Alamdo Holdings Pty Ltd v Croc's Franchising Pty Ltd

The response to the COVID-19 pandemic

1. On 11 March 2020, the World Health Organization declared COVID-19 to be a worldwide pandemic.
2. On 18 and 23 March 2020, the relevant Minister made the Public Health (COVID-19 Mass Gatherings) Order 2020 (NSW) and the Public Health (COVID-19 Places of Social Gathering) Order 2020 (NSW), which had the effect of, respectively, restricting the size of mass gatherings in indoor areas to 100 persons and prohibiting recreation facilities (such as the Croc's playcentres) from being open to members of the public.
3. On 7 April 2020, the National Cabinet adopted the "National Cabinet Mandatory Code of Conduct - SME [2] Commercial Leasing Principles during COVID-19" ("the National Code") and State and Territory Cabinets committed to implement legislative measures giving effect to it.
4. On 9 April 2020, the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) came into effect, permitting the Commonwealth to prescribe payment of benefits to respond to the COVID-19 situation. On the same day the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) came into effect which, relevantly, created the "JobKeeper" benefits scheme.
5. The COVID Regulation was promulgated to give effect, in New South Wales, to the National Code.
6. The COVID Regulation was inserted into the Conveyancing (General) Regulation by the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) and took effect on 24 April 2020. It has subsequently been amended and replaced on several occasions. [3]

Clause 4(2) of the COVID Regulation

1. Clause 4(2) of the COVID Regulation prevented a lessor from taking "prescribed action" during the "prescribed period" against an "impacted lessee" for specified breaches of an "impacted lease" occurring during the "prescribed period", including a failure to pay rent.
2. Relevantly, "impacted lessee" was defined in cl 2 of the COVID Regulation to mean, in summary, a lessee that qualified for JobKeeper and whose turnover in the 2018-2019 financial year was less than $50 million.
3. An "impacted lease" was defined in cl 1 of the COVID Regulation as a "commercial lease" to which an "impacted lessee" was a party. "Commercial lease" was defined in cl 1 of the COVID Regulation as, relevantly, any agreement to which the Conveyancing Act 1919 (NSW) applied relating to the leasing of premises for commercial purposes.
4. The "prescribed period" was defined in cl 1 of the COVID Regulation as the period beginning on the commencement of the COVID Regulation and ending, ultimately, on 31 December 2020, subject to savings provisions the detail of which is not relevant here.
5. The term "prescribed action" was defined in cl 1 of the COVID Regulation to mean taking action under the provisions of a "commercial lease" or seeking orders or commencing proceedings for specified matters, including exercising a right of re-entry into leased premises, recovery of the leased premises, and possession or termination of the lease.

Clause 5(1) of the COVID Regulation

1. Clause 5(1) of the COVID Regulation prevented a lessor under an "impacted lease" from taking or continuing "prescribed action" against the "impacted lessee" on the ground of a breach of the lease for failure to pay rent during the "prescribed period" unless the lessor complied with the remainder of the clause which, in summary, established a regime for the renegotiation of the rent and other terms of the lease.
2. By operation of the definition of a "prescribed action" as set out above, the subject matter of cll 4(2) and 5(1) of the COVID Regulation included the taking of action by a lessor under the provisions of a lease itself. [4]

