Plaintiffs v Defendant

Supreme Court of Victoria|2018-01-29|Before: CROFT J

LEASES AND TENANCIES - Provisions with respect to the payment of outgoings - Construction - Rectification - Acquiescence - Laches - Account stated - Limitation of actions - Recovery of moneys on the basis of claimed underpayments - Mount Bruce Mining v Wright Prospecting Pty Ltd (2015) 256 CLR 104 - Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 - Simic v NSW Land & Housing Corp [2016] HCA 47; (2016) 339 ALR 200 - Maralinga Pty Ltd v Major Enterprises Pty Ltd ; - ; - ; - ; -

1 This proceeding raises as the central issue whether there is a mistake in the formula for the calculation of variable outgoings payable under a lease between the Plaintiffs as landlords and responsible entity, and Myer Pty Ltd ("Myer") as tenant under a lease executed on 4 September 2001 ("the Lease") of its department store ("the premises") at the Chadstone Shopping Centre ("Chadstone"). The term of the Lease is 30 years commencing on 23 November 1998; together with one option for a further term of 15 years.

2 More particularly, the central issue arises with respect to cl 3(b) of the Fourth Schedule to the Lease which concerns the calculation of Myer's contribution, as tenant, to increases in variable outgoings. The Plaintiffs contend that there is a mistake in these Lease provisions in that the reference in cl 3(b) to "the immediately preceding Accounting Period" should be a reference to "the Base Accounting Period". For convenience in these reasons, this is referred to as "the Mistake". Such a reference does not, however, pre-empt the question whether there is a relevant mistake.

3 The registered proprietors of Chadstone are the First Plaintiff ("Perpetual") and the Second Plaintiff ("Bridgehead"). During the relevant period, Perpetual has held 50% of Chadstone as trustee of, or custodian for, a publicly listed trust. Gandel Management Limited ("GML") was manager and then responsible entity of the trust. In 2002, the Third Plaintiff ("Vicinity") replaced GML as responsible entity of the trust and assumed GML's rights with respect to the Lease. Perpetual, Bridgehead and GML, and for the period after October 2002 Perpetual, Bridgehead and Vicinity, are collectively referred to as the "Plaintiffs".

4 In the event of a finding that there was a Mistake, the next question is whether the Court should correct the Mistake, either by a process of construction or by means of the equitable remedy of rectification. These questions, in turn, also require consideration of the various defences raised by Myer, which include - with respect to rectification - acquiescence and laches. Additionally, Myer raises and relies upon the statute of limitations and also the application of the common law cause of action of account stated.

5 In the event that a Mistake is found and none of the Myer defences are successful, the Plaintiffs seek from Myer a payment in respect of an underpayment of increases in variable outgoings. It is the common position between the parties that any such underpayment would be quantified in a separate and subsequent part of the trial of this proceeding in the event that the parties are unable to agree the amount.

6 In 1994, the Plaintiffs began preparation for "Stage 20" of the development of Chadstone which finally received internal approval in 1997. Stage 20 included substantial demolition and building works and the addition of David Jones as a second department store.[1]

7 Myer, at that time, was the key anchor tenant and the sole department store at Chadstone. It occupied the premises pursuant to a favourable lease,[2] which had been amended in 1989 to give Myer certain rights in the event that a second department store was added to Chadstone.[3]

8 In the circumstances, Stage 20 could not proceed unless Myer agreed to surrender its existing lease and enter into a new lease on terms that would facilitate the redevelopment.[4] It was expected that, if Stage 20 did proceed, Myer would lose $16 million in revenue when the David Jones department store opened.[5] The rent payable by Myer would also increase significantly,[6] with only a small increase in floor area.[7] There appears to be some consensus - though perhaps not common ground - that Myer was to be no worse off under the new Lease than under its then existing 1983 Lease;[8] which also made provision for payment by Myer of a contribution to variable outgoings. In any event, commercially, one would wonder why the position would be otherwise, absent some highly beneficial collateral arrangement of which there is no evidence in this case. In any event, this not a decisive consideration in the present context.

9 The concept plans for Stage 20 were provided to Myer in March 1994,[9] and the parties engaged in negotiations over the course of the ensuing years. Mr Peter Leslie and Mr Neville Beer were the principal commercial negotiators for the Plaintiffs and Mr Raymond McNamara was the principal commercial negotiator for Myer.[10] Internal and external lawyers were also involved on both sides to assist in preparing the documentation. When negotiations on variable outgoings reached a critical point, the variable outgoings clause was also reviewed and redrafted for the Plaintiffs by Mr Paul Powderly, who was "in charge of outgoings for all centres".[11]

10 The final draft of the Lease was scheduled to an agreement for lease ("AFL") executed in September 1997.[12] The AFL and draft Lease were preceded by numerous drafts of "Heads of Agreement" ("HoA") which set out, in short terms, the essential elements of the proposed lease. None of the HoA were ever executed and it is not contended by either party that any of the HoA were legally binding.

11 The final version of the HoA was dated 26 November 1996.[13] The Plaintiffs contend that the HoA are objective contemporaneous evidence of how the parties intended that Myer's contribution to Variable Outgoings would be calculated. The first draft HoA was prepared by 20 September 1995.[14] In subsequent drafts, the document became an "Invitation to Make an Offer Heads of Agreement".[15] These documents were also sometimes described as simply an "Invitation to Make an Offer".[16]

12 The Plaintiffs contend that to overcome the Mistake in cl 3(b) of the Fourth Schedule of the Lease, that clause should be construed or rectified in accordance with Annexure B to the Further Amended Statement of Claim. For convenience, this Annexure B is reproduced in the Annexure to these reasons (and is referred to hereafter as "the Annexure" or "Annexure B to the Further Amended Statement of Claim", depending on context).

13 The reasons why the Plaintiffs contend that this is necessary are as follows:[17]

...

13.1 The Fourth Schedule, as written, defines "Base Accounting Period" as the Accounting Period of twelve months commencing on 1 July following the Commencing Date (i.e. the first full year of the Lease term). But the Fourth Schedule does not use the term "Base Accounting Period" at all in the annual calculations for which the Fourth Schedule provides;

13.2 The concept of the Base Accounting Period was an important one, and was the subject of negotiation until 12 May 1997;

13.3 Clause 3 is divided into two parts. Paragraph (a) applies "in respect of the second full Accounting Period after the Commencing Date" (i.e. the second full year of the Lease term). The increase in outgoings is described in sub-paragraph (a)(i) by reference to "the immediately preceding Accounting Period". In the case of "the second full Accounting Period after the Commencing Date", the "immediately preceding Accounting Period" is, of course, the first Accounting Period. That is the same thing as the Base Accounting Period;

13.4 Thus, the calculation in Clause 3(a) is to be done by reference to the Base Accounting Period. This is reflected in the formula in Clause 3(a)(ii), where the factor "VO" is defined as the Variable Outgoings "for the Accounting Period preceding the Accounting Period in respect of which the calculation is being made". This factor is correctly applied in Clause 3(a)(ii) to adjust for changes in the Index by multiplying VO by CPI(2) divided by CPI(1). VO is applied correctly in Clause 3(a)(ii), also, by calculating the increase from the previous year by deducting the Variable Outgoings in the first year from the CPI-adjusted Variable Outgoings in that year;

13.5 In contrast, Clause 3(b) is expressed to apply "in respect of each subsequent Accounting Period". But a clear mistake has occurred because Clause 3(b) is identical to Clause 3(a) although the former is expressed to apply only to the second full Accounting Period, while the latter is expressed to apply to the remaining (26) years of the first term, and the 15 years of the second term. It is impossible to discern any plausible explanation for this, and Myer has not suggested any;

13.6 The Owners' case is supported also by Clause 5 of the Fourth Schedule. It refers to the "Base Accounting Period" not being updated if the option is exercised. That reference makes no sense unless the Base Accounting Period is relevant to the calculations of the Variable Outgoings contribution during the 15 years of the extended term. That is made relevant, and Clause 5 is given sense, only if the Fourth Schedule is construed or rectified as pleaded by the Owners.

14 The Plaintiffs contend that the correction to the Lease which they plead in Annexure B to the Further Amended Statement of Claim is necessary: first, to give effect to the distinction in cl 3 of the Fourth Schedule to the Lease between the second full Accounting Period and subsequent Accounting Periods; secondly, to give relevance to cl 5 of the Fourth Schedule to the Lease; and, thirdly, as a correction which goes no further than is necessary to correct the Mistake.

15 Myer, on the other hand, contends that the terms of the Lease do not indicate any drafting infelicities or absurdities and that, consequently, there is no basis to construe the Lease as a commercial agreement other than in accordance with its terms. Moreover, Myer contends that the expression "Base Accounting Period" does have work to do with respect to cl 5 of the Fourth Schedule to the Lease - as that provision now stands:[18]

If the Lessee exercises the option given to it for a further term of fifteen years the Base Accounting Period will not be updated and the lease for the further term shall incorporate such alterations as are necessary to provide for the Lessee to contribute to Increases in Variable Outgoings as if such further term were a continuation of this Lease.

