Reported Decision : (2003) NSW ConvR 56-051 New South Wales Supreme Court CITATION : The Wentworth Hotel Sydney Pty Limited v Gavilan Holdings Pty Limited & Ors [2002] NSWSC 597 Equity Division CURRENT JURISDICTION: Commercial List FILE NUMBER(S) : SC 50120/01 HEARING DATE(S) : Monday, 1 July 2002 JUDGMENT DATE : 5 July 2002 PARTIES : Wentworth Hotel Sydney (Pltf) Gavilan Holdings (1D) JUDGMENT OF : McClellan J COUNSEL : D Hammerschlag SC/V Kerr (Pltf) R Weber SC (1D) SOLICITORS : Dexter Healey (Pltf) Colin W Love & Co (1D) CATCHWORDS : LEASE - proper construction of a clause in lease which provided for its termination in the event that plaintiff wishes to carry out work on the hotel building - definition of "Termination Date" CASES CITED : Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Brambles Holdings Limited v Bathurst City Council (unreported 2001 NSWCA) DECISION : Para 22 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McCLELLAN J FRIDAY 5 JULY 2002 50120/01 WENTWORTH HOTEL SYDNEY PTY LIMITED v GAVILAN HOLDINGS PTY LIMITED JUDGMENT 1 HIS HONOUR: The plaintiff is the owner of the Wentworth Hotel in Sydney. The defendant is the lessee of a shop within the hotel "the demised premises." The dispute between the parties concerns the proper construction of a clause in the lease which provides for its termination in the event that the plaintiff wishes to carry out work on the hotel building. The clause is titled "Termination for Redevelopment." A similar dispute existed with other lessees but proceedings relating to the other parties have been settled. 2 The lease commenced on 11 January 1998 and has a term of five years. Accordingly it will expire on 10 January 2003. 3 In the further amended summons the plaintiff seeks a declaration which is intended to clarify its rights in relation to the termination of the defendant's lease. In the alternative, orders by way of rectification are sought. A claim is also made for damages. Because of the way in which the matter developed the parties have agreed that I should first determine the question of the proper construction of the lease, and only, if it is necessary, consider matters of rectification and damages. Accordingly these reasons are confined to consideration of the question of the true meaning of cl 18 of the lease. An order to this effect will be made. 4 Provision is made in cl 17 of the lease for the plaintiff to obtain vacant possession for the purposes of refurbishment or alterations to the demised premises, or the hotel building itself. There are conditions attached. The clause provides as follows: "17.1 Vacant Possession Notwithstanding anything herein or elsewhere expressly contained or implied the Lessor reserves the right at any time during the Term of this Lease for the purposes of refurbishment or alterations to the Demised Premises or the Building to require vacant possession of the Demised Premises. Should the Lessor require such vacant possession of the Demised Premises it shall: (a) provide the Lessee with details of a proposed refurbishment, redevelopment or extensions sufficient to indicate a genuine proposal that is to be carried out within a reasonably practicable time after relocation of the Lessee's business and that cannot be carried out practicably without vacant possession of the Lessee's shop (b) serve upon the Lessee at least three (3) months notice in writing ("relocation notice") specifying the date upon which vacant possession shall be required and offering alternative premises in the Building for occupation by the Lessee; (c) offer a new lease of the alternative premises on the same terms and conditions (including as to rent) as this Lease except that the term of the new lease is to be for the remainder of the Term of this Lease; and (d) pay the Lessee's reasonable costs of the relocation, including legal costs. 17.2 Termination of Lease by Lessee (a) If a relocation notice is given to the Lessee in accordance with clause 17.1, the Lessee may terminate this Lease within one (1) month after the relocation notice is given by giving written notice of termination to the Lessor, in which case the Lease is terminated three (3) months after the relocation notice was given unless the parties agree that it is to terminate at some other time. (b) If the Lessee does not given a notice of termination in accordance with sub-clause (a), the Lessee is taken to have accepted the offer of a Lease as referred to in clause 17.1(c), unless the parties have agreed to a lease on some other terms. 17.3 No Obligation Notwithstanding anything herein or elsewhere expressly contained or implied the Lessor is not required and is not under any obligation whatsoever to relocate the Lessee during the Term of this Lease." 5 The right under cl 17 may be exercised at any time. 6 Clause 18 of the lease makes provision for termination in the event of a desire by the plaintiff to "refurbish, redevelop or carry out renovations or extensions to the building" in circumstances where the demised premises are required or will be damaged or made unsafe or inaccessible or where there is a desire by the plaintiff to demolish the building. Conditions, including a time provision, are attached. No doubt this provision was included because, if the clause is invoked, unlike cl 17, the defendant has no rights to an alternative lease or compensation. "18.1 Lessor's Entitlement to terminate Notwithstanding anything contained or implied in this Lease, where the Lessor wishes to: (a) refurbish, redevelop or carry out renovations or extensions to the Building (or any combination of the foregoing) as a result of which the Lessor will require the Demised Premises or the Demised Premises will be damaged or made unsafe or partly or wholly inaccessible whether temporarily or permanently, or (b) demolish the Building, THEN the Lessor may terminate this Lease effective from 30 June 2000 (the "Termination Date"), without compensation or damages by not less than six (6) months' notice of such wish. (c) Upon the Termination Date: (1) the Lessee must vacate and deliver up the Demised Premises in the condition and state of repair specified in clause 12.4; (2) the Lessee must comply with the provisions of clause 11.2 (and, in the case of failure to comply, the provisions of clause 11.3 will apply); (3) the Lessor may re-enter the Demised Premises; and (4) this Lease shall be at an end. (d) In respect of the termination of this Lease pursuant to this Part: (1) neither the Lessor nor the Lessee shall have any right or claim for compensation whatever against the other pursuant to this Lease; (2) the rights of the Lessor in respect of any antecedent breach, default, matter or thing under this Lease shall not be prejudiced; (3) the Lessee must, if requested by and at the cost of the Lessor, forthwith execute and deliver to the Lessor an instrument of surrender of this Lease in the form required by the Lessor. 