Metro Cinemas Lakehaven Pty Ltd v Central Coast Council

Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36
Australian Pacific LNG Pty Limited v The Treasurer, Minister for Aboriginal and Torres Strait Islander Partnerships and Minister for Sport [2019] QSC 124
Carrathool Hotel Pty Ltd v Scutti [2005] NSWSC 401
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33; [1989] NSWSC 1010
Haxglow Pty Ltd v Mirvac Retail Sub SPV Pty Ltd [2020] NSWSC 233
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Pilbara Infrastructure Pty Ltd v Economic Regulation Authority [2014] WASC 346
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14
Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Category: Principal judgment

Parties: Metro Cinemas Lakehaven Pty Ltd (Plaintiff)
Central Coast Council (Defendant)

Representation: Counsel:
R S Angyal SC / D C Price (Plaintiff)
B Coles KC / J Young (Defendant)
Solicitors:
Landerer & Company (Plaintiff)
Moray & Agnew (Defendant)

File Number(s): 2023/00357551

JUDGMENT

1. This is a case about a commercial lease of a cinema complex which is about ten years into the thirty-two-year term (including options). The construction of the cinema complex in 2014, which the Tenant designed itself and described as “state of the art”, used fixed-back seats. The seats are still in perfectly good condition. However, as originally intended and installed, they do not recline. With the intervening occurrence of a pandemic, the continued rise of home streaming services and changes to the distribution practices of movie studios, the Tenant has become concerned that cinemas which do not have reclining seats are not economically sustainable.

2. Under the Lease, the Landlord has an obligation to replace the seats when they reach “the end of their economic life”. Having regard to the economics of operating a cinema complex, the Tenant contends that the fixed-back seats have reached the end of their economic life. The Landlord does not agree and has refused to replace the seats. By these proceeding the Tenant seeks declaratory relief about the Landlord’s obligations and an order in the nature of a mandatory injunction to compel the Landlord to replace the seats. Alternatively the Tenant seeks damages.

3. In the first instance, the answer to the dispute is a question of construction of the Lease. The relevant terms are set out below. Properly construed, the Lease does not impose an obligation on the Landlord to replace the current seats with reclining seats. The proceedings are to be dismissed with costs.

Background

4. Metro Cinemas Group Pty Ltd is the operator of a number of regional cinemas around Australia. Each cinema is operated through a dedicated subsidiary. There is a Metro Cinema complex at Lake Haven on the Central Coast of New South Wales. It is operated through Metro Cinemas Lakehaven Pty Ltd. Metro Cinemas Lakehaven Pty Ltd is the plaintiff in these proceedings. I will refer to it as the “Tenant”.

5. Central Coast Council is the successor of two previous local councils, one of which was Wyong Shire Council. There is no need to distinguish between Central Coast Council and its predecessors. Central Coast Council is the defendant in these proceedings. I will refer to it as the “Landlord”.

6. In 2012 the Landlord and Metro Cinemas Group Pty Ltd each perceived benefits from a cinema being constructed and operated on land owned by the Landlord at Lake Haven. At that time, the nearest cinema was a drive of approximately 30 minutes from Lake Haven.

Agreement for Lease

7. There is an irrelevant dispute about who originally approached whom but, after some discussions and the incorporation of the Tenant, on 10 March 2014 the Landlord and the Tenant entered into an Agreement for Lease. Recitals to the Agreement for Lease provided as follows:

“A. [The Landlord] is owner of the Land and is the local government body for the Wyong local government area.

B. [The Tenant] is experienced in the design, construction, fitting out and operation of cinema complexes.

C. [The Landlord] considers that the utilisation of the Land for the construction and operation of a cinema complex would be beneficial to the residents of Lake Haven and surrounding districts.

D. [The Tenant] wishes to design, construct and fitout a cinema complex on the Land in accordance with this agreement and obtain a lease of the cinema in accordance with this agreement to permit it to operate the cinema complex.

E. [The Tenant] will design, construct and fitout the Cinema Complex on the Land and seek all necessary consents and approval for the construction and for the fit out of the Cinema Complex, in accordance with this agreement and on completion of the construction and fitting out [The Landlord] will grant [The Tenant] the Lease in accordance with this agreement.”

8. The operative terms obliged the Tenant to procure a construction development application and construction certificate, a fitout development application and construction certificate and to construct and fit out the new cinema complex on the Landlord’s land. The Landlord was obliged to give access to the land and to pay the development costs. The term “Fit Out” was relevantly defined to mean:

“all furniture, fittings and fixture required for the proper operation of a cinema, including but not limited to…Seats.”

9. The term “Development Costs” meant:

“all the costs, fees and expenses incurred by [the Tenant] or which will be incurred by [the Tenant] in… all fixtures, fittings and equipment required to operate a state of the art cinema, other than Metro’s Fitout and Equipment. Such items includes, but is not limited to… Seats”.

10. The term “Metro’s Fitout and Equipment” meant:

“all audio and projection equipment; includes but shall not be limited to its digital projectors and computerised film management and storage systems, electronic sound systems, computerised point of sale equipment, computer equipment and associated software.”

11. Planning, development and construction work ensued. By December 2014 the new cinema complex was complete. It opened. The Tenant began selling tickets and projecting movies.

Lease

12. As contemplated by the Agreement for Lease, on 16 February 2015 the Landlord and the Tenant entered into the Lease.

13. The Lease is for part only of a larger parcel of registered land, which part is described as “premises being Metro Cinema Complex” at a specified street address in Lake Haven. The Lease was originally for 20 years commencing on 29 January 2015, which term was subsequently varied to 22 years. The Tenant has two 5-year options to renew. There is no option to purchase.

14. The rent under the Lease is for a fixed sum to increase annually throughout the term and the options. Each increase is to be made by reference to the CPI. The Tenant must also pay turnover rent at 10% of turnover above a specified threshold. The Tenant pays 100% of outgoings.

15. There is no guarantee of the Tenant’s obligations.

16. The permitted use of the premises is:

“Cinema Complex and related uses, function centre and conference centre.”

17. Situated in Annexure A, cl 2 provides:

“Audio and Projection Equipment

For the removal of doubt, the Lessee must supply and install at its cost all audio and projection equipment required for the permitted use of the property.”

18. Clause 4 provides:

“Painting

The Lessee must repaint the building (internally and externally):

(a) at intervals not exceeding the manufacturers recommended life time but at all times to preserve the building and present the Cinema in a professional manner, and

(b) no more than 6 months prior to the expiry of the lease.”

19. For current purposes, the most important provisions are cll 5, 6 and 7 of Annexure A which provide as follows:

“5. Operating costs, Maintenance and Repairs

The Lessee must undertake and pay for all operating costs, maintenance and repairs of the property, including Lessor’s fixtures, but excluding Structural Repairs and Capital Upgrades. If there is any inconsistency between clauses 5, 6, 7, 8, 9, 10, 11, and 12 of this Annexure A and any clause in Annexure B to this Lease, clauses 5, 6, 7, 8, 9, 10, 11 and 12 of this Annexure A prevail to the extent of any such inconsistency, including but not limited to any inconsistency in cl. 7.1 of that Annexure B.

