Bagata Pty Ltd & Anor v Sunstorm Pty Ltd [2024] QCA 17

SUPREME COURT OF QUEENSLAND CITATION: Bagata Pty Ltd & Anor v Sunstorm Pty Ltd [2024] QCA 17 PARTIES: BAGATA PTY LTD ACN 010 431 820 (first appellant) RUNNER PTY LTD ACN 053 149 698 AS TRUSTEE FOR THE RUNNER UNIT TRUST (second appellant) v SUNSTORM PTY LTD ACN 010 887 591 (respondent) FILE NO/S: Appeal No 7112 of 2023 SC No 14424 of 2022 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane – [2023] QSC 104 (Applegarth J) DELIVERED ON: 16 February 2024 DELIVERED AT: Brisbane HEARING DATE: 19 October 2023 JUDGES: Morrison JA and Martin SJA and Williams J ORDERS: Appeal dismissed with costs. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where dispute between Landlord and Tenant referred to an Expert under a dispute resolution clause – where determination of the Expert is conclusive and binding on the parties in the absence of manifest error – whether the primary judge erred in the construction of the term ‘manifest error’ LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENTS – CONSTRUCTION AND INTERPRETATION – OTHER MATTERS – where the Landlord and Tenant had entered into a lease of premises – where the Landlord and Tenant came into dispute over Landlord’s storage of property on the premises and over Tenant’s manufacturing activities – where dispute referred to an Expert under a dispute resolution clause – where primary judge held that manifest error had not been demonstrated – -- 1 of 16 -- 2 whether primary judge erred in construction of the Lease in holding that Landlord required to deliver vacant possession of the premises at the commencement of the lease – whether primary judge erred in construction of the Lease in holding that Tenant’s activities were within Permitted Use Byrnes v Jokona Pty Ltd [2002] FCA 41, considered Civil Mining & Construction Pty Ltd v State of Queensland [2013] QSC 214, applied Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264, considered Funtastic Ltd v Madman Film and Media Pty Ltd [2016] VSC 708, cited Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, considered Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14, cited Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74, cited TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4, cited Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239; [2011] HCA 37, applied COUNSEL: P J Dunning KC, with S J Carius, for the appellants S P Colditz for the respondent SOLICITORS: AJ & Co Lawyers for the appellants JML Rose for the respondent [1] MORRISON JA: I agree with the reasons of Martin SJA and the orders his Honour proposes. [2] MARTIN SJA: This is an unusual case in which landlords left chattels (significant in both number and size) on the floor of the premises they had leased to the tenant. Those chattels constituted a substantial impediment to the use by the tenant of the leased premises. But the landlords say they can leave the chattels there and cannot be required to remove them. It is no surprise that neither side has found a decision dealing with a similar situation. [3] The landlords also argue that, although they agreed that the tenant could install and make operational its own manufacturing equipment, the tenant cannot use that equipment. [4] And the landlords argue that these results are consistent with what a reasonable businessperson would understand the lease to mean. For the reasons which follow, I reject the landlords’ position on each issue. The lease and the parties to it [5] The appellants (Bagata) are the owners of a property at Murarrie. In early 2022, Bagata and the respondent (Sunstorm) entered into a lease of that property (the Lease). -- 2 of 16 -- 3 [6] The Lease commenced on 1 July 2022. Soon after that, a dispute arose. Bagata had left chattels on the property. Sunstorm wanted them removed. [7] Sunstorm commenced proceedings seeking declarations among other things. [8] The Lease required that such disputes be resolved by expert determination. Any such expert determination was to be conclusive and binding “[i]n the absence of manifest error”. [9] An order was made, by consent, that the dispute be referred for expert determination. The separate questions referred for expert determination included: (a) whether vacant possession of the premises has been delivered to Sunstorm by Bagata, and if not, the appropriate immediate relief in the manner of the declarations and injunctions sought in that proceeding; (b) whether vacant possession of the premises was required to be delivered to Sunstorm by Bagata on the commencement date; and (c) whether Sunstorm’s proposed use of the premises for its manufacturing activities is within the permitted use under the lease. [10] An expert (Mr Thirgood) was appointed and he determined the dispute in