Heard McEwan Pty Ltd v G Zanetti Pty Ltd

NCAT Appeal Panel|2017-09-20

Background

This is an internal appeal from a decision of the Consumer and Commercial division of the Tribunal made on 29 May 2017.
At that time, on the application of the present respondent, the Tribunal ordered the appointment of a specialist retail valuer pursuant to section 31(1A) of the Retail Leases Act 1994 (RLA) to assess the current market rent of premises leased to the appellant. The appellant seeks to appeal from that decision. The appellant also seeks declarations and orders as to the amount of rent payable by it pursuant to the lease.
For the reasons that follow, we allow the appeal.

Factual Background

The appellant, a firm of solicitors, was the lessee of retail premises in Dapto, New South Wales. The respondent was the lessor. It was common ground that the leased premises were retail shop premises, that the parties had entered a retail shop lease and that the RLA applied.
The lease commenced on 11 March 2011 for a term of three years, expiring on 13 March 2014. There was an option for a further period of three years commencing on 14 March 2014 and expiring on 13 March 2017. It is common ground that the lessee exercised that option in accordance with the relevant terms of the lease.

The Tribunal's Findings and Reasons Below

The Tribunal considered the relevant clauses of the lease and of the RLA in assessing whether or not to accede to the lessor's application for the appointment of a specialist retail valuer. This included s 71 of the RLA which provides that: (1) A party or former party to a retail shop lease or former retail shop lease may launch a retail tenancy claim in respect of the lease with the Tribunal for determination of the claim. (2) A claim may not be lodged more than 3 years after the liability or obligation that is the subject of the claim arose.
It is appropriate to set out the balance of the Tribunal's reasons which contain references to the evidence before it. From [18] of its reasons the Tribunal said: [18] It is common ground that the parties did not agree upon a retail valuer to determine the current market rent. [19] The [lessor's] case is that its application is under section 31(1A) of the Act for the appointment of a specialist retail valuer by the Civil and Administrative Tribunal which has assumed the functions of the Administrative Decisions Tribunal for the purposes of the Act. As has been stated, its application is under section 31(1A) of the Act which deals with application[s] to the Tribunal for the appointment of a specialist retail valuer. [20] The [lessee's] case is that clause 5.21 of the lease operates to defeat the [lessor's] case for the appointment of a specialist retail valuer. [The Tribunal then set out clause 21 of the lease]. [21] In the alternative it submits that the parties did agree the current market rent. [22] The [lessee's] primary case is that at the commencement of the option period of 3 years on 14 march 2014 the parties had not agreed the current market rent, had not agreed upon a specialist retail valuer to determine the current market rent and had not applied to the Tribunal for the appointment by the Tribunal of a specialist retail valuer to determine the current market rent. [23] The [lessee's] case is as I understand it, that once the new term created by the exercise of the option had been created, the next review date for the purposes of clause 5.21.1 was on the year after the new term commenced pursuant to item 16 of Annexure A, namely 15 March 2015. [24] The [lessor] submits that on 15 March 2015 the parties had not agreed upon a valuer and neither had asked for a valuer to be nominated, with the result that the rent payable by the respondent at the commencement of the new term would not change and that the rent that would be payable at the commencement of the new term would be the sum of $3,264.27 per month. [25] Having regard to the evidence in the proceedings I make the following findings of fact: (1) At the commencement of the option period of 3 years on 14 March 2014 the parties had not agreed the current market rent; (2) At the commencement of the option period of 3 years on 14 March 2014 the parties had not agreed on a specialist retail valuer to determine the current market rate; (3) At the commencement of the option period of 3 years on 14 March 2014 the parties had not applied to the Tribunal for the appointment by the Tribunal of a specialist retail valuer to determine the current market rent; (4) As at 15 March 2015 the parties had not agreed upon a specialist retail valuer and neither had asked the Tribunal for a specialist retail valuer to be nominated. [26] I must decide whether the effect of clause 5.21 as asserted by the [lessee] prevents the [lessor's] application made under s 31(1B) (sic) of the Act. [27] [The Tribunal then set out s 71 of the RLA] [28] I have found that the applicant's claim is a retail tenancy claim for the purposes of the Act. There is no dispute that the lease the subject of these proceedings is a retail shop lease. [29] The obligation to apply for the appointment of a specialist retail valuer arose under clause 5.16 of the lease 30 days before the rent review date witch was for the purposes of the lease, having regard to clause 4.6…, no later than 13 February 2014. [30] Since the application was lodged on 9 December 2016, it was lodged within the three-year period referred to in section 71. [31] I find that clause 5.21 of the lease does not displace the applicant's right to apply for the appointment of a specialist retail valuer pursuant to section 31 (1B) (sic) of the Act. Section 7 of the Act applies to justify that finding. Section 7 of the Act states: "This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision will be void if it were in the lease." [32] The next issue for me to decide is whether the parties agreed to the current market rent. [33] The [lessee] alleges that an agreement was reached with the [lessor] in April 2015. The agreement is referred to in paragraph 82 of the affidavit of Mr Heard of 17th February 2017. The affidavit states that a conversation took place between Mr Heard and Mr Zanetti. Mr Heard states that at the meeting he took Mr Zanetti through various examples of rentals and his research. Mr Zanetti is stated to have said that he would need to take his family through the detail of what Mr Heard was proposing. [34] Mr Heard states that on 23 June 2015 he received an email from Mr Zanetti to the effect that the applicant had agreed to the information that Mr Heard have presented at the meeting. [35] In his email of 23 June 2015 Mr Zanetti stated that he had the premises measured at 142.62 m2 rather than some other measurement that had been discussed. Is email is to the effect that he was conveying is mother's instructions since as he explained at the hearing, the premises the subject of the lease were purchased by his parents as part of their superannuation fund. He stated as follows in his email: "Mum said she is wanting to work with you in an attempt to work out a win/win and said that while all other tenants currently pay a CPI plus 2%, she takes on board what you have said in your research and agrees to only look at only applying a CPI increase per year. Please let me know your thoughts and hopefully if it is agreeable we can look to finalise this." [36] There is no evidence that the respondent ever replied to Mr Zanetti's 23 June 2015 email. [37] On 15 July 2015 Mr Zanetti again sent an email to the [lessee] chasing the situation. The email concluded: "Any chance you can get beck (sic) to me re the last couple of emails otherwise I feel it may end up back with Comelli to address and to try and get this sorted". [38] On 8 July 2015 Mr Zanetti had sent and email to the [lessee] stating: "Any thoughts on my previous email". [39] Mr Heard at paragraph 93 of his affidavit states that the [lessee] received a tenant's tax invoice from the [lessor's] agent which confirmed that it was not in arrears and stated that the rent was $3264.67 per month (inclusive of GST) for 14 July 2015 to 14 August 2015 which was the same as the rent payable during the last year of the initial term. [40] The [lessee's] position is that this tax invoice issued subsequent to the meeting with Mr Zanetti and his email of 25 June 2015 confirm that it was agreed that the rent for the first year of the option period was to remain the same as it was during the last year of the initial lease term. [41] This state of affairs is explained by Ms Comelli whose evidence is exhibit A. She states that she was instructed by Mr Comelli (who I am informed has passed away and who I assume was a family member) who was also employed by the [lessor's] agent, to reset the rent in their software to the old rent until negotiations were finalised. This explanation is put forward to rebut the [lessee's] suggestion that the July/August 2015 rent as invoiced was reduced to the sum of $3264.67 in consequence of the [lessee's] alleged agreement with Mr Zanetti. [42] In considering whether the parties agreed to commence the rental of the option period at the rent that was payable at the end of the initial term it is necessary for the respondent to persuade me on the balance of probabilities that such and agreement was actually entered into. … [44] The fact that the July/August 2015 rent as invoice was reduced to the sum of $3264.67 supports the [lessee's] position that an agreement was reached. Ms Comelli's evidence may be seen as self-serving. However Ms Comelli was not cross-examined on this aspect of the evidence and this explanation by her as what she was told to do and what she did do was not challenged. As a result I accept the evidence. [45] the result is but I am not actually persuaded that an agreement was reached as alleged by the [lessee]. Its failure to respond to the [lessor's] email of 23 June 2015 and the follow-up emails negates the establishment of the agreement as alleged. [46] The result is that I will make [an] order for the appointment of a specialist retail valuer pursuant to section 31 (1B) (sic) of the Act.
It should be noted that none of the findings of fact made by the Tribunal as recorded in [25] of the reasons are challenged by either party.

