commencement Date' in clause 21.2 of the Sublease and Item 9 of the Reference Table; and (c) the meaning implicitly given to 'Commencement Date' in Items 12(2), 12(3) and (in our opinion) 16(2) of this Table. It would involve a clear departure from the principle of interpretation that where the same words or phrases (or indistinguishable variants thereof) appear more than once within a single context, they should be given the same meaning throughout, unless the contrary is clearly indicated expressly or by implication.

57 On this view of the matter, Item 14, by the time of renewal of the Sublease, had become a 'spent' provision (to use a label employed by counsel for Colonial at the appeal hearing). It relieved Toga of its liabilities to pay rent and outgoings during a single, specifically defined period of one year that came to an end well before the time of renewal.

58 In its decision at [53], the Tribunal summarised in the following terms a submission by Colonial placing emphasis on the distinction that we have just explained:-

Within Items 14 and 16 there is a difference in terminology between "Commencing Date" and "Commencement Date of the renewed Term". If the draftsman had wished Item 14 to apply to the renewed term the draftsman would have added at the end of Item 14 the words "of the renewed Term".

59 We observe in passing that, in order to achieve the desired aim, the additional words would actually have had to be 'or of the Commencing Date of the renewed Term' (or words to similar effect).

60 Also at [53], the Tribunal rejected this submission:-

Firstly, there is an internal inconsistency between Items 16(2) and 16(3) for the words "renewed Term" do not appear at the end of Item 16(2) after "Commencement Date" but do appear at the end of Item 16(3) after "Commencement Date". That internal inconsistency is of itself curious. Mr Ellicott draws from Item 16(3) only the additional words "of the renewed Term" and submits that by omission of these words from Item 14 after "Commencing Date", one should assume that this is purposeful and the draftsman meant Item 14 does not apply to the Option Lease (ie. the renewed Term).

I agree that there is an inconsistency in the approach of the draftsman between Items 14 and 16(3), leaving aside the inconsistency within Item 16 itself. However, clause 13.7 of the Sublease is quite specific in its terms. Clause 13.7(a) states that the Special Covenant binds the parties and clause 13.7(b) states that if there is any inconsistency between the Special Covenant and the terms of the Sublease then the Special Covenant will prevail. The inconsistency is the inclusion of the words "of the renewed Term" after "Commencement Date" in Item 16(3) but omission of those words after "Commencing Date" in Item 14. The omission might be suggestive that Item 14 should not be in the Option Lease. If that is an inconsistency in approach by the draftsman, then clauses 13.7(a) and (b) answers that inconsistency in that the Special Covenant and Item 14 are paramount and consequently bind the parties and prevails.

Further, I note that clause 13.7 is not specifically excluded from the Option Lease. The repeat of clause 13.7 in the Option Lease lends weight to the construction that Item 14 is also not specifically excluded from the Option Lease.

61 We make two comments on this passage. First, as will have become apparent, we treat as a significant indicator of meaning a feature of the wording of Items 16(2) and 16(3) that the Tribunal described as no more than an 'internal inconsistency' and as 'curious'. Secondly, our opinion regarding clause 13.7 is that the effect of the 'paramountcy' that it gives in subclause (b) to the 'Special Covenant' in Item 14 can only be discerned after Item 14 has itself been construed. Clause 13.7(b) does not actually bear on the construction of Item 14 (this being the question of prime importance that we are currently investigating). It operates only if this Item, properly construed, is found to be inconsistent with one or more other provisions of the Sublease.

62 On both of these issues, we respectfully differ from the opinions stated by the Tribunal. We regard these opinions as erroneous in law.

The operation of clause 16.2 of the Sublease

63 At this stage of the reasoning, it is important for us to emphasise that despite the occasional suggestion to the contrary in the Tribunal's decision (for example, in a reference at [57] to 'the front cover of the Option Lease'), no written agreement constituting the Option Lease has as yet been executed by the parties. The question to be determined, therefore, is not as to the meaning of any existing document called the Option Lease. It is whether the terms of any future document constituting this Lease should or should not exempt Toga from liability for rent and outgoings with respect to the first year.

64 If the line of argument set out in the preceding section is correct, the fact that clause 16.2 of the Sublease did not list Item 14 of the Reference Table among the provisions of the Sublease that were to be excluded from the Option Lease is not enough by itself, in our opinion, to make good Toga's claim that by virtue of this Item it is not liable for these amounts of rent and contributions during the first year of the Option Lease.

65 If this claim by Toga is to succeed, it is insufficient that, on a proper construction of the Sublease, the parties agreed that Item 14 was to be repeated in the Option Lease. It must also be the case that, within the new context of the Option Lease, the interpretation of the phrase 'Commencing Date' in Item 14 differs from the interpretation that we have held to apply to this phrase as used in Item 14 within its original context, i.e., the Reference Table of the Sublease.

66 We incline to the view that Toga should not succeed on the first of these matters. On the second, we believe that it must fail. We will now give our reasons for these two conclusions.

67 With reference to the first matter, the primary reason underlying our conclusion is that, in determining which provisions of the Sublease should be expressly identified in clause 16.2 as intended to be excluded from the Option Lease, the draftsperson would appear to have taken the view that 'spent' provisions did not need to be thus identified. In addition to Item 14 (as interpreted by us), the most significant provision that was both 'spent' and omitted from clause 16.2 was Item 12. Having regard to the presence of Item 16, which dealt explicitly with the matter of rent variation during the 'Further Term', the operation of Item 12 was clearly confined to a single specified period of nine years, ending one year before the time of renewal.

68 It may be argued also that Items 9 and 10, relating respectively to the Commencement Date and the Termination Date of the Sublease, were likewise 'spent' provisions that were omitted from clause 16.2. But their omission is less significant, for the purposes of the present discussion, than the omission of Item 12.

69 In para 12 of its Submissions on the Cross-Appeal, Toga argued that following its valid exercise of the option of renewal, the terms of the Option Lease were 'defined, entirely mechanically, by reference to the existing terms subject to express amendments set out in cl 16.2'. This, Toga claimed, was the situation in 'the vast majority of options in commercial leases'.

70 In so arguing, Toga relied on two authorities, Lewis v Stephenson (1898) 67 LJQB 296 and Trade Practices Commission v Tooth & Co Ltd (1979) 142 CLR 397.

71 In the first of these cases, decided in the Queen's Bench Division, Bruce J held that the phrase 'with an option of renewal' in a lease was of sufficient certainty to confer on the lessee the right to require the granting of a new lease 'for the same period and on the same terms' as the original lease, omitting only that there would be no option for a further renewal.

