Big Money World Pty Ltd v Red Hair Entertainment Pty Ltd

Section 16 of the Retail Leases Act

1. Section 16 of the Retail Leases Act, as it was at the time of entry by the parties into the sub-lease in November 2014, relevantly provided as follows: Retail Leases Act 1994 No 46 16 Minimum 5 year term (1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into. (2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section. Note. For example, if a lease is entered into for a term of 3 years, its term is extended by 2 years to 5 years. If a lease is entered into for a term of 2 years with an option for a further 1 year after that initial 2 years, the term of the lease is extended to 4 years (with the option for a further 1 year after that initial 4 years). (3) This section does not apply to a lease if a lawyer, or a licensed conveyancer, not acting for the lessor certifies (before, or within 6 months after, the lease was entered into) in writing that: (a) the lessee or prospective lessee requested the lawyer or conveyancer to give the certificate, and (b) the lawyer or conveyancer has explained to the lessee or prospective lessee the effect of subsections (1) and (2) and that the giving of the certificate will result in this section not applying to the lease. If the certificate is given within 6 months after the lease was entered into, then, without affecting the validity of the lease, subsection (2) ceases to apply to the lease and the extension of the term of the lease effected by that subsection accordingly ceases to be operative. … (5) This section does not apply to a lease to the extent that its application would be inconsistent with the terms of any head lease under which the lessor holds the retail shop.
2. Section 16 was repealed with effect from 1 July 2017 (see Retail Leases Amendment (Review) Act 2017 (NSW)).

The relevant leases

1. For the purposes of the separate question, as framed in the 27 November 2018 consent order, the defendants concede that the plaintiff's sub-lease of the newsagency premises (see Annexure C to the affidavit of Diana Song sworn 23 November 2018) is a retail shop lease within the meaning of the Retail Leases Act (see T 25.10).
2. The plaintiff's sub-lease, dated 21 November 2014, has a commencing date of 1 December 2014 and is for a term of 3 years, with a terminating date of 30 November 2017. There is no option to renew the sub-lease. The sub-leased premises are identified in the reference schedule to the sub-lease as "Shop 8, 15 Parnell Street Strathfield NSW 2135" (cf. the premises identified in the declaration the plaintiff seeks). The Folio Identifier reference on the cover page of the sub-lease is Folio Identifier 12/SP35999.
3. In her affidavit, Ms Song explains that the property known as 1/15 Parnell Street, Strathfield (in respect of which the first defendant was granted a registered lease on 1 December 2014 and which is part of Folio Identifier 12/SP35999) (see Annexure B to her affidavit) is being used as two separate shop premises: a hair dressing salon that operates from one of the two shops and the newsagency operated by the plaintiff from the other shop (see [5] of her affidavit). The strata plan in question has a street frontage at Parnell Street but the newsagency premises front onto The Boulevarde, Strathfield. Hence, Ms Song explains, the newsagency operated by the plaintiff is known as "Shop 8B, The Boulevarde" (see [12] of her affidavit), which explains the reference in the sub-lease to "Shop 8", that being one of the two shop premises within the overall premises (1/15 Parnell Street) that have been leased to the first defendant under its head lease.
4. As to the head lease, Ms Song deposes that the first defendant was granted a lease of the property known as 1/15 Parnell Street, Strathfield by registered lease on 1 December 2014. By reference to cl 4.1 of Annexure B to the head lease and items 1 and 3 in the schedule to the head lease, it was for a term of three years commencing on 1 December 2014 and terminating on 30 November 2017. Pursuant to cl 4.2 of Annexure B to the head lease and item 12 in the schedule, the head lessee (the first defendant) was granted one option to renew for a further period of 3 years from 1 December 2017 to 30 November 2020.
5. Ms Song has deposed that the first defendant has exercised the option to renew the head lease. On the valid exercise of the option to renew, there came into existence a new lease on the terms provided for in cl 4.6 of Annexure B to the head lease (for a 3 year term but with no option to renew). The exercise of the option to renew was on 26 September 2017 (see the affidavit sworn 26 November 2018 of Paul Christopher Marsh, the solicitor for the defendants in these proceedings, at [4]-[7], to which affidavit is annexed the correspondence in which the option was exercised). The option was therefore exercised after the repeal of the former s 16 of the Retail Leases Act came into effect.
6. The term of the sub-lease (unless extended by operation of statute) expired, as noted earlier, on 30 November 2017. By letter dated 15 May 2018 (Annexure D to Ms Song's affidavit), the first defendant's solicitors advised the plaintiff that the first defendant did not proposed to offer it a further sub-lease, giving formal notice that, under the provisions of the Retail Leases Act, the term of the plaintiff's sub-lease was extended for a period of 6 months from the giving of that notice (and would thereby expire on 30 November 2018). These proceedings were not commenced until 30 October 2018, one month before the date on which the first defendant contends the sub-lease will now expire.
7. I note at this stage that although the plaintiff's director (Mr Kim) has deposed that he has been paying monthly rent to the defendant since December 2014 (see [7] of Mr Kim's affidavit affirmed 19 November 2018), Ms Song has deposed that there has been a failure by the plaintiff since 1 December 2017 to pay all of the monthly rent due under the sub-lease (see [11] of Ms Song's affidavit). Nothing relevantly turns on this for the purposes of the separate question (and there appears to have been no step taken to terminate the sub-lease for breach). I simply note this for completeness. I also note that the first defendant has received an offer from a potential tenant to sub-lease the newsagency premises, which offer the first defendant wants to accept as soon as possible (see [12] of Ms Song's affidavit), which is the only matter to which the defendants pointed as giving rise to urgency on the present application.

