Ross Cook and Brett Cook Pty Ltd v Australian Sugarcane Feeds Pty Ltd & Anor

[2] Clause 3.2 provides that it be the "current market rental as agreed to by the parties". Absent their agreement, a valuer (agreed upon or appointed by the President of the Queensland Law Society) acting as an expert is to give his opinion on what is a "reasonable and proper rental", and that will be final and binding on the parties. The provision specifies matters to which the valuer must have regard (any general rise in rental and/or market values of industrial land in the locality, and rents of comparable premises in the neighbourhood or similar premises in the vicinity).

[3] There was some exchange between the parties. The applicant lessor's letter of 31 March 2008 nominated a market rental of $773,848.74 plus GST, apparently based on valuer's advice that the rent should be $10 to $15 per square metre. That would reflect a 2,500 per cent increase over the current rental. The lessee has proposed a rent of $33,300 plus GST.

[4] The difference between the parties escalated into a Supreme Court proceeding for the recovery of possession of the land. Those proceedings were compromised, and the terms set down in a document entitled "Consent to judgment of registrar". Judgment has not been formally entered, but it is that document which fed the further progress of the matter.

"The parties jointly appoint Bernard Duncan of Bernard J Duncan Valuers ... within 14 days from the date of this order to conduct a valuation on the current market rental as at 1 June 2008, in accordance with clause 3.2 of the lease between the parties dated 27 September 2005 for the period 1 June 2005 to 31 May 2010 ... for the premises the subject of the lease ... the parties also agree that the valuer is appointed as a joint expert under the provisions of the Uniform Civil Procedure Rules 1999."

The document then sets out the timetable for the provision of submissions to the valuer.

[6] The valuer accepted the appointment. The first respondent subsequently furnished the valuer with a submission dated 18 May 2009. The applicant has not yet furnished its submission to the valuer, but takes issue with some of the approaches set out in the first respondent's submission. Presumably concerned that the valuer might otherwise fall into error, the applicant seeks declarations about those matters.

[7] It is convenient now that I set out clause 3.2. Its terms are as follows:

"The rent payable for the second, third and fifth years in the term shall be reviewed on the Rent Review Dates specified in the Reference Schedule and shall be that amount derived by multiplying the rent for the Lease year last concluded by a fraction obtained by dividing the Index Number for the last quarter immediately preceding the first date of the Lease year under review by the Index Number for the last quarter immediately preceding the first day of the Lease year last concluded. The rent payable for the fourth Lease year in the term shall be the current market rental as agreed to by the parties provided that if the rental payable for the fourth Lease year cannot be agreed upon within fourteen (14) days prior to the date of commencement of the fourth Lease year, then the dispute as to the rental payable shall be determined by a valuer who is a member of the Valuers Institute appointed by the parties and failing agreement between them as to who shall be appointed, the said valuer shall be nominated by the President for the time being of the Queensland Law Society Incorporated at the request of either party. Such valuer acting as an expert shall give his opinion on what is a reasonable and proper rental and such valuer's opinion shall be final and binding on the parties. In forming his opinion, the valuer shall be obliged to consider any general rise in rental and/or market values of industrial land that have occurred in the locality in which the premises are situated since the commencement of the term, the rentals of comparable premises in the neighbourhood in which the premises are situated or any other similar or relative premises in the vicinity of the premises which in the opinion of the valuer are comparable and in any event, the rental to be paid shall not be fixed at less than whichever is the greater of:

(a) The rent paid during the last year of the term just expiring; or

(b) The amount derived by multiplying the rent for the Lease year last concluded by a fraction obtained by dividing the Index Number for the last quarter immediately preceding the first date of the Lease year under review by the Index Number for the last quarter immediately preceding the first day of the Lease year last concluded.

The Landlord and the Tenant, together with their legal advisers or agents shall have the right to make any representations in writing or orally to the valuer in order to substantiate and support any recommendations or suggestions which they might care to make to the valuer to enable him to form his opinion as to the rental payable in accordance with this Clause. The fees of the valuer shall be borne as to one half by the Landlord and as to the other half by the Tenant."

[8] The applicant seeks declarations to the following effect:

1. that the "premises" are the entire 5.16 hectare area of land, in its condition as at the date of the lease;

2. that the valuer is to determine "current market rental", on the basis that is the same as a "reasonable and proper rental";

3. that in considering rentals for comparable premises, the valuer is limited to premises in condition comparable to that of the leased land as at the date of the lease; and

4. that in determining "current market rental", the only matters to which the valuer may refer are those specified in the clause, namely, any general rise in rental and/or market values of industrial land in the locality in which the leased land is situated, since the commencement of the term of the lease, and the rentals of comparable premises in the neighbourhood or in the vicinity of the leased land.

