Antonino Giuseppina Ensabella & Sons Pty v Players On Downunder Pty Ltd [2000] VSCA 73

Court of Appeal (Vic)|2000-05-02|Before: ORMISTON, PHILLIPS and CHARLES, JJ.A.

Leases - Retail tenancy - Option to renew - Construction - Whether subject to conditions precedent or subsequent - Whether Retail Tenancies Reform Act 1998 applied - Whether disclosure statement required - Whether proviso for minimum rent void - Interest on arrears of rent - Costs: Retail Tenancies Act 1988 ss.4(1), 12(3), 17(1), Victorian Civil and Administrative Tribunal Act 1998 s.109.

This appeal and cross-appeal were argued before us last Wednesday and Thursday. Some difficult questions of construction are involved, both of the relevant statute and of the lease which is central to the dispute, but delivery of judgment has been expedited in order that the parties should learn, as quickly as possible, where they now stand. As will be seen, the holding position put in place by this Court when leave to appeal was granted on 10 December last has come to an end because shortly before Easter the valuer who had been appointed to determine market value delivered his determination to the parties who need to know now what they must do in consequence.

The proceeding which gives rise to these appeals was commenced in the Victorian Civil and Administrative Tribunal. Central to the dispute were certain premises which, it is common ground, are "retail premises" within the meaning of that expression as used in the Retail Tenancies Act 1986 ("the 1986 Act") and also the Retail Tenancies Reform Act 1998 ("the Reform Act"). The proceeding was brought by the present appellant as landlord of the premises against the present respondent and cross-appellant, now the tenant of those premises. Orders were made by the Tribunal on 19 November 1999 from which the landlord now appeals and the tenant cross- appeals, by leave given on 10 December 1999.

I take the following from the reasons for decision of the Tribunal, delivered on 1 November 1999. (I have corrected some obvious slips.)

"On 1 May 1995 the Landlord leased the premises to Down Under Rock Cafe Pty. Ltd. The lease was for a period of 5 years commencing on 16 January 1994 and it included an option for renewal clause for further terms. By an undated instrument made in October 1997 Down Under Rock Cafe assigned its interests as Tenant with the consent of the Landlord to Players on Down Under Pty. Ltd., the Respondent in these proceedings ("the Tenant"). The transfer included the transfer of 'all options'. No point arises out of the assignment and it is accepted by both parties that the assignment was effective. The term of the lease expired on 16 January 1999. By letter dated 30 July 1998 the Tenant's solicitors wrote to the Landlord stating: 'We hereby confirm pursuant to Clause 3(10) of the lease Players on Downunder Pty. Ltd. Within the time period allocated by that Clause hereby exercises its option to renew the lease of the premises for a further term of five years. This written notice is delivered to you not less than the three months prior to the expiration of the said term.' On the same day the solicitors sent a further letter to Gray and Johnson, the Landlord's agent which stated: 'We confirm formally as per our discussions on that day that the lessee hereby exercises its option to occupy the leased premises for a further term of five years ... As you are further aware the provisions of Clause 3(15) of the lease have been superseded by the enactment of the new Retail Tenancies Act. Further that Act now applies to existing leases which are renewed after enactment. We are instructed that the building area comprises approximately 740 square metres which clearly brings it within the provisions of the Act. As at our last discussion, you were to revert to us on the basis of a renewed rental which, according to the Act, in the absence of agreement between the parties shall be a market value ... ' Between July 1998 and March 1999 there were negotiations between the respective solicitors for the Landlord and the Tenant which were substantially concerned with the way in which the commencing rent payable in respect of the further term were to be calculated. No agreement was reached between the parties. The Landlord contended that in the absence of agreement the rent was to be determined in accordance with Clause 3(15) of the lease and initially at an annual rental of not less than $293,000. The Tenant for its part contended that the clause of the lease dealing with fixing the amount of the rent for the new term was void by reason of the Retail Tenancies Reform Act 1998. ... I note that that Act was assented to on 28 April 1998. Sections 1-7 came into operation on 28 April 1998 and the balance of the Act on 1 July 1998. .... The correspondence exhibited to an affidavit sworn by John McArdle which was filed on behalf of the Landlord revealed continuing disagreement between the parties about the manner in which the commencing rent for the new lease was to be fixed. On 31 December 1999 the Landlord's solicitors forward a disclosure statement to the Tenant's solicitors [apparently on the footing that the Reform Act applied]. On 15 January 1999 the Tenant's solicitors advised the Landlord's solicitors that it was preparing a request to be sent to the Australian Property Institute to have its President appoint a valuer to determine the new rent. In addition complaint was made on behalf of the Tenant as to the adequacy of the disclosure statement provided pursuant to S17 of the Retail Tenancies Reform Act 1998. That letter also contained an offer to pay into a joint solicitors' interest bearing trust account an amount each month equivalent to the rent payable in the month immediately before the review. That offer was rejected by the Landlord's solicitors. On 21 January 1999 the Landlord's solicitors forwarded to the Tenant's solicitors a further disclosure statement containing some further information. The Tenant's solicitors again complained that the second disclosure statement was defective in failing to contain all the required information. By February 1999 a valuer had been appointed on the application of the Tenant but the parties were unable to agree on the basis upon which the amount of rental was to be assessed. In particular the Tenant's solicitors contended that clause 3(15) of the lease had been rendered invalid by reason of the passing of the [Retail Tenancies Reform] Act. The Tenant by a letter of 7 April 1999 written by its solicitors Messrs Batten Sacks to the Landlord's solicitors Williams Winter & Higgs gave notice of the Tenant's revocation of the exercise of the option. The relevant portion of the letter is in the following terms: 'As a consequence the written request by our client to exercise the option to renew is revokable by our client until the conditions prescribed have been performed resulting in an agreement for lease. Our client has now instructed us that it wishes to revoke the exercise of the option to renew the lease and does not wish to proceed with the exercise of the option to renew the lease for a further term.' Despite the Tenant maintaining that it did not wish to exercise the option to renew the lease it has remained in possession from 16 January 1999 and has refused to pay any rent other than in accordance with an offer made to the Landlord on 15 January 1999 to pay monthly rent into a joint interest bearing trust account to be held [by] its solicitor in the joint names of the parties. That offer was refused by the Landlord, and no such account was ever opened."

