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[2004] NSWCA 114
Court of Appeal (NSW)
2003-05-27
Handley JA, McColl JA, Young CJ, Palmer J, Coll JA
Original judgment source is linked above.
CITATION : Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114 HEARING DATE(S) : 27 May 2003 JUDGMENT DATE : 8 April 2004
JUDGMENT OF : Handley JA at 1; McColl JA at 15; Young CJ in Eq at 116 DECISION : 1. Appeal allowed. 2. Declare that on the true construction of cl 3.3 and cl 3.4 of the Agreement, Hotel Capital Partners Limited is not entitled to serve a Sale Notice on Peppers Hotel Management Pty Limited pursuant to cl 3.4(b) of the Master Agreement made on 17 March 1997 between Trust Company of Australia Limited, Australian Management Limited and Peppers Hotel Management Pty Limited where all that Hotel Capital Partners Limited wishes to sell is part only of the estate or interest that Hotel Capital Partners Limited has in the land the subject of a Lease. 3. Cross-Appeal dismissed. 4. HCP to pay the costs of the Appeal, the Cross-Appeal and the hearing before Palmer J.
CATCHWORDS : CONTRACT - construction of agreement dealing with acquisition and disposal of Trust properties - where respondent evinced intention to sell an estate or interest in Trust properties leased by appellant - clause providing for issuing of sale notice to appellant where respondent wished to sell any estate or interest in a property - whether sale notice may be given by respondent where the proposed sale is of any part of its estate or interest - whether sale notices served by respondent were premature. (D) LEGISLATION CITED : N/A Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Borough of Glebe v Lukey (Australian Gaslight Co) (1904) 1 CLR 158 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1997) 45 NSWLR 639 Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Ex Parte Henry; Re Commissioner of Stamp Duties (1962) 63 SR (NSW) 298 Hall v Busst (1960) 104 CLR 206 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 International Fina Services AG v Katrina Shipping Ltd ("The Fina Samco") [1995] 2 Lloyds Rep 344 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98 L Schuler AG v Wickman Machine Tool Sales Limited [1974] AC 235 Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 CASES CITED : O'Loughlin v Mount (1998) 71 SASR 206 Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Opua Ferries Ltd v Fullers Bay of Islands Ltd [2003] 3 NZLR 740 (PC) Re G.A.E. Pty Ltd [1962] VR 252 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 Rummery v Dorsman (unreported, Court of Appeal, 8 April 1993) Sterns Trading Pty Ltd v Shteinman (1988) NSW ConvR 55-414 Stone v Corporation of Yeovil [1876] 1 P 691 Stow v Mineral Holdings (Australia) Pty Limited (1977) 180 CLR 295 Tillmanns & Co v Knutsford Ltd [1908] 2 KB 385 Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2000] HCA 11; (2000) 200 CLR 591 Upper Hunter District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 PARTIES : Peppers Hotel Management Pty Limited (Appellant) Hotel Capital Partners Limited (Respondent) FILE NUMBER(S) : CA 40188/03 COUNSEL : F.M. Douglas QC/R.C. Scruby (Appellant) A.J. Meagher SC/M.J. Leeming (Respondent) SOLICITORS : Gray & Perkins (Appellant) Speed & Stracey (Respondent)
LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 1281/03 FILE NUMBER(S) : LOWER COURT Palmer J JUDICIAL OFFICER :
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40188/03 SC 1281/03
HANDLEY JA McCOLL JA YOUNG CJ in EQ
Thursday, 8 April 2004 PEPPERS HOTEL MANAGEMENT PTY LIMITED v HOTEL CAPITAL PARTNERS LIMITED
This case concerned the proper construction of a Master Agreement dealing with the acquisition and disposal of properties owned by a Trust. The respondent and cross-appellant, Hotel Capital Partners Limited ("HCP"), was the responsible entity of the Trust. The appeal arose in circumstances where HCP evinced an intention to sell an estate or interest in two properties owned by the Trust. A wholly owned subsidiary of Peppers Hotel Management Pty Limited ("Peppers"), the appellant and cross-respondent, was the lessee of both properties.
Clause 3.3 of the Master Agreement applied where the Trustee "wishes at any time during the term of the Leases to sell any estate or interest in a Property to a third person". It provided an option for Peppers to consent to a sale on the basis that the purchaser would take the property subject to a new lease to Peppers or, alternatively, for Peppers to surrender the lease in return for compensation paid by HCP. Clause 3.4(b) provided that HCP must give notice to Peppers of "any proposed sale of any estate or interest in a Property" for the purpose of giving effect to the option of Peppers under cl 3.3.
Two issues arose: on the appeal, whether a Sale Notice may be given by HCP where the proposed sale is of any part of HCP's estate or interest in land the subject of a Lease and, on the cross-appeal, whether Sale Notices served by HCP purportedly pursuant to the Master Agreement were premature and of no effect.
HELD: Allowing the appeal, per McColl JA (Handley JA and Young CJ in Eq agreeing):
Dismissing the cross-appeal, per McColl JA (Handley JA agreeing with the order proposed and Young CJ in Eq agreeing):
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40188/03 SC 1281/03
HANDLEY JA McCOLL JA YOUNG CJ in EQ
Thursday, 8 April 2004 PEPPERS HOTEL MANAGEMENT PTY LIMITED v HOTEL CAPITAL PARTNERS LIMITED Judgment
1 HANDLEY JA: The Court has before it an appeal by Peppers Hotel Management Pty Ltd ("Peppers") and a cross-appeal by Hotel Capital Partners Ltd ("HCP", "the Manager") from a decision of Palmer J who decided questions of construction which had arisen under an Agreement of 17 March 1997. Peppers or its subsidiaries were tenants of hotel properties vested in the Trust Company of Australia Ltd as custodian Trustee and managed by HCP as assets of the publicly listed Australian Hotel Fund. The facts and the history of the proceedings are referred to in the other judgments and need not be repeated in mine. Although I agree in the result with the other judgments I prefer to express my reasons for arriving at the same conclusions. 2 The questions arise under cl 3 of the Agreement which must be understood in their context provided by the recitals ("background"), the definition clause in cl 1 and the operative provisions in cl 2. The Agreement applied to two identified hotel properties but recital D showed that the parties contemplated that "additional hotel properties" might be acquired by the Trustee. In that event Peppers were to have the option of leasing any such property from the Manager and the Trustee.
