ACT Aerial Services Pty Limited v Canberra International Airport Pty Limited [2000] ACTSC 63 (27 July 2000)

Last Updated: 16 October 2000

ACT Aerial Services Pty Limited v Canberra International Airport Pty Limited

[2000] ACTSC 63 (27 July 2000)

CATCHWORDS

LANDLORD AND TENANT - construction of lease - whether tenant had right to call for extension of term - provision for consensual extension only

Airports (Business Concessions) Act 1959 (Cth), s 11

Ex parte Duncan; Re Minister for Lands (1938) 55 WN(NSW) 37 distinguished

No. SC 55 of 2000

Coram: Whitlam J

Supreme Court of the ACT

Date: 27 July 2000

IN THE SUPREME COURT OF THE )

) No. SC 55 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ACT AERIAL SERVICES PTY LIMITED

Plaintiff

AND: CANBERRA INTERNATIONAL AIRPORT PTY LIMITED

Defendant

ORDER

Judge Making Order: Whitlam J

Where Made: Sydney (Heard at Canberra)

Date of Order: 27 July 2000

THE COURT ORDERS THAT:

1. The action be dismissed.

2. The plaintiff pay the defendant's costs.

1. The defendant is the holder of the airport lease of Canberra Airport granted by the Commonwealth of Australia ("the Commonwealth") pursuant to the Airports (Transitional) Act 1996 (Cth). The airport lease was granted on 29 May 1998 and was subject to all existing leases in relation to the land making up Canberra Airport.

2. The plaintiff was the holder of such an existing lease, which was granted by the Commonwealth on 7 March 1985 in respect of land that is now referred to as Site 304 at Canberra Airport. By virtue of s 26(2) of the Airports (Transitional) Act, the obligations and benefits of the Commonwealth under that lease passed to the defendant and the lease continued to have effect as if a reference in it to the Commonwealth were a reference to the defendant. This is an action for specific performance of that lease.

3. The term of the lease was fifteen years from 1 February 1985. The mutual covenants in Clause 4 of the lease contained the following paragraph:

"(1) (a) That the Commonwealth may grant to the Tenant extensions beyond the fifteen (15) year term certain herein created for up to five (5) year periods at a time to a maximum extension of five (5) years subject to availability of the demised premises consistent with airport planning constraints.

(b) Unless otherwise agreed between the Commonwealth and the Tenant two (2) years notice will be given by the Commonwealth of intention not to extend the term of the lease."

This case turns on the construction of that paragraph.

4. The "demised premises" referred to in paragraph (1) of Clause 4 were defined in Clause 1 of the lease to include the land shown in an annexed plan. That plan bears an annotation: "TENURE: 15 years + 1 x 5 year extention [sic]".

5. The lease contained no provision for the grant of a new lease by the Commonwealth. Extension of the term of the lease was referred to in paragraphs (7) and (8) of Clause 4, which provided:

"(7) In the event of the Tenant continuing in occupation after the expiration of the term hereby created and after the expiration of any extension of the term granted by the Commonwealth pursuant to paragraph (1) of Clause 4 without any demand in writing for possession thereof having been made by the Commonwealth the demised premises shall be held by the Tenant under a tenancy determinable at any time by one (1) month's notice in writing given by either party to the other and upon the conditions as are herein contained.

(8) Rental payable under this lease may be revised by the Commonwealth on or after the first of July 1985 and thereafter on or after the first of July of every third year of the term of the lease. The revised rental shall be payable by the Tenant from the expiration of a one (1) month period from the date the Tenant is advised of the revised rental. The revised rental shall be strictly in accordance with a negotiated rate as agreed between the Commonwealth and the Aviation Industry and which will allow for a minimum rental increase to be one based on an indexation formula of 5% per annum compounded applied to the rental rate payable at the termination of the preceding three year period. For the purposes in this Clause the term of the lease shall include every extension thereof pursuant to Clause 4(1)."

(Emphasis supplied.)

6. Clause 5 provided that, unless the context otherwise required, "the lease" meant the lease granted by the Minister of State for Aviation in pursuance of the Airports (Business Concessions) Act 1959 (Cth). That Act has now been repealed by the Airports Act 1996 (Cth). However, as in force on 7 March 1985 when the lease was granted, s 11 of the Airports (Business Concessions) Act provided that such a lease (unless it was a lease for purposes directly related to the operation of air transport services or it was a building lease) was not to be granted for a period exceeding twenty-one years. Section 11(4) provided: "(4) For the purposes of this section the period of a lease . . . shall be deemed to include any period for which it is renewable under an option of renewal."

