High Court of Australia Barwick CJ Stephen, Mason, Murphy and Wilson JJ. SYNBA Investments Pty Ltd v Brisbane City Council ORDER Appeal and Cross-appeal dismissed. Judgment reserved. 4 October 1979 Barwick CJ I have had the advantage in this appeal of reading the reasons for judgment prepared by my brother Wilson. I agree with them and with my brother's conclusion that both appeal and cross-appeal should be dismissed. I do not desire to add anything on my own account. Stephen J. I would dismiss the appeal and cross-appeal for the reasons given by Wilson J. Mason J. I would dismiss the appeal and the cross-appeal for the reasons given by Wilson J. Murphy J. I agree with Mr Justice Wilson. The appeal should be dismissed. Wilson J. The Brisbane City Council (the "respondent") is the owner of the freehold of land adjoining the City Hall and bounded by Adelaide, George and Ann Streets, Brisbane. In 1973 the respondent leased the land to S.Y.N.B.A. Investments Pty Ltd (the "appellant") for a term of 120 years commencing on 29th June, 1973. Pursuant to the terms of the lease, the appellant developed the land by erecting two buildings and a public square and then subleased back to the respondent part of the demised land. One of the two buildings is a multi-storeyed office block known as the "administration centre", and by virtue of the sublease the respondent has become the principal tenant of this building. The term of the sublease is to run until one day before the term of the head lease expires, unless the land is redeveloped again in the meantime. In this appeal we are concerned with the construction of those provisions in the sublease which provide for the calculation of the rent payable by the respondent to the appellant. There are three components in the calculation of that rent. The first, which may be described as the base rent, is an annual sum calculated by reference to specified rates in relation to the basement area, the car spaces, and the office areas demised by the sublease: cl. 2(1). Detailed provisions follow with respect to computation and periodic review of this rent, but these are not material to the case. The second component is described as additional rent, and is prescribed in cl. 2(5). It is the amount (if any) by which the "minimum rent" in respect of the year in question exceeds the amount of the "nett return". The term "minimum rent" is defined by cl. 1(3) to mean the amount which is equal to "interest at the base rate per annum" calculated on the "capital cost". The expression "capital cost" and the phrase "interest at the base rate" are defined by cl. 1(1) and 1(4) respectively. It is agreed so far as these proceedings are concerned that the minimum rent payable in respect of the year ended 31st December, 1977, is $2,758,345, being interest at the rate of 8½ per cent on a provisional capital cost of $32,451,119. The term "nett return" is defined by cl. 1(6). I will examine that clause in detail later in these reasons. Clause 2(5) only applies if the nett return in respect of a year of the lease is less than the minimum rent for that year. If the nett return for a year exceeds the minimum rent, cl. 2(6) provides that the parties share the excess equally. The third component of the rent payable by the respondent is also described as additional rent and is the subject of cl. 3. That clause provides that the respondent will pay an annual contribution towards the outgoings of the building. The contribution is calculated by reference to a formula which may be described shortly as the proportion of the total outgoings for the year in question which the base rent payable by the respondent for that year bears to the total rent which, subject to minor qualifications, would have been obtained by the appellant if the building had been fully leased throughout the year. The items which are to be taken into account in calculating the outgoings of the building are set out in pars (a) to (j) of cl. 3(1)(iii). With the exception of par (b), each paragraph describes an actual monetary outgoing payable by the appellant, for example, rates and taxes, water sewerage and electricity charges, cleaning and gardening costs, insurance premiums and management fees. Paragraph (b) refers to depreciation on the building, which is deemed to be a monetary outgoing payable by the appellant. Applying the formula in respect of the year ended 31st December, 1977, the council's liability for additional rent pursuant to cl. 3 is agreed so far as these proceedings are concerned to be $927,032, arrived at as follows: A = $2,262,009 × C = $1,426,867 B = $3,481,632 where A = base rent B = obtainable rent C = total outgoings (including depreciation of $866,948). The question of construction which falls for decision in this case involves the definition of "nett return" in cl. 1(6). As indicated above, it is necessary to calculate the "nett return" for a given year in order to determine what amount of additional rent, if any, is payable by the respondent under cl. 2(5) in respect of that year. The relevant part of cl. 1(6) is as follows: (6) The expression "nett return" shall mean a sum being the total of the following receipts in respect of each year of the term hereby granted (the first such year to begin on the date of commencement of such term) received in that year by the sublessor: (A) (i) gross rentals (including premiums) from the subletting by the sublessor of the building or any part or parts thereof, and (ii) licence and occupation fees (including premiums) from the rights of occupancy or other rights in respect of the building or any part or parts thereof and (iii) all other income from the operation of the business of the sublessor concerning letting, rights of occupation or other rights or exploitation of or appertaining to the whole of