The Relocation Notice Claim
11 The alleged invalidity of the relocation notices turns on the provisions of s34A of the Retail Leases Act 1994. That section provides:
"34A If a retail shop lease contains provision that enables the business of the lessee to be relocated, the lease is taken to include provision to the following effect:
(a) The lessee's business cannot be required to be relocated unless and until the lessor has provided the lessee with details of a proposed refurbishment, redevelopment or extension sufficient to indicate a genuine proposal that is to be carried out within a reasonably practicable time after relocation of the lessee's business and that cannot be carried out practicably without vacant possession of the lessee's shop.
(b) The lessee's business cannot be required to be relocated unless the lessor has given the lessee at least 3 months written notice of relocation and that notice gives details of an alternative shop to be made available to the lessee within the retail shopping centre. Such a notice is referred to as a relocation notice .
(c) The lessee is entitled to be offered a new lease of the alternative shop on the same terms and conditions as the existing lease except that the term of the new lease is to be for the remainder of the term of the existing lease. The rent for the alternative shop is to be the same as the rent for the existing retail shop, adjusted to take into account the difference in the commercial values of the existing retail shop and the alternative shop at the time of relocation.
(d) If a relocation notice is given to the lessee, the lessee may terminate the lease within 1 month after the relocation notice is given by giving written notice of termination to the lessor, in which case the lease is terminated 3 months after the relocation notice was given unless the parties agree that it is to terminate at some other time.
(e) If the lessee does not give a notice of termination as referred to in paragraph (d), the lessee is taken to have accepted the offer of a lease as referred to in paragraph (c), unless the parties have agreed to a lease on some other terms.
(f) The lessee is entitled to payment by the lessor of the lessee's reasonable costs of the relocation, including (but without being limited to) costs incurred by the lessee in dismantling and reinstalling any fixtures and fittings, and legal costs, in connection with the relocation."
12 The relevant ground of appeal alleges that the Appeal Panel:
"(f) Erred insofar as it held that the relocation notices were not invalid by reason of their involving a genuine proposal within s34A(a) of the Retail Leases Act. "
13 Mr B G Donald, a judicial member of the Tribunal sitting as the Retail Leases Division of the Tribunal, determined, relevantly, that the proposal for relocation was not a "genuine proposal" for purposes of s34A(a). (See Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94.)
14 He concluded:
"[88] I find that all three relocation notices were invalid. The first simply did not comply at all with the Lease or the Act and Stockland has acknowledged it was invalid. The second and third were for the purpose of securing a preferred tenant in a prime location within the Arcade with a two level shop fronting the Mall and not for the permitted purposes. While they recited a formula reflecting the provisions of s.34A and cl 20 of the Lease, neither was a genuine proposal for 'refurbishment, redevelopment or extension'. Instead, it was the attempted use of the right under those provisions to replace an existing tenant, who had only recently had its Lease renewed for a 7 year term and who had satisfactorily refurbished its shop as required under its Lease, with a preferred major tenant believed likely to be more attractive to a range of tenants for which the Arcade was being repositioned .
[89] My ruling in Eddie Azzi Australia Pty Limited -v- Citadin Pty Ltd [2001] NSWADT 79 also applies here:-
[95] In my opinion no Lease could be construed as being intended by both parties to operate so that, on the day following the granting of a registered proprietary interest to a lessee in premises, for which the lessee had incurred fit-out costs or had an established business with goodwill, the lessor could decide to terminate the Lease to connect those premises to adjacent units, re-configure the shop fronts and let them to another lessee who would fit them out and occupy the combined space, thereby providing the lessor with occupation of otherwise vacant premises in its building and a commercially preferable return on its building overall.
[96] In my opinion the right under this clause is available in respect of premises where having regard to the condition of the building, including the condition of the Leased premises, the lessor genuinely determines to repair, renovate or reconstruct the building to a substantial degree. There would be no such genuine determination where the decision in respect of the Leased premises was to incorporate them into a parcel with other premises to achieve a preferable return as opposed to continuing the existing Lease and leasing those other premises separately or in combinations not including the Leased premises.
