- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
David Jones Ltd v Perpetual Limited & Anor  QSC 337
DAVID JONES LIMITED ACN 000 074 573
No 5068 of 2006
Supreme Court at Brisbane
10 November 2006
16-20, 23-27 October 2006
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – PERFORMANCE OF WORK – GENERAL – where defendants to construct shopping centre in which plaintiff’s department store to operate – where defendants seek to build commercial tower on centre – where such would necessitate alterations to planned premises – where defendants under contractual obligation to construct “generally in accordance” with plans – whether alterations are “generally in accordance”
Antaios Compania Naviera SA v Salen Rederierna AB  AC 191, applied
Charter Reinsurance Co Ltd v Fagan  AC 313, applied
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, applied
Grace Bros Pty Ltd v Willoughby Municipal Council (1980) 44 LGRA 400, applied
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)  1 AC 715, applied
Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, applied
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181, considered
Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045, considered
R v The Justices of the County of London (1889) 24 QBD 341, considered
Reardon Smith Line Ltd v Hansen-Tangen  1 WLR 989, applied
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, applied
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, applied
L Schuler AG v Wickman Machine Tool Sales Ltd  AC 235, applied
W Sofronoff QC, S-G, with him J D McKenna SC and A Pomerenke, for the plaintiff
B D O’Donnell QC, with him I R Perkins, for the first and second defendants
Allens Arthur Robinson for the plaintiff
Mallesons Stephen Jaques for the first and second defendants
- The defendants are constructing in two stages a retail shopping complex known as Queen’s Plaza on land (“the Land”) in the central business district of Brisbane. The site is bounded on three of its sides by Adelaide Street, Edward Street and the Queen Street mall. Construction of Stage 1, on that part of the Land not containing the site of the plaintiff’s former premises, was completed in mid 2005 and trading in Queen’s Plaza then commenced. The plaintiff, David Jones Limited, which conducts the business of operating high quality department stores under the name “David Jones”, commenced its tenancy in Stage 1 on 28 June 2005. It is and will remain the anchor tenant and sole department store operator in the complex after Stage 2 is completed.
- The Stage 2 building works, on the site of the old David Jones store, in very general terms, involve increasing the size of the floors of the Stage 1 building and of the floor space to be occupied by David Jones in Queen’s Plaza by about a third, the additional space varying from floor to floor.
- The second defendant is constructing or proposing to construct two new lift wells and four new columns and is widening two columns within the area to be leased by it in Stage 2. David Jones contends that such works are contrary to the second defendant’s contractual obligations.
Events prior to the defendants becoming contracting parties
- On about 20 August 1999, David Jones entered into an agreement in writing with developers under which David Jones agreed to sell the land on which its Queen Street store was located, together with improvements, to the developers. Simultaneously with the entering into of this agreement David Jones entered into an Agreement for Lease under which the developers agreed to build the Centre and David Jones agreed to lease a substantial part of it for its new central Brisbane store. The developers had an obligation to construct the centre “generally in accordance with the Building Plans and Master Plan.”
- The Agreement for Lease identified the “Master Plan” as:
“…the concept plans, preliminary drawings and specifications describing the extent of the Owner’s Works for the Centre and DJ’s Works which were signed for identification purposes on behalf of the parties at the time of signing this Agreement.”
- The developers are required to prepare the Building Plans, which are to be “prepared for construction of the Centre generally in accordance with the content and intent of the Master Plan”.
- Under the Agreement for Lease, David Jones agreed to enter into an Interim Lease of premises in Stage 1 and, upon completion of Stage 2, to enter into a lease of the additional area allocated to it in Stage 2 of the development (“the Stage 2 area”) as well as the Stage 1 Premises (“the Premises”) for a term of 30 years with an option to renew the lease for a further 20 year term.
The defendants and the Deed of Novation
- On or about 2 August 2001, under a Deed of Novation:
- The first defendant, Perpetual Limited (as agent for Gandel Management Limited), became substituted for the Developers as purchaser under the Sale Agreement as if Perpetual had originally been a party to the Agreement as purchaser instead of the Developers, with Perpetual and Gandel assuming all of the Developer’s Obligations under the Sale Agreement and Perpetual being entitled to enjoy all the rights and benefits conferred on the Developers as purchaser under the Sale Agreement.
- Perpetual (as agent for Gandel) became substituted as lessor for the Developers under the Agreement for Lease as if Perpetual had originally been a party to the Agreement for Lease as lessor instead of the Developers, with Perpetual and Gandel assuming all of the Developer’s Obligations under the Agreement for Lease and Perpetual being entitled to enjoy all the rights and benefits conferred on the Developers under the Agreement for Lease.
- Gandel is a company engaged in property development and, until about 3 October 2002, was the responsible entity for the CFS Retail Property Trust which is registered as a managed investment scheme. Perpetual, at material times, acted as agent for Gandel.
The negotiations preceding the entering into the Deed of Variation
- In early 2002 Gandel advised David Jones that Gandel wished to vary the Agreement for Lease in order to improve the design of the Centre and to permit Gandel to construct a residential tower in the air space above it. The existing contractual arrangements made no provision for development of the air space. Nor did the Master Plan provide for the structural elements necessary to support and service a tower block, such as columns and lift wells. Negotiations took place between representatives of David Jones and representatives of Gandel concerning the contractual changes necessary to accommodate the proposed residential tower. The matters discussed included provision for two additional passenger lift shafts to service and an additional grid of broader columns to support the residential tower. The negotiations were detailed and protracted. No mention was made of the possibility that the contemplated tower block might be commercial rather than residential and thus require more lifts. Nor was there any suggestion that the size of the proposed tower block might be increased and thus require the construction of additional supports within the Premises.
- On 29 August 2002 the defendants issued revised plans with a view to amending the Master Plan in accordance with the variations to the proposed building contained in the revised plans. David Jones voiced its disapproval of wider columns depicted in the revised plans, and in particular of two large columns at the Adelaide Street end of the escalators passing through all levels. A series of meetings between representatives of the parties was then held with a view to resolving these and the great many other issues which David Jones had raised.
- David Jones was primarily represented at the meetings and in the negotiations by John Bolas, its General Manager Property and Projects; and Gregory Smith, Projects Development Manager.
- The second defendant was primarily represented by Neville Beer and Bill Deane. Mr Beer is the General Manager Development of Colonial First State Property Management Pty Ltd, the development manager and property manager appointed by the second defendant as the responsible entity of the CFS Retail Property Trust. He took up that position in 1984. In this capacity and as a Director of the Gandel Group he has had many years experience in the development and management of shopping centres. He “currently has development responsibility for 38 [retail] centres throughout Australia”. Mr Beer, over the years, has extended his expertise by attending courses and conferences, in Australia and abroad, on retail development. As a result of his extensive experience he was well acquainted with Australian department store businesses and with David Jones’ stores in particular. It may be inferred, therefore, that he has a good working knowledge of principles applicable to the design of the interiors of department stores. Mr Deane was Colonial’s Brisbane development manager, with responsibility for the day-to-day supervision of the Queen’s Plaza project.
- The negotiations extended to the size and location of columns and the location of the proposed lift core for the lifts to service the tower block. On 3 September 2002, in a detailed email to Messrs Deane and Alexander, Mr Smith of David Jones made numerous observations of matters of design detail arising from the revised plans. He remarked on “two large columns at the Adelaide Street end of DJ escalators at all levels, an increase in number of ‘large’ columns within the DJ envelope at all levels, potential issues to DJ in allowing access by the ‘tower’ to DJ areas” and drew attention to the impact on sightlines of various columns. The additional columns were identified. Kenneth Alexander is a director of PDT Pty Ltd, a company providing architectural services, which was employed by Colonial in connection with the Queen’s Plaza development. He drew or supervised the drawing of some of the building plans and draft master plans.
- The defendants’ solicitors, in a letter to David Jones’ solicitors of 4 September 2002, observed:
“My client has discussed with your client the possibility of the construction of a tower above the Centre and the consequential changes this would entail, both in terms of design and subdivision. Your client has an amended set of drawings. My client requires the amended set of drawings to be substituted for the drawings presently comprising the Master Plan and for a new clause to be incorporated in the Agreement for Lease and the Leases recognising the tower development and its likely impact.” (emphasis added).
The parties then proceeded to negotiate a resolution of the design issues, in a series of meetings, by what Mr Bolas described as “give and take”.
- In a meeting of 16 September 2002 the size of residential tower columns was noted as a particular problem and deferred to the next meeting when more accurate structural information was expected to be available. Another matter of detail, amongst many discussed at the meeting, was the “compactor/waste location” on the Dock Level. A new draft Master Plan was prepared by the defendants and submitted to David Jones for comment. Detailed comment made on the draft plans comprising the draft Master Plan in an email from David Jones on 15 October 2002 included the need for the parties to work together to find a solution for minimising the size of columns adjacent to escalators “if and where possible”.
- In the plans the subject of the negotiations, columns D10 and E10 were shown as having diameters of 1.15m and 1.10m respectively. A further example of the negotiation process is provided by the minutes of the David Jones Documentation Meeting No 9 on 20 June 2003. At that meeting further changes to the draft Master Plan were foreshadowed and matters of detail were addressed. An alternative layout for the lower ground floor “with plant rooms and staff amenities and existing floor level to perimeter” was tabled for discussion and “accepted in principle subject to final layout duct work riser access to Ground Floor”. Also at this meeting, David Jones tabled updated block plans depicting its proposed interior design layout for the Premises.
- On or about 3 October 2002 the second defendant, Commonwealth Managed Investments Limited, replaced Gandel as the responsible entity for the Trust. Pursuant to sections 601FS and 601FT of the Corporations Act 2001 (Cth) the rights, obligations and liabilities of Gandel under the Sales Agreement and Agreement for Lease were then deemed to be rights, obligations and liabilities of the second defendant.
The Deed of Variation and Varied Master Plan
- On about 13 November 2003, David Jones entered into a Deed of Variation with the defendants which varied the Interim Lease, the Agreement for Lease and the Master Plan. The Agreement for Lease, as varied, included new preliminary drawings for the Master Plan (“the Varied Master Plan”) which depicted:
- the inclusion of two additional passenger lift shafts to service the proposed residential tower, rising from the lowest basement through all levels of the Stage 1 Premises, outside the areas of the Stage 1 and Stage 2 Premises, as an extension of existing lift shafts;
- the substitution for approximately 14 columns, 600mm in diameter, of that number of broader columns (1000 to 1400mm in diameter) in a grid of 8.5m, with 10 such columns passing through all levels of the Stage 1 Premises and one row of four in the Stage 2 Premises.
- The new Preliminary Drawings continued to show a regular 8.5m grid of round columns throughout the Centre, except in parts of the area occupied by the former David Jones store where the existing columns were heritage listed and required to be retained. A number of columns surrounding the lift well, intended for the support of the tower, were shown as wider than the remainder. The location of those columns had been arrived at through protracted negotiation. Their size had been notified to David Jones in engineering drawings and had been the subject of detailed consideration and discussion. David Jones regarded the new Centre design as a considerable improvement on the original. It was thus prepared to make some compromises in relation to columns and other matters to facilitate the adoption of the new design. Those compromises were embodied in the Varied Master Plan.
- By clause 21.3 of the Varied Agreement for Lease, David Jones acknowledged the likelihood of development of the air space above the Centre, either at the same time as the development of the Centre or at a future date.
