PCCEF Pty Ltd v Geelong Football Club [2019] VSCA 144

1 The applicant ('PCCEF') seeks leave to appeal the orders made by a judge in the Trial Division on 9 June 2017 giving effect to his reasons in Point Cook Community Entertainment Facility Pty Ltd v Geelong Football Club Ltd.[1]

2 The application for leave to appeal concerns the construction of a lease entered into by the parties on 1 October 2009 and expressed to commence on 5 June 2009 ('Lease'). PCCEF is the landlord of the leased premises and the respondent ('Geelong FC') is the tenant. The premises are located on Sneydes Road at Point Cook and used by Geelong FC as a licensed gaming and community facility. The term of the Lease is 20 years with provision for three further terms, each of ten years, at the option of the tenant. The initial rent per annum was $996,000 plus GST.

3 By cl 3.1 of the Lease, Geelong FC covenanted to pay the rent at the times and in the manner set out in the Lease without any abatement, deduction or right of set-off unless specifically allowed under the Lease.

4 The dispute below concerned the rent review provided for in Item 6 of Schedule 1. Item 6 provides:

The annual rent payable from time to time shall be reviewed as provided in Schedule 2. Rent Review dates are as follows:

(a) Percentage Review Dates: on each anniversary of the Commencement Date during the term or any permitted extension hereof; and

(b) Market Rent Review Dates: on each Fifth anniversary of the Commencement Date during the term or any permitted extension thereof.

5 The Commencement Date is specified in Item 3 of Schedule 1 as 'the fifth day of June 2009'. Accordingly, the fifth day of June in each year during the term of the Lease is either a Percentage Review Date or a Market Rent Review Date, which refer respectively to the way in which the rent is or may be adjusted on those dates.

6 Schedule 2 of the Lease specifies the dates and the mechanisms for review of the rent. Rent review may take place annually by one of two mechanisms: an increase of three per cent every year other than every fifth year, when the second mechanism applies; and every fifth year, at the option of a party, market rent is to be agreed or determined by an independent valuer.

7 Schedule 2 contains seven paragraphs and an appendix with two 'Items' that again explain when a Percentage Review Date occurs and when a Market Rent Review Date occurs.

Item one: On each anniversary of the Commencement Date except for any Market Rent Review Date.

Item two: On each Fifth anniversary of the Commencement Date during the Term hereby created and any permitted extension thereof.

9 Items 1 and 2 appear in paragraphs 1 and 2 of Schedule 2 respectively.[2]

On each of the dates in Item 1 of the Appendix to this Schedule (the Percentage Review Dates) during the aggregate of the Terms and any Further Terms the annual rent will increase by an amount equal to 3% of the annual rent payable immediately prior to the Percentage Review Date.

11 Paragraph 1 therefore provides for 'percentage review' to take place on each Percentage Review Date. This involves an increase of three per cent on the annual rent payable immediately before the Percentage Review Date, that is, immediately before the day of the three per cent increase.

12 Paragraphs 2, 3 and 4 set out the mechanism for the market rent review.

13 Paragraph 2 provides that either the landlord or the tenant may at any time before or after each of the dates or the expiration of each period specified in Item 2 of the Appendix[3] notify the other in writing that the annual rent should be varied as and from the Market Rent Review Date to an amount specified in the notice which in the opinion of the party giving the notice is the current market rent for the premises as at the Market Rent Review Date ('Rent Notice').

14 Paragraphs 3 and 4 then provide a mechanism for market rent to be assessed by a licensed valuer if the landlord and tenant fail to agree on the annual rent to apply after the Market Rent Review Date. The licensed valuer is to act as an expert and not as an arbitrator and his or her determination is to be conclusive and binding on the landlord and tenant. Paragraph 6 provides that all costs of and incidental to the determination of rent pursuant to the Schedule shall be borne and paid equally by the landlord and the tenant.

15 Paragraph 7 contains a 'cap' and a 'collar' on the amount that the rent may vary following a market rent review. It provides:

Notwithstanding any such agreement or determination, the annual rental payable in the first year following any Market Rent Review Date shall in no circumstances be more than 5%, nor less than the annual rental paid in the year immediately prior to the Market Rent Review Date in question.

