Royal Botanic Gardens and Domain Trust v South Sydney City Council
[2002] HCA 5(Decision by: Kirby J)
Royal Botanic Gardens and Domain Trust
vSouth Sydney City Council
Judges:
Gleeson CJ
Gaudron J
McHugh J
Gummow J
Kirby JHayne J
Callinan J
Subject References:
Contract
Interpretation
Ambiguous term of lease
Admissibility of evidence of surrounding cir-cumstances to assist in interpretation of ambiguous contract or term
Term that lessor 'may have regard' to certain matters
Whether lessor limited to consideration of those matters
Public or statutory bodies as parties to lease
Relevance of legislation relating to parties in order to construe term of lease
Contract
Terms and conditions
Implied obligation or duty of good faith and fair dealing
Legislative References:
Registration of Deeds Act 1897 (NSW) - The Act
Sydney Corporation Act 1932 (NSW) - The Act
Fourth Schedule of the Local Government (Areas) Act 1948 - s 25(1)
City of Sydney Act 1988 (NSW) - The Act
Crown Lands Consolidation Act 1913 (NSW) - Section 5(1)
Public Trusts Act 1897 (NSW) - s 3
Domain Leasing Act 1961 (NSW) - The Act
Royal Botanic Gardens and Domain Trust Act 1980 (NSW) - s 5(1)
Real Property Act 1900 (NSW) - The Act
Conveyancing Act 1919 (NSW) - s 23B(1)
Judgment date: 14 February 2002
Canberra
Decision by:
Kirby J
[43] This appeal concerns the interpretation of a contract between non-commercial statutory authorities. It raises questions about the construction of a deed of lease, the meaning of that lease in terms of its own language and structure and the availability of contextual materials and extrinsic evidence to produce a construction different from that suggested by its terms. The appeal thus concerns the continuing efficacy of the parol evidence rule, the circumstances in which evidence of the parties' prior negotiations and post-contractual conduct may be received in aid of construction and the extent to which implications may be found in the written document, or elsewhere, to elaborate matters about which it is silent.
A long-term lease, minimal rent and the justice of the case
[44] Near the heart of the City of Sydney, close to its central business district and harbour, is a large open space known as the Domain. [24] Beneath this space is a vehicular parking station. Because it was built long ago the costs of constructing it have been substantially recouped. It is now, and for some time has been, a profitable operation.
[45] A dispute arose between the statutory trust now responsible for the Domain and the local government body now responsible for the parking station. This dispute concerned the rent payable by the latter to the former. The trust says that, as implied in the deed of lease governing the matter, the rent payable must be fair and reasonable as determined at specified intervals in accordance with a power conferred by the lease. The local authority claims that the rent payable is in the order of an annual sum of $2000, adjusted for costs of gardening and maintenance of the grass surface above the parking station and the like. For many years a trifling amount of that order was all that the local authority paid as rent. Then the statutory trust woke up. It demanded a fair and reasonable rent. Having obtained legal advice, the local authority for several years paid the rent so determined. From 1988 to 1991, for example, it paid $175,000 per annum. From 1991 to 1994 it paid $500,000 per annum. Thereafter it paid more, but by that stage under protest. Obviously, there is a big difference between sums of the order of $2000 and sums of the magnitude lately paid.
[46] By June 1994, the parties had fallen out. Although both were public bodies, they could not resolve their difference. It has not been resolved for them by the Parliament of New South Wales. So they took their dispute to court. At first instance the statutory trust substantially succeeded. [25] The New South Wales Court of Appeal reversed that decision. [26] By special leave, an appeal has now been brought to this court.
[47] On the face of things, the suggestion that a rent clause in such a deed of lease confined the trust to determining rent of little more than $2000 per year appears absurd. It offends intuition that a formal agreement in respect of an enterprise with such large and profitable implications would be so construed, at least when the document containing the relevant power is read with today's eyes. To produce such a result, one would expect that the language of the document would leave no doubt and thus demand that the apparently irrational conclusion be forced on the trust (and hence on the public to whom the Domain ultimately belongs).
[48] The primary judge rejected the construction of the lease urged by the local authority. In his view, it did "very great violence" to the language of the lease. [27] He held that it sought to read into that language words that were not there. [28] Moreover, in dismissing an alternative suit brought by the local authority for rectification of the terms of the lease, the primary judge concluded, on the evidence, that the words propounded could not be inserted. [29] The Court of Appeal upheld the primary judge's decision on rectification. [30] It is no longer in issue. However, the construction of the deed of lease is.