72 In the second case, the High Court discussed at some length the phrase 'grant or renew... a lease', in the context of deciding whether the enactment of a provision in the Trade Practices Act (Cth) was within the powers of the Commonwealth Parliament. At 441, Aickin J said:-

The ordinary meaning of the word "renew" in the context of leases is a further grant on the same terms save as to commencing date. This is clearly established in the case of an option to renew, save that the new lease will contain no further option; see Lewis v Stephenson... [His Honour then quoted passages from this case]

An option for a new lease on specified different terms would be valid; such options are sometimes called options to renew but that usage would not be valid.

73 Relying on these statements of principle, Toga submitted (at para 17) that (a) Item 14 was indeed intended to be reproduced in the Option Lease and (b) if the phrase 'Commencing Date' within it meant 13 November 2000 (as asserted by Colonial), the Option Lease would contain 'a Special Condition that no rent or outgoings are paid in the period a decade prior to its commencement' (emphasis in the original). The upshot would therefore be that this Special Condition would have 'no work to do at all', thereby contravening the principle in Project Blue Sky Inc v Australian Broadcasting Authority (to which we have already referred) that courts should 'strive to give meaning to every word' when interpreting a document.

74 A significant difficulty with this submission is however that the same argument can be applied to Item 12 of the Reference Table. It is clear that if Item 12 were to be regarded as carried over into the Sublease, it too would have 'no work to do'. This point made by Toga can in fact be invoked in support of the conclusion that we favour on this matter, namely, that the intention of the parties to exclude 'spent' provisions from the Option Lease was left by the draftsperson to be inferred because if these provisions were included they would have 'no work to do'.

75 According to this reasoning, the absence of Item 14 from the list of provisions expressly excluded by clause 16.2 from the Option Lease does not have the significance urged by Toga. The explanation for this absence is that the draftsperson did not consider it necessary to provide expressly for the exclusion of provisions, such as Items 12 and 14, that according to their own terms would be 'spent' by the time of renewal of the Sublease.

76 With regard to the second matter, our starting-point is the fact that although, according to clause 16.2(a), Item 16 of the Reference Table was one of the provisions to be excluded from the Option Lease, clause 16.2(b) stipulated that the 'rent variations' set out in this Item were to be included. The purpose of this methodology, whereby Item 16 was first excluded then reinstated in substance, is difficult to discern. But in any event, the reinstated provisions for rent variation (hereafter 'the rent variation clause') would necessarily incorporate the two phrases in Item 16 whose different meanings were discussed above at [49 - 62]. These are 'Commencement Date' in Item 16(2), meaning 13 November 2000, and 'Commencement Date of the renewed Term' in Item 16(3), meaning 13 November 2010.

77 If, contrary to the view that we have just expressed, the agreement of the parties was that Item 14 was to be repeated in the Option Lease, it would sit alongside a rent variation clause modelled on Item 16. In such event, it could not be correct that while the phrase 'Commencement Date' in the rent variation clause meant 13 November 2000, the phrase 'Commencing Date' in the repeated Item 14 meant 13 November 2010 (i.e. the same date as would be indicated by 'Commencement Date of the renewed Term' in the rent variation clause). This outcome would violate the principle, to which we have already referred, that where the same words or phrases (or indistinguishable variants thereof) appear more than once within a single context, they should be given the same meaning throughout unless the contrary is clearly indicated expressly or by implication.

78 Para 19 of Toga's Submissions on the Cross-Appeal was in the following terms:-

Colonial submits that the terms of item 16(3) "on the fifth anniversary of the Commencement Date of the renewed Term" is a "critical pointer" supportive of its construction, in that the words "of the renewed Term" are not found in Item 14. But nothing turns on that difference, once it is appreciated that unlike Item 14, the whole of Item 16 is omitted from the Option Lease. The extra words in Item 16(3) are necessary to give content to the operation of cl 16.2(b), and state when the rent variations in the Option Lease will occur. In contrast, Item 14 appears as is in the Option Lease, so that there is no need to (and it would be wrong for it to) include the words "of the renewed Term" because the Option Lease does not itself contain a further option.

79 The flaw in this contention, in our opinion, is that while paragraph (a) of clause 16(2) of the Sublease provided for 'the whole of Item 16' to be omitted from the Option Lease, the 'reinstatement' effected by paragraph (b) had the consequence that within the Option Lease the crucial distinction between 'Commencement (or Commencing) Date' and 'Commencement Date of the renewed Term' would be retained.

80 The overall outcome of this reasoning is that, contrary to the conclusion reached by the Tribunal, the Sublease, by virtue of significant indications discernible in the wording of the contentious provisions, did not provide that relief from rent and outgoings such was granted to Toga during the first year of the Sublease should also be granted to it during the first year of the Option Lease.

Relevant case law

81 In arriving at these conclusions, we have taken account of four authorities on the renewal of leases indicating that, despite the observations by Aickin J in Trade Practices Commission v Tooth & Co Ltd (1979) 142 CLR 397 at 441 as to the meaning of the term 'renew', a renewed lease should not always reproduce word for word all the covenants that were contained in the original lease. These authorities, which we will now describe, were all mentioned in the Tribunal's decision and/or in the parties' submissions.

82 In Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67, the clause providing for an option to renew stated that the renewed lease should contain 'the like covenants and provisos as are herein contained with the exception of the present covenant for renewal'. Under a clause in the original lease, the lessee was obliged to pay, in addition to rent, a specified proportion of the amount by which particular outgoings exceeded the amount of such outgoings 'at the commencement of the term of this lease'. At the time of the proceedings, no agreement constituting the renewed lease had apparently been executed. The lessee sought a declaration as to the construction of the renewal clause.

83 Holland J held that under the renewed lease, the lessee should be required to pay the relevant proportion of the increase in outgoings calculated from the commencement of the original lease, not the commencement of the option lease. In so ruling in favour of the lessor, he stated at p 69 that the 'basic approach' should be 'to endeavour to discover the true intention of the parties'. He observed at p 70 that simply to reproduce in the renewed lease the literal terms of the original lease would produce 'a substantial change in the status quo existing at the expiry of the original term detrimental to one party which would not occur if the covenant in the new lease was expressed in terms which gave it the same meaning and effect as it had in the old lease'. At p 71, he added that in his opinion 'the use of the word "like" permits rather more latitude than might have been permitted if the word "same" had been used'.

