South Sydney Council v Royal Botanic Gardens

Court of Appeal (NSW)|1999-08-24|Before: Spigelman CJ, Beazley JA, Fitzgerald JA, Hodgson J, As Menzies J

New South Wales Court of Appeal CITATION : South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 FILE NUMBER(S) : CA 40741/97 HEARING DATE(S) : 23-24 August 1999 JUDGMENT DATE : 22 December 1999

South Sydney Council PARTIES : (Appellant) v Royal Botanic Gardens & Domain Trust JUDGMENT OF : Spigelman CJ at 1; Beazley JA at 52; Fitzgerald JA at 53

LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT FILE NUMBER(S) : 1539/96 LOWER COURT JUDICIAL OFFICER : Hodgson J

COUNSEL : A: A J Meagher SC, P Brereton R: J G Gleeson SOLICITORS : A: Pike Pike & Fenwick R: Minter Ellison CATCHWORDS : Contracts; Construction and interpretation of lease; meaning of "may have regard to"; whether matters set out in clause exhaustive in determination of rent; rectification; specific performance. Local Government Act 1919 ACTS CITED : Royal Botanical Gardens & Domain Trust ACt 1980 Domain Leasing Act 1961 Thorby v Goldberg 112 CLR 597 Meehan v Jones 149 CLR 571 Hall v Busst 104 CLR 206 Van Der Waal v Goodenough (1983) 1 NSWLR 81 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd 149 CLR 600 CASES CITED: Byrne v Australian Airlines Ltd 185 CLR 410 Codelfa Construction Pty Ltd v SRA of NSW 194 CLR 338 Perry v Wright [1908] 1 KB 441 Bowtell v Goldsborough Mort & Co Ltd 3 CLR 444 Minister for Immigration & Ethnic Affairs v Teoh 183 CLR 273 York Airconditionaing and Refrigeration (Aust) Pty Ltd v Commonwealth 80 CLR 11 Sebel Products Ltd v Commissioner of Customs and Excise [1949] Ch 409 DECISION : See orders

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40741/97 EQ 1539/96

SPIGELMAN CJ BEAZLEY JA FITZGERALD JA

SOUTH SYDNEY COUNCIL v ROYAL BOTANIC GARDENS AND DOMAIN TRUST

1 SPIGELMAN CJ: I have had the advantage of reading in draft the judgment of Fitzgerald JA. His Honour sets out the relevant provisions of the lease and the contents of other relevant documentation. 2 The central issue in the case is one of construction of a character on which minds frequently differ. It was common ground that the lease was a binding and valid contract, notwithstanding its failure to specify with clarity an essential term of a lease, namely the formula for determining the rent in periods after the first period. 3 The alternative contentions were:

(i) On behalf of the Appellant, that the requisite certainty was provided by the provision in cl 4(b)(iv) of the lease of an exhaustive formula as to the matters entitled to be taken into account in computation of the rent for the further periods.

