NETTLE J. This is an appeal from a decision of the Court of Appeal of the Supreme Court of Victoria on appeal from a decision of a judge of the Supreme Court of Victoria. It concerns the correct construction of a lease of land. The question is whether, upon its proper construction, cl 4 of the lease obliges the Lessee to pay "all rates taxes assessments and outgoings whatsoever" (hereinafter "rates and taxes") imposed in respect of the leased land during the term of the lease or to pay only those rates and taxes for which the Lessee is liable qua tenant. The primary judge (Croft J) held in favour of the former construction. On appeal, a majority of the Court of Appeal (Santamaria and McLeish JJA, Kyrou JA dissenting) held in favour of the latter. For the reasons which follow, the majority in the Court of Appeal were correct and the appeal should be dismissed.
The facts
The facts emerge from the judgment of McLeish JA. The lease was entered into on 19 November 1988 between Westmelton (Vic) Pty Limited (receiver and manager appointed) ("Westmelton") as Lessor and Mr Peter Morris as Lessee for a term of 99 years at a total rent of $70,000 payable in full at the commencement of the lease. In about 1993, Ecosse Property Holdings Pty Ltd ("the appellant") acquired the leasehold reversion from Westmelton. By a transfer of lease dated 15 October 2004, Mr Morris assigned and transferred the term of the lease to Gee Dee Nominees Pty Ltd ("the respondent"). Accordingly, the parties to the appeal are successors in title to the parties who entered the lease.
The lease, which is a printed standard form "farm lease", was extensively amended by the parties before it was executed. Various parts of the printed provisions were struck out and some clauses added. A number of those amendments were to reflect the fact that the lease was granted for a term of 99 years and that the rent for the whole of the term was paid in full at the commencement of the lease.
The leased land comprises 12.15 hectares and was part of a larger parcel of land described in Certificate of Title Volume 7484 Folio 127. At the time of entry into the lease, the larger parcel of land was one of three contiguous "broadacre" lots that Westmelton was subdividing in stages for residential development. At that time, the extant planning scheme restrictions on freehold subdivision prevented the freehold sale of the leased land. On 7 November 2011, a separate title was issued in respect of the leased land. Since then, the leased land has been assessed separately for rates and land tax. The leased land has not been subdivided, however, and, until the lease expires, it cannot be. It remains rural farming land.
The provisions of the lease
The relevant provisions of the lease are as follows. The italicised words and clauses indicate amendments or additions to the printed standard form lease. The parts of the lease that are struck through indicate the intended deletions.
"1. THE term of the tenancy hereby created shall be from the First day of November 1988 to the [blank] day of [blank]
2. THAT rent for the said term shall be at the clear [blank] rental of [blank] the first of the said [blank] payments to be made on the [blank] day of [blank] next. And the said Lessee covenants with the Lessor as follows:
3. THAT the Lessee will pay the rent hereinbefore reserved on the days and in manner hereinbefore appointed for payment hereof. And in the event of the said term being determined by re-entry under the proviso hereinafter contained will pay to the Lessor a proportionate part of the said rent for the fraction of the current year up to the day of such re-entry.
4. AND also will pay all rates taxes assessments and outgoings whatsoever excepting land tax which during the said term shall be payable by the Landlord or tenant in respect of the said premises (but a proportionate part to be adjusted between Landlord and Tenant if the case so requires).
5. AND also will at all times during the said term well and substantially repair maintain scour cleanse and keep in good repair and condition the said premises hereby demised and all fences walls gates hedges ditches drains water courses water holes and other improvements of or belonging to the said demised premises fair wear and damage by fire only excepted.
6. AND also will at his own cost and expense during the said term destroy and use his best endeavours to keep the said land free from rabbits and other vermin thistles and other noxious weeds and will comply with the Vermin and Noxious Weeds Act 1958 and any statutory amendments or re-enactments thereof for the time being respectively and without any notice or notices or order or orders to be served or made thereunder respectively.