Though, as Myer concedes, the expression may only have a minor drafting role in the context of these provisions, it does, nevertheless, have a role. Consequently, the expression cannot be characterised as mere "surplusage" and thus support the Plaintiffs' contentions made on this basis. The issue of "absurdity" is addressed in detail in the reasons which follow but, for present purposes, it is sufficient to make reference to the submissions by Myer that the evidence given on behalf of the Plaintiffs does not indicate that they had any difficulty in interpreting and applying the terms of the Lease for some 20 years or so.

16 Before descending into the particulars of the negotiating history, it should be emphasised that the process began in the early to mid-1990s, now the best part of 30 years ago. The Plaintiffs did call a number of witnesses in relation to the negotiating history, the testimony of which is considered in more detail in the reasons which follow. Nevertheless, it is clear, both from their evidence and as a matter of human experience, that the recollections of these witnesses are now sporadic and hazy, as would be expected, and that reliance in relation to the negotiating history should be placed primarily upon the documentary evidence.[19]

17 Between September 1995 and November 1996 at least 14 drafts of the HoA were exchanged between the parties, with numerous changes made on different issues. During that time, the parties put forward proposals and counterproposals on the question of whether, and in what manner, Myer should contribute to increases in variable outgoings.

18 On 24 August 1994, negotiation of the HoA between the Plaintiffs and Myer about Stage 20 had commenced. In September 1995, the Plaintiffs drafted a HoA and provided it to Myer with the master plans for Stage 20 which, by that time, had been prepared.

19 The Plaintiffs provided a very detailed account of the negotiating process said to be evident from the contents of the HoAs.[20]

20 A summary of this process was also provided by Myer.[21]

21 From September 1995 to May 1996, the parties put forward competing positions with respect to the issue of contribution to variable outgoings, which may be summarised as follows:

(a) on 20 September 1995 the Plaintiffs proposed a draft HoA that provided that Myer would contribute to increases in variable outgoings over the base year;[22]

(b) on 29 April 1996 Myer responded with a draft HoA that provided that it would not contribute to increases in variable outgoings at all;[23] and

(c) on 22 May 1996 the Plaintiffs responded with a draft HoA that again provided that Myer would contribute to increases in variable outgoings over the base year.[24]

The drafts provided after September 1995 followed a series of meetings between the Plaintiffs and Myer between January 1996 and 22 May 1996.[25] The Plaintiffs contend that these discussions indicate that since increases in variable outgoings would not be covered by the rent review process, the Plaintiffs, understandably, wanted separate provision to be made for increases in variable outgoings.[26] Commercially, of course, this is unsurprising in a commercial lease of the type contemplated unless the parties were content with a grossed up rent. However, it is also clear that difficulties are encountered in formulating commercial terms in this respect where the lease is for a long term, such as the Lease in this instance, and where, consequently, movements in variable outgoings are likely to be difficult to estimate for that period.

22 On 14 August 1996, the parties met to discuss the terms proposed in the Plaintiffs' then most recent draft HoA, which had been provided to Myer on 13 August 1996 (though dated "13/5/96").[27] At that meeting, Mr McNamara made it clear that Myer would not agree to contribute to increases in variable outgoings over the base year.[28] On 15 August 1996, Mr McNamara followed up the meeting the day before by sending his annotations to the draft HoA stipulating, among other things, that Myer would not contribute to variable outgoings at all.[29] The annotated draft from Myer struck out the paragraph in Item 8 of the Plaintiffs' draft HoA dealing with Myer's contribution to variable outgoings and had the word "DELETE" written next to that clause in the margin. The annotated draft HoA was signed by Mr McNamara at the top of the first page. This signing is, as Myer observes in its submissions, significant in that this was the only HoA ever signed by anybody.

23 On 6 September 1996, the Plaintiffs sent Myer an amended draft HoA dated 4 September 1996 which, apart from dating, was the same was the draft that had been sent to Mr Andrew Erikson. As observed in the Plaintiffs' submissions, they "changed tack" in this draft.[30] In Item 6 of the draft, they include variable outgoings in the rent review process - hence Ms Angelika Dickschen describing it as a "gross" lease in her 5 September 1996 letter to Mr Erikson. The rent review had ratcheted increases in rent every five years. Since increases in variable outgoings were to be covered by the rent review mechanism, Item 8 concerning Variable Outgoings now read "Included in Annual Base Gross Rental". At that time, further negotiations were scheduled for 13 September 1996.[31] The reference to a copy of the draft having been sent to Mr Erikson is a reference to a draft being sent to him on 5 September 1996 together with instructions to him, as a partner of Malleson Stephen Jacques ("Mallesons") to prepare a draft AFL and a draft of the Lease accordingly.[32]

24 Thus, as observed by Myer, by 6 September, the Plaintiffs had seemingly accepted Myer's change. Mr Leslie wrote to Mr McNamara providing an amended draft HoA with the variable outgoings reference deleted as stipulated by Mr McNamara, under cover of a letter that said:[33]

We refer to your letter of August 15th, 1996, and enclose herewith our revised Heads of Agreement incorporating the terms and conditions upon which we are prepared to recommend your offer for final board approval.

We have attempted to incorporate some of your suggestions with other points being left for further discussion at our meeting scheduled for September 13th, 1996.

25 On 11 September 1996, Myer sent the Plaintiffs handwritten amendments to the draft HoA dated 4 September 1996.[34] Myer reverted to its position, as at 13 August 1996, namely, no ratcheted increase in rent in Item 6 and no increase in variable outgoings in Item 8. On 13 September 1996, the Plaintiffs met with Myer and then,[35] on 25 September 1996, there was a Gandel Group Pty Ltd ("Gandel Group") board meeting. As can be seen from the minutes of that meeting, the board considered the draft HoA that Myer had sent on 11 September 1996 because Myer was not accepting the 12% ratchet.[36] Myer was also reported as requesting an increased tenure under the Lease of 30 years.

26 On 24 September 1996 and 27 September 1996,[37] there was further correspondence by fax from Mr Beer to Mr McNamara highlighting a change to the formula for the rent increases. The Plaintiffs proposed to Myer a new base gross rent review mechanism. In the 4 September 1996 draft HoA the Plaintiffs sought a 12% ratchet every five years and the new proposal was to reduce the ratcheted increase in base gross rent to 5% on the basis there would be a review after the first five years and then every three years thereafter.[38] On 8 October 1996, the Plaintiffs prepared an amended draft HoA incorporating these changes.[39]

27 The position under the draft HoA dated 8 October 1996 was that the Lease term was to be 30 years with a 15 year option - which extended Myer's tenure from the existing termination in 2013 up to 2043. Item 6 matched the 27 September 1996 base rent proposal. As increases in variable outgoings would be recovered under the rent review, no increases were needed under Item 8. At this point, negotiations were continuing, but many of the terms seemed relatively settled and a draft AFL and Lease was being prepared by Mallesons. This is consistent with Ms Dickschen providing the 8 October 1996 draft HoA to Mr Erikson.[40] On 11 October 1996, Mallesons provided to the Plaintiffs the draft AFL and the draft Lease, the draft Lease being based on the 8 October 1996 draft HoA.[41]

28 On 15 October 1996, Mr Beer sent a letter to Mr McNamara as follows:[42]

Please find herewith the documentation confirming the proposed new Myer store at Chadstone Shopping Centre.

Although not spelt out in this letter, the draft HoA which it attached was, as Myer observes, in fact quite different to what had gone before. Mr Beer had had financial models prepared that contemplated a net lease instead of a gross or semi-gross lease,[43] and the draft HoA attached to the 15 October 1996 letter in part reflected that change, with the addition of the "Item 8" pleaded by the Plaintiffs in this proceeding:[44]

The Lessee is responsible for 80% of the increases in centre operating expenses as the demised premises relates to total lettable area of the centre over the base year (year 1). These annual increases are to the lesser of CPI or actual.

From the terms of the correspondence, it is apparent that Mr Beer intended this as an "offer".[45]

29 The proposal or offer made by Mr Beer in the 15 October 1996 letter was, the Plaintiffs say, an attempt by Mr Beer to break an impasse with a modified net rent deal as, prior to 15 October 1996, Myer had rejected the Plaintiffs' proposals for increases of base rent to be 5% on reviews after the first five years and then every three years.

