Supreme Court New South Wales Medium Neutral Citation: Whitehouse Properties Pty Limited v BP Australia Pty Limited [2014] NSWSC 410 Hearing dates: 3 April 2014 Decision date: 11 April 2014 Jurisdiction: Equity Division - Technology and Construction List Before: Ball J Decision: (1) The question identified for separate determination by Hammerschlag J on 21 March 2014 be answered "No". (2) The summons be dismissed. (3) The plaintiff pay the defendant's costs of the proceedings. Catchwords: CONTRACT - construction - lease - whether defendant obliged to remove "hardstand" - whether hardstand a "trade fixture Legislation Cited: Conveyancing Act 1919 (NSW) Uniform Civil Procedure Rules 2005 Cases Cited: D'Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317 Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 Geita Sebea v Territory of Papua [1941] HCA 37; (1941) 67 CLR 544 New Zealand Government Property Corporation v HM & S Ltd (the New York Star) [1982] 1 QB 1145 Category: Separate question Parties: Whitehouse Properties Pty Limited (Plaintiff) BP Australia Pty Ltd (Defendant) Representation: Counsel: CRC Newlinds SC with D Klineberg (Plaintiff) J Stoljar SC with JAC Potts (Defendant) Solicitors: Henry Davis York (Plaintiff) Clayton Utz (Defendant) File Number(s): 2013/384998 Publication restriction: Nil Judgment Introduction 1These proceedings concern the lease of land at Dural owned by the plaintiff, Whitehouse, to the defendant, BP (the 2002 Lease). Constructed on the land was a service station and convenience store. The lease was terminated on 30 April 2013. Following its termination, BP removed the convenience store and much of the service station. However, it did not remove a concrete hardstand (the Hardstand), which is a large area of concrete that forms the apron on which the service station pumps and associated canopy rested and onto which motor vehicles drove in order to obtain access to the pumps. The question with which this judgment is concerned is whether BP is obliged by the terms of the 2002 Lease to remove the Hardstand. 2The question arises separately as a result of an order made by Hammerschlag J on 21 March 2014 pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 that the following question be determined separately and in advance of all other questions in the proceedings: Whether the Defendant is required pursuant to clause 7.3 of the 2002 Lease to undertake all steps necessary to remove the Hardstand? It is agreed between the parties that if that question is answered favourably to BP - that is, if the question is answered "no" - that will dispose of the whole proceedings. If the question is answered favourably to Whitehouse, other questions concerning remediation of the land arise in the proceedings. Background 3By an agreement for lease (the Agreement for Lease) made on 10 October 1996 between Whitehouse, Burmah Fuels Australia Limited (BFAL) and Burmah Castrol Australia Limited (BCAL), BFAL agreed to construct a service station and convenience store (together, the Service Station) on the Dural land in accordance with the plans and specifications identified in the agreement and, following construction of the Service Station, Whitehouse agreed to grant BFAL a lease of that part of the land on which the Service Station was situated (the Land) on terms attached to the agreement (the 1997 Lease). 4The term of the 1997 Lease was 4 years and 364 days. Clauses 11.1 and 12.1 of the Agreement for Lease then granted options alternately to BCAL (cl 11.1) and BFAL (cl 12.1) to take leases of the Land each for a further term of 4 years 364 days, the last of which, if exercised, expired 19 years 364 days after the commencement date of the 1997 lease (so that, in all, 3 options were granted, the first of which was to BCAL). A later option could not be exercised unless the immediately preceding one had been. The Agreement for Lease provided in each case that the new lease was (with one minor irrelevant modification in the case of leases taken by BCAL) to be on the terms of the 1997 Lease and that the rent payable under the new lease was to be calculated in accordance with cl 2.1 of the then existing lease "as if the new period were a continuation of the preceding period and provided the rent shall not be less than that payable in the last year of the preceding period". It may be inferred that the Agreement for Lease was structured in this way to take advantage of s 23G(d)(i) of the Conveyancing Act 1919 (NSW), which creates an exception to the operation of s 23F in the case of leases for a period of less than 5 years. Section 23F(2) relevantly provides: The Registrar-General may refuse to register a transaction to which this section applies [which includes a lease of part of a lot] unless: (a) the land to which the transaction relates is shown on a current plan, and (b) the boundaries of each part into which the land is divided as a result of the transaction follow the boundaries of an existing lot. 5The Agreement for Lease provided that the commencement date of the 1997 Lease was the first day that BFAL commenced trading, which was 25 February 1997. 