7. AND also will not cut down fell ring-bark damage or destroy any timber or trees now or hereafter during the said term growing or standing on the said land except for fencing and domestic purposes.
8. AND also will permit and power is hereby given to the Lessor or its agent with or without workmen or others twice or oftener in every year to enter into and upon the said demised premises or any part thereof to examine the condition thereof and the Lessee agrees to forthwith repair according to notice.
9. AND also will not assign transfer sublet or otherwise part with possession of the said premises or any part thereof without on each occasion first obtaining the consent in writing of the Lessor.
10. AND also will at the expiration or sooner determination of the said term quit and deliver up possession of the said premises in good repair and condition and generally in such state and condition as shall be consistent with the due performance and observance of the foregoing covenants.
11. AND also will use the said land and premises as a farm in a proper and husband like manner and subject to all usual terms covenants and agreements contained in a lease of a farm in addition to those specially contained herein.
12. AND also will not commit any nuisance on the said land nor do nor suffer to be done anything that might prejudice any insurance of the said premises or any part thereof or render necessary the payment of any additional premium beyond the ordinary rate.
13. AND also will cultivate [blank] of the said land during the currency of this Agreement.
13. The parties acknowledge that it was the intention of the Lessor to sell and the Lessee to purchase the land and improvements hereby leased for the consideration of $70,000.00 and as a result thereof the parties have agreed to enter into this Lease for a term of ninety-nine years in respect of which the total rental thereof is the sum of $70,000.00 which sum is hereby acknowledged to have been paid in full.
14. Notwithstanding anything contained herein or any act of Parliament Federal or State Regulation or By-law whether as a result of any breach or default of the Lessee or otherwise the Lessor shall not have the power of earlier determination of this Lease or have any power of right of re-entry whatsoever thereby allowing the Lessee quiet and peaceful enjoyment of the land and improvements as aforesaid for the full term of this Lease, regardless of whether or not the Lessee is in breach or default herein.
15. The Lessee shall have the right to assign, transfer, sub-let or grant licences in respect of the premises without obtaining the consent of the Lessor.
16. The Lessee shall without obtaining the consent of the Lessor have the right to repair, rebuild or replace any dwellings, out-houses or other improvements or build further dwellings and out-houses upon the land whether for personal, commercial purposes or otherwise.
PROVIDED ALWAYS and these presents are upon the express condition that in case the said rent hereby reserved or any part thereof shall at any time be in arrear for fourteen days after becoming due although no legal or formal demand shall have been made for payment thereof or in case of the breach or non-observance of any of the covenants by the Lessee herein contained or if the Lessee shall become insolvent or liquidate his estate by arrangement or execute any deed or arrangement within the meaning of the Bankruptcy Act 1924-66 it shall be lawful for the Lessor or [blank] agent or any person authorized by [blank] in his behalf thereupon at any time thereafter notwithstanding the waiver or non-exercise of any previous default or right of re-entry to distrain for such rent or proportionate part thereof as aforesaid and to re-enter upon the said premises or any part thereof with a view to determine this lease and thereupon the lease and the term hereby granted shall cease and determine accordingly but without releasing the Lessee from any liability in respect of the breach or non-observance of any covenants on the Lessee's part herein contained.
PROVIDED LASTLY and it is hereby agreed and declared that in the event of any rates agreed to be paid by the Lessee as aforesaid being unpaid at any time or times when due to the Shire or Borough or otherwise it shall be lawful for the Lessor to make payment thereof and to distrain sue for or recover as if same were rent in arrears under the Landlord and Tenant Acts."