The alteration of the tower proposal from residential to commercial and the consequential departures from the Varied Master Plan
- In about September 2005 David Jones became aware that the second defendant was considering the construction of a commercial tower above the Centre in place of the residential tower; and that it was proposing to make structural changes necessary for the support and servicing of the commercial tower. On 4 October 2005 David Jones advised the second defendant by email that the proposed column changes were not acceptable and requested that there be a redesign. On or about 30 January 2006 the second defendant provided David Jones with new plans for the proposed Stage 2 building. Those plans showed the following (“the Recent Changes”):
- two new banks of parallel lift shafts passing vertically through the Stage 2 Premises on all levels other than the ground floor;
- a new row of four broad columns on grid line 11, passing vertically through all levels of the Stage 2 Premises, one of which will be 1.5m in diameter and three of which will be 1.25m in diameter. They will replace four square columns measuring approximately 0.8m x 0.8m, each abutting a heritage column and in the same grid line as the heritage columns.
Also included in the definition of “Recent Changes”, except for the purposes of paragraph , is the enlargement of two columns on grid lines 10D and 10E from 1.15m and 1.10m in diameter to 1.4m in diameter. David Jones did not become aware of these changes until September 2006.
- On about 23 February 2006 David Jones orally advised the second defendant that the Recent Changes were not acceptable. That advice was repeated by David Jones in an email to Mr Deane on 3 April 2006 after the second defendant provided David Jones with further structural drawings including such changes on or about 31 March 2006.
- In their Defence, filed on 4 August 2006, the defendants allege that they have incorporated the Recent Changes in plans dated 3 August 2006 and that such plans are “the Building Plans” under the Varied Agreement for Lease and are generally in accordance with the content and intent of the Master Plan.
- It is further alleged that clause 21.3 of the Varied Agreement for Lease preserves for the defendants the ability to develop the airspace above the Centre without being in breach of the Agreement for Lease. The defendants assert that they intend to exercise their rights under clause 21.3 by constructing office accommodation in the airspace and the Recent Changes are necessary for that purpose.
- David Jones alleges that such plans have not been prepared generally in accordance with the content and intent of the Master Plan as varied and that the original Building Plans are the valid Building Plans pursuant to the Varied Agreement for Lease. It contends that any construction of the Centre which incorporated the Recent Changes would result in a breach of the second defendant’s obligation to construct the Centre “generally in accordance with the … Master Plan.”
The relevant contractual provisions
- The Varied Agreement for Lease relevantly provides:
“2.1Owner to construct Centre
(a)The Owner will …
(i)cause the Building Plans to be prepared for construction of the Centre generally in accordance with the content and intent of the Master Plan and having regard to the times set out in the Development Programme; …
(b)The Centre must be constructed in a proper and professional manner generally in accordance with the Building Plans and Master Plan.
2.4Design of Building
(a)The Owner will cause the Architect and the Owner’s Consultants to prepare the Detailed Plans and Specifications generally in accordance with the content, quality and intent of the Building Plans and the Master Plan. …
(b)The Owner will cause the Architect and the Owner’s Consultants to prepare the Detailed Plans and Specifications in consultation with DJ’s such that they shall be referred to DJ’s throughout the design phases and DJ’s shall be entitled to comment on them in so far as they relate to the Interim Premises or Premises. The Owner shall act in good faith and give due consideration to all such comments by DJ’s.
(c)In preparing the Detailed Plans and Specifications, the Owner shall use its best endeavours to ensure that any changes, other than those required by any authority as a condition to it granting any necessary consent or approval or those required by the provisions of an order of any competent Court, do not differ from the Building Plans and Master Plan in a manner which would be likely to:
- change the concept or layout of the Centre from that shown on the Building Plans;
- affect the style or appearance or presentation of the Interim Premises, the Premises or the Centre;
- materially reduce the amenities which would otherwise have been available to DJ’s, its employees, agents, invitees or customers, or to the Premises;
- alter the location of any vertical transport or the location or direction of travel of any horizontal or inclined transport; or
unless the Owner obtains DJ’s consent which cannot be unreasonably withheld, delayed or refused.”
- The second defendant has an obligation under clause 2.1(a)(ii)(B) of the Varied Agreement for Lease to cause the construction of the Stage 2 building to be practically completed by 31 March 2007.
- “Practical Completion” is defined in clause 1.1 of the Agreement for Lease as:
“… the completion of the Stage 1 Building or the Stage 2 Building, as the case may be, in accordance with the Detailed Plans and Specifications and the Building Contract relating to them notwithstanding any minor defects which do not prevent them from being used for their intended purposes and rectification of which will not prevent commencement and carrying out of DJ’s Works.”
- “Detailed Plans and Specifications” is defined in clause 1.1 as “the detailed plans and specifications to be prepared by the Architect and the Owner’s Consultants in accordance with Clause 2.4 in relation to the design and construction of the Centre”.
- Under the Varied Agreement for Lease, a “Tenancy Brief” formed part of the Master Plan. The Tenancy Brief described in some detail the works and standard of works required for the premises. It included the following:
“1.The “benchmark” for standards and quality of the DJ’s Queen Street Central store is the DJ’s store currently under construction in Adelaide …
1.1Provide a leased area of approximately 27000m2 including Loading Dock level.
1.6Retain existing columns in ‘heritage buildings’ (subject to structural confirmation) and suitably clad to match new.
Elsewhere, provide round reinforced concrete columns with a class 2 finish in a grid of not less than 8.5 m2 generally.
- EXTERNAL DOORS.
Solid core doors except where fire-rated doors are required by the ‘performance requirements’ of the VCA.
Provide a Staff Entry Door with a glass viewing panel.”
- Clause 21.3 relevantly provides:
DJ’s acknowledge the likelihood of the airspace above the Centre being developed and subdivided from the Land containing the Centre, either at the same time as the development of the Centre or at some time in the future. DJ’s further acknowledge, accepts, and agrees that:
(a)the Owner has the right and may at any time subdivide or resubdivide the Land, including to create a separate title of the airspace above the Centre; and
(h)if necessary to reflect changes because of the subdivision, resubdivision or building management scheme, DJ’s will vary this Agreement in a manner required by the Owner provided such variation does not derogate from the grant of the Interim Lease or the Lease to DJ’s or impose upon DJ’s materially greater payment obligations than under the Interim Lease or the Lease before the subdivision; and
(i)the Owner may construct or procure the construction of improvements within the airspace above the Centre which works may temporarily cause disruption or disturbance or may alter or inhibit the flow of the DJ’s customers to the Premises. However, in carrying out such work the Lessor must cause as little inconvenience or interruption to the Lessee’s business as it reasonably can having regard to the effective and economical conduct of those works. The Lessor must also use its reasonable endeavours to minimise the noise and dust created by such work and provide, at its cost, any security reasonably necessary because of those works.
DJ’s covenant that it will not make any claim or commence or maintain any suit or action for breach of this Agreement which, but for this clause 21.3, it would otherwise have been entitled to make, commence or maintain as a result of the matters referred to in this clause 21.3.”
The expert witnesses
- It is now desirable to summarise the evidence of the experts who gave evidence on retail store design and layout principles and on the potential impact of the Recent Changes on the utility of the Premises. Some of this evidence was criticised by the defendants on the basis that it addressed David Jones’ subjective intentions concerning the use of the Premises and was thus irrelevant. It is correct that David Jones’ subjective intentions concerning its proposed layout are irrelevant. The evidence about to be discussed, however, in dealing with impacts on and changes to David Jones’ intended use of space and layouts is relevant in so far as it sheds light on changes in size, quality and utility of the Premises resulting from the Recent Changes. That, I apprehend, was the purpose in leading the evidence.
Mr Goddard’s general evidence
- Mr Goddard, the Finance Director of David Jones who has more than 22 years’ experience in retailing, including positions as Managing Director of Officeworks Superstores and Operations Director of David Jones, gave the following evidence.
- David Jones is Australia’s oldest and second largest traditional (that is, non-discount) department store retailer. David Jones and Myer are the only entities which operate such stores in Australia. Traditional department stores seek to attract customers by the range and quality of the products offered for sale and by presenting such products “in an attractive environment with individual service, commensurate with the quality of the products”. The fit-out and general presentation of a store are more important to the selling strategy of a traditional department store than to that of a discount department store. In the case of the former, “the layout and appearance of the store is a critical element of retailing”.
- Interior design and store layout is a specialised field in which department store employees and consultants have sub-specialities such as: customer circulation; the assessment of the impact of various design elements; sight lines within a store; the presentation of merchandise and the product range and merchandising displays.
- The ideal layout for a high quality department store is an unobstructed open space with no interior columns. Where structural considerations necessitate the use of columns, the grid should be even and columns as widely spaced as possible. The smaller the columns the better. It is rare to find “significant physical impediments in new buildings which cater for department stores”. Mr Goddard’s evidence was consistent with and confirmed in almost all material respects by two experts called by David Jones, Ashleigh Parker and Thomas Herndon.
- I found Mr Goddard to be a careful, frank and objective witness and accept his evidence generally. I consider Messrs Herndon and Parker to have high levels of expertise within the areas of department store interior design, merchandising site layout and merchandise presentation. I prefer their evidence generally to that of witnesses called by the defendants because of their relevant expertise and for other reasons discussed later.
Mr Herndon’s general evidence
- Mr Herndon, the Chief Executive Officer of RYA Design Consultancy, a design business with offices in New York, Dallas and San Francisco, is a specialist in retail design with particular emphasis on brand strategy, interior design, lighting design and merchandise presentation. RYA’s present or former clients include Bloomingdales, Neiman Marcus and Hudson’s Bay (the largest department store in Canada). Mr Herndon gave David Jones advice in relation to the design of its Adelaide store which opened in 2000 and which won two international prizes, including the prize for “the best new or completely renovated full-line department store in the world”. He articulated the following principles of department store design and operation. Shoppers entering a store “should be presented with easily navigable and identifiable paths of circulation”. It is highly desirable that such paths have unimpeded views to their furtherest points. Clear sight lines are of prime importance for design, not only along circulation aisles but across floors to external walls.
- From time to time and as part of a merchandising strategy, retailers will erect selling points and selling walls which impede the lines of sight on floors. These, however, are erected by choice as part of an overall design and not as a result of a design impediment resulting from fixed pillars and other intrusions into the retail selling space. These intermediate interior walls or structures should be placed to support the designed primary circulation pattern.
- Regular placement of columns maximises the designer’s ability to provide clear walkways. A regular grid pattern also reduces the extent of interference with sight lines, as does wider spacing and smaller columns.
- A premium department store is defined, at least in part, by the fact that it sells premium brands. Many proprietors of these brands decide the outlets permitted to sell their goods with regard to the volume of sales able to be generated by a prospective outlet, and after consideration of whether the quality and character of the store is consistent with the image of the brand. Such proprietors have the power, which they exercise, to impose on department stores a variety of requirements which limit the department store’s design freedom. For example, the brand proprietors may require that their goods be located in proximity only to the goods of other brands of comparable quality and prestige. They may require that their selling area be in close proximity to an entry point and, if not close to an entry point, that the selling area be in a location of high customer traffic and visibility. The most valuable selling areas in a department store are adjacent to floor entrances. The ground floor is regarded as the most valuable selling floor and the areas on each floor furtherest away from entry points are normally regarded as the least valuable. In such areas, particular attention must be paid to layout and design in order to attract customers.
- Mr Herndon made extensive reference to the proposed David Jones fit-out in order to illustrate how the Recent Changes affected David Jones’ ability to use the space in the Premises. He noted that on the third floor, which is intended for a furniture department, the quality of the space given over to reserves is less usable, particularly having regard to the bulky nature of the stock. Mr Herndon redesigned the floor plan of each floor according to what he perceived to be the approach and philosophy inherent in the David Jones fit-out design in order to show how the recent variations might best be accommodated. The conclusion he reached after that exercise was that the Recent Changes:
- impose an undesirable restriction on David Jones’ flexibility in the use of its spaces. Having regard to the evolving retail environment, any such restriction is undesirable;
- any remedial measures taken to accommodate the Recent Changes may reduce their negative impact but cannot redress such lack of flexibility, the loss of selling area, the loss of usable reserves area and the interruption to clear sightlines.
