Perpetual Corporate Trust Ltd atf the Ascendas Longbeach Trust No. 10 v Larapinta Project Pty Ltd atf the Kiora Trust

The plaintiff (“Perpetual”) sues the defendant (“Larapinta”) for amounts Perpetual says are owed to it under cl 14 of a Development Agreement entered into between the parties on 22 March 2019. Larapinta has cross-claimed seeking, inter alia, declaratory relief as to its obligations under cl 14.

On 28 November 2018, Perpetual had agreed to purchase land in Yennora, NSW from Larapinta. On 22 March 2019, the parties entered into the Development Agreement between Larapinta as “Developer” and Perpetual as “Owner” of the land.

Settlement of the purchase contract occurred on 1 July 2020.

The central questions for decision are whether Larapinta is obliged to make a payment described in the Development Agreement as a “Rent Guarantee” in an amount greater than $50,000, and whether Larapinta is obliged to pay specific amounts claimed by Perpetual as “Leasing Costs” under the Development Agreement.

The Development Agreement provides for the construction on the land of a warehouse and ancillary office, hardstand and associated parking with a lettable area of approximately 13,100 square metres. The Development Agreement contemplates that Larapinta would enter into a building contract with the “Builder” – being Pelligra Build Pty Ltd (“Pelligra”), an associated entity – for the construction of the proposed development.

The Development Agreement provides for Practical Completion, being completion of the development works in accordance with, or substantially in accordance with, a suite of requirements. The Date of Practical Completion is the date on which the superintendent under the building contract issues a certificate in accordance with cl 6.5. The Completion Date is 10 business days after the Date of Practical Completion.

Relevantly for these proceedings, cl 14 provides as follows:

Many of the capitalised expressions in cl 14 are defined in cl 1.1. In particular:

The definition of “Rent Guarantee” refers to variation under cl 6.3(4) or cl 6.6. Those clauses are as follows:

On 10 July 2020, Larapinta entered into a NSW Commercial Agency Agreement with CBRE Pty Ltd (“CBRE”) for an initial term of 1 July 2020 to 21 December 2021. The agency agreement gave CBRE the exclusive right to market and lease the property on behalf of Larapinta for a fee to be calculated in accordance with a scale of fees and charges annexed to the agency agreement.

From mid-2020 until June 2021, Mr Michael O’Neill of CBRE met once or twice a month with:

In these meetings, it appears that the participants discussed various inquiries that CBRE had been making and potential tenants that had been identified by CBRE.

At some point – at least by 2 July 2021 – Mr Heck started to give CBRE instructions directly, without involving Larapinta. On 2 July 2021, Mr Heck and Mr O’Neill had a discussion in which Mr Heck gave Mr O’Neill instructions to propose particular lease terms to a prospective tenant later described as “McPhee’s Transport”. Those terms included rent of $122.50 per square metre and a “15% incentive”.

On 6 July 2021, Mr Heck gave Mr O’Neill instructions to put a Heads of Agreement to McPhee’s Transport. On 7 July 2021, a Heads of Agreement was signed by an entity described as “McPhee’s Transport”. On 15 July 2021, Mr Heck (having obtained approval from his head office in Singapore) signed the Heads of Agreement on behalf of CapitaLand.

The Heads of Agreement included the following:

On 27 July 2021, Mr Heck informed Mr Doyle that the Heads of Agreement had recently been signed. On the evidence, this was the first time Larapinta or interests associated with Larapinta were informed of the Heads of Agreement. There is no evidence of Larapinta being involved – itself or through Pelligra – in giving instructions to CBRE in relation to this Heads of Agreement before it was signed.

On 30 September 2021, Perpetual entered into an Agreement for Lease (the “Agreement for Lease”) with McPhee Distribution Services Pty Ltd (“McPhee”). The Agreement for Lease provided for:

Pursuant to cl 12.1, Perpetual agreed to grant, and McPhee agreed to accept, a lease in the form annexed to the Agreement for Lease on and from the Commencement Date. The Commencement Date was defined as the day following the Date of Practical Completion. Practical Completion was itself defined by reference to Practical Completion under the Development Agreement, to be determined in accordance with cl 9 of the Agreement for Lease.

Clause 12.2 of the Agreement for Lease provided as follows:

Under the Development Agreement (subject to an agreed extension of time), Practical Completion occurred on 24 February 2022.