[9] The matter committed to the valuer by the parties is expressed to be the determination of "current market rental". But the terms of clause 3.2 would require the valuer to assess a "reasonable and proper rental", which may or may not be the same thing. The parties nevertheless are proceeding on the basis that the valuer is to carry out the exercise militated by clause 3.2. I would therefore regard the reference to "current market rental" as involving looseness of language. Also, the concluding reference in paragraph of the compromise document, to the appointment of a joint expert under the Uniform Civil Procedure Rules, may simply be disregarded. No such appointment has been made. The appointment of the second respondent Mr Duncan has been made under clause 3.2 of the lease.

[10] Mr Cooper SC, who appeared with Mr Wilson for the applicant, invites the court "to interpose itself in the review process" at this stage, so that it might determine fundamental questions of law as to the proper construction of the lease, to determine definitively the scope of the exercise committed to the valuer.

[11] Mr Logan, who appeared for the first respondent, submitted that making the declarations would involve "an unwarranted and precipitous intervention in the rent review process", and would concern questions which are "premature and not ripe for determination", and in some cases, "hypothetical questions concerning which there is no real dispute".

[12] Certainly the applicant has anticipated differences in the parties' respective constructions of clause 3.2. Mr Logan emphasized that any difference has not yet crystallized through the intended contractual process, because the applicant has not yet furnished its submissions to the valuer. Further, the valuer has given no intimation, even a preliminary intimation, as to his view of the proper construction of the clause in any particular respect.

[13] As to hypothetical questions, Mr Logan points to two not previously raised: whether "comparable premises" means those comparable with the condition and zoning of the leased premises as at the commencement of the lease; and whether the term "premises" means the entire leased area of 5.16 hectares.

[14] I return to the issue to be determined by the valuer. In its submission to the valuer, the first respondent equates "current market rental" with "reasonable and proper rental". Whether or not they will be the same in any particular case is moot. But it remains the situation that the valuer's exercise under clause 3.2 is to determine what is a "reasonable and proper rental". If the parties are truly proceeding under clause 3.2, as they claim to be doing, then that is the amount to be set by the valuer.

[15] Mr Cooper properly acknowledged that generally "reasonable and proper rental" is not synonymous with "current market rental": Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VicRp 2; [1984] VR 16, 20. In that case the Full Court said that "reasonable rental" ... "has no fixed or precise meaning. It is of a quite different character from 'market rental'." (p 20) I mention this to illustrate a major difficulty in the declarations sought by the applicant. The applicant seeks a declaration that "the phrase 'his opinion of what is a reasonable and proper rental' means 'his opinion of what is the current market rental' of the demise premises ...". How could the court make such a declaration where the parties have apparently deliberately used varying terminology within the clause? And how could the court constrain the valuer, who would purport to be carrying out the exercise required by clause 3.2, to address a question different from that committed to him by the clause.

[16] The cases are replete with cautions against court intrusion into this sort of process. In Alcatel Australia Ltd v Scarcella [2001] NSWCA 401, for example, there was reference to the comments of Mummery J in British Airways PLC v Heathrow Airport Ltd [1992] 1 EGLR 141, 144:

"Mummery J cautioned courts not to trespass into the territory of the valuer. He said: 'It is not, however, the function of the court to answer questions or give general directions as to how the independent valuer should go about making his valuation, such as the factors to be taken into account or the weight to be attached by him to those factors.'"

[17] This is not a case where the valuer has requested assistance from the court. It is also significant that the first respondent opposes intervention by the court at this stage. I accept, as pointed out by Mr Logan, that were the valuer to be in doubt as to the proper construction of the clause, having received submissions from both parties, it would be open to him to seek independent legal advice, on the basis of course that he disclosed that advice to the parties and sought their further submissions upon it. Also, should the valuer err in principle in some serious way in his determination, it may be that that determination would be invalid: Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 331, 336.

[18] As said by Bryson J in Fisons Pty Ltd v Rostinga Pty Ltd (Supreme Court of New South Wales, 3513/1988, 2 August 1989), declining to intervene:

"The parties are parties to a lease with complicated and obscure provisions which contains its own mechanism for resolving their difficulties, and that mechanism has been partly employed, without result, and remains to be completed, with the advantage of relative immunity from further review."

[19] For these reasons, I exercise my discretion against granting the declarations sought. The application is refused, with costs, to be assessed on the standard basis.