[49] Sometimes appellate reconsideration of the facts of a case, or the constraints of binding authority, produce unexpected and even bizarre outcomes. Almost anything can happen when the language of the Constitution is involved. [31] Particular legislation may occasionally produce results which, in the context, seem odd to some. [32] The resolution of this case depends upon the ascertainment of the relevant facts that define the boundaries of the dispute and the application to them of the principles of the common law, understood in the context of the statutory powers of the parties. The common law does not usually produce unreasonable outcomes. [33] As Lord Steyn recently remarked, "the justice of the case ... has been one of the great shaping forces of the common law". [34] This is not, his Lordship pointed out, "the subjective view of the judge but what he reasonably believes that the ordinary citizen would regard as right". [35]
[50] In my view, there is little question of what ordinary citizens today would think as right concerning the meaning of the lease and the dispute about it between the trust responsible for the Domain and the local authority collecting the profits of the parking station. They would not think it right (or "fair and reasonable") that the rent payable for such a valuable property should be no more than a trivial amount, as the Court of Appeal has found. Most likely they would think that rents of the order that were paid between 1991 and 1997 (after June 1994 under protest) would be nearer the mark. [36] Yet a closer look at the terms of the deed of lease might oblige the opposite conclusion. A better understanding of the admissible evidence might reverse intuitive conclusions. Perhaps the ordinary citizen of May 1976 (when the deed of lease was executed) or of May 1958 (when the term of the lease is taken to have begun) would have viewed the "justice of the case" differently.
[51] Defining the problem with precision, and determining the proper approach to the problem, are thus the keys to finding the solution to this appeal which the law requires.
The facts and the provisions of the lease
[52] The facts necessary to elaborate the foregoing brief description of how the present problem arises can be found in the reasons of other members of this court. [37] I will not repeat them unnecessarily.
[53] Royal Botanic Gardens and Domain Trust (the trust) is the appellant. Under its statute, the Royal Botanic Gardens and Domain Trust Act 1980 (NSW) (the 1980 Act), it is the successor to the trustees of the Domain created by the earlier Domain Leasing Act 1961 (NSW) (the 1961 Act). [38] The South Sydney City Council (the council) is the respondent. It is the transferee of the interest of the Sydney City Council (the SCC) under the deed of lease between the SCC and the trustees of the Domain. With the consent of the successive trustees of the Domain and the minister in the New South Wales Government responsible for its affairs, the SCC paid for the construction of the subterranean parking station.
[54] Of the many matters upon which the trust and the council were in dispute at earlier stages of these proceedings, at least now they both agree that the primary question in the appeal to this court is the construction (or interpretation [39] ) of the deed of lease dated 15 May 1976, entered between the trustees of the Domain and the SCC (the deed of lease). The critical words in cll 1 and 4(b) of the deed of lease are set out in other reasons. [40] I incorporate them by reference.
[55] There are other relevant provisions in cl 4. [41] However, it is sufficient to note that cl 4(k) authorises the trustees to form "any opinion" on "such materials as they ... may think sufficient". Clause 4(l) requires that the lease "shall for the purpose of determining the rights and obligations of the parties be construed as if it had been executed on the date from which the term is expressed to run". This subclause was designed to accommodate the long delay between May 1958 when an informal lease commenced and May 1976 when the deed of lease was finally executed. Clause 4(m) states that the agreement is "conditional upon and subject to the approval of the minister and subject to the power of the minister to revoke wholly or in part the dedication of the subject land". In the event of such revocation, the rights and privileges conferred cease without any entitlement in the lessee for compensation. No such revocation has occurred. But the absolute terms of the minister's powers, and the requirement for the minister's consent, were relied on both by the trust and the council to support their respective arguments.
[56] Both parties suggested that the starting point was to construe the lease. I will shortly turn to its language. The majority in the Court of Appeal began, instead, with a description of the history of the negotiations between the original parties to the lease, stretching back to 1955. [42] The reasons recounted at some length the conduct of the parties' dealings after the deed of lease was executed. [43] They did this before turning to the analysis of the language. For what follows, it is important to make it clear that the deed of lease was not an exact reflection of the correspondence exchanged during negotiations, nor even of the informal agreement that existed between the government entities concerned prior to the execution of the deed of lease.
[57] In this court, the trust produced an analysis covering more than four closely typed pages, contrasting the provisions respectively contained in the letter from the Department of Agriculture to the SCC of 17 January 1956 and the terms of the deed of lease of 15 May 1976. Much of this analysis relates to provisions inserted by the Crown Solicitor on matters of detail which, perhaps understandably, had not been considered by the department or the SCC during their negotiations. Much more significant, however, are the variations from the matters contained in the letter of 1956 which represented the "offer as to terms and conditions of an agreement with the [SCC] with respect to the construction and operation by the [SCC] of an underground car parking and servicing station on ... the Domain" that subsequently, with immaterial amendments, the SCC accepted.
[58] Whereas the foregoing letter simply provided, as to the amount to be paid, "[t]he rental shall be £1,000 per annum", and then went on to refer to the "additional cost of maintenance of the Domain" at the end of each three-year period of the lease, with specific reference to the employment of an additional gardener and the supply of additional fertilisers, the deed of lease of 1976 contained no such particularity. Instead, it provided in the terms of cll 1 and 4. There were also differences in the terms of an easement in favour of the SCC contemplated by the letter of 1956 and the deed of lease which omitted any reference to such an easement. There were distinct differences between the covenants and conditions contemplated by the letter of 1956 and those included in the deed of lease of 1976, in some instances at the request of the SCC. Without rectification, such divergences make it hazardous to go behind the language of the deed of lease to which the parties formally signified their assent.