For the purpose of this lease Structural Repairs and Capital Upgrades means:

(a) All upgrading or replacements necessary to keep the Building structurally sound and in a weatherproof condition, including the roof, gutters and downpipes, and any external or internal load bearing structures essential to the stability or strength of the building including foundations, columns, walls, floors, and beams other than such works which are otherwise the responsibility of the Lessee under this Lease;

(b) The upgrading or replacement of the following services or systems provided to the building which cannot be practically or reasonably economically repaired or which have reached the end of their economic life:

a. Utility services, security, air conditioning, ventilation, fore protection, washroom and toilet facilities;

b. The wires, pipes, ducting and other means of providing those services or systems to the building;

other than maintenance and repairs which are otherwise the responsibility of the Lessee under this lease; and

(c) The replacement of any of the lessor’s fixtures and equipment which cannot be practically or reasonably economically repaired or have reached the end of their economic life,

but excluding any repairs or works (including structural repairs) to the extent caused or to the extent contributed to by the wrongful act, wrongful omission, negligence or default of the Lessee, or Lessee’s works any change in the Lessee’s use or operations.

6. Structural Repairs and Capital Upgrades

The Lessor must undertake and pay for all required Structural Repairs and Capital Upgrades. If there is any inconsistency between this clause and any clause in Annexure B to this Lease, this clause 6 prevails to the extent of any such inconsistency, including but not limited to any inconsistency in cl 7.1 of that Annexure B.

7. Ownership of Property

For the removal of doubt, the lessor owns all right, title and interest in the cinema complex and fitout, other than Metro’s Fitout and Equipment, as defined below. The Lessor’s fixtures include, but are not limited to:

i. carpet

ii. seats

iii. curtains and acoustic panels

iv. cinema screens

v. joinery including candy barvi. signage, including poster boxes and panels

vii. cinema interior design, including specialist fixtures and lighting

viii. office fixtures, fittings and fixtures

ix. CCTV, safe and alarm systems

x. air conditioning systems

xi. fire protection and evacuation systems and equipment

xii. fences

‘Metro’s Fitout and Equipment’ means all audio and projection equipment required for the proper operation of a cinema, including but not limited to digital projectors and computerised film management and storage systems, electronic sound systems, computerised point of sale equipment, computer equipment and associated software.”

20. Clause 10 provides:

“10. Air Conditioning and Ventilation

(a) Subject to special conditions 5 and 6, the Lessee is responsible for the maintenance of all air conditioning systems and equipment in the property.

(b) The Lessee must at its sole cost enter into an industry standard contract for the air conditioning maintenance services. The scope and specification must be submitted to the Lessor for approval (acting reasonably) and the services must be carried out in accordance with relevant Australian Standards and laws.”

21. Annexure B to the Lease contains standard terms. Amongst them, cll 3.1 and 3.2 provide:

“What property is leased?

3.1 The property leased is described on page 1 of this lease.

3.2 The lessor’s fixtures are included in the property leased.”

22. Clause 7 addresses repair of the property. Clause 7.1.1 provides:

“The lessor must –

7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects…”

23. Clause 7.2 provides:

“7.2 The lessee must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition but the lessee does not have to –

7.2.1 alter or improve the property; or

7.2.2 fix structural defects; or

7.2.3 repair fair wear and tear.”

24. Clause 7.6 provides:

“7.6 The lessee must not make any structural alterations to the property. Any other alterations require the lessor’s consent in writing (but the lessor cannot withhold consent unreasonably).”

25. There is no provision in the lease for resolution of disputes.

26. In the wake of the Covid-19 pandemic, the Lease was formally varied in 2021 to reduce the rent for a specified period which expired in about 2024. The term of the Lease was also increased by two years. The parties agree that the 2021 variations have no effect on the issues which arise in these proceedings.

The Metro Cinema complex

27. Now that it is built and operating, the Metro Cinema complex at Lake Haven is housed in a purpose-built free-standing building. It is a short walk from a large retail mall. Depending on which way you go, the walk to the cinema might pass a library, an outdoor car park, a park, a youth centre and playground, a government services office and/or a liquor store.

28. A full range of food outlets, cafes and bars are located in the nearby mall and the surrounding areas.

29. The Metro Cinema has eight screens each of which is situated in a separate theatre. The theatres are different sizes and accordingly are fitted with different numbers of seats. The largest theatre has 250 seats and the smallest has 70 seats. There are 1,115 seats in total. The seats do not recline.

30. The Metro Cinema has a candy bar. It does not have any of the premium offerings referred to below, although service (including alcohol) can be arranged for group functions.

31. As explained above, the Metro Cinema was brand new when it opened in 2015.

Competitors

32. Upon opening, the Metro Cinema at Lake Haven became the sixth cinema complex on the Central Coast. The other five, Event Tuggerah, Hoyts Erina, Ettalong, Avoca and a small cinema at The Entrance which ceased to trade in 2022, are all located to the south. Mr O’Neill, the founder and CEO of the Metro Cinema Group, regards Event Tuggerah as the main competitor for the Metro Cinema. Event Tuggerah is located 16km away, which takes 21, 26 or 30 minutes to drive depending on the witness. To a lesser extent, Mr O’Neill regards Hoyts Erina as a competitor, it being located a 43 minute drive away. The Ettalong and Avoca cinemas are each a drive of approximately 53 minutes to the south. Mr O’Neill does not regard them as competitors.

33. The evidence establishes that the Metro Cinema, Event Tuggerah and Hoyts Erina generally project all the same movies. There are variations in measurements and possibly “enhancements”, but the three cinema complexes all have at least one very big screen. They all permit online selection of seats and they all have advanced screenings.

34. The Metro Cinema has always sold its tickets at prices significantly below those of Event Tuggerah and Hoyts Erina. The evidence does not reveal why.

35. As at the beginning of 2019, all these cinemas had fixed-back seats.

Refurbishment of Event Tuggerah

36. The following summary is generally based on the evidence of Mr Cody who has decades of experience in the Australian cinema industry and used to work in a senior role at Event Cinemas.

37. Event Tuggerah originally opened in 1995. It is located in a large shopping mall. It originally had eight screens and 2,164 seats, all with a fixed back.

38. Event Tuggerah was refurbished in 2019 and now has ten screens. As part of the refurbishment three of the theatres were converted to Gold Class which means that they offer a premium service including alcohol, hot food and waiters. The seats in the Gold Class theatres were generally replaced with seats which recline, although a number were replaced with daybeds which recline even further. There is contradictory evidence about whether some of the seats in Gold Class were replaced with new fixed-back seats. At least two of the Gold Class theatres are relatively small with only thirty-two seats in each.

39. Although Mr Cody is not sure about it, there is evidence that during the refurbishment of Event Tuggerah a fourth theatre had its seats replaced with D-Box seats which not only recline but have a movement function synchronised with the images projected on the screen. It is not clear on the evidence whether the theatre equipped with D-Box seats is also Gold Class but it is in any event a premium product compared to a theatre equipped with fixed-back seats.

40. The other six theatres at Event Tuggerah have had their fixed-back seats replaced with new fixed-back seats which Mr Cody describes as “new larger high back seating and more leg room”.

