Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2016] HCATrans 231 (7 October 2016)

Last Updated: 7 October 2016

[2016] HCATrans 231

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M43 of 2016

B e t w e e n -

ECOSSE PROPERTY HOLDINGS PTY LTD

Applicant

and

GEE DEE NOMINEES PTY LTD

Respondent

Application for special leave to appeal

FRENCH CJ
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO LINK TO MELBOURNE

ON FRIDAY, 7 OCTOBER 2016, AT 9.31 AM

Copyright in the High Court of Australia

MR M.J. COLBRAN, QC: May it please the Court, I appear with my learned friend, MR G.D. BLOCH, for the appellant. (instructed by Goldhirsch & Shnider)

MR A HANAK: May it please the Court, I appear for the respondent. (instructed by Norton Gledhill)

FRENCH CJ: Thank you. Yes, Mr Colbran.

MR COLBRAN: Your Honours, this is a case arising, as Justice Croft said, from an unusual form of lease that was heavily amended. In our respectful submission, the - - -

FRENCH CJ: It was a rather old form of lease, was it not?

MR COLBRAN: Indeed, a very old form of lease, a 1980 printing from Harston, Partridge. Your Honour, in our submission, the fixed point from which you can start and which is clear is that the parties came to negotiate this lease having been disappointed in their endeavour, or in their wish, to sell the land to create an absolute freehold sale of the land. That is a critical starting point which emerges obviously from clause 13 but also from the extrinsic evidence that was admitted at trial.

KIEFEL J: Was clause 13 taken into account by the Court of Appeal? It is not entirely clear to me whether it was or was not.

MR COLBRAN: Your Honour, our submission is that Justice McLeish, in his reasons, unreasonably undervalued clause 13. What he said about it was that it established an historical position but that it did not represent anything more than a background to provide the history. He did actually say that it explained the term of the lease and the immediate payment of the 70,000.

FRENCH CJ: Is it to be treated as a statement of subjective intention or does it do something more than that?

MR COLBRAN: Well, in our submission, it is a statement of subjective intention. It was so interpreted by Justice Croft who mentioned that a number of times. It is also, obviously, a term of the contract which makes this a little different than an extrinsic statement of intention.

FRENCH CJ: Well, that is right, I was wondering; it had the distinction between the specific incorporation of this statement of intention and a statement in the context of pre-contractual negotiations, to like effect.

MR COLBRAN: Yes, so the answer to your Honour’s question is, in our submission, it is a clear statement of subjective intent, and contrary to Justice McLeish, we say that the phraseology of the clause and, indeed, the position at which it appears, indicates that it is intended to have operative effect as a statement of present intention and as an explanation of the whole deal.

FRENCH CJ: What, a kind of - something which has interpretive operation?

MR COLBRAN: Yes, yes, absolutely.

KIEFEL J: Do you mean it is taken into account in this way, that the parties have stated the - as I think you have said - genesis and purpose of the transaction and have thereby done the court’s work which the court might have assumed from surrounding circumstances? It is a shortcut to the genesis name of the transaction.

MR COLBRAN: Yes, I would say that. I would agree with that proposition, your Honour, and I would say also this, that were the statement to appear extrinsically to the contract, then it might be thought that we would have a more easy special leave application point.

KIEFEL J: Well, quite, you would. I mean, this makes it an unusual contract but it so far does not raise a question of general principle. It certainly does not get us into Codelfa territory.

MR COLBRAN: No. Well, we conceded as much, I think, in our submissions, your Honour.

KIEFEL J: Yes.

MR COLBRAN: What we sought to do was to submit that an examination of the case provided an opportunity to review the way in which statements of subjective intent might be used in the course of interpretation, and we say, agreeing with your Honour Justice Kiefel, that – at least taking from what your Honour has said – that Justice McLeish did not give sufficient weight to clause 13.

That is terribly important in terms of the merits of the case, but it is also important in an interpretation sense because where parties do assist the court and assist third parties who come to read and rely upon contracts in the future a statement of subjective intent is potentially a very valuable thing and you do not often find it. We have got it here and what do we do with it? In our submission, “it” as I characterised it in the Court of Appeal, it constitutes the prism by which the whole contract should be examined.

KIEFEL J: Your other points, the commercial sense point, which might offer an opportunity for the Court to look at that prism for interpretation.

MR COLBRAN: Sure. Well, in relation to that, Justice McLeish said that he found those considerations of no great weight in relation to this case. That is all he said. It is not at all obvious what he meant by that or what led him to say it.

KIEFEL J: But the question of commercial sense only operates if you give full force and effect to clause 13, does it not?

