Portfolio Leasing v Nortel [1999] NSWCA 136

New South Wales Court of Appeal CITATION : Portfolio Leasing v Nortel [1999] NSWCA 136 FILE NUMBER(S) : CA 40214/98 HEARING DATE(S) : 19 March 1999 JUDGMENT DATE : 19 March 1999

PARTIES : Portfolio Leasing Australia v Nortel Australia Pty Limited JUDGMENT OF : Mason P at 15; Meagher JA at 1; Sheller JA at 19

LOWER COURT JURISDICTION : Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S) : 10014/98 LOWER COURT JUDICIAL OFFICER : Bruce J

COUNSEL : Appellant:M. Skinner Respondent: B. Coles QC/ M.Young SOLICITORS : Appellant: Lincoln Smith & Company Respondent: Cowley Hearne CATCHWORDS : Stated case - lease of equipment - subsequent purchase of subject equipment - alleged ambiguity of terms. DECISION : Apeal allowed

- 8 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA: 40214/98

MASON P MEAGHER JA SHELLER JA

Friday 19 March 1999 PORTFOLIO LEASING AUSTRALIA v NORTEL AUSTRALIA PTY LIMITED JUDGMENT

1 MEAGHER JA: This is a case which is an appeal from Mr Justice Bruce involving a dispute between a landlord and tenant of certain equipment. The matter first came before a learned Magistrate, Mr Beveridge, and he found in favour of the lessor of the equipment. From that decision a stated case was taken by Justice Bruce who reversed the learned Magistrate and found in favour of the lessee of the equipment. 2 In my view, if I may state it at the commencement of the case, the learned Magistrate was correct and His Honour was incorrect. The facts, which are fairly simple, are these: 3 On 14 February 1990 one item of equipment was leased by the lessor Portfolio Leasing Australia Limited to the lessee Nortel Australia Pty Limited. It was an agreement which ran for thirty six months from 14 February 1990 at a rental of $3,317 per month payable in advance. 4 On 14 March 1990 there was a second agreement between the same parties involving another piece of equipment. That agreement was for thirty-six months from 14 March 1990 at a rental of $672 per month payable monthly in advance. 5 The term of the first rental agreement expired on 14 February 1993. The term of the second agreement expired on 14 March 1993. 6 The lessee of the equipment Nortel paid rent under both agreements. Under the first one at the rate of $3,317 a month up until October 1993 and under the second rate of $672 per month up until the same date. The lessee of the equipment did not give to the lessor any notices in respect of either rental agreement nor did it ever return either of the goods to the lessor. 7 On 24 March 1994, the lessee paid nearly $10,000 to the lessor for the purchase of the goods the subject of the agreements. That agreement should be referred to in two respects. Clause 8 of the agreement contains two sub-paragraphs a) and b) as was suggested in argument by learned senior counsel for the respondent lessee. The first sub-paragraph hardly matters but the second sub-paragraph does in the following terms. Where the owner does not receive from the renter any written notice of cancellation ninety days prior to the expiration of the term of this agreement or where the renter does not return the equipment in accordance with paragraph 12 by the effective date of cancellation associated with a valid notice of cancellation as provided for in paragraph 8A - in either of these events the term of the agreement shall immediately be renewed for a period equal to the lesser of the initial term or twelve months. The provisions of this paragraph 8 shall also apply after the expiration of each such period of renewal. That is one of the two relevant passages in the lease document. 8 The other one is in a box on the front page of the lease which is headed rentals and contains the following words: "Initial term 36 months from commencement date. Fixed monthly payments of $3,317" and I interpolate there that is in respect of the first of the two leases, there is a different figure in respect of the second one. "Additional provisions, option to renew rental for a further 24 months at $880 per month." 9 The question which arises in the present case is whether there is an ambiguity between the two provisions: that is clause 8 and the rental provision, and if so how that ambiguity ought to be resolved. In my view the document contains no ambiguity whatever and the occasion of devising some means of solving a problem simply does not arise. The two provisions are not inconsistent and each can operate according to its meaning. They are both unambiguous and each can co-exist with each other. 10 When the rental period in respect of either lot of equipment expired the lessee was in effect given a choice. He could either indicate that he wished to exercise the option and thereby pay $880 per month under the first agreement and $178 per month under the second agreement both for a period of twenty-four months. Alternatively he could do nothing at all and just continue paying the annual rental that he always had been paying in which case he would have had an additional term of twelve months at a much higher rental. 11 There was no need in my view to speculate as to what considerations led the parties to achieve this result. Though one may guess that from the lessor's point of view it was a very sensible result though it would know that the goods in question would not be returned to it unexpectedly nor quickly. However, whatever the motives of the parties in arriving at that result, that was the result they arrived at. 12 Mr Coles QC in an interesting argument, suggested various ways that some other interpretation of the document should be determined in the interests of reading the document as a whole so each part was harmonious with the other or alternatively in order to give the document business efficacy. However, in my view the construction which was achieved by the then Stipendiary Magistrate achieved both those results. He did construe the document in a harmonious manner and he did construe it in the manner which gave it business efficacy. 13 The difficulty with the judgment under review is that both those rules were negatived. If one comes to any other conclusion one has all sorts of questions such as when does the option referred to in the rental provision of the document arise? When should it be given and in what manner can it be given - orally or in writing? And if the period under clause 8B can commence running can the option be given in that period (or not) and if it can be what will be the effect of it? 14 All these questions are questions of the utmost ambiguity but do not even arise unless one adopts the construction which Mr Justice Bruce seemed to favour. In my view therefore the Appeal should be upheld and the respondent should pay the appellant's costs. 15 MASON P: The rental agreement seems to me to have given effectively three choices to the renter. The renter could by resort to clause 8 give 90 days notice of cancellation, and provided the renter then returned the goods at the end of the term that was the end of the agreement. 16 Alternatively, the renter could do nothing in which event, in the opening words of clause 8, the agreement would be "automatically renewed" and that renewal would be at the rental stated in the box on page 1. 17 The third alternative was the exercise of the option to renew conferred by the typewritten provision described as an additional provision in the box on the face of the agreement. If that option was duly exercised (and it matters not for present purposes when it had to be exercised) then it would take effect according to its tenor. 18 It is not suggested that the option was exercised in any way other than through the argument that the typed clause is to be merged with the printed clause and treated as having been automatically exercised. To my view that is a forced reading of the agreement. I agree that the appeal should be upheld. 19 SHELLER JA: I agree with what the President has said about there being three choices. That conclusion involves no ambiguity of language. The conclusion is not surprising in a business sense. It does, it seems to me, no injury to the language used and requires no surgery such as is suggested by the argument put on behalf of the respondent. Accordingly, I agree with the Magistrate's conclusion. I do not think the Magistrate erred in law. I agree this appeal should be upheld and that the respondent should pay the appellant's costs with a certificate under the Suitor's Fund Act if qualified. 20 MASON P: The orders of the Court will be: 1. Appeal allowed. 2. Judgment of Justice Bruce that took effect on 17 July 1988 set aside. 3. The Judgment entered for the respondent against the appellant in the sum of $33,672.10 be set aside. 4. Summons dismissed with costs. 5. The respondent to pay the appellant's costs of the appeal and to have a certificate under the Suitor's Fund Act if qualified.