84 In Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548, a renewal clause stated that any renewed lease should be 'on the same terms and conditions as are herein contained'. At p 570, Giles J held obiter that these words should not be interpreted so as to produce the 'commercially nonsensical and inconvenient' outcome that the initial rent under a renewed lease should be the same as it had been under the original lease, without any intervening adjustments. They were, he said, 'apt to pick up what had occurred in accordance with those terms and conditions during the period of the lease'.

85 In Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No 2) (1998) 9 BPR 16,515, the renewal clause stipulated that 'the covenants conditions and restrictions for the said further term shall be same as in this lease...' Citing the two cases that we have just outlined, Young J said at 16,517 that under this clause a renewed lease should not contain 'a literal reproduction of the words of the old lease but rather that their substance should be exactly similar'.

86 The fourth of these authorities, Riltang P/L v L P/L [2004] NSWSC 977, calls for more extended discussion, for reasons that will become apparent. In this case, the renewal clause (clause 3.7) in a seven-year lease commencing on 13 October 1993 required the lessors, following due exercise of the option, to 'grant the lessee a lease of the premises for the further term of years aforesaid commencing on the date of expiration of the term hereby demised at the rent equal to the rent which would have been payable during such term if this lease had been granted for the aggregate of the term hereof and the term of the further lease granted pursuant to this option and otherwise upon and subject to like covenants terms conditions and restrictions as are contained in this lease except this Clause'. The lease also contained a covenant by the lessee (clause 4.2) in the following terms:-

RATES AND TAXES. To pay twenty five per centum (25%) of all increases in rates taxes and outgoings of the land and on the buildings erected on it (including the premium for the policy of insurance referred to in Clause 13.3) whatsoever now assessed or charged upon the land and or the buildings erected on it or the hotel or upon the lessor on account thereof or upon the lessee.

87 The lessee, having exercised the option, obtained an order from Davies AJ in the Supreme Court that it be specifically performed. The Court's order included a provision that the lessors should provide to the lessee a new lease, commencing on 13 October 2000, 'with like covenants, terms, conditions and restrictions as contained in the lease...' A new lease provided in compliance with this order accordingly included a clause 4.2 in precisely in the same terms as in the original lease.

88 In further Supreme Court proceedings before White J, the central question was whether under the new lease the plaintiff was required (as his Honour stated at [7]) to pay '25% of the increases in rates, taxes and outgoings from that payable at the commencement of the term of the new lease, i.e. the increases from 13 October 2000, or... 25% of the increases in the outgoings, rates and taxes from those payable in 1993'. At [9], White J summarised the parties' competing submissions on this question as follows:-

The [lessor] submitted that to give proper effect to Clause 3.7 the new lease should provide, or be construed as providing, that the lessee was required to pay 25% of all increases in rates, taxes and outgoings from those charged at the commencement of the original term, that is, from 1993. They submitted that the word "now" in clause 4.2 of the 2002 lease in which the lessee covenants "to pay 25% of all increases in rates, taxes and outgoings..... now assessed or charged......." was a reference to the commencement of the 1993 lease. [The lessee] submitted that "now assessed or charged" meant assessed or charged at the commencement of the lease, that is, in 2000.

89 At [13], having cited the three cases that we have just outlined, White J expressed the opinion that 'the expressions "like covenants" and "same terms and conditions" when contained in options for renewal of a lease... do not permit the literal reproduction into the new lease of the terms of a covenant in the old lease if the effect is to change the position of the parties substantively'.

90 At [14 - 17], he gave consideration to an argument by the lessee that the decision, on broadly similar facts, in Mark Mayne Pty Ltd v Suburban Centres Pty Ltd was distinguishable because unlike the phrase considered in that case ('at the commencement of the term of this lease'), the word 'now' in clause 4.2 of the lease before him connoted 'currency and variability'. At [18 - 19], he rejected this argument, saying (at [18]):-

In my view, clause 3.7 of the original lease contemplated the continuation of the relationship between the lessor and the lessee in substantially the same terms as obtained at the expiry of the original term. The express provision in clause 3.7 in relation to the rent payable on the renewed term is confirmation of that intention. I see no substantial difference between the use of the word "now" in clause 4.2 of the original lease, and the expression "at the commencement of the term of this lease" in Mark Mayne Pty Ltd v Suburban Centres Pty Ltd. At least when construed in the original lease, the word "now" can only mean either at the commencement of the term of the lease or at the time of its execution. It does not by itself connote variability. The word "now" would only have the ambulatory operation which [the lessee] seeks to give it if the option for renewal requires it to be replicated in the new lease. But that is the very question to be decided.

91 At [21], his Honour spelt out in the following terms the implication of this ruling:-

21 It follows that unless clause 4.2 of the new lease is to be construed as if the word "now" refers to the commencement of the original lease, the parties did not properly comply with the order of Davies AJ made on 17 July 2002 that the defendant, L Pty Ltd, do all that was necessary to be done on its part to provide to the plaintiff's solicitors a lease executed by the lessors which was with "like covenants, terms, conditions and restrictions" as contained in the original lease...

92 In the next substantial section of his judgment ([24 - 42]), his Honour gave detailed consideration to the question whether clause 4.2 of the new lease could be interpreted as outlined in the paragraph (paragraph [21]) that we have just quoted. He concluded that it could not, because it had 'a plain meaning', being the meaning for which the lessee contended. Accordingly, as the High Court made clear in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, evidence of surrounding circumstances or 'background' could not be admitted to contradict its 'language'. At [43], his Honour observed:-

For these reasons I consider [the lessee's] submission as to the construction of clause 4.2 is correct. I regard this as an entirely reasonable outcome. If the lease had been assigned, could it seriously be contended that the new lessee should assess its liability to contribute to outgoings, not by reference to the lease, but by reference to the option of renewal in the former lease to which it had no need to give any attention?

93 The next conclusion reached by White J was however that because clause 4.2 had this meaning, its inclusion in the new lease constituted (to use his formulation at [44]) a 'mistaken implementation of Davies AJ's orders'. Following discussion at [45 - 51], he held at [52] that the Court had jurisdiction to make an order designed to 'secure the proper performance of its own orders'. At [57], he made the following observations as to the means of doing so:-

The [lessors] did not put their case as one for rectification for common or unilateral mistake and no evidence was led as to the actual intentions of the parties. However, in my view, no party could be heard to say that it did not intend to act in accordance with the orders of Davies AJ.... Regarded in that light the case could be regarded as a simple one of rectification where the parties by mistake failed to give effect to their common intention to execute a document which conformed with the Court's orders. The result would be the same.

