High Court On The Risk Of Amending A Legal Template

By 08/05/2017Contract
legal-template

As this High Court case illustrates, athough it is common practice to amend a legal template,  sometimes it is better to start from scratch.

Facts

The lessor and owner of certain land wished to sell it to the lessee. However the sale could not proceed due to town planning restrictions.

Instead the parties decided to enter into a long-term 99 year lease, with the rent for the entire term ($70,000) being paid upon entry into the lease.

Both parties accepted that the amount of $70,000 was equivalent to the market value of the land.

However a dispute arose as to whether the lessee, or the lessor, should pay rates, taxes and other outgoings.

The lease was based on an (out of date) standard printed “farm lease”.  Extensive handwritten deletions were made by the parties’ solicitors, and additional clauses were typewritten.

Clause 4 of the lease was amended to read as follows:

AND [the Lessee] also will pay all rates taxes assessments and outgoings whatsoever excepting land tax which during the said term shall be payable by the Landlord or tenant in respect of the said premises (but a proportionate part to be adjusted between Landlord and Tenant if the case so requires).”

The lessor contended that the lessee was liable for all of the rates, taxes and outgoings in respect of the land.

The lessee contended that it was only liable for those rates, taxes and outgoings for which it was liable as a tenant, and the lessor should pay those rates, taxes and outgoings for which it was liable as the owner of the land.

The result

The High Court held 4-1 that the lessee was liable for all rates, taxes and outgoings in respect of the land.

In reaching this conclusion the majority noted that:

  • it was accepted by both parties that clause 4 was ambiguous. As Justice Gageler said:

Clause 4 can only be so construed for what it is:  a clumsily tailored variation of an ill-fitting off-the-shelf precedent.  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

  • accordingly the Court could take into account the words crossed out in the standard form to assist in the interpretation of clause 4, because they identified a matter, on the face of the document, which was rejected by both parties
  • It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties.  It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
  • clause 4 must be interpreted by reference to the commercial purpose sought to be achieved by the lease, on the basis that the parties intended to produce a commercial result – one which made commercial sense
  • clause 13 of the lease was therefore pivotal in the interpretation of clause 4:

The parties acknowledge that it was the intention of the Lessor to sell and the Lessee to purchase the land and improvements hereby leased for the consideration of $70,000.00 and as a result thereof the parties have agreed to enter into this Lease for a term of ninety-nine years in respect of which the total rental thereof is the sum of $70,000.00 which sum is hereby acknowledged to have been paid in full.”

  • clause 13 made it clear that the parties’ intention was to recreate, as far as possible, the conditions which would have existed following a sale
  • in other words, the commercial aim of the parties was that the lessee assume the position of owner, so far as a lease may provide, with all of the owner’s liabilities, including a liability to pay rates, taxes and outgoings.

Comment

This case illustrates the danger of amending a legal template to circumstances it was not intended for.

In this case the parties probably spent much more on legal fees to resolve the dispute in the Courts than the transaction itself.

Case citation

The case citation is Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 (29 March 2017).

For another case involving the deletion of printed words in a standard form contract see this post: Vic Court of Appeal on the construction of contracts which contain deleted words.

Leave a Reply