the building or any part or parts thereof including but not limited to any contribution(s) received by the sublessor from tenants licensees or other occupants of the building or any part thereof towards outgoings in respect of the building, (iv) PROVIDED ALWAYS THAT: (a) the said total shall not include any premium or other sum received or receivable by the sublessor of any transfer or assignment by the sublessor of the whole or any part of its interest under the headlease; (b) where any such receipt to be included in the said total is received or receivable in that year and related not only to that year or part thereof but also to any later year of the term hereby granted or part thereof then a proportionate part only of such receipt shall be included in the said total for the year in question and there shall be included in the said total in respect of any subsequent year(s) a proportionate part of such receipt relative to such subsequent year(s); (c) the said total shall include the several amounts payable under cl. 3(1)(iii)(a) and (c) to (j) hereof after due allowance has been made for bad debts written off by the sublessor but if any written off bad debt is subsequently recovered by the sublessor the sublessor shall bring the amount recovered into account when determining the said total for the year in which the bad debt is recovered; (B) LESS the total amount of outgoings incurred in respect of the building in that year and in this cl. 1(6) the expression "outgoings" shall mean the total of the following . Only sub-cl. (i) need be set out in these reasons. It is as follows: (i) the total of the items in respect of that year set out in pars (a) to (j) inclusive of cl. 3(1)(iii) hereof . The remaining provisions of cl. 1(6)(B) are concerned with the calculation of a deemed outgoing based on the provision of a sinking fund by the appellant. I have already referred to cl. 3(1)(iii). It is relevant not only to the calculation of the additional rent payable pursuant to cl. 3 but, by virtue of the definition of "nett return" in cl. 1(6), is also relevant for the purpose of calculating the additional rent, if any, payable pursuant to cl. 2(5). In the context of the prefatory words of cl. 3, the material part of cl. 3(1)(iii) is as follows: 3. The sublessee hereby covenants with the sublessor in manner following, that is to say: (1) The sublessee shall pay to the sublessor at Brisbane by way of additional rent during each year of the said term in addition to the rent reserved by the immediately preceding clause a contribution towards the outgoings of the building such contribution to be calculated in accordance with the following formula: $(A × C) B such symbols to bear the following meanings: (iii) C shall be a number equal to the total number of dollars payable or paid or depreciated (as the case may be) in the relevant year in respect of the following items: (a) the total of all rates taxes charges and assessments and other outgoings of a like nature including land tax which become payable during the relevant year by the sublessor to any goverment, local government, semi-government or other competent authority in respect of the land on which the said building is situated in respect of the said building and/or any other improvement(s) from time to time erected on such land and in so far as the same are not included in the foregoing provisions of this cl. 3(1)(iii)(a) all amounts payable in the relevant year by the sublessor pursuant to cl. 3(1) of the headlease; (b) the total amount of depreciation applicable to all depreciable items in, about, attached to or forming part of the building being depreciation allowable to the sublessor as a deduction for the purposes of calculating its assessable income (on the basis that the sublessor be deemed to be the owner of such items be deemed to use such items for gaining or producing assessable income pursuant to the Act hereinafter in this par. (b) mentioned and be deemed to earn sufficient such assessable income to take advantage fully of such deduction) pursuant to the provisions of the Federal Income Tax Assessment Act 1936 as at the date of this sublease at the maximum rate permitted by such Act having regard to the particular item in question and on a diminishing balance basis of calculation and being depreciation allowed in respect of the relevant year which total amount shall for the purposes of this clause be deemed an amount payable by the sublessor in the relevant year; (c) the total cost of supply of all services including water, gas, sewerage and electricity supplied to or in connexion with the building payable by the sublessor; (d) the total cost actually paid by the sublessor for the cleaning (including window cleaning), and lighting of places in or about the building used by the public or shared by tenants or occupants of such building; (e) the total cost payable by the sublessor in the relevant year concerning gardening, landscaping, caretaking, security and garbage disposal with respect to the building; (f) the total cost payable by the sublessor in the relevant year by way of repairs, maintenance of any part of the building or of any services or finishes or fixtures; (g) the total cost payable by the sublessor in the relevant year of operating all services provided in the building for the benefit of sublessees and other occupiers thereof including but without limiting the generality of the foregoing all lifts, escalators, air-conditioning, heating, cooling systems, plant and machinery and plumbing services; (h) all insurance premiums and stamp duty payable by the sublessor in the relevant year in respect of the building and its operation including therein but without limiting the generality thereof all insurance in respect of public risk, loss of rent, workers compensation