The proceedings at first instance
The primary judge considered that cl 13 of the lease, coupled with the absence from the lease of some of the onerous obligations commonly imposed on lessees, signified that the document was intended to be, in effect, a conveyance of the freehold title. It followed, in his Honour's view, that cl 4 of the lease should not be construed as imposing obligations on the Lessor that would be inconsistent with the position that would have obtained if the parties had achieved a conveyance of freehold title. Consequently, cl 4 should not be construed as imposing an obligation on the Lessor to pay rates and taxes imposed in respect of the land throughout the term of the lease.
The primary judge accepted that the terms of cl 4 of the lease were ambiguous, and accordingly that it was permissible to have regard to the deleted words and clauses appearing on the face of the lease in order to assist in the construction of cl 4. But his Honour rejected the respondent's submission that the deletion from cl 4 of the phrase "excepting land tax" signified that the parties had turned their attention to the issue of liability to land tax to be borne by the Lessee and that the deletion of the words "Landlord or" signified that rates and taxes (including land tax) payable by the Lessor had been deliberately excluded from what should be payable by the Lessee.
The primary judge held that the deletion from cl 4 of the phrase "excepting land tax" showed only that the expression "all rates taxes assessments and outgoings whatsoever" included land tax, and that deletion of the words "Landlord or" was consistent with a contractual intention that the Lessor pay nothing by way of rates and taxes, whether or not those amounts were levied on the Lessor qua owner. In his Honour's view, it was apparent that such amounts were intended to be "payable by the tenant". He found that the likelihood of that being the contracting parties' intention was supported by the deletion of the words "but a proportionate part to be adjusted between Landlord and Tenant if the case so requires". He reasoned that, if it were intended that the Lessee alone was liable to pay regardless of the party on whom the rates and taxes were levied, there would be no need for any adjustment, and thus that the parties had determined that there was no need of a provision for adjustment.
On that basis, his Honour declared that, upon its proper construction, cl 4 of the lease provided that the Lessee shall pay all rates and taxes whatsoever in respect of the leased land, including land tax.
The proceedings before the Court of Appeal
In the Court of Appeal, McLeish JA, with whom Santamaria JA agreed, accepted that cl 4 is ambiguous and susceptible of each of the two meanings for which the parties respectively contended. On the respondent's construction, it imposes an obligation on the Lessee confined to the payment of rates and taxes payable by the Lessee qua tenant in respect of the leased premises. On the appellant's construction, it imposes an obligation on the Lessee to pay all rates and taxes in respect of the leased premises. But, as his Honour observed, there are a number of reasons to prefer the respondent's construction.
The appellant's contentions
Before this Court, the appellant's contentions largely followed the dissenting reasoning of Kyrou JA. It was submitted that it is necessary to read cl 4 as a reasonable businessperson would read it, having regard to the genesis of the transaction and its context, and so as to avoid commercial nonsense and inconvenience. It was said to be apparent from cl 13 of the lease that the genesis of the transaction was a thwarted intention to enter into a sale and purchase of the land, and thus that to construe cl 4 as the majority in the Court of Appeal did would be productive of a commercial nonsense and inconvenience. It would mean that the Lessor would be liable to pay rates and taxes for a term of 99 years for land which, in substance, is enjoyed by the Lessee as if the Lessee were the owner. By contrast, it was submitted, the construction of cl 4 for which the appellant contends accords with what a reasonable bystander would inevitably adopt. Given that the Lessee's use and enjoyment of the leased land far exceeds the use and enjoyment available under a conventional lease, and is in effect tantamount to ownership, it makes commercial sense to suppose that the contracting parties intended the Lessee to be liable for all rates and taxes imposed in respect of the land. And, in the appellant's submission, the nature of the leased land and the fact that it is held for the purpose of eventual subdivision, together with the fact that Westmelton was in receivership at the time of entry into the lease (and so would not have been likely to accept a long-tail burden in respect of land of which it was seeking to divest itself), makes it even more appropriate that the lease be construed as rendering the Lessee liable for all rates and taxes in respect of the leased land.
