HALL and ORS v NATIONAL MUTUAL LIFE NOMINEES LTD [1998] NSWCA 100

HALL v NATIONAL MUTUAL LIFE NOMINEES LTD

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MASON P, PRIESTLEY and BEAZLEY JJA 20 February 1998, 11 June 1998

[1998] NSWCA 100

INTERPRETATION OF COMMERCIAL LEASE — Whether "outgoings" included in "rent".

In a lease of commercial premises tow individuals, pursuant to cl15 of the lease, agreed, as "covenantors" that they would be jointly and severally liable with the lessee to the lessor for rent and other moneys payable under the lease. The lessor agreed to release the two individuals from their obligations once the lessee had paid $750,000 in rent. The tow individual convenors in proceedings against the lessor claimed, on the basis that payment of "rent" in cl15 included payment of various outgoings, that more that $750,000 had been paid to the lessor and that they were thus released from their obligations under the clause. The lessor, disputing that payment of the outgoings should be counted in the calculation of rent paid, asserted $750,000 had not yet been paid, and that the covenantors remained liable. Both a referee and Bryson J concluded that the language of the lease mate "'a clear distinction between the rent and outgoings", and that the covenantors remained liable.

On appeal the appellant submitted: The payment of rent in cl15 included the payment of outgoings under the lease because: (a) the word "rent' was not defined in the lease thereby allowing the court to adopt the modern common law meaning which (they said) included outgoings; (b) "annual rent" referred to in cl19, when read with cl20 (both in the First Appendix), was fixed so as to include rent and a proportion of the outgoings, ant (c) Heads of Agreement made before the lease supported the appellants' construction.

Held: 1. As "rent" has a variety of meanings in differing legal and commercial contexts, the precise meaning here depended on the language in the lease; 2 in cl20 and cl21 of the First Appendix, "rent: and "outgoings" were treated quite separately, a distinction made clear by cl3 of the lease; the other matters of construction relied on by the appellants did not detract from the meaning shown by theses three clauses; and the Heads of Agreement, other than assisting in understanding the terms used between the parties in the subsequent lease, were not of material assistance in construing cl15 of the lease.

Mason P I agree with Priestley JA.

Priestley JA This appeal involves one point only, the interpretation of some words in a lease of commercial premises in which National Mutual Life Nominees Ltd (NML) was the lessor, Leisuremark Australia Pty Ltd (Leisuremark) was the lessee and tow companies and tow individuals were, by cll5 of the lease, "covenantors".

By cl15.1 of the lease the covenantors covenanted and agreed with NML that they would be jointly with Leisuremark and severally liable to NML for all rent and other moneys payable under the lease. By cl15.2 NML covenanted and agreed to release the two individual covenantors

"from all obligations and liabilities under this guarantee upon the lessee having paid to the lessor rent under this Lease totalling $750,000 provided that the lessee is not then in default in its obligations under this Lease."

The question raised in this appeal is whether or not the word "rent" in cl15.2 should be so interpreted that the payment of various outgoings by the lessee to the lessor, as required by the lease, should be treated as payment of rent for the

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purposes of cl15. If it should be so interpreted, then more than $750,000 in "rent" had been paid by the lessee to the lessor at a time when the lessee was not in default in its obligations under the lease ant thus the two individuals became released from further obligation under the covenantors' covenants. If not, then the lessee had not paid $750,000 rent to the lessor by the relevant time and the individuals remained bound by their obligations as covenantors.

To obtain rulings on various questions arising from the lease in dispute between NML on the one hand and Leisuremark on the other, Leisuremark began proceedings against NML in the Equity Division principally seeking rectification of various clauses of the lease.

NML filed defences to Leisurmark's claims and also filed the first cross claim in the proceedings, against five cross defendants, Leisure mark, the tow covenantor companies and the two covenantor individuals, claiming that all five were liable for outstanding rental and other money's payable under the lease. The two individuals then brought the second cross claim in the proceedings, against NML as a cross defendant, raising the question of interpretation now before this court.

The principal rectification claim concerned cl20 in the first Appendix to the lease, a rent review clause which provided for periodical rent reviews, pursuant to which the rent could go up but not down. Leisuremark claimed that it had been the common intention of lessor and lessee that reduction in rental could be possible under this clause, and sought rectification of the clause to accord with the asserted common intention.