[59] Before its execution, the draft deed of lease was submitted by the SCC to the City Solicitor. In a perceptive comment, after setting out the clause that became cl 4(b)(iv) of the deed of lease, the City Solicitor remarked:
... it appears that there is no provision for [the SCC] to object to the amount of rent which the trustees determine ...
[60] At the end of his advice, the City Solicitor stated that "as long as [the SCC] is prepared to accept the restrictions contained therein" he could "certify that the document is in order for execution". A handwritten note is appended to this minute stating that the restrictions contained in the lease "were agreed to in discussions leading up to the leasing of the Site, by [the SCC]".
[61] The SCC was therefore on express notice about the large powers assigned by the deed of lease to the trustees in the determination of the amount of rent to be paid for the parking station. The SCC can thus be taken to be aware of the variation between the negotiations and the formal lease. With its eyes open, the SCC entered the lease as expressed in the deed. Apart from legal principle, this sequence of events suggests a good reason why the rights and obligations of the parties (and hence of their successors in title) should be construed, at least primarily, by reference to the terms of the deed of lease itself rather than by reference to what officers of the predecessors to the parties intended, or believed, would be the conditions with respect to rent governing their relationship.
Common ground
[62] Before embarking on the task of construing the lease, it is appropriate to record certain matters about which there was common ground between the parties or with which this court is not concerned.
[63] The council did not argue that the promises contained in the lease of 1976 were too vague or indeterminate to give rise to a binding agreement between the parties. It would scarcely have been in the interests of the council to do so. Having regard to the action taken by the SCC to build the parking station and the extremely long gestation period for the conclusion of the terms of the lease (20 years) it would be wholly unreasonable to infer that the parties intended otherwise than that they (and in the event their successors) would conform to the deed of lease, once executed, during its term. A provision as to rent is normal in such a lease. It would have been astonishing for those with responsibility for the Domain to have omitted any provision in respect of rent. They did not. Accordingly, on the face of things, the periodic determination of rent must conform to that provision. [44]
[64] The council did not argue that the demands by the trust for the rent in contest in these proceedings were made otherwise than in good faith. Before this court, in the light of its argument as to the proper construction of the lease, whether in terms of its language or by reference to extrinsic evidence, the council did not descend into the detail of what would be a "fair and reasonable" rent if the trust were entitled to use its power under the lease to determine the rent as it contended. But from the voluntary payments of the large sums as rent for the periods between May 1988 and June 1994 (after which time the trust accepted that payments were made under protest), it is probably fair to infer that such payments afford some notion of what both parties regarded at that time as "fair and reasonable rent" for the lease of the parking station under the Domain land.
[65] The council did not revive its earlier submission that the provisions in the deed of lease as to rent represented an instance of mutual mistake. The council's submissions at trial on rectification were rejected by the primary judge [45] and the Court of Appeal. They are not in issue before this court.
[66] One of the arguments which the council pressed below was that, because the lease required the trust to determine the rent at the commencement of each rental period, and to notify the council "of the yearly rent as so determined as soon as practicable after the commencement of" that period, the failure of the trust strictly to conform to that timetable deprived it of any entitlement to rent, even presumably the tiny amount which the council argued that the lease provided. This argument was rejected by the Court of Appeal. [46] Wisely, it was not repeated in this court.
[67] Nor did the council seek to revive the attempt, upon which it failed at trial and in the Court of Appeal, [47] to recover the rent aggregating $1.5m paid between May 1991 and April 1994. However, if the Court of Appeal judgment stands, the trust will be obliged to repay the very substantial sums paid after June 1994, less only the trifling amount which the council acknowledges to be payable as rent during that time.
The construction of contracts and legislation
[68] Starting with the language of the lease itself, Spigelman CJ in the Court of Appeal said that he regarded the construction issue as "finely balanced". [48] According to his Honour, it was one upon which minds might differ. [49] He accepted that the conclusion which he reached was "by no means obvious". [50] Whilst the other members of the Court of Appeal did not disclose any similar doubts or difficulties, with respect, this might have been because they did not approach the task in the way that I regard as orthodox.
[69] Where parties reduce their agreement to writing, the orthodox approach to contractual construction obliges the decision-maker to address attention primarily to the document in which the rights of the parties are stated. [51] In this case, that document was the deed of lease.
[70] In statutory construction, there is a tendency, noted in several recent cases, for judges and others to look first to a number of external sources for guidance, including judicial generalities [52] or legal history. [53] It is as if some who have the responsibility of interpretation of legal words find the reading and analysis of the texts themselves distasteful, [54] like dentists happy to talk about the problem but loath to pull a tooth. In statutory construction this error of approach must be rooted out. The proper place to start is the statute. A wide range of other materials may now be accessed, if need be, to assist in the task. But the task itself remains that of finding the meaning of the legislation from the text -- not from other materials.
