TRADE PRACTICES - whether the assertion, reservation or exercise of legal rights can be "misleading or deceptive conduct"

Leases (Commercial and Retail) Act 2001 (ACT), ss 6, 22, 28, 31, 36, 37, 51, 52, 53, 55, 56, 57, 58, 106, 107, 108, 109, 122, Pt 6, Div 12.5

Trade Practices Act 1974 (Cth)

Limitation Act 1985 (ACT)

Kingsley's Chicken Pty Limited v Queensland Investment Corporation and Anor [2006] ACTCA 9

Kingsley's Chicken Pty Limited v Queensland Investment Corporation and Anor [2005] ACTSC 117 (25 November 2005)

Bradshaw v Pawley [1980] 1 WLR 10

Coal Cliff Collieries Pty Ltd v Sijehama (1991) 24 NSWLR 1

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 268

Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 76 FCR 151

Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353

Anderson v Bowles [1951] HCA 61; (1951) 84 CLR 310

ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN: KINGSLEY'S CHICKEN PTY LIMITED ACN 008 597 877

AND: QUEENSLAND INVESTMENT CORPORATION and CANBERRA CENTRE INVESTMENTS PTY LIMITED ACN 067 682 893

2. The judgment and order on the cross-claim be set aside.

3. The application of the lessee to replace the valuer be remitted to the learned Magistrate to be heard and determined according to law.**

**1. The appellant (Kingsley's) has appealed from a decision of a magistrate, dismissing an application by Kingsley's to disqualify a valuer purportedly appointed pursuant to s 52 Leases (Commercial and Retail) Act 2001 (ACT) (the Act).

2. Kingsley's had, for a number of years, leased premises in the Canberra Centre (the Centre), a large retail shopping mall in Canberra City. The respondents, owners of the Centre, are the lessors of Shop CL15B, of which Kingsley's is the lessee.

3. Kingsley's had, on 13 October 1998, entered into a lease of those premises, for a period of five years, expiring 12 October 2003.

4. Towards the end of the lease, the parties commenced negotiations concerning the renewal of that lease.

5. In 2001, the Act came into force. It commenced 1 July 2002. It replaced both the Tenancy Tribunal Act 1994 (ACT) and the Commercial and Retail Leases Code of Practice.

6. In the context of providing for tenants' expectations of security of tenure, the Act makes provision for new leases of premises to the previous lessee for the same or similar uses. It is, of course, a new lease, applicable to a situation where there is no option contained in the existing lease which might otherwise bind a lessor to renew the lease or to be bound by any particular terms upon which that might be done.

7. The Act defines such a lease at s 6(1) of the Act:**

(1)  A new lease is taken to be a renewal of another lease (the existing lease) for this Act if the new lease is between the same parties as the existing lease and relates to the same premises and the premises are to be put to the same or similar use.

8. The objectives of the Act, in respect of renewals are set out in s 106 of the Act:

(1)  The Legislative Assembly recognises that conflicts sometimes happen between a lessor's expectation that the lessor will be able to deal with the leased premises subject only to the terms of the lease and a tenant's expectations of reasonable security of tenure.

(2)  The objects of this division are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure fair dealing, as far as practicable, between lessor and tenant in relation to the renewal or extension of premises.

**9. The further provisions of the Act must be interpreted with those objectives in mind.

10. It is relevant to go first to s 107 of the Act:**

(1)  This section applies to all leases.

_(2)  The tenant may, in writing, ask the lessor to tell the tenant whether the lessor intends to renew the lease if - _

(a) for a lease for longer than 1 year - the lease is due to end in not less than 6 months and not longer than 1 year; or

(b) in any other case - the lease is due to end in not less than 3 months and not longer than 6 months.

(3)  If the lessor receives a request under subsection (2) on a day (the request day_), the lessor must tell the tenant, in writing within 1 month after the request day, either that - _

(a) the lessor proposes to renew the lease; or

(b) the lessor does not propose to renew the lease.

(4)  If the lessor fails to notify the tenant under subsection (3), the lease is extended by a period equal to the period starting 1 month after the request day and ending when the lessor gives the tenant a notice that, apart from being late, complies with subsection (3).

**11. That section clearly does not oblige a tenant to accept any particular form of new lease save that if the lessor proposes to renew the lease, the proposed lease must be a lease that relates not only to the same premises but also requires the premises to be for the same or similar uses as the existing lease. It provides a framework for negotiations which might lead to a new lease and "freezes" the existing lease until the landlord commences the engagement process. There are then consequential obligations until the negotiation process is completed.

12. As noted in the decision of the Court of Appeal in this matter, handed down 2 June 2006, Kingsley's engaged the process contemplated by s 107 of the Act by, on 9 December 2002, conformably with s 107(2)(a) of the Act, requesting the respondents through their retail manager to state their intention concerning "renewal".

13. On 20 December 2002, the respondents replied indicating an intention, in conformity with s 107(3) of the Act, to propose terms for a new lease.

14. As the Court of Appeal stated (Kingsley's Chicken Pty Limited v Queensland Investment Corporation and Anor [2006] ACTCA 9, [9]):**

The purpose of s 107, it seems to us, is to provide a mechanism whereby a tenant may establish, well within the period of the lease, whether the lessor proposes to renew the lease and to allow the tenant time within which to make commercial arrangements accordingly, either with a view to proceeding into negotiations for a renewed lease or to find alternative premises from which to conduct its business.

