Plaintiff v Defendant

1 This proceeding raises a question of construction of market rent review provisions in a commercial lease. The plaintiff, Growthpoint Properties Australia Limited, as sub-lessee, sub-lets premises at 130 Sharps Road, Tullamarine ("the Premises") from the defendant, Australia Pacific Airports (Melbourne) Pty Ltd, as sub-lessor, under a sub-lease dated 20 November 2001, which the parties refer to as the Ground Lease. The Ground Lease contains certain market rent review provisions, which contemplate the periodic review of rent to market, and which, the plaintiff contends, on their proper construction provide an obligation on the defendant to initiate the rent review on certain dates. Conversely, the defendant contends that it has a discretion whether to initiate the review.

2 The history of the demise of the Premises must be set out in some detail. The Commonwealth of Australia is the proprietor of the Premises, and by a lease dated 1 July 1997, leased the Premises to the defendant for a term of years which expires on 1 July 2047 ("the Head Lease"). On 20 November 2001, by the Ground Lease, the defendant sub-let the Premises to Australand Holdings Limited and D & R Santilli Constructions Pty Ltd for a term of years which expires on 30 June 2047. There followed a series of assignments of the Ground Lease:

(a) On 20 November 2001, Australand Holdings Limited and D & R Santilli Constructions Pty Ltd assigned the Ground Lease to Australand Industrial No. 3 Pty Ltd.[1]

(b) On 28 March 2007, Australand Industrial No 3 Pty Ltd assigned the Ground Lease to SAITeysMcMahon Property Ltd (subsequently renamed Orchard Property Ltd) as trustee of the Wholesale Industrial Property Fund unit trust.[2]

(c) On 4 August 2009, Orchard Property Ltd assigned the Ground Lease to the plaintiff.[3]

3 The Premises are also the subject of a sub-sub-lease. In October 2001, Australand Holdings Ltd and D & R Santilli Constructions Pty Ltd, entered into an agreement to sub-sub-let the Premises to Amatek Ltd (now known as Laminex Group Pty Ltd). On 12 July 2002, the then tenant, Australand Industrial No 3 Pty Ltd sub-sub-let the Premises to Amatek Ltd (now known as Laminex Group Pty Ltd), under a sub-sub-lease which the parties refer to as the Initial Sub-Sub-Lease. The term of the Initial Sub-Sub-Lease was 10 years, commencing on 24 June 2002, with two options of five years each. The Initial-Sub-Sub Lease remains on foot: by letters dated 18 May 2011 and 2 June 2011, Laminex Group Pty Ltd exercised the option to renew the Initial Sub-Sub-Lease for a further term of five years, commencing on 24 June 2012;[4] and on 20 November 2011, the plaintiff and Laminex Group Pty Ltd executed a deed of renewal and variation extending the first further term of the Initial Sub-Sub-Lease to 10 years, expiring on 23 June 2022.[5]

4 The rent review provisions which fall to be construed in this proceeding are found in clause 4.2 and Part B of Annexure B of the Ground Lease. Clause 4.2 of the Ground Lease provides:

On each Market Review Date, the Rent is to be adjusted by a market review in accordance with the Market Review Method, provided that during the term (including on the commencement of and during any further terms) of the Initial Sub-Sub-Lease, the last section of the Market Review Method headed "Rent not to be reduced" will be excluded.

On each Market Review Date, the Rent will be adjusted by a market review if:

(a) APAM gives written notice to the Tenant ("Rent Review Notice") setting out APAM's opinion of the market rent for the Premises as at the Market Review Date; and

(b) the Rent Review Notice is given to the Tenant in the period between 6 months before and 6 months after the Market Review Date.

The Rent stated in the Rent Review Notice applies from the Market Review Date unless the Tenant gives APAM a notice disputing the specified Rent ("Dispute Notice") within 21 days after the Rent Review Notice is given.

If the Tenant gives a Dispute Notice then within 14 days after the date the Tenant gives the Dispute Notice, APAM and the Tenant must refer the dispute to a Valuer who must determine the Rent payable after review as from the Relevant Review Date ("New Rent") within 30 days from the referral.

The Valuer's decision is as an expert and not as an arbitrator and is final and binding on the parties.

The fees of the Valuer must be paid equally by APAM and the Tenant.

The New Rent determined under this Part B applies from the relevant Market Review Date irrespective of when the Rent Review Notice is given or the determination is made. If the New Rent is determined after the Market Review Date, the Tenant must pay any adjustment when the next monthly payment of Rent is due.

Despite the other provisions contained in this Part B, the New Rent determined under this Part B to apply from and including a Market Review Date shall not be less than the rate of Rent payable in respect of the immediately preceding Lease Year.

5 It is uncontroversial that the ratchet mechanism contained in Part B under the heading "Rent not to be reduced" is not currently operative. As the Initial Sub-Sub-Lease remains on foot, the proviso contained in clause 4.2 excludes the ratchet mechanism with the effect that the rent may increase or decrease on review.

6 The Market Review Method is defined in clause 1 of the Ground Lease as:

The procedure for agreeing or determining the current market rent for the Premises set out in Part B of Annexure B.

Market Review Date is defined in clause 1 as "[e]ach date specified in item 18." Item 18 provides that the Market Review Date falls "[o]n the tenth (10th) anniversary of the Date of Practical Completion, and every five (5) yearly anniversary thereafter." The Date of Practical Completion is defined as:[6]

(a) the date the Tenant's Works are certified by the Tenant's architect as substantially complete except for minor omission and defects which do not prevent the Tenant's Works from being reasonably capable of being used for their intended purpose;

(c) the commencement date of the Initial Sub-Sub-Lease.

7 Clause 4.2 and Part B of the lease form part of a suite of rent review provisions, which include provisions relating to a CPI rent review, and a Fixed Percentage Increase rent review. Those provisions, which are not in issue in this proceeding, provide context to clause 4.2 and Part B:

On each Rent Adjustment Date, the Rent is to be adjusted by reference to the CPI Method.

On each Fixed Percentage Increase Date, the Rent is to be increased in accordance with the Fixed Percentage Increase Method.

On each Rent Adjustment Date, the Rent is adjusted by varying the Rent payable in relation to the Lease Year immediately preceding the Rent Adjustment Date by reference to the Consumer Price Index.

A calculation of Rent by reference to the Consumer Price Index is made using the following formula:

AR means adjusted Rent payable from the relevant Rent Adjustment Date.

CPIB means the Consumer Price Index figure for the quarter preceding the relevant Rent Adjustment Date.

CPIA means the Consumer Price Index figure for the quarter preceding the last Rent Adjustment Date or Market Review Date as at which the Rent was adjusted or reviewed or, where there has been no previous adjustment or review, the Commencement Date.

Consumer Price Index means the index published by the Australian Government Statistician under the heading "All Groups" for Melbourne.

If CPIB is not published until after the Rent Adjustment Date, the adjustment is made when it is published but the adjustment takes effect from the relevant Rent Adjustment Date. In the meantime, the Tenant must continue to pay the Rent at the old rate and, when the adjustment is made, must immediately pay the shortfall.

If the base of the Consumer Price Index is changed between the two comparison dates, an appropriate compensating adjustment must be made so that a common base is used.

If the Consumer Price Index is discontinued or suspended, then the calculation is to be made using whatever index is substituted for it. If no other index is substituted for it, the calculation is to be made using the index or calculation which the senior office-bearer in Victoria of the API (acting as an expert and not as an arbitrator) considers appropriate in the circumstances. His or her decision is binding.

The adjusted Rent determined under this Part A applies from the relevant Rent Adjustment Date irrespective of when the determination is made. If the adjusted Rent is determined after the Rent Adjustment Date, the Tenant must pay any adjustment when the next monthly payment of Rent is due.

An adjustment under this Part A will not be made if it would result in a decrease in the Rent payable.

On each fixed Percentage Increase Date, the Rent will be increase (sic) by the Fixed Percentage Increase. The adjusted Rent applies from the relevant Fixed Percentage Increase Date.

8 The definitional provisions relevant to the Fixed Percentage Increase Method are provided for in clause 1 of the Ground Lease as follows:

Fixed Percentage Increase the procedure for increasing the Rent set out in

Fixed Percentage Increase Date each date specified in item 19.

Item 19 provides that the Fixed Percentage Increase Date falls on "[e]ach anniversary of the Date of Practical Completion, except on a Market Review Date."

9 Further, the CPI Method is defined as "the procedure for adjusting the Rent set out in Part A of Annexure B".[7]

10 Clause 3 of the Ground Lease provides for the conduct of rent reviews after the expiry of the Initial Sub-Sub-Lease. Although the Initial Sub-Sub-Lease remains on foot, and therefore clause 3 is not currently applicable, the plaintiff submits that it is relevant to the construction of clause 4.2 and Part B. Clause 3 provides:

3. RENT REVIEWS AFTER THE INITIAL SUB-SUB-LEASE ENDS

3.1 On the date that the Initial Sub-Sub-Lease ends, the Rent must be adjusted by a market review in accordance with the Market Review Method as if that date were a Market Review Date, but with the exclusion of the last section headed "Rent not to be reduced."

3.2 From the date of the market review under special term 3.1, until a new Sub-Sub-Lease commences, the Rent will then be adjusted:

(a) subject to special term 3.2(b), annually on each anniversary of the date that the Initial Sub-Sub-Lease ends by reference to the CPI Method;

(b) on every 5 year anniversary of the date that the Initial Sub-Sub-Lease ends, by a market review in accordance with the Market Review Method, but with the exclusion of the last section headed "Rent not to be reduced".

3.3 On the commencement of a new Sub-Sub-Lease, the Rent will be adjusted by a market review in accordance with the Market Review Method, but with the exclusion of the last section headed "Rent not to be reduced".

3.4 During the term (including any further terms) of the new Sub-Sub-Lease, the Rent will be adjusted on the same dates and in accordance with the same method or methods of adjustment as the rent under the new Sub-Sub-Lease is adjusted, provided that at the commencement of any further terms of the new Sub-Sub-Lease, the Rent will be adjusted by a market review in accordance with the Market Review Method regardless of the rent review method specified in the new Sub-Sub-Lease, but with the exclusion of the last section headed "Rent not to be reduced" if the market review under the new Sub-Sub-Lease on that date does not include a provision or requirement to that effect.

3.5 At the end of the new Sub-Sub-Lease, the Rent will then be reviewed in accordance with this special term 3 as if the new Sub-Sub-Lease was the Initial Sub-Sub-Lease.

11 The controversy between the parties emanates from the use of imperative language in clause 4.2 ("is to be adjusted") and the use of conditional language in Part B ("will be adjusted...if"). The plaintiff submits that the meaning of clause 4.2 and Part B, when read together, is ambiguous: it is unclear whether the defendant is obliged to initiate a rent review by issuing the notice contemplated in Part B of the Ground Lease. The type of ambiguity contended for by the plaintiff is what is sometimes referred to as a patent ambiguity, in that the ambiguity appears upon the face of the contract.[8] Central to the plaintiff's thesis is the contention that clause 4.2 and Part B are incapable of being read harmoniously. The plaintiff submits:[9]

...[T]he language of Part B of Annexure B cannot sensibly be harmonised with the terms of clause 4.2 when the lease is read as a whole. There is a conflict between these two different parts of the lease which must be resolved.

At this point, the parties diverge. The defendant submits:[10]

14. The Market Review Provisions give the defendant lessor an entitlement, but not an obligation, to give the plaintiff lessee a rent review notice. This construction is dictated in particular by the conditional language of the Notice Clause (rent "will be adjusted by a market review if (emphasis added)) and is supported by other aspects of the Ground Lease including the use of similarly conditional language elsewhere in Part B...

15. Upon this construction, Clause 4.2 and the Notice Clause operate harmoniously...

As indicated above, the plaintiff submits, for various reasons which are addressed below, that on the proper construction of clause 4.2 and Part B, the defendant is obliged to initiate the review.[11]

12 It is well established that the general principles relating to contractual construction are applicable to leases.[12] Recently, in Electricity Generation Corporation v Woodside Energy Ltd,[13] the High Court reaffirmed those principles as follows:[14]

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties...intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience."

13 The text of a contract should be given its natural and ordinary meaning. The court should only depart from that natural and ordinary meaning so far as is necessary to avoid an inconsistency or absurdity.[15] If the language of the instrument is open to two constructions, preference will be given to the one which will avoid the result which is considered inconvenient or unjust.[16] It is well established that individual provisions need to be considered in the context of the instrument as a whole. In Highpoint Homemaker Centre (Vic) Pty Ltd v Sanstar Pty Ltd, Winneke P said:[17]

It is not in dispute that in construing an instrument of the type which we are asked to construe, it is the Court's duty to endeavour to discover the intention of the parties from the words of the contract. As Gibbs J said in Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109:

Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be resolved by other parts, and the words of every clause must, if possible, be construed so as to render them all harmonious one with another. If the words used 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.

These principles were expressed as part of a dissenting judgment but the principles cannot be thought to be in doubt because Barwick CJ, who with Stephen J formed the majority, said (at p 105):

But if that result is produced by the application of the words in which the parties have expressed themselves, it is not part of the function of a court by some process of divination as distinct from the construction of the language employed, to attribute to the parties an intention to do something for which their express words do not provide.

The court has no power to re-make the contract to avoid an unjust or inconvenient result. On the other hand, if the language of the instrument is open to two constructions, preference will be given to the one which will avoid the result which is considered inconvenient or unjust (per Gibbs J Australian Broadcasting Commission Australian Performing Rights Association Ltd, supra, at 109). It is the effect of these rules of construction that where a court can glean from the written instrument what can be seen to be the real intention of the parties, it is bound to give effect to that intention even to the extent of rejecting as superfluous whatever is repugnant to the intention which is discerned (NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VicRp 11; [1979] VR 92 at 95 per Kaye J; Gwyn v Neath Canal Navigation Co (1868) LR 3 Ex 209 at 215, per Kelly CB).

14 The process of discovery of the parties' intention is objective: it does not focus on the actual intention of the parties, but rather, the search is for what a reasonable person would understand by the language in which the parties have expressed their agreement.[18] In Reardon-Smith Line Ltd v Hansen Tangen,[19] Lord Wilberforce described the process of construction in the following terms:

...what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts forming part of an objective setting in which the contract is to be construed.

15 In the context of the interpretation of a rent review provision, Hardie Boys J said in Australian Mutual Provident Society v National Mutual Life Association of Australasia Ltd:[20]

In determining the construction to adopt, the Court must look at the document as a whole, rather than give emphasis to any particular part. And it must endeavour to ascertain the intention of the parties by reference to the commercial purpose, and to the practicalities, for the parties obviously intended that what they provided for should work in a sensible and realistic way. Those principles are not easy to apply in this case, for all there is is the sublease. There is no evidence of surrounding circumstances that may have provided some assistance in judging what the parties intended by the words they used. Nor is it suggested that the words used did not correctly record their agreement; there is no application for rectification or for a remedy under the Contractual Mistakes Act 1977. The case turns entirely on the sublease itself, and any inferences that may properly be drawn from it. But these are very limited. It is understandable that the sublessor may have desired rent reviews to be optional. It is equally understandable that the sublessee may have desired them to be obligatory. There are valid reasons for both alternatives.

16 The principles of construction are well established, as is the primary rule that the starting point is the words used by the parties in their contract. It is where there is ambiguity or inconsistency that the principles of construction are invoked to resolve the matter.