[71] The same point of principle is applicable where the function in hand is to construe the terms of a written contract. The starting point must be the contract. Only later, if need be, may the decision-maker have resort to contextual materials and supplementary or extrinsic evidence in elaboration of the written text. This approach is equally applicable to a statute and a written contract because it is based on a principle informed by strong considerations of practicality. The text may be unarguably clear. In such a case, it will not be necessary, or ordinarily permissible, for the decision-maker to go beyond the written language from which the legal answer to the question in issue is to be found. If the text is so clear, that will normally be the end of the matter. A great deal of time and disputation may then be avoided.
[72] In the case of a complex lease, entered for a very long term, in respect of a significant property development with high capital and income elements to it between public bodies with express or implied statutory duties to perform in ways intended to fulfil the obligations respectively imposed upon them by law, one would normally expect that their written agreement would contain all of the provisions essential to govern the relationship between them. Especially would this be so where, as here, the parties were severally advised by highly competent and experienced solicitors and where they took what appears to have been an inordinate amount of time both to secure enabling legislation and to reduce the terms of their informal agreement to a written document in the form of a deed.
[73] On the face of things, therefore, the present contextual circumstances suggest that all of the provisions in respect of a material term (such as rent) in a lease finally executed in the form of the deed of lease of May 1976, would be found within the four corners of the written instrument. There would thus be no need to resort to contextual information, still less evidence of background negotiations, a mass of correspondence, oral testimony and other extrinsic sources. For the moment, I leave aside any restrictions which the law may impose upon access to extrinsic evidence. [55] I simply make the point that in the circumstances of this case, one would normally have expected that the answer to the provision concerning rent would be found in the deed of lease itself.
The construction urged by the council
[74] In its primary argument, the council accepted this challenge. In my view, its best submissions were these. By cl 1 of the lease, the rent for the first three years was fixed at $2000 per year. Even in 1958, such a sum would not have been anything like a commercial rent for a large and central letting space in the city of Sydney. This fact suggests that the character of the rent had been adjusted to the public character of the parties to the lease, the public interest involved in the development of parking facilities provided by the lease and the wide powers which the lease reserved to the minister to supervise the activities of the parties so as to protect the public.
[75] The reference to cl 4(b) of the deed of lease controls the power given by the lease to the trustees in cl 1 to determine the annual rent. An unlimited power in relation to the SCC's (and ultimately its ratepayers') funds could not have been within the contemplation of the parties. When, within cl 4(b), clues are then sought as to the amount of the rent after the initial period, only two are available. The first, in cl 4(b)(iii), indicates that the rent "shall not in any event be less than" $2000. The second directs the trustees, in exercising their power, to have regard to "additional costs and expenses" incurred in relation to the parking station. If it had been intended that a commercial rent should be paid, paras (iii) and (iv) of cl 4(b) would not have been necessary. In the context, therefore, the direction to the trustees to "have regard to" additional costs and expenses identified both the character and quantum of the rent for which the lease provided. Thus, "have regard to" amounted here to "have regard only to". [56] Similarly "may" in the context was not permissive but restrictive. It meant "may only". The council submitted that the language of the lease indicated objectively the intention of the parties that the power of the trustees was to be limited to ensuring that they suffered no financial disadvantage by virtue of the building of the parking station under the Domain land in respect of which the trustees would retain their obligation to maintain the external environment. [57]
[76] According to the council, the foregoing construction of the lease was harmonious with its terms. It did not result in a meaning that was capricious, unreasonable, inconvenient or unjust. [58] The lease was negotiated in earlier times before the more recent trend had taken hold to require public bodies to charge users for the costs of their facilities, or some of them, at or near market prices. When the original lease was negotiated in 1958, and even when the deed of lease was executed in 1976, such notions were not prevalent in relation to contracts between the parties to this lease. Such ideas should not be imposed retrospectively, when the object of the interpretation of the written contract is to ascertain what, objectively, the parties agreed to when they executed the deed of lease in 1976.
[77] Obviously, the foregoing presents an arguable case. That is the nature of disputed questions of construction (whether of statutes, contracts or other instruments) that come to this court. [59] However, like the primary judge, it is my view that the better construction of the language of the lease is that submitted by the trust.
The contractual language read with enabling legislation
[78] It can be recognised, as the solicitor for the SCC clearly did when advising the SCC before execution of the deed of lease in 1976, that cl 1 of the lease confers on the trustees a very large power. It is a power to make a determination of the rent for each successive three-year period. By this language, the lease picks up the provisions of s 3 of the 1961 Act which authorised the trustees, with the consent of the minister, to grant leases of parts of the Domain for the purposes of the parking station "for such terms or periods, at such rentals and subject to such covenants and conditions as the trustees, with the approval of the Minister ... may determine" (emphasis added).