**15. That decision involved both an appeal from a decision of Gray J (Kingsley's Chicken Pty Limited v Queensland Investment Corporation and Anor [2005] ACTSC 117 (25 November 2005)) and a case stated by Crispin J in relation to the legal consequences of the ensuing negotiations.

16. The correspondence between the parties had resulted in the respondents proposing detailed terms for a new lease whilst claiming not to be in any way bound by that proposal, even if it was acceptable to Kingsley's. It was an invitation to treat on the proposed terms. On 10 June 2004 Kingsley's solicitors responded accepting all those terms other than those that related to the rent for the premises. The tenant proposed that the rent should be "market rent".

Rent on renewal

_(1)  This section applies if - _

_(a) either - _

(i) the lessor proposes to renew the lease and makes an offer to the tenant to renew the lease in response to a request under section 107 (Lessor's intentions about renewal); or

(ii) the lessor gives the tenant preference under section 108 (Rules of conduct at end of lease term for shopping centre leases) by making an offer to the tenant to renew the lease; or

(b) the lessor otherwise makes a renewal offer to the tenant within 12 months after the end of the existing lease.

(2)  The lessor must not propose that the rent to be charged initially under the renewed lease exceed the market rent for the premises (other than under an option to renew contained in the lease).

**18. There was no option to renew contained in the existing lease. The existing lease continued pursuant to s 107(4) of the Act but that particular extension continued only up to the date the respondents complied, even if out of time, with s 107 (3) of the Act.

19. Section 52(3) of the Act is engaged if the tenant accepts the renewal proposal subject to the rent being market rent. That provision presently provides:**

_The lessor or tenant may also ask the Magistrates Court to refer a dispute about the rent to be paid under a renewal to mediation if - _

_(a) the lessor - _

(i) proposes to renew the lease and makes an offer to renew the lease in response to a request under section 107 (Lessor's intentions about renewal); or

(ii) [not relevant]; or

(iii) otherwise makes a renewal offer to the tenant before the end of 12 months after the end of the existing lease; and

(b) the tenant accepts the lessor's offer to renew the lease subject to the rent for the lease being market rent.

**20. If mediation is deemed unsuitable or fails, (see ss 52(4)(a) or 52(6) of the Act) then the court "must, after consultation with the parties, appoint a valuer to work out the market rent".

21. A valuer was appointed pursuant to s 52(4)(a) of the Act. The valuer duly reported as required by s 53 of the Act. Kingsley's sought to challenge the valuation, applying to have a new valuer appointed by virtue of s 58 of the Act. That section provides:**

Appointment of new valuer in other cases [that is, other than conflict of interest - s 57 of the Act]

_(1)  A party to a lease may apply to the Magistrates Court for the appointment of a new valuer if the party has reasonable grounds for believing that - _

(a) [not relevant]; or

(b) the valuer has failed to conduct a valuation in accordance with this Act.

**22. Kingsley's contention before the Magistrates Court, back in 2005, was that the valuer had chosen to value the market rent as at the date the lease would have been renewed had it commenced as from the original expiry date of the existing lease rather than as at the date of the valuation itself. It pointed out that the original lease was deemed to continue until 14 days after the proposed market rent was notified to the parties. Thus the new lease would not commence till then (see s 56 of the Act) absent an agreement to the contrary.

23. In any event, Kingsley's wished to contend that, at the point identified by s 56 of the Act, it had a choice whether to accept or not a new lease at the rental so determined.

24. Neither of these contentions came to be determined by the Magistrates Court as the learned Magistrate held that, as no binding contract could have been made by acceptance of the respondents' "offer", there was no jurisdiction to appoint a valuer. It appeared that, having received the valuer's report, the respondents thereafter forwarded a lease for execution by Kingsley's. Neither party had contended that the valuer could not be appointed but the learned Magistrate, of course, could not proceed to make such an appointment if he considered that the court lacked jurisdiction to do so.

25. Gray J agreed with the learned Magistrate and, accordingly, on 25 November 2005, dismissed Kingsley's appeal.

26. The appeals to the Court of Appeal led to a decision, as referred to above, handed down on 2 June 2006.

27. That decision resolved the question as to whether, to attract its provisions, there needed to be an offer and acceptance of a lease subject only to agreement as to rental. As the Court of Appeal stated at [46] referring to the Parliamentary debates concerning the legislation:**

It is clear ... that the Legislative Assembly intended that the term "offer" to be understood in the context of an opening of negotiations.

We are far from satisfied that, in their ordinary usage, the terms "offer" and "accepts" as used in the Leases Act necessarily imply the technical contractual meaning of the terms. Even if it were to be accepted that, of the two possible interpretations, the technical legal approach would be favoured, the effect of s 139 of the Legislation Act, in our view, requires this Court to prefer an interpretation that best achieves the purpose of the legislation. It seems clear to us that this would favour the view that the terms in question are to be given their ordinary meaning rather than restricted to their technical contractual meaning. It follows that the learned Magistrate, and the learned primary appeal Judge, were in error in holding that the jurisdiction of the Magistrates Court was not enlivened because the parties had not yet reached a firm contractual agreement.