30 The draft HoA sent to Myer on 15 October 1996 contained significant changes by comparison with previous drafts but, as observed by Myer, the letter attaching the amended HoA was an anomaly in the chain of correspondence in that, unlike all other correspondence attaching a draft HoA that had been changed,[46] it made no reference to any revision having been made to the attached draft. Nor were the changes marked up on the attached draft.[47] And nor was the change to a net lease consistently reflected in the draft HoA, which still provided on its first page for "base gross rental" and the increase of this amount by "base gross rent reviews".[48] In spite of this, neither Mr Beer nor Mr McNamara recall any discussion about these changes to the draft HoA.[49] Nor is there any evidence, in contrast to other amended drafts of the HoA,[50] that Mr McNamara acknowledged or considered the "offer". By contrast, there is ample evidence, as Myer submits, that Mr McNamara had already rejected the concept at least twice.[51] Consistently with this, Mr Beer's last positive recollection of Mr McNamara's position is that Mr McNamara had rejected the concept.[52] Moreover, Mr Beer does not have any recollection of Mr McNamara accepting it, nor is there any other record of its acceptance by Mr McNamara at that time. The only further version of the HoA was sent by Mr Leslie to Ms Gabrielle Noonan at Myer on 26 November 1996.[53] Although it was copied to Mr Beer and Mr S Macrae at the Plaintiffs, and to Mr Mark Graham - whose focus was on store design and not on things such as rent and outgoings[54] - it was not sent or copied to Mr McNamara. Accordingly, as submitted by Myer, it is not apparent that the critical changes to the draft HoA concerning Myer's contribution to increases in variable outgoings were ever agreed by Mr McNamara.

31 On 24 October 1996, the Plaintiffs sent to Myer the draft AFL and draft of the Lease drawn by Mallesons.[55] Clause 4.3 of the Mallesons draft of the Lease incorporated the Net Proposal.[56] On 30 October 1996, a Gandel Group board meeting was held. Messrs Beer and Leslie were authorised to continue negotiations with Myer based on the 15 October 1996 HoA; a copy of which formed part of the board papers.[57] On 6 November 1996, a GML board meeting occurred. Stage 20 of the Chadstone development was Item 5.2.5 on the board agenda.[58] The board papers for that item[59] sought approval for the, by then, 23 October 1996 HoA; a copy of which was part of the board papers. That draft HoA was identical to the 15 October 1996 HoA draft. Messrs Beer and Leslie were authorised to continue negotiations with Myer on the basis of the 23 October 1996 HoA.[60] The Plaintiffs contend that these board papers make it plain that they were proceeding on the basis of the 23 October 1996 HoA and, further, that the recovery of increases in variable outgoings would be calculated by reference to the base year. This is not, however, a position accepted by Myer. In my view, the evidence of dealings between the parties at this stage indicates quite clearly that negotiations were, as at that time, continuing between the Plaintiffs and Myer, and the position can be put no higher than as at 26 November 1996 the GML board had a particular view as to how the negotiations should proceed and be resolved. The same appears to be the position following the GML board meeting on 4 December 1996.[61]

32 At this stage, drafting continued and it does appear that some of those involved in the negotiating or drafting process assumed that at that time, Myer would contribute to increases in variable outgoings in some way. As indicated, Myer's contention is that the position could not be put higher than that. More particularly in this respect, Myer submits:[62]

However, Item 8 of the draft HoA was in only general terms and the evidence confirms that, even among those who expected Myer to contribute to variable outgoings, there was no clear conception as to how any contribution to variable outgoings would work. Thus:

(a) Item 8 included a cap to the effect that "annual increases are to the lesser of CPI or actual";[63] whereas

(b) Mr Erikson of Mallesons prepared a draft lease with a formula that provided for a "lesser of CPI or actual" limit only in the immediately preceding year and otherwise calculated the contribution by reference to the full actual increase in outgoings for every other year (it resembles the pleaded Annexure B, but uses a different calculation and gives a different result);[64] and

(c) in Mr Beer's summary for the Gandel Management Ltd Board,[65] he provided that Myer would contribute to the increase in variable outgoings by way of both:

(i) a base gross rent (ie. including the variable outgoings) increase; and

(ii) a separate increase provision that broadly resembled Item 8, although not in the same terms.

The Gandel Management Limited Board appear to have (at least) had regard to that summary in making decisions on the David Jones lease, in preference to the equivalent HoA[66] and it continued to be presented to the board in subsequent board papers.[67]

In my view, Myer's submissions in this respect correctly state the position, for the reasons and on the basis of the material as indicated.

Negotiating and drafting the Agreement for Lease and Lease

33 In October 1996, the parties were moving from drafting the HoA to drafting the AFL and the Lease.

34 For Myer, Ms Noonan became involved in the task of preparing a draft AFL and the Lease.[68] For the Plaintiffs, Mallesons was already preparing a draft AFL and a draft of the Lease,[69] and their first draft AFL and draft of the Lease was provided to Myer on 24 October 1996.[70] Myer rejected Mallesons' draft of the Lease provided to it on 24 October 1996,[71] following which there was a lull in substantive negotiations on the draft of the Lease until the basic form of the Lease was agreed in principle and Myer's version of the draft of the Lease was available in early April 1997.[72]

35 In December 1996, Ms Dickschen and Mr Beer became responsible for the drafting process with respect to the AFL and the Lease for the Plaintiffs. Mr Leslie was no longer involved in the preparation of those documents.[73] Mr Beer gave Ms Dickschen instructions and relied on her and external lawyers to undertake the drafting process, his evidence being that he left the drafting to them, but made the commercial decisions.[74] It is the position, as the Plaintiffs submit, that although Mr Beer was questioned with a view to showing that he read the contracts closely, his evidence is clear that he did not. So, for example, Mr Beer was questioned about "his" 16 January 1997 letter to Myer about clauses in the draft of the AFL and said he thought that it was a joint effort with Ms Dickschen.[75] The Plaintiffs observe that Ms Dickschen was not challenged on her evidence that she drafted the entire letter.[76] From the perspective of Myer, it is clear from the evidence that the negotiating team was Mr McNamara and Ms Noonan, and that the former was providing instructions to the latter throughout the drafting process.[77] As the Plaintiffs observe in their submissions, it took some time for a decision to be made as to whether the AFL and the Lease would be in the Myer standard form or in the form drafted by Mallesons.[78]

36 On 11 December 1996, Mallesons advised the Plaintiffs that they considered that the Myer forms were inappropriate, with the result that Mr Beer sent Mallesons' advice to Mr McNamara, with a proposal to overcome the issue.[79] However, in the negotiations in late 1996 and early 1997, the Myer version of the AFL was the basis of the discussion. At this time, there had been no agreement between the Plaintiffs and Myer as to which form of the Lease would be used as the precedent for the Lease.[80] On 5 March 1997, a meeting to negotiate the draft AFL - noting that a common draft of the Lease did not yet then exist - was held between Mr Beer on behalf of the Plaintiffs and Mr McNamara and Ms Noonan on behalf of Myer. One of the agreements recorded in Ms Noonan's letter to Ms Dickschen was that Myer would have Phillips Fox "bring the [Original Myer Lease] up to 1997 standards".[81] In other words, the Original Myer Lease would be the precedent for the drafting of the Lease from that point on.

37 Meanwhile, after the GML board meeting on 4 December 1996, Mr Beer's priority was getting the draft AFL and the attached draft of the Lease agreed because the viability of Stage 20 at Chadstone depended on starting construction as early as possible.[82] If commencement of construction was delayed, construction costs and finance costs might vary so much that the feasibility of Stage 20 might have to be revisited.[83] Early the following year, on 18 February 1997, a GML board meeting was held and the master plan for Stage 20 was presented,[84] including that Myer would pay outgoings at the "lesser of 80% increases in outgoings over year 1 or CPI". The board resolved to approve this.[85] This, the Plaintiffs contend, is further clear evidence of the Plaintiffs' intention.[86] However, for the reasons which follow, I remain of the view that a manifestation of intention this might be, but it is, at best, intention at a point in time during an ongoing negotiation process; a process which must be viewed very much in the context of subsequent events, negotiations and changing and developing intentions of all concerned.

38 On 3 April 1997, Myer provided the first draft of the Lease.[87] The covering letter said:[88]

The Lease reflects word for word the [Original Myer Lease] except for changes necessary to reflect the Heads of Agreement and other changes to reflect changes in law.

[Plaintiffs' emphasis].

39 The new Fourth Schedule of the Lease took the form in which it remained, apart from a change in the formulae which are discussed further in these reasons, at that time providing:[89]

For the calculation of the Lessee's contribution to increases in Variable Outgoings:

"Base Accounting Period" means the Accounting Period of twelve months commencing on 1 July following the Commencing Date.
"Lessee's Proportion" means eighty per cent (80%) of that part of the whole of the Increase in Variable Outgoings which bears the same proportion to the whole of the Increase in Variable Outgoings as the Gross Lettable Area of the Demised Premises bears to the Gross Lettable Area of all buildings in the Centre.
"Increase in Variable Outgoings" means

(a) in respect of the second full Accounting Period after the Commencing Date (that is the Accounting Period commencing on the second 1st July falling after the Commencing Date) the lesser of:

(i) the amount by which the Variable Outgoings for that Accounting Period exceed the Variable Outgoings fir [sic] the immediately preceding Accounting Period: and

(ii) an amount equal to

VOx

(b) in respect of each subsequent Accounting Period the lesser of:

(i) the amount by which the Variable Outgoings for that Accounting Period exceed the Variable Outgoings for the immediately preceding Accounting Period; and

(ii) an amount equal to

VOx

where

VO is the Variable Outgoings for the Accounting Period preceding the Accounting Period is [sic] respect of which the calculation is being made

CPI(2) is the Index issued for the quarter ended 31 March during the Accounting Period preceding the Accounting Period is [sic] respect of which the calculation is being made

CPI(1) is the Index issued for the quarter ended 31 March twelve months prior to CPI(2).

