Fisherman's Wharf Tavern Pty Ltd v Perpetual Trustee Co Ltd & Anor

[1] The applicant is the sublessee from the respondents of premises at Southport in which it conducts a tavern. The sublease commenced on 6 January 2003 for a term of five years. It contains two options for renewal which, if both are exercised, will extend the term to 5 January 2018. Mr Platt, a director of the applicant and a chartered accountant, has valued the applicant's business at between $7,000,000 and $10,000,000. The demised premises are located within a 'retail shopping centre' as that term is defined in s 8 of the Retail Shop Leases Act 1994 ('the Act'). The sublease is therefore one of a 'retail shop' and is a 'retail shop lease' as those expressions are defined in the dictionary of the Act. The shopping centre is in an area which is or may be ripe for further development. When the sublease was being negotiated, in September 2002, the sublessor's solicitors intimated that the sublessor intended to undertake redevelopment some time after 31 March 2004 but the timing 'will depend on the acquisition of the adjoining site and a whole host of other commercial matters.'

[2] Probably for that reason the sublease contained cl 5.25:

'Redevelopment/Relocation

(a) Notwithstanding anything else to the contrary contained in this Lease, if at any time after 31 March 2004, the Lessor wishes to reduce, extend, rebuild, renovate, demolish or substantially alter the Complex ... and in the opinion of the Lessor's Architect, the proposed expansion ... requires the demolition ... of the Premises ... or by reason thereof, the Premises will not be suitable ... for the business permitted to be carried on therein, the Lessor may give notice ... to the Lessee ("the Relocation Notice") that it requires the Lessee to relocate the Lessee's business ... to another location ... provided that:

(i) the Lessor gives ... at least three ... months notice ...;

...

(iii) the New Premises are as nearly as possible comparable ...;

...

(xi) this lease will terminate upon the expiration of the Relocation Notice.

(b) The Lessor and Lessee agree that the Relocation Notice is subject to the Lessor at its cost obtaining all necessary approvals from the Liquor Licensing Division and the Gaming Authority to relocate the Liquor Licence and Gaming Licence to the New Premises. ... If the Lessor is unable to secure the approval ... to the relocation of the Liquor Licence and/or Gaming Licence ... then:

(i) the Relocation Notice shall be of no effect;

(ii) the Lessee shall remain in occupation of the Premises; and

(iii) the Lessor may at the Lessor's option by notice in writing ... elect to purchase the Lessee's business subject to the following conditions:

(A) the Lessor and Lessee agreeing on a purchase price ...;

...

(C) the Lessor and the Lessee agree that the maximum amount of the purchase price ... is the sum of $750,000.'

[3] Section 42 of the Act provides that a retail shop lease 'is taken to include sections 43 and 44.'

Section 43 provides:

'(1) The lessor is liable to pay to the lessee reasonable compensation for loss or damage suffered by the lessee because the lessor ... -

...

(g) causes the lessee to vacate the leased shop before the end of the lease or renewal of it because of the extension ... or demolition of the retail shopping centre ... containing the shop.

Section 44 provides:

'(1) If the lessor and lessee can not agree on the amount of compensation, the compensation payable ... is to be decided by way of the dispute resolution process.

...

(2) An agreement under the lease about compensation payable under section 43 is void to the extent that it limits the amount of compensation payable under the section.'

[4] By an originating application filed on 21 April 2006 the applicant seeks a declaration:

'... that clause 5.25(b)(iii) ... of the registered sub-lease between the Applicant and the Respondents ... are [sic] void pursuant to section 44 of the ... Act ...'.

[5] Oversimplifying greatly, the applicant's contention is that cl 5.25(b)(iii)(C) operates as a limitation upon the amount of compensation the respondents must pay the applicant in the event that a relocation notice is given and, in the circumstances which unfold, the respondents exercise the option given by cl 5.25(b)(iii). The applicant submits that in such a case the respondents will have caused it to vacate the demised premises before the end of the sublease or renewal of it because of the extension or demolition of the retail shopping centre so that it will be entitled to compensation, the amount of which can not be limited by agreement.

[6] This description of the basis on which the applicant seeks a declaration reveals a difficulty which the respondents put as their first line of defence. The intimation from the respondents' solicitors in September 2002, about possible redevelopment, which I mentioned earlier, is, as far as the evidence reveals, the last word on that subject. Nothing more has been said between the parties about the redevelopment of the shopping centre or the demolition, expansion or rebuilding of the demised premises. The respondents have not given a relocation notice to the applicant pursuant to cl 5.25. No development application has yet been made to the local authority for a redevelopment of the shopping centre. There is on the evidence no proposal to expand, rebuild, renovate, alter or demolish the shopping centre or demised premises.