3 Recital E referred to an agreed procedure to be followed "where the Manager and the Trustee wish to sell any of the hotel properties". Clause 1 defined "Properties" as meaning "the land subject to the Leases or any Additional Property Lease". Clause 2 applied where the Trustee, acting as Trustee of the Trust, entered into an Agreement to acquire "any property on which the business of a hotel, resort, motel or similar undertaking is conducted" and it gave Peppers an option to enter into a lease of such "Additional Property". 4 Clause 3 in dealing with disposals used different language. It dealt with two situations, the first in cll 3.1 and 3.2 where the Trustee wished during the term of the leases "to sell to any one person any estate or interest in all of the Properties". The dispute giving rise to this litigation did not directly concern these provisions. The second situation dealt with in cll 3.3 and 3.4 applied where the Trustee wished during the term of the leases "to sell any estate or interest in a Property" to a third person. These provisions are directly relevant in this litigation. 5 Thus although the recitals only refer to "hotel properties", and cl 2 is framed on that basis, significant provisions in cl 3 (cll 3.1, 3.2(a), 3.3, 3.4(a) and 3.4(b)) refer to "any estate or interest" in all or any of the Properties. However cl 3 is not consistent in this respect and cll 3.1(b) and 3.5 refer only to "the Properties" and cll 3.3(b), 3.4(e), 3.6 and 3.7 refer only to "the Property" or "a Property". The natural presumption is that the drafter in distinguishing between "any estate or interest" in all or any of the Properties on the one hand and all or any of "the Properties" on the other was dealing with different subject matters. However that is not the case. Clause 3.1 applies where the Trustee wished to sell "any estate or interest in all of the Properties" but then provides in para (b) that Peppers may consent to the sale on the basis that "the purchaser must take the Properties subject to the Leases". 6 Clause 3.3 applies where the Trustee wishes to sell "any estate or interest in a Property" but again one of the options granted to Peppers is to consent to the purchaser taking "the Property", not just an estate or interest therein, "subject to a new lease to Peppers". Clause 3.4 makes detailed provision to give effect to Peppers' option under cl 3.3. Paragraphs (a) and (b) refer to the sale of "any estate or interest in a Property", but then para (e) refers to "the proposed purchaser of the Property (subject to the sale of the Property to that purchaser)" and to "the sale of the Property". 7 Clause 3.5 which applies to both cll 3.1 and 3.3 refers to "the completion of the sale of the relevant Properties" without any reference to the sale of any estate or interest in those Properties. Similarly cl 3.6 refers to "a sale of a Property" and cl 3.7 refers to "the sale of the Property" without any reference to the sale of any estate or interest in that Property. 8 Provisions which apply to the sale of the Properties or a Property apply to the very situation covered by cll 3.1 and 3.3 where the Trustee wishes to sell "any estate or interest" in all or any of the Properties. The different expressions ("estate or interest in", and "the Properties" or "a Property") apply on an apparently random basis to the same transactions or different stages of the same transactions. However "Properties" is used consistently throughout in its defined meaning. 9 In my judgment the proper conclusion from the consideration of the Agreement as a whole and these clauses in particular is that the drafter has used the expression "any estate or interest" in a Property, and "a Property" as alternative descriptions for the same subject matter. This means of course that for all practical purposes "any estate or interest" has the same meanings as "its estate or interest" and "any Property". However this does not exclude this construction. The use of two or more expressions to describe the same subject matter is bad drafting and when it occurs one can always postulate other language which would have produced a consistent result with complete clarity. However suggestions for better drafting if a particular result had been intended are always available in respect of badly drawn provisions. They cannot exclude a construction, mandated by the text as a whole, which requires different expressions to be given the same meaning. 10 The natural construction of provisions imposing contractual restraints on alienation in conjunction with provisions conferring an option or right of pre-emption is to treat them as consistent and inter-dependent: see Hall v Busst (1960) 104 CLR 206 per Kitto J at 228-9, and per Windeyer J at 246 although these were minority judgments. In the present case this is made completely clear by cll 3.2 and 3.4 which state in terms that the restraints on alienation in cl 3.2(a) ("will not") and cl 3.4(a) ("must not") are imposed for the purpose of giving effect to the options of Peppers under cll 3.1 and 3.3. 11 Another consideration which points strongly to the same conclusion is that the clauses which make provision for Peppers to negotiate a new lease with the proposed purchaser of "any estate or interest in a Property" (cll 3.3(b), 3.4(d) and 3.4(e)) provide for purely bi-lateral negotiations between Peppers and the proposed purchaser. There is no provision for or reference to the possibility of tri-lateral negotiations which would be necessary if the Trustee was retaining an interest in the Property and intended to become a joint lessor with the purchaser under a new lease to Peppers. 12 If the restraint provisions and the option provisions are read together with the results referred to above neither will apply to the sale of some undivided part of the Trustee's interest in a Property or to the creation of a new interest in a Property such as a concurrent lease, easement, or profit-a-prendre. In all such cases there will be no restraint on alienation by the Trustee and no option in favour of Peppers but the party acquiring a partial interest or a new interest will take subject to Peppers' rights under existing leases. 13 In conclusion I would express surprise that these proceedings, which were intended to determine the true construction of the Agreement to which the Trustee was a party should have been heard and determined without the Trustee, which after all was the legal owner of the Properties, being joined as a party to the proceedings. The Trustee should have been joined as an additional defendant so that it would be bound by the Court's decision. This step would have prevented the possibility, no doubt purely theoretical in the present case, that these questions might be re-litigated in other proceedings at the suit of the Trustee, or a successor. 14 I agree with the orders proposed by the other members of the Court. 15 McCOLL JA: This case concerns the proper construction of a Master Agreement dated 17 March 1997 between the Trust Company of Australia Limited (the "Trustee"), Peppers Hotel Management Pty Limited ("Peppers") and Australian Management Limited ("AML") (the "Master Agreement"). The Master Agreement deals both with the acquisition and disposal of properties owned by the Australian Hotel Fund (previously known as the "Peppers Hotel Trust") (the "Trust"). The respondent and cross-appellant, Hotel Capital Partners Limited ("HCP"), succeeded AML as responsible entity of the publicly listed unit trust known as the Australian Hotel Fund on 6 June 2002. The Trustee has played no part in these proceedings. Palmer J approached the matter on the basis that where reference was made in the Master Agreement to "the Trustee" and "the Manager" it would be convenient for the purposes of his judgment to substitute a reference to HCP. I have taken the same approach. 16 The appeal arises in circumstances where HCP has evinced an intention to sell an estate or interest in two properties owned by the Trust: Peppers Fairmont Resort and Peppers Anchorage. Two issues arise: on the appeal, whether a Sale Notice may be given by HCP where the proposed sale is of any part of HCP's Estate or interest in land the subject of a Lease as defined in the Master Agreement and, on the cross-appeal, whether Sale Notices served by HCP purportedly pursuant to the Master Agreement were premature and of no effect.
The appeal 17 Peppers appeals from that part of Palmer J's decision in which his Honour concluded that a Sale Notice must be given by HCP if the proposed sale was of any part of HCP's estate or interest in the land the subject of a Lease. 18 Peppers submitted that Palmer J ought to have held that on the true construction of clauses 3.3 and 3.4 of the Master Agreement, HCP was not entitled to serve a Sale Notice on Peppers pursuant to cl 3.4(b) where all that HCP wished to sell was a part only of the estate or interest that HCP had in the land the subject of a Lease. 19 Peppers sought: "A declaration that on the true construction of clauses 3.3 and 3.4 of the Agreement, [Hotel Capital Partners Limited] is not entitled to serve a Sale Notice on [Peppers Hotel Management Pty Limited] pursuant to cl 3.4(b) of the [Agreement relating to Peppers Hotel Trust made on 17 March 1997 between Trust Company of Australia Limited, Australian Management Limited and Peppers Hotel Management Pty Limited] where all that [Hotel Capital Partners Limited] wishes to sell is part only of the estate or interest that [Hotel Capital Partners Limited] has in the land the subject of a Lease". 20 HCP cross-appeals from that part of Palmer J's decision holding that the Sale Notices were premature. HCP sought the following declarations: "1. A declaration that on the true construction of clauses 3.3 and 3.4 of the Master Agreement [HCP] was entitled, or obliged, on or about 23 December 2002 to serve Sale Notices on [Peppers] pursuant to the Master Agreement;
(b) consent to the sale on the basis that the purchaser must take the Property subject to a new lease to Peppers or a Peppers Company on commercial terms or a management agreement with Peppers or a Peppers Company on terms satisfactory to Peppers for a term which is equivalent to the remaining term (including any option period) of the Lease in respect of the Property.
