EMAAAS P/L v Mobil Oil Australia Ltd [2000] QCA 513

Court of Appeal (Qld)|2000-12-15|Before: Pincus, and Thomas JJA, White J, Separate reasons for judgment of each member of the Court, Thomas JA and White, J concurring as to the orders made, Pincus JA dissenting, in part.

[1] PINCUS JA: The issues in this appeal, concerning an attempt to terminate a lease, are set out in the reasons of Thomas JA which I have had the advantage of reading. The question we have to decide is the proper interpretation of cl 6.1 of a service station lease, reading in part as follows:

(a) as a result of compulsory acquisition by a Government Authority the land area of the Demised Premises is at any time during the Term or any Option Period reduced by more than 10%, or any lesser percentage so as to have in the Lessee's reasonable opinion, a significant detrimental effect on the Permitted Use conducted from the Demised Premises; or

(b) the streets giving access to or regress from the Demised Premises are permanently closed or significantly altered,

the Lessee may at any time thereafter elect to terminate this Lease by not less than 90 days' prior Notice to the Lessor".

The service station is located in Manly Road. Work has been done on that road and others in the vicinity; there is a dispute of fact with respect to the effect of that work upon the suitability of the site for use as a service station, for which purpose, including certain associated uses, the appellant let it to the respondent.

[2] At first instance the case was conducted by the respondent on the assumption that the expression "streets giving access to or regress (sic) from the Demised Premises" means only Manly Road in the immediate vicinity of the site; no interpretation more favourable to the appellant could be adopted. There is no doubt that there were alterations to Manly Road in that vicinity. As the learned primary judge implied, that assumption is of dubious validity; but I see no reason why the Court should not adopt it, in this piece of adversary litigation.

[3] The learned primary judge took the view, on the basis of which his Honour made appropriate declarations, that:

" ... the entitlement to determine the lease arises under cl 6.1(b) upon the occurrence of a significant - in the sense of major or substantial - physical change to Manly Road in the vicinity of the site, whether or not such a change considerably detrimentally affects either Manly Road access or the site's suitability for the defined 'permitted use'".

The appellant's attack on the judge's construction, just quoted, was a criticism of the qualification beginning "whether or not". Putting the point in various ways, the appellant argued in essence that the right to terminate did not arise unless the alteration to Manly Road was significant, in the sense of having an adverse affect on the usefulness of the site considered objectively as a service station site, rather than considered with respect to the impact of the alteration to the road on the particular business being conducted on the site. The respondent argued that the judge's construction is correct.

[4] The expression "significantly altered" may in some contexts imply a change for the worse. If, for example, the world's most admired painting were restored in such a way that it was said that "the whole impression created by the painting has been significantly altered", it would be fairly clear that an adverse change was meant. In the context of a ground for termination of a lease by a tenant, it is my opinion that there is a similar implication; if Manly Road were substantially altered in such a way as to improve traffic volumes as well as access to and visibility of the site it would be very strange to accord to the tenant a right to terminate for that reason. The respondent's answer to that point is to say that in those circumstances it would be unlikely that the tenant would wish to terminate. But that situation is not impossible; the site might have proved quite unsuitable for the tenant's business, even with the improvements made.

[5] It is my opinion that it was an error on the part of the learned primary judge to read the expression "significantly altered" as covering any alteration substantial enough to be "significant", even if it were wholly advantageous to the site. I hold the view that the word "significantly" has reference to the extent to which the alteration has an adverse affect on the site, considered as one to be used for the permitted use. In considering this question, it is in my opinion correct that an objective view must be taken; to come within the clause the diminution (if any) in the suitability of the site for the permitted use must be considered without reference to the peculiarities of the particular business being carried on there.

[6] In reaching my conclusion I have not overlooked the substantial argument against it based on the wording of cl 6.1(a). If the reference to "significant alteration" in par (b) were intended to direct attention to detrimental effects, one would have expected the drafter to say so, as was done in relation to the circumstances dealt with in par (a). But the drafting of the clause, particularly the remarkably vague expression "streets giving access to or regress (sic) from the Demised Premises" is not of such quality as would induce one to think that similar ideas would necessarily be given similar expression.

