- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
Tri-Star Petroleum Co v GPT Funds Management Ltd  QSC 73
TRI-STAR PETROLEUM COMPANY
Supreme Court at Brisbane
2 April 2009
28 January 2009
1.That the application be dismissed;
2.That the Applicant pay the Respondent’s costs of and incidental to the application to be assessed on the standard basis.
LANDLORD AND TENANT – RENT – PROVISIONS AS TO RENT IN AGREEMENT FOR LEASE OR LEASE – RENT REVIEW CLAUSES – TIME – where applicant and respondent are respectively the lessee and the lessor of commercial premises – where lease is for a term of six years commencing on 1 July 2004 with an option to renew for four years expiring on 30 June 2014 – where lease provides for a base rent and two mechanisms for its review (fixed percentage reviews and market reviews) – where these reviews are to occur as at Review Dates listed in the Reference Schedule – where dispute relates to the market review as at 1 July 2008 – where procedure for initiating rent review is provided for by clause 2(a) of Schedule 3 – where clause 2(a) confers a power upon the lessor to serve a notice reviewing the Base Rent which notice may be served at any time during a specified period – where that period commences "three (3) months before a Market Review Date" and expires "on the next Market Review Date (or, if there is no following Market Review Date under this lease…the expiration of the Term)" – whether "next Market Review Date" denotes the very same date as the subject Market Review Date or whether "next Market Review Date" means the Market Review Date which is next after the subject Market Review Date – where lessor gave notice to the lessee on 30 October 2008 – whether that notice was a valid notice for the purpose of clause 2(a)
Elderslie Property Investments No 2 Pty Ltd v Dunn  QCA 158, cited
Euphoric Pty Ltd v Ryledar Pty Ltd  NSWSC 2, cited
Hydarnes Steamship Co v Mutual Marine Assurance Co  1 QB 500, cited
Lake v Simmons  AC 487, cited
McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579, cited
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, cited
Re Birks  a Ch 417, cited
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603, cited
Toll (FGCT) Pty Ltd v Alphaharm Pty Ltd (2004) 219 CLR165, cited
Watson v Haggitt  AC 127, cited
Watson v Phipps (1985) 63 ALR 321, cited
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, cited
SS Monks for the applicant
JD McKenna SC for the respondent
De Vere Lawyers for the applicant
Allens Arthur Robinson for the respondent
- Wilson J: The applicant and the respondent are respectively the lessee and the lessor of premises in the Riverside Centre in Eagle Street, Brisbane. They are in dispute about the proper construction of a rent review clause in their lease.
- The lease, which is in respect of an area of 534 square metres on level 35 of the Riverside Centre, is for a term of six years commencing on 1 July 2004 with an option to renew for four years expiring on 30 June 2014. It provides for a Base Rent which was $189,570.00 per annum at the commencement of the initial term, and two mechanisms for its review - fixed percentage reviews and market reviews. These reviews are to occur as at Review Dates listed in the Reference Schedule. These are either Fixed Percentage Review Dates or Market Review Dates.
- Fixed percentage reviews are scheduled to occur as at –
1 July 2005
1 July 2007
1 July 2009,
and if the option is exercised –
1 July 2011
1 July 2012
1 July 2013.
Market reviews are scheduled to occur as at –
1 July 2006
1 July 2008,
and if the option is exercised –
1 July 2010.
- This dispute relates to the market review as at 1 July 2008.
- Clause 3.7(a) provides –
"At each Fixed Percentage Review Date, the Base Rent must be reviewed and the Base Rent payable on and from the relevant Fixed Percentage Review Date until the next Review Date shall be the Base Rent payable immediately prior to the relevant Fixed Percentage Review Date (such Base Rent determined as if no abatement or reduction were in effect) increased by the Fixed Percentage."
The fixed percentage during the initial term was 4.5%.
- The first anniversary of the commencement of the term (1 July 2005) was a Fixed Percentage Review Date. Applying clause 3.7(a) –
- As from 1 July 2005 the Base Rent was $189,570.00 increased by 4.5 %;
- Rent was payable at that new Base Rent until the next Review Date - 1 July 2006, which was a Market Review Date.
- Clause 2 of Schedule 3 provides –
"Reviews of base rent – lessor’s notice.