16 Paragraph 7 therefore provides that the rent payable in the first year (the 12 month period) following a Market Rent Review Date may not be any less than the rent that was payable in the previous year (the collar) and may not be any more than five per cent higher (the cap). The 'first year following any Market Rent Review Date' is necessarily the 12 month period between the Market Rent Review Date and the next Percentage Review Date.

17 Paragraph 5 deals with any delay in the ascertainment of the annual rent after a Market Rent Review Date and provides:

If the annual rent to apply after any Market Rent Review Date has not been ascertained by that date then the Tenant shall continue to pay to the Landlord the rent payable immediately prior to the Market Rent Review Date until the reviewed rent has been determined whereupon the Tenant will immediately pay the Landlord the amount necessary to ensure that the Landlord receives the reviewed rent from the Market Rent Review Date.

18 In placing an obligation on the tenant but not the landlord, paragraph 5 contemplates that the rent will increase on a Market Rent Review Date but that it will not decrease, consistently with the operation of the 'collar' in paragraph 7.

19 The first Market Rent Review Date under the Lease was 5 June 2014. On 10 November 2016, Geelong FC gave a Rent Notice to PCCEF dated 9 November 2016 ('First Notice'). The First Notice was purportedly given in accordance with paragraph 2 of Schedule 2 of the Lease. The First Notice asserted that the new annual rent should be $680,000 and that the commencement date for the payment of the new annual rent was 5 July 2015.

20 On 21 December 2016, Geelong FC gave a further Rent Notice to PCCEF ('Second Notice'). The Second Notice was also purportedly given pursuant to paragraph 2 of Schedule 2 of the Lease and it also asserted that the new annual rent should be $680,000, but this time it was expressed to be effective from 5 June 2015.

21 In the Trial Division, the dispute between PCCEF and Geelong FC concerned:

(a) the validity and effect of the First Notice and the Second Notice; and

(b) whether the Lease permitted the rent payable in the second and subsequent years after a Market Rent Review Date to be less than the rent payable in the year prior to the Market Rent Review Date or more than eight per cent higher than the rent paid in that year.

22 The eight per cent is the sum of the maximum five per cent increase in paragraph 7 (the cap) and the three per cent rent increase in paragraph 1 (the ratchet).

23 Geelong FC contended that in the second year after the Market Rent Review Date, the cap and collar in paragraph 7 did not apply to the market rent agreed or determined and the annual rent was the market rent agreed or determined to which the three per cent increase would be applied; PCCEF contended that the annual rent in the second year after the Market Rent Review Date had to be based on the annual rent in the year immediately following the Market Rent Review Date, that is, the market rent as capped or collared. PCCEF also contended that the First and Second Notices were invalid as they did not conform with the requirement in the Lease that the revised annual rent commence on a Market Rent Review Date .

24 The primary judge accepted the submissions of Geelong FC and made the following declarations:

1. The notice dated 21 December 2016 given by [Geelong FC] in respect of market rent review under the lease of premises at 215-221 Sneydes Road, Point Cook was valid and effective to invoke the Market Rent Review procedure set down in Schedule 2 of the lease.
2. [Paragraph 7] of Schedule 2 only operates to limit any increase in rent consequent on a market rent review in the first year after the Market Rent Review Date but not in subsequent years so that where the current market rent as determined by the Market Rent Review procedure set out in Schedule 2 of the lease is either less than or more than the rent payable in the year prior to the Market Rent Review Date ('the previous rent'), the rent payable in the second and subsequent years after a Market Rent Review Date can be less than the previous rent or more than 8% higher than the previous rent.

25 In other words, the trial judge held that paragraph 7 only served to 'cap' or 'collar' the market rent as agreed or determined for one year. In the year immediately following the year commencing on a Market Rent Review Date, the market rent as agreed or determined would apply unrestrained by any cap or collar and the three per cent increase referred to in paragraph 1 would be applied to that figure, and not to the rent that had actually been payable for the previous twelve months, which was the market rent to which the cap or the collar had been applied.