...

40 At this point, it is helpful to consider how the draft formulations with respect to Myer's contribution to variable outgoings progressed in the parties' drafts of the Lease between October 1996 and late April 1997; a progression helpfully summarised in the Myer submissions as follows:[90]

Between October 1996 and late April 1997, the draft formulations describing Myer's contribution to variable outgoings progressed in the parties' draft Leases as follows:

(a) on 11 October 1996 Mallesons put forward its first formulation to the plaintiffs, but this was not provided to Myer;[91]

(b) on 23 October 1996 Mallesons put forward a second formulation in a draft Lease,[92] which the plaintiffs sent to Myer on 24 October 2016[93] ("Second Mallesons Formulation") but Myer rejected that draft lease in its entirety;[94]

(c) on 3 April 1997 Myer sent the plaintiffs a draft Lease containing a third and different formulation, which had been prepared by Phillips Fox[95] ("Third Formulation"); and

(d) on 16 April 1997 Ms Dickschen again sought to press the Second Mallesons Formulation, but this was not accepted by Myer.[96]

41 Thus, in early May 1997, or at the end of the preceding month, the evidence indicates that the parties were pressing for competing formulations with respect to Myer's contribution to variable outgoings. It follows, it is submitted by Myer, that it may reasonably be inferred that the parties were cognisant of the differences between these formulations. The contemporaneous evidence shows that the Plaintiffs' team of negotiators was closely examining the draft leases, including these different formulations.[97] It was in this context that the Plaintiffs ceased to press the Second Mallesons Formulation and instead drafted and proposed a fourth formulation[98] ("the Fourth Formulation") that was ultimately proposed to Myer on 30 May 1997,[99] agreed by Myer and ultimately used in Clause 3(b) as executed on 4 September 2001.[100]

42 With respect to the drafting and review of the variable outgoings formula in the Lease in May 1997, Myer submits, and in my view correctly, that the evidence is that before it was agreed by the parties the Fourth Formulation was:[101]

(a) drafted by Mr Powderly,[102] who was "in charge of outgoings for all centres" for the Plaintiffs;[103]

(b) reviewed by Ms Dickschen of the Plaintiffs,[104] whose evidence was that she would have read the Fourth Schedule to the Lease at that time and would have made some comment if she had seen an error;[105]

(d) reviewed by Mr Beer of the Plaintiffs.[107]

43 The evidence also shows that the draft was also provided to Mr John Gandel and Mr Clive Appleton of the Plaintiffs, which showed the changes to be made to effect the Fourth Formulation marked up on the document next to cl 3(a)(ii), but not cl 3(b)(ii).[108] Mr Beer gave evidence which, in my view, was properly described as somewhat evasive, about his role in checking the formula at this time.[109] Ms Dickschen's evidence was that she received instructions from Mr Beer either in writing or orally in a face-to-face meeting[110] and that the letter she then sent to Phillips Fox with the new formula for cl 3(a)[111] would have been in accordance with Mr Beer's instructions.[112] Markings on the retained documents, such as handwritten ticks next to the Fourth Formulation,[113] and Mr Erikson's handwritten notes alongside the references to the formula in Ms Dickschen's memorandum[114] appear to confirm, in my view, that at least some of these individuals gave the clause specific consideration and approved it.[115] During this process, no one made any reference to Item 8 (either by name or by description), nor sought to compare the Fourth Formulation with Item 8, nor queried with others whether it reflected Item 8. The move to the Fourth Formulation also represented the Plaintiffs' abandonment of the Second Mallesons Formulation, which was the formulation closest to the Plaintiffs' pleaded case in this proceeding (as set out in the Annexure to these reasons), and which had been twice rejected by Myer.[116] For these reasons, the contentions by the Plaintiffs with respect to these dealings and negotiations in relation to these variable outgoings provisions[117] should be rejected, particularly the following somewhat gratuitous observation made in these submissions which, as indicated, is simply not supported by the evidence:[118]

Had the parties agreed on 12 May 1997 or thereafter to abandon calculating increases in variable outgoings by reference to the "base year" in favour of the "preceding year", in her 30 May 1997 letter an experienced property lawyer like Dickschen would have asked Paine to delete Clauses 1 and 5 in the Fourth Schedule of this draft. The Court should find there was no such agreement to abandon.

44 The evidence of subsequent communications between the parties and the state of the draft documentation does not, in my view, suggest a common intention to implement Item 8 but, rather, is demonstrative of a clear intention by both parties to be bound by the AFL and the Lease as drafted. It is to the detail of these communications and documentation to which I now turn.

45 On 2 July 1997, the report to the GML board was that the AFL remained unsigned.[119] The Board was not told that management had decided to abandon Item 8 in the HoA in favour of calculating increases in variable outgoings by reference to the preceding year. Whilst this may have been the position at that stage, that is certainly not the end of the story having regard to subsequent events.

46 Also on 2 July 1997, Mr McNamara confirmed that Myer had received its board's approval for the new store at Chadstone "in accordance with the terms set out in the Draft Agreement for Lease", which annexed the Lease.[120] Mr McNamara's unchallenged evidence was that by this letter he meant the board of Coles Myer Limited ("CML") had approved the draft of the AFL, including the Lease annexed to it, as it existed at 2 July 1997.[121]

47 Although the relevant Myer board papers can no longer be located,[122] Mr McNamara's unchallenged evidence was that:[123]

A heads of agreement for a specific store would never actually be approved because the only documents ultimately put to the Board [of CML] and Mancom [which was the management committee of Myer] for approval would be a lease or agreement for lease.

48 Since the final GML board approval for Stage 20 at Chadstone given on 7 May 1997 was conditional upon the AFL with Myer being executed and that construction of Stage 20 had to start in July or August 1997, the AFL needed to bind Myer by July or August 1997. Mr Beer asked Ms Dickschen to get advice from Mr Erikson as to whether Myer was bound by the combination of the draft AFL and Mr McNamara's 2 July 1997 letter.[124] Mr Erikson advised, in letters dated 10 and 17 July 1997, that he was not satisfied that Myer was bound. There was further correspondence on 11, 16 and 17 July 1997 between Mr Beer and Mr McNamara about the AFL and whether Myer was bound by it.[125] In any event, on 16 July 1997, Mr McNamara wrote to Mr Beer confirming that:[126]

...the terms and conditions of the Agreement for Lease (including annexed Lease) as per Phillips Fox's draft dated 20 June 1997 represent the agreement between the Lessor named thereon and Myer Stores Ltd.

Also in July 1997, the variable outgoings mechanism within the Lease was further varied, to incorporate a Base Variable Outgoings component.[127] This process of redrafting would likely have required the variable outgoings mechanism in the Lease to be revisited to some degree.[128] There was no suggestion that any concern was otherwise raised regarding the variable outgoings clause at that time. Moreover, the concept of a Base Variable Outgoings component is not to be found in any of the drafts of the HoA, which, in my view, further indicates that the draft HoAs provided only limited guidance to the parties in their drafting of the AFL and Lease.

49 On 19 August 1997 Ms Noonan sent Ms Dickschen "the Agreement for Lease (in triplicate) executed by Myer Stores Ltd" for execution by the lessors.[129] However, before the Agreement for Lease could be executed by the lessors, it was a requirement for:[130]

...senior management like me [Neville Beer] to agree that it was in order to sign the AFL and also required a certification letter from the external lawyers that the AFL accorded with the instructions which the lawyers had been given. In the case of the AFL, the certification letter was to come from Erikson...

Although Mr Beer's evidence as to whether he provided that agreement was somewhat evasive,[131] he did concede that he would not have departed from his usual practice in this regard.[132]

50 The evidence of events which follow is that after Mr Erikson of Mallesons corrected some drafting errors in the AFL he had identified in his 25 August 1997 fax to Mr Campbell Paine of Phillips Fox, the Mallesons' certification letter dated 8 September 1997 was provided to the Plaintiffs. The letter said:[133]

I have reviewed the engrossed form of the Agreement for Lease between your companies and Myer Stores Limited with respect to Chadstone Shopping Centre and also the accompanying Lease.

The Agreement for Lease and Lease:

(a) have been engrossed (following the incorporation of hand written amendments) in accordance with my instructions;

(b) reflect the commercial terms of the transaction agreed;

(c) contain no unusually onerous or objectionable provisions which are inconsistent with my instructions;

(d) contain limitation of liability clauses for the benefit of the trustee; and

(e) the Agreement for Lease is in order for execution.

