MODIFICATIONS PTY LTD v DOYLE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, PRIESTLEY and CLARKE JJA 5 April 1991, 19 April 1991 [1991] NSWCA 203 CONTRACT — interpretation of lease — formula for rent if option to extend exercised ambiguity — held: — Court should prefer sensible construction requiring market rent and avoid surgery to language of lease. Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) LEASEHOLD — rent — construction of formula providing for LEASEHOLD — rent of demised premises — option to extend leasehold term — options validly exercised — formula for determination of rent — ambiguity of formula — construction of clause — no completely satisfactory meaning — strained interpretations of clauses required by either available construction — held: (per Priestley JA; Kirby P concurring; Clarke JA dissenting) (setting aside orders and declaration of Giles J). The more sensible construction, which required payment of the then current market rent of the premises, should be preferred — such construction involved a more satisfactory construction of the language of the lease provisions and required less surgery to the language than that preferred by the trial judge. CONTRACT — interpretation of — availability of — subsequent behaviour of parties as and to — tender of movements of CPI index which occurred after lease referring to it executed held: The index numbers were not admissible. Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 referred to. Kirby P I agree with Priestley JA. Priestley JA This appeal raises a question of construction of some clauses in a lease of commercial premises dated 1 December 1987, the term of which was three years, commencing on | April 1987. The lease contained provisions by which the lessees (on certain conditions) were entitled to further leases of the demised premises. The lessees gave notice, no question of the validity of which has been raised in the present proceedings, of their desire to have a further lease. Following the giving of notice, a dispute arose over the meaning of CL4 and CLS. These clauses provided for the rent payable under the further lease and for increases in rent during its term. The lessor as plaintiff began proceedings by summons in the Commercial Division to obtain a decision on the question of the meaning of CL4 and CLS. Heading B in the summons was entitled "Issues likely to arise" and said: "The defendants contend and the plaintiff denies that sub-CL4(e) of the lease limits the rent to be charged at the beginning of each renewal period whereby the rent can at no time exceed the inaugural rent increased by a percentage which is 1.5 times the percentage increase in the consumer price index over the preceding 36 months. The plaintiff contends that sub-CL4(e) means that the initial rent at the beginning of any of the renewed terms must not be increased pursuant to CLS by a percentage larger than 1.5 times the percentage increase in the consumer price index for the thirty-six months prior to commencement of the further term." 2 UNREPORTED JUDGMENTS Giles J ordered that this issue be determined separately from and prior to any other issues in the proceedings. He decided the issue by accepting the lessees' interpretation of the clauses, and as a result, dismissed the lessor's claim for relief with costs. The lessor appealed to this court. Both the appellant lessor and the respondents, the lessees, argued the question of construction almost entirely by reference to CL4 and CLS of the lease. These were as follows: "4. The Lessor covenants with the Lessee that if the Lessee desires to have further leases of the demised premises for no more than three (3) further terms of three (3) years each the first commencing from the First day of April, 1990 and the subsequent terms commencing on the expiration of the preceding terms granted pursuant to the exercises of the options herein referred to and gives notice in writing of the Lessee's desire to take such further lease of the demised premises at least six (6) months prior to the expiration of the term current at the time of giving such notice and if the Lessee shall not then and at the expiration of the then current term be in default hereunder then the Lessor will, subject to any withdrawal of exercise of option pursuant to CL4(c) hereof, at the cost of the Lessee, grant a new lease to the Lessee of the demised premises for such further term of three (3) years on the following conditions: (a) The covenants conditions and restrictions of the lease for the said further term shall be the same as in this Lease including this option to renew (except only that in any new lease granted pursuant to the exercise of the abovementioned third option to renew, which lease will commence in the year 1066 [sic], the preceding words 'including this option to renew' shall be omitted and the words "excluding this option to renew' shall be substituted therefor to the intent that the Lessee shall be entitled to occupy the premises for the original term of three (3) years and four (4) optional periods of three (3) years each pursuant to such options to renew for a total period of fifteen years for Ist April 1984, and (b) The rent payable for the further term shall be the