MR COLBRAN: I would, with respect, put it slightly differently. Let us leave clause 13 out of the equation for the moment and look at what has been the impact of the appeal court’s interpretation of clause 14. It leaves, as we have said, a party who has no control over the use that will be made of the land to bear the costs associated with somebody else’s choice as to how to use it.

Perhaps I did not put that very clearly, but under clauses 15 and 16 of the lease the respondent has the opportunity to develop this land in multivariate ways without the consent of my client, and that kind of development – any development but the kinds of development that are possible will obviously affect and increase the rate and value of the property and therefore we are at the mercy of the respondent’s unilateral decision as to how to develop the property. Now, that by itself is - - -

FRENCH CJ: That is an improvident bargain argument, is it not?

MR COLBRAN: It is a very improvident bargain argument. It is beyond, in my respectful submission, Chief Justice, an argument that says we paid too much, we paid too little, we are going to have to pay some rates into the future. It is one which quite – in a way which is not really comprehensible gives to the other party the power to exacerbate the improvidence.

FRENCH CJ: I suppose on one view what you have got is a very untidy document and I think everybody has acknowledged there is some pretty clumsy drafting.

MR COLBRAN: Yes.

FRENCH CJ: You have got pointers in all directions, as various of the judgments have indicated. You have got what amount to a two/two split. One could be forgiven for forming the view that any assertion of a correct construction is making a sort of silk purse out of a sow’s ear and why should the Court get involved in untangling that kind of mess or having another go.

MR COLBRAN: Well, your Honour, there are two things I would say about that. The first is that proper interpretation principles we say should give primacy to the clear and indeed uncontroverted view that the parties were trying to do what they could when they could not achieve a freehold sale and if you start from that point - - -

FRENCH CJ: Well, you see clause 13 as determinative then really.

MR COLBRAN: Well, clause 13 is part of the evidence but, as I say, if we did not have clause 13 we would still have evidence which was referred to by Justice Croft from the solicitor which he was able to accept without hesitation and which was never put in issue. It was common ground that the parties intended to do this and could not do it. So we do not just have to have clause 13 but that is the starting point.

KIEFEL J: Was rectification sought as an alternative to interpretation?

MR COLBRAN: It was sought by the respondent when they were the defendant before Justice Croft but abandoned, as I understand it, and only the interpretation points were run. So, yes, your Honour Chief Justice, it is a situation where you have a two/two split, it is a situation where everybody seems to agree that two possible interpretations of the clause are open.

That does not, however, mean that the Court should shy away from finding the correct interpretation, and we would say that if you apply the principle correctly it ceases to be a case where the tail has wagged the dog because, in our submission, what Justice McLeish has done is to look narrowly at clause 4 and, in our respectful submission, as we have tried to explain, misunderstood the deletion of the words “landlord or” and by doing so has used that as a basis for considering commerciality. Whereas, if you approach it from the correct end, everything falls into place and you do not get a manifestly uncommercial result.

So, the power that the concept of commerciality has to play is definitely at issue here. It is difficult, however, to say that this is a case which is other than an instance of a way in which commercial factors may be applied. So, we say Justice McLeish did not go about applying the principles correctly but we cannot say he misstated the principle.

FRENCH CJ: Yes, thank you, Mr Colbran. Is there anything further?

MR COLBRAN: Well, just to say, your Honour, that, in our respectful submission, when approached from the correct perspective, the manifest

injustice and unfairness of the ultimate result becomes plain and we have therefore sought to rely upon the dispensary jurisdiction addition. If the Court pleases.

FRENCH CJ: Yes, Mr Hanak.

MR HANAK: Thank you, your Honour. There are three reasons why special leave should be refused. The first is that this is not a suitable vehicle for determination of a special leave question and that is essentially because there was no dispute in the court below as to the principles to be applied. The second is that the special leave questions do not raise a matter of sufficient public importance, and the third is that when the majority judgment is properly analysed, all it did was apply the accepted principles of construction to this document and the judgment therefore is not attended with sufficient doubt to warrant granting of leave. They are the three points I propose to develop.

Can I turn to the first point; not a suitable vehicle. As I indicated, there was no dispute as to the applicable principles and that is clear from various parts of the judgment of Justice McLeish and Justice Kyrou. The two main principles of contractual interpretation which were raised in the court below were firstly referred to in the judgment of Justice McLeish at paragraph 88 and that is a fairly standard summary of the general approach to interpretation applying an objective test to the interpretation of the document and the authorities in support of that are all authorities well known, including most recently the Mount Bruce Mining decision cited in footnote 87 which restated by this Court the applicable principles to be applied.