Issue for determination

1. The separate question, as noted above, is whether s 16 of the Retail Leases Act 1994 (NSW) operated so as to extend the term of the sub-lease entered into between the plaintiff and the first defendant on 21 November 2014 over the newsagency premises at shop 1/15 Parnell Street, Strathfield, (the "Sublease") so as to terminate on 30 November 2019. That turns on the discrete issue as to whether the application of s 16 to the plaintiff's sub-lease would be inconsistent with the terms of "any head lease under which the lessor [the first defendant] holds" the retail shop.
2. There is no dispute that the term of the sub-lease is less than 5 years (and it is not suggested that there was any certificate of the kind referred to in s 16(3) nor that s 16(4) is applicable). Therefore, if s 16(5) does not render s 16 inapplicable to the plaintiff's sub-lease, it is accepted that there will have been a contravention of s 16(1).
3. The consequences of contravention of s 16(1) are provided for in s 16(2), namely that the term of the lease (i.e., here, the sub-lease) "is extended by such period as may be necessary to prevent the lease contravening [s 16]". Pausing here, the plaintiff's written submissions (see at [10]) proceeded on the basis that, in circumstances where the head lease was for a 3 year term with a 3 year option, the effect of the contravention of s 16(1) is that "the first defendant should be understood to meet its obligation by providing the plaintiff a sublease, having a 3 year term with a 2 year option". In oral submissions, the plaintiff's position was that there was a valid sub-lease with a term of 3 years with a 2 year option, "which has been exercised or which should be taken to have been exercised" (see T 15.28).
4. It appears that this is put on the basis that it is open to a lessor to determine how to comply with the minimum term requirement of s 16(1) (by a combination of a lease term and option or just by the fixed term of the lease). Accepting the proposition that a lessor might determine how best to comply with the minimum term requirement (while s 16 remained in force), that says nothing as to how the statutory extension is to operate if there is a contravention of s 16(1).
5. In my opinion, there is no basis in the text of s 16 (or otherwise by reference to the legislation as a whole) for a conclusion that, if there is a contravention of s 16(1), the statutory extension to the term of the contravening lease should be treated as including an option comparable to the head lease (albeit only for an option period to the extent necessary to prevent the contravention) or that the relevant lessee might have an election as to how to treat the components comprising the statutory extension. (Nor was it made clear to me what difference, if any, there would be on the present case if the effect of s 16(2) was to extend the term of the sub-lease by way of the grant of a 2 year option as opposed to the fixed term being treated as being a 5 year term.)
6. It is clear from the text of s 16(2) that where a lease is entered into in contravention of s 16 "the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section" (my emphasis). I see no reason not to read the section literally (particularly where it is clear from s 16(1) that the draftsperson was conscious of the difference between the term of a lease and an option to renew for a further term). Accordingly, if s 16(5) does not render s 16 inapplicable in the present case, the result would be that the term of the plaintiff's 3 year sub-lease would be extended by 2 years (that being the period necessary to prevent the lease contravening s 16). In oral submissions, Mr Berg said that this was the plaintiff's alternative or "fallback" position (though it was not put as such in his written submissions): And I have an alternative submission to exactly that effect. That is, if I can spell it out, that in the event of there not being a three years lease with a two year option, there is pursuant to section 1, a statutory five year term that is nonetheless not inconsistent in terms of section 16(5). … The fallback is that, instead of a three year lease with a two year option, there is a five year lease held by the sublessee and that that five year lease is equally not inconsistent within the terms of section 16(5). [T 19]
7. Turning then to s 16(5) and the question whether the "application" of s 16 in the present case would be inconsistent with "the terms of any head lease under which the lessor holds the retail shop", both parties referred to the decision of the Court of Appeal in Conoid Pty Ltd v International Theme Park Ltd [2000] NSWCA 189; (2000) 10 BPR 18,407 ("Conoid"). Reference was also made by the defendants to the decision of Adamson J in Nelmeer Ashfield Pty Ltd v Farah [2016] NSWSC 279 ("Nelmeer Ashfield"), in which her Honour referred to the reasoning in Conoid. I will refer shortly to those decisions.
8. Mr Berg emphasised that the comparison required is not simply textual and that the comparison must be with the "effect" of the terms of the head lease, referring to Conoid at [37] per Giles JA (see T 11.37); and repeatedly emphasised the word "application" (see, amongst other examples of this, at T 22.17; T 22.50). In reply submissions (and the further submissions to similar effect on 28 November 2018) Mr Berg also placed reliance on the expression "any head lease" (see T 38.18 and the further submissions on 28 November 2018).
9. Mr Berg appeared to accept that the time at which inconsistency between the application of s 16 and the terms of any head lease was to be tested was at the time of entry into the sub-lease (see T 20.39), describing the test as a forward looking test (see T 12.42; T 14.40), but elsewhere submitted that the time to assess inconsistency was the present "because it would be highly artificial to regard the question of the exercise of the option as hypothetical when in fact we know the option has been exercised" (see T 21.37).
10. Reference was made for the plaintiff (see T 17.44) to the statement in Conoid (at [40]) by Giles JA that "[a]s was accepted by the parties, its [s 16's] purpose is not to protect the head lessor, but to protect the sub-lessor" (though here, of course, the sub-lessor is the first defendant, not the plaintiff); and that s 16 was enabling legislation. Mr Berg emphasised that it was the effect of the extended sub-lease that must be considered (T 21.46 - relying on [37] of Conoid, to which I refer below).