favour of Sunstorm. [11] Bagata commenced these proceedings seeking, among other things, to set aside the expert determination on the basis that manifest errors were made by Mr Thirgood in concluding that: (a) Sunstorm was entitled to vacant possession of the premises; and (b) Sunstorm’s activities were within the permitted use under the Lease. [12] An order was made that the validity of the expert determination be decided as a separate question pursuant to r 483 of the Uniform Civil Procedure Rules 1999. [13] On the hearing of that separate question, the learned primary judge held that manifest error had not been demonstrated and that Mr Thirgood was correct in his decision about vacant possession and about permitted use. [14] The grounds of appeal raise three issues. They are: (a) whether the primary judge erred in the construction of the term ‘manifest error’; (b) whether the primary judge erred in the construction of the Lease in holding that Bagata was required to deliver vacant possession of the premises to Sunstorm at the commencement date of the Lease; and (c) whether the primary judge erred in the construction of the Lease in holding that Sunstorm’s manufacturing activity fell within the permitted use as defined in the Lease. The Manifest Error Ground [15] The Lease sets out a dispute resolution process in clause 39. Clause 39.3(c) provides: -- 3 of 16 -- 4 “In the absence of manifest error, the determination of the Expert is conclusive and binding on the parties.” [16] The question before the primary judge was whether the expert decision displayed one or more manifest errors. Bagata submits that the primary judge erred in his determination of what the parties agreed with respect to manifest error. [17] Of “manifest error”, his Honour said: “[20] A ‘manifest error’ is an error presented on the face of the Expert’s determination and accompanying reasons.1 A key requirement is that the error be apparent on the face of the determination and reasons.2 … [33] The terms of the Dispute Resolution clause, clause 39, mean that the parties must be taken to have accepted that the Expert in arriving at a determination of a referred dispute might make an honest error and, provided the error was not a ‘manifest error’, the determination would be conclusive and binding on the parties. For the determination to not be conclusive and binding, the error had to be ‘manifest’ in the sense described and be apparent to a judge from reading the determination and the accompanying reasons that led to it. …” [18] His Honour concluded his analysis of what constitutes a manifest error by saying: “[38] The fact that a question of law permits only one right answer does not mean that an erroneous answer will be plain and obvious, and therefore a ‘manifest error’. [39] An arguable error of law, or an error of law that would only be apparent upon a re-litigation of the issue in a court with the benefit of adversarial argument is not a manifest error that is apparent upon a reading of the reasons.” [19] Bagata submitted that the trial judge erred by holding that, by clause 39 of the Lease, Bagata and Sunstorm must have accepted that an expert might make an honest mistake and, provided that such an error was not a manifest error, the determination would still be conclusive and binding. It was, Bagata argued, an error for the primary judge to proceed on the basis that unless an honest error of law is clear and obvious then it will not constitute a manifest error. [20] At the heart of the Bagata’s submissions were these contentions: “It is submitted that the primary judge fell into error insofar as he concluded that the Expert was empowered to arrive at an erroneous construction of the Lease provided that his reasons did not reveal that error in a clear and obvious way. For the reasons that follow, it is submitted that an error in the construction of the terms of a wholly 1 TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 at [20]. 2 Drane v Aqualung Holdings [2017] QSC 233 at [20]; Craigmoor Pty Ltd v Harvest Investment Co. (No 2) Pty Ltd [2020] QSC 131 at [51]. -- 4 of 16 -- 5 written registered lease will, by definition, answer the description of a ‘manifest error’. But, in any event, the errors in issue in this appeal would constitute manifest errors even on the primary judge’s construction given that they are ‘clear and obvious’ errors that are readily ascertainable on the face of the reasons of the Expert.” What is a “manifest error”? [21] The meaning of the term “manifest error” in these circumstances is to be determined in accordance with the usual methods of construing a contract. Some decisions referred to by the parties concerned the meaning of that term when used in legislation, in particular the uniform arbitration statutes. [22] The