Toga Pty Limited v Perpetual Nominees Limited and CFS Managed Property Limited

Background 9In about 1997, Mr Robert Harris an agent with Jones Lang Wootton was retained by the NSW State Government to negotiate the sale of a longterm leasehold interest in a 17,000 sqm site on Lee Street, Sydney, close to Central Railway Station which was largely undeveloped (the Site). The Site consisted of a number of unused railway sheds, tracks and a large building. There were no recognised retail activities in the area. 10Toga and Australand made a joint offer for the Site. Toga entered into a 99 year lease for the former Post Office Building (which was part of the Site). Australand entered into a 99 year lease for the remainder of the Site. 11Toga subsequently converted the former Post Office Building into a hotel known as 'Medina Central'. As part of this development, Toga provided for 8 specialty retail tenancies on the ground floor facing a plaza now known as the Henry Deane Plaza. 12As part of the tender process, Australand had agreed to construct a Building called the SRA Building. On the ground floor of the SRA Building was about 585m2 of retail space which faced Henry Deane Plaza. After further negotiations with Australand, Toga ended up leasing all the retail space around Henry Deane Plaza. The retail space left unlet was under the SRA Building (SRA Retail Space). 13Australand engaged Baulderstone to construct the SRA Building and Australand sold that building prior to its construction to Colonial. As part of the sale Australand provided an 18 month rental guarantee to Colonial with respect to the SRA Retail Space. 14Mr Harris was involved in the negotiations for the sale of the SRA Building to Colonial. Mr Harris sought tenants for the SRA Retail Space and offered the SRA Retail Space to Toga. The parties agreed to proceed. 15Negotiations on the documentation took place between the solicitors for Colonial, Minter Ellison and solicitors for Toga, Freehills. On 16 November 1999, Toga and Permanent Trustee Australia Limited (the then trustee of the Colonial Commercial Property Trust) (Permanent) executed a deed which attached a proposed Sublease between the parties (Deed of Agreement). 16Between execution of the Deed of Agreement and execution of the Sublease, Permanent was replaced as Trustee and as Sublessor by Perpetual. The Sublease was executed and dated 5 July 2002. 17Ultimately, it is the terms of the Sublease or what in fact was the terms of the agreement between the parties that is the subject of this dispute.

Terms of the Sublease 18The relevant terms of the Sublease for consideration are: (1) The cover page of the Sublease relevantly provides: (H) 1.TERM: Ten (10) years 2. COMMENCING DATE: 13 November 2000 3. TERMINATING DATE: 12 November 2010 (2) Annexure A to the Sublease contains a reference table which includes the following items: Item 9: Commencement date: 13 November 2000 Item 10: Termination Date: 12 November 2010 Item 12: Rent variation: 1 Fixed Percentage increase rate: 2.5% 2. Fixed Increase dates: each Anniversary of the Commencement Date. 3. Market Review Date. i) on the fourth anniversary of the Commencement Date. ii) on the ninth anniversary of the Commencement Date. Item 14: Special Covenants: 1.The Lessee is not obliged to pay the Annual Rent or the Lessee's Contributions for the period up to the first anniversary of the Commencing Date. Item 15: Option for a Further Term: 10 years Item 16: Rent Variation in Further Term: (1) Fixed Percentage increase rate: 2.5% (2) Fixed Increase dates: each anniversary of the Commencement Date. (3) Market Review Date: on the 5th anniversary of the Commencement Date of the renewed Term. (3) Clause 13.7 of the Sublease provides: 13.7 Special Covenants (a) Subject to clause 13.7(b), the special covenants (if any) specified in Item 14 of the Reference Table bind the parties ('Special Covenants'). (b) If there is an inconsistency between any of the Special Covenants and any other provision of the Lease, the Special Covenants will prevail. (4) Clause 16 of the Sublease provides: 16.1 Lessee's Notice Requesting Renewed Lease If the Lessee wishes to take a renewed lease for the further term specified in Item 15 of the Reference Table then the Lessee must give written notice to the Lessor. 16.2 Terms of Renewed Lease The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease: (a) will exclude this clause 16 and Item 15 and 16 of the Reference Table; (b) will contain rent variations as specified in Item 16 of the Reference Table. 16.3 Lessor to Grant Further Lease The Lessor must subject to clause 16.4 grant to the Lessee a lease for the further term of years stated in Item 15 of the Reference Table if: (a) the Lessee exercises its option of renewal for the further term within the time required under clause 16.1; and (b) there is no existing breach of the Lease by the Lessee at the Termination Date.

Orders Sought by Toga 19Toga filed an Application for Original Decision (in File No 115048) seeking the following orders: (1) An order requiring Perpetual to grant to Toga, and to do all things necessary to bring into effect, a Sublease of the Premises (Option Lease) for a period of 10 years commencing 13 November 2010 on the terms of registered Sublease AA989655B, save that: (i) the Annual Rent to be inserted in Item 11 be $246,750.00 (GST exclusive); (ii) Clause 16 be deleted; (iii) Item 15 of the Reference Table be deleted; (iv) Item 16 of the Reference Table be deleted; (v) the Commencement Date in Item 9 of the Reference Table be changed to 13 November 2010; (vi) the Commencing Date in Item (H)2 on the cover page be changed to 13 November 2010; (vii) the Termination Date in Item 10 of the Reference Table be changed to 12 November 2020; (viii) the Terminating Date in Item (H)3 on the cover page be changed to 12 November 2020; (ix) Item (H)3 on the cover page be deleted; (x) Item 12 of the Reference Table be replaced with the following: Item 12: Rent Variation (1) Fixed Percentage Increase Rate: 2.5% (2) Fixed Increase Dates: Each anniversary of the Commencement Date (3) Market Review Date: On the fifth anniversary of the Commencement Date (2) A declaration that, on the proper construction of the Option Lease, Toga is not obliged to pay the Annual Rent or the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011. (3) Costs.

CrossApplication by Colonial 20Colonial filed (in File No 115067) a CrossApplication and now seeks leave to file an Amended CrossApplication. Colonial seeks firstly the same order (1) as sought by Toga, the only change being an additional order: That Items 12 and 14 of the Reference Table be deleted: (Item 12 is the rent variation provision and Item 14 is the Special Covenant providing for a rent free and outgoings free period of 12 months from the Commencing Date of the Sublease.) 21The following other orders are sought by Colonial. (1) A declaration that Toga is to pay the Annual Rent and the Lessee's Contribution (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011. (2) An order that the proportion of Annual Rent held in escrow in the Macquarie Bank Open Legal Investment Account number 104563 be paid to the CrossApplicants. (3) Further and, in the alternative, an order that the terms of the Sublease be rectified to correctly reflect the common intention of the First CrossApplicant and CrossRespondent, upon execution of the Sublease, that Toga is obliged to pay the Annual Rent and the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011 by substituting for Clause 16.2 of the Sublease the following Clause: 16.2 Terms of Renewed Lease The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease: (a) will exclude this clause 16 and Items 12, 14, 15 and 16 of the Reference Table; (b) will contain rent variations as specified in Item 16 of the Reference Table. (4) Further and, in the alternative, a declaration that if this Tribunal had the power to order rectification then it would order that based upon the facts determined, the terms of the Sublease be rectified to correctly reflect the common intention of the CrossApplicant and CrossRespondent, upon execution of the Sublease, that Toga is obliged to pay the Annual Rent and the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011 by substituting for Clause 16.2 of the Sublease the following Clause: 16.2 Terms of Renewed Lease The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease: (a) will exclude this clause 16 and Items 12, 14, 15 and 16 of the Reference Table; (b) will contain rent variations as specified in Item 16 of the Reference Table. (5) Costs. Order no. (4) is the additional order being sought. 22Mr Balafoutis advised the Tribunal that Toga opposed the filing of the Amended CrossApplication.

The Dispute between the Parties 23Toga, in its Grounds for Application asserts that it is entitled to an Option Lease on the same terms as the Sublease including the Special Covenant, Item 14 of the Sublease with the effect that "Toga is not obliged to pay the Annual Rent and the Lessee's Contribution for the period 13 November 2010 to 12 November 2011". 24Colonial, in its Grounds for Application asserts that pursuant to clause 16 of the Sublease if Toga exercises its option to renew, then Perpetual has an obligation to grant to Toga an Option Lease, for a further term of 10 years and that the Sublease does not provide that any Option Lease is to be on "the same terms" as the Sublease in the Initial Term. In relation to Item 14 of the Reference Table, Colonial says it is not to be incorporated into the terms of any Option Lease because this would be inconsistent with the provisions for the Option Lease, and that on a proper construction of the Sublease, Toga is to pay the Annual Rent and the Lessee's Contribution for the first year of the Option Lease. 25Colonial further asserts that in the alternate the Sublease is to be rectified to correctly reflect the common intention of the parties, which is that Toga is not entitled to a rent free and outgoings free period of one year in the Option Lease. And, if the Tribunal does not have the power to order rectification but if it were to have such power, it should make an order based upon the fact determined that rectification could be granted, to the effect that Toga pay the amount held in the escrow account with Macquarie Bank comprising twelve months rent and Lessee's Contribution.

The evidence before the Tribunal: 26On behalf of Toga Mr Allan Vidor Managing Director of Toga provided an affidavit dated 18 August 2011 and Mr Robert Harris of Jones Lang Wootton Real Estate Agents provided an affidavit dated 10 August 2011. 27On behalf of Colonial, Mr Michael Ganci previously the property officer at Colonial provided an affidavit dated 9 September 2011, Mr Geoffrey Cohen formerly a partner with Minter Ellison and the lawyer who acted for Colonial throughout this transaction provided an affidavit dated 7 July 2011 and finally Mr Nicholas Gray, Fund Manager of Colonial provided an affidavit dated 22 July 2011. All the witnesses were crossexamined.