11. Although relying extensively on Conoid, Mr Berg also suggested that it could be distinguished in that: there, the question in dispute as to "the potential to terminate the lease and affect [sic] damages" was hypothetical but that in the present case the question of potential inconsistency was not hypothetical at all since the option had been exercised (T 22.31). Pressed on this, there was the following exchange (from T 23.15): BERG: … That we're concerned with, in my submission, that the question of effect or application. The question, has the option being exercised is a real and relevant one in terms of section 16(5) and the question of application of the terms. HER HONOUR: Thank you. Sorry, that's where your argument rests, isn't it? That's what you say. You say there's no inconsistency because one has to look at the effect or application of the section. That means we're looking at whether or not a five year term would be inconsistent with the terms of a head lease providing for a three years plus three year option in circumstances where the option has, since the entry into the lease, been exercised. Is that a relevant summary of your position? BERG: I'd qualify it slightly and say, although the ‑ and remake the point I made before ‑ that the provision is forward looking, but it's forward looking to a point in time where there's no need to address the question hypothetically, we know the answer to the question in fact. [my emphasis]
12. There was no authority relied upon for the proposition that one addresses the question (as to whether there is inconsistency between the application of s 16 and the terms of any head lease) by "forward looking to a point in time where there's no need to address the question hypothetically"; i.e., by reference to subsequent events (and, as I explain below, Conoid seems to me to be inconsistent with such a proposition).
13. Finally, although reference was made by Mr Berg in passing to the interpretation provision in the Retail Leases Act (s 78) which refers to accepted industry practice, there was no evidence of any accepted industry practice relevant to the present question.
14. The inconsistency to which the defendants point is that, if the term of the sub-lease were to be extended by operation of s 16(1) to 5 years, the obligation to give the benefit of possession to the plaintiff for that extended period would be inconsistent with the obligation of the first defendant, at the end of the term of the head lease (on 30 November 2017 - i.e., assuming the option were not to be exercised) to deliver up possession to the head lessor (see the defendants' written submissions at [9]). It is submitted that the existence of an option to renew for a further term does not remove the inconsistency because what is involved is a comparison between the terms of the head lease and the situation that would result if the sub-lease was extended; and the inconsistency is determined based on the terms of the head lease and there is no room for a "wait and see period" (to use the language in Conoid at [44]).
15. Mr Ogborne submitted, referring to Conoid, that the appropriate test is to compare the legal rights of the parties under the head lease and under the assumed circumstances (i.e., an extension of the sub-lease pursuant to s 16(1)); and that one does not undertake "an exercise of trying to weigh up what's the likelihood of options being exercised; or, in the case of Conoid, head leases being terminated; or … the probabilities of these future events playing out" (T 28.29). Rather, he submits, one considers the rights of the parties at the time the sub-lease is entered into and works out, on those rights, whether there is an inconsistency. Mr Ogborne submitted that: The simple point we put forward is that at the time the sublease is entered into all that the head lessee has is a 3 year lease. And, in any event, the exercise of the option does not change the terms of the head lease; it brings into existence a new lease. The inconsistency will always still, in fact, be in place, as a matter of law, between the sublease and the head lease; it would just be that there will be a new lease come into existence at the end of the head lease which is being considered under the Act. So there is forever the inconsistency between the sublease and the head lease. [T 28.36ff]
16. As to the above submission made by Mr Ogborne (to the effect that the exercise of the option gave rise to a new head lease), this is clearly correct as a matter of the general law of real property - let alone the fact that this is what is expressly provided for under the head lease in the present case - see 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193 at 199; B Edgeworth, Butt's Land Law (Lawbook Co, 7th edn, 2017) at [7.1010]). I address in due course a submission made (after judgment had been reserved for the second time and after the matter had been listed for judgment) as to the effect on the general law of real property in this regard by reference to s 6(1)(b), read with s 3 of the Retail Leases Act, but simply note at this stage that I do not consider that these sections have the effect that the statutory regime requires the term of the head lease to be taken to include the terms of any options for extension or renewal when one comes to determine whether there is any inconsistency for the purposes of s 16(5) of the Act.
17. Mr Berg submitted that, because s 16(5) refers to "any head lease" (his emphasis), it contemplates the second head lease (see 28 November 2018 submissions at [8]) and that there is no inconsistency because: … on 1 December 2017, the sublease had a further 2 years to run, under the second head lease, until 30 November 2019. Whereas the terms of the second head lease extends to 30 November 2019.
18. The further oral submissions made in that regard on 28 November 2018 were that: BERG: … I made a submission [on 27 November 2018] in passing but not with clarity that s 16(5) contained the word "any", and that would have the inferential effect of applying to both the first and second leases under which the plaintiff held the retail sublease. … Yesterday I did not submit that because s 16(5) treated the second lease as a second lease standing alone, that the five-year term having only two years left to run was not thereby inconsistent with the three-year term of the second lease. [T 41.18ff]
19. As to that further submission made by Mr Berg on 28 November 2018, Mr Ogborne responded, first, that the verb in s 16(5) is in the present tense (which, he submits, means 'currently holds' and requires a comparison with the head lease running at the time) and, second, that the sub-section operates such that the section does not apply if its application is inconsistent with the terms of any lease - so that, if its application is inconsistent with the current head lease (as I understand it, here referring to the first head lease), the sub-lease would not be extended.