17 As indicated, the starting point for the plaintiff's case for an obligation to review is the contention that the terms of clause 4.2 and Part B are not capable of harmonious application. That is, the mandatory terms contained in clause 4.2 are inconsistent with the conditional language used in Part B. The plaintiff provides eight reasons as to why its preferred construction should be adopted, and I address each one in turn.

18 First, clause 4.2 is "expressed in imperative language."[21] I readily accept that the use of the "is to be" formulation expresses future time, and in that sense, it is imperative. In A Comprehensive Grammar of the English Language, Quirk, Greenbaum, Leech and Svartvik state:[22]

4.47 Concluding comments on constructions expressing future time

The foregoing five constructions are the most important methods of referring to future time. It has been found that in BrE the simple will/shall construction is much the most usual, followed by the simple present construction. (But by far the majority of simple present examples with future reference occur in dependent clauses, and are syntactically conditioned.) Of the remaining three constructions, be going to is the most common, followed by the present progressive, and finally by the will/shall + progressive construction. Although this last construction is least frequent, it is quite common in conversation contexts, and appears to be becoming more common.

Among other constructions referring to the future, reference must be made to the two quasi-auxiliary constructions be to + infinitive (cf 3.45f) and be about to + infinitive (cf 3.47). Be to is quite often used to refer to a future arrangement or plan:

In this use, be to + infinitive resembles the future use of the simple present (cf 4.45), except that the simple present cannot normally refer to the future unless accompanied by a time adverbial or some other future-referring expression.

To the extent that the use of the "is to be" formulation denotes an intention as to a future occurrence, it is correct to say that clause 4.2 can be read as imperative. However, the English language ventures further than that particular formulation in its ability to denote the imperative. In that sense, it is noteworthy that "must", "will", or "shall" do not appear in clause 4.2, whereas "must" and "will" appear in other parts of the Ground Lease. For example, the word "must" appears in clause 3.1:

[T]he Rent must be adjusted by a market review in accordance with the Market Review Method...

[T]he Rent will be adjusted by a market review in accordance with the Market Review Method...

I also note that clause 4.2 forms part of a series of provisions under the heading "Adjustment and Review of Rent." Clause 4.1 provides that on each Rent Adjustment Date, the Rent "is to be adjusted by reference to the CPI Method." Clause 4.3 provides that on each Fixed Percentage Increase Date, the Rent "is to be increased in accordance with the Fixed Percentage Increase Method." It is apparent that the parties have used the "is to be" formulation in each of clauses 4.1, 4.2 and 4.3. Part A and Part C of Annexure B of the Ground Lease are not framed in conditional language. Therefore, there is no tension between those Parts of Annexure B, and clause 4.1 and clause 4.3 respectively.

19 Secondly, the plaintiff submits that clause 4.2 is the "principal provision dealing with the market review of rent" and as such it "should be taken to govern what are, in effect, the subsidiary clauses which follow it in Part B..."[23] In support of this proposition, the plaintiff refers to the decision of Lockhart J in Myers v Pioneer Concrete (Vic) Pty Ltd.[24] Myers also concerned the construction of rent review provisions. The critical provision in that case was special condition 3, which contained an introductory paragraph, followed by several subclauses. The introductory paragraph contained several instances of imperative language, whereas the subclauses contained a mixture of permissive language, and imperative language. In so far as it is presently relevant, clause 3 provided:

3. The rent shall be reviewed at the end of each eighteen months of the term hereby created and any renewal thereof ("Rent Review Date") the first of such reviews will take place eighteen months from the commencing date and the rent for each successive eighteen month period of the term and any renewal thereof shall be determined as follows:

(a) The lessor may at any time by noticing (sic) in writing ("the lessor's notice") fix the rent at an amount which in the lessor's opinion would be the current open market rent of the premises as at the rent review date but no less than the rental payable by the lessee for the immediately preceding review period plus twelve point three two per centum (12.32%).

(b) The amount as fixed shall be the rent payable by the lessee for the next ensuing eighteen month period unless within fourteen (14) days of the lessor's notice the lessee notifies the lessor in writing that the lessee disputes the amount fixed by the lessor.

(c) If the lessee disputes the amount set out in the lessor's notice and if the parties after consultation, are unable to reach agreement as to the rent payable within thirty (30) days after the lessor's notice the current open market rent for the demised premises shall be determined by an independent valuer having not less than five (5) years experience in valuing suburban office space and not less than ten (10) years experience in commercial valuation and who shall be employed in a practice which is predominantly commercial in nature, such valuer to be appointed by the President for the time being of the Australian Institute of Valuers (Victorian Division) at the request of the lessor PROVIDED THAT:

(i) any determination by any such valuer shall be made as an expert and not as an arbitrator;

(ii) all costs incurred with the determination of the rent shall be paid by the lessee and the lessor equally;

(iii) the lessor and the lessee shall have the opportunity to make written submissions to any such valuer, such written submission or submissions to be made within one (1) month of the appointment of any such valuer;

AND the rent payable hereunder shall be the amount determined by any such valuer as the current open market rental value. In any event such rent shall not be less than the rent payable for the immediately preceding eighteen (18) month review period PLUS an amount equal to twelve point three two per centum (12.32%) of the total rent payable for the immediately preceding eighteen (18) month review period subject to sub-clause (d) hereof.

(d) With respect to the rent reviews to take place on the following rent review dates:

(i) fifty four (54) months from the commencing date;

(ii) one hundred and eight (108) months from the commencing date;

(iii) one hundred and sixty two (162) months from the commencing date; and if the option to renew this lease pursuant to special condition 4 hereof is exercised by the lessee;

(iv) two hundred and sixteen (216) months from the commencing date;

the rental shall be the current open market rent as agreed between the parties and failing agreement as determined by an independent valuer at the current open market rental with no additional increase of 12.32%.

(f) Should the amount of the rent for any period not be so determined by the appropriate rent review date, the lessee shall pending determination thereof pay rent at the rate specified in the lessor's notice referred to in special condition 3(a) hereof but subject to the revision thereof and upon the rent being determined hereunder any necessary adjustment of rent calculated from the rent review date shall be paid forthwith by the lessee to the lessor or reimbursed by the lessor to the lessee as the case may be.

20 The lessor in Myers submitted it had a discretion as to whether to issue a notice in writing under subcl 3(a), whereas the lessee contended that the issue of the notice was obligatory. The trial judge, Olney J, found in favour of the lessee. On appeal, Lockhart, Whitlam and Kiefel JJ agreed with the trial judge on that point, finding that the issue of the notice was obligatory by virtue of the imperative language contained in the introductory paragraph to cl 3, and reinforced by the imperative language used in the subclauses which followed. Lockhart J said:[25]

Special condition 3 imposes upon the parties a compulsory regime of review of rent at the end of each eighteen months of the fifteen year term granted by the lease. This is made clear by use of the imperative "shall" in the first line, "will" in the fifth line, and "shall" in the eighth line of special condition 3. These opening provisions of the special condition, which govern sub-clauses (a), (b), (c), (d), (e) and (f) that follow it, must, in my opinion, be taken as evincing the intention of the parties to the lease that there shall be a review of rent at the end of each eighteen-month period. This conclusion is reinforced by the language of paragraph (d) (and perhaps of paragraph (f)). Paragraph (d) commences with the words "With respect to the rent reviews to take place on the following rent review dates", at the intervals there stated, "the rental shall be...". Certainly, the word "may" in the first line of paragraph (a) is not used in the imperative sense as importing an obligation of the kind discussed in such cases as Julius v Lord Bishop of Oxford (1880) 5 App Cas 214; Ward v Williams [1955] HCA 4; (1955) 92 CLR 496; and Finance Facilities Pty Ltd v Federal Commissioner of Taxation [1971] HCA 12; (1971) 127 CLR 106; it is used in its primary facultative sense, empowering the lessor to give notice in writing to fix the rent in accordance with paragraph (a). However, the discretion conferred by the use of the word "may" does not refer to whether the notice is to be given at all but to the time at which it is to be given. On this point, I respectfully differ from the primary Judge who held that a notice could be given by the lessor at any time. If his Honour meant that it could be given either before or after the expiration of the current eighteen-month period of the lease, then I disagree. In my view it must be given before the expiration of the current eighteen-month term. Further, paragraph (a) does not mean that the lessor can decide not to give a notice at all (subject to paragraph (d) to which I shall refer later). The parties to the lease have assumed that there will be a review of rent at the end of each eighteen-month period. The lessor cannot, by simply refraining from giving a notice, prevent the review procedure set out in sub-clauses (a), (b), (c) and (d) taking place. If the lessor does decline to give a notice for whatever reason, then the lessee is entitled to seek relief from a court of competent jurisdiction, akin to a suit for specific performance, seeking orders that the lessor be required to give a notice in accordance with sub-clause (a), and, failing the lessor giving such notice, the court may appoint one of its officers to do the lessor's work for him - a decree familiar to courts of equitable jurisdiction.

The introductory paragraph in cl 3, and the use of imperative language in that paragraph, was treated by Lockhart J as "critical" to the construction of cl 3.[26] Likewise, Kiefel J found that "the words "shall" and "will" ought to be given their proper meaning,"[27] and further, that the imperative language contained in the introductory paragraph was reinforced by the subclauses which followed:[28]

Special Condition 3 of the lease here contains other indicators which tend to confirm, not deny, that a rent review was predicted, and intended to occur. The initial assertion that rent "shall be reviewed" (and as to the first, that it "will take place") is confirmed by the terms of paragraphs (d) and (f). In paragraph (d), the reference to the particular rent review dates at 54, 108, 162 and 216 months from commencement are expressed in the context of a regime of reviews "with respect to the rent reviews to take place on the following rent review dates...the rental shall be..." Paragraph (f), which provides for the rent to be paid pending determination of the proper rent where it has not been calculated by the rent review date again appears to assume that there will, for each period, be such a determination. These provisions make it difficult to accept the proposition that, nevertheless, the words requiring a review at the commencement of the Special Condition ought to be read down because a word imports some discretion in the lessor.

21 As indicated, the plaintiff relies on the decision in Myers in support of the proposition that clause 4.2 is the principal rent review clause, and Part B is subsidiary. But also, in a more general sense, the plaintiff submits that the lease considered in Myers best approximates the Ground Lease in the present proceeding, and of all the cases referred to by the parties in their submissions, Myers should be attributed special significance:[29]

Of all these cases which consider whether rent determination clauses are at the option of the lessor, the decision of the Full Court of the Federal Court in Myers & Ors v Pioneer Concrete (Vic) Pty Ltd cited above, which involved the construction of a lease which most closely approximates the Growthpoint lease, provides the clearest guidance.

In oral submissions, Counsel for the plaintiff drew a parallel between the lease considered in Myers and the Ground Lease in regard to the exclusion of ratchet provisions.[30] As indicated previously, it is uncontroversial that clause 4.2 of the Ground Lease operates to exclude the ratchet provision in Part B. Counsel for the plaintiff submitted that sub-cl 3(d) of the lease in Myers likewise excluded the ratchet mechanism in that lease.[31] In fact, as Counsel for the defendant submitted,[32] the majority in Myers, Kiefel and Whitlam JJ, did not construe sub-cl 3(d) as excluding the ratchet mechanism.[33] Kiefel J considered the effect of sub-cl 3(d) and stated: "It follows from the conclusions I have reached as to the operation of paragraph (d) that the rental will never decease (sic)".[34] Therefore, to that extent, there is no parallel between the Ground Lease, and the lease in Myers.

22 The defendant provides several further reasons as to why the decision in Myers is distinguishable from the present case, which include:

(i) Part B of the Sub-Lease does not contain a "chapeau," or introductory paragraph, containing imperative language, as observed in cl 3 in Myers.[35]

(ii) The imperative language used in cl 3 in Myers was "significantly different" to cl 4.2 of the Sub-Lease. "[T]he chapeau in Myers used the words "shall" (twice) and "will", in contrast to the words "is to be" (once) in Clause 4.2."[36]

(iii) The permissive language found in subcl 3(a) in Myers ("may") is in contrast to the "conditional" formulation used in Part B ("will...if").[37]

(iv) Subclause 3(d) in Myers reinforced the imperative language used in the introductory paragraph to cl 3. The Ground Lease does not contain any analogue to subclause 3(d).[38]

Evidently, there are important differences between the lease considered in Myers and the Ground Lease, as identified in the defendant's submissions. In respect to the plaintiff's contention that clause 4.2 is the principal rent review clause, and Part B, the subsidiary clause, Myers must be distinguished. Clause 4.2 is contained in the general conditions of the Ground Lease, which is prior to Part B, and does not appear as an introductory paragraph, or "chapeau" to Part B. This difference in proximity is important. In the Myers lease, the mandatory language appeared in the introductory paragraph in clause 3, and was immediately followed by the subclause containing permissive language. Lockhart J treated the introductory paragraph as governing the following subclauses, and, with respect, I think this was clearly the correct approach, given the proximity between the introductory paragraph and the following subclauses. In contrast, clause 4.2 provides:

On each Market Review Date, the Rent is to be adjusted by a market review in accordance with the Market Review Method...

(emphasis added)

The words "is to be adjusted in accordance with the Market Review Method" in clause 4.2 refer to Part B of the Ground Lease, a separate and self-contained part of the Ground Lease, and for that reason, Part B cannot be properly understood to be subsidiary to clause 4.2. The function of clause 4.2, together with the definition of "Market Review Method", is to take the reader to Part B, in the same manner that clauses 4.1 and 4.3, and the definitions of "CPI Method" and "Fixed Percentage Increase Method", take the reader to Parts A and Part C respectively; each of which are also separate and self-contained sets of provisions. Moreover, the provisions of Parts A and C could not be understood as, in any sense, being subsidiary provisions. Thus, the structure of clause 4 of the Ground Lease - clauses 4.1, 4.2 and 4.3 - is consistent in that when any of these provisions operate their effect is to "activate" a separate and self-contained set of provisions - Part A, Part B or Part C, respectively. Once these provisions "activate" the relevant Part their work is done, and the consequences for the rent payable under the Ground Lease is then dependant upon the operation of the separate and self-contained provisions of the Part that has been "activated."

23 In addition, and further to the proposition that Part B is subsidiary to clause 4.2, the plaintiff submits that the Market Review Method in Part B "is no more than mere machinery for the carrying out of the rent reviews which clause 4.2 requires to occur at certain times."[39] In oral submission, the Counsel for the plaintiff referred to a decision of Sir Richard Scott V-C in Royal Bank of Scotland plc v Jennings.[40] The lease before the Court in that case contained a rent review clause phrased in imperative language ("such review to be calculated in accordance with the Fourth Schedule"). The Fourth Schedule was cast in the following terms:

At the commencement of each Rental Period hereinbefore referred to, the revised rent may be agreed between the Landlord and the Tenant or in the absence of agreement determined by a specialist valuer (acting as an expert and not as an Arbitrator) such valuer to be agreed between the parties or nominated by the President for the time being of the Royal Institution of Chartered Surveyors upon application of the Landlord made at any time after commencement of the relevant rental period so that in case of such valuation the revised rent to be determined by the valuer (who shall give written reasons for his decisions) shall be as in his opinion represents the best yearly rent reasonably obtainable for the Demised Premises and on the supposition (if not a fact)...