Mr Parker’s general evidence
- Mr Parker is a director of Parker Design Services Pty Ltd, a company which carries out retail design work throughout Australia, and has had many years experience in the design of department stores. That experience includes fit-out design. In particular, he has done a considerable amount of work for Myer since 1996. In some cases, he has worked in conjunction with a recognised United States expert in department store design. Mr Parker’s opinions were consistent with those of Mr Herndon.
- Mr Parker defines “an upmarket department store” as one focused on “the total shopping experience for the customer as well as the exclusivity of [its] offer”. Such a store concentrates on the quality of finishes and detailing, a high level of customer service, “inspiration of the visual merchandising”, “general ambience”, and the depth and exclusiveness of brands offered. David Jones is the only such department store in Australia. “There is a perception … [by customers] that David Jones is a ‘quality’ store, in a way that Myer is not.” David Jones builds on and uses this perception to provide itself with a competitive advantage and for this reason “invests heavily in the design of their stores”.
- Planning a logical flow of merchandising departments is important in enabling the customer to understand where things are to be found. Such planning is deceptively difficult but is assisted by “floor plates that are regular in form and free from obstructions … Irregular and asymmetrical shapes make this planning very difficult and can compromise the whole retail offer on a floor”. Well-planned circulation aisles are critical. They subdivide the selling floor space into “merchandising pads”. The customer must be able to move easily between the rows of fixtures, generally 1200mm by 1200mm, and because of this the merchandising pads “acquire critical dimensional properties for planning”. Critical dimensions for pad depth are:
-3300 – 1 row of fixtures
-5600 – 2 rows of fixtures
-7600 – 3 rows of fixtures
Pad depths greater or lesser than these dimensions are generally unworkable for upmarket department stores. Maximum clear spaces between columns are desirable, with a minimum column grid of 8.5m x 8.5m and the maximum size for columns being 600mm x 600mm. Fewer and smaller columns simplify planning and facilitate clear sightlines across the floor, particularly to the perimeter selling floor walls when viewed from the arrival points on the floor. All parts of the selling floor should be contained within an arc of 45m from the escalator void to provide appropriate customer circulation.
- The lower ground floor in Stage 1 is “very tight for space … [and] considerable space has been sacrificed at the northern entry to circulate around the column on the centre line of the entry”. The ground floor in Stage 1 is “very tight and reserve areas have been sacrificed to maximum the selling floor area”.
- Whilst the presentation of the David Jones premises to the Mall is good, the interior design of the store has limitations, which include the following. The ground floor, although the most important floor in the department store, is relatively short of space. The western entry to the store is located on the centre line of a row of columns along grid D. These columns impede visibility into the store. The escalator void is located in Stage 1 and will not be centrally located when the two stages are combined. This results in perimeter walls on the southern side of floors which will be 48m from the escalators. A lift shaft in Stage 2 will obscure views across the column grid. Heritage listing has resulted in columns of the demolished David Jones store remaining on all floors from the lower ground upwards. Those columns will not align with the new column grid and spacing. Planning is thus rendered more difficult.
- The problem of the three different column grids is compounded by the inclusion of a new row of columns along grid 12. These new columns, which are 800mm x 800mm, when combined with the existing 600mm x 600mm columns, create a significant visual barrier along grid 12. At level three there is a 700mm change in floor level along grids 12 and 12E, which causes 20 per cent of the retail space of the floor to be at a lower level. The steps at the change of level impedes customer circulation. Whilst Queen’s Plaza is a premium development, the David Jones tenancy is not premium space for an upmarket department store.
Specific evidence concerning “the brands”
- Neale Joseph, General Manager Cosmetics Business for David Jones, gave evidence of the difficulties involved in designing cosmetic halls in David Jones’ stores and concerning the difficulties in meeting the demands of the leading cosmetic suppliers. He swore that some well known international brands have refused space in David Jones’ flagship stores on grounds that those spaces do not meet their design criteria. He stated that MAC was the fastest growing prestige cosmetics brand in the world. It “initially refused to take the space David Jones offered it in its Melbourne flagship store on the basis that the space, location and design did not meet its criteria”. According to Mr Joseph, the loss of MAC from the Melbourne store would have caused a loss of gross profit of “millions of dollars”. Another example given by Mr Joseph of demands imposed by the brands concerns L’Oreal and its prestigious brands Georgio Armani cosmetics and Kiehls, both exclusive to David Jones. The Australian chief executive officer is generally involved in approving the spaces allotted to all L’Oreal brands within David Jones but the space design and fit-out for the Georgio Armani cosmetic brand is required to be submitted to Georgio Armani personally for approval. Matters which need to be addressed in dealing with such cosmetics and other brands include size of the space offered, traffic circulation, sight lines, design and location.
- Russell Sparkes, the Chief Executive Officer of Sass & Bide Pty Ltd, gave evidence concerning the requirements of this brand, the products of which are stocked by a number of premier department stores around the world including Saks Fifth Avenue and Nieman Marcus in New York, Selfridges and Harvey Nichols in London and, exclusively, David Jones in Australia. Mr Sparkes swore:
- Sass & Bide insists upon the presentation of its merchandise in David Jones stores in a particular way. The Sass & Bide concept areas have a specific look and feel, based on its installations in London and New York department stores, which has been agreed with the David Jones merchandising team. Sass & Bide is very particular about the branding of its installation, the position and space allocated to the brand in the store, the brands which are immediately adjacent to it, the fixtures, fittings and materials used, merchandising of stock and, above all, the sight lines to the Sass & Bide installation.
- Sass & Bide insist that there are clear sight lines from each major exit and entry point to the floor and from each of the escalators on the floor. We insist that there are no structural obstacles in the way of these sight lines or customer traffic flow lines to the installation. This means no columns, no other structural obstacles and no other brands are to impinge on the sight lines to the brand.”
- The evidence reveals that the requirements of Sass & Bide are similar to those of other prominent brands. Mr Sparkes’ evidence highlights also the need for flexibility in selling space, having regard to the constantly changing demands in the area of retail fashion marketing.
- The following summarises the more specific evidence given by witnesses called by David Jones as to the impact of the Recent Changes on the different levels of the Premises.
The dock level - Goddard
- The dock level is important to the successful operation of the David Jones store as the point of arrival, distribution and departure of goods, as well as containing the backup reserves areas for the whole store. It was proposed that it be filled with rows of compactuses 900mm x 2.4m x 250mm wide. It is also to contain a visual merchandise workshop and storage area for props, mannequins, displays, Christmas decorations, etcetera. The intrusion of the lift shafts into what was to be the visual merchandise workshop means that some of the area previously allocated to reserves must be assigned to the workshop, which causes difficulties by reducing the available space.
- Mr Goddard was presented in cross-examination with a redesign of the dock level space. He was unable to accept that the defendants’ proposals were capable of producing a satisfactory result, having regard to the limitations inherent in narrow spaces and awkward shapes.
Lower ground - Goddard
- The compactus shelving intended to service the shoes and accessories area is extremely important. David Jones considers the reserves as selling space because of the need to stock many styles and sizes of shoes and for sales assistants to have quick and easy access to the reserves when customers are trying on shoes. Prior to the Recent Changes, the reserves were set at minimum levels to allocate as much space as possible to selling areas. The reduction in size of the area, coupled with the interference of the lift wells with the more regular shapes provided under the Varied Master Plan will result in a loss of selling space and may “result in the loss of some of the brands proposed for this floor”.
Lower ground - Parker
- The direct connection between the goods lift and floor reserve is lost. The shoe reserve is the largest of all stock reserves and its connection with the shoe department is “normally critical”. A goods handling corridor needs to be constructed to connect the goods lift lobby with the reserves area on the eastern side of the new lift shafts. This will reduce the selling floor, which is already limited in size, by some 150m2. The merchandising pad along the new corridor wall will be significantly narrower than that on the existing plan. Its three metre width will permit only one row of fixtures. The total net selling area lost is 197m2, which is a very significant loss to a high value sales area such as women’s shoes. The area between the two lift shafts is a narrow space which has limited utility, except for circulation.
- The new columns on grid 11 (1500mm and 1250mm in diameter) are located approximately 900mm north of the existing 700mm x 700mm columns on grid 12. These pairs of columns are best dealt with by being enclosed by rectangular boxing. The columns, particularly when boxed, will have a significant impact on the sightlines into the retail space south of grid 12 and sight pad efficiencies are also reduced by columns.
- The additional size and numbers of columns have an adverse effect on sightlines and make layout planning more difficult. The irregularity in the grid of the new columns “effectively adds a third irregular condition to the building” and adds to the defect arising from the failure of the grid of the heritage columns to match the grid of the columns in Stage 1.
First floor - Parker
- The new lift shafts substantially reduce the areas intended for reserves and goods handling, as well as disrupting the planned brand installations. The southwest corner of the floor is proposed to be devoted to upmarket labels for women’s clothing. It is thus important retail space. If the changes are permitted some brands may not be prepared to use this area. The effect of the proposed new columns on grid 11 are particularly significant in interrupting sightlines and taking up merchandising space. There will need to be boxing of the new columns between grids 11 and 12 and the adjacent heritage columns. That will interfere with sightlines, create clutter and give rise to awkward spaces and unattractive areas behind columns.
Second and third floors - Parker
- The Recent Changes cause a loss of reserves and selling floor area on these floors. (Mr Parker expressed the opinion in paragraph 6 of his report dated October 2006 that the lower three levels are too small and the upper two levels are too large). The visibility crucial to attract customers into the southwestern corners of these levels is substantially reduced by the imposition of the proposed lifts and columns on grid 11.
Mr Beck’s evidence
- The defendants’ principal expert witness on department store design questions was Mr Grant Beck, director and Chief Executive of Buchan Laird & Bawden Pty Ltd. The Buchan group of companies has had extensive involvement of recent years in the development of major retail complexes, including department stores and Myer stores, in particular. Over the last 10 to 15 years, Mr Beck has been the director in charge of such projects. They include the development of Sydney Central Plaza in Pitt Street, the redesign of Myer’s Central Store in Melbourne and the remodelling of the Grace Brothers store in Sydney in accordance with what was described as “the lifestyle B experiment”. He agreed in cross-examination that his “special expertise focuses on master planning, retail design and concept designs of major mixed use projects and town centres”. He also agreed that such matters were some of the “core skills” of the Buchan group and that they involved “designing the built fabric which is made available to tenants to fit-out as they see fit”.
- Mr Beck prepared a plan for each floor, other than the Dock Level, showing a suggested new floor layout accommodating the Recent Changes. He did not give consideration to the Dock Level as his focus was mainly “on the retailing planning aspects of the selling space”. For this reason also, his report did not address in any substantial way the loss of reserves space or take into account the operational requirements of a department store. I found Mr Beck’s evidence of less benefit and less persuasive than that of Messrs Parker, Herndon and Goddard. Whilst not doubting Mr Beck’s competence within the area of his expertise, I found the evidence of Messrs Herndon and Parker generally more compelling. Their expertise was much more directed to department store floor design and to the operational needs of such stores than was Mr Beck’s. He, by virtue of the scale and nature of his company’s business, was generally more concerned with broader concepts than with detailed considerations of floor layout and individual floor requirements.
- Mr Beck had in the course of his work considered department store floor designs from time to time. In particular, he had played a major role in the floor design of a Grace Brothers’ store in Sydney. But his normal focus has been on broad concepts involved in the development or refurbishment of major centres. I doubt that he turned his mind to where David Jones stood in the department store hierarchy or to whether different design philosophies and practices might apply to an “upmarket” department store than to stores servicing the other parts of the retail market spectrum.