41. After the refurbishment, the total number of seats of all types is 1,233. The evidence does not permit that total to be broken down as between fixed-back seats, reclining seats, daybeds and D-Box seats. Given the small size of at least two of the Gold Class theatres, it seems probable that the majority of seats at Event Tuggerah are still fixed-back seats, albeit “new larger” seats with more leg room.

42. The refurbishment of Event Tuggerah was not limited to replacement of the seats. Other changes were made, such as the addition of a Gold Class lounge, bar and bathrooms, some bigger screens and some improved sound. The evidence includes a newspaper article which refers to refurbishment of all the bathrooms, foyer, concourse and food and beverage spaces.

43. There is no evidence about the cost of the refurbishment.

44. There are some references in the evidence to the refurbishment causing an adverse impact on the 2019 box office revenue for Event Tuggerah. It seems likely that there were periods of unknown duration when some of the theatres were closed but it is unlikely on the evidence that the entire cinema complex was closed for any significant time, if at all.

Refurbishment of Hoyts Erina

45. Hoyts Erina opened in the mid 1990s and is also located in a large shopping mall. According to Mr Cody, who also used to work in a senior role at Hoyts, Hoyts Erina originally had eight screens. The evidence does not reveal the original number of seats.

46. In 2022 a refurbishment was carried out at Hoyts Erina. Mr Cody says that part of the work was still underway in early 2023. The details are limited. All the seats were converted to reclining seats, although a number of the new seats are daybeds and one theatre has D-Box seats. After the refurbishment Hoyts Erina still has eight screens. It now has a total of 1,032 recliner seats (which may or may not include daybeds).

47. Some bigger screens and improved sound systems were added. The evidence includes a quote from the CEO of Hoyts which refers to a “complete venue overhaul” although it is unclear if that is a reference to the work undertaken in 2022 or whether it includes further work planned for 2023 and 2024 or later. It appears that the food, beverage and candy facilities were improved, but that appears to be a reference to the facilities in the foyer rather than the introduction of Gold Class within individual theatres.

48. The evidence does not address the cost of the refurbishment work at Hoyts Erina other than by use of the phrase “multi-million-dollar”.

Revenue as between the competitors

49. Leaving aside the smaller cinemas at Ettalong, Avoca and The Entrance, the evidence establishes that the yearly box office revenue for each cinema on the Central Coast has been as follows:

50. Mathematically, each cinema’s share of the whole has been as follows:

51. There is no evidence about box office revenue as between the different types of seats at Event Tuggerah. It is not known whether Event Tuggerah generates less annual revenue for each fixed-back seat than for each recliner seat or whether there is a difference for seats (fixed-back or reclining) in Gold Class.

52. There is no evidence about revenue at different times of the year, such as weekends and school holidays.

53. There is no evidence about profit.

54. Apart from what may be calculated from revenue and some limited pricing information, there is no evidence about attendance numbers. Nothing at all can be inferred about attendance numbers at Event Tuggerah because it has different types of seats for which it charges different prices.

Aspects of the cinema industry in Australia

55. At an industry level, Mr O’Neill says that a cinema complex with five screens is able to accommodate all major releases and that beyond that screens are used for additional sessions in peak periods and to show less profitable films at other times. It appears that each theatre has four to six sessions each day although such figures appear to be based on an unexplained averaging process.

56. The cinema industry has confronted significant challenges in the last five years, some of which are continuing. From 2020 the cinema industry suffered significantly from Covid-19. There were compulsory closures and subsequent periods when social distancing meant that cinemas could only operate at half capacity. There was a strike by writers and actors in 2023 which impacted distribution. Streaming services have presented new competition with high-quality movies and other content available for viewing from the comfort of the viewer’s own home. Significant disruption has also occurred because the period in which film studios used to permit cinemas to have exclusive access to films has been reduced or even eliminated.

57. In view of these challenges, Mr Cody has expressed the opinion that cinemas must provide an “enhanced viewing experience to tempt customers out of their lounge rooms”. After 2016 Hoyts began converting all its Australian cinemas to reclining seats. Mr Cody considers that this gave Hoyts an advantage and has led Event and Village to introduce their own recliner seats. The major cinema circuits are also introducing premium cinema experiences such as Gold Class and D-Box seats.

58. By reference to the figures for the yearly box office revenues for the Metro Cinema, Event Tuggerah and Hoyts Erina (see above), Mr Cody expresses the view that Event Tuggerah and Hoyts Erina successively increased their “market share” by refurbishing in 2019 and 2022. When expressing that view, Mr Cody emphasises that the refurbishment included the introduction of reclining seats but he also states that each refurbishment included other work which was unrelated to the seats.

59. It is Mr Cody’s opinion that:

“only offering standard fixed-back seating in all auditoriums of a cinema today is not smart business practice where close competitors provide far superior options.”

60. Mr Cody further says:

“unless Metro Cinemas Lake Haven is able to provide a standard of seating that is superior or comparable to Event Cinemas Tuggerah and Hoyts Cinemas Erina then they will continue to lose market share and their business will not be sustainable in the future.”

61. Mr Cody further believes that the Metro Cinema would have maintained its market share if it had “invested in their cinemas to a comparable standard as” Event Tuggerah and Hoyts Erina. In cross-examination, Mr Cody made clear that his views about the Metro Cinema’s loss of market share and future sustainability are not based solely on the types of seats which are offered to customers but on all aspects of the cinema experience. For example, the following evidence was given:

“Q: “And so consistent with your opinion expressed a moment ago, there’s a substantial amount more to their increase in market share in your opinion than just the number or a lack of fixed-back seats?”

A: “Yes.”

Other matters

62. It may be inferred from the evidence that a reclining seat occupies more floor space than a fixed-back seat. Replacing a theatre full of fixed-back seats with reclining seats will necessarily result in a reduction in the total number of seats in the theatre. The reduction appears to be significant. For example, it is estimated that the replacement of all 1,115 of the Metro Cinema’s fixed-back seats with reclining seats will reduce the total number of seats to 650. This is a reduction of over 40%.

63. It will cost approximately $1.4m to purchase and install 600 reclining seats and 28 daybeds at the Metro Cinema.

Proceedings

64. The Tenant commenced these proceedings by filing a Statement of Claim on 10 November 2023.

65. An Amended Statement of Claim was filed on 23 April 2024 which specifies the final relief sought by the Tenant as follows:

“1. A declaration that, on its proper construction, "economic life" in cl. 5(c) of Annexure A to the Lease refers to the period over which the seats are economically productive, in the sense that movie theatres equipped with those seats are capable of earning substantial revenues for the Plaintiff through ticket and concession sales, and "reached the end of their economic life" has a corresponding meaning.

2. A declaration that, on the facts pleaded in this Statement of Claim, the fixed-back seats in the Complex have come to the end of their economic lives.

3. A declaration that, on the facts pleaded in this Statement of Claim, the consequence of the fixed-back seats in the Complex having come to the end of their economic lives is that the Defendant is obliged by cl. 5(c) of Annexure A to the Lease to replace them with non-fixed-back seating such as recliner seating and day beds.

4. An order that the Defendant forthwith perform and carry into execution its obligation under cl. 5(c) of Annexure A to the Lease, as declared by the Court, by replacing the seating in the movie theatres of the Complex with recliner seating and day beds.