[Plaintiffs' emphasis]

51 In relation to Mr Erikson's evidence, the Plaintiffs say that although he cannot recall comparing the HoAs with the AFL and the Lease, he does not believe that he did so. That, the Plaintiffs submit, must be so, because he was never given the 26 November 1996 HoA. He said that he obtained instructions to enable him to write the letter, which, it is inferred, must have come from Ms Dickschen. That is likely, the Plaintiffs contend, as Mr Erikson was only sporadically involved and not involved in commercial discussions.[134]

52 However, in my view, the position with respect to Mr Erikson's evidence is quite straightforward and, as submitted by Myer, is as follows:[135]

Mr Erikson's evidence was straightforward:[136]

(a) he provided the certification letter, including certifying that the AFL and Lease reflected the commercial terms of the transaction agreed;

(b) he believed each of the matters contained in his letter to be true when he wrote it;

(c) he would have certified that the AFL and Lease reflected the commercial terms on the basis of instructions;

(d) he is confident that he had those instructions at the time of providing the certification; and

(e) he did not see any need to compare the terms of the AFL and the Lease with any draft HoA because the draft HoAs were not provided to him on the basis that they contained the terms of the deal.

53 In my view, the objective evidence supports Mr Erikson's evidence as to the accuracy of his certification. Before certifying the AFL and the Lease, he first required several corrections to be made;[137] the nature and detail of those corrections confirms that he undertook the certification task diligently. Similarly, Ms Dickschen confirmed in her evidence that she, too, was at that time satisfied that the documents were in a proper state to be executed by the Plaintiffs.[138]

54 By 15 September 1997, the AFL was executed accordingly,[139] though at least one copy is dated 6 November 1997.[140]

55 The execution of the AFL had the effect that, even absent execution of the Lease, the Lease would be binding on the parties from the Commencement Date. In this respect, the AFL provided, in clause 8.3, that:

On and from the Commencing Date...the Lessee and the Lessor shall each respectively be bound by...the Lease as if the same were duly completed and duly executed and delivered by both parties...

56 Mr Stephen Bott, who signed the AFL for Myer, was available for cross examination.[141] There is no suggestion, however, that any of those who executed the AFL intended anything other than to bind the parties to the terms set out therein, which included the terms of the Lease. Those executing the AFL included Mr Powderly, who was the Plaintiffs' employee responsible for outgoings at all the centres.[142] As Myer observes, the Plaintiffs have never pleaded that there was any error in, nor sought rectification of, the executed AFL. The significance of this is, however, not clear having regard to the position that, as submitted by the Plaintiffs, the AFL is now performed and thus "spent" and so the Lease is the only element of this documentation to which rectification now has any possible relevance or effect.[143]

57 The Lease was executed on 4 September 2001. In relation to its execution, the Plaintiffs submit that cll 8 and 9 of the AFL obliged the parties, the Plaintiffs and Myer, to complete and execute the draft Lease scheduled to the AFL when Stage 20 of the Chadstone redevelopment was finished. The Plaintiffs contend that the parties' common intention could not change after the AFL was executed. Myer's signatories to the Lease, Mr Philip Smith and Mr Bruce Fethers, were available for cross-examination;[144] but were not cross-examined. It is contended by Myer that, nevertheless, there is no suggestion that those who executed the Lease intended anything other than to bind the parties to the terms set out therein. As has been observed previously, the Plaintiffs do not seek to rectify any provisions of the AFL which, as has been explained, included the draft Lease which was attached to the AFL as a schedule. In other words, the position of the Plaintiffs appears, quite clearly, to be that the provisions and any relevant parties' intentions were effectively "cast in stone" upon the execution of the AFL.

58 In spite of the delay in executing the Lease, the new Lease term granted preceded the execution date by some years. Pursuant to cl 8.3 of the AFL, the Commencement Date of the Lease is 23 November 1998. There was no suggestion, however, that the actual, earlier commencement date of the Lease has any bearing on the issues the subject of this proceeding.

59 The variable outgoings payable until 30 June 2000 was the Base Variable Outgoings Payment under cl 3.16 of the Lease. Increases in variable outgoings from July 2000 were those calculated under cl 3(a) of the Fourth Schedule to the Lease. Clause 3(b) did not operate until after the Lease was executed.

60 Returning to the position contended for by the Plaintiffs, namely, that the parties' common intention could not change after the AFL was executed - a position from which Myer does not dissent - reference should be made to events between October 1999 and September 2001 which are specifically highlighted in some detail in the Plaintiffs' submissions:[145]

On 27 October 1999 GML became responsible entity for the GRT[146] (in 1999 the managed investment scheme provisions - Chapter 5C - of the Corporations Law commenced and the GST legislation was enacted). Perpetual retired as trustee of the GRT.[147] GML appointed Perpetual as custodian to hold the GRT's assets as agent for GML.[148]
From late 1999 to 2001, after the construction of Stage 20 was completed, the Lease had to be completed (e.g. commencing date and commencing rent inserted) and executed. The form of Lease attached to the AFL was amended to:

165.1 include a GST clause (which is Clause 18 of the executed Lease);

165.2 amend various definitions, including Perpetual's limitation of liability provisions resulting from the change in GRT's structure and include provisions limiting GML's liability (which is Clause 19 of the executed Lease);

165.3 include the commencing date, commencing rent and the "Base Variable Outgoings Payment" in the First Schedule.[149]

On 4 September 2001 the Lease was executed by Perpetual, GML, Bridgehead and Myer.[150] Mark Feikema, a solicitor employed by the Gandel Group who had replaced Dickschen, oversaw the amendments referred to in the preceding paragraph. However, he was not asked to advise about recovery of variable outgoings and just assumed that the draft Lease attached to the AFL correctly recorded the parties' agreement.[151]
On 3 October 2002 Vicinity (then known as Commonwealth Managed Investments) replaced GML as responsible entity of the GRT (which changed its name to "CFS Gandel Retail Trust").[152] Under sections 601FS(1) and 601FT of the Corporations Act 2001 (Cth), GML's rights with respect to the Lease became the rights of Vicinity.

For the sake of completeness, it is observed that there is no suggestion on the part of the Plaintiffs that this process of dealings and communications and amendments to the provisions of the draft Lease prior to its execution on 4 September 2001 had any effect on the proposition that the parties' common intention with respect to the Lease could not change after the AFL was executed; at least insofar as is relevant to the present proceedings.

61 Since the execution of the Lease, the outgoings have been estimated, invoiced,[153] paid, checked, confirmed and adjusted by the parties in accordance with cl 3(b) of the Fourth Schedule to the Lease.[154] The Plaintiffs agree that between 2001 and September 2012, the parties performed the Lease according to its terms.[155] Particularly, the Plaintiffs observe that, relevantly, under cl 4.6(b) of the Lease, the Plaintiffs' calculated estimates of variable outgoings before a financial year commenced ("Estimates") and notified Myer of them, and under cl 4.6(c) they calculated the necessary adjustment after that year had concluded and gave Myer a statement of the adjustment ("Adjustment Statements"). Myer respectively paid the amounts calculated in accordance with cl 4.6(b) and (c). As required by the provisions of the Fourth Schedule of the Lease, the increases in variable outgoings were calculated against the preceding year, not the base year.

62 The Plaintiffs say that typical of the suite of documents passing between the parties are those for the year ended 30 June 2007,[156] which comprised:

(a) the schedule calculating the budget estimate;[157]

(b) the Owners 15 September 2007 letter and enclosed audit report on the actual outgoings incurred;[158]

(d) a GST invoice for the adjustment.[160]

On 20 June 2011, a box of Myer documents, some concerning the Myer Chadstone store between 1996 and 2001, was destroyed.[161]

63 The Plaintiffs also monitored the recovery of variable outgoings for their own accounting and budgeting purposes, applying the formula in cl 3(b).[162] In my view, as submitted by Myer, the Plaintiffs' accounting records clearly and readily showed:

(a) the extent of their recovery of variable outgoings from Myer;[163]

(b) the rate at which Myer's contribution to variable outgoings was expected to grow over the next 5 years (well below inflation);[164]

(c) that Myer's contribution to variable outgoings was expected to grow at a much slower rate than David Jones';[165] and

(d) that Myer contributed less to variable outgoings than comparable tenants such as David Jones, with the gap expected to widen over time. For example, Myer was forecast to contribute $2,116,000 for "Operating Recoveries" in 2011 while David Jones would contribute $2,964,000[166] - despite the fact that David Jones' premises were smaller than Myers' premises.[167]

This information was available both in detailed breakdowns[168] and in "major and specialty tenant splits" which made for easy comparison with other major tenants.[169]

64 None of the information to which reference has been made regarding the operation of cl 3(b) of the Fourth Schedule to the Lease caused any apparent concern to, or even comment by, the Plaintiffs or by the employees responsible for the tracking and recovery of variable outgoings. In particular:

(a) there was no difficulty in giving effect to the Lease;[170] consequently

(b) no one raised any difficulty in interpreting and applying Clause 3(b);[171] and

Moreover, Mr Beer's evidence on behalf of the Plaintiffs was that the level of Myer's contribution to variable outgoings under cl 3(b), as shown in the rolling 5-year budgets, would not have caused him any concern.[173] Similarly, Mr Ashley Brown's evidence was that a major or specialty tenant having a very good deal on what it contributed to outgoings was not in itself a cause for concern.[174]

