FEDERAL COURT OF AUSTRALIA Interpretation of instruments - landlord and tenant - whether landlord has unfettered right to remove or withdraw the existing air-conditioning services provided to the demised premises - whether the intention of the parties, as manifested by the express terms of their contract, is inconsistent with the absolute right asserted by the landlord to remove air-conditioning services. HOME YARDAGE (NSW) PTY LIMITED V TELADO PTY LIMITED NG 1077 of 1997 JUDGE: BEAUMONT J. PLACE: SYDNEY DATE: 8 APRIL 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1077 of 1997 BETWEEN: HOME YARDAGE (NSW) PTY LIMITED Applicant AND: TELADO PTY LIMITED Respondent JUDGE: BEAUMONT J. DATE OF ORDER: 7 APRIL 1998 WHERE MADE: SYDNEY ORDERS: 1. Declare that upon the true construction of the Memorandum of Lease No. 2534800, and in the events that have happened, the respondent has no right to withdraw or remove the existing air-conditioning services provided to the demised premises. 2. Reserve liberty to either party to apply on such notice, if any, as a Judge may allow. 3. Leave to appeal from the declaration is granted to the respondent and the time for filing and serving the notice of appeal is extended up to and including 8 May 1998. 4. The respondent is to pay the applicant's costs of the issue that is the subject of the declaratory order. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1077 of 1997 BETWEEN: HOME YARDAGE (NSW) PTY LIMITED Applicant AND: TELADO PTY LIMITED Respondent JUDGE: BEAUMONT J. DATE: 8 APRIL 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: INTRODUCTION On 7 April 1998, I made declaratory and other orders in this matter, indicating that I would publish, as I now do, reasons today as follows. For present purposes, there is no dispute about the relevant factual background which may be summarised as follows: · In November 1996 the respondent, Telado Pty Limited ("Telado"), acquired the property known as 66 York Street, Sydney ("the property") from Howard Chia Pty Limited (Receiver and Manager Appointed) ("Chia"), subject to all existing tenancies. · Previously, in August 1996, Chia had leased part of the property to the applicant, Home Yardage (NSW) Pty Limited ("Home Yardage"), pursuant to a memorandum of lease, registered number 2534800 and dated 30 August 1996 ("the Lease"). By its application, Home Yardage now seeks an injunction restraining Telado from interfering with the air-conditioning system on the property. Home Yardage also seeks declaratory and other relief. By its statement of claim, Home Yardage claims, inter alia, that properly construed, it was a term of the Lease, either expressed or implied, or both, that Telado would not do anything that would permit the air-conditioning system not to be capable of providing air-conditioning to the demised premises. For its part, Telado disputes Home Yardage's entitlement to any of the relief claimed. By its defence, Telado says, inter alia, that properly construed, it was a term of the Lease that the lessor: "...is under no obligation to have operating or to repair or maintain any of the equipment or machinery for the time being at the property (including without limiting the generality of this term any air-conditioning system)." Reliance is placed, in particular, by Telado upon the provisions of cl 17(8) of the Lease, to which reference will be made below. In developing Telado's argument, counsel submitted that Telado had the absolute right to withdraw or remove the air-conditioning service at any time. THE PROVISIONS OF THE LEASE The first issue that logically arises in the proceedings is the question of the true construction of the material provisions of the Lease, the resolution of which question is central to this dispute. I turn, then, to the relevant provisions of the Lease in the sequence in which they appear as follows. · Clause 9, which is expressed to deal with the use of the premises, contains a covenant by the lessee (cl 9(11)) that the lessee shall not use or permit or suffer the use of, inter alia, air-conditioning apparatus for the time being at the property for any purpose other than that for which the apparatus was constructed; and that all costs of repairing or making good any damage resulting from any breach of this covenant shall be borne by the lessee. · By cl 9(25)(i), the lessee covenants that it shall not in any manner interfere with or permit or suffer any interference with any part of, inter alia, any air-conditioning system or any other machinery of the lessor of any kind for the time being installed at the demised premises or at the property. · Clause 10 deals with the lessee's obligation to repair and maintain. By cl 10(1), the lessee covenants that it shall at all times during the term of the Lease at its own cost keep the premises and every part thereof and all additions thereto including, inter alia, "air-conditioning systems (if any) at the premises" in good and substantial repair and condition having regard to their condition at the time of commencement of the Lease - damage by fire, flood, lightning, earthquake, storm