The Completion Date under the Development Agreement occurred 10 business days later, on 10 March 2022.

On 17 June 2022, a lease between Perpetual and McPhee was executed (the “McPhee Lease”). Consistent with cl 12.2 and in particular cl 12.2(e) of the Agreement for Lease, the Commencement Date for the McPhee Lease was stated to be 25 February 2022. The McPhee Lease included provision for the “Landlord Installed Racking”, which was the racking installed by Perpetual immediately prior to the Commencement Date. Clause 17.3 provided that the Landlord Installed Racking must be left in situ at the end of the term of the lease.

On 17 June 2022, Perpetual and McPhee also entered into a separate Incentive Deed, which provided for an incentive by way of rent reduction, in a total amount of $1,180,260 to be applied according to a formula to each monthly instalment of rent.

On 13 September 2021, Mr O’Neill emailed Mr Heck seeking his confirmation that CBRE’s fee would be $211,652 plus GST.

On 15 September 2021, Mr Heck replied asking Mr O’Neill whether there was “any agency agreement in circulation”.

On the same day, Mr O’Neill replied attaching an agency agreement, apparently the agreement between CBRE and Larapinta.

Mr O’Neill sent emails on 13 December 2021 and 20 December 2021 chasing Mr Heck.

On 20 December 2021, Mr Heck replied saying there was “no sign of [practical completion] yet” and asked Mr O’Neill to invoice “us” in the next year. Mr Heck’s email said specifically, “Can you please bill us?” Mr Heck said that the correct entity was Ascendas Longbeach Trust No 10 (ie, the trust as trustee of which Perpetual has sued Larapinta in these proceedings).

On 25 February 2022 (ie, the day after Practical Completion occurred on 24 February 2022), Mr O’Neill emailed Mr Heck seeking confirmation that CBRE should bill $221,888.88 plus GST. The change reflected the slight increase in Lettable Area, leading to a consequential increase in the rent payable and therefore in CBRE’s fee. Mr O’Neill added (ellipsis in original):

Mr Heck replied “Approved.” He also said that “Pelligra are aware of OC”, although the evidence does not disclose what Mr Heck meant by “OC”.

On 28 February 2022, CBRE issued an invoice to Perpetual for $244,077.77 (being $221,888.88 plus GST).

On 20 April 2023, CBRE issued an adjustment note reversing the commission fee previously recorded as payable by Perpetual. This was less than three weeks before the filing of the Commercial List Statement in these proceedings on 8 May 2023. The evidence establishes that by this stage there had already been a dispute between Perpetual and Larapinta since at least August 2022 about amounts payable under cl 14.

20 April 2023 is the same date that CBRE first issued an invoice to Larapinta.

On 31 May 2023, after these proceedings had been commenced, CBRE wrote to Larapinta asserting its entitlement to the commission under the agency agreement struck on 10 July 2020.

My attention was drawn to the observations of Bell CJ in The J&P Marlow (No 2) Pty Ltd v Hayes and McCabe (2023) 112 NSWLR 29; [2023] NSWCA 117 (“J&P Marlow”) at [75]-[80], which I follow in this case. The starting position will be what a reasonable businessperson would have understood by the terms of the contract themselves. The contract itself is the best source for the ascertainment of the commercial purpose.

Where I have discerned a commercial purpose, I have done so from the text of the Development Agreement. I have been particularly mindful of Lord Justice Neuberger’s observation in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at [22], cited by Bell CJ in J&P Marlow at [77], that judges should “avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood”. To adopt the language used by Nettle J in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12, in a passage quoted by Bell CJ in J&P Marlow at [80], I have not allowed any perception of what is commercially reasonable or likely to cause a departure from a plain, ordinary and commercially not irrational meaning in favour of a meaning which is significantly removed from the natural and ordinary meaning, or which ill-accords with other provisions of the contract. Rather, where I discern two alternative and semantically not improbable interpretations, I have considered what an honest and reasonable businessperson in the position of the parties would understand by the words chosen by the parties.

There are two primary issues for decision:

While a third issue arose on the pleadings, being whether or not Larapinta is liable to pay the Coupon Amounts, Larapinta confirmed at the beginning of the hearing that it did not contest Perpetual’s claim for the Coupon Amounts.

