Sorbara v DJ & AJ McCallum Pty Ltd [1998] VSCA 71

Court of Appeal (Vic)|1998-10-14|Before: ORMISTON, PHILLIPS and KENNY, JJ.A.

LANDLORD AND TENANT - Retail tenancies - Motel premises - Meaning of "retail premises" - Meaning of "floor area" - Retail Tenancies Act 1986 (No. 106), ss.3, 21.

The definition of "retail premises" and the exclusion from that definition of premises with a "floor area" exceeding 1,000 square metres in s.3 of the recently repealed Retail Tenancies Act ("the ") has caused much difficulty. It caused difficulty because, although it was clear that the various protections afforded to tenants under the were primarily intended to benefit those engaged in small businesses, the form of the exception has had varying effects for that purpose, depending on the nature of the businesses carried on. Attempts to give effect to Parliament's intentions have led to a series of inconsistent, or partly inconsistent, decisions by judges of the Supreme Court, each valiantly attempting to create order out of chaos by reading into the words used some meaning which would give consistent effect to the legislature's intentions, when applied to a variety of situations. This is the first occasion the definition and the exception have been considered by an appellate court and the solution to the matters raised has caused me much concern, for seemingly any answer given might prove of general application, inasmuch as we were assured in argument that the definition and the exception remain the same under the 1998 ("the new Act"). However, although that assurance was literally correct, it omitted reference to s.s.(5) of s.3 of the new Act which states that "in determining the floor area of premises for the purposes" of the new Act, regard should be had to "the guidelines for the measurement of lettable area" to be notified (only) in the Government Gazette by the Minister for Small Business. Anything, therefore, we say as to the meaning of the definition and exception in the former Act must be treated with the greatest care for the purposes of the new Act in that what is said must be tempered by a realisation that, notwithstanding continuing complaints as to the effectiveness of the definition under the former Act, Parliament has now qualified those definitions merely by making an indirect reference to "lettable area", at least for certain purposes in determining the floor area of premises under the new Act; see also s.4 of that Act as to its application.

I myself have had many doubts as to the desirability of reaching a conclusion in relation to the former Act which in almost every case would have resulted in most of the area of premises let for business purposes being included as floor area in order to determine satisfaction of the definition, but, as the other members of the Court prefer a wider definition in any event, I think it now of little consequence to examine those doubts. I had inclined to the view that, by including the word "floor" in the definition, Parliament was referring at least to those parts of premises which had a constructed floor or other surface and, possibly, also to those parts of the ground surface of the area which were set apart and maintained for the purposes of the business. In any event, whatever definition I should have chosen, there were at least two areas of constructed ground surface which the learned arbitrator erroneously considered should have been excluded and the inclusion of which would have taken the relevant floor area to a figure in excess of 1,000 square metres. I therefore agree with Kenny, J.A. and Phillips, J.A. that the appeal should be allowed. If there be a difference and if it were necessary to express a conclusion as to which test should apply, I believe I would favour that expressed by Kenny, J.A., if only because it more closely approximates to the conclusion I prefer.

All of the relevant factors have been considered by the other members of the Court. Each of those factors poses difficulties, especially in relation to premises which one might have thought were not directly in Parliament's mind when the legislation was passed in 1986. I would agree with the criticisms of the definition and exception expressed in the other judgments. If there is to be a cut-off point for the application of legislation such as the past or the new Act, then a more satisfactory criterion should have been chosen and should now be chosen in preference to "floor area", which has inevitably led to disputes of this kind. Some simpler and more relevant criterion should have been chosen. One might have thought that rent would be the most appropriate way of determining whether a business is larger or smaller for the purposes of it being subject to controls of the kind imposed by the past and new Acts. If there have been difficulties in determining rent in relation to similar legislation because parties have sought to avoid expressing the true rent, then one could have little sympathy with those who suffer the consequences of any deliberate means of avoiding the words of any new definition. If it be thought that reference to "lettable area" in s.3(5) of the new Act might help to solve the problem, then I would refer only to the first part of the first definition in the 16 page guidelines published on 1 July 1998:

"'Dominant Portion' is that portion of the internal or external (as relevant) finished surface of a vertical wall, which comprises in excess of 50 per cent of the wall's surface area. If there is no dominant portion or if the dominant portion is not vertical, the measurement should be to the finished surface of the wall which intersects the finished floor ... ".

It is hardly an auspicious start and the complexities of the inquiry envisaged under these guidelines seem far too extensive for determining whether tenants have the benefit of what is intended to be a benevolent piece of legislation. I say nothing at this time as to the propriety of provisions by way of "guidelines", published only in gazettes, which control definitions affecting the jurisdiction of courts, among other matters. It can only be reiterated that nothing that we say on this occasion is likely to assist in determining questions of the same kind under the new Act.

