What do the words "trading or financial operations" mean?
197 Ordinarily, the process of determining the proper construction of a contract is possible by reference to the contract alone. If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. See, by way of example only, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116 [48] (French CJ, Nettle and Gordon JJ).
198 As French CJ, Hayne, Crennan and Kiefel JJ explained in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35]:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating … [U]nless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
(Internal quotations and citations omitted.)
199 And as Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22]:
The construction of the [contracts] is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction. In Codelfa Construction Pty Ltd v State Rail Authority of NSW [(1982) 149 CLR 337 at 350], Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [[1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]:
"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
(Footnotes omitted.)
200 Further, when construing a contract, it is "necessary … to have regard not only to the text [of the contract] … but also … the legislative background against which the [contract] was made and in which it was to operate". See Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 222 CLR 241 at 253 [30], 255 [40], 258 [50] (Gummow, Hayne and Heydon JJ). As Kirby J put it in that case at 261 [64] in relation to the provisions of the Workplace Relations Act 1996 (Cth) relevant to the construction of the industrial agreement the subject of the dispute:
[Those] provisions … constitute the legislative background against which the Agreement was made and certified. It was a background that would have been in the minds of both parties (Amcor and its agent on the one side and the Union on the other) who negotiated the Agreement and hammered out its terms. The legislative background is therefore part of the common knowledge attributable to the parties to the Agreement. So far as it is relevant, it would ordinarily be assumed that, in agreeing as they did, the parties intended the Agreement to take its place within the industrial setting created by the Act.
201 Relevant background may also include "matters of law". See Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] (Gleeson CJ, Gummow and Hayne JJ).
202 Resort to events, circumstances and things external to the contract may also be "necessary in determining the proper construction where there is a constructional choice". See Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 117 [49] (French CJ, Nettle and Gordon JJ).
203 The starting point in this case, obviously, is the text of cl 26.2(a). Relevantly, it will be recalled, it provides that "the Lessee must promptly pay to the [Councils] such amount as may be notified … as being equivalent to the amount which would be payable for rates as if such rates were leviable or payable in respect of those parts of the Airport Site … which are sub-Leased to tenants; or … on which trading or financial operations are undertaken …"
204 Those trading or financial operations are then defined to include, but not be limited to, "retail outlets and concessions, car parks and valet car parks, golf courses and turf farms" but exclude "runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges, and land identified in the airport Master Plan for these purposes". Any areas that "are occupied by the Commonwealth or an authority constituted under Commonwealth law which is excluded from paying rates by Commonwealth policy or law" are also excluded.
205 I should add a brief explanation about Master Plans. At any given time, airports, including the Hobart and Launceston Airports, were and are the subject of a Master Plan, as required by the Airports Act. Among other things, they set out the strategic direction for economic development, operational and public use, and environmental management at the relevant airport. They also set out at a high level proposed use of the land on the airport. They are reviewed by the Commonwealth and give the Commonwealth oversight of the strategic direction of the airport. A number of such plans were in evidence in both proceedings, but nothing in particular turned on them.
206 It is thus readily apparent that the leases contemplate that some parts of the Airport Sites are (fictionally speaking) "rateable", and some other parts are not. In other words, the concept of areas "on which trading or financial operations are undertaken" was intended by the parties to denote something less than the Airport Sites in their entirety.
207 Leaving aside areas occupied by the Commonwealth or certain Commonwealth authorities, areas where trading or financial operations are undertaken do not include runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges and land identified in the airport Master Plans for these purposes.
208 On the other hand, areas where trading or financial operations are undertaken at least extend to retail outlets and concessions, car parks and valet car parks, golf courses and turf farms.
209 So much is clear from the express terms of cl 26.2. As the Commonwealth put it, however, the issue between the parties is "how much further do 'trading or financial operations' extend?"
210 In my view, the issue presented self-evidently involves a constructional choice. Despite the Councils' assertion to the contrary, the meaning of cl 26.2 is not clear by reference only to its terms and the terms of the leases as a whole.
211 It follows that in construing the leases in these proceedings, regard is to be had to aspects of the background and origin of the leases, as well as relevant operational and market-related matters and the statutory and legislative background and framework governing the sale of the Airports and their regulation, to the extent that they were matters known to the parties. (Before the commencement of the trial, counsel for the Councils objected to the relevance of almost all the evidence relied on by the Commonwealth as going to context, surrounding circumstances and matters known to the parties at the time they entered into the leases. It follows from the view I take of the approach to the construction of cl 26.2(a) that, in my view, the evidence relied on by the Commonwealth is admissible.)