first issue to be resolved is the type of error to which cl 39.3(c) of the Lease applies. His Honour observed that an error can be one of fact or law3 and referred to the statement in Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd4 that: “[158] … It is axiomatic that a ‘manifest error’ consists of an error which is presented on the face of the expert’s determination or the reasons provided by the expert for that determination. Clause 11.12(6) [the equivalent of cl 39.3(c)] does not expressly restrict the concept of ‘manifest error’ to errors of fact or methodology; accordingly they may also include an error of law. …” [23] The second and major dispute was with respect to the adjective “manifest”. [24] For an error to be manifest there is no requirement to categorise it as either “facile” or “complex”. In Westport Insurance Corporation v Gordian Runoff Ltd,5 the High Court of Australia considered the meaning of s 38(5) of the Commercial Arbitration Act 1984 (NSW). It provided that the Supreme Court was not to grant leave to appeal an award made under that Act unless satisfied that there was, among other things, “a manifest error of law on the face of the award”. In the majority opinion6 the following appears: “[42] Paragraph (b)(i) of s 38(5) may be awkwardly expressed, but the words ‘a manifest error of law on the face of the award’ comprise a phrase which is to be read and understood as expressing the one idea. An error of law either exists or does not exist; there is no twilight zone between the two possibilities. But what is required here is that the existence of error be manifest on the face of the award, including the reasons given by the arbitrator, in the sense of apparent to that understanding by the reader of the award. If that error is manifest and its determination could substantially affect the rights of at least one of the parties, as specified in para (a) of s 38(5), then the Supreme Court may go on to decide to grant or refuse leave in the exercise of the power conferred by s 38(4)(b).” 3 See TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 at [20]–[21]. 4 [2019] VSCA 74 at [158]. 5 (2011) 244 CLR 239. 6 French CJ, Gummow, Crennan and Bell CJ; with whom Kiefel J agreed. -- 5 of 16 -- 6 [25] That exposition of the law concerning that statutory reference to “manifest error of law” is not authority for the proposition advanced by Bagata that an error of construction of the terms of a registered lease will, without more, be a “manifest error”. The High Court said that an error of law either exists or does not exist, but that to satisfy the requirements of s 38(5) of the Commercial Arbitration Act 1984 (NSW), it must be manifest on the face of the award. The majority judgment does not equate the existence of error with the error being manifest. [26] In this Court, that reasoning was applied by Jackson J in Civil Mining & Construction Pty Ltd v State of Queensland.7 That case concerned an arbitral award against which leave to appeal was sought. His Honour said that the arbitrator may have erred in the construction of a particular clause. He went on to say: “[23] That error would be one made by the arbitrator in construing the contract. It would be an error of law. It is apparent on the face of the reasons for the award, particularly paragraphs 201 and 202 thereof. It would therefore be an error which is a manifest error of law on the face of the award within the meaning of s 38(5)(b)(i) of the Act.” [27] His Honour correctly, in my respectful opinion, reasoned that a manifest error had to be both demonstrated and apparent on the face of the award. The mere fact that it was an error of law was not sufficient to satisfy the relevant legislative requirement. The same approach should be taken with the requirements of cl 39.3(c) of the Lease. [28] In this case, the primary judge likewise applied the correct reasoning. At [35] of his reasons, his Honour said: “[35] If it be the case that certain questions of law, such as the proper construction of a contract, can only produce one right answer, this does not circumvent the requirement for a “manifest error”. The error in answering the question of law must be apparent or obvious from a reading of the reasons. I respectfully adopt what was said in Flowgroup plc v Co-Operative Energy Ltd:8 ‘If, pursuant to the contract, the expert is engaged … to make determinations on matters of contractual interpretation, I see no reason why a challenge should not have to circumvent the manifest error test as I have enunciated it.’” [29] Bagata argued that the primary judge erred by relying on authorities which impose a gloss on the meaning of "manifest error" by introducing words such as "clear and obvious". That submission is centred mainly on the purported difficulty in imagining how such principles would readily translate to errors of contractual construction "given the binary nature of the decision". The authorities to which the primary judge referred are summarised in part of the decision of Almond J in Funtastic Ltd v Madman Film and Media Pty Ltd:9 7 [2013] QSC 214. 