(ii) On behalf of the Respondent, that the requisite certainty was provided by the identification of the person, namely the Trust, and, by implication, of a formula, namely the determination of a "fair and reasonable rent". 4 The operative clause is cl 1 of the lease, which is fully set out in Fitzgerald JA's judgment and in which the critical words are: "A yearly rent which shall be determined by the Trustees … as is hereinafter in cl 4(b) provided …". 5 Clause 4(b)(iv) provides: "That the yearly rent … may be determined by the Trustees at the commencement of each of the affected periods and the yearly rent so determined shall be payable …" 6 In the context of the "determination" of something for the sole benefit of the person doing the determining, I find the submission of the Appellant that the word "shall" is used in the sense of creating an obligation, to be quite incongruous. It connotes a form of obligation to oneself which is not, in my opinion, the sense in which the word was intended to be used. 7 In cl 1 the phrase "which shall be determined by the Trustees" is not, in my opinion, used in the sense of imposing an obligation upon the Trustees. Rather the phrase is intended to confer a function or power upon the Trustees and is used in the sense of a rent which 'shall be as determined by the Trustees'. 8 There is no difficulty with a contractual provision which contains a unilateral ability on the part of one party to the contract to affect the rights and interests of the other party to the contract. As Menzies J put it in Thorby v Goldberg (1965) 112 CLR 597 at 613: "It is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation to do a specified thing of a general description but it is left to the party who is to perform it to choose the particular thing that he will do in performance of it." 9 To similar effect were the observations in that case of Kitto J at 605: "But an agreement is not void for uncertainty because it leaves one party or group of parties a latitude of choice as to the manner in which agreed stipulations shall be carried into effect, nor does it for that reason fall short of being a concluded contract." 10 In Meehan v Jones (1982) 149 CLR 571, the Court had to determine whether a contract of sale of land was binding in circumstances in which the contract was subject to a condition that the purchaser received approval for finance "on satisfactory terms and conditions". The Court had no difficulty in concluding that such a provision did not involve an objective standard as to the reasonableness of the finance, but a subjective test for the particular purchaser. The purchaser was subject only to a duty to act "honestly" (at 581 per Gibbs CJ) or "honestly or honestly and reasonably" (at 589-590 per Mason J). It was a provision of the latter character which Hodgson J, as the Chief Judge in Equity then was, adopted for purposes of the contract presently under consideration. 11 The Appellant's challenge to the decision below turns on the proposition that the facts and matters referred to in cl 4(b)(iv) were intended to be exhaustive. If its submissions were rejected in that respect, the Appellant did not submit that the implication by Hodgson J of an obligation to determine a "fair and reasonable rent" was otherwise inappropriate. Nor was there any challenge that the amounts determined by the Trust were other than "fair and reasonable". The Appellant's challenge focused on the proposition that the power to "determine" rent was confined to adjustment of "costs and expenses" in accordance with cl 4(b)(iv). 12 The contemporary approach to the interpretation of contracts tends to uphold the enforceability of a contract in which a price or payment of some character is to be determined by a process, usually involving a third party valuer or arbitrator, in circumstances where no specific formula for calculation is set out. See eg Sudbrook Trading Ltd v Eggleton [1983] 1 AC 444 at 477, 483-484. Similar considerations apply in a context where the price is "to be agreed". (See eg Foley v Classique Coaches Ltd [1934] 2 KB 1). I do not see that a situation in which the determination is reserved to one of the parties is in a different position. 13 In the case of sale of land this Court would be constrained to follow Hall v Busst (1960) 104 CLR 206 which, although doubted, has never been overruled. (See Van Der Waal v Goodenough [1983] 1 NSWLR 81). The approach is, however, appropriate in the case of a rent determination provision. (Booker Industries Pty Ltd v Wilson Parking (Queensland) Pty Ltd (1982) 149 CLR 600 at 614-617). 14 In such a case, where it is plain that parties intended to enter into a valid and binding agreement and where there is "machinery but no formula" (Greig and Davis The Law of Contract 1987 at p387), the Court will generally imply a term that the outcome of the process of such determination should be fair and reasonable. This may be sufficiently well established as an approach to construction of provisions of this character to characterise it as a term of the contract implied by law, in the sense identified by McHugh and Gummow JJ in Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 449, when their Honours said: "However, the more modern and better view is that these rules of construction are not rules of law so much as terms implied, in the sense of attributed to the contractual intent of the parties, unless the contrary appears on a proper construction of their bargains. There is force in the suggestion that what now would be classified as terms implied by law in particular classes of case had their origin as implications based on the intention of the parties, but thereafter became so much a part of the common understanding as to be imported into all transactions of the particular description. … This understanding of the matter is consistent with the proposition that terms of this kind, although treated as implied by law, may be excluded by express provision made by the parties and also as a result of inconsistency with terms of the contract. The result is that even if treated as rules of law, they only apply in the absence of an expression of contrary intent." (449-450) 15 Whether one applies a general principle of this character, or determines the matter solely on the particular facts and matters relating to the execution of the lease presently under consideration, in my view the conclusion would be the same. 16 It must be the case, and indeed was common ground, that there be some restriction on the ability of the Trust to determine a rent payable pursuant to the lease. That restriction is either found in terms of a criterion such as a 'fair and reasonable' rent, or it is found in the specification of the facts and matters to which the Trust "may have regard" under cl 4(b)(iv). If the latter is exhaustive, then there is neither room, nor need, for an implied term. 17 Like many issues of construction, the relevant considerations are finely balanced. 18 The formulation "have regard to" or "may have regard to" often appears in statutes or contracts. The words themselves do not indicate one way or another whether the facts and matters which follow are intended to be exhaustive or merely indicative. That issue can only be decided by considering the total context in which the formulation appears including both the whole of the document and the "objective framework of facts within which the contract came into existence". (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 194 CLR 338 at 352). 19 This process sometimes results in a decision that the list is intended to be exhaustive. (For example, Wallace v Stanford (1995) 37 NSWLR 1 at 9-10, 23 and c/f 19-20). On other occasions the opposite conclusion is drawn. (For example, Rathborne v Able (1964-1965) 38 ALJR 393 esp at 295, 301; Owen v Woolworths Properties Pty Ltd (1956) 96 CLR 154 at 160; R v Hunt; Ex parte Sean Investments Pty Ltd (1979) 180 CLR 322 at 329). In the latter situation the formulation "regard may be had to" is said to constitute "a guide and not a fetter". (Perry v Wright [1908] 1 KB 441 at 458). 20 The most important indication from the context is usually provided by the scope, nature and purpose of the task for which the decision maker is required or permitted to take the list of facts and matters into account. In the present case, that task is the 'determination' of a rent. In a normal commercial context it would be quite unlikely that facts and matters such as those referred to in cl 4(b)(iv) were intended to be exhaustive. However, this was not a normal commercial context. 21 When these arrangements were entered into, a commercial dimension to dealings with public land by public authorities, with which we may have become accustomed in recent times, would not have been prominent in the minds of the relevant decision makers. The Trustees had vested in them public land for public purposes. The State Government, of which the Trustees were an emanation, was persuaded to dedicate some part of that land to another public body for different public purposes. At the time that they entered into these arrangements, the relevant public bodies would not have had in mind the application of commercial standards by any process of market based exchange between arm's length parties. Hodgson J took this into account when he found that there was to be implied "a fair and reasonable rent", rather than "a market rent". 22 Nevertheless, the arrangement is not entirely devoid of a commercial dimension. 23 The materials before the Court indicate that the Council of the City of Sydney and the State Government had had under consideration for a number of years the desirability of providing significant car parking facilities close to the centre of the city. In the event, a decision on the part of the State Government was taken by the Cabinet. This was communicated by the Acting Minister for Agriculture and Food Production, the Minister responsible for the administration of the Trust in its then form, to the Lord Mayor of Sydney on 28 July 1955 in the following terms: "To give effect to the approval of Cabinet, and to put this matter on a legal basis, the views of the Trustees of the Sydney Domain are that they should grant a lease of the subject area to the City Council, for a term to be settled between the parties, and that the lease should include covenants which should ensure the maintenance of the surface of the area is a place for public recreation and, also, to ensure that the public would have full and free access thereto." 