Larapinta contends that the obligation in cl 14.3 is not an obligation to pay the Rent Guarantee as an amount that Perpetual is entitled to retain to its own benefit. Rather, on this argument, the Rent Guarantee is in the nature of a cash security, which Larapinta is obliged to provide, and which Perpetual is obliged to hold on account of any shortfall in rent below the Minimum Requirements. Larapinta’s contention is that, as events have transpired, there is in fact no shortfall in rent below the Minimum Requirements, so that no “Rent Guarantee” is payable.

There are some textual indications that the “Rent Guarantee” is intended to be in the nature of a cash security.

First, the expression “Rent Guarantee” is used in the body of the definition of “Rent Guarantee”. To avoid circularity, the expression in the body of the definition must be understood as a reference not to the defined term but to a rent guarantee (in the undefined sense). Those words would then be given, at least in the first instance, their ordinary legal meaning. One natural meaning – perhaps the most natural meaning in the present context – is that the rent guarantee is intended to be a cash security.

Second, the definition of “Rent Guarantee” describes it as the amount “provided” to Perpetual. That is unusual language for a simple payment obligation and is more natural language for a rent guarantee in the nature of a cash security. While Perpetual points out that the word “pay” is used in cl 14.3, I do not think that assists Perpetual. If one reads the substance of the definition into the body of the operative cl 14.3, the requirement is that Larapinta “must pay … the amount of the rent guarantee provided by [Larapinta] to [Perpetual] under clause 14.3 being $1,380,000 plus GST” subject to variation and possible reduction as provided in the definition. The word “pay” in that context is equally consistent with the Rent Guarantee being intended as a cash security.

Third, pursuant to cll 6.3(4) and 6.6, the Rent Guarantee increases if the Lettable Area increases. This is easy to understand if the Rent Guarantee is in the nature of a cash security for the rent expected to be received by Perpetual. It is harder to understand if the Rent Guarantee is meant to be a simple payment to Perpetual’s benefit subject to reduction in cl 14.4(1), intended to operate as an incentive on Larapinta to procure a New Lease.

Despite these indications, I am unable to conclude that the Rent Guarantee is no more than a cash security. There are two important matters that I would expect to see addressed, if the Rent Guarantee were intended as no more than a cash security. The first is provision for precisely what benefits are secured. To say it secures “rent” poses a suite of questions about what parts of the rental expectations in the Minimum Requirements are covered. The second is that there is no provision for how long the security is to be retained, nor for when or how, if it is a mere security, it is to be returned to Larapinta.

Furthermore, it is difficult to reconcile Larapinta’s argument about cash security with the provision that, if cl 14.4(1) is engaged, the Rent Guarantee is reduced to $50,000 for an amount described as “Rent Support”. There is nothing in the Development Agreement which indicates that the “Rent Support” is to be received otherwise than for Perpetual’s benefit. While both parties recognised the care that is necessary in using the choice of a particular defined term to aid in the definition of that term (see, eg, Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279 at [10]-[11] per Leeming JA, Beazley P and Tobias AJA agreeing, and see the cases cited there), the use of that expression for the reduced $50,000 figure does not assist Larapinta’s argument that the Rent Guarantee was intended in the nature of a cash security.

In those circumstances, while it is less natural – indeed strained – to describe a payment designed to incentivise the procurement of a New Lease as a “rent guarantee”, it is possible to imagine commercial parties describing that promise as being in the nature of a rent guarantee or assurance in connection with rent. Furthermore, the capitalisation of “Rent Guarantee” in the body of the definition may equally be read as a clumsy, unintentionally circular way of saying that the agreed amount to be paid is $1,380,000, subject to variation pursuant to cll 6.3(4) and 6.6 or possible reduction in accordance with cl 14.4.

In cases like this, the Court does not speculate as to a rational commercial purpose in the pursuit of which the parties might have drafted such a clause, and then reason backwards from that purpose. It is not for the Court to impute purposes to contractual parties where that purpose is not found in the text or context: J&P Marlow at [91] per Meagher and Kirk JJA. I can readily accept that it would be a rational commercial purpose to require Larapinta to provide cash security to guarantee future rent if no lease is in place, or indeed to require Larapinta to provide cash security for its obligations under cl 14.1 (which might be seen to be coherent with the relationship between the Rent Guarantee and the Leasing Costs in cl 14.4(2)). However, reading cl 14 in the context of the Development Agreement as a whole, I do not discern either of these purposes in the text to which the parties have agreed. This is not the kind of case in which surrounding circumstances shed light on the commercial purpose. No doubt mindful of that, both parties have to their credit confined their submissions to the four corners of the contract.