Pursuant to Pt72 r2(1) of the Supreme Court Rules the whole proceedings were referred to Mr Peter Jacobson QC for an inquiry and report.

Leisuremark, in its rectifications case, sought to rely on the terms of Heads of Agreement which had been signed by the parties and which dealt with their intensions to enter into a lease of the premises. There was argument before the referee on the question whether the Heads of Agreement bound the parties contractually, or represented a pre-contractual document. Leisuremark sought to rely on the terms of the Heads of Agreement, whether binding or not, as indicating the intention of the parties at the time of the execution of the lease. It is unnecessary to say more about this aspect of the case before the referee beyond noting that he found against Leisuremark on it.

In regard to the interpretation question, the referee tool the view that "rent" in cl15.2 meant rent paid in accordance with cl19 of the First Appendix to the lease, which did not include outgoings, and that thus the individual covenantors were not released by cl15.1 from their covenants.

The terms of cll19 were that the lessee was to pay:

"the annual rent set out in item 9 in the Reference Schedule such rent to be paid in advance by... monthly payments... equal to one twelfth of the annual rent... in each year during the term..."

In the result the referee decided that Leisuremark's claim failed, the cross claim of the tow individuals failed, and that on NML's cross claim "there should be judgment against all of the Cross Defendants for the agreed amount of $602,584.23", (the amount itself not being in dispute once Leisuremark's claim and the cross claim of the tow individuals failed).

Subsequently Leisuremark and the tow individuals applied to a judge in the Equity Division, Bryson J, to uphold various objections to the referee's report including objections to the rectification finding of the referee and to his finding,

URJ HALL v NATIONAL MUTUAL LIFE NOMINEES LTD (Priestley JA) 3

pursuant to his construction to cl15.2, that the tow individuals were liable, along with Leisuremark and the tow corporate covenantors, for the amount claimed by NML.

The rectification and interpretation question were to two matters argued before Bryson J. He found against Leisuremark on the rectification question. No appeal has been raised against the decision.

The argument before Bryson J on the interpretation question appears to have been relatively brief. Submissions were made to him concerning the carious meanings attachable to the word "rent" in the light of reference to carious provisions in the lease arguably bearing upon the interpretation of the word in cll5.2.

Bryson J's conclusion on the interpretation question was that

"\.. in the language of this lease, particularly when provisions relating to rent and outgoings in cl3 of the lease and in cl21 of the First Appendix, and in Schedule are taken together there is a clear distinction between rent and outgoings. The lease in effect writes it own dictionary about what is rent and draws its own distinction between rent and outgoings. The referee decided the point for substantially the same reasons as I have stated, and in my opinion he was comet."

The two individual covenantors appealed from Brysons J's decision, raising, in their amended notice of appeal, thirteen grounds. When the matter came to be argued before this court, the only grounds pressed were 1(b), 2, 12 and 13. The first three of these raised the interpretation question and the last a question concerning costs.

Senior counsel for the appellants in written and oral submissions marshalled a number of separate arguments which, taken together, he submitted showed clearly that payment of "rent" in cl15.2 included payment of outgoings under the lease.

The first matter pointed out was the "rent" as used in cl15.2 was nowhere defined in the lease. This left room for the court to take into consideration what was then submitted was the modern common law meaning of "rent", a meaning it was said, that included outgoings. Various authorities were relied on as supporting this modern view. Considerable reliance was then placed on the submission that it could be deduced that the "annual rent" referred to in cl19 of the First Appendix was fixed at a figure which must have included an element attribution to outgoings. This was said to be so because cl21 of the First Appendix which dealt with outgoings provided that the lessee would during the term of the lease pay 12.242% of increases in outgoings. The inference was that since the lessor was only requiring during the term a proportion of increases in outgoings, the lessor must have allowed in the annual rent a like proportion of the basic outgoings at the commencement of the lease. Hence, the "annual rent" referred to in cll9 of the First Appendix was a rent including both rest and a proportion of the lessor's outgoing on the premises. The same meaning should be attributed to the word "rent" in cl15.2. It was further submitted that this conclusion was assisted by reference to the Heads of Agreement Then, counsel went carefully through all the clauses of the lease in which rent was referred to (in various ways), and Outgoings were dealt with, in an endeavour to show that all the provisions could be read consistently with the interpretation contended for.

