1. The Tribunal declares that the rent payable by the respondent tenant to the applicant landlord for the premises at 109 Ormond Road, Elwood, under the terms of the agreement for lease brought into existence by the exercise of the tenants' option to renew a lease of the premises dated 4 July 1996 by notice to the applicant landlord dated 25 March 2002 (with the further term commencing 1 July 2002) is to be calculated by the application of the annual percentage change in the Consumer Price Index (All Goods) Melbourne to the rent payable for the year commencing 1 July 2001.

Mr G. Golvan QC and Mr D. Flynn of Counsel, instructed by Velos and Davis, Lawyers

1 Mr George Karabatsos and Mrs Belinda Karabatsos and Mr Karabatsos' brother, Alexander and his wife Anastasia work at a Food Rite Community Supermarket at 109 Ormond Road, Elwood. The freehold of the supermarket building is owned by Barbcraft Pty Ltd, the applicant in this proceeding. The leasehold is held by Geobel Pty Ltd and AL and AN Pty Ltd. These companies are controlled by the two families. The two companies took possession of the supermarket on 4 August 1998 taking a transfer of the leasehold from the former operator, Perlow Lane Pty Ltd.

2 The families have enjoyed some success with the supermarket though they have to work long hours. Many members of the family work in the shop including Mr Karabatsos senior and Mr George Karabatsos' young son. Before the family acquired the supermarket they operated a `7-Eleven' franchise which traded 24 hours a day.

3 The lease which the Karabatsos' companies acquired in 1998 commenced on 1 July 1996 and had a term of six years. It also had the advantage of four options for further five year terms. If all these options are exercised the Karabatsos' companies or their successors will be entitled to hold the supermarket until 30 June 2022.

4 For the year 1 July 2001 to 30 June 2002 the tenants were paying rent of $65,895. They began paying the rent fixed or apparently fixed under the 1996 lease, modified in accordance with movements of the `Consumer Price Index' each year, for instance, for the year 1999 - 2000 the rent was fixed at $61,633.32. In a letter dated 31 July 2000 Mr George Bougioukos, the principal of Barbcraft Pty Ltd, the applicant landlord, advised the tenants of a `3.4% CPI increase as of June 2000 as quoted by Australian Bureau of Statistics'. He calculated the rent for the ensuring year at $63,728.85. Mr Bougioukos told me that he made these calculations by simply making a telephone enquiry at the Australian Bureau of Statistics as to the movements in the Consumer Price Index (All Goods) for Melbourne as published by the Bureau over the previous 12 months.

5 By notice dated 25 March 2002 the tenants exercised the first option to renew their tenancy for a further five years to 30 June 2003.

6 On 10 July 2002 the landlord's solicitors, Russell Kennedy wrote to the tenants stating as follows:

We act for Barbcraft Pty Ltd of 370 Waverley Road, East Malvern your landlord of the above property.

We have been instructed that you have exercised the option to renew your lease for the period commencing 1 July 2002 and on behalf of our client notify you that the rent for the first year of the new lease is to be $105,000 plus GST payable by monthly payments of $8,750 plus GST.

7 The tenants were understandably shocked. It transpired that this new rent was calculated not on the basis of any movements of the Consumer Price Index as had been the case up till then but on the basis of the landlord's view as to what a fair market rent for the premises was. This was not explained in the letter from Russell Kennedy.

8 The tenants instructed the law firm Velos and Davis to act on their behalf. Velos and Davis wrote to Russell Kennedy on 30 July stating:

We act for the above lessees and enclose for your information copy letter served on your client in accordance with the terms of the notice clause contained in the lease.

9 Velos and Davis' letter of even date to the Secretary of Barbcraft Pty Ltd in substance contended that the rent for the premises could only be adjusted in accordance with the Consumer Price Index, hence they contended the landlord's notice of the 10th of July was invalid and the letter concluded that if the landlord persisted with its attitude `our clients intend commencing proceedings at the Victorian Civil and Administrative Tribunal to seek a declaration requiring the rent to be reviewed in accordance with the Consumer Price Index, as specified in the lease'. The tenant paid the rent for the year 2002 - 2003 adjusted by a 2.8% increase. In August 2003 the tenants once again adjusted the rent they were paying by an increase of 2.9% which they described as `according to the change in the CPI'. The landlord through its solicitors advised that these adjusted rents were accepted on account of the full rental liability as to which it reserved all its rights.

10 On 21 August 2002 the landlord filed the application which commenced this proceeding in the Tribunal. In its amended points of claim filed on 5 May this year the landlord sought the following orders:

(a) That a market review of the rent for the year commencing 1 July 2002 be carried out.

(b) That the tenant pay interest on all additional rent required to be paid as a result of the market review as from such date as a market review might otherwise have been carried out.

11 The tenants' counterclaim in their points of defence and counterclaim dated 10 June 2003 for the following relief:

A. A declaration that the rent payable for the term of the lease created by the exercise of the option by the tenant in March 2002 (such further term commencing 2 July 2002) is to be calculated by the application of the annual percentage change in the Consumer Price Index to the rent for the year commencing 1 July 2001.

C. Such further or other order as this Tribunal deems appropriate.

12 To understand this dispute it is necessary to undertake a lengthy historical excursus as to the leasing of these premises.

13 The evidence before me describes the supermarket building variously as dating from the 1970s or the late 1960s. In cross-examination Mr Redfern put it to the tenants' valuation expert that the premises were a mere 20 years old. The history of the cycle of leases which is giving rise to the present dispute begins on 1 May 1987. By a lease bearing that date V. Koutsoumbas and I. Koutsoumbas let the ground floor of the premises to Everclear Pty Ltd for a term of five years with five further terms, each of five years. The effect of this lease if all options were exercised would be to leave the original tenant or its successors in possession of the ground floor of the premises until 30 April 2007, viz. 40 years. By an assignment dated the 10th of August 1998 Everclear Pty Ltd assigned its tenancy to L. & P. Mostarac. Meanwhile, the Koutsoumbases sold the reversion and Eighty-Fifth Oboe Pty Ltd became the registered proprietor of the freehold estate in the property on 6 September 1989. Eighty-Fifth Oboe Pty Ltd was a company controlled by the father of Mr George Bougioukos. Mr Bougioukos junior is the principal of Barbcraft Pty Ltd, the present landlord and owner of the reversion. The next major event was the execution of a Deed of Assignment of Lease dated 1 November 1990, whereby the Mostaracs transferred their lease to Perlow Lane Pty Ltd. In addition to assigning the Mosterak's lease to Perlow Lane the deed effected a significant amendment to the lease itself. The lease was made to extend both the ground and the first floor of the building. There were consequential amendments to the tenant's obligation to pay rent and to pay outgoings.

14 Barbcraft Pty Ltd, a company controlled by Mr George Bougioukos and the applicant in this proceeding, purchased the reversion and became registered as the proprietor of the fee simple estate on 5 September 1991.

15 By a further lease dated 3 July 1992 Barbcraft Pty Ltd as lessor, granted Perlow Lane Pty Ltd a lease for a further term of five years with options to renew for four further terms each of five years. This lease was granted as Mr Bougioukos said in his evidence, as a result of the exercise of the first of the options to renew contained in the 1987 lease.

16 On 4 July 1996 Barbcraft Pty Ltd granted Perlow Lane a new lease for six years commencing 1 July 1996 with five further terms each of five years. The reason for the grant of this lease is not immediately apparent upon the face of the document. The 1992 lease had almost a year left to run. It would have expired on 30 April 1997. Mr Bougioukos said that his company granted this new lease to facilitate Perlow Lane Pty Ltd in its attempt to sell the supermarket business. On the face of it the extension of the term of the 1996 lease to six years rather than the previous pattern of five year terms, is conformable with this explanation, appearing to be aimed at maintaining the same ultimate length of lease and options as was established in 1987 so that the lease would expire in 2002 as it would have done had the 1992 lease gone its full term and been renewed for a further term of five years in 1997. However, upon further investigation this is not exactly what the effect of the 1996 lease was. The 1992 lease, had it gone its full distance and been renewed, would have seen the next term expire on 30 April 2002. As it is with the grant of the lease early in 1996, the term expired not on 30 April but on 30 June 2002. Moreover, had the 1992 lease been renewed in 1997 in accordance with the terms of the option, the lease expiring in 2002 would have included three further option terms each of five years, viz one less option term than the 1992 lease contained. The 1996 lease however contains four further option terms. The result is to take the total possession period out to 2022. Mr Bougioukos said that according to his recollection the assignment of the 1996 lease to the present tenants was to take effect the day after it was executed. Mr Karabatsos' evidence was that the tenants purchased the 1996 lease in 1998 and took assignment by an instrument dated 4 August 1998. Ultimately Mr Bougioukos was prepared to accept this date as correct. If the 1996 lease was, as Mr Bougioukos says, granted for the purpose of facilitating a sale of the business, that sale took no less than two years to be effected. Mr Bougioukos who has himself operated a similar business in this neighbourhood at Tennyson Street, Elwood, said that such a timeframe is far from unknown in the sale of these businesses.