Confining attention to the text of the Development Agreement, I do not accept that the “Rent Guarantee” is to be paid as no more than a cash security.

Perpetual contends that although a New Lease was procured, Larapinta did not “procure” a New Lease before the Completion Date. Larapinta contends that the lease will be “procured” before the Completion Date if there is a binding agreement for lease – being a lease that is in fact later entered into – and everything necessary has been done by Larapinta to achieve that lease prior to the Completion Date.

By using the word “procure”, the parties adopted a word of uncertain semantic scope. In Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 at 317, McHugh JA (Hope and Glass JJA agreeing) construed a reference to an entity having “procured the advance of moneys” as including a situation where the entity procured the right to obtain the advance of moneys, even though the advances themselves were not made until later. In Lowther v Caledonian Railway Co [1892] 1 Ch 73 at 82, Lindley LJ held that an obligation to “procure” lands to be enfranchised within a specific period required the obligors to “take all proper steps to obtain an enfranchisement”. At 84, Fry LJ appeared to suggest that it may be enough to “take steps” to procure the enfranchisement within the required period, at least if those steps included the specific steps his Lordship identified. These cases deal with very different contractual or statutory contexts. I place little weight on them, save to illustrate the point that the word chosen by the parties can accommodate something short of the final lease being actually executed between Perpetual and the proposed lessee.

If “procure” has the strict and narrow meaning for which Perpetual contends, an outcome emerges which I find incoherent. Larapinta may do everything necessary to secure a New Lease, but Perpetual may, for its own commercial purposes, delay or extend the negotiations with the proposed lessor. Alternatively, Larapinta may be doing everything necessary to secure a New Lease, and Perpetual may step in at the last minute and purport to contract with the proposed lessee in reliance on its right to conduct its own leasing activities under cl 14.2. It is difficult to understand the commercial purpose of Larapinta being required to pay the Rent Guarantee, without the reduction provided in cl 14.4(1), in those situations.

Indeed, I find it difficult to accept that cl 14.3 applies, without the benefit of the reduction in cl 14.4(1), in circumstances where Perpetual decides to conduct its own leasing activities and in fact enters into a lease which it has negotiated before the Completion Date.

There may be some attraction in reading cl 14.4(1) as being satisfied if a New Lease is procured regardless of who procures it. But that is not what the words say. The alternative is that the “procuring” of a New Lease does not require the lease to be actually executed. “Procuring” a lease may encompass seeing to it that the lease be available to Perpetual as a commercial matter or taking steps that Larapinta itself can practically take towards bringing about the lease, at least in circumstances where a lease in fact comes into existence in due course. Larapinta took steps itself towards arranging for the lease, and of course the Agreement for Lease was entered into on 30 September 2021. As a commercial matter, it is not clear what else Larapinta could have done. That Agreement for Lease was binding between Perpetual and McPhee and led to the McPhee Lease.

Indeed, in light of the terms of cl 12.2(e) of the Agreement for Lease, a lease took effect on and from 25 February 2021. The McPhee Lease, when it was executed on 17 June 2022, itself provided that the Commencement Date was 25 February 2021. That is why Perpetual can only succeed if Larapinta only “procures a New Lease” when a lease in its final form is actually executed (or is ready for execution in its final form). I do not accept that “procures a New Lease” should be construed so narrowly.

The next question is whether the lease which was procured was a “New Lease” as defined. While Perpetual at one point contended that it might not be a New Lease because it did not satisfy all of the Minimum Requirements, that contention was not pressed by the end of the hearing. It was appropriate for Perpetual not to press that contention, having regard to the evidence before the Court and cl 14.1(4). Clearly, Perpetual gave its consent to the Agreement for Lease – indeed on Mr Heck’s evidence it was Perpetual or Perpetual’s Manager CapitaLand (acting through Mr Heck) who gave instructions to CBRE for its negotiation. In those circumstances, any non-satisfaction of the Minimum Requirements cannot mean that the lease was not a “New Lease”.