and against damage to the building arising from any cause; (i) the cost payable by the sublessor in the relevant year in respect of management and letting fees or commissions in respect of the letting of the building or any part(s) thereof and the collection of rent or other occupation fees in respect thereof provided that: (a) the management fee or commission shall include that payable in respect of the whole of the building including the premises hereby demised and shall be an amount equal to two per centum (2 per cent) of the total of the outgoings set ut in cl. 3(1)(iii)(a) and (c) to (h) and (j) hereof and received by the sublessee in the year in question; and (b) the fee or commission for collection of rents shall not include any fee in respect of rental payable by the sublessee hereunder and shall be a sum being two and one half per centum (2½ per cent) of all other rent or other occupation fees payable in the relevant year to the sublessor in respect of the said land and any improvement(s) from time to time erected thereon or on part(s) thereof; (j) all moneys not of a capital nature otherwise payable by the sublessor in the relevant year of income being moneys properly and reasonably expended by the sublessor in respect of the building and the land on which the same is erected PROVIDED ALWAYS THAT there shall not be taken into account for the purposes of defining C the following: (a) any moneys payable by the sublessor to the sublessee pursuant to cl. 1 of the headlease; (b) any moneys paid into or credited to or required to be paid or credited into any sinking fund established to write off the building or any thing or item therein attached thereto or forming part thereof which is not a depreciable item in respect of which depreciation is allowable as aforesaid under the said Income Tax Assessment Act; I can now expound the issue between the parties. Clause 1(6)(A)(iv)(c) specifically includes as part of the "nett return" "the several amounts payable under cl. 3(1)(iii)(a) and (c) to (j) hereof" after allowing for bad debts. It is agreed by the parties that the word "under" is used in error because no moneys are payable by reason of cl. 3(1)(iii). It is agreed that the clause should be read as if the words "in respect of the items set out in" appeared in place of the word "under". The question is as to the significance, if any, of the omission of a reference to sub-par. (b) of cl. 3(1)(iii). For the year ended 31st December, 1977, the appellant claimed from the respondent an amount of additional rent pursuant to cl. 2(5) which was based on a calculation of the nett return for that year which did not take into account the contribution received by the appellant from the respondent in respect of the item mentioned of cl. 3(1)(iii)(b) — that is, depreciation. The practical result is that the nett return for that year, as calculated by the appellant, was $563,254 less than it would have been had the respondent's contribution towards depreciation been taken into account and the additional rent payable by the respondent for that year suffered a corresponding adjustment. The respondent took out an originating summons in the Supreme Court of Queensland, seeking a declaration that on the proper construction of the sublease "there is not to be excluded from the calculation of the nett return of S.Y.N.B.A. Investments Pty Ltd in respect of any year an amount equivalent to the proportion of the depreciation described in cl. 3(1)(iii)(b) which by virtue of cl. 3(1) of the sublease the council is obliged to pay to S.Y.N.B.A. by way of additional rent for that year", and supplementary orders. By consent the summons was made returnable before the Full Court of the Supreme Court of Queensland (D.M. Campbell, Kneipp and Demack JJ.). The Full Court made the declaration sought by the respondent, and ordered that there be no order as to costs. The material part of the reasons of D.M. Campbell J. (with whom Kneipp and Demack JJ. agreed) is as follows: There are really two questions which seem to me to arise. The first question about which there does not appear to be any dispute is this: What amounts do the words "the several amounts payable" refer to in cl. 1(6)(A)(iv)(c)? It is clear that they must be amounts payable to the sublessor, for the reason that the proviso is primarily concerned with making an allowance for bad debts written off by the sublessor. The allowance is to be made in determining the total of the receipts. Accordingly, the words "the several amounts payable" must refer to the contributions mentioned in cl. 1(6)(A)(iii). Against this, it may be pointed out that the contributions mentioned in the clause are contributions received by the sublessor, but this only means that proviso (c) was introduced through an abundance of caution. The next question is: Does the omission of depreciation as an item in cl. 1(6)(A)(iv)(c) have any signifance (sic)? If cl. 3(1)(iii) is looked at again, it will be observed that items (a) and (c) to (j) include rates and taxes, sercice (sic) charges, the costs of cleaning, gardening and repairs, insurance premiums, management fees, and money not of a capital nature. With a single exception, these amounts are spoken of as "payable by the sublessor". The exception is (d) where the item is described as the total cost "actually paid by the sublessor for cleaning etc." But under (b) the amount which is to be brought into account for depreciation is the amount which is deemed to be the amount payable by the sublessor in the relevant year. It is logical that a contribution towards such an item should not be envisaged as taking on the character of a bad debt, and I think this is the way the sublease should be construed. The apellant has appealed to this Court from that judgment and the respondent has cross-appealed, seeking a variation of the order with respect to costs. The argument for the appellant is, in effect, that the inclusion of proviso (c) in cl. 1(6)(A)(iv) is to ensure that the contribution of the respondent in respect of depreciation is not taken into account in arriving at the total receipts. It is said that to give the proviso the meaning given to it by the Full Court is to deprive it of any effect, the reference to bad debts being simply a guide to calculating that which the paragraph requires to be brought into account. The respondent's reply, in brief, is that whatever purpose proviso (c) may serve, it cannot override the clear intention of the earlier provisions of cl. 1(6) that all payments of rent and additional rent received by the appellant be brought into account in calculating the gross receipts. I turn now to a consideration of the respective submissions. The purpose of cl. 2(5) is clear enough. It is to provide a means of securing to the appellant a minimum return on its investment by requiring the respondent to make up by way of additionalrent any short-fall there may be between the "nett return" to the appellant from operating the building and the minimum rent. The minimum rent represents the guaranteed return on the capital outlaid. The definition of "nett return" in cl. 1(6) must be considered against the background of this purpose. The provisions of sub-pars (i), (ii) and (iii) of cl. 1(6)(A) are expressed in expansive terms, and are apt to require that the total of all moneys actually received by the appellant in the year in question in respect of the building or any part or parts thereof be brought into account as the gross receipts. There is no reason to exclude from the operation of these provisions the respondent's contribution towards the outgoings of the building or to exclude, in particular, that part of the contribution as relates to depreciation. The respondent's contribution is comprehended by the word "rentals" in sub-par. (i), it being described elsewhere as "additional rent", but in any event it forms part of the subject of a more specific reference in sub-par. (iii), namely, "any contribution(s) received by the sublessor from tenants towards outgoings in respect of the building". These subparagraphs are followed by three provisos contained respectively in cl. 1(6)(A)(iv)(a), (b) and (c). The first proviso excludes from the nett return of the year in question any sum received or receivable by the appellant on the transfer or assignment of its interest under the headlease. The second proviso requires the proportionate distribution between the relevant years of a sum which is received or receivable in one year but which relates to a later year as well as to the year in which it is received or receivable. I confess to some difficulty in construing the word "receivable" in provisos (a) and (b). The emphasis in sub-pars (i), (ii) and (iii) is upon moneys actually received, and neither proviso (a) nor (b) contains words of extension. However, that difficulty is not relevant to the question to be decided here and I offer no comment upon it. The third proviso does in my view extend the operation of sub-pars (i), (ii) and (iii). It requires that sums which are payable — and not only those which are actually paid — in respect of the items set out in cl. 3(1)(iii)(a) and (c) to (j), be brought into account as contributing to gross receipts after due allowance has been made for bad debts written off by the appellant. It may be true that there is no apparent reason for the exclusion from proviso (c) of the contribution in respect of depreciation. It is possible that, as suggested by the Full Court, those who drew the deed took cognisance of the fact that this item, unlike the other items in cl. 3(1)(iii) does not represent an actual sum paid or payable by the appellant and therefore cannot give rise to a bad debt. However, while that conclusion may be correct from the point of view of the liability of the appellant, the respondent is obliged to make a contribution in respect of each item referred to in cl. 3(1)(iii), including a contribution in respect of depreciation. Consequently, the reference to bad debts in proviso (c) is equally relevant to depreciation as to the items specifically referred to in that proviso. But it is idle to speculate. In my opinion the central considerations on which this appeal turns are that the respondent in fact made the required contribution to the appellant, in calculating its nett return for the year ended 31st December, 1977, was required to bring that contribution into account as income received. I see nothing in the provisos to cl. 1(6) to qualify that requirement. I would therefore dismiss the appeal. The cross-appeal by the respondent is from the order of the Full Court that there be no order as to costs. It is submitted for the respondent that there was no reason for the court to depart from the general rule that costs should be awarded to the successful party. There is nothing before this Court to indicate the reasons of the Full Court for its order as to costs. On the other hand, it is clear that its mind was directed to the question, the resolution of which called for the exercise of a judicial discretion. There is a consideration which may distinguish this case from others in that there is a mutuality of interest between the parties in the construction of a basic provision of the deed which is to bind them for many years. Furthermore, it may be said that both parties bear some responsibility for the lack of clarity in the deed which has given rise to this litigation. I am not prepared to hold that the order of the Full Court in this regard falls outside the bounds of a proper discretionary judgment, and I would therefore dismiss the cross-appeal.