then current market rent of the demised premises (without taking into account any improvements or fixtures erected or installed at the Lessee's expense) as determined by agreement between the Lessee and the Lessor or in default of agreement by two valuers both members of the Australian Institute of Valuers Inc (NSW) Division) acting as experts and not as arbitrators. The Lessee shall appoint one valuer and the Lessor shall appoint the other and in the event of failure by either party to so appoint them the other party may appoint the other valuer. In default of agreement between the said valuers as to the amount of the rent they shall appoint a third valuer to determine the said rent and such valuer shall act as an expert and not as an arbitrator and his decision shall be final and binding on the parties. The rent payable during the further term shall not in any event be less than the amount payable immediately prior to the expiration of the term of this lease first hereby reserved. The parties will bear equally the fees of the valuers. (c) The Lessee shall be entitled to withdraw his exercise of any option referred to in this clause (4) at any time within fourteen (14) days after receiving notice of the final and binding rent determination made pursuant to sub-clauses 4(b) and 4(e) hereof and in the event of such withdrawal the Lessee shall be deemed to have at no time exercised the relevant option and neither party shall be liable to pay the other any such for damages costs or expenses in respect of such failure to exercise the relevant option. URJ MODIFICATIONS PTY LTD v DOYLE (Priestley JA) 3 (d) In the event of any rent for any succeeding period not having been finally determined at the commencement of such period, then the lessee shall continue to pay on account of rent the same amount as is payable for rental at the date of the expiration of the term of this lease and any adjusting payment will be made between the parties as soon as the rent has been finally determined pursuant to the provisions of this clause. (e) The parties agree that the rent payable for the first year of the further term (having been determined in accordance with the preceding sub-CL4(b)) shall not be increased by more than a percentage which is 1.5 times the percentage increase in the Consumer Price Index (All Groups) Sydney in the 36 months prior to the date of commencement of the said further term. 5. And it is hereby agreed and declared by and between the parties hereto that the rental hereinbefore referred to shall be reviewed at the termination of each year of the said term and at each date of review shall be increased for the ensuing twelve months by the same percentage as the percentage increase, if any, in the Consumer Price Index (All Groups) Sydney, and in the twelve months prior to the date of review. If the said Consumer Price Index (All Groups) Sydney has not increased during that period then the rental payable hereunder shall remain unchanged and if the Consumer Price Index (All Groups) Sydney shall have been discontinued and replaced by another method of determining price variations then that method shall be used in calculating this rent review. If there is not in existence any such method of reviewing price variations then the amount of rental increase shall be determined by a member of the Australian Institute of Valuers Inc (NSW Division) appointed by the parties hereto or failing agreement on such an appointment by a member appointed by the President of that Institute. The Lessee will pay the increased rental calculated from the review date upon demand in writing from the Lessor. Pending the determination of any valuer the Lessee shall pay on account of rental the amount payable immediately prior to the review date above mentioned and any adjusting payment will be made by the Lessee as soon as the rent has been finally determined pursuant to this clause." The dispute about the interpretation of these clause turned principally on whether the opening words of CL4(e) should be read as meaning, as the lessees contended, that "the parties agree that the rent payable for the first year of the further term (having been determined in accordance with the preceding sub-CL4(b)) shall not in any event in that first year be a sum larger than either the inaugural rent or the preceding rent increased by a percentage 1.5 times the percentage increase in the CPI in the 36 months prior to the commencement of the new term, " or as the lessor contended "that the rent payable for the first year of the further term (having been determined in accordance with the preceding sub-CL4(b)) shall not thereafter be increased by more than the specified percentage." The construction contended for by the lessor would have the effect that the rent payable for the first year of the further term would be the current market rent as at the first day of the renewed term, agreed or fixed pursuant to CL4(b) unless the amount so arrived at was less than the amount payable immediately before the expiration of the preceding term, in which case the rent would stay at that amount. On this approach the rent for the second year of the further term would be increased over that of the first year by the amount provided