- I formed the view also that because of his background and experience, he was inclined to be dismissive of assertions by store proprietors that premises as designed or built interfered unduly with good merchandising practice. His approach, I rather think, was a positive one of accepting physical limitations of premises and seeking to overcome them as far as possible by good design. To my mind these attitudes made it difficult for him to evaluate the extent and impact of defects resulting from poor design.
Mr Sheehan’s evidence
- Mr Sheehan is the managing principal in Queensland of Malone Buchan Laird & Bawden Pty Ltd, Architects. He has specialised in retail architecture and multilevel developments over the last 21 years. He gave the opinion that a construction incorporating the Recent Changes would be “generally in accordance with” the Varied Master Plan. Mr Sheehan’s evidence in this respect and on some closely related matters amounted to “swearing the issue”. Objection was taken to this evidence and I deferred ruling on it. It remains unnecessary for me to rule on its admissibility as I find that the evidence has little or no weight. The main problem with it is that any such opinion, to be of material benefit, must be based on or have regard to the proper construction of the critical phrases in clause 2.1 of the Varied Agreement for Lease.
- Mr Sheehan’s opinions were based, not on the subject contractual terms, but merely on his general understanding of master plans derived from projects in which he had been engaged. His evidence did not take into account matters specific to the Varied Master Plan or the dealings between the parties in relation to it. Mr Sheehan had no experience in the interior design of any department store, other than perhaps limited experience with a discount department store or stores. In making his assessments as to conformity with the Master Plan or lack thereof, Mr Sheehan saw it as no part of his role to take into account the impact of changes on the effective operation of the Premises as constructed. For example, he had no regard to the effect of the Recent Changes on circulation within the Premises.
- Mr Sheehan, in cross-examination, admitted to not being qualified to express opinions on retail design. Also in cross-examination, he said that he was aware of the desire of retailers for clear space, maximum sightlines and ease of circulation, regular grid columns and design flexibility within department stores. Those are basic principles which have general acceptance among those involved in the design, construction and/or fitting out of the premises in use as department stores.
Construction of clause 2.1: the defendants’ submissions
- The meaning of the expression “generally in accordance with” is pivotal “in its present context”. “Generally” means “for the most part in conformity with or consistent with”. That may be seen from dictionary definitions and from a review of the authorities, including R v Justices of the Court of London and Grace Bros v Willoughby Municipal Council. Features of the agreement supporting the defendants’ construction are:
- The circumstances in which the agreement was struck. The agreement to construct the Centre was made before all of the land had even been conveyed to Colonial. The development was a complex one expected to take several years and the developer needed flexibility. The role of the Master Plan was that of a guide or blueprint and was not “to rigidly confine the owner”;
- In the heading to Annexure “C” in the Deed of Variation, the substitute floor plan drawings are described as “new preliminary drawings”;
- An examination of the layout drawings forming part of the Master Plan shows them to be at a nascent stage. Under the agreement, substantial planning and documentation of the proposed construction issued to occur. Building plans are to be prepared by the owner and Detailed Plans and Specifications are to be prepared by the consultants after liaison with David Jones. The plans forming the Master Plan do little more than provide a general layout and elevations. Many of the items on the plans have no dimensions. Although the plans are drawn to scale, scaling off such plans is extremely unreliable. It makes commercial sense to give the defendants considerable latitude in developing a design from the base of the Master Plan;
- Recital B to Agreement for Lease provides:
“The owner intends to construct the Centre on the Land, in two stages, generally as shown on the Master Plan.”
- Clause 14.4, by preventing David Jones from objecting to a variation of three per cent either way in the area set out in the Schedule to the Master Plan, contemplates changes in area. The permitted variation is up to 1,606m2;
- The Tenancy Brief when specifying a column grid of not less 8.5 m2 concludes with word “generally”;
- By way of contrast with the flexibility given to the defendants by clause 2.1, clause 6.1(a) requires David Jones to submit to the owner its detailed working drawings and specification and to obtain the owner’s approval. The owner is not obliged to provide the building plans to David Jones or to obtain its approval. The most the owner is obliged to do is to cause its consultants to consult with David Jones in preparing the detailed plans and specifications to act in good faith and give due consideration to any comments of David Jones. Also by clause 6.1(c) the owner is entitled to withhold its approval to David Jones’ working drawings and specifications if they would “materially change the concept or layout of …or (…affect the style or presentation or …)” of (inter alia) the leased premises.
- Clause 2.4(c) implicitly acknowledges that the defendants may introduce “changes”. It provides that if the defendants wish to depart from the Building Plans and Master Plan they must use their best endeavours to ensure that those changes are not made in a manner likely to have the effects enumerated in (i) to (ix).
- The broad effect of clauses 2.1 and 2.4 is:
- The owner is to produce building plans which generally accord with the content and intent of the Master Plan.
- The owner is to cause its consultants to prepare detailed plans and specifications which generally accord with the content, quality and intent of the building plans and the Master Plan.
- The owner is to construct the Centre generally in accordance with the building plans and the Master Plan.
- Issues concerning application of clause 2.1(b):
- The essential question to be asked is: if the Centre is constructed as per the 7 September 2006 plans which are Ex 6, will that construction of the most part be in conformity with or consistent with the Varied Master Plan, which comprises Ex 3 together with the tenancy brief?
- In applying the test it needs to be borne in mind that the evidence shows that a number of departures from the Master Plan have come about through consensus achieved between the parties, and which are not the subject of this conflict. Paragraphs 52 and 52B of the amended Statement of Claim confine the plaintiff to alleging that the construction will not generally be in accordance with the Master Plan because of the six disputed columns and two lift shafts (only).
- The significance of the disputed columns and the two lift shafts needs to be addressed by reference to the overall context of the development of the Centre not merely in the context of the leased Premises, let alone in the context of the southwest corner of the building.
- It is necessary to look at respects in which the construction is in conformity with the Master Plan, as well as the extent to which it is not in conformity. The clause requires that the balance be struck between consistency and inconsistency with the Master Plan.
- It is not legitimate to take into account the ramifications of the change to David Jones based on information not contained in the Master Plan. Regard may be had to the information in the Master Plan as to the area affected by the change and what it says, if anything, about the intended use of that area. The evidence of Messrs Herndon and Parker as to the adverse effects the changes will have on David Jones is thus irrelevant.
- If the contract had required compliance with clause 2.1(b) to depend on the effect of any change on David Jones beyond what can be discerned from the Master Plan, it would have had wording such as:
“In constructing the Centre, the owner must not depart from the Master Plan in a way that substantially adversely affects David Jones.”
- In applying clause 2.1(b), what matters is the impact of the change upon the design embodied in the plans and specifications forming the Master Plan, not the impact of the change on David Jones. The first task is to identify the fundamental aspects of the Master Plan and to address whether the proposed construction would be in conformity with them.
- The fact that there is consistency with the fundamental aspects of the Master Plan makes it more difficult to conclude that the departures in respect of the disputed columns and lift shafts will result in the Centre not being constructed for the most part in conformity with the Master Plan. On that plan there is a total of 637 interior columns. Ninety-five of these are heritage. All of the non-heritage columns are on a grid of not less than 8.5m2, save for the disputed columns on grid 11. That is sufficient to justify the conclusion that the non-heritage columns are “… in a grid of not less than 8.5m2 generally”. The four columns not on the 8.5m2 grid were always in the Master Plan but in different locations, namely adjoining the heritage columns at grids 12BE, 12CE, 12DE and 12EE. There will be no more columns than shown on the Master Plan, only relocation and an increase in size. The extent of that size increase was not established by the evidence. The only complaint in respect of columns at 10D and 10E is the size increase. No dimensions were given for these columns in the Master Plan and again the increase in size has not been established.
- The lift shafts are situated well away from the public entrances and escalators in the Centre and in the department store they are situated close to a perimeter wall. They protrude no further into the body of the floor than the nearby existing bank of lifts and do not interfere with any of the key elements of design in the Master Plan. In particular, they do not displace or relocate any of the existing lift shafts or otherwise substantially interfere with vertical circulation of customers or the public within the Centre.
- It is material to take into account the additional areas on the dock level, lower ground and ground floors. The defendants are offering David Jones the additional areas of 78.5m2 on the dock level, 58m2 on the ground floor and to move plant from an area on the lower ground floor, which would free up 83m2 for use by David Jones. These additional areas fall within the plus or minus three per cent variation permitted by clause 14.4.
- Alternatively, if the columns on grid line 11 would amount to a breach of the agreement, the construction of lift shafts and the columns on grids 10D and 10E and 1,400mm is not sufficient of themselves to result in the construction not being generally in accordance with Master Plan. Little evidence was given about the lift shafts which are outside the lease area on the ground floor. It was accepted that the lift shafts are deep within the area of the store from the entrances and escalators and in close proximity to the existing lift shafts and the boundary between the selling areas and reserves. That boundary could be realigned so that the lifts are wholly within reserves.
- As a further alternative, the defendants contend that even if the columns on grid line 11 and the disputed lift shafts would amount to a breach of contract, the construction of the columns at grids 10D and 10E at 1400mm is not sufficient of itself to result in the construction not being generally in accordance with the Master Plan.
- “Intent” has a meaning akin to the “spirit” or “theme” of the Master Plan, so that the Building Plans are required to be generally in accordance with both the content and the spirit or theme of the design contained in the layout plans, elevations and specifications of the Master Plan. The intent does not relate to the purposes for which David Jones proposes to use its premises but to the whole of the Master Plan which governs the entire Centre.
- The “Building Plans” were those issued on 2 September 2002 but have now been superseded by the Building Plans issued by the defendants on 3 August and 7 September 2006. The Building Plans are to be prepared by the owner under the Agreement for Lease. The September 2005 plans, which David Jones contend are the Building Plans, were not prepared or approved by the owner. The 3 August and 7 September 2006 plans are identical, except that the former is concerned only with Stage 2. Mr Beers’ evidence is that he approved those plans and they were signed on behalf of the defendants by Mr Deane with Mr Beers’ authority.
- The “Centre”, the construction of which is the object of clause 2.1(b), is not just a department store. It includes the whole of the retail shopping centre, including car parking levels. It is thus nonsensical to make an assessment of “general accordance” by reference to department store retailing principles. Clause 2.1(b) imposes a single, undivided obligation regarding the construction of the Centre.
- The Agreement for Lease does not mention any such retailing principles and the evidence does not disclose the existence of any firm principles, merely that there are broad guidelines which are capable of varying application to be adapted to the individual features of a particular store according to the judgment of the designer.
- Reference is made in the Tenancy Brief to standards and quality for the David Jones Adelaide store. Little evidence was led about the Adelaide store and “standards” and “quality” refer to the quality of building works rather than changes to layout.
- The parties express their agreement relating to columns in the Master Plan by a combination of the depiction of columns in the layout plans and by clause 1.6 of the Tenancy Brief. It is thus impermissible to import any “retailing principles” regarding columns to the Agreement for Lease.
- The evidence upon which David Jones relies is not evidence of surrounding circumstances but evidence of subjective expectations and intentions of the parties or one of them. It thus sheds no light on questions of construction.
- The parties’ agreement is clearly expressed and contains no obligation that the building be constructed “to a standard of a world-class department store”.
- The fact that there was a novation of the original contractual instruments results in there being new agreements, the old agreements being discharged, and the circumstances surrounding the entry into the discharge contract therefore cannot be relevant to interpretation of the new one.
- Even the knowledge on the part of the defendants as to what David Jones was hoping to achieve in relation to columns in the proposed Centre is not admissible as a surrounding circumstance, as it amounts to no more than the defendants’ knowledge of David Jones’ hopes or expectations in entering into negotiations. Pre-contractual intentions or expectations were overtaken by the words of the Agreement for Lease.