At first instance, Evans Lombe J found that the landlord was under an obligation to review the rent if the tenant sought a review and the parties had failed to agree on the rental amount.[41] On appeal, Sir Richard Scott V-C said:[42]

In my judgment, the judge below came to the correct conclusion in regarding the case as one in which the landlord could not choose to frustrate the rent review provisions and in which the court would, if necessary, provide the requisite machinery. Whether, if I had been deciding the case at trial I would have chosen the route adopted by the judge, namely imposing a mandatory obligation on the landlord to make the requisite application to the president, I am not sure. That was the route chosen by the judge and perhaps it followed from his conclusion that an implied term with mandatory effect could be read into the rent review provisions. The mandatory order has been complied with by the landlord. In obedience to the order the landlord has applied to the president for the appointment of a specialist valuer. The specialist valuer has fixed a revised rent on the best yearly rent formula. The revised rent is, by some considerable sum, lower than the previous rent. In the circumstances, therefore, it is a matter of no materiality whether the judge was correct in choosing the mandatory obligation route as the appropriate form of relief or whether he should have devised some form of machinery to be substituted for the machinery in para 1 of the fourth schedule that the landlord had refused to operate. It may make a difference when subsequent rent periods arrive. But the decision in this case that the landlord does not have an option as to whether the rent review procedure is to be invoked or not will, I imagine, prevent any silly dispute arising in the future as to what should be done. I think the judge came to the correct conclusion for the reasons I have given and I would dismiss this appeal.

There are important differences between the Fourth Schedule considered by Sir Scott V-C in Royal Bank of Scotland plc and Part B of Ground Lease. First, the Fourth Schedule contains permissive language, whereas Part B contains conditional language. Secondly, the permissive language in the Fourth Schedule relates to whether the Landlord and the Tenant agree on the amount of rent payable ("the revised rent may be agreed"). That is, the Landlord and the Tenant were expressly "permitted" (or perhaps invited, as they could agree in any event) to agree on the revised rent. If they did not, then the rent was to be determined by a valuer. However, the conditional language in Part B relates to whether the rent is to be adjusted at all ("the Rent will be adjusted by a market review if..."). In the Fourth Schedule, the provision for agreement was followed by provisions for fixing the revised rent by a specialist valuer - in default of agreement. Thus, there was no discretion in either party, no conditionality, as to whether the rent would be revised. It would be revised - by agreement or, absent agreement, by a valuer. It is, therefore, and with respect, apt to characterise the procedures contemplated in the Fourth Schedule as "machinery." However, Part B does not admit of the same characterisation. Part B, in significant contrast to the Fourth Schedule, provides a condition precedent to the initiation of the rent review itself: that is, the rent will be adjusted by a market review if the landlord issues the notice. For those reasons, I do not accept that Part B is "mere machinery" in the manner contemplated by Sir Scott V-C. And further, for the reasons given previously, I do not accept that Part B is in any way subsidiary to clause 4.2.

24 The third reason relied on by the plaintiff is the fact that clause 4.2 excludes the operation of the ratchet provision in Part B, with the result that the rent might be decreased on review, so long as the Initial Sub-Sub-Lease remains on foot. The plaintiff submits:[43]

Given that the parties have agreed that the rent could go up or down on a Market Review, it makes little sense for them to be taken to have intended to preserve to the lessor a discretion as to whether or not to implement the Market Review procedure set out in Part B of Annexure B.

25 The plaintiff relies on a passage in the judgment of Kiefel J in Myers, which suggests that her Honour's decision may have been influenced by the ratchet mechanisms contained in clause 3 if the language of clause 3 were equivocal.[44] That is, the ratchet provision would have made it more likely that the lessor had a discretion. Her Honour's comments were not strictly relevant to the ultimate decision, given her Honour found that the language of clause 3 was unequivocally mandatory. Her Honour said:[45]

It follows from the conclusion I have reached as to the operation of paragraph (d) that the rental will never decrease. What may be taken as intended by the parties with respect to paragraph (d) is to provide some control mechanism on an ever-increasing rent. The question that then arises, according to my earlier observation, is whether the fact that the rental would never reduce affords reason to conclude that it was intended that the lessor have a complete discretion as to whether to give a notice requiring a review. It may be accepted the lessor will be most interested in any increase, to be achieved by setting the process in motion by the giving of notice. Were the language equivocal that may have operated as an important consideration. But the Special Condition not only describes a regime, as I have said, but the words used concerning the giving of notice are clearly obligatory and are stated on a number of occasions.

(emphasis added)

26 The proposition put in the plaintiff's submission is plausible. If the rent can only increase on review, then the review process cannot possibly benefit the tenant - the landlord is the only party that stands to benefit. It is more likely than not, therefore, that the landlord, in such a case, is intended to have a discretion to commence a review. However, an alternative proposition is also plausible. The parties may have intended that the landlord accept the risk of a rental decrease, whilst still maintaining a discretion whether to review. The defendant argues for the alternative proposition, which was accepted by the New Zealand Court of Appeal in Australian Mutual Provident Society v National Mutual Life Association of Australasia Ltd.[46] The issue in that case was the same as at present, namely, whether the sub-lessor had an obligation or a discretion to commence a review. The sub-lease in that case, did not contain any ratchet mechanism. The sub-lessee relied on the lack of a ratchet mechanism as evidence that the parties intended the review to be obligatory. At first instance, Barker J, who found for the sub-lessee, was heavily influenced by the absence of a ratchet clause. If the sub-lessor had a discretion as to whether to initiate a review, the sub-lessor could elect to undertake a review only when the rents are high. This would have the same effect as a ratchet provision, in circumstances where the parties had not included one in the terms of the sublease. [47] On appeal, the sub-lessor submitted that the lack of a ratchet clause supported a construction that review is at the sub-lessor's option, and that the word "may" should be given its "ordinary and natural meaning." Hardie Boys J agreed with that submission, and said:[48]

It is quite possible that what [the parties] intended was that, while the sublessor would not be required to invoke [the notice clause] at each review date, if it elected to do so it would accept the risk that despite its expectations the result would be that the rent was fixed at less than the rent previously applicable. That approach may well accord with commercial reality.

However, the absence of a ratchet clause was not a deciding factor in his Honour's reasoning. Hardie Boys J said:[49]

With respect, we cannot agree with Barker J that the deciding factors in the construction of the document are the wording of the demise clause and the absence of a ratchet clause. In determining the construction to adopt, the Court must look at the document as a whole, rather than give emphasis to any particular part. And it must endeavour to ascertain the intention of the parties by reference to the commercial purpose, and to the practicalities, for the parties obviously intended that what they provided for should work in a sensible and realistic way.

3.01 The Lessee shall pay to the Lessor during the term of this Lease the Base Rent at the rate hereinbefore specified or where increased in accordance with the express provisions of this Lease at the increased rate.

...

3.06(a) At any time not earlier than four (4) months (in which regard time shall not be of the essence) prior to each of the successive dates stated in Item 3 of the First Schedule (each of such dates being called 'the review date') the Lessor may give notice in writing to the Lessee setting out the amount which the Lessor considers to be the current market rent of the Land and the Building as at that particular review date...

There then followed provisions for the rent to be fixed by negotiation or, failing that, by representatives of the parties or by their umpire. Hardie Boys J found that the issue of the notice under 3.06(a) was at the discretion of the sub-lessor, and said:[50]

For the appellant, Mr Bornholdt submitted that the absence of a ratchet clause is no indication that a mandatory rent review was contemplated; rather, its absence strengthens his case, for the possibility that rent will be decreased on a review supports a construction that review is at the sublessor's sole option. His essential submission was that "may" is to be given its ordinary and natural meaning, and that if it is, the reset of the document can be read consistently with that meaning.

We agree with that submission. It would be permissible to construe the word "may" as "shall" if the document as a whole plainly requires that departure from its ordinary meaning. But in our view it does not; and indeed so to construe it results in a straining of the meaning of the document as a whole.

To read "may" as permissive is to give effect to the concept expressed in cl 3.06(c) that review is a right of the lessor. And although it means that following 30 November 1992 there may strictly be no determination pursuant to cl 3.06, that contingency is covered by cl 3.01 which applies during the whole term of the lease and not merely until that date.

...

Obviously these conclusions are not free from difficulty and doubt, but they are preferable to an interpretation which denies "may" its ordinary meaning, and has no regard to cl 3.01. Mr Bornhold [Counsel for the lessor] did not claim that that was in effect a ratchet clause, but although it may not negate a possible rent reduction, it certainly does not contemplate one. It therefore gives support to the conclusion that the [lessee] cannot insist on a rent review in order to obtain the advantage of a falling market.

27 The plaintiff seeks to distinguish the provisions considered in Australian Mutual Provident Society from clause 4.2 of the Ground Lease, submitting that there was no imperative expressed by the sub-lease in Australian Mutual Provident Society that the rent would be adjusted by a market review, and no removal of an otherwise operating ratchet. [51] I accept that the use of the imperative "shall" in clause 3.01 of the sublease in Australian Mutual Provident Society mandates payment of rent, but does not mandate a market review. This can be contrasted with clause 4.2, where the use of the imperative "is to be adjusted" refers to "the Market Review Method". However, in so far as the lack of a ratchet provision is concerned, Hardie Boys J explicitly eschewed an analysis that centred on the existence or otherwise of a ratchet clause. Hardie Boys J clarified that the rent review provisions were to be construed by reference to the whole instrument, rather than one particular part, such as the absence (or presence) of a ratchet provision.[52]

28 The defendant also relies on the decision in Sunflower Services Ltd v Unisys New Zealand.[53] That case concerned a waiver of a ratchet clause by a variation agreement executed by a lessor and a lessee. On appeal from the New Zealand Court of Appeal, the Privy Council advice was that the waiver did not give rise to an implication that the next rent review was obligatory. The rent review provisions in that case did not oblige the lessor to commence a rent review. Clause 3.5 of the lease provided that the "rent payable during the term of [the] Lease may be reviewed in the following manner" and then set out a procedure for the provision of a notice by the lessor, a dispute notice by the lessee, and a dispute resolution procedure. Clause 3.5(d) provided the ratchet mechanism:

Notwithstanding the foregoing no determination of rent pursuant to Section 3.5(a) and (b) shall operate to reduce the base rent payable by the Lessee below the base rent payable immediately prior to the particular review date...

The first rent review took place on 1 August 1988. Prior to the second rent review scheduled for 1 August 1991, the parties executed the variation agreement, which operated to waive the ratchet in clause 3.5(d). The relevant parts of the variation agreement provided:

4. It is a further term of the Agreement that Mayfair may review the annual rental with effect from the (sic) 1 August 1988, and at three yearly intervals thereafter. On Mayfair's behalf NTM now makes the following proposals in respect of rental review which is to be effective from 1 August 1991:

(i) That in consideration of the payment by Unisys to Mayfair of the sum of ONE DOLLAR ($1.00), the receipt whereof is hereby acknowledged, Mayfair will waive clause 3.5(d) of the lease in respect of the rent review to be effective from 1 August 1991;

(ii) That the foregoing waiver shall apply only to the rental review which is to be effective from 1 August 1991.

(iii) That Mayfair will ensure that proposal (i) above will bind any successors in title of Mayfair and/or Unisys House.

(iv) That in consideration of these premises Mayfair and Unisys will treat each of the foregoing proposals with the strictest of confidence;

(v) That Unisys pay for the preparation of this agreement.

(vi) That in all other respects the Agreement (including the obligation of Unisys to complete the Deed of Lease) shall continue and remain in full force and effect.

The lessee submitted that the words used in clause 4 of the variation agreement ("in respect of the rental review which is to be effective from 1 August 1991" and "the rent review to be effective from 1 August 1991") imposed an obligation on the lessor to hold a review as at that date. The Privy Council rejected the lessee's contention, as there was no doubt that on a literal interpretation of clause 4, it did not impose an obligation on the lessor.[54] Further, there was no implied obligation on the lessor to commence a review:[55]

Therefore, as the Court of Appeal appreciated, the question in the present case is whether an obligation on the lessor to activate the 1991 review is implicit in, or to be implied into, the variation agreement. The two factors relied on to raise such implication are, first, the three references to the relevant review as being one "which is to be effective from" or "to be effective from" and, second, that unless such implication is made the variation agreement becomes virtually pointless since the lessor can simply avoid a downward adjustment of the rent by refusing to serve a notice triggering the relevant 1991 review.

Their Lordships consider that, in the context of this variation agreement, there is no sufficient warrant for making such an implication. The words "to be effective from" do not necessarily import an absolute obligation to hold a review which will be effective: they are capable of being treated as words describing the only rent review under consideration, ie the 1991 review. They are words of description not of obligation. That this is their purpose is supported by the accurate recital in the first sentence of para 4 that the review is at the lessor's option ("Mayfair may review" (emphasis added)) and of such optional review being the annual rental "with effect from the (sic) 1 August 1988, and at three yearly intervals thereafter". It seems most improbable that the draftsman, having accurately recited the optional nature of the review, can have intended to change such an option into a mandatory obligation on the lessor to have a review without expressly including such a change in the proposals which are put forward for acceptance in subparas (i) to (vi) of para 4 of the variation agreement.

29 The plaintiff submits that "it is unremarkable that in interpreting the variation agreement the Privy Council considered that the lessor could not be compelled to serve a rent review notice - the very terms of the variation agreement and the underlying lease dictated this result."[56] Whilst the lease in Sunflower Services Ltd did not contain any instance of imperative language and, to that extent, it differs from the Ground Lease in this case, the plaintiff's submission ignores the Privy Council's consideration of whether the variation agreement gave rise to an implied obligation on the lessor to commence a review. The Privy Council considered whether such an implied obligation is necessary to give efficacy to the variation agreement - since the lessor could simply avoid a downward adjustment of the rent by refusing to serve a notice triggering the relevant 1991 review - and found that it was not.

30 The third case relied on by the defendant is Hemingway Realty Ltd v Clothworkers' Company.[57] In that case, the rent review clause was phrased in permissive language:

The Lessor shall have the right to review the yearly rent as at the Twenty fourth June in each of the years One thousand nine hundred and eighty two One thousand nine hundred and eighty nine One thousand nine hundred and ninety six Two thousand and three Two thousand and ten Two thousand and seventeen Two thousand and twenty four and Two thousand and thirty one in manner set out below...

The lease did not contain a ratchet mechanism, and the tenant contended that the purpose of the rent review clause would be defeated if the landlord alone could control the operation of the review.[58] Patten J considered United Scientific Holdings Ltd v Burnley Borough Council,[59] Royal Bank of Scotland v Jennings,[60] Australian Mutual Provident Society,[61] and Board of Trustees of the National Provident Fund v Brierly Investments Ltd[62] and concluded that everything depends upon the form of review which the parties choose to incorporate - the absence, or presence, of a ratchet mechanism did not create a presumption either way.[63] His Honour said:[64]

It seems to me obvious that the form and operation of any rent review clause will be a matter for the parties to agree. When, as in this case, the lease provides in clear terms for the right to review the rent to be exercisable by the landlord alone, I do not accept that the absence of an upwards only review formula is sufficient to require or permit the Court to construe the clause as requiring either a mandatory review or one which is exercisable by both the landlord and the tenant.