7. Counsel for the plaintiff tendered, over objection as to relevance, a copy of a letter dated 6 November 1984 from the Department of Aviation to John W Hogan, a director of the plaintiff. In that letter the Department offered a lease of what is now referred to as Site 304 at Canberra Airport on a number of conditions, including the following:

"1 the lease will be for a term certain of fifteen (15) years with one extension option of five (5) years thereafter provided airport development allows it;"

8. On 21 April 1999 the defendant wrote to the plaintiff giving notice that it "will not be granting any extension of the existing lease beyond the lease expiry date of 31 January 2000." On 31 October 1999 the plaintiff asked the defendant why it was not renewing the lease, and the defendant replied that "the availability of the site is no longer consistent with Airport planning constraints". On 23 December 1999 the plaintiff served on the defendant a notice purporting to exercise "its right under clause 4 of the current Lease to an extension of the current Lease for a further term of five (5) years commencing on 1 February 2000." The defendant's solicitors faxed the plaintiff's solicitors on 5 January 2000, acknowledging service of the notice, but denying that the lease provided the plaintiff with the right either to give such a notice or to "take up an extension of the term of the lease". This action was commenced on 28 January 2000.

9. Stephen Byron, the defendant's managing director, gave evidence about proposed development of Canberra Airport. The Master Plan for Canberra Airport was received in evidence. A draft version of this plan was prepared and made available for public comment in late 1998. On 23 August 1999 the plan was approved by the Minister for Transport and Regional Services in accordance with the Airports Act. The Master Plan is intended by the defendant to serve as a framework for expansion of the Canberra Airport over the next 20 years. It presents planning proposals for four geographic precincts. Site 304 is located in the south-west precinct where the defendant proposes to develop airline support facilities in the short term (1999-2004). It is planned to use Site 304 as part of a maintenance facility for a regional airline.

10. So far as subparagraph (1)(b) of Clause 4 of the lease is concerned, it is common ground (1) that nothing was "otherwise agreed between the Commonwealth and the Tenant", and (2) that prior to 31 January 1998 no notice was given by the Commonwealth to the plaintiff of its "intention not to extend the term of the lease". In the circumstances, counsel for the plaintiff submits that, on the true construction of the lease, the plaintiff was entitled, after 1 February 1998 and prior to 31 January 2000, to call for, and to be granted, an extension of the term of the lease.

11. Counsel for the defendant submits that under the lease the Commonwealth is not obliged in any circumstances to grant an extension of its term. He strongly relies upon what he submits is the primary meaning of the word "may" in subparagraph (1)(a).

12. The extension contemplated by paragraph (1) is also a subject of contention. Each party assumes, notwithstanding the terms of the annotation on the plan annexed to the lease, that there may be more than one extension of its term. The plaintiff submits that such an extension may be for a period of "up to" five years. The defendant submits that it permits five extensions for only one year "at a time". Each accepts that the cumulative period of any such multiple extensions may not exceed five years.

13. In my opinion, the construction contended for by the plaintiff is correct. Some confusion may be caused by the error in omitting to use hyphens between the words which form parts of the compound adjective "up to five (5) year" in paragraph 1(a). The cardinal number "five" is frequently combined with a noun in such an adjective. Common examples are five-act, five-day and five-storey. In each case the noun is used in a plural sense. So it is here. Any slight ambiguity would have been removed, had the parties written "periods of up to five (5) years". However, I think that the intention is clear that that is what they meant.

14. The question remains whether either party to the lease has a right to such an extension of the term. Counsel for the plaintiff submits that "the Tenant" has such a right where, as here, no notice has been given by the Commonwealth in accordance with paragraph (1)(b). Further, he submits that such notice may only be given if the demised premises are not available because of "airport planning constraints".

15. The last mentioned submission can, in my view, be rejected straightaway. The Commonwealth's obligations under paragraph (1)(b) is to give notice of an "intention", not the "availability of the demised premises".

