Whitehouse Properties Pty Limited v BP Australia Pty Limited

Consideration 17The principles applicable to the interpretation of the 2002 Lease are not in dispute. Most recently, they were set out by French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 at [35] in the following terms: The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [Footnotes omitted] 18Part (1) of cl 7.3 gives BP a right, notwithstanding the prohibition in cl 6.1, to install certain equipment on the Land. The equipment is described as "fuel pumps, pole signs, underground storage tanks and any other trade fixtures". It raises 2 questions which are critical to the resolution of this case. One is whether the definition of "the Fixtures" is a reference to the identified items or whether it is a reference to such of those items as were installed by BP in exercise of the right conferred by cl 7.3 of the 2002 Lease. The other is what is meant by the words "any other trade fixtures". 19Before addressing those questions directly, it is desirable to say something more about the other parts of the clause. Part (2) of the clause sets out the general rule that applies to "the Fixtures" that are installed on the Land - namely, that they shall not be subject to tenant's rights and BP is not entitled to remove them. Part (3) contains an exception to that general rule. The exception is that, if Whitehouse requires BP to do so, BP must remove all of "the Fixtures" prior to the termination of the term and reinstate all damage done in the installation or removal of them. Part (4) sets out a further exception. BP is entitled to remove its distinctive marks and signs, the fuel pumps, cash registers and self service consoles that it installed. However, Whitehouse is given an option to purchase the fuel pumps and self service consoles at the price identified in the clause. Part (5) of the clause states that the storage tanks belonged to Whitehouse. It appears that part (5) was something of an afterthought. It was written in hand in the 1997 Lease although it was typed in the 2002 Lease. Taken alone, part (5) appears to be ambiguous. It may mean that, notwithstanding anything else in cl 7.3, BP was not entitled to remove the underground tanks and Whitehouse was not entitled to request their removal. Alternatively, it may mean that the underground tanks, once they were installed, belonged to Whitehouse. On the second interpretation, it is difficult to see what the sentence adds to the rest of the clause. 20In my opinion, it is preferable to read the expression "the Fixtures" as referring to the identified items and not to a subset of those items installed during the term of the 2002 Lease. In accordance with the Agreement for Lease, BP was to construct the Service Station on part of Whitehouse's land and was to be entitled to operate the Service Station for a period of up to 19 years 364 days. The lease itself provided that, on termination of that arrangement, BP was entitled to remove certain trade fixtures. Although the arrangement was structured as a series of options exercisable by 2 different companies, it is clear that the commercial arrangement was one that could last for a period of up to 19 years 364 days at BP's option. The terms of each lease were substantially the same. Rent was calculated on the basis that a later lease was a continuation of the previous one. From a commercial point of view, it was BP or BFAL that was going to continue to operate the Service Station, albeit through different legal entities. 21Clause 7.3 of the 2002 Lease had two main objects. Notwithstanding the prohibition in cl 6.1, and notwithstanding that the building work had been completed, it permitted the tenant to continue to install items falling within the description "the Fixtures". Second, it sought to deal with ownership and removal of those items on termination of the lease. In some cases, it permitted the tenant to remove those items. In the context, it makes no commercial sense to limit the right to remove items to a right to remove items installed during the period of the then current lease. If BP is right in its submissions that the right conferred by cl 7.3 is to be limited in that way, then, for it to have preserved that right, it would have been necessary on the termination of each lease for either BCAL or BFAL to remove the relevant items on the last day of its lease and presumably for the other to reinstall them on the first day of its lease. It is hard to believe that that is what the parties contemplated. 22I accept Whitehouse's submission that some support for the conclusion of the previous paragraph can be found in cls 14.1 and 14.2. Those clauses contemplated the preparation of a baseline report to establish the environmental state of the Land at the time the 1997 Lease was entered into. They also provided for the preparation of a second report on termination of the lease and placed an obligation on BP to remove any additional contamination disclosed by the second report. The parties must have contemplated that that process would only occur once, not on the expiration of each lease that was followed by a new lease. 