- The broad effect of the clause is to give the defendants an unrestricted ability to proceed with the development of the airspace above the Centre without confining the defendants as to the nature, extent or timing of the development, and expressly providing that the defendants’ rights in respect of the airspace development override any other rights or obligations contained in the agreement. By the final paragraph of clause 21.3, David Jones covenants not to make any claim for breach of this agreement “… as a result of matters referred to in this clause 21.3”. One of such matters is “… the construction of improvements in the airspace above the Centre …”. Reference to the “Centre” includes any part of it. If the defendants would be otherwise in breach of the Agreement for Lease by constructing the columns and lift shafts, clause 21.3 operates to prevent a breach arising. The construction is sensible and necessary to preserve for the owner the ability to develop the airspace above the Centre. Such preservation necessarily carries with it the ability to do all that is reasonably necessary to construct the improvements.
Construction of clause 2.1
- The focus of the defendants’ argument is on the word “generally” in the phrase “generally in accordance with the content and intent of the Master Plan”. It is said with justification that that word shows the parties’ acceptance of some degree of departure from the plans. “Generally” is then given the meaning, extracted from dictionaries, of “for the most part in conformity with or consistent with”.
- The defendants assert that determining the existence of such conformity, or lack thereof, requires:
- A comparison of the extent to which construction is in conformity with the Master Plan and the extent to which it is not in conformity;
- The significance of a departure from the Master Plan to be assessed only by reference to information contained in the Master Plan;
- That the task of comparison commence with the identification of the fundamental aspects of the Master Plan and a determination of whether any of such elements has not been adhered to.
- It is contended also that as the obligation in clause 2.1 is to construct the Centre, and as the Master Plan is a plan of the Centre (including the area of the Premises), any relevant comparison must be of the Centre as shown in the Master Plan with the Centre as constructed. It is not permissible to compare the Premises depicted in the Master Plan with the Premises as constructed.
- And it is argued that in assessing whether changes are generally in accordance with the Master Plan one may not have regard to:
- Retailing principles inherent in the construction and operation of department stores, such as the desirability of columns as few and as small as possible in a regular grid.
- The negative impact of any change on the utility or quality of the lease area for David Jones’ purposes.
- Pre-contractual discussions as to the quality and standard of the retail store planned by David Jones.
- In ascertaining the meaning of words in a contract, resort may be and is often had to dictionary definitions and to cases in which the words have been considered. But such exercises are normally secondary in nature and directed to assisting the more fundamental task of understanding what the words were intended to mean in the context in which they were used.
- In Manufacturers Mutual Insurance Ltd v Withers, McHugh JA, in a passage referred to with approval in later decisions of the New South Wales Court of Appeal, drew attention to the need to go beyond purely linguistic considerations when considering the meaning of words in contracts. He said:
“… few, if any, English words are unambiguous or not susceptible of more than one meaning or have a plain meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means. In my view evidence of surrounding circumstances will generally be admissible if it is known to both parties or sufficiently notorious to be presumed to be within their knowledge.”
- A similar point is made in the following passage from the reasons of Lord Hoffman in Charter Reinsurance Co Ltd v Fagan:
“I think in some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts their meaning will be different but no less natural.”
- Lord Hoffmann echoed those views in Investors Compensation Scheme Ltd v West Bromwich Building Society:
“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749.
- The expressions “in accordance with” and “generally in accordance with” are obviously ones the meaning of which needs to be determined in the context in which they occur. They involve the assessment of one thing in light of another and in most contexts, including the present, necessitate enquiry into the considerations governing the making of the assessment.
- The defendants’ approach to construction, in my view, also pays insufficient regard to the object of the exercise, namely to “ascertain and give effect to the intentions of the contracting parties”. Those intentions, to be determined objectively, are “what a reasonable person would have understood [the words of the contract] to mean.” And to ascertain that “normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract  and a commercial contract, like the Varied Agreement for Lease, “should be given a businesslike interpretation”. Its interpretation requires “attention to … the commercial circumstances which the document addresses, and the objects which it is intended to secure”.
- Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen identified the information and materials to which recourse may be had in the following passage, which was referred to with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and by the Court in Pacific Carriers Ltd v BNP Paribas:
“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”
- It is instructive also to refer to the following passage from the reasons of the Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd:
“This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462).”
- The circumstances surrounding the entering into of the Deed of Variation, the Varied Lease Agreement and the adoption of the Varied Master Plan include the following. The defendants were in the process of constructing a prestigious retail shopping complex in which David Jones was to be the anchor tenant. David Jones was vacating its existing Queen Street store, which was too small for its needs. The new David Jones store was intended to be its flagship store in Queensland and, as such, to meet the highest standards in design and presentation. David Jones regarded itself, and was regarded by the defendants, as the leading operator of premium quality department stores in Australia. Its stores are characterised by high quality goods and high levels of service and ambience.
- Sound principles of retail design for premium quality department stores, understood by David Jones and the defendants, require:
- minimisation of columns and other intrusions into the retail area to promote customer circulation through the store, good sightlines to displayed products and flexibility in the re-arrangement of floor space;
- columns as small as practicable on a regular grid and of a regular shape; and
- efficient systems and spaces for the flow of goods into and out of the store and for the storage of stock.
- The surrounding circumstances and context include also the matters set out in paragraphs  to  above concerning the re-design of the Centre, the introduction of a possible residential tower block and the detailed negotiations between the parties concerning the changes to be made to the Master Plan to accommodate these matters.
- An example of the progress and nature of the negotiations is provided by the notation in the Minutes of the David Jones Documentation Meeting No 4 on 6 December 2002 that “final size of res tower columns and lift core set out to be forwarded to DJs”. As appears from the Minutes of the next such meeting, the information was provided to David Jones prior to 6 December 2002.
- Of particular relevance is the focus in the negotiations on the size and location of the lift shafts and new columns for the residential tower block and the impact of the proposed changes on the usability of the Premises for David Jones’ purposes. Evidence of prior negotiations is admissible to the extent that they “tend to establish objective background facts which were known to both parties and the subject matter of the contract.” Such evidence is relevant also to a determination of the purpose of the contract. Additionally, part of the surrounding circumstances and context which may be taken into consideration is the provision to the defendants of David Jones’ tentative block plan on 28 August 2003, which shows the proposed interior layout of the Premises. By the time the Deed of Variation was executed on 13 November 2003, construction drawings, including engineering details for columns, had been issued. The detailed design of Stage 2 was thus well advanced.
- Some of the above matters also bear upon, in a general way, “the purpose and object of the transaction”. The Deed of Variation served a specific purpose. It was to obtain David Jones’ sanction for the changes to the Master Plan necessary to accommodate the re-designed arcade area of the Centre and a proposed residential tower of a particular size which could be serviced and supported by particular lifts and columns. Those changes were identified and, after extensive negotiation, incorporated in the Varied Master Plan and thus in the Varied Agreement for Lease.
- The context in which the Varied Agreement for Lease and the Deed of Variation were entered into and a purpose for which they were entered into was that David Jones, a high quality retailer, be provided with a carefully planned and defined area over five levels which would constitute, as far as was practicably possible, premises suitable for a prestigious department store meeting the highest international standards of department store design. Clause 3 of the Tenancy Brief, which forms part of the Agreement for Lease, provides that “the ‘benchmark’ for standards and quality of the DJ’s … store is the DJ’s store currently under construction in Adelaide …” This store was recognised by the parties as being very well designed.
- The defendants’ arguments fail in my view to recognise the nature of the subject matter of the agreements. Their approach appears to me to have more relevance to a contract for the construction and leasing of, for example, industrial sheds capable of multiple uses than to an agreement relating to a high quality department store of a particular configuration in a particular location. Nor does the defendants’ approach to construction pay sufficient regard to the principles discussed earlier and, in particular, to the context in which and the purposes for which the agreements were negotiated.
- The arguments of both parties relied on the following passage from the reasons of Wootten J in Grace Bros Pty Ltd v Willoughby Municipal Council:
“The use of the words ‘generally in accordance with’ are obviously intended to allow for some deviation from the drawings referred to in the interim development order. The reasons for allowing some latitude are obvious. The significance of any particular deviation will depend on the criteria by which it is judged. In this case we are concerned with town planning. From that point of view it seems to me that the alterations required by condition (ix) are not such that the consent is to a development not generally in accordance with he relevant plans. The alterations required to the outlines of the building are minor. They have some impact on the internal space available but it is not, in my view, significant in the overall context of the development.” (emphasis added)
The sentence emphasised has been referred to in many subsequent decisions, particularly in planning jurisdictions.
- It is apparent from the circumstances surrounding the entering into of the Deed of Variation and the Varied Agreement for Lease and from their purposes and objects that the contractual intention was to give “generally in accordance with” a restrictive, rather than generous, application.
- One obvious criterion for judging whether a departure from the Varied Master Plan results in something not “generally in accordance with” it is a quantitative one: how much smaller or larger, higher or lower is the changed element in comparison with its measurement in the plan? The defendants, whilst placing much emphasis upon such a quantitative assessment, do not contend that it is the sole test in the circumstances under consideration.
- Nor do they contend that a change must be of a “fundamental aspect” of the Master Plan before it may be impermissible. But it is asserted that if no “fundamental aspects” are affected by a change it will be very difficult to establish that the change is impermissible.
- The notion of “fundamental aspects of the Master Plan” is a construct which builds on the argument that, for present purposes, the impact of any change may be measured only by reference to the design embodied in the plans and specifications forming part of the Master Plan. The role of the “fundamental aspects” is to give heightened significance to certain features of the plans and specifications.
- The Varied Master Plan, however, cannot be considered in a factual vacuum and as distinct from the Varied Agreement for Lease of which it forms part. The main role of the Varied Master Plan is to define, within the limits necessitated by its preliminary nature, the Centre which the second defendant is to construct and the Premises which David Jones is to lease. It also has the role of recording the departures from the Master Plan brought about by the redesign of the Centre and, in particular, those changes required to accommodate the proposed residential tower. Where the Varied Master Plan depicts columns in particular grid patterns, it may be accepted that their location and format is not a matter of happy coincidence but of careful and deliberate choice after assessment of structural requirements and principles of sound department store design. Similar observations may be made of, for example: the passenger lift wells within and outside the Premises; and the wells of the goods lifts and of the spaces in the Premises adjacent to those areas. Those features were the result of protracted and detailed negotiation.
- Such features are not to be considered merely as lines, objects or areas depicted on plans but as parts of the Centre and department store premises described above which is the subject matter of the Varied Agreement for Lease, a commercial agreement entered into for commercial purposes. Once this is recognised, it becomes apparent that in considering a change to the Premises in a particular part of the Master Plan regard may be had to the consequences of that change for other parts of the Premises.
- Similarly, a relevant criterion is the potential adverse impact of any change on the utility and quality of the Premises for the purposes contemplated. In that regard, consideration may be had to matters such as:
- Loss of premium selling areas;
- Diminution in the utility of irregularly shaped areas or areas of a reduced size;
- Reduction in floor plan design flexibility;
- Departures from sound design principles and aesthetic considerations generally;
- The extent, if at all, to which the departures detract from the ability to present the Premises as a prestigious international class department store.
It is relevant also that the lease of the Premises is to be for a 30 year term if no options for renewal are exercised. David Jones will thus have to bear the consequences of any departure from the Master Plan for a very long time and without any rent adjustment for diminution in value of the Premises.
- Although, as the defendants point out, the obligation in clause 2.1 is to “cause the Building Plans to be prepared for construction of the Centre”, it does not follow, as the defendants contend, that determining whether a variation is generally in accordance with the Master Plan always necessitates a comparison with the extent to which the whole of the Centre remains unchanged. Even without clause 1.9, which provides that a reference to the Centre includes reference to part of it, it must have been the contractual intention that elements of the Premises would be of such importance to the successful operation of a department store that interference which had a material adverse effect on their usefulness would not be permissible. Examples of such elements are the loading dock areas and access to and egress from the goods lifts. In such cases the physical dimension of the change may be of little moment when compared with its practical consequences.
