So bad it’s good: dodgy drafting gets the job done
In this recent decision, the landlord got the benefit of a dubiously worded outgoings clause. The High Court gave full effect to the parties’ commercial intent to hold that commercial common sense dictated that the tenant would be liable for all outgoings under a long term lease.
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd  HCA 12
You’re a financially challenged land owner who can’t subdivide. So you enter into a 99 year lease, with rent prepaid as a lump sum. You want (apparently) to require the tenant to pay all outgoings on the leased land. You have a nifty standard form lease and you don’t have Word (because it’s 1988). So you make the following deletions to the printed form:
4. AND [the Lessee] will pay all rates taxes assessments and outgoings whatsoever which during the said term shall be payable by the tenant in respect of the said premises
Twenty years and three hearings later, and job’s right. The High Court agrees – your tenant has to pay all outgoings.
There aren’t really a lot more facts. The lease had been going along; a new owner bought the leased land in the 90s, and the tenant assigned his interest in the 2000s. Then in 2013, the landlord sought a declaration that clause 4 above required the tenant to pay all outgoings, so that it could require the tenant to pay rates and land tax.
The original landlord and tenant had documented the deal by altering a standard form lease with visible deletions and additions. They struck out some clauses, and some parts of clauses, and added new clauses. Most significant of the new clauses was one which stated that the parties acknowledged that the landlord intended to sell and the lessee to purchase the land; and that as a result the parties agreed to enter into a 99 year lease with prepaid rent (clause 13).
On appeal to the High Court, it was not disputed that to resolve an ambiguity, the court could consider the deleted words remaining on the face of the document: .
Before each Court, there were two interpretations of clause 4 on offer. On the tenant’s version, clause 4 required the tenant to pay those outgoings payable by it, ie. payable under legislation imposing rates and taxes. This, the tenant said, was the plain meaning of the undeleted words. As to the deleted words, they showed that the parties considered making the tenant pay outgoings payable by either landlord or tenant, and rejected that. (After the first instance decision, the tenant did not persist in arguing that clause 4 was unambiguous.)
The landlord leaned heavily on an alleged commercial purpose of replicating a sale, so that clause 4 should be read as throwing the burden of outgoings on the tenant only. On this version the clause was repetitive, as the tenant agreed to pay all outgoings “payable by the tenant”; that phrase had no work to do.
Both parties valiantly sought to make sense of the piecemeal amendments to clause 4 and elsewhere. There were arguments that one or other interpretation left words redundant; and that one or other meaning could have been achieved with fewer or different deletions. Proper hardcore textual construction. The stuff of conscientious drafters’ nightmares.
First instance and Court of Appeal
Croft J found for the landlord, but was reversed by the Court of Appeal, Kyrou JA dissenting.
Croft J and Kyrou JA were persuaded that the commercial purpose was to replicate a sale. Reading clause 4 as imposing the obligation to pay all outgoings on the tenant was commercially sensible. The alternative would be inconsistent with the commercial purpose of the transaction.
The majority in the Court of Appeal read clause 13 differently; it did not contain an express purpose to replicate a sale; it could not explain all the terms of the lease, some of which were not consistent with that purpose. It was also persuaded that the deletions showed the parties considered, and rejected, making the tenant liable for the landlord or the tenant’s outgoings.
In the end, the arguments about inferences to be drawn from particular deletions made or not made didn’t get much traction – basically because the contract was a bit of a hot mess. Or, as Gageler J (of the plurality) more elegantly put it in relation to clause 4: “To bring linguistic and grammatical precision to its construction would be to burden the clause with more weight than its jumble of words will bear”: .
Furthermore, as both sides agreed the relevant clause was ambiguous, there was no need for the Court to consider whether it could have taken the deleted words into account in the absence of ambiguity. Gageler J perhaps felt a pang of disappointment, noting that the case involved no point of disputed legal principle or question of public importance: .
Given this, what is the point of interest in the decision? Ultimately, it illustrates a difference of judicial opinion on the meaning and significance of the commercial purpose, and what was commercially most likely.
The plurality (of four) were persuaded that the objective of the lease was to replicate a sale; and on this basis, the tenant would be responsible for all outgoings: -, , , . Further, it would make commercial sense for the landlord to avoid that liability, which could increase in the future by statutory change; whereas the rent was fixed and prepaid: , , , .
Nettle J (dissenting) didn’t join the party. As to the commercial purpose, clause 13 did not amount to an expression of intention to replicate a sale (); besides, the tenant’s version of clause 4 would not have appeared a terrible deal for the landlord at the time, as the tenant would have been liable for general rates, water, and sewage rates and land tax. The subsequent increase in rates and taxes (of which evidence was provided at trial) was largely due to the landlord having the land re-zoned: -.
The deletion in the phrase: “outgoings… payable by the landlord or tenant” had the natural and ordinary effect of making the tenant liable for outgoings payable by it only: . It would amount to making a new contract, Nettle J said, were the landlord’s meaning to be attributed to clause 4: . Take that, plurality. Ouch.
The moral of the story: bad drafters don’t always finish last. But take heart, conscientious drafters. It can’t have been cheap.