**29. The matter was, accordingly, remitted to the Magistrates Court to enable the application under s 58 of the Act to be determined according to law.

30. The Court of Appeal observed that s 55 of the Act had the effect that the market rent worked out as a result of the valuation process was the rent to apply as from the end of the former lease (see [57]).

31. That decision did not purport to resolve the question as to the manner in which, or the considerations according to which, the determination of "market rent" should proceed. Nor did it determine the further question, reserved by Kingsley's, as to whether, once market rent was determined it resolved the issue as to whether a lease at that rent, in the terms otherwise accepted by Kingsley's, was concluded so as to bind Kingsley's until its expiry five years from 13 October 2003. Nor was there addressed an issue as to when the original lease expired so that market rent could apply from its termination.

32. On 2 February 2007, Magistrate Burns dismissed Kingsley's application and gave judgment for the respondents on their counterclaim for damages in the sum of $82,795.21.

33. His Honour's judgment referred to the history of the matter, including events following the Court of Appeal decision.

34. Following that decision the respondents had informed Kingsley's they would not enter into any new lease with it despite the prior correspondence leading to the appointment of and report from the valuer. Kingsley's countered by claiming that the respondents were precluded by their conduct from departing from their representation that, in effect, once the market rent was validly determined, the offer to renew on the terms it had offered, would remain open for acceptance by Kingsley's.

35. Further it claimed, such conduct would offend s 22 of the Act:**

22  Prohibited conduct in dealings

(1)  A party to a lease, or a party to negotiations for a proposed lease, must not, in dealings with another party to the lease or negotiations, engage in conduct that is unconscionable or harsh and oppressive.

**36. Section 22(2) of the Act sets out various factors to be considered in determining whether s 22(1) has been contravened.

37. A dispute as to whether there has been such a contravention is one the Magistrates Court is empowered to resolve (see s 17, item 4 of the Act).

38. It should be noted that the process of negotiating renewal of a lease, it being a new lease, is governed by Pt 6 of the Act. In particular s 28(1) of the Act is relevant.**

(1)  The lessor must give the tenant a copy of the proposed lease as early as practicable in negotiations for the lease.

**39. A "proposed lease", it seems to me, consistently with the Court of Appeal decision in this matter, does not fall outside that concept merely because it is not a final contractual proposal or offer. Of course, to discharge the obligation imposed on a lessor under s 28(1) of the Act it must contain all relevant terms. That is not to say that despite not being an "offer" such a proposal will not, for the purposes of the Act, be without consequences. That issue requires consideration.

40. However, one of the aspects of the disclosure required of a lessor by s 31 of the Act under a proposed lease is that disclosure must be made of any costs or outgoings to which the tenant may be required to contribute. That is, clearly enough, to enable the tenant to make an informed commercial decision whether to accept the proposed lease or not.

41. Section 36 of the Act, probably unnecessarily in view of the Trade Practices Act 1974 (Cth) (the Trade Practices Act), prohibits "false or misleading" representations in the course of negotiations. Section 37 of the Act provides for a right to compensation for such prohibited conduct. That cause of action is not governed by the Trade Practices Act limitation period but rather by the Limitation Act 1985 (ACT). There does not seem to be any difference otherwise in the nature of the prohibited conduct.

42. Kingsley's also sought to engage ss 108 and 109 of the Act:**

108  Rules of conduct at end of lease term for shopping centre leases

(1)  This section applies to a lease for premises in the retail area of a shopping centre if the lessor proposes to re-lease the premises and the tenant wants to renew or extend the lease.

(2)  The lessor must allow the tenant to renew or extend the lease in preference to allowing other possible tenants to lease the premises.

(3)  The lessor must assume that the tenant wants to renew or extend the lease unless the tenant has told the lessor, in writing within 12 months before the end of the lease, that the tenant does not want to renew or extend the lease.

(4)  The lessor may offer to lease the premises to someone other than the tenant only if it would be substantially more advantageous to the lessor to lease the premises to the other person rather than renew or extend the term of the lease.

_(5)  However, the lessor is not obliged to prefer the tenant under this section if - _

(a) the lessor reasonably wants to change the tenancy mix within the shopping centre; or

(b) the tenant has breached the lease substantially or persistently; or

_(c) the lessor - _

(i) does not propose to re-lease the premises within a period of at least 6 months after the end of the term of the lease; and

(ii) needs vacant possession of the premises during that period for the lessor's own purposes (but not to carry on a business of the same kind as the business carried on by the tenant at the premises).

_(6)  Also, this section does not apply in relation to the lease if - _

(a) section 111 applies in relation to the lease; or

(b) if the lease is a sublease - the sublease is as long as the term of the head lease allows; or

(c) the lease arises when the tenant holds over after the end of an earlier lease with the consent of the lessor and the holding over is for 6 months or less; or

(d) the lease is excluded from this section under the regulations.

Note This Act does not apply to leases with a term of less than 6 months unless they are continuous occupation leases (see s 12 (2) (c)).

109  Implementation of preferential right

(1)  If the tenant has a right of preference, the lessor must, at least 6 months (but not more than 12 months) before the end of the term of the lease, begin negotiations with the tenant for a renewal of the lease.

Note Renewal of a lease includes extension of the lease (see dict).