- “Generally in accordance with” in clause 2.1(a)(i) qualifies “content and intent of the Master Plan”. In assessing content, it is appropriate to have regard not merely to structural features which appear on the Varied Master Plan but to the absence of such features. The absence of structures within the area of the Premises on the plan identifies space which may be used for purposes including selling, reserves and movement of goods. The shape and dimensions of such spaces is of relevance to the utility of such spaces for different purposes. The location of all structural columns is shown on the Varied Master Plan as is the location of the residential tower lift wells. The size of the columns is not noted in the plan itself, but it is unworldly to think that the denoting of columns on the plan merely represents columns generically and does not depict columns of the dimensions of those negotiated and accepted by both parties prior to the entering into of the Deed of Variation. The dimensions of the columns may be, and have been, identified by extrinsic evidence.
- “Intent”, to the extent that it adds anything to “content”, is probably a reference to the purpose or object of defining the design features of the Centre and Premises generally and, in particular, the additional features, settled by negotiation, which are necessary to enable construction of the residential tower block. It is only necessary to look at “intent”, however, when considering clause 2.1(a)(i).
- David Jones argues that the subject phrase was designed to accommodate exigencies of design and construction. It points out that in the drawing of the Varied Master Plan and its predecessor the “various features may have received quite different treatment:
- Some may be the product of specific negotiation and consensus – others may not have been discussed at all.
- Some may be included after detailed architectural and engineering consideration – others may have been included in advance of any serious professional consideration.”
David Jones argues that it is no purpose of the phrase to permit the defendants to deviate from the Varied Master Plan in respect of features which have been specifically settled between the parties in its formulation, particularly where those features were the subject of rigorous architectural and engineering consideration in advance of adoption of the Varied Master Plan. Nor, it is argued, is it a purpose of the clause to permit the defendants to voluntarily deviate from the Varied Master Plan to achieve their own financial purposes. Those submissions, which I accept, are consistent with the above findings as to the construction of clause 2.1 of the Varied Agreement for Lease.
- Having regard to the purpose of the Varied Agreement for Lease and the context in which it was entered into, the fact that features of the Varied Master Plan were specifically settled after protracted negotiation bears closely upon the meaning of the word “generally”. If “generally in accordance with” is not to be constructed as indicated above there would be a strong argument for the implication of a term preventing departures from the Master Plan necessitated by a tower other than a residential tower the subject of the parties’ negotiations.
- Are the Recent Changes “generally in accordance with the content and intent of the Master Plan” or “generally in accordance with the Master Plan”?
- The evidence of Messrs Herndon and Parker and also that of Mr Goddard demonstrates that the Recent Changes have a material adverse impact on the utility and quality of the Premises. That impact may be summarised as follows. Mr Herndon’s redesign solution discloses losses of selling space of 49m2 on the lower ground floor, 197m2 on the first floor, 159m2 on the second floor and 29m2 on the third floor. There was dispute over the accuracy of Mr Herndon’s calculations and it is not in dispute that other design solutions may be provided with a view to mitigating the adverse effect of the Recent Changes. Even so, the effect of the evidence of these witnesses is that a material amount of selling space will necessarily be lost and that the remaining selling space has been materially devalued as a result of being hidden behind columns. Selling spaces have been devalued also by the placement of columns off the regular grids and length widening of columns. In all cases, the affected areas are located in the southwest corners of floors distant from entry points. The areas are thus already less than prime. Consequently, the Recent Changes, by introducing clutter and interfering with clear sightlines and with David Jones’ flexibility in floor design, exacerbate the problems already inherent in these areas.
- I do not consider that the defendants can gain much comfort from the fact that clause 1.6 of the Tenancy Brief requires columns to be “in a grid of not less that 8.5m2 generally.” The Tenancy Brief pre-dated the entering into of the Varied Agreement for Lease and the word “generally” is capable of accommodating, for example, the movement of a column off the grid to meet to exigency of design or construction. There was an issue as to the distance between each of the columns on grid 11 and the nearest heritage column and as to whether such columns in close proximity to each other should be boxed. I accept that the defendants’ evidence on the distance between the columns is more likely to be correct than that of David Jones’ witness and that, in consequence, boxing may not be the best design solution. The fact remains that the close proximity of the columns produces the adverse effects already discussed above, even if those effects are not as pronounced. I accept also the evidence to the effect that the space between each such pair of columns has no worthwhile use for merchandising purposes and will be visually unappealing.
- The positioning of the new lift shafts directly in front of the goods lifts interrupts direct access from the goods lifts to reserves areas and any design solution will be less than perfect. There will be a significant loss of reserved space on the lower ground level and first floor. There will also be a material loss of reserves area on the dock level, which Mr Herndon calculates at 39m2. He calculates losses of such areas of 16m2 on the level one, 48m2 on the level two and 45m2 on level three. Reserves are of critical importance to a department store and the area designated for them prior to the Recent Changes was already tight. Selling space will be lost through the need to replace lost reserves space.
- It is a relevant consideration that the Premises already has the disadvantages and limitations remarked upon by Mr Parker. The Recent Changes are contrary to sound retail design principles. In addition to reducing the quality and amount of space to be provided, they will further detract from David Jones’ ability to present and operate its department store in the Premises as a prestigious international class department store. David Jones will be faced with operational difficulties, loss of design flexibility and difficulty in satisfying the demands of proprietors of prestigious brands for the life of the store.
- I have borne in mind, when evaluating the Recent Changes, that the four columns on grid line 11 replace four substantially smaller columns abutting four heritage columns on grid line 12. The defendants argued that the evidence as to the size of these columns was unsatisfactory and that made it difficult for David Jones to establish that the changes were not generally in accordance with the Master Plan. There is no substance in the contention. The whole tenor of the evidence was that there was a substantial difference in size between the original and replacement columns. The defendants’ plans depict the original columns as substantially smaller than the replacement columns. Mr Parker calculated that the original columns were 0.8m x 0.8m. No alternative measurement was put to him. There was no issue about the size of the original columns. If the precise measurement is thought to be important I would have no hesitation in permitting David Jones to reopen its case to lead further evidence in this regard. A glance at any relevant plan (for example Mr Parker’s figure 8) will reveal the substantial differences in location and size between the two sets of columns.
- The defendants argue that in assessing compliance with the Master Plan it is material to take into account the additional areas on the dock level, lower ground and ground floors offered by Colonial to David Jones. The additional areas are identified by Mr Alexander in paragraph 59(d) of his affidavit as 78.5m2 on the dock level, 58m2 on the lower ground floor and 83m2 on the ground floor. They point out that under clause 14.4 of the Varied Agreement for Lease any variation in area of the Premises up to plus or minus three per cent cannot be objected to by David Jones.
- Mr Goddard’s evidence is that the space offered on the ground floor, although of benefit to David Jones, “is partially obstructed and would not offset … the serious impacts which the new structural elements will have on the store”.
- The additional area on the lower ground floor is effectively a mezzanine floor about 1.8m above the level of the lower ground floor. It has a relatively low ceiling height and would be accessible only if stairs or a hoist were installed. It is impractical and dangerous for stairs or ladders to be used by staff moving stock and hoists are also impractical for reasons explained by Mr Goddard. For these reasons, David Jones has not built mezzanine floors for reserves purposes in any of their stores for decades. Whenever they have refurbished stores, they have closed such spaces for reserves purposes. Part of the additional space offered on the dock level, according to Mr Goddard, is “virtually unusable because of its shape and location behind and adjacent to the proposed new lift shafts”. He explained that the unusable part was that around the two lift shafts but conceded that “from the end of the lift shaft moving towards the Queen Street Mall [the] space is very usable”. He concluded that the additional space was “insufficient to cover the lost space as a result of the lift shafts”.
- Having regard to these matters, in the light of the earlier discussion of the meaning of “generally in accordance with”, I am led to the conclusion that the Recent Changes are not generally in accordance with the content or intent of the Master Plan as varied; or generally in accordance with either the content or the intent. The departures from the plan are substantial in physical terms and substantially degrade the quality of the Premises. In my view, it is tolerably plain that the contractual intention did not contemplate that such changes would be generally in accordance with the Master Plan.
- It is of some interest to note that no one on behalf of Colonial before this litigation commenced, either orally or in writing, expressed an opinion internally or to David Jones that its concerns about the Recent Changes were ill founded or that the Recent Changes had no material adverse impact on David Jones.
- If the defendants are entitled to offset the additional space against the disadvantages suffered in consequence of the Recent Changes, any such offset is not such as to substantially diminish the adverse effects of the Recent Changes or to bring about the result that they are generally in accordance with the Master Plan or the content and intent of the Master Plan.
- The defendants argue that the words in the concluding three lines of clause 21.3 prevent David Jones from complaining about the Recent Changes. The argument proceeds as follows. The first sentence of sub-clause (i) permits the defendants to construct improvements within the airspace above the Premises. The broad effect of the clause is to give the defendants an unrestricted ability to develop the airspace without confining the defendants to the nature or extent of the development envisaged in the Master Plan. The final paragraph of clause 21.3 refers to the first sentence of sub-clause (i). That is because “but for … clause 21.3” David Jones could claim for breach of the Agreement for Lease if the defendants constructed “improvements within the airspace above the Centre”.
- It is not easy to discern how a prohibition against breaches of the Agreement for Lease occasioned by the construction of improvements within the airspace above the Centre affects the obligation in clause 2.1 to construct the Centre itself generally in accordance with the “Building Plans and Master Plan”. The defendants, as proprietors of the land, have a right to construct improvements within the airspace. In so doing, however, there is an obvious risk that the works will cause an unacceptable disturbance to David Jones as lessee of part of the Premises after the completion of Stage 1 and lessee of the whole of the Premises after the completion of Stage 2. This is the concern which sub-clause (i) addresses. The defendants’ argument seeks to obtain some assistance from clause 1.9, which relevantly provides: “a reference to the Land, the Centre, … or to any thing includes a reference to any part of them”. But all that definition relevantly accomplishes is to require sub-clause (i) to be read as if it provided “the construction of improvements within the airspace (or any part of it) above the Centre (or any part of it)”. It does not convert permission to use the airspace above the Centre to permission to do things within the Centre.
- When asked, in the course of submissions, whether on the defendants’ construction of clause 21.3 the defendants would be permitted to build a 50 or 60 storey tower and to place in the Premises whatever supports and banks of lifts were reasonably necessary to support or service such a tower, Mr O’Donnell QC who appeared with Mr Perkins for the defendants, answered without hesitation in the affirmative. The response was a necessary consequence of the defendants’ construction and it serves to highlight its improbability. It would mean that the parties, having spent months painstakingly agreeing to detailed alterations to the Master Plan to accommodate a particular residential tower and having altered the Master Plan accordingly, nevertheless agreed on a clause giving carte blanche to the defendants to alter the Varied Master Plan should they decide upon a different development of the airspace.
- It is apparent that a reasonable person having the background knowledge of the parties would not have understood a clause specifically addressing “construction of improvements within the airspace above the Centre” as conferring a licence on the defendants to place whatever structures they may deem fit within the Centre and the Premises, irrespective of the contents of the Varied Master Plan. The defendants’ construction infringes the requirement that commercial documents should be construed so as to make commercial sense.
- In this regard, Lord Reid in L Schuler AG v Wickman Machine Tool Sales Ltd observed:
“The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.”
- In Antaios Compania Naviera SA v Salen Rederierna AB Lord Diplock expressed even stronger views concerning the imperative to make business sense of commercial contracts, stating:
“[i]f detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”
- In short, not only does clause 21.3, on a literal construction, not address works within the Centre or the Premises, a construction which gives it that effect would be forced and bereft of business commonsense.