94 The orders made by White J (at [59]) accordingly included an order in the following terms:-

(3) Order that the [lessors] and the [lessee] execute a variation of lease in registrable form varying the provisions of clause 4.2 of the lease between the cross-claimants and the cross-defendant of the premises... by inserting the words "from 13 October 1993" after the word "increases", by deleting the word "now", and by providing that clause 4.2 as so amended shall be taken to be operative from the commencement of the lease.

95 These four cases are important in the present proceedings in so far as they illustrate that even when an option to renew stipulates that the renewed lease should contain 'the like' covenants as are contained in the original lease, literal reproduction of those covenants is not appropriate if this (to quote Mark Mayne at p 70) would bring about 'a substantial change in the status quo existing at the expiry of the original term' that was 'detrimental to one party'.

96 In the renewal clause in the present case - i.e., clause 16 of the Sublease - there was in fact no stipulation of this nature. But by virtue particularly of Aickin J's observations about the term 'renewal' in Trade Practices Commission v Tooth & Co Ltd (1979) 142 CLR 397 at 441, it does not therefore follow that substantial deviations would be permissible in the Option Lease. At most, it can be said the parties should be taken to have agreed that reproduction of the 'substance' of the Sublease should be achieved in the Option Lease even if this involves some significant changes to the wording of the covenants in the Sublease.

97 For these reasons, the authorities that we have just discussed provide general support to our conclusion that the language of the Sublease, on its proper construction, did not provide that relief from rent and outgoings such as was granted to Toga during the first year of the Sublease should also be granted to it during the first year of the Option Lease.

98 We would emphasise, however, that the support that these authorities provide is at a general level only. We agree with the following observation of Holland J in Mark Mayne at p 69:-

... I think it is always true to say that decisions in other cases on such questions of construction, based as they nearly always are on different contexts, different collections of words, different circumstances - however minor the differences may happen to be from cases to case - are seldom of decisive assistance in the instant case.

99 A further reason for taking this view is that in none of these four authorities did a terminological distinction such as we have discerned in the present case play a major role. In Mark Mayne, for instance, the crucial phrase in the original lease - namely 'at the commencement of the term of this lease' - closely resembled one of the key phrases in this case - i.e., 'Commencing Date' in Item 14 of the Reference Table of the Sublease. But in Mark Mayne there was no similar, yet vitally different, phrase that could give a pointer to the meaning of what we have called the 'crucial' phrase. In the present case, as we have held, the phrase 'Commencement Date of the renewed Term' in Item 16 of the Reference Table played this all-important role.

'Surrounding circumstances', including 'the object of the transaction', as an aid to interpretation

100 At [47](1)-(5), in the course of outlining Toga's submissions, and at [58 - 61], the Tribunal discussed a number of leading cases on two questions of general significance in contract law: namely, (a) whether, in the absence of any ambiguity in a contractual term, regard may be had to 'surrounding circumstances', including the object or purpose of the contract, when seeking to construe it; and (b) if, in the particular context of interpretation of a registered lease, the 'surrounding circumstances' are being taken into account, what kinds of 'surrounding circumstance' may be investigated for this purpose.

101 In their written and oral submissions on the cross-appeal, both parties also made reference to this case law.

102 In our opinion, the first of these questions need not be answered in these proceedings. Our reason is that, contrary to an opinion expressed by the Tribunal at [67], the contentious provisions of the Sublease should be characterised as ambiguous. We say this even though we believe that important implications arising from the terminology used in them support the interpretation urged by Colonial to a distinctly greater degree than that urged by Toga.

103 In ruling that these provisions are 'ambiguous', we rely on the definition of this term in the Macquarie Dictionary. It is as follows:-

1. open to various interpretations; having a double meaning; equivocal: an ambiguous answer.

2. of doubtful or uncertain nature; difficult to comprehend, distinguish, or classify: a rock of ambiguous character.

3. lacking clearness or definiteness; obscure; indistinct.

104 It may also be observed - though we do not place much emphasis on this - that each of the two parties to these proceedings, while arguing for diametrically opposed interpretations of the relevant provisions, made the claim that these provisions were not 'ambiguous'. This was not the view put by Colonial in its submissions on the cross-appeal (see for example para 4.4(a)), but it did make this claim in submissions at first instance and the oral submissions of Mr Simpkins during the appeal hearing included the proposition that the meaning of the relevant provisions of the Sublease was 'clear'.

105 With reference to the second question, Toga relied in its submissions in the appeal on a judgment in the Court of Appeal to which the Tribunal (at [61 - 62]) paid close attention. This is the judgment of Campbell JA (with which, so far as relevant, Spigelman CJ and Handley JA agreed) in Phoenix Commercial Enterprises Pty Limited v City of Canada Bay Council [2010] NSWCA 64. Toga relied also on the decision of the High Court in an earlier case, Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528; [2007] HCA 45.

106 The proposition which, in Toga's submission, emerged from these authorities was that in interpreting the contentious provisions of the Sublease, the 'surrounding circumstances' to which recourse could be had (assuming ambiguity to be present) were limited to those that (to quote from Campbell JA in Phoenix at [166]) 'one can know without evidence from outside the terms of the document itself'.

107 In response, Colonial argued that evidence as to the prior negotiations and correspondence of the parties could be admitted. It relied on the High Court's decision in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5.

108 For reasons outlined below, resolution of this contested issue is not essential for our decision in these proceedings. We are inclined, however, to favour Toga's contention. This was the conclusion reached by the Tribunal.

109 In explaining this conclusion, we will first reproduce a relatively lengthy passage from Campbell JA's judgment in Phoenix. We will then state why we believe that his Honour's reasoning in this passage is directly applicable to the present proceedings and that the High Court's decision in Royal Botanic Gardens is distinguishable.

110 In Phoenix Commercial Enterprises Pty Limited v City of Canada Bay Council [2010] NSWCA 64, the question at issue was the interpretation of clause 15(d) of the relevant lease. It was in the following terms:-

15(d) Should the Lessor in its capacity as consent authority approve the erection of a general advertising structure on other land within the Lessor's Local Government Area or control then within one (1) month of such approval the Lessor will pay the Lessee an amount equivalent to 25% of the Rental corresponding to the amount of time remaining within the Term.

111 At [148 -166], Campbell JA said:-

Relevant Principles of Construction

Available Surrounding Circumstances

148 The orthodox approach to construction of a written agreement is that it involves:

"... the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."

