PRIESTLEY JA: The parties to this appeal are the lessee and lessor of commercial premises.

The lease was for a term of six years commencing on 1 January 1992, with an option for a further term of four years.

The boiler plate covenants and provisions of the lease were contained in a Memorandum filed in the Land Titles Office and incorporated in the lease by reference.

A Reference Schedule to the lease (which is itself cl 1 of another schedule, the Second Schedule) gave content to some of the standard clauses of the Memorandum. For example, cl 4.1 of the Memorandum said that during the term the Lessee would pay the Lessor an annual rent in the sum specified in Item 4 of the Reference Schedule. Item 4 of the Reference Schedule contained the words and figures "$136,192 per annum".

The Schedule Two already referred to contained covenants and provisions applicable to the particular circumstances of the lease of the premises between the parties.

Clause 4 of the Memorandum as well as providing for the rent also provided a means of increasing the rent during the term by a rent review procedure set out in the clause, the review dates during the term being 1 January 1994 and 1 January 1996. Clause 4.2 of the Reference Schedule provided for a total abatement of rent from 1 January 1992 to 31 July 1992 and a 50% abatement from 1 August 1992 to 31 December 1993.

Clause 5 in Schedule Two also dealt with rental review and began by saying that the agreement it contained was "Notwithstanding any other provision contained herein". (See p 3 below.)

In December 1993 questions arose between the lessor and the lessee concerning the meaning of provisions of the lease pursuant to which the rent for the period commencing 1 January 1994 would be fixed.

The primary questions in the dispute turned on the way in which cl 5 in Schedule Two should be interpreted.

The lessor began proceedings in the Equity Division claiming a declaration that the rent payable for the year commencing 1 January 1994 was $136,192. The proceedings were heard by Hodgson J who made a declaration as asked by the lessor.

All the facts, and the provisions of the lease, relevant to the deciding of the appeal are either set out in or appear in annexures to Hodgson J's reasons. His reasons also contain a convenient statement of the submissions of the parties, the opinion he formed on the point upon which the case was decided and his views on other points argued but not necessary for him to decide because of his conclusion on the first point. I will not repeat these matters because I assume any reader will also have Hodgson J's reasons.

I will however set out cl 5 of Schedule Two as, in the view I have formed of the case, its terms are basic to the result.

Notwithstanding any other provision contained herein, the Lessor and Lessee covenant and agree that after the rental review to market as at 1 January 1994 (being the first review date referred to in Item 6(i) of the Reference Schedule of the Lease) the rent shall be the lesser of the amount determined pursuant to clause 4.1 of Memorandum X007323 and the sum of One Hundred and Fifty Thousand Seven Hundred and Eighty Four Dollars ($150,784.00)."

Hodgson J's decision depended on his view that in the circumstances of the case cl 5 of Schedule Two did not come into operation. This was because, in his view, it could only operate once an amount had been determined pursuant to cl 4.1 of the Memorandum; that could only happen if the lessor set the rent review procedure under cl 4.1 going by giving a notification in terms of cl 4.1(a)(i); and no such notification had been given.

The primary submission of the appellant/lessee is that when cl 5 of Schedule Two is read with cl 4.1 of the Memorandum, the parties had not left to the lessor's sole option the right to obtain a determination pursuant to cl 4.1 for the purposes of cl 5 of Schedule Two.

I agree with the lessee's submission. My reasons are as follows. First, cl 5 of Schedule Two is to apply notwithstanding any other provision in the lease. Next, it is to apply only to the first rental review. Next, by it, the lessor and lessee covenant and agree that after the rental review as at 1 January 1994 the rent shall be the lesser of two specified amounts. The second of these is already known; to know what the first is depends upon the annual market rental being determined pursuant to cl 4.1 of the Memorandum. That can only happen if so much of the rent review procedure as brings about a determination of annual market rental at the relevant date is implemented. That means the rent review procedure of cl 4.1 of the Memorandum must be carried out, subject to one alteration to what that clause would do, were it not subject to cl 5 of Schedule Two.

