CHARLOTTE PASS VILLAGE PTY LTD v STILLWELL LODGE PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS, MAHONEY and CLARKE JJA 8 February 1991, 19 March 1991 [1991] NSWCA 52 CONSTRUCTION OF LEASES OF SKI LODGES — LIABILITY TO CONTRIBUTE TO COST OF SEWERAGE WORK Appeal from Equity Division — Construction of leases of ski lodges — Lessees' liability to contribute to cost of work done on sewerage system — apportionment of several liability between lodges — Basis of apportionment. ORDER Short Minutes to give effect to judgment. Samuels JA I agree with Mahoney JA. Mahoney JA On 26 April 1977 Charlotte Pass Village Pty Ltd ("CPV") took a lease from the Crown of land in the Charlotte Pass area. The contemplation was that the land would be used for the development of a ski area. On 16 February 1981 CPV granted a sublease of part of that land to Stillwell Lodge Pty Ltd ("Stillwell"). The contemplation was that Stillwell would erect a ski lodge on the land subleased: the sublease obliged it so to do. This sublease was one of a number of such subleases, all of which were relevantly in the same form. Health and environmental considerations required that the ski area have an adequate sewerage system. It was the contemplation of the parties, as appearing from the documents, that such a system would be provided by CPV. It was accordingly appropriate that stipulations be made as to the provision of the sewerage system and for the method of payment for the installation and the ongoing operation of it. Provision was made in the various subleases for this purpose. Recently, CPV has incurred substantial expense in updating and extending the sewerage system. The present proceeding has been brought to determine how the burden of that expenditure is to be borne. Needham J held, in substance, that it is to be borne by CPV and not by the individual lessees. CPV has appealed to this Court against his Honour's judgment. The entitlements of the parties depend upon the terms of the relevant subleases. The sublease to Stillwell has been, in argument, accepted as typical of all subleases and I shall deal with the matter by reference to the terms of it. By this sublease CPV leased to Stillwell portion of the relevant land for the term commencing on 2 July 1979 and terminating on | March 2015, a date shortly before the date of expiry of the headlease. The rent to be paid by Stillwell to CPV was determined by a formula which differed slightly in respect of particular periods of the term. In general, the rent was to be the greater of $1200 per annum or that amount indexed according to the stated formula or a percentage of "audited gross receipts for that annual period" "arising from the carrying on of" the business of the ski lodge in question: see CL2. 2 UNREPORTED JUDGMENTS Provision was made for the lessee to bear "all rates taxes and assessment whether Municipal State Commonwealth or otherwise and each charge for electricity and gas consumed or telephone usage in the demised premises": CL22. CL26 provided: "2.6(i) The lessor acknowledges that the lessee has paid to the lessor the lessee's proportion of the capital expense of erecting laying and installing the electricity power supply lines and such supporting works and installations as in the opinion of the lessor are necessary and appropriate, from Perisher Valley to Charlotte Pass. The lessee's proportion of this capital expense was calculated at the rate of $265 for each bed to be provided by the lessee in the plans and specifications for its lodge and as approved of by the lessor under CL31(i). (ii) The lessee will, in addition to the rent hereinbefore provided, pay to the lessor (or to any other person or body authorised to supply the same) all charges for gas electricity and water supplied to the demised premises; all charges for sewage and garbage disposal; all charges for any telephone services connected to the demised premises; and all costs and charges for engineering services in the installation and maintenance of the telephone electricity service and the like amenities to the demised premises." The lease provided that the lessee should prepare plans and specifications for the construction of a ski lodge having no more than a specified number of beds and for the erection of that ski lodge as there detailed: CL3. The lessee was forbidden to use or permit or suffer to be used the demised premises other than as a commercial lodge: CL32; and the lessee was forbidden to "use or permit the use of the demised premises in any manner contrary to any plan of management for Kosciusko National Park existing from time to time": CL35. detailed provision was made as to the provision of, the use of, and the payment in respect of facilities appropriate for the ski area: see, for example, CL6.6 (the use of "the lavatory toilet sinks and drainage and other plumbing facilities in the demised premises or Park..."'). CL67 provided: "6.7(i) The lessor shall at the cost (based on scale of charges set out in the schedule hereto which scale may be varied at any time by the lessor) of the lessee during the term of this