By contrast, in the appellant's submission, the construction of cl 4 adopted by the majority in the Court of Appeal is capricious, unreasonable, inconvenient and unjust, and ignores the effect of relevant provisions. The majority were in error in treating cl 13 of the lease as a mere statement of past intention. It should properly be seen as a statement of the genesis of the transaction and a declaration of intent "to place the Lessee as close as possible to the position of an owner/occupier of the Leased Land within the constraints of a lease transaction". And, according to the appellant, the majority further erred in treating the absence of an option to purchase and a right of renewal as significant indicators of an absence of that intention. In the appellant's submission, it is just as likely that, because the parties were committing to such a long-term lease, they were not concerned to deal with what would follow at the end of that term. To ask why such options were not included was an exercise in speculation that could shed no light on the constructional choice.
Further, in the appellant's submission, the provisions of the lease which oblige the Lessee to keep the land free of vermin and noxious weeds; not to damage timber or trees except for fencing and domestic purposes; not to commit any nuisance or do anything which might prejudice or increase the cost of insurance; and to deliver up the land in good repair and condition at the end of the term, do not suggest an absence of intention to make the transaction as far as possible equivalent to a sale and purchase of the land. Those terms are explicable by the fact that Westmelton retained all of the land adjoining the leased land and was seeking to protect that adjoining land, rather than the reversion in the leased land.
Finally, it was said that the majority in the Court of Appeal erred in concluding that there was no evidence, and that it could not be assumed, that the burden of the rates and taxes that might be imposed on the Lessor according to the respondent's preferred construction would transform the asset of the lease into a liability for the Lessor. In the appellant's submission, there was evidence, to which the primary judge had regard, that the financial consequences of the construction of cl 4 for which the respondent contends would impose a burden on the Lessor running to millions of dollars over the term of the lease. It would have been self-evident to the contracting parties that the right of the Lessee to build on the land for commercial purposes without the consent of the Lessor (cl 16) might lead to an increase in the statutory charges and the rateable value of the leased land. That makes it all the more likely that the parties intended that the Lessee should be liable for all such rates and taxes. Any other view of the matter was so uncommercial and so unlikely that it should have been rejected.
Construction of the lease
Relevant principles of construction
As the majority in the Court of Appeal recognised, it is necessary to construe cl 4 objectively by reference to what a reasonable person in the position of the contracting parties would have understood to be the meaning of its language when read in light of the document as a whole and the surrounding circumstances known to the parties at the time of the transaction. As the majority also recognised, it is permissible to have recourse to words and clauses deleted from a standard form or common form agreement, but which remain legible on the face of the document, for the purposes of construing ambiguous language in the executed agreement. Neither party contended otherwise. Essentially, the appellant's submissions were confined to the way in which the majority applied those principles and, in particular, to the conclusions to which their Honours came.
The significance of cl 13
Contrary to the appellant's submissions, there is no error in the significance which the majority in the Court of Appeal attributed to cl 13 of the lease. As McLeish JA remarked, it is telling that cl 13 refers in the past tense to the intention of the Lessor to sell, and of the Lessee to purchase, the land for $70,000. It is inapt to describe that as evidencing an intention to replicate as far as possible a conveyance of the land. The natural and ordinary meaning of the clause is that, although it was previously the parties' intention to enter into a sale and purchase agreement in respect of the land, once that proved impossible, the parties resolved instead to enter into a lease for a term of 99 years for a total rent of $70,000. As McLeish JA observed, that falls "well short of stating that the parties intend to replicate, so far as possible, a sale and purchase" of the land.
Further, if it had been the intention of the parties that the lease resemble as nearly as possible a sale and purchase of the land, the Lessee would surely have insisted on being granted, and the Lessor would have been prepared to grant the Lessee, an option to purchase the land for nominal consideration, or at least an option to renew the lease for a further extended term at nominal rent. Instead, in utter opposition to the notion of making the transaction resemble as far as possible a sale and purchase of the land, the lease imposed an unqualified obligation on the Lessee to deliver up the land at the expiration of the term in good repair and condition without any provision for compensation in respect of improvements made in the meantime.