in CLS, and for the third year increased over that for the second, also by the amount provided in CLS, subject to the increase in each of those years not being by a percentage 4 UNREPORTED JUDGMENTS greater than 1.5 times the percentage increase in the Consumer Price Index (All Groups) Sydney in the thirty-six months prior to the first day of the further term. On the lessees' approach the rent payable for the first year of the further term would be the current market rent agreed or fixed pursuant to CL4(b) at the first day of the further term provided that it could not be more than the rent payable, either at the beginning of the previous term or at the beginning of the third year of the previous term, increased by the specified percentage. It seems that in the particular circumstances of the present case, application of the lessees' construction would bring about a rental for the first year of the further term considerably less than from application of the lessor's construction. This significant difference would be automatically reflected in the increases for the second and third years of the further term. Giles J accepted the lessees' interpretation principally because of the provision in CLA(c) entitling the lessees to withdraw their exercise of the option to take the further lease within fourteen days of "receiving notice of the final and binding rent determination made pursuant to sub-clauses 4(b) and 4(e)". He thought the reference to CL4(e) could only sensibly be read as showing that that sub-clause must be taken into account in determining the rent payable for the first year of the further term. A further consideration which influenced Giles J was that, in his view, if CLA4(e) operated as the lessor contended, it would be hard to resist the conclusion that the entitlement to withdraw an exercise of option given by CL4(c) could be exercised following a rent review pursuant to CLS. If this consequence did follow, there would be force in Giles J's remark that it was difficult to see such a result as having "rationally... been intended". Giles J came to the conclusion that because the last two matters mentioned could not plausibly be explained by the lessor, he could not escape from the construction contended for by the lessees. Although the problem of construction seems to me to be a difficult one, the competing arguments do not call for much elaboration. The construction adopted by Giles J gives to CL4(c) its full effect, but does so at the cost of what seems to me a distortion of CL4(e). As Giles J recognised, the words in brackets in CL4(e) powerfully indicate that the rent payable for the first year of the further term is to be determined in accordance with the preceding sub-cl 4(b) and that it is that rent which is to be increased by no more than the stated percentage after the rent payable for the first year has been fixed. The lessees' construction gives no effect at all to this apparently clear meaning. There is a further difficulty in the lessees' construction which seems to me to be equally as important. It does not appear to have been discussed in the argument before Giles J. That is that on the lessees' construction there must also be read into CL4(e) reference to some figure for a rental preceding that to be fixed for the first year of the further term which is to be the rent which is not to be increased by more than the specified percentage. This consideration seems to me to be an important one because not only must a reference to a preceding rent figure be read into the sub-clause, the terms of which do not to my mind readily yield such an implied meaning, but there is real difficulty in deciding what that preceding rent figure should be. Counsel for the lessees put the figure in the alternative as being either the beginning rent of the previous term or the rent at the beginning of the third year of the previous term. The difficulty of deciding just what the implication would be, in circumstances where the lessees' construction URJ MODIFICATIONS PTY LTD v DOYLE (Priestley JA) 5 can only succeed if there is to be some such implication, in my opinion words against the construction proposed by the lessees. Taking this last point a little further, it seems to me to be of some significance that the difficulty does not arise upon the construction proposed by the lessor; on that construction there is no need to read a reference into the sub-clause to a rent which is not to be increased by more than the specified percentage. On the lessor's construction the rent which is not to be increased by the specified percentage is that indicated by the words of sub-cl (e) itself, namely that determined in accordance with the preceding sub-cl 4(b). The construction proposed for the lessor requires that the words I have underlined in the following part of subcl (c), namely "notice of the final and binding rent determination pursuant to sub-clauses 4(b) and 4(e)" should be read as "made pursuant to sub-cl 4(b) and referred to in 4(e)". The lessor's construction also requires that there should be added into the words in sub-cl (e), namely, "the rent payable for the first year of the further term... shall not be increased by more than" the specified percentage, the