The Appeal

In it's notice of appeal filed on 14 June 2017, the appellant listed 17 grounds of appeal. At the hearing of the appeal Counsel for the appellant appropriately narrowed these down to 3 grounds: 1. that the Tribunal misdirected itself and misconstrued what is meant by "agreement" within the meaning of section 31 of the RLA; 2. that the decision was against the weight of the evidence and failed to have regard to the evidence before the tribunal resulting in erroneous findings of fact; and 3. that the Tribunal misdirected itself as to the proper construction of the terms of the lease and the provisions of the RLA, including a misapprehension of the relevant provisions of that Act essential to this case.
Counsel for the appellant submitted that grounds one and three raised questions of law and thus did not require leave to appeal (see s 80(2) of the CAT Act). Counsel also submitted that ground two above involved mixed questions of fact and law and was so interwoven with ground one that, if leave was required, it ought to be granted.
We agree that grounds 1 and 3 in so far as they raise the proper construction of the lease raise a question of law: (see for example Westport Insurance v Gordian Runoff (2011) 244 CLR 239 at 279 [82] fn88).
We are satisfied that in so far as leave is necessary to agitate ground 2, it should be granted. The matters raised are, as submitted, bound up with the consideration of the matters that are also relevant to the other grounds.

The Appellant

The lessee relied upon the following material: 1. The Notice of Appeal (refined and reduced in respect to the grounds of appeal as discussed above); 2. The affidavit of Mr Heard sworn 17 February 2017 and Exhibit R1 to that affidavit; 3. Submissions dated 19 July 2017; 4. Submissions in reply dated 24 August 2017; and 5. Typed transcript of the hearing before the Tribunal.

The Respondent

The lessor relied on the following material: 1. Reply to Appeal; 2. Affidavit of Mr Zanetti sworn 9 march 2017; 3. Affidavit of Christina Comelli sworn 10 March 2017; 4. Typed transcript of the hearing before the Tribunal; and 5. Submissions dated 17 August 2017.
All of the affidavit evidence and the exhibit referred to above were in evidence before the Tribunal.