Determination

1. In Conoid, the Court of Appeal considered the nature of the "inconsistency" required by s 16(5). In that case, the respondent leased premises on which it conducted a theme park, pursuant to a periodical tenancy from month to month (see at [1]). The respondent then licensed retail shops for terms of approximately 15 months to the appellant companies (which licences were deemed to be leases for the purposes of the Retail Leases Act).
2. The respondent relied on s 16(5), submitting that the application of s 16(1) in that case would be inconsistent with the respondent's rights contained in the head lease (pursuant to which the head lease was terminable at the will of either party on one month's notice). The appellants submitted that a periodical tenancy and a sub-lease by the tenant for a term longer than the relevant period could in law co-exist, and argued that there was therefore no inconsistency by the application of s 16 (see at [24]).
3. Meagher JA (with whom Sheller JA agreed) held at [9] that the inconsistency contemplated by s 16(5) refers to the situation where two powers (or rights or obligations) are radically different, even if it is possible (as a matter of fact) that they could co-exist. His Honour accepted the respondent's submission that its power to terminate the head lease without penalty was "radically different" from a power to terminate it and thereby incur a heavy liability in damages (to the sub-lessee), and so radically different that the two powers could properly be classified as "inconsistent", referring here to Hoyt's Proprietary Limited v Spencer (1919) 27 CLR 133 at 139-141 per Knox CJ; [1919] HCA 64 ("Hoyt's") (there considering inconsistency in the context of an alleged collateral contract to a lease agreement) (see also at pp 143, 148 per Isaacs J).
4. As to the argument raised by the appellants as to the ability for the periodical tenancy and the sub-lease to co-exist, Giles JA (with whom Sheller JA also agreed) quoted (at [29]) the observations of Knox CJ in Hoyt's (at pp 140-141) that: In my opinion it is impossible to maintain that the agreement on which the present action is founded would not, if valid and enforceable, modify or vary the agreement contained in the lease executed by the parties in regard to a matter expressly dealt with by a provision of the lease, viz., the right to determine it during the currency of the term for which it was granted. If this be so, it is clear that the two agreements - that on which the action is founded and that contained in the proviso in the memorandum of lease - are inconsistent, and so cannot stand together.
5. Giles JA went on to say (at [36]-[37], [41]): [36] It is necessary to return to the words of s 16(5) of the Act. Inconsistency involves comparison, and one of the things to be compared is "the terms of [the] head lease", in the present case the terms of the tenancy. The "application" of s 16 is not of itself another thing capable of comparison with the terms of the head lease, and the provision must mean that there is inconsistency if the result of the application of s 16, in the present case extending the sub-leases from terms of approximately fifteen months to terms of five years, is inconsistency with the terms of the head lease. [37] The comparison with the terms of the head lease cannot be simply textual. It must be a comparison with the effect of the terms of the head lease. Similarly, it is the effect of the extended sub-lease which must be considered. There will be inconsistency if the effect of the sub-lease, because of the extension, is inconsistent with the effect of the terms of the head lease. … [41] [O]n the reasoning in Hoyt's Pty Ltd v Spencer the effect of the sub-leases, because of the extension, was inconsistent with the effect of the term of the tenancy, in that the exercise of the power [to terminate] would bring liability for damages for breach of the sub-leases. In my opinion, the words of s 16(5) extend to protecting the respondent as sub-lessor in this way. [my emphasis]
6. I have noted earlier the inconsistency to which the defendants point: namely that if s 16 were to extend the term of its sublease so that it would terminate on 30 November 2019 (rather than, as it provides, on 30 November 2017), this would be inconsistent with the terms of the head lease under which the first defendant held the premises as at the relevant time (since the term of that lease - absent any exercise of the option - would expire on 30 November 2017).
7. In my opinion, it is clear on the authority of Conoid (which was applied in Nelmeer Ashfield) that the existence of an option to renew for a further term does not remove the inconsistency which would occur if the sub-lease were to be extended by the application of s 16(1).
8. Certainly, as a matter of fact, it is the case that the first defendant has exercised the option to renew the head lease. However, the plaintiff's reliance on this occurrence (to argue that applying s 16(1) so as to extend the sublease does not create inconsistency with the head lease) is contradicted by Giles JA's observations in Conoid at [43]-[44]. There, his Honour said: [43] The appellants submitted that any inconsistency was only to the extent that the respondent or its landlord might terminate the tenancy on one month's notice, and that s 16(5) left the extended term of the sub-lease in place unless or until that occurred. [44] The submission was in substance a corollary to the appellants' submission concerning co-existence of a periodical tenancy and a sub-lease by the tenant for a term longer than the relevant period. The basis on which I have concluded that there is inconsistency passes beyond the submission. It follows from that basis that the extent of inconsistency is complete, in that there is no room for a wait and see period. [my emphasis]
9. The plaintiff's argument seeks to take the benefit of a now elapsed "wait and see period" in that it relies on what did in fact transpire. In my opinion, the inconsistency in this case which attracts the operation of s 16(5) is relevantly indistinguishable from Conoid, in that, under the terms of the head lease, while the first defendant certainly had an option to renew the term, it was open to the first defendant to elect not to exercise the option in which case the lease would terminate as at 30 November 2017. In other words, absent a valid exercise of the option, the lessor under the head lease had the right to demand possession as at 30 November 2017. To apply s 16(1) so as to extend the duration of the sub-lease to 30 November 2019 would thus be inconsistent with the first defendant's right or power to elect not to exercise the option to renew.