word "thereafter" immediately following the word "increased". The constructions proposed by the opposing parties thus both require insertions in the words written in the lease document which do not appear there, and which do not readily fit with the written words. Looking at CL4 and CLS overall, it seems to me that a matter to be taken into account in weighing which interpretation is more appropriate to the totality of the relevant language is that the principal provisions dealing with the rent to be payable in each year of the further terms contemplated by CL4 are sub-cll (b) and (e) of CL4 and the whole of CL5. CLA(c) gives what could be a quite important source of relief to a lessee who had exercised an option to have a further lease, but the sub-clause nevertheless seems to me to be subsidiary or, perhaps better, collateral to the provisions laying down the method of calculation of the rent. In my opinion this would make it preferable, if there has to be some amendation to the words of sub-cll (c) and or (e) in order to obtain any coherent construction of CL4 and CLS in regard to the point now in question, to approach the meaning of the rent fixing clauses with as little amendation to sub-cl (e) as possible rather than to leave sub-cl (c) inviolate and perform what seems to me to be the rather major procedure on sub-cl (e) which the lessees' construction requires. I would therefore read sub-cl (c) in the way earlier indicated and also would read sub-cl (e) as if there were inserted after the word "increased" the word "thereafter". An argument against this construction is that it is unlikely, in a practical sense, that circumstances will arise in which the "cap", as it was referred to in argument, provided by the limitation of increase in sub-cl (e) to the specified percentage will ever come into play, because there are not likely to be many sequences of years in which that percentage will not exceed the percentage increase which will occur pursuant to the application of CL5; that is, on the lessor's construction, sub-CL4(e)'s cap is unlikely to be of any practical importance. However, that simply means that the cap provides, for most periods, a high maximum figure beyond which a CL5 increase cannot go. The fact that the CLS increase is unlikely ever to reach the CL4(e) maximum does not mean that it could not happen or that it may not be of some value to the lessees in extraordinary economic conditions. Since 1973 what previously would have been thought to be extraordinary in Australia has frequently happened. 6 UNREPORTED JUDGMENTS No answer to the question posed in this appeal seems to me to be completely satisfactory, but the view I take seems to me to be less unsatisfactory than the construction proposed by the lessees. So far as the trial judge's first difficulty is concerned, it replaces the primacy he gave to CL4(c) with a giving of primacy to CL4(e), which is in my opinion the more important provision for the question in hand; and in regard to the trial judge's second difficulty, it avoids it by the reading I would give to CL4(c). The amendations required by the interpretation I favour seem to me to be less in scope than those required by the competing view, which although it requires a strained reading of sub-cl (e) only, requires that reading to be very strained. Finally, the interpretation I favour means that the first year of each further lease will be the current market rent of the premises, unless that is lower than the rent payable immediately prior to the expiration of the term of the lease first reserved under the lease document, in which case that earlier rent will be payable. Such a fall in market rent is possible, but not, in the usual run of events, probable. If such a fall comes about, sub cl(c) gives the lessee the right to withdraw from occupation if unwilling to pay a higher than market rent. Such an operation of the lease provisions seems to me a much more sensible way for them to work than the lessees' construction would bring about, and thus tends to confirm me in my view of the meaning to be obtained from a reading simply of the relevant clauses. I therefore think the second, third and fourth orders made by the trial judge should be set aside, and a declaration made substantially to the effect of that claimed in paral of the lessor's summons of 14 November 1990. The lessor should have its costs of the summons and the appeal. It was suggested in argument that if the court came to this conclusion, the only orders this court need make would be orders such as I have already proposed, together with an order remitting the summons to the Commercial Division. However, if the principal issue between the parties is decided in accordance with my opinion, it may be that the summons can be finally disposed of by this court, once the parties have had an opportunity of considering the court's reasons. I therefore propose that the parties bring in short minutes of orders giving effect to the court's opinion, and that for the purpose of finalising such minutes the appeal be listed at 2.15 pm on the 29th day of April 1991. An evidentiary matter arose in the course of argument which I should record. To the written submissions of counsel for the lessor