Mr Allan Vidor 28The first witness was Mr Allan Vidor. In his affidavit, Mr Vidor stated in respect of his conversations with Mr Harris over the SRA Retail Space: (23) During that conversation, we negotiated over price and other aspects of the deal. I conducted these negotiations in a way that reflected my belief that Toga was in a strong negotiating position, meaning I was firm on the commercial terms. At one stage, the conversation turned to rental incentives, and I recall a discussion taking place to the following effect: AV: This would be an entirely new precinct with no track record of retail. The concern that I have is that we would have to do all the work to subdivide the space which may over time not work and that if we take a 10 plus 10 lease, we will want another rentfree period in the option term in case we have to reconfigure the shops and start again. RH: I will convey your position to Colonial. (25) The observation I made to Mr Harris about the store configurations was a genuine concern for me. Because there was no track record of retail on the site, it was possible that the proposed configuration of the retail space at the bottom of the SRA building (that is, the way the entire retail area had been divided into shops) was less than optimal, and would need to be reconfigured. Obviously, this could only be done if there were no leases in place (which, assuming Toga was able to find tenants, was not likely to be before the expiration of the initial term of the lease). (26) My conversation with Mr Harris finished on the basis that he was to take my conditions to Colonial and then come back to me with Colonial response. (27) A short time after the conversation, I received a copy of Mr Harris' letter dated 10 December 1998 (a copy of which is annexed and marked "B") on or around that date. I took this to mean that Colonial had agreed to the terms I had discussed with Mr Harris in the conversation I described above. (28) After this letter, drafts of the agreement for lease and lease were worked up by the parties' lawyers and I was eventually presented with final documents for execution. (29) I signed the lease on behalf of Toga. I understood the lease to include a rentfree period of one year at the commencement of both the initial term and the option term, which reflected my understanding of the commercial deal that I had reached in my discussion with Mr Harris. 29Annexure B is a letter on Jones Lang Wootton letterhead dated 10 December 1998 from Mr Robert Harris to Mr Michael Ganci, Senior Property Investment Manager, Colonial Investment Management Ltd in Melbourne (the Harris Letter) and says in part: I have pleasure in confirming that terms have been agreed with the Toga Group for a lease of the above retail tenancy as follows: Market Reviews will occur at the start of Years 5 and 10. All other years will have 2.5% per annum increase over the previous year's rental. Commencing rental to be $520 m² net. The outgoings for this tenancy are to be set out clearly in the Lease Agreement, limiting outgoings to those applicable to the retail area, some of which will be a percentage of outgoings, as they apply to the whole of the building. The Agreement is subject to Toga receiving one year's gross rent free to be adjusted in the last month. The Lease is for a 10 year period, with a 10 year option. The Lease is subject to agreement that the services as attached, marked "A", will be provided. The cost of providing these extra services was quoted by Baulderstone at $57,000.00. It has been agreed between the parties that Colonial will allocate $40,000.00 to all these services and the balance of $17,000.00 will be provided by Australand (the developer) and deducted from the one year's gross rent free allowance, in the last month of that period. Toga's offer is subject to formal documentation and is subject of survey of the area to be leased. I look forward to your issuing an agreement to lease to Toga Group as soon as possible. The solicitors acting for Toga are Freehill Hollingdale & Page, attention Mr J Andrews. 30During crossexamination Mr Ellicott showed Mr Vidor a full copy of the Harris Letter with the Annexure A setting out the tenancy works referred to in that letter attached. In both the affidavits of Allan Vidor and Robert Harris attaching a copy of the Harris Letter, annexure A was not reproduced. A full copy of the Harris Letter was then tendered by Mr Ellicott and marked by me as exhibit 2. The tenancy works referred to were essential services for partial fitout of the SRA Retail Space to be undertaken by Colonial such as sprinkler systems, water, gas, electricity services and connections, air conditioning, sanitary waste and grease traps. 31Mr Vidor during cross-examination confirmed that shortly after his conversation with Mr Harris he had received a copy of the Harris Letter which included Annexure "A" and the following exchange took place: Ellicott: So Mr Vidor the context of Annexure A essentially are matters that Toga wished the owner of the building to attend to prior to setting up the retail tenancies as it were? Vidor: Correct. Ellicott: It was envisaged that those matters would occur in the first term prior to you setting up the retail tenancies? Vidor: Correct. Ellicott: And they were matters which would persist throughout the lease and they were structural matters and essential matters prior to setting up tenancies? Vidor: Correct. 32Mr Ellicott then questioned Mr Vidor about the breakup of the costings for these works of $57,000.00. Ellicott: And there was a balance of $17,000.00 and that would be provided by Australand, that's correct as you recall it? Vidor: Yeah. What I recall is, is that there was services, cold ... shell, which is what this is describing. The cost of that was $57,000.00 and the negotiation was that they agree that $40,000.00 of that would be paid for and $17,000.00 would be paid for by us. Ellicott: But it came out of that one year's gross rent free allowance didn't it? Vidor: It was yes, paid in the 12th month. Payment for those services was a negotiated position between the parties to be paid in part by Toga up to $17,000.00 out of the last month's rent as noted in the fifth bullet point in the Harris Letter "The agreement is subject to Toga receiving one year's gross rent free to be adjusted in the last month". 33Mr Vidor was then asked by Mr Ellicott regarding the Harris Letter. Ellicott: You read the document at the time? Vidor: Yes. Ellicott: And you saw it as being the agreement which you wished to have? Vidor: I saw it as containing terms, there were many other terms that were documented. It was - and my understanding was that it contained terms that we had discussed. Ellicott: Finally, Toga's offer is subject to formal documentation subject to survey of the area to be leased, agree with that? Vidor: Yes. Ellicott: So that letter reflected both your understanding of the agreement and your intention with respect to what the agreement would contain ultimately, didn't it? Vidor: Dyes it did, yes, yes. Ellicott: Your intentions in that respect never changed until the lease was executed, that's correct isn't it? Vidor: Correct. 34Mr Vidor was asked by Mr Ellicott specifically about his conversation with Mr Harris with respect to seeking a second rent free period and its omission from the Harris Letter. Ellicott: That critical commercial term was not discussed in that conversation was it? Vidor: Yes it was discussed. Ellicott: Well that critical commercial term is not reflected in the document which Mr Harris wrote to you immediately after that conversation, is it? Vidor: That letter was not written to me. Ellicott: I'm sorry, copied to you? Vidor: It was written to a Mr Ganci and it is a poorly written letter and but there's nothing inconsistent in that letter with the terms that we agreed. Ellicott: The letter is entirely inconsistent with your account of the conversation isn't it? Vidor: No, its not inconsistent. [Transcript pages 21 - 23]

Mr Robert Harris 35The next witness for Toga was Mr Robert Harris. He was the agent retained by the NSW Government to sell the long term leasehold interests for State Rail Authority at Central Railway Station which ultimately became the precinct of Henry Deane Plaza. Mr Harris negotiated the sale of part of the site to Australand for redevelopment. He was also the agent for Australand in connection with the sale of the SRA Building, being a long term Lease, to Colonial which included the SRA Retail Space. As part of the purchase, Colonial negotiated a rental income guarantee. 36Mr Harris in his Affidavit affirmed the following: (13) I recall becoming aware from my discussions with all parties at the time of the sale, that Colonial, as an institutional investor, was concerned about the difficulties it may face in trying to find tenants for the SR Retail Space. Because of my familiarity with the Site, I discussed with Colonial and Australand (who gave an income guarantee over the retail space in favour of Colonial) the possibility of trying to find someone to take a lease of the SR Retail Space to minimise that risk. (14) I recall that my leasing colleagues at the time were not convinced that the SR Retail Space could be leased until the building and the adjacent plaza were nearer completion. This was because the area had no track record for retail, and frankly, it was not a nice area. Crime and safety were problems. I certainly wouldn't feel comfortable walking around the Site at night by myself (particularly through the Devonshire Tunnel). (15) The only candidate that I thought may be interested in taking on a lease of the SR Retail Space prior to the building being developed was Toga because it controlled most of the other retail opposite the building in question and had a vested interest in the long term viability of the whole area. (17) In one of those conversations, an exchange took place to the following effect: Vidor: There are big risks with the area. We don't know if the configuration of the retail space is right, and the area is an unknown quantity for retail use. If we take a ten plus ten, we will want one year's rent free initially and again if we decide to exercise the option for the second term. Retail requires constant upgrading and the costs are considerable. I: Sure, I'll take that back to Colonial. (18) As promised, I took these terms (including the rent free period term) back to my contact at Colonial, Michael Ganci. I recall having a conversation with Michael to the following effect: I I have spoken with Allan Vidor from Toga, who tells me he is willing to take on the space, but only if there was a 12 month rent free period in the first term and the option term. He is concerned about the risk with the site and the suitability for retail use. Ganci: I understand the concerns, and agree with the proposal. (19) After I received these instructions from Colonial, I recall I phoned Allan Vidor and told him (words to the effect) that "Colonial has agreed to Toga's terms". (20) Shortly following that discussion, I prepared a letter to Colonial confirming those terms. A copy of this letter is annexed and marked "B". It was my intention that this letter reflected the agreement that I understood had been reached between Toga and Colonial, which agreement included a rent free period in the option term of the lease. 37Mr Harris was cross examined concerning his conversation with Mr Ganci as set out in paragraph 18 of his affidavit: Ellicott: I put it to you that that conversation never occurred, Mr Harris, in those terms? Harris: Well I disagree. Ellicott: And I put it to you that that conversation never in fact occurred. Harris: No, I deny that. Totally deny that. Ellicott: Do you? Nevertheless you, in quite simple terms, in paragraph 18, say you were able to say to Mr Ganci it's quite fundamental, he's willing to take on the space but only if there is a twelve months rent free period in the first term, the option term. As you understood it that was Mr Vidor's prime concern in the deal, to get the two rent free periods? That's correct? Harris: That was a condition of the offer, correct. Ellicott: Yes an absolutely fundamental term? Harris: Yes. Ellicott: But it wasn't mentioned in your letter of 10 December 1998 was it? Harris: I guess I'm agreeing it was sloppy. Ellicott: Now you're agreeing it's sloppy. .. That letter does not mention the second term does it? Harris: It doesn't specially - well it mentions the option, it doesn't mention the - I guess no, the middle of it. Ellicott: In fact that letter says there's only one rent free period doesn't it? On its fair reading? Harris: No - well I am not sure that I understand that, no. Ellicott: So where in that letter would any reasonable person reading it glean from it that there was to be a second rent free period, being the conditions which Mr Vidor wanted? Point to where in that wording a reasonable person might find that construction? Please. Harris: I'd - it's missing. Ellicott: Missing. Thank you. So Mr Ganci, having read that letter, you are saying its missing, if he saw that as a true reflection of the deal he would have been misled wouldn't he? Harris: Well if he only read the letter, but I had a conversation with him. (Transcript pages 22-23, paras 35-50 and 510).

Mr Michael Ganci 38Mr Michael Ganci was a senior investment manager with Colonial up to 1999. The project at Central Railway was his responsibility. Mr Ganci was firm in his recollection of the conversation with Mr Harris regarding the agreement reached with Toga with respect to the Sublease of the SRA Retail Space. 39Mr Ganci in his affidavit recalled the conversation with Mr Harris along the following lines: (12) Mr Harris introduced Toga to the Trust as a potential tenant for the retail site in Henry Deane Plaza. Toga already had an interest in a heritage listed post office building next to the PTAL site, which is now known as "Medina Central" where Toga had serviced apartments and an existing and complimentary retail space. (13) My recollection of the conversation with Mr Harris was in words to the following effect: He said: "I've got a potential tenant for your retail space". I said: "That's great. Who is it?" He said: "Toga". I then said words to the effect of: "That makes sense, put in their best offer and we'll have a look at it". (17) I refer to paragraph 18 of the Harris affidavit and say as follows: (a) I deny that I had a conversation with Harris to that effect; (b) I deny ever agreeing to such a proposal; (c) I deny ever discussing with or reaching any agreement with any one representing Toga or any Toga employee or documenting any terms of agreement by which Toga would be entitled to a rent free period in any option lease. (d) I would not have agreed to grant a rent free period for the first year of an option term commencing in ten years time as this would have been inconsistent with my then commercial practice and approach because: (i) the inclusion of a term to that effect in the lease would have been a very unusual practice and imprudent; (ii) I would not have agreed to such a deal because something like that would have been left by me to be negotiated at the time the option was exercised or immediately prior thereof; (iii) I would have insisted on any term to that effect being expressly documented; and (iv) it was my usual practice at the time for me to record any arrangements I made in my notebook, which I took with me to meetings, and in a responsive letter to the party with whom the arrangement was made and I did not do that in this case. This would be an even more important consideration if I had agreed to an unusual term such as the grant of a rent free period in the first year of the option term. I have no record in my notebook of having ever discussed or agreed to a rent free period in the first year of an option term.

