Riad Awad v World Best Holdings Pty Limited

Riad Awad v World Best Holdings Pty Limited - [2005] NSWIRComm 316 - NSWIRComm 2005 case summary — Zoe

[15]

3 The proceedings before Marks J related to the circumstances of entry into a lease and the lease of premises at shop 1, Minto Mall Shopping Centre in Minto, a suburb of Sydney. The lease was made on 1 August 1998 between the appellant as lessee and the respondent as lessor. The summons alleged that the lease was or became unfair in a number of ways and the applicant claimed compensation in the sum of $400, 000. 4 Prior to his judgment of 30 July 2004 Marks J had given two interlocutory judgments. The first was given ex tempore on 25 November 2003 in which his Honour ordered, inter alia, that certain costs previously ordered to be paid by the appellant became payable forthwith on 31 January 2004 or on such later date as a certificate of assessment issued under the Legal Profession Act 1987. That certificate issued on 12 May 2004 in the sum of $10,263.05. 5 In the second interlocutory judgment given on 24 March 2004 (Riad Awad v World Best Holdings Limited [2004] NSWIRComm 56) Marks J considered an application by the appellant that he be given leave to extend the time for filing and serving further affidavits and expert reports. This application followed a litany of defaults by the appellant in meeting directions of the Court to file and serve material. At the same time his Honour considered a strike out motion by the respondent. In the result, his Honour dismissed the strike out motion and made orders in relation to the filing and service of an expert's report. 6 In his judgment of 30 July 2004, Marks J noted that in relation to the certificate of assessment of costs it: [W]as forwarded by the respondent's solicitor to the applicant's then solicitors, Messrs Levitt Robinson, by letter dated 18 May 2004. By letter dated 7 June 2004 those solicitors stated that they had referred the matter to their client " and we have not received instructions as to payment". By letter dated 10 June 2004 the respondent's solicitor said that his client expected a cheque "by return mail".

[16]

9 When these interlocutory proceedings came on for hearing on 28 June 2004 the applicant appeared personally. His previous solicitors had filed a notice of ceasing to act on 22 June 2004. The applicant said that he would pay the outstanding costs within 28 days of 28 June 2004 and that aspect of the interlocutory application was stood over on that basis. … 16 At the proceedings on 28 June 2004 Mr Awad indicated that he would be able to retain new solicitors within 10 days. He was given a copy of the respondent's tender bundle and a copy of the respondent's written submissions and had already been served with a copy of the notice of motion and affidavit material in support. On this basis there was arguably no need for any new solicitors to have access to the file held by his previous solicitors in order to furnish him with advice about this interlocutory application and to respond. In view of the dilatoriness on the part of the applicant in prosecuting these proceedings and in view of the grave concerns expressed by the respondent about the prejudice suffered by it through the delay of the applicant to prosecute the proceedings diligently, I ordered that any written submissions which the applicant wished to make either personally or through new solicitors should be filed in the court within one month of 28 June 2004. No such submissions were received by 28 July 2004. On that day solicitors who had been approached by the applicant to act for him but who were not at that stage retained by him sought by letter to my Associate, presumably without reference to the respondent, to extend the time for filing submissions and that the motion be re-listed in a further two to three weeks to allow the applicant to raise funds to secure the file from his previous solicitor. I declined to extend the period on an ex parte basis. 7 Marks J was satisfied that the appellant had not prosecuted the proceedings diligently and specifically had not complied with the order for payment of outstanding costs. Consequently, as we previously noted, his Honour dismissed the proceedings. 8 In relation to the motion filed by the respondent seeking that the appellant's summons be dismissed for want of jurisdiction, Marks J, in his judgment of 30 July 2004, referred to his earlier judgment in Edwards v Kingsmede Pty Ltd and anor [2004] NSWIRComm 82 where he considered the effect of the "Mitchforce litigation" (Mitchforce v Industrial Relations Commission (2003) 57 NSWLR 212; Mitchforce v Starkey (No 2) (2003) 130 IR 378) and its application to commercial lease arrangements. It is apparent that his Honour took the view that the factual matrix that formed the basis of the Mitchforce litigation was relevantly indistinguishable from the factual circumstances that surrounded and applied to the lease agreement in the proceedings before him. Specifically, his Honour stated at [15]: 15 In my opinion the observations which I made in Kinsgmede are equally applicable to the circumstances of these proceedings. In the course of submissions made on behalf of the respondent, Mr R N Gye of counsel, who appeared for the respondent, made particular submissions with respect to clause 45 of the lease which required the lessee, inter alia, to "conduct his business in the Premises and keep the same open during such hours as are regular for such type of business in trade areas in the Sydney metropolitan district". In supporting a submission that these particular provisions were not determinative of the "purpose of the agreement" Mr Gye relied upon observations of Handley JA in the New South Wales Court of Appeal in the Mitchforce litigation at para [54] as follows: "Such provision is often inserted to protect a Lessor's legitimate interests as the owner of the property, whether of the demised premises or of an associated property. Such provisions do no more than restrain the lessee departing from the common assumption upon which the lease was based. They do not necessarily mean that work is 'performed' under the agreement itself. In particular, it cannot be said that a contract containing such provisions leads 'directly' to the performance of work. The work 'directly', in the case law, is to be regarded as an essential part of the process of determining that the contract can be said to have the requisite 'industrial colour or flavour'."

