DATES OF HEARING: 18 December 2002, 24 January 2003

Medium Neutral Citation [2003] VCAT 503

1. The Tribunal declares that the applicants are entitled to reimbursement of all of the Goods and Services Tax paid by them to the respondent with respect to the supply by the respondent to them of premises at 457 Keilor Road, Niddrie, pursuant to the terms of a lease of those premises dated 4 October 1995.

3. The respondent must pay the applicant's costs of the hearing on 24 January 2003 to be taxed in default of agreement in accordance with County Court Scale "B".

4. The respondent must pay one-third of the applicants' costs of this proceeding (with the exception of the hearing on 24 January 2003). Such costs to be taxed in default of agreement in accordance with County Court Scale "B".

5. The applicants must pay the respondent two-thirds of their costs of this proceeding (with the exception of the hearing on 24 January 2003). Such costs to be taxed in default of agreement in accordance with County Court Scale "C"..

For the Applicants: Mr J.K. Arthur of Counsel, instructed by Cannon and Augustinus

For the Respondent: Mr Kistler of Counsel, instructed by Bevan-Rhys James, Barrister and Solicitor

1. By a lease dated 4 October 1995 Ms Couchouron as landlady let the premises known as 457 Keilor Road, Niddrie to Domenico Francesco Fazzolari and Grazia Caterina Fazzolari for a period of 10 years commencing 1 September 1995. The lease provided for the premises to be used as a milk bar and take-away food shop. It reserved one option of renewal for a further term of five years. By a transfer of lease dated the 8th of December 1997 and made with the consent of Ms Couchouron, the Fazzolaris assigned the balance of their leasehold term to Gianfranco Coscarella and David Coscarella. By a further transfer of lease dated 9 April 1998 the two Coscarellas assigned the balance of their leasehold interest in the premises to Gianfranco Coscarella. Finally, by a deed of assignment dated 27 October 2000, Gianfranco Coscarella assigned the unexpired balance of the 1995 lease with the consent of the lessor Ms Couchouron, to Salvatore Fazzolari and Sandy Fazzolari.

2. Mr Salvatore Fazzolari says he took possession of the premises on the 27th of October 2000 having purchased the business carried on there by Mr Coscarella.

3. The rental payable under the lease was set out in Item 7 of the Schedule. The rent payable from the commencement of the lease until 31st August 1997 was stated in the relevant item to be $48,000 per annum. The rental increased year by year thereafter and for the period 1 September 2000 to 31 August 2001 the rental payable according to the Schedule was $64,000 per annum. This was the rental current at the time of the Fazzolaris' purchase of the balance of the lease. Item 7 in the Schedule continued as follows:

"On and from 1st September, 2001 during the remainder of the term and any renewal or extension of the term the annual rental will be adjusted on 1st September in each year (`the adjustment date') by an amount being the greater of:

- the rent payable immediately before the adjustment date increased by five (5) percent; or

- the rental determined pursuant to Special Condition 14 of this Lease."

4. Special Condition 14 included a lengthy clause consisting of an introduction and some five sub-clauses providing for an indexation of rent by reference to the Consumer Price Index (All Groups) for the City of Melbourne published by the Australian Bureau of Statistics.

5. Mr Fazzolari said that he and his wife Sandy who is also his business partner approached a business agent early this year with a view to selling. Mr Fazzolari said the agent told him "the turnover of the business did not warrant the rental". A short advertising campaign was unsuccessful. According to Mr Fazzolari "the level of rental represents well over 20 percent of the gross turnover. This level of rental places an excessive burden upon the business." The Fazzolaris then sought a review of the rental "to market". Ms Couchouron did not accept this proposal. Accordingly the Fazzolaris commenced the present proceeding seeking declarations that the provision for the fixation of rent for the premises was invalid as being contrary to Section 10 of the Retail Tenancies Act 1986 or alternatively, Section 12 of the Retail Tenancies Reform Act 1998.

6. It is common ground, it seems, that the premises are "retail premises" within the meaning of both the 1986 and the 1998 Act. The lease is a retail tenancies lease within the meaning of both statutes since it is for a term exceeding one year. The retail tenancies legislation in force at the commencement of the lease was the 1986 Act. The Fazzolaris through their Counsel, Mr Arthur, contend that the assignments or at least the last one which took effect after the commencement of the 1998 Act was the equivalent of entering into a new lease, hence the 1995 lease became regulated by the 1998 Act. He relied upon the decision of O'Bryan J and Bradbun v Bobbo Nominees (1994) V ConvR 54-501. Mr Arthur conceded however that the Tribunal's decision in Happy Century Pty Ltd v Nezville Pty Ltd (2000) V ConvR 58-546 meant that His Honour's reasoning which was given in the context of the 1986 Act did not apply to the 1998 statute because of its somewhat different structure. Mr Arthur did not seek to challenge the correctness of Happy Century but reserved his entitlement to do so should the matter go further.

7. In the result therefore, the attack mounted on the rental provisions in the lease was based solely upon Section 10 of the 1986 Act. That section states as follows:

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

(b) providing for an alteration of 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 receives the Royal Assent, 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.

(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 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 rent is to be as determined by a valuer.

