(3) ANALYSIS
45 The Contract Issue ultimately turns on the proper construction of the Occupational Licence Agreement. The Commissioner contends that it did not impose any liability on Star City in respect of the Prepayment. Star City contends otherwise.
46 It was common ground that the obligation to pay rent, including the Prepayment, was imposed by the Construction and Freehold leases on SHCP, at least in the first instance. Star City was not a party to either the Construction Lease or the Freehold Lease. As noted above in [29], cl 2.1 of the Construction Lease provided in part:
"(a) [SHCP] covenants with the [CCA] that during the Term [SHCP] will pay to the [CCA] … the Rent provided for in Schedule 1 hereto.
(b) [SHCP] shall pay the Rent in the manner specified in Schedule 1 PROVIDED HOWEVER that if the [CCA] shall exercise any right to require payment in one or more instalments then the [CCA] and [SHCP] agree that the provisions of section 144 of the Conveyancing Act 1919 shall not apply."
(Emphasis added.)
47 Also as noted above in [30], Sch 1 provided specifically for the Prepayment in the following terms:
"1. The Rent payable for the twelve years following the Lease Commencement Date as defined in this Lease (which period is referred to as the "Primary Rental Period"), which will be payable under this Lease and the [Freehold Lease], will be $15,000,000 per annum.
2. Notwithstanding clause 1, the Parties have agreed that the rental payable during the Primary Rental Period shall be prepaid as set out in clause 3.
3. On or before 12 noon (Sydney time) on the date which is 21 days after Lease Commencement Date, [SHCP] shall pay to the [CCA] an amount of $120,000,000 in immediately available and cleared funds in prepayment of the rental payable during the Primary Rental Period."
48 Three things may be noted about the Construction Lease. First, the Prepayment was referable to both the Construction Lease and the Freehold Lease (see cl 2.1 and Sch 1). Secondly, it was the CCA's right (and only the CCA's right) to elect to receive the Prepayment in one or more instalments. The CCA in fact elected to receive the Prepayment by one instalment. Thirdly, as noted earlier, a draft of the Freehold Lease was an exhibit to the Construction Lease. Clauses 2.1 and 2.7 of the draft Freehold Lease addressed the question of the prepayment of rent. Clause 2.1 stated that SHCP would pay to the CCA the rent in Sch 1, provided that if SHCP had paid to the CCA the payment referred to in cl 2 of Sch 1 to the Construction Lease (the Prepayment), then no further rental was payable. The Prepayment was not refundable unless the parties mutually agreed to terminate the lease: cll 2.1(b) and 2.7.
49 The relevant provisions of the Freehold Lease as ultimately executed in 1997, cll 2.1 and 2.7, and Sch I, were in conformity with the Construction Lease and draft Freehold Lease provisions, also imposing an obligation to pay rent on SHCP and stating that the right to seek the first 12 years' rent as the Prepayment was at the election of the CCA: see [42]-[43] above.
50 Star City submitted that, notwithstanding the terms of the Construction and Freehold Leases, the obligation to pay rent was in fact on Star City and not SHCP due to cl 5 of the Occupational License Agreement, which as noted above (at [32]-[38]), provided:
"5.1 [Star City] will ensure that (to the extent to which [Star City] is capable), SHCP does not breach any term or provisions of any agreement entered into with the Lessor of the Permanent Site, or any agreement with the [CCA] relating to the Permanent Site or the operation of the Casino Complex or the Casino Licence. Without limiting the foregoing, [Star City] will not do any act, matter or thing or omit to do any act, matter or thing whereby the Lease or the Casino Licence are liable to be terminated, cancelled, suspended or liable to disciplinary action under section 23 of the [Casino Control] Act or adversely affected in any manner.
5.2 [Star City] will pay and be responsible to ensure payment of all rent, outgoings, insurance premiums and payments for services that may be imposed on it under the terms of the Construction Lease or Freehold lease. [Star City] will provide such evidence as SHCP shall reasonably require of receipt of payment of each of these outgoings seven (7) days prior to the last date for payment of the same.
5.3 [Star City] will indemnify SHCP for any claims, actions, demands, losses, damages, costs and expenses for which SHCP is or may be liable or does or may suffer as a result of [Star City] not complying with its obligations under Clauses 5.1 or 5.2."
(Emphasis added.)
51 The crux of the issue is the antecedent of the pronoun "it" in cl 5.2. The Commissioner submitted that "it" clearly refers to Star City, while Star City contended that "it," when viewed in context, clearly refers to SHCP. While the Commissioner's view may have superficial appeal, it must be rejected upon closer inspection.
52 Clause 5.2 cannot be considered in isolation. The whole of the Occupational Licence Agreement is relevant together with the other documents to which it refers and which were executed "contemporaneously": Chacmol Holdings Pty Ltd v Handberg (2005) 215 ALR 748 at [63] - [78] (per North and Dowsett JJ) (collecting and discussing authority for the proposition that contemporaneously executed contracts forming part of the same transaction should be construed as one instrument). It was not suggested that anything turns on the order in which documents were executed or that "contemporaneously" means anything more precise than "bearing the same date". The other documents fitting this description of being executed "contemporaneously" include the documents listed in [19] above as having been executed on 14 December 1994. Further, construction of an agreement as a whole necessarily involves giving effect to each part of it in relation to all other parts of it: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 (per Gibbs J) and Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [15]-[16].