(a)The Lessor may at any time in the period commencing THREE (3) months before a Market Review Date and expiring on the next Market Review Date (or, if there is no following Market Review Date under this Lease or under any lease referred to in Item 8, the expiration of the Term), serve on the Lessee a notice reviewing the Base Rent to an amount which the Lessor determines to be the annual market rent of the Premises as at the subject Market Review Date.
(b)The amount notified in the Lessor’s Notice is the Base Rent on and from the subject Market Review Date unless and until there is agreement or determination to the contrary pursuant to this Schedule, at which time the agreed or determined amount will become the Base Rent payable on and from the subject Market Review Date.
(c)Despite sub-clause (b), if the Lessee serves notice in accordance with clause 4, then (on an interim basis) the Base Rent on and from the subject Market Review Date will be the greater of the Base Rent current immediately prior to the subject Market Review Date and NINETY per cent (90%) of the amount notified in the Lessor’s Notice.
(d)The Lessee must pay that interim Base Rent until there is written agreement or a determination to the contrary under this Schedule.
(e)The Lessor’s Notice is binding on the parties (except in the case of manifest typographical error). Except as provided in clause 4, it must not be challenged due to any failure (or alleged failure) by the Lessor to have proper regard to the Criteria or due to any other reason."
- This dispute relates to the proper construction of clause 2(a) of Schedule 3 – in particular, the duration of the period within which the lessor may serve notice reviewing the Base Rent.
The notice given by the lessor
- On 30 October 2008 the lessor gave the lessee the following notice –
"Notice is hereby given that the Lessor has determined that the annual market rent payable in respect the Premises effective on and from 1st July 2008 is, and the Base Rent is therefore reviewed on and from that date to:
New Base Rent:$667,500.00 p.a. (exclusive of GST)
$734,250.00 p.a. (inclusive of GST)
Terms used in this letter have the same meaning as in the Lease."
- The lessee contends that the notice was given out of time, and that it was therefore of no effect. Its contention is that a lessor's notice reviewing the Base Rent as at 1 July 2008 had to be given in the three month period beginning 1 April 2008 and expiring on 1 July 2008.
- The lessor contends that the notice might have been given at any time between 1 April 2008 and 30 June 2010 (the expiration of the term).
The scheme of the Market Rent Review provisions
- The principles upon which a Market Review is to be conducted and the processes to be adopted are set out in Schedule 3.
- Clause 1 of Schedule 3 provides –
"1 Interpretation and time to be of the essence
- In this Schedule, unless the context otherwise requires:
Criteria means the criteria in clause 13(a);
Current Base Rent means the annual market rent of the Premises as at the subject Market Review Date, on the basis of clause 13;
Lessee’s Notice means a notice complying with clause 4 and served on the Lessor in accordance with that clause;
Lessor’s Notice means a notice served on the Lessee in accordance with clause 2(a);
Valuer and Umpire means a person satisfying the criteria in clause 3 and appointed as a valuer or umpire pursuant to this Schedule; and
a reference to a clause is a reference to a clause in this Schedule.
- In this Schedule, time is of the essence. Failure to observe any time limit in this Schedule is a failure to discharge the relevant obligation or exercise the relevant right;"
Clause 13 provides –
"Criteria for determining the current base rent
- The annual market rent of the Premises at the subject Market Review Date must (subject to sub-clause (b)) be determined on the basis of the following Criteria:
- Comparable rents: rents as at the Market Review Date in respect of any comparable premises (giving greater weight to rents agreed or determined in respect of premises in the Building);
- Period between reviews: the period which will elapse between the Market Review Date and the next Market Review Date (if any);
(xiv)Minimum Increase: for the Market Reviews occurring on:
A.1 July 2006;
B.1 July 2008;
the annual market rent of the Premises must not be less than the aggregate of:
A.the Base Rent payable in the TWELVE (12) month period immediately preceding the Market Review Date increased by 4.5%; and
B.the Lessee’s Proportion of Outgoings payable in the TWELVE (12) month period immediately preceding the Market Review Date.
This clause (xiv) is not to operate in respect of the Market Review Date to occur on 1 July 2010 (if the option for the further term is exercised).