24 This occurred in a context where the State Government was establishing a scheme by which the Council of the City of Sydney would, for the first time, assume overall responsibility for parking within the city. 25 The legislative scheme pursuant to which the Council of the City of Sydney was authorised to regulate parking, to install parking metres in the city and to provide services in the nature of parking stations was carried into effect by the inclusion of Division 13A in the Local Government Act 1919 by amendment in 1955. That new Division authorised the installation of parking metres and the conduct of parking stations such as the one under consideration in these proceedings. 26 With respect to the imposition of fees or charges for parking in the Domain parking station the relevant section is 270J which provided: "270J(1) Council may, with the approval of the Parking Advisory Committee, on any land acquired by or vested in or which is under the care, control and management of the Council, other than a public road or public reserve, provide, control or manage parking stations and may in connection therewith demand and recover such fees or charges as may be fixed by resolution of the Council subject to any maximum prescribed by ordinance. (2) Council may, in or upon any parking station under the care, control and management of the Council, sell, distribute or otherwise supply petrol, oil and vehicle accessories and parts and repair, maintain or service motor vehicles." 27 The reference in subs 220J(2) was explained in the Second Reading Speech for the Amendment Act in the following terms: "The purpose of this provision is to enable the Council to provide a service similar to that at present given by private parking stations." ( New South Wales Parliamentary Debates 24 November 1955 p1844.) 28 The reference to "fees or charges" in s270J is not confined in any manner which would prevent the Council generating a surplus from the conduct of parking stations. This is in contrast to the revenue from parking metres which is required to be applied for the purpose of meeting the costs of administration of the system (s270N). 29 There is, accordingly, a commercial flavour to the determination of fees and charges for parking. This flavour is reinforced by express statutory provision permitting the Council to lease a parking station to any person (s270K). 30 This statutory context was well known to the parties at the time they were completing the agreement for lease. The possibility that the Council could generate a surplus from the operation of car parking is a factor which tends to support the Respondent's case. It is less likely that the State Government, through the Trustees, would be willing to agree not to share in any surplus by restricting rental increases to cost changes alone. However, in my opinion, this consideration is not, in all the circumstances, entitled to substantial, let alone determinative, weight. 31 Little assistance is to be derived from the other provisions of the Deed of Lease. 32 A number of provisions in the lease are designed to ensure that the Trustees do not incur any financial disadvantage by reason of the development on its land. See cl 2(b) with respect of payment of rates and taxes; cls 2(m) and (n) with respect to insurance premiums; cl 2(b) with respect to charges for services such as gas, electricity, water and garbage; cl 4(e) with respect to repairs and, of course, cl 4(b)(iv). 33 The inference I draw from these express provisions is that the Trustees, at that time an unincorporated arm of the State Government, were concerned to ensure that they did not incur any additional burdens by reason of the decision to allow some of the land to be used by another public authority, the Council of the City of Sydney, to perform some of its functions on the land. 34 Although the Council was proposing to spend its funds on a structure which the Trustees would eventually acquire, this was not regarded as some form of asset. The Trustees were concerned to serve their primary mission, namely the dedication of public land for public recreation. In the final documentation this was achieved by the inclusion in the lease of the covenant in cl 2(h): "That the Lessee will not do or permit to be done any act matter or thing whereby the surface of the Domain above the parking station and the footway becomes in the opinion of the Trustees not safe for use as parkland for public recreation." 35 It is permissible to look at surrounding circumstances for purposes of interpretation of a contract "if the language is ambiguous or susceptible of more than one meaning". (Codelfa supra at 352 per Mason J). As this passage indicates, in this context the word "ambiguity" - ironically a word not without its own difficulties - does not refer only to a situation in which the words used have more than one meaning. A broader concept of ambiguity is involved: reference to surrounding circumstances is permissible whenever the intention of the parties is, for whatever reason, doubtful. (C/f with reference to a similar issue in the context of statutory interpretation: Bowtell v Goldsborough Mort & Co Ltd (1905) 3 CLR 444 at 456-477; Minister for Immigration and Ethnic Affairs v Teoh (1994-1995) 183 CLR 273 at 287-288; Cross on Statutory Interpretation (3rd ed 1995) pp83-84; and my Sir Ninian Stephen Lecture "Statutory Interpretation: Identifying the Linguistic Register" to be published in the Newcastle Law Review, accessible at www.lawlink.nsw.gov.au/sc.) 36 Whether or not the facts and matters to which the Trust "may have regard" in determining rent are exhaustive, is ambiguous in this sense. 37 The most significant aspect of the factual matrix in which the parties resolved on the terminology of the final lease was the fact that this document replaced an extant agreement that had been in operation for almost two decades. (See Lewison The Interpretation of Contracts (2nd ed 1997) pp35-36). 38 Although for various reasons the Deed of Lease was not executed until May 1976, it was the intention of the parties that the Deed continue the basic terms and conditions as they had been negotiated twenty years before. This is reflected, in part, in cl 4(l) of the lease which provides: "That this lease shall for the purpose of determining the rights and obligations of the parties be construed as if it had been executed on the date from which the term is expressed to run." 39 At the time the lease became operative in May 1958, when the car park opened for business, the contract between the parties was contained in an exchange of correspondence. 40 The Under Secretary and Director of the Department of Agriculture, which administered the Trust, wrote to the Town Clerk of the Council of the City of Sydney on 17 January 1956, inter alia, in the following terms: "The terms of the lease shall be fifty years from the date on which the Station commences to operation. The rental should be one thousand pounds per annum. If at the end of each three year period of the term of the lease the additional cost of maintenance of the Domain in consequence of the construction of the Station (namely the cost of employing one additional gardener and one person to provide the necessary services on weekends and on public holidays and supplying additional fertilisers) shall vary from such costs from the commencement of such period, the rental for the succeeding period of three years shall be correspondingly varied by the amount of such variation but shall not in any case be less than one thousand pounds per annum." 41 Acceptance of this offer by the Council was conveyed to the Under Secretary and Director of the Department by letter of 17 May 1956 subject to some minor corrections which were, in turn, accepted by a letter from the Under Secretary to the Town Clerk of 8 June 1956. 42 The exchange of correspondence in 1956, to which I have referred, is not in the category of preparatory negotiations for contract. Rather, a concluded antecedent agreement was reached by means of this correspondence which came into effect upon the opening of the parking station at the Domain in April 1958. That agreement was replaced with retrospective effect by the Deed of Lease executed on 15 May 1976. However, the fifty year term of the lease was said to commence on 1 May 1958 and by cl 4(l), to which I have referred above, the lease was to be construed as if executed on the date on which it came into effect. 43 The antecedent agreement constituted by the correspondence of 1956, upon which the original occupation occurred, may be taken into account for the purposes of resolving any difficulty of construction in the final lease, as executed. Under the antecedent agreement, which had been in operation for almost twenty years, the matters eventually referred to in cl 4(b)(iv) were intended to constitute an exhaustive list. Nothing in the terminology of the final lease, or in any of the evidence before the Court, suggests that the parties intended to alter the antecedent agreement in this regard. 44 Although it is unnecessary to determine the Appellant's alternate claim for rectification of the agreement, it is appropriate to do so in case the matter goes further. I agree with Fitzgerald JA that this claim should be dismissed for the reason his Honour gives, namely that the evidence does not support rectification in the form for which the Appellant contended. There is a discrepancy between that form and the contemporaneous communications. In any event, I also agree with the reasons of the trial judge that, even if there were a relevant mistake on the part of the Council, there was no evidence that the mistake was shared by the Trustees. This is, of course, unsurprising in view of my conclusion that there was no mistake. If, after a difficult and by no means obvious process of construction, I had come to the other view, the state of the evidence would have been determinative of the rectification claim. 45 I agree, for the reasons given by Fitzgerald JA, that the Council is not entitled to recover the payments of rent made in respect of the period 1 May 1991 to 30 April 1994. 46 With respect to payments made subsequent to this time, the written submissions divide them into three categories:

(i) Four payments on 30 June 1994, 27 July 1994, 30 November 1994 and 15 June 1995 when, it was submitted, there was still an operative mistake of law. The issues in this category were either causative mistake or agreement for repayment.

(ii) The single payment of $275,000 on 1 December 1995 by which time there was no mistake of law. The issue is agreement to repay.

(iii) The three payments of 1 July 1996, 16 December 1996 and 1 May 1997, after commencement off proceedings. The issue is agreement to repay. 47 The agreement was said to be manifest in the Trust's letter of 22 June 1994 set out in the judgment of Fitzgerald JA, as applied to each subsequent payment by the "without prejudice" terms on which each such payment was forwarded. I agree with the trial judge that there was an agreement to repay and, generally, with the reasons of Fitzgerald JA for affirming his Honour's judgment in this respect. 48 I do not find it necessary to consider whether time is of the essence with regard to the performance of the obligation to make rent determinations. 49 The letter of 22 June 1994 expressly stated that the payments would be received "on account". That should be construed as on account of rent properly payable. This can now be determined under the agreement to repay, not under the lease. 50 If the parties are not able to agree on the quantum, the matter will need to be remitted, perhaps to a Master of the Court for determination. 51 I agree with the orders proposed by Fitzgerald JA. 52 BEAZLEY JA: I have had the opportunity of reading in draft the judgments of Spigelman CJ and Fitzgerald JA. I agree with the reasons and orders proposed by Fitzgerald JA. I also agree with the reasons of Spigelman CJ, but note that the Chief Justice has found it unnecessary to determine the issue of whether time is of the essence with regard to the performance of the obligation to make rent determinations. I agree with Fitzgerald JA that time is not of the essence. 53 FITZGERALD JA: The appellant Council is the lessee and the respondent Trust is the lessor of the Domain Parking Station. The term of the lease is 50 years from 1 May 1958. However, the lease was not executed until 15 May 1976. The parties are in dispute about the rent payable to the Trust by the Council, which also seeks to recover the large amount of rent which it has paid to the Trust for the period which commenced on 1 May 1991. 54 The Council's proceeding against the Trust in the Equity Division was dismissed, and this appeal is brought from that judgment. 55 The parties who entered into the lease were the persons who, at the time, were the Trustees of the Domain as lessor and the Council of the City of Sydney as lessee. The Trust, which was incorporated under the Royal Botanical Gardens and Domain Trust Act 1980, is, by that Act, the successor to the Trustees of the Domain. The Council is the transferee of the Sydney City Council's interest as lessee. The Sydney City Council paid for the construction of the carpark. 56 At the time when negotiations commenced between the Sydney City Council and the Trustees of the Domain in 1955, it is plain that a rent related to the lessor's additional material expenses was contemplated. 57 On 8 August 1955, the Chief Botanist and Curator with responsibility for the Domain wrote to the Undersecretary and Director of the Department of Agriculture, stating as follows: "In reference to the point raised by the Town Clerk …, concerning the proposed lease for the car parking station in the Domain, I would comment as follows:- 1. A lease of long duration seems quite reasonable. 2. In my opinion the rent should be 1000 per annum. This represents the additional expense to which our Department will be committed. For many years the cottage on the area has been given rent free in return for services. Once the cottage is demolished we will be committed to an additional outlay of 180 per annum to provide necessary services, including cleaning of lavatories and feeding horses during week ends and public holidays. In addition when the new area is established, the nature of the maintenance will be such that it will require the services of at least one additional gardener. We will therefore be involved in extra expense of at least 1000 per year and this should be recoverable in rent. …" 58 What followed was summarised by the primary judge in the following terms: "On 17th January 1956, the Under-Secretary and Director of the Department of Agriculture wrote to Sydney City Council and submitted on behalf of the Trustees an offer as to the terms and conditions of an agreement with the Council with respect to the construction and operation of the car park. In relation to the granting of a lease, the letter provided as follows: '5.The Trustees shall grant to the Council a lease of the site on which the Station is erected excluding the turfed portion immediately above the Station. The Council shall have the right to any easement in relation to such portion for any purpose properly incidental to the construction or maintenance of the Station and to such access to such portion as is necessary for the maintenance of the Station subject to compliance with any, reasonable request of the Trustees as to precautions to be taken to prevent injury to the public. The term of the lease shall be 50 years from the date on which the Station commences to operate. The rental shall be £1000 per annum. If at the end of each three year period of the term of the lease the additional cost of maintenance of the Domain in consequence of the construction of the Station (namely the cost of employing one additional gardener and one person to provide necessary services on weekends and on public holidays and of supplying additional fertilisers) shall have varied from such cost at the commencement of such period, the rent for the succeeding period of three years shall be correspondingly varied by the amount of such variation but shall not be correspondingly varied by the amount of such variation but shall not in any case be less than £1000 per annum.'

