711 Hogben Pty Ltd v Tadros; Tadros v 711 Hogben Pty Ltd

Supreme Court of NSW|2016-05-18|Before: Stevenson J, Hammerschlag J

Solicitors: One Group Legal (Plaintiff/Third Cross Defendant) Harrington Maguire & O'Brien (First, Second and Third Defendants/Cross Claimants) File Number(s): SC 2015/330101

Judgment

On 11 April 2014 the plaintiff, 711 Hogben Pty Ltd (which I will call "the Landlord") and the defendants, Mr Anthony and Ms Sharon Tadros (who I will call "the Tenants") entered into a Deed of Agreement for Lease in respect of levels 1 and 2 of a strata development in Kogarah.
The Deed provided in cl 14 that if there was a "dispute under this Deed" neither party could commence legal proceedings unless the dispute "has first been decided" by a person appointed under the relevant clause.
The clause provided that: "The person acts as an expert and not as an arbitrator and must give a written decision including reasons. Unless there is manifest error, that person's decision is final and binding."
The parties referred a dispute under the Deed to Mr Dennis Bluth, solicitor ("the Expert") for determination. The Expert published an "Expert Determination" ("the Determination") on 28 July 2015.
The Landlord seeks an order that the Determination be set aside.
On 11 December 2015 Hammerschlag J ordered that the following question be heard separately and before other issues: "[W]hether the [Determination] of [the Expert] is an expert determination in accordance with the [Deed]."

Decision

In my opinion, the answer to the separate question is "yes".
It is also my opinion that the Determination is not affected by "manifest error".

The Deed

The Deed defined the "Premises" as Lots 2 and 3 in a draft strata plan annexed to the Deed (being levels 1 and 2 of the proposed building).
By cl 10 of the Deed, the Landlord agreed to grant, and the Tenants agreed to accept, a lease of the Premises for a term of 10 years (with options to renew) from the Commencing Date.
The "Commencing Date" was, in the events that have happened, the date on which the Landlord obtained an occupation certificate in accordance with s 109C of the Environmental Planning and Assessment Act 1979 (NSW) with respect to the "Premises".
The permitted use under the proposed lease is "[c]hildcare centre accommodating 72 children".
Clause 3.1 of the Deed provided: "The Landlord must use its reasonable endeavours to complete the Landlord's Works by the Handover Date".
It is common ground that the "Handover Date" was 26 May 2014.
"Landlord's Works" was defined to mean: "[T]he building work to be carried out by the Landlord to build the Premises including shop front, walls, concrete slab ceiling and floor, external window frames and window panels, entry door and verandah door(s), waterproofing to all wet areas, electrical power board to each floor, standard gas pipe to each floor of the Premises, and hot and cold water outlet to each floor of the Premises and numbering or labelling of car spaces."
The dispute between the parties was as to the Commencing Date and as to the nature of the Landlord's obligations so far as concerns "Landlord's Works".
The Expert determined that: 1. the Commencing Date was 18 May 2015 (rather than 12 February 2015, as the Landlord contended); 2. the Landlord's obligation, so far as concerns Landlord's Works, was to build the premises in accordance with plan CD1231 lodged by the Landlord with Kogarah City Council as part of a development application to use the Premises as a "long day care centre".
The significance of the conclusion at [17(b)] is that the Tenants are not able to get approval to use the Premises as a child care centre unless a particular window on the first floor of the Premises is constructed in accordance with CD1231 (thereby allowing ventilation of an outdoor area consistent with the relevant requirements). The manner in which the Landlord constructed that window does not allow the requisite ventilation.
As I understand it, it is common ground that if the Expert's conclusion at [17(b)] is correct, his conclusion at [17(a)] is also correct.

Background

The following background material was before the Expert.
On 8 September 2008 the Landlord, by its representative Mr Panapoulos, and the Tenant (by their father, Mr George Tadros) executed heads of agreement. In that document the proposed lessee was described as "Little V.I.P's Childcare".
The document noted: "Prior to the execution of the lease agreement, the Lessee is to provide the Lessor with Plans and specifications of the fitout as well as the specific requirements of the Lessee".
CD1231 was prepared in July 2011.
CD1231 specified, in relation to the rear wall of the outdoor area: "External outdoor area walls to be 900mm high solid with 1200mm high selected glazing".
The effect of this specification, if implemented, would be to provide the requisite ventilation to the outdoor area to permit the Premises to be used as a child care centre.
Also before the Expert was a statement by Mr George Tadros, dated 17 June 2015, provided by the Tenants.
The Landlord did not provide to the Expert any material to contradict Mr Tadros' statement.
In his statement, Mr Tadros said that in July or August 2011 he gave Mr Panapoulos a copy of CD1231 and said: "Those plans set out what I want the Premises to be, let me know whether you have any problems with constructing the building in accordance with those plans".
Mr Tadros said that, in late 2011, Mr Panapoulos said to him: "I am happy with your plans, we can have them lodged at Council."
On 20 December 2011, Mr Panapoulos lodged a Development Application with Kogarah City Council. The development was described as "long day care centre within building custom made for this usage". Plan CD1231 was submitted with the Development Application.
In that regard, Mr Tadros in his statement said: "On 20 December 2011, I met Peter Panapoulos and his wife Zoe at Kogarah Council Chambers. They brought the required number of copies of Plan CD1231 to be submitted with the Development Application relating to Levels 1 & 2 of the building. They also brought the Development Application form which had been completed and signed on behalf of the Landlord. The document bore the signatures of Bill Panapoulos, Peter Panapoulos, Olga Panapoulos (Bill's wife) and Chris Panapoulos (Bill's son). I then signed the Development Application form and submitted it to Council. It was given the reference number '313/11'."
Kogarah City Council granted development approval on 6 February 2013 on the basis of, amongst other plans, CD1231.
At this stage, according to Mr Tadros, the building had not progressed passed excavation.
On 14 February 2013 the Landlord and Tenants entered into further heads of agreement which did not, in terms, refer to CD1231, but which stated that the scope of the lessor's works would be attached to the proposed agreement for lease (ultimately, the Deed).
Mr Tadros said: "In July 2013 the Landlord submitted draft Deed of Agreement for Lease. The Landlord required this to be signed before I was to be permitted access to the Premises to carry out the Tenant's fit out works. Negotiations about the terms of that document continued until 11 April 2014, during which time construction of the building progressed."
The Deed was executed on 11 April 2014.
Mr Tadros said in his statement: "In April 2014, after having gained access to the Premises for the first time, I saw that aluminium frames for windows had been installed 'floor to ceiling' in the Outdoor Area Level 1. This was contrary to the plans. The frames did not contain glass at that time. I complained to Bill Panapoulos and said: 'DOCS will not approve the premises with those windows'. Bill said: 'I do not know anything, talk to Peter'. I then made the same complaint to Peter, who said: 'We have Council approval - I lodged the s 96 Application. The Architect said that the weight of the brickwork and glass would be too great for the slab'. I said: 'That does not matter, DOCS will not allow me to open the Child Care Centre with windows like that'. Peter said: 'We'll sort it out'. I approached Peter every few weeks about this issue and on each occasion he said: 'We'll sort it out'."