3.4 For the purpose of giving effect to the option of Peppers under clause 3.3, the following provisions will apply. (a) [HCP] must not … enter into any agreement or arrangement to sell any estate or interest in a Property unless [HCP] first obtain(s) the decision of Peppers in relation to its election under clause 3.3 (unless that agreement or arrangement is subject to a condition precedent that all of the requirements of this clause are duly complied with).
(b) [HCP] must give notice to Peppers of any proposed sale of any estate or interest in a Property and advise in that notice the estimated amount of compensation which would be payable to the Lessee of the Property for the purposes of clause 3.3(a) ("Sale Notice").
(c) Peppers must give notice to [HCP] of its decision as to whether it elects for option (a) or (b) as set out in clause 3.3 ("Election Notice") within 14 days after the date of the Sale Notice. (d) If Peppers in its Election Notice elects option (a) in clause 3.3 [sic - the parties agree that "(a)" is an error and should read "(b)"], Peppers must negotiate in good faith with the proposed purchaser to agree upon mutually acceptable terms of any new lease or management agreement which may be accepted by Peppers or a Peppers Company pursuant to clause 3.3(b).
(e) If Peppers gives notice to [HCP] within ninety days after the date of its Election Notice that Peppers has reached agreement with the proposed purchaser of the Property (subject to the sale of the Property to that purchaser) upon the terms of a new lease or management agreement ("Notice of Agreement"), [HCP] may within a period of ninety days after the Notice of Agreement enter into an agreement or arrangement with the proposed purchaser for the sale of the Property on the basis that the Lease of the Property will be surrendered by the Lessee under the Lease on the completion of the sale on a date to be specified by [HCP] (being not earlier than ninety days after the date of the Notice of Agreement) and Peppers must procure that the relevant Lessee surrenders the Lease without payment of any compensation or other consideration on the completion of that sale.
(f) If Peppers does not give an Election Notice in accordance with clause 3.4(c) or, having given an Election Notice, does not give a Notice of Agreement in accordance with clause 3.4(e), Peppers is to be deemed to have elected (on the date being the last day on which such notice could properly be given) option (a) as set out in clause 3.3." (Emphasis added) 27 It will be noted at this stage that clauses 3.3 and 3.4 did not describe what was to be sold consistently. The underlined passages show that the clauses referred both to "[sell/the sale of] any estate or interest in a Property" and "the [purchase/sale] of the Property". 28 The phrase "the sale of the Property" or a substantially similar phrase also appeared in clauses 3.5, 3.6 and 3.7. Clause 3.5 dealt with the situation where Peppers had elected and was deemed to have elected option (a) in cl 3.1 or cl 3.3. It required Peppers to procure a surrender of the relevant Lease "on the completion of the sale of the relevant Properties". Clause 3.6 provided that cl 3 did not "apply to a sale of a Property" that was mutually agreed between the parties to the Management Agreement. Clauses 3.7 - 3.9 provided: "3.7 The compensation payable to a Lessee for the purposes of clauses 3.1(a) or 3.3(a) (as the case may be) is the net present value on the date of the completion of the sale of the Property of the amount which it would be reasonable to anticipate that the Lessee would earn from operating the Property for the remaining term of the Lease (including any option period), as determined by the Trustee and notified to Peppers. In calculating the net present value, the Trustee must: (a) use an annual discount factor of 25%; and (b) assume that the amount which it would be reasonable to anticipate that the Lessee would earn from operating the Property in each year of the remaining term of the Lease is the average of the earnings from these (sic) Property in the two complete financial years immediately preceding the time of disposal. 3.8 The determination by the Trustee under clause 3.7 will be final and binding on the parties in the absence of manifest error. 3.9 The amount of compensation provided for in clause 3.7 is a reasonable quantification of the loss which a Lessee would suffer in the events contemplated in this clause 3 and there is no element of fine or penalty in that calculation."
Statement of the case 29 The facts were not in dispute. They were set out in the judgment of Palmer J. I adopt his statement of them for convenience: "3. The Defendant, Hotel Capital Partners Limited ("HCP"), is the responsible entity of the public listed unit trust known as the Australian Hotel Fund (previously known as Peppers Hotel Trust) ("the Trust"). The Trust is a registered managed investment scheme pursuant to Chapter 5C of the Corporations Act 2001 (Cth). The Trust was established by Deed dated 17 July 1996 between the Trust Company of Australia as trustee and Australian Management Ltd as manager. The Trust was floated in 1996 as a public unit trust. 4. On 17 March 1997, the Trust Company of Australia Limited ("the Trustee"), Australian Management Limited ("the Manager"), and Peppers Hotel Management Pty Ltd ("Peppers") entered into an agreement called the "Master Agreement". The Trustee had granted leases of certain hotel properties owned by it to companies which were subsidiaries or related companies of Peppers ("Peppers Companies"). The Master Agreement, inter alia, governed the procedures which the parties were required to follow if the Manager and the Trustee wished to sell any of the hotel properties acquired by the Trust. 5. Amongst the assets of the Trust are properties at Leura and Port Stephens where the resorts known as "Peppers Fairmont Resort" and "Peppers Anchorage" are located. Peppers Leisure Ltd, a wholly owned subsidiary of Peppers, is the lessee of each of those properties. 6. The Trust was registered, pursuant to the Managed Investments Act 1998 (Cth), on 22 June 2000. By a Custody Deed dated 8 June 2000, Australian Management Ltd appointed the Trust Company of Australia Ltd to hold the assets of the trust on its behalf. 7. HCP succeeded Australian Management Limited as responsible entity of the Trust pursuant to a meeting of unitholders on 6 June 2002. Where reference is made in the Master Agreement to "the Trustee" and "the Manager" it will be more convenient for the purposes of this judgment to substitute a reference to "HCP". 8. HCP's first priority after it was appointed as responsible entity was to reduce the level of debt and to obtain capital to undertake refurbishment works. It sold three of the trust properties to its lessee Peppers Leisure Ltd on 29 November 2002. On completion, the parties entered into a Deed of Release which provided in cl 3 that "the parties ... confirm and acknowledge their respective obligations pursuant to the Master Agreement remain in full force and effect".
We contemplate discussions with a joint venture partner or partners to be broadly based on the following: 1. JV partner or partners to take interests in the subject development lands and/or minor interests in the total resorts. The current approvals are limited to resort use." 10. The relevant parts of the letter dated 20 December in response are as follows: "I refer to your fax of the 13th December, 2002 and confirm that we are interested in acquiring an interest in one or more of the properties, with a view to participating in the development of these properties and the management of those developments. We would appreciate the opportunity to meet with you to discuss alternative proposals and possible joint venture structures. … We believe there are a number of alternative development and sales structures that would allow the realisation of maximum development potential. This would obviously unlock significant funds for the Trust for further acquisitions. Our Group has both the development expertise and the financial capacity to significantly enhance this process. We confirm that we are prepared to commit significant resources to investigating these opportunities with you." 11. Consequent on this exchange of correspondence, on 23 December 2002 HCP served two Sale Notices on Peppers pursuant to cl 3.4(b) of the Master Agreement in respect of two of the three remaining properties, the Fairmont and the Anchorage. The Sale Notice in respect of Fairmont is in the following terms: "Hotel Capital Partners, the responsible entity of the Australian Hotel Fund, hereby gives notice to yourselves, pursuant to cl 3.4(b) of the agreement dated 17 March 1997 (commonly known as the "Master Agreement") between Trust Company of Australia Limited, Australian Management Limited and Peppers Hotel Management Pty Limited, of the proposal by Hotel Capital Partners to sell an estate or interest in the property known as Peppers Fairmont Resort. You are notified that Hotel Capital Partners is currently negotiating such sale with the Toga Group of Companies and also notifies yourselves that the estimated amount of compensation payable pursuant to the provisions of the Master Agreement (in particular cl s 3.3(a) and 3.7) is $2,353,832. We await receipt of your Election Notice as provided for pursuant to cl 3.4(c) of the Master Agreement." The Sale Notice in respect of Anchorage is in identical terms."