(xv)Willing but not anxious: that this Lease is in place and is between a willing but not anxious lessor and a willing but not anxious lessee enjoying or entitled to enjoy actual possession of the whole of the Premises as at the Market Review Date;
- Despite any other provision of this Schedule, any person may take into account any other criteria which may, in that person’s opinion, be relevant to his determination of the annual market rent of the Premises as at the subject Market Review Date, but must not take into account anything (including, in the case of the Umpire, any written assessment of a Valuer) which is not consistent with the Criteria listed in sub-clause (a) (which are in random order and no significance or priority is to be attached to that order)."
- There is a staged process for a Market Rent Review where the lessee disputes the amount determined by the lessor:
- Notice by the lessor reviewing the Base Rent to an amount which the Lessor determines to be the annual market rent as at the subject Market Review Date;
- Notice by the lessee disputing the amount determined by the lessor and setting out the amount which the lessee considers to be the Current Base Rent;
- Lessee's appointment of a valuer and notification thereof to the lessor;
- Lessor's appointment of a valuer and notification thereof to the lessee;
- Determination by valuers;
- Determination by umpire if the valuers do not agree.
Needless to say, if agreement is reached along the way, the process is truncated.
- Dispute about the Current Base Rent does not effect a moratorium on rent increase. Under clause 13(a)(xiv) of Schedule 3 the lessor is entitled to what its senior counsel described as a ratchet increase of 4.5%. Further, under clause 2(c), the lessee must, on an interim basis, pay 90% of the amount determined by the lessor if it is greater than the Base Rent immediately prior to the subject Market Review. There is provision for adjustment once the Current Base Rent is agreed or determined.
Approach to the construction of clause 2(a) of Schedule 3
- The lease is a contract between two commercially sophisticated parties. The Court's task is to interpret the words they used and to determine their true intent. As Gleeson CJ said of an insurance policy in McCann v Switzerland Insurance Australia Limited -
"...[It]…is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure."
- The Court must begin with the words used by the parties, and seek to ascertain what a reasonable person would have understood them to mean. In Toll (FGCT) Pty Ltd v Alphaharm Pty Ltd the High Court said -
"This Court, in Pacific Carriers Ltd v BNP Paribas 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."
"The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further."
In Ryledar Pty Ltd v Euphoric Pty Ltd the New South Wales Court of Appeal reviewed relevant authorities about the interpretation of commercial contracts. Tobias JA (with whom Mason P and Campbell JA agreed) approved this passage from the decision of the trial judge – 
"31. However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation.
32. When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction. But the court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document. When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings. It is then the Court’s task to identify which of the possible meanings represents the parties’ contractual intention.
33. However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit."
See also the review of relevant authorities by the Queensland Court of Appeal in Elderslie Property Investments No 2 Pty Ltd v Dunn.
- As senior counsel for the lessor submitted, the commercial purposes which the rent review clause seeks to attain are twofold –
- to produce a mechanism which is certain and workable for the parties who are to take timely steps to comply with it; and
- to produce a rent which fairly and accurately reflects the state of the market at the relevant review date.
The language used
- Clause 2(a) of Schedule 3 posits that there is "a Market Review Date", which is subsequently referred to as "the subject Market Review Date". The parties agree that the lessor may give notice "at any time in the period commencing three (3) months before a Market Review Date and expiring on the next Market Review Date (or, if there is no following Market Review Date...the expiration of the Term)". The period commences three months before the subject Market Review Date and ends on "the next" Market Review Date.
- Is the end point the Market Review Date next in time after the commencement of the period (i.e. the subject Market Review Date) or that next in time after the subject Market Review Date? The words in parenthesis equate "the next market Review Date" with the "following Market Review Date", and posit that there may be no "following Market Review Date" (because the subject Market Review Date is the last before the expiration of the term).
- If "the next Market Review Date" were the subject Market Review Date, there could never be a circumstance where there was no "following Market Review Date", and so the words in parenthesis would be superfluous. This is a strong indication that the parties meant the end point to be the Market Review Date next in time after the subject one. And it is consistent with one of the meanings of "next" when it is used to describe an event or occasion -
"occurring directly after another in time, without anything of the same kind intervening.
- If the parties had intended the period to expire on the subject Market Review Date, they could easily have used the words "and expiring on that Market Review Date" or "and expiring on the subject Market Review Date". While this does not answer the question of what the words they actually used mean, it does provide some reassurance that the interpretation for which the lessor contends is the one likely to appeal to a reasonable person looking at them objectively.