Mr Nicholas Gray 40The next witness for Colonial was Mr Nicholas Gray. He was the fund manager at Colonial from 1998 to 2000. Mr Gray oversaw the commercial dealings with Toga including the terms of the Deed of Agreement and the Sublease. Mr Gray instructed Mr Geoffrey Cohen, at Minter Ellison to prepare an Agreement for Lease on behalf of Colonial and in his letter of instructions said "in this regard I now attach a copy of letter 10 December 1998 from Robert Harris of Jones Lang Wootton to my colleague Michael Ganci which sets out the principal terms agreed." Mr Gray also stated in his Affidavit the following: (9) During the period of those dealings I deny ever discussing with or reaching any agreement with anyone representing Toga or any employee or documenting any terms of agreement by which Toga would be entitled to a rent free period in the first year of any Option Lease. 41In relation to the payment by Toga of part of the cost of services referred to in the fifth bullet point of the Harris Letter "to be adjusted in the last month", Mr Gray says in his affidavit: (15) (i) I understood, at the relevant time, that Toga was to receive one year's gross rent free in the first year of the initial term to be adjusted in the last month; (ii) The cost of the provision of extra services by Baulderstone (the Builder), in connection with the development, was $57,000.00, of which, Colonial was to pay $40,000.00 and the balance of $17,000.00 was to be provided by Australand and was to be deducted from the gross rent free allowance. This had the result that in the first year of the initial term, Toga paid rent of $17,000.00 to Colonial, putting Colonial in funds to pay Baulderstone. In my opinion, a rent free concession would not sensibly have been applicable in the first year of any Option Lease because an equivalent service provision by Baulderstone would not have been provided in the first year of any further term. The services payment to Baulderstone specifically related to the initial construction and building of the premises by them.

Mr Geoffrey Cohen 42The next witness for Colonial was Mr Geoffrey Cohen, formerly a partner at Minter Ellison who had been instructed to act for Colonial in the documenting of the Deed of Agreement and the Sublease. 43Mr Cohen submitted the draft documents to Mr J Andrews of Freehills acting on behalf of Toga. Mr Cohen deposes to the correspondence and negotiations with Mr Andrews and annexes to his affidavit copies of the drafts of the Deed of Agreement and Sublease and all correspondence between the legal firms relating to the Deed of Agreement and the Sublease. 44Mr Cohen in his affidavit referred to a request by Mr Andrews on behalf of Toga that the market rent review originally contemplated in accordance with the Harris Letter to be on the 5th and 10th anniversary of the commencement date be moved to the 4th and 9th anniversary of the commencement date so that the rental payable in year 1 of the Option Lease would be known to Toga at the commencement of year 10, that is before it made an election to exercise its option to renew. 45Mr Cohen sought instructions from Mr Gray on the above request from Mr Andrews. Mr Cohen in his affidavit says the following: (29) Mr Gray instructed... the terms agreed with the Sublessee were for there to be market reviews at the start of years 5 and 10 at the least (refer to JLW's letter on 10 December 1998). The rent to be applied for the commencement of the option period would therefore be the market rent determined at the commencement of year 10 plus a fixed percentage increase to be applied at the end of year 10 (Mr Cohen continued....) I understand this to mean that the rent payable by Toga in year 1 of any Option Lease would be the market rent determined at the end of year 9 (or at the commencement of year 10) plus a fixed percentage increase of 2.5% provided for in item 16(1) of the Sublease). Had a rent free period in the first year of any Option Lease been in the parties contemplation, the formula described above, would not have been workable or applicable. and in the following paragraph he says (38) Again in my opinion based upon my experience and knowledge of this particular transaction, I am surprised that Toga is now asserting an entitlement to a rent free period in the first year of the Option Lease for the following reasons: (i) a rent free period in an Option Lease was a very unusual practice and rarely given; (ii) a gross rent free period (rent and outgoings) was even more unusual and rare; (iii) if a rent free period in the first year of any Option Lease had been contemplated (and it was not), a valuer of assets of the Fund would have had to have taken into account a rent free period some years in advance, without knowledge as to whether it would apply or not, because of the right to exercise the option which created it; (iv) had the granting of such a concession been contemplated, I would have explained to Colonial in writing the precise term and effect, given careful advice, and made extremely clear provision for this in the drafting of the Sublease; (v) indeed, the necessity for the inclusion of such a provision was never communicated by Colonial to me, or by me to Colonial, either in written correspondence, or in the drafting of the Sublease; and (vi) finally, had a rent free period in the first year of any Option Lease been in the parties' contemplation, provision would have had to have been made in the Sublease for the Landlord's involvement in any revitalisation plans including any related expenses to be borne by the Landlord. The Sublease would have had to have made express provision for this. 46Mr Cohen further says in his affidavit regarding interpretation of Item 14 the following: (39) Finally, Item 14 of the sublease provided that Toga was not obliged to pay the Annual Rent or the Lessee's contributions for the period up to the first anniversary of the Commencing Date. I understood, at the time of drafting the sublease, the 'Commencing Date' meant 13 November 2000 and, as such, Item 14 was only applicable in respect of the Initial term.

Construction of the Sublease and the Option Lease 47Mr Balafoutis on behalf of Toga made the following helpful submissions which set out the issues to be considered: Construction of Registered Documents such as a Lease (1) The High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 at [3] and [4] confirmed that the rule in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 remains binding authority with respect to the interpretation of contracts. In Codelfa, Mason J said that evidence of surrounding circumstances is only admissible to assist in the interpretation of the contract if the language is ambiguous. It is not admissible to contradict the language of the contract when it has a plain meaning (at 352). (2) In the limited circumstances when evidence of surrounding circumstances is admissible, such evidence is confined to circumstances that were known or presumed to be known to both parties (at 352). (3) The rules concerning admissibility of evidence are further tightened with respect to the interpretation of registered leases. In Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64, the NSW Court of Appeal examined the position with respect to leases which are registered under the Real Property Act 1900 (NSW), are for a long term and are assignable. The court considered that it was reasonably foreseeable that people with no understanding of the background to the lease may need to construe the document. (4) In those circumstances, the Court of Appeal at [151] and [154] held that evidence of surrounding circumstances that is able to be used as an aid to construction in the event of ambiguity must be background knowledge that is accessible to all the people who it is reasonably foreseeable might, in the future, need to construe the document. Those are the sort of background circumstances that anyone could infer from a perusal of the lease document itself. They are not background circumstances that are the particular, private knowledge of the people who entered the lease, but rather background circumstances of a type ascertainable by anyone who set out to understand the lease, even many years after it was entered. (5) The Tribunal is not exempt from these principles. These principles are concerned with the manner in which contracts are interpreted. While the Tribunal is not bound by the rules of evidence, it must act in accordance with the law when interpreting leases. Ambiguity (6) Those principles set out above are directly applicable to this case. The Sublease was registered, was for a long term (ten years plus a ten year option) and was assignable (clause 10.2 of the Sublease). (7) Toga's primary position is that there is no relevant ambiguity in the Sublease. On this basis, no extrinsic evidence at all is admissible to interpret the Sublease. It is of course permissible to interpret particular provisions of the Sublease in the context of the Sublease as a whole. (8) In the event that the Tribunal finds that there is an ambiguity in the Sublease, the extrinsic evidence is limited to the background circumstances of a type ascertainable by anyone who sets out to understand the lease, even many years after it was entered. The circumstances which are directly ascertainable from the Sublease include: (a) the premises being leased was the whole of the retail area on the lower plaza level in the building to be known as the SRA Building, being a total of 8 shops;(Item 5 of the Sublease and Item (B) of the cover page to the Sublease). (b) a large variety of uses were allowable, being retail and any other use permitted by the Relevant Authority; (Item 7 of the Sublease); and (c) subletting of the premises was permitted without first seeking the Sublessor's consent (Clause 10.1 of the Sublease). (9) The Sublease obviously identifies the area in which the premises are located, being in the SRA Building at Henry Deane Plaza. It would be readily ascertainable that this area was a new development as at 2002 and had no history of retail shops. Indeed, Item 5 of the Sublease states that the premises are in the 'building to be known as SRA Building', suggesting that the building has not yet been completed. Further, a view of the land titles register would show that Toga was the sublessee of all the shops surrounding the Plaza. Whether the Special Covenant was one of the terms in the Option Lease (10) In order to determine the meaning of the Special Covenant in the Option Lease, the first question is whether the terms of the Option Lease included the Special Covenant. (11) Clause 16 of the Sublease is concerned with the renewal of the Sublease. Clause 16 refers to a 'renewed lease' but does not specify which terms are to be included in such a lease. Instead, clause 16.2 specifies the terms which are to be excluded from a renewed lease, namely Items 15 and 16 and clause 16. The Special Covenant is not one of the terms excluded. It would have been a very simple matter to exclude the Special Covenant, which was Item 14, but the parties chose not to do so. (12) In circumstances where the Special Covenant has not been specifically excluded, what basis is there for excluding it from the Option Lease? As set out in clause 13.7 of the Sublease, the Special Covenant is expressed to bind the parties and prevail over any inconsistent term of the Sublease. The importance assigned to the Special Covenant indicates that it is less likely that it would be removed from the Option Lease without explicit reference. (13) The general principle is that a renewed lease contains all the terms of the original lease other than a further option for renewal. In Lewis v Stephenson (1898) 67 LJQB 296 at 300, the Court considered a lease which provided for 'an option for renewal' but did not otherwise specify the terms to be included in the lease arising from the exercise of the option. The Court held that 'it is only to give to language its natural meaning to hold that a renewal of a lease means the renewing of the lease on the same period and on the same terms.' The court considered that the only covenant not to be included in the new lease was a further option for renewal, (Referred to with approval by Asprey JA in 195 Crown Street v Hoare [1969] 1 NSWR 193 at 199.) (14) The principle as stated in Lewis v Stephenson ought to apply here. Accordingly, the Special Covenant should be incorporated into the Option Lease.

The meaning of the Special Covenant in the Option Lease (15) The Option Lease commences immediately after the expiry of the Sublease so that the Commencing Date of the Option Lease is 13 November 2010. Both parties agree that, in the Option Lease, the Commencing Date recorded in Item H(2) should be 13 November 2010. (16) The Special Covenant states: The Lessee is not obliged to pay the Annual Rent or the Lessee's Contributions for the period up to the first anniversary of the Commencing Date. (17) There is no ambiguity about the term 'Commencing Date'. It is only referred to in one location in the Option Lease; that is in Item H(2) of the cover page of the Option Lease. (18) The result is that, in the Option Lease, the Special Covenant should read as follows: The Lessee is not obliged to pay the Annual Rent or the Lessee's Contributions for the period up to the first anniversary of 13 November 2010. (19) The absence of ambiguity means that there is no need to consider extrinsic evidence. In the event that the Tribunal considers that there is ambiguity in the Special Covenant, it would become necessary to also consider the limited extrinsic evidence set out above. (20) That extrinsic evidence supports Toga's interpretation of the Special Covenant. Toga was entering into a lease of a substantial amount of retail space with the intention of subleasing that retail space. The retail space was in a building which was yet to be built in a precinct which had no history of retail development. For all of these reasons, Toga was undertaking a substantial risk. There was a real possibility that Toga's tenants would vacate after the first lease period. It is consistent with the undertaking of such a risk to expect a rent incentive from the landlord. The rentfree period in the Option Lease was such an incentive. 48Mr Ellicott on behalf of Colonial also made helpful submissions as follows: (1) Clause 16 of the Sublease relates to the renewed Term. Clause 16.2 is headed "Terms of Renewed Lease". The clause specifically excludes Clause 16 and Items 15 and 16 of the Reference Table. Obviously, this was done to ensure that the Sublease was not perpetually renewable. (2) The Clause does not specifically state what terms of the Sublease are to be included in the Option lease. Therefore, any terms which were "spent" would not be included in the Option Lease and this extends to Items 12 and 14 of the Reference Table. If an alternative view is adopted and Items 12 and 14 are included then the following applies. (3) If Item 14 is included in the renewed lease then it has no operative effect for the following reasons: (a) It is a oneoff provision on its terms limited to a specific date. (b) In the same manner as Item 12 is a "spent" provision, Item 14 has been included as a "spent provision". (c) Item 16 is important as, like Item 14, it specifically relates to the important matter of rent. Crucially, Item 16 draws a distinction between "Commencement Date" (Item 16(2)) and "Commencement Date of the renewed Term" (Item 16(3)). Item 16 clearly establishes that the draftsman had in mind a distinction between the original Commencement Date (i.e. 13 November 2000) and the Commencement Date of the renewed Term. (d) Accordingly, had the draftsman intended Item 14 to apply in the renewed term he would have added the words "of the renewed Term" at the end of Item 14. The fact that he did not is a significant and substantial indicator that the construction contended for by the Respondents is on balance more likely to be the correct construction. (e) An abatement of gross rent, that is, rent and outgoings in the first year of the renewed term of a lease is highly unusual. Given the features referred to above the preferred construction is one which will avoid this capricious, unreasonable and unjust consequence and gives a business like construction of the document