26 For the reasons that follow, we consider that this does not give effect to the words in paragraph 1, which require the three per cent increase to be applied to the rent payable immediately prior to the Percentage Review Date, that is, to the amount of the rent payable in the twelve month period following the Market Rent Review Date. This is the market rent as agreed or determined, but subject to the cap or the collar in paragraph 7.

27 The judge set out the principles governing the construction of the Lease in a manner that is uncontroversial. In short, the primary duty of a court construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. The meaning of the contractual terms is to be determined objectively, by reference to what a reasonable business person would have understood the terms to mean.[4] The proper approach involves 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 or lease.[5] Ordinarily, the process of construction is possible by reference to the contract alone.[6] At least where the language of the commercial contract is ambiguous or susceptible of more than one meaning, evidence of the surrounding circumstances is admissible to assist in the interpretation of the contract.[7]

28 In the Reasons, the judge identified a number of drafting errors in the Lease but recognised that the determination of the issues in controversy in the proceeding did not hinge upon these drafting infelicities.[8] He recorded that there was no dispute between the parties that either the landlord or the tenant could, at any time before or after each Market Rent Review Date by notice in writing to the other party notify a proposed current market rent for the premises as at the relevant Market Rent Review Date.[9] The judge set out what must occur on each Percentage Review Date and the market rent review procedure provided for in paragraph 2, along with the machinery provisions for the market rent review procedure in paragraphs 3, 4 and 6 of the Lease.[10]

29 The judge then recorded PCCEF's submission that an annual rent agreed or determined pursuant to the market rent review provisions could only apply from a Market Rent Review Date and said:

I accept that so much, as submitted by [PCCEF], is clear so far as it can be said, as a general proposition, that market rental variations can only apply from a Market Rent Review Date. The crucial question is, however, what is the quantum or content with respect to the market rental variation applicable from a Market Rent Review Date. This brings into focus the proper interpretation and effect of paragraph 7 of Schedule 2 to the Lease.[11]

30 The judge recorded Geelong FC's submission in relation to paragraph 7, namely, that it operated to limit movement in the rent during the first year following a Market Rent Review Date, but that the actual market rent, increased by three per cent would be payable in the second year following the Market Rent Review Date.[12] He also recorded Geelong FC's submission that this was very much in the landlord's commercial interests because it was entirely conceivable that the market rent might go up far more than three per cent per annum, in which case a five yearly market review would restore the return to the landlord in the second year after a Market Rent Review Date to market plus three per cent.[13] Moreover, as the tenant could compel a further 30 years of option terms with the same rent review provisions, it was entirely conceivable that the construction contended for by PCCEF could see the rent well under market relatively early in the term and remain that way for the next 40 years. The judge described these as matters that were clearly 'arithmetic' in the context of the length of the term of the Lease. As such they were not matters of mere supposition or assertion and were properly considerations in the objective assessment of the position of a reasonable businessperson applying the correct construction principles.[14]

31 The judge accepted that in the process of considering what the reasonable businessperson would have objectively understood the market rent review provisions to mean, it was necessary to look to the nature of the provisions and their generally accepted object and purpose, but always in the context of the actual provisions of the Lease.[15] He identified the generally accepted object and purpose of rent review provisions to be as he had described in Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd,[16] including that:

(a) where a rent review provision is accompanied by a ratchet provision, the objective purpose is to benefit the landlord by ensuring an increase in rent, regardless of downward market trends;

(b) all things being equal, rents trend upwards over time - and more clearly so the longer the period of time considered; and

(c) rent review provisions are normally to be regarded as being for the benefit of the landlord; their purpose being to safeguard the landlord against inflation and to maintain parity with the current rental market over time. [17]