10. Section 16(5) does not in terms speak of inconsistency between the application of the section (i.e., here, the extension of the sub-lease term to a 5 year term) and the terms of any head lease "in the circumstances that may transpire during the course of the head lease".
11. Although sub-s (3) does contemplate events occurring within 6 months after entry into the relevant lease, in its terms it makes it clear that if s 16(2) applies there is an extension (at the time of entry into the contravening lease) which will cease "to be operative" if the relevant certificate is issued in a 6 month period. As Mr Ogborne submitted, under s 16(3) the extension must already have come into effect prior to the expiry of the 6 month period, if the effect of the certificate within that period is that it then ceases to be operative.
12. In the more recent decision of Adamson J in Nelmeer Ashfield, on appeal from the Appeal Panel of NCAT, her Honour considered s 16(5), again in the context of a monthly tenancy (the head lease) and a sub-lease. At [71]-[73], her Honour noted: [71] In Conoid it was not contended that the prospect of the head-lessor actually terminating the head lease was a relevant consideration. Nor is there any indication in the reasons of Giles JA to that effect. Justice Giles's reasons for finding inconsistency within the meaning of s 16(5) turned solely on a comparison of legal rights, rather than the prospect of a factual conflict or inconsistency between the respective rights of the parties to the head lease or those of the sub-lease, if it were extended to a five year term. [72] Justice Meagher (Sheller JA agreeing) specifically rejected Conoid Pty Ltd's argument that because the head lease and the sub-lease could co-exist, there was no relevant inconsistency for the purposes of s 16(5). [73] Justice Giles's reasons are, in my view, inconsistent with the proposition that the prospect of a head lease being terminated is germane to the operation of s 16(5) … the Court of Appeal regarded the potential for the head lease and sub-lease to co-exist as a matter of fact as irrelevant.
13. In the decision under appeal in Nelmeer Ashfield, the Appeal Panel had assessed the actual risk of termination of the head lease and considered whether the head lease and the sub-lease were likely to be able to continue together as a matter of practical reality. It decided that, because there was no real prospect of termination of the head lease while the sub-lessee was in possession under the sub-lease (if that sub-lease were extended to 5 years' duration), there was no relevant inconsistency for the purposes of s 16(5). Adamson J emphasised (at [74]) that this approach was rejected by the Court of Appeal in Conoid, and allowed the appeal.
14. I adopt Adamson J's observations as to the irrelevance of factual inconsistency for the purposes of s 16(5). As her Honour explains, the Court of Appeal's reasoning in Conoid indicates that the question of inconsistency turns on a comparison of legal rights: comparing the application of the section (here, to extend the sub-lease) with the terms of the head lease (or, as emphasised in the course of argument, by reference to [37] of Conoid, the effect of the terms of the head lease). In my view, that comparison of legal rights must be prospective, rather than based on a post hoc analysis of what actually occurred. That is consistent with the explanation of s 16(5) contained in Professor Butt's text at [8.190].
15. In the present case, the effect of extending the plaintiff's sub-lease to 30 November 2019 would be to impair the first defendant's right, as at 30 November 2017, to bring the head lease to an end (by not exercising the option to renew), thus exposing the first defendant to a claim in damages for breach of its obligations under the sub-lease in relation to an extended term beyond that date. There is thus inconsistency between the terms of the head lease and sub-lease (if extended to a term of five years) of the kind recognised in Conoid. Section 16(5) therefore applied in the present case to render the balance of s 16, including s 16(1), inapplicable.
16. I do not consider that the reference to "any" head lease assists the plaintiff. The relevant comparison is to be made as at the date of entry into the sub-lease. Even if, by reference to the position taken in Pyrmont Point v Westacott (2016) 91 NSWLR 170; [2016] NSWCA 33 ("Pyrmont Point") (to which I refer below), it could be said that at the date of entry into the sub-lease for the purposes of different provisions of the Retail Leases Act there were or might be in existence two "leases" (being, first, the head lease itself and, second, having regard to the statutory definition of lease in that Act, the head lease together with any option to renew the head lease), one must have regard to the phrase "any head lease under which the lessor holds the retail shop" (my emphasis). As at the date of entry into the sub-lease, the "head lease" pursuant to which the first defendant held the retail shop was that which was registered and was for a term of 3 years (with an option to renew for a further 3 years). If the inconsistency enquiry is prospective (and Conoid, in my view, makes clear that it is), at that date, there was only one head lease under which the first defendant was then holding the retail shop.

Further application to re-open submissions

1. As adverted to above, after submissions had been re-opened once (for further elaboration of the plaintiff's position in relation to the word "any" in s 16(5)), and after the matter had been listed for judgment, there was a further application to my associate by email from Mr Berg to re-open the matter for the hearing of submissions in relation to the Court of Appeal's decision in Pyrmont Point to which Mr Berg's attention had been drawn. That email was copied to Mr Ogborne but there is no suggestion on its face that it was sent with his consent, nor that the defendants consented to the re-opening of the matter for submissions.
2. Such conduct cannot pass without comment.
3. First, it is inappropriate to communicate with judges' chambers without the consent of the opposing party. The appropriate course in the present case, given that this was a matter heard in the running of the duty list, was to notify opposing Counsel and then mention the matter again in the duty list in open Court.