Specific performance and injunctive relief
- In its amended Statement of Claim, David Jones claims the following relief.
“Specific performance of the Varied Agreement for Lease on terms which require the Second Defendant to construct:
(a)the areas of the Stage 2 Building which are identified in the Varied Agreement to Lease as being subject to the Lease without the Recent Changes; and
(b)the columns on grids D10 and D10 with a diameter of not more than 1150mm;
further or alternatively, an injunction restraining the Second Defendant (whether by itself, its servants or agents or otherwise howsoever) from constructing:
(a)the areas in the Stage 2 Building which are identified in the Varied Agreement to Lease in a way which includes the Recent Changes; and
(b)any column on grid D10 or E10 with a diameter of more than 1150mm.”
- The defendants do not contend that if David Jones is successful on its construction argument it is not open to the Court, as a matter of discretion, to grant specific performance and/or injunctive relief. They argue that such relief should not be ordered because an award of damages to David Jones would provide an adequate remedy. Additionally, such relief is opposed on grounds that the hardship suffered by the defendants in the event of such an order would so outweigh the detriment suffered by David Jones, if it were confined to damages, that it would be unjust to grant the relief.
- Damages are said to be an adequate remedy as the effect of the Recent Changes on the department store is nowhere near as significant as alleged by David Jones, and can largely be ameliorated by appropriate store design and fit-out. The findings of fact are contrary to these submissions. The defendants also face the problem that it would be extremely difficult to assess the damages flowing from their breaches. Relevant to the assessment of damages is not only the loss of prime selling space and the revenue which could have been expected to have been generated from it, but also such considerations as loss of efficiency in the internal operations of the store, loss of optimum layouts, loss of ability to attract premium “brands”, detraction from the general amenity of the department store and lowering of David Jones’ image in consequence of the various matters canvassed at some length earlier.
- The hardship argument is based on the evidence, which I accept, that unless the Recent Changes are implemented the construction of a commercial office tower will not be possible. It is Mr Beer’s evidence that the development of a commercial tower costing approximately $172 million could yield a profit up to the order of $16 million and that, at present, development of a residential tower would not yield a profit. The commercial towers figures are derived from a submission made by Mr Beer to the board of Colonial in October 2005. The residential tower estimate is the result of calculations made by him for the purposes of litigation.
- A significant problem with the residential development tower, apart from a perceived weakening of the market for high-rise apartments, is that according to Mr Curtain (the valuer who was called by the defendants), an inability to provide title to car parking spaces would be highly detrimental to the marketability of the tower’s residential units. His evidence was that, in the case of commercial premises, it was sufficient for the developer to be able to arrange either to sublease car parking spaces in or about the building or to facilitate the subleasing from a third party.
- The car parking problem arises as a result of the developers having leased the area within the Centre containing the car parking spaces to Kings, a company in the business of renting out car parking spaces. The lease to Kings is for a term of 10 years. Under it Kings has two options to renew for a further term of five years.
- There was a considerable gulf between the evidence of Mr Curtain and Mr Beer on the one hand and that of Mr Cox, a valuer called by David Jones, on the other. In Mr Cox’s opinion, the residential development is more likely to be profitable than the proposed commercial development. In the case of the latter, the profit anticipated by the defendants is, in his opinion, unacceptably low from a commercial point of view. Mr Cox was also of the opinion that, having regard to the location and nature of the proposed residential tower, apartments in it were likely to be acquired for the purposes of short term stays. For that reason, he considered that the inability to provide car parking spaces would not greatly detract from the marketability of apartments.
- There is ample scope for differences in opinion as to whether the present stage in the market’s demand cycle favours commercial developments on the one hand or residential developments on the other. I have no particular reason to prefer Mr Curtain’s evidence to that of Mr Cox in this regard, or vice versa. I do, however, attach considerable weight to the material presented to his board by Mr Beer, having regard to his undoubted experience and competence in the development of such properties. I accept that there are reasonable prospects that a commercial development would yield profits of the order of those anticipated by Mr Beer. It is also the case that it would be a distinct advantage to the defendants to have the ability to erect either a commercial or a residential tower.
- When considering the alleged hardship, a number of other matters need to be borne in mind. One is the possibility, as yet unexplored, that Kings’ interest in its lease of the car parking spaces may be able to be acquired at a commercially acceptable price. Another significant consideration is the fact that no decision has been taken to proceed with any form of tower and no development applications have been made. What the defendants are looking at is the potential to obtain a profit, should an opportune moment to build arise. A further consideration is whether development approval could be obtained for the proposed commercial tower. Yet another consideration is whether the return on the cost of development is sufficient to justify the development.
- Mr Reynolds, a town planner called by David Jones, gave the opinion that under the Brisbane City Plan and the City Centre Local Plan any proposed tower block would require a setback of 6m from the Adelaide Street frontage in order to enhance pedestrian amenity in the streetscape. The proposed tower has a setback of 1.5m. He doubted that the fact that the setback of the proposed tower from Queen Street was greatly in excess of the minimum required was likely to be regarded by the authorities as being of much relevance, having regard to the ample space within the site to position a building which met planning requirements. He considered that the difficulty caused by non-compliance with setback requirements would be increased by the building design which placed the core of the building right at the street frontage. In his experience, the Council was adverse to such designs. The other significant problem he saw with the commercial tower proposal was that it may be difficult to have the Council accept that the tower met the performance criteria of enhancing the character of traditional streetscapes.
- Mr Hyland, a town planner called by the defendants, was more sanguine about the prospects of meeting local authority requirements. Mr Reynolds also accepted that it was normal for developers to enter into negotiations and discussions with the Council and Heritage authorities with a view to overcoming problems of the nature of those under discussion and that such problems were normally overcome. Mr Reynolds added a rider, however, that problems could be overcome “but not with the original design … submitted”. I consider that Mr Hyland, of the two experts, was more likely to make light of difficulties or seek to avoid them and for that reason I have a slight preference for the evidence of Mr Reynolds. But even on Mr Hyland’s evidence it is by no means certain that the proposed office tower would meet with approval. His opinion was that “the proposed office tower would be further refined [and] … an office tower at this site has planning merit and that an application could have a reasonable expectation of being approved”.
- The following statement of principle in the joint judgment of Latham CJ, Williams and Fullagar JJ in Suttor v Gundowda Pty Ltd is apposite:
“Specific performance is not a remedy which should lightly be refused when the plaintiff has established the existence of a contract capable of specific performance which the defendant has refused to complete.’ It is well established that the court cannot judicially exercise its discretion by refusing the remedy in a case of the appropriate class, unless some sound and recognized reason is shown’ (Fullers Theatres Ltd v Musgrove (1923) 31 CLR 524, at p 549 ). It would be necessary for the defendant to prove that a hardship amounting to an injustice would be inflicted on him by holding him to his bargain and that it would not be reasonable to do so.”
- The hardship upon which the defendants rely is essentially the loss of an opportunity to profit from developing the airspace above the Centre for maximum commercial advantage. The advantage is one which it cannot obtain if it observes the terms of its contract, freely negotiated at arms length. There is no suggestion that the development and letting of the Centre will not be a profitable undertaking. No authority was cited in support of the proposition that circumstances such as this amount to “hardship” amounting to an injustice but I do not doubt that the loss of such a business opportunity is a detriment to a defendant which is of relevance to the exercise of discretion. The amount of weight which ought to be given to it is another matter.
- The hardship the defendants must demonstrate is the hardship involved in a decree of specific performance as opposed to an award of damages. The fact that David Jones’ damages would be extremely difficult to assess, combined with the lengthy duration of the lease, strongly suggest that it would be unjust not to grant the relief it seeks. It is relevant also that the agreement is one for the construction and leasing of David Jones’ “flagship” store in Queensland on a site to which David Jones is committed. Damages in such circumstances would not normally be regarded as an adequate remedy and courts would not normally shrink from giving the relief necessary to enforce the contractual bargain.
- It is of relevance that the parties, for their mutual commercial advantage, bound themselves to contractual terms which do not permit the conduct in which the defendants wish to engage. Also relevant is the fact that the defendants ought reasonably to have contemplated, at the time of entering into the Deed of Variation, the possibility of difficulties of the sort relied upon to support the claim of hardship.
- For these reasons, I conclude that there should be a decree of specific performance and injunctive relief of the nature of that sought.
Should a mandatory injunction be ordered in relation to the columns at D10 and E10?
- The defendants again rely on hardship and adequacy of damages.
- At the time of execution of the Deed of Variation the drawings before the parties, upon which they had negotiated, showed the diameter of the columns at D10 and E10 to be 1.15m and 1.10m respectively. There is no reason to suppose that there was any change when the Varied Master Plan was adopted. Mr Bolas did not know of the proposed increase in size of these columns to 1.4m until September 2006. No other representative of David Jones had his or her attention directed expressly to the change by any representative of the second defendant, even though there were ample opportunities in meetings between representatives of the parties for the change to be mentioned.
- The pouring of the concrete for the columns commenced on 24 June 2006, when E10 was poured on the loading dock level. D10 was poured on that level on 3 August 2006. On the lower ground level, E10 was poured on 29 July and D10 on 30 August. On the ground floor, E10 was poured on 15 September and D10 on 23 September. At a meeting of representatives of the parties on 19 September 2006, the representative of David Jones, as the minutes record, “queried column sizes at grid D10 and E10 appeared larger than PDT drawings.” The minutes continue, “WD to review and advise”. (WD is a reference to Mr Deane.)
- It is plain, and Mr Beer’s evidence supports the conclusion, that there is no good reason why Mr Deane would not have been well aware on 19 September that the columns in question had been increased in size and were under construction. Sometime in late September, Mr Bolas, having been alerted by an engineer of the possibility of a problem with the subject columns, downloaded from the plan transmittal system being used in the project to distribute plans, a copy of a document which became exhibit 25. It was the first plan on which he saw the subject columns noted at 1.4m.
- The size of the columns was increased notwithstanding the fact that on 23 February 2006 David Jones had informed the defendants that the changes they were proposing to make to the Varied Master Plan were unacceptable. Those changes did not include specific mention of the subject columns, because the defendants had not alerted David Jones to the change. It should have been apparent however, from the exchanges between the parties, that David Jones was not accepting any changes to columns or lift wells in the Varied Master Plan. In particular, Mr Bolas’ email to Mr Deane of 3 April 2006 stated that David Jones was proceeding on the basis of previously issued drawings and requested that the defendants “not issue any further documentation which reflects the proposed office tower”.
- The defendants submit that there was little specific evidence from Mr Herndon about the two columns and none from Mr Parker. Mr Beck’s evidence was to the effect that the additional size would cause a minimal loss of selling space and would otherwise “have a very minor impact” because the columns could be “treated as opportunities for product display and visual merchandising”. I do not accept that Mr Beck’s evidence states the full extent and nature of the adverse impact resulting form the widening of the pillars. Mr Parker’s evidence, which I accept, was to the effect that “in upmarket department stores generally columns are not used for merchandising”.
- Mr Beck gave evidence, which I accept, of having seen examples of goods displayed on and about pillars in David Jones stores. That evidence establishes that in some cases, and for certain purposes unexplored in the evidence, David Jones has marketed goods in this way. The evidence does not establish though that Mr Parker’s opinion was erroneous.
- There was evidence of a general nature from Messrs Herndon and Parker as to the desirability of having columns of equal size on a regular grid and as to the undesirability of broader columns which interfered with sightlines and created dead selling areas. Opinions were given about the effect that irregular and/or broad columns had on the presentation of a store and in reducing the quality of space for prime retail purposes.