Relevant Provisions of the Lease

Before considering the arguments of the parties, it is convenient to now set out the provisions of the lease that are relevant to the arguments.
It appears that the lease is a standard form Law Society of NSW retail lease. Annexure A to the lease contains a schedule listing various items.
The commencement date of the lease was 14 March 2011 for a term of three years expiring on 13 March 2014. Item 12A of the Schedule provided that there was an option to renew the lease for a further period of 3 years from 14 March 2014 to 13 March 2017. It also specified the first and last days that the option to renew could be exercised.
Item 13 of the Schedule dealt with the rent payable. It set out the rent to be paid from the commencement date of the lease to the first review date. The rent payable from the first review date was to be "at the new yearly rent beginning on each review date by monthly instalments of one twelfth of the new yearly rent".
Item 13 specified that for the "further period in item 12A", namely the further period of 3 years on exercise of the option to renew, the rent would be: "From the commencement date to the first review date: Current market rent Afterwards: At the new yearly rent beginning on each review date by monthly instalments of one twelfth of the new yearly rent."
Item 16 of the Schedule dealt with rent review. It provided that the "rent review date" was each anniversary date following the commencement of the lease. The method of rent review was to be "Method 2" which was specified to be "Consumer Price Index". It should be noted that Method 1 is "fixed amount or percentage" and Method 3 is "current market rent". The item stated that Method 2 applied for rent review unless another method was stated.
Annexure B to the lease contained other terms and conditions of the lease. Clause 4 dealt with the lease period, including the option to renew provided for in clause 4.2. As we have said above, there is no dispute that the option to renew was exercised in accordance with item 12 and clause 4.4.
The balance of clause 4 provided: 4.5 After exercising the option, the lessee must continue to pay all rents and outgoings on time and continue to comply with all of the lessee's obligations under this lease. If the lessee does not do so, the lessor may treat any breach as being a breach of the new lease as well as of this lease. 4.6 A new lease will be the same as this as this lease except for: 4.6.1 the new rent; 4.6.2 the commencement date and the termination date; 4.6.3 the omission of clauses 4.2,4.3,4.4,4.5 and 4.6 and items 12A and 12B in the schedule in the last lease allowed in item 12 in the schedule; 4.6.4 item 12B becoming item 12A; 4.6.5 adjustment of item 12C in the schedule; and 4.6.6 ….. If the new rent is to be current market rent it will be decided in the same way as current market rent is to be decided under Method 3 stated in clause 5 assuming that this lease and the new lease were one continuous lease and the commencement date of the new lease was a rent review date.
Clause 5 relevantly provides: When and how is the rent to be reviewed 5.4 The rent is to be reviewed on the rent review date as stated in item 16 of the schedule. … 5.5 The lessee must continue to pay rent at the old rate until the new rate is known. After that, the lessee is to pay the new rent from the next rent day. By that rent day the lessee is also to pay any shortfall between the old and new rate for the period since the rent review date. Alternatively, the lessor is to refund to the lessee any overpayment of rent. 5.6 There are three different methods described here for fixing the new rent on a rent review date. The method agreed by the lessor and the lessee is states in item 16 in the schedule. The lessee is entitled to a reduction if the method produces a rent lower than the rent current just before the review date. …. Method 3: By reference to current market rent 5.12 In this case the rent is to be the current market rent. This can be higher or lower than the payable at the rent review date and is the rent that would reasonably be expected to be paid for the property, determined on an effective rent basis, having regard to the following matters …(various considerations to be considered but not relevant to the current dispute are then set out) 5.13 The lessor or the lessee can inform the other in writing at least 60 days before the rent review date of the rent that the lessor or lessee thinks will be the current market rent at the rent review date. 5.14 If the lessor and the lessee agree on a new rent then that rent will be the new rent beginning on the rent review date and the lessor and lessee must sign a statement saying so. 5.15 If the lessor and lessee do not agree on the amount of the new rent 30 days before the rent review date, the current market rent will be decided by a valuer appointed under clause 5.16. 5.16 5.16.1 Unless 5.16.2 applies the lessor and the lessee can either agree upon a valuer or can ask the President of the Law Society of New South Wales to nominate a person who is a licenced valuer to decide the current market rent; 5.16.2 Where the property is a retail shop, the valuer appointed must be a specialist retail valuer appointed by agreement of the parties or, failing agreement, by the Administrative Decisions Tribunal. … 5.21 If the lessor and lessee do not agree upon a valuer and neither asks for a valuer to be nominated before - 5.21.1 the next rent review date; or 5.21.2 this lease ends without the lessee reviewing it; or … then the rent will not change on that review date.