When “procured” is understood in a broader sense to encompass arranging for the lease, even if the actual lease is not executed until later, in my view Larapinta “procured” this lease. Clearly, Perpetual itself was heavily involved through its manager CapitaLand – indeed CapitaLand was the primary entity giving instructions to CBRE in relation to the Heads of Agreement and the Agreement for Lease – but Larapinta had a significant involvement. This involvement included engaging CBRE in the first place and attending meetings with CBRE and CapitaLand about the steps taken to market the property and find prospective tenants.

Accordingly, I am satisfied that Larapinta “procure[d] a New Lease before the Completion Date”, thereby engaging cl 14.4(1).

This means it is unnecessary to decide whether cl 14.4(1) would equally be engaged if Larapinta did nothing, but Perpetual obtained a new lease before the Completion Date. It strikes me that it would be commercially peculiar if that were enough to exclude the operation of cl 14.4(1), such that Larapinta would be liable for the whole of the Rent Guarantee. But I offer no concluded view on that matter.

As I indicate above, Perpetual did not press the argument that the McPhee Lease was not a New Lease because it did not satisfy the Minimum Requirements. That is appropriate, given the terms of s 14.1(4) and the clear evidence that Perpetual gave instructions for the negotiation of, and consented to, the Agreement for Lease and the McPhee Lease.

For completeness, I draw attention to an alternative way in which the Minimum Requirements (in particular, the requirement as to the Commencement Date of the lease) and cl 14.1(4) might inform the operation of cl 14.4(1). If Perpetual consents or cannot reasonably withhold its consent to a New Lease commencing more than 10 days after the Completion Date, then cl 14.1(4) is engaged. Perpetual will be taken to have consented to the later commencement date. It may be that, construing cl 14.4(1) together with cl 14.1(4), if Perpetual consents to a lease commencing on a later date, then it is not permitted to rely on the deadline in cl 14.4(1). If that is how cl 14 operates as a whole, then on the evidence before me Perpetual appears to have either consented to the McPhee Lease being entered into later than the Completion Date, or to have brought about a situation where Perpetual cannot reasonably withhold its consent to the McPhee Lease being entered into later than the Completion Date. Perpetual brought that about by taking over the negotiation of the McPhee Lease, including (through its manager CapitaLand) giving instructions to CBRE to the exclusion of Larapinta, negotiating and signing the Heads of Agreement, and thereafter dealing with McPhee directly, all in reliance on cl 14.2.

As this argument was not developed before me, I do not offer a concluded view about it.

Pursuant to cl 14.1(2)(a), if Larapinta elects to carry out leasing activities (and I accept that Larapinta did in fact carry out leasing activities), Larapinta will be liable for “Leasing Costs” as defined, save to the extent that cl 14.4(2) excludes that liability.

There are four sets of expenses claimed by Perpetual:

My conclusion in relation to the operation of cl 14.4(1) provides the simple answer to this claim. As contended by Larapinta in its Commercial List Response at [43], the view I have reached about cl 14.4(1) means that the Rent Guarantee is only $50,000. As a result, by operation of the first sentence of cl 14.4(2), Perpetual has agreed that it will pay any amount of the Leasing Costs over and above the Rent Guarantee. The definition of “Rent Guarantee” makes it clear that the quantum is reduced if cl 14.4 is engaged (which must be a reference to cl 14.4(1)). In that regard, I do not accept the assertion in Perpetual’s Commercial List Cross Claim Response at [C19] that the Rent Guarantee is subject to an adjustment pursuant to cll 6.3(4) and 6.6, but not subject to a possible reduction by operation of cl 14.4(1). The plain words of the definition of “Rent Guarantee” make that assertion untenable. Accordingly, any amount by which the Leasing Costs exceed $50,000 must be paid by Perpetual.

The second sentence of cl 14.4(2) ensures that Larapinta is not able to take advantage of this clause by, for example, committing Perpetual to generous incentives in order to secure a New Lease that satisfies the Minimum Requirements. Perpetual must still consent to any Leasing Costs that exceed the amount of the Rent Guarantee. So, if Larapinta had purported to commit Perpetual to generous incentives in reliance on cl 14.1(4), those incentives would only be subject to cl 14.4(2) – that is, Perpetual would only be liable for them if they exceed $50,000 – if Perpetual had itself consented to those costs as required by the second sentence of cl 14.4(2). This reflects the commercial purpose discussed further at [74]-[76] below, discerned within the four corners of the Development Agreement.

