Australia Pacific Airports (Melbourne) Pty Ltd v Nuance Group

Supreme Court of Victoria|2004-11-17|Before: Hansen J

Landlord and tenant - Construction of lease - Where lease established a Review Board empowered to review requests to amend the financial terms of the lease - Whether the Review Board was accordingly empowered to vote upon a proposal to change the means by which the rent was calculated under the lease - Meaning of "review".

Declaratory relief is sought by the plaintiff, Australia Pacific Airports (Melbourne) Pty Ltd ("APAM"), and the defendant, The Nuance Group (Australia) Pty Ltd, as to the correct interpretation of certain provisions of a lease made between them on 16 January 2002 ("the Lease"). Pursuant to the Lease, APAM leased to the defendant, for a period of eight years commencing on 1 November 2002, certain areas in the international terminal at Melbourne Airport for the purpose of the defendant conducting a retail duty free business under the trading name Downtown Duty Free.

The provisions of the Lease in question are cls 19.1 and 19.2 which establish and empower a Review Board to carry out specific functions. There is also a question as to the interaction of those clauses with cl 27.15 which provides for determination by an expert of any "difference" arising between the parties. Neither party argued that the construction of the Lease depended upon extrinsic facts or the factual matrix. The question is purely one of construction of the Lease.

"19 REVIEW BOARD 19.1 Functions of Review Board The Review Board is to be responsible for the following: (a) the review and approval of the Tenant's business plan prepared by the Tenant; (b) the review of sales performance; (c) the review of financial performance against the Tenant's business plan; (d) the review of any requests to amend the Tenant's business plan and/or financial terms of this lease; (e) the review and implementation of any marketing initiatives; (f) the review of forecast trading conditions; (g) the review of significant changes that may affect achievement of the Tenant's business plan; (h) the review of capital expenditure requests; (i) the review of significant developments and merchandising proposals; and (j) any other relevant matter which the Review Board decides should be reviewed by it. 19.2 Constitution of Review Board (a) The Review Board must, unless agreed otherwise, meet quarterly and such meetings must be called at no less than 10 Business Days notice. (b) A quorum for the Review Board consists of four members, at least two of which are appointed on behalf of APAM and at least two of which are appointed on behalf of the Tenant. (c) APAM must nominate three members to the Review Board and must notify the Tenant in writing of its nominees. (d) The Tenant must nominate three members to the Review Board and must notify APAM in writing of its nominees. (e) Members of the Review Board may be replaced at any time upon written notice by the party nominating such member. (f) Members of the Review Board may appoint alternates. (g) The Review Board must appoint a secretary who will be responsible for issuing notices and agendas of the Review Board meetings and minutes. (h) The Review Board will have a chairman with a fixed term of six months. During odd numbered terms, the chairman will be appointed by APAM from one of its representative members and during even numbered terms, the chairman will be appointed by the Tenant from one of its representative members. (i) Each member of the Review Board will be entitled to one vote. In the event of there being an equality of votes, the Review Board must refer the matter to the chief executive officers of APAM and the Tenant for joint resolution by the chief executive officers. The chief executive does not have a second or casting vote. (j) All decisions of the Review Board are to be by simple majority. (k) Decisions of the Review Board are to be binding on APAM and the Tenant. ... 27.15 Dispute Resolution (a) If a difference arises between the parties the issue is to be determined by an expert nominated by the senior office-bearer in Victoria of the Australian Property Institute on the application of either party. (b) The expert nominated must be a member of that institute of at least 5 years' standing and acts as an expert and not an arbitrator. (c) The expert's determination is final and binding and the costs of the nomination and determination are to be borne equally. (d) Each party is entitled to make a submission to the expert."

The issue now requiring determination is whether the Review Board had the power to entertain and decide upon a request by the defendant to vary the rent payable by it under the Lease. The relevant clause by virtue of which the defendant submitted the Review Board did have such a power is cl 19.1(d), namely a review of the financial terms of the Lease.