6BCAL exercised the first option (granted by cl 11.1 of the Agreement for Lease) and Whitehouse and BCAL executed a new lease for the period of the option, which became the 2002 Lease. 7On or about 17 November 2006, BFAL sent a letter to Whitehouse purporting to exercise the option granted by cl 12.1 of the Agreement for Lease. However, no new lease for the period from 25 February 2007 to 23 February 2012 was entered into. 8BFAL is a wholly owned subsidiary of BCAL and is now in liquidation. Since August 2000, BCAL has been a wholly owned subsidiary of BP. At some point (it is not apparent from the material before the court when), the rights and liabilities of BFAL and BCAL under the Agreement for Lease and the 2002 Lease were novated or assigned to BP. 9Following the expiration of the 2002 Lease, BP remained in occupation of the Land operating the Service Station until 30 April 2013, when it ceased trading. It remained in occupation pursuant to cl 10 of the 2002 Lease, which provided for a monthly tenancy in the event that BP remained in possession following expiration of the term. 10Subsequently, BP removed part of the Service Station, including the convenience store and the underground storage tanks and associated piping. It is not clear from the material before the court how it came to do so. It has not removed the Hardstand. Nor has it removed part of the installation associated with the drainage system for the Service Station, including a sump and coalescing pit, which are designed to collect hydrocarbon waste from surface run-off. 11Under cl 4 of the 2002 Lease, BP was permitted to use the premises only for the purpose of carrying on the business of a service station including the sale of items usually sold in service stations in New South Wales. 12Clause 6.1(a) of the 2002 Lease provided: The Tenant shall not make or permit to be made any alterations additions or improvements to the premises or alter put or place any fixtures thereon without the written approval of the Landlord first had and obtained (such approval not to be unreasonably withheld) and then only to such extent in such form or manner at such time and upon such conditions as the Landlord shall reasonably approve. 13Clause 7.3, which is the critical clause in the 2002 Lease, provided: Tenant's Fixtures (1) Notwithstanding the provisions of clause 6.1, the Tenant shall have the right to install fuel pumps, pole signs, underground storage tanks and any other trade fixtures ("the Fixtures") from time to time during the term of this Lease. (2) Subject as hereinafter provided, the Fixtures shall not be subject to tenant's rights and the Tenant at the expiration of the term of this Lease shall not be entitled to remove the same or to compensation therefore and shall if so requested by the Landlord acknowledge that the Landlord has an indefeasible right of ownership thereof as against the Tenant provided that (3) if the Landlord so requires the Tenant must at its own cost remove all of the Fixtures prior to the expiration or earlier termination of the term and at its own cost reinstate all damage done to the demised premises in the installation or removal thereof. (4) All distinctive marks or signs of the Tenant, fuel pumps cash registers and self-serve consoles installed by the Tenant shall remain the property of the Tenant, but the Landlord may purchase the fuel pumps and self serve consoles from the Tenant at their then written down value if so requested by the Landlord before termination. (5) The underground storage tanks shall become and remain the property of the Landlord. The numbers in parentheses have been added for ease of reference. 14In the way in which Whitehouse puts its case, cls 14.1 and 14.2 of the 2002 Lease are also relevant. They provide: 14.1 Prior to the commencing date of the Lease the Tenant and its duly authorised agents and consultants shall have uninterrupted access to the Demised Premises to carry out (at the cost of the Tenant) all necessary testing and an environmental audit of the land. The parties hereby grant their written consent and permission for a full environmental audit which shall be made at the Tenant's cost to be carried out on the Demised Premises. The parties shall jointly commission such audit and testing and arrange for same to be carried out and completed prior to the commencing date of this Lease. This report shall be the "baseline report". 14.2 On the terminating date of the Lease the parties shall jointly commission and the Tenant shall bear the cost of an environmental audit of the Demised Premises and any contamination found thereon that was not disclosed in or is greater than the contamination disclosed in the baseline report shall be removed and rectified promptly at the cost of the Tenant. 15BP prepared a report shortly before the commencement of the 1997 Lease which arguably meets the description of the "baseline report". No subsequent environmental report was prepared by the parties prior to the termination of the 2002 Lease. 