Does the Option Lease include the Special Covenant? 49Clause 16 and Item 15 of the Sublease set out the procedure for exercise of the option for renewal. Once having followed the specific requirements for renewal, Toga is entitled to receive a new Sublease (Option Lease). Pursuant to clause 16.3 the Lessor "must subject to clause 16.4 grant to the lessee a lease for the further term". For the purpose of these proceedings the matters referred to in clause 16.4 are not relevant. 50What then are the terms of the Option Lease? Clause 16.2(a) states that the renewed lease "will exclude this clause 16 and Item 15 and 16 of the Reference Table". Clause 16.2(b) directs the rent variations to be inserted in the Option Lease, query though whether they are to be inserted in Item 12. There are no other directions in the Sublease regarding the terms of the Option Lease. The terms of the Option Lease are not specifically prescribed by clause 16, contrary to that which is often seen in leases generally. Some examples of common clauses specifying the terms of the new lease are: "The terms of the option lease are set out", and "the further lease will be on the same terms and conditions as the lease except that ..." and "otherwise upon the same terms and conditions as this lease other than ...". Consequently, the absence of such a common clause leads one to question whether as only certain specific clauses and items in the Sublease have been excluded, is the Option Lease then to be otherwise on the same terms as the Sublease? 51The general principle stated in Lewis v Stephenson is appropriate here to give the words in clause16.3 "grant to the Lessee a Lease" their natural meaning, that is the Option Lease is to be renewed on the same terms as the Sublease, but for the specific matters referred to in clause 16.2 to be excluded and modified. Further, as certain provisions of the Sublease are specifically excluded from the Option Lease it may be implied that all the other terms of the Sublease are to be included in the Option Lease. Consequently, on this basis then Item 14 is included in the Option Lease. 52Mr Ellicott's main submission to exclude Item 14 from the Option Lease is that Item 14 has no operative effect in that it only serviced the first ten years of the Sublease and is not relevant for the second ten years. Mr Ellicott also submitted that to exclude Item 14 from the Option Lease would give a business like construction to clause 16.2 of the Sublease. 53Mr Ellicott submits that Item 14 has no operative effect for the following reasons: (a) Item 14 is a one off provision on its terms limited to a specific date. However, there is nothing on the face of the Sublease to suggest this. The words used are "Commencing Date" and are only used once in the Sublease specifically within Item 14. "Commencing Date" is a defined term and not a specific date. It is referable to the date noted against paragraph H(2) on the front page of the Sublease, not a specific date. (b) Item 14 is to be treated in the same manner as Item 12, that is, as a "spent" provision and not repeated in the Option Lease. Clause 16.2(a) states that Item 16 is specifically excluded from the Option Lease and pursuant to clause 16.2(b) the Option Lease is to contain the rent variations as specified in Item 16. Both parties have accepted that the words in Item 16 are to be inserted in Item 12 (Order (1)(x) in paragraph 19 of these Reasons) and consequently Item 12 as set out in the Sublease is not repeated in the Option Lease. Therefore, inclusion of Item 12 in the Option Lease would create some confusion and I am prepared to consider Item 12 as a "spent" item given the directions in clause 16.2(b). However, there are no such directions regarding Item 14, so Item 14 is easily distinguished from the "spent" Item 12 and it cannot be said to be itself "spent". (c) Within Items 14 and 16 there is a difference in terminology between "Commencing Date" and "Commencement Date of the renewed Term". If the draftsman had wished Item 14 to apply to the renewed term the draftsman would have added at the end of Item 14 the words "of the renewed Term". Firstly, there is an internal inconsistency between Items 16(2) and 16(3) for the words "renewed Term" do not appear at the end of Item 16(2) after "Commencement Date" but do appear at the end of Item 16(3) after "Commencement Date". That internal inconsistency is of itself curious. Mr Ellicott draws from Item 16(3) only the additional words "of the renewed Term" and submits that by omission of these words from Item 14 after "Commencing Date", one should assume that this is purposeful and the draftsman meant Item 14 does not apply to the Option Lease (ie. the renewed Term). I agree that there is an inconsistency in the approach of the draftsman between Items 14 and 16(3), leaving aside the inconsistency within Item 16 itself. However, clause 13.7 of the Sublease is quite specific in its terms. Clause 13.7(a) states that the Special Covenant binds the parties and clause 13.7(b) states that if there is any inconsistency between the Special Covenant and the terms of the Sublease then the Special Covenant will prevail. The inconsistency is the inclusion of the words "of the renewed Term" after "Commencement Date" in Item 16(3) but omission of those words after "Commencing Date" in Item 14. The omission might be suggestive that Item 14 should not be in the Option Lease. If that is an inconsistency in approach by the draftsman, then clauses 13.7(a) and (b) answers that inconsistency in that the Special Covenant and Item 14 are paramount and consequently bind the parties and prevails. Further, I note that clause 13.7 is not specifically excluded from the Option Lease. The repeat of clause 13.7 in the Option Lease lends weight to the construction that Item 14 is also not specifically excluded from the Option Lease. 54In Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297, the NSW Court of Appeal recently considered whether a clause requiring a $45,000 payment at the commencement of a lease for fitout was incorporated into a lease arising from the exercise of an option to renew. The lease provided that the renewed lease would not include particular specified clauses, but there was no exclusion of the clause requiring a $45,000 payment. An argument was put by the Lessee that the inclusion of the $45,000 payment in the renewed lease was 'absurd'. Basten JA said at [13] that: [T]he word "absurd" may have a range of connotations, in this context it is used to mean something opposed to reason, or irrational. It can form a basis for resolving internal inconsistencies in a contract or giving commercial sense to language which is otherwise in a practical sense meaningless. 55Basten JA also said at [18] that the test of absurdity is not easily satisfied and the courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense. This proposition of Macfarlan JA in the Court of Appeal decision of Western Export v Jireh (2001) NSWCA 137 at 55 was approved by the High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45.) "A court is not justified in disregarding unambiguous language simply because a contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted" This answers Mr Ellicott's fifth submission, that Colonial's preferred construction for omission of Item 14 would avoid capricious unreasonable and unjust consequences and give a businesslike construction of the document. 56Consequently, the Tribunal finds that in accordance with clause 16.3 of the Sublease Colonial must grant to Toga an Option Lease that includes the Special Covenant, namely Item 14 as it appears in the Reference Table of the Sublease.