The second principle of contractual interpretation was the principle as to when you can have regard to deleted words. The discussion of that principle commences at paragraph 92 of the judgment, application book page 73. It goes on for several pages, all the way to application book page 77, paragraph 98. I should stress that there is no challenge according to the special leave questions as they have been articulated to the second principle, that is to say, the extent to which you can have regard to deleted words.

So that is not an issue on any appeal to this Court. The special leave questions identified in the applicant’s summary of argument focus on the first principle of interpretation identified by Justice McLeish at paragraph 88. That, as I indicated, your Honours, has most recently been restated by this Court and that principle requires the text of the lease to be considered as a whole and that is precisely what occurred in this case. That approach to interpretation gives due weight to clause 13, on which the applicant relies. It gives due weight to clause 4. It also gives due weight to other provisions of the lease.

The majority judgment in the Court below took this approach and acknowledged the importance of clause 13. At application book page 80, your Honours will see at paragraph 112 specific reference to clause 13. That is the critical provision on which the applicant relies in this Court. Justice McLeish weighed that clause up against other provisions of the lease and that is apparent in the next paragraph, 113, and his Honour continued to do that down to paragraph 115 on page 81 of the application book.

KIEFEL J: The effect of his Honour’s approach to clause 13 and weighing it, in effect, or considering it in the context of other provisions is that his Honour appears to have considered that it could not really be taken as a statement of intention that the lease should, as close as possible, approximate the purchase. That seems to be the effect.

MR HANAK: That is so and that is referred to at paragraph 117 where, in the first sentence, his Honour forms the conclusion as to what the purpose of this transaction was and, in the second sentence beginning with “It should not, however, be assumed” goes on to reject the submission that this was the parties seeking to approximate as far as possible the sale and purchase.

His Honour has done that by reference to the lease as a whole, including clause 13, and he specifically acknowledged in paragraph 112 that clause 13 stated the intention before entering into the lease to enter into a freehold sale – that was not possible.

KIEFEL J: That approach tends to suggest that clause 13 is itself ambiguous because you can read clause 13 – his Honour’s reasoning tends to suggest that you can read clause 13 in more than one way. It can suggest that what they are intending to do by the term lease of 99 years to take the place of a purchase is to approximate the purchase or, as his Honour found, to simply enter into a long lease. Is there not more than one interpretation open?

MR HANAK: I think, your Honour, that is a fair assessment of that clause, yes. Paragraph 117 of Justice McLeish’s judgment is the critical conclusion regarding intention and, in my respectful submission, that conclusion was reached consistent with the authorities and specifically the Mount Bruce Mining decision.

FRENCH CJ: Well, to say that it is an intention to enter into a 99-year lease with rent paid in advance, I am not quite sure what that conveys. It is a 99-year lease with rental paid in advance. The question is, given the constructional choices of it by clause 14, what does the express statement about intention in relation to clause 13 have to say about that? You cannot just put clause 13 into the mix with a whole lot of other bits and pieces which look like lease-type provisions about vermin and so forth, can you? It has got a special role in forming constructional choice.

MR HANAK: Your Honour, the question for construction was the question in relation to clause 4 and how that was - - -

FRENCH CJ: Clause 4, I am sorry, yes.

MR HANAK: - - - to be read, one way or the other as between the two competing interpretations. His Honour approached that question by looking at the provisions of the lease in its entirety and, in my respectful submission, gave due weight to clause 13. It was not an exercise - - -

FRENCH CJ: But I am just suggesting clause 13 is not in the same logical category when you are talking about the character of the document and the parties’ intention as provisions of the kind which his Honour mentioned at paragraph 113.

MR HANAK: Yes, the more standard provisions in relation to leases.

FRENCH CJ: It is kind of apples and oranges.

MR HANAK: Well, that may be so, your Honour, but that does not mean that necessarily one ignores the other provisions of the lease and focuses on clause 13 without - - -

FRENCH CJ: Well, that is the question. Is a statement of intention of that kind, does it have a determinative or priority role in determining the outcome of constructional choices of the kind that we see in clause 4?

MR HANAK: It certainly has a role and according to the authorities it obviously has a role because the lease is construed as a whole but, in my submission, it does not take primacy to the point where you ignore other provisions of the lease and proceed on the assumption that this is a transaction approximating a sale. It is plainly not that. The parties were plainly aware of the nature of the transaction they were entering into. It was a transaction documented by two solicitors and - - -

FRENCH CJ: You are talking about the legal character of the transaction.

MR HANAK: That is so, yes.

FRENCH CJ: Yes, it is a 99-year lease with rent paid in advance.

MR HANAK: That is so, yes. So in the mix, your Honour, just to finish off on this point, in my respectful submission, his Honour took into account all the provisions. It was not called for to give primacy to one clause over and above the others, and that is really the point we wish to make, and the approach was consistent with the ordinary accepted principles of construction.