The primary judge's reasons The proper subject of a sale notice (the appeal issue) 30 In the course of the hearing Peppers amended its claim for relief to seek a declaration which raised the question whether HCP was obliged to serve a Sale Notice under cl 3.3 if what HCP wished to sell was only a part of the estate or interest which it had in the whole of the land the subject of a Lease or an estate or interest in only part of the land the subject of a Lease. 31 Palmer J concluded that it was not. In his Honour's view cl 3.3 and cl 3.4 were designed to provide a limited circumstance whereby the otherwise unimpeachable security of tenure which the Peppers companies enjoyed as lessees could be terminated: that circumstance was where the whole of the land the subject of the Lease was the subject of the transaction of the nature specified in cl 3.3. Accordingly, his Honour concluded that a Sale Notice was not required if HCP proposed only to sell an estate or interest in part of the land the subject of a Lease. 32 On the other hand, in his Honour's view, cl 3.3 did apply even though HCP only proposed to sell a part of the estate or interest which it had in the whole of the land the subject of a lease. Resolution of that issue turned, in his Honour's view, upon the opening words of cl 3.3, "if HCP wishes … to sell any estate or interest in a property…" (Emphasis added). 33 Mr Douglas QC who appeared for Peppers had submitted that the word "any" in clause 3.3 must be read as "its", thus referring to the entirety of HCP's estate or interest in a Property. Mr Jackman SC on behalf of HCP had submitted that "any" meant "any" and that there was no warrant for displacing the plain meaning of the word. Palmer J accepted Mr Jackman SC's submission. 34 Peppers submitted that giving "any" its ordinary meaning produced absurd or uncommercial results. It argued that if HCP was permitted to sell only a partial interest in the land, for example as tenant-in-common or joint tenant, Peppers could not secure its position only by negotiating with the new purchaser as the new purchaser would be only one of the proposed co-owners. 35 Palmer J rejected this submission. His Honour took as an illustration of the manner in which cl 3.4(d) could operate the circumstance where HCP sold an estate or interest in the whole of the land as tenant-in-common for a specified share or as joint tenant. In his Honour's view there was nothing to preclude Peppers from negotiating both with the purchaser of the interest and tenant-in-common as one co-owner and also with HCP in respect of its retained estate or interest. 36 Palmer J accepted that cl 3.3 and cl 3.4(e) in particular envisaged that the terms of sale as between HCP and the third parties would of necessity be somewhat fluid at the time that a Sale Notice was given and that negotiations between Peppers and the proposed purchaser might produce changes in those terms of sale such that a satisfactory new lease could be taken by the relevant Peppers company. 37 Palmer J concluded that on the true construction of cl 3.3 and cl 3.4 of the Master Agreement:
(a) A Sale Notice could not be given if the proposed sale was of the whole or any part of HCP's estate or interest in a separate portion of land within the land the subject of a Lease;
(b) A Sale Notice must be given by HCP if the proposed sale was of the whole or any part of HCP's estate or interest in the land the subject of a Lease. Timing of the sale notices (the cross-appeal issue) 38 Palmer J concluded that the Sale Notices were served prematurely for three reasons. 39 First, his Honour held that the contemplated sale was insufficiently certain to amount to a "proposal". He accepted Peppers' submission that the discussions with HCP and Toga had not reached such a stage that it could be said that HCP had any proposal to sell any estate or interest in any Properties. 40 Secondly, he accepted Peppers' submission that before HCP was entitled to give a Sale Notice, HCP must have more than a "nebulous wish" to sell some unspecified estate or interest in a Property upon terms not yet discussed with a proposed purchaser, let alone agreed even in principle. 41 Palmer J held that giving a Notice of Sale was a serious matter as, pursuant to cl 3.4(c) and (d), it put Peppers to an election within 14 days as to whether it would procure the surrender of the relevant Lease and accept compensation or, rather, would enter into negotiations in good faith with "the proposed purchaser" in order to agree upon mutually acceptable terms of a new Lease. If Peppers did not give a Notice of Election within 14 days, it was deemed to have elected to procure surrender of the Lease and to take compensation. 42 Palmer J held that the word "wishes" in cl 3.3 took its colour from the machinery provided by clauses 3.4(b), (d) and (e) and the words "proposed sale" and "proposed purchaser" used in those clauses. In his Honour's view, those words indicated that there must be more than a "possible sale or a hoped for sale" but, rather, a "proposal for a sale" which HCP "wishes" to accept which was sufficiently certain in its terms to enable HCP to make a genuine estimate of the date for completion of the sale and, consequently, a genuine estimate of the compensation payable if Peppers elected for its rights under cl 3.3(a). 43 As, at 23 December 2002, there was no such proposal between HCP and Toga which HCP could "wish" to accept within the meaning and operation of cl 3.3, his Honour concluded that no circumstance had occurred which obliged or entitled HCP to issue the Sale Notices on that date. 44 Thirdly, Palmer J pointed out that a Sale Notice was required to state the "estimated amount of compensation" payable if Peppers elected to procure surrender of the Lease under cl 3.3(a): cl 3.4(b). Clause 3.7 set out the manner in which the estimate of compensation was to be calculated. In his Honour's view where, in the present case, matters such as the terms of a sale agreement, the precise subject matter of the sale and the structure of the transaction had not been determined but, rather, all that happened was that the "proposed purchaser" had indicated an interest and a willingness to enter into negotiations (the length of which and success of which were matters of speculation), HCP could not properly "estimate" the compensation payable under Clauses 3.3(a) rather than by "quite literally, … plucking a figure out of thin air". In his Honour's view (at [19]) that was "not the sort of "estimate" upon the basis of which clauses 3.3 and 3.4 [could] require Peppers to make its election within fourteen days of receipt of a Sale Notice". 45 Accordingly he concluded that the Sale Notices were premature and of no effect.
