HAY & COLIN PTY LTD -v- WEST END HOSPITALITY PTY LTD [2021] WASC 458 (14 December 2021)

3 The respondent, West End Hospitality Pty Ltd, has filed one document in these proceedings, namely, a Form 85 - Notice of Respondent's Intention, on 21 September 2021 (folio 10). By this notice, the respondent supports the appeal and does not otherwise take part.

4 Before addressing the appellant's current application, it is necessary to first provide some brief factual background as to the parties' underlying dispute.

5 The dispute underlying the present appeal concerned a retail shop lease between Hay & Colin Pty Ltd and West End Hospitality Pty Ltd - in respect of a premises located at 1222 Hay Street, Perth, WA, 6000.

6 By application dated 19 April 2021, the applicant in the SAT proceedings (Hay & Colin Pty Ltd) had sought then SAT approval of the inclusion of the redevelopment clause (namely cl 6) of its Lease of Additional Area, Variation of Lease and Extension of Lease (the Lease). Under the proposed cl 6, a lessor is entitled to determine the lease, subject to any restrictions as contained in the Lease itself.

7 The SAT application was made pursuant to s 13(7) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act).

8 On 21 April 2021, Sessional Member Bales delivered a decision that the SAT had no jurisdiction to approve the application under s 13(7) of the Retail Shops Act and hence, that the applicant's application was dismissed accordingly.

9 The appellant (again Hay & Colin Pty Ltd) duly filed an appeal notice to the general division of this Court.

10 On the present application, there were two grounds of appeal proposed in support of:

(a) leave to appeal; and

(b) in the event that leave was granted, that the appeal be allowed.

(1) The Tribunal erred in law in:

(a) finding that the redevelopment clause contained in clause 6 of the proposed Lease of Additional Area, Variation of Lease and Extension of Lease ('Clause 6') to be entered into between the Appellant and Respondent was in the nature of a relocation clause for the purposes of s 14A of the Commercial Tenancy (Retail Shops) Agreements Act 1985 ('the Act'); and

(b) failing to consider whether, for the purposes of s. 13(7) of the Act, special circumstances exist which justify approval of Clause 6.

(2) The Tribunal ought to have found:

(a) that Clause 6 is in the nature of a provision for early determination of a 5 year lease;

(b) that Clause 6 does not provide for the relocation of the tenant's business and accordingly, is not subject to s. 14A of the Act;

(c) that it had jurisdiction to approve Clause 6 under s. 13(7) of the Act; and

(d) that special circumstances existed justifying approval of Clause 6 pursuant to s. 13(7) of the Act.

12 In order to evaluate these grounds of appeal as filed, it is necessary to first set out the brief reasons dismissing the application, as was provided by sessional Member Bales in the SAT.

13 Reasons dismissing the application in the SAT were provided in these terms:

On application in respect of a retail shop lease between the parties relating to part of 1222 Hay Street, West Perth, it is ordered that:

1. The Tribunal finds that the application is made under the provisions of s 13(7) of the Act. The Tribunal also finds that the sole ground of the application is the possible redevelopment of the premises, which would necessitate the relocation of the Tenant's business to alternative premises.

2. The Tribunal notes that s 14A(1) of the Act provides that 'a provision of a retail shop lease about the relocation of the Tenant's business is void unless (inter alia) it is in a form approved by the Tribunal under subsection (3)'. The Tribunal also notes that s 14A(e) extends the provisions of s14A to apply to all instances of relocation of the Tenant's business, whether or not to alternative premises owned by the landlord.

3. For the reasons stated above, the Tribunal finds that it has no jurisdiction to approve the application under s 1397) of the Act, and the application is dismissed accordingly.

14 As seen, the sessional member observed that he was dealing with a relocation clause - and as such that the permission of the SAT sought in respect of the termination of lease provision - would necessitate relocation of the tenant's business to alternative premises.

15 With respect to the sessional member, the observation is simply not sustainable - by reference to the facts presented as underlying the application for approval.

16 The clause in question for which the permission was being sought from the SAT, is found in a document entitled Lease of Additional Area, Variation of Lease and Extension of Lease.

17 The relevant clause (cl 6) is referred to as a 'redevelopment' clause

- which I incorporate by reference in terms of its full content.

6. Redevelopment

(a) Notwithstanding anything to the contrary herein contained or implied, if at any time the Lessor desires to develop or redevelop the Additional Area and/or Alfresco Licensed Area or a substantial part thereof, the Lessor by not less than 12 months' notice in writing to the Lessee may terminate the lease of the Additional Area and the licence of the Alfresco Licensed Area, and such lease and licence shall automatically terminate on the date specified in that notice (Termination Date) without compensation to the Lessee (save only as provided in clause 6(c)), but any such termination shall be without prejudice to any then existing claim by the Lessor against the Lessee. If this Lease is so terminated the Lessee shall yield up vacant possession of the Additional Area and Alfresco Licensed Area to the Lessor, and shall deliver to the Lessor its copy of this lease duly endorsed with a surrender thereof, on the date of termination.