[79] The 1961 Act granted statutory powers to the then trustees. The Parliament of New South Wales enacted that law some three years after the initial informal lease was agreed between the SCC and those then responsible for the Domain. That Act became the statutory basis for the deed of lease of 1976. By the provisions of the 1961 Act, the trustees were empowered to "grant ... such leases" and in that connection to "determine" such "rentals". By that Act, they were empowered to do so "from time to time". One would normally infer that such statutory trustees would, in any case, exercise their general powers for the purposes, and in the best interests, of the objects of their trust. Yet whatever doubt might have existed prior to 1961, it was removed by the terms of the 1961 Act, which preceded the execution of the deed of lease. Thereafter, the ultimate source of the power to grant the lease executed in 1976 was s 3 of the 1961 Act.
[80] In accordance with orthodox principles governing the exercise of statutory powers by the repository of such powers, it was obligatory upon the trustees in granting the lease and in determining the rentals, to fulfil their statutory obligation as trustees of the Domain. In short, such repositories were obliged to perform their functions only in a way that advanced the objects of the statutory trust. Legally, it was not open to them to act otherwise. The deed of lease of 1976 must be construed in this statutory setting. The statute was well known to both parties to the deed of lease and to their lawyers. They had waited for the legislation to be enacted before negotiating, and eventually executing, the deed of lease. In any case, the 1961 Act, as a public law, was binding on them all.
[81] The provisions of the lease and the later conduct of the trust become clearer when so understood. [60] The determination of the rental is apparently at large. However, it is to be performed by a repository of statutory power granted such power for specific purposes. To that extent, the power could not be performed unlawfully, unreasonably or irrationally. In discharging the function of rental determination belonging to them by the deed of lease, the trustees (and in due course the trust) were granted a large power whose exercise was ultimately constrained by statute. The normal principles controlling the exercise of statutory power therefore governed their conduct. [61] With all respect to those who have gone before in these proceedings, insufficient attention was given to the statutory obligations and public duties of the trustees (now the trust). This is yet another instance where fascination with common law principles has been permitted to blot out the requirements of applicable statutory provisions. [62] After the 1961 Act, the only power that the trustees had to grant the subject lease and to determine rentals for the demised land was the power they derived from the Act. No exercise of power under the deed of lease or otherwise could lawfully contradict the requirements of that Act. [63]
[82] Viewed against this background, the provisions of cll 1 and 4(b) are more readily understood. Specifically, proviso (i) in cl 4(b) imposes a notification obligation. Proviso (ii) specifies how and when adjustments of rent are to be made. Proviso (iii) indicates a minimum figure for rent, below which, in no circumstances, the rent may fall. No maximum rent is specified. However, a maximum rent would be implied from the statutory source of the power afforded to determine the "rentals" from time to time. Proviso (iv) is an enabling provision. It identifies some factors to which regard may be had in making the rental determination. But it does not state that these are the only factors to which regard may be had. Indeed, to do so would have conflicted with the provisions of the 1961 Act that identify the repository of the power and sufficiently indicate the general purposes for which the power may be used.
[83] The language of para (iv) is strongly against the proposition advanced by the council. That paragraph is expressed in terms of what the trustees "may have regard to". Where the drafter intended to impose restrictive obligations, the words "shall" or "shall not" were used, as in the preceding paragraphs. Had it been proposed to confine the trustees to having regard only to the costs and expenses mentioned in para (iv) (assuming that to be lawful in terms of the 1961 Act) this would have been expressly stated. It was not.
[84] The provisions of cl 4(k) which permit the trustees (or their delegates in the Department of Agriculture) to form any opinion under the lease "on such materials as they or he may think sufficient", provide still further support for the construction urged by the trust. Its view of the meaning of the lease does not rob para (iv) of a useful purpose. On the contrary, by identifying particular matters to which the trustees (now the trust) could "have regard", that paragraph removed any possibility of debate as to the propriety of taking such considerations into account.
[85] Clearly, then, the lease was intended to fix a minimum component for the rent and to require the trustees to determine the rent in such a way as to cover their expenses. So much is not in doubt. But, by its language, the lease held back from fixing a maximum rent. It neither provided a detailed formula nor nominated an external arbitrator who could resolve differences between the parties. Yet, once it is appreciated that the power to grant the lease and to determine the "rentals" is a power ultimately deriving from statutory provisions, [64] the difficulty that might otherwise have arisen in a private agreement between private parties evaporates. The law, in the form of the implication derived from the 1961 Act, steps in to govern the exercise by the trustees (now the trust) of the power to determine the rent conferred by the deed of lease.
[86] There was much debate before the primary judge, [65] in the Court of Appeal [66] and in this court concerning the way in which a workable formula could be found, consistently with cll 1 and 4 of the lease, to avoid a capricious imposition by the trust on the council of a totally unrealistic rent. Indeed, the council used this spectre to support its submission that, notwithstanding the language of cl 4(b)(iv), the word "may" as there appearing had to be read as "may only".