lease: (a) supply and maintain water sewerage and drainage services to the demised premises; and (b) remove and dispose of garbage and refuse; and (c) cause the road to the demised premises to be maintained in a fit and proper condition having regard to its condition and state of repair at the date of commencement of this lease. (ii) The lessee may and if so required by the lessor connect and maintain the connection to take and use such services so long as the lessor is able and willing to provide the same and the lessee will comply with all reasonable and proper requirements of the lessor in relation to the installation maintenance and use of any such services. (iii) The lessee will not construct alter add to or permit to remain any building or other improvements (including any fixture and fittings) so as in any way to encroach upon obstruct damage or impair any such services or the operation or use of the same or so as to hinder or impede the lessor or any government local or other public authority in the exercise of their respective rights and the lessor \WRUARLOTTE PASS VILLAGE PTY LTD v STILLWELL LODGE PTY LTD (Mahoney JAB or such authority may without compensation to the lessee but at the cost of the lessee make good any damage or impairment or remove any encroachment obstruction hindrance or impedence." The schedule referred to in CL67 was as follows: "SCHEDULE 1 CL67(i) 76 cents per bed multiplied by 16 in respect of gargage (sic) collection and disposal. $1.18 per bed multiplied by 16 in respect of water supply and maintenance. $1.94 per bed multiplied by 16 in respect of maintenance of the sewage plant." It has been said that the multiple "16" has been adopted on the basis that the ski season generally lasts for sixteen weeks. CPV was required to and did carry out substantial additions to the sewerage treatment plant in the valley. The cost of such works was of the order of $1,000,000. CPV has sought to charge the sublessees with proportionate parts of that cost, the proportion being based, on one alternative, upon the proportion which the number of beds in the respective ski lodges bore to the total number of relevant beds in the valley. The present proceedings have been brought to determine the questions which have arisen in this regard. It is not now necessary to refer to various other issues which have arisen in the proceedings: it is agreed that they need not be considered in this appeal. The only issues now before the court are: (1) whether the sublessees are liable to bear portions of the cost incurred by CPV in this regard; and (2) (if they are) in what proportions or according to what formula they are to bear that cost. Mr Emmett QC, for CPV, has submitted that the sublessees are liable in this regard primarily because of the provisions of CL67 or alternatively because of the provisions of CL2.6(ii). He has, in respect of each of these provisions, relied upon, as he submits it to be, the intent of the sublease that CPV should receive the rent provided in the sublease without ultimately bearing the burden of any of the outgoings involved in the upkeep of the ski area generally. (a) CL67: This clause provides that the lessor "shall at the cost... of the lessee... supply and maintain water sewerage and drainage services to the demised premises;...". It is necessary, first, to decide whether what CPV did was within the words "supply and maintain water and drainage services to the demised premises". The costs apt to be incurred by CPV under CL67(i) might, it would appear, fall into at least three categories: costs in relation to the central plant serving all lodges; costs in respect of main reticulation or pipe services serving all or more than one lodge; and reticulation or pipe services serving only a particular lodge. Ordinarily costs incurred in respect of the third of these would in toto be within the phrase: "the cost... (of) supply and maintain... sewerage... services to the demised premises". Costs so incurred would be related solely to sewerage services "to the demised premises" of that particular lodge. In respect of the first two of these cases, more difficult questions would or could arise. The matter may be tested by an example. The central plant would be a necessary part, presumably, of the sewerage service to each individual lodge, in the sense that, without that plant, the sewerage service to each particular lodge would not operate. In that sense, the total cost of the plant would be a cost of the sewerage service "to the demised premises" on which the lodge was erected: it would in that sense be a cost to each of the demised premises. Each lodge would 4 UNREPORTED JUDGMENTS be severally liable for the total cost and the total cost would, in the ordinary case, be apportioned on a proper basis between each of the lodges: see generally Armstrong v Commissioner of Stamp Duties 86 WN (NSW) (Pt 2) 259 at 263, 267; Gadsden v Commissioner of Probate Duties (Vic) (1978) VR 653; Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1) (1979) 22 SASR 552. What would be a proper basis would require consideration