(b) The Termination Date may not be prior to the first anniversary of the Commencement Date.

(c) If during the periods specified below the Lease of the Additional [Area] is terminated by the Lessor pursuant to special [clause] 6(a), then the Lessor shall pay the Lessee the amounts provided as follows:

Date on which the Lease Terminates Under Special Clause 6(a)

During the period: the first anniversary of the Commencement Date - the second anniversary of the Commencement Date less one day

The amount equivalent to all Rent paid by the Lessee in respect of the Additional Area from the Commencement Date until the Termination Date

During the period: the second anniversary of the Commencement Date - the third anniversary of the Commencement Date less one day

The amount equivalent to 75% of all Rent paid by the Lessee in respect of the Additional Area from the Commencement Date until the Termination Date

During the period: the third anniversary of the Commencement Date - the fourth anniversary of the Commencement Date less one day

The amount equivalent to 50% of all Rent paid by the Lessee in respect of the Additional Area from the Commencement Date until the Termination Date

During the period: the fourth anniversary of the Commencement Date - the fifth anniversary of the Commencement Date less one day

The amount equivalent to 25% of all Rent paid by the Lessee in respect of the Additional Area from the Commencement Date until the Termination Date

(d) It is acknowledged and agreed that for the purposes of calculating the amount of the payment to the Lessee as provided in clause 6(c), the Rent paid by the Lessee in respect of the Additional Area shall be taken as being $35,565.16 per annum (plus GST) as at the Commencement Date and subject to review at the times and in the manner as provided in clause 3(a) of this Deed.

(e) For the avoidance of doubt:

(i) this clause is only an early termination clause and nothing in this clause 6 entitles the Lessor to relocate the Lessee to an alternative premises; and

(ii) the Lessor is not obliged to make any payment to the Lessee if the lease of the Additional Area and license of the Alfresco Licensed Area is terminated pursuant to clause 6(a) on or after the fifth anniversary of the Commencement Date.

18 So seen, subclause 6(c) contains compensatory provisions in respect of any exercise of a power afforded to the landlord by cl 6(a) - to affect a termination of the lease arrangements. By the lease document, the term of the lease and the area of the lease and the alfresco licensed area - are in aggregate extended out to 30 September 2025 plus a five-year option. This is in circumstances where the unmodified earlier lease contained a redevelopment clause in similar terms to cl 6 - and which had been approved by the SAT. The proposed alfresco licence also in fact, contained a similarly approved redevelopment clause by the SAT at 22 May 2019 (see folio document 3 at page 38).

19 It is apparent that the proposed redevelopment clause says nothing at all about relocation by the lessee. Instead, it deals entirely with the question of a potential early termination of the lease, notice of which cannot be given by less than 12 months notice under cl 6(a).

20 Were there any doubt over the point (and there is not), the position is addressed explicitly by cl 6(e) - in terms of there being no relocation component to this clause. Clause 6(e) reads:

(a) this clause is only an early termination clause and nothing in this clause 6 entitles the Lessor to relocate the Lessee to an alternative premises ...

21 The basis for any application seeking consent from the SAT to the early termination clause arises out of s 13(6) of the Retail Shops Act. It reads inter alia:

The landlord under a retail shop lease is not entitled to determine the lease ...

except -

And one of the exceptions as stated by subclause 6(c) is:

(c) under and in accordance with ... the approval in writing of the Tribunal given under subsection 7 or (7a); ...

22 The provision was obviously the precursor to the application made here seeking SAT approval for the early termination clause.

23 Then, under s 13(7) of the Act it is said:

The Tribunal may, upon application made to it by the landlord, notice of which has been given to the tenant, approve of the inclusion in a retail shop lease of a provision under which the landlord may determine the lease (other than under subsection (6)(a), (b) or (da)), ... as is relevant, if it is satisfied that special circumstances exist by reason of which such approval ought to be given.

24 Essentially then, the as submitted cl 6 within the proposed extension of lease document carries no features at all warranting its erroneous characterisation as a relocation clause. In fact, as seen, it says explicitly to the contrary.

25 Consequently, the observation by the sessional member that the Tribunal has no jurisdiction to approve the application was erroneous. The Tribunal plainly did have the jurisdiction to consider the application under s 13(7) of the Retail Shops Act. It should have done so.