Furthermore, even allowing for the duration of the lease, the idea that the parties overlooked the need to provide for what was to occur at the end of it is unrealistic. These were commercial parties, who were professionally advised, dealing with land which, as the appellant admitted, had "potential for development as a residential subdivision", in an area of Melton, on the outskirts of metropolitan Melbourne, where, at the time of entry into the lease, development for the purpose of residential subdivision was being actively pursued. The natural inference is that, so far from overlooking the need to provide for what was to occur at the end of the lease, the parties intendedly retained the express unqualified obligation for the Lessee to deliver up the land at the expiration of the term in good repair and condition without compensation for improvements.
As was earlier observed, a commercial contract is to be construed objectively according to business commonsense. So construed, it presents as probable that, when the parties amended the standard form lease as they did, an option to purchase and a right of renewal were not included in (or added to) the lease, and a covenant for the Lessee to deliver up the land at the end of the term was included (or not deleted), because the Lessor was not prepared to give up the reversion. The clear implication is that the parties did not intend to make the transaction in effect equivalent to a sale and purchase of the land.
The appellant sought to resist that conclusion by calling attention to the quantum of the rent in cl 13. But the fact that the total rent paid was commensurate with the parties' estimate of the market freehold value of the land at the time of entry into the lease does not point unambiguously in favour of a construction of cl 13 that imputes to the parties an intention to effect a transaction as close as possible to a sale and purchase of the land. Under the lease, both the Lessor and the Lessee accrued benefits which they would not have accrued under a contract of sale. As has just been noted, the Lessor obtained the value of the reversion and, as will be discussed below, the Lessee avoided liability for any future rates and taxes that might be levied upon the owner of the land. Such rates and taxes did, in fact, eventuate and, in the appellant's submission, have been significant. Viewed objectively, however, it is not improbable that $70,000 represented the figure arrived at and agreed upon as rent after the contracting parties balanced their various interests.
The significance of other covenants
There was also no error in the significance which the majority in the Court of Appeal attributed to the provisions of the lease that oblige the Lessee to keep the land free of vermin and noxious weeds (cl 6); not to damage timber or trees except for fencing and domestic purposes (cl 7); not to commit any nuisance and not to do anything which might increase the cost of insurance (cl 12); and to keep the premises in good repair and condition for the purpose of delivery up at the end of the lease (cl 10). It is true that the covenants comprised in cll 6, 10 and 12 (although less so the covenant in cl 7) might provide as much benefit to the Lessor in terms of protecting the Lessor's interests in the adjoining lands as they do in protecting the Lessor's reversion in the leased land. But it does not follow that they can be ignored as significant indicators of the parties' intention that the essential nature of the relationship established by the lease should be one of landlord and tenant. They are just the kind of covenants to be expected in a lease of land, regardless of whether they also serve to protect the Lessor's interests in the adjoining lands. As such, they are an objective indicator of the nature of the lease-like relationship that the parties intended to achieve which points away from an intention to create a transaction which as far as possible resembles a sale and purchase of the land.
Evidence of financial consequences
The appellant's contention that there was evidence as to the financial consequences of the respondent's preferred construction of cl 4, and that it would involve "millions and millions of dollars", is overstated. The primary judge made no finding as to the financial consequences of either construction, and his Honour was not asked to do so. Still less was it established that it would have been evident to the parties at the time of entry into the lease that, if the Lessor were required to bear all rates and taxes except those payable by the Lessee qua tenant, it would necessarily render the lease a liability for the Lessor. At the time of entry into the lease, general rates imposed by municipal councils were levied, subject to some limited exceptions, on a lessee as the occupier of land; and, although there was a statutory right for a person "rated as occupier of any rateable property ... to recover" a paid amount from the person to whom the former was liable to pay rent, there was no entitlement to recover where a lease provided otherwise, as cl 4 did. Further, although the larger parcel of land of which the leased land formed part was also rateable property for the purposes of s 251(1), s 254(3) of the Local Government Act 1958 (Vic) provided that general rates could be determined in respect of land "which forms portion of a larger property" and levied on the occupier of that portion. As was earlier mentioned, a lessee "rated as occupier" could not recover that amount from a lessor if such rates were payable by the lessee under the relevant lease, as was the case here.