there was an annexure showing index numbers for the Consumer Price Index (All Groups) Sydney for dates after the execution of the original lease document. It was objected for the lessees that these could not be taken into account in determining the meaning of the clauses in dispute. I agree. It may be that subsequent behaviour of parties to a contract can sometimes be used in determining the meaning of the contract (see discussion in Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 315-316 and 326-328) but the facts appearing in the annexure to the lessor's written submissions would not fall within any such rule. I have not taken them into account in my approach to the construction of the relevant clauses. Clarke JA The lease between the parties, which was dated 1 December 1987, concerned commercial premises known as Unit A, 27-33 Roberts Road, Chullora. The term of the lease was three years but in CL4 (which, together with CLS, has been set out in the judgment of Priestley JA and therefore does not appear in full in this judgment) options were granted to the lessees for three further terms of URJ MODIFICATIONS PTY LTD v DOYLE (Clarke JA) 7 three years each, the first commencing from the date of expiry of the initial lease. The terms upon which the options could be exercised and the covenants of the succeeding leases were provided for in CL4. Quite apart from any question of new leases, CLS provided a rent review machinery pursuant to which it was agreed that at the termination of each year of the initial lease the rent should be increased for the ensuing twelve months by: "... the same percentage as the percentage increase, if any, in the Consumer Price Index (All Groups) Sydney in the twelve months prior to the date of review". The parties expressly agreed, in CL4, that the terms of CL5 applied to each successive lease. Accordingly, provision was made for a rent review for the second and third years of each successive term. On the other hand the machinery for the determination of rent in the initial year of any new term was to be found in CL4 itself. In accordance with the terms of CL4(b) the new rent was to be the "then current market rent of the demised premises" as determined by agreement between the parties or assessment by valuers. Both parties agree that CL4(e) imposed a 'cap' on the amount of a rent review but are at issue as to which review is qualified by the cap. The argument which has excited attention both in this court and at first instance is whether the cap is imposed on the rental determined for the first year of a new term in accordance with CL4(b) or a cap on the rental determined for the second and third year of that term which fell to be determined by reference to CLS. As the argument primarily concerns CL4(e) it should be set out in full. It reads: "The parties agree that the rent payable for the first year of the further term (having been determined in accordance with the preceding subCL4(b) shall not be increased by more than a percentage which is 1.5 times the percentage increase in the Consumer Price Index (All Groups) Sydney in the 36 months prior to the date of commencement of the said further term." The lessor appellant has submitted that, upon the proper construction of CLA(e), the 'cap' provided by this clause operates upon the rent reviews under CLS in relation to the second and third years of the terms which come into existence upon the exercise of the option. It is, accordingly, quite irrelevant to the determination of the rent for the first year of a new term. Its counsel supported that proposition in two ways. First, it accorded with the literal meaning of the clause and secondly, it provided a commercially sensible interpretation of the clause whereas the contrary view did not. I do not think the first contention can be sustained although that view is not determinative of the debate. The clause says nothing literally about the second and third years of any new term and, as the appellant's counsel conceded, it is obvious that the clause should be treated as though one or more words have been added in order effectively to give force to the meaning for which the appellant contends. It was submitted during the argument that that effect would be achieved by adding the word "thereafter" after "increased" so that the relevant portion of the clause should read "shall not be increased thereafter by more than a percentage". This is not an unattractive argument the effect of which is to impose a cap on the second and third year rent increases so that neither shall be greater than the rent for the initial year by more than the stated percentage of the Consumer Price Index for the stipulated period. Upon this view if the rent for the second year would, upon the application of CLS, exceed the expressed limitation then the cap would operate for that year and the rent would be fixed at the level of the cap. 8 UNREPORTED JUDGMENTS It would obviously follow that the rent for the third year would not be increased at all as the available area of increase above the first year's rent had been eaten up in the second year. The lessor appellant also submitted that this approach was commercially sensible whereas that of the lessees was not. It must