The plaintiff submits that it is unsurprising that the court construed the rent review clause as providing a discretion, given its clear terms.[65] This ignores the conclusion reached by Patten J that the absence, or presence, of a ratchet provision does not create a presumption either way.[66] This is a different proposition to the proposition advanced by the plaintiff - that the absence of a ratchet clause was not sufficient to require a construction placing an obligation on the landlord to review.[67]

31 The last case relied on by the defendant in respect to the absence of a ratchet mechanism is Board of Trustees of the National Provident Fund v Shortland Securities Ltd.[68] In that case, the issue was whether a contractual requirement that a lease must not contain a ratchet clause meant - as the appellant contended - that the lease should be construed as compelling the landlord to give a rent review notice. Counsel for the appellant submitted that unless the rent review is obligatory the agreement to exclude a ratchet clause is of no actual consequence; therefore the lessor must have an obligation to initiate the rent review. The rent review clause in that case did not contain any form of imperative language, and the appellant's argument rested primarily on its submissions concerning the agreement to exclude the ratchet clause. Richardson, Gault and McKay JJ rejected the appellant's submissions, and said:[69]

It is clear that the ability of the lessor to elect not to have the rent reviewed effectively negates the benefit of the exclusion of the ratchet clause. It will be a rare case in which a lessor initiates review without being confident that the rent will increase as a result, but that does not make the provisions inconsistent. The provisions are clear in their terms and are capable of being read and of operating together in that the prospect of rent reduction is preserved in the event of a review. That is what the parties agreed to, albeit because they did not advert to that consequence.

The defendant relies on this decision, whereas the plaintiff seeks to distinguish it on the ground that the rent review clause did not contain any imperative language - that is, the only possible factor which would support an obligation was the agreement not to include a ratchet provision.[70] In my view, their Honours' reasoning is relevant in so far as it concerns the effect of the absence of a ratchet clause. In particular, their Honours saw no inconsistency between the absence of a ratchet provision, and a landlord's discretion to review.

32 In my view, the balance of authority supports the defendant's contention that the exclusion of a ratchet provision does not create a presumption that the parties intended to oblige the landlord to review the rent. There are many reasons why parties negotiating a lease may choose to exclude a ratchet mechanism, chief among which would be the tenant's desire to ensure an even playing field, so to speak, in the event that a review is initiated. It may be a small concession for a landlord to make to allow for the possibility of a rental decrease in order to finalise the negotiation of a lease. But, in the absence of other indicia of intention, such as the use of imperative or permissive language in the rent review provisions themselves, the exclusion of a ratchet provision does not create a presumption in favour of an obligatory review. That of course, does not answer the question of construction which falls for determination in this case. It is axiomatic that the rent review provisions must be interpreted in the context of the lease provisions as a whole. Therefore, in so far as clause 4.2 excludes the ratchet provision in Part B, it must inform the construction of the rent review provisions in clause 4.2 and Part B. Importantly, in and of itself, the exclusion of the ratchet provision does not speak for an intention to mandate a review. I am strengthened in this conclusion by the following consideration of the purpose of rent review provisions, which is the next reason proffered by the plaintiff in favour of an obligation to review.

33 As indicated, a further ground submitted by the plaintiff in support of an obligation to review is the purpose of rent review provisions generally. It is convenient to deal with this point fourthly, as it follows on conceptually from the discussion above in respect to the absence of a ratchet provision. It will be readily appreciated that where a ratchet provision appears in a lease, an obvious conclusion as to the purpose of the rent review provision is that it enables the rent to keep pace with inflation to the benefit of the landlord. However, where a ratchet provision is not included in a lease, or, as in this case, where a ratchet provision is positively excluded, the position becomes more ambivalent. If the rent can move upwards or downwards, which party stands to benefit, and what does that indicate about the purpose of the rent review process itself? If the rent review provisions are for the benefit of the defendant only, then it is more likely that the parties would have intended the defendant to have an option as to whether to initiate the rent review, and conversely, if the rent review provisions are for the benefit of the plaintiff and the defendant equally, then it is more likely that the parties would have intended the rent review to take place without any discretion on the defendant's part, or the plaintiff's part for that matter. On this point, the plaintiff submits:[71]

Also of significance is the length of the lease: some 46 years from its execution date of 20 November 2001 to its 30 June 2047 termination date. Rent review provisions are for the benefit of both landlord and lessee, particularly in the prevailing economic circumstances where landlords seek long term leases in a competitive property market in which tenants contemplate that market rents may fall. It is inherently unlikely that the lessor and the original lessee would have agreed to a rental clause in a 46 year lease of commercial premises which had no capacity for the rent to be brought into line with the market from time to time. The construction of the lease propounded by APAM is seriously detrimental to the interests of the lessee.

34 Much has been written, both in the cases, and the text books, about the purpose of rent review provisions in leases. As observed by Reynolds and Fetherstonhaugh, from around the time of the University and Colleges (Leases etc) Act of 1575, rental prices were often determined by reference to the price of corn, or the prosperity of a tenant's business.[72] In Walsh v Lonsdale (1882) 21 Ch D 9, the rent was linked to the number of looms the tenant had installed on the demised premises. With respect to the purpose of rent review provisions in a modern context, the plaintiff relies on the decision of the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council;[73] a decision which has been described as containing "the classic judicial statement explaining, and providing the justification for, the introduction of rent review provisions into leases..."[74] That case concerned two sets of rent review provisions contained in two separate leases (the Burnley, and the Cheapside Leases), and raised a different question to that in issue here: whether the timing of the steps to be taken in accordance with certain rent review provisions was of the essence of the contract. Their Lordships agreed that the time-table specified in the rent review clauses for completion of the various steps for determining the rent payable in respect of the period following the review date was not of the essence of the contract.[75] Therefore, a failure to comply with the time-table for rent review, without more, did not deprive the landlord of the right to insist on a rent review. In that context, certain of their Lordships considered the commercial purpose of rent review provisions. Lord Diplock noted that the rent review clauses under both the Burnley and the Cheapside Leases could only have the effect of providing for the payment of a higher rent, and said:[76]

So the only party who can benefit from a review of rent under these clauses is the landlord. It is accordingly unlikely that the tenant would take the initiative in obtaining a review of the rent, even where the clause contains provision for his doing so...

Viscount Dilhorne considered the question from a different perspective, taking into account the motivations of the landlord and the tenant at the time the rent review provision is negotiated:[77]

But I do not think it true to say that a rent review clause, if its operation can only lead to an increase in rent, only operates to the financial advantage of the lessor. If he is not prepared to agree to the inclusion of such a clause in the lease, a tenant may find a landlord unwilling to let except at a higher rent than he would demand if there was a review clause, in order to secure some protection against the effect of inflation during the currency of the lease. Indeed, in the absence of a review clause, the tenant may find a landlord unwilling to let for the term he desires.

Lord Salmon made similar observations:[78]

In a period of acute inflation such as we have experienced for the last 20 years or so, and may well continue to experience for many years to come, what is a fair market rent at the date when a lease is granted will probably become wholly uneconomic within a few years. Tenants who are anxious for security of tenure require a term of reasonable duration, often 21 years or more. Landlords, on the other hand, are unwilling to grant such leases unless they contain rent revision clauses which will enable the rent to be raised at regular intervals to what is then the fair market rent of the property demised. Accordingly, it has become the practice for all long leases to contain a rent revision clause providing for a revision of the rent every so many years. Leases used to provide for such a revision to be made every 10 years. Now the period is normally every seven and not infrequently every five years. To my mind, it is totally unrealistic to regard such clauses as conferring a privilege upon the landlord or as imposing a burden upon the tenant. Both the landlord and the tenant recognised the obvious, viz., that such clauses are fair and reasonable for each of them. I do not agree with what has been said in some of the authorities, namely, that a rent revision clause is for the benefit of the landlord alone and not at all for the benefit of the tenant. It is plainly for the benefit of both of them. It is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises.

Rent review clauses have only become common in comparatively recent years, certainly since the last war, and their main purpose is to protect the revenues of landlords from the effects of inflation. From the landlord's point of view a rent review clause is an important, almost indispensable, term of the contract if he is to agree to a lease for a long period, during which inflation may well continue. The clause is also in a less direct way of benefit to the tenant, because, without it, he would not normally be able to get the security of tenure which is afforded by a long lease, except perhaps by paying a rent which in the early years of the lease would be far above the current market level. The rent review clause has thus become a convenient device to facilitate the granting of long leases in an inflationary age, and its main purpose is the same whatever the exact machinery specified in a particular clause.

It is clear from these extracts that their Lordships viewed the benefit of a rent review to the landlord as being the ability to adjust rent to market, and thus secure rental increases. The benefit to the tenant was seen as the security of a long lease. The plaintiff, on the other hand, submits that the benefit of rent review to landlords is the security of a long lease, and the benefit to tenants is the ability to adjust to market, and thereby secure a rental reduction. The plaintiff's submission is, however, at odds with the observations of the members of the House of Lords in United Scientific Holdings Ltd, which are set out above. Thus, in so far as the plaintiff relies on those observations for its proposition, it must establish some other basis or bases which transcend their Lordships' position. That said, it is far from an economic certainty that rents will always increase, especially in rental markets catering to declining industries, or where property prices fall. It is possible, in such a climate, that the commercial imperatives of the landlord and tenant may be the reverse of the position in a rising rental market. Indeed, by excluding the ratchet mechanism in Part B, clause 4.2 of the Ground Lease expressly allows for a reduction in rent.

35 In my view, the observations of their Lordships in United Scientific Holdings Ltd, mindful as they were of the reality of fluctuating economic conditions over time, remain as relevant today as they were in the late nineteen seventies; though their application, as their Lordships would have anticipated, must take account of current economic conditions. Indeed, Reynolds and Fetherstonhaugh, describe the statement of Lord Salmon, reproduced in the preceding paragraph, as a "classic exposition of the object of rent review provisions...".[80] Moreover, having regard to contemporary economic history in this context the learned authors add:[81]

...two qualifications now (2012) need to be made in the light of changes in circumstances during the 30 years or more which have passed. First, the "21 years or more duration" which was perceived to be the norm as at the mid-1970s should now be replaced with reference to the shorter terms (10 to 15 years) which are now more common. Second the reference to the "period of acute inflation", which must have seemed never-ending viewed towards the end of the 1970s, can now be put in its historical perspective after decades in which inflation has, to some degree and for some long periods, been brought under effective control by monetary policy, and low inflation (or even deflation) in the economy can be contemplated as a reasonable possibility. Even with these important qualifications, however, the passage from United Scientific remains a perceptive and illuminating explanation of why rent review became such a vital element in the complex commercial bargain made between prospective landlords and tenants of property in England and Wales.

36 In other authorities, the process of rent review is apparently treated as being for the landlord's benefit only. In British Gas Corp v Universities Superannuation Scheme Ltd, Sir Nicolas Browne Wilkinson V-C (as he then was) said:[82]

There really is no dispute that the general purpose of a provision for rent review is to enable the landlord to obtain from time to time the market rental which the premises would command if let on the same terms on the open market at the review dates. The purpose is to reflect the changes in the value of money and real increases in the value of the property during a long term.

37 In the same manner, Dillon LJ said in Equity & Law Life Assurance Society plc v Bodfield Ltd:[83]

There is no doubt that the general object of a rent review clause, which provides that the rent cannot be reduced on a review, is to provide the landlord with some measure of relief where, by increases in property values or falls in the real value of money in an inflationary period, a fixed rent has become out of date and unduly favourable to the tenant.

38 Windeyer J in Quirk v Commonwealth[84] referred to the above remarks of Sir Nicolas Browne Wilkinson V-C, and Dillon LJ, and said:[85]

The means by which rent review clauses afford landlords relief in respect of increases in property values or falls in the value of money is by providing, normally, for a valuer, in default of agreement, to assess the up-to-date rent for the demised premises at successive review dates. In making that assessment the valuer will be achieving the intended purpose of keeping the rent in line with current property values having regard to the current value of money if, but only if, he assesses the up-to-date rent on the same terms (other than as to quantum of rent) as the terms still subsisting between the parties under the actual, existing lease. If he departs from those terms, and assesses the up-to-date rent on the footing of terms materially less onerous to the tenant than those in the actual, existing lease, the rental at which he arrives will reflect, in addition to the rental increases attributable to a rise in property values or a fall in the value of money, an additional element, viz the increased rental attributable to the fact that he is calculating the rent of a lease on terms more favourable to the tenant than the terms in the actual, existing lease. Conversely, if he assesses the up-to-date rent on the basis of terms materially more onerous to the tenant than those in the actual existing lease, the rental figure at which the valuer arrives will not fully reflect the rise in property values or the fall in the value of money since the lease was granted or the rent was last fixed.

Nevertheless, in many respects this is merely to emphasise one side of the picture to the extent that it is said that the landlord is the beneficiary because the real value of the rent is maintained, in spite of the changing value of money, and the rent is kept in line with the current rental market. It may be less clear that the tenant could be said to benefit from the maintenance of the real value of obligations under a lease and the maintenance of parity with the current rental market but, again, this depends on the economy and the rental market. In deflationary times or a falling rental market, unconstrained rent review provisions would be likely to benefit the tenant.

39 There is also a great deal of discussion on the purpose of rent review to be found in the text books. Duncan describes the general purpose of rent review clauses as follows:[86]

The general purpose of rent review clauses is to allow a lessor to obtain from time to time the then current market rent for the premises. The purpose of the clause is to reflect changes in the value of money and real increases in the value of property over the term of the lease.

40 Bradbrook, Croft and Hay describe the purpose of rent review in similar terms: [87]

In the most general terms the usual purpose of rent review clauses in leases is to endeavour, as far as possible, to keep the initially agreed rent at the same real value throughout the term of the lease having regard to the effect of inflation and changing economic conditions to the extent that they affect the relevant rental market. This does not mean that in some cases the parties may not have agreed to 'real' increases of rent during the lease term - as is often the case where a landlord in a new development will seek to establish new tenancies and businesses and for this purpose provide low rents initially, both as an incentive and, in some cases, financial assistance to tenants establishing new businesses.

41 Clarke and Adams provide a useful, and detailed, discussion of the purpose of rent review clauses:[88]

The objective of variable rents can thus be more precisely identified as a method to maintain so far as possible the original bargain struck between the parties, a bargain that would otherwise be radically transformed by the impact of inflation. Messrs Colyer and Brewer have suggested (Blundell Memorial Lectures 1977) that it is because a grant of a lease involves a division of ownership that inflation so seriously affects the agreement of the parties; in enhancing the value of the lessee's interest the bargain may be effectively destroyed. (The authors of that lecture consequently adopted the term 'inflation proofing' to describe the process of utilising variable rent devices in the terms of the lease to combat the problem.) The provision for payment of a periodically reviewable rent in a lease thus becomes one term of the contract between the parties.

If a periodic attempt is made to maintain and restore the original bargain between lessor and lessee it is not only the fall in the value of money by inflation that can be taken into account, for the bargain was made in relation to a particular property, the intrinsic value of which might also have altered and fluctuations in its market value may differ from the rate of inflation. For example, there may be a general increase in property values that is considerably greater than the rate of inflation or property levels overall might fall while inflation continues. Similarly, local issues might modify property values: for example, the attractiveness, say, of a new shopping precinct will have a spin-off effect of adjoining premises. (Consideration of just such an event and of the exact time at which it started to affect rent levels in near-by shopping streets formed a significant issue in Ratners (Jewellers) Ltd v Lemnoll Ltd (1980) 255 EG 987.) The older forms of variable rents are unable properly to account for such fluctuations in the market value of particular premises. This is particularly true of indexation. Only a sophisticated, complex and detailed property index could provide an index that could truly allow for fluctuations in property market values - and such an index appears not to exist at the present time. A well-drawn rent review clause will cope with all such changes in that it will allow the substitution of a rent that will most closely accord with the parties' original bargain, a rent that might well have been agreed if the parties were concluding their bargain at the later date.