23It does no violence to the words of part (1) of cl 7.3, or the rest of the clause, to interpret the definition of "the Fixtures" as referring to items of particular types rather than items of that type that were installed during the term of the particular lease. On the first interpretation, the right of removal is broader than the right of installation. But that is in a context where the tenant at one point or another installed all the items that comprise the Service Station. Interpreting the definition as referring to the particular items rather than when they were installed is consistent with the object of the clause when considered in the context of the commercial relationship between the parties as a whole. For that reason, I prefer that interpretation. 24The second question is what is meant by the expression "other trade fixtures". BP submits that the expression means "trade fixtures" and that that expression is a term of art. As a term of art, the phrase, like its synonym "tenant's fixtures", has an accepted meaning. That meaning was explained in these terms by Lord Denning MR in New Zealand Government Property Corporation v HM & S Ltd (the New York Star) [1982] 1 QB 1145 at 1157: Before I go any further, I would describe the distinction between "tenant's fixtures" and "landlord's fixtures." The term "tenant's fixtures," for present purposes, means those fixtures which the tenant himself fixed into the premises for the purpose of his trade, that is, for the business of the theatre, but which do not become part of the structure itself. Instances are the seats for the stalls, or auditorium, which are fixed by screws or bolts to the floor, wall-brackets for lights which are screwed on to the wall, electric transformers fixed on to the floor, and so forth. All these the tenant is entitled to remove when his term comes to an end. Whereas "landlord's fixtures" for present purposes means those fixtures which the tenant himself fixes into the premises so that they become part of the structure itself: see Boswell v. Crucible Steel Co. [1925] 1 K.B. 119. Instances are improvements made by the tenant by putting in new doors or windows in place of those that were there before, or a new frontage or a new safety curtain. These improvements become part of the structure itself. The tenant cannot remove them when his term comes to an end. All this goes back to the time of Sir John Holt C.J. who had before him Poole's Case (1703) 1 Salk. 368. A soap-boiler was the tenant for years of a house in Holborn. For the convenience of his trade he put up vats and coppers and paved the back-yard. Sir John Holt C.J. said: "First, That during the Term the Soap-boiler might well remove the Vats he set up in Relation to Trade, and that he might do it by the Common Law (and not by virtue of any Special Custom) in favour of Trade and to encourage Industry: But after the Term they become a Gift in Law to him in Reversion, and are not removeable. Secondly, That there was a Difference between what the Soap-boiler did to carry on his Trade, and what he did to compleat the house, as hearths and Chimney-pieces, which he held not removeable." See also D'Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317. 25There can be little doubt that the Hardstand is not a trade or tenant's fixture in this sense. It is part of the structure of the Service Station. It cannot be removed without destroying it. It is no different from the runways, drainage system and parking areas comprising part of an aerodrome that the High Court held in Geita Sebea v Territory of Papua [1941] HCA 37; (1941) 67 CLR 544 were not tenant's fixtures. 26Whitehouse submits that the expression "trade fixtures" is not a term of art as used in cl 7.3. In its submission, the expression "other trade fixtures" must be interpreted broadly to include at least the Hardstand and, on the most extreme version of its submission, every component of the Service Station. The underground storage tanks could not be described as "trade fixtures" as that expression is used in its usual or technical sense. However, it is clear that the parties intended to treat them as "trade fixtures" for the purposes of the clause otherwise they would not have used the word "other". The underground storage tanks could not be removed without removing part of the Hardstand, which in fact is what has happened. Consequently, the parties must have intended that the Hardstand at least also fell within the description of "other trade fixtures". The interpretation for which Whitehouse contends is said to be consistent with the commercial object of the clause. By the Agreement for Lease, BP (or, more accurately BFAL) was given a right to build a Service Station on Whitehouse's land and to lease the Service Station for a period of time. The purpose of cl 7.3, among other things, was to give Whitehouse a right to require BP to remove what it had built - a right to return the Land to its "green fields" state, to use the words of Mr Newlinds SC, who appeared for Whitehouse. 