17 Since November 2000 the tenants have sub-let the upstairs portion of the premises viz. the residential portion to Ms Sophie Raymond for $1,516 per month.

18 It is now necessary to say something as to the legal consequences of these various leases and assignments. It is common ground that these premises are retail premises within the meaning of the Retail Tenancies Act 1986, the Retail Tenancies Reform Act 1998 and the Retail Leases Act 2003. Prior to the first of those statutes, leases at shops in Victoria were regulated only by the general conveyancing statutes such as the Property Law Act 1958 and the Landlord and Tenant Act 1958. Since the passage of the Retail Tenancies Act 1986 special provisions have been in force protecting the interests of tenants of retail premises and special arrangements have been made for the hearing and determination of disputes between landlords and tenants of retail premises. The Retail Tenancies Act 1986 came into force on the 21st of September 1987, hence the first of the leases with which we are concerned, namely the one dated 1 May 1987 was unregulated. The assignments which took place in 1988 and 1990 would have rendered the 1987 lease regulated by the Retail Tenancies Act 1986. Bradbun Pty Ltd v Bobo Nominees Pty Ltd (1994) V ConvR 54, 501. This is because according to the reasoning of O'Bryan J in Bradbun for the purposes of the Retail Tenancies Act 1986 taking an assignment of a retail premises lease is equivalent to entering into one for the purposes of Section 4(1) of the statute which governs its application. In addition the 1990 assignment would likely have operated as a surrender and regrant so that the assignee Perlow Lane Pty Ltd would have been entering into a retail tenancies lease in 1990 because the 1990 assignment effected a fundamental variation to the 1987 lease by adding the residential portion of the premises to the demise. See Pascoe-Webb v Nusuna Pty Ltd (1985) NSW ConvR 55-259.

19 Similarly since the 1992 and the 1996 leases were entered into after the commencement of the Retail Tenancies Act 1986 those leases would also be regulated by its terms.

20 The 1998 assignment would not however render the 1996 lease regulated by the Retail Tenancies Reform Act 1998. Happy Century Pty Ltd v Nezville Pty Ltd (2000) V ConvR 58-546. By virtue of Section 109(4) of the Retail Leases Act 2003 the Retail Tenancies Reform Act 1998 applies to retail leases entered into on or after 1 July 1998, nevertheless for the reasons given in Happy Century the assignment of a retail tenancies lease governed by the 1986 Act after the commencement of the 1998 Act does not for the purposes of that statute amount to the entry into of a retail tenancies lease.

21 The Retail Leases Act 2003 came into force on the 1st of May 2003, hence the lease arising from the exercise of the option to renew on 25 March 2002 and taking affect on 1 July 2002 would be governed by the Retail Tenancies Reform Act 1998, see Section 119(4) of the Retail Tenancies Act 2003.

22 It will be recalled that until 2002 the parties adjusted the rental payable under the succession of leases in accordance with the movements in the Consumer Price Index. It is the tenants' contention that this is and remains the appropriate means of rental review. Section 10(2) of the Retail Tenancies Act 1986 as originally enacted provided:

(2) A provision in a retail premises lease that the rent is to be determined either in whole or in part by reference to any index of prices, costs or wages or in any other similar manner is void to the extent that it so provides.

That sub-section was repealed as from the 3rd of December 1991. Section 10(1) of the Retail Tenancies Act 1986 provided:

(1) A provision in a retail premises lease for a review of the rent (other than a provision -

(b) providing for an alteration for the rent to be determined by the application of -

(ii) in the case of a retail premises lease entered into on or after the date on which the Retail Tenancies (Rent Review) Act 1991 received the Royal ascent, a specified index, for example an index of prices, costs or wages)

is void to the extent that it provides that the rent payable after the review must exceed or be not less than the rent payable immediately before the review.

23 The effect seems to be that a lease of retail premises which would be regarded as having been entered into after 21 September 1987 and before 3 December 1991 would be void in so far as it provided for alteration of rent in accordance with an index such as the Consumer Price Index. Further, a review clause in a lease governed by the Act which provided that upon a review the rental must exceed or be not less than the rental payable previously would be void unless it fell within the descriptions to be found in paragraphs (a) and (b) of Section 10(1). Rental reviews based on the Consumer Price Index would not be avoided as long as the lease was entered into after 3 December 1991, being the date on which the Retail Tenancies (Rent Review) Act 1991 received the Royal assent.

24 Central to the dispute between the parties are the provisions for rental review in the various leases. Each of the leases follows the same general pattern as the lease entered into on 6 May 1987 commencing 1 May 1987 with the Koutsoumbases as lessors and Everclear Pty Ltd as lessee. It dealt with the issue of options to renew and rent upon exercise of the renewal option in Clause 5(g) and the review of rent in Clause 5(h). Clause 5(g) incorporated the rent review provisions of Clause 5(h) by reference for the purposes of fixing the initial rental upon a renewal of the lease by exercise of the option to renew. The two sub-clauses are as follows:

(g) If the Lessee shall be desirous of taking a renewed Lease of the Premises for the further term specified in Item 10 of the Schedule hereto from the expiration of the term hereby granted and shall at least three months prior to the expiration of such term signify such desire by notice in writing to the Lessor and shall at the time of such notice and for the remainder of the term hereby granted not be in default hereunder then the Lessor will at the expense in all things as stipulated in Clause 3(u) hereof of the Lessee grant a new Lease to the Lessee of the Premises for the further term so specified at such annual rental to be a rental assessed in accordance with the annual rental review [provisions of this Lease, as the rental for the commencement] of the new term and subject to the same terms, covenants and conditions as are in this Lease contained including this option for renewal.

(h) (i) the rental specified in the Schedule hereto for the term hereby created and the rental agreed upon or fixed for any further term shall be reviewed upon the expiration of the period specified in Item 11 of the Schedule hereto (`the review period') and the review shall be effected in accordance with the method specified in Item 12 of the Schedule hereto and the Lessor shall provide written notice of the reviewed rent to the Lessee no more than sixty days, before, or thirty days after the expiration of the review period and the rent so notified shall be payable from the expiration of the previous review period in relation to which the notice is given subject to Clause 5(h)(ii) hereunder.

(ii) If within twenty one days of the date of any such notice given by the Lessor to the Lessee the Lessee shall have disputed in writing the rent so notified and the Lessor and the Lessee have not determined the rent by agreement between them then the rent shall be the current market rent as determined in the manner specified in Clause 5(g) hereof.

(iii) Notwithstanding the foregoing no determination of the rent pursuant to this Clause shall operate to reduce the rent payable relative to the preceding rent review period.

(iv) If the Lessor fails to exercise its right to serve upon the Lessee a notice in writing to vary the annual rent within the time specified in sub-paragraph (i) then the right may be exercised at any time thereafter in which case the provisions of this clause shall be interpreted in all respects as if the expiration of the relevant rent review period has occurred upon receipt by the Lessee of written notice advising of the reviewed rental and the new rental shall be payable by the Lessee forthwith. No succeeding rent review period shall be postponed by reason of the operation of this sub-paragraph in relation to any rent review period.

25 Items 11 and 12 referred to in Clause 5(h)(i) are as follows:

Review Period Annually upon the anniversary of the commencement date.

Method of Review Consumer Price Index until the expiration of this Lease and all options hereunder.

26 It will be seen that I have bracketed and highlighted the words `provisions of this Lease, as the rental for the commencement' in Clause 5(g). The clauses already quoted are reproduced in the 1992 and the 1996 lease, however the bracketed words, all of which appear on a single line in the original print of the 1987 lease are omitted from the 1992 and the 1996 lease. Mr Bougioukos agreed that the 1992 lease was entered into as a result of the exercise of an option to renew under the 1987 lease. His company was landlord at the time the 1992 lease was entered into and he could recollect no reason or no instructions which he gave to his company's solicitors which would have explained the omission of the bracketed words. Mr Golvan QC who appeared with Mr Flynn on behalf of the respondent tenants submitted that in the circumstances even without any application or order for rectification, the Tribunal should as a matter of construction supply the missing words for the purposes of the 1992 and 1996 leases as part of the process of construction to correct an obvious error. He relied upon the judgment of Dixon CJ and Fullagar J in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-7 where their Honours speaking of the process of construction, said:

Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.