[7] In these circumstances the respondents submit that there is no dispute between the parties and the application is brought to resolve a hypothesis. To lend substance to its submission counsel for the respondents points out that no application has been made (or could be made) to the Liquor Licensing Division or the Gaming Authority (the Office of Gaming Regulation) to relocate the liquor licence and gaming licence to new premises. There are no 'New Premises' and the authorities would not entertain an application in the abstract. Clause 5.25(b) comes into operation only if the respondents are unable to secure the approval of the authorities to the relocation of the licences. If a relocation notice is given, new premises are obtained and approval is given to the relocation of the licences, cl 5.25(b) will never come into operation. The pre-condition for the exercise of the option to purchase the applicant's business will remain unsatisfied and cl 5.25(b)(iii)(C), the cause of the applicant's anxiety, will never operate.

[8] The second factor raised by the respondents is that they have never contended that, should there be a redevelopment, and events fall out so that cl 5.25(b)(iii) is put into operation, and the respondents exercise the option to purchase the applicant's business, they will dispute the applicant's right to compensation in addition to the receipt of the purchase price for the business. Mr O'Donnell QC who appeared for the respondents was careful not to concede that, in those circumstances, the respondents would admit a liability to pay compensation in addition to the purchase price. He was prepared to say that, depending upon the circumstances, including the reason for, and the manner in which, the option was exercised the applicant may have a right to compensation in addition to the purchase price.

[9] It is not necessary to discuss what is meant by 'the reasons for or means by which' the option might be exercised. The potential relevance of reasons and means depends upon a construction of cl 5.25(b) and ss 43 and 44 of the Act which the respondents advanced. That is, they accepted that in some circumstances the operation of the clause and the sections would, or could, give rise to a right to compensation which was not circumscribed by cl 5.25(b)(iii)(C).

[10] The point, for present purposes, is that until the respondents serve a relocation notice and approval for the transfer of the licences cannot be obtained it is by no means certain, or likely, that there will be dispute between the parties as to the applicant's right to compensation for the early determination of its sublease.

[11] In these circumstances the court ought not to proceed to make a pronouncement as to the inter-relation between cl 5.25(b)(iii) and ss 43 and 44 of the Act. The declaration sought by the applicant will not resolve a dispute between the parties. It may be accepted that the making of a declaration is a remedy of great utility in resolving disputes at an early stage and before parties have become entrenched in conflict or commit themselves to a course of action which will involve one or both in loss. Nevertheless there must be a dispute which can be resolved by the declaration before it is appropriate to make it. The court should not, under the guise of giving declarations, express opinions on abstract propositions of fact or law or disputes which are fictitious.

[12] Gibbs J noted in the University of New South Wales v Moorhouse (1974-1975) 133 CLR 1 at 10 that:

'Many other examples may be found in the books of cases in which a declaration has been refused because it was claimed in relation to circumstances that had not occurred and might never happen.'

The observation was approved by Mason CJ, Dawson, Toohey and Gaudron JJ in their joint judgment in Ainsworth v Criminal Justice Commission (1992)

[1992] HCA 10; 175 CLR 564 at 582. Their Honours said:

'Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have "a real interest" and relief will not be granted if the question "is purely hypothetical", if relief is "claimed in relation to circumstances that [have] not occurred and might never happen" or if "the court's declaration will produce no foreseeable consequences for the parties".'

The authority cited for the penultimate category of circumstances in which declaratory relief would be refused was Moorhouse.

[13] The applicant relies upon what has been called 'the commercial rule' referred to by Mr Justice Young in his work Declaratory Orders (2nd ed) at [718]. The rule, which is contrasted with 'the old Chancery rule' was that a declaration of right may be made when its purpose is to regulate the future conduct of parties and not to determine rights which have accrued by reason of past events. The 'Chancery rule' was, apparently, that the court would not 'decide as to future rights, but ... wait until the event has happened, unless a present right depends on the decision, or there are some other special circumstances ...'. The passage comes from the judgment of Jessell MR in Curtis v Sheffield (1882) 21 Ch D 1 at 4.

[14] The origin of the 'commercial rule' is the judgment of the House of Lords in Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438. This case is recognised as the foundation of the modern practice regulating judicial declarations. The judgments in this case, must, as always, be understood in the context of the facts. There was a real dispute between the two banks. The British bank had borrowed a substantial sum from the Russian bank upon the security of commercial bonds. The banks disagreed as to whether the borrower had to repay the loan in pounds sterling or in roubles which had dropped enormously in value as a result of the Russian Revolution. The English bank claimed it could repay in roubles while the Russian bank held out for pounds sterling. An application was brought by the borrower in the Commercial Court for a declaration that it could repay in roubles. There was much criticism of this course. Most of the judges thought that the proper course would have been to commence an action to redeem the security in the course of which the borrower would have offered to repay the loan in roubles. Instead it sought a declaration unconnected to a redemption suit. Indeed the borrower made it clear that if it succeeded it would not bother to repay the loan, the liability having declined so greatly.

[15] In these circumstances a majority of the House of Lords was prepared to make the declaration. The leading judgment was given by Lord Dunedin who was more familiar with the jurisprudence of declarations than the English Law Lords. He said (at 448):

'The rules that have been elucidated by a long course of decisions in the Scottish Courts may be summarised thus: The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought.'