be accepted that commercial reasonableness may be a relevant consideration for guiding the court where there is ambiguity or lack of clarity in the language used in the contract (Codelfa Constructions Pty Ltd v State Rail Authority of NSW, 149 CLR 337, at 351; Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd, (1990) 20 NSWLR 310; Schuler (1) AG v Wickman Machine Tool Sales Ltd, [1974] AC 235). The manner in which the lessor developed this argument was as follows: The parties should be taken to have fixed on a market rent for the initial lease. Because the machinery for determining the market rent may be relatively costly and lead to delay the parties agreed that the reviews for the second and third years of the lease should be mechanical insofar as the rent was to be adjusted, subject to the qualifications contained in the lease, in conformity with increases in the Consumer Price Index (All Groups) Sydney. Such an increase may have led to a disparity between the actual rent and the hypothetical market rent for the third year. In order to correct that situation the parties sought to provide machinery whereby the rental equated the market rent for the first year of the new lease which came into existence upon the exercise of the option. The new rent so arrived at would apply for the first year of the new term and thereafter would be adjusted in the second and third years in the same manner as the rent for the initial term. In this way the rent for the whole of the possible term of twelve years would maintain a relatively close correspondence with the market rent. Clearly this is a sensible scheme but the force of the lessor's argument on this aspect depends upon the formation of a view that the construction for which the lessees opt leads, at the very least, to a far less sensible and businesslike result. I will return to that in a moment. The lessees' argument accepted that CL4(e) was not clear in its terms and that it was necessary to add words to give it a clear meaning. In this case the suggested additions also took place after the word 'increased'. It was submitted that either the words "above the rent initially fixed by the lease" or the words "above the rent for the year immediately preceding the further term" would make clear the broad thrust of the lessee's contentions. The choice between the two would, however, depend upon whether the court determined whether, upon its proper meaning, the clause provided that the rent payable for the first year of the further term was not to exceed the rent payable for the initial or the third year of the original term by the stated percentage. I tend to prefer the latter view although as this is a dissenting judgment it is unnecessary to ponder on that. The real strength of the lessee's case is not, however, to be found in the words of CL4(e) but in CL4(c) which reads: "The Lessee shall be entitled to withdraw his exercise of any option referred to in this clause (4) at any time within fourteen (14) days after receiving NOTICE OF THE FINAL AND BINDING RENT DETERMINATION MADE PURSUANT TO SUBCLAUSES 4(b) AND 4(c) hereof and in the event of such withdrawal the Lessee shall be deemed to have at no time exercised the relevant options and neither party shall be liable to pay the other any sum for damages costs or expenses in respect of such failure to exercise the relevant option." (my emphasis) URJ MODIFICATIONS PTY LTD v DOYLE (Clarke JA) 9 Here, it was argued, was a contractual term which made the position quite clear. The rent for the new term was to be fixed following a two stage operation. The first stage being the determination of the market rent, either by agreement or assessment by valuers, and the second stage being the application of the cap in CLA4(e) which may, or may not, limit the extent of the increase. This, it was submitted, was the clear consequence of the use of the words "after receiving notice of the final and binding rent determination made pursuant to sub-clauses 4(b) and 4(e) hereof." On the question of the commercial sensibility of the construction for which it argued the lessees pointed out that the lessor had, to an extent, misstated the situation and suggested that their construction was at least as commercially sensible as that for which the lessor argued. The premises were commercial premises and, given the size of the rent and the number of car parking spaces for which provision was made (30), it was obvious that a fairly large operation was envisaged. Any commercial organisation setting up its operations in premises of this nature would be concerned to secure the right to a long term occupation of the premises at a rental which was revised in a relatively predictable and ordered way. As it was clear that the market rent might change from year to year in a fairly dramatic fashion the lessees would be concerned to ensure that some limitations were placed upon the adoption of a market rent in order to avoid a situation where they found itself after three, or six, years occupation of the premises facing a rental which made their operations unprofitable or commercially disastrous. On the other hand, the lessor may well have been been concerned to ensure that it secured a return from the premises