8 [2021] WLR(D) 115; [2021] EWHC 344 at [32]. 9 [2016] VSC 708. -- 6 of 16 -- 7 “[53] The Oxford English Dictionary defines ‘manifest’ as ‘clear or obvious to the eye or mind’. The Macquarie Dictionary similarly defines ‘manifest’ as ‘readily perceived by the eye or the understanding; evident; obvious; apparent; plain’. A ‘manifest error’ in the context of arbitral awards liable to be set aside for ‘manifest error of law on the face of the award’ has been variously described as an error that is ‘apparent to the understanding of the reader’, ‘obvious rather than arguable’, ‘easily demonstrable without extensive investigation’, ‘an oversight [or] blunder so obvious as to admit no difference in opinion’ or ‘apparent to the judge upon a mere perusal of the reasoned award’. It is clear that an error that is ‘abstruse, obscure or inconsequential’ will not fall within the definition of ‘manifest error’.” (citations omitted) [30] The basis upon which Bagata mounts its argument that the primary judge fell into error – by having regard to the “glosses” referred to above – is the contention that an error of law is, by definition, a manifest error. The authorities (including Westport Insurance Corporation v Gordian Runoff Ltd) are against that proposition. The primary judge did not err in holding that an error of law must be manifest for it to come within cl 39.3(c) of the Lease. Was Bagata required to give “vacant possession”? [31] Before one can embark upon a consideration of whether the expert has made an error, the task before Mr Thirgood must be properly identified. [32] On 3 August 2022, Boddice J made orders (by consent) that particular disputes be referred for expert determination under cl 39.3 of the Lease. The disputes referred included: “(i) whether vacant possession of the premises has been delivered to the applicant by the respondents, and if not, the appropriate immediate relief in the manner of declarations and injunctions sought in this proceeding; (ii) whether vacant possession of the premises was required to be delivered to the applicant by the respondents on the Commencement Date”. [33] Mr Thirgood noted that Bagata’s position was that it was not required to provide vacant possession for reasons which included that: (a) it was not a term of the Lease; (b) there was no right of Sunstorm to vacant possession in the Lease; and (c) clause 15.1 of the Schedule to the Lease provided that Sunstorm accepted the premises in an “as is/where is” condition. [34] In coming to his decision, Mr Thirgood had already rejected an argument that there was a collateral oral agreement under which Sunstorm had agreed (before the execution of the Lease) that the chattels which the appellant intended to sell could remain on the premises, even if not sold by the commencement date. That finding was undisturbed. -- 7 of 16 -- 8 [35] In reaching his decision, Mr Thirgood referred to those submissions and the provisions of the Lease and concluded that “a reasonable business person would construe the Lease as providing the Tenant with vacant possession” and that “any other interpretation would, in my respectful view, be absurd.” [36] The argument about vacant possession arose because the appellant left these chattels on the premises: (a) about 50 to 100 pallet loads of miscellaneous stock; (b) one wooden boat on a stand together with its disassembled internal componentry; (c) one conveyor belt and table; (d) one hopper with a stand; (e) three industrial compressors; (f) one frame (with dimensions of about 7 metres by 2.2 metres by 2 metres); (g) one 390 tonne industrial press; (h) one 300 tonne industrial press; (i) five incline industrial presses; and (j) the shelves, tables, stock, and machines present inside two internal rooms within the premises. [37] No challenge was made to Mr Thirgood’s determination that, among other things, the large industrial presses were chattels or to his determination that the presence of all the chattels on the premises after the commencement date was of such a magnitude as to constitute a substantial impediment to Sunstorm’s use of the premises. The primary judge described Bagata’s position during the expert determination process as being “that the Lease entitled it after the commencement date to use the premises to which it had granted exclusive possession to the Tenant as a place to store a large boat, unsold or unsaleable equipment, stock and other chattels that were of no use to the Tenant, and