Refrigeration business finds the devil really is in the detail when it comes to lease contracts.
What happens when a single clause in a voluminous lease contract appears, at least to the layperson, to constitute a legal nonsense?
It’s a question with which Container Refrigeration owner director Christine Robbins has been wrestling for more than a year, after the business walked away from its Rous Head premises at the end of November 2018.
Under the original contract with the Fremantle Ports, signed in 1995 by Eftus Transport and taken over by Container Refrigeration’s parent company, Robbins Enterprises, in 2003, compensation was to be paid by the FPA for any improvements abandoned on the 28,000 square metre block at the end of the lease.
By the time Container Refrigeration left, after being offered a new lease that its directors found unsuitable, it had built two large distribution warehouses, offices and other storage facilities that covered about 5,000 square metres of the block.
Mrs Robbins expected to receive compensation of about $2.6 million.
Instead, she has found herself involved in a dispute with the FPA, which now argues the contractually agreed method for determining the value of the improvements effectively mean they have zero dollar value.
Under the contract, the FPA was required to pay compensation to Container Refrigeration unless Container Refrigeration decided to move the improvements to another site, or was asked to remove them by the FPA.
If they were not removed, the parties were to come to an agreement on the amount of the compensation to be paid, or each employ a valuer who would get together to determine the “fair value”.
But here’s where it gets interesting: in reaching an opinion as to the “fair value” of the abandoned improvements, the valuers are required to take into account the age, condition and state of repair of the improvements and “the balance of the term remaining [on the lease]”.
Of course, the only reason compensation ever becomes payable is because the lease has come to an end. The question of compensation, therefore, only ever arises when the balance of the term remaining is zero.
The FPA’s valuer, David Molony from McGees Property, found in his report that the value of the improvements were $0 because there was no term remaining on the lease, but warned there could be: “An alternate legal precedent/position supporting a different assumption regarding the balance term and/or how the assumed balance term would influence ‘fair value’ and how it is calculated.”
Upon receiving their valuer’s report, the FPA, which previously offered Mrs Robbins $200,000 for the abandoned improvements, revised its compensation offer to $0.
UWA Law School senior lecturer Sagi Peari said the courts took seriously the literal meaning of any clause contained within a contract so as to provide predictability to the parties.
This was especially the case when contracts involved only commercial parties. However, there was a common sense exception that allowed the court to interpret clauses in a different way if they could be shown to be a nonsense, he said.
“If the language is not clear and the judge or arbitrator decides it is not clear and that it contradicts common sense, they can offer another interpretation. But they will be very conservative in incorporating something that the parties didn’t actually say,” Dr Peari said. “The nonsense must be really nonsense.”
Mrs Robbins said the FPA’s argument about fair value was just one in a series of arguments the authority had put forward to avoid having to pay compensation.
“For the [FPA] to continue to fight people tooth and nail instead of fair value being paid as an absolute right, which in reality it is, is injustice at its very worst,” she said.
Mrs Robbins said the company had met directly with the FPA board in late 2019, but had been unable to reach agreement on compensation.
FPA manager corporate and community relations Neil Stanbury said three separate offers of compensation had been made for the improvements abandoned by Container Transport, but all had been rejected.
“Because the parties have not agreed on a compensation amount, the lease provides for the amount to be determined by commercial arbitration. Robbins Enterprises has to date chosen not to progress this avenue to resolve the issue,” he said.
“Robbins Enterprises has declined to meet or engage in discussions with Fremantle Ports. We have expressed on numerous occasions our willingness to resolve the matter, either directly or through their representatives, however, these offers have not been taken up.”