27 Mr Redfern who appeared on behalf of the applicant tenants did not contend otherwise. In the circumstances I will proceed upon the basis that for the purposes of constructing Clause 5(g) all of the leases should be regarded as including the bracketed words.

28 The parties filed pleadings in this matter in accordance with the Tribunal's directions. As it was however, the arguments put at the final hearing did not precisely track the pleadings. In the circumstances I will have regard to the submissions mad by the parties rather than to the pleadings which they filed. There was little or no dispute between the parties as to the primary facts which I have recited. There was some dispute as to the ultimate inferences which might be drawn from certain matters such as the circumstances surrounding the execution of the 1996 lease to which I will make reference below. I will refer to the parties' submissions only to the extent that it is necessary to dispose of the questions before me. This will leave a number of interesting and well formulated submissions unexplored, though this indicates no disrespect to the parties' representatives who argued this matter in a thorough challenging and erudite manner.

29 Mr Redfern submitted that the 1996 lease was governed by Section 10 of the Retail Tenancies Act 1986 and that the fixing of rent at the commencement of the 2002 term was to be regarded as a review of rent for the purposes of that section. He referred to the decision of Young J (as he then was) in Polgar Pty Ltd v Vision Wise Holdings Pty Ltd (1996) NSW ConvR 55-781. He submitted that even if this were wrong and the fixing of rent for the initial year of the 2002 lease was not a review `because the provisions of Clause 5(h) which are incorporated into Clause 5(g) deal with the review of the rent during the course of the lease and therefore Clause 5(g) will be affected by the proper interpretation of Clause 5(h)'. He said that Clause 5(h)(i) provided for a written notice to be given by the landlord. Clause 5(h)(ii) provided that if within twenty one days of the receipt of such notice the tenant should dispute the rent claimed by the landlord in writing then the rent should be the current rent as determined in the manner specified in Clause 5(g). If the parties were in dispute Clause 5(g) provides no basis for resolving the dispute. Therefore he said Section 10(5) of the Retail Tenancies Act 1986 would apply. That sub-section provides:

5 If a retail premises lease provides for a review of the rent and does not provide for what is to happen in the event of the landlord and the tenant being unable to agree about the result of the review within 30 days of the completion of the review in accordance with the lease, then the rent is to be determined by a valuer.

30 Secondly, Mr Redfern submitted that `to the extent there is a conflict between the market review mechanism provided for by Clause 5(h) and the provision for a CPI method of review in Item 12 of the schedule the rent review clause is avoided by Section 10(3) of the 1986 Act because it does not specify how the review is to be made and Section 10(4) of the 1986 Act applies requiring the rent be determined by a registered valuer'.

(3) A provision in a retail premises lease for a review of the rent is void unless the lease specifies how the review is to be made.

(4) If a provision in the retail premises lease about rent is made void by this section and the lease makes no other provision for determining the rent, the rent is to be as agreed in writing between the landlord and the tenant or if the landlord and the tenant are unable to agree within 40 days of a notice specifying an amount of rent being served on the tenant by the landlord, then the rent is to be as determined by a valuer.

32 He submitted further that the reference in Item 12 to the Consumer Price Index `does not specify the appropriate index' and therefore Section 10(3) of the 1986 Act should be applied to avoid the application of Item 12 of the Schedule and in accordance with Section 10(4) the matter should be referred to a market review. Mr Redfern said `there is no such entity as the Consumer Price Index but a number of indexes published quarterly by the Australian Bureau of Statistics in particular these include the All Groups Index for each of the capital cities of Australia and also the weighted average of all capital cities'. He said that the well established rules for the implication of terms into written contracts to be found in authorities such as BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, 26 would not allow the implication of a term identifying a particular index because `it cannot be said with any certainty as to what index might have been intended by the parties'.

33 In addition he submitted that there was no specified index for the purposes of Section 10(1)(b)(ii) of the Retail Tenancies Act 1986 and so in so far as the provisions stated that the rent must exceed or be not less than the rent payable previously the adjustment provision was void and further, he submitted that the CPI provisions in the 1987 lease were avoided by Section 10(2) of the Retail Tenancies Act 1986. That sub-section was repealed with effect from 3 December 1991 but he submitted the 1987 lease became regulated by the Retail Tenancies Act 1986 by reason of the two assignments. Even although Section 10(2) was repealed with effect from December 1991 that repeal did not reverse the avoidance of the CPI provisions in the 1987 lease. He referred to the Interpretation of Legislation Act 1984, Section 14(2)(e) and Pearce and Geddes Statutory Interpretation in Australia (5th Edition) paragraph [6.7]. The effect he said was that the 1992 and 1996 leases were intended to be upon the same terms as the 1987 lease. The 1987 lease had the references to the Consumer Price Index avoided by the operation of Section 10(2) of the Retail Tenancies Act 1986, therefore those provisions were also to be regarded as avoided from the 1992 and 1996 leases.

34 Mr Redfern submitted that whilst the Retail Tenancies Reform Act 1998 does not apply to the fixation of the rent for the initial term of the 2002 lease, it will apply to the fixation of the rent for subsequent years of the 2002 lease including the year commencing 1 July 2003. He referred to the judgment of Phillips JA in Antonio Giuseppine Insabella and Sons Pty Ltd v Players on Down Under Pty Ltd (2000) V ConvR 54-626, page 64,485 column 2, paragraph 30 where His Honour said of Section 12(1) of the 1998 Act which corresponds generally to Section 10 of the 1986 Act, that the reference to reviews during the term of the lease in that sub-section `cannot be ignored; and in my opinion when all read in context, s.12(1) is treating as a mid-term review, and not a "review" (if such it be) for the purpose of fixing a commencing rent'. Section 12 of the Retail Tenancies Reform Act 1998 provides as follows:

(1) 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.

(2) The basis or formula on which a rent review referred to in sub-section (1) is to be made must be one only of the following--

(b) an independently published index of prices, costs or wages;

(d) the current market rent of the retail premises;

(e) another basis or formula prescribed by the regulations.

(3) A provision in a retail premises lease or an option to renew the lease other than a provision--

(a) using a basis or formula referred to in sub-section (2)(a), (b) or (c); or

(b) using a basis or formula prescribed for the purposes of sub-section (2)(e) that is also prescribed to be a basis or formula to which this sub-section does not apply--

(c) purports to preclude the reduction of the rent or to limit the extent to which the rent may be reduced; or

(d) prevents, or enables the landlord or any other person to prevent, any decrease in the rent that may result from the review.

(4) A provision in a retail premises lease for a review of the rent is void unless the lease specifies how the review is to be made.

(5) If the current market rent is to be used as the formula or basis for rent review, the current market rent is to be taken to be the rent obtainable at the time of the review in a free and open market, between a willing landlord and a willing tenant in an arm's length transaction, where -

(a) the parties have each acted knowledgeably, prudently and without compulsion; and

(b) the retail premises were vacant and to be let on similar terms as are contained in the current retail premises lease; and

(c) all other relevant factors, matters or variables used in proper land valuation practice have been taken into account.

(6) If a provision in a retail premises lease about rent is made void by this section and the lease makes no other provision for determining the rent, the rent is to be as agreed in writing between the landlord and the tenant or if the landlord and the tenant are unable to agree within 30 days of a notice specifying an amount of rent being served on the tenant by the landlord, then the amount of the rent is to be determined by a valuer nominated by the Institute of Valuers and Land economists.

(7) If a retail premises lease provides for a review of the rent and does not provide for what is to happen in the event of the landlord and the tenant being unable to agree about the result of the review within 30 days of the completion of the review in accordance with the lease, then the amount of the rent is to be determined by a valuer nominated by the Institute of Valuers and Land Economists.

(8) The fees payable to a valuer determining rent under sub-section (6) or (7) are borne jointly by the landlord and the tenant.

35 Mr Redfern submitted that the requirements of Section 12(2)(b) of the 1998 Act had not been complied with because the index was not properly identified. He submitted that `Item 12 of the Schedule does not provide for a review in accordance with an independently published index of prices or costs or wages but an increase only in respect of rent by reference to such an index'. Hence, he said it was void pursuant to Section 12(3)(d). Section 12(4) avoids the provision in so far as it is not clear, therefore he submitted that Section 12(6) applied and the matter would have to be referred to a market review in accordance with the terms of that section. He also referred to the amendments to Section 12 made by Section 102 of the Retail Leases Act 2003 which had affect from 1 November 2002 Section 102 of the Retail Leases Act is as follows:

For section 12(5), (6), (7) and (8) of the Retail Tenancies Reform Act 1998 substitute--

"(6) If a provision in a retail premises lease that provides for a review of the rent payable under the lease or a renewal of the lease does not comply with sub-section (2), the rent is to be--

(b) if there is no agreement within 30 days after the landlord gives the tenant, or the tenant gives the landlord, a written notice specifying an amount of rent for the purposes of the review, the amount determined by a specialist retail valuer appointed by the Small Business Commissioner as the current market rent of the retail premises (as described in section 12A(2)).