(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 as determined by a valuer.

(6) The valuer is to be appointed jointly by the landlord and the tenant or appointed at the request of either the landlord or the tenant by a person who is prescribed for this purpose, if no joint appointment is made 14 days after one party serves the other party with a notice nominating a valuer and seeking approval.

(7) The fees payable to a valuer appointed under sub-section (6) are borne jointly by the landlord and the tenant."

8. The present lease commencing as it did in 1995 was in the terms of Section 10(1)(b)(ii) "a retail premises lease entered into on or after the date on which the Retail Tenancies (Rent Review) Act 1991 receive(d) the Royal Assent".

9. To understand the issues relative to the operation of Section 10(1) upon which the applicants relied it is necessary to consider the history of Section 10. In its original form, Section 10(1) stated:

"(1) A provision in the retail premises lease for a review of the rent 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."

That sub-section was replaced with the later version already quoted in 1991. Sub-section (2) which prohibited indexation of rent by references to prices, costs or wages was repealed at the same time.

10. On 26 June 1991 Coldrey J published his judgment in G.L.G. Nominees Pty Ltd v J.R. Powse and Co Pty Ltd (1991) V ConvR 54-410. Amongst the issues which His Honour considered was an attack on the rental provisions in a lease based upon the original form of Section 10(1) of the Retail Tenancies Act where the lease provided for the rent to be adjusted upwards at the rate of 7.5 percent per annum. His Honour referred to an article appearing in the Law Institute Journal for January, February 1998, pages 37 and following by Mr Michael Redfern where he suggested that a lease which provided "for agreed stepped-up increases throughout the period", that is stated separately sums absolute for rental would avoid the prohibition imposed by the original Section 10(1). His Honour observed that the rental arrangements provided for in the lease before him could just as easily have been rendered in the way suggested by Mr Redfern. At page 64,932 column 1 he said:

"In my view to categorise the mechanism contained in Schedule Item 6 as constituting a review for the purposes of S.10(1) of the Act would be to perpetrate a linguistic and conceptual distortion. Put at its highest what is involved here is a periodic adjustment or variation of the rent payable."

11. A month later on 25 July 1991 McGarvie J published his judgment in Pasen v Buy-Rite Discounts Pty Ltd (1991) V ConvR 54-409 in which the tenant relying on Section 10(1) of the 1986 Act challenged the validity of a provision of its lease which provided for an annual escalation of rent at eight percentum. His Honour concluded that an arbitrator's award which upheld the tenant's contention was correct. His Honour concluded that the word "review" meant alteration. The automatic escalation provided for in the lease fell foul of Section 10. His attention does not seem to have been called to the judgment of Coldrey J in G.L.G. This conflict of Supreme Court decisions led to the amendment of Section 10 by the Retail Tenancies (Rent Review) Act 1991. Mr White, the Minister for Manufacturing and Industry Development delivered the Second Reading Speech for the Bill in the Legislative council on 14 November 1991. His speech is recorded at page 1285 of Volume 405 of the Victorian Parliamentary Debates (the Legislative Council) and is also set out as Appendix XIX to the Third Edition of Dr Clyde Croft's work on retail tenancies. The Minister said, inter alia:

"It has been a commonly accepted practice in leases of retail premises to have a rent review clause providing for periodic adjustments of rental based on a percentage increase in the belief that such a provision is not in breach of Section 10(1) of the Act.

The Supreme Court has in two cases recently considered whether such a clause is in breach of Section 10(1), and the two Judges differed in their interpretation of the section. In the first case it was held that a clause providing for an annual increase of rental by a fixed percentage would not infringe Section 10(1). Approximately one month later another Judge concluded that a similar provision did infringe Section 10(1) and to that extent was void. The Judge considered that the expression `review' as used in Section 10(1) meant `alteration'. The former decision is in line with commonly accepted commercial practice, the latter is not.

The second decision has caused doubt over the legality of the rent review provision in a considerable number of existing leases of retail premises. Representatives of the industry groups concerned have indicated that the associated uncertainty is affecting the negotiation of new leases."

12. The Minster noted that the unexpected avoidance of similar provisions in a large number of retail leases would require an expensive process of re-valuation of rent by independent valuers which would cost in aggregate approximately $15m. He concluded "an immediate amendment of Sub-section 10(1) is therefore essential to restore certainty and confidence in the industry and is supported by both landlord and tenant representatives." It is by this process that Section 10(1) of the 1986 Act reached its final state before the prospective repeal of the Act by the Retail Tenancies Reform Act 1998.

13. Meanwhile, the landlords in Pasen's case appealed to the Full Court. Their Honours, Brooking, Marks and Smith JJ delivered judgment on 10 February 1992. Brooking J (as he then was) with whom Marks and Smith JJ concurred, agreed with the analysis of Coldrey J in G.L.G. and disagreed with the approach of McGarvie J at first instance in the case before the Full Court. He said:

"In my view, a lease which fixes the rent for the whole of the term by enabling the rent throughout the term to be ascertained from within the four corners of the lease does not, according to the ordinary use of language, provide for a review of the rent if it provides for an increase or increases or decrease or decreases in the rent in the course of the term, whether by way of simply stating the new amount or amounts or by way of requiring a calculation to arrive at the new amount or amounts. The rent is fixed by the lease itself throughout the term and the lease in fixing different amounts is not providing for a review of the rent: it is simply fixing a rent which is not uniform throughout the term. This was the view taken by Coldrey J."

