Total Destination Marketing Pty Limited v Horizons Snowy Mountains Pty Ltd (formerly known as Ainline Pty Limited) [2011] NSWSC 1349 (4 November 2011)

Last Updated: 23 November 2011

Supreme Court New South Wales

Case Title:	Total Destination Marketing Pty Limited v Horizons Snowy Mountains Pty Ltd (formerly known as Ainline Pty Limited)
Medium Neutral Citation:	[2011] NSWSC 1349
Hearing Date(s):	4 November 2011
Decision Date:	04 November 2011
Jurisdiction:	Equity Division
Before:	Pembroke J
Decision:	Separate question decided in favour of defendant
Catchwords:	CONTRACT - terms - construction - unambiguous terms of contract to be given effect in accordance with language, syntax and linguistic context
Legislation Cited:
Cases Cited:	Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45
Texts Cited:
Category:	Principal judgment
Parties:	Total Destination Marketing Pty Ltd - plaintiff Horizons Snowy Mountains Pty Ltd (formerly known as Ainline Pty Ltd) - defendant
Representation
- Counsel:	Counsel: J Darvall - for the plaintiff J A Trebeck - for the defendant
- Solicitors:	Solicitors: Last and Maxwell - for the plaintiff Doyle Edwards Anderson Lawyers Pty Ltd - for the defendant
File number(s):	2011/00248532
Publication Restriction:

EX TEMPORE JUDGMENT

Introduction

1. This is an application by the plaintiff for a declaration as to the true construction of clauses 21.5 and 21.6 of a lease that was entered into on 16 December 2006 between the plaintiff as tenant and the defendant as landlord.

2. I say "clauses 21.5 and 21.6" because that is what appears in the relevant prayer for relief in the summonses. However, I cannot see how that can be a correct description of the question which has been fixed for separate hearing.

3. The issue in this case is whether the landlord's entitlement to inspect and audit the records of Gross Rooms Revenue is limited in a way which is not expressly stated in that clause. That entitlement is set out in clause 21.5. The plaintiff contends that the entitlement to inspect and audit pursuant to clause 21.5 is limited to the records of Gross Rooms Revenue that are contained in a computer software package known as Room Master.

4. The plaintiff submits that I should draw an inference from clause 21.6 as to the proper construction of clause 21.5. That is because clause 21.6 provides that during the term of the lease "the tenant shall use and maintain a computer software package known as Room Master for the purpose of reporting, inter alia, Gross Rooms Revenue".

5. The question is only one of construction of clause 21.5. It requires the determination and delineation of the landlord's entitlement to inspect and audit provided for in clause 21.5. The plaintiff contends that one of the purposes served by clause 21.6 is to provide the means by which the true construction of clause 21.5 can be arrived at. It is said to inform and explain the meaning of "records" where that word appears in clause 21.5. For the reasons that follow I do not accept the plaintiff's contention.

Agreed Facts

6. The parties agreed on the following agreed facts:

1 The Plaintiff leases from the Defendant certain parts of the Horizons Resort at Jindabyne, comprising generally the offices and manager's house, a ski hire shop, part of a gymnasium, a restaurant and bar, car parking spaces and storerooms from which it carries on business of managing units on behalf of some owners within the Resort. The Resort complex includes 120 strata titles units (studio units and two bedroom units), which are owned principally by investors. The Plaintiff manages the letting of approximately 70% of the units on behalf of owners for short term stays for holiday purposes in a letting pool. It also sub-leases the ski hire shop. The said Lease is registered number AE449375W.

2 The Lease includes an option to renew exercisable by the Plaintiff for a further term of 5 years on termination of the lease on 16 December 2011 (see clause 15 of the Lease).

3 The Plaintiff has given the required notice in writing to exercise the option. However the Defendant claims the Plaintiff is in breach of its obligation under Clause 21 of the Lease, and for that reason is precluded from exercising the option for a renewed lease. The Defendant has served the following notices upon the Plaintiff:

(a) Notice of Breach pursuant to S.133E Conveyancing Act 1919 dated 5 July 2011;

(b) Notice of Breach pursuant to S.133E Conveyancing Act 1919 dated 2 September 2011;

(c) Notice of Breach of Covenant pursuant to S.129(9) Conveyancing Act 1919 dated 16 September 2011;

Each of these notices relate in substance to the same type of conduct, namely the Plaintiff's refusal to permit the Defendant to inspect and audit records of Gross Rooms Revenue other than those records in the Room Master software programme.

4 Clause 21 of the Lease provides:

21 TURNOVER RENT

21.1 In addition to the rent payable under clause 3 the tenant shall pay to the landlord turnover rent calculated as follows:

21.1.1 For the period 1 April to 30 September in each year of the term 9% of the Gross Rooms Revenue in excess of $1,275,000.00 (or pro rata for any part thereof where the term does not include the whole of the period).

22.1.2 For the period 1 October in each year to 31 March in the following year for each during the term 9% of the Gross Rooms Revenue in excess of $475,000 (or pro rata for any part thereof where the term does not include the whole of the period).

21.2 Gross Rooms Revenue means the total revenue received by the tenant from all the lettings of lots within the complex of which the leased premises forms part.

21.3 The turnover rent for any period shall be and within 21 days of the conclusion of that period.

21.4 Within 7 days of the end of each calendar month the tenant shall provide to the landlord a statement of the Gross Rooms Revenue for the prior month.

21.5 The landlord shall be entitled to inspect and audit the records of Gross Rooms Revenue at any reasonable time at the leased premises.

21.6 During the term of the Lease the tenant shall use and maintain a computer software package known as Roomaster for the purpose of recording, inter alia, Gross Rooms Revenue.

5 The Plaintiff uses and maintains a computer package known as Room Master for the purpose of recording, inter alia, Gross Rooms Revenue as it is required to do in accordance with Clause 21.6 of the Lease. This software was included as a chattel in the Lease by clause 24 "Inquest Software".

6 The Defendant claims that Clause 21 entitles it to inspect and audit the Plaintiff's records of Gross Rooms Revenue generally whether or not those records are in documentary or electronic form and whether or not they are contained in Room Master computer records or any other computer records.

7 The parties agree that the resolution of the foregoing question of the construction of clause 21 of the Lease will determine the validity of the notices referred to in paragraph 3 of these agreed facts. If the question is resolved in favour of the plaintiff, the notices will be invalid. If the question is resolved in favour of the defendant, the notices will be valid.

Proper Construction

7. The first and most obvious difficulty with the plaintiff's contentions is that clause 21.5 expressly, and without qualification, provides that the landlord shall be entitled to inspect and audit "records" of Gross Rooms Revenue.

8. It does not expressly impose any limitation on the words "the records". There is no definition of "records" in the lease. Records is a word of wide import commonly used and well understood. It is not readily susceptible to obvious limitation unless the construction compels it. I do not think that there is any reasonable process of construction by which clause 21.6 can be regarded as serving the purpose of some sort of dictionary so as to limit the meaning of the word "records" in clause 21.5.

9. The second difficulty with the plaintiff's case is that the submissions on its behalf indicate that the plaintiff has no objection to the provision to the defendant of source documents which are outside the records recorded in the computer software package known as Room Master. The real complaint by the plaintiff seems to be about whether all source documents (outside the software package known as Room Master) should be produced or only some of those source documents.

10. The evident commercial purpose of clause 21.5 is to enable the landlord to verify, check and corroborate whether the Gross Rooms Revenue disclosed by the tenant is accurate. One would naturally expect the party entitled to carry out such an inspection and audit to have access to all of the documents which are fairly relevant to the process of verification and corroboration. Mr Boundie, a chartered accountant who gave evidence on behalf of the plaintiff, explained that in addition to the Room Master computer system the plaintiff keeps a general ledger under a separate software package known as QuickBooks, which in effect collects all the accommodation revenue. It is not my function in this case to determine, nor am I being asked to determine, what further source documents are caught by the expression "the records". But it is difficult to see why the general ledger kept pursuant to this separate computer accounting package would not satisfy that description. There may also be other documents which satisfy the description of the records to which the landlord is entitled pursuant to clause 21.5.

11. The essential legal difficulty with the construction for which the plaintiff contends is twofold:

(a) The first, which I have already explained, is that clause 21.6 is an insufficient platform on which to base a submission about the meaning of clause 21.5. It simply does not read as if it were fulfilling the purpose of defining the "records" intended to be covered by the right to inspect and audit under clause 21.5. It is no more than a statement of an obligation by the tenant to maintain a computer software package for the purpose of recording, among other things, Gross Rooms Revenue. It says nothing about what other methods of recording may be kept by the tenant or what other documents might be in existence which might fairly be relevant to the process of inspection and audit so as to enable the landlord to verify and corroborate the accuracy of the revenue information revealed by the tenant.

(b) The second aspect which causes a difficulty is that I am unwilling as a matter of principle, and unable as a matter of linguistic analysis, to import into clause 21.5 any limitation on the ordinary and natural meaning of its words. I see no justification for doing so. For my part I do not see any ambiguity in the word "records" where appearing in clause 21.5 which would justify a search for some indication of meaning in the surrounding circumstances. In any event, the plaintiff does not seek to take me on that route. Its case is dependent on the effect which it says flows from the language of clause 21.6.

12. The importance of adopting a principled approach to the construction of commercial contracts is well understood. Commercial contracts should be construed according to the language adopted by the parties. It may be that from time to time, parties use language which on reflection is not as precise as they might have wished. But it is not the Court's role, except in a claim for rectification, or where there has been transparent error and the intended words or numbers are obvious, to endeavour to cure the unintended consequences of imprecision in the language chosen by the parties. Contractual language that is unambiguous should be applied in accordance with its terms and not by reference to subsequent attempts to impose a qualification which is not dictated by the language, by the syntax and by the linguistic context.

13. This is the approach sanctioned by the High Court of Australia. In Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45, the court found no reason for granting special leave to appeal from a decision of the New South Wales Court of Appeal which turned in part on the following statement in that court by Macfarlan JA, which I respectfully adopt:

A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.

Conclusion

14. For those reasons I determine the separate question in favour of the defendant and order the plaintiff to pay the defendant's costs of the hearing today. The parties should bring in Short Minutes.

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