Persuasively though these arguments were woven together, I do not think they can prevail against what seems to me to be a comparatively straightforward reading of the lease. I do not think any of the authorities referred to by the

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appellants can have any governing effect upon the interpretation of the lease in question here. They, and others I have looted at, seem to me to show that "rent" is used in a convenient overview of the different meanings in different contexts, Strouds Judicial Dictionary, 5" edn Vol 4 (1986) p2229-p2233. The different uses have a family resemblance, but the precise meaning, for purposes such as the present, and in this lengthy commercial lease, must depend on the language of the lease itself.

C119 of the First Appendix refers to the annual rental at the commencement of the lease. That figure could not be changed until implementation of cl20, the rent review provision, which could not happen before the expiration of the first tow years of the lease. I am not at all sure that it would be right to accept the argument that the first annual rent figure should be treated as one divisible into separate sums, one of which was for outgoings. Even if it could, I do not think it would particularly assist the argument for the appellants in view of other clauses in the lease.

Principal among these are cl20 and cl21 of the First Appendix. C120, the rent review clauses, is in sharp contrast to cl21, the outgoings clause.

The two subject matters are treated quite separately and quite differently. This sharp distinction seems to me to be reflected in cl3 of the lease, "Rent and outgoings" Cl3.1 "Payment of rent and outgoings" says

"The lessee will during the term pay to the lessor there at and outgoings of the Building all as specified, calculated and payable in the manner provided in the First Appendix hereto."

C13.3 says:

"Notwithstanding any other provisions between rent and outgoings seems to me to be particularly clear. The separation seems to me to be recognised in that part of cl15.1 which makes the covenantors liable to pay "all rent and other moneys" under the lease. I can see no persuasive reasons for reading "rent" in cl15.2 as departing form this clear separation of the two subject matters.

It was argued for the appellants that there was some incongruity brought about by this view, in that it was to be expected that the obligations for which the covenantors were liable under cl15.1 would be co-extensive with the obligations in respect of which payment of $750,000 would entitle the covenantors to release from their obligations. It does not seem to me there is an logical, lexical or commercial reason for the claimed co-extensiveness. It seems to me quite understandable that the parties would have fixed upon an amount of rent to be paid as a condition for release by the lessor of the covenantors of their liability for all rent and other monies to be paid under the lease.

Cl3 and cl15 of the lease and cl19, cl20 and cl21 of the First Appendix seem to me to be the most important provisions in the lease in regard to the interpretation question raided in the appeal. I have already mentioned the material parts of these clauses with the exception of cl3.2. They also seem to me to be entirely consistent with the separation of the ideas of rent and outgoings manifested in the other provisions mentioned.

When the other provision of the lease are examined they all seem to me to fall much more easily into place with the view I have expressed about the effect of cl3 and cl15 of the lease and cl19, cl20 and cl21 of the First Appendix than with the interpretation urged for the appellants.

So far as the Heads of Agreement are concerned, I so not think they are of material assistance in interpreting cl15 of the lease. Whether or not the Heads of Agreement them selves bound the parties contractually, a matter that is quite

URJ HALL v NATIONAL MUTUAL LIFE NOMINEES LTD (Beazley JA) 5

plain from the materials before the court is that in the time between the making of the Heads of Agreement and the execution of the lease there was considerable being between the parties with the assistance of detailed legal advice. It is just as likely that differences between the Heads of Agreement, implications from its terms and the inferences to be drawn from its terms, and the teens, implications of and inferences from the lease were intentional, as it is that they were the result of some inadvertence or change of style in drafting.

If any recourse is permissible in the present case to the teens of the Head of Agreement for the purpose of interpreting cl15 of the lease, I do not think it could possibly be for any wider purpose than an understanding of the kind of terms if use between the parties, with the help of their legal advisers, in arriving at their eventual concluded bargain, in a matter of considerable commercial importance to all concerned. That limited recourse does not, in my opinion, in any way assist the appellants.

These conclusions mean that the ground of appeal concerning costs does not arise.

In the result, I am of the opinion that the appeal should be dismissed with costs.

Beazley JA I agree with Priestley JA.

Appeal dismissed with costs.

Counsel for the appellant: Ellicott QC/W Haffenden/N Guy Solicitors for the appellant: P A Biber

Counsel for the respondent: D J Fagan SC/J Bartos

Solicitors for the respondent: Middletons Moore & Bevins