(7) The landlord and tenant are to pay the costs of a valuation referred to in sub-section (6)(b) in equal shares.

(8) The amendments made to this section by section 102 of the Retail Leases Act 2003 only have effect from 1 November 2003.".

36 I reject the contention that the provision for indexation of the rent is avoided in so far as it provides only for rental increases and no decreases. Section 10(1)(b)(ii) exempts indexation by reference to the Consumer Price Index and the general prohibition upon review techniques which do not provide for rental to decrease as well as increase. For the reasons already given I believe that this clause meets the requirements of the section. Section 12(3)(a) of the Retail Tenancies Reform Act 1998 to the extent that that statute is relevant is to the same effect.

37 Finally, Mr Redfern referred to the rental valuation carried out by a Mr Close on behalf of the landlord. This showed a market rent for the premises of $105,000 being $20,000 for the residence and $85,000 for the retail areas. This valuation was apparently the basis for the letter of July 2002 from the landlord's solicitors which was the opening shot in the present dispute. Mr Redfern submitted that there was a discrepancy between this rental and the rental which the tenants asserted was payable; that even if the tenants were otherwise legally entitled to insist upon the lower rent their `continued reliance upon the terms of the rent review provisions of the lease is unconscionable and the rent review provision should be avoided and replaced by a market review provision'. Mr Redfern relied upon Section 8A of the Fair Trading Act 1999 and Part 9 of the Retail Leases Act 2003. The latter would `apply to the rental clauses to the extent that they are to be relied upon after 1 May 2003'. He referred to a decision of the New South Wales Industrial Commission (Hungerford J) in Starke v Mitchforce [2000] NSWIR 216 and to an article by a Mr Wilson entitled Unconscionable Conduct in Commercial Tenancy Transactions presented to the Property and Environment Law Conference 2002.

38 In summary, Mr Redfern said `the spirit of the retail tenancies legislation is to favour market reviews in the absence of clear or automatically adjustable mechanisms in the body of the lease which do not offend the legislation'.

39 Mr Redfern said that his client did not seek an adjustment of previous years' rentals.

40 It is unnecessary to refer to the lengthy submissions made by Mr Golvan QC and Mr Flynn except in so far as they relate to the disposition of the various arguments relied upon by Mr Redfern.

41 The essence of the problem which has led to this dispute is an inconsistency in the lease provisions which I have quoted earlier. Clause 5(h)(i) indicates a regime of rental review by reference to the Consumer Price Index. I put to one side for the moment the adequacy of the references to Consumer Price Index in the lease itself. The balance of the clause however is apt for a review to market whereby the landlord initially proposes a rental and the tenant either agrees to such proposed rent or else the matter is referred to a valuer. The first portion of that mechanism namely the landlord's notice is there; but the provision for the appointment of a valuer is lacking. So far as the reference to the Consumer Price Index is concerned, aside from the issues raised by Mr Redfern as to the identity of the index to be referred to, an effective indexation clause would customarily be in far more elaborate form. I was taken for instance to an indexation clause employed in the current edition of the Law Institute lease. The provision is quite elaborate and employed a mathematical formula.

42 In my view the first step in determining this dispute is to apply the canons of construction to these circumstances to ascertain what upon their true construction Clauses 5(g) and 5(h) of the lease mean. Once this process is complete the application of the various statutory provisions appealed to will be far clearer.

43 For the reasons already given the bracketed words in Clause 5(g) as quoted above should be regarded as being set forth in the 1992 and the 1996 lease.

44 Mr Golvan and Mr Flynn took me to the work known as the Interpretation of Contracts 2nd Edition 1997 by Kim Lewison QC at page 221, paragraph 8.01 the learned author postulates the following rule:

As part of the process of construction the court has power to correct obvious mistakes and the written expression of the party.

45 The reliance already made upon Fitzgerald and Masters might be thought to be an example of this. The present case is one of internal inconsistency. The matter dealt with by the learned author at pages 245-46 and Clause 8.08. The general rule postulated is as follows:

If a clause in a contract is followed by a later clause which destroys the effect of the first clause, the later clause is to be rejected as repugnant and the earlier clause prevails. If however, the later clause can be read as qualifying rather than destroying the effect of the earlier clause, then the two are to be read together, and effect given to both. The leading case supporting this proposition is a decision of the House of Lords in Forbes v Git [1922] 1 AC 256.

46 In Maile v Jennings [1956] VicLawRp 7; [1956] VLR 45 Gavan Duffy J considered the operation of a contract for the sale of land which stated a contract price of £3,400 included a special condition which stipulated as in effect the cost plus 10%. The cost of the land was £500 and the cost of the building plus 10% yielded a price exceeding £2,400. His Honour said:

The position in my judgment, is that there is a flat contradiction between the earlier provision that the price should be £2,400 and the later provision that the price shall be on a cost plus percentage basis. [1956] VicLawRp 7; [1956] VLR 45, 46

47 His Honour noted a submission that there is a rule of construction that a handwritten clause should be preferred over a typewritten one but as in the present case the two contradictory provisions were both typewritten. His Honour applied the rule stipulated in Forbes v Git that the earlier of the two contradictory provisions should prevail. Mr Golvan and Mr Flynn submitted therefore that paragraphs (ii), (iii) and (iv) of Clause 5(h) of the lease should be rejected as repugnant together with the second half of paragraph (i). This would leave a sub-clause standing whose sole words were:

The rental specified in the schedule hereto for the term hereby created and the rental agreed upon or fixed for any further term should be reviewed upon the expiration of the period specified in Item 11 of the Schedule hereto (`the review period') and the review shall be effected in accordance with the method specified in Item 12 of the Schedule hereto.

48 Mr Golvan further submitted that another canon of construction postulated by Lewison would lead to the same result. At page 248 the learned author postulates Rule 8.09 which states:

Words and even whole clauses may be rejected if they are inconsistent with the main object of the contract, as ascertained from a reading of it as a whole.

49 At page 249-50 an illustration is given in the following terms.

A lease contained a rent review clause which required the open market rental value of the property to be assessed on the basis of a hypothetical letting on the terms of the lease. The lease contained a clause which restricted use of the property for use as offices by a named individual. It was held that a hypothetical letting which included that restriction was inconsistent with the fundamental purpose of the clause which was to determine an open market rent. The restriction was therefore rejected.

The authority referred to is Law Land Co Ltd v Consumers Association (1980) 255 EG 617

50 Of course the principal object of a lease is for the lessor to demise certain premises to the lessee for a term at a particular rental. It is clear however form the Law Land Co case that the principle postulated by Lewison may look to the main object of a clause rather than the main object of the deed or instrument as a whole. Reference to the judgments in the Law Land Co case confirms this.

51 In my view the most likely explanation for the state of Clauses 5(g), 5(h) and the corresponding items in the Schedule to the lease is that the draftsman or woman commenced with a precedent lease which provided for rental review to market, amended it in relatively cryptic form to provide for review by reference to the Consumer Price Index and failed to make the consequential amendment to Clause 5(h). In Maile v Jennings Gavan Duffy J was prepared to assume, though he did not state the provenance of a rule that handwritten alterations represented the true intention of the parties rather than the typewritten original. It seems to me that the most likely repository of the commercial intent of parties to a lengthy and complex document such as a lease are to the commercial terms which appear in its schedule rather than the legal boilerplate in the text. The schedule would lead one to believe that this is a lease whose rental is reviewed by reference to the Consumer Price Index and not to market. That consideration leads me to the interpretation of events which I have adopted.

52 In my view therefore the main object of the relevant clauses is to provide the review by reference to the Consumer Price Index. The provisions attacked by Mr Golvan and Mr Flynn should for that reason be rejected and treated as repugnant. If I were wrong in that the principle of Forbes v Git would lead to the same result. The reference in the schedule to the Consumer Price Index is of course later in the instrument than any part of the two clauses in question, however it is incorporated by reference into the opening part of Clause 5(h)(i) and is therefore to be treated as

53 Having drastically shortened the contentious provisions the next question is what meaning does the text that remains bear? I will assume without deciding that Section 10 of the 1986 Act applies to a `review' of rent at the outset of a new term as well as a review of rent during a lease term. The essence of Mr Redfern's submissions on this point is that because the provisions which refer to indexation are insufficiently particular and are capable of referring to more than one index, either by virtue of fallback provisions in Section 10 of the Retail Tenancies Act 1986 or Section 12 of the Retail Tenancies Reform Act 1998 (depending upon which year it involved) or by virtue of fallback doctrines in common law, one is remitted to a market review instead of any process of indexation. The process of indexation, it is said, is void for uncertainty. In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 the High Court of Australia was concerned with a similar contention relative to an elaborate price fixing clause for the supply of bulk electricity. Barwick CJ said:

But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the Courts, or in an appropriate case, an arbitrator, decides is it proper construction: and the court or arbitrator will decide its application. The question becomes open of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this context in Hillas and Co Ltd v Arcos Ltd ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd Ouston is not `so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual contention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention be resolved.