[20]

13 At the heart of the jurisdictional issue in these proceedings is the interpretation and application of what we earlier referred to as the Mitchforce litigation. In Mitchforce v IRC and Mitchforce (No 2) the New South Wales Court of Appeal and the Full Bench of the Industrial Relations Commission respectively found that a particular hotel lease (in and of itself) was not an unfair contract within the meaning of ss 105 and 106 of the Act. 14 The decision of the majority (Wright J, President and Walton J, Vice President) in Mitchforce (No 2), however, cannot be seen merely as an endorsement of the Chief Justice's judgment in Mitchforce v IRC and even less so an endorsement of the majority's findings (Spigelman CJ and Mason P) in that case. Whilst the majority's views in Mitchforce (No 2) on the lease coincided with those of the Chief Justice, there was a significant divergence of view on other issues in the case, including the reasoning behind the different judgments. 15 After reviewing the legislative and common law history of ss105 and 106 and their predecessors, the majority in Mitchforce (No 2) distilled the following relevant propositions: (1) The relevant jurisdictional fact that must be established in order for a contract or arrangement to come within the Commission in Court Session's unfair contracts jurisdiction is that the contract or arrangement is one "whereby a person performs work in any industry" [102]. (2) If it can be shown that the contract or arrangement leads directly to the performance of work, either by one of the legal entities to the arrangement or by somebody else, then that conclusion will provide the relevant jurisdictional nexus. In a case involving a contract in its more readily identifiable or usual legal sense, it will no doubt be accurate to refer to work being performed under or pursuant to the terms of the relevant contract as was the case in the reasoning of the majority in Production Spray Painting & Panel Beating Pty Ltd & Others v Newham & Others (1991) 27 NSWLR 644 [120]. (3) For an arrangement to be one whereby work is performed in an industry, there need merely be a plan or concerted action by a number of persons to bring about that particular result. It is difficult to speak of an element of a "plan or concerted action by a number of persons" as being a "term" of such an arrangement, in the manner in which that word was used by the majority in Production Spray Painting. It will be of greater utility to focus on the parties' purpose, to direct attention to the substance of the transaction [135]-[136].

[21]