[7] I would allow the appeal and replace the orders made by the learned primary judge by a declaration in accordance with the views expressed above. The declaration I would make is that a termination by the respondent under cl 6.1(b) is valid, in the circumstances of this case, only if Manly Road has been altered, in the vicinity of the site, in a way which has a significant detrimental effect on the site, considered objectively as one to be used for the permitted use. I would order the respondent to pay the costs of the appeal.

[8] THOMAS JA: The appellant is the lessor and the respondent the lessee of premises at Manly Road, Manly West, which are used as a service station. The lease is for 15 years commencing September 1996, includes two options for renewal for five years, and provides for an initial annual rental of $225,000 subject to CPI adjustments. The lease lists the "permitted use" as being a service station including a shop, car wash, motor vehicle servicing and other associated uses.

[9] I shall refer to the parties by their status as lessor and lessee respectively.

[10] Clauses 5 and 6 of the lease deal with particular circumstances entitling one or more of the parties to terminate. Clause 5 deals with the question of destruction or damage of the demised premises so as to render them "substantially unfit for the use and occupation of the lessee in the conduct of the permitted use or to deprive the lessee of substantial use of the demised premises". In such a situation either party is given the right to determine the lease on 30 days' notice.

"Area reduction or street alteration. Subject to cl 6.4, if:

(b) the streets giving access to or regress from the Demised Premises are permanently closed or significantly altered,

the Lessee may at any time thereafter elect to terminate this Lease by not less than 90 days' prior Notice to the Lessor."

[12] Clause 6.4 acknowledges certain existing proposed road dedications affecting the demised premises and contains a covenant by the lessee acknowledging that it is not entitled to exercise rights under cl 6.1 in relation to such dedications. However neither party suggested that it assists to give meaning to cl 6.1. Clause 7 limits the use by the lessee of the demised premises to those of the permitted use, except with prior written consent of the lessor.

[13] It is common ground that in cl 6(1)(b) the word "regress" should read "egress".

[14] Certain road works were commenced in the area in 1998 and completed in November or December 1999. In May 1999 the lessee purported to determine the lease by giving a notice under cl 6.1(b). The lessor commenced proceedings challenging the validity of the termination and the lessee cross-applied for a declaration that it would have the right to terminate on completion of the roadworks. In due course on 22 November 1999 the lessee delivered a further notice of termination on that footing.

[15] The central issue in the litigation was whether by one or other of the notices of termination the lessor had become entitled to determine the lease. The lessor (defendant) delivered points of claim and the lessee (plaintiff) delivered points of defence. This court was informed that the parties presented evidence to his Honour capable of providing a sufficient factual basis for determination of the action according to the possible constructions of cl 6.1 that the parties considered to be open. One such construction would necessitate findings which counsel described in general terms as concerning deleterious effect on the business of the service station. The parties apparently agreed that his Honour should proceed to determine the proper construction of the lease as a preliminary issue, that is to say, prior to making findings on matters that might in the event be unnecessary to determine. In the event this is what happened, and on the construction adopted by his Honour it was unnecessary to hear submissions or make findings on the issue of deleterious effect on the business.

[16] His Honour proceeded to grant judgment in the action by declaring that the purported termination of 18 May was invalid but that the notice of termination of 22 November 1999 was validly given in accordance with cl 6.1(b) of the lease. Apparently and despite the entry of a final judgment, the matter remains scheduled to come back before his Honour for further determination of facts which his Honour found it unnecessary to determine. This is apparently to cover the possibility that the Court of Appeal takes a different view regarding construction of the lease.

[17] The information in the appeal record book shows that at the time of commencement of the lease the service station was located at an intersection where Greencamp Road and Whites Road joined Manly Road. Manly Road at that point changes direction with the result that there is a roundabout with four branches. The service station is situated between two of those branches with access via two short driveways onto Manly Road, each to a different branch of the roundabout. The roadworks involved moving the intersection of Whites Road with Manly Road one block further along Manly Road, and moving the intersection of Greencamp Road a short distance further along Manly Road. The result is that the service station is now set back from the intersection of Greencamp Road and Manly Road which is now a T-intersection with traffic lights. The intersection of Whites Road and Manly Road is some distance further along Manly Road and also has traffic lights. The site retains two driveway accesses to Manly Road but one of these is now longer than it originally was.