to do so even if this impeded the Tenant’s use of the premises.” [38] The basis for Mr Thirgood’s determination was his construction of the Lease. He said: “53 Despite the Parties including their own special conditions in the Schedule of the Lease, apart from some limited access rights which I deal with later, the Parties did not limit the possession of the Premises granted to the Tenant. The Parties did not give the Landlord a right to store the Landlord’s Property on the Premises. To permit the Landlord to restrict the core commercial bargain between the Parties would require, in my view, clear words of limitation somewhere in the Lease. There are no such restrictions.” [39] In dealing with the argument before him, the primary judge concluded that no error of law was apparent in Mr Thirgood’s reasons. He said: “[96] … No error of law is apparent. The Expert applied settled principles of contractual construction, considered competing -- 8 of 16 -- 9 arguments and reached a conclusion on the issue of construction that is not apparently in error. Having considered the Expert’s reasons and the written submissions made to him that were summarised in the reasons, I conclude that there was no manifest error in determining that the Landlord was required to deliver vacant possession at the Commencement Date.” [40] The primary judge, having decided this matter in favour of Sunstorm went on to consider the “absence of an express, specific obligation to deliver vacant possession”. [41] Bagata described the essence of the asserted error as being that the primary judge found a right of “vacant possession” in the respondent, “a concept unknown in the law of landlord and tenant” and finding no foothold in the express terms of the Lease. [42] Consideration of that submission leads to the immediate response that “vacant possession” is not unknown in the law of landlord and tenant, it being something which a tenant must provide at the end of a lease. [43] Putting that to one side, Bagata’s argument was in three parts: (a) First, while a landlord must give exclusive possession, it does not have to provide vacant possession. A lease may grant exclusive possession to a tenant, but will never grant a possessory right free of all “persons, chattels and interests”, because at least the landlord’s interest in the land beyond the leasehold interest granted by the lease will, indeed must, for it to be a lease subsist for the life of the tenancy. Moreover, commercial common sense dictates that this will usually be the case in respect of chattels. Unless the parties expressly agree that the premises will be delivered up in a particular state then, as a matter of contract, the landlord discharges its obligations by delivering up exclusive possession and the tenant takes the premises as it finds them. (b) Secondly, the right to vacant possession was within the contemplation of the parties but the use of that term occurs only in cl 32.5(b) of the Lease and provides that the Landlord has the right to seek a warrant for vacant possession where the Tenant is in default. The fact that the parties did not expressly provide for the Tenant to be granted a similar right to “vacant possession” as at the commencement date, or at any other time, combined with the absence of common law support for such a right, is a strong textual indication that no such right was intended to be granted to the Tenant. (c) Thirdly, there is explicit textual support for rejecting an implicit right to vacant possession. Clause 15.1 of the Lease provides: “The Tenant acknowledges that the Premises and the Landlord’s Property were in Good Repair as at the date of the execution of this Lease by the Tenant and the Tenant accepts the Premises in an ‘as is/where is’ condition.” The expression “as is/where is” has been construed in the sale of goods context as equivalent to “with all faults and imperfections”.10 [44] The dispute between the parties concerned the use by Bagata of the demised premises to store its own chattels. That gave rise to the question – should Bagata be required 10 Dalmare SpA v Union Maritime & Anor [2013] 2 All ER 870. -- 9 of 16 -- 10 to remove its chattels from the premises? That is answered by construing the Lease. It is of little assistance to apply broad concepts such as “vacant possession” without having first determined what the agreement allows or requires. That exercise – determining the rights afforded by the agreement – was undertaken by both Mr Thirgood and the primary judge. Although both of them referred to “vacant possession” that was done in the light of the construction exercise each of them undertook. The term was used to describe, in essence, an empty building. [45] That the term “vacant possession” was used as a form of shorthand to