14. Earlier in his judgment His Honour referred to the 1991 amendment to the Act which followed the decision of the primary Judge as a "hasty enactment" (at page 65,090).

15. The approach taken by the 1991 amendment seems regrettable. It is clear from the Minister's Second Reading Speech that he regarded the judgment of Coldrey J as correct and that of McGarvie J as wrong. The point at which Their Honours differed was that McGarvie J regarded provisions for an automatic escalation in rent in a lease as constituting a "review" for the purposes of Section 10(1) and Coldrey J did not. The Full Court in due course approved the analysis of Coldrey J. The 1991 amending Act and Section 10(1) in its present form however, appears to proceed upon the premise that the analysis of McGarvie J (which was regarded as wrong by the Minister and by the Full Court) is correct and that an automatic escalation in rent providing for an ascertainable increased rent, using the words of Brooking J "within the four corners of the lease" constitutes a review.

16. After that lengthy historical excursus I now turn to the submissions of Counsel in the proceeding before me.

17. Mr Arthur on behalf of the applicants said:

"It is submitted that the rent review provisions of Item 7 of the Schedule to the lease are contrary to the rent review provisions of S.10(1) of the 1986 Act because they provide for more than one method of rent review and have the effect of providing the rent to be no less than previous rent. ... a market review would be required by S.10(4)."

18. In oral submission Mr Arthur contended that a provision in a lease requiring an automatic escalation of rent, whether by a percentage formula or by the identification of figures absolute, would fall foul of Section 10(1).

19. At the conclusion of the hearing on 18 December 2002 I indicated that in my view there were some issues with respect to the claim relative to the payment of Goods and Services Tax which is dealt with below had not been adequately dealt with. Counsel indicated a desire to put in further written submissions and the deadline was set at close of business on 20 December. Mr Arthur took the opportunity in addition to including comprehensive submissions with regard to the Goods and Services Tax issue to elaborate upon his submissions relative to the validity of Item 7 of the lease schedule. First, he submitted that the decision of the Full Court in Pasen's case relied upon by Mr Kistler (see below) was distinguishable from the present case. He observed:

"In Pasen there was a formula by which rental could be altered by way of fixed percentage increases and not by a combination of means as is provided for in the present case."

20. He said that the elaborate provisions relative to indexation by reference to the Consumer Price Index dealt with the suspension or discontinuance of the index. An expert was to determine what index most closely reflected changes in the cost of living in the City of Melbourne. Accordingly said Mr Arthur "it is submitted that the determination of the rental is not automatic and will not necessarily be ascertained within the four corners of the lease". He noted that in accordance with Clause 14.05, the costs of rent reviews were to be shared equally between the parties and the lessee was to be liable for any additional rental as a result of "such rent review". Mr Arthur concluded from this "in relation to this particular lease the draftsman intended that the procedure set out in Item 14 of the Scheme was a `rent review'".

21. He also said "it is noted that under the retail tenancy legislation which exists in New South Wales, Queensland and South Australia, a clause in a lease which sets out two or more methods of calculating how rent is to be adjusted and permits a landlord to choose whichever method results in the highest rent is void (s.18(3)(c) Retail Leases Act 1994 NSW; s.36(e) Retail Shop Leases 1994 (Qld) and s.22(3)(c) Retail and Commercial Leases Act 1995)."

22. He submitted that the disjunctive "or" which links the various limbs of Section 10(1) should be read as meaning "or" not as "and" or "and/or". He said that Pearce and Geddes Statutory Interpretation in Australia Fourth Edition 1996 page 37 stated that the word "or" has a disjunctive meaning and generally will not be regarded as meaning "and". The learned author has referred to Colon Peats Mining Co v Wollondilli Shire Council [1911] HCA 70; (1911) 13 CLR 438; Braham v Bannigan [1913] SALawRp 13; [1913] SALR 132; Corocraft Limited v Pan American Airways Link [1969] 1 QB 616.

23. Mr Arthur submitted that Item 7 of the lease schedule clearly constituted a rent review. He referred to Section 12(2) of the Retail Tenancies Reform Act 1998 and Allina Pty Ltd v Federal Commissioner of Taxation [1991] FCA 78; (1991) 99 ALR 295, 303 and Pearce and Geddies op. cit. 71. He noted that in the text, Commercial Tenancy Law in Australia (Bradbrook and Croft, 2nd Ed 1997) paragraph 11.5 "the authors seem to assume that `rent review clauses' include provisions which provide a formula which operates automatically to determine new rent for the relevant period as well as other forms of review."

24. Mr Kistler of Counsel appeared on behalf of Ms Couchouron. He relied upon the decision of the Full Court in Pasen and in particular the passage from the judgment of Brooking J which I quoted earlier in these reasons. He concluded on the basis of this authority that "Section 10(1) of the Retail Tenancies Act 1986 does not render Item 7 of the Schedule void".