[18] Shortly stated, the issue before his Honour was whether the alterations made by the roadworks were sufficient to trigger the lessee's right to terminate.

[19] A number of subsidiary questions were posed in argument. One of these was whether "the streets giving access to or egress from the demised premises" in cl 6(1)(b) refers to the three roads which have been mentioned or merely to Manly Road.

[20] On this question Byrne J determined that the reference was to Manly Road only. I would have been inclined to think that the use of the plural noun "streets" was not accidental and that a broad view was intended of the configuration of streets in the immediate vicinity from which motorists would be expected to access the demised premises. However, like his Honour, I am prepared to act in accordance with the concessions on behalf of Mobil to the effect that the clause be construed so that "the streets giving access ..." means Manly Road in the immediate vicinity of the site; and that the changes in Manly Road resulting from the roadworks are "permanent". Such concessions are entirely favourable to the other party and ought not now be departed from.

[21] The lessor presented two major alternative submissions as to the proper construction of the clause.[1] Abbreviating these submissions somewhat for the purpose of manageable discussion, their essence is that in order to activate the election to terminate it must be shown that:

(i) Manly Road is altered so that the altered access significantly detrimentally affects the permitted use of the site; or

(ii) Manly Road is altered so that the permitted use of the site is significantly detrimentally affected.

[22] The question of adverse economic effect is said to be irrelevant. In other words, the lessor's primary contention is that the lessee would not be entitled to terminate even if it could show that the alteration caused it to suffer a significant detrimental economic effect.

[23] The principal contention for the lessee is that entitlement to determine the lease arises upon the occurrence of a significant (in the sense of major or substantial) physical change to Manly Road in the vicinity of the site. On this submission (which was upheld by his Honour) detrimental effect is immaterial, either in relation to the Manly Road access or the site's suitability for the permitted use. Once again, the question of adverse economic effect is said to be irrelevant. That is to say the lessee contends that even if there is nil economic effect or even a beneficial one in consequence of the road alterations, it is still entitled to terminate.

[24] In my view, for the reasons which follow, neither of these constructions is correct. Both parties seem to have recognised other alternatives, including economic factors, as potentially valid considerations, but to have preferred not to support that particular construction. In my view the test proposed by the lessee requires too little to justify termination while that preferred by the lessor requires too much.

[25] The word "significant" is not a synonym for "substantial", although it is often used in that way. It is richer in meaning than the quantity-oriented "substantial". The Oxford English Dictionary Second Edition definition of the word includes the following entries:

"1. Full of meaning or import; highly expressive or suggestive ...

2. Having or conveying a meaning; signifying something ...

The word has been considered in a variety of legal contexts, both in statutes and other legal instruments, and while I will not attempt a review of authorities it is useful to note that on a number of occasions the terms "important" or "of consequence" have been adopted as useful synonyms.[2] The comments of an American court adopted by Young J in Coombs v Bahama Palm Trading Pty Ltd[3] suitably illustrate the flexibility of the word:

"While ... determination of the meaning of `significant' is a question of law, one must add immediately that to make this determination on the basis of the dictionary would be impossible. Although all words may be `chameleons, which reflect the colour of their environment', `significant' has that quality more than most. It covers a spectrum ranging from `not trivial' through `appreciable' to `important' and even `momentous'."

[26] It is a word then which takes its meaning very much from the context in which it is used. This may be illustrated by testing the application of a similar formula with respect to a concert pianist who has booked a hall for a further recital next year unless the streets giving access to or egress from the hall are permanently closed or significantly altered. The principal criterion to which "significant" might be thought to relate in such a situation would surely be customer-related or economic. The effect of the access upon the number of potential bookings from impedance of customers would be the primary consideration in determining whether the alteration was "significant". Thus an alteration to streets providing access such as to produce a substantial adverse effect on ticket sales might be thought to amount to a relevantly "significant" alteration. As the clause deals with a right of an occupant, it must mean significantly adversely altered from the occupant's point of view.