[1968] HCA 8; (1968) 118 CLR 429, 436-7

54 The tenants called evidence from Mr Bazzani, a solicitor experienced in commercial leasing matters. He produced material from the Australian Bureau of Statistics. He said that in his experience a reference to `the Consumer Price Index' in a lease would be taken to be a reference to the Consumer Prince Index (All Goods) published by the Australian Bureau of Statistics with respect to consumer prices in the capital city of the State or Territory where the demised land was situate. The Bureau of Statistics material which Mr Bazzani produced showed that the Bureau produced such figures for each of the eight capital cities of States and Territories in Australia including Melbourne. It was an easy matter by comparing the Index figures for one quarter with the corresponding figure for the quarter 12 months previously to ascertain the percentage increase and it was presumably by this method that the rental for these premises has been indexed from 1987 to 2002. Of course care must be taken in accepting and acting upon that part of Mr Bazzani's evidence which constituted an opinion as to the proper construction of the 1996 lease. If his evidence were properly so construed it would be inadmissible. The proper construction of a written instrument is a matter of law not of fact and cannot be the subject of direct evidence. Nevertheless, evidence is receivable as to matters such as trade and commercial usage. If there were any difficulty in receiving and acting upon Mr Bazzani's evidence it seems to me that there are ample other bases and considerations which point in the same direction. Adopting the approach to construction advocated by Barwick CJ in the Upper Hunter County District Council case and therefore avoiding pedantry and narrowness, one would think that the rental for a piece of immovable property situate in a particular State or Territory is an inherently local issue and therefore it would be the local index rather than the index for any State or Territory capital which one would infer would best accord with the parties' intentions. Likewise the local index would seem a more appropriate representation of the parties' intentions than one which takes account of all capitals in Australia, as one of the indexes produced by the Bureau of Statistics does. The learned authors of Redfern and Cassidy Australian Tenancy Law Practice and Precedents state at paragraph [25 185] page 2788 Service 55:

A reference to `the Consumer Price Index established by the Commonwealth Statistician' has been held to be sufficiently certain notwithstanding that the statistician publishes several indexes for each State and, within each, an average of all commodity prices (called the `All Group Index') and one referring to some only of these. In the absence of any contrary indication in the lease this will be taken to refer to the All Groups Index for the capital city of the State in which the leased premises are situated. We have, in a drafted precedent, specified the `All Groups Index' for the capital city of the State in which these premises are situated. If the draughtsman prefers he may substitute the weighted average for Australia by using the words `the Consumer Price Index Weighted Average Six Capital Cities All Groups Number'.

55 The views expressed by the learned authors are supported by authority. In Hely v Sterling [1982] VicRp 20; [1982] VR 246 Lush J held that a rental review clause which provided that `the amount payable in each period shall not be less than the amount payable in the previous period and shall correspond with any increase made by the Consumer Price Index during such previous term' was sufficiently clear to be enforceable. His Honour said

I find no uncertainty in the reference to the Consumer Price Index. I do not profess to have any knowledge of this Index but a document which is before me and was before the Magistrate, contains a table headed Consumer Price Index All Groups, Index Nos, and it deals in various columns with the quarters of 1975 to 1976, 1976 to 1977, and so on, up to 1979 to 1980. Relevantly to the date of commencement of this lease and the end of the three year term from which revised rent would operate, figures were given at the Consumer Price Index All Goods, Melbourne, the figure in the September quarter 1976 being 203.2 and the figure for the September quarter 1979 being 272.2

56 In Timmernan v Nervina Industries (International) Pty Ltd [1983] 1 Qd. R 1 Connolly J of the Supreme Court of Queensland considered the enforceability of a clause in a sale agreement for a dealership which contained the following clause:

6. The vendor covenants to repurchase the dealership at cost plus CPI or resale the dealership at a fair and equitable price.

57 With regard to the reference to `CPI' His Honour said:

First it is contended that there is no certain meaning for the expression `CPI'. The evidence indicated that the CPI is in general terms, a measure of the level of the prices of goods and services normally consumed by wage and salary earners in metropolitan areas. A question however is which metropolitan areas? Thus the CPI for Brisbane refers to what is known as the Brisbane All Goods Index. There is however also a Six Capital CPI and a Seven Capital CPI, the latter including Canberra. Whichever metropolitan area or areas be chosen the CPI at a given period is compelative in character the basis being the year 1966-67 the level of prices at which is treated as being a base of 100. The CPI of course varied depending on the metropolitan areas which are chosen. Thus between December 1981 quarter and the March 1982 quarter the CPI for Brisbane rose by 7.6 from 340.5 to 348.1 while the fixed capital figure rose by 5.8 from 345.4 to 351.2. Mr Chesterman urged that there is no basis upon which, as a matter of construction, one can identify the CPI which the parties intended. I do not think that this is so. The manifest intention is that the defendant would repay to the plaintiff not the nominal value of their investment but its value at the time of repayment after making due allowance for inflation and the measure which they have chosen is the CPI. If the contract is a Queensland contract and the parties are Queensland residents, the natural meaning to attribute to the expression in Clause 6 is the CPI which reflects Queensland conditions and that is the Brisbane All Groups Index. [1983] 1 Qd R 1, 4

58 It follows that despite the concession made by Mr Bazzani in cross-examination that a reference to the Consumer Price Index in a lease might refer not only to the All Groups Index for the capital city of the State or Territory in which the land was situated but also to the All Capitals All Groups Index, merely to demonstrate that there is more than one possible meaning to a contract does not render the contract or the particular term void for uncertainty.

59 Moreover, even although a precise description of the indexation process would require an elaborate narrative paragraph or perhaps as the current Law Institute form of commercial lease employs a mathematical formula, the process is straightforward enough as reference to the Bureau of Statistics material produced by Mr Bazzani demonstrates. Similarly Mr Bougioukos' evidence as to how he `indexed' the rent prior to 2002 indicates the relative straightforwardness of the process. To regard the provisions as failing to achieve their evident objective due to the lack of a mathematical formula or an elaborate verbal narrative would in my view be to fall into the narrow and pedantic approach which Barwick CJ warned against in the Upper Hunter County District Council case.

60 Once it is accepted that the lease itself when properly construed provides an adequate indexation procedure, the premise for the application of the `fall back' review to market provided for in Sections 10 and 12 of the 1986 and 1998 statutes respectively does not exist. Similarly the `fall back' position in case of uncertainty in rent fixation now adopted by the common law and exemplified in authorities such as Beer v Bowden [1981] 1 WLR 52 and Sudbrook Trading Estate Ltd v Eggleton [1983] 2 AC 444 and New South Wales v Banabelle Electrical Pty Ltd (unreported decision of Supreme Court of New South Wales, Einstein J 22 March 2002 BC 200201579) would not apply.

61 The next question is whether the provision for rental review by reference to the CPI is `knocked out' by the now repealed Section 10(2) of the Retail Tenancies Act 1986. It will be recalled that that provision avoided rent review clauses in retail tenancies leases providing for rental review by reference to the Consumer Price Index. The sub-section had a relatively short life being in force from the commencement of the Retail Tenancies Act 1986 until its repeal in 1991 with effect from 3 December of that year. The present series of leases commenced in 1987 on the 1st of May prior to the commencement of the 1986 statute. It may potentially last for many years yet. This submission is that the key commercial provision in these leases is constrained to the very end of the cycle by a sub-section which had a short life of only four years, starting after the commencement of the first lease and ending prior to its conclusion. In his famous work on The Forms of Action (1909) at page 296 Maitland famously declared `the forms of action we have buried, but they still rule us from their graves'. The Forms of Action being the shape within which common law proceedings had to fit had been abolished by the Common Law Procedure Act 1852. Mr Redfern's submission on this point seems to be an echo of Maitland's famous dictum; but the causes of action had lasted for hundreds of years from the very dawn of the common law, not for a mere four years within the term of one only of a long series of leases.