describe the concept being considered is apparent from the reasoning of Mr Thirgood. He referred to the description of that term in Cumberland Consolidated Holdings Ltd v Ireland.11 [46] That case concerned the sale of land but the analysis of “vacant possession” by Lord Greene MR12 is instructive: “Subject to the rule de minimis a vendor who leaves property of his own on the premises on completion cannot, in our opinion, be said to give vacant possession, since by doing so he is claiming a right to use the premises for his own purposes, namely, as a place of deposit for his own goods inconsistent with the right which the purchaser has on completion to undisturbed enjoyment. … The phrase “vacant possession” is no doubt generally used in order to make it clear that what is being sold is not an interest in a reversion. But it is not confined to this. Occupation by a person having no claim of right prevents the giving of “vacant possession,” and it is the duty of the vendor to eject such a person before completion. … The reason for this, it appears to us, is that the right to actual unimpeded physical enjoyment is comprised in the right to vacant possession. We cannot see why the existence of a physical impediment to such enjoyment to which a purchaser does not expressly or impliedly consent to submit should stand in a different position to an impediment caused by the presence of a trespasser. It is true that in each case the purchaser obtains the right to possession in law, notwithstanding the presence of the impediment. But it appears to us that what he bargains for is not merely the right in law, but the power in fact to exercise the right. When we speak of a physical impediment we do not mean that any physical impediment will do. It must be an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property. Such cases will be rare, and can only arise in exceptional circumstances, and there would normally be (what there is not here) waiver or acceptance of the position by the purchaser.”13 (emphasis added) [47] That analysis related to a vendor’s obligation to a purchaser, but the reference to “unimpeded physical enjoyment” has been adapted by Mr Thirgood as being, so far as this case is concerned, the relevant content of the obligation to give vacant possession. 11 [1946] KB 264. 12 With whom du Parcq and Tucker L.JJ. agreed. 13 At 270-271. -- 10 of 16 -- 11 [48] He noted that, despite the parties having included special conditions in the Schedule to the Lease, and apart from some limited access rights, the parties did not give Bagata a right to store property on the premises. He went on to say that: “53. … To permit the Landlord to restrict the core commercial bargain between the Parties would require, in my view, clear words of limitation somewhere in the Lease. There are no such restrictions. 54. In my view, a reasonable businessperson construing the terms of the Lease would conclude that the Landlord has no right to leave the Landlord’s Property at the Premises after the Commencement Date.” [49] He then goes on to say: “55. In other words, a reasonable businessperson would construe the Lease as providing the Tenant with vacant possession. …” [50] It follows, then, that Mr Thirgood used the term “vacant possession” to mean nothing more than the absence of Bagata’s chattels from the premises. [51] At the heart of this part of the dispute is the construction of the Lease. It was a lease of a commercial building for a commercial purpose. The ordinary principles of contract apply to leases.14 The process of construction was described in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd15 in this way: “[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. [47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. [48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. [49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the 14 The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. 15 (2015) 256 CLR 104. -- 11 of 16 -- 12 context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. [50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations. [51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties … intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’. (emphasis added, citations omitted) [52] Both Mr Thirgood and the primary judge sought to construe the lease in a way which would avoid it making commercial nonsense or working commercial inconvenience. [53] Mr Thirgood considered Sunstorm’s rights under cl 27.1 of the Lease which states: “If the Tenant pays the Rent and complies with the Tenant’s other obligations under this Lease, the Landlord must not interrupt the Tenant’s quiet enjoyment of the Premises during the Term. This clause is subject to the rights reserved to the Landlord under this