The appeal: the proper subject of a cl 3.3 Sale Notice Peppers' Submissions 46 Peppers submitted that Palmer J was correct to find that clauses 3.3 and 3.4 were "designed to provide a limited circumstance whereby the otherwise unimpeachable security of tenure which the Pepper Companies enjoy as lessees can be terminated". They submitted, however, that his Honour's conclusion that a partial interest in the Property could be the subject of a Sale Notice did not accord with business commonsense. 47 Peppers submitted that on the true construction of clauses 3.3 and 3.4, HCP was not entitled to serve a Sale Notice where HCP wished to sell anything less than the whole of its estate or interest in a Property. 48 Peppers submitted that the words "estate or interest in a Property" meant an estate or interest of a proprietary nature in the land the subject of a Lease or Additional Property Lease. They would include "legal and equitable estates and interests eg. a freehold or a leasehold estate, or incorporeal interests such as easements, profits à prendre …": Stow v Mineral Holdings (Australia) Pty Limited (1977) 180 CLR 295 at 311 per Aickin J (with whom Stephens J and Mason J (as he then was) agreed). 49 So understood, Peppers submitted that when the words "any estate or interest in a Property" appeared in cl 3.3 they referred to the particular estate or interest HCP had in any particular property. Peppers drew attention to the fact that the Trustee's estate or interest in Peppers Anchorage was a leasehold interest as lessee of the land pursuant to a Head Lease between the Trustee and Port Stephens Council while the Trustee's interest in the Peppers Fairmont Resort was a freehold interest as registered proprietor of the land. 50 Peppers submitted that it was necessary to include the words "any estate or interest" in the clauses dealing with the disposition of properties having regard to the definition of "Properties" in cl 1.1 as being "the land subject to the Leases or any Additional Property Lease". Peppers submitted that the words "any estate or interest" had to be included in clauses 3.1 and 3.3 as, otherwise, the definition of "Properties" may have restricted the operation of, in this instance, cl 3.3 to circumstances where the Trustee wished to sell the land and was in a position to do so because it was the registered proprietor. Where, however, the Trustee had only a leasehold interest in the land, Peppers submitted it was necessary to include the qualifying words "any estate or interest" to ensure that the dispositive clause was capable of applying to whatever interest the Trustee had. 51 Thus, Peppers submitted, cl 3.3 operated whenever the Trustee wished to sell the estate or interest it had in a Property, whatever that estate or interest was, in circumstances where the sale was not within the terms of cl 3.1. The clause did not, however, Peppers submitted, authorise the issuing of a Sale Notice if HCP wished to sell anything less than the whole of its estate or interest in a Property. 52 Peppers submitted that the steps which were triggered by it electing the cl 3.3(b) route contemplated that the Trustee was disposing of the entirety of whatever estate or interest it held in the relevant property. Thus, Peppers drew attention to the following matters:
(a) Its consent to the sale was given on the basis that the purchaser "must take the Property subject to a new lease … on commercial terms or a management agreement … on terms satisfactory to Peppers for a term which is equivalent to the remaining term (including any option period) of the Lease in respect of the Property": cl 3.3(b);
(b) Peppers was required to negotiate in good faith with the " proposed purchaser to agree upon mutually acceptable terms of any new lease or management agreement which may be accepted by Peppers": cl 3.4(d); (c) If agreement was reached within the ninety day negotiating period and the requisite Notice of Agreement given, the Property may be sold to the proposed purchaser on terms that the existing "Lease of the Property" is to be surrendered on completion of the sale "without payment of any compensation or other consideration on the completion of that sale": cl 3.4(e);
(d) If no agreement was reached then, effectively, Peppers was forced to surrender the lease in return for compensation calculated in accordance with cl 3.7 and the Trustee was free to sell the property on an unencumbered basis: cl 3.4(f). 53 Thus, Peppers submitted, the whole of the cl 3.3(b) mechanism contemplated the Trustee disposing of the entirety of whatever interest it held in a particular property, the Lessee surrendering the Lease over that property either upon entering into a new lease with the new purchaser or by surrendering the Lease on receipt of cl 3.7 compensation. 54 Peppers submitted that if a proposed sale was only of a partial interest in the relevant Property, then the procedures contemplated by the clause could not work because the purchaser could not grant a lease or management agreement in respect of the Property in substitution for the existing lease because, by definition, ownership of the remainder of interest in the Property the subject of the Lease was retained by the Trustee. 55 Thus, put in its simplest terms, Peppers submitted that if the clause worked in the manner for which HCP contended, the Master Agreement failed to address the ramifications of Peppers having to negotiate multiple new agreements reflecting the fact that the Trustee's disposition of less than its entire estate or interest in the relevant Property had to be addressed contractually. 56 In his oral submissions Mr Douglas QC, who appeared with Mr Orlov for Peppers, also submitted that the construction of clause 3.3 for which HCP contended would effectively give HCP a trigger to at any time get out of a very long term lease of a major resort. He submitted that it could hardly be imagined that in any circumstances parties exercising business commonsense intended to come to an agreement whereby HCP could effectively at any time simply by putting up a proposal to sell a very minor share of its interest eject Peppers with compensation. He submitted, referring to Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181, that the proper interpretation of clause 3.3 should be in all respects consistent with common sense. HCP's submissions 57 HCP submitted that cl 3 of the Master Agreement recognised that HCP may wish to sell an estate or interest in any or all of the properties leased by Peppers Companies and gave Peppers an election between compensation calculated pursuant to a formula (net present value of the anticipated future income over the term of the lease: cl 3.7) or a right to put in place a new lease or management agreement. 58 It submitted that the ordinary meaning of the words "any estate or interest" in a Property include the sale of a lesser estate or interest in the whole of the Property than is held. It referred to Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2000] HCA 11; (2000) 200 CLR 591 at 601 [15] where Gleeson CJ and McHugh J observed that: "The word 'any' does not lend itself to a restrictive interpretation." 59 It submitted that Peppers' argument that the words "any estate or interest in" were thought necessary to eliminate difficulties which might arise if the Trustee held only a leasehold interest should be rejected because the definition of "Properties" expressly included any "Additional Property Lease". It contended that, although that argument might warrant inserting the words "its estate or interest in", it did not assist in the process of construing "any". 60 HCP submitted that there was nothing in the Master Agreement preventing Peppers from negotiating both with the potential purchaser and HCP "serially or simultaneously". It argued that there was nothing in the procedures provided by the Master Agreement that would be nonsensical such that the Court would construe it in a way contrary to the ordinary meaning of the language used. If the negotiations failed, Peppers would still have the right to compensation and there was no suggestion that the compensation would be unreasonable. HCP submitted there was no compulsory acquisition or expropriation of Peppers' interest because the leases were at all times subject to the Master Agreement. 61 HCP submitted that the fact that clauses 3.1, 3.3 and 3.4 referred to the Purchaser "Properties" subject to the lease, without the qualifying words "any estate or interest", cast no light upon the process of construction. It submitted that in the light of the earlier reference to "any estate or interest in", the later references to the "Properties" in those clauses should, as a matter of ordinary construction, be read as references to the Purchaser taking such estate or interest in the Properties subject to the Lease. It submitted that if that was not the case the words "any estate or interest in" would be entirely otiose. That, HCP submitted, was a "relatively powerful factor telling against the construction" for which Peppers contended. It submitted that effect must be given to every word of the phrase: Stone v Corporation of Yeovil [1876] 1 P 691 at 701; Lewison, The Interpretation of Contracts (2nd ed 1997 at 161). It referred to Griffith CJ's statement in Borough of Glebe v Lukey (Australian Gaslight Co) (1904) 1 CLR 158 at 175 - 176 that: "[i]t is a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence or word shall prove superfluous, void or insignificant, if by any other construction they may all be made useful and pertinent." 62 HCP submitted that Peppers' absurd hypothetical examples were quite removed from reality. Clause 3.3 would not be construed to operate, for example, in the case of a sham transaction such as a sale of a very minor share. 63 In oral submissions Mr Meagher SC submitted that the purpose of the mechanism provided by clauses 3.3 and 3.4 was to give the Trustee some flexibility and that the specific provisions of those clauses could be explained by the commercial context. Under clause 2 of the Master Agreement Peppers obtained the benefit of an option to manage additional properties acquired by the trust. The terms of the leases with respect to the management arrangement provided for the base rent to be calculated by reference to the revenue of other managed properties. The effect of clauses 3.3 and 3.4, in HCP's submission, was to give the Trustee the ability to sell or to sell down its interest in properties unfettered by existing management agreements or leases which contained rent provisions which would be inappropriate from the purchaser's point of view. 64 Mr Meagher SC finally submitted that on the absurd example point, both parties could come forward with examples producing absurd results.