(4) It is not an element in an action under s 106 that the impugned contract or arrangement has an "industrial colour and flavour". So long as the transaction leads directly to work in any industry it has the necessary "industrial colour or flavour" [112]; the consequential performance of work is not enough: see Production Spray Painting at 657 [42]. (5) There is no discernible reason why a lease of land should not be a contract for the purposes of s 106 [121]. (6) It could not be said that the majority in Stevenson v Barham (1977) 136 CLR 190 adopted as a requirement for jurisdictional purposes that the contract must have a "recognisable impact upon the conditions of that employment"[124]. (7) The lease considered by Hungerford J in Starkey v Mitchforce (2000) 101 IR 177, in terms and considered on its own, having regard to the relevant law as espoused by the High Court in Stevenson v Barham and the authorities of the Commission in Court Session, as considered in Euphoric Pty Limited v Ryledar Pty Limited (2002) 117 IR 1 , could not establish a proper basis for jurisdiction [24]; The lease in and of itself was not a contract which directly or pursuant to its terms led to the performance of work in an industry [25]. 16 The first, second, fourth and sixth propositions were enunciated with particular reference to the leading High Court authority, Stevenson v Barham (1977) 136 CLR 190, and encapsulated the approach that has been adopted and applied by this Court, its predecessors and the Court of Appeal (until Mitchforce v IRC) since that time. Consistent with that approach, Wright and Walton JJ expressly rejected the premises of the majority (Spigelman CJ and Mason P) in Mitchforce v IRC, that there was some separate jurisdictional requirement for "industrial colour and flavour" and that "the contract [must have] a recognisable impact on the conditions of that employment and work." 16. The Court of Appeal decision in Mitchforce v IRC is not binding on the Full Bench of the Industrial Relations Commission. Mitchforce (No 2) is the authority binding Members of this Court. Leave to re-argue the correctness of that decision was not sought in these proceedings. Finally, we note that the decision in Mitchforce (No 2) was circumscribed by its particular facts; it was a re-opened appeal, and the majority of the Full Bench restricted its consideration of the lease on the basis that the evidence pertaining to the broader arrangement was sufficiently ambiguous, that considerations of comity should prevail in order to avoid a different conclusion to the majority of the Court of Appeal. 17 Further, we agree with the observations of Boland J in Taouk and anor v Fairline Corporation Pty Limited and ors [2005] NSWIRComm 167 at [28]-[30], where his Honour considered the implications of Mitchforce (No 2) for the lease (as distinct from any broader arrangement) that was the subject of interlocutory proceedings before him. His Honour stated that: 28 … even though the lease may require what the Chief Justice referred to in Mitchforce v IRC at [45] as "physical activity on the premises", this again will not be enough to attract jurisdiction. Such provisions in the lease in that case included: - The covenant to repair and maintain, fair wear and tear excepted, extended beyond the hotel premises to encompass plant, equipment and fixtures as well as "stock-in-trade" (cl 5.1).

[27]

On transfer of the lease the lessee was obliged to carry out repairs, renovations, painting and papering as considered necessary in a report of an architect appointed by the lessor (cl 5.18). 29 Spigelman CJ did not consider these "activities" could be regarded as the performance of work for the purpose of establishing the relevant jurisdictional fact. At [56] his Honour considered "Such work is not performed "in" the hotel "industry". It is performed under the lease to maintain the value of the asset to the owner, as a lessor of property." 30 The majority in Mitchforce (No 2) in agreeing with the Chief Justice that the lease, "in terms and considered on its own" could not establish a proper basis for jurisdiction, must be taken as agreeing with the Chief Justice that the "activities" referred to by his Honour and required under the lease did not bring the lease within jurisdiction. It follows that standard covenants in leases going to repair, renovation, reparation and maintenance do not attract jurisdiction. Nor will it be sufficient to attract jurisdiction if the lease requires the lessee to be on the premises at all necessary times: see Mitchforce v IRC at [41]. Submissions of the appellant 18 The appellant referred to the respondent's contentions that there were just two clauses in the Awad Lease which distinguished it from the Mitchforce lease namely: (a) The Applicant's obligation under clause 45 to conduct the business; and (b) The Applicant's obligation to keep the premises open during specified hours pursuant to rule 12 - setting minimum hours for opening of the "Rules and Regulations of the Building". And further, to the submissions of the respondent at first instance that: (a) The relationship as between the parties was one dimensional, not multi-dimensional; (b) The purpose of the Lease was the occupation of the premises, rather than the performance of work; (c) The Lease did not directly lead to the performance of work; (d) The obligation to repair and maintain the premises did not directly lead to the performance of work. 19 The appellant contended, however, the Awad Lease contained a number of provisions not referred to by the respondent, which distinguished it from the lease in Mitchforce, and referred to the following matters: (a) The combination of the effect of the definition of "Gross Sales" in Clause 1 - Interpretation and "Percentage Rent" as referred to in Clause 1 and cross-referenced at Item 11, in the Reference Schedule. "Percentage Rent" was defined as: the amount calculated in respect of each Lease Year equal to the amount (if any) by which the stipulated percentage (specified in Item 11 of the Reference Schedule) of the Gross Sales for each Lease Year, exceeds the Annual Rent paid during the Lease year. (b) In Item 11 of the Reference Schedule the "Percentage Rent" as referred to in Clause 3.1, is referred to as 5%. (c) By the operation of Clause 3.1, the Lessee (appellant): In addition to the Annual Rent, the Lessee covenants to pay to the Lessor the Percentage Rent reserved in Item 11 of the Reference Schedule for each Lease Year and pursuant to Clause 3.2, to: forward to the Lessor within 10 days of the expiration of each month during the term, such information of the Gross Sales made from the premises during the preceding month as the Lessor may reasonably require … and to prepare a statement for that purpose.