Lease.” [54] He then relied upon the analysis of that type of condition by Allsop J in Byrnes v Jokona Pty Ltd16 where his Honour said: “[61] Where the demise has been granted for the carrying on by the tenant of a particular business known to both parties, it is that business which forms the framework of the analysis as to whether there has been interference with the possession of the tenant. It is the ordinary and lawful enjoyment of the demised premises for the known purpose which is to be protected from interference which is substantial. [62] It is a question of fact whether the lessee's ordinary use of the premises has been substantially interfered with: Southwark LBC v Tanner [2001] 1 AC 1, 9-11. The tenant is entitled to the full benefit of the demise, of the possession, for the known or 16 [2002] FCA 41. -- 12 of 16 -- 13 nominated purpose: Kenny v Preen [1963] 1 QB 499, 511. This is not by any means to elevate matters to a covenant for the fitness of the premises for the nominated purpose: Southwark LBC v Tanner, supra; and cf Sarson v Roberts [1895] 2 QB 395; Brilee Consultants Pty Ltd v Tibal Holdings Pty Ltd (1984) 3 BPR 9272 at p 9274; and Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) 46 ALR 305.” (emphasis added) [55] It should be noted that Allsop J went on to say: “[65] In assessing whether there has been a material reduction in the fitness of the premises for the business, the accepted state of the premises at the time of grant is relevant. The covenant does not apply to things done before, or the state of affairs at, the grant. The tenant takes the property not only in the physical condition in which he, she or it finds it, but also subject to the uses which the parties must have contemplated would be made of the parts retained by the landlord: Southwark LBC v Tanner, supra at 11-12. One should be careful about finding a breach of the covenant where the matters complained of worsen the position little from the state of affairs at the date of the grant.” [56] That observation is similar to Bagata’s argument (based on cl 15.1) that Sunstorm took the premises “as is/where is”. That argument was dealt with, correctly in my respectful opinion, by Mr Thirgood when he said: “[74] In my view, clause 15.1 simply acknowledges that the Tenant accepts the condition of what is being leased to it (being the Premises) rather than providing the Landlord with any right to store the Landlord’s Property at the Premises after the Commencement Date.” [57] In Cumberland Consolidated Holdings Ltd v Ireland, the plaintiffs had agreed to buy from the defendant a disused freehold warehouse. The purchaser was deemed (by condition 9 (3.) of the National Conditions) to have acquired the property with full knowledge of “the actual state and condition of the property” and it was to be taken as it was. The cellars extending under the whole warehouse were made unusable by rubbish including many sacks of cement that had hardened. The vendor refused to remove the rubbish and the purchaser brought proceedings for damages for breach of the condition for delivery with vacant possession. [58] Cumberland Consolidated Holdings is not a case about a leasehold property, but the reasoning relating to the condition of the property is instructive. An argument put forward on behalf of the vendor was that the purchaser could not complain of the presence of the rubbish owing to condition 9(3.). Lord Greene said that that argument could “be disposed of at once”. He said that that condition related to the “state and condition of the property sold.” The rubbish formed no part of the property sold and its presence upon the property sold could not be said to be covered by the words “state and condition of the property sold.” Those words refer to the physical condition of the property sold itself, such as its state of repair, and do not extend to the case where the property sold is made in part unusable by reason of the presence upon it of chattels which obstruct the user. Such obstruction does not affect the “state and condition of the property” but merely its usability which is a different matter altogether. -- 13 of 16 -- 14 [59] That reasoning applies with as much strength to the argument advanced by Bagata that Sunstorm leased the property “as is/where is”. It is the property being leased – which is described in the lease as “part of the ground floor” and “part of the first floor of the building”. The lease is not of the contents it is of that area of the building defined in the lease itself. [60] I agree with the conclusion of the primary judge that no manifest error was demonstrated. The “Permitted Use” provision of the Lease [61] Another dispute referred under the Order made on 3 August 2022 was: “(v) whether the applicant’s proposed use of