Principles of construction 65 Before I turn to construction of the Master Agreement, I set out the principles of construction relevant to resolving the issues which have arisen. 66 Interpretation of a written contract involves "the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract": Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ quoting Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. 67 The words of the agreement will not be construed in a vacuum. In the case of a commercial contract where the words are ambiguous or susceptible of more than one meaning, the court should understand its commercial purpose and, to that end, may have regard to "the genesis of the transaction, the background, the context, [and] the market in which the parties are operating": see Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J (with whose judgment Stephens J and Wilson J agreed); Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 at 439 [10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. 68 Commercial contracts should be construed so as to be given a sensible commercial operation: Upper Hunter District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 at 109; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA at [64]. 69 If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate': Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109-110 per Gibbs J (as he then was). However, in construing written contracts it should be presumed that the parties did not intend their terms to operate unreasonably. The more unreasonable the result a party's construction would produce, the more unlikely it is that the parties would have intended it. If the parties did intend an unreasonable result, it is essential that that intention be made "abundantly clear": L Schuler AG v Wickman Machine Tool Sales Limited [1974] AC 235 at 251 per Lord Reid. 70 Dealing with the circumstances where there are internal inconsistencies in a contract, Gibbs J said "it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument.": Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109. 71 Gibbs J's statement in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109 that "the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", finds reflection in the statement in International Fina Services AG v Katrina Shipping Ltd ("The Fina Samco") [1995] 2 Lloyds Rep 344 at 350 per Neill LJ (with whom Roch and Auld LL.J agreed) that the primary focus is the agreement itself which "must speak for itself, but … must do so in situ and not be transported to a laboratory for microscopic analysis". 72 Consistently with this approach, it has been held that if detailed semantic and syntactical analysis of a written contract lead to a conclusion that flouts business commonsense the contract must be made to yield to business commonsense: Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 per Lord Diplock; applied by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited, above, at 198 [43]. In Maggbury, after referring to Lord Diplock's observations, Gleeson CJ, Gummow and Hayne JJ added: "what in respect of a particular contract comprises 'business commonsense', as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible". 73 Finally, it should be noted that no hard and fast rules can be set. The exercise of construction is neither uncompromisingly literal nor unswervingly purposive: The Fina Samco, above, at 350.
The appeal: consideration 74 The Master Agreement is intended to accommodate the interests of the Trustee as Trustee of properties the subject of the Trust and Peppers as lessee of the hotel properties owned or subsequently acquired by the Trust. 75 There was little evidence of the factual matrix which gave rise to the Master Agreement. To the extent there was such evidence it was limited to a statement that the Trust was established by a Deed dated 17 July 1996 between the Trust Company of Australia Limited ("TCA") as Trustee and Australian Management Limited ("AML") as Manager and that the Trust's initial property portfolio comprised two properties: Peppers Guest House and Peppers Convent both at Pokolbin in the Hunter Valley. The Deed of Trust was not tendered. 76 There was also evidence that the Trustee of the Trust had acquired four other properties over which it had granted leases to companies within Peppers Group. All of these leases had been transferred to the current Lessee, Peppers Leisure Limited, a wholly owned subsidiary of Peppers. It is apparent that the additional leases were entered into after the execution of the Master Agreement. Little turns upon that. It was subsequent conduct which cannot be used to construe the Master Agreement. However the additional leases were clearly transactions within the contemplation of the parties to that agreement.
77 Save for the reference, therefore, to the Deed of Trust (which adds little), the search for the apparent purpose and genesis of the Master Agreement must be found within its four walls. To this extent, at least, it is relevant to have regard to paras A - E headed "Background". Paragraph F deals with trademarks and not Properties and can be set aside. 78 Those paragraphs set out the parameters within which the parties to the Master Agreement intended the agreement to operate. While in this agreement they are described as "Background", they are clearly intended to perform the function of recitals. In either case, where there is ambiguity, which in my view there is in relation to cl 3.3, in relation to the operative part of the Master Agreement, it is appropriate to take into account the Background in order to determine the true construction: Codelfa, above; O'Loughlin v Mount (1998) 71 SASR 206. 79 The Background paragraphs make it clear, in my view, that it was the parties' intention that the Master Agreement should deal with the entirety of the Trust's interests in the hotel properties it owned. In particular, paragraph E dealing with the disposition of the properties records the parties' agreement that "where the Manager and the Trustee wish to sell any of the Hotel properties acquired by the Trust, they must follow the procedures contained in this Agreement". That paragraph makes two matters plain. First, that the disposition referred to is of the entirety of the Trust's interests in the relevant Hotel property. Secondly, that the Master Agreement dealt exhaustively with the procedures to be followed when such a sale is contemplated. 80 The procedures to which recital E referred as set out in cl 3 gave Peppers a "stay or go" option. If it stayed notwithstanding the purchase then it did so on the basis that its persisting relationship would be with the new purchaser. Nothing in the procedures mandated by paragraph E and cl 3 contemplated Peppers having to negotiate a bifurcated relationship with HCP in relation to any interest it retained in the relevant Property and a new agreement with a purchaser. The sole preoccupation of cl 3.3 was that for which Peppers contended, namely that, if Peppers elected for the cl 3.3(b) route and successfully negotiated a lease or management agreement with the purchaser, its relationship thereafter would be solely governed by those new agreements rather than by a remnant of an old agreement or a renegotiated agreement with HCP. 81 I would also take into consideration in accepting Peppers' submissions that it is highly improbable given the care with which the Master Agreement was drafted that the parties contemplated that entirely separately from the negotiating procedures contemplated by cl 3.4, Peppers would be required to be undertaking separate negotiations with HCP in relation to its retained interest. The care the parties paid to spelling out the manner and timing of the negotiations with the putative purchaser makes it highly improbable that they left entirely silent the manner and timing of negotiations with HCP in relation to the retained interest. 82 Thus, even if cl 3.3 was open to the construction for which HCP contends, namely that the words "any estate or interest" refer to a partial interest in the Property, a construction which provides only for the disposition of the entirety of the Trust's interest in the property should, in my view, be preferred to avoid what would otherwise be an unreasonable result of requiring Peppers to engage in negotiations for which the Agreement does not provide: Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109 per Gibbs J. 83 I accept Peppers' submission that the words "any estate or interest" were included in cl 3.3 to accommodate the circumstance where the Trust held an estate or interest in a Property which was less than a freehold interest. The construction of the Master Agreement for which Peppers contends, and which I accept, does not offend the requirement that effect should be given to every word of the Master Agreement. 84 Even if this were not the case, however, it should be noted that the canon of construction upon which HCP relies is a canon to be applied "if it be possible": Stone v Corporation of Yeovil. 85 It is relevant in this context to deal with the inconsistent references in clauses 3.3 and 3.4 to what the Trustee is selling. While the expression "any estate or interest" appears in the introductory words to clauses 3.3 and in 3.4, all other references in those clauses to the subject of the sale are to the "Property" or "Properties" - thus, having regard to the cl 1.1 definition, referring to the entirety of HCP's interest in the land the subject of the Peppers' Lease. That reference to the entirety of the Trust's interest being the subject of the disposition is consistent with paragraph E. 86 In my view, Palmer J erred in holding that a Sale Notice must be given by HCP if the proposed sale was of any part of HCP's estate or interest in the land the subject of a Lease.