[87] Much time was taken in exploring the common law cases by which, in leases between private parties affording machinery for the determination of a "price" but no explicit formula, obligations to act fairly and reasonably will be implied into the contract so as to save it from failure and to provide a measure by reference to which the "price" can be objectively proved. [67] The court was taken to case law both in this country [68] and overseas [69] as well as to academic commentary [70] to demonstrate a growing tendency to imply into private contractual dealings a covenant of good faith and fair dealing. [71] As expressed in some United States decisions, this is a principle that is not confined to an obligation to exercise express contractual powers fairly and reasonably. In some parts of the United States, the obligation has been accepted as a general implied contractual term in its own right. [72]
[88] However, in Australia, such an implied term appears to conflict with fundamental notions of caveat emptor that are inherent (statute and equitable intervention apart) in common law conceptions of economic freedom. It also appears to be inconsistent with the law as it has developed in this country in respect of the introduction of implied terms into written contracts which the parties have omitted to include. [73]
[89] In the present appeal, it is unnecessary to explore this question further. [74] Except as it reflects somewhat parallel and analogous developments in public law, I consider that it is irrelevant, as such, to examine concepts of implied contractual obligations to act fairly and reasonably in the discharge of an agreed power. This is because here the repository of the power in question is not a private individual or corporation. It is not even a public corporation required by its statute to pursue commercial objectives. It is not therefore entitled, without restraint, to pursue its own selfish, commercial, economic interests. Here, the trustees were (and the trust is) a repository of statutory powers, obliged (and known to be obliged) to discharge those powers as parliament provided. To the extent that parliament made no express provision, the law would imply an obligation on the part of the trustees (and the trust) to act lawfully, reasonably and without disqualifying irrationality to fulfil the provisions of the 1961 Act. [75]
[90] It is true, as the council pointed out, that the waters of this litigation were earlier muddied by the repeated assertion for the trust that, under the deed of lease, it was entirely without restriction in its power to fix the rent. [76] Only later did the trust accept that there might be some restriction on its power. But the mistake then made was to attempt to derive the source of that restriction only from the principles of the common law of contract applicable to private parties. Insufficient attention was paid to the fact that the repository in this instance was a non-commercial public body whose powers were relevantly granted by statute.
[91] Resort to the principles governing the exercise of a power that cannot lawfully diverge from its statutory source produces an outcome not materially different from that which some of the foregoing rules of private law would produce. The power must be exercised in good faith reasonably and only for the purpose for which it is conferred on the repository. The repeal of the 1961 Act by the 1980 Act [77] does not alter the continuing obligation, that now devolves on the trust, to "determine" the "rentals". [78] No such "determination" could involve the exercise of the power in a way different from that envisaged by the 1980 Act. Relevantly, this required the trust, at the times specified, to determine a fair and reasonable, not necessarily a commercial, rent. [79] Any other determination would have been outside the powers enjoyed by the trust. The governing principles of public law impose on the trust the duty to determine the rent in accordance with the terms of the lease but consistently with the purpose for which the trust was established, namely the advancement and protection of the objects of the Domain and, now, the wider objects imposed on the trust for trust lands committed to its care. [80]
[92] Given the terms of the deed of lease itself, this conclusion is hardly a surprising one. The term of the lease envisaged in the deed of 1976 was 50 years. By any account that is a lengthy term. The provision for triennial reviews of rent under the deed permitted regular determinations by the trustees (now the trust) of the rent that was fair and reasonable to the circumstances, as viewed by the repository of the power at the time of each determination. With such a long term to the lease, the intervention of new considerations that might properly affect each determination of rent was expressly allowed for.
[93] Equally, the regular reviews of the rent contemplated by the lease would necessarily involve perceptions of what a "fair and reasonable" rent would be, viewed in the light of the then prevailing perspectives of such questions. Just as a statute, intended to operate over a long period, may contain words that come, in time, to attract new and larger content, [81] so in a lease for a term of 50 years such changes were catered for. This was done in the deed of lease by the large power of rental determination conferred on the trustees (now the trust) and by the requirement that the power was to be exercised at triennial rests. This is not a case of imposing on the council, retrospectively, perceptions of the "rent" or "fair and reasonable rent" envisaged by the lease different from the rent which the parties agreed to, either in 1956 or 1976. The question is not the subjective intentions, beliefs or expectations of such parties. The terms of the informal lease and, more relevantly, of the deed of lease of 1976 envisaged, objectively, an intention of the parties that a regular review would be undertaken and that the rent would then be as determined by the trustees exercising their power.
[94] Viewed in this way, there is nothing inconsistent with the decision of the trust, in discharging its power of "determination" under the lease, to conclude, as it did after 1980, [82] that the rent previously determined was not fair and reasonable. Then began the triennial determinations by the trust that bore a reflection of the extremely valuable asset which the council enjoyed on the trust's land.
[95] Even if, as the council asserted, the only factor that the lease expressly mentioned as relevant to the determination of the rent was that of "additional costs and expenses", as stated in cl 4(b)(iv), it is clear that after 1976 fresh consideration was given by the trustees (later the trust) to the increased costs incurred by them, including opportunity costs. [83] Such opportunity costs represented the costs of leasing the land on which the parking station stood to the SCC (and later the council) for a very small rent at a time by which the facility was highly profitable and in circumstances in which a lease of the same area of land to another operator would produce a much more substantial rent. Given that the lease afforded the power to the trustees to determine the rent at triennial rests and that the trustees were obliged to perform their functions as envisaged by the 1961 Act, such a determination involved no more than the discharge, albeit somewhat belatedly, of the obligations of the trustees both under the lease and consistently with that Act. [84]
[96] It follows that, by simply construing the deed of lease and adding no more to the task of construction than the provisions of the 1961 Act governing the trustees (and the equivalent provisions under the 1980 Act devolving on the trust) I reach a conclusion similar to that of the primary judge.