7 The defendant contends that the clause should be construed so that the plaintiff may only terminate the lease with effect from 30 June 2000. The consequence is that notice would have been required to have been given by 1 January 2000. As this did not occur it is submitted that the plaintiff has lost any right to terminate the lease pursuant to the clause. The defendant's construction confines the defined term "Termination Date" to 30 June 2000 and no other date. 8 It is further submitted by the defendant that its preferred construction of the clause has a commercial rationale for it has the consequence that the defendant knew, when it entered into the lease, that unless notice was given to it by the end of 1999, the lease could not thereafter be terminated pursuant to cl 18. Accordingly, that date having passed, it is said that the defendant may continue to trade with greater certainty than might otherwise be the case. 9 The plaintiff contends for a different construction of the clause. It submits that because the draftsperson believed it necessary to provide a definition of the "Termination Date", it is plain that the date was not provided by the clause but would vary depending upon the date upon which, after giving the appropriate notice, the lease was actually terminated. It is submitted that the "Termination Date" is not a reference to 30 June 2000 but rather a reference to the date nominated in any notice issued in accordance with the clause. The clause must be understood as providing a right to terminate which is only available after 30 June 2000 and then, only after giving the required notice. 10 In my opinion the plaintiff's argument should be accepted. 11 Clause 17 of the lease provides for the plaintiff to require vacant possession of the demised premises upon condition that appropriate provision is made for the defendant. Provided the conditions are met the plaintiff could exercise the right at any time. By contrast cl 18 provides an opportunity for the plaintiff to require vacant possession of the premises without providing compensation or any other amelioration of the impact upon the defendant. The impact on the defendant could be significant and in my opinion the clause must be construed so that any ambiguity is resolved in its favour. A construction of the clause which provides the greatest benefit to the defendant should be preferred. This is the construction which provides the longest possible term under the lease. 12 In my opinion the reference to the date, 30 June 2000 in cl 18(1) is made for the purpose of providing the date upon which the right of the plaintiff to terminate the lease becomes available. It is of course a right which is exercisable by giving the appropriate notice. The clause should be understood so that from 30 June 2000 the plaintiff may serve the notice which will provide the "Termination Date" of the lease. 13 If the lease could only be terminated on the one day: ie 30 June 2000, there was no purpose in defining a "Termination Date" and reference to 30 June 2000 would have been sufficient. However, if it be the case, that the clause provides that the "Termination Date" could be any day after 1 January 2001 there was purpose in defining the term. The "Termination Date" is the date upon which termination occurs, whenever this may be. 14 The use of the expression "effective from" is a further indication that the plaintiff's construction should be preferred. If the right to terminate was intended to be confined as the defendant suggests, it would have been appropriate to provide that the lease may be terminated on that day, or, with effect from that day. The use of the expression "effective from" suggests a right or obligation which arises on that day but continues thereafter. 15 In the course of the proceedings the plaintiff tendered the letter from its agent to the defendant which provided the terms and conditions which, to use the words of the letter, "will be provided to our client's solicitor for preparation of relevant documentation." Under the heading Demolition Clause, the following was stated: "Effective 30 June 2000 with six (6) months notice required." 16 A statement to the same effect was included in the itemised leasing schedule which was accepted by the defendant. 17 It was submitted by the plaintiff that, there being a relevant ambiguity in clause 18.1 of the lease, it is permissible to examine the contractual documentation which preceded the lease to resolve the ambiguity. See Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 and the discussion by Heydon JA in Brambles Holdings Limited v Bathurst City Council (unreported 2001 NSWCA). 18 It was submitted by the defendant that in the circumstances of the present case it was not permissible to look at these documents. 19 In my opinion the construction of clause 18 is sufficiently clear and it is unnecessary to examine the earlier documentation. However, if it was necessary, and permissible, in my opinion it would support the plaintiff's argument The form of words which provides for a demolition clause which is "effective 30 June 2000 with six months notice required" is in my opinion only capable of being understood as providing that a demolition clause will be included, but that it will not operate until 30 June 2000 and then, only in the event that the six months notice is given. It is not consistent with a clause which only provides for termination of the lease on 30 June 2000. 20 Counsel for the defendant adverted to the caution which is necessary when a court is invited to determine the proper construction of a contract by reference to the assumed commercial intention of the parties. Although care must be exercised in that regard, I am satisfied that the commercial implications which arise from the competing constructions of the clause are of some assistance in the present case. 21 If the defendant's argument is accepted the consequence would be that the lease could be terminated half way through its term and only at that time. If the plaintiff had in mind exercising its right to terminate but, perhaps at a later point in time, it would be forced to exercise the right and terminate at 30 June 2000, or the right would be lost. It makes commercial sense for the parties to confine the plaintiff's right so that the defendant could at least enjoy half the term of the lease before receiving a notice and then, only be required to vacate the premises, if, at any time thereafter the plaintiff formed the requisite intention and served the required notice. The construction preferred by the plaintiff provides the greater benefit to the defendant by ensuring the lease endures for the longest possible period. 22 For these reasons, in my opinion, the declaration sought by the plaintiff in para 1A of the summons should be made. 23 The plaintiff is to bring in short minutes of order to reflect these reasons and provide for the future conduct of the proceedings. ********** Last Modified: 09/06/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.