16It is Whitehouse's contention that cl 7.3 of the 2002 Lease gave it an option to require BP to remove the Service Station, including the Hardstand, and that it has exercised that option. BP contends that cl 7.3 is not so broad. It is simply concerned with the removal of tenant's fixtures which were installed during the term of the lease. Consideration 17The principles applicable to the interpretation of the 2002 Lease are not in dispute. Most recently, they were set out by French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 at [35] in the following terms: The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [Footnotes omitted] 18Part (1) of cl 7.3 gives BP a right, notwithstanding the prohibition in cl 6.1, to install certain equipment on the Land. The equipment is described as "fuel pumps, pole signs, underground storage tanks and any other trade fixtures". It raises 2 questions which are critical to the resolution of this case. One is whether the definition of "the Fixtures" is a reference to the identified items or whether it is a reference to such of those items as were installed by BP in exercise of the right conferred by cl 7.3 of the 2002 Lease. The other is what is meant by the words "any other trade fixtures". 19Before addressing those questions directly, it is desirable to say something more about the other parts of the clause. Part (2) of the clause sets out the general rule that applies to "the Fixtures" that are installed on the Land - namely, that they shall not be subject to tenant's rights and BP is not entitled to remove them. Part (3) contains an exception to that general rule. The exception is that, if Whitehouse requires BP to do so, BP must remove all of "the Fixtures" prior to the termination of the term and reinstate all damage done in the installation or removal of them. Part (4) sets out a further exception. BP is entitled to remove its distinctive marks and signs, the fuel pumps, cash registers and self service consoles that it installed. However, Whitehouse is given an option to purchase the fuel pumps and self service consoles at the price identified in the clause. Part (5) of the clause states that the storage tanks belonged to Whitehouse. It appears that part (5) was something of an afterthought. It was written in hand in the 1997 Lease although it was typed in the 2002 Lease. Taken alone, part (5) appears to be ambiguous. It may mean that, notwithstanding anything else in cl 7.3, BP was not entitled to remove the underground tanks and Whitehouse was not entitled to request their removal. Alternatively, it may mean that the underground tanks, once they were installed, belonged to Whitehouse. On the second interpretation, it is difficult to see what the sentence adds to the rest of the clause. 20In my opinion, it is preferable to read the expression "the Fixtures" as referring to the identified items and not to a subset of those items installed during the term of the 2002 Lease. In accordance with the Agreement for Lease, BP was to construct the Service Station on part of Whitehouse's land and was to be entitled to operate the Service Station for a period of up to 19 years 364 days. The lease itself provided that, on termination of that arrangement, BP was entitled to remove certain trade fixtures. Although the arrangement was structured as a series of options exercisable by 2 different companies, it is clear that the commercial arrangement was one that could last for a period of up to 19 years 364 days at BP's option. The terms of each lease were substantially the same. Rent was calculated on the basis that a later lease was a continuation of the previous one. From a commercial point of view, it was BP or BFAL that was going to continue to operate the Service Station, albeit through different legal entities. 21Clause 7.3 of the 2002 Lease had two main objects. Notwithstanding the prohibition in cl 6.1, and notwithstanding that the building work had been completed, it permitted the tenant to continue to install items falling within the description "the Fixtures". Second, it sought to deal with ownership and removal of those items on termination of the lease. In some cases, it permitted the tenant to remove those items. In the context, it makes no commercial sense to limit the right to remove items to a right to remove items installed during the period of the then current lease. If BP is right in its submissions that the right conferred by cl 7.3 is to be limited in that way, then, for it to have preserved that right, it would have been necessary on the termination of each lease for either BCAL or BFAL to remove the relevant items on the last day of its lease and presumably for the other to reinstall them on the first day of its lease. It is hard to believe that that is what the parties contemplated. 