The objective of a rent review clause may be viewed as the means of restoring the position of the parties in the light of changes in money values and in the property market. In theory, such a review clause ought to allow the rent to be adjusted up or down. This argument was accepted by Cross J in Stylo Shoes Ltd v Manchester Royal Exchange Ltd (1967) 204 EG 803 where in an application for a new tenancy under Landlord and Tenant Act 1954, Pt II, the plaintiff tenants successfully argued for the inclusion of a clause giving them a right to apply for a reduction of the rent in the review after seven years if conditions then warranted, such application balancing the landlords' right to apply for an increase at that time. Provision for an upwards or downwards review on statutory renewal was also made in Janes (Gowns) Ltd v Harlow Development Corporation (1979) 253 EG 799. In practice, however, many (if not most) clauses allow for a rent to move upwards only, a trend that results from the stronger bargaining power of lessors and their desire to protect their investment in every way they can; a trend in which tenants tend to acquiesce since the prospect of a downwards review proving appropriate has, so far, been slight. However, 'upwards only' clauses limit the objective of rent review clauses to countering the effect of inflation on the monetary value of the rent or on the value of the property rather than in every case restoring the true value of the lessor's and lessee's interests under the lease.

The modern rent review clause in commercial leases will be more complex and more far reaching in its implications than its nineteenth century forerunners but the overall objective is not dissimilar. Its flexibility has enabled lessors to reduce the impact of inflation and other external factors on the value of their investment. Yet that very flexibility has contributed to the problems facing the draftsman of the review clause and the parties who, some years later, set the prescribed review machinery in motion.

42 As the preceding discussion indicates, it is not a simple task to discern the objective purpose of rent review provisions in any particular case - or more generally. The difficulty lies in the fluctuations of the rental market and changing economic conditions. As a general proposition, the objective purpose of a rent review provision should be understood in the context of the rental market at the time the lease was executed, and by reference to the nature of the demised premises, and also, by reference to the length of the lease.[89] A safe starting point is to say that 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. In the absence of a ratchet provision, it is uncontroversial to say that a variable rent, which might move upwards or downwards on review, is a method to maintain, so far as possible, the original bargain struck between the parties in real financial and current market terms. It is equally uncontroversial to say that, all things being equal, rents trend upwards over time - and more clearly so the longer the period of time considered. This, of course, must be qualified having regard to anomalous economic circumstances, such as a recession, depression, or property market crash. It must also be qualified where the demised premises is only capable of catering to a specific industry, which might be volatile, or liable to decline. However, in so far as rents normally increase over time, in my view, 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. This is especially so where the term of the lease is substantial. In my view, the purpose of clause 4.2 and Part B, read together, in the context of clause 4.1, clause 4.3 and Parts A and C of Annexure B, is to benefit the defendant by safeguarding it against the deleterious effects of inflation and to maintain parity with the current rental market over time. As indicated previously,[90] the consideration of the commercial purpose of a contractual provision is intrinsic to its construction.

43 The fifth reason advanced by the plaintiff in support of its preferred construction relates to the definition of Market Review Method in clause 1 of the Ground Lease. Clause 1 defines Market Review Method as "the procedure for agreeing or determining the current market rent for the Premises set out in Part B of Annexure B." The plaintiff emphasises the use of the words "for agreeing or determining" and submits that the use of "determining" "sits uneasily with an interpretation of the actual procedure as one which reserves to the lessor an option whether or not to engage in the determination."[91] I am not persuaded by this submission. Part B provides for the determination of the market rent in default of agreement, and the definition of Market Review Method, therefore, accurately describes the operation of Part B. It does not bear on whether the review is mandatory or discretionary. The definition of Market Review Method is consistent with an obligation to review, but it is also perfectly consistent with a discretion. That is, if the review is discretionary, and the defendant elects to review, it does so in the knowledge that the rent may fall to be determined, in default of agreement, by a valuer as contemplated in Part B.

44 The sixth reason relied on by the plaintiff in support of its preferred construction relates to the rent review mechanism contained in the Initial Sub-Sub-Lease. Under the Initial Sub-Sub-Lease, either the sub-sub-lessor (the plaintiff), or the sub-sub-lessee (Laminex Group Pty Ltd) could initiate a rent review. Clause 5 of the Initial Sub-Sub-Lease provides:

(a) At any time during the period of 6 months immediately prior to a Market Review Date until 7 months after that Market Review Date, either party ("First Party") may give the other party ("Other Party") a notice ("Notice") stating the First Party's assessment of the current annual market rent of the Premises on that Market Review Date. The Rent from and including the relevant Market Review Date is to be the amount decided under this clause 5.

(b) Time shall be of the essence in relation to clause 5.1. If either party fails for any reason to exercise its rights to have the rent reviewed on a Market Review Date within the time prescribed in clause 5.1(a) or (b), then such right for that Market Review Date will automatically end.

Clause 5 is then followed by provisions allowing for the issue of a dispute notice by the Other Party, and for the resolution of such a dispute by a valuer. The plaintiff submits that the Ground Lease was executed with the contemplation of the Initial Sub-Sub-Lease coming into effect, and therefore, the Ground Lease should be construed by reference to the terms of the Initial Sub-Sub-Lease, and in particular, the terms of clause 5.1(a). The plaintiff submits:[92]

29. ...Clause 4.2 of the lease provides, in effect, that rent under the lease may decrease, but only during the term and any further terms of the Initial Sub-Sub-Lease. Moreover, the definition of the Market Review Date in the lease, which is referable to the tenth anniversary of practical completion, primarily concerns the commencement of the Initial Sub-Sub-Lease. However the Initial Sub-Sub-Lease (which had an initial term of 10 years from 24 June 2002 to 23 June 2012, with two further options of five years each) expressly provides in clause 5 that either party may initiate the market review of the rent. Further, the Market Review Date under the Initial Sub-Sub-Lease, being the first day of the first further term if the option is exercised, falls on the same date as the Market Review Date under the lease - that is, the tenth anniversary of the Date of Practical Completion - 24 June 2012. It may fairly be expected that it was within the contemplation of the parties that the rent review mechanisms under the Initial Sub-Sub-Lease and the lease align, and be compatible. Also to be noted in this regard is the provision in clause 3.4 of the Special Terms of the lease that provides, in effect, that if any new sub-sub-lease allows the rent to go down, the ratchet clause will not apply.

The defendant contends that the rent review provisions in the Initial Sub-Sub-Lease do not support the plaintiff's construction on the basis that the parties to the Ground Lease and the Initial Sub-Sub-Lease are different,[93] the Initial Sub-Sub-Lease was executed 8 months after the Ground Lease,[94] and the rent review provisions in the Initial Sub-Sub-Lease are not compatible with the those in the Ground Lease - that is, they were intended to operate differently.[95]

45 The basis for the admissibility of the Initial Sub-Sub-Lease to assist in the construction of the Ground Lease is not to be found in the principle allowing documents forming part of the same transaction to be relied on in aid of construction. That principle presupposes that the document sought to be relied on formed part of the same transaction between the same parties. This is not the case here, as the parties to the Ground Lease, and the parties to the Initial Sub-Sub-Lease are different, and the two documents cannot properly be described as forming part of the same transaction. Although there is some suggestion that contemporaneous documents may be relied on, even where the contemporaneous documents and the document sought to be construed are not executed by the same parties,[96] the better approach is that the Initial Sub-Sub-Lease, if it is to assist at all, is evidence of surrounding circumstances, or factual background. Surrounding circumstances, sometimes referred to as background, or the matrix of fact, include anything which would have affected the way in which the language of the document would have been understood by a reasonable person.[97] It is well established that evidence of surrounding circumstances may be admitted to assist in the construction of a contract. The Australian orthodoxy on this point is founded on the well-known passage of Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales:[98]

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract where it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although...if the facts are notorious knowledge of them will be presumed.

46 Since his Honour's statement of the law, the High Court has delivered several decisions in relation to which it has been observed that evidence of surrounding circumstances may be admitted even in the absence of ambiguity.[99] These cases include Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530; and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151. In Franklins Pty Ltd v Metcash Trading Ltd, Allsop P considered those cases and said:[100]

The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at 188 [11]; Pacific Carriers v BNP Paribas (at 461 [22]); Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm (at 179 [40]) and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and objective of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances.

47 Notwithstanding his Honour's enunciation of the law on this point, it is, with respect, in apparent tension with Codelfa, and two subsequent reaffirmations by the High Court of the principles in Codelfa. In Royal Botanic Gardens and Domain Trust v South Sydney City Council,[101] Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said:[102]

Two further matters should be noticed. First, reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it. Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] ([1998] 1 WLR 896 at 912-913; [1997] UKHL 28; [1998] 1 All ER 98 at 114-115) and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali ([2002] 1 AC 251 at 259, 269; cf Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 at 394-395; Yoshimoto v Canterbury Golf International Ltd [2000] NZCA 350; [2001] 1 NZLR 523 at 542) in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible "background" than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa (Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395 at 403 [17])

And more recently, in Western Export Services Inc v Jireh International Pty Ltd,[103] Gummow, Heydon and Bell JJ considered Franklins and the applicability of Codelfa. This decision appears to be the most recent statement by the High Court of the law on this point:[104]

1. The primary judge had referred to what he described as "the summary of principles" in Franklins Pty Ltd v Metcash Trading Ltd ((2009) 76 NSWLR 603; 264 ALR 15; [2009] NSWCA 407 at [19] and following). The applicant in this Court refers to that decision and to MBF Investments Pty Ltd v Nolan ([2011] VSCA 114 at [195][204]) as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. The applicant also refers to statements in England said to be to the same effect, including that by Lord Steyn in R (Westminster City Council) v National Asylum Support Service ([2002] 1 WLR 2956; [2002] 4 All ER 654; [2002] UKHL 38 at [4][5]).
2. Acceptance of the applicant's submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW ((1982) [1982] HCA 24; 149 CLR 337 at 352; [1982] HCA 24; 41 ALR 367 at 374; [1982] HCA 24 (Codelfa).) by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.
3. The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council ((2002) 240 CLR 45; 186 ALR 289; [2002] HCA 5 at [39]) and it should not have been necessary to reiterate the point here.
4. We do not read anything said in this Court in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451; 208 ALR 213 ; [2004] HCA 35 at [22]); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd ((2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40]); Wilkie v Gordian Runoff Ltd ((2005) 221 CLR 522; ; at ) and ((2008) ; ; ; ) as operating inconsistently with what was said by Mason J in the passage in to which we have referred.

48 In light of the decisions in Royal Botanic Gardens and Domain Trust and Western Export Services Inc, this Court is bound to apply the principles as expounded in Codelfa.[105] This is consistent with two recent decisions of the Court of Appeal in Pepe v Platypus Asset Management Pty Ltd[106] and Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd.[107] In any event, whether ambiguity is required or not, regard may be had to the terms of the Initial Sub-Sub-Lease, given that, as indicated above, the relevant provisions of the Ground Lease are ambiguous.

49 As a preliminary observation, the execution of the Initial Sub-Sub-Lease post-dates the execution of the Ground Lease.[108] However, the Deed of Agreement to sub-sub-let the Premises was executed in October 2001, before the execution of the Ground Lease, and that agreement annexed an unexecuted version of the Initial Sub-Sub-Lease, comprising the same terms as the executed version. The parties to the Deed of Agreement to sub-sub-let the Premises were Australand Holdings Limited and D & R Santilli Constructions Pty Ltd, as prospective sub-sub-lessors, and Amatek Ltd (now known as Laminex Group Pty Ltd), as prospective sub-sub-lessee. Therefore, a version of the Initial Sub-Sub-Lease, in the same terms as the executed version, was extant prior to the execution of the Ground Lease. As such, it forms part of the circumstances surrounding the making of the Ground Lease.

50 Unsurprising, having regard to the objective theory of contract, in the consideration of surrounding circumstances, facts which are known to only one party are not relevant.[109] Lewison and Hughes in The Interpretation of Contracts in Australia, make the following observation:[110]

It is, of course, the case that facts which were not known to either party at the date of the contract are not relevant to the construction of the contract, for if the facts were unknown they cannot have played any part in forming the presumed intention which is embodied in the contract. However, where a fact is known to one party and not to the other, in theory it may well have played a part in forming the intention of the party who knew that fact. However, unless a fact is known to both parties, it will not be admitted in evidence, because the court is seeking not the actual intention of one party to the contract, but the presumed mutual intention of both of them.

In the present case, there is no issue in this respect and it can be taken that the terms of clause 5.1(a) of the Initial Sub-Sub-Lease were known to the defendant, Australand Holdings Limited and D & R Santilli Constructions Pty Ltd.

51 Consequently, for the preceding reasons it is, in my view, immaterial that the parties to the Initial Sub-Sub-Lease and the Ground Lease are different. The utility of the Initial Sub-Sub-Lease in the construction of the rent review provisions of the Ground Lease is as part of the factual matrix, not as part of the one transaction between the same parties. However, one aspect of the plaintiff's case on this point is not sustainable because of the lack of privity between the parties from one instrument to the other. The plaintiff submits:[111]

It is improbable that the parties to the lease and the Initial Sub-Sub-Lease would have contemplated a situation where there could only be a market review of rent under the lease at the option of the lessor, but there could be such a review at the option of the lessor and the lessee under the terms of the Initial Sub-Sub-Lease.

This submission is flawed as a matter of logic. There were three original parties to the Ground Lease - the defendant, as landlord, and Australand Holdings Limited and D & R Santilli Constructions Pty Ltd, as tenants. It is their common intention which must be assessed, objectively, in this case. The equation expands to four parties if the parties to both the Ground Lease and the Deed of Agreement to sub-sub-let the Premises are considered as a unit. The common intention of all four parties is not relevant in construing the terms of the Ground Lease.

52 However, to the extent that the rent review provisions of the Ground Lease, and those of the Initial Sub-Sub-Lease are incompatible, the Initial Sub-Sub-Lease is of little assistance. The terms of clause 5.1(a) of the Initial Sub-Sub-Lease are phrased in a manner that expressly entitles either party to commence a review. The plaintiff submits:[112]

The point...is that in construing the meaning of clause 4.2 and Part B...reference to the commercial background and context of the transaction (including the terms of the Initial Sub-Sub-lease) indicates that in that "parallel" lease either party had a right to institute a market review of rent.

It is manifest from their contrasting terms that the Ground Lease, and the Initial Sub-Sub-Lease, are not "parallel" instruments. If the parties intended the rent review provisions of the Ground Lease to operate in the same manner as those of the Initial Sub-Sub-Lease, it is natural to expect that the parties would have used a form of words reflective of clause 5.1(a). Evidently, they did not. The best objective explanation for this disparity is that the parties did not intend the rent review provisions of the Ground Lease to operate in the same manner as those of the Initial Sub-Sub-Lease. It does not support an obligation to review, and, if anything, it weighs against that construction. Ultimately, whether the parties intended the review to be discretionary, or obligatory, depends on the construction of the language deployed in clause 4.2, Part B and associated provisions to which reference has been made.

53 The seventh reason relied on by the plaintiff in support of its preferred construction relates to the terms contained in Part B under the heading "New Rent payable from Market Review Date." I reproduce those terms here for ease of reference:

The New Rent determined under this Part B applies from the relevant Market Review Date irrespective of when the Rent Review Notice is given or the determination is made. If the New Rent is determined after the Market Review Date, the Tenant must pay any adjustment when the next monthly payment of Rent is due.