[27] By contrast if a fire brigade is the lessee and its right of termination depends upon a similar formula, the economic context would disappear in favour of the sheer importance of quick and easy access for the brigade vehicles which perform the brigade's functions. In that context the size and speed of access would be thought to determine whether the alteration was significant.

[28] In the present case the clause concerns the right of termination of a lease where an occupant is using the premises for the purpose of earning income from running a service station with associated facilities. In such a context, the nature of the street alteration would naturally be expected to require significant economic disadvantage to be shown before the alteration should be regarded as relevantly significant. Some other factors might be thought subsidiary, such as amenity or noise level, but barring some extraordinary effect on amenity the parties would be thought to be concerned primarily with economic matters. I fail to see why in a commercial dealing of the present kind between a lessor and the proprietor of a service station economic factors should be any less relevant than in the concert pianist example mentioned above. It also seems to me that in a context such as this the words "significantly altered" must imply "significantly adversely altered", bearing in mind that the subject matter of the clause is the conferral of a right upon a lessee to terminate. The premises in question were business premises and the lease a commercial one. Matters of amenity might not be entirely irrelevant, but would not seem to be of particular relevance.

[29] According to the lessee's construction if the Council had undertaken extensive works such as the provision of ornamental trees and even had paved the footpath with gold, the lessee would be entitled to terminate because the works themselves could be regarded as substantial. The fact that the lessee might be better off financially or that customers would increase would not matter. This construction, which has been adopted by the learned trial judge, means that any alteration which is neutral or beneficial in its impact allows the lessee to terminate this valuable long-term lease, provided it is big. This is a result which two commercial entities are most unlikely to have intended.

[30] The competing contention for the lessee is in my view equally unrealistic. It is that the lease must continue even if the road changes have made it economically disastrous for the lessee to remain in possession. The only criterion which justifies termination is said to be significant detrimental effect upon the permitted use. It is difficult to imagine what would satisfy that requirement short of impossibility of compliance with town planning requirements for the conduct of such a business. This, to say the least, seems less pertinent than the criterion of significant economic detriment.

[31] In my view, although one comes to such a conclusion with reservation, neither of the primary constructions contended for by the appellant or the respondent are correct. The clause should be construed as indicated above, particularly in paragraphs [20] and [28].

[32] So far as costs of the appeal are concerned, the appellant has succeeded, but not on the grounds relied on by it here or below. In the circumstances, I would order the respondent to pay two-thirds of the appellant's costs of the appeal.

[33] The appeal should be allowed and the judgment of 24 December 1999 should be replaced with an order that the action be adjourned for further hearing to such date as shall be fixed in the trial division; that the costs of the hearing of 24 December 1999 be costs in the cause; and that it be declared that termination by the respondent under cl 6.1(b) is valid only if Manly Road has been altered in the immediate vicinity of the site in such a way as to cause significant economic disadvantage to the lessee. It should be further ordered that the respondent pay two-thirds of the appellant's costs of the appeal.

[34] WHITE J: This appeal concerns an attempt by the respondent (lessee) to terminate a lease relating to service station premises situated at 459 Manly Road, Manly West. The background and various issues argued below and on appeal are set out in the reasons for judgment of Thomas JA.

[35] The permitted use of the demised premises as set out in the lease is as a

"Service station, including (without limitation) shop, carwash, motor vehicle servicing and repairs and other associated normal, usual or incidental uses."

[36] Clause 5 of the lease describes the circumstances in which the lease may be terminated or abated where the demised premises sustain damage or destruction so as to render the premises "inaccessible" or "substantially unfit" for the use and occupation of the lessee. Clause 6 covers the circumstance of compulsory acquisition of part of the land area of the demised premises by government authority or where the streets adjacent to the premises are closed or changed. Clause 6.1 describes when, in circumstances other than those covered by cl 5, the lessee may terminate the lease. Clause 6.2 provides for the abatement of rent where the lease has not been terminated pursuant to cl 6 but part of the demised premises are compulsorily acquired.

"Area reduction or street alteration. Subject to cl 6.4, if:

(b) the streets giving access to or [r]egress from the Demised Premises are permanently closed or significantly altered,

the Lessee may at any time thereafter elect to terminate this Lease by not less than 90 days' prior Notice to the Lessor."