according to the facts of each case. If the cost was incurred in relation to pipes serving some but not all of the lodges, the cost would, similarly, be a cost of the sewerage services to each lodge in question, each lodge would be liable to CPV for the total cost, and the total cost would be apportioned, on a proper basis, between each lodge in question. In the present case, the work done, the cost of which is here in question, was work on the central sewerage plant. The details of the work were referred to in evidence and it is not necessary to recapitulate them. It was not significantly in contest before this Court that what was done was, in the relevant sense, the incurring of costs in order to secure the supply and maintenance of water sewerage and drainage services to the demised premises. Because the cost was incurred in respect of the central plant serving all lodges, that cost was, in the sense to which I have referred, a cost in respect of all of the lodges. I come now to consider the way in which CL67 deals with the cost of work of this kind and whether and in what way it can be applied in circumstances such as the present. If the clause had provided only that: "the lessor shall at the cost... of the lessee... supply and maintain" the relevant services, the position would be clear. The cost of the work on the central sewerage plant would be apportioned amongst the lodges according to the principles to which I have referred. There is, I think, no rigid rule for the apportionment of amounts amongst those severally liable. The proper basis of apportionment will depend upon the circumstances of each case. It may be that, in the absence of other considerations, apportionment in the present case would be determined or affected by the extent of the usage or benefit contemplated as derived by each lodge from the service. This might be determined, for example, by reference to the number of persons using or apt to use the service in each lodge. However, the difficulty arises in the present case because CL67 does not merely provide for the work to be done at the cost of the lessee under the relevant lease. The clause provides for the supply of the services "... at the cost (based on the scale of charges set out in the schedule hereto...) of the lessee...". It is necessary to decide what light the words in parentheses casts upon the intention of the parties as to how the cost is to be borne. The argument advanced for Stillwell is generally to the following effect. The scale of charges provided by the parentheses and the schedule is essentially a charge per bed. The only relevant provision is "in respect of the maintenance of the sewerage plant". That scale operates to impose a charge according to the number of beds in the lodge, viz, $31.94 per bed. The argument is, or suggests, that such a scale does not apply to such an expenditure as is here in question for two reasons: because what was here done was not "in respect of the maintenance of the sewerage plant"; and because a charge per bed is inappropriate to the recovery of an expenditure such as this and therefore could not have been intended to apply to it. I shall deal with each of these in turn. \WRUARLOTTE PASS VILLAGE PTY LTD v STILLWELL LODGE PTY LTD (Mahoney JAB There are some things which the lessor is required by CL67(i) to do which do not fall within the schedule and therefore for which no "scale of charges" is provided. The road work which the lessor must do under CL67(i)(c) is one of these. It may be that "maintenance of the sewerage plant" does not cover all of the work which could fall within the obligation of the lessor to "supply and maintain water sewerage and drainage services to the demised premises" in CL67(i)(a). The obvious difference in the language in the clause and the schedule would support an argument to that effect. I shall assume without finally deciding that this is so. How, then, does CL67(i) operate in respect of work which the lessor is obliged to do under it but for which no scale of charges is provided. There are at least two main possibilities. The first possibility is that it is to be inferred that CL67(i) does not pass on to the lessee the cost of that work. But I do not think that was the intention of the parties: if the lessor "shall" do the work, it shall be done "at the cost... of the lessee". The other possibility is that, if and insofar as the scale of charges provided by the parentheses is inapplicable to the particular work done and the distribution of the cost of it, then the mechanism provided for by the parentheses is to be ignored. The result of this would be that the cost in that case would be distributed among the lodges severally liable in the manner to which I have referred. It is, I think, accepted that a provision in a document may be treated as surplusage or given no effect if it is plainly inapplicable to the matter or event to which the document is to be applied: see, eg, Glynn v Margetson and Co (1893) AC 351; Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 at 587; and see the cases referred to in the