This clause is of the type sometimes referred to as a "true-up" clause. As a preliminary observation, the "true-up" clause only contemplates payment by the tenant to the landlord. In this respect, clause 20.4 of the Ground Lease is relevant. It provides:

(a) In its sole discretion, APAM may (without notice) apply any credit balance in any account of the Tenant with APAM in relation to this lease towards satisfaction of any other amount then payable by the Tenant to APAM under this lease.

(b) In its sole discretion, APAM may (by notice to the Tenant) reduce the amount of any credit owing or amount payable at any time by APAM to the Tenant under this lease by the amount payable at that time by the Tenant to APAM under this lease. The Tenant is taken to have paid APAM that part of the amount then payable by the Tenant equal to the amount of the reduction.

In my view, the true-up clause, when read in conjunction with clause 4.2 and 20.4(b), allows for both a payment by the tenant to the landlord of an amount reflecting a rental increase, or an adjustment of the amount payable by the tenant to the landlord reflecting a rental decrease. Nevertheless, the provisions of clause 20.4 are general in nature and would accommodate a variety of financial obligations of the parties under the Ground Lease.

54 The plaintiff submits that the true-up clause supports an obligation to review, in the following manner:[113]

In these terms [the true-up clause] is consistent with an assumption by the parties that there will, for each relevant period, be such a determination. The language of the clause refers to "any adjustment", not to "any increase."

I am not persuaded by this submission. The function of the true-up clause is to give effect to a change in rent from the Market Review Date, notwithstanding that the notice may be given, or the rent determined, at a later date. The true-up clause does not indicate whether the defendant is obliged to commence the review, or whether the defendant has a discretion. In my opinion, it is consistent with both of the competing constructions in this case. Moreover, as has been observed, the provisions for set off contained in clause 20.4 are general in nature, and consequently, are not indicative of any particular construction of the rent review provisions.

55 The eighth reason advanced by the plaintiff in support of its construction relates to clause 3 of the Special Terms of the Ground Lease, which provides:

3. RENT REVIEWS AFTER THE INITIAL SUB-SUB-LEASE ENDS

3.1 On the date that the Initial Sub-Sub-Lease ends, the Rent must be adjusted by a market review in accordance with Market Review Method as if that date were a Market Review Date, but with the exclusion of the last section headed "Rent not to be reduced".

3.2 From the date of the market review under special term 3.1, until a new Sub-Sub-Lease commences, the Rent will then be adjusted:

(a) subject to special term 3.2(b), annually on each anniversary of the date that the Initial Sub-Sub-Lease ends by reference to the CPI Method;

(b) on every 5 year anniversary of the date that the Initial Sub-Sub-Lease ends, by a market review in accordance with the Market Review Method, but with the exclusion of the last section headed "Rent not to be reduced".

3.3 On the commencement of a new Sub-Sub-Lease, the Rent will be adjusted by a market review in accordance with the Market Review Method, but with the exclusion of the last section headed "Rent not to be reduced".

3.4 During the term (including any further terms) of the new Sub-Sub-Lease, the Rent will be adjusted on the same dates and in accordance with the same method or methods of adjustment as the rent under the new Sub-Sub-Lease is adjusted, provided that at the commencement of any further terms of the new Sub-Sub-Lease, the Rent will be adjusted by a market review in accordance with the Market Review Method regardless of the rent review method specified in the new Sub-Sub-Lease, but with the exclusion of the last section headed "Rent not to be reduced" if the market review under the new Sub-Sub-Lease on that date does not include a provision or requirement to that effect.

3.5 At the end of the new Sub-Sub-Lease, the Rent will then be reviewed in accordance with this special term 3 as if the new Sub-Sub-Lease was the Initial Sub-Sub-Lease.

56 It is apparent from clause 3.1 that the provisions in clause 3 only apply from the date the Initial-Sub-Sub-Lease ends. Therefore, as the Initial-Sub-Sub-Lease remains on foot, clause 3 is not presently operative. The language of clause 3 does, however, provide a contrast to clause 4.2 and Part B: the use of "must be adjusted" in clause 3.01 and "will then be adjusted" in clause 3.02 may be compared to the use of "is to be adjusted" in clause 4.2. The plaintiff submits that the court should have regard to the provisions in clause 3 in construing clause 4.2 and Part B:[114]

Clause 3...expresses in clear language the imperative agreed by the parties that the Rent "must" (clause 3.1) be adjusted by a market review in the circumstances there provided and that the Rent "will" (clauses 3.2-3.5) be adjusted in the other circumstances mentioned.

The defendant, on the other hand, submits that the disparity in the use of imperative language between clause 3 and clause 4.2 supports a discretion to review:[115]

"Must" and "will" are more clearly and strongly imperative words than "is". The use of "is" in Clause 4.2, in contradistinction to the stronger "must" and "will" in clause 3 of the Special Terms, detracts from the suggestion that Clause 4.2 was intended to convey that a notice is mandatory. If the parties had understood the word "is" in Clause 4.2 to convey an imperative, it is unclear why they instead employed the stronger words "must" and "will" in clause 3 of the Special Terms.

In my view, clause 3 does not support the plaintiff's case. The trigger for the operation of clause 3 is the end of the Initial-Sub-Sub-Lease. This contextualises the disparity in language between clause 3, and clause 4.2. That is, clause 3 and clause 4.2 create two different rent review regimes: the first regime under clause 4.2 and Part B applies during the term of the Initial-Sub-Sub-Lease; and the second regime under clause 3 and Part B applies after the end of the Initial-Sub-Sub-Lease. Viewed in this way, it is explicable that the parties chose to use different language in both provisions. I accept the defendant's submission that "must" and "will" denote the imperative with greater force than the formulation "is to be."[116] This is not to say that clauses 3.1 or 3.2 create an obligation to review. In my view, a similar problem of construction arises in respect of those provisions. However, the fact that the parties did not choose to deploy "must" or "will" in clause 4.2, when they did deploy those words in clause 3, is a telling consideration. Clearly words of clear mandatory import were within the vocabulary of the parties when drafting and negotiating the Ground Lease terms - but they did not choose to use them.

57 As indicated previously, the defendant submits that the rent review provisions give the defendant an entitlement, but not an obligation, to give the plaintiff a rent review notice.[117] The key difference between the defendant's approach to the construction of the Ground Lease, as opposed to plaintiff's, is that the defendant seeks a construction which allows clause 4.2 and Part B to operate harmoniously,[118] whereas the plaintiff rejects the notion that clause 4.2 and Part B are even capable of operating harmoniously.[119] The defendant provides five reasons in support of its preferred construction.

58 First, Part B is framed in conditional language.[120] In my view, this submission must be accepted. The use of the "will...if" formulation conveys futurity, condition, and subordination. This is confirmed by Quirk, Greenbaum, Leech and Svartivik in A Comprehensive Grammar of the English Language:[121]

The most common way of expressing futurity is the modal auxiliary construction with will, shall, or 'll.

The modal verb will (or the contracted form 'll; cf 3.39-40) is used with future meaning with subjects of all three persons.

The central uses of conditional clauses express a DIRECT CONDITION: they convey that the situation in the matrix clause is directly contingent on that of the conditional clause. Put another way, the truth of the proposition in the matrix clause is a consequence of the fulfilment of the condition in the conditional clause. Here is an example:

In uttering [1] the speaker intends the hearer to understand that the truth of the prediction 'she'll scream' depends on the fulfilment of the condition of 'your putting the baby down'. The hearer also in practice infers the converse:

However, the speaker may cancel this implication by hedging (expressing some uncertainty, cf 8.124, 8.126):

If you put the baby down, she'll scream. But she may scream anyway.

15.34 Subordinators and structural types of clauses.

The two simple subordinators for conditional clauses are if and unless. The most common and most versatile of the conditional subordinators is if; we therefore generally employ it in the sections that follow to illustrate the different uses of conditional clauses. The negative subordinator unless is the next most common.

59 The word "if" denotes condition and subordination. In fact, in the context of the English language, it is the most common circumstance adverbial subordinator where used to denote condition.[122] The Oxford English Dictionary provides, in so far as relevant, the following for "if":

1. Introducing a clause of condition or supposition (the protasis of a conditional sentence).

On condition that; given or granted that; in (the) case that; supposing that; on the supposition that.

1. With the conditional clause or protasis in the indicative. The indicative after if implies that the speaker expresses no adverse opinion as to the truth of the statement in the clause; it is consistent with his acceptance of it.

(In modern use the indicative is preferred to the subjunctive in cases which lie near the border-line of 1 and 2.)

a. Conditional clause in pres. (or pres. perf.) ind.

α. with principal clause in present (or pres. perf.) indicative.

1878 J. Morley Carlyle in Crit. Misc. 200 If he does see it, he rides roughshod over it.

1899 N.E.D. at If, Mod. If he does it, he will be punished

1899 N.E.D. at If, Mod. If they are not good, throw them away.

1899 N.E.D. at If, Mod. If records are to be trusted, there was no famine this year.

60 The Macquarie Dictionary contains the following definitions:

if /if/ conjunction 1. In case that; granting or supposing that; on condition that. 2. Even though. 3. Whether. - noun 4. A condition; a supposition. - phrase 5. If only, (used to introduce a phrase expressing a wish, especially one that cannot now be fulfilled or is though unlikely to be fulfilled): if only I had known!; if only he would come! [Middle English; Old English gif].

61 In any event, by the following submission, the plaintiff appears to accept that Part B is framed in conditional language:[123]

It may be accepted that Part B of Annexure B expresses that the rent "will be" adjusted "if" APAM gives written notice to the tenant, and that at least insofar as part B of Annexure B is concerned, this is unambiguous. However it is unhelpful to speak of Part B of Annexure B divorced from clause 4.2 of the lease...

62 The defendant submits further that Part B clearly contemplates the possibility of the defendant not giving a notice, in which case a review would not take place.[124] In my view, this is correct, and follows from the use of conditional language. The defendant then submits that the use of the "will...if" formulation is a stronger indication of the intention to create a discretion to review than the word "may", which was open to the parties to use.[125] "May" is a modal verb, and is used to convey epistemic possibility - it "denotes the possibility of a given proposition's being or becoming true."[126] Another use of "may" is to denote permission.[127] In my view, if "may" had have been used by the parties, without the use of "if" and a subordinate clause, the result would have been a statement of permission, rather than condition, and in that sense, the defendant's submission should be accepted.[128]

63 The second reason advanced by the defendant relates to the use of further conditional language in Part B. The defendant submits that all instances of the conditional language in Part B should be interpreted consistently. Other instances of conditional language in Part B include:

The Rent stated in the Rent Review Notice applies from the Market Review Date unless the Tenant gives APAM a notice disputing the specified Rent ("Dispute Notice") within 21 days after the Rent Review Notice is given.

If the Tenant gives a Dispute Notice then within 14 days after the date the Tenant gives the Dispute Notice, APAM and the Tenant must refer the dispute to a Valuer...

...If the New Rent is determined after the Market Review Date, the Tenant must pay any adjustment when the next monthly payment of Rent is due.

64 The thrust of the defendant's submission here is that if the "will...if" formulation in Part B is interpreted as creating an obligation, then, in order to be consistent, the other instances of conditional language in Part B should be interpreted in the same fashion. The difficulty in interpreting the other instances of conditional language as creating an obligation to do the thing contemplated is immediately apparent on a moment's reflection. The rent in the rent review notice applies unless the tenant gives a dispute notice. It would be absurd to construe the provision as obliging the tenant to give a dispute notice. Further, if the rent is determined after the market review date, there must be a rental adjustment when the next monthly payment is due. Again, it would be absurd to construe the agreement as being one that obliges the parties to determine the new rent after the market review date. I accept that the conditional language used in respect of the issue of the rent review notice must, in order to be consistent with the other provisions in Part B, be interpreted as imparting a discretion to the defendant to issue the rent review notice. However, this, of itself, does not resolve the tension between Part B and clause 4.2. To this effect, the plaintiff submits:[129]

There is no suggestion that Part B of Annexure B is internally inconsistent: the question of construction which arises is how Part B of Annexure B is to be understood when viewed in the context of clause 4.2 and the lease as a whole.

Imperative Language in Part C

65 Thirdly, the defendant draws a comparison with the use of imperative language in Part C of Annexure B of the Ground Lease, which immediately follows Part B. Part C provides:

PART C - FIXED PERCENTAGE INCREASE METHOD

On each fixed Percentage Increase Date, the Rent will be increase (sic) by the Fixed Percentage Increase. The adjusted Rent applies from the relevant Fixed Percentage Increase Date.

This language may be contrasted with the conditional "will...if" formulation in Part B. If the parties had intended Part B to operate to compel APAM to give a rent review notice (rather than giving it a choice), it may be assumed that they would have said so by drafting Part B in non-conditional language as was done in Part C.

I accept that the imperative language in Part C supports the conclusion that Part B is intended to operate conditionally. The function of Annexure B is to provide different methods of rent review - the CPI Method in Part A, the Market Review Method in Part B, and the Fixed Percentage Increase Method in Part C. Part B is the only method described in Annexure B that employs conditional language. However, these observations do not necessarily resolve the tension between clause 4.2 and Part B, as submitted by the plaintiff in reply.[131]

66 The fourth reason advanced by the defendant concerns the relationship between clause 4.2 and Part B. Clause 4.2 refers to "a market review in accordance with the Market Review Method," which, the defendant submits, expressly directs attention the requirements of Part B:[132]

This language and structure indicates that it is Part B to which the reader must primarily look in ascertaining the parties' rights and obligations in respect of market review.

67 In my opinion, this submission must be accepted. The language of clause 4.2 makes it clear that the parties intended the market review to be conducted in accordance with the market review method set out in Part B. The plaintiff submits that Part B does not have primacy over clause 4.2, because clause 4.2 uses imperative language ("is to be adjusted") and operates to exclude the ratchet mechanism.[133] In my opinion, the imperative language, and exclusion of the ratchet mechanism, do not change the character or effect of the words "in accordance with the Market Review Method." I am strengthened in this conclusion in light of the decision of the Supreme Court of Western Australia in Commonwealth of Australia v GIO Compulsory Third Party Insurance Ltd;[134] the decision of this court in R & H Australia Pty Ltd v Salta Constructions Pty Ltd;[135] and the decision of the Queensland Court of Appeal in Pacific Cinemas (Loganholme) Pty Ltd v Longhurst.[136]

68 Commonwealth of Australia v GIO Compulsory Third Party Insurance Ltd[137] concerned rent review provisions contained in the body of a lease, and the body of a letter. The letter provided:

The first rent review for the Premises will occur on 1 April 1993 and thereafter at subsequent two (2) yearly intervals during the term of the lease and all extensions. The rent review will be in accordance with the definition of 'Current Market Rent' and the rent review procedures set out in the ASC Lease.

The Parties acknowledge that should there be any inconsistency between the provisions of this letter and the lease and the licence then the terms of this letter prevail to the extent of any inconsistency and the provisions of letter (sic) shall not merge upon execution of the lease or licence.