27I do not accept Whitehouse's submission. I say that for a number of reasons. 28First, the submission places too much emphasis on the word "other". Some of the items set out in part (1) of cl 7.3 are plainly trade fixtures. Fuel pumps are an example. They are fixed to the Land but are used as part of the BP's business and can be removed. The parties used the word "other" for that reason. I do not think that it can be inferred that by using the word "other" they intended to convey the idea that all the items that are specifically referred to (that is, fuel pumps, pole signs and underground storage tanks) fell within some indeterminate meaning of the expression "trade fixtures". 29Second, in order to make commercial sense of the clause, Whitehouse was driven to the extreme version of its submission. It could offer no real reason for why the parties would have intended Whitehouse to have a right to insist on the removal of the Hardstand but not the convenience store. Consequently, it was driven to say that Whitehouse had a right to require removal of both and anything else that had been built or installed on the Land. But in doing so it contends for an interpretation that seems far removed from the words of the clause. 30Third, if Whitehouse's submission is correct, then part (1) of cl 7.3 also gave BP a right to install what it was entitled to remove, which was almost anything associated with the Service Station. Presumably, it would include, for example, a right to install an extended Hardstand and an extended convenience store. If the Hardstand and the convenience store fall within the description "other trade fixtures" it is difficult to see why extensions to them do not as well. However, part (1) is intended to be an exception to the general prohibition contained in cl 6.1(a), which prevented BP from making any additions or improvements to the Land without Whitehouse's consent. If Whitehouse is correct, that prohibition has no work to do. The rule is consumed by the exception (to paraphrase Lord Sumption). 31Fourth, I do not accept that Whitehouse's interpretation is consistent with the commercial arrangements between the parties when those arrangements are properly understood. It seems clear that the parties to the Agreement for Lease intended to give BFAL a right to build a service station on Whitehouse's land together with a right to lease that service station for a period of time. At the end of the lease, Whitehouse was entitled to keep the improvements that BP (BFAL) had made, subject to BP's limited right set out in part (4) of cl 7.3 to remove certain improvements and a right on the part of Whitehouse to require BP to remove the improvements, so that in effect the Service Station would be returned to the condition it was in at the beginning of the 1997 Lease. If the parties really had intended that Whitehouse would have a right to require BP to remove the Service Station, they would have said so expressly rather than bury that right in a clause which is directed at regulating BP's right to install additional equipment on the premises and its right to remove that equipment. 32Fifth, I do not accept Whitehouse's arguments in relation to the underground storage tanks. Part (1) of cl 7.3 conferred on BP a right to install additional underground storage tanks. However, I do not think that the parties intended that BP would ever have a right to remove those tanks or that Whitehouse would have a right to request that they be removed. That is why the parties included part (5) of cl 7.3. Unless part (5) is interpreted as saying that the right and obligation of removal (as opposed to the right of installation) does not apply to the underground storage tanks, it has no work to do. Having regard to the circumstances in which it was introduced, the parties must have intended part (5) to deal with a matter that they thought had been overlooked in the original drafting of cl 7.3. The fact that the parties have nonetheless agreed that BP would remove the underground storage tanks pursuant to arrangements which are not the subject of evidence cannot alter the correct construction of cl 7.3. And it is not suggested that those arrangements themselves gave rise to a right on the part of Whitehouse to insist on removal of the Hardstand. 33It follows that the separate question should be answered "no" and that the proceedings should be dismissed. There is no reason why Whitehouse should not pay BP's costs of the proceedings.

Orders 34The orders of the court are: (1)The question identified for separate determination by Hammerschlag J on 21 March 2014 be answered "No". (2)The summons be dismissed. (3)The plaintiff pay the defendant's costs of the proceedings.

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