The opening words of cl 5 do not say that that rent will be arrived at if there is a rental review pursuant to cl 4.1 is at 1 January 1994, but after the determination of "rental to market" which as the result of one part of the Memorandum's cl 4.1 procedure fixed the first of the two amounts.

In my opinion, the agreement between the parties in the lease that the rent "shall be" a particular ascertainable amount which can only be arrived at after part of the Memorandum's cl 4.1 procedure has been carried was plainly on the footing that that cl 4.1 procedure would take place subject always to the effect of cl 5 of Schedule Two upon the resultant figure.

It is easier to understand the way cll 4 and 5 of Schedule Two work with cl 4 of the Memorandum when it is kept in mind that cl 4 of the Memorandum and its rental increase provisions are not directed to arriving at an annual rental which will necessarily be a market value rental for the year. What is envisaged is a little more complicated. There are two separate ways of the rent being changed. The first is that the lessor may propose within a stated time before a relevant review date what the lessor considers to be the annual market rental as from that date. If the lessee agrees with the lessor's estimate, then that agreed figure will become the annual rent at least until the next review date., and will be substituted for the amount appearing in Item 4 of the Reference Schedule (cl 4.1(a)(ii) of the Memorandum).

The second way of arriving at a new rental follows if the lessee disputes the lessor's estimate of the annual market rental. The procedures specified by the Memorandum's cl 4 will then bring about the determination of annual market rental in accordance with cl 4.1(b), by expert valuers (see cl 4.1(a)(ii) and 4.1(b)(i)-(v)). The valuers are to determine "the rental value of the premises as at that particular review date" (cl 4.1(b)(iii)). The "rental value" mentioned in this paragraph is the "annual market rental" referred to in cl 4.1(a)(ii). This is plain both from the reference in cl 4.1(a)(ii) to cl 4.1(b) and from the context and structure of cl 4.1 as a whole.

Once the valuers have decided the annual market rental, a further step is required before the rent to be paid under the lease is arrived at. It must be compared with the rent payable under the lease immediately before the determination. The higher of the two figures will become the rent payable under the lease for the period until the next ensuing review date.

The result is that when lessor and lessee at a review date cannot agree on a rent for the next period which they are content to take as the annual market rent, the procedure for fixing the next period's rent will result in a rent which is either what expert valuers have determined as the market rent or, if that figure is lower than the rent payable for the preceding period, then that preceding period's rental will remain payable for the next period although it is higher than the annual market rental determined by the valuers.

The method of determining rental under the lease from period to period pursuant to cl 4.1(a) of the Memorandum, as it would operate if it were not affected by other provisions of the lease, was made subject to the provisions of cll 4 and 5 of Schedule Two. Clause 5 of Schedule Two adopted some of the terms used in cl 4.1(a) of the Memorandum, more or less accurately. When it speaks of "the rental review to market" it is in my opinion speaking of that part of the procedure under cl 4.1(b) of the Memorandum by which the valuers arrive at the "rental value" spoken of in cl 4.1(b)(iii), which as I said earlier, is clearly the same thing as the "annual market rental" spoken of in cl 4.1(a)(ii). When cl 5 of Schedule Two later speaks of "the rent" being "the lesser of the amount determined pursuant to cl 4.1" of the Memorandum and the sum then specified, "the rent" is the rent payable under the lease for the time being and "the amount determined pursuant to cl 4.1" etc is the amount arrived at by the valuers as the "rental value"/"annual market rental" as earlier discussed.

It seems to me that in cl 5 of Schedule Two, the parties plainly meant that they covenanted and agreed that after the rental review to market as at 1 January 1994 had taken place, as they both recognised it would in due course, then the rent was to be the sum that followed from (i) using the method set out in cl 4.1 of the Memorandum to determine "annual market rental"/"rental value", and then (ii) taking, pursuant to cl 5 of Schedule Two, whichever of that figure and the figure stated in cl 5, was the lower, as the rent.