32 The judge went on to state that a current market rent review is a well-known concept in commercial leasing, particularly in relation to long term commercial leases. The rent review mechanism may produce a rental more favourable to the landlord or more favourable to the tenant depending on market conditions. Paragraphs 2, 3 and 4 in the Schedule made it clear that it was intended that if either the landlord or tenant initiated a market rent review, the 'current market rent' would be agreed or determined.[18] He then recorded Geelong FC's submission that it was not the function of the market rent review to produce merely a modified ratchet provision limiting the increase in rent in one year, being the year following the Market Rent Review Date, to somewhere between zero and five per cent. Such a clause would not require the complex provisions pertaining to agreement or binding determination of the actual current market rent. The judge accepted that the care taken in the drafting of paragraph 3 with respect to the appointment of a licensed valuer and the fact that the valuation determination was binding indicated that there would be 'a disjunction' between provisions of this nature and a provision which then had the effect of restricting the commercial outcome of this carefully constructed process within the strictures of an existing rent 'collar' and a five per cent 'cap'.[19]

33 On this basis, so the judge held, the market rent review process fixed the rent for the five years following the Market Rent Review Date, but with a 'cushion' in the first year that was produced by the collar and cap. This construction would prevent the landlord from having to suffer rent far below market rent for potentially more than 40 years. Absent such a construction, the words 'in the first year following any Market Rent Review Date' in paragraph 7 would be otiose.[20]

34 The judge also accepted Geelong FC's submission that the market rent review provisions must be viewed in the context that the commercial purpose of the premises was gaming, the operation of a licensed premises and a community facility. From the point of view of the tenant, the gaming and liquor licensing activities undertaken at the premises were vulnerable to competition from other licensed and gaming facilities and it was in the commercial interest of both parties to the Lease that, in the context of a 20 year initial term and a possible total term of 50 years, either party have the opportunity to procure payment of the current market rent every five years, cushioned in the first year after a review and thereafter subject to the annual three per cent increase. The judge considered that these were properly considerations in the objective assessment of the position of a reasonable businessperson, applying the construction principles to which he had made reference.[21]

In my view, the construction of these Lease provisions as advocated by [Geelong FC] is to be preferred for the reasons advanced by [Geelong FC] and as discussed in the preceding reasons. In particular, applying the principles of construction to which reference has been made, I am of the view that one cannot simply ignore the reference to 'the first year' in paragraph 7 of Schedule 2 to the Lease, which would be the effect of the position advocated by [PCCEF] having regard to the provisions of the Lease which establish a dual rent review regime of both percentage rent increases and increases as a result of a market rent review.

Moreover, it is clear enough that the objective purpose of market rent review provisions is, broadly speaking and subject to the terms of the particular lease, to seek to maintain rents at something close to the current market rental for premises as that might vary - upwards or downwards - during the term of the particular lease. Clearly, this is likely to be a more important consideration for parties the longer the lease term, as fixed rents in fluctuating market conditions might seriously disadvantage one or other party. In the present circumstances, the lease term - which might extend for 50 years if options to renew are exercised - indicates that, objectively, the parties were seeking to achieve this objective in including the rent review provisions as they appear in the Lease. I accept, for the preceding reasons, that [PCCEF's] construction both ignores critical words in the Lease and opens the possibility of a significant aberration in the fixing of future rental by reference to current market fluctuations in rent of comparable premises over a long term - an outcome that, viewed objectively, a reasonable businessperson would not have understood those terms to mean.[22]

36 As to the alleged defects in the First Notice and the Second Notice, the judge accepted Geelong FC's submission that the Market Rent Review Date was 5 June 2014, but the date on which there would be a new market based rent payable was postponed to the end of the first year following the Market Rent Review Date as required by paragraph 7. He held that the Second Notice was validly and effectively given under paragraph 2 of Schedule 2.[23]

37 The proposed grounds are as follows:[24]

(1A) The judge erred in his construction of the Lease in that there is no provision in the Lease permitting the annual rental to be adjusted on a date twelve months after the Market Rent Review Date, otherwise than by means of the Percentage Rate Adjustment referred to in paragraph 1 of Schedule 2.

(1) The judge erred at paragraph [29] of the Reasons by identifying and giving weight to the 'commercial purpose' to which the leased premises were to be used when construing paragraph 7 of Schedule 2 of the Lease otherwise than by reference to the provisions of the Lease.