- Counsel for the lessee submitted that the interpretation for which the lessor contends would lead to absurdity. In particular -
- it would subject the lessee to overlapping "market review periods": for example, the review period for the 1 July 2006 Market Review Date would end on 1 July 2008, while that for the 1 July 2008 Market Review Date would commence on 1 April 2008, and
- it would allow the lessor to wait until the end of a two year period before giving notice of a market review of the Base Rent for that period.
He elaborated on these points in his written submissions as follows –
"8.The absurdity of the overlapping periods tells against [the lessor’s] construction. So too does the fact that the right to a market review could arise simultaneously under two separate market review dates. Furthermore it makes the need to count back three months from the market review date superfluous. Instead the lease could simply have provided for a review ‘at any time in the period between a market review date and the next market review date’.
9.Within each of these periods (effectively the last 8 years and 3 months of a 10 year lease including the option), [the lessor] would be free at any time to demand a rent review. The obvious uncertainty that would face [the lessee] in attempting to plan its financial affairs would be exacerbated by the fact that clause 11 of Schedule 3 would make [the lessee] immediately liable to pay rent retrospectively for up to two years, to make up the difference between the previous rental and the new rental fixed under the review. This proposition was put to the [the lessor] in open correspondence, and its truth was not denied. The uncertainty could make it impossible for [the lessee] to assign its lease, as the answer to a prospective tenant’s question ‘what is the rent?’ would be ‘we don’t know’. Such uncertainty is completely inconsistent with the parties’ express desire (clause 1(b) of Sch 3) that time be of the essence in the rental review process, and would render the protection of clause 1(b) worthless."
- Senior counsel for the lessor pointed to the staged process for the resolution of disputes about the rent payable at a Market Review Date, and observed that on any view some months may be required. He acknowledged the possibility that the lessor might wait until the end of a two year period before giving notice, but submitted that the risk of its delaying was tempered by -
- the lessor's rights to a ratchet increase of 4.5% and to interim payment of 90% of the amount determined by it being dependent on the notice being given;
- the lessor's having no right to interest on the ratchet increase or the interim payment if it delayed in giving the notice.
Delay would confer corresponding benefits on the lessee.
- The Market Rent Review provisions are the mechanism by which the Base Rent is to be adjusted to the market rent at the relevant Market Review Date - that is, to what would be paid by a willing but not anxious lessee to a willing but not anxious lessor at the relevant Market Review Date. Senior counsel for the lessor submitted -
"54.Schedule 3 contemplates that this determination will involve the lessor in ascertaining, and then analysing, the position of rents and other relevant data as at the Market Review Date.
55.How could such a determination be carried out properly if the rent must be determined on the very same day as relevant transactions may still be occurring – and long before they may become publicly known?
56.A construction of the clause which would be more apt to produce a fair and accurate result in one which allows the lessor a period of time after the relevant market review date to gather and consider all relevant data.
57.An approach of this kind is also more likely to avoid the need to engage the extensive dispute resolution mechanism.
58.Once this approach is adopted in the rent review mechanism, then it is only a question of degree as to how much time the parties are prepared to allow the lessor for this purpose."
- There is substance in the submissions of both counsel. The Court must weigh their competing concerns, being careful to confine its deliberation to absurdity, and not to be influenced by hardship to the lessee. Approaching the issue in that way, the interpretation for which the lessor contends is consistent with the grammatical and ordinary sense of the words used, and it does not produce a result which is so absurd or so inconsistent with the parties’ commercial purposes that it could not have been intended by them.
- While there may be no canon of construction that the same meaning ought to be given to an expression in every part of a document in which it appears, where there is uncertainty or ambiguity about what it means in one part of a document, but it is clear what it means in another part, the difficulty may be resolved by presuming the parties to have intended it to have the same meaning.
- One of the criteria for determining the Current Base Rent is "the period which will elapse between the Market Review Date and the next Market Review Date (if any)". There "the next Market Review Date" clearly means the one after the subject one.
- The interpretation for which the lessor contends is consistent with the clear meaning of "the next Market Review Date" in this criterion for the determination of the Current Base Rent. It is consistent, too, with the clear meaning of that expression in the provision dealing with fixed percentage reviews of the Base Rent.
- Finally, counsel for the lessee placed some reliance on the contra proferentem maxim: "the words of an instrument should be taken most strongly against the party proffering them." There is doubt whether the maxim could be applicable to a lease such as this between two sophisticated commercial parties. In any event, he acknowledged that the maxim is not a primary rule of construction but rather one of last resort.