Section 87 of the Retail Leases Act

1. As I have said, the COVID Regulation was made pursuant to s 87 of the Retail Leases Act which provided, relevantly: "(1) The regulations under any relevant Act may provide for the following matters for the purposes of responding to the public health emergency caused by the COVID-19 pandemic - (a) prohibiting the recovery of possession of premises by a lessor or owner of premises or land from a lessee or tenant of the premises or land under the relevant Act in particular circumstances, (b) prohibiting the termination of a lease or tenancy by a lessor or owner of premises or land under the relevant Act in particular circumstances, (c) regulating or preventing the exercise or enforcement of another right of a lessor or owner of premises or land under the relevant Act or an agreement relating to the premises or land in particular circumstances, (d) exempting a lessee or tenant, or a class of lessees or tenants, from the operation of a provision of the relevant Act or any agreement relating to the leasing or licensing of premises or land." … (4) Regulations made under this section expire on - (a) the day that is 6 months after the day on which the regulation commences, or (b) the earlier day decided by Parliament by resolution of either Houses of Parliament. (5) In this section - relevant Act means any of the following - (a) Agricultural Tenancies Act 1900, (b) Retail Leases Act 1994, (c) any other Act relating to the leasing of premises or land for commercial purposes." (Emphasis in original.)
2. Section 87 was inserted into the Retail Leases Act by the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) ("the Emergency Measures Act"). As stated in its long title, the Emergency Measures Act amended "… a number of Acts to implement emergency measures as a result of the COVID-19 pandemic".
3. The Bill for the Emergency Measures Act when introduced into the Legislative Assembly did not include s 87 of the Retail Leases Act. This provision was introduced as a result of an amendment proposed by The Greens in the Legislative Council which also included a provision amending the Residential Tenancies Act 2010 (NSW) to empower the making of regulations under that legislation in respect of residential leases.
4. In the debate in the Legislative Council, The Greens member, Mr David Shoebridge, addressed the purpose of the amendment in the following way: "This amendment seeks to provide powers to make regulations to address the immediate and urgent need for government action to ensure that people are not evicted into homelessness in this crisis and also to enable powers for the Government to act to provide protection for those facing the reality that they are unable to pay their commercial lease." [5] (Emphasis added.) Mr Shoebridge continued: "We are moving this amendment to ensure that if a National Cabinet decision is made to support renters' rights and to stop evictions - and really it is stopping evictions that we are talking about - if that decision is made tonight, and it is extraordinarily likely to be made tonight because otherwise we will see mass evictions, the Minister will have the powers to intervene, issue orders and protect tenants from evictions." [6]
5. As Mr Waterson submitted, these references indicate that a central objective of s 87 was to empower the making of regulations to protect tenants from the loss of the benefits of their lease, in particular, to avoid evictions that may have otherwise occurred as a result of difficulties arising from the pandemic.
6. This is also reflected in the title of Pt 11 to the Retail Leases Act, which contains s 87, and which is styled "Response to COVID-19 Pandemic" as well as in the chapeau to s 87(1) which requires regulations to be made "for the purpose of responding to the public health emergency caused by the COVID-19 pandemic". [7]
7. Before me, it was common ground between Alamdo and the State that: 1. Alamdo's entitlement to possession of the Premises or to terminate the Lease did not involve the exercise by Alamdo of any right under any "relevant Act" for the purposes of ss 87(1)(a) or (b) of the Retail Leases Act; [8] and 2. the source of power to make the COVID Regulation, insofar as it purported to prohibit the recovery of possession or termination of a commercial lease by a lessor under the terms of a lease, could only be under ss 87(1)(c) or (d). [9]

Section 87(1)(c)