which kept pace with movements in the Consumer Price Index (All Groups) Sydney. Both these concerns were met upon the construction for which the lessees argued. By virtue of CLS and CL4(e) the rent was to maintain a relationship with the Consumer Price Index at all times. In the light of CL4(b), which provided that the rent for a further term which came into existence upon the exercise of an option should never be less than the rent for the previous year, the lessor was protected against the effects of any drop in market values. Although there may be no increase for that year consequent upon an increase in the consumer price increase a reasonable relativity was secured. Upon this argument the review provisions contained two caps. One, provided by CL4(b), ensured that, notwithstanding the market rent, the rent for the new term would never be less than that for the third year of the previous term and the other, provided by CL4(e), that the rent for the first year of the new term could not be greater by the stated percentage than the rent for the first or third year of the previous term. Counsel argued that this was a reasonable construction which provided a measure of certainty to the lessor and a measure of security to the lessees and, at the same time, maintained a healthy balance with rises in costs in the community. In addition it demonstrated that it was simply wrong to say, as the lessor had said, that the parties intended that the rental for the first year of a new term should be fixed solely by reference to the market. That that was wrong appeared from CL4(b) the effect of which was to disallow any reduction in the rent if the current market rent was less than that which had been fixed for the preceding year. It seems to me that both the arguments on commercial sensibility have their attractions and I am quite unable to say that one flouts business sense or leads to an unreasonable result. If I were forced to indicate a preference I would opt for that construction which provided for a cap at both ends rather than a cap solely 10 UNREPORTED JUDGMENTS at the lower end. But I regard my preference as a matter of irrelevance. The construction of this lease is not to be determined upon my idiosyncratic view that one construction leads to a slightly more sensible result than the other. The effect of the authorities, in my view, is that recourse to business common sense is available only where the words used are not clear (and that is certainly so in this case) and one result contended for is so unreasonable that it could not be contemplated that the parties intended it. This is a very different matter from determining a construction question upon a slight preference for a particular result where both constructions lead to results which appear to be reasonable. Accordingly, I get no assistance from the reasonableness argument. In my opinion the case falls to be determined upon the words used. In that context I return to CL4(c). It is a powerful factor in favour of the lessees' argument and it is clear in its expression of the concept that the final and binding rent determination is made pursuant to CL4(b) and CLA(e). I say that, first, because that is what the clause says and, secondly, as it is directed to the content of a notice which the lessor is obliged to serve before or shortly after, the commencement of the new term. That notice must set out the rent determination made pursuant to the two sub-clauses. It is quite inconsistent with the notion conveyed by this clause that CL4(e) operates as a cap on the rent payable for the second and third years of a new term. Apart from anything else the lessor would not be in a position, at the start of a new term, to express a final rent determination for the second and third years given the terms of CLS. The lessor's only answer to CL4(c) is that "sub-clauses" should be changed to "sub-clause" and the words "and 4(e)" should be read out of the clause. Alternatively, as Priestley JA has suggested, the words "referred to in" may be inserted after "and" prior to "4(e)" but that is little different from simply omitting the reference to 4(e) completely. This I regard as fairly drastic surgery. CL4(c) therefore provides a clear indication that the two stage process for which the lessees argue is to be applied. While CL4(e) is uncomfortably expressed it can be interpreted in a reasonable manner to fit in with that clear expression of intention. The alternative view which is capable of arising upon a reasonable construction of 4(e), when read alone, is utterly inconsistent with CLA(c) unless its meaning is dramatically changed. In these circumstances I agree with Giles J that the choice between reasonable interpretations of CL4(e) should be dictated by the clear expression in CL4(c) and that the lessees' construction is correct. In my opinion the appeal should be dismissed with costs. 1. Parties to bring in short minutes of order to give effect to the Court's opinion; and 2. Appeal relisted on 29 April 1991 at 2:15 p.m. for the making of final orders. Counsel for the Appellant: PM Briscoe, J Stuckey Clark Counsel for the Respondent: SD Robb Solicitors for the Appellant: DG Bowles and Co Solicitors for the Respondent: Hunt and Hunt