The Appellant's Arguments - Ground 1

The lessee argued that: 1. The Tribunal failed to properly construe clause 5.21 having regard to clauses 5.15 and 5.16; 2. Clause 5.16 only applies if clause 5.21 is not operative; 3. 5.21 in this case was operative in that there was no agreement as to a valuer by the "next rent review date", namely by 15 March 2015 (being 1 year after the renewal of the lease by the exercise of the option). Thus, it is argued, the lessor could not then apply for the appointment of a valuer because the effect of this clause is that there is an agreement between the parties that if there had been no consensus as to the valuer by that time, or an application to the Tribunal to appoint one, the rent would be the same as at the time of expiry of the old lease. 4. Accordingly, the lessee submitted, the effect of the provisions in the lease, having regard to the facts of this case, is that the "current market rent" as at the date of the commencement of the new lease is the same rent that was payable on expiry of the original term. The appellant submitted that the rent would thereafter be reviewed at each anniversary of that date in accordance with item 16 and clauses 5.8-5.11 of the lease.
The lessee submits that the Tribunal's findings in [25] of its reasons (set out at [11] above) ought to have resulted in the position it contends for. It submits that if the Tribunal had considered clause 5.21 of the lease in conjunction with s 31 of the RLA, it would have concluded that, in the circumstances, the parties had agreed as to the actual amount of the rent and that the application to appoint a specialist retail valuer would have been dismissed.
Section 31 of the RLA deals with determination of current market rent. It relevantly provides: 31 Determination of current market rent (1) A retail shop lease that provides for rent to be changed to current market rent or that provides an option to renew or extend the lease at current market rent is taken to include provision to the following effect… (emphasis added). (a) The current market rent is the rent that would reasonably be expected to be paid for the shop, s between a willing lessor and a willing lessee in an arm's length transaction (where the parties are each acting knowledgeably, prudently and without compulsion), determined on an effective rent basis having regard to the following matters: … (b) If the lessor and lessee do not agree as to what the actual amount of [the current market rent at the exercise of an option to renew] is to be, the amount of rent is to be determined by a valuation carried out by a specialist retail valuer appointed by agreement of the parties to the lease, failing agreement, by the Registrar…. (1A) A party to a lease may apply to the Registrar for the appointment of a specialist retail valuer for the purposes of subsection (1)(b). (1B) A party to a lease may make written submissions to a specialist retail valuer to assist in the valuer's consideration of the valuation, and the valuer must consider any such written submissions.
The lessee submitted that, as happened in the circumstances, the parties had agreed by the provisions of the lease that, in the event there was no application for an appointment of a value as at the first rent review date after the commencement of the new term of the lease, the current market rent at the exercise of the option for the first year would be the same rent as then being charged. Thus, it contended, as s 31(1)(b) only applied when there was no such agreement, the lessor could not apply for the appointment of a specialist retail value to determine what had already been agreed.
The lessee submitted that the finding of the Tribunal at [31] that clause 5.21 of the lease does not displace the applicant's right to apply for the appointment of a specialist retail value by reason of section 7 of the RLA is wrong. It submits that properly construed, clause 5.21 constitutes the agreement of the parties as to what the rent would be if, as happened here, there had been no agreement as to the rent, no agreement as to a value and no application to nominate or appoint a specialist retail value by 15 March 2015. It submitted the clause was not inconsistent with any provision of the RLA.
The lessee also submitted that the error of the approach by the Tribunal was reflected in the confusion in its reasons to references to s 31(1B) of the RLA (see for example at [31] and [46] of the reasons). We do not think this submission should be accepted. It is clear from the references that the Tribunal meant to refer to s 31(1A) of the RLA and the references to s 31(1B) are typographical errors.

The Respondent's Arguments - Ground 1

The lessor submitted that the proper construction of the lease did not lead to the result suggested by the lessee. It submitted that there had been no agreement as to the new rent 30 days before the rent review date. It agreed that the relevant "rent review date" here was 14 March 2014, being the date of commencement of the new lease: see clause 4.6. Thus, it submitted, there being no agreement as to the current market rent 30 days before that date, in accordance with clause 5.15 of the lease, the current market rent must be determined by a value appointed under clause 5.16.
The lessor submitted that, as the property is a retail shop, clause 5.16.2 applies. That clause provided that where the property is a retail shop, the value appointed must be a specialist retail value appointed by the agreement of the parties, or failing agreement, by the Tribunal.
The lessor accepted that, in respect to clause 5.21, "the next rent review date" in sub-clause 5.21.1 is 14 March 2015 (being the next rent review date after the relevant rent review date being the date of commencement of the new term on 14 Marc 2014). The respondent says, however, that by reason of the mandatory nature of clause 5.16.2, clause 5.21 has no operation.