212 The Councils contended that the Disputed Areas identified in Attachment A to the amended statement of claim in each proceeding comprise areas on which "trading or financial operations" are undertaken within the meaning of cl 26.2(a)(ii) of the leases and have been wrongly excluded. The Commonwealth and the lessees, on the other hand, submitted that the phrase "trading or financial operations" within the meaning of cl 26.2(a)(ii) does not capture those parts of the Airport Sites on which aeronautical services and facilities are provided, and therefore does not require the lessees to make ex gratia rate payments in respect of the Disputed Areas. The Councils, however, said that trading or financial operations are undertaken on each part of each Airport Site that is in dispute. They said that trading "is not limited to the buying and selling of goods or services, but encompass other activities of a commercial or income-producing nature", and that "the provision of an airline service is a commercial enterprise in trade or commerce" (citing Australian National Airways Pty Ltd v Commonwealth (1945) 71 CLR 29 at 57).
213 It was common ground that there were no "financial operations" undertaken on the Disputed Areas, with the exception of the Northern Midlands Council in its proceeding, in which it submitted (and the other parties contested) that APAL wrongly excluded from its calculation of ex gratia rates the Automatic Teller Machines located at the Launceston Airport.
214 The dispute thus focused on the question whether "trading operations", within the meaning of cl 26.2(a)(ii), were undertaken at the Airport Sites.
215 The adjective "trading" relevantly means "of or relating to commerce, a particular trade or occupation, or trade as a whole". As a verb, "trade" means "to carry on trade"; as a noun "the buying and selling, or exchanging, of commodities, either by wholesale or by retail". See the Macquarie Dictionary Online (as at 12 December 2022).
216 The meaning of the word "trade", of course, depends on the context in which it appears.
217 In Re Ku-ring-gai Co-operative Building Society (No 12) Ltd [1978] FCA 50; (1978) 36 FLR 134, the Court had to answer, among other questions, whether the practice of supplying loans upon the condition that the members insure with a specified insurer was "in trade or commerce" for the purposes of s 47 of the Trade Practices Act. Bowen CJ observed (at 139):
The terms "trade" and "commerce" are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W. & A. McArthur Ltd. v. State of Queensland [(1920) 28 CLR 530 at 547]. The word "trade" is used with its accepted English meaning: traffic by way of sale of exchange or commercial dealing (Commissioners of Taxation v. Kirk [(1900) AC 588 at 592] per Lord Davey; W. & A. McArthur Ltd. v. State of Queensland [(1920) 28 CLR 530]. The commercial character of trade was mentioned more recently by Lord Reid in Ransom v. Higgs [(1974) 1 WLR 1594 at 1600]. His Lordship there said: "As an ordinary word in the English language 'trade' has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services". Moreover, the word covers intangibles, such as banking transactions, as well as the movement of goods and persons, for historically its use has been founded upon the elements of use, regularity and course of conduct (Bank of New South Wales v. Commonwealth [(1948) 76 CLR 1 at 381].
218 It is obvious, however, in this case that the critical phrase "trading operations" must derive meaning from the context in which it appears. And as Campbell JA (Giles and Hodgson JJA agreeing) said in Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [96], "if general words are accompanied by a list of examples which all fall within some genus that is narrower than the general words, that can provide a reason for restricting the general words".
219 Along the same lines, as Spigelman CJ (McColl and Basten JJA agreeing) put it in Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 at [30]-[32]:
The general principle of the law of interpretation that the meaning of a word can be gathered from its associated words - noscitur a sociis - has a number of specific sub-principles with respect to the immediate textual context. The most frequently cited such sub-principle is the ejusdem generis rule. The relevant sub-principle for the present case is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu - the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word "stands with" other words it "must mean something analogous to them". (Evans v Stevens (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxim (9th ed) Sweet and Maxwell, London (1924) pp 373-374.)
However, as Lord Diplock put it in Letang v Cooper [1965] 1 QB 232 at 247:
"The maxim noscitur a sociis is always a treacherous one unless you know the sosietas to which the socii belong."
… The reading down of general words is one of the most common mechanisms applied in the course of legal interpretation. The Court should not give one word in an interrelated, overlapping list of expressions a meaning that is so broad as to be inconsistent with adjoining words or that renders those words irrelevant.