_(2)  In particular, before agreeing to enter into a lease with someone else, the lessor must - _

(a) make a written offer, expressed to be made under this section, to renew the lease with the tenant on terms no less favourable to the tenant than those of the lease proposed to be entered into with the other person; and

(b) provide the tenant with a copy of the proposed lease (as renewed or extended) and the disclosure statement or proposed disclosure statement required in relation to it.

_(3)  If the lessor offers to renew the lease under this section - _

(a) the offer remains open for the period stated in the offer (the acceptance period) or until its earlier acceptance; and

(b) the tenant must tell the lessor in writing within the acceptance period whether the tenant accepts the offer; and

(c) if the tenant does not tell the lessor in writing within the acceptance period that the tenant accepts the offer - the offer lapses.

(4)  The acceptance period must be a reasonable period (at least 10 business days) after the offer is made.

_(5)  The negotiations must continue until - _

(a) the tenant rejects an offer under this section (or the offer lapses); or

(b) the tenant tells the lessor in writing that the tenant does not want to continue negotiations for a renewal of the lease.

(6)  The negotiations must be conducted honestly.

**43. However, the correspondence indicates that the respondents did not propose to let to another nor did they express their agreement to Kingsley's request for renewal as being pursuant to s 109 of the Act.

44. There was a further claim concerning the subsequent statement by the respondents in June and July 2006 advising that they were not prepared to lease the premises to Kingsley's. It was alleged that that constituted a statement under s 107(3)(b) of the Act which gave rise to a deemed extension of the original lease under s 107(4) of the Act. The consequence of that claim was not entirely clear. It is likely that the respondents believed, wrongly as it transpires, that would terminate the extension of the original lease.

45. The respondents further contended that Kingsley's had engaged in "unconscionable" or "harsh and oppressive" conduct so as to disentitle it to relief. That was allegedly constituted by Kingsley's reserving the right to decline to enter into a lease if the "market rent" was more than it would agree to pay.

46. His Honour, in approaching that issue, assumed that it was necessary that the parties be of one mind (ad idem) as to the proposal to be put to the valuer for assessment of market rent.

47. I must say that I fail to see why that should be so. There was a proposed lease. The premises were known. What the tenant and lessor assumed about the proposal seems to me to be irrelevant.

48. Clearly, the lessor had produced a proposed lease, subject to the contractual reservation that the lessor could withdraw or change it, even if the tenant accepted it. The tenant, Kingsley's, had in fact accepted it subject to the rent being "market rent". Nothing more was required to trigger the valuation process.

49. The purported withdrawal by the respondents from their proposal because of Kingsley's unwillingness to effect a refit was plainly inappropriate. If the terms of the proposal included that, the cost thereof affected the "market rent". In any event, Kingsley's was not bound to accept the proposal and the respondents were not justified in withdrawing from the process of negotiation on that ground.

50. Mr Lucas, solicitor for Kingsley's, responded to the final form of the proposal from the respondents, which differed only as to rental, on 10 June 2004 by accepting it subject to the rent being market rental. There was, however, a reservation as to the proposed commencement date. That is an issue also relevant to the assessment of "market rent". Five years from the expiration of the prior lease is a different lease, as to its value, from a lease for one to five years following the expiration of the deemed extension of the previous lease.

51. Nevertheless, as his Honour pointed out, the proposal was for a lease commencing 13 October 2003 for five years thereafter. How that proposal related to a commencement date following the expiration of the original lease as extended by the Act was not addressed. Indeed, that issue did not seem to have occurred to the respondents or his Honour though Kingsley's had clearly raised it.

52. Mr Lucas, on 24 December 2004, in response to the valuer's report, submitted that s 56(2) of the Act required a valuation for the proposed lease as at that date. That section, of course, deemed the original lease to have continued until 14 days after the valuation report was communicated to the parties.

53. Kingsley's contended, as an assertion of fact, that it was notified of the valuation 14 days before 5 January 2005, so that the original lease would continue from 12 October 2003 until that later date, assuming the valuation to have been validly done in accordance with the Act so as to terminate the extension of the original lease.

54. Obviously, the rental for the period 13 October 2003 to 5 January 2005 could not, by virtue of s 56(2) of the Act, be any different from that which would have applied under the original lease had it continued to that date. That, of course, would have included any rent review clauses in the original lease so far as applicable. It may be necessary, in future, for solicitors drawing leases to consider that contingency.

55. His Honour considered that s 56 of the Act placed the parties in a "holding pattern" until negotiations concluded. I agree with that assessment of the purpose of s 56 of the Act. Plainly, the parties could agree to terminate the negotiations at any time on any terms they chose. The question is as to the effect of the Act when no proposal is put as an offer or accepted as such in accord with the law of contract so as to constitute a binding agreement for a lease even on terms as to determination of market rent.

56. As his Honour observed, citing Sir Robert Megarry VC in Bradshaw v Pawley [1980] 1 WLR 10, such terms as commencement date, expiry date and rental for a lease are entirely within the discretion of the parties to a lease if they choose to agree upon them.

57. I agree with his Honour that s 56 of the Act does not preclude such an agreement. The question, however, is whether the default position, absent such agreement, is that for the period of the extended original lease, "market rent" is payable even if greater (or less) than the rent reserved by and notionally continued under the original lease. As his Honour recognised, to allow the valuation process to carry on without a prompt end to it could unreasonably advantage either the lessor or the tenant as the case may be.