Consideration and disposition of Ground 1

In February of this year the Appeal Panel considered the construction of clause 5 of the standard form Law Society of NSW retail lease in Savage v Clear don Pty Ltd [2017] NSWCATAP 47. This decision was not brought to the attention of the Tribunal below, nor to our attention.
In that case, on the application of the lessor, the Tribunal had appointed a specialist retail value to determine the current market rent. The lease provided that the rent was to be reviewed annually to CPI with a market rent review on 25 January 2016. Clause 5 of the lease was in exactly the same terms as clause 5 of the lease in this appeal. There had been no nomination by either party as to what the market rent would be, no agreement as to the rent, nor any agreement upon the appointment of a value as at 25 January 2016. It was not until 21 April 2016 that the lessor commenced proceedings in the Tribunal seeking the appointment of a value pursuant to clause 5.16.2 of the lease (and s 19 of the RLA). The lessee objected to the appointment on the basis that the right to seek the appointment of a value by the Tribunal had lapsed. The lessee lodged its own application, which was heard at the same time, seeking a declaration that the rent as at the review dated was the same as at the last review date by reason of clause 5.21 of the lease.
The Tribunal found in favour of the lessor and appointed the value. In doing so, the Tribunal construed "the next rent review date" in clause 5.21 as being 25 January 2017, that is, the rent review date after the rent review date at which the rent was to be determined (25 January 2016).
In considering the proper construction of the lease the Appeal Panel said: 28. The principles that apply to the interpretation of commercial contracts were recently summarised by the High Court in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 ; [2014] HCA 7 at [35] in the following terms: The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [Footnotes omitted] 29. It is important in considering the meaning of clause 5.21.1 to read that clause in its full context. The Tribunal Member did not in his decision set out the whole of clause 5.21. In our view, when that clause is read as a whole, it is clear that the reference to "the next rent review date" is, as the Tribunal determined, a reference to the rent review date following the market rent review date. 30. The full text of clause 5.21 is as follows: 5.21 If the lessor and lessee do not agree upon a value and neither asks for a value to be nominated before - 5.21.1 the next rent review date passes; or 5.21.2 this lease ends without the lessee renewing it; or 5.21.3 this lease is transferred after the rent review date with the lessor's consent; or 5.21.4 the property is transferred after the rent review date then the rent will not change on that rent review date. 31. It is a general principle of contractual construction that, in construing a contract, all parts of it must be given effect where possible and no part of it should be treated as inoperative or surplus. As the learned authors of Lewiston, The Interpretation of Contracts in Australia (2012) state at [7.03] (page 291): …as a corollary of the principle that a document must be construed as a whole, effect must be given to each part of the document. This in turn means that in general every part of the document is taken to have been deliberately inserted, having regard to all other parts of the document, with the result that there is a presumption against redundant words (usually called "surplus age"). This principle is sometimes labelled the argument from redundancy. In Re Strand Music Hall Co Ltd, Lord Romilly MR said: "The proper mode of construing any written [instrument] is to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another and more express clause in the same deed." So also in Chapmans Ltd v Australian Stock Exchange Ltd, Lockhart and Hill JJ said: "It is an elementary proposition that a contract will be read as a whole giving weight to all clauses of it, where possible, in an endeavour to give effect to the intention of the parties as reflected in the language which they have used. A court will strain against interpreting a contract so that a particular clause in it is nugatory or ineffective, particularly if a meaning can be given to it consonant with other provisions in a contract." Similarly, in Dovuro Pty Ltd v Wilkins, Finkelstein J said: "Speaking generally, it is not permissible to construe one part of a contract so as to render inoperative or as surplusage another part." 32. If the "next rent review date" in clause 5.21.1 meant "the market review date" then there would be no conceivable circumstances in which clauses 5.21.3 and 5.21.4 could ever have any operation. The same could also be said of clause 5.21.2 but for the sake of clarity we need refer only to clauses 5.21.3 and 5.21.4. 33. If the "next rent review date" is the market review date (ie in this case 25 January 2016) then there could be no circumstances in which events occurring "after the rent review date" could have any impact upon the capacity of the parties to ask for a valuer to be nominated. That capacity would have terminated on the rent review date by virtue of clause 5.21.1, and the subsequent assignment of the lease by the lessee or the transfer of the property by the lessor could not affect the situation. 34. Only if "the next rent review date" means the rent review date next following the relevant date, could clauses 5.21.3 and 5.21.4 have any scope for operation. So interpreted, clause 5.21 provides four distinct events which would bring to an end the parties' entitlement to ask for the nomination of a valuer. 35. Reading clause 5.21 as a whole also renders explicable why the final line refers to "that rent review date". "That rent review date" is the rent review date referred to in clauses 5.21.3 and 5.21.4. There is no reason why "that rent review date" should have the same meaning as the "next rent review date" referred to in clause 5.21.1. 36. We note Martin J's summary of the appropriate approach to the construction of commercial contracts (including leases) in paragraphs [20] to [21] of the decision in Domino's Pizza: [20] In construing the lease provisions, and cl 3.3.1 in particular, one must draw upon the broad principles of construction of contracts. These were clearly articulated by Wilson J in Tri-Star Petroleum Co v GPT Funds Managements Ltd, another case involving notice requirements in a rent review clause: [16] The lease is a contract between two commercially sophisticated parties. The Court's task is to interpret the words they used and to determine their true intent. As Gleeson CJ said of an insurance policy in McCann v Switzerland Insurance Australia Ltd - … [It] … is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. [17] The Court must begin with the words used by the parties, and seek to ascertain what a reasonable person would have understood them to mean. In Toll (FGCT) Pty Ltd v Alphaharm Pty Ltd the High Court said - This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.20 In Watson v Phipps the Privy Council said - The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further. In Ryledar Pty Ltd v Euphoric Pty Ltd the New South Wales Court of Appeal reviewed relevant authorities about the interpretation of commercial contracts. Tobias JA (with whom Mason P and Campbell JA agreed) approved this passage from the decision of the trial judge - 31. However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation. 32. When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction. But the court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document. When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings. It is then the Court's task to identify which of the possible meanings represents the parties' contractual intention. 