25. The perceived evil which both the first and second versions of Clause 10(1) were directed against is a provision in a rent review which either prevents the rental from falling or requires it to increase by a specified percentage or amount. The present form of Section 10(1) appears to reverse the analysis of the Full Court in Pasen's case and Coldrey J in G.L.G. in that implicitly it indicates that an automatic escalation clause in the lease is to be regarded as a "review". It is clear for instance that a provision for a market review with a stipulation that the rental fixed during the review would have to be a figure not less than the rent payable before the review would be prohibited by Section 10(1). The process of stipulating that rent may not fall or must increase upon a review is sometimes described as "underpinning". The effect of Section 10(1) in its present form seems to be to prohibit underpinning clauses generally but to allow them to be regarded as valid if they take effect:

26. Item 7 clearly is an underpinning provision and will therefore be void unless it falls within the descriptions in paragraph (a) or (b). Mr Arthur's contention is that if an underpinning clause exhibits more than one of the possible features referred to in paragraph's (a) and (b) it does not fall within the exemption provided by the section. To qualify for exemption the underpinning clause must, he says, exhibit one and only one of the three possible characteristics.

27. Mr Arthur drew my attention as a matter of completeness to a contrary analysis to be found in the Third Edition of Dr Croft's work on retail tenancies at pages 175-6 where the learned author stated:

"It may be thought that the language of sub-section 10(1) may cause some difficulty for combined or mixed rent review provisions by reason of the use of the word `or' in paragraphs (a) and (b) or sub-section 10(1). Nevertheless there are many authorities in which the word `or' has been treated as meaning `and' as a result of a proper construction of statutory provisions in context (see Unity A.P.A. Limited v Humes Limited (No. 2) [1987] VicRp 43; [1987] VR 474, 481-2 (Beech J); Electricity Trust of South Australia v Prone (Australia) Technique Pty Ltd [1994] FCA 1209; (1994) 123 ALR 202, 207-8 (Von Doussa J); Pearce and Geddes, Statutory Interpretation in Australia (Fourth Edition). It is thought that the `context' for present purposes is more than adequately provided for by the matters referred to above and that the word `or' should be read down or read conjunctively in so far as it may be necessary to give effect to the operations of these provisions as indicated above."

28. The suggestion made "above" by Dr Croft was that at "combined" or "mixed" rent review clause such as we have in Item 7 would not for that reason alone fall foul of Clause 10(1). He noted that the purpose of the 1991 amendment to Clause 10(1) as indicated by the Minister's Second Reading Speech was to preserve from avoidance rent provisions requiring an automatic escalation of rent, not to prohibit "mixed" rent review clauses.

29. In so far as Dr Croft suggests that the two "ors" in Section 10(1) should be treated conjunctively rather than disjunctively, that is, as meaning "and" rather than "or", he is not, as I read him contending, for quite that literal result. If that were what he meant the exemption provided for underpinning clauses under Section 10(1) would be available only if the clauses exhibited each of the three features. His true meaning is ascertainable by reference to the authorities upon which he relies. In the Humes' case Unity APA Limited sought an order pursuant to Section 265B of the Companies (Victoria) Code for inspection of Humes' books by a solicitor and an auditor. Sub-section (1) of Section 265B authorised the Court to "make an order authorising a registered company auditor, or a duly qualified legal practitioner, acting on behalf of the member" to carry out an inspection. Beach J said:

"On one view of the matter, it could be argued that only one of such persons can be appointed. To so find, would, in my opinion, be to take a far too restricted view of the section. I consider the section means no more than that the person given permission to make the inspection must come from one or other category of persons. It does not mean that one person from each category cannot be appointed at the same time. In other words, the word `or' is merely expressive of the category of persons who can be appointed. It is not used in a disjunctive sense. If it was not so, one could envisage a situation which a shareholder, having obtained permission to have a solicitor inspect the books of a company, may later be forced to return to the Court and seek the appointment of an auditor on the ground that the accounting complexity of the books of account of the company is such that the solicitor is unable to make any worthwhile inspection of them, in the sense that he could not fully understand them. Such a situation would cause an unnecessary inconvenience, not only to the shareholder, but to the company itself. I cannot accept that the legislature intended to achieve such a result."

[1987] VicRp 43; [1987] VR 474, 481-2

30. In the Electricity Trust of South Australia case Von Doussa J was considering the operation of the definition of "manufacturer" in the Manufacture's Warranties Act 1974 of the State of South Australia. The definition inter alia was as follows:

" `Manufacturer', in relation to manufactured goods, means:

(d) where the goods are imported into Australia, and the manufacturer does not have a place of business in Australia, the importer of the goods."

"In support of the first ground it is contended that each of paras (a) - (d) of the definition of `manufacturer' should be construed as being mutually exclusive of the others. It is argued that this follows from the prescription that `manufacture' [sic] means

It is plain, so it is argued, that the goods the subject of the claim against the second respondents were goods imported into Australia and that the manufacturer (ie. the second respondent) does not have a place of business in Australia; therefore it follows under para (d) that the `manufacturer' is the importer, the first respondent. The applicants on the other hand, contended that the paragraphs of the definition are not mutually exclusive, so that the second respondent is the `manufacturer' under one of the other paragraphs, and further, it is said that there is a disputed question of fact, yet to be resolved, where the second respondent does not have a place of business in Australia.