The cross-appeal: when could a Sale Notice be served? 87 My decision on the appeal makes the cross-appeal academic. It is necessary to express a view on it, however, both in case the matter should go further and to deal with costs issues.
HCP's submissions 88 HCP's challenge to Palmer J's decision that the Sale Notices were premature was, in summary, that:
(a) His Honour erred in holding that, in the absence of any evidence or argument to the contrary, the " estimate " by HCP of the compensation which would be payable if Peppers elected for its rights under cl 3.3(a) of the Master Agreement, and set out in the Sale Notices, was not genuine.
(b) His Honour erred in holding that, as at 23 December 2002, there was no such proposal between HCP and Toga (the proposed purchaser) which HCP could " wish " to accept, within the meaning and operation of cl 3.3 and cl 3.4 of the Master Agreement.
(c) His Honour erred in holding that, as at 23 December 2002, no circumstance had occurred which obliged or entitled HCP to issue Sale Notices on that date within the meaning and operation of cl 3.3 and cl 3.4 of the Master Agreement and that therefore the Sales Notices were premature and were of no effect. 89 HCP submitted that the Sale Notices were not premature. It submitted that on receipt of the Sale Notices, Peppers had all of the information it needed to elect between receiving compensation or commencing negotiations with the potential purchaser. The purpose of cl 3.4(b) in permitting Peppers to make an informed election was fulfilled. 90 It submitted that any more onerous requirement would be inconsistent with the express terms of the contract. The triggering event to Peppers' right of election was HCP's "wish" to sell any estate or interest in a property: cl 3.3. HCP submitted, referring to Sterns Trading Pty Ltd v Shteinman (1988) NSW ConvR ¶55-414 and Rummery v Dorsman (unreported, Court of Appeal, 8 April 1993) that the trial judge's approach to the meaning of "wish" was inconsistent with authority. It submitted that it was not necessary for HCP and the proposed purchaser to have reached final agreement or "agreement in principle" on the terms of the proposed sale to trigger Pepper's right of election. 91 In relation to Palmer J's finding that there was insufficient certainty as to the terms of any proposed sale to enable there to be a genuine estimate of the compensation payable, HCP submitted that the trial judge did not have the benefit of full submissions and argument on this the point because it had been abandoned by Peppers and was only taken up again when it became apparent that his Honour was attracted to it. HCP also submitted that there was unchallenged evidence before Palmer J that the estimates of compensation were genuine. 92 In oral submissions Mr Meagher SC who appeared with Mr Leeming for HCP submitted that a Sale Notice had to be given under cl 3.4(b) if HCP desired or wanted to sell any estate or interest in a property to a third person. He submitted that HCP did not have to have reached agreement with the proposed purchaser about the specific terms of the proposed sale because the mechanism provided by the Master Agreement assumed that that agreement was reached later. He submitted that cl 3 envisaged that the proposed purchaser would first negotiate a settled position with Peppers and then negotiate its position with HCP. 93 Mr Meagher SC submitted that the words "wish to sell" should not be construed as requiring there to be a proposal which HCP wished to accept. Rather, it was sufficient to trigger cl 3.3 that HCP had a desire to sell an interest to a third party even if the terms were not fully negotiated. He submitted that all Peppers needed to know in order to make its election upon receipt of the Sale Notice was the identity of the purchaser and in general description at least the nature of the interest to be sold. 94 Mr Meagher SC submitted that on a proper understanding of the machinery in cl 3.4 it was impossible, at the time the Sale Notice was given, to be able to give any precise estimate as to when completion would take place because that time depended upon which of the elections Peppers made and what happened thereafter. He submitted that it would be virtually impossible at that stage to make a genuine estimate of the date for completion other than to say it was going to be within a range.
Peppers' submissions 95 Peppers submitted that Palmer J was correct to hold that the Sale Notices were premature. It submitted that the factual findings his Honour made demonstrated that the sale proposal was at such a preliminary stage that its terms had not even begun to be discussed. 96 It further submitted that Palmer J correctly concluded that the state of discussions between HCP and the proposed purchaser were insufficiently advanced to enable HCP to make a genuine estimate of the date for completion of the sale and, consequently, a genuine estimate of the compensation that would be payable if Peppers elected for its rights under cl 3.3(a). 97 Peppers submitted that Palmer J was correct to conclude that cl 3.3 was not engaged as soon as HCP formulated nothing more than a mere "wish" to deal with an estate or interest in a Property. It argued that cl 3.3 was engaged only once HCP "wished" to accept a proposal that was sufficiently certain in its terms to enable HCP to make a genuine estimate of the date for completion of the sale and, consequently, of the compensation that would be payable to Peppers under the terms of the agreement. Peppers submitted that HCP's reliance on cases dealing with rights of first refusal was inapt because in those cases the terms of sale were certain. 98 Peppers submitted that on HCP's construction of cl 3.3, the ninety day negotiating period triggered could well expire before negotiations between the proposed purchaser and HCP had proceeded to a sufficient point for the proposed purchaser to know what terms for a lease or management agreement it would be prepared to agree to with the appellant, even if it was acting in good faith. That result would flout business common sense.