1. Turning first to s 87(1)(c), Mr Potts and Mr Langshaw put Alamdo's position concerning whether s 87(1)(c) authorised the making of the COVID Regulation insofar as it purported to prohibit recovery of possession or termination of a lease by a lessor under the terms of a lease this way: "The conduct purportedly prohibited or restricted by the Covid Regulation, at least insofar as the Covid Regulation is invoked by [Croc's] in defence of Alamdo's claims, is not recovery of possession or termination of a lease 'under the relevant Act', or under any Act of Parliament at all … A regulation having that effect could therefore only conceivably be authorised, if at all, by sub-s 87(1)(c), because the applicable part of the Covid Regulation does not purport to prohibit or regulate the exercise of any right by a lessor under a relevant Act. Sub-s 87(1)(c), however, only authorises the making of a regulation that regulates or prevents the exercise or enforcement of 'another right of a lessor or owner of premises or land under the relevant Act or an agreement relating to the premises or land in question'. The word 'another' is used in sub-s 87(1)(c), to distinguish the kinds of rights referred to in sub-s 87(1)(c) from those previously referred to in sub-s 87(1)(a) and 87(1)(b), namely rights of recovery of possession and rights of termination. To come within the concept of 'another right' in s 87(1)(c), it must be a right other than a right of recovery of possession, or a right of termination. Subsection 87(1)(c) does not, therefore, permit the making of a regulation that regulates or prevents the enforcement of a right of recovery of possession of premises by a lessor, or the termination of a lease by a lessor, under an agreement relating to the premises (by contrast to taking those steps under a relevant Act), and the Covid Regulation is invalid and ultra vires to the extent it purports to do so. … It follows that, if and to the extent the Covid Regulations in the circumstances may otherwise have operated to regulate or prevent Alamdo's right of recovery of possession of the Premises or its termination of the Lease pursuant to the terms of the Lease, the Covid Regulation was invalid to that extent and thus did not have any such effect." (Emphasis in original.)
2. Mr Potts' and Mr Langshaw's submissions involve reading s 87(1)(c) of the Retail Leases Act as if the words "regulating or preventing the exercise or enforcement of another right of a lessor or owner of premises or land" related to or governed the succeeding words "under the relevant Act or an agreement relating to the premises or land in particular circumstances".
3. The submission thus involves reading s 87(1)(c) as if it provided there was a power to make regulations: "regulating or preventing the exercise or enforcement of another right of a lessor or owner of premises or land under: • the relevant Act; or • an agreement relating to the premises or land in particular circumstances."
4. So read, the only power to regulate the enforcement of a right under "an agreement relating to premises or land", such as the Agreement for Lease or the Lease in this case, would be in respect of "another" right; that is a right other than those referred to in s 87(1)(a) (recovery of possession) or s 87(1)(b) (termination).
5. As Alamdo has only purported to exercise the rights referred to in ss 87(1)(a) and (b), and not "another right", the consequence of this reading of s 87(1)(c) would be that the subsection does not authorise the making of the COVID Regulation insofar as it purports to regulate the actions taken by Alamdo.
6. That is certainly an available reading of the subsection.
7. However, its effect would be to restrict, to a very significant extent, the practical operation of the COVID Regulation; notwithstanding Mr Shoebridge's statement to the Parliament that the object of the amendment was for the COVID Regulation to provide "protection for those facing the reality that they are unable to pay their commercial lease". [10]
8. There is a presumption that legislatures intend to enact legislation that is valid and that if there is a "choice … between reading a statutory provision in a way that will invalidate it and reading it in a way that will not invalidate it, a court must always choose the latter reading when it is reasonably open". [11]
9. That presumption is enshrined in s 31 of the Interpretation Act 1987 (NSW) which provides: "31 Acts and instruments to be construed so as not to exceed the legislative power of Parliament (1) An Act or instrument shall be construed as operating to the full extent of, but so as not to exceed, the legislative power of Parliament. (2) If any provision of an Act or instrument, or the application of any such provision to any person, subject-matter or circumstance, would, but for this section, be construed as being in excess of the legislative power of Parliament - (a) it shall be a valid provision to the extent to which it is not in excess of that power, and (b) the remainder of the Act or instrument, and the application of the provision to other persons, subject-matters or circumstances, shall not be affected. (3) This section applies to an Act or instrument in addition to, and without limiting the effect of, any provision of the Act or instrument."
10. The relevant principle was summarised in Federal Commissioner of Taxation v Munro [12] as follows [13] : "[T]he question is: Has Parliament, on the true construction of the enactment, misunderstood and gone beyond its constitutional powers? It is a received canon of judicial construction to apply in cases of this kind with more than ordinary anxiety the maxim Ut res magis valeat quam pereat. [14] Nullification of enactments and confusion of public business are not lightly to be introduced. Unless, therefore, it becomes clear beyond reasonable doubt that the legislation in question transgresses the limits laid down by the organic law of the Constitution, it must be allowed to stand as the true expression of the national will. Construction of an enactment is ascertaining the intention of the legislature from the words it has used in the circumstances, on the occasion and in the collocation in which it has used them. There is always an initial presumption that Parliament did not intend to pass beyond constitutional bounds. If the language of a statute is not so intractable as to be incapable of being consistent with this presumption, the presumption should prevail." (Italicised emphasis in original; underlined emphasis added.)
11. Of course, if the language is intractable, effect must be given to it and: "The court should not strain to give a meaning to statutes which is artificial or departs markedly from their ordinary meaning simply in order to preserve their constitutional validity." [15]
12. Further, as has been said: "No doubt a construction of legislation which is favourable to validity can be preferred to a construction which would produce invalidity, but only if the former construction is open on the language and not inconsistent with it." [16]
13. Mr Waterson submitted that there is an available construction of s 87(1)(c) which would render the COVID Regulation valid.
14. That construction is to read s 87(1)(c) as if the words "regulating, or preventing the exercise or enforcement of" separately governed or related to each of the expressions "another right of a lessor or owner of premises or land under the relevant Act" and "an agreement relating to the premises or land".
15. That would involve reading s 87(1)(c) as if it provided there was a power to make regulations: "regulating, or preventing the exercise or enforcement of: • another right of a lessor or owner of premises or land under the relevant Act; or • an agreement relating to the premises or land in particular circumstances."
16. That construction may involve reading the expression "the exercise or enforcement of" distributively so that "the exercise of" refers to "another right of a lessor or owner of premises or land under the Act" and the words "the enforcement of" refer to "an agreement relating to the premises or land". That does not, however, detract from this reading of the COVID Regulation.
17. I accept Mr Waterson's submission that this construction is open, and, to adopt the language of Isaacs J in Federal Commissioner of Taxation v Munro, I do not find that the language of s 87(1)(c) is "so intractable as to be incapable of being" read this way.
18. Such a reading preserves the validity of the COVID Regulation in the relevant sense and is consistent with the obvious legislative intention of s 87 of the Retail Leases Act.
19. For that reason, this reading of s 87(1)(c) is to be preferred.
20. The result is that the COVID Regulation is not invalid to the extent that it regulates the "enforcement" of "an agreement relating to the premises or land".