The interpretation of Item 14 in the Option Lease 57Item 14 states as follows: The Lessee is not obliged to pay the Annual Rent or the Lessee's Contributions for the period up to the first anniversary of the Commencing Date. The question then is what does the Commencing Date in Item 14 mean? Does it mean the date at (H)2 on the front cover of the Option Lease, namely 13 November 2010 as suggested by Toga or does it mean as Colonial suggests, the Commencement Date being the Commencement Date of the Sublease, namely 13 November 2000? 58In the joint judgment of Gummow, Heydon & Bell JJ in refusing leave to appeal in Western Export Services Inc v Jireh International Pty Ltd (2011) HCA 45 on 28 October 2011 their Honours provided guidance as to the current state of the judicial debate with respect to construction of contracts: (1) This is an application for special leave to appeal from a decision of the New South Wales Court of Appeal, in which MacFarlan JA gave the leading judgment. The dispute concerned the construction of cl3 of a "letter of agreement" concerning the franchising in Australia of Gloria Jean's Gourmet Coffee Stores. In the passage in which he found error in principle in the reasons of the primary judge, his Honour said: "A court is not justified in disregarding unambiguous language simply because a contract would have a more commercial and business like operation if an interpretation different to that dictated by the language were adopted." His Honour added that the primary judge appeared: "to have acted on the basis of the provision would make more sense from a commercial point of view." if it were construed as the primary judge did construe that provision. These statements by MacFarlan JA since have been applied by the New South Wales Court of Appeal in Miwa Pty Ltd v Siantan Properties Pty Ltd (2001) NSWCA 297. (2) The primary judge had referred to what he described as "the summary of principles" in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 618. The applicant in this Court refers to that decision and to MBF Investments Pty Ltd v Nolan (2001) VSCA 114 at 195204 as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. The applicant also refers to statements in England said to be to the same effect, including that by Lord Steyn in R (Westminster City Council) v National Asylum Support Service (2002) 1 WLR 2956 at 29582959. (3) Acceptance of the applicant's submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellant courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellant courts. (4) The position of Codelfa as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 6263 and it should not have been necessary to reiterate the point here." 59Mason J in Codelfa held that it is essential that ambiguity in the language of the contract be identified before a Court may have regard to the surrounding circumstances and object of the transaction. The High Court's decision in Western Export Services v Jireh International highlighted two divergent approaches to the construction of contracts. In a recent article Western Export Case; Ambiguity as a Gateway to Surrounding Circumstances by Derek Wong and Michael Brent (2012) 86ALJ 57 the learned authors stated that: "current Australian jurisprudence is torn between: (a) it is essential to identify ambiguity in the language of the contract before a Court may have regard to the surrounding circumstances and object of the transaction (Mason J in Codelfa); and (b) that ambiguity was not a prerequisite before one could look at the surrounding circumstances and object of the transaction (Franklins Pty Limited v Metcash Trading Ltd (2009) (76NSWLR 603)". 60The High Court in Western Export v Jireh said that Courts are bound to follow the position in Codelfa as binding authority. However Wong and Brent take a different approach (p. 57): It is contended that the current view is that ambiguity is no longer required before regard may be had to surrounding circumstances. This is also the preferable position as a matter of policy. Regardless of the correct view, it is submitted that a trial judge, and to a lesser extent intermediate appellate Courts, are currently bound to apply the interpretation given by previous decisions of intermediate Courts of Appeal in decisions such as Metcash, despite the High Court's remarks In Jireh. Nevertheless, notwithstanding the divergence in views and the due consideration given as to the best approach of appellant and intermediate Courts, this Tribunal will follow Codelfa as binding authority in relation to the construction of contracts. 61In Phoenix Commercial Enterprises Pty Limited v City of Canada Bay Council (2010) NSW CA 64 at para 151 Campbell J A (Spigelman C J and Handley A J A in agreement) held: The way those principles come to be applied (referring to Mason J in Codelfa Constructions Pty Limited case and Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) CA 5 to a particular contract can be affected by aspects of the contract such as whether it is assignable, whether it will endure for a longer time rather than a shorter time, and whether the provision that is in question is one to which indefeasibility attaches by virtue of the contract being embodied in an instrument that is registered on a Torrens Title register. All these are matters that would be taken into account by a reasonable person seeking to understand what the words of the document conveyed. That is because a reasonable person seeking to understand what the words convey would understand that the meaning of the words or the document does not change with time or with the identity of the person who happens to be seeking to understand the document. That reasonable person would therefore understand that the sort of background knowledge that is able to be used as an aid to construction, has to be background knowledge that is assessable to all the people who it is reasonably foreseeable might, in the future, need to construe the document. 62The Sublease was a registered lease, it was a longterm lease for ten years with a ten year option and was assignable. Following Campbell JA in Phoenix, there are only very limited pointers to assist in construction. None of the background knowledge regarding the negotiations or the details of the agreement between the parties can be examined if not evident from the face of the documents itself. Consequently, the evidence from the witnesses for Toga and Colonial regarding the inconsistency of approach with respect to rent free periods in year one of the Sublease and year one of the Option Lease and the Harris Letter would not be available to people who it would reasonably be foreseeable in the future were to construe the Option Lease. 63Item 14 refers to a Commencing Date, which on the face of the Option Lease is noted against paragraph H(2) and would be the date 13 November 2010. Only the terms of the document can be looked at. Colonial says the date should be 13 November 2000, being the date of the Sublease, not the date next to H(2) of the Option Lease. 64In Riltang Pty Ltd v L Pty Ltd [2004] NSWSC 977, White J considered the interpretation of a term in a lease which had been granted after the exercise of an option for renewal which commenced in 2000. The term required the lessee to pay 25% of the increase in outgoings 'now assessed'. The issue was the meaning of the word 'now assessed'. The lessee argued that 'now assessed' meant assessed at the commencement date of the renewed lease - that is October 2000. The lessor argued that 'now assessed' meant assessed at the commencement date of the original lease - that is October 1993. White J noted at [22] that it was accepted that if the expression 'at the commencement of the term of this lease' was replicated in a renewed lease, the expression would refer to the commencement term of the new lease (Mark Mayne Pty Ltd v Suburban Centres Pty Ltd, a decision of Holland J). 65White J stated at [41] that the words 'now assessed or charged', when read in the context of the lease commencing in 2000, had a plain meaning. It was not permissible to use surrounding circumstances to contradict that plain language. Nor can the words be corrected to avoid absurdity, or inconsistency within the text of the instrument, because neither exists and at [43] 'If the lease had been assigned, could it seriously be contended that the new lessee should assess its liability to contribute to outgoings, not by reference to the lease, but by reference to the option of renewal in the former lease to which it had no need to give any attention?' 66However, this is the position put by Mr Ellicott on behalf of Colonial, that the Commencing Date in Item 14 is in reality 13 November 2000, a fixed date in the Sublease and it is that date to which the parties need to give attention when drafting the Option Lease and not the Commencing Date of the Option Lease. Following the observations of Campbell JA in Phoenix Commercial and of White J in Ritling, assuming that during the initial term the Sublease had been assigned by the Lessee, Toga, then, I believe that the draftsman preparing the Option Lease would not have appreciated that the Commencing Date in Item 14 was to be the Commencing Date of the Sublease and not of the Option Lease. This leads the Tribunal to find that the document, being the Option Lease must be construed on its face and the Commencing Date in respect of Item 14 is the Commencing Date of the Option Lease without alteration, which means the Commencing Date is the date noted against H(2), namely 13 November 2010. 67Notwithstanding the divergence of approach to the construction of contracts, it is this Tribunal's view that the evidence of the surrounding circumstances of the Sublease cannot be called upon to construe the plain language in Item 14. The Tribunal finds that Item 14 was not specifically excluded from the Option Lease and thus Item 14 is included. There is no ambiguity on that point and there is no ambiguity on the meaning of "Commencing Date" in Item 14. The inclusion of Item 14 in the Option Lease means that the Lessee, Toga, does not have to pay Annual Rent and Lessee's Contributions for 12 months from 13 November 2010.

Colonial's Cross-Application 68This now leads the Tribunal to consider the Cross-Application by Colonial which was originally an application for rectification of the Sublease. Colonial now seeks to file an amended Cross-Application taking into account the doubt as to whether the Tribunal has the power to order rectification. (4) Further and, in the alternative, a declaration that if this Tribunal had the power to order rectification then it would order that based upon the facts determined, the terms of the Sublease be rectified to correctly reflect the common intention of the CrossApplicant and CrossRespondent, upon execution of the Sublease, that Toga is obliged to pay the Annual Rent and the Lessee's Contributions (as those expressions are defined in the Option Lease) for the period from 13 November 2010 to 12 November 2011 by substituting for Clause 16.2 of the Sublease the following Clause: 16.2 Terms of Renewed Lease The Annual Rent to be inserted in Item 11 of the Reference Table will be increased by the percentage specified in Item 16(1) of the Reference Table and the renewed lease: (a) will exclude this clause 16 and Items 12, 14, 15 and 16 of the Reference Table; (b) will contain rent variations as specified in Item 16 of the Reference Table. Consequently, Colonial seeks orders that if the Tribunal had the power to order rectification and it would have done so on the evidence before the Tribunal, then the Tribunal should order Toga to pay to Colonial the Annual Rent and Lessee's Contribution for the first 12 months of the Option Lease. 69The first question is whether the Tribunal is of the view that the Sublease should be rectified. Mr Ellicott made the following submissions with respect to rectification (1) There was a common intention between Colonial and Toga with regard to the terms agreed based on the Harris Letter, which is treated by the parties as heads of agreement setting out the salient terms of the agreement. (2) The common intent was present up to execution. Mr Ellicott says that Mr Vidor in cross examination confirmed that the Harris Letter reflected both his understanding of the agreement and his intention with respect to that agreement. (3) The one rent free period mentioned in the Harris Letter also included reference to part payment for the services to be supplied to Toga by Colonial to be adjusted in the last month of the rent free period. A second gross rent free period (both Annual Rent and outgoings) cannot be construed from the Harris Letter. It is entirely the opposite effect. It is a contemporaneous document which recorded the intentions of the parties which Mr Vidor confirmed under crossexamination. (4) The evidence from Mr Gray was that when he instructed Colonial's lawyer Mr Cohen to prepare the documents he enclosed a copy of the Harris Letter. Mr Cohen worked from the Harris Letter as his instructions. Mr Cohen as the draftsman gave evidence to the following effect in the course of crossexamination by Mr Balafoutis concerning Item 14 "were you satisfied it reflected your client's instructions". Mr Cohen replied "yes". (5) The evidence led by Colonial in relation to the alternative claim establishes that in truth only one rent free period was agreed for the first year of the initial term of the Sublease and the parties did not turn their mind to a second rent free period in the renewed lease. (6) It is also of substantial importance that Toga did not provide evidence from Mr Andrews of Freehills, the solicitor who acted for Toga in connection with the leasing documentation. Colonial led evidence from Mr Cohen, and his evidence is that he had no instructions to draft a gross rent abatement clause with respect to the renewed term. The question of a gross rent abatement is a significant matter and one which one would expect to be the subject of explicit instructions to a solicitor engaged to draft the relevant document. Had Mr Andrews been given explicit instructions to ensure that Toga had the benefit of a gross rental payment free period in the renewed term he could have given evidence to that effect. Given his absence as a witness, it must be assumed that any evidence he could have given would not have assisted Toga's case (Jones v Dunkel 101 CLR 298). No explanation is offered for his absence. 70Needless to say, Mr Balafoutis on behalf of Toga made strong submissions regarding firstly, the fact that rectification was not appropriate in these circumstances and secondly that the Tribunal does not have the power to grant rectification nor does it have the power to grant any other order or remedy that would provide the necessary results sought by Colonial. The following submissions in relation to rectification were made by Mr Balafoutis: (1) The purpose of rectification is to reform instruments to make them accord with what the parties actually agreed. (2) To make out a claim for rectification, it is necessary to show a concurrent intention of all the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. (3) It is elementary that rectification is granted only upon 'clear and convincing proof'. It must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party. A private intention, not communicated, is insufficient. (4) When an agreement is one tailored to the particular case it deals with, rather than being a standard form, that has been reduced to writing through a process of negotiation between solicitors over a period of months, and is clearly a matter of great commercial significance to the parties, that situation in itself is a factor that tends to make it less likely that the parties have recorded their common intention incorrectly. Campbell JA in Franklins v Metcash Trading Ltd described such an occurrence as having a 'measure of inherent unlikelihood'. (5) With respect to the intention of Perpetual no evidence of Perpetual's intention at any time has been introduced. No officer of Perpetual has given evidence. In order to satisfy the onus on the cross-claimant, an officer of Perpetual ought to have given evidence that, at the time of signing the Sublease, Perpetual had an intention to exclude a rent free period in the Option Lease. No such evidence was given.

The Tribunal's view on Rectification 71The principles regarding application of the remedy of rectification are summarised by Sackar J in the case of Powell General Sheet Metal Pty Ltd v Autopak Nominees Pty Ltd [2011] NSW SC 321: 38 To obtain an order for rectification for common mistake, the plaintiff must show the existence of a common intention, which continued in the minds of both parties up until the time of the contract. Evidence of the parties' prior intentions as for example evidenced by negotiation is admissible. 39 As Isaacs J outlined in Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd [1918] 26 CLR 410, the purpose of rectification is not to import additional or different terms in the contracts, but, rather, "to reform instruments so as to make them accord with what the parties actually agreed to, or with what one party intended and the other party knew the first intended ...". 40 The question of how the common intention of the parties is to be construed may be a matter of inference. However, as made clear in Pakallus v Cameron (1984) 43 ALR 243 and Franklins Pty Ltd v Metcash Trading Ltd there must be "convincing proof" of "a continuing common intention" that runs contrary to the actual terms of the agreement. As such, the omitted agreement must be capable of such proof in clear and precise terms. 72Further as stated by Clarke J in NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd, [1986] 6 NSW LR 740, at 748, that: It is sufficient in order to found a decree for rectification that the plaintiff satisfies the Court, to the requisite degree, that the parties had a common intention which continued until the execution of the agreement which was not embodied correctly in the written document. 73Before I turn to the principles regarding rectification, I wish to dispose of one of Toga's submissions on form. Mr Balafoutis submitted that rectification cannot be granted in these circumstances because there was no evidence before the Tribunal from Perpetual nor Permanent. 74Neither Counsel drew the Tribunal's attention to Part D of the Sublease headed up "the Custodian/Responsible Entity Provisions". However, relevantly the following clauses apply to this matter: 23.8 Custodian - Limitation of Liability (a) Capacity The Custodian enters into this Lease as agent for the Responsible Entity. The Custodian may act only in accordance with the terms of the Custody Agreement. 23.2 Responsible Entity to Instruct The Responsible Entity must as necessary provide the Custodian with Instructions to enter into and perform the Custodian's obligations under this Lease and to give effect to the transactions contemplated by it. 23.3 Obligations of the Lessor The Lessee acknowledges and agrees that: (a) all obligations undertaken or incurred under the provisions of this Lease in the name of the Lessor other than the Custodian Obligations are obligations of the Responsible Entity which the Responsible Entity must perform or procure to be performed and only enforceable against the Responsible Entity or a party to whom the title to the land is transferred and those obligations, other than the Custodian Obligations, are not enforceable against the Lessor. 23.9 Definitions Custodian means Perpetual Nominees Limited. Custodian Obligations mean the obligations of the Lessor ... to grant this lease and ... to grant a new lease under any option for renewal to the extent that the obligations are not capable of being carried out by the Responsible Entity by reason of the Responsible Entity not being the registered proprietor of the Land. Fund means the Trust Fund named Colonial First State Commercial Property Trust established by Deed dated 15 September 1995. Responsible Entity means CFS Managed Property Limited in its capacity as Responsible Entity of the Fund. 75In paragraph 3 of these Reasons for Decision when describing the Sublease, I observed that the Responsible Entity, Colonial executed the Sublease as a party to the Sublease. By inclusion of clause 23 in the Sublease Toga acknowledged that Perpetual has a very limited role in the Sublease and it is Colonial as the Responsible Entity that is the moving party in relation to the Sublease and all matters associated with the Sublease. 76It is widely accepted within the property industry that larger property portfolios such as shopping centres and commercial buildings are owned by syndicates, called Managed Investment Schemes under the Corporations Act and/or alternatively owned by real estate investment trusts listed on the Australian Stock Exchange commonly known as AREITS. These entities allow investors to purchase an interest in diversified and professionally managed portfolios of real estate. The real estate asset is owned by a trustee or custodian which has very limited involvement in the management having outsourced the total management of the real estate asset to a property company such as CFS Managed Property Limited (Colonial). 77The Tribunal is of the view that Perpetual and Permanent were acting as mere trustees or custodians of the legal estate without any direct involvement in the commercial transaction conducted by Colonial. Consequently, the evidence provided by officers of Colonial are quite appropriate for the purposes of considering the transaction the subject of this dispute between the Applicant Toga and the Respondents Perpetual and Colonial.