62 Does this rather startling submission avail the landlord in the present circumstances?

63 The 1986 Act applies to the 1987 lease; but fortuitously because of the operation of the doctrine of Bradbun v Bobo. Fortuitous though the operation of the 1986 Act on the 1987 lease is, it is a real and legally effective operation nevertheless. Mr Redfern observes that by virtue of Section 14 of the Interpretation of Legislation Act the repeal of sub-section 10(2) would not revive a revision which it had avoided. The effect then is that the 1987 lease came to its close with the provision for CPI indexation avoided. The submission continued that in so far as the 1992 lease was entered into in pursuance of an option to renew and something which was conceded and indeed part of the case put by Mr Golvan QC and Mr Flynn for the tenants for another purpose, the 1992 lease must also have found its indexation provision avoided by the operation of the by now repealed Section 10(2). There may be arguments that when the parties executed the 1992 lease they intended to bind themselves by the text of the 1992 lease to the extent that they were legally entitled to do rather than slavishly reproducing the modified operation of the 1987 lease. It is unnecessary however to say more about that, let it be assumed that the 1992 lease was effectively bereft of the CPI indexation provision. The vital question for the present proceeding is whether the 1996 lease found itself in the same case.

64 The 1996 lease did not simply flow on from the 1994 lease in the same way as the 1992 lease `flowed on' from the lease of 1987. With regard to those two leases the argument based upon the judgment of Young J (as he then was) in Polgara Pty Ltd v Visionwise Holdings Pty Ltd (1996) NSW ConvR 55, 781 that they should be regarded not as separate estates in land but rather as a single continuous contractual arrangement would appear to have significant plausibility. This approach is developed by Mr Redfern in an article entitled The Effect of the Application of Contractual Principles to the Interpretation of Leases in Australian Property Law Journal Volume 5 page 91. The situation of the 1996 lease is significantly different. I have already noted that the 1996 lease was granted almost a year before the expiry of the 1992 lease, moved the commencing month for the lease cycle from the 1st of May to the 1st of July and included an additional option to renew it. Mr Bougioukos explained these variations by saying

(a) That the lease was granted early to assist the marketing of the business by the then lessor Perlow Lane Pty Ltd;

(b) That the term of the 1996 lease was extended to six years from the customary five to compensate for the lease being granted a year early; and

(c) That the additional option to renew was granted by mistake.

There is no evidence from any person associated with Perlow Lane nor apart from the document which I will shortly describe, was any correspondence produced with regard to the circumstances surrounding the grant of the 1996 lease. The only document that was produced was an undated document styled `Notice of Intention to Vary Lease' with an indecipherable signature `for and on behalf of Perlow Lane'. The notice is in the following terms:

PERLOW LANE PTY LTD ACN 050 024 649 of 6 Crewan Walk, Keilor Downs being the Lessee of the premises known as 109 Ormond Road, Elwood ("the Lessee") pursuant to the provisions of an Indenture of Lease made 3 July, 1992 HEREBY NOTIFIES the lessor of its intention to vary the provisions of the said Lease relating to exercise of the Options contained therein and in particular with reference to the Further Terms specified in the Schedule thereto as set out hereunder:-

"FURTHER TERMS Four (4) further terms with the first further term commencing 1 July, 1996 for the period up to and including 30 April, 2002 and three (3) further terms thereafter each of five (5) years."

The Lessee furthermore undertakes to execute such Agreement as may be prepared by the Lessor as and when submitted to the Lessee to better formalise the terms of this matter.

65 Mr Bougioukos gave no explanation of this document apart from stating that he had found it amongst his company's papers. Mr Redfern was unable to offer any explanation as to precisely what legal or commercial objective the document was aimed at achieving.

66 I need make no finding as to the precise circumstances which led to the grant of the 1996 lease. What is clear it seems to me is that this was not simply an adoption without change of what had gone before. For instance the early grant of the lease operated as a surrender for the balance of the term of the 1992 lease Joseph v Joseph [1967] 1 Ch 78, 85 per Lord Denning MR. It is established by the decision of the Full Court of the Supreme Court of Victoria that in Victoria an option to renew a lease is to be treated as an irrevocable offer to grant a new lease made by the lessor. Any offer to renew on terms different from those governing the expiring lease would be regarded as a counter offer which would create an enforceable agreement to lease only if the landlord accepted it Budget Rent-A-Car Systems Pty Ltd v B.S. Stillwell Pty Ltd [1990] VicRp 52; [1990] VR 589. Presumably the undated document produced by Mr Bougioukos was such a counter offer. The 1996 lease represented a new start therefore.

67 Nevertheless, it may be objected that the printed terms of the lease were to the same effect as those contained in the 1992 lease. In my view however the intention of the parties was to be bound by the lease as printed, not by its predecessor lease as it may have been affected by a repealed sub-section of the Retail Leases Act 1986. The Full Court has told us that one cannot rely upon post contractual behaviour to assist in the construction of a written contract. See FAI Traders Insurance Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343. Nevertheless I see no reason why the parties' actions under the 1992 lease cannot shed light upon their intention with regard to the 1996 lease which ex hypothesi is subsequent to the conduct in question. Mr Bougioukos' evidence was that from the time that his company became the lessor in 1991 until the letter from the company's solicitors in July 2002 he indexed the rent by reference to information furnished to him by the Bureau of Statistics. I infer from that that it was the intention of the parties to enter into a lease which provided for indexation of the rent by reference to the Consumer Price Index. Once Section 3(2) of the Retail Tenancies Act 1986 had been repealed with effect from 3 December 1991 there was no legal impediment to their doing so and I believe that in executing the 1996 lease that is precisely what they did.

68 It follows that in my view all arguments to the effect that either upon its proper construction or by virtue of the operation of provisions in the Retail Tenancies Act or the Retail Tenancies (Reform) Act the rent should be reviewed to market must be rejected.

69 As a fallback position Mr Redfern submitted that if his earlier arguments failed, the lessor contended that in refusing to agree to a review of the rental to market the tenants here were guilty of unconscionable conduct. He relied upon Section 8A of the Fair Trading Act 1999 and Part 9 of the Retail Leases Act 2003. The Retail Leases Act came into force on the 1st of May this year. Section 8A was added to the Fair Trading Act in 2001.

70 There was no submission that any predecessor in title of the present tenants was guilty of unconscionable conduct in the entry into the 1996 lease or any of its predecessors. There may be a number of reasons for this, first, a simple lack of evidence of any unconscientious behaviour and secondly, the thought that neither of the two statutory provisions relied upon was in force at the relevant time so that even if conduct could be identified, taking place before the commencement of the relevant provisions it could not form a proper basis for the grant of any relief.

71 The alleged unconscionable conduct therefore must be found in the years 2002 and 2003 where the tenants had resisted and continued to resist a rental review to market.

72 Section 8A in the Fair Trading Act 1999 provides as follows:

8A. Unconscionable conduct in business transactions

(1) A person must not, in trade or commerce, in connection with--

(a) the supply or possible supply of goods or services to another person (other than a listed public company); or

(b) the acquisition or possible acquisition of goods or services from another person (other than a listed public company)--

engage in conduct that is, in all the circumstances, unconscionable.

(a) the supply or possible supply of goods or services to a person; or

(b) the acquisition or possible acquisition of goods or services by a person--

whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce.

(3) Without in any way limiting the matters to which a court or the Tribunal may have regard for the purpose of determining whether a person (the "supplier") has contravened sub-section (1) in connection with the supply or possible supply of goods or services to another person (the "business consumer"), the court or Tribunal may have regard to--

(a) the relative strengths of the bargaining positions of the supplier and the business consumer; and

(b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and

(e) the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and

(f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and

(g) the requirements of any applicable industry code; and

(h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and

(i) the extent to which the supplier unreasonably failed to disclose to the business consumer--

(i) any intended conduct of the supplier that might affect the interests of the business consumer; and

(ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and

(j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and

(k) the extent to which the supplier and the business consumer acted in good faith.

(4) Without in any way limiting the matters to which a court or the Tribunal may have regard for the purpose of determining whether a person (the "acquirer") has contravened sub-section (1) in connection with the acquisition or possible acquisition of goods or services from another person (the "small business supplier"), the court or Tribunal may have regard to--

(a) the relative strengths of the bargaining positions of the acquirer and the small business supplier; and

(b) whether, as a result of conduct engaged in by the acquirer, the small business supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and

(c) whether the small business supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the small business supplier or a person acting on behalf of the small business supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and

(e) the amount for which, and the circumstances in which, the small business supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and

(f) the extent to which the acquirer's conduct towards the small business supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like small business suppliers; and

(g) the requirements of any applicable industry code; and

(h) the requirements of any other industry code, if the small business supplier acted on the reasonable belief that the acquirer would comply with that code; and

(i) the extent to which the acquirer unreasonably failed to disclose to the small business supplier--

(i) any intended conduct of the acquirer that might affect the interests of the small business supplier; and

(ii) any risks to the small business supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the small business supplier); and

(j) the extent to which the acquirer was willing to negotiate the terms and conditions of any contract for the acquisition of the goods and services with the small business supplier; and

(k) the extent to which the acquirer and the small business supplier acted in good faith.