In Hall v. Joyworth Pty. Ltd. (1993) V.Conv.R. 54-461 I had to decide, for the purposes of the definition of "retail premises" in s.3 of the Retail Tenancies Act 1986, whether a certain caravan park had "a floor area that exceeds 1,000 square metres" within the meaning of paragraph (a) of the definition, which is the first of several exclusions. The competing contentions in that case were that the relevant floor area was, on the one hand, the whole of the demised premises (being the whole of the caravan park and measuring a good deal more than 1,000 square metres) and, on the other hand, the area actually occupied by buildings, specific covered areas and the like (the detail of which did not matter because, no matter how it was calculated, it was less than 1,000 square metres). I rejected the argument that the relevant "floor area" of a caravan park should be measured by reference to the whole of the demised premises, consisting as it did in that case largely of open area without any constructed "floor". Hall v. Joyworth is now only one of five cases in which trial judges in this Court have grappled with the application of the definition of retail premises and more particularly the exclusion in paragraph (a): Robert v. Besford [1991] VicRp 32; [1991] 1 V.R. 606, F.P. Shine (Vic) Pty. Ltd. v. Gothic Lodge Pty. Ltd. [1994] VicRp 11; [1994] 1 V.R. 194, Nime Pty. Ltd. v. Seventh Storey Pty. Ltd. (1994) V.Conv.R. 54-491 and Joad Pty. Ltd. v. Ospies Hotels Pty. Ltd. [1995] VicRp 13; [1995] 1 V.R. 198. In its own way each of the five cases has served in my opinion to demonstrate the difficulties of determining precisely what Parliament intended by adding the word "floor" to the word "area" in paragraph (a).

All are agreed that the word "floor" serves to include for the purpose of measurement under paragraph (a) the several levels of a multi-storey building which are above or below the first. That has not been an issue in any of the five cases mentioned, nor is it an issue here. Rather the question has been what other work, if any, should be ascribed to the word "floor" in paragraph (a). It has proved difficult to settle on any answer which is always satisfactory, given the diverse nature of the cases that come otherwise within the definition of "retail premises": contrast the position in other jurisdictions where the concentration has been on shops. I acknowledge the deficiencies of too narrow an approach to the question of "floor" (though incidentally I do not think I meant to suggest in Hall v. Joyworth that "floor" should be understood as denoting only the lower level of spaces that were roofed; any such suggestion is quickly dispatched by reference to the top level of an open air car park). In what follows I suggest an approach to the expression "floor area" in paragraph (a) which seems to me best suited to meeting the diversity of cases that arise while following, as we must, the wording of the definition. As will be seen, it is in part (though in part only) the approach taken by Eames, J. in Joad after a careful consideration of the preceding decisions.

This is the first opportunity given an appellate court to determine the construction of paragraph (a) and it is an opportunity to which we must respond, though as Ormiston, J. A. observes, Parliament has recently passed the Retail Tenancies Reform Act 1998 which in s.3(5) modifies the operation of the definition of "retail premises". With what success remains to be seen. If I may simply say this in passing: the descent into extensive and apparently complex "guidelines" on what should be a comparatively simple test to apply, given its ramifications, bodes ill for the future, not only in the considerable expense which this could involve for those who would seek to reinforce a claim to be conducting small businesses, but also in the resultant use of scarce court resources. It is perhaps surprising that an apparently complex device has been put in place, but from the researches of Kenny, J.A. it appears to stem from one of the various recommendations that have been made from time to time for change and was presumably the product of much careful thought.

In the case under appeal, the arbitrator's decision concerned the lease of premises known as the Paruna Motel in Swan Hill. In contending that the "floor area" of those premises, for the purposes of the definition of "retail premises" was larger rather than smaller, the lessors pointed to the terms of the lease requiring the lessee to maintain the business of the motel and to do so in accordance with the standards required by the Royal Automobile Club of Victoria for a "three diamond" rating. Those terms, it was contended, required the lessee to maintain a special level of service, including facilities. The arbitrator's decision, and the facts upon which that decision turns, are all set out in the judgment of Kenny, J.A. and I do not repeat them. I agree with her Honour that, in determining that the "floor area" of the leased premises was in this instance less than 1,000 metres, the arbitrator fell into error; that in truth that floor area was more than 1,000 square metres; and that in consequence the arbitrator lacked jurisdiction to determine the dispute which had been notified under s.21 of the Retail Tenancies Act 1986. I shall however state my own reasons for agreeing in that conclusion. I add that if the appellants needed leave to appeal, I too would have granted it.

First, the Act in question is concerned with tenancies, with demised premises and with the use to which the premises are put, or are to be put, under the terms of the lease governing the tenancy. The Act applies only to certain leases, but if the Act applies it requires, for instance, disclosure in a certain form before the lease is entered into (s.7); it forbids key money (s.9) and controls rent review (s.10). None of these provisions is capable of division: they either apply or they do not apply depending upon whether the lease is, or is not, of retail premises. The definition of "retail premises" is therefore critical, serving to subject a lease to the operation of the Act or not and operating in part, it may be noted, even before the lease is entered into. That can be overlooked in cases where the dispute has arisen well into the term.