The landlord commenced this proceeding before the Tribunal by filing its claim on 26 April 1999. After amendments, the landlord was seeking a declaration that the tenant had duly exercised its option for renewal and that an agreement for lease for a term of five years commencing on 16 January 1999 had come into effect; that the rent for the first year of the renewed lease was to be determined according to clause 3(15) of the original lease; that the disclosure statements delivered by the landlord to the tenant complied with the provisions of the Reform Act; and that as from 16 January 1999 the tenant was bound to pay rent, each month, according to clause 3(15) - which required payment of the rent as formerly, pending the fixing of the new rent. The landlord sought also an order for payment of the rent then in arrears (from 16 January 1999) and a declaration that the tenant was liable for the landlord's costs, charges and expenses (as provided by the lease).

The tenant counterclaimed for declarations that the purported exercise of the tenant's option for renewal, by letter dated 30 July 1998, did not create a binding agreement for lease and was duly revoked by letter dated 7 April 1999; that it was in occupation from 16 January 1999 on an over-holding basis, from month to month, under clause 3(5) of the lease; that the rent was to be as agreed or in default of the agreement as fixed under clause 3(15) of the lease; and that in fixing the rent, the proviso in clause 3(15), that the rent should be not less than $293,000 did not apply. In the alternative, the tenant sought declarations that, if there was a binding agreement for lease, the agreement was subject to s.12 of the Reform Act and that the rent was to be fixed as already described (that is, by agreement or under clause 3(15) but without reference to the proviso which set a minimum).

Early in the proceeding, the tenant challenged the jurisdiction of the Tribunal, contending that, as it was only a tenant from month to month, the dispute between landlord and tenant was not one to which either the 1986 Act or the Reform Act applied, so that the Tribunal lacked jurisdiction over the matter. The objection was overruled by a Deputy President on 2 July 1999 and it was in consequence of that decision that the tenant proceeded to the filing of its defence and counterclaim.

The proceeding came on for hearing before a Vice President on 2 September 1999. The parties relied upon a statement of agreed facts, which incorporated the affidavit of Sarbir Singh Jholl sworn on 25 May 1999 and the affidavit of John Gerard McArdle sworn on 9 June 1999, both of which had been filed in respect of the challenge to jurisdiction. The parties also put before the Tribunal a summary of the issues in contention. No further evidence was called and the matter proceeded only by way of submissions. Both sides were represented by senior and junior counsel.

On 1 November 1999, the Tribunal delivered reasons for decision. The Vice President held that the option for renewal had been duly exercised and that a binding agreement for lease had come about; that the rent for the first year of the new term of five years was to be fixed by agreement or otherwise according to clause 3(15); that in the fixing of the rent the proviso to clause 3(15) that the rent should be no less than $293,000 per annum for the first year was rendered void by s.12(3) of the Reform Act, but that pending the determination of the new rent the tenant was liable to pay rent as formerly. In relation to the disclosure statements, the Vice President held that the first, delivered on 31 December 1999, had been defective, but that the second, delivered on 21 January 1999, was sufficient compliance with s.17(1) of the Reform Act and that the tenant was liable for rent accordingly: see s.17(2).

In relation to the orders to be made, the Vice President heard further argument on 5 November, particularly in relation to interest and costs. Orders were made on 19 November 1999 incorporating declarations to the effect of the conclusions already mentioned and making orders, first that a valuer be appointed to determine the market rent, secondly that the tenant pay arrears of rent up to 16 October 1999 in accordance with clause 3(15) of the lease, and that upon determination of the market rent by the valuer, the rent be adjusted and the tenant pay interest at 12.3 per cent on the amount then found to have been in arrears between 16 January and 16 October 1999. The tenant was ordered to pay the landlord's costs, reduced by one-third for the issues on which the landlord had lost. The landlord thus failed in its claim to have interest at 18 per cent according to the terms of the lease and failed in its claim to have its costs, charges and expenses paid, on an indemnity basis, according to the lease. Instead the Vice President made an order for a "penalty rate of interest", as he put it, and made an order for costs in the exercise of the discretion conferred upon the Tribunal by s.109 of the Victorian Civil and Administrative Tribunal Act 1998.

The landlord now appeals in respect of those issues on which it lost and the tenant cross-appeals in respect of the issues on which the landlord won. The tenant maintains its stand that since 16 January 1999 it has been but a tenant on an over-holding basis, from month to month, and that accordingly the Tribunal lacked all jurisdiction in the matter. It also maintains an argument put below that pending the determination of the new rent, no rent was payable by it on the basis that the landlord, by its conduct, was actively preventing determination of "market rent" as required. It would follow that no interest was payable on arrears (because no rent was payable) and the tenant maintains that each party ought to have been left to bear its own costs, as provided by s.109.