Common Intention - What is the bargain 78The starting point is to discover the bargain between the parties, Isaacs J in Bacchus Marsh and Mason J in Codelfa that "the purpose of rectification is to reform instruments to make them accord with what the parties actually agreed". 79The Tribunal finds the following matters as relevant in establishing what the parties actually agreed: (a) the Harris Letter confirmed by all witnesses was a contemporaneous document issued by Colonial's agent to Colonial and copied to Mr Vidor setting out the salient commercial matters that were agreed between the parties. It made no mention of any annual rent free or outgoings free period to be repeated in the second term; (b) Mr Ellicott asked Mr Harris as to whether the Harris Letter truly reflected the agreement that he, Mr Harris understood had been reached between Toga and Colonial that in fact there were two annual rent free periods, one in the first year of the Sublease period and a second rent free in the first year of the option, notwithstanding omission of the second rent free period in the letter. Mr Harris maintained that belief but admitted under cross examination that his letter was poorly drafted as it did not refer to the second rent free period. (c) Mr Harris was adamant that he mentioned the second rent free period to and received assent from Mr Ganci of Colonial. However, Mr Ganci categorically denied discussing let alone agreeing to a rent free period. With regard to the difference in recollections of the conversation between Mr Harris and Mr Ganci, the Tribunal prefers Mr Ganci on this matter, as he referred in his Affidavit to a notebook which he maintained in relation to these important conversations and confirmed that there was nothing in the notebook that indicated that there was any discussion or any consent to a second rent free period; (d) Mr Gray of Colonial used the Harris Letter as the basis of his instructions to Colonial's lawyers. He categorically denied that Colonial had agreed to a second annual rent free period. He clearly identified that the Harris Letter acknowledged an adjustment of rent in the last month of the rent free period for payment of services, and that such adjustment would be irrelevant if there was a second annual rent free period; (e) Mr Cohen confirmed that he never received instructions to draft a provision to cater for a second rent free period; (f) According to Mr Cohen, Mr J Andrews of Freehills never raised the issue that Toga was to receive a further rent free and outgoings free period in the Option Lease, but did specifically raise altering the second market review date to operate in the last year of the term so that Toga would know the rent for the first year of the second term and be able to make an informed commercial decision when it had to exercise its option to renew. This appears to run counter intuitively to the concept of Toga having a rent free period in the first year of the option lease and yet wishing to know the rent for the first year; (g) Mr Vidor of Toga did say in his evidence that he had requested a rent free period of one year in the first year of the Option but there is no evidence that anyone from Colonial agreed to this (notwithstanding what Mr Harris says in his evidence). Mr Vidor never spoke directly with Colonial and relied on Mr Harris and on the conversation Mr Harris had with Mr Ganci; (h) Mr Vidor received a copy of the Harris Letter which he acknowledged in cross-examination formed the basis of the commercial agreement with Colonial, but he did not query the omission of a second rent free period; (i) Mr Vidor talked of desiring a rent free period in the first year of the option but does not refer to a rent free and outgoings free period (which is substantially different to a plain rent free). The drafting of a second rent free period without the Lessee's Contributions is not a simple repeat of Item 14. Mr Cohen, the only lawyer called to give evidence confirmed that if he had been requested to draft such a provision the drafting required a specific provision stating that no rent was to be paid in the first 12 months of the Option Lease but that Lessee's Contributions (outgoings) would continue to be payable by the Lessee. (j) A repeat of Item 14 in the Option Lease does not accord with what Mr Vidor thought that he had negotiated with Colonial, that is a second annual rent free period. Item 14 as it stands provides for an Annual Rent free and Lessee's Contributions free period, not just a gross Annual Rent free period.. 80Consequently, the Tribunal finds the bargain between Toga and Colonial to be that only one Annual Rent free and Lessee's Contributions free (outgoings) period was granted and it was not to be repeated in the Option Lease. 81Secondly, it is necessary to show that a concurrent intention by the parties existed at the time when the Sublease was executed and that the Sublease reflected the agreement between the parties and in particular did not have additional terms that had not been agreed, such as a second Annual Rent free and Outgoings free period in the Option. Mr Cohen stated in his affidavit that when certifying to Colonial and to Perpetual/Permanent that the Deed of Agreement and Sublease were ready for execution, he confirmed his instructions and intention with respect to those instructions right up to execution that there was no second rent free mentioned anywhere. Mr Gray, as the instructing officer at Colonial was also firm on those instructions that the documentation reflected the agreement as he understood had been negotiated between the parties. Mr Vidor in his evidence stated that he held the same intention when executing the Deed as when he agreed to the deal based on the Harris Letter, He said in evidence that he signed the Deed of Agreement and Sublease based on that intention and the Harris Letter only referred to the one rent free period. 82Thirdly, there must be clear and convincing proof of the bargain that is objectively apparent. This is clear for Colonial from the evidence of Messrs Ganci, Gray and Cohen in that they were unaware of a second rent free period. Mr Vidor says that while he considered and hoped for a second annual rent free period as part of his commercial negotiations, he accepted the Harris Letter as constituting the principal and salient points of the deal and never queried the omission. 83Fourthly, Mr Balafoutis relied on the dicta of Campbell JA in Franklins v Metcash Trading Ltd that if a document was negotiated through solicitors, and in this case the Sublease was, then it is unlikely that the parties would have recorded their common intention incorrectly. To consider this matter further I turn to the exact words of Campbell JA. At paragraph 461 His Honour held: To conclude that the parties have misrecorded their common intention in that sort of situation involves the solicitors on both sides of the transaction having each failed to grasp and express the intention of his or her own client. In other words, each of the solicitors has been mistaken, and, furthermore, mistaken in the same way. There is a measure of inherent unlikelihood in such an event happening. If the words of which rectification are sought are clear in meaning on their face, that unlikelihood is compounded - one would not ordinarily expect two lawyers, each professional dealers in language, are to make the same mistake about the meaning of words that are clear on their face. However, we know that sometimes even experienced solicitors take or are given inadequate instructions, or misunderstand their instructions, or in consequence misrecord their client's intention, so these matters are no more than reasons for caution in making the factual findings upon which a rectification order is based. 84Mr Ellicott points out that Toga did not lead any evidence from its then solicitor Mr J Andrews and by way of contrast, there is ample evidence from Colonial's solicitor Mr Cohen. Mr Ellicott asks the Tribunal to draw an inference that in light of the absence of any evidence from Mr Andrews his evidence would not have assisted the case of Toga (Jones v Dunkel) regarding the non-misrecording of the common intention of the parties. The inference to be drawn is along the lines that without evidence from Mr Andrews then it is possible that the "inherent unlikelihood" of misrecording of the common intention of the parties was the case. 85However, with regard to the inference that Mr Ellicott seeks the Tribunal to draw as a consequence from the fact that no evidence was given by Mr Andrews, Mr Balafoutis directs the Tribunal's attention to paragraph 1215 in Cross on Evidence by J D Heydon, Justice of the High Court of Australia 8th Edition, 2010 which says: Fourthly, the rule in Jones v Dunkel does not apply where the witness not called is the party's solicitor at least where the evidence which is in consequence not given is privileged and the privilege has not been waived. This is because if the solicitor gave evidence on the subject of privileged communications the privilege would be lost, and the Court will not permit the destruction of the privilege by this back door. 86What (if there are any) are these privileged communications that Toga does not waive? The Tribunal is not aware. However Mr Cohen annexed to his Affidavit all the relevant correspondence, as he has stated, with his client Colonial and with Mr Andrews at Freehills. In none of these communications, as far as I could see was there any mention of a rent free period in the first year of the Option Lease. There are requests for amendments to the Deed of Agreement and Sublease dealing in particular with alterations to the market review dates but never once is there a question or query regarding Item 14 operating within the Option Lease nor is there any query or seeking of any confirmation that Toga is entitled to a second Annual Rent and Lessee's Contributions free period for twelve months in the Option Lease. Given the negotiations between the lawyers one might have expected to see such a query from the lawyers for Toga. 87Mr Cohen in his affidavit and in his evidence before the Tribunal expressed a view as to how the Sublease operated in that upon renewal of the lease, Item 14 was eliminated based on the structure of the document itself and the commercial rationale behind the transaction. At paragraph 39 of his affidavit he said that he understood that at the time of drafting the Sublease the "Commencing Date" meant 13 November 2000 and consequently Item 14 was only applicable for the initial period. He appears to have given no regard to the operation of clause 16.2 in the Sublease in that it only excluded clause 16 and Items 15 and 16 of the Sublease itself. As the Tribunal has found Item 14 was not excluded and the Commencing Date is the date of the opposite paragraph (H)2 of the cover page of the Option Lease which is the 13th of November 2010. The question is was Mr Andrews, like Mr Cohen under a similar misapprehension as to the operation of the words "Commencing Date" when referrable to Item 14 in the Option Lease and the operation of clause 16.2 in the Sublease? Do Messrs Cohen and Andrews fall within the dicta of Campbell JA that "each of the solicitors has been mistaken, and, furthermore, mistaken in the same way?". Mr Andrews was not called by Toga. The Tribunal can only rely upon the evidence presented to it and construe that evidence as best it can. 88The Tribunal makes no inference pursuant to Jones v Dunkel regarding the non-calling of Mr Andrews. However, in construing the evidence particularly the correspondence annexed to Mr Cohen's affidavit the Tribunal notes that there is no mention whatsoever by either solicitor with respect to the granting of a second Annual Rent free and Lessee's Contributions free period in the Option Lease. Consequently, the Tribunal is of the view that each of the solicitors operated under the same misapprehension regarding renewal of the Sublease that Item 14 was not to be repeated in the Option Lease. Mr Ellicott in oral submissions called it a lacuna in drafting which in the view of the Tribunal is an apt assessment of the issue. 89The Tribunal notes that an alternate position open is that Mr Andrews was not so mistaken in the drafting of the Sublease regarding the repeat of Item 14 in the Option Lease. This position may lie in the reference in Cross on Evidence with respect to privileged correspondence. However, the Tribunal does not wish to go down that path. The Tribunal prefers the view contrary to "and inherent unlikelihood" that both solicitors were mistaken in the operation of the renewal of the Sublease that Item 14 was not to be repeated in the Option Lease. 90Finally, on this discussion on rectification Mr Balafoutis in his submissions suggested that there should be evidence from Perpetual/Colonial that there was a positive intention to exclude an Annual Rent free (not necessarily an outgoings free but only a rent free) period from the Option Lease. However, the evidence is to the contrary in that only Mr Harris appears to have communicated any mention of a second rent free to Colonial and that communication either was not received or, not recalled and certainly on the evidence put before this Tribunal, not agreed to by the representatives of Colonial. Consequently, on the evidence before this Tribunal it is quite clear that Colonial had no knowledge of Toga's desire and certainly there was no agreement in relation to a second Annual Rent free period. It is impossible in my view to require a party which on the evidence has no knowledge of a particular matter to provide evidence that it actively and positively excluded any consideration of that particular matter from its negotiations and from its instructions to its lawyers in drafting documents. 91Accordingly, the Tribunal finds that the common intention of the parties from the beginning of the negotiations up to and including execution of the Deed of Agreement and the Sublease is that Item 14 would only apply to the first term of the Sublease and not in the Option Lease, that is Toga was only entitled to an Annual Rent and Lessee's Contributions free period in the first term of the Sublease. 92Consequently it is open to Colonial to ask Toga to consent to the Sublease being rectified to state that Item 14 should be included within clause 16.2(a) as one of the items to be excluded from the renewed Lease.