[38] The preliminary point which the learned judge below decided was whether in the events which had happened, namely the changes to Manly Road in the vicinity of the demised premises, the lessee was entitled to terminate the lease and had done so. This required a finding that Manly Road was "significantly altered" in accordance with cl 6.1(b). The respondent had conceded below that the expression "the streets giving access" in cl 6.1(b) was a reference only to Manly Road in the immediate vicinity of the demised premises.

[39] His Honour determined that the entitlement to determine the lease arose under cl 6.1(b)

"Upon the occurrence of a significant - in the sense of major or substantial - physical change to Manly Road in the vicinity of the site, whether or not such a change considerably detrimentally affects either Manly Road access or the site's suitability for the defined `permitted use'." R 143.

[40] Neither party sought to advance a construction which required significant detrimental economic effect to the lessee by any alteration of Manly Road.

[41] The lessor contends that for the lessee to be entitled to terminate the lease it must be shown that

* Manly Road was altered whereby the access it gave to the demised premises was significantly and permanently detrimentally affected in terms of the permitted use of the demised premises, or * Manly Road was altered whereby the ability to use the demised premises for the permitted use was significantly and permanently detrimentally affected (grounds of appeals 4 and 5).

[42] The lessee contends that it is entitled to terminate the lease if a significant, meaning major or substantial, change occurs to Manly Road in the vicinity of the demised premises which was the construction favoured by his Honour below.

[43] "Significant" is an expression whose meaning can only be derived from the context in which it is used. It advances the construction not at all to say that it means major or substantial. The demised premises are used by the lessee for earning an income from the permitted use of operating a service station and allied activities. It cannot be the case that the parties intended that the lessee could terminate the lease if, for example, because of some activity by the local authority in Manly Road adjacent to the premises such as the provision of a park with a playground with a new street configuration, the lessee's takings were augmented.

[44] The flavour of cl 6 is one of consequential detriment to the lessee. Even though the expression "detrimental" is used in cl 6.1(a) and cl 6.2 but not in cl 6.1(b) not to imply the concept into it would lead to an odd result surely not intended by the parties. Of great importance to the operator of a service station is ease of access for passing vehicles. This is a lease for a commercial purpose. As Thomas JA has observed, amenity may not be entirely irrelevant but it is by no means dominant. Although cl 6.1(b) is not free from difficulty, nonetheless, I would construe it as giving the lessee an entitlement to determine the lease if, as a consequence of the alteration of Manly Road, the lessee suffers significant economic detriment in carrying on the permitted use of the demised premises.

[45] I agree with the orders proposed by Thomas JA.

[1] These were summarised in grounds 4 and 5 of the notice of appeal. They are that a right to terminate under cl 6(1)(b) arises if (a) Manly Road as giver of access to and from the demised premises is significantly altered; and (b) Significantly altered means: altered in a way whereby the access it gives is significantly and permanently affected in terms of the use of the demised premises for the permitted use (service station including shop, car wash, motor vehicle servicing and other associated uses);

or if: (a) Manly Road is significantly altered; (b) Significantly altered means: altered in a way whereby the ability to use the demised premises (the land and buildings) for the permitted use (service station including shop, car wash, motor vehicle servicing and other associated uses) is significantly and permanently detrimentally affected; and (c) Whether the ability to use the demised premises for the permitted use has been relevantly affected is not tested by reference to the particular business conducted on the site, but by reference to the question: whether, given that the site was able to be used prior to the relevant alteration for the permitted purpose of a service station including shop, car wash, motor vehicle servicing and other associated uses, its ability to be used for that purpose has been permanently detrimentally affected.

[2] See for example Lock (1997) 91 A Crim R 356 at 361 per Hunt CJ at CL, Lockyer (1996) 89 A Crim R 457 at 459 per Hunt CJ at CL, McVeigh and Anor v Willara Pty Ltd and Ors (1984) 57 ALR 343 at 352 per Toohey, Wilcox and Spender JJ, and TPC v TNT Management Pty Ltd (1985) 6 FCR 1 at 50 per Franki J (although in that case the definition was expressed as "at least not unimportant").

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