(Per Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912, approved in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [11], 188 per Gleeson CJ, Gummow and Hayne JJ (with whom Kirby J at [62], 205 and Callinan J at [89], 212 agreed generally on this point). To similar effect is Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22], 462 per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

149 As recognised by the Court's judgment in Pacific Carriers Ltd v BNP Paribas, carrying out that task "... requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the contracting parties], and the purpose and object of the transaction." In Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 996 Lord Wilberforce said:

"... When one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."

150 The ordinary principles of contract law apply to leases: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 29 per Mason J (with whom Wilson and Dawson JJ agreed), 40 per Brennan J, 53 per Deane J. This suggests that the construction of a lease should be carried out in accordance with the same principles as those applicable to any other written agreement. In Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at [10]-[12] accepted the applicability to a registered lease of the principles of construction of a contract by reference to surrounding circumstances, that had been outlined by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

151 However, the way those principles come to be applied to a particular contract can be affected by aspects of the contract such as whether it is assignable, whether it will endure for a longer time rather than a shorter time, and whether the provision that is in question is one to which indefeasibility attaches by virtue of the contract being embodied in an instrument that is registered on a Torrens title register. All these are matters that would be taken into account by the reasonable person seeking to understand what the words of the document conveyed. That is because the reasonable person seeking to understand what the words convey would understand that the meaning of the words of the document does not change with time or with the identity of the person who happens to be seeking to understand the document. That reasonable person would therefore understand that the sort of background knowledge that is able to be used as an aid to construction, has to be background knowledge that is accessible to all the people who it is reasonably foreseeable might, in the future, need to construe the document.

152 Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 concerned the construction of a rent review clause in a lease that was registered under the RPA. The rent review clause was one whereby the parties agreed that in certain circumstances they would abide by the decision of a valuer about the amount of the rent. The dispute related to the proper construction of the lease provision that stated the criteria by reference to which the reviewed rent was to be decided. Priestley JA (with whom Glass JA) said, at 655:

"The contract was a lease for a term of ten years with options for renewal for two further ten year terms. The leased premises were commercial and in a city in which continual rebuilding was going on. The lessee was a public company. Changes in control of public companies were taking place as part of the ordinary course of commercial life in spasmodic and unpredictable ways. Either the reversion, or, in certain circumstances, the term might be assigned to parties ignorant of the pre-lease negotiations. The persons who negotiated a lease which might run for thirty years were almost certain not to be always available for consultation by lessor and lessee throughout the term. Of more particular importance in the present case, the lease itself shows that the parties to it intended that it should be read and acted on by a third person, a valuer, if the lessee so required, at times some distance from its commencement. These circumstances combine to make me think the parties negotiating and then executing the lease never contemplated and never intended that subsequent persons dealing with the lease on behalf of the lessor, the lessee or the valuer should in the event of doubt about the meaning of the lease have recourse to any but the most obvious extrinsic circumstances in order to be able to understand it and make it work. Stated positively, the terms of the lease itself and those few extrinsic circumstances I have mentioned make it clear that the parties to the lease intended it to state their full agreement and intended that its meaning be derived from the document itself and those surrounding circumstances likely to be within the knowledge of the persons who would be concerned with the administration of the lease during its existence."

153 Priestley JA cast his remarks about construction in terms of ascertaining what "the parties to it intended", rather than in terms of the modern orthodoxy that construction involves ascertainment of the meaning which a document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. However, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [40], 179:

"... References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]."

154 If references to the intention of the parties in the passage of Priestley JA are understood in the way explained in Toll, it continues, in my respectful view, to correctly state the law. The fact that a lease is to endure for a long time, is assignable, is to be registered as a dealing under the RPA, and may well on occasions need to be understood and acted upon by people other than the original parties to its creation are themselves relevant surrounding circumstances to the entering of the lease. They are the sort of background circumstances that anyone could infer from a perusal of the lease document itself. They are not background circumstances that are the particular, private knowledge of the people who entered the lease, but rather background circumstances of a type ascertainable by anyone who set out to understand the lease, even many years after it was entered. They are the type of background circumstances not dependent upon the chance of the person seeking to understand the document being able to locate and communicate with the people who negotiated it, and the negotiators still having documents or enough reliable memory for the surrounding circumstances to become known. They are surrounding circumstances that should lead a reasonable person seeking to understand the meaning of the document, to leave out of consideration other surrounding circumstances that are not likely to be ascertainable by others who wish to construe the document in the future.

155 Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45; (2007) 233 CLR 528 concerned the construction of the terms of a registered easement over Real Property Act land. The easement had been created by the registration of an instrument under section 88B Conveyancing Act 1919. The dispute concerned the extent of user that was permitted by the terms of the grant. Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ described the types of extrinsic evidence that one party sought to use as aids to construction of the grant at [36] as including evidence of events after a deed that contained a covenant to grant the easement, evidence of the subjective intention of the then owner of the servient tenement, and evidence of a preceding oral agreement. Their Honours gave another characterisation of the disputed evidence at [41], as being evidence that "goes to the intentions and expectations of the parties to the Instrument respecting the development of an area in the Central Business District of Sydney."...

156 The specific reasons that their Honours gave for rejecting it are at [37]-[39]:

"However, in the course of oral argument in this Court it became apparent that what was engaged by the submissions respecting the use of extrinsic evidence of any of those descriptions, as an aid in construction of the terms of the grant, were more fundamental considerations. These concern the operation of the Torrens system of title by registration, with the maintenance of a publicly accessible register containing the terms of the dealings with land under that system. To put the matter shortly, rules of evidence assisting the construction of contracts inter partes, of the nature explained by authorities such as Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350-352, did not apply to the construction of the Easement.

Recent decisions... have stressed the importance in litigation respecting title to land under the Torrens system of the principle of indefeasibility expounded in particular by this Court in Breskvar v Wall (1971) 126 CLR 376...

157 The unavailability of extrinsic evidence to construe even a grant of an easement is not complete. In Westfield v Perpetual Trustee the High Court judgment at [44] acknowledges that evidence could be admissible

"... to make sense of that which the Register identifies by the terms or expressions found therein. An example would be the surveying terms and abbreviations which appear on the plan found in this case on the DP."...

158 It is important that what their Honours state is that it is rules of evidence assisting the construction of contracts inter partes, of the type referred to in Codelfa at 350-352, that do not apply to construction of the easement. They do not deny the applicability of the principle whereby a document will be construed as having the meaning that a reasonable reader, with such knowledge of the surrounding circumstances as is available to him or her, would attribute to it...