Water and sewerage rates were recoverable by the relevant authority from the occupier of land. In relation to water rates, an occupier could only recover from rent payable to a lessor an amount that exceeded "the rate charge or sum due by him for the period of his occupancy". In relation to sewerage rates, an occupier could recover amounts paid "unless otherwise provided by lease or agreement", as cl 4 did.
Land tax was levied on the total unimproved value of all land of which a person was the owner. But s 42 of the Land Tax Act 1958 (Vic) deemed a lessee of land to be liable for land tax "as if owner", and to the exclusion of the legal owner, in circumstances where, in the opinion of the Commissioner, the interest of the legal owner "is lessened by the covenants of any lease", as, for example, might be said of a 99 year lease which expressly precludes a power of earlier determination and right of re-entry. In such circumstances, the Commissioner would determine the amount of land tax payable as between the lessee and the legal owner respectively. Accordingly, at the time the lease was entered into, the effect of cl 4 was to ensure that general rates, water and sewerage rates and land tax were payable by the Lessee, and that those amounts could not otherwise be recovered by the Lessee from the Lessor.
There were documents before the primary judge and the Court of Appeal that recorded rates and taxes levied in respect of the leased land between 2005 and 2015. They showed a significant liability incurred by the Lessor. But, as the respondent submitted, and the majority in the Court of Appeal concluded, that was not the position when the lease was entered into in 1988. Nor was it a state of affairs that the contracting parties could have anticipated with any degree of precision. At the time of entry into the lease, the leased land was not zoned residential. It was only later when the appellant took steps to have the leased land rezoned to permit residential development, and did so despite the lease preventing development of the land by the Lessor (cl 14) and restricting the extent to which the land could be altered for the purpose of residential development (cl 7), that the tax burden was increased. The increases in rates and land tax from 2005 were a direct consequence of an increase in the land's value upon its rezoning.
Certainly, as McLeish JA observed, "[t]he incidence of statutory charges is notoriously liable to change over time". Legally represented parties may be taken to have known as much, especially in circumstances like these where the lease explicitly adverts to the changeability of other sorts of statutory obligations (cl 6). But it does not follow, on the construction for which the respondent contends, that the financial consequences of cl 4 would have appeared uncommercial or otherwise unreasonable at the time of entry into the lease.
The proper construction of cl 4
The striking out in cl 4 of the words "excepting land tax", "Landlord or" and "but a proportionate part to be adjusted between Landlord and Tenant if the case so requires" is significant. Given the ambiguity in cl 4, it aids in the construction of what remains.
Before the words "excepting land tax" were deleted, their clear effect would have been to exclude land tax from the rates and taxes which the Lessee was liable to pay under cl 4. Hence, the Lessee would not have been liable to pay any land tax in respect of the leased land, whether assessed to the Lessor or at all. The natural and ordinary effect of deleting the words "excepting land tax" was to reverse the exclusion and so to subject the Lessee to a liability to pay such amount of land tax as might be assessed in respect of the leased land and levied upon the Lessee "as if owner".
Before deletion of the words "Landlord or", the expression "rates taxes assessments and outgoings whatsoever which during the said term shall be payable by the Landlord or tenant" meant rates and taxes which during the said term the Landlord or the tenant becomes liable to pay. The natural and ordinary effect of deleting the words "Landlord or" was to limit the rates and taxes which the Lessee was liable to pay to those for which during the said term the tenant becomes liable.