Putting all this slightly differently, cl 5 of Schedule Two modifies that part of cl 4.1(a)(i) of the Memorandum which speaks of the starting point of the review being the notification by the lessor of the amount the lessor considers to be the appropriate annual market rental. The modification applies only in respect of the first review date. The lessor does not have an option whether it will notify the lessee; because of the prior operation and application of cl 5 of Schedule Two, the lessor is in my opinion bound to give the notification to the lessee specified in the paragraph.

The preceding discussion indicates the answer to the further question: once the rental value has been determined, what is the rent to be? Is it to be the lesser of itself and the sum specified in cl 5 of Schedule Two, or is to be the greater of itself and the rent payable immediately before it was determined? If the explanation I have given of the relevant clauses is correct, then in my view it must be the former, because it is required by cl 5 of Schedule Two, which, in respect of the first review date is to be given effect notwithstanding any other provision of the lease.

The parties informed the court that they had agreed on a figure for the relevant market rent and that the court should, if it came to the conclusion I have indicated above, simply use that figure, which appears in the correspondence, and arrive at what it was submitted was the proper rent under cl 5 of Schedule Two. This means the figure is $68,096.

In my opinion, the appeal should be upheld, the declaration and orders made by Hodgson J set aside and in their stead declarations and orders made in accordance with these reasons. Draft minutes of these orders should be lodged with the Registrar of the Court of Appeal within seven days of the date of delivery of these reasons. If they are agreed and in proper form they can then be the subject of an order by a single judge. If they are not agreed, both parties should lodge drafts and if it then appears further argument is necessary, directions for disposal of that argument will be given. The respondent lessor should bear the appellant lessee's costs of the proceedings here and below.

HANDLEY JA: In this appeal I have had the benefit of reading the draft reasons for judgment of the other members of the Court. I agree with the reasons of Priestley JA but will add some brief additional comments of my own.

"... the lessor and lessee covenant and agree that after the rental review to market as at 1 January 1994 ... the rent shall be the lesser of the amount determined pursuant to clause 4.1 ... and the sum of ... $150,784 ...".

This clause attracts the well known principle in Mackay v Dick (1861) 6 App Cas 251 at 263 where Lord Blackburn said:

"As a general rule ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect".

This statement was approved and applied in Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607.

Under cl 5 both parties covenanted and agreed as to the rent that would be payable "after the rental review". This necessarily required there to be a rental review and since only the lessor could initiate one the clause required the lessor to take this step. This obligation could have been specifically enforced.

"The rent payable for the period until the next ensuing review date shall be the greater of either the rental value determined as in this Clause or the rent payable immediately prior to such determination".

In my opinion "the amount determined pursuant to cl 4.1" referred to in cl 5 of the Second Schedule is the amount determined "as in this Clause" that is by the valuers. This is clear from the terms of cl 4.1 (b)(ix) which requires the amount determined to be disregarded if it was lower than the rent payable prior to such determination.

The existing rent is not the rent determined pursuant to cl 4.1 although, if greater than the determined rent, it may remain the rent actually payable during the rent review period. The parties have agreed that the rental value which would be determined by the valuers for the relevant period from 1 January 1994 was $68,096. This was the rent payable under cl 4.2 of the Second Schedule up to 31 December 1993 and therefore the rent payable immediately prior to the rental determination required as at 1 January 1994. Clause 4.1 (b)(x) of the Memorandum provides:

"Any variation in the rent resulting from such determination shall take effect on and from that particular review date ...".

The rent payable immediately prior to the determination as at 1 January 1994 was that payable on 31 December 1993 viz $68,096. In my opinion therefore the minimum rent provided for by cl 4.1 (b)(ix) as at 1 January 1994 was the $68,086. It was not the $136,192 apparently provided for in the lease but effectively excluded by cl 5 of the Second Schedule. As the determined rent as now agreed by the parties would have been $68,086, and as this was the rent payable immediately prior to 1 January 1994 when the rental determination would take effect, there was on either view no entitlement in the lessor to a rent of $136,192.