The relationship between the parties as constituted by the Lease is in many ways a business relationship rather than a traditional landlord and tenant relationship. The Lease does not just provide for the mere demise of premises with quiet enjoyment at Melbourne Airport in exchange for the payment of rent calculated on a customary basis with the usual covenants. An indication that the Lease is not a traditional lease between landlord and tenant is that the rent payable pursuant to the lease is not rent in the traditional sense arising from privity of estate but rent which is really a contractual rent. The rent is not calculated by reference to the area of the premises, but on the basis of passenger numbers and passenger spending. The distinction between what may be termed "true rent" and "contractual rent" was discussed by Brooking J in Commissioner of State Revenue v Price Bent Services.[1]

Clauses 3 and 4 of the Lease provide for the amount of rent payable by the defendant to APAM. The rent is calculated by reference to complex formulae, and for present purposes it suffices to note that it consists of two components: base rent and percentage of sales. The base rent is affected by the number of international passengers which pass through Melbourne Airport and after the first year of the Lease is varied in a manner based upon the performance of the defendant's business and the sales achieved per international passenger. Further, to the extent that its Percentage of Sales (calculated by reference to detailed formulae) exceeds the base rent, the defendant is obliged to pay this amount to APAM as rent.

APAM, pursuant to the terms of the Lease, has a significant amount of involvement and control over the conduct of the defendant's business. The Lease requires a particular use of the premises, namely the retail sale of tax and duty free merchandise.[2] In this regard it is said to have parallels with retail tenancies leases although not falling within the legislation governing retail tenancies. APAM sets and controls the pricing of the merchandise to be sold by the defendant and the defendant must ensure that the prices charged for the merchandise comply with APAM's Pricing Policy, which is non-negotiable and subject to variance by APAM at its sole discretion.[3] During the term of the Lease the defendant must submit annually a business plan for approval by APAM.[4] The defendant is required to submit to APAM a monthly statement of sales and an annual certified statement for the preceding year indicating the sales by category and month and audited and certified by an accountant.[5] The defendant is required to provide to APAM information set out in Annexure H as required by APAM.[6] The defendant must ensure that the premises are open for trade according to the hours of operation specified by APAM; accept the specified credit cards and foreign currencies nominated by APAM; ensure all labelling and displays are to APAM's satisfaction; reduce or remove from sale any items at APAM's request; display in the premises any point of sale advertising or marketing material notified by APAM; assist APAM with the preparation of a quality of service monitor; stock particular items as directed by APAM; and supply adequate carrier bags and baskets as approved by APAM.[7] APAM has right of veto over any proposed employee of the defendant whom it considers unacceptable.[8] Finally, the defendant must expend an amount of money on promotion and advertising of the premises and its merchandise with any unexpended money to be carried forward into the following year and at the end of the term of the Lease, to be paid to APAM.[9]

In summary, the Lease is a contract for the letting of premises for a specified and required use and with the following features: the payment of amounts entitled "Rent" effectively based on sales and performance, and control by the lessor over the lessee's business including as to matters such as business plan, pricing, stocking, promotional material, trading hours, employment, and the payment of promotional fees.

On 23 March 2004 the defendant notified APAM of its desire to amend the financial terms of the lease due to it being in an allegedly unsustainable financial position as a result of increasing passenger numbers and declining passenger expenditure. It was requested that the Review Board meet on an urgent basis to review the request in accordance with cl 19.1(d). By a letter dated 31 March 2004, APAM disputed the jurisdiction of the Review Board to entertain or make any determination about the rent payable. APAM's letter raised a secondary issue in relation to the applicability of the dispute resolution clause under cl 27.15. APAM asserted that should there be a deadlock of votes on the Review Board, the matter would be referred to the chief executive officers of both parties for joint resolution, which, if not forthcoming, was the end of the matter.

By subsequent correspondence in April the defendant disagreed with this assertion and reserved its right to invoke the dispute resolution procedure set out in cl 27.15. Otherwise the defendant advised that it was preparing materials and submissions in relation to a resolution to be presented to the Review Board in May 2004. The resolution will propose amendments to the financial terms of the Lease, and the defendant will seek a vote on the amendment. In concluding, the letter stated that the dispute resolution process in cl 27.15 was applicable and would be invoked in the event of a deadlock at the Review Board and failure of the chief executive officers to agree.

