The provision was satisfied by clause 17.7 of the lease. The question is, whether the result of a construction requiring clause 17.7 to be in the renewed lease is absurd, so as to require the words and figures "Clause 17.7" to be added to clause 16.1(a) of the original lease so that it is properly construed to read "This clause 16.1 clause 17.6 clause 17.7 and paragraph 1 of Schedule A shall be excluded; and". This really requires a finding that it is not possible that the parties agreed that the words should bear their ordinary meaning and that their intention was otherwise.
16 The difficulty with this type of construction case is that opinions can differ as to what is absurd: Moraitis shows that. For that reason I consider it is necessary to tread carefully before deciding without rectification that a problem can be solved by construction alone, although I accept that if the mistake is obvious and simple, rectification is not required. There are some matters which go to indicate mistake in words. They are (a) a fit out usually takes place when premises are new or a new lessee takes possession; (b) clause 17.7 was added after the lease was originally prepared as it is in a different typeface; (c) the $45,000 is a fixed sum. Counsel for the plaintiff made it clear that he was claiming entitlement to that full amount as a debt and the claim was not a claim for damages for breach of covenant to pay $45,000 as argued by Mr Newton, Counsel for Siantan. I will have to come back to that but in those circumstances of a debt claim it is difficult to imagine the parties intended that $45,000 would be paid irrespective of whether there was a fit out or paid in full in a case where the cost of fit out was less than $45,000 but that is the claim of the plaintiff.
17 I have found this question quite difficult. Literal meaning is an indication of intention. However, I conclude that the consideration under (c) in the preceding paragraph makes the absurdity clear so that the rights of the lessee upon exercising the option did not include a right to a fit out or payment of $45,000. In other words I conclude that on the proper construction of the original lease clause 16.1 should be construed so as to read in the way I set out in the preceding paragraph.
Set off
18 If I am right as to the construction issue then this question does not arise but nevertheless I think I should deal with it. The question is whether a right of set off is excluded by clause 3.1 of the lease. In other words does the requirement to pay rent "free of all deductions in each year" exclude the right of set off. It has been held by the Court of Appeal in England that it does not of itself: Connaught Restaurants Limited v Indoor Leisure Centre Limited [1994] 1 WLR 501. In that case the principal judgment was that of Waite LJ the words in question being a covenant "to pay: the rents at the time and in manner aforesaid without any deduction (except as aforesaid) and if so required by banker's standing order". His Lordship held that on the proper interpretation of the lease in question those words did not exclude a tenant's equitable right to set off. In coming to that decision Waite LJ followed a decision of the New Zealand Court of Appeal in Grant v NZMC Limited [1989] 1 NZLR 8 where it was held that a covenant to pay rent free and clear of exchange or any deduction whatsoever did not amount to a contract to exclude an equitable right of set off. He held that the word "deduction" does not in its natural sense embrace a set off. The following passage commences at page 509 of the judgment of Waite LJ:
I can now turn, after that account of the authorities and the arguments, to the considerations to be applied in construing the provision in this underlease prohibiting "any deduction" from rent. They should in my judgment be the following. (1) Clear words are needed to exclude a tenant's remedy of an equitable right of set-off. (2) The word "deduction" has never achieved the status of a term of art, but is an expression employed, both in everyday speech and in the language of the courts, at one moment in its strict sense to describe the ordinary process of subtraction with which it is grammatically associated, and at other moments in a broader sense to describe the result which follows when one claim is set against another and a balance is struck. It is thus a useful and a flexible word, but heavily dependent upon the context in which it is used for an accurate understanding of the sense in which it is being employed. If the context happens to be one that affords no guidance as to its intended meaning, it becomes an expression that necessarily suffers from ambiguity. It cannot, in short, be accurately described as a "clear" word. (3) It follows that the simple expression "without any deduction" is insufficient by itself, in the absence of any context suggesting the contrary, to operate by implication as an exclusion of the lessee's equitable right to set-off. (4) Added words of exception or qualification are relevant to the construction of such a phrase, but they too are subject to the general requirement of clarity and will only be effective to displace the lessee's right of equitable set-off if their effect is to create a clear context for exclusion.
Issues of construction are seldom easy, and are bound to depend in the last analysis upon the impression left in the mind of the judge when the language used by the parties is examined in the light of authority. When the considerations I have just mentioned are applied to the wording used in the present case, the impression left on my mind is that the parties to this lease used language that was insufficiently clear to carry the implication of an intention to exclude the tenant's equitable right of set-off.
19 This decision was followed without discussion by Macready As J in Saratoga v Canjs [2010] NSWSC 654 at [40], but that case involved a claim to set aside a statutory demand where an offsetting claim includes a cross-claim. While I am not bound by the English or New Zealand decisions regard must be paid to their authority. I am bound to say that if it were not for them I would have the greatest difficulty in coming to a conclusion that a reduced payment for rent was not a deduction from rent at least in the case of a claimed set off for an unliquidated sum where there is no evidence of expenditure. Where the obligation is to pay the rent without deduction monthly in advance with time being of the essence I would have thought that deduction included claimed set off of sum uncertain.
20 Further research which I have had to undertake without assistance has brought to light authorities which support my view. The most important of these is the decision of Bryson J in Batiste v Lenin [2002] NSWSC 233. The following passages come from paragraphs 102 to 105 of his Honour's judgment:
102 Recoupment as an answer to failure to pay rent . In answer to the lessor's cross-claim for possession insofar as it was based on breaches of covenants to pay rent and outgoings the lessee relied upon the right of recoupment established by the judgment of Goff J in Lee-Parker v. Izzet [1971] 1WLR 1688. His Lordship referred to the history of recoupment at 1692G to 1693F and concluded "I do not think this is bound up with technical rules of set off. It is an ancient common law right. I therefore declare that so far as the repairs are within the express or implied covenants of the landlord, the third and fourth defendants are entitled to recoup themselves out of future rents and defend any action for payment thereof. It does not follow however that the full amount expended by the third and fourth defendants on such repairs can properly be treated as payment of rent. It is a question of facts in every case, whether or to what extent the expenditure was proper." The subject was considered again, with further references to authority, in British Anzani (Felixstowe) Ltd v. International Marine Management (UK) Ltd [1980] 1 QB 137. Payments made by a lessee in situations of necessity which had the effect of meeting some obligation which by the terms of the lease the lessor was obliged to meet have been treated as payments to the use of the lessor and as discharging pro tanto the obligation to pay rent. The lessor's obligations considered have usually but not invariably been obligations to repair. There is no reason in principle why the same rules should not be applied to recoup lessee's expenditure against other moneys payable to the lessors, such as obligations to repay outgoings.