5. In addition or in the alternative to order 4, the Plaintiff claims damages for breach of the Lease.

6. Costs

7. Further or other orders.”

66. When the matter was called on for final hearing on 26 May 2025, the Landlord complained that recently-served evidence from the Tenant changed the structure of the Tenant’s loss calculation in a way which the Landlord could not fairly meet at the hearing. In order to ensure the hearing days were not lost, the parties jointly sought an order under Uniform Civil Procedure Rules 2005 (NSW) r 28.2 that the claims for declarations in Prayers 1, 2 and 3 of the Amended Statement of Claim be decided separately from and prior to all other questions in the proceedings, which order was made. When making the order for separate questions, I made clear to the parties that the declarations sought in Prayers 2 and 3 would be determined not “on the facts pleaded in the Statement of Claim” but on the events which have happened as established by the evidence. The parties acceded to that approach.

Tenant’s contentions

67. The Tenant arranged its submissions to address two issues, namely:

(a) the construction of the Lease so as to identify the Landlord’s obligation; and (b) whether on the facts of this case the Landlord’s obligation has been enlivened.

Construction of the Landlord’s obligation

68. The obligation of the Landlord upon which the Tenant sues is the obligation in the first sentence of cl 6 of Annexure A to the Lease: to “undertake and pay for all required Structural Repairs and Capital Upgrades”.

69. The term “Structural Repairs and Capital Upgrades” is not defined in the Lease other than as a carve out from the Tenant’s obligation in cl 5 to “undertake and pay for all operating costs, maintenance and repairs of the property, including Lessor’s fixtures”. That definition has three limbs. The Tenant submits that the third limb, which is in cl 5(c), applies in this case. Clause 5(c) provides that Structural Repairs and Capital Upgrades includes “the replacement of any of the lessor’s fixtures and equipment which cannot be practically or reasonably economically repaired or have reached the end of their economic life”. It will be recalled that cl 7(ii) expressly states that “lessor’s fixtures” includes the seats.

70. Broken down, there are three circumstances affecting the lessor’s fixtures which are specified in cl 5(c):

(a) where they cannot be practicably repaired; or (b) where they “cannot be reasonably economically repaired”; or (c) where they “have reached the end of their economic life”.

71. Impracticability of repair is directed to the physical practicability of repair. The Tenant gives as an example the situation where parts are no longer available because the particular model of seat has been discontinued by the manufacturer.

72. The Tenant submits that whether repair of a seat is reasonably economical requires a comparison between, on one hand, the cost of “immediate repair and/or anticipated future repair” and, on the other hand, the cost of installing a new seat.

73. The Tenant contends that neither of these first two circumstances applies to the seats at the Metro Cinema. That must be correct because the seats do not need repair at all. They are in perfectly good condition.

74. In the context of cl 5(c), the Tenant submits that the third circumstance (where the seat has reached the end of its economic life) must mean something different to the second circumstance (where the seat cannot be reasonably economically repaired). To give the third circumstance work to do, the Tenant submits that a seat’s economic life is not concerned with the cost of repair but with the seat’s “income-earning capacity”. A seat will have reached the end of its economic life when it loses “the ability to generate income”. That is said to be the most natural consequence of the word “life” being qualified by the word “economic”. It is submitted that “economic” has a “quite different meaning” as a qualification of “repaired” as used in cl 5(b).

75. The Tenant further submits that the end of a seat’s economic life may be caused by matters other than physical deterioration, such as where the loss of income-earning ability is caused by changes in competition or changes in the industry. It will occur when customers no longer want to sit on the seat even though the seat remains in perfectly good condition.

76. The Tenant sees support for this construction in the judgment of Edelman J in Pilbara Infrastructure Pty Ltd v Economic Regulation Authority [2014] WASC 346. That was a case where his Honour had to consider the meaning of the term “economic life” as it appeared in cl 2 of sch 4 of the Railways (Access) Code 2000 (WA). Undefined in the Code, Edelman J received expert evidence on the meaning of the term and said at [75]:

“The concept of economic life is therefore an estimate of the period over which assets are productive, in the sense of delivering access services and earning access revenues.”

77. Edelman J also said that economic life is different to “technical life” which is the period over which an asset is physically capable of doing the task for which it is intended.

78. The Tenant also sees support for its construction in Australian Accounting Standard AASB16 – Lease, which states that economic life means the period over which an asset is expected to be “economically usable”, although that appears merely to beg the question currently being considered.

79. The Tenant accepts that the corollary of its construction is that the Landlord’s obligation under cl 6 may oblige the Landlord to replace an asset with an upgraded version of the asset. An upgrade will be required when like-for-like replacement of the asset will have the result that the "new” asset will itself lack the ability to generate income.

80. Prior to the litigation the Landlord contended that a seat will reach the end of its economic life when it returns less value to the owner than it costs to own, operate and maintain. The Tenant submits that cl 5(c) cannot be construed in that way because under the Lease the Landlord is the owner of the seat but the cost of maintaining it falls on the Tenant. Under that bifurcated arrangement, the value of the seat to the owner will never be less than the costs to own, operate and maintain the seat (which will always be $0 for the owner). Whilst the Landlord does not now press this contention, the Tenant’s criticism of it ought to be rejected. Clause 5(c) ought to be construed as referring to economic life (and also reasonable economic repair) as an objective matter and not by reference to the identities of the persons who will variously receive the benefits or bear the costs in any particular case.

81. By reason of these matters, the Tenant submits that the Lease is to be construed so that the Landlord’s obligation to replace the seats will be enlivened if the seats have lost the ability to generate income.

Enlivenment of the Landlord’s obligation

82. At one stage during the hearing the Tenant appeared to submit that cl 5(c) is to be construed so that the Landlord’s obligation is enlivened whenever the Tenant unilaterally determines that the specified circumstance pertains (e.g. a particular fixture has lost the ability to generate income) rather than by proof of the objective fact. Such a construction was said to follow from the fact that under the Lease the Tenant is responsible for operating the cinema complex and for cleaning, maintaining and repairing the property including the lessor’s fixtures, and therefore it is the only party which will have knowledge about the occurrence of circumstances referred to in cl 5(c).

83. Clause 5(c) is not to be construed that way. Clause 5(c) does not refer to the Tenant’s determination or the Tenant’s satisfaction about any of the specified circumstances. Before the Tenant’s construction could be accepted words would have to be read into the clause. Such a radical construction is not necessary because cl 5(c) is capable of operation in accordance with the plain meaning of its terms. It is true that the Lease does not have a dispute resolution clause to facilitate the objective determination of specified circumstances if the parties do not agree. It is, however, a commercial document and commercial parties might be expected to resolve any difference in a businesslike way, if necessary by mediation, binding expert determination, ad hoc arbitration or adjudication by the Court.

84. Even where one party has superior means of knowing whether a particular circumstance has arisen, the Lease clearly contemplates that the existence of any such circumstance is to be determined as an objective fact. To permit one party unilaterally to determine whether a particular circumstance has arisen which would give the Lease an uncommercial and potentially arbitrary operation. This may be so even if such a clause is construed as being subject to an implied term as to reasonableness and/or good faith.