Whilst para (d) of the definition is concerned with situations where goods are imported into Australia, the Act has a much wider application. It covers goods manufactured or assembled in Australia and in that application it is not difficult to envisage situations where a supplier of goods comes within each of paras (a), (b) and (c) of the definition. In many other cases paras (b) and (c) are likely to overlap as conduct of the kind envisaged by para (c) will often amount to a holding out of the kind referred to in para (b). It would be surprising if it were the intention of the legislation that in such cases the consumer seeking to enforce the remedy given by S.5 was required to nominate which of the paragraphs of the definition is relied upon, or that only one of the paragraphs would have application. It is not difficult to envisage other cases where goods are manufactured by one person on behalf of another person and holds himself out to the public as the manufacturer. If each of the paragraphs of the definition were mutually exclusive it give rise to the result that only one of those two persons could be sued, and the Act gives no indication which of them would be the party liable. That would be an odd result and one which would be avoided if the four paragraphs in the definition were not read as being mutually exclusive." [1994] FCA 1209; (1994) 123 ALR 202, 205-6

"In my view the Act by defining manufacturer' to mean

Does not intend that each of the four paragraphs be read as mutually exclusive." [1994] FCA 1209; (1994) 123 ALR 202, 208

33. The interpretation to which Dr Croft contends would best be conveyed by the use of the inelegancy, no doubt anathema to Parliamentary Counsel, "an/or".

34. With some hesitation I believe the approach adopted by Dr Croft is the preferable one. Neither version of Section 10(1) intended to invalidate a provision automatically escalating rent during the term of a lease. So much appears from the decision of the Full Court in Pasen's case and the express terms of the revised Section 10(1). Section 10(2) prohibited the indexation of retail premises lease rental by reference to indexes such as the Consumer Price Index. That prohibition was repealed in 1991 and it is clear that Parliament intended such a review procedure to be available to landlords and tenants for retail premises leases entered into after the commencement of the 1991 amendment. There is nothing in the Minister's Second Reading Speech which indicated that his Bill sought to prohibit "mixed" rental review clauses. To adapt the words of Beach J. in the Hume's case, the sub-section by the use of two paragraphs and two "ors" seeks to indicate the types of underpinning clauses which may legally be entered into not to prohibit their combination.

35. Accordingly, I would reject the tenants' contentions as to the validity of Item 7 of the Schedule.

36. I should add that my views on the proper construction of Section 10(1) of the 1986 Act are fortified by the absence from them of the phrase "one only" which appears in the corresponding sub-section of the 1998 Act, viz. Section 12(2).

37. Needless to say I accept that Item 7 constitutes a "rent review" for the purposes of Section 10 of the 1986 Act. Moreover, the decision of the Full Court in Pasen is clearly distinguishable for the reasons which Mr Arthur gave in his supplementary submissions. The interstate statutes which Mr Arthur says clearly invalidate a rent review clause such as the present, merely indicates that those Parliaments, like the Victorian Parliament in enacting Section 12(2) of the Retail Tenancies Reform Act 1998 well know how to use clear words to prohibit a mixture of rent review techniques when that is their objective. No clear words to that effect could be found in Section 10(1) nor is there anything in the Minister's Second Reading Speech which would indicate that such a prohibition was in contemplation.

38. Mr Arthur also sought recovery of the sum of $13,758.26 which according to Mr Fazzolari's statement represented Goods and Services Tax paid by the applicant tenants during their term in possession of the premises. Mr Fazzolari says that this portion of the total amounts paid by him and his wife to the landlady were paid "in the mistaken belief that we were under a legal obligation to pay such moneys or that the respondent was legally entitled to receive payment of such moneys". Mr Arthur relied on the decision of the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank [1992] HCA 48; (1992) 175 CLR 353 with the proposition that moneys paid under a mistake were recoverable whether the mistake was to be characterised as one of fact or law.

39. Mr Kistler did not directly respond to Mr Arthur's reliance on David Securities. He did submit however that:

"GST is payable by the applicants pursuant to Clause 5.2 of the lease which requires the lessor to pay all taxes and outgoings in respect of the demised premises except to the extent that such taxes and outgoings are the responsibility of the lessee pursuant to the provisions of this lease."

40. Mr Kistler's further written submission delivered on 20 December consisted of the text of ruling GST 2000/16 issued pursuant to the Taxation Administration Act 1953. His covering fax said that if I were to "rely" upon the ruling he received the right to put in "further submission and/or evidence". Consequently I listed the mater for further argument on 24 January 2003. Mr Kistler spoke to a brief written submission. Mr Arthur responded and reiterated his reliance upon his earlier submissions.

41. Mr Arthur's submission referred to a different clause of the lease, namely Clause 4.2, the one dealing with outgoings and asserted that this clause was "not wide enough to extend to GST payments and therefore the applicants are not obliged to make these payments".