16. Paragraph (1)(b) is the springboard for the plaintiff's claims to be entitled to an extension of the term of the lease. His counsel submits that this covenant was clearly intended to be of benefit to "the Tenant" under the lease. So far as it goes, I accept that proposition. The obligation of the Commonwealth is, however, limited. It is to give notice of its "intention not to extend the term of the lease". (My emphasis.) Does this covenant mean that the Commonwealth must turn its mind, at least two years prior to the expiration of the lease, to the question whether or not it intends to extend its term? Assuming that it does, and even assuming that the Commonwealth must make up its mind one way or the other at such time, the consequence is that the Commonwealth need only give notice of a negative intention at that time. The parties evidently perceived that such notice would be useful and of benefit to the plaintiff. As "the Tenant", it could then attempt to have the Commonwealth change its mind, or it could accept that there is no prospect of an extension and make other plans. Any breach of such a covenant will sound in damages, no matter how difficult they may be to assess: Goldman Sachs (Australia) Ltd v SBCDB Administration Pty Ltd (1993) NSWConvR ¶ 55-673 at p 59,842.

17. The Commonwealth was only bound to notify an intention at the time. It was not bound to act in accordance with that intention. It could change its mind and grant an extension. On the other hand, nothing in paragraph (1) obliged "the Tenant" to accept an extension either where the Commonwealth did not give notice of an intention not to extend the term of the lease or, indeed, even if the Commonwealth did give notice of an intention to extend such term. To express it another way, "the Tenant" did not grant the Commonwealth a put option.

18. Paragraph (1)(a) merely provides that the Commonwealth "may" grant an extension. As counsel for the defendant correctly submits, that word indicates that the power to grant an extension may be exercised at the discretion of the Commonwealth. It is not the language of obligation. Counsel for the plaintiff submits that in the context "may" means "shall". He relies on the decision in Ex parte Duncan; Re Minister for Lands (1938) 55 WN(NSW) 37. However, in that case the statute under consideration provided that the lessor "may . . . have the term [of the lease] extended" for a specified period. There the statute gave a right to the lessee. Here the lease gives a power to the landlord. The decision is of no assistance to the plaintiff.

19. Under the lease the power to grant an extension of its term was expressed to be "subject to availability of the demised premises consistent with airport planning constraints". Such a rider raises the question: why was it necessary if the Commonwealth was completely free under the lease to decide whether or not to extend its term? I think the answer is that it was not necessary and that the parties simply included it in order to describe a situation where the Commonwealth would not grant an extension. It may seem superfluous since airport planning was relevantly a matter for the Commonwealth at the time anyway. But Canberra Airport was at the time of the grant of the lease under the control of a part of the Defence Force, and not the Department of Aviation: see paragraph (b) of the definition of "airport" in s 3 of the Airports (Business Concessions) Act and the history in Section 1.5 of the Master Plan. That is part of the factual matrix to which I may have regard.

20. Finally, counsel for the plaintiff submits that it would be meaningless to hold that the lease provides only for a consensual extension of its term. It was said that such a provision would have no utility and that the Court should assume that the parties intended every provision to have some practical effect. He referred to principles for the construction of a written document distilled from the authorities by Santow J in Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 298-300. Reference might also be usefully made to the modern principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 at 912-914.

21. In my opinion, paragraph (1)(a) of Clause 4 fulfilled a function even if it did not grant either party a true option for an extension of the lease's term. It fixed the period of the lease for the purposes of s 11(4) of the Airports (Business Concessions) Act. I should add that, whilst I do not think it is permissible to look at the Department of Aviation's letter dated 6 November 1984 in order to construe the lease because it forms part of the negotiations between the parties, the first condition proposed in that letter is entirely consonant with my view of paragraph (1)(a)'s role.

22. For the above reasons, in my opinion, the lease did not grant to the plaintiff the right to have the Commonwealth grant an extension of its term. However, if I am wrong in my construction of the lease, the plaintiff's notice of 23 December 1999 will still not be effective to require such a grant, since Site 304 will not be available during the period of extension sought on account of airport planning constraints. Mr Byron's evidence makes this quite clear.

23. The action will be dismissed with costs.

I certify that 23 (twenty-three) preceding paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam

Associate:

Date: 27 July 2000

Counsel for the plaintiff: B A Meagher

Instructing solicitors: Barker & Barker

Counsel for the defendant: F J Purnell SC

Instructing solicitors: Mallesons Stephen Jaques

Date of hearing: 29 June 2000

Date of judgment: 27 July 2000