This is the first and principal issue in this proceeding and its resolution depends upon the proper construction of the critical clauses in the original lease, namely clauses 3(10) and 3(15). Clause 3(10) was as follows:

"The Lessor will upon the written request of the Lessee delivered to the Lessor not less than three months prior to the expiration of the said term and so long as there shall not have been any breaches or non-observances of any of the covenants conditions agreements and provisos on the part of the Lessee herein contained during the term of this Lease other than of an inconsequential nature, renew this Lease for the further term as set out in the said Schedule at a rental for the first year of the further term to be agreed upon and failing agreement to be determined in accordance with Clause 3(15) and thereafter in the second, third, fourth and fifth years of such further term increased by five percent (5%) per annum as provided for in Clauses 7(b), (c), (d) and (e) of the Schedule hereto and otherwise upon the same terms and conditions as are herein contained save and except that the further term set out in the Schedule shall be reduced by one further term, AND FURTHER PROVIDED that such purported exercise of the Lessee's option for renewal shall at the option of the Lessor not be valid and binding upon the Lessor until the Lease for the further term has been executed by the Lessee and returned to the Lessor's Solicitors and all costs and duties relative thereto have been paid by the Lessee, AND IT IS FURTHER AGREED AND DECLARED by the parties hereto that the obligations of the Lessor to grant such Lease for the further term shall be conditional upon the giving of a Guarantee by the same persons as those giving of a Guarantee under this Lease (if any) or such other persons as the Lessor shall reasonably require in respect of the Lessee's obligations contained in this Lease."

In the schedule, under the heading "Further term", this appears: "two further terms of five years each".

Clause 3(15), to which clause 3(10) refers, was as follows:

"Where in this Lease it is provided that the rental payable shall be determined in the manner set out in this clause the rental shall be such rental as mutually agreed upon and in the event of the parties failing to reach agreement such rental as may be determined as the market rental of the leased premises by a Valuer approved by the President for the time being of the Real Estate Institute of Victoria and such valuer in so determining shall be deemed to Act as an expert and not as an arbitrator and his fees shall be borne equally by the parties hereto PROVIDED ALWAYS THAT the rental determined by such Valuer may in the case of the first year of the further term commencing on the 16th day of January, 1999 be less than the rental paid for the preceding year but in any event not less than the sum of $293,000,00 per annum and in the case of the first year of the further term commencing on the 16th day of January, 2004 may be less than the rental paid for the preceding year but in any event not less than the sum of $356,000.00 per annum. In the event of the said President refusing failing or being unable to appoint a Valuer as aforesaid the provisions of the Commercial Arbitration [Act] 1984 shall apply to this clause and this clause shall be deemed to be a submission to arbitration within the provision of the said Act PROVIDED FURTHER that pending determination of the new rental the Lessee shall continue to pay rental at the previous rate on account of the rental payable and the balance thereof upon the same being determined."

The first proviso in this clause was much debated below, containing, as it did, the minimum annual rental of $293,000 for the first year of the further term. The concluding proviso was also in issue, being that which required the tenant, on the face of it, to continue paying rent as previously pending determination of the new rent. But for the moment it is sufficient to note that clause 3(15) provides for the rent to be fixed by agreement and in default of the agreement, by a valuer approved by the President for the time being of the Real Estate Institute of Victoria. (Contrast s.12(6) of the Reform Act, which refers to a valuer nominated by the Institute of Valuers and Land Economists which, we were told, is now called the Australian Property Institute.).

The question whether in this instance there was a final and binding agreement for lease in consequence of the tenant's written request of 20 July 1998 comes down to the proper construction of clause 3(10). The arguments put to us about its construction were much the same as those put below, which were dealt with by the Vice President in his reasons for decision. For the purpose of the argument, it was common ground that clause 3(10) contained at least two conditions which had to be satisfied before there could be any valid exercise of the option which it conferred upon the tenant - that is to say, there were two conditions precedent at least. They were that the tenant make written request as described in clause 3(10) and that there be no breaches or non-observance of covenants etc., as therein described. (As to the second, see and compare s.14(5) of the 1986 Act.) Nor was it argued that those conditions had not been satisfied in this case, so that according to clause 3(10) the landlord was bound to "renew this lease for the further term as set out in the said Schedule at the rental for the first year of the further term to be agreed upon and failing agreement to be determined in accordance with clause 3(15)" and thereafter in accordance with the Schedule. But that was all subject to what followed in clause 3(10), commencing with the words "and further provided".

What followed, said the tenant, constituted two further conditions precedent which in this instance were not fulfilled. Importantly, they were not fulfilled before the tenant's letter of 7 April 1999, with the result that, by that date, no binding contract for a new lease had yet come into existence and the letter of 7 April was therefore an effective withdrawal by the tenant of its previous written request for renewal. The landlord denied that there were any further conditions precedent over and above the first two, contending that what followed the words "and further provided " constituted two conditions subsequent so that a binding agreement for renewal had come about on 30 July 1998 when the written request was made and the first two conditions precedent satisfied and the tenant had no power on 7 April 1999 to withdraw its previous request.