42. There are a number of assumptions underlying these submissions. The first is that Goods and Services Tax is in fact payable upon the rental received by the landlady and secondly, that this liability rests on the landlady unless she has stipulated for a contractual indemnity.

43. The two provisions in the lease to which reference was made in submissions were Clauses 4.2 and 5.2. Mr Arthur who referred to Clause 4.2 which is headed "Outgoings" for the purpose of contending that the clause was insufficiently wide to comprehend Goods and Services Tax. Mr Kistler, as previously noted, referred to Clause 5.2 on the basis that it was in terms broad enough to constitute the indemnity for GST. Clause 4.2 is as follows:

4.2.1 As and when the same shall become due and payable to pay and bear or reimburse to the Lessor as the case may require the following outgoings (or in the case of outgoings assessed charged incurred or payable in respect of an area of the Land or the Building greater than but including he Demised Premises to pay the proportion of such outgoings calculated as hereinafter provided):

4.2.1.1 all gas electricity telephone and all water and other charges for services used in or assessed against the Demised Premises;

4.2.1.2 all municipal water and other rates including special rates taxes assessments and charges (including any State deficit levy and any body corporate charges) and State land tax charged or assessed on or in respect of the Demised premises the Land or the Building or any part or parts thereof but in the case of State land tax the reimbursement due to the Lessor by the lessee shall be the amount of State land tax (or that proportion thereof payable by the Lessee as hereinafter provided) which would be payable if the Land and the Building is the only land of which the Lessor was the owner within the meaning of he relevant legislation imposing such land tax and an exemption or rebate that would otherwise be allowable to the taxpayer under such legislation shall be disregarded;

4.2.1.3 all insurance premium paid or payable by the Lessor in respect of policies of insurance over the Building against fire, storm and tempest public liability and all other extraneous risks as determined by the Lessor;

4.2.1.4 the costs of operating and maintaining all mechanical installations and services in or for the Demised Premises including the cost attributable to the Demised Premises of all service or maintenance agreements entered into by the Lessor in respect of such installations or services;

4.2.2 The Lessee's proportion of any outgoing payable hereunder assessed charged incurred or payable in respect of an area of the Land or the Building greater than but including the Demised Premises shall be that portion of the whole which the floor area of the Demised Premises bears to the Lettable Area to which such outgoing relates."

44. Cluse 5.2 headed "Rates and Taxes" is somewhat shorter and provides as follows:

"During the term of this Lease or any extension or renewal thereof the Lessor shall pay all taxes and outgoings in respect of the Demised Premises except to the extent that such rates taxes and outgoings are the responsibility of the Lessee pursuant to the provisions of this Lease."

45. The first premise in the exaction by the landlady of Goods and Services Tax relative to a supply of goods or services is that the impost is in fact payable to the Commissioner of Taxation. The present lease as previously noted was granted as long ago as 1995. The Goods and Services Tax regime was introduced by statutes passed by the Commonwealth Parliament in 1999 and coming into effect in the year 2000. Section 13 of the statute known as "A New Tax System (Goods and Services Tax Transition) Act 1999" states, inter alia:

(a) a written agreement specifically identifies a supply and identifies the consideration in money, or a way of working out the consideration in money, for the supply; and

(b) the agreement was made before the day on which this Act received the Royal Assent.

(2) The supply is GST-free to the extent that it is made before the earlier of the following:

(b) if a review opportunity arises on or after the day of Royal Assent - when that opportunity arises."

46. Sub-section (5) defines the concept of "review opportunity" as follows:

"review opportunity, for an agreement to which this section applies, means an opportunity that arises under the agreement:

(a) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to change the consideration direction or indirectly because of the imposition of GST; or

(b) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, on or after 1 July 2000, a general review, renegotiation or alteration of the consideration; or

(c) for the supplier under the agreement (Acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, before 1 July 2000, a general review, renegotiation or alteration of the consideration that takes account of the imposition of the GST."

47. The present lease falls under the terms of Section 13. It will therefore remain GST free and no issue of the exaction of GST will arise until 1 July 2005 unless before that date there exists what the statute defines as a "review opportunity". Mr Arthur submitted first that Clause 4.2.1 which he contended was the closest approach to a provision which would enable the lessor to transfer liability for Goods and Services Tax did not achieve that result. He said that GST did not fall within the rubic of "all municipal water and other rates including special rates, taxes, assessments and charges including any State Deficit Levy and any body corporate charges and State Land Tax". He referred to Ruling GSTR 2000/16 being the ruling produced by the Australian Tax Office pursuant to Section 37 of the Taxation Administration Act 1953, the entire text of which was placed before me by Mr Kistler as part of his supplementary submission made this clear. Paragraph 167 of the Ruling states:

"A clause allowing the recovery of taxes will only give rise to a review opportunity if it allows the consideration to be altered because of the imposition of GST on the supply identified in the agreement. In the case of a commercial lease, the clause will only be a review opportunity if it allows consideration for the supply under the lease to change because of the imposition of GST on the supply of the premises."