By memorandum dated 4th May 1956, the Town Clerk recommended to the Council that the proposed terms and conditions be approved for incorporation in a formal lease documents, subject to some minor alterations. That recommendation was adopted according to a minute of the Council dated 14th May 1956, which is in the following terms: '3.That the minute by the Town Clerk, dated 4th May 1956, with regard to the question of the lease by the Council from the Trustees of the Domain of an area of the Domain fronting Sir John Young Crescent required for the erection of a parking station and wherein it is recommended that the terms and conditions embodied in letter, dated 17th January, 1956, from the Under Secretary. and Director, Department of Agriculture, on behalf of the Trustees of the Domain, subject to minor amendments as detailed in such minute, be approved for incorporation in the formal lease document, be approved and adopted, and that such document be executed under the Common Seal of the Council.'

This was conveyed to the Department of Agriculture by a letter from the Town Clerk dated 17th May 1956. By letter dated 8th June 1956 from the Department of Agriculture to the Council, it was advised that the Trustees were agreeable to the variation proposed by the Council. The letter went on to advise that, on advice of Council's concurrence, the Crown Solicitor would be asked to prepare the formal agreement. It appears that this request had been made by December 1956." 59 During 1957, the Crown Solicitor appears to have formed the opinion that the Trustees did not have power to grant the lease and that special legislation was required. However, the parking station was constructed and opened on 8 April 1958, and Sydney City Council paid rent to the Trustees at the rate of £1000 per annum from 1 May 1958. 60 Section 3 of the Domain Leasing Act 1961 empowered the Trustees to lease the parking station to Sydney City Council with the consent of the Minister for Lands "for such terms or periods, at such rentals and subject to such covenants and conditions as the trustees, with the approval of the Minister for Lands, may determine", and s4 validated any lease which had already been granted. 61 It was not submitted that the lease which is presently material had been entered into prior to the Domain Leasing Act and was therefore validated by s4. Further, no submission was made that the necessity for the Minister's consent under s3 is material to the outcome of this proceeding. 62 Rent continued to be paid at the rate of £1000 per annum to 30 April 1965, and was paid at the rate of £1200 ($2400) from 1 May 1965 to 30 April 1970, $3500 per annum from 1 May 1970 to 30 April 1973, and $4500 per annum from 1 May 1973 to 30 April 1976. On each occasion when the lessor increased the rent, it explained the increase as related to increased costs. The Sydney City Council's solicitor's opinion was that it was not entitled to object. 63 There was little correspondence regarding the lease in the period of about 12 years which it took the Crown Solicitor to prepare a draft, or after the draft was forwarded to the Department of Agriculture on 28 March 1973. Such communications as there were did not suggest any alteration with respect to the arrangement concerning rent from that proposed in paragraph 5 of the letter of 17 January 1956 from the Under-Secretary and Director of the Department of Agriculture to Sydney City Council. Neither that Council nor the present lessee has ever formally approved a lease in different terms from those recorded in that letter. 64 The lease was submitted to Sydney City Council on 23 January 1975, and was executed by the then Lord Mayor and Town Clerk following advice from the Executive Officer that it was in accordance with what had been agreed and that its execution had been approved by that Council on 14 May 1956. That advice was incorrect. 65 The lease includes the following terms: "1.In consideration of the rent and covenants hereinafter reserved and contained and on the part of the Lessee to be paid observed and performed the Lessors in pursuance of the provisions of the Domain Leasing Act 1961 DO HEREBY demise and lease unto the Lessee ALL THAT the strata of the piece or parcel of land described in the Schedule hereto TO HOLD the same unto the Lessee for the term of fifty (50) years commencing on the first day of May One thousand nine hundred and fifty eight YIELDING AND PAYING during and in respect of the first three years of the said term the yearly rent of Two thousand dollars ($2,000.00) AND YIELDING AND PAYING thereof after the first three years of the term and during and in respect of each of the fifteen periods each of three years and the remaining period of two years comprising in all the residue of the said term a yearly rent which shall be determined by the Trustees in respect of each and every such period as is hereinafter in Clause 4(b) provided AND IT IS HEREBY DECLARED that the said yearly rents shall be paid in advance on the first day of May in each and every year during the said term clear of all deductions.

2.The Lessee covenants with the Lessors as follows: (a) That the Lessee will pay to the Trustees at the Department of Agriculture at Sydney, or to such person as the Trustee may from time to time direct the rent hereby reserved in manner hereinbefore mentioned without any deduction. …

4.PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED-; (a) That if the rent hereby reserved or any part thereof shall be unpaid for one month after any of the days on which the same ought to have been paid (although no formal demand shall have been made therefor) or if any assignee of the Lessee being an individual shall become bankrupt or make any assignment or composition for the benefit of creditors or if any assignee of the Lessee being a company shall go into voluntary or compulsory liquidation or in case there shall be any breach or non-observance of any of the covenants conditions or agreements on the part of the Lessee herein contained or implied or in case the Lessee fails to comply with the requirements of any notice given by the Trustees under any provisions of this Lease then and in any of such cases it shall be lawful for the Trustees at any time thereafter (although no notice may have been taken of any previous breach or default) into and upon the said demised land or any part thereof in the name of the whole to re-enter and thereby to determine this tenancy and to have and to hold the demised land as Trustees of the Domain as fully and effectually as if this lease had never been granted but without prejudice to any rights remedies causes of action or suit of the Trustees in respect of any breach of default or otherwise under these presents.

(b) That the yearly rent payable during and in respect of each of the fifteen periods each of three years and the remaining period of two years comprising in all the residue of the said term after the first three years thereof (each of such periods being hereinafter referred to as "the affected periods") may be determined by the Trustees at the commencement of each of the affected periods and the yearly rent so determined shall be payable during and in respect of the then succeeding three years of the term PROVIDED that -

(i)the Trustees shall notify the Lessee of the yearly rent as so determined as soon as practicable after the commencement of each of the affected periods;

(ii)any necessary adjustment of rent shall be made between the Trustees and the Lessee on the next day, for payment of rent following such notification to the Lessee;

(iii)the yearly rent determined by the Trustees as aforesaid shall not in any event be less than Two thousand dollars ($2,000. 00); and

(j)That any power duty or function conferred or imposed upon the Trustees by or under this Lease may be exercised or performed either by the Trustees or by such officers of the Department of Agriculture as the Trustees may from time to time approve or appoint for that purpose.

(k) That any opinions to be formed by the Trustees or any such officer as aforesaid under this Lease may be formed by them or him on such materials as they or he may think sufficient and in such case the Trustees or such officer shall be deemed to be exercising merely administrative functions.