22I accept Whitehouse's submission that some support for the conclusion of the previous paragraph can be found in cls 14.1 and 14.2. Those clauses contemplated the preparation of a baseline report to establish the environmental state of the Land at the time the 1997 Lease was entered into. They also provided for the preparation of a second report on termination of the lease and placed an obligation on BP to remove any additional contamination disclosed by the second report. The parties must have contemplated that that process would only occur once, not on the expiration of each lease that was followed by a new lease. 23It does no violence to the words of part (1) of cl 7.3, or the rest of the clause, to interpret the definition of "the Fixtures" as referring to items of particular types rather than items of that type that were installed during the term of the particular lease. On the first interpretation, the right of removal is broader than the right of installation. But that is in a context where the tenant at one point or another installed all the items that comprise the Service Station. Interpreting the definition as referring to the particular items rather than when they were installed is consistent with the object of the clause when considered in the context of the commercial relationship between the parties as a whole. For that reason, I prefer that interpretation. 24The second question is what is meant by the expression "other trade fixtures". BP submits that the expression means "trade fixtures" and that that expression is a term of art. As a term of art, the phrase, like its synonym "tenant's fixtures", has an accepted meaning. That meaning was explained in these terms by Lord Denning MR in New Zealand Government Property Corporation v HM & S Ltd (the New York Star) [1982] 1 QB 1145 at 1157: Before I go any further, I would describe the distinction between "tenant's fixtures" and "landlord's fixtures." The term "tenant's fixtures," for present purposes, means those fixtures which the tenant himself fixed into the premises for the purpose of his trade, that is, for the business of the theatre, but which do not become part of the structure itself. Instances are the seats for the stalls, or auditorium, which are fixed by screws or bolts to the floor, wall-brackets for lights which are screwed on to the wall, electric transformers fixed on to the floor, and so forth. All these the tenant is entitled to remove when his term comes to an end. Whereas "landlord's fixtures" for present purposes means those fixtures which the tenant himself fixes into the premises so that they become part of the structure itself: see Boswell v. Crucible Steel Co. [1925] 1 K.B. 119. Instances are improvements made by the tenant by putting in new doors or windows in place of those that were there before, or a new frontage or a new safety curtain. These improvements become part of the structure itself. The tenant cannot remove them when his term comes to an end. All this goes back to the time of Sir John Holt C.J. who had before him Poole's Case (1703) 1 Salk. 368. A soap-boiler was the tenant for years of a house in Holborn. For the convenience of his trade he put up vats and coppers and paved the back-yard. Sir John Holt C.J. said: "First, That during the Term the Soap-boiler might well remove the Vats he set up in Relation to Trade, and that he might do it by the Common Law (and not by virtue of any Special Custom) in favour of Trade and to encourage Industry: But after the Term they become a Gift in Law to him in Reversion, and are not removeable. Secondly, That there was a Difference between what the Soap-boiler did to carry on his Trade, and what he did to compleat the house, as hearths and Chimney-pieces, which he held not removeable." See also D'Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317. 25There can be little doubt that the Hardstand is not a trade or tenant's fixture in this sense. It is part of the structure of the Service Station. It cannot be removed without destroying it. It is no different from the runways, drainage system and parking areas comprising part of an aerodrome that the High Court held in Geita Sebea v Territory of Papua [1941] HCA 37; (1941) 67 CLR 544 were not tenant's fixtures. 26Whitehouse submits that the expression "trade fixtures" is not a term of art as used in cl 7.3. In its submission, the expression "other trade fixtures" must be interpreted broadly to include at least the Hardstand and, on the most extreme version of its submission, every component of the Service Station. The underground storage tanks could not be described as "trade fixtures" as that expression is used in its usual or technical sense. However, it is clear that the parties intended to treat them as "trade fixtures" for the purposes of the clause otherwise they would not have used the word "other". The underground storage tanks could not be removed without removing part of the Hardstand, which in fact is what has happened. Consequently, the parties must have intended that the Hardstand at least also fell within the description of "other trade fixtures". The interpretation for which Whitehouse contends is said to be consistent with the commercial object of the clause. By the Agreement for Lease, BP (or, more accurately BFAL) was given a right to build a Service Station on Whitehouse's land and to lease the Service Station for a period of time. The purpose of cl 7.3, among other things, was to give Whitehouse a right to require BP to remove what it had built - a right to return the Land to its "green fields" state, to use the words of Mr Newlinds SC, who appeared for Whitehouse. 