65 The Plaintiffs' claim did not arise from a sudden understanding of the terms of cl 3(b) of the Fourth Schedule to the Lease; provisions which had been read, understood and applied numerous times over the preceding 20 years or so without any concern. Nor did it arise from the comparison of the various other tenants' contributions to outgoings at Chadstone; a comparison which had also long been available. The issue only appeared problematic in the peculiar circumstances of a "mistake" by the Plaintiffs' property analyst, Ms Melissa Walsh.[175] Mr Brown accepted that, had Ms Walsh not made that mistake, the issue regarding Myer's contribution to variable outgoings would probably not have arisen.[176]

66 So much Myer submits in relation to the alleged "Mistake". As to the Plaintiffs' position, they submit:[177]

In about October 2012 the path to the Owners discovering the Mistake commenced with Ashley Brown (Brown) recognizing a discrepancy.[178] Brown took the matter up with David Seward (Seward), a solicitor employed by one of the Owners. Seward was to obtain the original files.[179] It was Seward who discovered the error.[180] The Mistake was identified in the management Financial Issues Summary for April 2013,[181] the commentary in which was drafted by Seward.[182]

67 Having regard to these matters, and more generally, the evidence does not, in my view, support the Plaintiffs' position with respect to the Mistake. Rather, the position which emerges from the evidence at trial is that Mr Brown and Mr David Seward appear to have formed the view that there was a "mistake" in the Lease, without asking anyone who knew anything about the preparation of the Lease.[183] Mr Seward was, and still is, an in-house lawyer of Vicinity Centres,[184] which manages Chadstone on behalf of the Plaintiffs.

68 Moreover, Mr Beer, was not asked if there was a mistake.[185] Rather, in 2014, he was told that there was a mistake in the Lease.[186] In my view, the submissions by Myer with respect to his evidence are correct; namely, that his reconstruction of his recollection from documents before which he had only a general recollection[187] occurred in that context.[188]

69 One might have thought that parties in the position of the Plaintiffs would - having formed the view that there had been what is, on their case, a significant "mistake" with respect to the provisions of the Lease - bring the matter to the tenant's, Myer's, attention with some expedition and explanation. That is, however, not what occurred, as is clear from the Plaintiffs' own submissions:[189]

The Owners gave a "medium" rating to the chances of recovery from Myer in the "Risks & Opportunities" section of their rolling 5-year budget.[190] From time to time the rating was considered by Brown's team, as was the rough quantification of the recovery.[191] Because the consideration was in the "Risks & Opportunities" section of the budget, accuracy was not as important.[192] The quantification was made without reference to the rectified lease.[193] The final calculation (being the one in the writ) was made with legal assistance from Seward.[194]
The Owners deferred raising the Mistake with Myer because they anticipated Myer saying that Myer had to give its consent to Stages 38 and 40 of Chadstone as a means of Myer avoiding the claim.[195] As matters transpired, there was no requirement for consent[196] and no carpark issue.[197]
Obviously, the whole point was to avoid giving Myer the opportunity to avoid liability in respect of variable outgoings by trading that off for its consent to the carpark issue. Myer has not provided any evidence that it would not have done precisely that.
Myer has elected to call absolutely no evidence about Stages 38 and 40 of Chadstone.
Once the management decision was made to proceed with the claim in mid-2015, external legal advice needed to be obtained by the Owners.[198]
On 2 December 2015 the Owners sent a letter to Myer informing Myer of the Mistake and requesting Myer's co-operation to correct the Mistake.[199] The letter included the final calculation.
On 24 December 2015 the Owners sent Myer a letter attaching invoices for the years ended 30 June 2000 to 2015 (2015 Demands) for the Shortfall. The letter requested payment of the Shortfall.[200]
On 12 January 2016 the Owners emailed Myer invoices replacing those sent on 24 December 2015.[201]
On 3 February 2016 Myer sent a letter to the Owners denying that the Mistake occurred.[202]
On 11 February 2016 this proceeding commenced but the Writ was not served.

70 As Myer observes, the Plaintiffs, despite "discovering" the "mistake" in October 2012,[203] did not reveal their claim to Myer until December 2015. As Myer submits, and the Plaintiffs effectively concede in their submissions, the delay was not accidental. In this respect, Myer submits that the Plaintiffs deliberately concealed the alleged mistake regarding cl 3(b) of the Fourth Schedule to the Lease in order to enhance their negotiating position with Myer in respect of other issues. Thus it is said, as the Plaintiffs might require Myer's consent[204] to the Stage 38 development at Chadstone, such concealment, Myer says, denied it the opportunity to use it as a negotiating point to achieve a more favourable outcome regarding the variable outgoings claim. Stage 38 and the other intertwined stages, such as Stage 40, were significant matters for the Plaintiffs, involving the expenditure of over $500 million and continuing expansion and development of Chadstone.[205] At the same time, Myer says, the Plaintiffs also sought to identify an unrelated issue, such as consent to a change of control in the event of a takeover of Myer, as leverage against Myer in the variable outgoings claim.[206] Concluding, Myer submits that the strategy is obvious enough and squarely spelled out in the Plaintiffs' recently discovered emails.[207] However, Mr Beer would not admit to it in evidence.[208] The significance or otherwise of these matters is considered further in the reasons which follow in relation to various defences raised by Myer.

71 The Plaintiffs make two claims. The first is based on principles of contractual construction and the second seeks rectification of the Lease. Again, it is observed that the Plaintiffs do not seek rectification of the AFL.

72 In both instances, the Plaintiffs contend that the correct form of cl 3(b) of the Fourth Schedule is as set out in the Annexure. However, as Myer observes, this form is not the formula that the Plaintiffs used for their own internal purposes. After deciding that there was a mistake in cl 3(b) of the Fourth Schedule, the Plaintiffs' own analysts considered the question multiple times[209] and came up with several different formulas.[210] Following such analysis, and trying to be as accurate as they could,[211] Mr Brown, with the assistance of his team of property analysts, chose to use a different - undisclosed - formula[212] in assessing the potential value of the "mistake".[213] Thus, Myer contends that the form said by the Plaintiffs to be the correct form of cl 3(b) does not otherwise appear to have been used by the Plaintiffs outside of this proceeding.[214] Nevertheless, the form contained in the Annexure is the formula for which the Plaintiffs contend in this proceeding.

73 The meaning of a commercial contract is to be ascertained objectively, by reference to the text, context and purpose of the contract. In terms of context, the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract may, depending on the particular circumstances, need to be included and considered. The task of the Court is to ascertain what a reasonable businessperson would have understood those terms to mean.[215]

74 Further, in construing written contracts, the Court is to have regard to all the words used[216] "so as to render them all harmonious with one another".[217] In construing instruments such as commercial contracts "preference is given to a construction supplying a congruent operation to the various components of the whole".[218]

75 The process of construction is ordinarily possible by reference to the contract alone. Nevertheless, evidence of surrounding circumstances may be resorted to where there is an ambiguity or in circumstances where the words are susceptible of more than one meaning but cannot be adduced to contradict the plain meaning of the contract.[219]

76 Recourse may be had to external matters in the case of ambiguity, but whether the contract is "ambiguous" is not confined to lexical, grammatical or syntactical considerations. A contract is relevantly "ambiguous" where the scope or applicability of the contract is doubtful.[220] It is also permissible, if necessary, to identify the commercial purpose or objects of the contract where that task is facilitated by an understanding of the transaction, the background, the context and the market in which the parties are operating.[221]

77 There are strict limitations on the sort of materials going to surrounding circumstances that can be used for the purpose of detecting the objective intention of the parties. Objective evidence of the surrounding circumstances known to the parties includes their "knowledge of the genesis of the transaction, the background, the context [and] the market in which the parties are operating".[222] In this vein, Allsop P (when President of the New South Wales Court of Appeal) said, in Franklins Pty Ltd v Metcash Trading Ltd:[223]

The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll (FGCT) v Alphapharm, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Ltd v Esber [2008] NSWCA 301 at [5]:

The possible subtlety of the distinction can be seen in Lord Wilberforce's reasons in Prenn v Simmonds ... at 1384-1485, and the recognition that the objective commercial aim may, possibly, be ascertained from some aspect of what has passed between the parties. The distinction can also be seen in what Mason J said in Codelfa at 352 about prior negotiations and their legitimate use "to establish objective background facts which were known to both parties and the subject matter of the contract", and their inadmissibility "in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations." ...