(2) The judge erred at paragraph [30] of the Reasons in accepting the respondent's submissions as to the construction of the Lease. The judge further erred by failing to explain his rejection of the applicant's contentions as to construction identified in paragraphs [21] and [22] of the Reasons. The judge should have held that:

(a) the 'commercial interests' and 'commercial purpose' of the parties, identified at paragraphs [23] and [29] of the Reasons, were not relevant considerations when construing the words used by the parties in paragraphs 1 and 7 of Schedule 2 of the Lease; and

(b) the objective intention of the parties was that the annual rent payable in the first year and in any subsequent year following a Market Rent Review Date could not be less than the annual rent payable in the immediately preceding year.

(3) The judge erred at paragraph [30] of the Reasons in accepting the respondent's submission, recorded at [29], that:

(a) the gaming and liquor licensing activities undertaken at the leased premises are vulnerable to competition from other licensed and gaming facilities; and

(b) it is in the commercial interests of both parties to the lease that either party have the opportunity to procure payment of the current market rent for the premises every five years.

(4) The judge erred at paragraph [31] of the Reasons by inferring that the objective purpose of the market rent review clause was to seek to maintain rents at something close to the current market rental during the term of the Lease.

(5) The judge erred in finding that the notice dated 21 December 2016 [the Second Notice] was valid since:

(a) it did not notify a figure to which the annual rent should be varied 'as and from the Market Rent Review Date';

(b) it purported to notify a figure to which the rent should be varied from a date twelve months after the Market Rent Review Date; and

38 Apart from ground 5, which challenges the validity of the Second Notice, the proposed grounds of appeal boil down to the proposition that the judge did not apply the words of the Lease and gave too much weight to extraneous considerations relating to purpose and policy, in respect of some of which there was, in any event, no evidence.

39 In our view, the appeal can and must be dealt with by correctly construing the Lease. The words in the Lease are determinative of its meaning and it is unnecessary to go outside its four corners.

40 By reason of the definitions of 'Percentage Review Date' and 'Market Rent Review Date' in the Appendix to Schedule 2, the anniversary of the Commencement Date (5 June) in every year for the term of the Lease will be either one or the other. There will be four Percentage Review Dates in a row, then a Market Rent Review Date, four more Percentage Review Dates in a row and then another Market Rent Review Date and so on.

41 By paragraph 1, if 5 June is a Percentage Review Date, the rent will increase automatically by three per cent. The three per cent increase must be applied to the annual rent payable immediately prior to that Percentage Review Date.

42 By paragraph 2, if 5 June is a Market Rent Review Date, the process for notification (paragraph 2), agreement as to the annual rent to apply (paragraph 3), or appointment of a valuer to determine the current market rent (paragraphs 3, 4 and 6) will apply.

43 Paragraph 7 provides that notwithstanding the agreement or determination of the market rent to apply from a Market Rent Review Date, in the first year following a Market Rent Review Date the market rent (that is, the rent that has either been agreed by the parties or determined by the valuer) will (where necessary) be subject to the cap or the collar. The parties may agree or the valuer may determine the current market rent, but the actual rent payable 'for the first year' must fall within the parameters set by the cap and collar.

44 The effect of paragraph 7, in combination with paragraphs 2, 3 and 4, will be to set the annual rent (in dollar terms) for the twelve month period commencing on the Market Rent Review Date and finishing on the next Percentage Review Date. On the next Percentage Review Date, paragraph 1 comes into play to increase the annual rent by three per cent. The figure to which the three per cent increase is to be applied is 'the annual rent payable immediately prior to the Percentage Review Date'. That is the rent that was payable following the Market Rent Review Date, as capped or collared (if necessary) pursuant to paragraph 7.

45 It follows that the words in paragraph 1, 'annual rent payable immediately prior to the Percentage Review Date' in a year following a Market Rent Review Date do not necessarily refer to the market rent that has been agreed or determined, because paragraph 7 may operate to adjust the annual rent payable during that year.