On the facts of this case, Perpetual’s consent to the claimed “incentives” and the legal costs is clear. As for CBRE’s fees, the evidence of Mr Heck’s dealings with CBRE (see [28]-[31] above) requires the conclusion that Perpetual, through its manager CapitaLand, consented to those costs. Indeed, Mr Heck expressly asked for Perpetual to be billed for those fees. Accordingly, while the second sentence of cl 14.4(2) reflects an important part of the commercial balance between the parties, it does not alter the rights between the parties on the facts of this case.

For completeness (and against the possibility that I am wrong in my view about cl 14.4), I deal with Perpetual’s claims for Leasing Costs as further ventilated before me.

Perpetual claims two costs or expenses on the basis that they are “incentives” and are therefore covered by the definition of “Leasing Costs”:

The Development Agreement defines “Leasing Costs” to mean leasing costs “incurred by the Developer under clause 14.1”, including the kinds of costs or expenses described in the balance of the definition.

A definition clause drafted this way raises the question whether “including” introduces costs which go beyond those described in the first part of the definition, or whether those kinds of costs are specified for the avoidance of doubt, to make it clear that they are among the kinds of costs contemplated by the expression “leasing costs” as it appears in the first part of that definition. As an ordinary expression, “leasing costs” does not have precise bounds. As a commercial matter, one can readily understand them comprehending agents’ fees, incentives, bonus fees, legal costs and registration fees. The more natural way to read the words from “including” to the end of the sentence is that they make it clear that these kinds of costs are “leasing costs”. Understood this way, those costs must still be “incurred by [Larapinta] under cl 14.1”.

As for incentives, as Perpetual’s expert explained, an incentive is offered to a prospective tenant to induce it to enter into the lease on the terms the landlord is prepared to offer. This evidence was adduced, without objection, for the specific purpose of informing the Court as to industry practice to aid in the proper construction of the contract. Understood in this light, incentives might readily be regarded – as a commercial matter – as being a “leasing cost”, but it is precisely the sort of cost that the parties might specify for the avoidance of doubt, given that it is not obvious that “leasing costs” would include incentives.

It follows that, in order to be Leasing Costs, the costs including incentives must be incurred by Larapinta “under clause 14.1”. I have considered Perpetual’s argument that “incentives payable under the New Lease” extend to incentives incurred by Perpetual, because incentives in any New Lease will, of their nature, be incurred by Perpetual. I am not persuaded that this is so. Clauses 14.1(3) and (4) are both drafted in a manner that contemplates Larapinta itself contracting with a lessee or purporting to consent to a lease. That is explicit in cl 14.1(3). As for cl 14.1(4), it is drafted on the basis that Larapinta may be in a position to “consent to [a] New Lease”, and that if this occurs then Perpetual’s consent will not be required if the Minimum Requirements are satisfied, but Perpetual’s consent will be required if the Minimum Requirements are not satisfied.

This unusual language adopted by the parties in cl 14.1 informs what it means for costs to be “incurred … under clause 14.1”. If Larapinta signs a heads of agreement under cl 14.1(3) or consents to a New Lease as contemplated by cl 14.1(4), then incentives in such a document would be incurred by Larapinta under cl 14.1. That is so, even if Perpetual will be the contractual counterparty who is going to give the benefit of the incentives to the lessee under the lease.

When the words are understood in this manner, the commercial purpose can readily be discerned. If Larapinta decides to carry out leasing activities under cl 14.1, Larapinta will be liable for any costs it incurs in doing so. This includes incentives which Larapinta consents to in a Heads of Agreement or a New Lease under cl 14.1(3) or cl 14.1(4). That is unsurprising. Were it otherwise, Larapinta may be able to offer generous incentives to a tenant, with a view to inducing the tenant to agree to the Minimum Requirements and then seek to rely on cl 14.1(4) to force Perpetual to consent to the proposed lease. Clause 14 in effect provides that Larapinta can choose to do that, but if so, the incentives which Larapinta has “incurred” will be Leasing Costs for which Larapinta is liable under cl 14.1(2)(a). However, reading cll 14.1 and 14.2 together, there is nothing to suggest that Larapinta will be liable for costs (including incentives) which Perpetual incurs if Perpetual chooses to carry out its own leasing activities under cl 14.2.