As I have said, these arguments were fully considered below and I must say that having heard the arguments again, even if put more fully and perhaps with different emphasis, I am altogether unpersuaded that the Vice President fell into error when he accepted the landlord's submissions and rejected the tenant's. It was the tenant's submission that there was no binding and enforceable agreement until all four conditions in clause 3(10) were satisfied, and accordingly no binding agreement until the rent had been agreed upon or otherwise fixed in default of agreement, the new lease executed by the tenant and returned to the landlord and the costs and duties paid by the tenant, and such guarantees as were required by the landlord provided by the tenant to the landlord. If correct, this submission would surely have had the consequence (as the learned Vice President observed) of rendering clause 3(10) substantially ineffective. No agreement for lease could come into existence until, according to the submission made by the tenant, the lease was finally prepared, executed and returned by the tenant (the costs, charges and expenses being anyway the obligation of the tenant under clause 1(21)). Perhaps the tenant could obtain a binding lease without the landlord's having to execute the lease, but that surely was not the only thrust of clause 3(10).

It must be accepted that clause 3(10) is poorly drafted. Yet the landlord's submission seemed to me to give it effect in line with what, I should have thought, was plainly the intention of the parties. The intent was that if the tenant made written request in timely fashion and if there were no breaches or non-observance of covenants etc. Other than those of an inconsequential nature, the landlord would be bound to renew the lease for the further term set out in the Schedule - in this instance, the further term of five years commencing on 16 January 1999. The rent was to be as agreed or, failing agreement, as determined in accordance with clause 3(15) for the first year and thereafter as increased according to the Schedule. Otherwise, this new lease was to be "upon the same terms and conditions" as the former lease, save and except that the further terms set out in the Schedule should be reduced by one. Stopping there, I see no reason not to conclude that clause 3(10) brings about an immediate final and binding agreement for lease at the rent to be fixed as therein provided.

What follows supposes that the landlord will provide, or by implication obliges the landlord to provide, to the tenant, at the appropriate time, a formal lease for execution. It may be supposed that the parties intended that a formal lease should be drawn up after the rent had been fixed, by which time the amount of the rent for the first year could be inserted in its proper place in paragraph 7(a) of the Schedule. That, we were told, is in line with ordinary conveyancing practice. Counsel for the tenant was of course constrained by his argument to submit that the formal lease should include, not the rent as fixed, but merely the means for fixing the rent for the first year of the new term; but I think that that is unlikely to have been intended. Moreover, on the footing that the formal lease is to be drawn up only after the rent has been fixed for the first year of the new term, all else under clause 3(10) seems to follow satisfactorily. Thus, when the formal lease is submitted by the landlord to the tenant for execution and return, the landlord will doubtless submit its bill for costs and duties relative to the execution of the lease, for payment by the tenant. At the same time, the landlord will make its request for such guarantees as it requires (whether "by the same persons as those giving of a guarantee under this lease (if any) or such other persons as the lessor shall reasonably require") and it will be up to the tenant to provide those guarantees. Importantly, by the time that the lease is submitted for execution by the tenant, it will be possible for the landlord to know what costs and duties have been incurred relative to the execution of the lease and it will be possible for the landlord to assess what guarantees should be required. Even more importantly, perhaps, my reading of clause 3(10) supplies what otherwise might be thought missing, some time limit on the landlord's request for payment of costs and duties and any request for guarantees.

Indeed, clause 3(10) seems to me all of a piece if what follows the words "and further provided" is regarded as containing two resolutive conditions, falling for performance or not after the option for renewal has been exercised and the rent fixed accordingly. Perhaps strictly speaking it is unnecessary to express a final view about the construction of clause 3(10) save to say this: in my opinion what follows "and further provided" are two conditions, but they are not conditions precedent. It is consistent with this view that the first of those two further conditions should refer to "such purported exercise of the Lessee's option for renewal". Counsel for the tenant placed much weight upon the word "purported", claiming that it was consistent only with what followed being a condition precedent. In my view, quite the contrary. A condition subsequent, if and when it becomes operative, renders the contract to which it is attached void ab initio, or perhaps more accurately voidable ab initio. Hence the reference to its operating or not "at the option of the Lessor" and also the reference to the "purported exercise" of the option for renewal. It is a "purported exercise"; it brings about a final and binding agreement for lease, but one which is subject to destruction "at the option of the Lessor" if the lease, when submitted for execution, is not executed and returned and all costs and duties relative thereto paid or, perhaps, if guarantees then requested are not forthcoming.

As already acknowledged, the wording of clause 3(10) leaves something to be desired, but the foregoing does, I think, give proper meaning to its obvious intention. It is in line, too, with the decision of the High Court in Booker Industries Pty. Ltd. V. Wilson Parking (Qld.) Pty. Ltd. [1982] HCA 53; (1982) 149 C.L.R. 600 upon which the tenant relied. In that case, an option to renew the lease had been exercised and the High Court held that an agreement for lease had come about, notwithstanding that the rent was still to be fixed; for, as here, a means had been provided by the parties in advance for the fixing of the rent not dependent wholly upon the parties' agreement. The High Court, nonetheless, declined (by a majority) to order specific performance of the agreement for lease until after the rent had been fixed by the means provided; and that is consistent with my reading of clause 3(10). The agreement for lease comes into being upon the tenant making written request and the satisfaction of the two conditions precedent with which the clause commences. Upon the agreement for lease being made, the parties should proceed to the fixing of the rent, whether by agreement or under clause 3(15) by a valuer; and upon the determination of the first year's rent, all else follows and the lease may be prepared and presented to the tenant for execution and, if the landlord wishes it, for the provision of guarantees. As I read it, there is nothing in Booker which is inconsistent with that conclusion. Reliance was placed by the tenant upon a number of other cases but none of them, I think, bears upon the present situation in which the tenant is seeking to escape from what otherwise appears to have been its deliberate exercise of the option for renewal on 30 July 1998.