The sale notices 99 In my view Palmer J was correct to conclude that the Sale Notices were premature. 100 The consequence of the service of a Sale Notice was to require Peppers to elect which of two courses it would pursue. The election process required Peppers to evaluate the competing benefits of otherwise procuring the Lessee of the relevant Property to surrender the lease in return for compensation, an estimate of which was contained in the Sale Notice: cl 3.4(b). Alternatively, it had to determine whether it would consent to the sale on the basis of the purchaser taking the Property subject to a new lease to either Peppers or a Peppers Company on commercial terms or a Management Agreement with Peppers or a Peppers Company on terms satisfactory to Peppers for a term equivalent to the remaining term (including any option period) of the Lease in respect of the Property. It had fourteen days to give the Election Notice notifying the Manager of its decision: cl 3.4(c). If it failed to give that Notice within fourteen days it was deemed to have elected to procure a surrender of the Lease: cl 3.4(f). 101 Once it elected in fact or was deemed to have elected to procure a surrender of the lease Peppers was required to procure that surrender in fact. That step had to take place on the completion of the sale of the relevant property which could not be earlier than ninety days after the date of the election or deemed election: cl 3.5. 102 Although the Master Agreement did not say so in terms, the consequence of Peppers electing or being deemed to have elected to surrender the relevant lease was to leave the Trustee and the Manager free to enter into the agreement or arrangement to sell the relevant estate or interest in the Property. 103 The focus of cl 3.3 is the disposition of "any estate or interest in a property". That language is used in relation to the subject of the agreement or arrangement the Trustee and Manager are precluded from entering until Peppers has made its election decision: cl 3.4(a). It is only when the Trustee and the Manager wish to enter into such an agreement that they are required first to obtain Peppers' decision in relation to its election: cl 3.4(a). 104 The words "any estate or interest in a property" identify the option of which Peppers has the benefit for the purposes of cl 3.3. It is the same "estate or interest in a property" which is to be the subject of the agreement referred to in cl 3.4(a). The phrase used is one of precision. That that is so is emphasised both by the reference in cl 3.3 to the fact that the Trustee "wishes … to sell" and the reference in cl 3.4(a) to the prohibition on the Trustee and the Manager from entering into any "agreement or arrangement to sell" the relevant estate or interest. 105 Thus, in my view, the language of clauses 3.3 and 3.4 make it plain that the clauses are, at all times, talking about one estate or interest in a property. It is that estate or interest which the Trustee and Manager wish to enter into an agreement or arrangement to sell which must be notified to Peppers to enable it to determine what course it will take to exercise its election option. 106 It is clear from cl 3.4 that the subject of the Sale Notice must be the sale or interest in a Property which is to be the subject of the (temporarily precluded) agreement or arrangement under cl 3.4(a)). 107 In my view, Palmer J was correct to conclude that before HCP was entitled to give a Sale Notice, it must have more than a "nebulous wish" to sell an unspecified estate or interest in a Property upon terms not yet discussed with a proposed purchaser let alone agreed in principle. 108 HCP submitted that the "triggering event to Peppers right of election is HCP's wish to sell any estate or interest in a property". It referred to the Macquarie Dictionary definition of "wish" as meaning "to want; desire; long for" and "a distinct mental inclination towards the doing, obtaining, attaining etc of something; a desire, felt or expressed". 109 HCP's submissions placed undue weight on the dictionary meaning of "wish" without setting that word in context. Placed in the context of the agreement as a whole it is, in my view, plain that the "wish" to which cl 3.3 refers is the wish to enter into the agreement or arrangement in cl 3.4(a). In other words the clauses contemplate that the Trustee and the Manager have identified the estate or interest in the property they wish to sell, have negotiated a conditional sale with the prospective purchaser and have triggered the giving of the Sale Notice in compliance with cl 3.4 to enable Peppers to notify which of the two courses available to it under cl 3.3 it proposes to pursue. The fact that the Master Agreement contemplates a high level of agreement at least as to the subject of the sale as between the Trustee and the Manager and the prospective purchaser is borne out of the fact that cl 3.4(a) provides, parenthetically, that the Trustee and the Manager may enter into an agreement or arrangement to sell an estate or interest in a Property prior to obtaining Peppers' election under cl 3.3 if that agreement or arrangement is subject to a condition precedent that all of the requirements of cl 3.4 are duly complied with. 110 The cases upon which HCP relied do not assist. As Peppers submitted, in both Sterns Trading Pty Limited v Shteinman and Rummery v Dorsman, the terms of sale (meaning, as I understand Peppers' submission in this respect, the subject of the sale) were certain. All that was necessary for the right of first refusal to arise was for the lessor to form a desire to sell the identified property. 111 It might be noted in any event that in Sterns Trading Pty Limited v Shteinman, Kearney J (at 57,791 - 57,792) expressed some doubt as to whether the relevant "desire" to sell was sufficiently evidenced by an oral understanding but had no doubt the relevant "desire" existed at the time a formal option to purchase the subject property was granted to a third party. 112 Handley JA's remarks in Rummery v Dorsman that the offer to a prospective purchaser "may be an informal one" turned upon the terms of the clause his Honour was considering. In Rummery v Dorsman the landlord's obligation as to make the "first offer" to the lessee. The clause provided that that first offer must be "upon such terms and conditions as offered to a prospective purchaser". Handley JA observed (BC9301938 at 16) that the "offer" to the prospective purchaser could not "be a true offer because then the offer to the tenant would not be the 'first offer'". It was in such circumstances that his Honour concluded that "the offer to the prospective purchaser may be an informal one". 113 The requirement that the Trustee had identified the estate or interest in a Property it wished to sell before a Sale Notice could be given is also borne out by the fact that if after Peppers gave an Election Notice it did not within ninety days thereafter give a Notice of Agreement to the Trustee, it was, again, deemed to have elected to surrender the lease: cl 3.4(f). As Peppers submitted, if negotiations as between HCP and, in this instance, Toga, were inchoate, that might contribute to uncertainty in the negotiations between Peppers and Toga. The ninety day negotiating period prescribed by cl 3.4(e) was non extendable. The effect, therefore, Peppers submitted, might be that the negotiating period expired before negotiations between Toga and HCP had advanced to the point that the terms of any proposed sale had acquired sufficient certainty for Toga in turn to be able to negotiate and reach agreement with Peppers for a new lease or a new Management Agreement. In that event, notwithstanding that the failure to reach agreement could not be laid at Peppers' feet, it would nevertheless be deemed to have elected to accept compensation in accordance with cl 3.3(a). Peppers submitted, in effect, that the parties could not have intended that the Master Agreement should operate in such an unreasonable manner. I would also accept this submission. 114 Palmer J also held that the Sale Notice was premature because, in his Honour's view, in the inchoate state of HCP's negotiations with Toga, it could not properly "estimate" the compensation payable under cl 3.3(a). HCP strongly challenged that conclusion, submitting that there had been no issue before Palmer J that the compensation estimated in the Sale Notice was genuine. I do not need to consider this aspect of his Honour's reasons as, in my view, the conclusion that the Sale Notices were premature can be sustained by reference to the matters which I have already explained.
149 One would then think that, consistently, the whole of any freehold estate must be the subject of the sale. 150 The word "any" thus means whatever estate or interest happens to be vested in the responsible entity for the time being. 151 I must confess that I prefer this construction to both that put on behalf of the respondent that "any" means the whole or part or that put by the appellant that it was to cover the case where the responsible entity held less than a fee simple in the land. 152 I should note that I was also unimpressed by the argument that a responsible entity could sell a one ten thousandth share as tenant in common and trigger the clause. That type of conveyance has been tried by the fiscally aware to avoid land tax, but has never been successful. The case of a sale of a 25% or 50% share, however, is in a different plight.
153 Accordingly, the Sale Notice procedure is only triggered if there is a sale of the whole of the responsible entity's estate or interest in the relevant Property. 154 The learned trial judge in his customary clear and lucid reasons came to a different view. I was, for a while convinced by what he said as he dealt with the two arguments presented to him. However, His Honour was not favoured with a deep consideration of the semantic significance of the verb, "sell" and thus no emphasis was placed on it in his reasons. 155 I said earlier that I did not consider that I could adopt the reasons of McColl, JA. This is for similar reasons, though I would not have given the same emphasis to external factors to the documents as Her Honour appears to have done. 156 I should note that, had I been of a contrary view, I may well have thought it appropriate to decline to make any declaratory order, because the concrete facts are not before the court and it is impermissible to give a mere advisory opinion no matter how much the parties desire it. 157 So far as the cross appeal is concerned, I would agree, basically for the reasons given by McColl, JA that it should be dismissed. I would add as supporting authority in another field, Re G.A.E Pty Ltd [1962] VR 252. 158 I agree with the orders McColl, JA proposes including the orders for costs.
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Peppers Hotel Management Pty Limited
Hotel Capital Partners Limited
(1973) 129 CLR 99
(1904) 1 CLR 158
(1997) 45 NSWLR 639
(1982) 149 CLR 337
(1960) 104 CLR 206
(1990) 20 NSWLR 310
(2001) 210 CLR 181
(1998) 71 SASR 206
(2002) 76 ALJR 436
(1977) 180 CLR 295
(2000) 200 CLR 591
(1968) 118 CLR 429
(2000) 200 CLR 59
[2002] HCA 5