On 30 April 2004 APAM wrote asserting that the Review Board "is not empowered to alter the terms of the Lease".

On 24 June 2004 the defendant wrote saying that a resolution was being prepared for presentation at the next meeting of the Review Board on 22 July 2004. The defendant will ask the Board to vote on the resolution pursuant to cls 19.1 and 19.2.

On 29 June 2004 APAM reiterated its view that the Review Board is not empowered to alter the financial terms of the Lease.

On 12 July 2004 the defendant circulated to the members of the Review Board the resolution which it proposed to amend the financial terms of the Lease pursuant to cl 19.1(d). The consequences of the resolution were threefold. First, the resolution proposed to alter the definition of the "GIPP" or guaranteed income per passenger, which was one of the variables in the formula for calculating the base rent. Secondly, it proposed that a payment be made by APAM to the defendant of $12,400,000 on the first day of the third lease year. Thirdly, it proposed to replace cl 3.6 of the Lease which provides for the adjustment of the base rent with a clause providing for a different formula to be used.

On 13 July 2004 APAM filed the writ commencing this proceeding. The relief sought is a declaration concerning the power of the Review Board under cl 19.1(d). As narrowed by amendment at trial the declaration sought is that on the proper construction of cl 19.1(d) of the Lease the Review Board is not empowered to grant a request by the defendant to:

(a) alter the manner in which the amount of rent specified under the Lease is to be calculated; (b) vary the terms of the Lease; (c) reduce the rent payable to it by APAM under the Lease; or (d) seek a payment of money by APAM to it under the Lease.

On 22 July 2004 the Review Board met and the defendant put forward its proposed resolution. After some argument as to whether the resolution was beyond the power of the Review Board, a vote took place with a resulting deadlock of 3-3, the Board members having voted along party lines.

The resolution has not proceeded under cl 19.2(i) to the chief executive officers for joint resolution in light of the litigation and APAM's contention that the Review Board was not empowered to consider or vote on the resolution in the first instance.

The defendant filed a counterclaim by which it sought declaratory relief. Having regard to the course of the submissions the defendant confined the relief to the following declaration, namely that on the proper construction of the Lease the Review Board is empowered to make a decision upon a request by the defendant to amend financial terms of the Lease, which decision is binding upon the parties to the Lease.

In response to the defendant's proposed declaration, counsel for APAM provided a supplementary written submission. First, even if the Court were to find for the defendant, it would be unnecessary to grant the defendant positive declaratory relief as by virtue of the refusal to grant APAM's declaratory relief, the Review Board would be empowered to grant and vote on the defendant's proposed resolution. Secondly, if the Court were minded to grant declaratory relief to the defendant, the form of the declaratory relief proposed by the defendant is inappropriate due to its width. The declaration should be limited to the proposed resolution, and confined to the power of the Review Board to decide on the resolutions proposed by the defendant on 22 July 2004 under cl 19.1(d) of the Lease.

At the outset APAM submitted that the Lease was a carefully negotiated commercial arrangement between the parties. The defendant sought to treat cl 19.1(d) as providing a mechanism to review the rent and vary the terms of the Lease when, for the reasons summarised below, the clause provided for neither of these.

APAM submitted that had the parties wished to include a rent review clause in the Lease, they would have done so expressly, as is commonly done in leases, rather than by a paragraph expressed in general terms which forms part of a clause which relates to a wide range of diverse matters. Given that there are a number of other financial terms in the Lease, for example cl 7 which deals with the payment of rates, charges, land tax and utilities, and cl 9 which deals with a performance bond, the parties would not have submerged the concept of rent within the general description of "financial terms" which is further contained in a paragraph dealing with the unrelated matter of the defendant's business plan. If the parties had intended cl 19.1(d) to be a rent review clause, it would also be expected that the clause would have provided guidance, whether for the Review Board, the chief executive officers or an expert appointed under cl 27.15, as to how and by reference to what matters the rent review would occur.