(l) That this Lease shall for the purpose of determining the rights and obligations of the parties be construed as if it had been executed on the date from which the term is expressed to be run.

(m) That this agreement is conditional upon and subject to the approval of the Minister and subject to the power of the Minister to revoke wholly or in part the dedication of the subject land AND if such deducation (sic) be revoked in whole or part during the currency of this lease the rights and privileges hereby conferred shall as to the land be revoked absolutely and cease and determine and neither the Lessee nor any other person shall be entitled to any compensation on account of such revocation." 66 The first rent increase after the lease was signed, to $10,000 per annum from 1 May 1976 to 30 April 1979, was again related by the lessor to increased costs. However, within the Department of Agriculture, the suggestion had been raised that the lessor might "wish to consider the present profitability" of the parking station. 67 The next rent increase, to $13,640 per annum from 1 May 1979 to 30 April 1982, was again related by the lessor to increased costs, although the relevant letter to the Sydney City Council contained the following paragraph: "With regard to additional rental which might be set, consequent to the subletting of the service station, the Trust has indicated that this be held in abeyance pending Council's decision following consideration of the various tenders for that lease." 68 By letter dated 13th May 1982 from the Trust to Sydney City Council, a further rent review was advised. This letter contained the following paragraphs: "I am writing on behalf of the Royal Botanic Gardens and Domain Trust to advise that as from 1st May of this year, the rental for the car parking station site has been set at $34,300 per annum for the three years from that date. In reaching this decision, consideration has had to be given to the significant rises in costs which have occurred since 1st May, 1979 when the figure of $13,640 per annum was set, and to making provision for anticipated rises over the next three years.

In this regard I should advise that, when the figure of $13,640 was set, this did not include salary on-costs or any provision for cost increases over the ensuing three year period. Consequently it will be appreciated that the Trust has been at a considerable disadvantage by not making such provisions.

While it is recognised that the rental of $34,300 which has now been determined is a substantial increase over that which was paid by Council over the previous three year period, the Trust is now simply establishing, a figure on a more realistic basis than in the past. It would be appreciated if payment of this amount could be effected before the end of the financial year." 69 After advice from its solicitors in May 1987, the Trust wrote to Sydney City Council, stating that Government agencies were reviewing their commercial operations in the light of a tighter economic climate, and that the Trust had reviewed the Council's income and expenditure figures, and had determined a rent at $50,000.00 per annum for the period 1 May 1985 to 30 April 1988.

70 A Sydney City Council minute paper dated 9 February 1988 recommended that approval be given for payment of that rent, noting: "In view of the greatly improved trading position of the Domain Parking Station as compared with that in existence soon after its construction, the rental increase is not excessive and is nevertheless recoverable through parking fee adjustments." 71 Since that time, rent of that order, which has not been related to the lessor's material expenses, has been demanded and paid. The rents determined from 1 May 1988 to 30 May 1997 were: 1/5/88 to 30/4/91 $175,000.00 per annum 1/5/91 to 30/4/94 $500,000.00 per annum 1/5/94 to 30/4/95 $500,000.00 per annum 1/5/95 to 30/4/96 $550,000.00 per annum 1/5/96 to 30/4/97 $600,000.00 per annum 72 It is unnecessary for immediate purposes to say more of the circumstances preceding and following the execution of the lease or with respect to the rental payments which were made up to 30 April 1991. 73 The primary judge held that, on the proper construction of the lease, the Trust is entitled to charge a "fair and reasonable" rent. The Council did not dispute that the rent which it has paid was objectively "fair and reasonable", but argued that the lease provides for a rent determined by the Trust having regard only "to additional costs and expenses which [it] may incur in regard to the surface of the Domain above or in the vicinity of the parking station and the footway and which arise out of the construction and maintenance of the parking station by the Lessee". Alternatively, the Council seeks rectification of the lease to insert the words "and may only" between the words "may" and "have" in subcl4(b)(iv) of the lease. 74 The primary judge was plainly correct to reject the Council's rectification claim, and the Court did not require the Trust to advance argument on that subject. Other considerations aside, the variation sought would not cause the lease to correspond to the anterior communications between the parties or the only arrangement which was approved by Sydney City Council. For example, the paragraph numbered 5 in the letter of 17 January 1956 from the Under-Secretary and Director of the Department of Agriculture to Sydney City Council was concerned with increases in expenses which had been incurred, while subcl4(b)(iv) of the lease, rectified as sought by the Council, would continue to relate to "additional costs and expenses which [the Trust] may incur". (Emphasis added). 75 The argument for the Trust made much of the words "shall" (or "will") and "may" in the material portions of the lease. Clause 1 provides that the year rent for each period "shall be determined" by the Trust, subcl2(a) provides that the Council "will pay" the rent, subcl4(b) provides that the yearly rent payable in respect of each period "may be determined by the [Trust] at the commencement of" the period, and that the "yearly rent so determined shall be payable during" that period, and the provisoes to that subclause provide that: "(i) the Trustees shall notify the Lessee of the yearly rent as so determined as soon as practicable after the commencement of each of the affected periods;

(ii) any necessary adjustment of rent shall be made between the Trustees and the Lessee on the next day, for payment of rent following such notification to the Lessee;

(iii) the yearly rent determined by the Trustees as aforesaid shall not in any event be less than Two thousand dollars ($2,000. 00); and