dissenting judgment of Kitto J in Sydney City Council v West (1965) 114 CLR 481 at 495 et seq. And, in my opinion, that principle may be applied to produce the result that a provision, though operating in relevant circumstances, will not operate in circumstances which, having regard to the intention appearing from the document as a whole, are clearly inappropriate for its operation. If, then, CL67(i) is to operate in some cases by putting aside the scale of charges mechanism, this provides support for the conclusion that it may operate in respect of sewerage and drainage services which are either not within the term "maintenance of the sewerage plant" or the cost of which is incurred in a manner to which the scale of charges is otherwise inapplicable. If the clause be construed in this way, then it may properly be applied to the cost here in question. It remains then to determine how the cost of the work here in question is to be borne in the present case. On the view which I have adopted, each of the lessees, ie, each of the lodges is severally liable for the cost of the work done and the cost is accordingly to be apportioned on an equitable basis between them. As I have said, what is equitable for this purpose must be determined according to the circumstances of the case. This will, in turn, be affected by the factual context in which the leases were granted. It is arguable that, upon the basis that "equality is equity", the cost should be apportioned so that each lodge bears an equal part of it. However, I do not think that that is a proper basis in the present case. It is not necessary to determine for present purposes whether the basis of apportionment is to be sought only in the intention of the parties as appearing from the relevant documents or whether the equity of the situation depends upon the assessment by the court of the relevant circumstances. In the present case, the documents indicate and the surrounding 6 UNREPORTED JUDGMENTS circumstances suggest that the parties saw as an important factor the usage apt to be made of services as measured by the "per bed" occupancy of each lodge. In my opinion an apportionment between the lodges by reference to the number of bed occupancies available at the relevant time would be the equitable basis of apportionment of that cost. In using the term "bed occupancy" I have paraphrased the concept embodied in the schedule. I have dealt with the matter according to what is in my opinion the proper construction of the leases. It has however been submitted that a similar result may be achieved if "maintenance of the sewerage plant" comprehends what was here done and if the scale of charges mechanism may be applied so as to permit CPV to vary the amount specified in that regard in the schedule to produce the result that the total "per bed" charges to be paid by each lodge will approximate the cost of the work here in question. If the construction which I have adopted be incorrect and the provision of the schedule be applicable to the present case, then, in my opinion, the distribution of cost could be achieved by the lessor in that way. (b) CL26: I have dealt with the matter by reference only to CL67(i). Reference was made in argument, alternatively, to CL26. The relationship between these two provisions is by no means clear. It may be that the provisions of the two clauses overlap. However, CL26 is in my opinion of direct relevance in the present case only if and insofar as the terms of it indicate that the construction of CL67(i) is other than I have suggested. I do not think that this is the operation of CL26. Reference was made to the clause in argument essentially as an alternative basis of liability. I shall therefore not pursue the difficulties involved in the interpretation of the clause itself. In my opinion the court should order that the parties bring in short minutes of the orders appropriate to give effect to the conclusions at which I have arrived. These orders should include an order that the appellant have the costs of the proceedings before the learned judge and on appeal. I have, in coming to the conclusion I have expressed, acted on the basis that the work in question is of the kind to which I have referred. The nature of that work has not been examined in detail in the argument. If and insofar as the work may be of a different description, that may require that the mechanism for apportionment of the cost of it between the lodges be adapted. I have in what I have said suggested the basis for such apportionment in certain cases. The short minutes should provide for the matter accordingly. Clarke JA I agree with Mahoney JA. The parties are to bring in short minutes of the orders appropriate to give effect to the conclusions of the Court. These orders should include an order that the appellant have the costs of the proceedings before the learned judge and on appeal. Counsel for the Appellant - AR EMMETT QC/DR KE LINDGREN Counsel for the Respondent - DJ JACKSON QC/RG FORSTER Solicitors for the Appellant - McCARTHYS Solicitors for the Respondent - TEECE HODGSON and WARD