46 In our view, the judge misconstrued the Schedule when he declared that paragraph 7 only operates to limit any increase in rent consequent on a market rent review in the first year after the Market Rent Review Date but not in subsequent years. Paragraph 7 operates to determine the annual rent payable in the year prior to the Percentage Review Date. It establishes the amount to which the three per cent increase is to be applied under paragraph 1.

47 The construction advanced by Geelong FC and accepted by the judge means that the 'current market rent' (as agreed or determined pursuant to the mechanisms in paragraphs 2, 3 and 4) freed from the cap or collar provides the basis for the three per cent increase in annual rent on the next Percentage Review Date. This does not accord with the words in paragraph 1. Paragraph 1 provides for the three per cent increase to apply to 'the annual rental payable immediately prior to the Percentage Review Date', not to what the judge refers to as the 'current market rental'. To construe Schedule 2 as the judge has done is to fail to give effect to the language of paragraph 1.

48 The error can be demonstrated by reference to the tables in Annexures A and B to this judgment. Annexure A is a modified version of an annexure to Geelong FC's written case illustrating how the construction it contends for would apply. Annexure B illustrates how PCCEF's construction would apply using the same illustrative figures.

49 On Geelong FC's construction (Annexure A), if the 'current market rent' is agreed or determined to be less than the annual rent that applied in the fifth year, being the year prior to the Market Rent Review Date (in the example, $750,000 as against the annual rent in the fifth year of $1,121,006.60), then in the sixth year the collar applies to prevent the rent from falling below the rent that was payable in the fifth year. However, in the seventh year, freed from the collar, the rent is the 'current market rent' ($750,000) plus three per cent. The three per cent increase required by paragraph 1 in year seven (as a year containing a Percentage Review Date) is not applied, as required, to the annual rent payable immediately prior to the Percentage Review Date, that is, to the rent in year six. Instead, it is applied to a figure that has never been the annual rent payable at all. It is a notional figure.

50 The same problem arises on this construction if the 'current market rent' is determined to be more than the annual rent in the year prior to the Market Rent Review Date. In the example, the 'current market rent' is significantly higher than the annual rent payable in the fifth year. In the sixth year, the rent can increase only by five per cent because of the cap. In the seventh year, freed from the cap, the rent is the 'current market rent' plus three per cent. The three per cent increase required by paragraph 1 in year seven (as a year containing a Percentage Review Date) is not applied, as required, to the annual rent payable immediately prior to the Percentage Review Date, that is, to the rent in year six. Instead, it is applied to a figure that has never been the annual rent payable at all.

51 In our opinion, Annexure B illustrates the correct the position consistently with the requirements of paragraph 1. The three per cent ratchet in year seven is applied to the annual rent payable in year six, as paragraph 1 expressly requires. Schedule 2 requires the three per cent increase in year seven to be applied to the rent payable in the previous year, namely, the collared and capped amounts of $1,121,006.60 and $1,177,056.90 respectively.

52 The judge considered that his preferred construction was supported by the words in paragraph 7, 'in the first year' in the expression 'in the first year following any Market Rent Review Date'. Those words, he held, limited the effect of the cap and collar to the first year after a Market Rent Review Date. He considered that to construe the Schedule as we have done would be to render those words otiose. We disagree. Those words simply reflect the fact that the review dates, be they Market Rent Review Dates or Percentage Review Dates, result in the setting of the rent payable for one year. The provisions construed together require the rental amount to which the three per cent ratchet is applied on a Percentage Review Date to be the amount of the rent from the previous year. If the words 'in the first year ...' were omitted, there would be a risk that the cap or collar would be taken to override paragraph 1, even though paragraph 7 opens with the narrow and precise words 'Notwithstanding any such agreement or determination'. The words are therefore effective to remove doubt and are not otiose.

53 That the rent cannot fall given the combined operation of paragraphs 1 and 7 is consistent with paragraph 5, which contemplates only that the tenant will be required to make back payments to the landlord. It is telling that the Schedule makes no provision for the landlord to repay any amount to the tenant as a result of a market rent review, even if that review does not take place until well after the Market Rent Review Date. For example, if the rent review is not completed until year 7, by reference to the preceding Market Rent Review Date, on the construction of Geelong FC it would be possible that the tenant had overpaid rent for year 7 (market rent plus 3 per cent). But the Schedule contemplates no such scenario, only its reverse.