Antecedent correspondence has been considered by the High Court to fall within objective evidence of this kind for the purpose of construing an executed deed.[224]

78 If the literal meaning of a contract gives rise to an absurdity, the court, in construing the agreement, might depart from the literal meaning of the words, but the circumstances in which a court may do this are somewhat constrained. Nevertheless, where a court, construing a contract as a whole and in context, reaches a "strong level of conviction" that both:

(a) the literal meaning of the contractual words produces an absurdity or repugnancy or inconsistency with the rest of the contract; and

(b) it is self-evident from the contract what the parties' objective intention was, that court, as a matter of construction of the contract, has power to supply, omit or correct words to displace the absurd or inconsistent meaning with a relevant commercial meaning.[225] There does not need to be ambiguity before the court may intervene.[226] The principle is not confined to correcting only linguistic errors such as "inconsistent" being read as "consistent" - the process of supplying words may "bring a marked divergence from the text".[227]

79 The principles applicable have been discussed in a number of cases, particularly, Westpac Banking Corporation v Tanzone Pty Ltd;[228] and in several subsequent decisions of the New South Wales Court of Appeal in which Tanzone was applied_._[229] It is clear from both Tanzone and other decisions to which reference is made that the approach applied does not represent a departure from ordinary principles of construction but is, rather, a specific illustration of the application of those principles. This is clear both from the reasoning in Tanzone, to which I will now turn in more detail. It is also emphasised by Leeming JA (with whom Macfarlan and McColl JJA agreed) in National Australia Bank v Clowes,[230] where his Honour said, after referring to the two elements inherent in this approach to which reference has been made,[231] "[w]here both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning" [emphasis added].

80 Turning now to Tanzone. In that case, cl 2.02 of the subject lease provided for a increase in rent on biannual review dates, the increase being the greater of 8% or CPI increases. However, read literally, the CPI increase every two years was to be calculated as the difference between CPI at the commencement of the lease and the CPI prior to the review date. In other words, on the 8th biennial review, the CPI increase was not CPI at lease year 16 minus CPI at least 14, but CPI at year 16 minus CPI at year 0.

81 As submitted by the Plaintiffs, the steps which the Court took in Tanzone are instructive:

(a) it noted the widely differing rates of inflation in Australia in the 10 years preceding the lease commencement;[232]

(b) it identified the "possible consequences" arising from the application of the literal construction of the lease as being "absurd" when viewed in the context of the "possibilities that must have been apparent to the parties" when the lease commenced;[233]

(c) it identified the object of clause 2.02 as being to guarantee the lessor a minimum rental increase of 8% but a higher increase if inflation was greater than 8%;[234]

(d) it identified the "obvious" mistake as using the CPI figure for lease year 0 as the comparator instead of the CPI for the year which was 2 years before the review;[235] and

(e) it added words to avoid the absurdity produced by the "obvious" mistake.

82 The courts are, of course, cautious to warn of the limits of this type of reasoning, lest it be considered a means - by way of a loose definition of "absurdity" - to avoid contracts that a party might have come to regard as commercially onerous or unreasonable. Accordingly:

(a) "[a] court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted";[236]

(b) "[i]f 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. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust";[237]

(c) "[t]he courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense";[238]

(d) the "test of absurdity is not easily satisfied";[239] and

(e) the principle requires a very strong level of conviction that a mistake has been made_._[240]

Recently, in Apple & Pear Australia Ltd v Pink Lady America LLC,[241] the Victorian Court of Appeal said:

[W]hile a court should construe a commercial contract to avoid absurdity it is not part of its role to construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement.

83 The parties' approaches in respect of the construction process proceed from somewhat different perspectives. The Plaintiffs argue for a self-evident correction of the Lease provisions in question on the basis of the reasoning in Tanzone - or at least, principally - whereas Myer submits that there was simply no "absurdity" in any relevant sense, particularly having regard to the application of the critical Lease provisions without demur for 20 years or so previously.

84 The Plaintiffs submit that the similarity between the lease in Tanzone and the Lease is clear in that:[242]

(a) the Lease was negotiated against a background of differing increases in the rate of inflation;

(b) Clause 4.6 and the Fourth Schedule could produce absurd results;

(c) the Lease potentially was for 45 years (30 + 15) and the parties expected "increases" in variable outgoings - Clause 4.6 and the Fourth Schedule were all about securing for the Owners 80% of the increases over the long term;

(d) the mistake by the draftsperson is obvious - the reference year was meant to be the "Base Accounting Period"; and

(e) the words suggested by the Owners correct the absurdity or repugnancy and make the entire Fourth Schedule harmonious.

85 The Plaintiffs continue in their submissions in making the point that they have not previously referred to contextual matters, but that the second of the two requirements - that "it is self-evident from the contract what the parties' objective intention was"[243] - must mean "from the contract properly construed" [emphasis added]. Thus it is said that this means resort may be had to appropriate contextual material. On this basis it is said that there is no doubt that upon reading the Fourth Schedule of the Lease literally, its scope or applicability is doubtful - in other words, it is said to be "ambiguous". Consequently, the Plaintiffs contend that recourse may be had to "events, circumstances and things external to the contract" which are, objectively, known to both parties or which assist in identifying the purpose or object of the contract.

86 On this basis it is said that the 26 November 1996 HoA,[244] Myer's letter dated 3 April 1997,[245] and Myer's inclusion of the Fourth Schedule referring to "Base Accounting Period" in every draft of the Lease drawn by it[246] demonstrate that the purpose and object of the Lease included the compensation of the Plaintiffs for increases in variable outgoings, and specifically that such compensation be calculated by reference to the "Base Accounting Period". In contrast, it is said that there is no evidence at all - documentary or testamentary - of Myer informing the Plaintiffs that Myer did not agree that the contribution would be calculated in accordance with Item 8 of the HoA. To the contrary, it is said that Myer's position was its form of lease had been prepared to reflect the HoA.[247]

87 Myer, on the other hand, approaches these issues from the perspective of whether or not the critical Lease provisions are "absurd". The point is made that in this case:

(a) the allegedly "absurd" meaning has been applied without demur for 20 years or so; and

(b) despite numerous people seeking to apply Clause 3(b) of the Fourth Schedule both before and after the alleged "discovery" of a "mistake", no one - not even the Plaintiffs themselves[248] - has ever thought to apply the allegedly "self-evident" meaning set out in the Annexure containing the terms which the Plaintiffs say cure the "mistake".

Myer says, therefore, that it seems surprising that the Plaintiffs allege absurdity, or that they allege the contents of the Annexure has the "self-evident" meaning of cl 3(b) of the Fourth Schedule to the Lease. In any event, Myer contends that if one considers the two elements referred to above in turn, it is clear that neither is fulfilled.

88 As to the first, it is submitted by Myer that the present provisions now in dispute are not "absurd". The Fourth Schedule of the Lease provides "[f]or the calculation of [Myer's] contribution to increases in Variable Outgoings". Since 1998, cl 3(b) has been applied without giving rise to any difficulty or any question, either in ascertaining its meaning or in the outcomes it generates.[249] It is conceded that whilst post contractual conduct cannot itself establish the meaning of the agreement, it at least provides a large data set of examples that illustrate that cl 3(b) provides a perfectly functional formulation. In my view, this is a correct statement of the position in the present context.

89 Moreover, I accept that the highest the Plaintiffs' case could go is that cl 3(b) of the Fourth Schedule is poorly drafted in that there is redundancy or duplication in the manner of drafting, or that it does not provide for as large a contribution to variable outgoings as the Plaintiffs would like. Nevertheless, this does not make the provision "absurd". It is neither surprising nor remarkable to have redundant drafting or duplication in complicated legal documents. Additionally, it might also be inferred that the draftsperson did not see themselves as drafting a redundant provision, but maintained the same terminology as between the sub-paragraphs for the sake of emphasis and clarity, rather than relying upon some other drafting, grammatical or syntactical shorthand to achieve the same result but in a manner which might have been thought to be less clear or to cause confusion in the future.

90 In the present context, the fact that Myer's contribution to variable outgoings is not as much as the Plaintiffs might like cannot, of itself found a finding that the provisions in question are "absurd". Indeed, the Plaintiffs' own officers, Mr Beer and Mr Brown, admitted that they themselves saw nothing troubling in that fact.[250] As Myer emphasises, in fact the Plaintiffs saw nothing troubling about it for 17 years. Moreover, the possibility that the formula contained in the provisions may produce a reduction in Myer's contribution to variable outgoings from time to time does not render the provisions "absurd".[251]

91 Moreover, the evidence indicates that the only context in which cl 3(b) gave rise to a query was in the peculiar circumstances created by a mistake made by the Plaintiffs' analyst, Ms Walsh.[252] In my view, it is clear that the fact that a clause is seen to give anomalous results in the context of an erroneous application cannot be said to make it "absurd". Indeed, the contra proposition would, in itself, be absurd.

92 Additionally, Mr Powderly, who was responsible for outgoings at the Plaintiffs' centres, did not think that the Fourth Schedule of the Lease was "absurd". In fact, he proposed what the Plaintiffs now allege is "absurd".[253] Ms Dickschen, a property lawyer with many years' experience, did not think it "absurd" either. It is apparent from both Mr Powderly's memorandum[254] and Ms Dickschen's notes[255] that they both examined, not just the formula, but the full text of the Fourth Schedule of the Lease in detail. The text plainly refers to the calculation being performed over the "preceding year". Finally, in this respect, the submissions by the Plaintiffs that there is no evidence at all, documentary or testamentary, of Myer informing the Plaintiffs that Myer did not agree that the contribution would be calculated in accordance with Item 8 of the HoA are of little moment; and this is so despite Myer's statement that its form of lease had been prepared to reflect the HoA. In this respect, reference is made to a letter from Ms Noonan to Ms Dickschen dated 3 April 1997 enclosing the first draft of the Lease. This letter contained the following notes with respect to the enclosed draft of the Lease:[256]

the Lease reflects word for word the Lease of the existing store, except for changes necessary to reflect the Heads of Agreement and other changes to reflect changes in law.
Myer has not otherwise incorporated many of its normal requirements (eg: restriction of sale/subdivision, right to leave certain items of fixtures and fittings on lease expiry, GST/VAT clause) on the agreed understanding that similarly neither Gandel nor the Trustee would impose any of its "standard" requirements on Myer. Accordingly, Myer reserves the right to make further changes pending receipt of your comments.
as part of the dock area is for Myer's exclusive use, a licence of this area will be required. I attach a copy of our standard licence clause for inclusion in the Lease.
the list of non statutory outgoings in the Fourth Schedule has not yet been verified by Myer. It is the same list as in the existing Lease.