85. The Tenant’s construction would also be inconsistent with the other provisions of the Lease. There are other places in the Lease where the parties’ respective rights and obligations depend upon the existence of a specified circumstance, such as cl 7.1 in Annexure B, which requires the Tenant to carry out repairs if they are “needed to keep [the property] in [its condition at the commencement date]” and cl 8.2, which relieves the Tenant of the obligation to pay outgoings if “the property cannot be used under this lease”. These are just examples. There is no suggestion that the Tenant’s unilateral assessment of the relevant circumstances will suffice for these other provisions. Clause 5(c) is to be construed harmoniously with these other provisions: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36 at [3] (Gibbs J).

86. In any event, as the trial proceeded the Tenant accepted that the enlivenment of the Landlord’s obligation under cl 5(c) turned on an objective determination of, relevantly, whether the seats have reached the end of their economic life.

87. In paragraph 13 of the Amended Statement of Claim the Tenant alleges:

“Because the seats in the Complex are fixed-back seats, movie theatres in the Complex have lost the ability to earn substantial revenues for [the Tenant] through ticket and concession sales”

88. And then:

“The consequences of the loss of ability of the movie theatres with fixed-back seats in the Complex, for the reasons in this paragraph, to earn substantial revenues for [the Tenant] through ticket and concession sales is that the seats have come to the end of their economic life.”

89. The Tenant submits it has proved these allegations. It relies on the evidence about box office revenue and market share set out at paragraphs [49] and [50] above. The Tenant submits that this evidence demonstrates that its share of revenue compared to Event Tuggerah and Hoyts Erina was relatively stable at approximately 16% until Event Tuggerah introduced reclining seats as part of its refurbishment in 2019. At that point the Tenant’s share dropped. It dropped again in 2022 when reclining seats were installed at Hoyts Erina. Its share of box office revenue is now approximately 10%.

90. Support for this interpretation of the evidence about the Tenant’s share of box office revenues is said to come from the statements made by Mr Cody which are set out at [59]–[61] above. Mr O’Neill’s evidence is also relied upon. Mr O’Neill says that reclining seats must be installed at the Metro Cinema for it to be sustainable in the future.

91. The Tenant submits that this evidence demonstrates that the seats at the Metro Cinema have lost the ability to generate income and therefore the Court ought declare that they have reached the end of their economic life for the purposes of cl 5(c).

Landlord’s contentions

Construction of the Landlord’s obligation

92. The Landlord refers to the usual principles which govern the construction of a commercial contract like the Lease.

93. It submits that the construction task requires a determination of the parties’ objective intention about the allocation of the “fair business risk”. The fair business risk relevant to this case is the future economic productivity of the Metro Cinema. The Landlord observes that, on the Tenant’s construction, the parties intended that risk to be allocated to the Landlord. The Landlord submits that it is objectively implausible that that is what the parties’ intended when the Tenant operates the business of a cinema complex and the Landlord is merely the landlord of the premises from which the business is conducted. The Landlord contends for a construction of the Lease by which the business risk of the future economic productivity of the cinema complex is allocated to the Tenant. The Landlord submits that such an allocation makes commercial sense.

94. The Landlord submits that the broad framework of the Lease, read as a whole, is that the Landlord is responsible for maintenance and repair of structural and similar components unless such work is required due to the Tenant’s use or operation of the premises, in which case the Tenant is responsible: see the concluding words of cl 5 in Annexure A. Otherwise the Tenant is responsible for maintaining and repairing the premises including the lessor’s fixtures, which includes the seats.

95. The only relevant exception to the Tenant's maintenance and repair obligation is where a lessor's fixture cannot be practically repaired, cannot be reasonably economically repaired or has reached the end of its economic life. The Landlord submits that:

(a) a seat cannot be reasonably economically repaired when it will cost less to replace the seat than to undertake a repair which is currently required; and (b) a seat has reached the end of its economic life when it will cost less to replace the seat than to undertake a current repair and bear estimated "ongoing" repairs and maintenance costs.

96. Construed in that way, all parts of cl 5(c) are given work to do and the perceived vice does not arise which drives the Tenant to construe “economic life” not by reference to repair costs but by reference to an ongoing ability to generate revenue.

97. The Landlord further submits that cl 5 is to be read as a whole. The Landlord’s obligations in relation to Structural Repairs and Capital Upgrades do not only include the replacement of the lessor’s fixtures in the circumstances specified in cl 5(c). It also includes the works specified in cl 5(a) (structural and weatherproofing requirements) and cl 5(b) (utilities). In the circumstances specified in each of cll 5(a) and 5(b), the Landlord has an obligation to “upgrade or replace”. Under cl 5(c), the Landlord is only required to “replace”. That shows that the parties intended that the Landlord would have a more limited obligation in respect of lessor’s fixtures. The Landlord is not obliged to upgrade any of the lessor’s fixtures.

98. The Landlord sees support for its construction from a number of cases where other leases have been construed, including Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33; [1989] NSWSC 1010 where Young J emphasised the distinction between a landlord’s obligation to “maintain” and an obligation to “replace”. The Landlord also refers to a number of cases for the proposition that no covenant will be implied into a lease that the landlord will repair the premises (see for example Carrathool Hotel Pty Ltd v Scutti [2005] NSWSC 401 at [42] (White J)). The relevance of these authorities is very limited in a case about the construction of an express obligation to repair in the particular terms of the Lease.

99. The Landlord sees further support for its construction of cl 5(c) in the concluding words of cl 5 which provide that the definition of Structural Repairs and Capital Upgrades excludes any repairs or works (including structural repairs) to the extent caused or to the extent contributed to by any change in the Tenant’s use or operations. The Landlord’s argument about this point was not fully developed. The Landlord does not squarely submit that the introduction of Gold Class or reclining seats would be a change of the Tenant’s “use”, or even a change of the Tenant’s “operations”, so as to relieve the Landlord of any repair or replacement obligation it may otherwise have.

100. Relying on cl 7 in Annexure B, the Landlord submits that the standard of maintenance and repair required by cll 5 and 6 in Annexure A is to be ascertained by the condition of the premises and the lessor’s fixtures at the commencement of the Lease. The Landlord submits that cl 5(c) must be construed in a harmonious way, which does not oblige the Landlord to upgrade the seats beyond the standard which was in place at the commencement of the Lease.

101. The Landlord concludes that, properly construed, cl 5(c) is not concerned with the revenue-earning ability or profitability of the lessor’s fixtures and the Tenant’s construction ought to be rejected.

Enlivenment of the Landlord’s obligation

102. If the Landlord’s construction of cl 5(c) is correct, there is no suggestion that the seats have reached the end of their economic life. The Tenant does not contend, and has not sought to prove, that the seats are in need of repair and face estimated future repair and maintenance costs which exceed the cost of replacement. On the Landlord’s construction the Tenant’s case is to be dismissed.

103. Even if the Tenant’s construction is correct, the Landlord submits that the evidence does not establish that the movie theatres in the Metro Cinema complex have lost the ability to earn substantial revenues through ticket and concession sales, much less that any such loss has been caused by the continued use of fixed-back seats.

104. The box office figures are directed to Metro Cinema’s revenue relative to that of Event Tuggerah and Hoyts Erina. The Landlord submits that the evidence does not demonstrate that those three cinema complexes form “the relevant market”. The Landlord points to the cinemas at Avoca, Ettalong and The Entrance and says that their performance is also relevant to the revenues earned by Metro Cinemas since 2015.