The existence of detailed and extensive clauses in the Lease for calculating and adjusting the rent also militates against construing cl 19.1(d) as enabling a rent review. By inserting detailed provisions relating to rent, the parties can not have intended that the question of whether and on what terms the rent should be reviewed could, by way of cl 19.1(d) and a process of disagreement, be decided by an expert appointed by the Australian Property Institute.

If cl 19.1(d) were to be viewed as a rent review clause, the rent payable under the Lease could be in a perpetual state of flux throughout the entire term of the Lease as at each quarterly meeting of the Review Board either or both parties could seek an amendment of the rent and invoke the dispute resolution procedures failing agreement. This would lead to a constant state of uncertainty.

APAM also noted that the defendant's proposed resolution would require a rewriting of certain terms of the Lease as distinct from a mere adjustment of rent by reference to a definite yard stick. APAM submitted that the parties could not have intended that the rewriting of terms of the Lease relating to the calculation and adjustment of rent, issues of a legal character, would have been left to an expert who was required to be a member of the Australian Property Institute, nominated at the unfettered discretion of the senior office-bearer in Victoria of that Institute. Further, having regard to the amount of money to be reduced from the current rent payable under the proposed resolution, the parties can not have intended that such important matters would be dealt with by anyone other than the boards of directors of the two parties. Instead, according to the defendant's interpretation, such matters will be dealt with by a Review Board containing nominees of the parties of which four only need be present.

APAM submitted that the defendant's construction of cl 19.1(d) did not accord with the plain language of the Lease. According to Black's Law Dictionary,[10] "review" means "Consideration, inspection, or re-examination of a subject or thing". APAM submitted that this definition of "review" should be given a consistent meaning throughout cl 19.1 and that pursuant to this definition, the Review Board could consider a matter, form a view about it and even make a recommendation. However, it can not implement it. APAM distinguished between "review" in the context of appeals from or challenges to the decisions of inferior courts whereby superior courts could alter or overturn decisions, from "review" in the context of re-examining or reconsidering the provisions of an agreement. Regarding cl 19.1 as a whole, counsel for APAM noted that the word "review" appeared in every single paragraph of cl 19.1. Accordingly the function of the Board, as indicated by its title, is one of review. APAM submitted that it was clear that where it was intended that the Review Board have the power to implement a matter which was the subject of "review" under that clause, another verb was used in addition to "review" specifically providing that power. For example, cl 19.1(a) provides for the "review and approval of the Tenant's business plan...". Clause 19.1(e) provides for the "review and implementation of any marketing initiatives". In reply, counsel for APAM also conceded that cl 19.1(j) contains a decision-making power by virtue of the word "decides" contained therein. No such second verb is present in cl 19.1(d) empowering the Review Board to do anything more than consider or re-examine the matters falling within that sub-clause. Counsel for APAM acknowledged the provisions in cl 19.2 which clearly contemplate voting and decision-making by the Review Board but insisted this was to be understood in the context of cls 19.1(a), (e) and (j) only.

APAM then referred to cl 19.1(j) to illustrate the difficulties associated with the defendant's construction of "review". Failing agreement amongst the Review Board and subsequently between the chief executive officers as to whether a matter should be reviewed by the Review Board, the question would then be referred to the expert appointed by the Australian Property Institute under cl 27.15. The expert would then, without any guidance or criteria, have to decide whether a given matter should be reviewed by the Review Board and presumably what action should then be taken by it.

It follows from this that the Review Board does not have the power to grant a request by the defendant to alter the terms by which the amount of the rent payable under the Lease is calculated and that the vote in respect of the defendant's proposed resolution was not a vote in respect of a matter within its powers. Consequently the vote which took place at the Review Board meeting on 22 July 2004 in respect of the defendant's proposed resolution was of no effect.