COLE JA: The appellant Robert M C Brown & Partners Pty Limited is the lessee and the respondent, Permanent Trustee Company Limited, the lessor of commercial premises. By lease commencing 1 January 1992 for a period of 6 years terminating on 31 December 1997 certain premises were leased subject to covenants and provisions set forth in the Memorandum filed in the Land Titles Office No.X007323, and further subject to covenants set forth in Schedule 2 to the lease. Schedule 2 contained as clause 1 a Reference Schedule. Item 4 was:

One hundred and Thirty Six Thousand One Hundred and Ninety Two Dollars ($136,192) per annum.

(ii) 1 January 1998 and 1 January 2000 provided the option of renewal is validly exercised."[1]

Notwithstanding any other provision contained herein, the Lessor and Lessee covenant and agree as follows:

4.1 The rent reserved under Clause 4.1 of Memorandum X007323 and the outgoings payable pursuant to Clause 4.2 of the said Memorandum shall abate for the period 1 January 1992 to 31 July 1992 inclusive; and

4.2 The rent reserved under Clause 4.1 of Memorandum X007323 and the outgoings payable pursuant to Clause 4.2 of the said Memorandum shall abate by fifty percent (50%) for the period 1 August 1992 to 31 December 1993 inclusive.

PROVIDED THAT after application of the same abatement the outgoings payable by the Lessee for the period 1 August to 31 December 1992 shall not exceed $9,626.66 and for the period 1 January to 31 December 1993 shall not exceed $24,952.32.

Notwithstanding any other provision contained herein, the Lessor and Lessee covenant and agree that after the rental review to market as at 1 January 1994 (being the first review date referred to in Item 6(1) of the Reference Schedule of the Lease) the rent shall be the lesser of the amount determined pursuant to clause 4.1 of Memorandum X007323 and the sum of One Hundred and Fifty Thousand Seven Hundred and Wight Four Dollars ($150,784.00)."[2]

Clause 6 of Schedule 2 made irrelevant amendments to Memorandum X0077323.

Part 4 of the Memorandum is entitled "Rent and Lessee's Contribution to Outgoings". It provides:

The Lessee will during the term pay to the Lessor (or as the Lessor may direct in writing) without demand from the Lessor and without deduction whatsoever an annual rent in the sum specified in item 4 of the Reference Schedule such rent to be paid in advance by equal regular and consecutive monthly payments on the first day of each month in each year during the term (except the first and last payments which if necessary will be proportionate) the first being payable on the date of commencement of the term PROVIDED ALWAYS that -

(a) (i) At any time not earlier than three (3) months (in which regard time shall not be of the essence) prior to each of the successive dates stated in Item 6 of the Reference Schedule (each of such dates being called "the review date") or upon the Lessee's request pursuant to sub-clause 5.1(b) the Lessor may notify the Lessee in writing of the amount which the Lessor considers to be the annual market rental appropriate to the premises as from that particular review date.

(ii) Should the Lessee dispute the Lessor's estimate of the annual market rental within one (1) month of the delivery of the Lessor's notice mentioned in sub-clause (I) or within such other period as may be agreed on the rent to apply from a particular review date, he shall give written notice to the Lessor requiring annual market rental to be determined in accordance with Clause 4.1(b). Unless such notice is given by the Lessee within one (1) month of the delivery of the Lessor's notice mentioned in sub-clause (i) or within such later period as maybe agreed THEN the amount stated in the Lessor's notice given under sub-clause (i) shall become the rental reserved by this Lease as and from that particular review date in substitution for the amount appearing in Item 4 of the Reference Schedule or where applicable the rent determined at any previous review date."[[3

Clause 4.1(b) deals with "Determination Procedures" being procedures to permit resolution where there is dispute concerning the proposed rent. Shortly stated it contains provisions whereby valuers appointed by the parties or an independent person determine the "annual market rental value of the premises". Clause 4(2)(b)(ix) provides:

"The rent payable for the period until the next ensuing review date shall be the greater of either the rental value determined as in this clause or the rent payable immediately prior to such determination."