220 Applying those principles of construction, it seems to me, as the Commonwealth submitted, that the word "trading" should be limited to matters ejusdem generis to the examples specifically enumerated - that is to say, retail outlets and concessions, car parks and valet car parks, golf courses and turf farms are all activities for which there would, or would potentially, be market competitors and which are therefore contestable in the relevant market which exists. Further, "trading" should also be construed in the light of the exclusions in cl 26.2(a)(ii). Again, as the Commonwealth submitted, runways, taxiways and aprons "at least are areas which are used for, or to facilitate, the provision of relevant aeronautical services and facilities for regular passenger transport. The provision of such services and facilities is non-contestable as there is no relevant market".
221 Put another way, as the lessees submitted, "the areas that are expressly included within the scope of cl 26.2(a)(ii) are of a kind that are not unique to airports (e.g. retail outlets, car parks, golf courses), while the areas that are specifically excluded from cl 26.2(a)(ii) are areas that are necessary for or otherwise support the unique operations and activities of an airport site, e.g. runways and taxiways, aprons, grass verges and buffer zones".
222 As the lessees further submitted:
Competitive neutrality has no relevance or application to the provision of aeronautical services at the Airport Site[s]. The objective of competitive neutrality is (and was as at [the date of the leases]) the elimination of resource allocation distortions arising out of the public ownership of entities engaged in significant business activities and to ensure that "[g]overnment businesses do not enjoy any net competitive advantage simply as a result of their public sector ownership" (cl 3(1) [of the CPA]). Competitive neutrality requires inter alia that there be an off-airport competitor for the services supplied on the Airport Site[s]. There is no relevant competition as between the aeronautical services and facilities that are provided at [the Airports] and any analogous services provided on land that is not owned by the Commonwealth (as distinct from, say, car parks, retail outlets and concessions to which the principles of competitive neutrality readily apply). It follows that the rationale underlying cl 26.2(a), being to promote competitive neutrality between businesses operated on and off the Airport Site[s], does not apply to aeronautical services which cannot be carried out on "off-airport" land and in respect of which [the lessees do] not enjoy any corresponding competitive advantage over businesses operated on private land.
223 It seems to me that the purpose and context of cl 26 makes it tolerably clear that such a reading of the text is to be preferred - that is to say, the "trading operations" to which cl 26.2(a)(ii) refers were, objectively speaking, intended to refer to trading operations which do not involve the provision of relevant aeronautical services and facilities. Rather, the trading operations to which cl 26.2(a)(ii) refers are those which are, to use the Commonwealth's expression, "contestable".
224 That follows, in my view, because, as all parties agreed, the purpose of cl 26.2 was to achieve competitive neutrality - that is, at the risk of repeating myself, to level the playing field by eliminating what would otherwise be a competitive advantage held by trading operations at the Airports, over those operating elsewhere, where the traders were liable to pay Council rates or State land tax. The lessees could not enjoy any such competitive advantage in respect of the provision of relevant aeronautical services and facilities because they were not relevantly provided elsewhere, so there was no relevant market or competitor. It was thus not "contestable".
225 As at the date of the leases, the statutory and regulatory framework instead imposed certain requirements on the lessees' activities relating to the provision of relevant aeronautical services and facilities. It was common ground that this regime was known to the parties at the time they entered into the leases.
226 The provision of those aeronautical services and facilities was the subject of a specific regime, namely the statutory price and service monitoring provisions described above, including:
(1) the power given to the ACCC to regulate charges for aeronautical services, including by way of imposing price caps (see [53] above);
(2) the direction given to the ACCC to undertake monitoring of "aeronautical related services" (as defined) at the Airports, including monitoring prices, costs and profits relating to the supply of such services (see [55] above);
(3) regulation 7.03 of the Airports Regulations that required the lessees to prepare "consolidated financial statements for the operations, in relation to the airport, of itself and all airport-management companies at the airport, showing financial details in relation to the provision of aeronautical services and non-aeronautical services separately" (emphasis added) (see [58] above);
(4) the imposition of an access regime pursuant to the Airports Act, requiring the Minister to make a determination in respect of the Airports as soon as practicable after the 12 month anniversary of their privatisation, making it a "declared service" for the purposes of Part IIIA of the Trade Practices Act (see [60] above); and
(5) the power conferred on the ACCC under s 155 of the Airports Act to monitor and evaluate the quality of airport services and facilities, including by reference to performance indicators relating to, among other things, runways, aprons and taxiways (see [61] above).
227 The existence of that separate regulatory regime in relation to aeronautical services meant that the rationale of competitive neutrality, as at the date of the leases, had no bearing on or relevance to such services.