4. Second, it is clear from the notations made by Lindsay J on 13 November 2018 that the parties were at that stage intending to invite the duty judge (when the matter was listed in the list on 27 November 2018) if practicable (and if an order was made for the hearing of the separate question) to hear the separate question at that stage. The parties were directed to file and serve submissions in order to be in a position for that to occur on 27 November 2018 (if the duty judge so ordered and if the running of the duty list on that day permitted it as a matter of practicality). Mr Berg should have been in a position to proceed on that day. Instead what happened was an adjournment was requested (and granted) for 2-3 hours so that he could be "entirely ready"; submissions were made that afternoon (including a new argument raised for the first time in reply); and thereafter on successive days Mr Berg sought leave to make further submissions (first, to address the point he had already raised in submissions in reply the day before and then to raise an entirely new point based on a case that had somehow been drawn to his attention). There is not an ongoing right to be heard, after judgment has been reserved, in order to raise arguments as and when they may belatedly occur to Counsel. (In a different context, see the High Court's observations in Eastman v Director of Public Prosecutions (2003) 214 CLR 318; [2003] HCA 28 at [29] per McHugh J.) And, from a practical perspective, successive appearances for that purpose will clearly have added to the costs of the parties and had the potential to be disruptive to the running of other matters in the duty list (thus with the very real potential to prejudice other litigants).
5. As it was, my reasons for judgment were completed and ready to publish by the time my associate received the second request to re-open the hearing. They were not published when I made orders yesterday after the second re-opening of the matter, so that I could address in these reasons why it is that I do not consider that Pyrmont Point (which, as Mr Berg was at pains to emphasise, is an appellate decision binding on a first instance judge) does not assist the plaintiff in this case.

The decision in Pyrmont Point

1. In the Pyrmont Point decision, I considered the interpretation of s 6(1)(b) of the Retail Leases Act, in a judgment with which Leeming JA and Emmett AJA concurred, their Honours each also delivering additional reasons. Section 6(1)(b) provides that the Retail Leases Act does not apply to "leases for a term of 25 years or more (with the term of a lease taken to include any term for which the lease may be extended or renewed at the option of the lessee)". Given the significance now attached by Mr Berg to the decision in Pyrmont Point, it is appropriate to explain its context.
2. The applicant, Pyrmont Point Pty Ltd (Pyrmont Point) had acquired the benefit of a lease in September 2010 by way of assignment from another company, Pirrama Pty Ltd. That lease had come into existence on the exercise of an option for renewal contained in an earlier lease ("the original lease"). Pirrama had first acquired a leasehold interest in the premises in May 2006 when it took an assignment of the original lease. The original lease was for a term of five years from 19 March 2004 to 18 March 2009. It provided for five options to renew, each for a period of five years (see at [11]-[12]).
3. As I explained in my judgment (at [13]-[16]), when Pirrama exercised the first of those options to renew, giving rise (as a matter of real property law) to a new lease commencing on 19 March 2009, a new lease was prepared, executed by the parties, and registered. That lease ("the second lease") was the lease that was current at the time of the commencement of the dispute. The second lease was for a term of five years and provided for an option to renew "for a period of 3 further terms of 5 years each". The lease current by the time the matter was before the Court of Appeal was the "third lease", which had commenced on 19 March 2014.
4. Pyrmont Point argued that s 6(1)(b) in terms applied to a single lease and, if there is a series of leases, to each one individually, and maintained that for the purposes of determining whether the Retail Leases Act does or does not apply to a particular lease, one does not aggregate the lease and options into a single lease. It thus submitted that the deemed term of the third lease (which commenced in March 2014), however construed, did not extend 20 years (see at [31]).
5. The respondent, Mr Westacott, argued that s 6(1)(b) supplies its own concept of the lease, different from the common law concept of "lease", and that it defeats the purpose of the exclusionary sub-section to say that when one looks forward (i.e. at the outset of the original lease), there is an exclusion from the operation of the Retail Leases Act but that on the renewal of that lease the exclusion "evaporates", and pointed to the difficulty in discerning any legislative policy that would be served by the lease being outside the scope of the Retail Leases Act for the original term but included within the scope of the Act for subsequent terms. As I explained at [35], Mr Westacott maintained that s 6(1)(b) operates "to aggregate the original term and the four option terms as 'the lease' and that the successive terms are, on the special basis indicated by s 6(1)(b), still 'the lease'" (my emphasis).
6. Pausing here, the dispute in Pyrmont Point turned on the operation of s 6(1)(b) and, as is evident, the respondent's submission (which was accepted by the Court of Appeal) focussed on the plain words of s 6(1)(b), which expressly indicate that for the purpose of the exclusion in that sub-section, the term of a lease is deemed to include "any term for which the lease may be extended or renewed at the option of the lessee". The word "lease" is defined in s 3 of the Act, extending the meaning of lease under the general law of real property as incorporating any agreement under which a person grants or agrees to grant a person for value a right of occupation of premises for use of those premises as a retail shop.
7. There are some similarities between s 6(1)(b) and s 16(1) of the Retail Leases Act, insofar as s 16(1) requires that, for the purposes of determining whether a retail shop lease complies with the minimum 5 year term requirement imposed by the section, one also looks at the term for which the lease is entered into, "together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease". This is akin to the express instruction in s 6(1)(b), for the purposes of calculating whether the exclusion in that sub-section applies.