- Removal of the columns is a time consuming and difficult process. The columns are constructed of specially hardened concrete. The process of removal involves:
- Propping the existing floors to provide supports in place of the columns and transferring the load to those temporary supports;
- Pouring footings for the temporary columns;
- Removing existing columns, probably using rock breakers or jackhammers;
- Cutting a hole in the floor slabs;
- Replacing the columns, probably by sliding fabricated steel columns through the holes in the floor slabs;
- Installing a welded bracket to support the slab edges;
- Relieving the load off the temporary columns and then removing them;
- Encasing the new columns in concrete or some other fire resistant material.
- The demolition process will be disruptive, noisy and dirty and there is some risk that the floor slabs already poured could be damaged. Tenants in Queen’s Plaza expect to be affected by vibrations passing through the structure, which may be severe enough to dislodge items off shelves.
- The cost of the works is expected to be to the order of $1.7 million and to lead to 126 days’ delay in the completion and opening of Stage 2, causing the opening to be set back from approximately 28 September 2007 until mid April 2008. The delay costs to the builder, which the second defendant may be obliged to pay under the building contract, are estimated to be $35,000 a day, totalling over $4.4 million.
- In these circumstances, it is submitted by the defendants that the detriment to them resulting from the removal of the columns so far outweighs the benefit to David Jones as to render the granting of a mandatory injunction unjust.
- The defendants relied on the following statement of principle by Buckley J in Charrington v Simons & Co Ltd:
“Where a mandatory order is sought, the court must consider whether in the circumstances as they exist after the breach a mandatory order, and, if so, what kind of mandatory order, will produce a fair result. In this connection, the court must, in my judgment, take into consideration amongst other relevant circumstances the benefit which the order will confer on the plaintiff and the detriment which it will cause the defendants. A plaintiff should not, of course, be deprived of relief to which he is justly entitled merely because it will be disadvantageous to the defendant. On the other hand, he should not be permitted to insist on a form of relief which will confer no appreciable benefit on himself and will be materially detrimental to the defendant.”
- That passage was cited with approval by McGarry J in Shepherd Homes Ltd v Sandham, who observed:
“That passage is valuable, if I may say so, both in its statement of the concept of a ‘fair result’ as the criterion, and also as necessarily indicating, I think, that the enforcement of a negative covenant at the trial by a mandatory injunction is far more a matter of judicial discretion and not of right than in the case of a prohibitory injunction.
I may summarise my conclusions as follows. First, Lord Cairns LC's statement of principle prima facie applies to mandatory injunctions; but it does not apply in its full width. The matter is tempered by a judicial discretion which will be exercised so as to withhold an injunction more readily if it is mandatory than if it is prohibitory. Even a blameless plaintiff cannot as of right claim at the trial to enforce a negative covenant by a mandatory injunction. Second, although it may not be possible to state in any comprehensive way the grounds on which the court will refuse to grant a mandatory injunction in such cases at the trial, they at least include the triviality of the damage to the plaintiff and the existence of a disproportion between the detriment that the injunction would inflict on the defendant and the benefit that it would confer on the plaintiff. The basic concept is that of producing a 'fair result', and this involves the exercise of a judicial discretion.”
- The submissions of David Jones did not cast doubt on the correctness of those statements of principle.
- The columns on the Lower Ground and Ground levels have the disadvantages already stated. Damages would be extremely difficult to assess and the columns will have a long-term impact. The defendants are the authors of their own misfortune. They proceeded with construction after the commencement of this litigation knowing that David Jones was opposing changes to the Varied Master Plan. No issue had arisen expressly in relation to the subject columns only because the alterations had not been brought expressly to the attention of David Jones’ representatives.
- But it is probably not the case that the defendants acted deliberately in contravention of David Jones’ rights, at least in respect of construction below ground floor level. I accept Mr Beer’s evidence to the effect that he, personally, was unaware that David Jones did not know of the changed dimensions. It remains the fact, however, that had either Mr Deane or Mr Beer turned his mind to the increase in column size it would have been apparent to him that it was likely to have been objected to by David Jones. Mr Deane, in particular, should have been aware by 23 September 2006 at the latest that David Jones was unaware or uncertain of the proposed size of the columns at D10 and E10. Ground floor column D10 was poured after that date. Presumably Mr Deane would have proceeded with the pouring of the other columns had they not been constructed before 23 September. In my view, the conduct of David Jones in no way caused or contributed to the defendants’ risky conduct in proceeding to construct the subject columns whilst the parties were in dispute.
- For the above reasons, I propose to order the removal of the columns on the ground level. That is the store’s prime selling floor and the area most critical to the store’s general presentation. The evidence did not point to any detriment to David Jones resulting from the placement of the larger columns on the dock level; their removal from that level would occasion great cost and disruption and would confer no benefit on David Jones.
- The space on the lower ground floor is of lesser quality than that on the ground floor. The columns on the lower ground floor thus do not have the same detrimental impact as those on the ground floor and were constructed before 23 September. The defendants’ conduct in relation to them is thus not quite as wilful or reckless as their conduct in relation to column D10 on the Ground floor. Weighing the cost and disruption (including the consequences to third parties) of the removal of the Lower Ground floor columns against the benefit to David Jones of their removal (and not overlooking the difficulty in assessing damages) I have concluded that my discretion ought be exercised against the granting of an injunction in respect of the Lower Ground floor.
The Building Plans issue
- There is an issue between the parties as to the identity of the “Building Plans” required to be prepared by the second defendant under clause 2.1 of the Agreement for Lease. David Jones contends that the “Building Plans” are ones provided by the second defendant to David Jones on 2 September 2002. The Amended Statement of Claim alleges that “by September 2005, Building Plans and Detailed Plans and Specifications … under the Agreement for Lease had been prepared for the Stage 2 Building”. Particulars of these plans are provided. The plans in question do not incorporate the Recent Changes. It is submitted by David Jones that, under the Agreement for Lease, it was not open to the defendants to issue any further Building Plans as the Agreement contemplates only one material event, “the preparation of the Building Plans”.
- The Amended Defence originally alleged that the Building Plans were those issued on 2 September 2002 and that those plans were superseded by plans issued on 3 August and 7 September 2006. In address, in the light of evidence given by Mr Beer, the defendants did not continue to contend that the 2 September 2002 plans were the Building Plans. They relied on Mr Beer’s evidence, that the September 2005 plans put forward by David Jones’ as the Building Plans did not come to him for approval and were not authorised by him to be issued to Colonial’s consultants as plans from which could be developed more detailed plans, as establishing that such plans were not the Building Plans. On the other hand, the defendants rely on Mr Beer’s evidence to support their contentions concerning the 3 August and 7 September 2006 plans. The evidence was that Mr Beer had approved those plans and authorised Mr Deane to sign them on behalf of the defendants.
- But the defendants accept that the critical issue in the case is whether the construction of Stage 2 with the disputed columns and lift shafts would result in a construction not “generally in accordance with the Master Plan and the Building Plans”. The defendants accept that, to be valid, the Building Plans must be generally in accordance with the content and intent of the Master Plan. David Jones submits that the issue of the identity of the Building Plans arises only if it is found that the Recent Changes could be included in valid Building Plans. In my view, the defendants’ approach is correct. The matter falls to be determined by reference to whether the Recent Changes are “generally in accordance with the content and intent of the Master Plan”. If they are not, any purported Building Plan incorporating them will be invalid and the first defendant will be in breach of its obligations under clause 2.1.
- The Recent Changes, if incorporated in any “Building Plan”, would not be “generally in accordance with the content and intent of the Master Plan”.
- Incorporation of the Recent Changes in the construction of the Centre would be in breach of the obligation in clause 2.1(b) of the Varied Agreement for Lease to construct the Centre “generally in accordance with the … Master Plan”.
- Clause 21.3 of the Varied Agreement for Lease does not prevent David Jones from complaining about the Recent Changes. The clause does not qualify or supersede the obligation in clause 2.1 to construct the Centre generally in accordance with the … Master Plan”.
- There is no basis for resisting specific performance or injunctive relief in respect of the Recent Changes (not including the columns at D10 and E10) on the basis that damages would provide an adequate remedy or on the grounds of hardship.
- It would be unjust to order the removal of the columns at D10 and E10 from the loading dock level. The evidence does not suggest that their presence there occasions any detriment to David Jones, whereas their removal would be costly and time consuming.
- There is no basis for resisting an order that the columns at D10 and E10 be removed where they have been constructed on the ground floor. Damages would not be an adequate remedy and relevant hardship has not been established. It is relevant that the defendants proceeded with the construction knowing that David Jones was opposing changes to the Varied Master Plan and that prior to the pouring of the column at D10 Mr Deane was put on notice of David Jones’ lack of knowledge of the size of these columns. The evidence does not reveal that any conduct on the part of David Jones caused or contributed to the defendants’ conduct in causing the columns to be constructed.
- After considerable hesitation I decline to order the removal of the columns at D10 and E10 on the Lower Ground floor for the reasons given above.
- I invite David Jones’ legal advisors to draft minutes of order to give effect to the reasons and I invite submissions on costs. As presently advised, I see no reason why costs should not follow the event.
 Clause 1.1.
 Clause 2.1 of the Agreement for Lease.
 Clause 4.
 Clause 5.
 The clause in question in clause 21.3.
 Ex 24 and Bolas T277-8.
 Ex 1 Vol 6 at 21 Item 5.7.
 Affidavit of Mr Goddard sworn October 2006, paragraph 14.
 (1890) 24 QBD 341 at 345.
 (1980) 44 LGRA 400 at 406.
 Clause 2.4(b).
 Mr Beer’s affidavit paragraph 40.
 Olsson v Dyson (1969) 120 CLR 365.
 Robinson v Podosky (1905) St R Qld 118 at 122.
 Cl 1.9 of the Agreement for Lease.
 (1988) 5 ANZ Insurance Cases 60-853 at 75,343.
 Trawl Industries of Australia Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358 and Sola Basic Australia Ltd v Morganite Ceramic Fibres Pty Ltd (NSWCA, 11 May 1989, unreported).
  AC 313 at 391.
  1 WLR 896 at 912.
 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)  1 AC 715 at 737.
 Toll (FBCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
 Toll (FBCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
 Per Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896 at 912, cited with approval by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181 at 188.
 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589.
  1 WLR 989 at 995-996.
 (1982) 149 CLR 337 at 350.
  78 ALJR 1045 at 1050, 1051.
 (2004) 219 CLR 165 at 179.
 Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352.
 Royal Botanic Gardens and Domain Trust v South Sydney Council  76 ALJR 436 at 443.
 (1980) 44 LGRA 400 at 406.
 See Ferdinands v Commissioner for Public Employment (2006) 224 ALR 238.
 Identified in paragraph 63 of Mr Beer’s affidavit.
 Identified in paragraph 64 of Mr Beer’s affidavit.
  AC 235 at 251.
  AC 191 at 201.
 (1950) 81 CLR 418 at 438, 439.
 Meagher, Heydon and Leeming, Equity Doctrines and Remedies (4th ed) 20-100.
 See Spry, The Principles of Equitable Remedies (4th ed) at 579; Coles Supermarkets Australia Pty Ltd v Australian Retail Freeholds Pty Ltd (1996) 16 WAR 282 and Greene v West Cheshire Railway Company (1871) LR13 Eq 44.
 See e.g., ANZ Executors and Trustees Ltd v Humes Ltd  VR 615.
  2 All ER 257 at 261.
  Ch 340 at 351.
 The evidence is to the effect that there is no practicable means of reducing the size of the columns in situ.
 Paragraph 245 of David Jones’ outline of submissions.
 Mr Beer’s affidavit, paragraphs 75-78.
 Recent Changes are described in paragraph  of these reasons.
- Published Case Name:
David Jones Ltd v Perpetual Limited & Anor
- Shortened Case Name:
David Jones Ltd v Perpetual Limited
 QSC 337
10 Nov 2006
- White Star Case:
No Litigation History