Section 87(1)(d)

1. Mr Waterson, for the State, submitted that s 87(1)(d) of the Retail Leases Act provided an alternative source of power for the COVID Regulation.
2. Under s 87(1)(d), provision can be made for "exempting a lessee … from the operation of a provision of … any agreement relating to the leasing or licensing of land".
3. As I have set out, cl 4(2) of the COVID Regulation operated to prevent a lessor from taking action under the provisions of a lease in respect of a breach of a lease where particular circumstances applied; for example that the lessee was an "impacted lessee", the breach occurred during the "prescribed period" and the breach comprised a failure to pay rent or other specified matters.
4. Mr Waterson submitted that cl 4(2) of the COVID Regulation could be characterised as conferring an "exemption" on a lessee from the operation of provisions of the lease that would otherwise operate in accordance with their terms to enable the lessor to take action in respect of the breach; for example a provision entitling a lessor to terminate the lease.
5. Similarly, Mr Waterson submitted, cl 5(1) of the COVID Regulation can be seen as conferring an "exemption" on a lessee in that, in the particular circumstances in which it applied, the lessee was not obliged to pay rent unless and until the lessor complied with the obligations to engage in good faith negotiations.
6. I accept these submissions. This is an available reading of s 87(1)(d) and one which is to be preferred.

Croc's alternative argument

1. Croc's developed an alternative argument, to the effect that the COVID Regulation, insofar as it regulated the recovery of possession of premises by a lessor and the termination of the lease, was authorised by ss 87(1)(a) and (b) because the words "under the relevant Act" in those subsections should be seen as governing the words "premises or land" rather than the prohibition referred to in the subsections.
2. This was not a submission advanced by Mr Waterson for the State and I find it hard to see how ss 87(1)(a) or (b) could be read that way.
3. However, in light of my conclusions concerning Mr Waterson's submissions on ss 87(1)(c) and (d), it is not necessary for me to express any final view about that matter.

Conclusion

1. Alamdo has failed to establish that the COVID Regulation was ultra vires or invalid insofar as it purported to regulate Alamdo's recovery of possession of the Premises and termination of the Lease; or at all.

Endnotes

1. As stated in Croc's opening submissions at par 13.
2. "Small Medium Enterprise".
3. That detail is not relevant to the matter with which I am presently concerned.
4. This summary of the COVID Regulation is taken, with gratitude, from Mr Waterson's submissions.
5. New South Wales Legislative Council, Parliamentary Debates (Hansard), 24 March 2020 at 2076.
6. Ibid at 2079.
7. Again, this paragraph is drawn with gratitude from Mr Waterson's submissions.
8. The position would be different in relation to a lessor seeking to recover possession of premises or to terminate a lease under the Residential Tenancies Act; but those issues do not arise here.
9. Croc's posited a different view, that I discuss at [65] to [67] below.
10. The importance of context to the exercise of statutory construction has routinely been emphasised: see, Sydney Seaplanes Pty Ltd v Page (2021) 106 NSWLR 1; [2021] NSWCA 204 at [27]-[29] (Bell P, as his Honour then was; Leeming JA and Emmett AJA agreeing).
11. P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [9.190], citing the numerous authorities set out at n 135.
12. (1926) 38 CLR 153; [1926] HCA 58.
13. At 180 (Isaacs J).
14. "Words are so to be understood … as will make the matter … effectual and valid rather than destroy it": J Trayner, Trayner's Latin Maxims (4th ed, 1993, W. Green) at 199; see P Herzfeld and T Prince (n 7) [9.190] at n 138.
15. International Finance Trust Co Ltd v New South Wales Crime Commission (2009) 240 CLR 319; [2009] HCA 49 at [42] (French CJ).
16. Wainohu v New South Wales (2011) 243 CLR 181; [2011] HCA 24 at [146] (Heydon J).

Amendments 08 February 2023 - Typographical error in date at [2] corrected DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 February 2023