The defendant's submissions proceeded as follows. First, its resolution put to the Review Board on 22 July 2004 was a request to amend the financial terms of the lease within cl 19.1(d). Secondly, where a party makes such a request, cl 19.1(d) on its proper construction empowered the Review Board to decide the request so as to bind the parties. Thirdly, the vote at the Review Board meeting was accordingly a valid and effective vote. Fourthly, as the vote was deadlocked, the Review Board was required to refer the request to amend to the chief executive officers of the parties for joint resolution. Fifthly, if the chief executive officers are unable to resolve the matter, it is to be resolved by an expert appointed under cl 27.15.

The defendant noted that APAM accepts the first proposition above and also accepts that if the second proposition is correct the remaining three propositions follow. Accordingly it is in respect of the second proposition that the defendant focussed its submissions.

The cardinal rule of interpretation requires that a provision in a contract be interpreted according to its natural and ordinary meaning read in light of the contract as a whole, thereby giving due weight to the context in which the provision appears including the nature and object of the contract.[11] Clauses 19.1, 19.2 and 27.15 must be read in their context in the Lease.

The defendant submitted that on the ordinary and natural meaning of the words in cl 19.1(d), the Review Board was empowered, upon reviewing a request to amend the financial terms of the Lease, to decide that the terms should be amended. Otherwise, the function provided for in cl 19.1(d) would have no utility or content and would lack purpose. Clause 19 does not provide that the Review Board make a recommendation or act as a "think tank" in providing advice and analysis to the chief executive officers of the parties. Rather, the position is expressly to the contrary as cl 19 only provides for such a referral to the chief executive officers where there is an equality of votes within the Review Board. Thus, the clause presupposes that where a matter before the Review Board is apt to be the subject of a decision, the Review Board has been determining the matter through its voting process. Unless the Review Board is deadlocked, which presupposes a vote and a decision, there can be no referral to the chief executive officers. If APAM's interpretation is correct, then all requests to amend which fall within cl 19.1(d) will remain unresolved and undetermined. Such a result can not have been intended by the parties.

Having regard to the Lease as a whole, the defendant submitted that it was entirely understandable that the Review Board has the power to accept or reject the amendment of the financial terms of the Lease. First, the fixed formulae by which the rent is calculated operates over a lengthy period with the variables being changeable and unpredictable in nature and with no possibility of a decrease in the base rent. Secondly, the Lease does not establish a traditional lessor-lessee relationship but rather a business operation by one party hosted by the other party who has significant involvement and where there is a mutual business advantage. Thirdly, a large extent of control is exercised by APAM over the defendant's business with accordingly scope for APAM to affect the defendant's financial performance and hence the rent payable to APAM. Fourthly, the high proportion of revenue allocated as rent, the nature of the payments made as rent and the relatively small margin potentially remaining as profit to the defendant suggest a power within the Review Board to alter the financial terms of the Lease.

The defendant submitted that its construction was further supported by the provisions of the Lease relating to the defendant's business plan. Under the Lease the defendant is required to submit an annual business plan which is reviewed and approved by the Review Board under cl 19.1(a). Clause 19.1(d) allows for requests to amend the business plan to be made to the Review Board as well as requests to amend the financial terms. The defendant submitted that this link between the business plan and the financial terms is unsurprising due to the close business relationship between the parties, the content of the business plan and the detailed financial information available to APAM.

Further, under cl 19.1(a) the Review Board has the power to review and to subsequently implement the defendant's business plan by voting in favour of it. The defendant submitted that cl 19.1(d) should be interpreted against this background and that the parties could not have intended that the Review Board would have the power to approve the business plan but not to amend it. It follows from this that the Review Board must have a similar power in relation to financial terms of the Lease given that cl 19.1(d) deals with both the business plan and the Lease in the one sentence and by common wording. The words "and/or" also contemplate that a single request could incorporate a request to amend both the business plan and the financial terms. Notwithstanding there is no second verb in cl 19.1(d), unlike in cls 19.1(a) and (e), in substance and on a common-sense approach cl 19.1(d) is in the nature of cls 19.1(a) and (e). These paragraphs are quite different from the other paragraphs in cl 19.1 where it is apparent that the nature of those functions involves more consideration and analysis rather than implementation. The defendant rejected APAM's submission that the word "review" should have the same meaning in each of the paragraphs in cl 19.1. To do so is to take the word in isolation rather than examining it in context.