the premises for its manufacturing activities is within the Permitted Use under the lease”. [62] Clause 23.1 of the Lease provides: “Use The Tenant must operate the Tenant’s Business from the Premises: (a) in accordance with the Permitted Use; and (b) during the standard operating hours for a business of the same type as the Tenant’s Business.” [63] The term “Permitted Use” is defined in the Reference Schedule as: “Industrial – warehouse and ancillary office”. [64] The findings upon which Mr Thirgood proceeded were not challenged by Bagata. He found that: (a) Sunstorm has been in the business of manufacturing and supplying artworks since 2005; (b) the manufacturing side of Sunstorm’s business involves the storage of raw materials such as inks, the use of two industrial sized extruder machines and the use of six industrial sized HP printers (the Tenant’s equipment); (c) the Tenant’s equipment was used to manufacture reproductions of artwork on canvas, paper and other materials; (d) before the execution of the Lease a director of both landlords inspected Sunstorm’s previous premises; (e) both landlords, through one of their directors, knew of (or must have known) that Sunstorm was in the business of manufacturing reproduction artwork; (f) the parties negotiated an “Early Access Period” the terms of which are set out in cl 43.2 of the Lease; and (g) under that term, Bagata granted Sunstorm a non-exclusive licence to access the Premises before the commencement date for the purposes of installing and making operational “certain plant and equipment”. -- 14 of 16 -- 15 [65] Mr Thirgood held that the “certain plant and equipment” could only be the Tenant’s equipment. This finding, Bagata argued, was not open. It submitted that “plant and equipment” is a standard term of a commercial lease and is not attended by any ambiguity. So much may be accepted. But the special condition in cl 43.1 refers to the installation and making operational of “certain plant and equipment”. It does not allow the incoming tenant to install, say, a blast furnace or a meat processing plant or a ship-building facility. The reference to “certain” allows for the use of extrinsic material to determine the type of “plant and equipment” which may be installed. This is what Mr Thirgood did. [66] Mr Thirgood concluded: “158 In my view, a proper construction would interpret ‘Permitted Use’ not only by what is set out in item 17 but also in the context of the entire text of the Lease. Clause 43.1 of the Schedule of the Lease makes it objectively clear that the Tenant would be using its plant and equipment at the Premises. As such, its manufacturing activities come within the broad definition of “Industrial” in item 17 and are therefore within the Permitted Use. In my view, this is how a reasonable business person would construe the contract.” [67] Bagata’s argument that the primary judge had erred was in three parts: (a) the non-exclusive licence granted under cl 43.1 had to be read harmoniously with the permitted use being limited to a “warehouse and ancillary office”. The licence allowing for the installation of plant and equipment must be read in conformity with the permitted use expressly identified; (b) the expert failed to consider cl 23 of the Lease. That clause expressly contemplates that the Tenant may seek to change the Permitted Use under the Lease and that the Landlord could not unreasonably withhold consent to such a change; and (c) clauses 19 and 25.1 confirm that the responsibility for the suitability of the premises lies with the Tenant. [68] The overall effect of Bagata’s argument is that Sunstorm can install the equipment it needs to operate its business (and make sure it works) but it may not use that equipment. [69] At the heart of Bagata’s argument on this point is the contention that the words “warehouse and ancillary office” confine the meaning of the word “Industrial”. I do not agree. The construction advanced by Bagata would strip the word “Industrial” of all meaning. It would mean that Sunstorm had entered into a bargain by which it could only use the premises for warehousing and offices. That is inconsistent with the special condition in cl 43.2. [70] I agree with the primary judge’s conclusion that it would make no commercial sense for the parties to have agreed to a “Permitted Use” that did not allow Sunstorm to engage in the industrial activity which both parties knew was its intention in entering into the Lease. [71] The primary judge was correct in holding that there was no manifest error in Mr Thirgood’s analysis of this point. -- 15 of 16 -- 16 Orders [72] For the reasons stated above, I would order: the appeal is dismissed, with costs. [73] WILLIAMS J: I agree with the reasons and proposed orders of Martin SJA. -- 16 of 16 --