159 A question arises of how the principles that their Honours stated at [37]-[39] apply concerning covenants in a registered lease. Their Honours did not state the principles at [37]-[39] any wider than by reference to what extrinsic evidence could legitimately be used to construe the words of the grant of an easement. There are some differences between the grant of an easement, and the entering of a registrable lease that is ultimately registered. The grant of an easement is the creation of a legal property right. When the easement is created by registration of a section 88B instrument, it can be a unilateral act by the grantor, rather than a consensual one... A lease, by contrast, is a consensual document, and creates both contractual rights and property rights.

160 Even recognising these differences, the reasons that their Honours give are capable of applying to a registered lease. The first reason that their Honours give concerns the importance of indefeasibility. Insofar as the inapplicability of the Codelfa rules of evidence rests on the importance of indefeasibility, one would expect that the same result would apply concerning the construction of the terms of any estate or interest, or covenant, to which indefeasibility attached.

161 Relevantly for present purposes, there can be some provisions of a registered lease to which indefeasibility does not attach: Mercantile Credit Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 681; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd (1998) 1 VR 188 at 196; Small v Tomassetti [2001] NSWSC 1112 ("indefeasibility for what?"); Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694. The covenant contained in the new clause 15(d) that was introduced by the Variation of Lease does not create any interest in the land. It is in the nature of a contractual right only, that the Lessee has if the Council engages in a particular type of conduct. That conduct need not have any connection with the land the subject of the lease. Clause 15(d) is not a covenant that touches and concerns the land itself, or that delimits or qualifies a registered interest. For those reasons, it is not the type of covenant to which indefeasibility attaches: PT Ltd v Maradona Pty Ltd at 679; Karacominakis v Big Country Pty Ltd (2000) 10 BPR 18,235 at 18,247, and see generally Peter Butt, Land Law, 6th ed (2010) at para [20 22]. Thus, any limitation on the availability of extrinsic evidence as an aid to construction by reason of indefeasibility of a registered instrument would not apply in relation to the construction of the new clause 15(d).

162 However, the final sentence in para [39] of Westfield v Perpetual Trustee is not dependent upon any considerations of the extent of indefeasibility, but rather on the inherent probabilities concerning the inquiries that a purchaser of Torrens title land will make... The inherent probabilities of what inquiries a purchaser of the benefit of the leases in the present case are likely to make are not changed by the particular covenant in clause 15(d) not having the benefit of indefeasibility.

163 The terms of the leases show that there might be such a purchaser. The Leases as originally executed did not contain any prohibition against assignment...

165 [However, a Variation of Lease that the parties executed] reintroduced the notion that either the Lessor or the Lessee might assign. Thus, at all times the lease in question in this case was assignable by both parties.

166 In these circumstances, the surrounding circumstances that can be used as an aid to construction of clause 15(d) are limited to ones that one can know without evidence from outside the terms of the document itself. That is consistent with the account that Priestley JA gave in Howard Chia. It is also consistent with the surrounding circumstances that the majority judgment in Royal Botanic Gardens at [11] approved and took into account to construe the scope of "additional costs and expenses" in a clause of the lease of the site of the Domain parking station:

"(a) the parties to the transaction were two public authorities;

(b) the primary purpose of the transaction was to provide a public facility, not a profit;

(c) the lessee was responsible for the substantial cost of construction of the facility;

(d) the facility was to be constructed under the lessor's land and would not interfere with the continued public enjoyment of that land for its primary object, recreation;

(e) the parties' concern was to protect the lessor from financial disadvantage from the transaction; and

(f) the only financial disadvantage to the lessor which the parties identified related to additional expense which it would or might incur immediately or in the future."

112 In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5, the question at issue was the interpretation of provisions relating to the mode of determination of the rent in a lease entered into by two public authorities in order to provide public facilities in Sydney. The facilities in question were the Domain parking station and the underground footway leading to it.

113 In Colonial's submissions, it was pointed out that in Royal Botanic Gardens, as is the case in the present proceedings, the covenant being interpreted related to the amount of rent payable. But in our opinion this decision by the High Court is distinguishable. The reason for this is that in Royal Botanic Gardens assignment of the lease was not provided for, so far as can be discerned from the report, and was unlikely to have been permissible, having regard to the special nature of the transaction.

114 In its decision at [62], after quoting paragraph [151] of Campbell JA's judgment in Phoenix, the Tribunal said:-

62 The Sublease was a registered lease, it was a long term lease for ten years with a ten year option and was assignable. Following Campbell JA in Phoenix, there are only very limited pointers to assist in construction. None of the background knowledge regarding the negotiations or the details of the agreement between the parties can be examined if not evident from the face of the documents itself. Consequently, the evidence from the witnesses for Toga and Colonial regarding the inconsistency of approach with respect to rent free periods in year one of the Sublease and year one of the Option Lease and the Harris Letter would not be available to people who it would reasonably be foreseeable in the future were to construe the Option Lease.

115 On the grounds set out above, our inclination is to agree with this reasoning. For the purposes of construing the Sublease, the admissible evidence of 'surrounding circumstances' does not include evidence about the parties' pre-lease negotiations because these fall within the category of 'background circumstances that are the particular, private knowledge of the people who entered the lease' (to quote from Campbell JA in Phoenix at [154]).

The evidence relating to 'surrounding circumstances'

116 The Tribunal, as just indicated, held that so far as 'background knowledge' and the negotiations of the parties were concerned, the only admissible matters for the purpose of construing the contentious provisions of the Sublease were those that were 'evident from the face of the documents itself (sic)'. But in determining, in the context of Colonial's claim for rectification, what was the 'common intention' of the parties in relation to these provisions, the Tribunal did admit a significant quantity of evidence about their negotiations.

117 The Tribunal summarised its findings on this evidence as follows (at [79]):-

(a) the Harris Letter confirmed by all witnesses was a contemporaneous document issued by Colonial's agent to Colonial and copied to Mr Vidor setting out the salient commercial matters that were agreed between the parties. It made no mention of any annual rent free or outgoings free period to be repeated in the second term;

(b) Mr Ellicott [counsel for Colonial] asked Mr Harris as to whether the Harris Letter truly reflected the agreement that he, Mr Harris understood had been reached between Toga and Colonial that in fact there were two annual rent free periods, one in the first year of the Sublease period and a second rent free in the first year of the option, notwithstanding omission of the second rent free period in the letter. Mr Harris maintained that belief but admitted under cross examination that his letter was poorly drafted as it did not refer to the second rent free period.