105. The Landlord also disputes the inferences which the Tenant seeks to draw from the box office figures. Specifically, but not exclusively, the Landlord says that the evidence does not demonstrate that the absence of reclining seats at the Metro Cinema has caused any drop in box office receipts since 2019. The Landlord points out that Mr Cody’s evidence, both in his Affidavits and in his cross-examination, is that the fall in the Metro Cinema’s box office receipts has been caused by a number of factors of which the absence of reclining seats is only one. Absent some coherent argument about the cause of the decline in box office revenue, it cannot be said that the seats have reached the end of their economic life.

106. The Landlord also points out that the Tenant is earning revenue from its operations with the fixed-back seats. Absent some conception of “substantial revenue” (and there is none), the Tenant has not proved that the Landlord’s obligation to replace the seats has been enlivened even on the Tenant’s construction of the Lease.

Construction of a commercial lease

Principles

107. Ordinary principles of contract law apply to leases: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 29; [1985] HCA 14, Mason J (with whom Wilson and Deane JJ agreed). In this case the Lease is a commercial contract. The following principles apply to a commercial lease: Haxglow Pty Ltd v Mirvac Retail Sub SPV Pty Ltd [2020] NSWSC 233 at [33] (Darke J). The contract is to be construed objectively. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; [2004] HCA 52, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said at [40]:

“It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”

108. The objective intentions of the parties are to be ascertained having regard to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract: Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514 at 534; [2019] HCA 13 at [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).

109. The objective intentions of the parties are to be ascertained having regard to the text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 117; [2015] HCA 37, with French CJ, Nettle and Gordon JJ stating at [50]:

“Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.”

110. For a commercial contract, consideration is to be given to what a reasonable businessperson would have understood the terms to mean. Unless a contrary intention is indicated, the Court may assume that the parties intended to produce a commercial result: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656–657; [2014] HCA 7, French CJ, Hayne, Crennan and Kiefel JJ stated at [35]:

“Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. 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”. As Arden LJ observed in Re Golden Key Ltd, unless 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”.”

111. Appreciation of the commercial purpose or objects of a contract is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating: Electricity Generation Corporation v Woodside Energy Ltd at 656–657; [35].

Application of the principles in this case

112. Starting with the text of the Lease, cll 5, 6 and 7 are set out above. The text of immediate importance is that set out in cl 5(c). The Tenant’s trifurcated breakdown of the text is accurate and useful (see [70] above).

113. The Landlord’s submission should be accepted that the phrase “cannot be reasonably economically repaired” simply means that it will be cheaper to replace the seat than to undertake the immediate repair which is currently required. As a qualification of “repair”, the words “reasonably economically” direct attention to the cost of the repair. As the composite precondition to an obligation to replace a fixture, “reasonably economically repaired” is directed to a comparison between the cost of repair and the cost of replacement. The Landlord’s construction of these words accords with the plain meaning of the text.

114. The difference between the parties is that the Landlord submits that the relevant cost of repair is the cost of the immediate repair which is currently required, whilst the Tenant submits that the cost of repair also includes the cost of all repairs and maintenance which may be expected in the future. There is nothing in the text of cl 5(c) which warrants the expansive construction for which the Tenant contends. The context supports the Landlord’s construction because satisfaction of the cl 5(c) condition enlivens the Landlord’s obligation under cl 6 to undertake all Structural Repairs and Capital Upgrades which are “required”. That word directs attention to the reasonable economics of the repair which is currently required rather than an assessment of future repairs which may be expected but which are not yet required and may never be required.

115. The companion term “reached the end of its economic life” is also to be construed in accordance with the plain meaning of the text. The word “life” is qualified by “economic”. The phrase “economic life” is not defined in the Lease. Like all words, it takes its meaning from the context in which it is used in any particular case: Australian Pacific LNG Pty Limited v The Treasurer, Minister for Aboriginal and Torres Strait Islander Partnerships and Minister for Sport [2019] QSC 124 at [282] (Bond J). Again, within the context of a precondition to the Landlord’s cl 6 obligation to replace (to which the Tenant’s cl 5 obligation to repair is an exception), “economic” contemplates another comparison between the cost of repair and the cost of replacement. In this instance the word “economic” qualifies the “life” of the seat, not the repair which is immediately required. Thus the cost of future repairs are also to be taken into account in the comparison with the cost of replacement. There is no duplication between the second and third preconditions in cl 5(c).

116. Support for the Landlord’s construction comes from the fact that the words “economically” and “economic” are then given a harmonious meaning as one would expect, especially when they have been used in the same sentence. The Landlord’s construction also gives cll 5 and 6 a coherent interaction, each focussed on the cost of repair. The demarcation between the complementary obligations is determined by the cost of repair.

117. Absent the need for an alternative construction of “economic life” arising from the supposed duplication within cl 5(c), the Tenant has not identified any reason why the Landlord’s obligation under cl 6 should be concerned with the revenue earning ability of the business operated by the Tenant from the premises to which the lessor’s fixtures are fixed.

118. On the contrary, there are a number of reasons why such a construction is unlikely to have been the objective intention of these commercial parties. First, the Landlord’s obligation to replace seats when they have reached the end of their economic life is part of the coherent allocation of responsibility for payment of operating costs, maintenance and repairs of the property including lessor’s fixtures.

119. Clauses 5 and 6 are not concerned with the ability of the Tenant to earn revenue from theatres equipped with any particular seats. It is objectively improbable that the parties intended to introduce such a concern into cll 5 and 6 by the reference in the definition of “Structural Repairs and Capital Upgrades”.

120. Secondly, the submission ought to be accepted that objectively viewed the parties intended to allocate to the Tenant the business risk from the future economic productivity of the seats at the Metro Cinema. It may be accepted that the Landlord, being the local council, has a broader social interest in having a cinema complex operating at Lake Haven. It may also be accepted that the Landlord is entitled to turnover rent which gives it a financial interest in the economic fortunes of the cinema complex. Those matters do not detract from the fact that the Landlord is in substance the owner of premises from which the Tenant operates a commercial business. The Landlord’s construction better reflects a commercial allocation of fair business risk.

121. Thirdly, the Tenant does not complain that it is unable to earn substantial revenues from individual seats at the Metro Cinema. More precisely, the Tenant complains that it is not able to earn substantial revenue from the seating as a whole. The seating includes the individual physical seats but it also has other aspects, such as the number of seats, the configuration, the different types of seats, the functionality of the seats and the mix of seats within the cinema complex. One characteristic of the seating at Event Tuggerah is the amount of leg room between the seats which could never be addressed by any of the repair, replacement or even upgrade of the individual seats but only by the rearrangement of the overall seating layout. There may be other aspects of seating. By these proceedings the Tenant does not seek to replace seats in need of repair but to have the entire seating replaced and rearranged. Most, possibly all, of the individual seats which the Tenant wants replaced are not in need of any repair. An obligation of the Landlord in cl 6 to replace the whole of the seating demonstrates the implausibility of the Tenant’s construction.