and tempest and fair wear and tear only excepted. · By cl 10(8), the lessee covenants with the lessor that the lessee shall be responsible for all charges, outgoings, expense running costs, repair charges and costs, maintenance charges and costs and service contract costs in connection with the air-conditioning plant installed at the demised premises, provided however, that the lessee shall not be responsible for any costs of a capital nature. · By cl 10(9), the lessee covenants with the lessor that notwithstanding anything else contained in the Lease, the lessee shall, when required by the lessor, within a reasonable time, effect any repairs and maintenance in respect of the air-conditioning plant. · Clause 16 deals with the powers of the lessor. By cl 16(4), it is provided that the lessor may with all persons authorised by it, enter and remain upon the demised premises at reasonable times after giving reasonable prior notice (except in emergencies where previous notice will not be required) and (a) view the premises; (b) carry out repairs; (c) comply with any present or future legislation affecting the premises and any notices served upon the lessor or lessee by any authority; and (d) install or service, inter alia, air-conditioning or ventilation systems or make any repairs which the lessor may think necessary to the demised premises or any part of the property or make any improvements or alterations to any part of the property which the lessor may think necessary and also exercise the powers and authorities of the lessor under the Lease. It is further provided by cl 16(4) that in exercising such power, the lessor shall not "unnecessarily interfere with the occupation and use of the premises by the lessee". · By cl 17(8), a provision previously mentioned as relied on, particularly on behalf of Telado, it is provided that the lessor - "shall not be responsible for and shall incur no liability in respect of any failure of any of the equipment or machinery for the time being at the Property (including without limiting the generality thereof any air-conditioning system, ventilation system, fire sprinkler system, escalator or lifts) or for the ineffectual operation thereof or for any of that equipment or machinery not working for any reason whatsoever, for any damage or loss occasioned or arising in consequence thereof to the Lessee or to any person claiming by, through or under the Lessee." It is further there provided that the lessor - "is under no obligation to have operating or to repair or maintain any of such equipment or machinery. The lessee shall indemnify and keep indemnified the lessor from and against all actions, claims, costs, damages, decrees, demands, expenses, judgments, losses, orders, proceedings, summons, suits and writs of any nature whatsoever arising out of or in consequence of any of the matters aforesaid." · By cl 24(14) it is provided that the lessee - "hereby acknowledges that reserve from the lease hereby granted is the reservation to the lessor and all others for the time being authorised by it of the passage of air conditioning equipment, fire sprinkler systems, ventilation systems, pipes, ducts, telephone cables and electric wiring and water sewerage and drainage connections at, through, along, in or into the premises." · Clause 30 deals specifically with air-conditioning. By cl 30(1) the lessee covenants with the lessor that the lessee - "at its expense shall during the term of this Lease keep in full force and effect a repair and maintenance contract in respect of the air conditioning unit servicing the premises PROVIDED HOWEVER the lessee shall not be responsible for any costs of a capital nature." · By cl 30(2) the lessee covenants with the lessor that the lessee - "shall take out the repair and maintenance contract ..... with a respectable responsible company which carries on the business of repairing and maintaining air conditioning units of a similar size ...." CONCLUSIONS ON CONSTRUCTION In my opinion, the key provision for present purposes is cl 30. It may be noted that cll 10(8) and (9) are to similar effect. These provisions impose an obligation upon Home Yardage to maintain the air-conditioning unit servicing the premises, provided that this obligation does not extend to any responsibility for costs of a capital nature. It is, in my view, implicit in the language of cl 30, and that of the similar words in cl 10(8) and (9), and in the language of the Lease read as a whole, that in the absence of special circumstances, for instance, force majeure (although nothing of this kind is suggested here), Telado had no right to withdraw or remove the existing air-conditioning services provided to the demised premises. Moreover, there is nothing in the other provisions of the Lease which mention air-conditioning (i.e. cl 9(11), cl 9(25)(i), cl 10, cl 16(4), cl 17(8) and cl 24(14)), that is inconsistent with this conclusion. If anything, the other provisions reinforce this interpretation of the language of cl 30 and of the Lease read as a whole. In other words, in my opinion, Telado has no absolute