53 Applying those principles to cl 5.2 of the Occupational Licence Agreement, I reject the Commissioner's construction of cl 5.2. It is inconsistent with the terms of the Occupational Licence Agreement read as a whole and the other agreements executed contemporaneously, lacks commercial reality and, no less importantly, would leave cl 5.2 of the Occupational Licence Agreement with no work to do.
54 First, as noted, Star City was not a party to either the Construction Lease or the Freehold Lease. Each lease was granted by the CCA to SHCP. It was not in dispute that the lease of the Premises was granted to SHCP, and not Star City, at the insistence of the lender, the Bank, which required the lease to be held by a company other than the holder of the Casino Licence. The Bank required this because the Casino Licence, by its terms, conferred no proprietary rights in Star City (see [21] above) and thus no security could be taken over the Casino Licence. As a result, the income earning entity (the holder of the Casino Licence) was not the entity that held the lease.
55 The Occupational Licence Agreement entered into by Star City (the holder of the Casino Licence) and SHCP (the holder of the lease) was the method by which two issues were resolved - to permit Star City to occupy the Premises and, at the same time, to be responsible for the costs attached to the Lease. The Occupational Licence Agreement was necessary. Without it, Star City was not entitled to occupy the Premises to conduct the casino. Without being responsible for the costs attached to the Lease, Star City would have been generating substantial revenues but occupying the Premises for $1.00 per annum: see Occupational Licensing Agreement cl 4.1 (reciting the annual License Fee) at [36] above. Such a position would have lacked commercial reality.
56 Reading the Occupational Licensing Agreement as a whole and with the contemporaneously executed Transaction Documents, the word "it" in the third line of cl 5.2 is not ambiguous. It can only be construed as referring to SHCP, not Star City.
57 In response, the Commissioner submitted that the obligation imposed by cl 5.2, if any, was conditional due to the phrase "may be imposed" so that the sentence should be read: "[Although no obligations are (currently) imposed on Star City by the Leases], Star City will pay … [any obligations that are imposed in the future]." In other words, the work to be done by cl 5.2 was that of a safety valve. Again, having regard to the terms of the Occupational Licence Agreement and the Leases, this submission is without foundation. The use of the word "may" in cl 5.2 is not in the future or probabilistic sense of "it may rain tomorrow"; rather, "may" is used in its concessive sense to concede a present, unconditional state of affairs: see Macquarie Dictionary (definition of "may") at [4]. Understood properly, then, the meaning of the clause is "whatever payment obligations may be [ie, conceding that payment obligations are in fact] imposed on SHCP by the leases, Star City will pay them."
58 In short, "may" serves to create a comprehensive obligation, assigning to Star City any and all of the specified obligations (ie, rent, insurance premiums, etc.) that were or might be imposed on SHCP under the Construction Lease or the Freehold Lease. Indeed, why would Star City need to provide evidence to SHCP of payment of outgoings unless the outgoings were in the first instance the responsibility of SHCP?
59 Finally, the Commissioner's reference to and reliance upon the parties' prior and subsequent conduct is misplaced. Where, as here, the language in context is not ambiguous, the Court may not look at the prior and subsequent conduct of the parties to interpret the Occupational Licence Agreement: Administration of Papua and New Guinea v Daera (1973) 130 CLR 353 at 446 (per Gibbs J); Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348 (per Mason J) and L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; cf Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 327; Farmer v Honan (1919) 26 CLR 183 at 197. Such conduct cannot be used to generate disputes about the meaning of unambiguous terms. Such an approach would be inconsistent with the "general test of objectivity [that] is of pervasive influence in the law of contract": Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (No 2) (2005) 218 CLR 471 at [31]-[36] and, in particular at [34] quoting Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 (per Gleeson CJ).
60 In the event that I am wrong in my views on the relevance of this conduct to the disposition of the Contract Issue, then I consider that the particular conduct relied upon by the Commissioner (ie, the 13 December 1994 letter; the 1995 Star City Tax Return; the 20 September 1996 Arthur Andersen memorandum; the amended 1995 Star City financials issued in May 1997; and the 10 June 1998 Amending Deed with its 11 March 1998 covering letter: see Annexure at [59]-[64]) does not lead to the conclusion asserted by the Commissioner.
61 As to the evidence of prior conduct (the 13 December 1994 letter), although the Commissioner submitted that the letter explicitly states that SHCP was the party liable for the Prepayment, the inferences that the Commissioner sought to draw from the letter are not open on the face of it. First, the letter was sent by Star City to the Treasurer of New South Wales, as the CCA's nominated recipient of the Prepayment. The letter was not a communication between the parties to the Occupational Licence Agreement. As such, it is not relevant to the proper construction of cl 5.2 of the Occupational Licence Agreement. It does not and cannot provide evidence of the objective factual background known to the parties at or before the date of the Agreement. The letter does not form part of the relevant factual matrix in which the Agreement was set which might highlight the context in which the words were used and the purpose for which they were chosen: Codelfa Construction at 401.