33. However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit. [21] Further assistance can be garnered from the judgment of Muir JA in Elderslie Property Investments (No 2) Pty Ltd v Dunn: [20] The object of contractual construction is to "ascertain and give effect to the intentions of the contracting parties." Those intentions, to be determined objectively, are "what a reasonable person would have understood [the words of the contract] to mean." And to ascertain that "normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. The Deeds, as commercial contracts, "should be given a businesslike interpretation". The interpretation of each Deed requires "attention to … the commercial circumstances which the document addresses, and the objects which it is intended to secure." Commercial contracts are to be construed with a view to making commercial sense of them. [21] In Wickman Machine Tool Sales Ltd v L Schuler AG Lord Reid said: The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear. [22] In Antaios Compania Naviera SA v Salen Rederierna AB, Lord Diplock expressed stronger views concerning the imperative to make business sense of commercial contracts, stating: If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense. [footnotes omitted] 37. We also note the comments of Ball J in Healthcare Australia Pty Ltd v Randstad Pty Ltd [2016] NSWSC 1407 at [17]: If the meaning of words in a contract understood in their context is clear, then the court must give effect to them notwithstanding that that interpretation produces a capricious or uncommercial result. As Gibbs J (in dissent, but not on this issue) explained in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36: If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate" … See also JP Morgan Australia Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3 at [96] per Macfarlan JA with whom Campbell JA and Young JA agreed; Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114; Hohn v Mailler [2003] NSWCA 122. 38. In our view the words of clause 5.21 are not relevantly ambiguous, "the next rent review date" in clause 5.21 is clearly the rent review date after the relevant review date, in this case 25 January 2017. 39. The cases relied upon by the appellant, Domino's Pizza v Seldex and Bayclould v Dowling Investments, related to leases which were worded quite differently to the lease between the tenant and the respondent in this case and in our view are of no assistance in relation to the different wording of that lease. 40. We agree with the submission on the part of the appellant that the possibility that a tenant (or landlord) cannot be certain there will not be a market rent review for as long as twelve months after the rent review date would be commercially inconvenient. However we do not consider that that result would be so unreasonable, so capricious or so contrary to "business common sense" that, other things being equal, it could require what we consider to be the clear meaning of the words of clause 5.21 to be disregarded.
We agree with the Appeal Panel's construction of clause 5.21. Later in their reasons, the Appeal Panel also came to the conclusion that unless the parties had proposed what they thought the current market rent would be on the rent review date, then the ability to seek the appointment of a specialist retail was not enlivened. It is not necessary for us to consider that issue here, as the parties had been in correspondence about the rent to take effect on the commencement of the new lease, but without agreement.
It seems to us that the proper construction of the relevant provisions of the lease having regard to the factual findings made and the evidence before us is as follows: 1. As at the commencement of the new lease on 14 March 2014, the rent was to be the current market rent: (item 13 of the schedule); 2. That current market rent was to be determined in accordance with Method 3 of clause 5. For those purposes it was to be assumed that the lease and the new lease were one continuous lease and that the commencement date of the new lease, namely 14 March 2014, was the relevant rent review date (Relevant Rent Review Date): (clause 4.6); 3. The lessor or lessee could inform each other in writing at least 60 days before the Relevant Rent Review Date of the new rent that the lessor or lessee thought would be the current market rent at that date: (clause 5.13). There was evidence that the parties did enter into negotiations from November 2013 for the rent at the commencement of the new lease including informing each other what they thought the new rent should be; 4. if the lessor and the lessee had agreed on the new rent, then that rent would have been the new rent from 14 March 2014 and they were each required to sign a statement saying so: (clause 5.14). We will return to the question of whether or not there was a concluded agreement between the parties as to the new rent when we consider ground 2. For the reasons we set out below, we do not think that the Tribunal erred in concluding there was no such agreement. Further, plainly there was no signed statement by each of the parties saying what was agreed to be the new rent; 5. as the lessor and lessee did not agree on the new rent 30 days before 14 March 2014, the current market rent was required to be determined by a valuer appointed under clause 5.16: (clause 5.15). We therefore agree with the lessor's submissions that the use of the word "will" in clause 5.15 indicates that the parties intention at the time the contract was entered into was that in the circumstances where there had been no agreement on the new rent 30 days before Relevant Rent Review Date then that new rent (the current market rent) had to be determined by a valuer appointed under clause 5.16. This is, however, subject to clause 5.21 as we set out below; 6. as the property is a retail shop, the valuer was to be a specialist retail valuer appointed by agreement of the parties, or failing agreement, by the Tribunal: (clause 15.6.2); 7. as the lessor and lessee had not agreed upon a specialist retail valuer and neither asked for a specialist retail valuer to be nominated before the "next rent review date" (being 14 March 2015) passed, then the rent at the Relevant Rent Review Date did not change: (clause 5.21.1). That is, in this case, the rent that was being paid at the expiry of the lease on 13 March 2014 would be the rent from 14 March 2014 to 13 March 2015. Rent for the remaining term of the new lease would be reviewed on each anniversary of the Relevant Rent Review Date by Method 2, namely CPI: (Item 16, clauses 5.4 and 5.8-5.11).
In construing the lease we have applied the principles of construction of commercial contracts referred to above. To adopt the lessor's argument on construction would mean that clause 5.21 has no work to do. Such an approach to construction of commercial contracts is to be avoided. It offends the well accepted principle that "[s]peaking generally, it is not permissible to construe one part of a contract so as to render inoperative or as surplusage another part": (Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476 at [152] and the cases there cited). Further, in our opinion, the approach proposed by the lessor ignores the pain language of the lease. It is not suggested that the alternative approach leads to an absurd result. We reject the lessor's construction.
There are some additional observations we wish to make as to why the construction we favour is the preferable one. In our opinion, a plain reading of the terms of the lease show that clause 5 sets out the agreement of the parties as to the process for the determination of the current market rent at the Relevant Rent Review Date. The parties were able to, and did, engage in negotiations about the new current market rent at least 60 days before the commencement of the new lease. If, 30 days before the commencement of the new lease, the parties were unable to agree, then the current market rent was to be determined by a specialist retail valuer. The lease then provided that the parties were to attempt to agree on the identity of the specialist retail valuer but, if that could not be done, then the specialist retail valuer was to be appointed by the Tribunal. Clause 5.21 reflects, in our opinion, the agreement of the parties that the process of agreeing on a valuer, or the application to the Tribunal for one to be appointed, must be finite in time. The lease provided that if the parties have not agreed, or asked for the Tribunal to appoint a valuer, within 12 months from the commencement of the new lease, the rent remains the same and the right for the rent to be reviewed to current market rent lapses.
It seems to us that there are good commercial reasons why the lease would specify a finite period for the process of determining the rent. Whilst rent is to be paid at the old rate until the new rate is known with any necessary adjustments or payments (clause 5.5), it makes commercial sense for the parties to want some certainty, within a reasonable period of time of the commencement of the new lease, as to what the rent will be. This would be so for cash flow or other reasons. It would provide certainty for each of the parties within a reasonable time after the commencement of the new lease.
Of course, there would be nothing to stop the parties coming to an agreement as to what the current market rent is so as to avoid the time and cost of appointing a valuer, or applying to have one appointed by the Tribunal. But the parties agreed that they should not be able to negotiate these matters indefinitely.
It remains to consider whether the Tribunal erred in finding that clause 5.21 offended section 7 of the RLA in the sense that it is inconsistent with that Act. The Tribunal held that if clause 5.21 is read in the manner we think it should be, then it did offend section 7 of the RLA as it was inconsistent with the right of a party to apply to the Tribunal for the appointment of a specialist retail valuer pursuant to s 31(1A) of that Act. We do not agree.
We have set out the text of s 31 at [31] above. The section deems that all retail shop leases are taken to include a provision to the effect as set out in subsections (a)-(f). These subsections detail what current market rent is, matters to be considered in arriving at the current market rent, a mechanism for the appointment of a specialist retail valuer and how that valuation is to be conducted.
In the present case, the lease contained almost identical provisions. There is a slight difference between s 31(1)(a) of the RLA and clause 5.12 of the lease in that the Act states that the current market rent is not to take into account the value of the goodwill created by the lessee's occupation or the value of the lessee's fixtures and fittings on the retail shop premises, whereas clause 5.12.5 says that those matters are to be had regard to in determining the current market rent. The remaining parts of the lease dealing with the determination of current market rent (clauses 5.12- 5.21) in our opinion are otherwise consistent with s 31(1) of the RLA.
Section 7 of the RLA relevantly states that: 7. This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act….
As such, and it does not need to be finally determined, clause 5.12.5 may be void to the extent (and only to that extent) that it is inconsistent with s 31(1)(a) in the manner identified in [47] above. We do not, however, regard clause 5.21 of the lease as inconsistent with the RLA. If, as we conclude, that clause represents the agreement of the parties as to the time limit by which the agreement as to the identity, or right to apply to the Tribunal for the appointment of, a specialist retail valuer must be made, there is no relevant inconsistency.
Section 31(1) is to the effect that retail shop leases are to include a provision to the effect stated. One of the matters stated is that if there is no agreement as to amount of the current market rent, it is to be determined by a specialist retail valuer. If the parties can't agree the identity of the specialist retail valuer, that valuer is to be appointed by the Tribunal. The lease is to the same effect. Clause 5.21 was the mechanism by which the parties have set out their agreement as to the actual amount of the rent in the circumstances where that clause applied.
Section 31(1) does not prescribe any time limit for the parties to attempt to agree the rent, the identity of the valuer or to make an application to the Tribunal. We do not see that a provision in the lease reflecting the parties' agreement setting such a time limit but not otherwise restricting a right to apply to the Tribunal is inconsistent with the effect of the statutory provision. For the reasons we have explained above, we think there were sound commercial reasons why the parties agreed to set a time by which, failing agreement as to the amount of the rent, they were to agree to the identity of the valuer or apply to the Tribunal for one to be appointed. We do not think a year from the commencement of the new lease is an unreasonably short period of time so as to make that agreement inconsistent with the RLA.
Further, we do not think that the time limit of 3 years in which a retail tenancy claim must be made as prescribed by s 71(b) of the RLA (as it was in effect at the time of the hearing below) changes the position. That time limit is the outer time by which parliament decided that all such applications could be made. We do not see that as restricting the parties from agreeing that if the application was not made by an earlier date, other contractual consequences would flow. The parties were free to agree to specify the time by which they must make the application to the Tribunal so as to give commercial effect to their bargain. The bargain here relevantly being the amount of the rent as at the Relevant Rent Review Date if, by the next rent review date, there had been no agreement or application. In any event, clause 5.21 does not preclude an application to the Tribunal. It does not seek to oust its jurisdiction. All it does is record the parties' agreement as to the calculation of the rent in circumstances where that clause applies.
It might be said that if clause 5.21 has the effect we have concluded it has, then a party to the lease (who thought it in their interests to do so) may deliberately delay agreement as to the identity of the valuer for a year so that they avoided the possible consequences of a market rent review and the rent remained the same. However, if that is the case, the lease and the RLA allowed the other party (if hypothetically met with such a tactic) to make an application to the Tribunal for the appointment of the specialist retail valuer. They could protect themselves by making such an application. On our construction of the lease, the parties had agreed that such an application ought to be made within one year of the commencement of the new lease.
There is another way of looking at the matter. Section 31(1)(b) provides that the current market rent is to be determined by a specialist retail valuer if the lessor and lessee do not agree as to what the actual amount of that rent is to be. Here, as the lessee submits, the parties have in fact agreed that, in the circumstances where the provisions of clause 5 of the lease apply and the parties have not agreed on the identity of the valuer or made an application to the Tribunal within one year of the commencement of the new lease, the rent from that date for the first year of the new lease will be the same as it was on expiry of the old lease, That is, they have agreed as to the actual amount of the rent. In those circumstances, there is no necessity for a party to apply to the Tribunal for the appointment of a specialist retail valuer. We think the Tribunal erred in holding otherwise.
We would uphold ground 1 and allow the appeal.

Ground 2

As we have upheld the appeal on ground 1, it is not strictly necessary to deal with ground 2. That ground deals with the appellant's alternative argument that the parties had reached agreement as to the amount of the rent to be charged.
In deference to the arguments put to us by counsel for the parties, we would simply make the following observations. We would not disturb the Tribunal's findings in this regard. Whilst it is unnecessary to go into the detail of the material, we do not think that the evidence relied upon by the appellant showed that, objectively viewed, the parties had reached a concluded agreement from their negotiations on the rent to be charged for the new lease. As the Tribunal set out, the appellant failed to respond to several emails from the landlord which contained proposals or counter proposals. This supports the Tribunal's conclusion that there was never any offer and acceptance so as to constitute a binding agreement.
We do not see the change in the invoices issued by the respondent during this time as conclusive evidence of the lessee's position. The Tribunal was entitled to accept the evidence led by the lessor that the invoices were changed to reflect the old rent until the negotiations were concluded. That was the unchallenged evidence of the witness for the respondent. It also reflects clause 5.5 of the lease.
We would reject ground 2.

Ground 3

In light of our conclusions on ground 1 it is unnecessary to deal with this ground in any detail. In so far as it raises the proper construction of the lease, we have dealt with it in dealing with ground 1.
In so far as it deals with the suggestion that the Tribunal misapprehended the correct provisions of the RLA relevant to the determination of the proceedings, as we have stated in [34] above, we think the references to s 31(1B) of the RLA in the Tribunal's reasons were typographical errors.

Orders Sought by the Appellant

The lessee seeks the following orders in its Notice of Appeal: 1. Decision made 29 May 2017 be set aside. 2. Pursuant to section 72(1)(c)(iii) of the Retail Leases Act, 1994, that a declaration is made that the monthly rent remain the same for the amount of $3,264.67 (including GST) per calendar month from 14 March 2014 to 13 March 2015, with CPI increases to apply thereafter as per the terms of the Lease. 3. Matter be re-determined by the Appeal Panel, or in the alternative, a Tribunal Member.
The difficulty for the lessee in seeking orders 2 and 3 above, is that it has not made a retail tenancy claim so as to enliven s 72(1)(c)(iii) (or any other section of the RLA) or to entitle it to make any other claim for relief. It could have, but did not, make any application to the Tribunal for that relief or any relief at all. The position was otherwise in Sauvage where the Appeal Panel had before it appeals from proceedings commenced by each of the parties.
The only application before the Tribunal in this case was by the lessor for the appointment of a specialist retail valuer pursuant to s 31(1A) of the RLA. The lessee appeals from that decision.
Section 81 of the CAT Act provides: 81 Determination of internal appeals (1) In determining an internal appeal, the Appeal Panel may make such orders as it considers appropriate in light of its decision on the appeal, including (but not limited to) orders that provide for any one or more of the following: (a) the appeal to be allowed or dismissed, (b) the decision under appeal to be confirmed, affirmed or varied, (c) the decision under appeal to be quashed or set aside, (d) the decision under appeal to be quashed or set aside and for another decision to be substituted for it, (e) the whole or any part of the case to be reconsidered by the Tribunal, either with or without further evidence, in accordance with the directions of the Appeal Panel. (2) The Appeal Panel may exercise all the functions that are conferred or imposed by this Act or other legislation on the Tribunal at first instance when confirming, affirming or varying, or making a decision in substitution for, the decision under appeal and may exercise such functions on grounds other than those relied upon at first instance.
Whilst s 81 of the CAT Act gives the Appeal Panel broad powers to make various orders, or do various things, on determining an internal appeal, we do not think that such powers extend to making declarations that had not been sought in the proceedings and were not the subject of the decision below. To make the declaration sought by the appellant would not be varying, setting aside or making a decision in substitution for the decision below as the Tribunal was not asked to make that decision or any decision by the lessee. Nor would it be exercising the functions conferred or imposed by the CAT Act or RLA on the Tribunal below in respect to the application before it. That is because in the Tribunal below there was no application before it by the lessee and it was not asked to consider whether to make the declarations sought but only whether to appoint a specialist retail valuer.
In the end, our refusal to make the declaration sought by the appellant may not matter. That is because it was necessary in considering the appeal, for us to consider the proper construction of the lease. That construction makes plain what the rent was at the commencement of the new lease on 14 March 2014. The parties ought be able to apply that construction to assess that rent and any increase in rent on subsequent rent review dates for the duration of the lease.

Orders

For the above reasons, the orders we make are: 1. In so far as is required, leave to appeal granted; 2. Appeal allowed. 3. The order of the Tribunal made on 29 May 2017 is set aside and in lieu thereof order that the application to the Tribunal dated 9 December 2016 be dismissed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 13 November 2017

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