(c) Mr Harris was adamant that he mentioned the second rent free period to and received assent from Mr Ganci of Colonial. However, Mr Ganci categorically denied discussing let alone agreeing to a rent free period. With regard to the difference in recollections of the conversation between Mr Harris and Mr Ganci, the Tribunal prefers Mr Ganci on this matter, as he referred in his Affidavit to a notebook which he maintained in relation to these important conversations and confirmed that there was nothing in the notebook that indicated that there was any discussion or any consent to a second rent free period;

(d) Mr Gray of Colonial used the Harris Letter as the basis of his instructions to Colonial's lawyers. He categorically denied that Colonial had agreed to a second annual rent free period. He clearly identified that the Harris Letter acknowledged an adjustment of rent in the last month of the rent free period for payment of services, and that such adjustment would be irrelevant if there was a second annual rent free period;

(e) Mr Cohen confirmed that he never received instructions to draft a provision to cater for a second rent free period;

(f) According to Mr Cohen, Mr J Andrews of Freehills never raised the issue that Toga was to receive a further rent free and outgoings free period in the Option Lease, but did specifically raise altering the second market review date to operate in the last year of the term so that Toga would know the rent for the first year of the second term and be able to make an informed commercial decision when it had to exercise its option to renew. This appears to run counter intuitively to the concept of Toga having a rent free period in the first year of the option lease and yet wishing to know the rent for the first year;

(g) Mr Vidor of Toga did say in his evidence that he had requested a rent free period of one year in the first year of the Option but there is no evidence that anyone from Colonial agreed to this (notwithstanding what Mr Harris says in his evidence). Mr Vidor never spoke directly with Colonial and relied on Mr Harris and on the conversation Mr Harris had with Mr Ganci;

(h) Mr Vidor received a copy of the Harris Letter which he acknowledged in cross-examination formed the basis of the commercial agreement with Colonial, but he did not query the omission of a second rent free period;

(i) Mr Vidor talked of desiring a rent free period in the first year of the option but does not refer to a rent free and outgoings free period (which is substantially different to a plain rent free). The drafting of a second rent free period without the Lessee's Contributions is not a simple repeat of Item 14. Mr Cohen, the only lawyer called to give evidence confirmed that if he had been requested to draft such a provision the drafting required a specific provision stating that no rent was to be paid in the first 12 months of the Option Lease but that Lessee's Contributions (outgoings) would continue to be payable by the Lessee.

(j) A repeat of Item 14 in the Option Lease does not accord with what Mr Vidor thought that he had negotiated with Colonial, that is a second annual rent free period. Item 14 as it stands provides for an Annual Rent free and Lessee's Contributions free period, not just a gross Annual Rent free period.

118 At [80], the Tribunal formulated its conclusion regarding the parties' common intention as follows:-

Consequently, the Tribunal finds the bargain between Toga and Colonial to be that only one Annual Rent free and Lessee's Contributions free (outgoings) period was granted and it was not to be repeated in the Option Lease.

119 In its written submissions in the appeal, Toga did not expressly challenge this conclusion or any of these specific findings. In his oral submissions, however, Mr Leeming made critical observations about three aspects of the Tribunal's approach to the matter.

120 The first of these related to subparagraph (f) of the paragraph (paragraph [79]) stating the Tribunal's findings. Mr Leeming's submission was that Toga, before exercising the option, would have wanted to know what the rent would be under the renewed lease irrespective of whether or not there was to be a rent-free period of one year under this lease.

121 We agree with this submission, but would observe that it goes no further than to neutralise (for want of a better word) one of a significant number of factors that the Tribunal took as a pointer towards there being no agreement for a second rent-free period.

122 Secondly, Mr Leeming pointed out that these findings by the Tribunal did not refer to the fact that, as Mr Vidor stated in his affidavit, there was an important commercial reason why Toga wanted, and could legitimately seek, a rent-free period at the commencement of any Option Lease. This was that the SRA Retail Space might well need to be reconfigured after the initial ten-year term of the Sublease had expired.

123 In our opinion, this consideration could usefully have been mentioned. But the Tribunal did refer (at [28]) to this passage in Mr Vidor's affidavit. In addition, the Tribunal, when setting out its findings in paragraph [79], equally did not advert to Mr Ganci's evidence that the granting of a rent free period at the commencement of a renewed lease would have been very unusual, imprudent and contrary to his practice at the time. The Tribunal also did not advert to Mr Cohen's evidence to similar effect, with the additional observation that a 'gross' rent-free period, covering both rent and outgoings, was 'even more unusual and rare'.

124 Mr Leeming's third submission was that each of two witnesses for Colonial on whose evidence the Tribunal place significant weight left their employment with Colonial before the end of 2000 and were therefore not in a position to testify regarding Colonial's intentions at the date of execution of the Sublease (5 July 2002). This, he said, was a matter that the Tribunal should have taken into consideration but failed to mention at all. The witnesses in question were Mr Ganci, who left Colonial during 1999, and Mr Gray, whose employment by Colonial was between 1998 and 2000.

125 The principal difficulty with this submission is that the Deed of Agreement, to which the Sublease was annexed in virtually final form, was executed on 16 November 1999, and although a few amendments were made to the Sublease between this date and its execution on 5 July 2002, there is no evidence as to whether, and if so in what respect, they affected the contentious provisions.

126 For these reasons, Mr Leeming's three criticisms of the Tribunal's approach to determining the parties' common intention, while not without merit, do not furnish grounds, either individually or in conjunction, for holding that the Tribunal's conclusion was erroneous in law. Furthermore, there was ample evidence before the Tribunal to support this conclusion.

Our conclusions regarding the evidence as to 'surrounding circumstances'

127 We may now state our overall conclusions regarding the admissibility and the potential significance of the evidence of 'surrounding circumstances' that was put before the Tribunal. They are as follows.

128 First, there was sufficient ambiguity within the contentious provisions of the Sublease to render evidence of 'surrounding circumstances' admissible as an aid to interpreting those provisions.

129 Secondly, the preferable view, stemming in particular from Campbell JA's examination of the case law in Phoenix, is that in proceedings relating to a registered lease that is assignable, such evidence cannot relate to 'background circumstances that are the particular, private knowledge of the people who entered the lease'. It must instead be confined to evidence about 'background circumstances of a type ascertainable by anyone who set out to understand the lease, even many years after it was entered'. On this basis, the admissible evidence as to 'surrounding circumstances' contained nothing to cast any doubt on the interpretation of the contentious provisions of the Sublease that in our opinion follows from a close examination of their language.