228 In my view, it follows that the Commonwealth's submission below is to be accepted:
In the result, it should be found that the purpose of cl.26.2 of the Lease was to give effect to [the] Competition Principles Agreement and the Competitive Neutrality Policy Statement, and more specifically, to give effect to the principle of competitive neutrality. That was only necessary in relation to that part of the airport lessee's business at the airport which did not involve the provision of relevant aeronautical services and facilities. That aspect of the airport lessee's business was subject to economic regulation of the nature outlined above. Accordingly, "trading … operations" in cl.26.2(b)(ii) should be understood in this context. It is trading operations other than these non-contestable services which were and remain subject to economic regulation.
229 Further, as the lessees submitted, the documents provided to bidders before the leases were entered into drew a clear distinction between trading activities and aeronautical operations. A good example was the information memoranda provided in respect of the Airport Sites. Relevant parts of the Launceston Airport information memorandum are set out at [36]-[42] of these reasons. As Dr K Stern SC submitted:
[W]e say this is precisely the kind of material that one would expect a court to have regard to construing a commercial contract, namely the information memorandum which described that which was to be the subject matter of the transaction. … Your Honour will see … that … the principal businesses are split between airport operations, trading, car parking and property management and development, again, reflecting this very particular use of the word "trading" that your Honour will find in the context of the airports as at 1997/98.
… And … there's reference to trading, car parking, and property management and development, under the heading of "Commercial potential". But, your Honour will note … property management and development, but not the airport operations. So whereas there are the four areas that are identified as the airport's business, when the language of commercial potential is introduced, it's portrayed in car parking and property management and development upon which the information memorandum focuses. Then … your Honour will see again, graphically represented in a flow chart, business activities, airport operations - your Honour will note the word - trading, car park and property management and development.
And, again, there is that clear split between the airport operations on the one hand and the trading, car park and property management and development on the other. And that fits very neatly with the language of conducting, trading or financial operations meaning something other than airport operations … And your Honour will then see the business description of that airport operation [and] within airport operations there's reference to the aeronautical charges. Then … your Honour will see trading … there's a range of trading activities that are undertaken. But what's really very clear is this doesn't include the aeronautical operations that have been described under an entirely separate chapter of airport operations. So there's retailing, car rental, ground transportation and other miscellaneous trading activities. Then there's the separate heading for car parking, given its own chapter. And then … there's a separate chapter for property management and development.
And your Honour will also note that within that property management and development subheading, there are leases, but that it is a separate category to the aeronautical operations. So, your Honour, once one looks at a document such as this, what is very clear is that the reasonable business person in the position of the parties entering into this lease, would have understood the undertaking of trading or financial operations to correspond with the description of those operations in documents such as the information memoranda which reflect the way in which the airports were being operated.
And in that context, one would readily understand that trading or financial operations being undertaken excluded the aeronautical operations which are treated entirely separately.
230 The Councils submitted that I should resist the "broad ranging invitation of the Commonwealth and each of the lessees to have regard to a large amount of extrinsic material", including because cl 26.2 is not relevantly ambiguous. It would be apparent from what I have already said that I do not agree. The material is not extensive. And the clause is ambiguous - and, on any view of the matter, at least poses a constructional choice. It seems to me, for reasons that I trust I have explained, that this is a paradigm case in which evidence of context and surrounding circumstances may and should be used to resolve the ambiguity or constructional choice. Once resort is had to it, in my view the proper construction of cl 26(2)(a) is tolerably clear.
231 I should mention one other point made by the Councils. It will be recalled that the leases contain an "entire agreement" clause, viz that "[t]he terms of this Lease constitute the entire agreement between the parties for the subject matter referred to in this Lease and all prior arrangements, agreements, representations and undertakings will have no effect. No modification or alteration of any clause of this Lease will be valid except in writing signed by each party". The Councils submitted that "the respondents face a further hurdle in pointing to the extrinsic circumstances … [because the] entire agreement clause … on its face precludes reference to the objective circumstances that were known to the contracting parties".
232 That submission cannot be accepted. Entire agreement clauses "only reflect the epitome of the operation of the parol evidence rule". The "parties have merely expressly avowed that the totality of the contract, about the relevant subject matter, is to be found within the four corners of the document". See Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at 542 [440] (Allsop J, emphasis in original). Such a clause does not, and is not intended to, preclude courts from construing the existing terms of a contract by reference to the language used by the parties, the surrounding circumstances known to them and its commercial purpose or objects.