Can I deal with the second point I wanted to make, which is that this really does not raise a matter of sufficient public importance and, in that respect, I point to the nature of the lease and the provisions which I think everybody acknowledges are unusual.

KIEFEL J: I think Mr Colbran really concedes this point.

MR HANAK: I think that is correct, yes, your Honour.

KIEFEL J: What do you say to the commercial sense argument that he puts forward?

MR HANAK: The commercial sense argument needs to be understood as at the time the lease was entered into because that is the time at which you are assessing whether this transaction makes sense from the perspective of the two parties. The imposts which are referred to in clause 4, certainly in terms of rates and outgoings, fell on the applicant.

There is a discussion in the judgment of Justice Kyrou about the statutory regime and his Honour concludes that rates were levied at the time on the tenant – that is at paragraph 56, page 60, of the judgment. In terms of outgoings, the ordinary meaning of “outgoings” is typically outgoings such as electricity, phone bills and things of that nature which are obviously levied on the occupier rather than the landlord.

So, one is left with taxes. The statutory regime allowed for the taxes to be levied onto the tenant and that is dealt with in paragraph 62 on page 62 of the application book. Under the statutory regime which applied at the time – if your Honours have that, section 42 of the Land Tax Act – subsection (1) provides in substance that land tax is assessed on the tenant.

It is necessary for subsection (3) to be invoked for that to occur as a consequence of that provision. If your Honour sees paragraph 63 on page 63, there is reference to a decision 112 Acland Street where Justices Ormiston and Phillips stated that a 99-year lease is precisely the situation where subsection (3) would be invoked, or could be invoked, so as to transfer the liability for taxes onto the occupier.

So, when one looks at the commercial effect of this transaction, one needs to look at the statutory regime which existed at the time the lease was entered into and take into account the fact that the landlord under this lease retains a valuable reversion that continues to increase in value, that was sold within a short time of this lease being entered into as part of a larger transaction and that was sold again in the mid-1990s or early 1990s to this applicant.

KIEFEL J: You are assuming that the reversion will reflect an increase in value.

MR HANAK: Yes, but that is a safe assumption because the rates and taxes which are the subject of this dispute are based on the value of the reversions and have increased over time. So the commercial aspects of the transaction need to be seen through that prism as at 1988 when the lease was entered into, not through the eyes of those who are parties to the transaction now.

KIEFEL J: On the other hand, it is a very long lease, is it not?

MR HANAK: It is, and that is obviously the case. Now, the other point I wanted to make was in relation to the special leave questions as they are proposed in the applicant’s summary of argument and, in my respectful submission, these really do not develop - this is page 94 of the application book and it is the first four questions that I am addressing here. In my respectful submission, these really do not develop a principle. This is nothing more than the applicant asking this Court to apply established principle to the facts of this case.

There is a reference in these questions to the words “what is the extent to which a Court” should prefer one interpretation over another. That is picked up in question 1, 2 and 3. This is a case where there are only two interpretations, everybody agrees. So, the extent to which there is a choice, there is a choice between two options. It is really a matter of application of principle to fact, not development of new principle.

Your Honours, my third point related to the judgment below being unattended with sufficient doubt. I have already addressed that in some detail. We say it is consistent with the authorities, Mount Bruce Mining being the most recent one. If the Court pleases.

KIEFEL J: Thank you

FRENCH CJ: Thank you. Yes, Mr Colbran.

MR COLBRAN: Your Honour, as Justice Kiefel observed, it is a very long lease on any view and what the reversion might be worth in a hundred years’ time is a matter of speculation, as Justice Kyrou observed. It is also very likely, thinking back to the position when the parties were negotiating the lease, that very little attention was paid to that matter.

In truth, what we know is that for a period of a hundred years, the respondent has the opportunity to develop the land as they like and, in our respectful submission, the points which we discussed during my initial remarks remain valid, that is to say that the issue of the weight to be given to an intrinsic statement of subjective intent is a matter that has not been examined and requires examination and this is a very good case in which to do it because the facts are confined and it presents the matter in a clear and lucid way, particularly as a result of the examination of Justice Kyrou in the court below. If the Court pleases.

FRENCH CJ: Thank you. There will be a grant of special leave in this matter. Mr Colbran, I expect it would not take more than half a day?

MR COLBRAN: Yes, that is what we thought, your Honour.

FRENCH CJ: Mr Hanak, do you agree with that?

MR HANAK: Yes, your Honour.

FRENCH CJ: Yes. It is likely that it could be heard, gentlemen, in the December sittings and there is an abbreviated timetable which will be made available to you for that purpose. Thank you.

AT 10.01 AM THE MATTER WAS CONCLUDED