(iv) in making any such determination the Trustees may have regard to additional costs and expenses which they may incur in regard to the surface of the Domain above or in the vicinity of the parking station and the footway and which arise out of the construction and maintenance of the parking station by the Lessee." 76 The Trust accepted that, despite the statement in subcl4(b) that the rent "may be determined" by it at the commencement of a period, it was required to do so by subcl4(b)(i). That being so, the extensive discussion of mandatory and permissive powers and the existence of one or more discretions in the material provisions did little to elucidate the critical question of construction. On either construction, that found by the primary judge and supported by the Trust and that contended for by the Council, subcl4(b)(iv) calls for the Trust's subjective decision. The issue concerns the matters which the Trust is entitled to refer to. The Trust criticised the Council's argument on the basis that it required the word "only" to be read into subcl4(b)(iv). However, on the Trust's argument, the express content of the subclause must be even more extensively expanded to import the unstated premise of a "fair and reasonable" rent. 77 The objection to the Council's position lies in the combination of the word "may" and the words " have regard to". Even when "regard" must be had to specified matters, those matters are not necessarily exhaustive. R v Hunt; ex parte Sean Investments Pty Ltd (1979) 180 CLR 322; R v Toohey; ex parte Meneling Station Pty Ltd (1982) 158 CLR 327. If the lease expressly provided for a "fair rent" and required or permitted "regard" to stated considerations, other relevant matters could also be considered. Rathborne v Abel (1964) 38 ALJR 293. 78 On the other hand, the lease here identified matters to which "regard" may be had as a basis for determination of a rent which is not required to meet any other test or satisfy any other criterion. The context therefore provides a "positive indication of … considerations by reference to which a decision is to be made" by the Trust, Re Coldham; ex parte Brideson (1988) 166 CLR 228, 347. or at least may be made. Nonetheless, it remains the "task for the court to discern what restraints, if any, the [lease] places upon consideration to which [the Trust] may have regard." Murphyores Incorporated Pty Ltd v Commonwealth (1976) 136 CLR 12. 79 While it is possible to find some support for each alternative presented by the parties' rival arguments, Cf. Wallace v Stanford (1995) 37 NSWLR 1, 9-10, 19-20, 23. neither argument is compelling on the basis of language, linguistic context or purpose, and each alternative is subject to objections. It is permissible to seek assistance in discerning what the parties intended by the terms in which their agreement was expressed from the background circumstances at the material time. Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337. This view is reinforced by the consideration that the concept of "fair and reasonable" which the Trust seeks to apply to the determination of rent under the lease is intrinsically ambiguous. A "fair and reasonable" rent as between a particular lessor and lessee might be, but is not necessarily, the market rent. Even when one party is entitled to determined the rent, it must be possible to decide whether the rent determine is "fair and reasonable", which will commonly be influenced by surrounding circumstances. 80 The fundamental ambiguity for present purposes concerns the meaning of the phrase "may have regard to" in subcl4(b)(iv) of the lease, and in particular whether or not that phrase is intended to confine the matters which the Trust may consider in determining the rent, irrespective of the width of its discretion otherwise; for example, with respect to which, if any, "additional costs and expenses … [it] may incur" it considers, and the manner in which all or each of them is brought into consideration. 81 In Codelfa, (1982) 149 CLR 337. Mason J referred to the difficulty with respect to the use of prior negotiations as surrounding circumstances. 149 CLR 337, 352. His Honour said: 149 CLR 337, 352. "Obviously, the prior negotiations will tend to establish objective background and facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently, when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract." 82 Shortly stated, the principal, potentially material, surrounding circumstances appear to be: (a) the parties to the transaction were two public authorities; (b) the primary purpose of the transaction was to provide a public facility, not a profit; (c) the lessee was responsible for the substantial cost of construction of the facility; (d) the facility was to be constructed under the lessor's land and would not interfere with the continued public enjoyment of that land for its primary object, recreation; (e) the parties' concern was to protect the lessor from financial disadvantage from the transaction; and (f) the only financial disadvantage to the lessor which the parties identified related to additional expense which it would or might incur immediately or in the future. 83 In my opinion, when the lease is read against the background of those circumstances, the parties' "presumed intention" in their reference to the costs and expenses to which the lessor "may have regard" in determining the rent was to specify exhaustively the considerations material to that determination. 84 It does not follow that the terms of subcl4(b)(iv) of the lease must be given an artificially literal construction requiring the rejection from consideration of past or current expenses. The context, and the reference to "additional" costs and expenses, makes it plain that the subclause is concerned with rent increases to take account of costs and expenses, including anticipated costs and expenses, not previously taken into account in a prior rent determination. 85 It is unnecessary in the circumstances to consider the significance, if any, of the parties' conduct subsequent to the commencement of the lease term. However, it was almost 30 years after the term commenced and rent was first determined and paid that any suggestion was raised that rent might not be related only to the lessor's expenses. 86 The opinion which I have formed concerning the construction of the lease makes it necessary to consider the Council's claims to repayment of the amount of the rent which it has paid to the Trust since 1 May 1991, or alternatively damages. 87 $1.5 million paid was demanded and paid as rent in respect of the period from 1 May 1991 to 30 April 1994. $1.65 million was demanded and $1.6 million was paid as rent in respect of the period from 1 May 1994 to 30 April 1997. A further $275,000 was paid in respect of the period 1 May to 31 October 1997. The material does not disclose how much has been paid as rent in respect of the period since that date. 88 The primary judge rejected the Council's claim to damages, correctly in my opinion. 89 The premise on which the Council's claim to damages was based was that the Trust had breached an obligation not to determine the rent other than in accordance with the lease, and that, as is common ground, the material determinations were not made in accordance with the lease as I consider that it should be construed. 90 It is unnecessary to decide whether the lease contains an obligation on the Trust in the terms contended for by the Council, which is not seeking nominal damages but damages equivalent to the rent paid. Even if the lease did impose such a obligation upon the Trust, the material cause of the loss by the Council of the rent which was paid was not a breach of that obligation by the Trust but the Council's supervening decision to pay the rent demanded. 91 Indeed, that that is so provides the foundation for the Council's claim for repayment of the $1.5 million paid as rent in respect of the period from 1 May 1991 to 30 April 1994. According to the Council, that money was paid under a mistake of law, essentially a mistaken belief that it was legally obliged to make the payments which it did in respect of the rent for that period, because, like the Trust, it misconstrued the lease. Obviously, the Council's claim for damages would not be assisted if its decision to pay the rent demanded was not based on its opinion that the rent was payable, but on an opinion that it was not, or might not be, payable. 92 Sydney City Council had written to the Trust on 15 April 1988 asserting, in effect, that both parties had intended that the rental be determined in accordance with paragraph 5 in the letter of 17 January 1956 to the Council from the Under-Secretary and Director of the Department of Agriculture. On 4 November that year, the Trust wrote back, asserting that the provisions in the lease dealing with rent are "quite clear", and that the Trust is not limited in the factors which it is entitled to take into account in determining the rent. At that time, the rent was in arrears, and payment was requested. 93 On 27 February 1989, Sydney City Council was advised by its solicitor that he considered that it was entitled to rectification of the lease, and he suggested that counsel's opinion be obtained and, if counsel's opinion was favourable, proceedings for rectification be commenced as soon as possible. 94 After the Council acquired the lease from Sydney City Council, it was advised by its solicitor on 27 April 1989 that he "basically was in agreement with the view expressed" to Sydney City Council by its solicitor, and he recommended that an opinion be obtained from a named senior counsel. That was done, and counsel's unfavourable opinion was forwarded to the Council on 8 May 1989. 95 On 6 October 1989, the Trust informed the Council that it had determined the annual rent in respect of the three year period commencing on 1 May 1988 at $175,000 per annum, and requested payment of an amount outstanding, together with $175,000 for the year from 1 May 1989 to 30 April 1990. 96 On 10 October 1989, the Council requested the Trust for urgent discussions concerning renegotiation of the lease. 97 There had also been discussions between the Council and Sydney City Council which continued after October 1989. In the course of those discussions, Sydney City Council informed the Council that its legal advice, contrary to the legal opinion from senior counsel obtained by the Council, was that "… rectification may well be available". However, Sydney City Council was not prepared to obtain another opinion from a different senior counsel and, if that advice was favourable, support the Council in rectification proceedings. 98 On 16 January 1990, the Council wrote to Sydney City Council informing it that the Council had "…accepted its legal advice that the Trust may determine the rent payable and there is no provision under which the Council could object to any such determination". 99 Prior to 26 June 1991, the Council had paid all rent up to and including 30 April 1991. No claim is made for repayment of any part of the amount paid for rent up to that date. On 26 June 1991, the Council paid rent of $175,000 in respect of the period from 1 May 1991 to 30 April 1992. That amount had not been determined by the Trust as the rent for that period. 100 On 16 October 1991, the Trust wrote to the Council stating that it had determined the annual rent for the three period commencing on 1 May 1991 at $500,000, and that it was its "… intention to bring the rental to a more commercially acceptable level over the next two (2) rental review periods i.e., May 1991 and May 1994". 101 On 20 February 1992, the Council wrote to the Trust asking that it be permitted to pay rent for the period from 1 May 1991 to 30 April 1994 by instalments, and that the Trust agree to other matters. 102 By a letter dated 27 March 1992, the Trust agreed with the Council's rent instalment proposal and that the Trust would: · … negotiate during October 1993, three months prior to the Council's budget year, with [the] Council the rent for the period commencing 1st May 1994. · … give the … Council a first option to negotiate a new lease when the current lease expires in 2008. · … consider a reasonable formula to apply to future rent increases and advise the Council in due course." 103 The rent instalment program agreed to gave the Council credit for the sum of $175,000 which it had paid to the Trust on 26 June 1991 (which the Trust was to retain), and the Council paid the remaining instalments, which exhausted its rent obligations in respect of the period from 1 May 1991 to 30 April 1994, in accordance with the agreed program. 104 On the hypothesis that the construction of the lease which I favour is correct, the trial judge held that the payments made by the Council in respect of rent for the period from 1 May 1991 to 30 April 1994 were made under a mistake of law in that the Council mistakenly believed that the rent demanded by the Trust had been determined by it in accordance with the lease and was payable by the Council under the lease. 105 However, at the time when the payments were made, the lease had been supplemented by a further agreement between the parties, the terms of which are set out in Trust's letter of 27 March 1992. 106 In this Court, the Council did not dispute the Trust's good faith in determining, demanding and accepting payment of rent, or argue that the Trust's promises in its letter of 27 March 1992 were too vague and uncertain to bind the Trust or, for any other reason, could not, or did not, constitute valuable consideration for the payments of rent made by the Council in accordance with the parties' supplemental agreement. Further, it was not submitted that a mutual mistake concerning the legal effect of the lease at the time when the parties made their supplementary agreement made that agreement void or voidable, that there was a failure of consideration See Baltic Shipping Co v Dillon (1993) 176 CLR 344, 350. because the Trust did not meet its commitments, or that the Trust's non-compliance with its commitments led to a lawful termination of the supplemental agreement by the Council. 107 Further, at the time when it made the supplemental agreement and the payments of rent in respect of the period 1 May 1991 to 30 April 1994, although the Council had contrary advice from senior counsel, it had advice from its solicitor, and was aware that Sydney City Council had advice from and its solicitor and senior counsel, which raised a doubt about the Council's obligation to pay the rent demanded by the Trust. 108 It is unnecessary for present purposes to decide whether a mere extension of time for payment of money honestly demanded but not legally due would provide consideration for postponed payments which would entitle the payee to retain what was paid. The opposite view might permit recovery of a payment made by a party under a compromise of a dispute if that party had a mistaken belief with respect to his or her legal rights or obligations at the time when the agreement to compromise was made, which would have far-reaching, unacceptable consequences. A compromise is, of course, merely a contract which arises in a particular context, that of dispute between the parties, in which an agreement not to sue by a party asserting a claim can constitute adequate consideration, however temporary the forbearance. See Wigan v Edwards (1973) 47 ALJR 586, and generally Cheshire & Fifoot's Law of Contract, 7th Australian edition, paras 4.24 ff and The Law and Practice of Compromise, Foskett, 4th edition. 109 The supplemental agreement did not provide the Council only with extensions of time for payment. The Trust also made a number of other commitments, which are set out in its letter of 27 March 1992. 110 In the circumstances, there seem to me at least two reasons why the Council cannot recover the rent which it paid in respect of the period from 1 May 1991 to 30 April 1994. 111 One is that the Trust was not unjustly enriched David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 375 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. See also Woolwich Equitable Building Society v Inland Revenue Commissioner [1993] AC 70, 165 (para 3(c)). because it was legally entitled David Securities 175 CLR 353, 376. under the supplemental agreement to receive the payments made by the Council. 112 The other is that the Council made the payments although aware of the opinions that the demands might be unjustified. The Council was prepared to make the payments, irrespective of the legitimacy of the Trust's demands, rather than contest them. David Securities 175 CLR 353, 373-374. 113 Although it is unnecessary for that purpose, the conclusion that the rent in respect of the period 1 May 1991 to 30 April 1994 was paid by the Council in accordance with its supplemental agreement with the Trust recorded in the Trust's letter of 27 March 1992 also provides a further answer to the Council's claim to recover the amount paid from the Trust as damages for breach of the lease. 114 On 24 May 1993, the Council wrote to the Trust requesting a meeting to discuss a number of matters, including: "(i) establishment of a rent review formula; … (iv) a commitment for an extended Lease period not subject to the open Tender Option." 115 A meeting was held on 15 November 1993, at which the Council was requested to submit the following information for the purpose of further negotiations: "- Statements of Income and Expenditure 1989 to 1992 for the Carpark. Include on-costs etc. - An offer to the Trust on what Council thinks the rental should be."