It follows that if Perpetual negotiates a lease in reliance on cl 14.2 and agrees to incentives for itself, those incentives will not fall within the definition of “Leasing Costs”. In addition to reflecting the text of the Development Agreement, this makes commercial sense. If Perpetual decides to engage in its own leasing activities under cl 14.2 and enters into a lease which it has negotiated, then Perpetual will have control over terms such as rent and incentives. Perpetual and the lessee might well agree to a higher rent (that is, higher than the Minimum Requirement for rent) in return for more generous incentives. That is a matter between Perpetual and the lessee. If Perpetual engages in its own leasing activities and then enters into a lease as a result of its own leasing activities, then any incentives agreed by Perpetual will not have been incurred by Larapinta under cl 14.1.

The facts of this case illustrate the point. The Minimum Requirement for rent was $115 per square metre. The leasing terms offered to prospective lessees on Mr Heck’s instructions started with rent at $122.50 per square metre and a 15% incentive. In other words, Perpetual took it upon itself to propose rent which was appreciably higher than the Minimum Requirement for rent and offered an incentive which could be expected to make that higher rent more attractive. As it happened, the Heads of Agreement that was struck between the lessee and CapitaLand provided for slightly lower rent, $120 per square metre, which was still appreciably higher than the Minimum Requirement. The Agreement for Lease and the McPhee Lease also provided for rent of $120 per square metre.

For these reasons, the incentives in the McPhee Lease are not “Leasing Costs” for which Larapinta is liable under cl 14.1(2)(a).

There is an alternative route to the same conclusion. Once it is established that Perpetual entered into the McPhee Lease pursuant to cl 14.2, the second sentence of cl 14.2 was engaged. The lease entered into was not “a New Lease” for the purposes of cl 14.1. (I observe parenthetically that the second sentence of cl 14.2 states that it is “for the purposes of cl 14.1”. The lease may still be a “New Lease” for the purposes of cll 14.3 and 14.4(1).) Larapinta’s liability for Leasing Costs is in cl 14.1, so it follows that the McPhee Lease was not a “New Lease” for the purposes of determining Larapinta’s liability for Leasing Costs.

Since the McPhee Lease was not a New Lease for the purposes of cl 14.1, incentives payable under that lease were not “incentives payable under the New Lease” within the definition of “Leasing Costs”.

This issue only arises if I am wrong in my conclusion about cl 14.4(2) and my view that the incentives claimed by Perpetual fall outside the definition of “Leasing Costs”.

I am not persuaded by Larapinta’s alternative argument that the 15% incentive fell outside the scope of “Leasing Costs” because it is recorded in a separate agreement of the same date, the Incentive Deed, and is therefore said not to be “under the New Lease”. In light of the commercial purpose I have discerned in the text of cll 14.1 and 14.2, I would not read the expression “under the New Lease” so narrowly. The Incentive Deed is expressly stated in its recitals to be “supplemental to the Lease”. The incentive was provided for in the Agreement for Lease which was struck prior to the Completion Date. Were it necessary to decide, I would take the view that the incentive offered under the Incentive Deed is an incentive payable “under” the McPhee Lease for the purposes of cl 14.

As for Perpetual’s agreement to instal racking for 6,000 pallets, I do not accept that is an “incentive” as the expression is used in the definition of “Leasing Costs”. In reaching this view, I have taken into account the evidence of Perpetual’s expert that “incentives” might include works undertaken by a landlord to fit out premises for the tenant’s specific business needs. It may well have made the lease more attractive to the tenant, but it also involved what appear to be capital works for the benefit of the property. It is not described as an incentive in any contractual material. Clause 4.2 of the Agreement for Lease specifically provided that the racking was and would remain Perpetual’s property. Clause 17.3 of the McPhee Lease similarly provided that the racking must be left in situ at the end of the term of the lease. In those circumstances, I do not accept that these works were an “incentive under the New Lease” even if the McPhee Lease were a “New Lease” for the purposes of cl 14.1.