58. His Honour referred also to s 55 of the Act, particularly s 55(b), as pointing to the result if negotiations do lead to a renewal of the lease:**

Rent pending valuation - rent reviews and options to extend

If the rent for premises is not worked out under section 52 (Market rent - rent reviews, options and renewals) or 53 (Valuation to work out market rent) before the extension of the lease is to commence or a rent review is due (the relevant date_) - _

(a) the rent continues at the rate charged immediately before the relevant date until the rent has been worked out; and

(b) once the rent has been worked out and set, the party who owes the other party the difference between the rent paid and the rent that should have been paid must pay the difference to the party owed within 30 days after the rent is set.

**59. However, as his Honour correctly noted, nothing in this section purports to deal with the case of negotiated renewals under the statutory regime contemplated by s 56 of the Act. There remains undetermined by that provision a question as to the default position if the parties have not, as a matter of contract law, come to a completed agreement otherwise.

60. That was not, however, the reason for his Honour concluding that the valuation proposal had failed. His Honour concluded that the parties were not ad idem as to the proposal of the lessors for renewal of the lease. That, of course, was irrelevant. It was "the proposal" to which the valuer had to assign a "market rent". It was objectively ascertained. What the parties thought it meant was irrelevant.

61. The question of the effect of the Act upon the proposal was a matter of legal interpretation only, that is, as to whether the proposal required an increased market rent to apply as from 13 October 2003, leading to arrears of rent being payable as if it was an interim agreement, a conclusion eschewed by all the parties, or whether at the termination of the lease as provided for by s 56, the parties were free to accept or reject the proposal as so completed by the ascertainment of market rent.

62. The difficulty for the respondents was not, as his Honour believed it to be, that Kingsley's did not intend to accept any offer less advantageous than the existing lease. It was that, having proposed to renew the existing lease, it could not terminate it absent mutual agreement. The original lease by virtue of s 56 of the Act continued until 14 days after the market rent was assessed according to the Act and notified to the parties. It is irrelevant, so far as the Act is concerned, whether either or both parties accept or not the proposal once market rent is ascertained.

63. It was open to either party to declare that the proposal to renew would not be acceptable whatever the market rent might be, but that could not detract from the learned magistrate's duty to appoint the valuer in the first place (s 52(6) of the Act) or to determine whether the valuer had reported conformably with the Act (s 58 of the Act). The question of whether, if the valuation was not in conformity with the Act, the magistrate would exercise the power conferred by s 58(2) of the Act would then need resolution before the original lease could expire or be found to have expired.

64. Kingsley's contentions in respect of the valuation suggested that the increased rental could only apply prospectively relative to the end of the deemed extension of the original lease. Absent a contrary agreement, that is the effect of the Act.

65. His Honour noted that the parties were in agreement that s 53(4) of the Act had not been enlivened. This is a little surprising as, subject to the lessor repeating its proposal in an unambiguous form as to its character as a legal offer, the parties were otherwise agreed on every term of the proposed lease, including rental. It was to be "market rent" ascertained according to the Act. That, initially, included the commencement date for the lease itself, that is, 13 October 2003. That was not necessarily the same as the date for commencement of an increased rental and, indeed, may, in context, merely reflect the continuation of the lease by virtue of s 56(2) of the Act.

66. Nevertheless, that implies, as his Honour inferred, that each party was reserving its (or their) right to decline to enter into a binding lease if the valuation was not to their liking. That position, in his Honour's view, and I agree with it, was not precluded by the provisions of the Act. The only express reference to that issue in the Act itself is s 53(4) of the Act. That provision is predicated on the assumption that the parties have entered into an "interim agreement about renewing ... the lease". Neither party embraced that contention as applicable to the present case.

67. Next his Honour considered the argument, advanced to him by Mr Erskine, that, having agreed to negotiate renewal of the lease and having put a draft lease to Kingsley's as a basis for negotiation, it was unconscionable for the respondents unilaterally to withdraw from the process whilst the valuation process to ascertain "market rent" remained to be finalised. That argument also engaged s 22(1) of the Act.

68. His Honour rejected that argument on two grounds. First, Kingsley's had not accepted that market rent should be payable as from the proposed renewal date of 13 October 2003. Hence it was not unconscionable for the respondents to withdraw their proposal. This was so whether or not Kingsley's had intended to mislead the respondents into believing that it accepted the proposal for market rent to apply as from 13 October 2003.

69. Second, it was not unreasonable for the respondents to have concluded that Kingsley's was delaying the process of valuation of the rental for the proposed lease so as to extend further the original lease, at the original and, presumably, lesser rental. Kingsley's could have, but declined to, put an offer as to what the market rent should be.

70. As a result, it was contended, the respondents could reasonably conclude that, even if market rent was worked out, Kingsley's would still decline to agree to the proposed lease, even if the respondents unconditionally offered it. Thus there was no useful purpose to be served in directing or replacing the court appointed valuer.

71. I note, however, that neither s 52(4) nor s 52(6) of the Act reserves to the Magistrates Court a discretion not to appoint a valuer to report to the Court. Indeed, that report, plus a communication of its finding, is necessary to terminate the original lease which is deemed to extend to that point (plus 14 days).

72. There was a clause in the original lease (cl 16) concerning holding over:**

16.1 If the Tenant continues to occupy the Premises after the Expiry Date with the Owner's approval, it does so under a monthly tenancy:

(a) which either party may terminate on one month's notice ending on any day; and

(b) at a rent which is one twelfth of the Rent.

**73. That, his Honour considered, was an extension of the original lease, not a new lease, and, hence, did not attract a right of preference under s 108 of the Act. That is, to my mind, plainly correct.

74. In any event, in my view, there was a more fundamental answer to any claim by Kingsley's that it was holding over. To create a monthly tenancy, the holding over had to be an occupation "with the Owner's approval".

75. The "Owner" had no choice once the valuation process was engaged. The engagement of the process under s 107 of the Act had the effect of extending the original lease until the process of working out market rent had concluded (see s 56(2)). If it had concluded, as would be the case if Kingsley's challenge to the conduct of the valuation failed, the continuing occupation by the lessee of the premises would not be with the respondents' approval. They had, after all, given notice to quit and, indeed, obtained an order for possession from his Honour in earlier proceedings.

76. The respondents counterclaimed that Kingsley's had made a misleading representation, that is, in effect, by asserting that Kingsley's was not bound to enter into a renewed lease even after market rent was determined. His Honour accepted that there had been no misleading representation to that effect. The lessee's contention merely reflected the effect of the Act and could not be "misleading".

77. However, his Honour did consider that Kingsley's had represented to the respondents that, subject to market rent being determined for the renewed lease, it was prepared to enter into a lease on those terms.

78. His Honour considered that to be a false representation. Hence the respondents were induced to enter into the negotiation process under the Act by reason of a false representation. He assessed damages at $82,795.21.

79. As it happens, the respondents have not, on this appeal sought to maintain that claim. Nor have they expressly resiled from it.

81. It was heard by me on 28 June 2007. Mr Erskine appeared for Kingsley's. Mr Purnell SC appeared for the respondents.

82. The Notice of Appeal agitated some 22 grounds.

83. Those relied upon by Mr Erskine's written submissions challenged the learned Magistrate's assumption that the commencement date for the renewed lease had to be the day after the expiration date expressed in the original lease rather than the date it was deemed to expire once the negotiation process was engaged.

84. Also challenged was the learned Magistrate's conclusion that s 56 of the Act established a "holding pattern". Mr Erskine's submission contended that the renewed lease could only date from the expiration of the original lease, extended as it was by s 56 of the Act.

85. There is no provision for adjustment of past rent in such a case as there is in the case of an interim agreement for a lease under s 53 of the Act.

86. If there was delay in the process of obtaining the relevant valuation then it was for the respondents to have expedited that process. They did not. Indeed, they sought to terminate the process unilaterally thus precipitating further litigation.

87. Further, Mr Erskine contended, the learned Magistrate should not have considered subjective intention in identifying that which was the proposal for a lease accepted subject to the market rent being ascertained and applied. The proposal, even if Kingsley's intention was relevant, was for a valuation of market rent either at 13 October 2003 or at the expiration of the original lease as extended. The latter, unless otherwise agreed was the commencement date for the new lease and, hence, the relevant date for the valuation.

88. The submission further contended that his Honour had erroneously decided that the respondents were under no obligation to maintain their intention to renew the lease. They could not withdraw their proposal for a lease.

89. Of course, the respondents, up until the institution of this appeal, had made no offer other than to negotiate a renewal of the lease. Their "offer" was expressly on terms that it was not a final offer capable of acceptance. There was nothing to be withdrawn. There had been a proposal to renew the lease. That proposal was accepted subject to market rent being worked out. The valuation process, ordered by the Magistrates Court, had to be concluded to end the extension of the original lease.

90. Though the respondents might be bound to honour their "offer", so far as it went, Kingsley's was only bound to consider it in good faith if, and only if, the rental determined was acceptable. Otherwise it was at liberty to decline the offer as so worked out. The respondents had the right not to make the offer unconditionally if they so chose.

91. In the alternative, it was contended, the parties were bound to negotiate in good faith (see Coal Cliff Collieries Pty Ltd v Sijehama (1991) 24 NSWLR 1, 26-27; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 268) or, at least, not to withdraw before the market rent was worked out (Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 76 FCR 151).

92. Kingsley's also challenged the learned Magistrate's conclusion that, though there was no misrepresentation under the Act, the same conduct could be relied upon as a misrepresentation under the Trade Practices Act.

93. That is, of course, a logical contradiction. In any event, Kingsley's submitted that such an assumption, if there was one, on the part of the respondent, was not relevant to their loss, if any. In any event, neither the respondents nor Kingsley's had represented that they would do more than consider the proposed lease for acceptance once market rent was worked out. Nor were they obliged to do otherwise. Nor could one party unilaterally bind the other or others without mutual agreement.

94. If there was a loss, it was due to the failure of the respondents to expedite the valuation process and thereafter, if at all, due to Kingsley's exercising its legal rights under the Act.

95. It seems to me that this contention had considerable merit.

96. On the other hand, Kingsley's has, as Magistrate Burns noted, displayed little enthusiasm for a negotiated outcome.

97. The claim under the Trade Practices Act does, on the face of it, seem contradicted by the rejection of a claim that Kingsley's had engaged in false or misleading conduct. Nor is it apparent that, even if Kingsley's had an intention not to enter into a renewed lease if market rent exceeded the existing rent, that that is misleading or doing otherwise than asserting its lawful option not to agree to the proposal for a lease as finally formulated and if unconditionally offered by the respondents. Nor could the respondents validly complain of that. They had sought to reserve the right to change the terms of their offer to renew the lease at any time at least up until the valuation process had been engaged. Their change of position thereafter could not alter the rights of Kingsley's. In any event, the remedy for the respondents was to do more expeditiously that which they did, that is, to obtain a valid valuation report. They cannot complain of legal challenges to it by the lessee. Indeed the Act itself, s 22(4), excludes from the categories of prohibited conduct the taking of proceedings under the Act in the Magistrates Court. Even apart from that provision, a party's decision to take or defend proceedings, even unsuccessfully, cannot be or support a view that it is false or misleading conduct to do so. It was the respondents who prevented the learned Magistrate from getting to the real point by taking or creating points of no legal substance but which were accepted by his Honour.

98. The respondents further submit, with some force, that the Court could not, absent agreement, order specific performance of a proposal for a lease that has not been agreed to. That would, of course, be so unless the respondents have converted their proposal to an offer capable of acceptance.

99. Consistently with the principle in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 parties may agree to a lease in all its essential terms subject to market rent being ascertained by an objective and independent process. A party may, equally, not be willing to be bound until the rent payable is known. That option is preserved by the process engaged in which was, after all, initiated by the respondents in agreeing to put a proposal for renewal of the lease.**

100. On the hearing of the appeal, Mr Purnell SC for the respondents made an "Open offer of Lease" in the following terms:

1. A lease for five years from 13 October 2003 to 12 October 2008.
2. Rent at current rate.
3. No reviews
4. No back rent.
5. No fit out.
6. No need to make good.
7. Vacate the premises by COB [close of business] 12 October 2008.

**101. Mr Erskine, however, indicated that the offer was not acceptable as it did not address the issue as to whether s 56 of the Act required the commencement date of the new lease to be 14 days after the valuation of market rent was notified to the parties. Nor did it address the Trade Practices issue.

102. It was Kingsley's submission that the original lease did not expire until 14 days after market rent was determined, by virtue of s 56(2) of the Act. At that point, presumably, the respondents and Kingsley's might have agreed to an offer to enter into a new lease on those terms. Otherwise Kingsley's would be obliged to surrender possession of the premises to the respondents. Any remedy available to the respondents for holding over between then and the time vacant possession was obtained would be available (for example, mesne profits).

103. The principal contention of Kingsley's was that, the respondents having offered to renew the lease, that proposal could not be revoked until market rent was worked out. Indeed, purported revocation was irrelevant. The proposal itself triggered the extension of the existing lease and the Act continued that lease until its termination under s 56(2) of the Act. At that point either party could accept or reject the resultant determination and the lease would terminate as provided by s 56(2) of the Act.

104. Mr Purnell SC drew attention also to a previous open offer of 19 May 2005. It included a release from all claims except for "back rent" of $19,894.53.

105. It was not accepted. It was, of course, less favourable than the open offer made on the first day of hearing so far as rent was concerned. Nevertheless, even that offer could not be said to be rejected unreasonably unless the, even if questionable, award of damages under the Trade Practices Act was addressed.

106. Two issues must now be addressed. The first is whether, absent contrary agreement between the parties, a new lease, once market rent is worked out, would commence on and from the expiration of the original lease as extended in its duration by virtue of s 56 of the Act. The second question is as to when, assuming that at that point each party was contractually free to reject or not the proposed lease, the original lease expires and the consequence for the period between that point and the surrender of possession if no new lease was agreed upon.**

Extension if rent on renewal to be worked out

_(1)  This section applies if - _

(a) the rent to be charged under a renewed lease is being worked out under section 52 (Market rent - rent reviews, options and renewals); and

(b) the lease that is being renewed (the original lease) expires before the rent has been worked out.

(2)  The original lease is taken to continue on the same terms until 14 days after the rent for the renewed lease is worked out and the parties are told about it.

**108. The words of this section are clear. The original lease is to continue subject only to its expiry date being extended for the period referred to.

109. The valuer in the present case, though duly appointed, was subject to an application by Kingsley's to disqualify him. This was on the basis that the valuer had assessed "market rent" only as at the date of the expiry of the original lease without regard to its extension under s 56 of the Act. In other words, a contention that, absent a contrary agreement, "market rent" was the rent applicable to the new lease which, given the application of s 56 of the Act, could only commence when the original lease expired.

110. Unfortunately, that contention was not considered in the first hearing before Magistrate Burns as his Honour found he lacked jurisdiction to do so. That decision was upheld by Gray J (on 25 November 2005) but reversed by the Court of Appeal on 2 June 2006.

111. The valuer, Mr S J Flannery of McCann Property and Planning, reported in December 2004 that the market rent was $96,000 per annum (excluding GST). It was lawfully open to either party to challenge this valuation under s 58 of the Act. Instead of permitting the Magistrates Court to direct the valuer to correct any error found, s 57 empowers the Magistrates Court to "disqualify the valuer and appoint a new valuer". It is not apparent, however, that the Magistrates Court must appoint another person as the "new valuer". It would thus be open to correct any error the valuer had made and to re-appoint that person as valuer to report anew.

112. Kingsley's so applied on the basis that the valuer had failed to conduct the valuation in accordance with the Act (see s 58(1)). That was because the valuer had failed to assume that the "proposed lease" would commence at the expiration of the original lease as extended by s 56 of the Act.

113. The Court of Appeal decided that, for there to be an engagement of s 51 of the Act, there did not need to be a contractual agreement upon the terms of the proposed new lease save as to rent.

114. If there had been such an agreement, then, of course, s 53(4) of the Act would be engaged to "lock" both parties in to that interim agreement. It is agreed by the parties that there has been no such interim agreement in this matter.

115. However, the appointment of a valuer is not predicated upon the presence of an interim agreement.

116. It should be noted that s 53(1), (2) and (3) of the Act also do not presuppose an "interim agreement" as to a lease. Those provisions set the rent "for the lease" whether under an interim agreement or for the purpose of a proposal for a lease. This is confirmed by s 55 of the Act. That provides in the case of an interim agreement:**

Rent pending valuation - rent reviews and options to extend

If the rent for premises is not worked out under section 52 (Market rent - rent reviews, options and renewals) or 53 (Valuation to work out market rent) before the extension of the lease is to commence or a rent review is due (the relevant date_) - _

(a) the rent continues at the rate charged immediately before the relevant date until the rent has been worked out; and

(b) once the rent has been worked out and set, the party who owes the other party the difference between the rent paid and the rent that should have been paid must pay the difference to the party owed within 30 days after the rent is set.

**117. It follows from this that the scheme of the Act is that, absent an interim agreement, the previous lease at the previous rental continues until 14 days after the parties are told of the new "market rent". Thereafter, the original lease, if it provides for holding over, continues as if the rent reserved was the now market rent so long as the respondents agree to continued occupation by Kingsley's until that occupation is terminated by notice to quit or a new lease has been entered into. Until the new lease is agreed to and commences, the previous lease applies until its expiry. In this case, of course, the respondents had already pre-empted holding over by giving notice to quit.

118. At that point, if Kingsley's did not wish to renew the lease, by reason of the changed rental (or otherwise), then s 108 of the Act would not apply and the respondents would be entitled to gain possession in the usual way.

119. On the matter being reheard in the Magistrates Court, the respondents had purported to withdraw their proposal to renew the lease. Whilst there is not an express prohibition on that course of conduct (c.f. s 53(4) of the Act), the original lease, extended by virtue of s 56(2) of the Act, was not thereby ended. The statute permits the expiry of the original lease only as there specified unless earlier termination was to be sought pursuant to s 122ff of the Act (Div 12.5). That could be for any reason which would give a lessor the right to terminate a lease but does not include the fact that the respondents had repented of their proposal to renew the original lease.

120. Unfortunately, the matter being diverted by the lessors' purported withdrawal of their intention to negotiate renewal of the lease, his Honour was led into error and did not determine the question for decision which was whether the valuer had made a determination in accordance with the Act so as to provide an end point to the statutory extension of the original lease.

121. It is clear that, absent agreement to the contrary (including an interim agreement), no new lease could commence before the end of the original lease as so extended. The "market rent", therefore, unless otherwise mutually agreed, had to be the rent applicable as at that date. That is, the rent is a current appraisal not a retrospective one. Of course, before acceptance of it so as to give rise to an interim agreement, the respondents could have declined to confirm the "proposed lease", but that could not alter the date on which the original lease would expire.

122. That, regrettably, means that, absent agreement between the parties, the application to replace the valuer must be heard and determined. There is, of course, no inevitability in the outcome. Even if the valuer has chosen a date for the valuation open only if the parties have agreed to that date rather than the default date, that is, the date at which the original lease will expire, it would be open to the learned Magistrate to direct or advise the valuer to provide a conforming valuation and reappoint him. It is not mandatory for his Honour to order that the valuer be replaced by another person. That valuation report, when provided, would trigger s 56(2) of the Act. If the parties are thereafter unable to agree upon a new lease to renew Kingsley's occupation beyond the expiry of the original lease, the rent as determined will, by virtue of the Act, be the rent applicable to the monthly tenancy under Cl 16 of the Lease for so long as the tenant holds over with the consent of the lessors. Otherwise, it is open to the respondents to re-enter and recover possession with damages for the period of delay, if any (see Anderson v Bowles [1951] HCA 61; (1951) 84 CLR 310). To that assessment, the determination of 'market rent' would be relevant.

123. The Trade Practices Act claim by the respondents was fundamentally misconceived. It relied on Kingsley's assertion of, or, at least, reservation of its legal rights as a misrepresentation. Merely to state the proposition exposes its fundamental flaw. The learned Magistrate was right to reject the proposition that it was "prohibited conduct" but it also followed that it could not be misleading or deceptive conduct under the Trade Practices Act.

124. In any event, both parties, rather than entering into an interim agreement, adopted a "wait and see" attitude to the negotiations for a new lease. Neither party, therefore, can complain of the consequences of that decision.

125. The appeal is upheld. The judgment and order on the cross-claim is set aside. The application of the lessee to replace the valuer is remitted to the learned Magistrate to be heard and determined according to law.

I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.

Solicitor for the respondents: Mallesons Stephen Jaques