Council officers present at the meeting formed the opinion that "the Trust will endeavour to gain as much rent as possible from Council". 116 The information requested by the Trust at the meeting was subsequently provided by the Council to the Trust, but the Council also decided "to obtain 'Market Valuations' … for subsequent analyses for rental negotiations purposes". 117 The Trust also obtained a valuation dated 18 March 1994, which did not support the rent which the Trust had determined. Nonetheless, by letter dated 20 April, it wrote to the Council in the following terms: "As agreed, I am writing to inform you of the Royal Botanic Gardens and Trust's deliberations about the rent review for the Domain Parking Station. The Trust considered the rent review and those issues which Mr Tony Rolls presented to me at our meeting on 11 April 1994, concerning the basis for the rent assessment, the yearly payment in advance, dispute resolution, South Sydney Council's plans for major refurbishment and the impact of a number of factors on the profitability of the Station. The Trust acknowledged Council's concerns and the effect of the recession, the increase in the number of CBD parking stations, FBT changes and the introduction of the parking levy. Nevertheless the Station has deteriorated over the years with little attempt to maintain, let alone upgrade the building and its services. The Trust considers the fact that the moving footway has been out of operation for over two years has been the most significant single factor adversely affecting revenue. While a free bus service is provided to the city, this service is not well known, is more time consuming and is far less popular than the convenience of the moving footway. The bus shuttle must also be a relatively expensive service to provide. The Trust was therefore pleased to note Council's tender to replace the footway. In recognition of this and other much needed restoration work, the Trust has agreed to freeze the 1994 rent at the existing level of $500,000, provided the Council will commit in writing to the works nominated in its "Estimates of Income and Expenditure for 1994" with identified priorities, completion dates and regular progress reports to the Trust. This advice could form the basis of a letter of agreement. For the same reasons, the Trust agreed to restrain the rent for 1995 and 1996 to $550,000 and $600,000, respectively, while refurbishment work is completed. Consistent with this approach the Trust is seeking an annual report from your engineering staff on the state of the asset in compliance with the lease's repair and maintenance provisions. The members of the Trust also discussed your request for a rent review formula and a longer period between reviews. However, the Trust declined to commit to rent variations based on a prescribed formula. In any event the Trust considers itself constrained by the tenure of the current Trust which in turn limits the rent review to review to the present three yearly cycle. In this context the present review and rental is not to be regarded as a precedent for future Trust decisions. I am pleased to advice that the Trust has responded to your submission about the annual payment in advance by agreeing to two six-monthly payments in advance, each payment being 50% of the total rent. The Trust has expressed its willingness to consider any points Council would like to make in response to this letter and has nominated Mr Bob Wilson to be the Trust's representative if you consider a meeting would be helpful." 118 The Council determined to obtain "legal advice on the issue of the rental and the 'fairness' of the [Trust] to impose same". On 2 May 1994, Council wrote to the Trust stating that the advice contained in its letter of 20 April was not what the Council had anticipated and that it had referred the matter to its solicitors and would contact the Trust again as soon as possible. 119 On 9 May 1994, the Council was advised by its solicitors to "secure an agreement for mediation by ministerial intervention pursuant to s742 of the [Local Government Act 1993]". 120 By letter dated 22 June 1994, the Trust wrote to the Council as follows: "The Trust has received a Building Application for repairs to the moving footway at the Domain Parking Station. You have requested the Trust sign the building Application as the owner of the parking station. Before the Trust can give any consideration to this, it reminds the Council that it is in breach of its obligations under its lease by failing to pay rent. Although the details are already known to you, an invoice setting out the rent arrears is enclosed. The Trust acknowledges that the Council has disputed the Trust's determination of the rent for the three year period from 1 May 1994. It is hoped that it will be possible for us to mutually resolve that issue but it may take a little time. You advised that Council has made a submission to the Minister for Local Government under Section 742 of the Local Government Act. The Section only provides for an appeal "… after diligent efforts to resolve the difference". In declining the Trust's offer to meet and discuss the difference the Trust does not consider you have met this condition. However, the Trust will not sign the Building Application while the Council is in breach of the lease. It does not make commercial sense on the one hand to consent to the Building Application while on the other being in a position where the Trust may have to take action for breach of the lease. We look forward to receiving the outstanding rent so that progress can then be made on the repairs to the footway. On receipt of payment the Trust will sign and return the Building Application. We assure you that the Council's payment will not be taken as any indication of its agreement to the rent from 1 May 1994, but simply as a payment on account subject to final resolution of the issue. The Trust remains willing to meet and discuss the issue of the rental." (Emphasis added) It was not submitted that this letter constituted illegitimate economic pressure constituting duress: see Goff & Jones , The Law of Restitution , 5th edition, p328. 121 On 30 June 1994, the Council forwarded a cheque for $150,000 to the Trust for rent for the period 1 May to 30 October 1994, thereby tacitly accepting the Trust's proposal in its letter of 22 June 1994. On 6 July 1994, the Trust acknowledged receipt of that amount on account, and returned the signed building application to the Council. 122 Rent paid by the Council between the Trust's letter of 22 June 1994 and the commencement of this proceeding on 11 March 1996 was paid pursuant to the parties' agreement, in accordance with that letter, that the payments were "on account subject to final resolution of the issue", namely, the Council's dispute of "the Trust's determination of the rent …". 123 While the Trust accepted that this was effectively an agreement to repay any rent found to have been overpaid on "final resolution of the issue", it submitted that its agreement was confined to a "resolution of the issue" under s 742 of the Local Government Act, described in the Trust's submissions as the "issue identified in the [Trust's] letter [of 22 June 1994], namely the failure of efforts to negotiate a formula for rent review, and the submission of that dispute to the Minister for Local Government under s 742 of the Local Government Act". That is not the context in which the Trust's letter of 22 June 1994 referred to the Council's approach to the Minister under s 742. On the contrary, the Trust's letter raised a further matter of dispute concerning the Council's entitlement to take advantage of that section. In the narrower sense, the Council's dispute concerned whether the rent determined by the Trust was a "fair market rent" because of the Council's mistaken belief that the Trust was entitled to such a rent under the lease. In another sense, the dispute concerned the rent payable by the Council in accordance with the lease. The parties were not at the time concerned with the nice distinction for which the Trust now contends. 124 On 29 July 1994, the Council wrote to the Trust "without prejudice", enclosing a cheque for a further $100,000 in respect of the rent for the period 1 May to 30 October 1994, stating that the payment was " … made under protest and without prejudice to council's right to off-set payments following the Minister's determination of a fair market rent". Subsequent payments totalling $800,000 in respect of the period to 30 April 1996 were made on substantially the same basis prior to the commencement of this litigation. 125 Although the Council's statements in its correspondence enclosing the rent cheques for that period described the dispute by reference to whether the rent determined by the Trust was a "fair market rent" and envisaged a Ministerial decision of the dispute under s 742 of the Local Government Act, the dispute necessarily involved whether the Trust had determined the rent in accordance with the lease, and the correspondence confirmed that the Council disputed whether it was obliged by the lease to pay the rent demanded by the Trust. 126 The terms in which the parties materially expressed themselves were imprecise and based on a misapprehension of their respective legal rights and obligations. Nonetheless, guided by considerations of commercial practicality, the Court must ascertain their presumed intention from what they stated and did in the context in which those statements and actions occurred. In my opinion, the preferable view is that the agreement evidenced by the letter of 22 June 1994 was not confined in the artificial manner advanced by the Trust, but was directed to the continued payment by the Council of the rents determined by the Trust until the Council's dispute concerning the Trust's determinations was resolved when monetary adjustments would be made. Plainly, such an agreement is binding. See York Airconditioning and Refrigeration (Australia) Pty Ltd v Commonwealth (1950) 80 CLR 11; Sebel Products Ltd v Commissioners of Customs and Excise [1949] Ch 409. 127 While there is no express agreement by the Trust to redetermine the rents, if it refuses or fails to exercise its power of determination of the rent in accordance with the lease, it can be ordered to do whatever is necessary to enable the Council to have the benefit of their agreement. See, for example, Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597, 607, 615; Nullagine Investments Pty Ltd v The Western Australian Club Inc (1992) 177 CLR 635, 659; RDJ International Pty Ltd v Preformed Line Products (Australia) Pty Ltd (1996) 39 NSWLR 417. 128 According to the Council, the Trust is obliged to pay it an amount equal to all rent paid by the Council in respect of the period commencing 1 May 1994. Shortly stated, the basis for that proposition was that, because the lease required the Trust to determine the rent at the commencement of each rental period and to notify the Council "of the yearly rent as so determined as soon as practicable after the commencement of" that period and permits it to have regard to "additional costs and expenses … [it] may incur", the Trust has no power to determine the rent after the commencement of a rental period. 129 I do not agree. In my opinion, while the Trust has breached its obligation to make timely rent determinations, on the proper construction of the lease time was not of the essence in respect of the performance of that obligation and, in the absence of any attempt by the Council to make time of the essence, the lapse of time does not preclude the Trust from now exercising its power of determination in respect of past periods, or the current period, for which no rent determination has been made in accordance with the lease. Cf G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80. 130 In any event, the Council's argument on this point would, if accepted, erode its claim to payment, which is dependent on the parties' agreement. The Trust has only agreed to pay the excess paid by the Council over the amount properly payable for rent determined in accordance with the lease. The foundation of the agreement asserted by the Council is not only that the Trust's determinations were not in accordance with the lease but that determinations must be made which do conform to the lease. 131 On 16 November 1995, the Council's solicitor informed it that a different senior counsel had advised that the Council had a strongly arguable case against the Trust. No further payments were made by the Council prior to the commencement of this proceeding by a summons filed on 11 March 1996. The Council does not argue that any payments made after that date were made under a mistake of law. 132 On 1 July 1996, the Council forwarded the Trust a cheque for rent in the sum of $275,000 "on a WITHOUT PREJUDICE basis to future recovery action". On 16 December 1996, a further cheque for $275,000 was sent by the Council to the Trust "being a without prejudice payment for rental … November 1996 to April 1997". The final payment which is the subject of evidence was for a further $275,000, which the Council sent to the Trust on 19 May 1997 for rent for the period 1 May to 31 October 1997. That payment was "made on a without prejudice basis in regard to Council's right to recover overpaid rental amounts". Although it tacitly accepted these payments on the basis on which they were tendered in the context of both the parties' prior agreement and the on-going litigation, the Trust also disputed that it "had … agreed to refund so much of those payments as exceeded rent properly payable …". 133 The Trust's position in relation to the payments made by the Council after the commencement of this litigation is plainly no stronger than its position in respect of the earlier payments made by the Council after 22 June 1994. 134 In my opinion, the Trust has agreed to refund the amount of those payments to the Council, minus the rent to which the Trust would have been entitled in respect of the material period determined in accordance with the lease. 135 I would allow the appeal, set aside the orders below, decree specific performance of the parties' agreement, and order the Trust to pay the costs of these proceedings, including this appeal. Minutes of orders which conform with these reasons should be agreed, if possible, or made the subject of written submissions for the further decision of the Court. **********

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Judgment (35 paragraphs)

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Cases Cited (23)