The other two costs claimed by Perpetual in reliance on cl 14.1(2)(a) are:

The latter can be dealt with briefly. Lander & Rogers is the firm of solicitors retained by Perpetual. It follows from my reasoning above that legal costs incurred by Perpetual are not “leasing costs incurred by [Larapinta] under clause 14.1”. They fall outside the definition of “Leasing Costs”.

The fees charged by CBRE are in a more difficult category. The dealings between Perpetual and CBRE are summarised above.

Mr Heck did not explain the basis on which he requested and approved CBRE issuing an invoice to Perpetual for its fee. The natural inference is that it was because he regarded Perpetual as the proper obligor and not one of the other interested parties. The circumstances in which CBRE came to reverse its invoice to Perpetual and issue one to Larapinta on 20 April 2023 are unexplained. Both this reversal of invoice and CBRE’s subsequent letter of 31 May 2023 were prepared in the context of anticipated or actual litigation between Perpetual and Larapinta about the scope of Larapinta’s liability under cl 14. Although Mr Heck gave affidavit evidence about CBRE’s invoices and its letter of 31 May 2023, it only emerged in cross-examination that CBRE issued the February 2022 invoice to Perpetual at his request and with his approval. I make no adverse findings against Mr Heck, but Perpetual bears the burden of proving that the fees claimed by CBRE are in fact costs “incurred by [Larapinta] under cl 14.1”. This requires me to feel, on the balance of probabilities, “an actual persuasion” that this is the case: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 per Dixon J.

The evidence discloses that there were dealings, which have not been fully explained, between CBRE and Perpetual (or Perpetual’s manager, CapitaLand). Larapinta was excluded from, or not involved in, those dealings. Those dealings between CBRE and Perpetual’s manager form part of Perpetual choosing “to carry out its own leasing activities” as contemplated by cl 14.2. As I have set out above, the lease that was in fact entered into was a result of those activities. The lease may also have been a result of Larapinta’s leasing activities, but that does not resolve the question of whether the fees claimed by CBRE are fees “incurred by [Larapinta] under cl 14.1” within the definition of “Leasing Costs”.

Perpetual chose to present a case based on evidence that included no explanation for any of:

Perpetual did not seek to re-examine Mr Heck when these matters emerged during cross-examination. That leaves me in real doubt about whether CBRE’s fees were in fact incurred by Larapinta.

The difficulty for Larapinta is its pleading at [11] of its Commercial List Response, where Larapinta alleged that “The Lease was procured by Larapinta by its agent CBRE who introduced [McPhee] to the Property and prepared the Heads of Agreement”. Larapinta specifically alleges in the same paragraph that the McPhee Lease was not procured by CapitaLand. While this pleading was not referable to the question whether Larapinta “incurred” CBRE’s fees and may not be conclusive on that issue, this may have informed what evidence Perpetual chose to adduce. Perpetual did not take this pleading point at the final hearing, but I am not persuaded that the parties clearly conducted the trial on the basis of a departure from this pleading. In those circumstances, despite my misgivings about whether the CBRE fees were in fact “incurred by [Larapinta] under cl 14.1”, if it were necessary to the outcome of the case I would be minded to hold Larapinta to its Commercial List Statement in this respect and to conclude, by reference to that pleaded fact taken together with the objective evidence, that the CBRE fees were incurred by Larapinta.

This is unnecessary to decide because, as I explain above, the Rent Guarantee is reduced by operation of cl 14.4(1) to $50,000 and, by operation of cl 14.4(2) Perpetual must pay any Leasing Costs greater than the amount of the Rent Guarantee, unless they are Leasing Costs to which Perpetual has not consented.

At the beginning of the hearing before me, Larapinta confirmed that it did not seek to be heard against Perpetual’s claim for the Coupon Amounts.

It follows that Perpetual:

In its cross-claim, Larapinta sought declaratory relief to make it clear that the only amount Larapinta is obliged to pay any amount above $50,000 by way of Rent Guarantee. While I see force in granting that declaratory relief, I have not yet heard from the parties as to the appropriate form of orders. I will hear the parties further as to whether any other relief sought in the cross-claim is appropriate in light of my conclusion as to the operation of cl 14.2.

I make the following orders:

Following receipt of those submissions, I will either determine any disputes on the papers and make final orders, or I will list the matter for further hearing before me.