[97] Leasehold interests are proprietary interests in land, not merely contractual rights and while the exercise of that proprietary interest is determined by the provisions of the Lease, and may indeed cease to continue as such a proprietary interest according to those provisions, the operation of any such conditions must be strictly construed.
[90] Secondly, in my opinion none of the premises offered were 'alternative' premises. They were not at all comparable from any point of view. I do not think the proper construction of 'alternative' in the relocation provisions is simply to allow the offer of any 'other' premises at all; there must be some degree of commercial similarity such that they are appropriate for the nature and size of the business conducted by the tenant.
[91] In addition, the base rent proposed in the second relocation notice was $85 000 when the then current base rent for the alternative premises under the Lease just negotiated in 2001 was about $25 000; this could not comply with s.34A(c). The third relocation notice tried to get around this by leaving the rent open in the attached Disclosure Statement, Ex A p.34, to be the same as under the existing lease 'or adjusted to take into account the differences in the commercial values of the premises… determined independently in accordance with the Act'. There is no process under the Act for an independent determination.
[92] I am satisfied that the notices were all demonstrably invalid and that they were properly withdrawn. It was however quite inappropriate for the lawyers to suggest in withdrawing them that the tenants who disputed them were somehow the cause of loss to Stockland, Ex A p.57. "
15 The Appeal Panel accepted the conclusion of the Tribunal but not with respect to the first reason proffered by the Tribunal. The Appeal Panel said:
"[223] We do not agree with the first ground relied on by the Tribunal. This was that the notices did not involve a 'genuine proposal' for 'refurbishment, redevelopment or extension' within s 34A(a), but instead were aimed at replacing an existing tenant with a preferred major tenant.
[224] The Tribunal, in upholding this ground, relied on the interpretation of these phrases within s 34A set out in Eddie Azzi Australia Pty Ltd v Citadin Pty Ltd [2001] NSWADT 79 at [95 - 97]. The crucial proposition in these paragraphs is that there can be no such 'genuine proposal' where what the lessor seeks to do is to incorporate the leased premises into a parcel with other premises in order to achieve a preferable return.
[225] We endorse, however, Mr Biscoe's submission that this statement of principle is at odds with the judgment of Bryson J in Blackler v Felpure Pty Ltd [1999] NSWSC 958. In construing the phrase 'genuine proposal' in s 35 of the RL Act (this provision provides for demolition of leased premises in terms similar to s 34A), Bryson J stated that the lessor may use the power conferred by the section to terminate the lease 'with a view to its own advantage'. This of itself does not prevent a proposal for demolition from being 'genuine'.
[226] On the other hand, we agree with the Tribunal's ruling regarding the second alleged ground of invalidity. This was that none of the premises offered to Skiwing in substitution were an 'alternative shop' within the meaning of s 34A(b). The differences in floor area and layout (see [24] and [26] above) were sufficient to support its finding that there was no 'commercial similarity' to the existing premises. We agree that some similarity along these lines is an implicit requirement of the subsection. On this issue, Stockland has failed to satisfy us that the Tribunal was in error.
[227] This ruling regarding the requirements of s 34A(b), and indeed of clause 20 of the Lease, is sufficient to support a conclusion that, for the purposes of determining this appeal, we should not disturb the Tribunal's determination that the second and third relocation notices were invalid."
16 Notwithstanding the fact that Skiwing was successful in its basic contention that the notices were invalid, it nevertheless appealed from the finding that one of the grounds of invalidity could not be found to be the absence of a "genuine proposal".
17 The Appellant relied on the conclusion by the Retail Leases Division in Eddie Azzi Australia Pty Ltd v Citadin Pty Ltd [2001] NSWADT 79, which was not found to have contained any error of law by the Appeal Panel in Citadin Pty Ltd v Eddie Azzi Australia Pty Ltd [2001] NSWADTAP 30 at [28]. In the course of the latter judgment the Appeal Panel distinguished the decision of Bryson J in Blackler v Felpure Pty Ltd [1999] NSWSC 958; (2000) 9 BPR 17,257 on the basis that the observation by Bryson J at [32] that a lessor could "exercise its powers to terminate the lease with a view to its own advantage" was, according to the Appeal Panel at [23], a "statement … made in the context of a discussion of the scope of the duty of good faith between parties to a contract" and that "no principle of law can be derived from this observation".