The "rent reserved under clause 4.1 of Memorandum X007323" for each of the 6 years of the lease was $136,192. That flows from the introductory words of clause 4.1 of the Memorandum. However in the first two year period that rental was "abated" in accordance with clause 4.1 and 4.2 of Schedule 2. Further, the base rental of $136,192, otherwise applicable in the year commencing 1 January 1994 was liable to be varied in consequence of the "rental review" contemplated by clause 5 of Schedule 2. Whilst it will be necessary to pay close attention to the wording of clause 5, in concept it is a capping clause to ensure that the lessee would not be obliged to pay more than $150,784 annual rental in respect of the two year period commencing 1 January 1994 after the rent review contemplated by clause 5 of Schedule 2 which contemplated that there would be as at that date an amount determined pursuant to clause 4.1 of the Memorandum as the rental payable for the two years commencing 1 January 1994.

Similarly, it is important, in my opinion, to recognise that clause 4.1 of the Memorandum contemplated only an increase in the rental. That is entirely clear from the heading of clause 4.1, the side note to clause 4.1(a) and the provisions of clause 4.1(b)(ix). There is no provision in the lease, other than the abatement provisions in clause 4.1 and 4.2 of the Schedule 2, which contemplates a reduction of rental below the base rental of $136,192 provided in Item 4 of the Reference Schedule and clause 4.1 of the Memorandum.

Clause 5 of the Schedule 2 contemplates a "rental review to market" as at 1 January 1994". The manner in which the "rental review to market" is to be determined is "pursuant to clause 4.1 of Memorandum X007323". The word "amount" in clause 5 must mean, in my opinion, the amount of rental determined pursuant to clause 4.1, not the amount of the "rental value". The difference is important because whilst clause 4.1 of the Memorandum contemplates that valuers will determine the "annual market rental value" of the premises, the effect of clause 4.1(b)(ix) is that the amount of the "rent payable" will not necessarily be that annual market rental value. It will be the greater of that rental value or the rent payable immediately prior to such determination.

I agree with Priestley JA that, contrary to the view of Hodgson J, clause 5 of Schedule 2 required that there be "the amount determined pursuant to clause 4.1 of Memorandum X007323" as at 1 January 1994. The use of the expressions "after the rental review" and "shall be" in clause 5 make the mandatory nature of the review clear. As the clause was stated to operate "notwithstanding any other provision contained herein" it overrides the discretion otherwise conferred by clause 4.1 of the Memorandum in the lessor to seek a rental increase as at the review date.

There has not been an "amount determined pursuant to clause 4.1 of Memorandum X007323". However the parties have agreed for the purpose of this litigation that as at 1 January 1994 the annual market rental value of the premises is $68,096. The rent payable immediately prior to 1 January 1994, being the date of the determination required under clause 5 of Schedule 2, was also $68,096 per annum. Clause 5 of Schedule 2 requires the determination of the rental pursuant to clause 4.1 of the memorandum, not the determination of the annual market rental value of the premises. As clause 5 of Schedule 2 picks up the whole of clause 4.1 of the Memorandum, clause 4.1(b)(ix) applies. As the rental market value as agreed, rather than determined, as at 1 January 1994 was $68,096, and the rent payable immediately prior to that agreed determination was the same sum, the provisions of clause 4.1(a)(x) of the Memorandum result in that being the rental determined and payable from 1 January 1994, subject to clause 5 of Schedule 2. However that determined rental pursuant to clause 4.1 of the Memorandum then operates within clause 5 of Schedule 2 such that the rental payable in respect of the two year period commencing 1 January 1994 is the lesser of the $68,096 determined pursuant to clause 4.1 and $150,784. The rental is thus $68,096.