The plaintiff's case there rested on the use of the words "will occur" in clause 8 of the letter. The defendant in that case pointed to the permissive language in the rent review provisions contained in the body of the lease, which provided:

33. At any time not earlier than six (6) months prior to each of the rent review dates set out in the Schedule ('the Rent Review Dates') the Lessor may by notice in writing to the Lessee fix the Rent (subject as herein provided) at an amount which in the opinion of the Lessor will be the then Current Market Rent of the Premises and unless the Lessee notifies the Lessor in writing within twenty eight (28) days of receipt by the Lessee of the Lessor's notice that the Lessee considers the Rent fixed by the Lessor pursuant to the subclause not to be the Current Market Rent of the Premises the amount so fixed will be the Rent payable by the Lessee as from the Rent Review Date in respect of which notice has been given...

Further provisions allowing for a dispute notice from the lessee, and the resolution of a dispute by a third party valuation then followed. White J found that the review was not mandatory, as the imperative language used in the letter ("will occur") was to be understood "as defining the specific dates of the rent reviews and not as making a rent review mandatory on each such date." His Honour said:[138]

The provision in cl8 of the Letter to the effect that the first rent review "will occur" on 1 April 1993 and thereafter at subsequent two yearly intervals is to be understood, in my opinion, as defining the specific dates of the rent reviews and not as making a rent review mandatory on each such date. The rent review procedures are specifically to accord with the provisions of the ASC Lease and are identical to the terms of cl33 of the lease under consideration. The only difference between the dates referred to in cl8 of the Letter and the rent review dates in the ASC Lease is that the latter refers to a commencing date of 1 September 1993.

For the reasons already expressed above, I do not consider that there is any relevant inconsistency between the Lease and the Letter, which would require that the terms of the Letter prevail over those of the Lease.

If it had been the intention of the parties that the lessee would be entitled to insist upon a review of the rent if the lessor did not give the notice under subcl33(a) of the Lease, it would have been simple to make express provision to that effect.

69 The plaintiff submits that the lease in Commonwealth of Australia v GIO Compulsory Third Party Insurance Ltd did not include a ratchet clause, and on that basis, clause 8 of the letter differs from clause 4.2, which operates also to exclude the ratchet mechanism in Part B of the Sub-Lease.[139] Notwithstanding this difference, in my view, the decision in Commonwealth of Australia v GIO Compulsory Third Party Insurance is helpful. In particular, White J's consideration of the relationship between cl8 and the rent review procedures set out in the ASC Lease is instructive.

70 In R & H Australia Pty Ltd v Salta Constructions Pty Ltd[140] the lease Schedule stated that the rental payable after a certain period "shall be determined in accordance with the provisions of Clause 8..." Clause 8.1 provided that "[t]he lessor may by notice in writing to the lessee fix the annual rent..." The lessee submitted that the use of the mandatory "shall be determined" in the Schedule had the effect of obliging the lessor to set the rent adjustment procedure in motion. Byrne J rejected the lessee's submission, and said:[141]

The obligation is to pay the rental "at the rate set out in the Schedule". This part of the Schedule has already been set out in this judgment. Mr Vickery fastened attention upon the mandatory "shall be determined" in that provision.

I turn to clause 8, which sets out in some detail the rental adjustment procedure. This procedure does not contemplate any right in the tenant itself to initiate a rental adjustment. I refer to clause 8.1, 8.2 and 8.5.

Furthermore, it contemplates the possibility that the lessor might not itself take the first step by giving notice under clause 8.1. It is clear that the lessor may without losing its right to give notice, defer giving it until the next review date. In such a case, or where no notice is given, the old rental is payable (clause 2(a)).

In my opinion, this is sufficient to dispose of Mr. Vickery's argument, for this then is a determination "in accordance with provisions of clause 8".

Mr Vickery's argument fails, in my view, to accommodate the many indications in clause 8 that the lessor has the right or power, but not the duty, to set in train the rent adjustment procedure. I refer to clause 8.1: the word "may": 8.2: the whole of that sub-clause; and clause 2(a): the proviso.

It may be that this consequence is not one intended by the parties, and my attention has been drawn to their attempts to eliminate provision in the lease that rental must always be increased when it is adjusted. But the document must be determined in accordance with its terms and effect, and of that effect I have no doubt.

71 In Pacific Cinemas (Loganholme) Pty Ltd v Longhurst[142] the rent review clause in question provided:

(a) The Annual Rent hereby reserved shall be reviewed upon each anniversary of the Commencing Date (herein called 'the Review Dates'). The reviewed Annual Rent shall be the amount derived by adding to the Annual Rent for the Rental Year last concluded the percentage of such Annual Rent set out in s 1 of the Schedule.

(b) Without in any way limiting the operation of para (a) of this subclause, the Annual Rent shall be further reviewed in the following manner: -

B. The Lessor may, at a date not earlier than six (6) months prior to the commencement of a Rental Year the subject of a market rent review pursuant to this sub-clause, and not later than six (6) months after the commencement of such relevant Rental Year, give notice in writing to the Lessee specifying the amount which in the Lessor's opinion is the Current Open Market Rental of the Lease Premises for the relevant Rental Year.

These provisions were followed by further provisions allowing for a dispute notice from the lessee, and resolution of any such dispute by a third party valuation. The Court of Appeal held that the subclause was "on its face, mandatory in providing for a 'further' review in the years when it operates because...the word 'shall' appears to introduce such an element especially in contrast with the potentially more discretionary 'may' which appears in the following subclause."[143] The subordination of the permissive "may" to the imperative "shall" was critical. As indicated previously, I am not of the view that Part B, in the present proceeding, is subordinate to clause 4.2.[144]

72 Fifthly, the defendant submits that the true-up clause, which is discussed above in respect to the plaintiff's case, supports its preferred construction. The defendant emphasises that the true-up clause only contemplates a one way payment by the tenant to the landlord, which could only occur if the rent had been increased upon a review:[145]

The failure of the Ground Lease to contemplate the possibility of such a refund or offset is consistent with the parties having intended that the rent was likely only to increase upon a review because of the lessor's discretion, rather than obligation, to give a review notice.

The relevance of the defendant's submission, as I understand it, is not to contend that the rent can only be increased. As indicated above, the intention of the parties is plain on the face of clause 4.2, namely that the rent can increase or decrease during the life of the Initial Sub-Sub-Lease. The submission is intended to advance the following inductive reasoning: the parties neglected to include express wording allowing for the payment by the landlord to the tenant (or a set off against the rental payable by the tenant) because, even though a rental decrease was theoretically possible, the parties did not expect it. Therefore, according to the defendant, the parties expected a rental increase, which is consistent with a discretion to review. The defendant relies on two authorities in this respect: Harben Style Ltd v Rhodes Trust[146] and Australian Mutual Provident Society v National Mutual Life Association of Australasia Ltd.[147]

73 In Harben,[148] it was common ground that the lease did not contain a ratchet provision. However, as in the present case, the lease did contain a true-up clause that appeared to only allow for the payment by the tenant to the landlord of rental arbitrage following a rental increase. The relevant provision provided:

...and on the first quarter-day after the said yearly rent shall have been ascertained [the tenants] shall pay the excess if any of the aggregate amount of the rent which has already been paid as compared with what should have been payable hereunder from the beginning of the said review period until the said quarter-day if the said yearly rent had been ascertained before the beginning of the said review period over and above the aggregate amount of rent actually paid by the tenants from the beginning of the said review period until the said quarter-day.

Judge Rich QC considered that term and said:[149]

That is an express provision for making up the rent to the review amount; there is no provision in such circumstances, as one find (sic) in some leases, for, for example, interest upon such notional underpayment, nor could any be implied. Nor is there any provision - in case there is no excess of the ascertained rent as compared with that which has been paid, but rather that which has been paid exceeds that which would have been determined - for any repayment by the landlord. A declaration was sought in respect of such possible excess payment by the tenants, but I am not asked to determine whether the clause should be taken as implying such obligation in the circumstances of the view that I have taken as to the effect of the main clause. Nevertheless, I think it right to say that I doubt whether there could be implied an obligation to pay back any excess, having regard to the express words that have been used which go to deal only with the alternative circumstance. That absence of provision must, in my judgment, at least cast some further doubt on any possible implied obligation of the landlord to embark upon a review which he has decided is likely to be unfavourable to him. It raises a number of problems; for example, if there were such an implied obligation, when is it to be enforced? If the obligation was postponed so that the determination was made only after the lapse of the five-year period then, unless there is to be implied a term to make repayment, the determination would have no effect upon the rent which was actually paid and payable.

74 The plaintiff submits that the above passage should be viewed in the particular circumstances of the case before Judge Rich QC, which included a rent review clause that lacked any imperative language. Indeed, his Honour found that the rent review provisions were unambiguous: the landlord had a discretion whether to initiate a review.[150] The plaintiff submits:[151]

The Court's reference to the True-up clause, which was in different terms to that in the Growthpoint lease in any event, was that it did not refer to the making of an "adjustment", was a minor matter and must properly be understood in the context of a lease which contained materially different provisions to those in the Growthpoint lease.

In my view, although Judge Rich QC's analysis of the true-up clause was not the decisive factor in that case, it is helpful here. The difference in language between the true-up clause in that case, and the true-up clause in this case, is not material, as the two provisions share an important commonality - they both provide for payment by the tenant, and seemingly neglect to provide for payment by the landlord, in circumstances where the rent can travel upwards or downwards.

75 Australian Mutual Provident Society[152] is discussed in detail above.[153] Hardie Boys J's reasoning shows that his Honour attributed some significance to the fact that clause 3.01 only referred to a rental increase, and not to a rental decrease. This was not enough to construe clause 3.01 as a ratchet provision - that is, the rent could still decrease. However, his Honour treated the omission of any reference to a rental decrease as indicative of an intention that the sub-lessor have a discretion to commence a review. His Honour said:[154]

Mr Bornhold [Counsel for the lessor] did not claim that that was in effect a ratchet clause, but although it may not negate a possible rent reduction, it certainly does not contemplate one. It therefore gives support to the conclusion that the [lessee] cannot insist on a rent review in order to obtain the advantage of a falling market.

The plaintiff submits that the terms of the sublease in Australian Mutual Provident Society were "significantly different" to those in the Ground Lease.[155] This submission is evidently correct, and in my view, the difference in the terms of the two leases must be kept in mind when considering Australian Mutual Provident Society, and its relevance to the true-up clause in the Ground Lease. Likewise, the decision of Judge Rich QC in Harben should be understood in the context of the provisions considered in that case. Even if the reasoning advanced by the defendant is accepted, the effect of the true-up clause, and in particular, its lack of any requirement for payment by the landlord (or set off by the tenant), is limited. As indicated previously, clause 20.4(b) of the Ground Lease provides a mechanism for a set off. The true-up clause, when read in conjunction with clause 4.2 and 20.4(b), allows for both a payment by the tenant to the landlord of an amount reflecting a rental increase, or an adjustment of the amount payable by the tenant to the landlord reflecting a rental decrease. Whilst it is true that the wording of the true-up clause itself neglects to provide for payment from the landlord to the tenant, or a set off, I do not accept that the "narrowness" of its provisions is to be taken as a strong indication of an intention that the defendant enjoy a discretion to review.

76 In my view, clause 4.2 and Part B of the Ground Lease are capable of operating harmoniously. The function of clause 4.2 is to take the reader to Part B; and to exclude the ratchet provision during the currency of the Initial Sub-Sub-Lease. The defendant's submission that the role of clause 4.2 is merely to specify the permissible review dates[156] does not account for the reference in Part B to the Market Review Date. That is, both Part B and clause 4.2 begin with the words "On each Market Review Date" and overlap in that respect. Therefore, clause 4.2 does not play the role of specifying the review date any more than Part B does. I also observe that clauses 4.1 and 4.3 overlap in this respect with Parts A and C respectively: clause 4.1 and Part A both begin with "On each Rent Adjustment Date" and clause 4.3 and Part C both begin with "On each Fixed Percentage Increase Date." The harmony between the provisions is made possible by the reference in clause 4.2 to the Market Review Method contained in Part B. That is, the use of the formulation "is to be adjusted" in clause 4.2 must be read in conjunction with the words "in accordance with the Market Review Method" which follow. Read in that fashion, clause 4.2 affirms the provisions of Part B, and does not contradict them, except in so far as it excludes the ratchet provision; but that "contradiction" is an express provision and not in the nature of a drafting inconsistency which requires resolution.

77 In my view, on the proper construction of clause 4.2 and Part B, the defendant has a discretion to commence a review, but is not obliged to do so; a power but not an obligation. This construction is to be preferred, as it is the only construction that gives rise to the harmonious operation of both provisions[157] - whereas the construction contended for by the plaintiff does not. As indicated previously,[158] the "will...if" formulation used in Part B is clearly an example of conditional language, and evinces an intention to create a discretionary review mechanism under the defendant's control; an empowering provision. This observation is confirmed by the use of further conditional language in Part B,[159] and by comparison with the imperative language used in Part C.[160] In my opinion, the use of "is to be adjusted" in clause 4.2, when read in conjunction with "in accordance with the Market Review Method," affirms the conditionality of Part B. As indicated previously,[161] the words "in accordance with the Market Review Method" take the reader to the provisions of Part B. Therefore, Part B is not subsidiary to clause 4.2 in the manner contemplated by Lockhart J in Myers.[162] Even if the words "in accordance with the Market Review Method" were omitted from clause 4.2, I doubt whether the use of "is to be adjusted" is of sufficient imperative character to displace the conditional procedure provided in Part B. The imperative language considered in Myers consisted of "shall" (twice) and "will", and importantly, it was contained in an introductory paragraph to a series of subclauses containing permissive language ("may"). This is a very different set of provisions to those under examination in the present proceeding, and on that basis, Myers is distinguishable.

78 Further, if the plaintiff's construction were accepted, it would have the effect of depriving the "will...if" formulation in Part B of any meaning whatsoever, which is clearly an unsatisfactory, and unharmonious, result. The role of this Court in construing these provisions is not to pick one competing meaning over another, but rather to construe the instrument as a whole, so that all its provisions operate harmoniously, if possible. The "will...if" formulation would be completely redundant if the defendant were obliged to commence the rent review. Moreover, if the drafters of the Ground Lease had in mind an obligatory review procedure, the wording of Part B would be expected to have been very different.[163]

79 Moreover, a discretion to review is consistent with the balance of the provisions of the Ground Lease. The exclusion of the ratchet mechanism does not create a presumption of an obligation to review.[164] Similarly, the language used in the true-up clause does not create a presumption of an obligation.[165] I accept that the true-up clause may provide some support for the discretionary review position in that it does not appear to contemplate a rental decrease. Nevertheless, its provisions could only be regarded as a factor to be considered in the construction process and, as such, is not of any significant force in the face of the express provisions of clause 4.2 and Part B. Lastly, for the preceding reasons, the terms of the Initial Sub-Sub-Lease do not assist the plaintiff.[166]

80 Finally, a discretion to review accords with the commercial purpose of the critical rent review provisions contained in the Ground Lease, which, as discussed, was to benefit the defendant.[167]

81 For the preceding reasons, the plaintiff's case fails. The question of costs is reserved.

82 The parties are to bring in orders to give effect to these reasons.

[1] Deed of Assignment of Ground Lease dated 20 November 2001 (CB 0141-0149).

[2] Deed of Assignment of Ground Lease dated 28 March 2007 (CB 0204-0218).

[3] Deed of Assignment of Ground Lease dated 4 August 2009 (CB 0219-0233).

[4] Letter from Laminex Group Pty Ltd dated 2 June 2011, enclosing the letter dated 18 May 2011.