The probability that those two deletions were intended to have their plain and ordinary effect is fortified by the deletion from cl 4 of the express provision for apportionment appearing in parentheses. Since the Lessee was no longer required to pay a proportion of any rates and taxes that the Lessor might become liable to pay qua owner, but was required to pay all rates and taxes that the Lessee might become liable to pay qua tenant, there was no longer need for an apportionment provision. By contrast, if cl 4 had the meaning for which the appellant contends, the deletion of the apportionment provision would be nonsensical. It is not realistic to suppose that the Lessee would have agreed to pay rates and taxes in respect of the land on anything other than a single holding basis. Given the possibility that, because of the Lessor's other landholdings, the rate of land taxes and other outgoings imposed in respect of the leased land might be assessed on a higher basis than that of a single holding, there would still have been a need for apportionment.
Counsel for the appellant argued that the kind of apportionment necessary to achieve that result was implicit in the lease by the use of the words "in respect of the said premises". But, even if that were so, it is objectively not in the least likely that the parties considered it to be so clear as to make the express parenthetical apportionment provision excess to needs. On any view of the matter, the words "in respect of the said premises" could not be regarded as functioning as an implied apportionment provision unless the expression "which during the said term shall be payable by the tenant in respect of the said premises" were properly to be understood as continuing to operate as an adjectival clause descriptive of the rates and taxes which the Lessee is liable to pay. The appellant's construction of cl 4 requires the opposite. It necessitates acceptance of the proposition that, by reason of the deletion of the words "Landlord or" and the deletion of the express parenthetical apportionment provision, the expression "which during the said term shall be payable by the tenant in respect of the said premises" was transformed from an adjectival clause descriptive of the obligations which the Lessee was required to meet into a reiteration of the earlier imperative that "the Lessee ... will pay".
The majority in the Court of Appeal were correct to reject the appellant's argument that the words "payable by the tenant" should be construed as a reiteration of the obligation to pay imposed on the Lessee by the previous imperative. Clause 4 is the only provision of the lease that uses the expression "the tenant" in contradistinction to "the Lessee". On the appellant's construction, that distinction is inexplicable. There is no point in changing from "the Lessee" to "the tenant" if the purpose of the phrase "payable by the tenant" is merely to repeat the obligation that "the Lessee ... will pay". By contrast, on the respondent's construction, the distinction is readily explicable. The phrase "payable by the tenant" delimits the kinds of rates and taxes to which the clause applies, namely, those for which the Lessee is liable qua tenant.
Further, given that the parties were legally represented in the preparation of the lease, the idea that "payable by the tenant" was meant to operate as a reiteration of the earlier obligation on the Lessee to pay presents as a remarkably inapt and improbable way for the drafters of the document to have gone about achieving the result contended for. Consequently, despite such other difficulties with the lease as there may be, the appellant's construction of cl 4 is improbable. By contrast, the natural and ordinary meaning of the adjectival clause "which during the said term shall be payable by the tenant in respect of the said premises" is so apt to limit the kind of rates and taxes which the Lessee is liable to pay to those rates and taxes in respect of the leased land that the Lessee is liable to pay qua tenant that it is most probably what was intended.
Moreover, as the majority in the Court of Appeal observed, if the parties' intention had been to produce the result for which the appellant contends, it is obvious, and it would have been obvious to the parties entering into the lease, that all that needed to be done was to delete the words "excepting land tax". There is no apparent explanation for why that was not done if the objective were as the appellant contends. The highest the appellant can put its case is that, in view of other unfortunate aspects of the document, and because of the need to construe the document as an honest and reasonable businessperson would do in light of what the appellant contends is the conveyance-like nature of the transaction described in cl 13, all other changes that were made to cl 4 should be treated as being, in effect, meaningless or explicable solely on the basis of inadvertent clumsiness on the part of the drafters.