Power of the Tribunal to order rectification and payment of money 93The relevant sections of the RLA are as follows: "Section 70: In this division: retail tenancy claim means any of the following: (a)a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being: (i)a claim for payment of money (whether or not stated to be by way of debt, damages, restitution or refund) ..... (vii)a claim regarding the rectification of the lease, ..... (ix)a claim for a declaration of the rights, obligations and liabilities of the parties under a lease." And "Section 72 - Power of Tribunal relating to retail tenancy claims (1) In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate: ..... (e) an order, by consent of the parties, requiring the parties to the proceedings to rectify a lease. (f) an order: (iii) declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not," ..... 94On behalf of Toga Mr Balafoutis made the following submissions in respect of the power of the Tribunal to order rectification and payment of money: (1) The Tribunal does not have the power to order rectification unless each party consents to the order. (2) Toga does not consent to a rectification order. Colonial has now notified the Tribunal that it no longer seeks an order under s 72(1)(e). (3) Instead, Colonial asserts its entitlement to the Order expressed in paragraph 2 of the CrossApplication, namely: An order that the proportion of Annual Rent held in escrow in the Macquarie Bank Open Legal Investment, Account Number 104563, be paid to the CrossApplicants. (4) Colonial's Counsel appeared to suggest that Colonial was entitled to this order on the basis of rectification principles or principles of 'common intention'. Toga has a number of objections to this approach.

The claim is not a recognised cause of action (5) While an Act may confer broad powers on a Court or Tribunal, the relief which may be ordered is not so much at large that the Court or Tribunal may make an order against a party even though no ground of relief under the general law is established against that party. This was the approach adopted by the High Court with respect to the wide powers conferred by the Administrative Decisions (Judicial Review) Act 1977 (Cth) (Johns v Australian Securities Commission 1993) and the Migration Act 1958 (Cth) (Minister for Immigration v Thiyagarajah (2000) 199 CLR 343 at 357 [34]). The same principles ought to apply to the Tribunal. (6) Applying those principles, there is no basis for Colonial to be entitled to the payment of money. An essential element of a claim for rectification is the relief sought, namely, that the contract be rectified. There is no principle at general law entitling a party to seek damages or a payment of money for rectification. Therefore, the Tribunal has no power to make the order sought. (7) Further, the order sought seems to operate on the basis that the Sublease has already been rectified. As already stated, the Tribunal has no power to order rectification.

Section 72 does not give the Tribunal the power to make the order (8) Section 72(1) of the Retail Leases Act, empowers the Tribunal to make a number of orders. It appears that the only power of the Tribunal that Colonial could rely on is the order contained in s 72(1)(a): an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person. . . (9) Section 72(1)(a) specifies that the payment of money be by way of 'debt, damages or restitution'. Colonial's claim based on rectification does not seem to seek any of those categories of relief. Instead, it simply seeks a payment of the sum of money. The Tribunal has no power to make an order of this nature under s 72(1)(a). (10) Even if s 72(1)(a) could be read in a way that permitted Colonial to seek payment of a sum of money on the basis of a rectification claim, it is not open to the Tribunal to use s 72(1)(a) for that purpose. That is, the Tribunal may not rely on one of its more general powers to overcome the restriction on rectification orders expressed in s 72(1)(e). When a statute confers both a general power, not subject to limitations and qualifications, and a special power, subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power. Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 at 678; also see Pearce & Geddes, Statutory Interpretation in Australia, 6th Edn, 2006, p145; MIMIA v Nystrom (2006) 228 CLR 566 at 586 - 589. Earlier decisions of the Tribunal concerning rectification (11) Colonial relies upon three earlier decisions of the Tribunal concerning rectification. In none of those cases were orders made of the nature which Colonial is seeking. (12) Even if the Tribunal were satisfied that it did have power to make an order for the payment of money from the Macquarie Bank account, it has insufficient evidence to do so. There is no evidence of the sum paid into that bank account or the terms on which it was paid. (13) Finally, it is well established that declarations will not be made where there is no utility in doing so. Expressed another way, a declaration will not be granted in respect of a hypothetical or academic question. (Tobacco Institute of Australia v Australian Federation of Consumer Organisations (1993) 113 ALR 257 at 267268) The declaration sought by the CrossApplicants is hypothetical. The declaration is based on the hypothetical assumption that the Tribunal has power to order rectification. Since the Tribunal does not have the power, the declaration is of no utility and should not be made.

Power of Tribunal to order rectification 95Colonial originally sought an order from this Tribunal under Section 72(1)(e) that the Tribunal order rectification of the Sublease. Under that section, such an order can only be granted by the Tribunal with the consent of the parties. As noted by both counsel, this section has received consideration in the Tribunal in a number of cases. 96The first case is Prasad & Anor v Fairfield City Council (2000) NSW ADT 164 where on a preliminary issue as to jurisdiction, Judicial Member Davidson stated at paragraphs 3032: 30. Having regard to the width of Section 63 of the Act previously referred to, and the overall legislative claim provisions and the structure of the Act itself, it is my view that the Tribunal is empowered with jurisdiction to hear evidence and go into matters which reflect upon the aspect of rectification and may appropriately be given effect to in other ways by the provisions contained in the Act itself. It necessarily follows that if the legislature had intended anything, apart from the context of which the claim provisions are enacted, that would have been stated in Section 70, which is really the jurisdictional matter so far as a claim is concerned. 31. The other section, namely, Section 72, is merely an empowering provision as to appropriate orders to more effectually exercise the jurisdiction granted. However, jurisdiction is granted in respect to the claim of rectification without restriction by Section 70 of the Act. In addition to that, jurisdiction is granted and is reflected again in Section 72 of the Act to make into claim a declaration of rights and liabilities and obligations of the parties under law whether any consequential relief is or could be claimed or not. That fits in with the overall intention that the Tribunal can hear evidence and has a wide jurisdiction to make any type of declaration giving effect to disputes and liabilities, both under a lease and disputes and liabilities in respect of the use and occupation of the premises. 32. It follows accordingly from that that the aspect of a term of the lease must, in my view, as an appropriate matter, be determined factually and in the light of the whole of the evidence in this particular matter and there is ample power to give effect to that in the Act itself either by awarding a claim for damages, or making an appropriate declaration, or dealing with it by way of other orders. The restriction in Section 72, as stated above, is not reflected in Section 70 which is a jurisdictional section. Section 72 is ancillary to Section 70 and simply refers to the casting of the orders after the claim is heard. Consequently, the Tribunal in that case decided it had jurisdiction to hear a matter concerning rectification 97The next case is Trustees of the Pious Society of St Charles v Vodap Pty Ltd & Ors (2004) NSW ADT 721. Judicial Member Montgomery agreed with Judicial Member Davidson in Prasad [para 25]: In my view the Judicial Member has correctly stated the extent of the Tribunal's jurisdiction in regard to this issue. Judicial Member Montgomery further stated [74]: As far as I have indicated above, it is my view that the Tribunal has the power to make some of the orders sought by the applicant by way of an award for damages, or making an appropriate declaration, or dealing with it by way of other orders. In the circumstances I do not agree that the orders of rectification are available as there is clearly no agreement between the parties. In any event, I do not agree that this is a case in which rectification should be made. 98The third case is Chronopoulos v Carossel Pty Ltd (2010) NSW ADT 191 a decision of Judicial Member Molloy. He stated the following [29]: The Applicant through his counsel asserted that the Tribunal had power to make these various orders under Section 72(1)(f)(iii), which entitles the Tribunal to make an order "declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not", such that, I opine, that even if the Tribunal does not have power to make an order for rectification, absent consent, it would have the power to declare that there ought to be rectification, such power being caught by the words "whether any consequential relief is or could be claimed or not. 99Further, Judicial Member Molloy opined at [58] and [59]: 58. It is odd that the Parliament saw fit to restrict the power of the Tribunal to order rectification of a retail lease. It is odd because it would seem that in all other respects that a Tribunal is in fact a "one stop shop" for the resolution of disputes between lessors and lessees in retail lease matters - see, for example O'Neill v Henry (RLD) 2010 NSW ADTAP 40 at [4245]; the definition of "retail tenancy dispute" in Section 63(1) of the Act; and Webb v Clifton (2008) NSW ADT 132 at [1120] especially [15 and 1]7. 59. Thus even if the Tribunal was of a mind to make a declaration of the type originally sought by the applicant, in my opinion it could make the declaration which would be binding upon the parties (subject to a usual rights of appeal) and if the parties did not comply with the declaration, being the rights and liabilities declared by the Tribunal, then the parties, in the case of rectification, would either need to come back to the Tribunal seeking other orders, damages and so on; alternatively, takes enforcement proceedings in the Supreme Court. It seems to me that the Legislature may contemplate revisiting the restricted nature of Section 72(1)(e)." It is clear from the Judicial members of the Tribunal in the abovementioned cases that they do not believe that the Tribunal is as constrained in its powers under section 72 as Mr Balafoutis asserts in his submissions. Mr Balafoutis asserts that where a statute confers both a general power, not subject to limitations and qualifications, and a special power. Judicial Member Molloy in Chronopoulos at paragraph 59, specifically anticipates that certain orders could be invoked by the Tribunal, given the restriction utilising the actual power to order rectification (absent consent under s72(1)(e)) or alternatively rectification proceedings could be taken in the Supreme Court. 100In the early days of the Tribunal when it was part of the Commercial Tribunal of New South Wales, the question of the Tribunal's powers was raised in Oxley & Anor v Imperial Charter Pty Ltd (1996) NSW Conv R55-783 where RB Davidson, Deputy Chairman at p56, referred to the Ministers' Second Reading Speech in Parliament on 20 April 1994. The Minister stated that if a "mediation is unsuccessful the parties will seek resolution through the court system". Shortly thereafter the RLA was amended so that retail disputes came before the Administrative Decisions Tribunal rather than the Courts. However, the point to be taken from that Second Reading Speech is the intention of the Government, as followed by Judicial Members Davidson, Montgomery and Molloy that where possible, this Tribunal should resolve the dispute between the parties. Such legislative intention does not appear to be applicable with respect to Commonwealth Tribunals and Courts the subject of submissions by Mr Balafoutis on this point. (Administrative Appeals Tribunal and Federal Court of Australia). 101In accordance with the general philosophy of the RLA and in particular as noted by Judicial Member Molloy in Chronopoulos with respect to the resolution of retail disputes in the one venue and given the affidavits and evidence and submissions made before this Tribunal, it is this Tribunal's view that it has the jurisdiction to make certain orders consequent upon the finding by the Tribunal with respect to the bargain between the parties that was struck.