18 As the Applicant submits, the Appeal Panel in the present case did not refer to its own earlier decision in Eddie Azzi. Nevertheless, in my opinion, the former judgment was correct in concluding that Bryson J did not address the question of when a proposal was a "genuine proposal".
19 Blackler v Felpure was a case concerned with a notice under s35 of the Retail Leases Act 1994 which is concerned with demolition, expressed similar terms to those found in s34A, relevantly:
"35(1) If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:
(a) The lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated.
…"
20 In the course of dealing with the submissions in Blacker v Felpure, Bryson J said:
"[36] The plaintiff's counsel contended that the provision of details did not comply with para.(a) because some of the works which are proposed were not referred to. In my view the facts that the defendant proposes to do further works, and may do them subject to the need to obtain Development Consent, and proposed to do them at the same time as the works specified in the notice, do not establish that para.(a) was not complied with. It is not necessary for compliance with para.(a) to furnish every detail of the proposed demolition, and it is enough if the details provided are sufficient to indicate a genuine proposal to demolish. If that is indicated, it is not a defect in the provision of details that more is to be done.
[37] It is in my view significant to consider the purpose for which the provision which the Lease is taken to include requires that details be provided. The requirement to provide details is not merely a formal step imposed in the lessor's path, but the details are to be provided so that the lessee can come to a conclusion about whether the termination will be effective, and whether the lessee should accept that it will be effective or dispute it. The sufficiency of details provided should be tested in relation to that purpose. The question is whether the details provided are sufficient to indicate a genuine proposal to demolish the building; if they are not the termination cannot take place and if they are it will be effective no matter what other details of the proposed demolition exist or could have been provided.
[38] There is on the evidence tendered by the defendant, particularly of Mr Sevelle, no reason to doubt that there is a genuine proposal to do the work described in the letter of 14 December 1998, and to do further work subject to Development Consent, with the object of providing the defendant itself with office space in which to operate when its present lease expires on 4 January 2000, and also of creating enlarged office space in the upper storey which the defendant now proposes to let to its solicitor. There was no attack on the genuineness of this proposal and the proofs of it are clear . "
21 His Honour made further findings of fact in this respect and concluded, relevantly for present purposes:
"[61] It is not in my view open to contention by the lessee whether the lessor's decision to demolish, repair, renovate or reconstruct the building is reasonable or appropriate; it is sufficient if there is a genuine proposal. Nor in my opinion is it open to debate whether the lessor could in some way modify the lessor's proposal so as to continue to accommodate the lessee after the premises have been demolished, repaired, renovated or reconstructed. The opportunity to break a lease, retake possession and take advantage of the demolition clause is a contractual opportunity made available to the lessor by the terms of the lease itself, including the provisions notionally incorporated by s.35, it is not injurious to the lessor's position whether the lessor has decided to take that advantage, and it is not relevant that the lessor has in view occupying the premises itself, or selling them after reconstruction, or leasing them again, even if the lease should be to a business similar to the lessee's. The demolition clause is a reality of the party's relationship, and so is its potential operation to end the lease."
22 In my opinion, similar reasoning is applicable in the present case with respect to the parallel formulation in s34A(a). A proposed "refurbishment redevelopment or extension" does not lose the character of a "genuine proposal" by reason of the fact that the commercial motivation of the lessor is to attract a tenant or a particular kind of tenant. The reasoning of Bryson J in Blackler v Felpure is relevantly analogous and, in my view, correct. It is as the Appeal Panel found, applicable to this case. I can see no error of law in the Appeal Panel's analysis.
23 As noted above, the Appeal Panel did find that the notices were invalid under s34A. The Appellant contends that the Appeal Panel erred in holding that non-compliance with s34A could not give rise to a claim for damages. Two distinct issues appear to arise under this ground of appeal. First, whether general damages can arise from non-compliance and secondly, whether damages to reimburse for legal expenses incurred in contesting invalid notices can be awarded.