For these reasons I would confirm the decision below that the tenant duly exercised the option for renewal contained in clause 3(10) and that what remains is the fixing of the rent for the first year of the further term and, in due course, the execution of the formal lease and so on. The tenant therefore fails in its principal contention on the cross-appeal and it is unnecessary to consider the tenant's challenge to the jurisdiction of the Tribunal. That depended upon the tenant remaining in possession merely on the basis of an over-holding as a tenant from month to month. In my view, the tenant was in possession after 16 January 1999 under the agreement for lease brought about by its exercise of the option for renewal on 30 July 1998.

The foregoing leads naturally to a consideration of the operation of clause 3(15) in this case. It is that clause which, as we have seen, provides for the determination of the rent, should there be no agreement between the parties - and there has been no such agreement in this case. According to clause 3(10) what remains to be determined is the rent for the first year of the new five-year term and, according to clause 3(15), that is to be "such rental as may be determined as the market rental of the leased premises by a valuer approved by the President for the time being of the Real Estate Institute of Victoria", such valuer to act as an expert and not as an arbitrator. Thus far there is no dispute. The parties do dispute, however, whether the first proviso in clause 3(15) attaches. The tenant argues that it does not because it is rendered void by s.12(3)(c) of the Reform Act. The landlord contends that s.12(3) has no application in this case because, when properly read and construed, s.12 has no application by reason of s.4(1).

The like argument is also put by the landlord in relation to s.17. It will be recalled that in December 1998 and in January 1999 the landlord purported to deliver to the tenant first one disclosure statement and then, when objection was taken to its sufficiency, another disclosure statement which, it was argued below, remedied any deficiency. The Vice President accepted the tenant's submission that the first disclosure statement was defective, but upheld the landlord's submission that the second was sufficient, having the result that the tenant was liable to pay rent only from the delivery of the second. This was in the context of s.17 of the Reform Act. The decision below is now challenged, first by the tenant which argues that the second disclosure statement was not sufficient and by the landlord contending that the first was not defective. But by amendment (without objection by the tenant) the landlord now claims that s.17 of the Reform Act had no application by reason of s.4(1).

I turn, then, to deal with the submission of the landlord about s.4. Section 4(1) provides as follows:

"This Act applies to a retail premises lease that is entered into after the commencement of this section including one entered into under an option provided under a retail premises lease that was entered into before that commencement."

There is no argument in this case but that the premises constitute "retail premises" as defined in s.3, both of the Reform Act and the 1986 Act. Section 4 came into operation, as has been mentioned, on 28 April 1998 and so, on any view, the Reform Act applies to the lease brought about by the exercise by the tenant of the option for renewal, such renewal commencing on 16 January 1999. Indeed it applies also to the agreement for lease because, by s.3, "lease" includes an agreement for lease. There is no need in what follows to draw any further distinction between the two and so for convenience I refer to them both as simply "the 1999 lease". I shall call the original lease "the 1994 lease".

By virtue of s.4(1), the Reform Act applies to the 1999 lease; for that lease was entered into after the commencement of that section. The words which commence "including" serve, in my view, simply to put beyond argument that a lease, so entered into, is one to which the Reform Act applies, even though entered into under an option provided by a retail premises lease that was itself entered into before 28 April 1998. The 1999 lease is a lease entered into under such an option; but that scarcely adds anything to the conclusion already reached. The reason for the express inclusion is found, I think, in the history of the section; for as landlord's counsel pointed out, s.4(1) of the 1986 Act expressly excluded what is now included. All that matters now, however, is that the Act applies to the 1999 lease. It does not apply to the 1994 lease.

It is convenient, then, to turn first to s.17 to see whether that section applies in relation to the present dispute. Section 17(1) requires a disclosure statement to be given in either of two cases: if -

"(a) a tenant has an option under a lease for a further term; or (b) a landlord proposes to renew a retail premises lease."

Paragraph (b) does not apply. I very much doubt that the landlord, in a case like this, "proposes" to renew the lease; the landlord is bound to renew it upon the exercise by the tenant of its option for renewal. But that apart, the landlord is not renewing "a retail premises lease" to which the Act applies. Because the tenant has exercised its option for renewal, the landlord is bound to renew the 1994 lease (to which the Act does not apply); it is not renewing the 1999 lease (to which the Act does apply). As for paragraph (a), although the tenant has an option for renewal, the relevant option is under the 1994 lease and thus is not an option under "a lease" to which the Act applies. Of course, it may be a different matter five years hence if the tenant seeks to exercise an option for renewal; for then, supposedly, the option will be contained in the 1999 lease, and the Act does apply to the 1999 lease. But that is a matter which does not now arise and I say nothing more about it.

Accordingly, s.17 of the Reform Act had no application to the tenant's exercise of the option in July 1998. In particular s.17 did not require a disclosure statement in relation to the renewal which became the 1999 lease and the questions which were debated about the disclosure statements by reference to the Reform Act did not in truth arise.

Turning to s.12, I think that the like result follows. Section 12(1) reads as follows:

"If under a retail premises lease the rent payable under the lease or a renewal of the lease is to be reviewed during the term of the lease or under an option to renew the lease, the lease must state the time when the reviews are to take place and the basis or formula on which the reviews are to be made."

It commences by referring to circumstances arising "under a retail premises lease" and, as I have said, the Act applies only to the 1999 lease, not the 1994 lease. Secondly, the expression "the rent payable under the lease or a renewal of the lease" must itself refer only to the 1999 lease (as a matter of grammar) and so we are not concerned with the latter half of that expression; we are not concerned at all with a renewal of the 1999 lease. The question therefore becomes whether, under the 1999 lease, the rent payable under that lease "is to be reviewed during the term of [that] lease or under an option to renew [that] lease".

Plainly the rent payable under the 1999 lease is not to be reviewed "under an option to renew [that] lease"; as I have said, we are not concerned with the renewal of the 1999 lease. But is the rent to be "reviewed during the term of the lease" as mentioned in s.12(1)? It is tempting to conclude that the word "review" means something other than the fixing of the first year's rent payable upon renewal; but as counsel for the tenant pointed out, s.15(5)(c) and (d) appear to use the word "review" as encompassing the rent payable during the new term. But supposing that to be so, in s.12(1) the words "during the term of the lease" cannot be ignored; and in my opinion when all is read in context, s.12(1) is treating of a mid-term review, and not a "review" (if such it be) for the purpose of fixing a commencing rent. Probably s.12(1) should be read distributively, that is, as speaking of "the rent payable under the lease ... [being] reviewed during the term of the lease" and "the rent payable under ... a renewal of the lease [being] reviewed ... under an option to renew the lease". The former does not apply here because we are not concerned with mid-term review; and the latter does not apply because we are not concerned with the renewal of the 1999 lease. I add that even if s.12(1) is not to be read distributively as I have just suggested, the conclusion remains unaffected: s.12(1) has no application here.

Counsel for the tenant argued that, if "review" was properly understood as encompassing the fixing of the commencement rent upon renewal, then in this instance such a "review" was in fact occurring "during the term of" the 1999 lease; for obviously because of the dispute between the parties that "review" had not been accomplished before 16 January 1999 when the new lease began. The "review" began only with the appointment of the valuer after the Tribunal's decision. But I think that counsel for the landlord had the answer when he submitted that s.12(1) is looking rather to what is required by the terms of the lease or the option to renew and not what, by happenstance, is occurring on this occasion. Under this lease, whether it be the 1994 lease or the 1999 lease, the fixing of the rent upon the exercise of an option might occur before or after the commencement of the term. The expression in s.12(1) "during the term of the lease" is pointing only to mid- term review for which the lease provides. That is not this case.

It follows, in my opinion, that the tenant's reliance upon s.12 is misplaced. True it is that the tenant does not rely upon s.12(1) at all, but plainly s.12(2) proceeds upon the footing that sub-s.(1) applies and so, too, does sub-s.(3). It was argued by counsel for the tenant, quite strenuously, that s.12(3) operated independently of what preceded it, as some sort of free and independent spirit; but the wording of sub-s.(3) is against it. It concludes by referring to "the review", which can only be the review earlier mentioned in the section and certainly the argument for the tenant is not assisted by the fact that both paragraphs (a) and (b) refer back to sub.s.(2). Sub-section (4) speaks of a provision "in a retail premises lease for a review of the rent" and plainly that, too, applies only to a lease to which the Act applies. It is unnecessary to go further and, because it was not argued, I say nothing about the further provisions of s.12. Suffice it to say that in my view, on its proper construction, s.12(3) had no application here.

It was in reliance upon s.12(3)(c) that the Tribunal held that the first proviso in clause 3(15) was rendered void so that it had no operation (that is, no operation to fix the minimum rent payable in the first year of the further term at $293,000 per annum) and the valuer was accordingly not constrained thereby. For the reasons I have given, I think that view incorrect and, s.12(3) not applying, there is no reason why that first proviso should not be given full force and effect. To that extent the appeal of the landlord should, I think, be allowed. So too, it should be allowed to the extent that the Tribunal ruled, by virtue of s.17 of the Reform Act, that rent was not payable by the tenant until after the giving of the second disclosure statement. Like s.12, s.17 had no application and it follows that the tenant was liable for rent, upon renewal, as from 16 January 1999

One other dispute remains, about clause 3(15). The final proviso is to the effect that pending determination of the new rental, the tenant is to continue paying rent at the previous rate on account. Before the Tribunal the tenant argued that it was not liable to pay any rent because, when the conduct of the landlord was examined, the landlord could be seen to have been actively preventing determination of the new rent and to apply the final proviso in those circumstances was to impose a burden upon the tenant which was altogether unjustified. The tenant submitted that all of the evidence suggested that any determination of market rental would pitch the rent at a good deal less than the former rent and in those circumstances it was unjust that the landlord should benefit from the final proviso, given its unwarranted conduct in obstructing an early and speedy determination of that new rent.

Before us, counsel for the landlord pointed out that not all of the facts were before the Tribunal; he pointed to references in the letters to "discussions" which were not otherwise disclosed. But I pass that by for it is of no immediate consequence, in my view. So far as the Tribunal was concerned, the Vice President rejected the tenant's submission and held that, on his view of the facts that were disclosed, the landlord had not been guilty of any such obstructive conduct. That view was expressed after further submissions had been heard on 5 November 1998; that is, after it had been ruled on 1 November that the first proviso of clause 3(15) was rendered void by s.12(3) of the Reform Act. Thus the tenant's submissions were made in the context that the minimum rent of $293,000 per annum would not apply when the valuer made his determination. As I follow the correspondence which was put before the Tribunal, the parties were at loggerheads largely over that first proviso of clause 3(15) and, in my opinion, it is now the landlord's contention that should be upheld in that regard, not the tenant's. That makes even weaker the tenant's submission that the landlord should be deprived of any rent pending the valuer's determination because of its so-called "obstruction"; and I think that in the course of argument counsel for the tenant was disposed to abandon the point unless the Court upheld the Tribunal's view that the first proviso was rendered void. However that may be, for myself I doubt that any error was exposed by counsel in the decision of the Tribunal in relation to the landlord's conduct, on such facts as the parties put forward. Strictly speaking that no longer matters, given that in my opinion the first proviso to clause 3(15) was not rendered void; and, in all of the circumstances, including that conclusion, I have no hesitation in rejecting the tenant's submission - if indeed it is persisted in - that the final proviso of clause 3(15) has no application. I would therefore confirm the decision below that the tenant was liable to pay rent according to clause 3(15), pending the valuer's decision.

The landlord's claim is to have interest at 18 per cent on unpaid arrears, not 12.3 per cent as ordered by the Tribunal, and that claim rests simply upon clause 3(12) of the lease. That clause is as follows:

"If the Lessee shall fail to pay to the Lessor any moneys which are due and payable by the Lessee to the Lessor in accordance with the provisions hereof within seven days of the date for payment thereof then and in that even (sic) the Lessee shall pay to the Lessor (without prejudice to any of the rights and powers of the Lessor arising from such failure to pay) interest thereon at the rate of eighteen per centum per annum computed from the due date or dates for payment of the said moneys until payment of such moneys in full and the Lessor may recover from the Lessee such interest as if the same had been a liquidated debt payable on demand and recoverable in a Court of competent jurisdiction."

Once it is decided that, under clause 3(15) of the lease, the tenant was liable to continue paying rent as formerly, pending the determination of the valuer, it seems to follow that, upon its failure to pay such rent, the tenant became liable for interest as specified in clause 3(12). It is difficult to see on what ground it could be said that the rent due and payable under clause 3(15) should not attract interest at the rate of 18 per cent if not paid. The Tribunal ruled only that interest should be paid on the arrears of rent once determined in accordance with the valuer's determination, which was then to be awaited. As it happens, that determination was obtained some days before the hearing of these appeals and in it the market rent was adjudged to be a good deal less than $293,000 per annum. The landlord does not seek payment of interest at the rate of 18 per cent on what ought to have been paid (according to clause 3(15)) prior to the valuer's determination, albeit paid only provisionally. The landlord is seeking interest on the lesser sums being the unpaid arrears as re-calculated in the light of the valuer's determination, which must now be taken to have fixed a rent for the first year at the minimum of $293,000. The question we have to decide is whether interest should be at 18 per cent as provided by clause 3(12) or at some other rate as determined by the Tribunal.

For the landlord it was submitted that there was no basis upon which interest could be ordered by the Tribunal, other than under clause 3(12). It was submitted by counsel that interest, other than that payable by agreement, is the creature of statute and, if granted, must be founded in some statutory provision. In this case, he said, there was no statutory provision which authorized the granting by the Tribunal of interest at all, let alone what it called "a penalty interest rate of 12.3 per cent". Nothing was said by tenant's counsel in reply to this submission and in default of our being referred to any statutory provision or other authority to justify an award of interest by the Tribunal other than in terms of the lease itself, it follows that interest on the arrears should properly have been allowed at 18 per cent. It may well be that the amount of those arrears could only be finally calculated after the valuer's determination was to hand, but pending that determination the tenant was bound by clause 3(15) to make somewhat larger payments, according to the rent that was being formerly paid. As I have said, the landlord is seeking only interest on the lesser sums, that is, the arrears as finally determined in the light of the valuer's determination.

In calculating the arrears, allowance must of course be made for what has already been paid. This is important because as an interim measure the Court ordered some payments on account of rent. On the application that was made to this Court for leave to appeal and to cross- appeal on 10 December 1999, application was made also for a stay on the orders of the Tribunal. The stay was ordered but on terms (agreed between the parties) that the tenant pay $180,000 for rent due and payable for the period from 16 January until 15 December 1999 and thereafter at the rate of $15,000 per month. (This was without prejudice to the submissions to be put on the appeals.) We have been told that those payments were made but, in accordance with the terms of the Court of Appeal's order of 10 December, they ended when the valuer delivered his determination. Hence the need for the parties now to know what must be done if the tenant is to continue in possession. But such payments as were made in compliance with this Court's order must, of course, be taken into account when calculating what rent is in arrears.

In my view, the calculation of those arrears (and the interest payable thereon) would be best left to the parties, if they can now agree in the light of these reasons, should these reasons prove to be the opinion of the Court.

Finally, there is the question of costs. Below, costs were ordered on a party-party basis in the exercise of the discretion conferred by s.109 of the Tribunal Act. The landlord obtained an order for costs, reduced by one-third for the issues on which it lost, principally the question of the first proviso in clause 3(15). If the view I have expressed is the view of this Court, the Tribunal's decision in that regard will be overturned and accordingly its costs order must be overturned too, for want of the basis upon which the landlord was given less than full costs.