Fidelity of the bargain 102A possible answer to the conundrum posed by Judicial Member Molloy in Chronopoulos, how can the Tribunal give effect to an application for rectification under section 72(1)(e) of the RLA absent consent may be found in the concept of "fidelity of the bargain". In United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 618 (Allsopp JA Ipp and MacFarlan JA agreed) held at 638:: The notion of fidelity to the bargain can be seen as founded, at least in part, on the requirement of a party to do all things necessary to enable the other party to have the benefit of the contract: Butt v McDonald (1896) 7 QLJ 68 at 7071, approved in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 and upon the recognition that contractual obligations do not set up a choice or election to perform or pay damages: cf United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 800 in the discussion of New York law and the effect of the Restatement of the Law: Contracts (2d) (1981) St Paul Minn, American Law Institute Publishers, by McLelland J (as he then was). Contractual promises (supported by consideration) comprise legal rights to performance: Ahmed Anguilla Bin Hadjee Mohamed Salleh Anguilia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 at 634635 and Cold's v Bagot's Executor and Trustee Company Ltd (1967) 119 CLR 460 at 504. The encompassing of fidelity to the bargain within the concept of good faith, at least in the context at hand - the genuine and good faith negotiation of an existing dispute by reference to an existing contract - does no violence to the language used here by the parties. That the phrase "good faith" contains the notion of fidelity (or faithfulness) to the bargain conforms with what other jurisdictions have seen as the core of the concept and with historical uses of the phrase: H K Lucke op cit at 161 and following. Most importantly, its strength lies in its closeness to the contractual jurisprudence of the common law (Secured Income Real Estate (Australia)) and the appreciation that the parties have expressly bound themselves to a good faith standard in seeking to resolve a dispute arising from an existing bargain about the resolution of which dispute they anticipate having different views. The parties have mutually agreed to bring an approach of genuineness and good faith to that process of seeking resolution of any such disagreement. That agreement carried with it, in ordinary language, a requirement to bring an honestly held and genuine belief about their mutual rights and obligations and about the controversy to the negotiations, and to negotiate by reference to such beliefs. 103Further Sheller JA in Alcatel Australia Ltd v Scarcella [1998] 44 NSW LR 349 at 369 held that: A duty of good faith both in performing obligations and exercising rights may by implication be imposed on parties to a contract. There is no reason why such a duty should not be implied as part of this Lease. 104Griffith CJ in Butt v McDonald [1896] 7 QLJ 68 at 7071 held: It is a general rule applicable to every contract that each party agrees by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the bargain. 105The implied term that the parties to a lease must act in good faith has been accepted in this Tribunal in Atma Investment Pty Ltd v The Astor Pty Ltd [2003] NSW ADTAP 53. In that case the Appeal Panel allowed an appeal in part from the Tribunal's decision as the Tribunal had not properly considered an important element of the appellant's case which was based on an implied term in the lease for the lessor to act in good faith and have "loyalty to the contract itself" per Sheller JA in Alcatel p349. 106The concept of fidelity of the bargain, as set out in United Group Rail has been followed in this Tribunal in Torchia v Swanton (No. 2) [2011] NSW ADT 185 and recently in the Supreme Court in AMC Commercial Cleaning v Coade [2011] NSW SC 932 and Foggo v O'Sullivan Partners (Advisory) Pty Ltd [2011] NSW SC 501. 107In Torchia No. 2 Deputy President Patten specifically followed the principle of fidelity of the bargain in United Group Rail and the requirement of the parties to treat in good faith, cited in Torchia v Swanton (RLD) (2012) (NSW) ADTAP where the background to the case is highlighted [19] as follows: On 5 October 2010, in an ex tempore decision which has not been reported, the Tribunal held that the Applicants were entitled to recover damages from the Respondents on three grounds. These were: (a )unconscionable conduct, on account of the respondent's "bad faith" in refusing to discuss renewal of the Lease; (b) failure to honour a contractual obligation, stemming from the conversation between the Applicants and Ms Swanton on 24 May 2007, to "act in good faith regarding the grant of a new lease"; and (c) failure to comply with the contractual obligation imposed by clause 8 of the mediation agreement to "discuss in good faith and with fair consideration any request for a new lease". 108Whilst the Court of Appeal in United Group Rail was interpreting a clause that required the parties to a contract to negotiate in good faith, the duty of good faith in dealing was implied. The Court found it contains the notion of fidelity or faithfulness to the bargain, the requirements of a party to do all things necessary to enable the other party to have the benefit of the contract. The Tribunal in Torchia No. 2 followed these principles in requiring the parties to act in good faith in their negotiations as this was implied into the lease. 109The bargain is that Toga and Colonial agreed to a Sublease of the SRA Retail Space for ten years with an option for ten years with the first year free of Annual Rent and Lessee's Contributions (outgoings) subject to the adjustment to rent in the last month of the first year as set out in the Harris Letter. That is the bargain that was struck. No reference to a second rent free/outgoings free period. That is the bargain to which the parties must remain in good faith and have a duty in good faith to uphold. However the Sublease, by not excluding Item 14 in the directions with respect to the Option Lease as contained in clause 16.2(a) does not reflect the bargain reached between the parties. 110. It is quite clear from the attitude taken by Toga in these proceedings from its submissions that it will not agree to rectification. By not agreeing to rectification Toga is, in view of this Tribunal, denying Colonial the benefit of the bargain, Griffith CJ in Butt v McDonald. Consequently Toga is not acting in accordance with the implied duty of good faith in performing its obligations and exercising its rights with respect to the Sublease and not doing all things that are necessary on its part to enable Colonial to have the benefit of the bargain. 111. Mr Balafoutis in his submissions suggested that the only power relevant to the issue was contained in section 72(1)(a) being the power to order payment of money by way of debt, damages or restitution or refund of any money paid and that consequently as none of these matters applied the Tribunal could not make any order under the section. However, the Tribunal is of the view that it has sufficient powers under the RLA as contained in section 72(1)(f)(iii) to resolve this dispute between the parties. Section 72(1)(f)(iii) grants to the Tribunal power in proceedings for a retail tenancy claim to declare the rights and liabilities of the parties under the law. In Chronopoulos Judicial Member Molloy stated at [55]: the applicant......relied upon Section 72(1)(f)(iii) which empowers the Tribunal to make an order "declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not". It seems to me, absent authority, that one should not seek to read down or qualify those words - it seems to me they were deliberately chosen in order to give the Tribunal a wide and varied power to make binding declaration of rights and liabilities of the parties to a lease. If I am right in that appreciation then the Tribunal simply has a power to declare rights and liabilities, even if no consequential relief is or could be claimed or otherwise. 112 Judicial Member Molloy found authority for this view in Watermark Restaurant Pty Ltd v Hunters Beach Investments Pty Limited (2004) NSW ADT 97 where the Tribunal determined at (10) that it had the right to interpret subclauses of a lease which affected the rights and liabilities of the parties to the lease even though neither party sought consequential orders. He also referred to Vodap (2004) NSW ADT 71 and noted that the Tribunal in that case formed the view that it did have the power to make "some of the orders sought by the applicant by way of an award of damages, or making an appropriate declaration, or dealing with it by way of other orders". 113 In Batson Holdings Pty Limited v Rose [2002] NSW ADT 110 Judicial Member Molloy when asked to interpret the rent review provisions of a lease and whether the valuations prepared for each of the parties accorded with the relevant principles with respect to calculation of current market rent stated the following: "[11] During the course of argument I raised with the parties the question of whether in fact the Tribunal had appropriate jurisdiction and secondly whether there was any utility in the Tribunal making a determination of the issues as put by the parties. As to jurisdiction it would seem that the Tribunal has appropriate power under RLA, Section 72(1)(f)(iii) which provides that in proceedings for a retail tenancy claim the Tribunal is empowered to make an Order declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not. In Section 70 "retail tenancy claim" is defined (Section 70(a)(ix)) as, inter alia, a claim for a declaration of the rights, obligations and liabilities of the parties under a lease. So, it seems, that the Tribunal has appropriate jurisdiction." 114 Consequently, the Tribunal believes it has the requisite powers under section 72(1)(f)(iii) to resolve the issues between the parties and declare the rights and liabilities of the parties under the Sublease and the Option Lease. Whilst Item 14 appears in the Option Lease it does so not in accordance with the agreement between the parties as determined by this Tribunal. Toga, in accordance with its loyalty to fidelity of the bargain could agree for the deletion of Item 14 from the Option Lease or agree that the Commencing Date refers to the date of the Sublease, but has chosen not to do so. Alternatively Toga could waive compliance with Item 14 in the Option Lease and allow to the Respondents the moneys withheld. The Tribunal having reviewed all the evidence before it finds that the Applicant is denying the Respondents the benefit of the bargain between them by refusing to pay to the Respondents the first twelve months of Annual Rent and the Lessee's contributions under the Option Lease.

Findings of the Tribunal (1) The Option Lease includes Item 14. (2) The bargain agreed between the Applicant and the Respondents is that there be only one Annual Rent free and Lessee's Contributions free period and that was during the initial term ending on 12 November 2010. (3) The Respondents have succeeded in making a case that the Sublease should be rectified by adding in clause 16(2)(a) Item 14 as an item to be excluded from the renewed lease. (4) As the Applicant does not consent to rectification of the lease, then consequently this Tribunal cannot order rectification under section 72(1)(e) as consent is absent. (5) The Tribunal has a mandate to resolve retail disputes between the parties. (6) There is an implied term in leases for each party to uphold the fidelity of the bargain for the benefit of the other party. (7) Toga is in breach of this implied term by not consenting to rectification of the Sublease or alternatively waiving compliance with Item 14 in the Option Lease. (8) The Tribunal has the power under s72(1)(f)(iii) to declare the rights and liabilities of the parties to this dispute under law. (9) As the escrow account with Macquarie Bank was not placed in evidence the Tribunal cannot make the order in respect of that account as sought by the Cross Applicants.

Orders and declarations (1) The Cross Respondents are granted leave to file the Amended Cross Application. (2) Pursuant section 72(1)(f)(iii) of the RLA, in respect of the Option Lease arising from exercise of the Option in the Sublease commencing on the 13th of November 2010, the Tribunal declares that the Applicant is obliged to pay to the Respondents the Annual Rent and the Lessee's Contributions as those expressions are defined in the Option Lease for the period from 13 November 2010 to 12 November 2011. (3) Either party has liberty to make submissions as to costs by filing such submissions with the Registry and serving a copy upon the other party within 28 days. The party served may reply within a further period of 28 days. Thereafter, the matter is to be decided on the papers. (4) Subject to order (3) no order as to costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2012