or arbitrary right to withdraw the air-conditioning service, irrespective of any technical considerations in the functioning of the unit providing the service. On behalf of Telado reliance was sought to be placed upon the contra proferentem rule of interpretation. However, as Jordan CJ pointed out in Fenwick v Federal Steam Navigation Co (1943) 44 SR (NSW) 1 (at 5), it is unfortunate that this maxim, which was introduced to resolve ambiguities is, itself ambiguous. I find no assistance from the application of this so‑called rule here. In my view, the intention of these parties, as manifested by the express terms of their contract, is inconsistent with the absolute right now sought to be asserted on behalf of Telado to withdraw the air-conditioning services, no matter what the circumstances, and irrespective of any technical considerations affecting its capacity to function. This conclusion should, I think, be arrived at upon a textual analysis of the terms of the Lease. The interpretation which I favour is one which emerges from a consideration of that text alone, so that it is not necessary for me to consider the broader arguments in favour of implication put on behalf of Home Yardage (i.e. whether it is a matter of business efficacy or otherwise, cf. Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 per Mason J at 353). Nor is it necessary for me to consider whether there is any scope, in the present case, for an implication as a matter of law in this context of an obligation on each party to do all that was reasonably necessary to secure performance of the contract, as an aspect of the usual implied obligation to co-operate in the doing of acts which are necessary to the performance by the parties, or by one of the parties, of fundamental obligations under the contract (cf. Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 per Mason J at 607-8). Nor is it necessary for me to consider whether there was scope, in the present case, for the application of the principle that there should be implied into the contractual relationship of these parties an obligation of good faith, or of fair dealing, in this area. I have reached my conclusion upon a consideration of the text alone. It is true, as has already been seen, that cl 17(8) provides that the lessor is not to be responsible for, and shall incur no liability in respect of, any failure of any equipment, including the air-conditioning system, or for its ineffectual operation. However, as has been noted, those are not the circumstances of the present case. There is no suggestion of any technical malfunction in the present matter, nor is there a suggestion of any supervening circumstance, or an event of a force majeure kind. It is also true that cl 17(8) provides that the lessor is to be under no obligation to have the equipment operating, or to repair or maintain it. But the context of that provision is clear: it must be read with the other provisions of the Lease that impose upon Home Yardage the obligation, as lessee, to maintain or repair the equipment, without imposing any obligation on the lessee to incur any capital costs. Yet the existence of an obligation upon Home Yardage to repair and maintain the equipment short of capital cost should not be seen as the source of any entitlement on the part of Telado to withdraw the service for any arbitrary or non-technical reason. In my view, when properly construed in its context, cl 17(8) does not provide Telado with an absolute right to withdraw the air-conditioning unit or its services at the whim of Telado. RELIEF It is appropriate, then, that the Court make a negative declaration accordingly. The operation of the declaration should be expressed to depend upon the events that have happened, that is, as I have said, that there is no suggestion in the evidence here of any technical failure of the equipment or of any malfunction. Rather, the issue tendered to the Court has been along the lines previously indicated, that is, that Telado contends that it has an absolute and unfettered right and entitlement to withdraw the air-conditioning service, whenever it wishes to do so. In the events that have happened there is, in my view, no such entitlement in Telado and I have so declared in the order made yesterday. As has been noted, Home Yardage also seeks further relief. As a matter of proper case management, I am of the view that the appropriate course is to grant the declaration made, but to reserve liberty to apply. This will be reserved for that, and any other appropriate, purpose. Since this is, in form at least, an interlocutory judgment, I grant Telado leave to appeal from the declaration granted. It must follow from my conclusion that Telado should pay the costs of this issue. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 8 April 1998 Counsel for the Applicant: S D Rares SC with A P Lo Surdo Solicitor for the Applicant: David Jackson & Associates Counsel for the Respondent: B Coles QC Solicitor for the Respondent: Michell Sillar Date of Hearing: 7 April 1998 Date of Order: 7 April 1998 Date of Judgment: 8 April 1998