8. What the plaintiff in the present case here argues, as I understand the oral submissions made by Mr Berg on 29 November 2018 (by reference to what was said by Leeming JA at [82] and [89] of Pyrmont Point) is that, while there is a difference in law between an option to renew (giving rise to a new lease) and an option to extend (which does not give rise to a new lease), for the purposes of s 16(5) of the Retail Leases Act one treats the word "lease" as extending to the whole term (including any term by which it may be extended or renewed) under the agreement by which the lessee is given the right of occupation of the premises. In other words, in effect, to read into the words of s 16(5) (and the words "the terms of any head lease") an instruction that, for the purposes of assessing inconsistency pursuant to s 16(5), the term of any head lease should be taken to include any further term or terms provided for by any agreement or options for the acquisition by the lessee under the head lease for a further term as an extension or renewal of the head lease. Those words do not appear in the sub-section, and I am unable to find a basis in the reasons in Pyrmont Point (or any other basis in principle) for reading them in.
9. Mr Ogborne, on that issue, submitted (and I accept) that s 6(1)(b), which addresses a different issue from that addressed by s 16(5) - namely whether a lease is taken to be a retail shop lease - is a deeming provision (see the words "taken to include") and that this deeming provision is only in respect of the enquiry to be undertaken for the purposes of s 6(1)(b). He submitted that the plaintiff in the present case is attempting to argue that the deeming provision in s 6(1)(b) has some larger life so that "head lease" for the purposes of s 16(5) needs to be considered to have a term including the term of the option. Mr Ogborne argued that the ratio in Pyrmont Point is applicable (and would be binding) only such that if the question were to be whether the head lease came within the application of s 6(1)(b) then one would take the head lease as having a term of 6 years. He submitted, and I accept, that there is no suggestion in the Pyrmont Point decision that the reference to "head lease" is to be taken to include a deemed extension of the term of that lease.
10. In Pyrmont Point, at [44]-[46], I held: [44] The word "lease" in the opening words of s 6(1)(b) must incorporate the definition in s 3. Thus, when determining the term of a "lease" for the purposes of s 6(1)(b) the legislature is not confining the subject matter to a lease as that expression is understood under the general law of real property. Instead it incorporates any agreement under which a person grants or agrees to grant a person for value a right of occupation of premises for the use of those premises as a retail shop. If there is an agreement to grant a right of occupation of that kind for a term of or exceeding 25 years (taking into account any option to renew or extend the term of that agreement) it is not one that is governed by the legislation. [45] It is clear that the legislature is not looking to the leasehold estate as such but to the grant of a right of occupation. That incorporates a special notion of lease into the legislation and is inconsistent with the argument that each time a new leasehold estate is created by exercise of an option for renewal there is a new "lease" for the purposes of s 6(1)(b). [46] Here, the relevant agreement to grant a right of occupation was that which was recorded in the original lease. The term for which there was granted, or promised, such a right of occupation was (if the lessee exercised each of the successive options for renewal) to expire in 2029, 25 years from the beginning of that term. Once the notional concept of a "lease" is understood in that way, the difficulties in construing s 6(1)(b) fall away. It is not speaking in terms of a leasehold estate at law, so the proposition on which Pyrmont Point relies (that on each exercise of the option a new leasehold estate arises) is no answer. Once it is determined that there is an agreement to grant a right of occupation (for value and otherwise falling within the definition of retail shop lease or lease in s 3 of the Act), then the fact that that right of occupation will involve successive leasehold estates is irrelevant. [my emphasis]
11. I do not read the above paragraphs as leading to the implication that "any head lease" in s 16(5) refers to a special statutory notion of a lease which deems the term of the head lease to include the term of an option for renewal conferred by it (nor was I addressing that particular issue in that case). However, even if they were wide enough to support such a construction, the plaintiff's argument ignores that it is the express wording of s 6(1)(b) which requires the Court to take into account "any option to renew or extend the term of that agreement" for the purposes of calculating the term of the lease. True it is that, as I held, s 6(1)(b) is not speaking in terms of a leasehold estate at law. This is made clear by reading the words of s 6(1)(b) together with the definition of lease in s 3. This does not, however, assist the plaintiff in this case. It does not speak to the construction of s 16(5) and does not overcome the reasoning in Conoid as to the prospective nature of the inconsistency enquiry and the radical inconsistency in rights which would arise in this case (as in Conoid) if the sub-lease were extended by operation of s 16.
12. Turning to Leeming JA's additional reasons in Pyrmont Point (which were by way of elaboration of my reasons - see at [50]), his Honour held at [64]-[65]: [64] … [T]he definition [of "lease"] in s 3 has two disjunctive limbs. The definition is not merely an "agreement under which a person grants … to another person for value a right of occupation". It is also "an agreement under which a person … agrees to grant to another person for value a right of occupation". The first limb is apt to describe an ordinary lease (as well as an ordinary licence). The second limb is apt to describe an ordinary option to renew. [65] The application of the definition has quite significant consequences. It is rightly observed in A Bradbrook, C Croft and R Hay, Commercial Tenancy Law (3rd ed, 2009, LexisNexis Butterworths) at 826 that "[t]he application of the Act is significantly affected by the statutory definition of 'lease' in s 3." Those consequences may be seen immediately by reference to something which is quite clear, and which does not matter for the resolution of this appeal, namely, the position in 2004 when a five year lease with four five year options to renew was granted. If one moves from the conventional language of property law and uses the terms employed in the definition in s 3, it will be seen that Mr Westacott's predecessor in title granted a right of occupation for five years to Pyrmont Point's predecessor in title in 2004. Also in 2004, Mr Westacott's predecessor in title agreed to grant up to four additional rights of occupation, each for five years. It seems to follow that although as a matter of property law, there was in 2004 a single lease with four options to renew, there were in 2004 five "retail shop leases" or "leases" within the definition of the Act.