122. Fourthly*,* the proposition that the parties intended the Landlord’s replacement obligation to depend upon the seats loss of ability to earn “substantial revenues” is unworkable. The evidence before the Court, including Mr Cody’s evidence, demonstrates that the revenue-making ability of a cinema complex depends upon many factors, not just the seats with which the cinema complex is fitted. As set out in more detail below, it is impossible to know whether the loss of a cinema’s ability to earn substantial revenue will change if the seats are replaced. It may be that the Metro Cinema will not have the ability to earn substantial revenue even if all the seats are replaced with seats which recline. For commercial parties, a construction which produces an unworkable result is unlikely to have been intended.

123. Fifthly, it is important to bear in mind that the Landlord’s obligations under cl 6 apply not just to the seats in the theatres but to all the lessor’s fixtures listed in cl 7. The terms “cannot be reasonably economically repaired” and “reached the end of its economic life” have to operate in relation to the repair or replacement of a range of items including the carpet, curtains, acoustic panels, screens, joinery (including the candy bar), signage, office fixtures, CCTV, alarm systems, air conditioning systems, fire protection systems and the safe. Some of these items do not have any apparent relationship with the Tenant’s ability to earn substantial revenue from the cinema complex. Given the range of items referred to, the Tenant’s construction of “reached the end of its economic life” is inapposite. It is much more likely that the relevant part of cl 5(c) contemplates a simple comparison between the cost of repair and the cost of replacement.

124. Sixthly, under the Tenant’s construction neither the cost of repair nor the cost of replacement is relevant to the question whether a particular asset has reached the end of its economic life. The obligation is solely concerned with whether the asset is able to be economically productive. If not, the Landlord is obliged to replace irrespective of the cost. That is implausible, especially as an obligation located in cl 6.

125. There is further difficulty with the Tenant’s construction. It is common ground that an obligation on the Landlord to replace seats which have reached the end of their economic life cannot sensibly require the Landlord to replace the seats with new fixed-back seats because (on the Tenant’s case) the new seats will also have reached the end of their economic life. The Landlord’s obligation as described in cl 5(c) must not therefore be limited to “replace” but include an obligation to “upgrade” in certain circumstances. Such a construction would be inconsistent with cll 5(a) and 5(b) which both expressly refer to “upgrading” whilst cl 5(c) does not.

126. Edelman J’s statements in Pilbara Infrastructure Pty Ltd v Economic Regulation Authority about the meaning of "economic life” are not relevant to the construction of cl 5(c) of the Lease. The context in which his Honour made those statements is far removed from the facts in this case. The Railways (Access) Code 2000 provided a mechanism for regulatory determination of a floor and ceiling for an access fee to be charged by the owner of a railway network to an operator seeking access to a particular route within the railway network. The floor and ceiling were necessary to establish a framework for price negotiations and to ensure that the railway owner did not charge monopoly prices and did not pursue predatory pricing by cross-subsidising routes within the wider network. In that context, the Railways (Access) Code 2000 provided that the ceiling for the access fee was “the total costs attributed to that route and that infrastructure”, where “total costs” was defined as the sum of operating costs, capital costs and overheads attributable to the performance of the railway owner’s access-related functions. Capital costs was further defined as a function of “gross replacement value (further defined)”, the weighted average cost of capital and “the economic life which is consistent with the basis for the [gross replacement value] of the railway infrastructure (expressed in years) as the number of periods”. Within that context, the expert evidence before Edelman J included a statement that “the purpose of economic life is to define the period over which costs can be recovered”. For each route within the railway network, that period was determined by the remaining life of the mine serviced by the route. The period determined the rate at which costs had to be recovered from the access fee to ensure that total costs would be recovered when the particular route reached the end of its economic life. There is nothing in cll 5, 6 and 7, or the Lease generally, which is concerned with the recovery of the initial cost of the seating at the Metro Cinema. The purpose of cll 5, 6 and 7 of the Lease is different to that being considered by Edelman J.

127. So, too, the case relied upon by the Landlord about the construction of other documents in other circumstances does not assist the construction task before the Court in this case. No point of principle has been identified and none is otherwise apparent.

128. Reduced to its essence, the Tenant’s construction of cl 5(c) would constitute an agreement between the Landlord and the Tenant about the ability of the Tenant to earn substantial revenue at the Metro Cinema whilst it is fitted with the lessor’s fixtures (including the seats). The Tenant’s allegation in paragraph 13 of the Amended Statement of Claim, which includes the phrases “substantial revenue” and “for Metro”, makes clear that the focus of the alleged agreement is said to be the viability or even the profitability of the business operated by the Tenant. An agreement between the parties on that topic is not absurd, especially given the Landlord’s entitlement to turnover rent, but unlikely in the context of a landlord/tenant relationship.

129. The essence of the Landlord’s construction is an agreement about replacing fixtures by reference to a comparison between the cost of replacement and the cost of repair. That is a natural topic for agreement between a landlord and a tenant, as demonstrated by cl 7 in the standard terms of the Lease in this case. As the Landlord submits, it is a matter about which a landlord and a tenant under a commercial lease are likely to want expressly to allocate the “fair business risk”.

130. For these reasons, the Tenant’s construction of the Landlord’s obligation as described in cl 5(c) of the Lease is to be rejected. The declaration sought in Prayer 1 of the Amended Statement of Claim cannot be made.

131. The Tenant has not sought to prove that the seats have reached the end of their economic life other than by reference to its construction of cl 5(c). Therefore none of the declarations sought by the Tenant can be made. The whole proceedings are effectively disposed of. The appropriate order is that the proceedings be dismissed with costs.

Enlivenment of the Landlord’s obligation in the events which have happened

132. In view of my finding about the correct construction of the Lease, the further question about whether the enlivenment of the Landlord’s obligation to replace the seats does not fall for determination. In case I am wrong about the construction I will nonetheless determine the enlivenment issue.

133. For the purposes of that exercise, I will assume that the correct construction of the Lease is as contended by the Tenant as articulated in the declaration sought in Prayer 1 of the Amended Statement of Claim. The precise question is whether the Tenant has proved that the fixed-back seats have reached the end of their economic life because the Metro Cinema, equipped with those seats, is not capable of earning substantial revenues for the Plaintiff through ticket and concession sales.

The evidence

134. Before turning to the details, it is appropriate to make a general observation about the evidence.

135. The Tenant and, to a lesser extent, the Landlord adduced evidence about the Metro Cinema and other cinemas on the Central Coast. Having regard to the issues in the case and the purposes for which it was adduced, the evidence is wholly unsatisfactory. The evidence rarely descends below generalities. For example, refurbishments of competing cinemas occurred in specified calendar years, but the evidence does not include details about the work performed or the cost. The Landlord tendered a summary of all cinemas in New South Wales in 2022, which set out a binary demarcation between cinema complexes with recliner seats and those with fixed-back seats, yet there is no dispute that some cinema complexes have both (of which Event Tuggerah is a pertinent example). On the important question of box office revenue, figures are given at a global level without any breakdown between the different seat types. Even for empirical matters, such as the time to drive from one cinema to another and the number of screens in each cinema complex, the evidence is sometimes uncertain. On some factual matters the evidence is contradictory. The Tenant had two witnesses, one of whom says he is “very familiar” with Event Tuggerah and says it has seven screens (subsequently changed to nine) whilst the other witness, put forward as an Australian cinema industry expert who used to work for Event, says it has ten. Two different dates were provided for the opening of the Metro Cinema. These are just examples.