[97] Upon my analysis, the error of the Court of Appeal was that of going outside the language of the deed of lease and failing to read that language in the light of the legislative source of the power and the special public character of the repository of that power. Without more, this conclusion requires that the appeal be allowed and the judgment of the primary judge restored.
Contextual and extrinsic considerations
[98] Written documents and legal rights : The fundamental reason for observing restraint in receiving extrinsic evidence to elaborate, explain and, as some parties would hope, vary a written contract, where parties have put their agreement in writing, was stated by Isaacs J in Gordon v Macgregor : [85]
The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations or upon mixed communings partly consisting of letters and partly of conversations. The written contract is that which is to be appealed to by both parties, however different it may be from their previous demands or stipulations, whether contained in letters or in verbal conversation.
[99] The practical utility of this rule has been recognised many times, including by this court. [86] The reason for its persistence as a matter of legal doctrine is based on a desire to uphold the more formal bargains that parties commit to writing; to discourage expensive and time-consuming litigation about peripheral and disputable questions; and to recognise the ample capacity of our law to rectify a written contract where a party can prove that it does not reflect the true agreement of the parties, objectively ascertained. [87]
[100] However, like the analogous principle of statutory construction that primarily focuses the task of interpretation on the text in question, in recent years this rule has come under attack from several quarters. Lord Denning MR regarded it as indicating that English law (and by inference that of the jurisdictions such as Australia that had followed it) was "uncivilised" and out of step with other legal systems, notably those of Europe. [88]
[101] Judicial recognition of the inherent ambiguity of much language and the potential for restrictive rules to work injustice has led to a questioning of the rigid application of the primary rule. [89] A greater flexibility in the use of contextual materials and extrinsic evidence in the construction of contracts has therefore, to some extent, flowed over from the changes, stimulated by statute, that have occurred in the construction of legislation. [90]
[102] I would not resist this "liberalisation" of sources to aid construction of written contracts any more than of statutes. [91] However, it would be indefensible for this court, without good reason, to adopt a different approach in the ascertainment of the meaning of contested language in a contract from the approach observed in respect of legislation . In the latter context, the court has made it plain that, if the language of the statute is clear, no amount of extrinsic material -- whether ministerial speeches, explanatory memoranda, law reform reports, legislative history or otherwise -- authorises a refusal to give the clear words their legal effect. That was said most clearly in Re Bolton ; Ex parte Beane . [92] I regard the present appeal as the occasion to make it plain that the same rule governs the obligations of courts when construing a contested provision in a written contract or other private instrument giving rise to rights inter partes.
[103] In a sense, such cases present even stronger reasons for adhering to a text upon which the parties have agreed. In the case of private documents, unlike statute, there is no general legislation requiring or encouraging a court to have regard to extrinsic materials. [93] Equitable remedies are available to modify the effect of the written text in a way that is not possible with legislation. [94] As with legislation, [95] it is impermissible to receive contextual material or extrinsic evidence to indicate what the subjective intentions, beliefs or expectations of the makers were. [96] At a time of increasing international trade, ordinarily conducted on the basis of written contracts, there are strong reasons of legal policy for adhering to a general principle that holds parties to their written bargain in the terms that they have accepted. [97] In the present case, the long interval during which the deed of lease was negotiated and the facts that both sides were legally advised, that the resulting lease was different from the earlier informal arrangement and that rectification had been refused are all reasons for holding the present parties to the language of the deed as executed.
[104] Pre-contractual negotiations : Accepting that the law on the availability of contextual materials and extrinsic evidence has advanced somewhat in Australia as elsewhere, [98] the position remains, in my view, that stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW ): [99]
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ...
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself.
[105] Approaching the prior negotiations between the predecessors to the parties to this appeal in that manner, I would not alter the conclusion I have reached on the basis of my analysis of the terms of the deed of lease. It is no more permissible to do "very great violence" [100] to the actual language of the deed as executed by the parties by reference to their prior negotiations than it would be to ignore, or override, the plain language of an act of parliament because of earlier parliamentary evidence. The same rule of construction applies to both processes. In the end, it is the written text that governs the rights of parties. This court should be consistent in its approach to the ascertainment of the meaning of language expressed in words intended to have legal effect.