The decision-making role of the Review Board is also emphasised by cl 19.2, particularly paragraphs (i), (j) and (k) which provide that each board member is entitled to one vote, that all decisions of the Review Board are by simple majority and that all decisions of the Review Board are binding on both parties. The defendant submitted that these provisions emphasise that the Review Board engages in decision-making and determination as distinct from mere consideration and analysis of issues with subsequent recommendations.

The defendant rejected APAM's submission that in the absence of any guidelines and details as to how a request to amend the financial terms of the Lease should be undertaken, any review would not be possible. Both the Review Board and the chief executive officers would be able to vote as they saw fit on the merits of the specific request for amendment. If such a request were to reach the expert under cl 27.15 the parameters of the issue would be confined by several factors: first, by the nature and content of the request for amendment sought from the Review Board; secondly, the extent of any resolution or narrowing of the issues by the chief executive officers; thirdly, the submissions of the parties to the expert; fourthly, any relevant comparable evidence or similar material; and fifthly, the Lease and its terms having regard to the business relationship established between the parties thereunder. Within these parameters the expert would be able to review and determine the issues, applying his own expertise.

The defendant rejected APAM's submission that applying the defendant's interpretation of "review" in the context of cl 19.1(j), the expert appointed under cl 27.15 would have to decide "whether there should be any and if so what alteration with respect to any matter in the parties' control relating to the Lease." The only function which cl 19.1(j) vests in the Review Board, which subsequently the chief executive officers and the expert would be required to consider and determine in the event of a deadlock or failing agreement, is the function of reviewing other relevant matters which the Review Board decides should be reviewed by it as distinct from the outcome on the relevant matter itself. In any event, the word "review" operates in a different context in cl 19.1(j) to that in cl 19.1(d) and its interpretation in the latter context does not necessarily transpose to the former context. The defendant submitted that cl 19.1(j) is akin to cls 19.1(b)-(c) and (f)-(i) which provide merely that the Review Board consider the matters to which they relate. In contrast, cl 19.1(j) is not similar to cls 19.1(a) and (e) which contemplate that the Review Board is to decide upon and determine the outcome of the matters to which they relate. Clause 19.1(d) was of a similar nature of cls 19.1(a) and (e).

In conclusion, the defendant submitted that, having made a request to amend the financial terms of the Lease, being a matter which the Review Board was empowered to hear and determine, the resulting equality of votes required the Review Board to refer the matter to the chief executive officers for joint resolution. Failing their agreement, a difference between the parties will have arisen within the meaning of cl 27.15, thus enabling an expert to determine to the matter.

In my view the Review Board was empowered under cl 19.1(d) to consider and vote upon the defendant's proposed resolution to alter the means by which rent was calculated. A decision under cl 19.1(d) determines the request and binds the parties who must thus act in accordance with it. That is by implementing a decision in favour, or, in the event of an equality of votes, by implementing the process of reference under cl 19.2(i). In my view the conclusion I have expressed is apparent on the natural and ordinary meaning of cl 19.1(d) read in the context of cl 19 and the Lease as a whole. I shortly state my reasons for this conclusion.

Turning first to cl 19.1, I note that the opening words provide that the Review Board is "responsible" for the matters specified in paras (a) to (j). The word "responsible" indicates that the Review Board has a defined jurisdiction to deal with specific matters, the actual role or obligation being specified by the following provisions. The next thing to be noted is that "review" appears in each paragraph of cl 19.1. However, this does not mean that a singular construction of "review" should be applied uniformly to each paragraph. On the contrary, the word "review" must be examined according to the context in which it appears in each paragraph. For example, the scope and meaning of "review" in the context of reviewing sales performance in para (b) may differ from its scope and meaning in the context of reviewing a request to amend the business plan and/or financial terms of the Lease in para (d). In this respect I note that recently, in Cream Holdings Ltd v Bannerjee,[12] where the meaning of "likely" was considered, Nicholls LJ stated:[13]

"As with most ordinary English words `likely' has several different shades of meaning. Its meaning depends upon the context in which it is being used."

