Court of Appeal (WA)|2011-09-21|Before: Martin CJ

KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2011] WASCA 196 (21 September 2011)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2011] WASCA 196

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2010] WASC 374

Commercial tenancy legislation - Rent review - Whether the State Administrative Tribunal has jurisdiction to determine rent payable following determination by a valuer

Campbell v Edwards [1976] 1 WLR 403

Jones v Sherwood Computer Services plc [1992] 1 WLR 277

Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No 2) [2010] WASC 374

Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314

Mackay v Dick (1881) 6 App Cas 251

Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 50; (1979) 144 CLR 596

TXU Electricity Ltd v Commonwealth Custodial Services Ltd [2003] VSC 88

1 The substantive issue in this appeal is whether the State Administrative Tribunal (the Tribunal) has jurisdiction to determine the amount of rent to be paid under a retail shop lease following a review of the rental, even though a valuer appointed by agreement of the parties to the lease has determined the rent payable following review. For the reasons which follow, in such a case, at least until such time as the determination by the valuer has been set aside, the jurisdiction conferred upon the Tribunal by s 11 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the Act) does not empower the Tribunal to determine the amount of rental payable following review.

2 It is appropriate to set out the legal framework in which the issue arises before turning to the particular factual circumstances of this case.

3 The Act applies to 'retail shop leases' - an expression defined by the Act. It is unnecessary to set out that definition, because it is common ground that the lease the subject of these proceedings falls within its terms.

4 Part II of the Act contains provisions which are generally applicable to retail shop leases. Amongst those provisions is s 11 which deals with the subject of rent review. The provisions of that section that are relevant to these proceedings are:

(3) A retail shop lease that provides for review of the amount of rent payable during the currency of the lease shall be taken to provide that where the parties do not agree on the rent payable as a result of the review, the question shall be resolved, subject to subsection (5), by either -

(a) a person licensed under the Land Valuers Licensing Act 1978 agreed to by each of the parties; or

(b) 2 persons licensed under that Act, one of whom is appointed by the landlord and one of whom is appointed by the tenant.

(3a) If the parties to a retail shop lease referred to in subsection (3) do not agree on the rent payable as a result of the review concerned, the rent payable immediately before that review shall not be increased or reduced before the question is resolved or determined under this section, but nothing in this subsection prevents any increase or reduction in rent which takes place after that resolution or determination from being due and payable with effect from the date of that review.

(4) A person who acts under subsection (3)(a) or (b) shall, at the request of and on payment of the required fee by a party to the lease, provide reasons for his decision in writing to that party.

(5) Notwithstanding subsection (3), a party to a retail shop lease may refer to the Tribunal for determination a question as to the rent payable as a result of the review by the parties where -

(a) the persons acting under subsection (3)(b) fail to reach an agreement on the rent to be paid; or

(b) a person has not acted under subsection (3)(a) or (b) and the leave of the Tribunal has been obtained,

but otherwise such a question shall not be referred to the Tribunal.

...

(8) In determining a question under subsection (5) the Tribunal, after considering all the circumstances of the case, may determine that any increase or reduction in rent payable as a result of the determination of the Tribunal under that subsection is payable over such period as the Tribunal thinks fit.

5 Some aspects of these provisions should be noted. First, s 11(3) of the Act operates by incorporating a term into the lease between the parties. So, the statute achieves its objective not by imposing statutory rights and obligations directly upon the parties, but by providing that the rights and obligations arising by virtue of the lease are to be taken to include the rights and obligations arising from a provision implied into the lease by the Act.

6 Next it is to be noted that the term implied by the statute provides that where the parties fail to agree upon the rent payable as a result of the review, 'the question' (being the question of the amount of rent payable following the review) is to be resolved, subject to subsection (5), either by the parties agreeing to appoint a single valuer, or by each appointing a valuer to resolve 'the question'.

7 Subsection (5) provides that if the mechanism for resolving 'the question' provided by subsection (3) has not achieved that result because:

(a) the two valuers appointed, one by each of the parties, have failed to reach agreement on the rent to be paid, or

(b) the reviewed rental has not been determined by either a valuer or valuers appointed pursuant to the term implied into the lease,

and, in the latter case, the Tribunal has granted leave, then a party to the lease may refer the 'question as to the rent payable as a result of the review' to the Tribunal for determination. Subsection (8) provides that in determining the question referred to under subsection (5), the Tribunal may order the increase or reduction in rent payable as a result of the review to be payable over such period as the Tribunal thinks fit.

8 There are a number of circumstances in which the provision which s 11(3) implies into all retail shop leases will not have the desired effect of resolving the question of the amount of rent payable as a result of the rent review. If the parties agree upon the appointment of a single valuer to resolve the question, that valuer might fail to perform his or her task. Or if the parties cannot reach agreement upon a single valuer with the result that each appoints a valuer, and those valuers fail to agree, 'the question' will remain unresolved. It is apparent that the legislature recognised the possibility that the term which was to be implied might not result in a determination as to the rent payable in all cases, and provided that in that eventuality, the Tribunal should fill the gap and determine the amount of rent payable following review. That characterisation of the role of the Tribunal emerges clearly from the language used in the statutory scheme.

9 Further, subsection (5) expressly provides that 'the question' can only be referred to the Tribunal if the leave of the Tribunal has been obtained, where the basis for the reference to the Tribunal is the failure of a person to act to resolve the question 'under subsection (3)(a) or (b)'. The terminology used in this subsection lacks precision because, strictly speaking, the power of a person to 'act' does not arise under the subsection but under the term which the subsection implies into the lease agreement. However, it is clear enough that the expression refers to the circumstance in which a valuer appointed by a party or the parties to the lease, has not acted so as to give effect to the term implied into the lease agreement. The requirement for the grant of leave in such a circumstance provides an opportunity for the Tribunal to inquire into the reasons why the term implied by the statute has failed to achieve its purpose. Thus, for example, in deciding whether to grant leave, the Tribunal may consider whether all reasonable steps have been taken to enable a valuer to be appointed by agreement between the parties and for that valuer to resolve the question of the rent payable following review, or for the parties to each appoint a valuer in default of agreement as to a single valuer. Viewed in this way, the requirement for the grant of leave is consistent with the evident scheme of the statute, which is to provide a mechanism by which the parties might, through the appointment of a valuer or valuers, resolve the question, but providing an avenue of resort to the Tribunal if, and only if, the mechanisms provided by the implied term have failed to achieve their objective.

The general law relating to rental determinations

10 It is common for leases to contain provisions to the effect that in the event that the parties fail to agree upon the rental payable following a review, the rental is to be determined by a valuer or valuers. The ubiquity of these provisions is such that the legal principles governing the effect of such a determination are well settled. If the determination accords with the terms of the lease, it binds the parties even though it might be the product of mistake or error. As McHugh JA observed in Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314:

By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision (335).

11 However, if the determination of the rental payable does not accord with the lease agreement because, for example, it is not honest or is vitiated by collusion, or falls outside the scope of the provision in the lease because, for example, the valuer has assessed the wrong premises, the parties will not be bound, and one or other could seek a remedy setting aside the purported determination of the valuer, on the basis that it was not a valid determination under the lease. However, an error in the discretionary judgment of the valuer, or a mistake in the reasoning process, will not result in the invalidity of the determination unless it is of the limited kind to which I have referred, and which takes the purported determination beyond the scope of the powers conferred upon the valuer by the lease agreement (see also Campbell v Edwards [1976] 1 WLR 403, 407; Jones v Sherwood Computer Services plc [1992] 1 WLR 277, 287; TXU Electricity Ltd v Commonwealth Custodial Services Ltd [2003] VSC 88).

12 My reference to the invalidity of a purported rental determination which does not comply with the provisions of the lease is not meant to be exhaustive of the circumstances in which action might be taken to obtain relief in respect of such a rental determination. For example, if the determination was obtained as a consequence of misleading or deceptive conduct, or unconscionable conduct, the remedies available under the Australian Consumer Law applicable in this State under the Competition and Consumer Act 2010 (Cth) and the Fair Trading Act 2010 (WA) might extend to setting aside or varying the determination.

Other jurisdiction conferred upon the Tribunal by the Act

13 Section 11 is not the only source of jurisdiction conferred upon the Tribunal by the Act. Section 16 provides that:

Reference of questions to State Administrative Tribunal

(1) Subject to section 11(5), a party to a retail shop lease may refer to the Tribunal any question between the parties which he believes to be a question arising under the lease and the Tribunal shall -

(a) determine whether or not the question referred to the Tribunal is a question arising under the lease; and

(b) if it is such a question, hear and determine it.

(2) The matter for determination referred to in subsection (1)(a) may be determined by the Tribunal in such manner as it thinks fit, subject to each party being given an opportunity to make a written submission.

14 It is of some significance that the section is expressly provided to be subject to s 11(5). That express reservation upon the breadth of the jurisdiction conferred upon the Tribunal by s 16 is only consistent with the view that s 11(5) is intended to be the only source of jurisdiction to make a determination of the rental payable following a failure of the mechanisms for rent review implied into retail shop leases by the Act. However, this is not to say that matters associated with rent reviews would not fall within the scope of s 16 of the Act. For example, the parties to a lease are no doubt bound by the term implied by law into all agreements to the effect that each agrees to do all that is necessary to be done on his or her part for the carrying out of the agreement and to enable the parties to have the benefit of the contract (see Mackay v Dick (1881) 6 App Cas 251, 263; Butt v McDonald (1896) 7 QLJ 68, 70 - 71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 50; (1979) 144 CLR 596, 607; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126). So, if one of the parties to the lease refused to enter into negotiations for the appointment of a single valuer, or to nominate a valuer to comprise one of the two valuers required to resolve the question of the rent payable, it might be argued that that party was in breach of the implied term, and a remedy sought within the jurisdiction conferred upon the Tribunal by s 16 of the Act. Alternatively, if one of the parties wished to contend that a determination purportedly made by a valuer fell outside the scope of the provision implied into the lease by s 11(3), and was not therefore binding upon the parties, it may be that this contention could be referred to the Tribunal as a question 'arising under the lease' within the scope of the jurisdiction conferred upon the Tribunal by s 16 of the Act. The precise scope of the jurisdiction conferred upon the Tribunal by s 16 of the Act in relation to matters arising in connection with rental determinations was not the subject of detailed submissions by the parties to this appeal, and any definitive view on the scope of that jurisdiction should await expression in a case in which issue has been joined on the subject.

15 In addition to the general jurisdiction conferred upon the Tribunal by s 16 of the Act, specific jurisdiction is conferred upon the Tribunal in relation to unconscionable conduct by parties to a retail shop lease by s 15F of the Act. Under that section, a party or former party to a retail shop lease who suffers loss or damage because of unconscionable conduct of another person in contravention of the prohibitions upon unconscionable conduct contained in s 15C and s 15D of the Act may recover the amount of that loss or damage by proceedings brought in the Tribunal. It is, however, significant to note that unlike the jurisdiction conferred upon a court by the provisions of the Australian Consumer Law relating to unconscionable conduct, the jurisdiction of the Tribunal under s 15F of the Act is limited to the award of compensation, or a declaration that a party is not obliged to make a payment, and such ancillary orders as may be necessary to enable such orders to have full effect. Accordingly, the jurisdiction of the Tribunal conferred by s 15F of the Act would not extend to the setting aside of a determination as to the amount of the rental payable, but could achieve much the same practical result by either awarding compensation or damages calculated by reference to a portion of the rental payable, or by directing that a portion of the rental payable not be paid.

The circumstances of this case The parties

16 The appellant, Khayat Investments Pty Ltd (the lessee) is the lessee of retail shop premises situated in Hay Street, Perth. The respondents, Winston Holdings Pty Ltd and Ayoman Pty Ltd (the lessor) are, together, the lessors of those premises.

17 It is common ground that the lessee is the assignee of a lease entered into between the lessors and another tenant. The lease appears to be undated, but is for a term of five years commencing on 7 April 2003, together with an option to renew for a further term of five years from 7 April 2008 to 31 March 2013. The premises are defined by the lease, and are said by the lease to have an area of 292 sqm, and are to be used only for the purposes of a convenience store, internet café and money exchange/transfer. The initial rental was $250,000 per annum to be increased annually at the rate of 4% per annum. However, in the event of the exercise of the option, the lease specifies that the rent is to be reviewed to 'current market rent' to be assessed by reference to criteria specified in cl 7.1 of the lease. Clause 7.2 of the lease provides that in the event that the parties do not agree on the market rent payable following the review, they are to appoint either a single valuer agreed by them, or in the event that the Act applies to the lease, in default of agreement as to a single valuer, they are to each appoint one valuer. The same clause provides:

(e) any Valuer is to act as an expert and not as an arbitrator and the Valuer's determination or, where appropriate, the determination reached by agreement of the Valuers is to be conclusive and binding on the Landlord and the Tenant, subject to the Retail Shops Act.

18 So, in this case, the lease contains an express term to the same effect as the term implied by s 11(3) of the Act.

19 Clause 61.2 of the lease provides that if the Act applies, and any provision of the Act conflicts with the provision of the lease, and, under the Act the provision of the Act prevails, the lease is deemed to be amended to the extent necessary to comply with the Act.

20 The option for the renewal of the lease was exercised, but the parties were unable to agree upon the amount which represented 'current market rent' as and from the date of renewal, namely, 7 April 2008. It seems that by February 2009 the parties were agreed upon the identity of a valuer who should be appointed to determine the rent, but were unable to agree upon the terms and conditions of his appointment. The sticking point appears to have been the lessors' insistence that the valuer be authorised to receive material and submissions in confidence from one or other of the parties, without disclosing that material to the other. Subject to the resolution of that issue, however, the parties were agreed that Mr John Del Dosso, a licensed valuer, should be appointed to determine the rental payable under the renewed lease.

21 Agreement not having been reached as to the terms and conditions of Mr Del Dosso's appointment, on 9 September 2009 the lessors commenced proceedings in the Tribunal by lodging an application in the specified form. The application sought the following orders:

That the applicant be granted leave pursuant to the provisions of s 11(5)(b) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 to refer for determination to the Tribunal a question as to the gross rent payable by the respondent in respect of the premises ... from the market review date of 7 April 2008 upon the commencement of the further term.
A determination of the gross rent payable by the respondent under the lease for the premises from the market review date of 7 April 2008 upon the commencement of the further term.
An order that the respondent pay the gross rent as determined by the Tribunal for the period from 7 April 2008.
In the event that gross rent determined by the Tribunal is higher than the rent paid by the respondents from 7 April 2008 an order for payment of the shortfall (GAB 30).

22 I digress to observe that the first and second orders sought, being orders for the grant of leave and the determination of the rent payable under the lease were sought pursuant to the jurisdiction conferred upon the Tribunal by s 11(5) of the Act. The remaining orders sought, being orders relating to the payment of rental as adjusted, appear to have been sought under a combination of the jurisdiction conferred upon the Tribunal by s 11(8) and s 16 of the Act.

23 The application lodged with the Tribunal set out the grounds upon which the orders were sought. In those grounds, reference is made to disputes having arisen in the past, including a dispute as to whether the option had been validly exercised given that Khayat Investments was not the lessee identified in the lease. The grounds further assert that although the parties had reached agreement in respect of the identity of the valuer to be appointed to determine the rent payable, they had been unable to agree as to the terms of his appointment 'and in particular whether submissions received by the valuer from each party should be the subject of exchange and response'.

24 The lessors' application first came before the Tribunal constituted by a single member at a hearing convened during the afternoon of 17 September 2009. There was no appearance at that hearing by any representative of the lessee, and discussion took place between the representative of the lessors and the Tribunal, on the subject of service of the application. Counsel appearing on behalf of the lessors then outlined the nature of the dispute to the Tribunal. In the course of those remarks, counsel referred to a previous dispute between the parties as to the validity of the lessee's exercise of the option of renewal, given the apparent lack of a written assignment of lease. Counsel for the lessors suggested that the lack of such an assignment might give rise to 'a jurisdictional issue'. The presiding member suggested that the most appropriate course would be to endeavour to resolve the dispute with respect to the terms of the appointment of the agreed valuer by the conduct of a mediation in the Tribunal. Counsel for the lessors agreed, and it was ordered that mediation take place in the Tribunal on 9 October 2009.

25 The matter went to mediation on 9 October 2009. Appropriately, no evidence has been given as to the course of the mediation or the matters that were discussed during the mediation. However, following the mediation, orders were made by the Tribunal in the following terms:

Following mediation in the Tribunal on 9 October 2009, the parties have agreed, subject to these orders, that Mr John Del Dosso of Colliers International shall resolve the 'rent payable' (that is, the gross rental) as at 7 April 2008, in accordance with and for the purposes of s 11(3)(a) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).
Without limiting the exercise of Mr Del Dosso's expert professional judgment, the determination shall take place upon the written information already supplied by the parties to date, with the intent that the parties shall not and shall not be required to supply any such further information.
Without prejudice to either party's position, the parties also agree to defer all jurisdictional and procedural matters or issues that arise out of, or may arise out of, the applicant's application (including any cross-action that might be proposed), until the date fixed for further mediation, or such other date as may be agreed upon between the parties.
The mediation is adjourned until 4 December 2009 at 10 am.
The Tribunal shall send a copy of these orders together with appropriate correspondence to Mr Del Dosso.
The question of costs (if any) is reserved (GAB 117).

26 On 13 October 2009, the executive officer of the Tribunal wrote to Mr Del Dosso enclosing a copy of the orders made by the Tribunal and further advising:

It is hoped that on 4 December 2009 further mediation can take place concerning the consequences of your resolution of the rent payable.

We should be grateful if you would also send a copy to the Tribunal of your resolution, as sent to the parties (GAB 118).

27 By letter dated 26 November 2009, Mr Del Dosso wrote to each of the parties to the lease setting out the terms and conditions upon which he was to accept appointment to determine the rent payable. Each of the lessors and the lessee endorsed their acceptance of the terms proposed by Mr Del Dosso by execution of a notice to that effect on or about 10 December 2009. Amongst the terms proposed by Mr Del Dosso, and accepted by the parties to the lease, was the following:

The Rent Determination will be final and binding on the Landlord and the Tenant and no correspondence or discussion will be entered into following distribution of the Rent Determination to the Landlord and the Tenant (GAB 151).

28 By a rental determination dated 27 January 2010, Mr Del Dosso determined that the current market rent, payable as at the date of review being 7 April 2008, was the amount of $370,000.

29 Despite Mr Del Dosso's determination, the parties continued with the proceedings in the Tribunal. Their actions suggest that they were both under the impression that, notwithstanding Mr Del Dosso's determination, there remained issues to be resolved by the Tribunal.

30 The matter came back before the Tribunal on 19 March 2010. The Tribunal ordered the parties to exchange in draft form the orders which they sought from the Tribunal.

31 That exchange took place, and the matter came back before the Tribunal on 27 April 2010. On that occasion, orders were made for the joinder of additional respondents to the proceedings, the filing of an agreed statement of issues and facts, and various other procedural directions covering such things as the exchange of statements of contentions, bundles of documents, and expert evidence.

32 Pursuant to those directions, the solicitors for the lessee prepared a document entitled 'Statement of issues for the tribunal to determine and facts agreed between the applicant and the first respondent' and provided it to the Tribunal and the solicitors for the lessors. That document described 'the issue' as 'the gross market rent of the premises ... as at 7 April 2008'. Under the heading 'Facts', the document asserted that the lessors and the lessee were unable to agree the gross market rent, and that the lessee did not oppose the lessors' application for leave under s 11(5)(b) of the Act for the Tribunal to determine 'this issue'.

33 The solicitors for the lessors then wrote to the Tribunal advising that they had not previously seen the document provided to the Tribunal by the solicitors for the lessee, and did not agree to its terms. However, they were seeking instructions with a view to the preparation of an agreed statement of issues and facts.

34 The matter came back before the Tribunal on 20 May 2010. On that occasion it was ordered that the lessors have leave to amend their claim by 'replacing the whole of the same in terms of the substance of the statement of issues prepared by its solicitors dated 20 May 2010'. However, it seems clear that the order was intending to refer to the statement of issues and facts prepared by the solicitors for the lessee and which had been previously provided to the Tribunal and to the solicitors for the lessors. The Tribunal further ordered the lessee to provide its response to the substituted claim by 10 June 2010.

35 The lessee filed with the Tribunal a document entitled 'reply and cross-claim' dated 11 June 2010. In that document, the lessee stated that it consented to the lessors having leave to refer the determination of the market rental payable to the Tribunal. By its cross-claim, the lessee sought a declaration that the lessors had engaged in unconscionable conduct in breach of the Act, and sought compensation for such conduct. The unconscionable conduct was said to be:

Refusing to agree to the terms of the valuation proposed by the valuer;
Refusing to allow the valuation to proceed except on the basis that the valuer was required to consider its submissions as to the appropriate GMR [Gross Market Rent] without disclosing the contents of such submissions to the [lessee]; and
Causing, authorising or suffering its agent CB Richard Ellis (C) Pty Ltd and Jason Fenner to make misleading and deceptive statements to the valuer as to the area on [sic and] rent payable in respect of a tenancy owned by the [lessors] which representations had a material bearing on the valuation and were calculated to deceive and mislead the valuer in his determination of the GMR as indeed they did (GAB 175).

36 On 17 June 2010, the Tribunal made further procedural directions with a view to the matter being prepared for hearing. Further directions were made by the Tribunal on 15 July 2010, including listing the matter for hearing on 1 and 2 November 2010. Further directions to the same general effect were made on 19 August 2010. Pursuant to those directions, on 25 August 2010, the lessors filed a document which was said to be a statement of orders which may be made by consent, a statement of the questions for determination by the Tribunal, the lessors' statement of material facts and the lessors' reply to the lessee's cross-claim. Amongst the orders which were said to be able to be made by consent was the grant of leave pursuant to s 11(5)(b) of the Act to refer the determination of the gross market rent payable to the Tribunal. Amongst the questions said to arise for determination by the Tribunal was the gross market rent payable in respect of the premises as at 7 April 2008, and the question of whether the lessors had engaged in unconscionable conduct as alleged by the lessee and if so, how much compensation was payable as a consequence.

37 In a letter dated 7 September 2010 to the solicitors for the lessors, the solicitors for the lessee advised of a fundamental change in their client's position. In that letter it was asserted that as a result of Mr Del Dosso's determination of the rental, the Tribunal ceased to have jurisdiction to determine the question as to the rent payable, with the result that the lessors' application for leave to refer that question to the Tribunal was doomed to fail. The letter advised that orders would be sought on behalf of the lessee at the next hearing before the Tribunal dismissing the lessors' application and providing that the lessee's cross-claim for unconscionable conduct stand as the substantive application.

38 Those submissions were put before the Tribunal at a hearing on 14 September 2010. In the reasons given for rejecting that submission, the Tribunal expressed the view that it was necessary to arrive at the proper construction of the order made by the Tribunal on 9 October 2009. In that regard, the member comprising the Tribunal observed:

I have no doubt that the correct construction of the order is that Mr Del Dosso was to arrive at what he considered to be the appropriate rental as a basis for further negotiation by the parties during the course of mediation. Subsequent orders made by the Tribunal show that a mediation was adjourned on many occasions well past the handing down of the report from Mr Del Dosso ...

It is clear to me therefore that the process devised during the mediation was one aimed at achieving a solution within the Tribunal's mediation powers. The parties having failed to reach agreement as to the rental following the steps carried out by Mr Del Dosso, the matter remains, in my view, properly before the Tribunal. Indeed, until this date it has been common cause that the Tribunal should grant leave in order that the determination could proceed. There have been numerous directions hearings dealing with the programming of the matter to a final hearing on 1 and 2 November 2010 on that basis.

The matter was, of course, only referred to the Tribunal under s 11(5) because the person aggrieved by each of the parties had not acted under subsection (3)(a) to provide a determination which resolved the rent payable between the parties. I am satisfied that this is an appropriate matter in which to grant leave. No doubt that was a question which was being left over as a matter of formality to be dealt with at the hearing in the view of the indications until effectively today that the parties consented to leave being granted. For those reasons the application for the application to be dismissed is refused (GAB 22 - 23).

39 The order issued by the Tribunal after that hearing refers to the dismissal of the lessee's application for the dismissal of the lessors' claim. However, the order makes no reference to the grant of leave for the issue of the determination of the rent to be referred to the Tribunal under s 11(5) of the Act. This appears to be an oversight.

40 The lessee sought leave to appeal to this court from the decision of the Tribunal refusing to dismiss the lessors' application for leave to refer the issue of the determination of the rental payable to the Tribunal. As a consequence, the hearing which had been listed to occur in the Tribunal in early November 2010 did not proceed. The primary judge granted leave to appeal but dismissed the appeal: Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No 2) [2010] WASC 374.

41 There were three grounds of appeal. One ground asserted that the Tribunal had erred in its construction of the source of the power exercised by Mr Del Dosso when making his determination of the rent payable. The primary judge held that Mr Del Dosso's 'appointment and authority to resolve the question did not derive from the term implied into the lease by s 11, but from the agreement of the parties in mediation and from the orders of SAT. He did not act under s 11(3)(a)': Khayat (No 2) [31]. Another ground of appeal asserted that the Tribunal had misconstrued the construction and effect of the orders made following mediation on 9 October 2009. The primary judge dismissed this ground, concluding that the Tribunal was correct in its view of the construction and effect of the orders made following mediation.

42 The third ground of appeal asserted that the Tribunal had erred in finding that it had jurisdiction to determine the rent payable following the review, and therefore in granting leave for that matter to be referred to the Tribunal. In relation to that ground, the primary judge attributed some significance to the question of the point in time at which the leave of the Tribunal had to be obtained. He considered that issue to be of significance to the question of whether the Tribunal had power to refer the matter to mediation, so as to bring the orders made following the mediation within the jurisdiction of the Tribunal. In that context, he held that 'on the proper construction of s 11(5)(b), a party to a lease may refer the question of the rent to SAT, without having first obtained leave of the Tribunal. Leave is required before the Tribunal determines the matter': Khayat (No 2) [48]. He further held that because Mr Del Dosso had not determined the rent at the time the matter was referred to the Tribunal, s 11(5) of the Act did not limit the powers of the Tribunal once a matter had been referred to it or 'otherwise affect the jurisdiction of the Tribunal'.

43 The grounds upon which the lessee appeals to this court from the decision of the primary judge are very difficult to comprehend, as are the written submissions filed in support of those grounds. However, it became clear in the course of oral argument that essentially the lessee was contending, as it had before the primary judge, that the Tribunal had erred in its view of the source of Mr Del Dosso's power to determine the rent payable, and in its view of the construction and effect of the orders made by the Tribunal in October 2009, and in holding that the Tribunal had jurisdiction to determine the rent payable. The written and oral submissions provided by the lessors respond to those basic contentions. Accordingly, the lessors suffer no prejudice if these reasons are directed to those substantive issues, rather than to the enunciated grounds of appeal.

The source of the valuer's power to determine the rent

44 Each of the Tribunal and the primary judge considered that the source of Mr Del Dosso's power to determine the rent payable following the rental review was the order made by the Tribunal following the mediation conducted in October 2009. I do not agree. As I have noted, cl 7.2 of the lease contains an express term to the effect of the term that would in any event be implied into the lease by s 11(3) of the Act. It does not particularly matter whether the term was express or implied by statute. What matters is that there was a provision in the lease which provided that in the event that the parties failed to agree upon the rental payable following a review, they were to agree upon the appointment of a valuer to determine that question, or in default of agreement, each appoint a valuer.

45 When the lessors commenced proceedings in the Tribunal, the parties to the lease had not done either of the things required by its terms. They had not agreed upon the appointment of a single valuer, nor had they each appointed a valuer to determine the rent payable following the review. However, they complied with the provisions of the lease when on or about 10 December 2009, they concurred in the appointment of Mr Del Dosso to determine the rent payable following the review. Once they concurred in Mr Del Dosso's appointment, the effect of the lease was to bind them to his determination. This was expressly acknowledged by each of the lessors and the lessee in cl 12 of the terms of Mr Del Dosso's appointment, which they each endorsed. However, the primary reason they were bound by Mr Del Dosso's determination was because there was a provision in the lease to that effect.

46 In the context of the legal rights and obligations created by the provision in the lease to which I have referred, and irrespective of whether that provision is express or implied by statute, it does not matter how the parties' concurrence in the appointment of Mr Del Dosso came about. In particular, it does not matter that their concurrence in his appointment came about following a mediation in the Tribunal, nor does it matter whether or not, in the course of that mediation they had agreed to join in his appointment, or whether they consented to the Tribunal making an order to that effect, or whether the Tribunal made such an order. What matters is that the parties to the lease concurred in the appointment of Mr Del Dosso for the purpose of determining the amount of the rental payable following the rent review. Their concurrence in Mr Del Dosso's appointment invoked the rights and obligations flowing from the terms of the lease, including the term to which I have referred, and in particular the obligation to be bound by Mr Del Dosso's determination when it was made. Once that determination was made, provided it was a determination within the scope of the contractual provision (in the sense I have described above), the rent payable under the lease was the amount determined by Mr Del Dosso unless and until his determination was set aside. Neither the lessors nor the lessee have ever contended that Mr Del Dosso's determination fell outside the scope of the power of determination provided by the lease, nor have any proceedings been commenced or steps been taken for the purpose of setting aside Mr Del Dosso's determination. It follows that the parties are bound by the determination, and the rental payable under the lease is the amount which Mr Del Dosso determined, adjusted in accordance with the other provisions of the lease.

The construction and effect of the Tribunal's orders

47 Each of the Tribunal and the primary judge considered that the correct construction of the order made by the Tribunal following the mediation was that 'Mr Del Dosso was to arrive at what he considered to be the appropriate rental as a basis for further negotiation by the parties during the course of mediation', and in effect, considered that the order had the consequence that Mr Del Dosso's determination was not binding on the parties unless and until they subsequently agreed to its terms. I do not agree.

48 The lessors commenced proceedings in the Tribunal because the parties had been unable to agree upon the terms of Mr Del Dosso's appointment, and in particular, upon the terms upon which he should deal with information and submissions provided by the parties. Following the mediation, the order made by the Tribunal recorded that the parties had themselves agreed, subject to the orders of the Tribunal, that Mr Del Dosso was to 'resolve the rent payable ... as at 7 April 2008, in accordance with and for the purposes of s 11(3)(a) of the' Act. There is nothing tentative, equivocal, provisional, or conditional in the terminology used by the Tribunal in its order. Nor is the order ambiguous. To the contrary, the order is clear and unequivocal, and records the parties' agreement that Mr Del Dosso was to 'resolve' the issue for the purposes of the term implied into the lease by s 11(3) of the Act (and which was in any event an express term of the lease).

49 Given the approach taken by the Tribunal and endorsed by the primary judge it is also significant to note that the order of the Tribunal referring to Mr Del Dosso's appointment does not, by its terms, order or direct anybody or anything, or purport to exercise any power conferred upon the Tribunal. Rather, the order merely records an agreement reached by the parties, and the effect of the implementation of that agreement - namely that Mr Del Dosso's determination would resolve the question of the amount of rental payable following the review.

50 The only possible source of the construction which the Tribunal and the primary judge placed upon the Tribunal's order is the fact that it was made subject to the other orders of the Tribunal. However, when regard is had to those orders, the reservation is incapable of altering the clear terms of the agreement recorded by the Tribunal. The second order made by the Tribunal dealt with the information which was to be provided to Mr Del Dosso, thereby resolving the issue which had inhibited the parties' agreement upon his appointment. There is nothing in that order which would suggest that Mr Del Dosso's determination was not to have the effect expressly stated in the Tribunal's order - namely, that of resolving the issue of the rent payable under the provisions of the lease.

51 Another order made by the Tribunal records the parties' agreement to 'defer all jurisdictional and procedural matters or issues arising out of the application or any cross-action that might be proposed'. However, there is nothing in the terminology of that order which would suggest that the order made by the Tribunal recording the effect of Mr Del Dosso's determination was to be other than that reflected in the terms of the order - namely, resolution of the question of the rent payable under the lease. The reservation was limited to jurisdictional or procedural matters connected with the proceedings in the Tribunal, and did not extend to any modification of the effect of Mr Del Dosso's determination. Viewed in context, the order might be taken to refer to the issue which counsel for the lessors had described as 'jurisdictional' - namely, the issues arising from the lack of a written assignment of the lease to the lessee, and to the possibility of a cross-claim for compensation for unconscionable conduct (as in fact emerged). However, it is unnecessary to speculate as to what the parties may have had in mind when they proposed an order in these terms, or what the Tribunal had in mind when making the order, as on any view, a reference to 'jurisdictional and procedural matters' is incapable of qualifying the clear and unequivocal terms of the order recording the effect of the determination to be made by Mr Del Dosso.

52 The only other substantive order made by the Tribunal on 9 October 2009 was to adjourn the mediation to another date. However, given the reservation of rights with respect to jurisdiction and procedural issues, and the prospect of a cross-claim, the adjournment of the mediation is entirely equivocal, and does not detract from the clear language used by the Tribunal to record the fact and effect of the parties' agreement to join in the appointment of Mr Del Dosso.

53 The Tribunal considered that it had jurisdiction to determine the rent payable on the basis that 'the parties having failed to reach agreement as to the rental following the steps carried out by Mr Del Dosso, the matter remains ... properly before the Tribunal'. That process of reasoning depends upon the assumption that the determination made by Mr Del Dosso was simply a step along a path to a negotiated solution, with no legal effect unless and until it was embodied in a subsequent agreement between the parties. For the reasons I have given, there is no basis for that assumption. The parties implemented the mechanism provided by the lease for the determination of the rental by agreeing upon the appointment of Mr Del Dosso and expressly agreeing to abide by his determination. The order of the Tribunal did nothing more than record that agreement, and its effect.

54 The primary judge arrived at the conclusion that the Tribunal had jurisdiction to determine the rental payable through a different process of reasoning. He construed the Act as providing that a party to a lease could refer the determination of the rent to the Tribunal without having first obtained leave. However, that view of the Act is contradicted by the plain and ordinary meaning of the language used. Section 11(5) of the Act relevantly provides that a party to a retail shop lease may refer the question of the determination of the rent payable as a result of a rental review to the Tribunal where, 'a person has not acted under subsection (3)(a) or (b) and the leave of the Tribunal has been obtained'. The section provides that, in a case falling within s 11(5)(b), there are two steps required before the Tribunal can determine the rent payable following the review - namely, the grant of leave, and the referral of the question to the Tribunal. As I have noted, the evident purpose of the requirement that leave be granted is to provide the Tribunal with the opportunity to satisfy itself that the parties had taken all appropriate steps to exhaust the mechanisms provided under the lease for the determination of the rent, without those mechanisms having achieved their objective. The construction of the Act at which the primary judge arrived, which would enable the Tribunal to embark upon an inquiry as to the amount of rent properly payable without first granting leave, is inconsistent with the plain and ordinary meaning of the language used, and the evident purpose of the provision requiring the grant of leave.

55 The primary judge supported his view of the construction of the Act with a number of propositions. First, it was asserted that requiring a party to obtain leave before it might refer a matter to the Tribunal was not consistent with the procedures set out in pt IV of the State Administrative Tribunal Act 2004 (WA) (the Tribunal Act) . It seems that the basis for this proposition is the observation that the Tribunal Act does not make express provision for the grant of leave prior to a matter being referred to the Tribunal, nor does it provide for an application to be rejected because leave has not been granted. However, the Tribunal has jurisdiction conferred upon it by other legislation, described in the Tribunal Act as an 'enabling Act' - see s 13 of the Tribunal Act. Section 11 of the Act is plainly 'an enabling Act' and confers jurisdiction upon the Tribunal to determine whether leave should be granted to enable a party to refer to it the question of the determination of the rent payable following review under a retail shop lease, and then, in the event that leave is granted, to determine that question.

56 Next, the primary judge observed that neither the Tribunal Act nor the Act 'provides for referral confined to the question of leave'. However, this misconstrues the statutory scheme which, by its plain and ordinary language, requires an application for the grant of leave by the Tribunal, and, in the event that leave is granted, a referral of the question of the determination of the rent payable to the Tribunal. In that context, the 'referral' is the step of referring the question of the determination of the rent payable to the Tribunal following the grant of leave. There is nothing in either the Act or the Tribunal Act to prevent a party to a retail shop lease commencing one set of proceedings in the Tribunal, in which application is made for the grant of leave, and, in the event that leave is granted, referring to the Tribunal the question of the determination of the rental payable under the lease. To the contrary, the provisions of the Tribunal Act support the view that the Tribunal is to endeavour to avoid a multiplicity of proceedings and to focus upon the substantial merits of the case before it without regard to technicalities and legal forms (see s 9, s 32 and s 51 of the Tribunal Act).

57 The primary judge also asserted that 'the purpose of the leave requirement does not require that leave be first obtained': Khayat (No 2) [47]. That proposition was not explained in the reasons given. It is a proposition that is inconsistent with the normal purpose of a provision requiring the grant of leave prior to the institution of proceedings, which is to provide a filter upon the commencement of substantive proceedings, so that the parties and the tribunal or court do not deploy their resources upon substantive proceedings that should not, for one reason or another, be entertained. That purpose is evident in s 11 of the Act where, as I have observed, the requirement for the grant of leave provides the Tribunal with an opportunity to satisfy itself that the parties to the lease have taken all appropriate steps to implement the mechanism for the determination of rental provided by the lease, before referring the question to the Tribunal. The reference of the question relating to the determination of the rental to the Tribunal is likely to involve the parties to the lease in the expense of engaging expert valuers to provide evidence to the Tribunal. The legislature should not be taken to have intended that the parties should be exposed to that expense, and the limited resources of the Tribunal deployed in addressing the question, without leave having first been granted by the Tribunal. As I have already observed, the language used in the statutory provision is inconsistent with any such intention. Accordingly, I do not agree with the view expressed by the primary judge to the effect that the construction at which he arrived achieved 'a sensible, efficient and just operation for the scheme comprising the' Act and the Tribunal Act: see Khayat (No 2) [48].

58 Finally, the primary judge drew support for his construction from the legislative history of the Act, and in particular, from the fact that an earlier version of s 11 specifically referred to leave being 'first' obtained before the question of the determination of the rental payable was referred to the Commercial Tribunal. However, after s 11 of the Act was re-enacted following the creation of the Tribunal, its terminology clearly provides that, in cases falling within s 11(5)(b) the leave of the Tribunal must be obtained before the question of the determination of the rental is referred to the tribunal, so that any specific reference to leave being 'first' obtained would be unnecessary and otiose. It follows that no inference as to legislative intention should be drawn from the manner in which the section has been recast.

59 For these various reasons I do not agree with the construction of the Act at which the primary judge arrived. However, that construction was, with respect, an unnecessary step towards his ultimate conclusion in any event. That is because it seems to have been undertaken for the purpose of concluding that reference of the matter to mediation and the orders made following mediation were each within the power of the Tribunal. There is however no doubt that the reference to mediation and the orders made following mediation were within both the power and the jurisdiction of the Tribunal.

60 The lessors had commenced proceedings in the Tribunal seeking the grant of leave, and in the event that leave was granted, the determination by the Tribunal of the rent payable under the lease. The relief sought from the Tribunal was plainly within the scope of the jurisdiction conferred upon the Tribunal by s 11 of the Act. As the proceedings were within the jurisdiction of the Tribunal, s 54 of the Tribunal Act empowered the Tribunal to refer 'the matter' to mediation. The 'matter' referred embraced all the issues raised by the relief sought by the lessors. As the directions made by the Tribunal in the form of orders following the mediation were all referrable to the possible exercise of the jurisdiction conferred upon the Tribunal by s 11 of the Act, they were all within power.

61 But in any case the question of whether the Tribunal had power to refer the matter to mediation is also an irrelevant distraction. On the view of the issues taken by the Tribunal, the only question was whether the orders made by the Tribunal following the mediation were within the jurisdiction of the Tribunal, and that question did not depend upon the legal efficacy of the reference to mediation. Further, with respect to the Tribunal and the primary judge, the question of whether the orders made by the Tribunal following the mediation were within power also misses the point. The question which had to be determined was whether the Tribunal had jurisdiction to determine the rent payable under the lease after Mr Del Dosso issued his determination in January 2010. That question turns upon the legal effect of the determination because, as I have observed, the jurisdiction of the Tribunal to determine the rent payable depends upon the mechanism for the determination of the rent provided by the lease having failed to achieve its purpose. Once Mr Del Dosso issued his determination of the rental payable, the mechanism provided by the lease for the determination of the rent had run its course, and there was no scope for the Tribunal to determine that some other rental was payable.

62 Assuming, without being taken to decide, that it would have been open to one or other of the parties to refer to the Tribunal a question as to whether Mr Del Dosso's determination was within the scope of the lease and therefore valid and binding, under s 16 of the Act, neither has

purported to do so. Nor has any step been taken to have Mr Del Dosso's determination set aside for any reason, either in the Tribunal or in a court. Nor has it been asserted that the lessee is estopped from relying upon Mr Del Dosso's determination because of the steps which it took in the Tribunal after the determination was issued, or that the actions of the parties in the Tribunal after the determination was issued constituted a binding agreement to the effect that the determination was invalid or ineffective.

63 For these reasons, when the lessee raised the question of the Tribunal's jurisdiction to determine the rental payable, the Tribunal should have held that the case did not fall within s 11(5) of the Act, because it was not a case in which a person had not acted to determine the rental payable. To the contrary, the Tribunal should have held that the rental payable as and from the rent review date had been determined by the invocation of the mechanisms provided by a term of the lease which corresponded with the term implied into the lease by s 11(3) of the Act. Accordingly, the Tribunal should have ruled that the case did not come within its jurisdiction and dismissed the lessors' claims while making appropriate procedural directions to enable the lessee's cross-claim to proceed.

64 For these reasons the appeal should be allowed, the decision of the Tribunal refusing to dismiss the lessors' claims set aside, and instead, an order made dismissing those claims, and the matter remitted to the Tribunal for the purpose of directions as to the manner in which the cross-claim should proceed, and for the purpose of hearing any application with respect to the costs of the proceedings brought in the Tribunal by the lessors.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2011] WASCA 196 (S)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2010] WASC 374

Khayat Investments Pty Ltd v Winston Holdings Pty Ltd [No 2] [2011] WASCA 196

1 JUDGMENT OF THE COURT: For reasons published on 21 September 2011, this court upheld an appeal from the decision of the primary judge dismissing an appeal from the State Administrative Tribunal (the Tribunal), and ruled that unless and until the determination of rental made by a valuer appointed by the parties was set aside, the Tribunal lacked jurisdiction to itself determine the rent payable (Khayat Investments Pty Ltd v Winston Holdings Pty Ltd [No 2] [2011] WASCA 196).

2 At the time of publication of our reasons, the parties were unable to agree as to the appropriate orders to be made with respect to the costs of the appeal. However, they agreed that the question of the costs of the appeal could be dealt with by the court on the papers and a timetable for the exchange of submissions on that topic was set. These are our reasons for concluding that the respondent should be ordered to pay 75% of the appellant's costs to be taxed if not agreed.

3 At the outset it should be noted that there is no contention between the parties as to the costs of the proceedings before the primary judge, or in the Tribunal. Accordingly, the conduct of those proceedings is irrelevant to the only issue we have to determine, which concerns the costs of the appeal to this court.

4 The court has a broad discretion as to the costs of proceedings before it, although the ordinary rule is that costs will follow the event and a successful party will generally be entitled to recover its costs (O 66 r 1 Rules of the Supreme Court). The respondent submits that there should be a departure from the general rule in this case, and that the appellant should be ordered to pay its costs of the appeal because the appeal was upheld on grounds which did not correspond to the grounds of appeal or the written submissions advanced in support of those grounds.

5 As we observed in our reasons, the grounds of appeal to this court, and the written submissions filed in support of those grounds are very difficult to comprehend. As we also observed, however, it quickly became clear in the course of oral argument that essentially the appellant was contending, as it had to both the Tribunal and the primary judge, that the Tribunal lacked the jurisdiction to determine the rent payable as a consequence of the rental having been determined by the valuer appointed by agreement between the parties. That proposition was the essential basis upon which this court upheld the appeal. As we also noted, the written and oral submissions provided on behalf of the respondent adequately responded to that basic proposition with the result that no prejudice was suffered by the respondent, or procedural fairness denied.

6 Nevertheless, the respondent was impeded in its preparation of the appeal, and incurred unnecessary costs which were thrown away in having to respond to grounds and written submissions which were difficult to comprehend and which served to obscure, rather than elucidate the real issues in the appeal. Put another way, the obscurity of the grounds of appeal and written submissions added unnecessarily to the respondent's costs in responding to the appeal to a sufficient extent that an allowance for those unnecessary costs is appropriately made in the exercise of the discretion with respect to costs.

7 When a court departs from the general rule with respect to costs because the conduct of the successful party has caused unnecessary expense to the other party, the extent of the allowance made is necessarily a matter of impression rather than a matter of science or precise mathematics. In this case, we take account of the fact that the hearing was relatively short, with the result that the proportion of the parties' costs incurred in relation to the written submissions which preceded the hearing could be expected to be somewhat greater than usual. Taking that consideration into account, it is our view that it is appropriate to depart from the general practice with respect to costs in this case, by reason of the obscurity of the grounds of appeal and written submissions provided by the appellant by ordering that the appellant recover 75% of its costs to be taxed if not agreed.

Tenancy (Retail Shops) Agreements Act 1985

Administrative Tribunal Act 2004

Valuers Licensing Act 1978

KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2011] WASCA 196 (21 September 2011)

At a glance

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Judgment (120 paragraphs)

KHAYAT INVESTMENTS PTY LTD -v- WINSTON HOLDINGS PTY LTD [No 2] [2011] WASCA 196 (21 September 2011)

Legislation Cited (5)

Cases Cited (3)