- In the present case, the arguments in favour of the construction for which the lessor contends are sufficiently powerful not to be overcome by application of the contra proferentem maxim even if it were otherwise applicable.
Conclusion on cl 2(a) of schedule 3
- On the proper construction of clause 2(a) of schedule 3 of the lease –
- "the next Market Review Date" is that next in time after the subject Market Review Date; and
- accordingly, the notice dated 30 October 2008 given by the lessor to the lessee was a valid notice for the purpose of that clause.
- One of the criteria for determining the Current Base Rent is –
"Comparable rents: rents as at the Market Review Date in respect of any comparable premises (giving greater weight to rents agreed or determined in respect of premises in the Building)."
- The lessee sought a declaration that –
"on the proper construction of...[the relevant provision]…the expression ‘rents as at the Market Review Date’ includes the rents payable at the relevant Market Review Date pursuant to the lease of any comparable premises, no matter on what date the amount of that rent was agreed or determined."
- The lessor accepts that this is so. In the circumstances the Court should decline to make the declaration.
- I will hear the parties on the form of the order and on costs.
 Clause 3.1.
 Reference schedule, item 9(a).
 Schedule 3.
 Reference schedule, item 13.
 Reference Schedule, item 13(b)(i).
 Letter Jones Lang La Salle to Tri-Star Petroleum Company dated 30 October 2008, exhibited to the affidavit of Stephanie Ferguson filed 23 December 2008 (“Ex SF-7’), (Court document no 2), p 70.
 Schedule 3, clause 2(a).
 Schedule 3, clause 4.
 Schedule 3, clause 5.
 Schedule 3, clause 7.
 Schedule 3, clause 9.
 Schedule 3, clause 10.
 Schedule 3, clause 11.
 (2000) 203 CLR 579 at 589.
 Hydarnes Steamship Co v Mutual Marine Assurance Co  1 QB 500 at 504 per Lord Esher MR.
 Lake v Simmons  AC 487 at 509 per Viscount Sumner.
 (2004) 219 CLR 165.
 (2004) 219 CLR 165 at 179.
 (2004) 218 CLR 451.
 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 – 462 .
 (1985) 63 ALR 321.
 (1985) 63 ALR 321 at 324.
 (2007) 69 NSWLR 603.
 (2007) 69 NSWLR 603 at 626; approved Euphoric Pty Ltd v Ryledar Pty Ltd  NSWSC 2 at  – .
  QCA 158 at  ff per Muir JA with whom Holmes JA and White J agreed.
 Respondent’s submissions filed 28 January 2009, para 50, 52.
 The New Shorter Oxford English Dictionary, L Brown (ed.), Oxford: Clarendon Press, 1993.
 See transcript of proceedings on 28 January 2009, p 1.42.
 Letter John Sweep to GPT Funds Management Ltd dated 28 November 2008, exhibited to the affidavit of Stephanie Ferguson filed 23 December 2008 (“Ex SF-10”), p 81.
 Applicant’s submissions filed 28 January 2009, para 8, 9.
 Respondent’s Submissions filed 28 January 2009, para 54 – 58.
 Watson v Haggitt  AC 127 at 130; cf Re Birks  1 Ch 417 at 418. Also see Sir Kim Lewison The Interpretation of Contracts 4th ed, London: Sweet & Maxwell, 2007 at 246.
 Schedule 3, clause 13(a)(iv).
 Clause 3.7(a).
 verba chartarum fortius accipiuntur contra proferentem.
 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 529; Seddon & Ellinghaus Cheshire & Fifoot’s Law of Contract 9th ed, Sydney: NexisLexis Australia 2008 at 10.33.
 Transcript of proceedings on 28 January 2009, p 1.21.
 Schedule 3, clause 13(a)(i).
 Originating application filed 23 December 2008 (Court document no 1), para 1(c).
 Letter Allens Arthur Robinson to de Vere Lawyers 23 January 2009 exhibited to the affidavit of S J Dickens filed 28 January 2009 (“ex SJD-3”), (Court document no 6).
- Published Case Name:
Tri-Star Petroleum Co v GPT Funds Management Ltd
- Shortened Case Name:
Tri-Star Petroleum Co v GPT Funds Management Ltd
 QSC 73
02 Apr 2009
- White Star Case:
No Litigation History