(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with--

(a) the supply or possible supply of goods or services to another person; or

(b) the acquisition or possible acquisition of goods or services from another person--

by reason only that the first-mentioned person institutes legal proceedings in relation to that supply, possible supply, acquisition or possible acquisition.

(6) For the purpose of determining whether a person has contravened sub-section (1)--

(a) the court or Tribunal must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

(b) the court or Tribunal may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.

(a) a supply or possible supply of goods or services; or

(b) an acquisition or possible acquisition of goods or services--

at a price in excess of $3 000 000 or such higher amount as is prescribed.

Note: Section 8B deals with the price for a supply or acquisition, or possible supply or acquisition, of goods or services.

"listed public company" has the same meaning as in the Income Tax Assessment Act 1997 of the Commonwealth.

73 Part 9 of the Retail Leases Act 2003 Sections 76 to 80 (omitting Section 77 which deals solely with unconscionable conduct of a landlord is as follows):

(1) In addition to a retail premises lease to which this Part applies because of Part 3, this Part also applies to a retail premises lease that was entered into or renewed before the commencement of this section if this Act would have applied to the lease had it been entered into or renewed after that commencement.

(2) This Part does not apply to conduct that occurred before the commencement of this section.

(1) A tenant under a retail premises lease must not, in connection with the lease, engage in conduct that is, in all the circumstances, unconscionable.

(2) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a tenant has contravened sub-section (1), the Tribunal may have regard to--

(a) the relative strengths of the bargaining positions of the tenant and landlord; and

(b) whether, as a result of conduct engaged in by the tenant, the landlord was required to comply with conditions that were not reasonably necessary for the protection of the tenant's legitimate interests; and

(c) whether the landlord was able to understand any documents relating to the lease; and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the landlord or a person acting on the landlord's behalf by the tenant or a person acting on the tenant's behalf in relation to the lease; and

(e) the amount for which, and the circumstances under which, the landlord could have granted an identical or equivalent lease to a person other than the tenant; and

(f) the extent to which the tenant's conduct towards the landlord was consistent with the tenant's conduct in similar transactions between the tenant and other similar landlords; and

(g) the requirements of any applicable industry code; and

(h) the requirements of any other industry code, if the landlord acted on the reasonable belief that the tenant would comply with that code; and

(i) the extent to which the tenant unreasonably failed to disclose to the landlord--

(i) any intended conduct of the tenant that might affect the landlord's interests; and

(ii) any risks to the landlord arising from the tenant's intended conduct that are risks that the tenant should have foreseen would not be apparent to the landlord; and

(j) the extent to which the tenant was willing to negotiate the terms and conditions of any lease with the landlord; and

(k) the extent to which the tenant acted in good faith; and

(l) the extent to which the tenant was not reasonably willing to negotiate the rent under the lease; and

(m) the extent to which the tenant unreasonably used information about the turnover of the tenant's or a previous tenant's business to negotiate the rent; and

(n) the extent to which the tenant was willing to incur reasonable fit out costs.

(3) In considering whether a tenant has contravened sub-section (1), the Tribunal--

(a) must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

(b) may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.

A person is not to be taken for the purposes of section 77 or 78 to engage in unconscionable conduct in connection with a retail premises lease merely because--

(a) the person institutes proceedings in relation to the lease or refers a dispute, application or claim relating to the lease to arbitration, conciliation, mediation or some other form of alternative dispute resolution; or

(b) the person fails to renew the lease or enter into a new lease; or

(c) the person does not agree to having an independent valuation of current market rent carried out.

(1) A landlord or tenant, or former landlord or tenant, who suffers loss or damage because of unconscionable conduct of another person that contravenes section 77 or 78 may recover the amount of the loss or damage by lodging a claim with the Tribunal against the other person.

(2) The claim must be lodged within 6 years after the alleged unconscionable conduct occurred.

(3) If the matter of the loss or damage arises in connection with proceedings in the Tribunal, the Tribunal may proceed to decide the matter and award a sum that it considers appropriate.

74 It will be seen that these provisions are analogous with Section 51AC of the Trade Practices Act 1974.

75 Mr Golvan and Mr Flynn took me to the decision of the High Court of Australia in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 197 ALR 153 where the majority of the Court gave Section 51AA of the Trade Practices Act 1974 a relatively narrow scope. This section has its analogue in State law as Section 7 of the Fair Trading Act 1999 and prohibits unconscionability which is contrary to the `unwritten law'. Mr Redfern however referred me to the Australian Property Law Bulletin Volume 17 No. 9 in an article by Mr Tony Wilson, a consultant at Freehills and Perth. Towards the end of that article Mr Wilson observed:

While judicial restraint in the doctrine of precedent may have formerly limited the expansion of the notion of unconscionability under the TPA, there is no doubt that the introduction of s.51AC [the equivalent of Section 8A of the Fair Trading Act] was intended to unleash a less restricted concept of unconscionability ...

Hence Mr Redfern submitted the Berbatis decision was of limited assistance here.

76 The essence of the unconscionability alleged against these tenants is that they refuse to renegotiate the rent fixing arrangements under their lease when changes in circumstances made it fair to do so or to put it another way `unfair' not to do so. Mr Redfern did not shrink from the concession that this approach if adopted would allow a tenant which had encountered unexpected difficulties with its business to hold a landlord guilty of unconscionable conduct for refusing to negotiate a rent cut in light of changed circumstances either in the national economy or the region where the tenancy was located. He referred to a decision of Hungerford J sitting in the New South Wales Industrial Relations Commission in Court session in Starkey v Mitchforce Pty Ltd [2000] NSWIR Comm 216. His Honour made orders against the lessor of licensed premises pursuant to Part 9 of Chapter 2 of the Industrial Relations Act 1996 of the State of New South Wales on the basis that the lease was an unfair contract within the meaning of Section 105 of the Industrial Relations Act. The applicant purchased the leasehold of the hotel for what they conceded was a high price but in the belief that a major shopping centre was to be built in the area together with a residential development of 750 houses. The applicants fell into financial difficulties, lost their house and ended `financially destitute' after having entered into a rent deferral arrangement. The applicants alleged that the original lease was `harsh, unjust and/or unconscionable'. The lease provided for an 8% increase of rent or an adjustment based on the Consumer Price Index whichever was the greater. There was no provision for cuts in rental `where the applicants could show that the turnover of the business simply could not sustain the rental regime' in the lease. His Honour found that the applicants should be entitled to exercise an option to renew the lease despite being barred by the landlord from doing so as a consequence of the rent deferral arrangement. He also held that the deed whereby the applicants agreed to perform the obligations under the original lease was' in its terms and in its operation unfair, harsh and unconscionable within the meaning of s.106 [of the Industrial Relations Act 1996]' as an unfair contract He made orders varying the contract.

77 Without descending to a detailed analysis of this lengthy and complex decision I am unpersuaded that it stands unconditionally for the proposition for which Mr Redfern cited it. His Honour found that the deed whereby the applicants agreed to perform the covenants under the lease was unfair. He also found that the lease itself was unfair in so far as it provided no opportunity for a rental renegotiation in view of the falling turnover in the premises. The lease was unfair in so far as it provided for relentless rental increases despite the economic health of the business being carried on the premises. What the present application seeks to do is to stigmatise as unconscionable the tenants' adherence to contractual arrangements which are not alleged in themselves or at the time of their formation to be unconscionable. Moreover, the legislation upon which His Honour made his determination dealt not with the concept of `unconscionability' but rather with a concept of `unfair' contracts which is arguably wider in its basis.

78 On appeal the Court of Appeal was principally concerned with whether the lease was within the jurisdiction of the Industrial Relations Commission at all. To be within the Commission's jurisdiction it had to be `a contract whereby work was performed in industry'. The majority of the Court was of the view that the lease was not within the jurisdiction of the Commission at all. Most of His Honour's orders however, were in the view of the Court, protected from attack by a privative clause constituted by Section 179 of the Industrial Relations Act 1996 and so were not susceptible of attack. The majority of the Court however did set aside the orders with respect to the grant of a new lease. See Mitchforce v Industrial Relations Commission [2003] NSWCA 151.

79 In the circumstances I do not believe that the Mitchforce litigation provides much useful guidance for present purposes.