In my view, taking this letter at face value, it does not support the Plaintiffs' contention as it is clear that the draft of the Lease is just that, a first draft, and that Myer's position - its intentions with respect to a new lease - was not necessarily static and might change during the subsequent negotiation process.[257] Moreover, the evidence does not establish that Ms Noonan can be regarded as the "directing mind and will" of Myer in any relevant sense with respect to its "corporate" intentions.[258]

93 For the preceding and following reasons, a submission of this kind - particularly with reference to the 3 April 1997 letter - does not advance the position having regard to the point at which Myer's draft form of lease had been prepared and in light of subsequent events and the development of the documentation as has been described.

Is it "self-evident" that the proposed correction constitutes the parties' objective intention?

94 The Plaintiffs contend that the proposed correction is self-evident and constitutes the parties' objective intention. In support of this position, the Plaintiffs contend that Myer's submission that the proposed correction does not reflect Item 8 of the 26 November 1996 HoA because Item 8 is "inchoate, vague and not sufficiently certain" and "is open to numerous interpretations",[259] ought to be rejected. More particularly, it is said that this submission suffers from two misconceptions. The first, an assumption that the 26 November 1996 HoA was an agreement which the parties were merely to document and, secondly, one which relies on an assumption that the parties were, as at 26 November 1996, with the HoA on one day and in September 1997 with the executed AFL the next. The Plaintiffs say with respect to these matters that, first, the HoA is merely evidence of common intention and, secondly, that the latter proposition or assumption ignores the drafting progression. For the preceding reasons, in my view, the Plaintiffs' submissions in this respect are indicative of the problems with their case;[260] both with respect to establishing any relevant common intention having regard to the provisions of the AFL and, ultimately, the Lease as executed, and in light of, what they acknowledge, was a "drafting progression". Rather, in my opinion, it is far from self-evident that the proposed correction to the Lease constitutes the objective intention of the parties. The proposed correction, contained in the Annexure, provides that, in any given year of the Lease, Myer must pay an increase in variable outgoings that is calculated using:

(a) the increase in actual outgoings over the base year for every year except the immediately preceding year; and

(b) the lesser of CPI or actual increase for (only) the immediately preceding year.

There are, however, a number of possible alternatives to cl 3(b) of the Fourth Schedule.

95 More particularly, it is not "evident", let alone "self-evident" why the CPI formulation in sub-cl 3(b)(ii) - which is in contradistinction to the "actual" increases provided for in sub-cl 3(b)(i) - should require the payment of actual increases in all the years except one, rather than CPI increases. Far from being self-evident:

(a) in the 20 years since the clause was first drafted, no one (other than perhaps Mr Seward, who has not given evidence[261]) ever conceived that the Annexure might be the correct construction; and

(b) not even the Plaintiffs used the Annexure for their own internal purposes.

If any meaning is self-evident, it can only be the meaning that has been applied without fail and without question by numerous people - including the Plaintiffs' own employees, for 20 years or so.

96 In conclusion, in my opinion, the Plaintiffs have not established that cl 3(b) of the Fourth Schedule is "absurd". Further, I accept the submission of Myer that of all the innumerable changes that could be made to cl 3(b) of the Fourth Schedule to the Lease, that which is set out in the Annexure is among the least evident.[262] It is certainly not "self-evident".

97 For the preceding reasons, the Plaintiffs' claim in contractual construction must fail.

98 The approach of the courts to a claim for rectification is tempered by the strong presumption that a written contract executed by the parties is a true record of their agreement.[263] Nevertheless, this may not be the real position, hence the remedy of rectification, the key elements of which are set out in the judgment of Gageler, Nettle and Gordon JJ in Simic v New South Wales Land and Housing Corporation in the following terms:[264]

Rectification is an equitable remedy, the purpose of which is to make a written instrument "conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately". For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an "agreement" between the parties in the sense that the parties had a "common intention", and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the "agreement" because of a common mistake. Unless those elements are established, the "hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties" cannot be displaced.
The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.

The common mistakes which may be corrected by rectification include mistakes as to the effect and not merely the form of a document.[265]

99 Relief by way of rectification will not be granted unless there be "clear and convincing proof"[266] that, at the time of the execution of the written instrument[267] sought to be rectified:[268]

(a) there was an "agreement" between the parties, in the sense that the parties had a "common intention" that the written instrument was to conform to that agreement; and

(b) the written instrument does not reflect the "agreement" because of a common mistake.

100 It is clear from Simic that relief by way of rectification does not require as an essential element an antecedent agreement.[269] What is essential, however, is that the executed contract does not reflect the true intention of the parties.[270] It follows from Simic and the preceding authorities to which reference has been made that a plaintiff seeking rectification must prove what the true common intention was;[271] and that at the time when the document was executed, the document did not embody the true common intention.[272]

101 The "intention" that is relevant to a claim for rectification is the subjective intention of the parties.[273] It follows that before rectification is available, there has to be an intention of both parties concerning the term said to need rectification so that if the term was not the subject of negotiations, or was not otherwise shared by both parties, there is no room for rectification.[274] Evidence of the parties' subjective intention may be ascertained from any external or outward expressions manifested by the party's words or conduct and also from statements of the party's subjective state of mind.[275]

102 It is also clear that, in the context of a rectification claim, the correction said to be required to the written contract must be capable of identification in clear and precise terms, as the court will not assume the task of making the contract for the parties.[276]

103 In light of the strong presumption adopted by the courts in the context of rectification claims that a written contract executed by the parties is presumed to be the true record of their agreement, the onus on the party seeking rectification is necessarily a heavy one. That party must advance "clear and convincing proof" that the written contract does not embody the final intention of the parties.[277] Relief by way of rectification is, however, not barred because the document which is sought to be rectified was read before it was executed.[278] Nor does it matter that the parties intended to execute a document drawn by their solicitors, although the onus is more difficult to discharge when all parties have been legally represented throughout the negotiation of the contract which is sought to be rectified.[279] It also follows that if an agreement is negotiated over an extended period, a claim for rectification may be harder to establish due to the unlikelihood of parties mistakenly recording their agreement if they have devoted significant time to preparing a written agreement;[280] and there is an "inherent unlikelihood" that both parties would be under the same mistake where they are represented by solicitors during the negotiation and drafting of the agreement.[281]

104 Questions of intention when only natural persons are involved in the negotiation and execution of a contract which is sought to be rectified do not pose the same difficulties that may arise with respect to corporate parties. Thus, there is a question whether the state of mind of a natural person should be attributed to a corporate party as a matter of interpretation of the relevant substantive rule.[282] The substantive rule here is the law of contract.

105 The primary rule of attribution in the case of a corporation is the corporate constitution, but further rules are required to enable the corporation to do business.[283] The primary rule is supplemented by the general rules of attribution found in the principles of agency.[284] The principle of agency used in contract law, particularly in cases of rectification, is that the relevant officer or employee is the person who is the "directing mind and will" of the corporation in relation to the contract.[285]

106 The cases dealing with rectification claims variously describe the relevant officer or employee whose intention is to be attributed to the corporation as the "decision maker",[286] the person "whose job it was to make the required business judgment as to the terms upon which [the corporation] should contract";[287] and the "decision maker" as opposed to a person conducting a "mere negotiation".[288] The cases also recognise that the intentions of the negotiator will be material if the negotiator either is also the decision maker; or shares in a relevant way those intentions with the decision maker.[289] It follows that where an organ of the corporation executes or approves a contract as a formality and the negotiator's role is critical to that organ's decision, the negotiator's intention will be attributed to the corporation.[290] This explains why the evidence may demonstrate objectively an intention by the decision maker to enter into the contract which the negotiator had negotiated and agreed, such that the intention, and the mistake, was adopted by the decision maker.[291] The outcome of each case necessarily depends on the particular facts.[292]

Application of the principles concerning rectification

107 The Plaintiffs submit that the evidence clearly establishes that their intention throughout was that recoveries of increases in variable outgoings were to be calculated by reference to the base year, as indicated in the 26 November 1996 HoA. Moreover, it is contended that any difficulty that would ordinarily be posed by the fact that Ms Dickschen and Mr Erikson were involved in drafting and negotiating the Lease is "dispelled by the evidence".[293]

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Cases Cited (39)