[106] The critical contextual fact in the present case, known to both parties, was that passage of the 1961 Act was procured in order to put beyond doubt the power of the trustees to execute the deed of 1976. Far from supporting the council's position, in my view the relevant extrinsic evidence (assuming it to be admissible) is against its case. At the crucial moment, immediately prior to the execution of the deed of lease, the SCC was expressly advised by its solicitor of the extremely large powers which the trustees enjoyed under the deed to determine the rent. Notwithstanding such advice, the SCC decided to execute the deed and did so. It thereby accepted the terms of the deed of lease with the large power that the deed conferred on the trustees (now on the trust) to determine the rent from time to time. As its predecessor in title was warned, the council cannot now be heard to complain that the situation under the deed of lease turns out to be precisely as the solicitor advised the SCC.
[107] Rejection of rectification : It must be remembered that the council's attempt to secure rectification of the deed of lease involved an effort to have the primary judge insert in cl 4(b)(iv), after the word "may", the words "and may only". This is what the council originally submitted was the common intention of the parties at all times up to and including the execution of the deed of lease. That case failed because, based on the evidence of the two officers of the SCC, the primary judge held that, at the relevant time, the SCC did not hold that intention. [101]
[108] In reaching this conclusion, the primary judge noted that the SCC had not sought rectification so as to bring the lease into line with the rent review clause contained in the 1956 correspondence. In the light of the advice provided to the SCC by its solicitor, the claim for rectification was hopeless. The Court of Appeal recognised this. So, belatedly in this court, did the council. But given rejection of the argument for rectification, the attempt by the council to rely on the preliminary agreement of 1956 in order to help construe cl 4(b)(iv) of the deed of lease in an exhaustive fashion is likewise doomed to fail. Where extrinsic evidence does not succeed in affording a foundation for rectification of a written agreement in the terms propounded by a party, it would be paradoxical if the same evidence could be received to produce the desired result as a matter of construction. [102] Difficult as it may be, it is important for a judge, in a case where construction and rectification arguments are run together (as often happens), to keep the issues separate. [103] This is necessary to avoid "[t]he danger of allowing the judicial mind to be diverted by knowledge of the negotiations and dealings between the parties, as it approaches the task of construction". [104]
[109] Post-contractual conduct : It is unnecessary now to resolve the controversy about the admissibility of post-contractual conduct of the parties. On that topic differing views have been expressed in this court, [105] other Australian courts [106] and overseas courts. [107]
[110] The present is not an appropriate case in which to resolve those differences because the evidence of what the parties did after executing the deed of lease cuts both ways. On the one hand, the trustees persisted for a time (as they had before the deed of lease) to determine a rent of trifling proportions, consistent with the construction of the deed of lease now urged by the council. On the other hand, soon after it assumed responsibility for the Domain, the trust began to determine much higher rents and for a time, the SCC and the council, although legally advised, paid such rents. In a sense, the fact that the council, after advice, paid a rent so completely inconsistent with the construction of the deed of lease that it now propounds may be of more significance than the fact that the trustees for 20 years did not (as the trust now suggests it could have) "determine" a fair and reasonable rent but accepted something less.
[111] The fact that the lease contemplated determinations of rent at triennial rests and thereby activated the power of the trustees (now the trust) under the deed of lease also makes the post-1976 conduct of the parties less significant than it otherwise might have been. Each determination enlivened separately the power of the trustees (and later the trust). Each determination had to conform with the respective powers of the repository both under the deed of lease and under its successive governing statutes. All that the different determinations may show is that different trustees at different times took a different view about the way in which the power could, and should, be exercised reasonably. The determination of one trustee could not bind another so long as the other's determination when challenged was found to be lawful, reasonable and not irrational in the circumstances in which it was made.
[112] In this case, the post-contractual conduct is therefore not determinative of the proper meaning of the deed of lease. [108] For that reason too it is preferable to await a case in which the issue of principle must be decided before attempting to resolve the relevant differences of legal doctrine.
Conclusion and orders
[113] The result is that the conclusion of the primary judge should be restored. He reached the right result because, with respect, he approached the problem in the correct way. He concentrated on the written document in terms of which the parties had expressed their agreement.
[114] Further, the primary judge's conclusion is reinforced by viewing the resulting deed of lease in the context of the successive statutes which conferred on the trustees (now the trust) the power to enter the lease and determine the rent. They were obliged to discharge those functions, as every repository of statutory powers must do, in a way conforming to the language and purposes of the statute, to which their power had ultimately to be traced. It was erroneous to analyse this case in terms of the original intentions of the parties as if they were private individuals or corporations. Their intentions, and the deed of lease giving them effect, must find their ultimate source and content in public power. To omit that consideration involved serious error. Unsurprisingly, it produced an erroneous conclusion.
[115] Once this simple point is recognised (as it was not in the Court of Appeal) the supposed defects of the deed of lease of 1976 melt away. The omission of an express formula (or identification of an arbitrator) for determining the rent was eventually immaterial. Because statute was the ultimate source of the power, statute would impose on the repository the duty to exercise such power in good faith, reasonably, without irrationality and for the purposes of the trust. The orders of the primary judge permit that result. [109] The Court of Appeal erred in disturbing those orders.
[116] The appeal should be allowed with costs. The judgment of the Court of Appeal, including in relation to costs, [110] should be set aside. In place thereof, it should be ordered that the appeal to the Court of Appeal be dismissed with costs.