[16] Applying the rules to the case in point Lord Dunedin pointed out that the question for determination was 'in no sense ... theoretical' but was 'a matter of real importance to the [English bank] as guiding their ... conduct, to know whether the loan is ... a rouble loan or a sterling loan. In the one case, they will probably redeem; in the other case, they will not.'

[17] Lord Sumner made the same point (at 451-452). He said:

'There is no doubt a preliminary question ... whether the loan was a rouble loan or a sterling loan or, more precisely, whether in order to redeem the plaintiffs ought to tender roubles or sterling. This was not a mere question for the plaintiffs to decide for themselves with or without legal advice; a sufficient issue had arisen before writ between borrowers and lenders to make the question one in actual dispute between them. ...

...

For many years it has been accepted practice in cases in the Commercial List to hear and determine claims for a declaration of right, when a real and not a fictitious or academic question is involved and is in being between two parties, in order that they may know what business course to take without having to run the risk of acting and finding themselves liable in damages, when at last the matter is brought before the Court.'

[18] There was in that case an actual dispute between the banks which the declaration was efficacious resolve. The same observation is true of Pharmaceutical Society of Great Britain v Dickson [1970] AC 403, a second authority relied upon by

Mr Justice Young in support of 'the commercial rule'. Dickson was a pharmacist who sold, and wished to continue to sell, a variety of merchandise from his shops in addition to pharmaceutical goods. The Pharmaceutical Society was the professional association of pharmacists and had power to make bylaws to regulate the conduct of pharmacists and to take disciplinary action against those who contravened the bylaws. The society passed a bylaw forbidding the sale of merchandise other than pharmaceutical goods. Dickson sought a declaration that the bylaw was invalid. It was objected that the proper forum to test the validity of the bylaw was the statutory committee set up as the society's disciplinary body which had the power to strike pharmacists off the register for professional misconduct.

'The objecting member must wait, apparently, until the council think fit to bring him before the statutory committee ... [maybe] years later ... As a matter of common sense this is most unreasonable. Why should a trader be put into the position where he may expend large sums on expanding his trading activities in defiance of the code of ethics and then be compelled to wait until at some indefinite time in the future the council choose to bring him before the statutory committee for his alleged misconduct, and only then ... he finds all his hard work and expenditure rendered useless. The law is full of examples to show that a person whose freedom of activity is challenged can in a proper case have the issue determined so that he knows where he stands.

... A person whose freedom of action is challenged can always come to the court to have his rights and position clarified ... .'

[20] In that case, too, there was an actual dispute between the parties: Dickson asserted the bylaw was invalid and he could sell what he liked in his shops while the Society contended the bylaw validly restricted what could be sold. The resolution of the dispute by declaration affected the immediate conduct of Dickson's business and resolved the dispute.

[21] Mellstrom v Garner [1970] 1 WLR 603 is an example of the type of case referred to by Gibbs J in Moorhouse, where the court refused a declaration because the rights of the parties depended upon facts which had not occurred and might never occur - or, to put it another way, there was no actual dispute.

[22] Mellstrom and Gardner were accountants who dissolved their partnership by an agreement which imposed a restraint upon activities with respect to the business of the former partnership. The dissolution agreement was poorly drafted and the parties to it sought a declaration as to its true meaning. Harman LJ said (at 604):

'but each party seeks from the court a declaration as to the true interpretation of this nonsensical affair. It is not said that either of them has either broken any of its provisions or seeks to break them; it is not suggested that there are any facts whatever to be considered; and we are to make what in my younger days is to be called a declaration "in the air". That is against the principles of the Court of Chancery as I understand them.'

[23] This case is in that category. There is no dispute between the parties and there may never be one. If there is, what it will concern and what considerations will be relevant to resolve it are matters for speculation. The applicant apprehends that during the term of the lease it will receive a relocation notice from the respondents. Its apprehension may be justified. But it is by no means certain that the relocation notice will be followed by an inability to relocate the drinking and gaming licences to alternative, adjacent, premises. The respondents' option to purchase may never be exercisable. Even if exercised it is not certain that, in the circumstances then prevailing, the respondents would dispute the applicant's right to compensation in an amount greater than $750,000. The declaration which the applicant seeks should await the arrival of a dispute, the resolution of which would be assisted by the declaration.

[24] The applicant sought to justify its claim on the basis that the construction it seeks will assist it to arrive at a more realistically based valuation of its property. It fears that if the agreed purchase price is a limit on the amount of compensation payable in the event of a termination of the lease, the value of the property is diminished. It is not the function of the court to give advisory opinions which may assist a party to obtain a better price for its property. In the event that that was what the applicant hoped to achieve from this application it should have come ex parte. There was no need to serve the respondents or seek to have them bound by the declaration.

[25] The application should be dismissed with costs.