[32]

24 It followed, it was submitted, that the Lessor had a direct interest in the Lessee's optimising its sales and requiring it to be fully stocked and operational throughout the Lease term, during business hours, so that the Lessee could generate sufficient revenue to cover not only the Annual Rent but also, a sufficient sum to ensure that the Percentage Rent exceeded the Annual Rent, with a net further yield to the Lessor. 25 The appellant submitted: In the Mitchforce Lease the Lease contained a covenant by the tenant to pay an Additional Rent of 4% of the value of the liquor purchased by the tenants under the Liquor Lease. In the Awad Lease, the obligation to pay the Percentage Rent cut in after a threshold had been reached, namely the difference between 5% of the Gross Sales and the Annual Rent paid during each Lease year, which made the Lessee accountable to the Lessor (Clause 3.2), and imposed a pressure on the Lessee to perform effectively, requiring the Lessee to keep the premises " fully stocked " and to operate the Premises " with due diligence and efficiency in a proper and businesslike manner, appropriate to a high class shopping centre" , throughout the full period when the premises were open and requiring the maintenance of window displays on the premises, presumably to attract business so as to maintain turnover levels for the mutual and shared benefit of the Lessor and the Lessee. 26 It was further submitted that: By virtue of the intersecting operation of Clauses 3, 40 and 45 and Building Rule 12, with which the Lessee was, at a minimum, bound to comply - (Clause 44), a significant purpose of the agreement was to provide the means for conducting a business by the Lessee which was not only to be conducted on the Lessee's own account but the Lessee was also required to account and report to the Lessor (Clauses 3.1, 3.2 and 40, as well as Item 11 of the Awad Lease). 27 The appellant sought to distinguish the Awad Lease from the lease in contemplation in Edwards v Kingsmede and, in particular, contended that at first instance Marks J compared cl 45 of the Awad Lease with the provisions of the lease in Kingsmede without taking into account the context of the other provisions in the Awad Lease to which the appellant referred in his submissions. Submissions of the respondent

[45]

39 Clauses 45(1) and 45(3) may be regarded as provisions designed to protect the legitimate interests of the lessor in much the same way as covenants to repair and maintain and neither can be said to lead directly to the performance of work in the light of Mitchforce (No 2) and the agreement of the majority with Spigelman CJ that the lease in that litigation did not lead directly to the performance of work. Clause 45(1) refers only to a standard at which the Premises are to operate and cl 45(3) requires the installation and maintenance of displays of merchandise in display windows only if there are such windows. 40 The requirement in cl 45(7) to keep all licences and permits on foot is no different to one of the obligations in the Mitchforce Lease: see Mitchforce v IRC at [41]. 41 The principal contention by the appellant on appeal regarding the terms of the Awad Lease and its jurisdictional validity involved a consideration of a combination of the Lease provisions, in particular cl 3 and cl 45, which it was said indicated the lessor and lessee were effectively joint venturers or that the provisions had the effect of requiring the lessee to perform work for the lessor. 42 The fact that cl 3 was not pleaded as being an element of the alleged unfair contract and that the relationship between cl 45 and cl 3 and its implications was not the subject of any argument before Marks J at first instance, would seem to us to be fatal to the appellant being able to raise those arguments on appeal. But in any event, we do not consider there is any relevant relationship between cl 45 and cl 3 so as to make good the proposition that the lessor and lessee were working towards some common goal in the manner of a joint venture or that it "imposed a pressure on the Lessee to perform effectively … so as to maintain turnover levels for the mutual and shared benefit of the Lessor and the Lessee" so that it could be said the Lease led directly to the performance of work in the retail industry.

At a glance

Court

Decision date

Before

Source

Judgment (48 paragraphs)

Parties

Cases Cited (12)