130 Thirdly, if however the limitations just outlined are too narrowly formulated and in consequence the evidence as to the parties' negotiations leading to the Sublease should be treated as admissible, the Tribunal's conclusion as to the common intention of the parties throughout the negotiations, being not vulnerable to challenge for the reasons that we have stated, lends significant support to the construction that we give to the contentious provisions.

The question of rectification

131 At first instance and in the appeal proceedings, counsel for both parties dealt at length with a claim for rectification of the Sublease made in Colonial's cross application.

132 For reasons, however, that we will now explain, we do not need to deal with this matter.

133 This claim for rectification, which Colonial included as an alternative to its preferred form of relief, presented itself for consideration at first instance because the Tribunal's interpretation of the contentious provisions of the Sublease was at odds with its conclusion regarding the common intention of the parties. According to the Tribunal's interpretation of these provisions, Item 14 of the Reference Table, conferring a one-year exemption from rent and contributions on Toga, was to be replicated in the Option Lease. The Tribunal found, however, that the parties' common intention was that Item 14 was to be omitted.

134 The Tribunal consequently heard and determined arguments put by counsel on a number of questions, including (a) whether, but for the presence of a provision of the RL Act (section 72(1)(e)) preventing the Tribunal from ordering rectification of a retail lease unless both parties consent, rectification of the Sublease to bring it in line with this 'common intention' would be warranted; and (b) whether in the absence of consent by Toga, a declaration having the same substantive effect as an order for rectification should be made under section 72(1)(f)(iii).

135 The Tribunal answered both of these questions in the affirmative. Its reasons for resolving the second question in this way were not the subject of argument in the parties' submissions at the Tribunal hearing. The starting point in these reasons was the proposition that the Sublease contained an implied term requiring the parties to observe 'fidelity' to the 'bargain' that they had made with each other. According to their 'common intention', their 'bargain' was that there should be no rent-free period in the Sublease. The Tribunal accordingly held that Toga, by not consenting to an order for rectification and by insisting that it was entitled to a rent-free period, was in breach of this implied term. This breach by Toga provided the justification for declaratory relief having the same substantive effect as an order for rectification.

136 We have concluded, however, that there is no conflict between the terms of the contentious provisions, on their proper construction, and the Tribunal's finding (which we have held not to be vulnerable to challenge by Toga) as to the common intention of the parties. For this reason alone, we see no reason to consider rectification of the Sublease.

137 There is no basis on which we could order that the Option Lease should be 'rectified'. The reasons for this are that the remedy of rectification is only applicable to documents and, as we stated above, no written agreement constituting the Option Lease has been executed.

138 The circumstances here are akin, broadly speaking, to those of a decision cited above, Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67. In that case, Holland J was not asked to consider, and did not consider, whether the terms of the initial lease did not properly express the parties' intention and should therefore be rectified. His order took the form of a declaration establishing their rights and liabilities, on the relevant matter, under an as yet unwritten option lease. By contrast, the remedy of rectification was appropriate in Riltang P/L v L P/L [2004] NSWSC 977 because a memorandum setting out the terms of the renewed lease had been prepared and executed, but was subsequently found to be at odds with the agreement as to what it should contain that the parties had reached in the initial lease.

139 Support for our conclusion that the remedy of rectification is not apposite in these proceedings may be found in the following passages in Chapter 26 of Meagher, Gummow and Lehane, Equity: Doctrine and Remedies (Butterworths, 4th edn, 2002):-

26-040 Proceedings for rectification ought not be brought if whatever mistake appearing in the written instrument is of the kind that the true meaning of the document could be ascertained as a matter of construction without recourse to extrinsic evidence. Courts both of law and of equity regularly insert, delete, alter and interpret words in such a fashion as to make the document sensible, without necessary recourse to any doctrine of rectification...

26-045... It has always been considered that the construction of a document and its rectification were entirely distinct: no occasion to rectify it can arise if its true meaning can be determined by construing it.

140 The next sentence of paragraph 26-045 indicates that the proposition just quoted is not absolute, but does not detract from the status of this proposition as a broad generalisation.

141 Because in our opinion the remedy of rectification is not apposite in these proceedings, we will not deal in this decision with (a) the Tribunal's ruling that, in the absence of consent by Toga, a declaration having the same substantive effect as an order for rectification could be made under section 72(1)(f)(iii), or (b) its grounding of this ruling in the principle that leases contain an implied term requiring the parties to observe 'fidelity' to the 'bargain' that they have made with each other.

Our orders

142 The substantive outcome of our deliberations in this appeal is the same as the Tribunal decided: namely, that Toga is obliged to pay rent and outgoings to Colonial with respect to the first year of the Option Lease - i.e., the period from 13 November 2010 to 12 November 2011.

143 Colonial did not indicate, either in documents filed before the appeal hearing or in oral submissions, that it sought from the Appeal Panel an order for specific performance of the parties' agreement to enter into the Option Lease, such as it had initially sought in its Application to the Tribunal.

144 Mr Simpkins did, however, make it clear that Colonial, if successful, wished us to order that an amount representing the rent and outgoings for the first year of the Option Lease, which has been deposited by Toga into an interest-bearing controlled money account, should be paid to Colonial. This was the focus of a clause in the Amended Cross Appeal, seeking an order covering 'the proportion of Annual Rent and Outgoings held in escrow' in this account.

145 Mr Leeming advised us that Toga agreed to our making an order for this amount to be paid to the successful party in these appeal proceedings.

146 In these circumstances, the appropriate relief is (a) an order confirming the declaratory relief granted in Order (2) of the Tribunal and (b) an order that the relevant amount in the controlled money account should be paid to Colonial.

147 With regard to the second of these matters, our order on the cover sheet of this decision refers, like the Amended Cross Appeal, to 'the proportion of' the rent and outgoings. But because we cannot be entirely sure that this somewhat vague phrase affords sufficient certainty, we will grant liberty to apply within 28 days for clarification and/or amendment of this order.

148 Pursuant to directions given by the Tribunal, the parties have filed submissions relating to the costs of the proceedings at first instance. At a directions hearing concerning the appeal proceedings, the Appeal Panel indicated that it would determine this question after it had delivered its substantive decision. In their appeal submissions, the parties have stated that they wish to be heard on the costs of the appeal proceedings.

149 We accordingly direct as follows. Any application by the Respondents / Cross Appellants for the costs of the appeal and cross appeal must be filed and served within 28 days, along with supporting submissions and any additional submissions they may wish to make as to the costs of the Tribunal hearing. Any submissions in reply by the Appellant / Cross Respondent must be filed and served within a further 28 days. These matters of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Appeal Panel decides that a hearing is required.

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Decision last updated: 15 January 2013