Commercial good sense
Much of the appellant's argument before this Court focussed on the commercial consequences for the appellant of the construction of cl 4 adopted by the majority in the Court of Appeal. The thrust of those submissions was that the consequences would be so onerous that, judged according to the standards of an honest and reasonable businessperson, it cannot rationally be supposed that the parties intended to bring about that result. Given the idiosyncratic nature of the lease, the majority's hermeneutic analysis of the words of cl 4 was misplaced and would lead to a conclusion that flouts business commonsense. Commercial reality demanded a construction which yields to what business commonsense requires.
Those submissions are unpersuasive. It has not been established that the parties would necessarily, or even probably, have considered that the Lessor would be worse off by requiring the Lessee to pay all of the rates and taxes, including land tax, which the Lessee might become liable qua tenant to pay in respect of the leased land than by requiring the Lessee to pay a proportion of all rates and taxes, other than land tax, incurred in respect of the land, as the lease initially provided. The position has changed since the lease was entered into. But that is because of subsequent developments brought about by the unilateral actions of the appellant, and, to some extent, by legislative amendments to the regimes imposing rates and taxes. There is nothing to suggest that such changes were foreseen at the time of entry into the lease. The appellant did not adduce any evidence directed to that point.
Counsel for the appellant submitted that, whether or not changes of the kind that eventuated were foreseen, it is axiomatic that the mere possibility that such changes could occur over time would have been enough to cause a reasonable businessperson in the Lessor's position to insist upon the Lessee paying all rates and taxes levied in respect of the land, and, consequently, that it would be commercially unreal and unreasonable to interpret cl 4 as providing for anything else.
That submission is also unpersuasive. It is not at all clear that a reasonable businessperson in the Lessor's position at the time of entry into the lease would have been so concerned about the prospect of future legislative amendments and tax increases as to insist upon a complete indemnity. Still less is it clear that a reasonable businessperson in the Lessee's position at the time of entry into the lease would have agreed to that open-ended liability; especially given that such increases could be brought about as in fact has occurred by the unilateral actions of the Lessor or a successor acquiring the leasehold reversion. For all one can say at this stage of remove from the entry into the lease, it would not have been commercially irrational for the Lessor to accept those uncertainties (particularly in light of its holding the reversion in the land) or for the Lessee to yield to the Lessor no more than a liability to pay rates and taxes, including land tax, payable by the Lessee qua tenant.
Finally, it is to be observed that, even if the resultant lease were considered to be a remarkably poor deal from the Lessor's point of view (and, to repeat, it is not obvious that it should be so regarded), the precept that commercial contracts be construed as it is thought an honest and reasonable businessperson would construe them will stretch only so far. As Lord Mustill observed in Charter Reinsurance Co Ltd v Fagan:
"There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court."
Poor drafting may justify a court in being more ready to depart from the natural and ordinary meaning of the terms of a contract, and no doubt, the poorer the drafting, the less willing a court should be to be "driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention". But poor drafting provides "no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made". Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other. But where, as here, the language and surrounding circumstances of a commercial contract present a choice between, on the one hand, a plain, ordinary and commercially not irrational meaning of a clause and, on the other, a meaning which is significantly removed from the natural and ordinary meaning of the terms of the clause, which ill-accords with other provisions of the agreement, and which in the end produces an outcome that is more commercially acceptable from one of the parties' point of view only, the precept runs out of application. Unless the Anglo-Australian objective theory of contract is now to be cast aside, the commercial approach to construction is not a licence to alter the meaning of a term that is "clear and fairly susceptible of one meaning only" to achieve a result that the court may think to be reasonable. The court is not authorised under the guise of construction to make a new contract for the parties at odds with the contract to which they have agreed. Where, as here, all things considered, the words of a clause are fairly susceptible of only one meaning, they must be given that effect.
Conclusion and orders
In the result, the appeal should be dismissed with costs.