24 The Appeal Panel noted that the Tribunal at first instance asserted that Stockland's reliance on invalid notices was a breach of the lease and that that entitled the lessee to claim damages. The Appeal Panel said:
"[229] In our view, this misstates the effect of non-compliance with s 34A. If in the exercise of a power conferred in a retail shop lease, a lessor issues a relocation notice purporting to comply with s 34A, but which does not in fact comply, the result is that the lessee's business 'cannot be required' to be relocated. If the lessor nonetheless attempts to compel the lessee to vacate the premises, the lessee may assert in an appropriate forum, such as this Tribunal, that the lessor has no rightful claim to possession and may, if necessary, obtain an order prohibiting the lessor making any further attempt of this nature.
[230] A further consequence may be, as we have already mentioned, that the lessor cannot rely on s 34A to defend a claim that, through measures that it has adopted in order to relocate the tenant, it has breached the covenant for quiet enjoyment and/or the covenant not to derogate from its grant.
[231] We see, however, no reason why the serving of a notice which has no legal effect should, without more, confer on the recipient lessee a right to claim damages from the lessor. Any such right must have some other basis, such as the breach of one or other of these covenants. This ruling has two significant consequences.
[232] First, we consider that the Tribunal's awards of damages, in so far as they are based on the 'disruption' of Skiwing's business or the 'diversion of management effort' which it found (at [95]) to have been caused by the service of invalid relocation notices, cannot be supported.
[233] Secondly, the Tribunal's award of damages totalling $3,918 to reimburse Skiwing for its legal expenses in opposing the relocation notices must be set aside. We agree with Mr Biscoe that there is no general principle that a party incurring legal costs in order to contest successfully the validity of a document served upon it that purports to affect its legal rights or obligations may recover those costs from the party that served the document."
25 The Appellant submitted that the Appeal Panel failed to have regard to the factual findings of the Tribunal to the effect that the notices created a state of uncertainty as to the future of the tenancy and, therefore, of the Appellant's business. The Appellant sought to support the Tribunal's finding that the giving of an invalid notice constituted "a fundamental breach of the provision of the lease constituted by s34A" and it was this breach that gave rise to a claim for damages. The Appellant submitted that a breach of the lease, accordingly, sounded in damages. Furthermore, it submitted that the attempt to rely on invalid notices constituted a derogation from the grant which should in turn sound in damages. In oral submissions it was submitted that, in effect, s34A incorporates into leases a code in relation to the subject matter of relocations.
26 Section 34A, as set out above, operates in circumstances where a retail shop lease contains a provision enabling the business of the lessee to be relocated. It comprises a scheme which, by force of the statute, is included in the lease. One of these provisions is a stipulation for a "relocation notice". Unless such a notice has been given then, pursuant to s34A(b), "the lessee's business cannot be required to be relocated". Where such a notice has been given, s34A(d) provides for termination of the lease. Pursuant to s34A(f) a lessee is entitled to payment of reasonable costs of relocation.
27 If there is no valid "relocation notice" then these provisions of the legislative scheme do not take effect. The contractual provisions inserted into the lease agreement by s34A do not incorporate any kind of a promise that a purported "relocation notice" will be a valid "relocation notice", so that the service of an invalid notice constitutes a contractual breach of any character capable of sounding in damages.
28 The reasoning of the Appeal Panel is, in my opinion, plainly correct. The service of an invalid relocation notice does not constitute any kind of failure to fulfil a contractual obligation of the lease.
29 This is not to say that there will not be circumstances in which service of notices may, together with other facts, constitute a derogation from a grant or breach of the covenant for quiet enjoyment. Nothing on the facts of this case would suggest that could be said to be so here. I should note that the Tribunal has a jurisdiction with respect to unconscionable conduct claims and it may be that such a claim would cover the field of the circumstances in which the service of relocation notices could have any such effect. However, it is unnecessary to further consider this issue.
30 An issue has also arisen as to whether or not the service of the invalid notice involved a breach of an implied term, based on s34A, which was deemed to form part of the lease. This issue was not raised with the Appeal Panel or in written submissions in this Court. It arose during the course of oral submissions.
31 The implied term contended for by Skiwing was centrally formulated as follows: