Australia: Don't leave it to the courts to define key terms in your commercial arrangements!

The recent decision in Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council may prove significant in future cases involving interpretation of registered documents (including leases). It confirms that, in disputes between landlords and tenants about interpretation of registered leases, the courts will not have any regard to evidence about the intentions of the parties to the registered lease and, in fact, will only consider the actual written terms of that registered lease.

Case facts

• The Council of Canada Bay (Council) was the owner of land adjoining a motorway in Concord.
• In 1996 the Council granted a lease to Phoenix Commercial Enterprises Pty Ltd (Phoenix) permitting Phoenix to erect several large advertising billboards facing the motorway (Lease).
• In 2003 the Council issued a termination notice to Phoenix due to rental arrears.
• In response, Phoenix claimed that it was not obliged to pay the outstanding rent because:
  • under clause 15(d) of the Lease, the Council was required to pay Phoenix an amount equivalent to 25% of the rent if the Council, in its capacity as a consent authority, granted others permission to erect "general advertising structures" on any land within the Concord local government area. That is, clause 15(d) effectively gave Phoenix a rent reduction of 25% if the Council approved competitive advertising within the Council area
  • in 2000 the Council gave another company permission to erect bus shelters within a road reserve within the Concord local government area. The bus shelters contained side panels for advertising signs
  • Phoenix claimed that the bus shelters were "general advertising structures" and as such, clause 15(d) of the Lease applied and the Council was obliged to give Phoenix a rental reduction. Phoenix also argued that the rent reduction clause applied each time the Council approved a general advertising structure. The Council had approved at least three bus shelters, and therefore if clause 15(d) applied each time this would effectively wipe out any rental arrears claimed by the Council.

In determining whether the Council had breached clause 15(d) by not paying (or allowing) the rent rebate, the court had to consider whether the bus shelters fell within the definition of "general advertising structures" as used in the Lease. The registered Lease did not define this term and the issue then became whether the court could look at evidence outside the registered Lease which could shed light on the meaning of the term (for example, previous correspondence between the parties).

The decision

The bus shelters containing the advertising were within a road reserve and the Council had approved the erection of the bus shelters in its capacity as the roads authority and not in its capacity as a consent authority for planning matters. Based on this very technical argument, the court found that the Council's actions did not trigger the rent reduction in clause 15(d).

Interestingly however the court found that the bus shelters (despite arguably having their primary purpose as providing bus passengers with a convenient waiting area) did fall within the definition of "general advertising structures". Accordingly, the tenant would have been successful in its argument for a rent reduction under clause 15(d) of the Lease if the technicality regarding Council's role as a consent authority had not applied. In this case, the term "general advertising structures" was defined in the Concord Planning Ordinance of 1933 and the court held that, applying the reasoning set out below, the definition used in the local planning laws could be used to interpret the terms in a registered Lease. However, the court held that if clause 15(d) did apply, then it would only apply once (and not each time an advertising structure was approved).

Why?

The important point about this case is how the court reached its decision on what "general advertising structures" meant. The court acknowledged that a lease is both a contract and an interest in property.

Courts usually interpret contracts based on:

However, because a lease is not just a contract, but is also a property interest and, in this case, a registered property interest, the Court held that it could not look at outside evidence for assistance when interpreting the terms of a registered document. This is because the Torrens system relies on a system of registration and a third party should not have to look behind the Register itself by referring to outside evidence to find the correct interpretation of terms in a registered document.

The court was not able to use outside evidence in interpreting the meaning of the term "general advertising structures". It did not look to what the parties had intended based on correspondence between them at the time. However, it did hold that where a document uses a term with a technical meaning, it is presumed that the drafter intends to use that term in its technical meaning. Accordingly, the court found that the meaning of the term used in the Lease was the statutory definition used in the local planning laws.

Effects of the decision

The case highlights the importance of ensuring terms which are critical to the lease (eg those that impact on rent) are clearly defined in registered documents to properly reflect the intention of the parties. Landlords and tenants will not be able to rely on an argument that the relevant term should be based on what their intentions were at the time that the lease was entered into. It is especially vital to ensure documents are drafted by a person with technical knowledge where documents include "technical terms", legal or otherwise.

Don't leave it up to the courts to give meaning to your commercial arrangements - that meaning might be completely different from what you had intended!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.