27I do not accept Whitehouse's submission. I say that for a number of reasons. 28First, the submission places too much emphasis on the word "other". Some of the items set out in part (1) of cl 7.3 are plainly trade fixtures. Fuel pumps are an example. They are fixed to the Land but are used as part of the BP's business and can be removed. The parties used the word "other" for that reason. I do not think that it can be inferred that by using the word "other" they intended to convey the idea that all the items that are specifically referred to (that is, fuel pumps, pole signs and underground storage tanks) fell within some indeterminate meaning of the expression "trade fixtures". 29Second, in order to make commercial sense of the clause, Whitehouse was driven to the extreme version of its submission. It could offer no real reason for why the parties would have intended Whitehouse to have a right to insist on the removal of the Hardstand but not the convenience store. Consequently, it was driven to say that Whitehouse had a right to require removal of both and anything else that had been built or installed on the Land. But in doing so it contends for an interpretation that seems far removed from the words of the clause. 30Third, if Whitehouse's submission is correct, then part (1) of cl 7.3 also gave BP a right to install what it was entitled to remove, which was almost anything associated with the Service Station. Presumably, it would include, for example, a right to install an extended Hardstand and an extended convenience store. If the Hardstand and the convenience store fall within the description "other trade fixtures" it is difficult to see why extensions to them do not as well. However, part (1) is intended to be an exception to the general prohibition contained in cl 6.1(a), which prevented BP from making any additions or improvements to the Land without Whitehouse's consent. If Whitehouse is correct, that prohibition has no work to do. The rule is consumed by the exception (to paraphrase Lord Sumption). 31Fourth, I do not accept that Whitehouse's interpretation is consistent with the commercial arrangements between the parties when those arrangements are properly understood. It seems clear that the parties to the Agreement for Lease intended to give BFAL a right to build a service station on Whitehouse's land together with a right to lease that service station for a period of time. At the end of the lease, Whitehouse was entitled to keep the improvements that BP (BFAL) had made, subject to BP's limited right set out in part (4) of cl 7.3 to remove certain improvements and a right on the part of Whitehouse to require BP to remove the improvements, so that in effect the Service Station would be returned to the condition it was in at the beginning of the 1997 Lease. If the parties really had intended that Whitehouse would have a right to require BP to remove the Service Station, they would have said so expressly rather than bury that right in a clause which is directed at regulating BP's right to install additional equipment on the premises and its right to remove that equipment. 32Fifth, I do not accept Whitehouse's arguments in relation to the underground storage tanks. Part (1) of cl 7.3 conferred on BP a right to install additional underground storage tanks. However, I do not think that the parties intended that BP would ever have a right to remove those tanks or that Whitehouse would have a right to request that they be removed. That is why the parties included part (5) of cl 7.3. Unless part (5) is interpreted as saying that the right and obligation of removal (as opposed to the right of installation) does not apply to the underground storage tanks, it has no work to do. Having regard to the circumstances in which it was introduced, the parties must have intended part (5) to deal with a matter that they thought had been overlooked in the original drafting of cl 7.3. The fact that the parties have nonetheless agreed that BP would remove the underground storage tanks pursuant to arrangements which are not the subject of evidence cannot alter the correct construction of cl 7.3. And it is not suggested that those arrangements themselves gave rise to a right on the part of Whitehouse to insist on removal of the Hardstand. 33It follows that the separate question should be answered "no" and that the proceedings should be dismissed. There is no reason why Whitehouse should not pay BP's costs of the proceedings. Orders 34The orders of the court are: (1)The question identified for separate determination by Hammerschlag J on 21 March 2014 be answered "No". (2)The summons be dismissed. (3)The plaintiff pay the defendant's costs of the proceedings. ********** 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. Decision last updated: 14 April 2014