Separate question

Mr Bevan, who appeared for the Landlord, submitted that the Expert had misapprehended the nature of the "Premises" under the Deed, had misconstrued the Deed and had thereby acted "wholly outside the scope of [his] contractual authority".
Thus, Mr Bevan submitted, the Determination was not a determination for the purposes of the Deed. Mr Bevan sought to draw an analogy with a valuer, called upon to express a "final and binding" valuation by the terms of a commercial lease, and who makes a mistake concerning the identity of the premises to be valued: for example Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 especially per McHugh JA at 335G.
I see no such misapprehension in the Expert's determination.
The Expert did not misapprehend the nature of the Premises the subject of the Deed.
Rather, using conventional principles, he construed the definition of "Landlord's Works", and in particular the words "the building work to be carried out by the Landlord to build the Premises" as meaning building work carried out in accordance with CD1231.
Relevantly the Expert's reasoning was as follows: 1. As a matter of construction, he was entitled to have regard to "the factual matrix known to the parties" and "mutually known facts" to "identify the meaning of a descriptive term". The Expert referred to Prenn v Simmonds [1971] 1 WLR 1381 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. The words the Expert quoted were from the judgment of Stephen, Jacobs and Mason JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, at 429, cited by Mason J in Codelfa at 351 (par 8.8). 2. The meaning of "Landlords Works" was "informed" by CD1231 because: 1. This was "the only plan in existence between the [Landlord] and the [Tenants] at the time of entering the [Deed]"; and 2. The Landlord had "signed off on Plan CD 1231 to be submitted to the Council" (par 8.8). 1. "[T]o give the words 'the building works to be carried out by the Landlord' any meaning" the parties "must have agreed" that the "actual 'Landlord's Works' are the works identified in the document signed by both of them" being the "Development Approval [sic: Application] with the Plan CD1231 annexed and submitted to the Council" (par 8.10). And; 2. The Landlords Works are "defined by Plan CD1231 being the only agreed plan between the parties relating to the premises" (par 8.11).
It is well established that evidence of surrounding circumstances is admissible to interpret a contract where it is ambiguous or susceptible to more than one meaning; Codelfa at 352.
Further, as the Expert stated (see [43(1)] above), such evidence, "in the form of 'mutually known facts'" may also be relied upon "to identify the meaning of a descriptive term used by the parties".
The admissibility of such evidence for that purpose has been affirmed in recent cases (see Emmett JA (Bathurst CJ and Ward JA agreeing) in Righi v Kissane Family Pty Ltd [2015] NSWCA 238 at [44]; KBL Mining Ltd v Kidman Resources Ltd [2015] NSWSC 515 at [135]) and is captured in the broader statement of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 89 ALJR 990 at [47]: "In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract." [Citations omitted]
The Expert applied these well-established principles and concluded that the parties must have intended that descriptive term "the building works to be carried out by the Landlord" to mean building works carried out in accordance with CD1231.
In so concluding, the Expert was not acting "outside the scope of [his] contractual authority". He was doing exactly what was required of him under the Deed.
The Expert's conclusion was one that was open to him. Apart from the definition of "Landlord's Works" itself, the terms of the Deed were silent as to what the parties were referring to when they spoke of the "building work" to be carried out by the Landlord. The draft strata plan annexed to the Deed cast no light on that question.
The conclusion most certainly did not bespeak "manifest error" on the Expert's part, namely an "oversight [or] blunder so obvious as to admit no difference of opinion" R Banks, Lindley and Banks on Partnership, (19th ed 2013, Sweet & Maxwell) at 10-73, cited with approval by Peter Smith J in Walton Homes Ltd v Staffordshire County Council [2013] EWHC 2554 (Ch) or a conclusion "obviously wrong" and "apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument" (Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 742H per Lord Diplock).
Having expressed this opinion, I will invite counsel to confer and agree on what should now happen in the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 June 2016

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