But there is a further dispute between the parties. The landlord claims to have costs on an indemnity basis, by virtue of clause 1(20)(a) or alternatively clause 1(21) of the lease. The first obliges the tenant to pay "costs charges and expenses" incurred by the landlord "in consequence of any default in the performance or observance of any covenant or agreement" in the lease; and the second obliges the tenant to pay "costs of and incidental to ... any renewal [of this lease]" or "other costs charges and expenses" incurred by the landlord "as a consequence of any default by the lessee in the performance or observance of any covenants or agreements contained or implied herein". I should have thought that this proceeding could be characterized as one brought in consequence of the tenant's default in performing or observing "any covenant or agreement" in the lease; for the tenant was seeking to avoid the application of the first proviso of clause 3(15) and any liability under the concluding provision to pay rent as formerly, pending the determination of the valuer. On the other hand, the landlord was seeking to hold the tenant to its obligations under the lease.

But supposing that the costs of this proceeding, which is the subject of the dispute, fall within clause 1(20)(a) and further or alternatively clause 1(21) of the lease, neither provision refers expressly to how such costs should be taxed and there is some authority that, in the absence of express mention, such costs of a proceeding should be taxed on a party-party basis. The landlord claims costs on an indemnity basis by virtue of the provisions of the lease, although why that should be was not made clear. For its part, the tenant argues that the clauses I have mentioned should be put aside altogether, as not relevant to proceedings before the Tribunal. The tenant contends that in a proceeding before the Tribunal s.109 of the Tribunal Act makes exclusive provision for costs, contending further that under s.109 each party should have been left to pay its own costs and that there was no proper basis for the exercise of the general discretion conferred to order otherwise. In delivering reasons for ordering otherwise, the Vice President relied upon "the nature and complexity of the proceeding", a factor specifically mentioned in s.109; but this was said to be error in that all proceedings concerning a lease of "retail premises" tend to be complex in their nature. That argument overlooks, of course, that proceedings affecting the lease of "retail premises" are but a part of the jurisdiction of the Tribunal so that, if complex, that might well provide a basis for regarding the general discretion to make an order for costs as opened. As at present advised, I see no error (and in particular no error of law) in what was said below in justification of the conclusion that the general discretion as to costs was called into play, provided only that s.109 was relevant at all.

It seems to me that, if the general discretion as to costs was called into play under s.109, the order should have been for the tenant to pay the landlord's costs. As I have said, there seems no reason now to deprive the landlord of any part of those costs. But should those costs have been ordered simply on a party-party basis or, as the landlord claims, on an indemnity basis by reason of the provisions of the lease? In the course of the oral argument, neither party was in a position to refer the Court to any authorities on this question but subsequently, at the invitation of the Court, landlord's counsel supplied us with 31 relating mainly to costs payable under provisions in mortgages.. At the same time the request was made for permission to present "brief written submissions on the authorities referred to" and, granted that they are so many, I would give that permission and would therefore defer any decision on costs for the time being. It is, after all, an order for costs which we must make, given what I have said already. The adjournment that would then follow would be useful, too, for another reason: that is, because both parties asked us to quantify precisely any final order for the payment of arrears in the light of the valuer's determination which came recently to hand. The adjournment will give the parties the opportunity to reach agreement (if they can) on the actual terms of the orders that we should make.

Subject to the foregoing, I would therefore allow the appeal and dismiss the cross-appeal, varying the orders made below by the Tribunal accordingly. I would, however, first hear counsel on the terms of the orders that we should make and, as I have said, adjourn for the time being in order that the question of costs in particular be given further consideration.

I agree. I would add only, in so far as the interpretation and effect of the provisions of clause 3(10) of the lease is concerned, whether they are to be characterized as conditions precedent or subsequent, that, as is apparent from Phillips, J.A.'s reasons, is a matter to be determined by the interpretation and construction of each such term or condition and not on any presumptive or a priori basis.

You will see, therefore, from what has been said, that the appeal has been substantially allowed and the cross-appeal dismissed. There are, as Phillips, J.A. says, some matters remaining outstanding. The formulation of the orders we think should be left until the matters relating to the calculation of interest and the arguments as to costs have been worked out, so that today we will not make any orders. It will be necessary to adjourn the hearing for some, we hope, short period to allow, first of all, the calculation of interest to be made, if that is possible, and, if not possible, submissions should be forwarded in writing. But in particular we consider that it is necessary to have some further submissions as to costs, as mentioned in Phillips, J.A.'s reasons today and which I think were suggested in the course of argument before the matter concluded last week.

For various reasons it is necessary to have this matter concluded, or at least the argument concluded, by Thursday of next week. We must give time, I think, for the judgment to be transcribed and corrected, and that will mean I think that probably it will not be available to the parties until Thursday. In any event, I think it is reasonably clear, what has been said, and so I would hope that it will be possible to prepare the submissions even if the reasons come to you relatively late. It was counsel for the landlord who provided the additional authorities and perhaps the submissions should be made accordingly first on behalf of the landlord, then perhaps within two days a response by counsel for the tenant; is that a satisfactory way of dealing with it? We will fix the times in a moment. Are you content to do that? (Discussion ensued.).

The landlord's submission should be delivered by 4 p.m. on Thursday 4 May 2000 and those of the tenant by 4 p.m. on Monday 8 May 2000. The matter is adjourned for further consideration until 9.30 on 10 May.

Retail Tenancies Reform Act 1998

At a glance

Court

Decision date

Before

Source

Judgment (62 paragraphs)

Parties

Legislation Cited (2)