26 Further, the SAT ought to have, but never did, get around to exercising that jurisdiction and so, to evaluating whether 'special circumstances' existed for the purposes of an approval as was sought by the landlord for the proposed cl 6.

27 In all the circumstances, I am satisfied a clear error of law has been demonstrated. Consequently, leave to appeal should be granted. The mischaracterisation of cl 6 as a relocation clause, or as necessitating relocation, was erroneous. Moreover, this was an error on an issue of law. It was a related error (of law) for the Tribunal as well to refuse to exercise its jurisdiction under s 13(7) of the Retail Shops Act to consider whether special circumstances had been demonstrated to approve the submitted clause.

28 Accordingly, I find there should be leave to appeal and that both grounds of appeal must be upheld. Hence, the appeal must be allowed.

29 The key question the SAT never ultimately addressed was whether, in fact, special circumstances did exist warranting the approval of the proposed cl 6 in the Lease. This Court holds jurisdiction by s 105(9) of the SAT Act to effectively render any decision that the SAT could have rendered upon the application - had it not acted in error by failing to exercise its jurisdiction to consider the application.

30 Addressing that issue, I am guided by an earlier decision of Curthoys J, delivered 28 February 2020, namely, 480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd [2020] WASC 59. His Honour there considered a very similar proposed provision and had identified a very similar error of law - being again, a mischaracterisation of a proposed early termination clause in that lease.

31 I would respectfully refer and adopt to what his Honour wrote about such issues at [33] - [36] in his Honour's reasons. More particularly, towards the question of special circumstances, his Honour under those reasons, went on to consider whether they were demonstrated or not. I particularly adopt Curthoys J's observations at [42], which read as follows:

In the context of costs the term 'special circumstances' has been held to mean 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'.

I have concluded that there is an appropriate manner in which to interpret that term in the Act. This recognises that the term potentially extends to a wide variety of circumstances which may arise under a tenancy.

33 With respect, I would adopt the same approach. It seems to me that a consistent and uniform interpretation towards what is a commonly encountered piece of tenancy legislation - is of paramount commercial importance under the circumstances.

34 The appellant's submissions clearly identify the special circumstances that it relies upon. I am satisfied such circumstances meet the requirements of s 13(7) of the Retail Shops Act. In particular, by reference to par 27 of the appellant's written submissions of 13 October 2021 (folio document 12) - five factors are identified, being:

(a) the Proposed Lease is of the Additional Area to enhance and add to the existing retail shop lease and alfresco licence which is already the subject of an approved redevelopment clause allowing for early termination;

(b) the 'Landlord's Building' is old and may need to be redeveloped in the next five (5) years;

(c) all of the leases of premises within the Landlord's Building have an equivalent redevelopment clause approved by the Tribunal;

(d) in the event of early termination, the Tenant will be entitled to significant compensation for the early termination calculated in the manner set out in subclause (6)(c); and

(e) the Landlord is required to give the Tenant not less than 12 months' notice of any early termination.

35 Such considerations as enumerated above, are all effective and viable to support my finding as to an affirmative ascertainment, presently, of special circumstances.

36 Commercially speaking, it is obvious that for an old building in West Perth, parts of which are let out to multiple tenants, that it would surely be necessary around any future required redevelopment of the premises, to coordinate the works around all the tenancies in a way that was orderly and would allow that to globally occur - if the building did require a significant future renovation, redevelopment, demolition or reconstruction.

37 The compensatory provisions for the affected tenant, as seen within subclause 6(c), look to be negotiated as a matter of arm's length between landlord and tenant. There is no reason under present circumstances, to second guess or to probe the commercial fairness of those arrangements which, on their face, present as a legitimately reached bargain as between commercial parties in a leasing transaction.

38 I add one more further factor to reinforce the existence of special circumstances towards my ultimate approval conclusion for the cl 6. Specifically, I point out that in the present situation, the appeal application for approval of cl 6 is supported by the respondent tenant. That adds another ingredient to the overall commerciality underlying the approval that is sought for this particular redevelopment clause.

39 I am fully cognisant of the fact there has been no contradictor for the present appeal. But in all the circumstances, I am well satisfied that a clear error of law in terms of effectively conflating a relocation clause with what is, in truth, an early termination clause, is demonstrable and is established. Special circumstances warranting approval of the proposed clause are shown.

40 Accordingly, I find that clear errors of law are demonstrated warranting the grant of leave and the upholding of this appeal.

41 Consequently, I will allow the appeal. Additionally, I find, in all the circumstances, that special circumstances are demonstrated to approve the submitted cl 6 as proposed.

42 Consequently, I make orders in terms of the appellant's proposed minute of orders filed in this court on 13 October 2021 (folio document 13).

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.