48. The ruling refers to a decision of New Zealand Taxation Review Authority and a judgment of the New Zealand Court of Appeal who indicated that the Taxation Office did not regard the approach adopted in those decisions as applicable to the Australian legislation which is in somewhat different form. At paragraph 173 the ruling states:

"As stated above we do not intend to follow this reason. Our view is that a supply will have to contemplate a tax in respect of the supply of the premises, and not just a tax in respect of the premises."

49. Later at paragraph 174 the ruling states that a general indemnity for tax is included in an outgoings clause "should not be considered to be a review opportunity unless the wording of the clause clearly evidences an intention by the parties to cover a tax in the nature of a Goods and Services Tax".

50. Mr Kistler submitted "that pursuant to the lease the GST tax is a tax, whether past or future, pursuant to the lease". He referred to the decision of the Court of Appeal in 112 Acland Street Pty Ltd v Australian and New Zealand Banking Group Limited [2002] VSCA 95; (2002) 4 VR 372, 384 where the Court of Appeal held that a covenant providing for an indemnity against "all municipal and other rates and charges" did not include taxes such as Land Tax. The Court also adopted a tentative definition of the concept of taxes formulated by Gibbs CJ, Wilson, Deane and Dawson JJ in MacCormick v Federal Commissioner of Taxation [1984] HCA 20; (1984) 158 CLR 622, 639 describing taxes as follows:

"They are compulsory. They are to raise money for Governmental purposes. They do not constitute payment for services rendered ... they are not penalties ... they are not arbitrary. Liability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject-matter of the tax ..."

51. In my view Item 7 and its related indexation provisions do not provide for a general renegotiation of the consideration for the lease. Paragraph 155 of the GST ruling already referred to, states:

"Where there is a fixed adjustment to the consideration on the basis of an indicator such as the CPI, the change may be partially referrable to the impact of the imposition of the GST. This will not be a review opportunity under Paragraphs 13(5)(b) or 13(5)(c) because it is not a general review, renegotiation or alteration."

52. Similarly the underpinning "5 percent" increase is not a general review or renegotiation either, rather it is a figure which is fixed from the outset of the lease, it in no way takes account of the imposition of Goods and Services Tax.

53. I have difficulty understanding how a general covenant creating an indemnity against taxes can constitute a review opportunity as some sort of renegotiation or change of consideration. In truth the consideration remains the same throughout. The covenant which was in the lease from the start, merely operates upon changed circumstances. The authors of the tax ruling however, proceed upon a different view, namely that an indemnity for taxes can constitute a review opportunity if it is sufficiently particular viz. referring specifically to a GST or some form of tax on the "supply" of the premises. In my view the two clauses of the lease which have been referred to, namely Clauses 4.2 and 5.2 are not of this character. They constitute an indemnity against rates and taxes in respect of the premises, not in respect of the supply. It follows therefore, that in my view, there is no review opportunity and so this lease is and continues to be GST free.

54. It follows therefore, that aside from considering whether an indemnity for rates and taxes might constitute a review opportunity for the purposes of the GST transitional provisions, to go to the width or otherwise of the relevant tax indemnities, merely begs the initial question, namely whether Goods and Services Tax was payable by the lessor in the first place. On the basis of the analysis of the transitional provisions, the answer appears to be that no GST is payable on the supply of the premises before the 1st of July 2005. It may be conceded that if the applicants have been successful in obtaining relief to the effect that they had an entitlement for a review to market that this would have constituted a review opportunity and that Goods and Services Tax would have been payable as from that review opportunity's arising.

55. Mr Kistler conceded that the authorities tended to exclude as a defence to a claim for recovery of moneys paid over as a tax which were not in truth payable that the liability had been "passed on". In Roxborough v Rothmans of Pal Mal Australia Limited [2001] HCA 68; (2001) 185 ALR 335 the High Court of Australia considered a claim by a licensed tobacco retailer and recover from a wholesaler the amount of licence fee subsequently declared by the High Court to be invalid. The retailer was held to be entitled to recover the amount of that fee charged to it despite having fully recovered that amount from its own customers. The result was that the retailer was able to recover a windfall by obtaining from the wholesaler repayment of a charge for which the retailer's own customers had fully indemnified it. It follows therefore, that if it be the fact, as Mr Kistler suggests it is, that these applicants have sought "input credits" for the Goods and Services Tax which has been charged to them by their landlord, this fact in itself would not seem to be an objection to their recovering the amount of the Goods and Services Tax as moneys paid under a mistake of law.

56. Mr Kistler referred to another decision of the High Court in Commissioner of State Revenue (Vic) v Royal Insurance Australia Limited [1994] HCA 61; (1994) 182 CLR 51, 65. He said "it is submitted that whether the applicants have claimed the GST as an `input' on the BAS statement is a relevant factor in the Tribunal determining whether the respondent should be ordered to refund the GST." He referred to the statement of Mason CJ in the Royal Insurance case where His Honour said:

"In David Securities Pty Ltd v The Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353, at pp 384-386 it was recognised that, according to the principles of the Law of Restitution, such a change of position would constitute a good defence to an action or recovery paid under a mistake of fact or law."

57. It may be that the landlady has changed her position if she has remitted the amount of Goods and Services Tax collected inappropriately as I have concluded from the tenant. Should the landlady now be permitted to rely upon that defence?