13. As to the paragraphs on which the plaintiff relies, his Honour said, at [82] and [89] that: [82] In order to answer the correct question posed by s 6(1)(b) read with the definition in s 3, one does not ask what was the term of the legal lease then in existence between the parties. One asks instead when did the parties or their predecessors in title agree to grant a right of occupation of the premises and for how long did that last. (I am conscious that the original 2004 agreement was between the predecessors in title of the lessor and lessee. However, the definition of "lease" is any such agreement, which is apt to include an agreement between the current lessor's and lessee's predecessors in title.) In the present case, a right of occupation in the premises was agreed to in 2004 and for 25 years. The year 2004 was the commencement of the agreement under which a person has granted or agreed to grant to another person for value a right of occupation. … [89] Thus it may be seen that throughout the Act, an option to extend and an option to renew are treated identically. A further matter telling against Pyrmont Point's submission is that the Act would not apply to leases containing options for extensions capable of producing a total term exceeding 25 years, but would apply to leases containing options for renewals capable of producing a total term exceeding 25 years. For example, take a 10-year lease with two 10-year options. If those options are options to extend the original lease, then on Pyrmont Point's primary submission, the Act does not apply, irrespective of when the inquiry is made. If however those options are options to renew, then on Pyrmont Point's primary submission, the Act would not apply during the first 10-year term, but would apply thereafter. Such a result is at odds with the central idea in s 6(1)(b), which is that where a lessor/lessee relationship can extend for 25 years by reason of the unilateral action by the lessee, then the legislature saw no need to alter the private bargain struck by the parties. It also is contrary to the identical treatment of options to extend and options to renew in s 6(1)(b), and the Act more broadly.
14. Applying his Honour's observations to the present situation, entails, as I see it, the following steps: 1. As at 1 December 2014, the registered proprietors of the property the subject of this case granted the head lease (with a term of five years). 2. The registered proprietors also granted, as at 1 December 2014, an option to renew the head lease. 3. The grant of that option was the grant of a right of occupation and thus constituted another "lease" within the definition of the Act.
15. However, I cannot see that this position provides the plaintiffs with a basis to aggregate the head lease and - accepting that the option itself was a second "lease" as defined - that second "lease" for the purposes of s 16(5). As I have already indicated, nothing in the wording of that section suggests that this aggregation should occur (unlike the express indications in ss 6(1)(b) and 16(1) which do permit the aggregation of the terms).
16. This brings me to the use of the word "any" in s 16(5) ("any head lease…"), on which Mr Berg placed some emphasis (as noted). However, these words must, as Mr Ogborne submitted, be read with the present tense used in the following words: "any head lease under which the lessor holds the retail shop". The "lease" constituted by the grant of the option to renew the head lease could not be said to be a head lease under which the lessor holds the retail shop if it is accepted that the time for the determination of inconsistency is at the time of entry into the sub-lease.
17. Moreover, it is also made clear by Leeming JA's reasons at [80] that Pyrmont Point does not assist the plaintiff. His Honour there said: [80] However, s 6(1)(b) turns on a different notion, namely, the artificial notion of "lease" for the purposes of the Act. Section 6(1)(b) requires the calculation of an artificial concept (term) of another artificial concept (lease). What that involves is first asking whether there is a "lease" as defined by the Act. That is to say, one asks whether there is either an agreement for value under which the lessor granted the right of occupation of a retail shop or an agreement under which the lessor agreed to grant the right of occupation of a retail shop. If so, then one asks whether the term of that agreement is for 25 years or more. This latter question is controlled by the internal definition of "term" in s 6(1)(b). [my emphasis]
18. This passage indicates that while the definition of "lease" in s 3 of the Retail Leases Act has the effect that, in this case, the head lessor granted two "leases" as defined to the head lessee (the first defendant), this does not mean that one then aggregates those for the purposes of s 16(5) in the absence of the kind of internal definition of "term" which s 6(1)(b) contains.
19. Finally, Emmett AJA agreed with both my and Leeming JA's reasons for dismissing the appeal (see at [110]), adding at [109] that the term "lease" in s 6(1)(b) should be understood as applying "to the original lease and any further arrangement concerning a leasehold interest brought into existence as a result of the exercise of options contained in the original lease and subsequent leases, including the new lease". His Honour's observations are consistent with Leeming JA's treatment of the statutory definition of "lease" and with my comments focussing on s 6(1)(b) as set out above.

Conclusion

1. For the above reasons, I concluded that the separate question for determination should be answered in the negative: namely that, s 16 of the Retail Leases Act 1994 (NSW) did not operate so as to extend the term of the sub-lease entered into between the plaintiff and the first defendant on 21 November 2014 over the newsagency premises at shop 1/15 Parnell Street, Strathfield, (the "Sublease") so as to terminate on 30 November 2019. Thus the consequences provided for under [1.2] of the consent order made on 27 November 2018 apply.
2. I therefore made the following orders: 1. Discharge order 7 made by Lindsay J on 13 November 2018. 2. Dismiss paragraph 1 of the relief claimed in the statement of claim. 3. Judgment for possession of the newsagency premises at shop 1/15 Parnell Street, Strathfield, in favour of the first defendant. 4. Leave to issue a writ for possession forthwith. 5. The plaintiff pay the defendants' costs of the application for and hearing of the separate question for determination the subject of the order made by consent on 27 November 2018, such costs to be assessable and payable forthwith. 6. List the matter before the Equity Registrar for directions at 9.30am on 5 December 2018.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 November 2018