136. The evidence about financial matters is generally limited to the issue of revenue. There is no coherent evidence or analysis of profit, it being left to inferences alluded to but not directly addressed by the parties.

137. The consequences of the state of the evidence fall upon the Tenant. The Tenant is the moving party. It seeks the declarations set out in the Amended Statement of Claim. As set out above, in paragraph 13 of the Amended Statement of Claim the Tenant alleges that:

“Because the seats in the Complex are fixed-back seats, movie theatres in the Complex have lost the ability to earn substantial revenue for Metro through ticket and concession sales.”

138. To succeed in this litigation the Tenant had to adduce evidence to provide a basis for the Court to make that finding. No such evidence has been adduced.

Have the seats reached the end of their economic life?

139. Starting first with the raw data about box office revenue set out at [49] and [50] above, the Tenant makes the simple submission that it enjoyed 17.7% of the market in 2019, and when Event Tuggerah refurbished in 2019 the Metro Cinema’s market share fell to 13.5%. The Tenant further submitted that the market share of Hoyts Erina also fell which is said to give rise to an inference that the refurbishment at Event Tuggerah gave it a demonstrative advantage over the other two cinemas. The argument next points out that Hoyts Erina refurbished in 2022, at which time the market share of the Metro Cinema fell further to 10.5%. The refurbishment at Hoyts Erina restored the position between Hoyts Erina and Event Tuggerah.

140. There are a number of reasons why this analysis cannot be accepted. Most importantly, the refurbishment at Event Tuggerah replaced some of the seats with seats which recline (including daybeds and, assuming in the Tenant’s favour, D-Box seats) but many, probably most, of the seats were replaced with seats which were still fixed-back, albeit “new larger” seats with more leg room. Despite the continued use of fixed-back seats at Event Tuggerah, it experienced the increase in market share to be inferred from the box office revenue. The 2019 increase in the market share of Event Tuggerah does not support the Tenant’s allegation that the Metro Cinema has lost the ability to earn substantial revenue “because the seats in the Complex are fixed-back seats”. If anything, the 2019 events contradict the Tenant’s case.

141. In this respect, it is important to appreciate that the Tenant’s case is all or nothing, in the sense that it contends that 100% of the current fixed-back seats must be replaced with reclining seats in order to have seats capable of earning substantial revenue at the Metro Cinema. No relief is sought short of a complete replacement. No attempt has been made to demonstrate that the Landlord has an obligation to replace some seats but not others.

142. Another important reason why the Tenant’s analysis of the box office revenue figures cannot be accepted is that the refurbishments which were undertaken first at Event Tuggerah and then at Hoyts Erina were not limited to changing the seats. At each venue there was a complete overhaul. Other substantial changes were made to enhance the cinema experience. The Tenant’s own expert witness, Mr Cody, clearly stated that changes to the relative market share of the cinemas were caused not just by changes to the seats but also by other matters. It is not possible on the evidence to make any finding about the extent to which reclining seats matter to the Tenant’s ability to generate revenue at the Metro Cinema.

143. The third important problem with the Tenant’s argument is connected with the second. The Tenant has formulated its case in terms of its ability to generate “substantial” revenue with fixed-back seats. That formulation was specifically introduced by amendment to the original Statement of Claim which was filed in April 2024. There is nothing in the pleading, the evidence or the submissions which gives the word “substantial” context or meaning. The Tenant's submissions are limited to a consideration of the box office revenue from the Metro Cinema relative to that generated at Event Tuggerah or Hoyts Erina. A lower market share is assumed to demonstrate that in the revenue generated at the Metro Cinema is not substantial, but no reason has been given for why the Court ought accept that assumption.

144. Nor is any reason given for the further assumption that the replacement of the fixed-back seats will result in the revenue earned by the Tenant being substantial even though the other aspects of the refurbishment undertaken at the other cinema complexes are not also undertaken at the Metro Cinema.

145. There are other difficulties with the Tenant’s reliance on an analysis of the market share figures. In 2015 all three cinema complexes had fixed-back seats and the Metro Cinema was the newest, yet its market share was only 14%. There is no suggestion (let alone evidence to prove) that the Metro Cinema had a capacity constraint. This suggests that there are factors affecting revenues and market share entirely unrelated to the ability of the seats to recline. The Metro Cinemas has always charged ticket prices which are substantially below those charged by Event Tuggerah and Hoyts Erina, in some cases less than half. Looking superficially at the box office revenue figures (which is all that is possible to do on the evidence), it appears that the market share of the Metro Cinema is much larger (perhaps twice as large) when considered in terms of customer attendance and not box office revenue. There is no evidence about the price elasticity of demand for tickets to the Metro Cinema. It may be that the Metro Cinema is capable of generating “substantial” revenue for the Tenant if ticket prices were higher. It may be possible to generate “substantial” revenue by making other changes unrelated to the seats, or be replacing the existing fixed-back seats with new fixed-back seats which are “new larger” and have more leg room.

146. Whether or not any of these options is realistic is not to the point. The evidence about box office revenue and market share does not rule out these alternative views of the Tenant’s circumstances. The Tenant’s evidence about the box office revenue and market share does not prove that the existing seats have reached the end of their economic life even if the Tenant’s construction of the Lease is accepted.

147. Mr Cody’s evidence is not capable of remedying the deficiency. There is no doubt that Mr Cody is a very experienced industry participant and his subjective views should be taken into account. Nor is there any doubt that he considers that seats that recline are the future for cinemas in Australia. His evidence, however, does not descend to the detail necessary to prove that, because the seats in the Metro Cinema are fixed-back seats, movie theatres in the Metro Cinema have lost the ability to earn substantial revenue for the Tenant through ticket and concession sales. Nowhere does he say that the Metro Cinema would be capable of generating substantial revenue for the Tenant if all seats were changed to seats which recline. Nor does he say anything from which that inference could be drawn.

148. Mr O’Neill’s evidence does not take the Tenant’s case any further. He too is an experienced participant in the Australian cinema industry. I accept that he believes that seats which recline are the future. His evidence, however, does not adequately address the many other aspects of revenue generation at a cinema complex. In particular, he clearly considers the main competition for the Metro Cinema to be Event Tuggerah at which many, probably most, of the seats are fixed-back. Implicit in Mr O’Neill’s evidence is an acceptance that Event Tuggerah is capable of generating revenues which are “substantial”. Without grappling with that issue and putting forward a cogent basis for upholding the all-or-nothing case of the Tenant, Mr O’Neill’s subjective views are unpersuasive. Even when taken together with the other evidence relied upon by the Tenant, Mr O’Neill’s evidence does not prove that the Metro Cinema, equipped with fixed-back seats, is not capable of earning substantial revenues for the Tenant.

149. For these reasons, even if the Tenant’s construction of cl 5(c) of the Lease is correct, the Tenant has not proved that the Landlord’s obligation under cl 6 of the Lease to replace the seats has been enlivened.

Orders

150. I make the following orders:

151. The proceedings be dismissed.

152. The Plaintiff pay the Defendant’s costs.

**********