58. Mr Arthur noted that no defence of change of position had been pleaded in the points of defence which the respondent's solicitor's filed on her behalf on 7 November 2002 in accordance with a direction which I gave on 31 October 2002. Whilst it is often said that the Tribunal is not "a court of pleading" pleadings may be ordered at the Tribunal's discretion as they were here. The function of pleadings in the Tribunal is the same as the function of pleadings in a Court. Pleadings are optional in the sense that they can be dispensed with by order even in the Supreme Court. Where they are ordered, either in Court or in the Tribunal, they define the issues between the parties. Only those issues which have been pleaded may be agitated. If additional issues by way of claims or defences emerge, the proper course is to seek to amend the pleadings. Generally, leave will be granted to ensure in the interests of justice that the true and proper issues are ventilated as between the parties. Here, the issue of a defence of change of position was first raised towards the end of a hearing which was convened in response to a reservation by Mr Kistler of an entitlement to make further submissions made in circumstances already described. The evidence had been completed. There was and has been no application to amend the pleadings nor has any additional evidence been called. In particular there is no evidence (if it is a matter proper for evidence as distinct from being a mere question of law) as to the availability or otherwise of a refund of any GST which has been paid by the respondent landlady on this GST free lease. In a letter to the Registrar prior to the supplementary hearing the solicitors for the landlady stated:

"Refunds of GST can only be obtained by preparing amended Business Activity Statements (`BAS') for the period concerned. Preparation of these amended BAS will be dependent upon the Tribunal's decision as to whether a review has taken place on 1/9/01. If so a refund can be requested."

59. In paragraph 3 of his supplementary submission on the further hearing of 24 January, Mr Kistler stated

"The respondent's accountant has been instructed to ascertain the attitude of the ATO should the Tribunal find the increase was not a rent review on 20/9/01. The accountant has been advised that the ATO cannot make a decision until amended BAS statements are lodged."

60. I have been taken neither to evidence of the practice of the Australian Tax Office nor to statutory provision by way of Act, regulation or otherwise which would deal with the issue of refunds of GST in these circumstances. Accordingly, given the state of the pleadings and the uncertainty both as to fact and law with respect to the alleged change of position, I believe it would be contrary to the interests of justice to allow this issue now to be raised. It follows therefore that there is no available defence to the claim for the refund of the GST which was wrongly charged.

61. The present lease seems to fall under the terms of Section 13 of the GST transitional statute and nothing in Item 7 or elsewhere in the lease constitutes an opportunity arising prior to this date to conduct "a general review, renegotiation or alteration of the consideration" or an entitlement to change the consideration "because of the imposition of GST". It follows in my view that no GST was payable for the relevant period and therefore the payment of the amount claimed by the Fazzolaris was a payment made under a mistake of law which is recoverable in accordance with the David Securities principle.

62. Mr Arthur on behalf of the applicants submitted that should his clients be successful they should have their costs of the proceeding fixed according to County Court Scale "D". He referred to the Tribunal's approach in retail tenancy matters of treating them as commercial litigation and therefore in light of Section 109(3)(d) of the Victorian Civil and Administrative Tribunal Act 1998 outside the presumption to be found in Section 109(1) of that statute that costs as between party and party should lie where they fall.

63. He agreed that the situation would be somewhat more complex if his clients were successful on one issue and unsuccessful on another. Mr Kistler submitted that the issue as to the rent review clause had greater substance and had entailed more time and more cost and should be regarded as constituting two-thirds or three-quarters of the proceeding. Mr Arthur however, submitted that in light of the additional hearing that had been convened the weighting as between the two issues should now be regarded as fifty/fifty.

64. In addition Mr Arthur submitted that his client should in any event have the costs of the hearing on 18 January 2003. This hearing was convened in his submission, solely because Mr Kistler and the material which he lodged in the afternoon of 20th December had without leave of the Tribunal sought to reserve an entitlement to make further submissions (which he did) call further evidence (which he did not). The matter should have been argued in Mr Arthur's submission in its totality either on 18 December 2002 or if supplementary submissions were required by close of business on 20 December as I had directed.

65. In my view Mr Arthur's submission as to the hearing on the 18th of January 2003 should be accepted. He literally describes the circumstances which led to that further hearing and the further hearing would not have been necessary had the respondent been ready with the submissions on her behalf on 18 or 20 December as should have been the case.

66. As to the remainder of the proceeding once the 24 January hearing is separately dealt with the issue as to the validity of the rent fixation provisions of the lease will be found to have been the more important both in terms of time devoted in argument and money. The landlady has had a victory on that point and so should recover two-thirds of her costs of the proceeding. The precise amount at stake may be open to debate. The applicants were seeking a review to market. Quite how far that would be from the rental which has now been paid, cannot be determined without a market review which has not been done. I cannot be satisfied in the circumstances that in monetary terms there was more than $50,000 at stake. In my view the proper scale to apply to these costs is County Court Scale "C". The amount at stake is obviously substantial but not necessarily more than $50,000.

67. The applicants should have one-third of their costs of the proceeding and in light of the size of their victory, those costs should be taxed in accordance with County Court "B".