62 Secondly, the letter was concerned with and addressed an issue separate from the use to which the Commissioner sought to put it. The letter dealt with the method by which the Prepayment was to be paid. The fact that the letter described that issue in a particular way does not point to the conclusion that the Commissioner sought to draw from it - that the party obliged to make the payment had been absolved of liability or was not in fact liable.
63 Thirdly, even if the letter were to be considered as part of some relevant factual matrix, it would not assist in resolving the question of the proper construction of the Occupational Licence Agreement. The letter was an attempt by Star City to gain leverage in its bargaining with the CCA in circumstances where it was the preferred candidate for the grant of the casino licence and, if successful, would be required to pay the Prepayment. The letter was an attempt by Star City to secure repayment of the Prepayment if a possible legal challenge to the grant of such a licence, by an opposition bidding consortium associated with the late Mr Kerry Packer, had been successful. Such a challenge was made although it was unsuccessful: Darling Casino Ltd v New South Wales Casino Control Authority (1997) 191 CLR 602. Negotiations of this nature are evidence of no more than the expectations of the parties and cannot be used to construe the meaning of the written agreement: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606 and Codelfa at 352.
64 In relation to the correspondence and conduct which post-dated execution of the Occupational Licence Agreement (ie, the 1995 Star City Tax Return; the 20 September 1996 Arthur Andersen memorandum; the amended 1995 Star City financials issued in May 1997; and the 10 June 1998 Amending Deed with its 11 March 1998 covering letter), the Commissioner contended that, individually and collectively the evidence showed that:
(1) if Star City and SHCP had shared a common intention or assumption that the word "it" was always intended to refer to SHCP, then Star City would have sought an order for rectification and it never did;
(2) the Amending Deed did not purport to rectify the terms of the Occupational Licence Agreement and did not operate retrospectively; and
(3) even if the Amending Deed was intended to operate retrospectively, it could not have that effect because it was not possible to amend a provision in an attempt to impose a liability on Star City for the obligations of another party (SHCP) which was no longer in force at the time of the amendment. The argument was that the Prepayment was made in satisfaction of Star City's obligations under the Construction Lease which ended when the Permanent Site opened for business in November 1997: see definition of "Term" in cl 1.1 of the Construction Lease.
65 The foundational premise of the Commissioner's argument is that the subsequent amendment to cl 5.2 of the Occupational License Agreement is (conclusive) evidence that the clause (and specifically the word "it") meant something else prior to the amendment. However, the evidence relied upon does not support the premise. Taken as a whole, the amendment and the documents leading to it establish no more than what was already obvious - namely, that cl 5.2 was not artfully drafted.
66 The documents do not, however, support the view that the word "it" in cl 5.2 was originally meant to, or did, refer to Star City rather than SHCP. On the contrary, the Arthur Andersen memorandum makes clear that the original accounting treatment (ie, reflecting the Prepayment as an obligation of SHCP rather than Star City) "d[id] not reflect the legal documentation and its intention, as [Star City] is the entity responsible for payment of this amount pursuant to the Occupational Licence Agreement," (emphasis added) and that the amendments do not change, but rather "reflect the true intentions of the deeds".
67 Accordingly, even if evidence of subsequent events is relevant to the construction of cl 5.2 of the Operating License Agreement, it does not support the Commissioner's contention that the word "it" originally referred to Star City.
68 The Commissioner next submitted that even if "it" in cl 5.2 were construed as referring to SHCP and even if "may" were construed as imposing an unconditional obligation on Star City, Star City was not liable to make the Prepayment because the Occupational Licence Agreement was not in force at the time the Prepayment was made on 15 December 1994. This submission fails to take account of the distinction between the grant of the licence and the balance of the terms of the Occupational Licence Agreement. The licence itself commenced on and from the date that Star City was entitled to occupy the Permanent Site to enable it to comply with its pre-opening services as set out in the Casino Complex Management Agreement and would continue for the term of the Freehold Lease: cl 3.1 read with the definition of "Term" in cl 1.1. However, the other obligations - including the payment of rent - were imposed on Star City from the date of the execution of the Occupation Licence Agreement, 14 December 1994.
69 The Commissioner's contention that this distinction is somehow negated by the definition of "Licence" as "this Licence" in the Occupational Licence Agreement must also be rejected. There is nothing to suggest that the terms "Licence" and "Agreement" are used interchangeably in the Occupational Licence Agreement. The Occupational Licence Agreement was not limited to the grant by SHCP to Star City of the licence to occupy the Premises: cll 2.1(a) and 4.1. The balance of the Occupation Licence Agreement recorded other and separate obligations that the parties had agreed would be imposed on Star City and SHCP respectively: cll 5 and 6.
70 In short, the Prepayment was an obligation of Star City because under the Occupational License Agreement Star City - not SHCP - was responsible for all rent, outgoings, insurance premiums and payments for services under the Construction Lease or Freehold Lease on and from 14 December 1994, being the date of execution of the Occupational Licence Agreement and the day before the Prepayment was paid to the CCA.