80 The essence of the unconscionability alleged against these tenants is that they have refused to renegotiate the rental arrangements under a lease which in itself or at the time of its formation is not alleged to have been unconscionable. Do the statutory provisions which I have already quoted purport to deal with a situation such as this? Both Section 8A of the Fair Trading Act 1999 and the provisions in the Retail Leases Act have as their genesis Section 51AC of the Trade Practices Act 1974. As Mr Redfern pointed out the provisions in the Retail Leases Act go further than Section 51AC in some respects by referring some consideration particular to the relationship of landlord and tenant. Nevertheless the general shape and intent of both State provisions is derived from their Federal model in the Trade Practices Act.

81 Without undertaking a lengthy excursus into Commonwealth Constitutional Law it is significant that the High Court has construed Chapter III of the Commonwealth Constitution as establishing special restrictive rules to the Commonwealth's judicial power which do not apply at the State level. Judicial power, that is, the power to hear and determine disputes between parties according to law, is at the Federal level exercisable only by Federal Courts established under Chapter III or State Courts properly so called. This Tribunal's power to hear and determine disputes between landlords and tenants is granted by State legislation. Commonwealth legislation could not bestow such power on a Tribunal as distinct from a Court, whether the Tribunal was a State or Federal Tribunal.

82 More significantly for present purposes both the High Court of Australia and the Judicial Committee of the Privy Council have held that Commonwealth legislation may not bestow non-judicial power upon a court except to the extent that the non-judicial power is solely ancillary to the court's judicial power. R v Kirby ex parte Boilermakers Society of Australia [1956] HCA 10; (1956) 94 CLR 254; affirmed Attorney-General v The Queen [1957] AC 388.

83 The bone of contention in the Boilermakers' case was the bestowal upon the Commonwealth Arbitration Court of the non-judicial power to resolve interstate industrial disputes by conciliation and arbitration, principally by the making of industrial awards and the judicial power to enforce those awards. The majority of the High Court and the judicial Committee on appeal held that this combination was incompatible with Chapter III of the Constitution.

84 In Waterside Workers Federation of Australia v JW Alexander Ltd [1918] HCA 56; (1918) 25 CLR 434, 462-3 Isaacs and Rich JJ explained the distinction between the judicial power of the Commonwealth on the one hand and the power to resolve industrial disputes by way of conciliation and arbitration, the combination of which two powers was at the heart of the Boilermakers' case. Their Honours said:

No-one can foresee for any appreciable period the legislative requirements of industrial peace in any one industry, much less in all industries of the Commonwealth which are common to more than one State. Any attempt at detailed regulation, applicable to all industries even if suitable today - practically an impossible hypothesis - would certainly be less suitable a month hence. Nevertheless, it was thought necessary that such disputes should not go uncontrolled but that the control should be exercised only by means of conciliation and arbitration. That is essentially different from the judicial power. Both of them rest for their ultimate validity and efficacy on the legislative power. Both presuppose a dispute, and a hearing or investigation, and a decision. But the essential difference is that the judicial power is concerned with the ascertainment, declaration and enforcement of the rights and liabilities of the parties as they exist, or are deemed to exist, at the moment the proceedings are instituted; whereas the function of the arbitral power in relation to industrial disputes is to ascertain and declare, but not enforce, what in the opinion of the arbitrator ought to be the respective rights and liabilities of the parties in relation to each other.

An industrial dispute is a claim by one of the disputants that existing relations should be altered, and by the other that the claim should not be conceded. It is therefore a claim for new rights. And the duty of the arbitrator is to determine whether the new rights out to be conceded in whole or in part. His opinion may take any form the law provides; it may be called an order, or an award. But his declaration of opinion does not make it law. He does not legislate. It is always the Statute which gives the arbitrator's opinion efficacy, and stamps his decision with the character of a legal right or obligation.

85 The description of the arbitration of an industrial dispute under the Commonwealth arbitral power given by Their Honours will be seen to be substantially similar to the present dispute. This landlord claims that the existing provisions of the lease should be altered. The tenants say that claim should not be conceded. A determination of that dispute would create new rights, it would not simply declare or enforce existing rights. An adjudication such as this applicant seeks, as it seems to me, would not be the exercise of judicial power as that expression is understood in Commonwealth Constitutional Law. Since this Tribunal is not established under Commonwealth Law, this may not matter; but Section 51AC of the Trade Practices Act is a piece of Commonwealth legislation bestowing powers upon Commonwealth and State Courts. If it is interpreted as creating a power beyond orthodox judicial power, the provision in the Trade Practices Act would be wholly or partly unconstitutional. It is reasonable to assume that the Commonwealth Parliament did not intend to offend against so fundamental a constitutional principle and therefore Section 51AC would be interpreted as not authorising an adjudication along the lines sought by the present applicant. Since Section 51AC is clearly the model for the legislation with which I am concerned, that legislation is likely to bear the same interpretation in State legislation and the landlord's claim based on unconscionability must fail for that reason.

86 Even putting aside any of those considerations I am not satisfied that this applicant has identified any action by the tenants which could properly be characterised as unconscionable. In Australian Competition and Consumer Commission v Simply No Knead (Franchise) Pty Ltd [2000] FCA 1365; (2000) 178 ALR 304 Sundberg J considered that Section 51AC of the Trade Practices Act extended to a class of unconscionability beyond what would be regarded as unconscionable under the `unwritten law' and Section 51AA considered by the High Court in Burbatis' case he granted relief on the basis that the Commission had established an overwhelming case of unreasonable, unfair, bullying and thuggish behaviour by the respondent with respect to its franchisees. His Honour did not however purport to state any exhaustive definition of this wider concept of unconscionability.

87 It may be that the unconscionability referred to in the provisions with which I am dealing in some respects resembles an elephant, that is, it is impossible of simple and exhaustive definition. It is nevertheless easily recognisable when it presents itself.

88 Applying an impressionistic test along those lines there is simply no unconscionability shown here. The landlord points the difference between the rent the tenant is now paying and the $105,000 market assessment which its valuer, Mr Close had made. The tenant relies upon evidence from its valuer, Mr Biggs, to suggest that there is a far smaller difference between the present passing rent and `market'. It is unnecessary for me to make any findings as to which of the valuers has made the more accurate assessment, though my impression is that Mr Biggs is rather closer to the mark than Mr Close. Even accepting Mr Close's interpretation, all that one can say so far as the landlord is concerned is that it has an investment which is under-performing. It is certainly not in the situation of the applicant in Mitchforce which according to the findings of Hungerford J was left virtually destitute; nor have these tenants engaged in any `thuggish' behaviour as Sunburg J found Simply No Knead (Franchising) Pty Ltd had engaged in. If this tenant is to be regarded as having acted unconscionably, then an investor who has taken and held a long-term bond which now proves to have an interest rate above market would be regarded as having acted unconscionably in resisting a request to agree to early redemption.

89 In my view, if it can be unconscionable for a party to a contractual arrangement to decline to renegotiate it, the unconscionability or otherwise of the refusal to renegotiate would have to be seen in light of the matters in the party's reasonable contemplation when the original contract was made. So much is inherent in sub-section (3) of Section 78 of the Retail Leases Act 2003. The high rates of inflation and Consumer Price Index increase in the 1970s and 1980s are so well known that they may be noticed without evidence (National Trustees Executors and Agency Company of Australasia Ltd v Attorney-General for the State of Victoria [1973] VicRp 59; [1973] VR 610, 611 per McInerney J Section 98 Victorian Civil and Administrative Tribunal Act 1998). Moreover, the rates of Consumer Price Index increase over quarterly period referred to in Hely v Sterling and Timmerman v Nervina Industries (International) Pty Ltd constitute a stark contrast from the annual rates of change exhibited in the years 2003 and disclosed in the evidence before me. In a 1987 inflation environment with large increases in the Consumer Price Index the parties could reasonably have contemplated that the landlord's interest was adequately protected by a provision for CPI indexation. When the Retail Tenancies Act 1986 was enacted to protect the interests of retail tenants, Parliament obviously regarded indexation as favourable to the interests of landlords and unfairly so, hence the prohibition on the use of indexation in Section 10(2) prior to its repeal in 1991. In light of what the parties may have contemplated when these arrangements were initially put into place, the tenants are not acting unconscionably in merely requiring that the original arrangements be observed. Finally, as Mr Golvan QC and Mr Flynn submitted, Section 79(c) of the Retail Leases Act 2003 provides that for the purposes of Part 9 of that statute, a person is not regarded as having acted unconscionably by refusing to `agree to having an independent valuation of current market rent carried out'.

90 I reject the applicant's case based on unconscionability.

91 It follows that I should dismiss the claim and allow the counterclaim. I will make the declarations sought by Mr Golvan QC and Mr Flynn on behalf of the respondent tenants in slightly modified form in light of the evidence which I have heard.

92 I have heard no submissions as to costs and so will reserve them.