[5] Deed of renewal and variation of lease (CB 0238-0262).

[8] See Lewison and Hughes, The Interpretation of Contracts in Australia, (Lawbook Co, 2012) at 348 - 353 [8.02] - [8.03]. See also, Great Western Railway v Bristol Corp (1918) LJ 87 Ch 414 at 429 (Lord Wrenbury) and State Lotteries Office v Burgin (Unreported, NSW Court of Appeal, Kirby P, Meagher and Sheller JJA, 19 May 1993) at 6-7.

[9] Plaintiff's Reply Submissions, [22]. See also Transcript, page 6, line 26, to page 7, line 13; page 9, line 20 to page 10, line 15.

[10] Defendant's Submissions, [14] and [15] (the emphasis is the defendant's). See also Transcript, page 44, line 16 to line 26; page 84, line 3 to line 6.

[12] Bradbrook, Croft and Hay, Commercial Tenancy Law, (Thomson Reuters, 3rd ed, 2009) at 148 [6.3].

[13] [2014] HCA 7; (2014) 306 ALR 25.

[14] [2014] HCA 7; (2014) 306 ALR 25 at 33 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).

[15] See Lewison and Hughes, The Interpretation of Contracts in Australia, (Lawbook Co, 2012), 5 [1.03]. See also Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd [1935] HCA 56; (1935) 53 CLR 618 at 636 (Rich, Dixon, Evatt and McTiernan JJ); Williams v Booth [1910] HCA 12; (1910) 10 CLR 341 at 352 (O'Connor J); Minister for Supply and Development v Servicemen's Co-operative Joinery Manufacturers Ltd [1951] HCA 15; (1951) 82 CLR 621 at 641 (Williams J); Leighton Contractors Pty Ltd v Smith [2000] NSWCA 55 at [11], [28] (Mason P, Fitzgerald JA); Jansen v Frexbury Pty Ltd [2008] QCA 286 at [43] (Cullinane J).

[16] Highpoint Homemaker Centre (Vic) Pty Ltd v Sanstar Pty Ltd (1997) V ConvR 54-564 at 66,775 (Winneke P); Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 (Gibbs J).

[17] (1997) V ConvR 54-564 at 66,775 (Winneke P).

[18] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352 (Mason J); Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ); Pacific Carries Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 461 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[19] [1976] 1 WLR 989 at 997 (Lord Wilberforce).

[20] [1995] 1 NZLR 581 at 584 (Hardie Boys J).

[21] Plaintiff's Submissions, [23].

[22] Quirk, Greenbaum, Leech and Svartvik, A Comprehensive Grammar of the English Language, (Longman, 1985) at 217 [4.47].

[23] Plaintiff's Submissions, [24]. See also Transcript, page 11, line 30 to page 12, line 3; page 93, line 21 to line 24.

[24] (1997) V ConvR 54-563 ("Myers")

[25] (1997) V ConvR 54-563 at 66,760 - 66-761 (Lockart J).

[26] (1997) V ConvR 54-563 at 66,762 (Lockart J).

[27] (1997) V ConvR 54-563 at 66,768 (Kiefel J).

[28] (1997) V ConvR 54-563 at 66,766 (Kiefel J).

[29] Plaintiff's Submissions, [31]. See also Transcript, page 13, line 5 to line 16.

[30] Transcript, page 13, line 5 to page 17, line 13.

[31] Transcript, page 14, line 2 to 14; page 16, line 12 to 14.

[32] Transcript, page 45, line 12 to page 47, line 11; page 81, line 10 to page 83, line 16.

[33] (1997) V ConvR 54-563 at 66,763 (Whitlam J); at 66,767 (Kiefel J).

[34] (1997) V ConvR 54-563 at 66,767 (Kiefel J).

[35] Defendant's Submissions, [76(1)].

[36] Defendant's Submissions, [76(2)].

[37] Defendant's Submissions, [76(2)].

[38] Defendant's Submissions, [76(4)].

[39] Plaintiff's Submissions, [24]. See also Transcript at page 9, line 30 to page 12, line 3; page 93, line 21 to line 24.

[40] [1997] 1 EGLR 101. See Transcript at page 11, line 2 to page 12, line 3.

[41] Royal Bank of Scotland plc v Jennings [1995] 2 EGLR 87 at 89H.

[42] Royal Bank of Scotland plc v Jennings [1997] 1 EGLR 101 at 104 (Sir Richard Scott V-C).

[43] Plaintiff's Submissions, [25]. See also Transcript, page 17, line 21 to line 24.

[44] See Plaintiff's Submissions, [25] (footnote 19).

[45] (1997) V ConvR 54-563 at 66,767 - 66,768 (Kiefel J).

[46] [1995] 1 NZLR 581 ("Australian Mutual Provident Society").

[47] See Australian Mutual Provident Society [1995] 1 NZLR 581 at 584 (Hardie Boys J) for a discussion of the reasons of Barker J.

[48] [1995] 1 NZLR 581 at 584 (Hardie Boys J).

[49] [1995] 1 NZLR 581 at 584 (Hardie Boys J).

[50] [1995] 1 NZLR 581 at 585 (Hardie Boys J).

[51] Plaintiff's Reply Submissions, [8].

[52] [1995] 1 NZLR 581 at 584 (Hardie Boys J).

[53] [1997] 1 NZLR 385 ("Sunflower Services").

[54] [1997] 1 NZLR 385 at 389 (Lord Browne-Wilkinson).

[55] [1997] 1 NZLR 385 at 389 (Lord Browne-Wilkinson).

[56] Plaintiff's Reply Submissions, [30].

[57] [2005] 2 EGLR 36 ("Hemingway").

[58] [2005] 2 EGLR 36 at [19].

[59] [1978] AC 904, considered in Hemingway [2005] EGLR 35 at [31] - [32] (Patten J).

[60] [1997] 1 EGLR 101, considered in Hemingway [2005] 2 EGLR 35 at [33] (Patten J).

[61] [1995] 1 NZLR 581, considered in Hemingway [2005] 2 EGLR 35 at [35] (Patten J).

[62] [1997] 1 NZLR 1, considered in Hemingway [2005] 2 EGLR 35 at [37] (Patten J).

[63] [2005] 2 EGLR 36 at [34] (Patten J).

[64] [2005] 2 EGLR 36 at [38] (Patten J).

[65] Plaintiff's Reply Submissions, [31].

[66] [2005] 2 EGLR 36 at [34] (Patten J).

[67] See Plaintiff's Reply Submissions, [31].

[68] [1996] 1 NZLR 45.

[69] [1996] 1 NZLR 45 at 51 (Richardson, Gault and McKay JJ).

[70] Defendant's Submissions, [51]; Plaintiff's Reply Submissions, [32].

[71] Plaintiff's Submissions, [30].

[72] K Reynolds QC and G Fetherstonhaugh QC, Handbook of Rent Review, (Street & Maxwell, loose-leaf) at 103 [1.2.1].

[73] [1978] AC 904.

[74] K Reynolds QC and G Fetherstonhaugh QC, Handbook of Rent Review, (Street & Maxwell, loose-leaf) at 101 [1.1].

[75] [1978] AC 904 at 930, 932, 934 (Lord Diplock), 938, 939 (Viscount Dilhorne), 940 (Lord Simon of Glaisdale), 953, 955 (Lord Salmon), 963 (Lord Fraser of Tullybelton) (cf Viscount Dilhorne at 939, where his Lordship found that in respect of the Cheapside lease, although the question did not fall to be answered, "where a rent review has to by initiated be a lessor and is not automatic, then time is of the essence when it is provided that that notice initiating the review has to be given by a certain date." In respect to the Cheapside lease, the landlord's notice had been provided within time).

[76] [1978] AC 904 at 930 (Lord Diplock).

[77] [1978] AC 904 at 938 (Viscount Dilhorne).

[78] [1978] AC 904 at 948 (Lord Salmon).

[79] [1978] AC 904 at 958 (Lord Fraser of Tullybelton).

[80] K Reynolds QC and G Fetherstonhaugh QC, Handbook of Rent Review, (Street & Maxwell, loose-leaf) at 101 [1.1].

[82] [1986] 1 WLR 398 at 401 (Sir Nicolas Browne Wilkinson V-C (as he then was)).

[83] [1987] 1 EGLR 124 at 125 (Dillon LJ).

[85] (1995) 6 BPR 13,989 at 13,993 (Windeyer J).

[86] W D Duncan, Commercial Leases in Australia, (LawBook Co, 6th ed, 2011) at 143 [5.130].

[87] Bradbrook, Croft and Hay, Commercial Tenancy Law, (LexisNexis Butterworths Australia, 3rd ed, 2009) at 323 [11.4].

[88] D N Clarke and J E Adams, Rent Reviews and Variable Rents, (Oyez Longman, 2nd ed, 1984) at 4 - 6. See also K Reynolds QC and G Fetherstonhaugh QC, Handbook of Rent Review, (Street & Maxwell, loose-leaf) at 101 - 104 [1.1] - [1.2.5].

[89] See also K Reynolds QC and G Fetherstonhaugh QC, Handbook of Rent Review, (Street & Maxwell, loose-leaf) at 101 - 103 [1.1.1] - [1.1.4].

[90] See above, [12]-[16]; see also Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at 33 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).

[91] Plaintiff's Submissions, [26].

[92] Plaintiff's Submissions, [29].

[93] Defendant's Submissions, [65].

[94] Defendant's Submissions, [66].

[95] Defendant's Submissions, [67].

[96] See McVeigh, in the matter of Piccolo v National Australian Bank Ltd [2000] FCA 187 at [31]- [32] (Finkelstein J); Chamcol Holdings Pty Ltd v Handberg [2005] FCAFC 40; (2005) 215 ALR 748 at [80] (North and Dowsett JJ); Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 at [23] - [28], [61] (Santow JA).

[97] Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 at 912 - 3 (Lord Hoffman).

[98] [1982] HCA 24; (1982) 149 CLR 337 at 352 (Mason J).

[99] See for example, Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at 616, [14] (Allsop P) ("Franklins").

[100] [2009] NSWCA 407; (2009) 76 NSWLR 603 at 616, [14] (Allsop P).

[101] [2002] HCA 5; (2002) 240 CLR 45.

[102] [2002] HCA 5; (2002) 240 CLR 45 at 62 - 63 [39] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ.

[103] [2011] HCA 45; (2011) 282 ALR 604.

[104] [2011] HCA 45; (2011) 282 ALR 604 at 604 - 606 [2] - [5] (Gummow, Heydon and Bell JJ).

[105] See also the application of the principle by the Court of Appeal in Pepe v Platypus Asset Management Pty Ltd [2013] VSCA 38 at [25] (Buchanan, Neave JJA and Hollingworth AJA) and Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd [2012] VSCA 134 at [50] (Warren CJ, Harper JA, and Robson AJA).

[106] [2013] VSCA 38 at [25] (Buchanan, Neave JJA and Hollingworth AJA).

[107] [2012] VSCA 134 at [50] (Warren CJ, Harper JA, and Robson AJA).

[108] The Ground Lease was executed on 20 November 2001, and the Initial Sub-Sub-Lease was executed on 12 July 2002.

[109] QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [22] (Allsop P, Giles and Macfarlan JJA); Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 264 ALR 15 at 27 [24] (Allsop P).

[110] Lewison and Hughes, The Interpretation of Contracts in Australia, (Lawbook Co, 2012) at 118 [3.14.5].

[111] Plaintiff's Reply Submissions, [44].

[112] Plaintiff's Reply Submissions, [43]. See also Transcript, page 22, line 14 to page 23, line 31.

[113] Plaintiff's Submissions, [27].

[114] Plaintiff's Submissions, [28]. See also Transcript, page 20, line 7 to line 17.

[115] Defendant's Submissions, [63].

[116] In fact, in oral submission, Counsel for the plaintiff conceded that the language used in Clause 3.4 of the Ground Lease is of stronger mandatory import than that used in 4.2: See Transcript, page 104, line 18 to line 22.

[117] Defendant's Submissions, [14].

[118] Defendant's Submissions, [15]. See also Transcript, page 44, line 16 to 26.

[119] Plaintiff's Reply Submissions, [3]. See also Transcript, page 102, line 24 to line 31.

[120] Defendant's Submissions, [14].

[121] Quirk, Greenbaum, Leech and Svartvik, A Comprehensive Grammar of the English Language, (Longman, 1985) at 213 [4.42], 1088 - 9 [15.33] - [15.34].

[122] See Biber, Johansson, Leech, Conrad, Finegan, Longman Grammar of Spoken and Written English, (Longman, 1999) at 842 (Table 10.11); and see Kipling, Rudyard, "If," Rewards and Fairies, (Doubleday, Page & Company, 1910) for an example of a poetic use of the word "if".

[123] Plaintiff's Reply Submissions, [4].

[124] Defendant's Submissions, [18].

[125] Defendant's Submissions, [19].

[126] See Quirk, Greenbaum, Leech and Svartvik, A Comprehensive Grammar of the English Language, (Longman, 1985) at 223 [4.53].

[128] See for example Australian Mutual Provident Society [1995] 1 NZLR 581 at 585 (Hardie Boys J), where his Honour characterised the use of "may" in a commercial lease as a statement of permission.

[129] Plaintiff's Reply Submissions, [10].

[130] Defendant's Submissions, [22].

[131] Plaintiff's Reply Submissions, [12].

[132] Defendant's Submissions, [24].

[133] Plaintiff's Reply Submissions, [13].

[134] Unreported, Supreme Court of Western Australia, White J, 22 July 1997.

[135] (1993) V ConvR 54-462.

[136] [1996] ANZ ConvR 350.

[137] Unreported, Supreme Court of Western Australia, White J, 22 July 1997.

[138] Unreported, Supreme Court of Western Australia (White J), 22 July 1997.

[139] Plaintiff's Reply Submissions, [7].

[140] (1993) V ConvR 54-462.

[141] (1993) V ConvR 54-462 at 65,409 (Byrne J).

[142] [1996] ANZ ConvR 350.

[143] [1996] ANZ ConvR 350 at 353 (Macrossan CJ, McPherson JA and Helman J).

[145] Defendant's Submissions, [27].

[146] [1995] 1 EGLR 118 ("Harben").

[147] [1995] 1 NZLR 581 ("Australian Mutual Provident Society").

[148] [1995] 1 EGLR 118.

[149] [1995] 1 EGLR 118 at 121 (Judge Rich QC).

[150] [1995] 1 EGLR 118 at 120 (Judge Rich QC).

[151] Plaintiff's Reply Submissions, [16].

[152] [1995] 1 NZLR 581.

[154] [1995] 1 NZLR 581 at 585 (Hardie Boys J).

[155] Plaintiff's Reply Submissions, [17].

[156] Defendant's Submissions, [15].

[157] See ABC v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 (Gibbs J).

[162] (1997) V ConvR 54-563. See above, [19]-[21].

[163] See Schloomp Pty Ltd v Carricks Ltd (1991) Q ConvR 54-402 at (59,040) (MacRossan CJ) and (59,044) (Derrington J).

[164] See above, [32]. See also Australian Mutual Provident Society [1995] 1 NZLR 581 at 584 (Hardie Boys); Sunflower Services [1997] 1 NZLR 385 at 389 (Lord Browne-Wilkinson); Hemingway Realty Ltd [2005] 2 EGLR 36 at [38] (Patten J); Board of Trustees of the National Provident Fund [1996] 1 NZLR 45 at 51 (Richardson, Gault and McKay JJ).