233 I also need to deal with a point that arose for the first time in the course of Ms Cuthbertson's oral submissions in reply at the remittal hearing. Because it was a new point, I gave leave for the other parties to file post-remittal hearing submissions, and for the Councils to reply to them.
234 In order to follow the point, it is necessary to set out the relevant parts of the CPA. The important parts for the purpose of this last minute controversy are highlighted below.
235 Clause 3 of the CPA was headed "Competitive Neutrality Policy and Principles". It relevantly provided as follows:
(1) The objective of competitive neutrality policy is the elimination of resource allocation distortions arising out of public ownership of entities engaged in significant business activities: Government businesses should not enjoy any net competitive advantage simply as a result of their public sector ownership. These principles only apply to the business activities of publicly owned entities, not to the non-business, non-profit activities of these entities.
…
(4) Subject to subclause (6), for significant Government business enterprises which are classified as "Public Trading Enterprises" and "Public Financial Enterprises" under the Government Financial Statistics Classification:
(a) the Parties will, where appropriate, adopt a corporatisation model for these Government business enterprises … ; and
(b) the Parties will impose on the Government business enterprise:
(i) full Commonwealth, State and Territory taxes or tax equivalent systems;
…
(5) Subject to subclause (6), where an agency (other than an agency covered by subclause (4)) undertakes significant business activities as part of a broader range of functions, the Parties will, in respect of the business activities:
(a) where appropriate, implement the principles outlined in subclause (4); …
(Emphasis added.)
236 The Councils submitted that:
(1) clause 3(5) of the CPA provided that "where an agency (other than an agency covered by subclause (4)) undertakes significant business activities as part of a broader range of functions, the Parties will, in respect of the business activities … where appropriate, implement the principles outlined in subclause (4)";
(2) clause 3(4) applied to "significant Government business enterprises which are classified as 'Public Trading Enterprises' and 'Public Financial Enterprises' under the Government Financial Statistics Classification" and provided that the parties would "where appropriate, adopt a corporatisation model" and "impose on the Government business enterprise … full Commonwealth, State and Territory taxes or tax equivalent systems";
(3) the FAC, was, at the time of the CPA, "a Government business enterprise" engaging in "significant business activities", because the Commonwealth Competitive Neutrality Policy Statement:
(a) listed the FAC as a "Government business enterprise" in Table 1 of the Appendix;
(b) defined "significant" businesses as including "all Government Business Enterprises … and their subsidiaries";
(c) said that "Commonwealth organisations which have been identified as conducting significant business activities are listed in the tables in the Appendix";
(4) therefore it was relevantly cl 3(4) of the CPA which applied to the FAC and not, as the Commonwealth had submitted, cl 3(5); and
(5) it followed that, as Ms Cuthbertson put it:
All of this, in my submission, makes very clear that what the airports do are considered and were considered for the purposes of the competitive neutrality principles as significant business activities, and in our submission, ones to which - well, ones in which any argument about their not being non-profit and descriptors of that type have no application as a matter of fact. And as a consequence of being significant businesses, they are and meet the definition of … trading operations. They are operations, activities from which profits and revenue are derived.
…
The other relevant part of that document is [an] extract from [the] competition principles agreement … And here, the specific aspects of that competition principles agreement are extracted as they relate to this policy. And you will see there … that clause 3(4) is set out there, and reiterates that for significant government business enterprises, the parties will, where appropriate, adopt a corporatisation model, and the parties will impose on the government business enterprise full Commonwealth state and territory taxes or tax-equivalent systems. That's the extent to which I want to refer your Honour to that document again.
(Emphasis added.)
237 The crux of the submission was that expressed in the italicised part of the above passage. But, with respect, it does not follow at all. The fact that the FAC was classified as a "Government business enterprise" and was thus "significant" says nothing about whether, and if so on which parts of the Airport Sites, trading or financial operations are undertaken within the meaning of cl 26.2(a).
238 And the submission that it is cl 3(4) that was relevant - not cl 3(5) - begs the question of what "full" taxes means. The Commonwealth said the submission "tend[ed] to suggest that the Court should approach cl 26.2(a) as if the intention of the contracting parties was to impose 'full Commonwealth, State and Territory taxes or tax equivalent systems' on all of the activities of the lessees". I am not convinced that is so, but even if the Councils' submission is to be so understood, it cannot be right because cl 26.2(a) does not purport to make all parts of the Airport Sites rateable (because it imposes rates only on those parts on which "trading or financial operations are undertaken" and excludes "runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges, and land identified in the airport Master Plan").