The same point applies to these circumstances. Indeed, it is apparent on the face of cl 19.1(d) that a decision by the Review Board is contemplated. A "request to amend" either the business plan and/or the financial terms of the Lease necessarily implies and foreshadows a response to that request by the Review Board whereby the request to amend will be accepted (with or without amendments to the proposal), or rejected or a deadlock will result. In contrast para (b), which refers to the review of sales performance, does not on its face contemplate a definite response but rather discussion and analysis with no necessary outcome being determined or implemented.

Turning next to cl 19.2, para (i) provides that each member of the Review Board is entitled to a vote and in the event that there is an equality of votes, the matter the subject of the vote is to be referred to the chief executive officers for joint resolution. The use of the word "resolution" again suggests a determinative power present in the chief executive officers in respect of any matters referred by the Review Board. Paragraph (j) then provides that all decisions of the Review Board are by simple majority and para (k) states that all decisions of the Review Board are binding on the parties. These paragraphs indicate that the Review Board has the power to determine, by voting, at least some of the matters referred to in cl 19.1. The same applies to the chief executive officers in respect of the matters referred to them by the Review Board. Thus "review", in some instances at least, must be interpreted to contain a determinative power.

The above terms and structure of cl 19 reflect an intention to establish a framework whereby matters within sub-cls (a) to (j) may be reviewed, and decided within the scope of those sub-cls, at first instance by the Review Board, followed, in the event of a deadlock, by the chief executive officers, and in the event of difference by the appointed expert. In this respect, however, it is important to note the distinction between the operation of cl 27.15, and the procedure contemplated by cl 19.2(i). Clause 19.2(i) provides for a multi-stage approach in resolving matters considered by the Review Board under cl 19.1. First, it only applies to matters which the Review Board is entitled to consider and vote upon under cl 19.1. Secondly, a pre-condition for its operation is that a vote take place by the Review Board with the outcome resulting in a deadlock between the parties. The clause then requires that the matter be referred to the chief executive officers for joint resolution. Failure by the chief executive officers to reach a joint resolution would constitute a "difference" for the purpose of cl 27.15. However, it is important to note that cl 27.15 is an overarching clause which applies to any difference between the parties, howsoever arising.

Taking into account the evident object and purpose of these clauses, the defendant's construction of cl 19.1(d) is to be preferred over that of APAM's. In context the concept of "review" in cl 19.1(d) means to consider with a determinative power to decide by voting upon any request to amend the defendant's business plan and/or financial terms of the Lease. Then the express references to "decisions of the Review Board" being by simple majority and being binding on the parties with a requirement to refer "the matter" to the chief executive officers for "joint resolution" in the case of an equality of votes, indicates that the "review" process is, relevantly, a decision making process. The opening words of cl 19.1 are consistent with this in declaring that the Review Board is "responsible" for the designated matters. What is here intended, in my view, is a structure for decisions upon the "review" of the budget and/or financial terms.

The defendant's proposed resolution constituted a request to amend the financial terms of the Lease. There would be little utility or purpose in a party submitting a resolution to the Review Board if the extent of its power was merely to expound and discuss the issues without being able to arrive at a decision on the matter. Indeed, there seems to be a disconformity, or lack of symmetry, between such a limited view of the Board's power and the references in cl 19.2 to "decisions", to an "equality of votes" and to reference on for "joint resolution". The defendant's construction, which I accept, gives meaning and consequence to the process. In the event of a deadlock between the parties, the matter is referred to the chief executive officers; in this way, the matter is either resolved at first instance, or progressed to the next stage for resolution. If, as submitted by APAM, the Review Board were merely empowered to discuss, consider and analyse a request by a party falling within cl 19.1(d) with a view to making a recommendation to the boards of directors of the respective parties, neither of those two outcomes would necessarily result. There would be no immediate outcome with possibly significant delays while the parties reported to their respective boards of directors, the directors analysed the request and the Review Board's recommendations, if any (as there may have been an equality of votes). Until, for instance, the respective boards of directors had progressed the negotiations as far as possible or there had been a refusal to negotiate, it could not be said that a "difference" had arisen between the parties. This appears to be at odds with the relatively efficient mechanism provided under the Lease.