54 It is true that paragraphs 1 and 7 operating together in this way serve to limit the effect of the rent review. In particular, the rent cannot fall under these arrangements. It can only go up, and by quite modest increments. However, there is nothing absurd in this result. Nor is it uncommercial. Limiting the extent to which a market rent review can vary the annual rent payable from year to year may be seen to strike an appropriate balance between the interests of the landlord and those of the tenant. In a long term lease, a measure designed to avoid significant fluctuations in rent from year to year reveals an intelligible commercial purpose enabling the parties to plan their financial and business operations well into the future. This may be especially so where the lease concerns a 'purpose-built facility' for the tenant, as was the case 'to a significant extent' here.[25]

55 In our view, the judge departed from the natural meaning of the words in the Lease because he was influenced by assumptions concerning the commercial purpose of rent review clauses in general. In fact, those assumptions were not borne out by the terms of the Lease. In Apple and Pear Tate JA emphasised that while a court should construe a commercial contract to avoid a commercial nonsense, it is not part of its role to construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement.[26]

56 As to the Second Notice, we agree that it is not a valid notice because it does not reflect the requirement in the Lease that the revised rent be payable from the Market Rent Review Date, in this case, from 5 June 2014.

57 Leave to appeal will be granted and the appeal will be allowed.

58 The order of the judge must be set aside. In lieu thereof, it will be declared that the First Notice and the Second Notice did not comply with the Lease on its proper construction and consequently were of no effect.

Scenario One: Market rent determined at Market Rent Review Date as $750,000

Annual rental payable in following year (exclusive of GST)

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Fifth Anniversary of Commencement Date: Market Rent Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Scenario Two: Market rent determined at Market Rent Review Date as $1,500,000

Annual Rental payable in following year (exclusive of GST)

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Fifth Anniversary of Commencement Date: Market Rent Review Date

Anniversary of Commencement Date: Percentage Review Date

Anniversary of Commencement Date: Percentage Review Date

Scenario One: Market rent determined at Market Rent Review Date as $750,000

Operation of paragraph 1 and paragraph 7 of schedule 2

Scenario Two: Market rent determined at Market Rent Review Date as $1,500,000

Operation of paragraph 1 and paragraph 7 of schedule 2

[1] [2017] VSC 313 ('Reasons').

[2] Paragraph 2 of Schedule 2 erroneously refers to Item 2 as 'Item 6'. This is one of the 'drafting infelicities' referred to at [28] below.

[3] The judge acknowledged at Reasons [17] that the words 'or on the expiration of each period' in Paragraph 2 may be ignored as no 'period' is specified in Item 2, only the date of each fifth anniversary of the Commencement Date during the term of the Lease and any permitted extension.

[4] Electricity Generation Co v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, 656-7 [35].

[6] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116 [48] ('Mount Bruce Mining').

[7] Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352; Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112; [2016] VSCA 280 [231]-[232] (Ferguson and McLeish JJA); see also [92]-[139] (Tate JA) ('Apple and Pear').

[16] [2014] VSC 556 ('Growthpoint').

[17] Reasons [9] citing Growthpoint [2014] VSC 556 [42].

[24] PCCEF's grounds of appeal, set out in the notice of application for leave to appeal, are prolix and contain submissions. These have been removed. Proposed ground 1A is taken from PCCEF's written case.

[26] [2016] VSCA 280 [152] (with Ferguson and McLeish JJA agreeing at [228]-[230]).

[27] While market rental ($750,000) is less than annual rent paid in previous year, paragraph 7 of Schedule 2 provides that the annual rental 'payable in the first year following any Market Rent Review Date shall in no circumstances be ... less than the annual rental paid in the year immediately prior ...'.

[28] While market rental is $1,500,000, paragraph 7 of Schedule 2 provides that the annual rental 'payable in the first year following any Market Rent Review Date shall in no circumstances be more than 5% ... than the annual rental paid in the year immediately prior ...'.