A request to amend the calculation of rent falls naturally within the description of a request to amend the financial terms of the Lease, and, given that the rent payable by the defendant depends largely upon the number of international passengers and their expenditure, the link in cl 19.1(d) between the defendant's business plan and the financial terms of the Lease is logical. Consequently I reject APAM's submission that the parties would have provided for a specific "rent review" clause had they intended rent to be reviewable. If the Review Board is empowered to approve the defendant's annual business plan, it would seem logical and consistent to empower it to consider and approve or reject any amendments. Moreover, this conclusion is understandable in the commercial context. Since cl 19.1(d) contemplates that a request could involve amendments to both the business plan and the financial terms of the lease through the use of "and/or", it necessarily follows that the Review Board has a similar power in relation to the latter as well as to the former. There is no evident reason why the contrary should be the case or cl 19.1(d) should otherwise be read in a narrow way.

This construction of cl 19.1(d) is also supported by a consideration of the Lease as a whole. It is first to be noticed that the Lease does not contain a rent review clause as counsel for APAM referred to such a provision commonly found in a lease. Then, it is to be noticed that the Lease is a singular agreement containing its own provisions agreed on by the parties as appropriate for the purpose. They reflect a uniqueness in that sense, and the highly commercial nature of the whole arrangement. The amounts are large and it is hardly surprising to find that the parties provided a mechanism for adjustment of the business plan and financial terms to allow for the consequences of changes in relevant circumstances. Each party has an interest in the ongoing commercial success of the defendant's business conducted pursuant to the Lease. It is consistent with an ongoing relationship that such mechanisms should provide for the resolution of differences between the parties without resort to litigation.

I also do not overlook the consensual nature of the review mechanism under cl 19. Counsel for APAM submitted that the parties can not have intended that four to six nominees of the parties could decide such an important matter as rent, having regard to the amount of money to be reduced under the defendant's proposed resolution. However, for any request to amend the financial terms of the Lease to be granted by the Review Board both sides will need to be in agreement, assuming that the three representatives of each party adopt a uniform view. Consequently, any amendments, significant or otherwise, will be with the consent of both parties. I also note that the parties are at complete liberty to nominate their representatives on the Review Board. A similar consensual approach can be seen at the subsequent stage when the matter is referred to the chief executive officers under cl 19.2(i) for "joint resolution" in the event of an equality of votes. Again, any outcome will be the result of an agreement by both parties. It is only failing agreement at this stage that the matter is adjudicated upon by an independent third party and a decision imposed.

I have considered APAM's submission as to a lack of sufficient guidelines or criteria by which the Review Board, and subsequently the chief executive officers and the expert, could determine a request to amend the financial terms. The answer, in my view, is that the Review Board would consider the merits of a request placed before it in light of information provided and their knowledge of each party's position. The chief executive officers would similarly decide. If the matter were to reach the expert, the expert would be guided by the nature of the request for amendment, any resolution of the chief executive officers, the submissions of the parties and the terms of the Lease.

For these reasons I am of the view that on a proper construction of cl 19.1(d) of the Lease, the Review Board was empowered to make a decision upon the defendant's request to amend the financial terms of the Lease as contemplated by its proposed resolution dated 12 July 2004. The declaration sought by APAM must be refused and the proceeding dismissed. I am prepared to make a declaration on the counterclaim but the proposed declaration should be restricted to the particular matter of the defendant's request to the Review Board under cl 19.1(d). I will hear the parties as to the terms of the declaration and costs.

[2] Item 8 of the Reference Schedule and clause 11.1(x) of the Lease.

[11] See Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510.

At a glance

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Before

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Judgment (58 paragraphs)

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Cases Cited (1)