Leaving aside, for the moment, the exclusions in paras.(a) to (e) of the definition, "retail premises" are -

"... any premises that under the terms of the lease relating to them are used, or are to be used, wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services ...".

Thus, though the definition is concerned with the carrying on of a business consisting of retail trade in goods or services, premises which are "retail premises" by virtue of the foregoing need not be wholly devoted to the carrying on of that business. It is sufficient if the premises are used, or to be used, "wholly or predominantly" for the carrying on of the business. Thus, mixed uses do not per se make the definition inapplicable; some use other than for retail purposes is still possible - even, I should have thought, if that other was not ancillary or incidental to the carrying on of the retail business. Further, so long as the test is whether the premises leased are used or to be used "wholly or predominantly" for the carrying on of a retail business, the physical isolation of a portion of the premises, even if for some altogether different and independent purpose, does not mean per se that the premises are outside the definition. The test remains whether "under the terms of the lease" the premises "are used, or are to be used, wholly or predominantly for the carrying on of" a retail business.

Recognising the possibility of mixed use, or discrete use in some physically separate portion of the premises when the premises are otherwise being used predominantly for the carrying on of a retail business, is an important step which must be borne in mind whenever the express exclusions fall for consideration, because all of them are a description of one sort or another of "premises". In Hall v. Joyworth I said, and it has since been accepted, that the exclusions require consideration of the "premises" which are defined in the introductory portion of the definition as being "retail premises". The first exclusion, in paragraph (a), asks about the "floor area" which those "premises" have and, to my mind, it plainly refers to the floor area (whatever that means) of the premises which are leased. It is the whole of the premises which are demised and which ex hypothesi (by the time one arrives at the exclusions) are used, or to be used, "wholly or predominantly for the carrying on of" a retail business. Any use which is not for that business or any portion of the premises which are dedicated to other use is not to be excluded from consideration; it is the premises which are leased which are the subject matter of the words of inclusion and, correspondingly, which are the subject matter of the words of exclusion.

It is here, with respect, that the arbitrator fell into error in this instance, though building upon and applying a distinction which he saw drawn in Joad between "the intrinsic part of the retail business carried on on the premises and matters which were merely incidental to the carrying on of that business". It was common ground, I think, that the carrying on of the business of the Paruna Motel as it stood (especially in view of the terms of the lease) constituted the carrying on of a retail business falling within the words of inclusion in the definition. It followed, in my view, that the exclusion in paragraph (a) depended upon the floor area of those premises. But the arbitrator sought to distinguish between that portion of the premises which was used for the provision of what he called "core services" (such as accommodation and parking bays for the cars of motel guests, the laundry, storeroom and kitchen for the provision of guest amenities) and that portion of the premises which were only "incidental to the provision of the services offered by the motel" (such as the gardens, the paths and the driveway, the swimming pool, the barbecue area and the concrete car wash area). This distinction does, I think, derive from a like distinction drawn by Eames, J. in Joad, but to that extent I would, with respect, disagree with the approach taken. No such distinction is required, or indeed authorised, as I read the terms of the definition of "retail premises". The jurisdiction of the arbitrator depended upon the demised premises having a floor area that did not exceed 1,000 square metres and in determining that issue the distinction which the arbitrator sought to draw was not relevant.

The subject of the lease was the premises known as the Paruna Motel which, so far as I can tell, comprehended the whole of the premises under the lease. It may be that on the facts some distinction was possible between the uses made of various portions of the leased premises. Obviously a portion of the premises constituted the bedrooms for motel guests, while another portion constituted the manager's residence; probably there were domestic clothes lines out the back of the manager's residence for private use, while in front of the guest rooms there were parking bays for individual cars. Then there were the general facilities - the swimming pool, the children's' playground, the barbecue and car wash facilities - and the areas of beautification. All these uses of different portions of the premises might be distinct, but that was not an issue. As the motel business itself constituted a retail business capable of attracting the definition of "retail premises", the first question was whether the demised premises were "used, or ... to be used, wholly or predominantly for the carrying on of" that motel business. When that question was answered affirmatively (and that answer was not in dispute), the next question was whether the demised premises had a floor area exceeding 1,000 square metres. To answer that question, no division is appropriate of the demised premises, unless it is required by the meaning of the words "floor area".

It was this last which led me in Hall v. Joyworth to consider that "floor area" must be given a fairly narrow meaning in order to avoid what I thought might be absurdity in certain instances: for example, the case of the small country milkbar, operating from a very modest building on the highway but standing on a 10 acre block which, for the most part, was not used at all. The solution I preferred was not subsequently endorsed; it was regarded as inappropriate in the cases that later arose for decision. I now agree, but the real error lay, I think, not in the detail but in attempting to seize upon a meaning of "floor" which would have general application. Subsequent cases have demonstrated how difficult that task is. Indeed, I now think it impossible.

Instead, I agree with Kenny, J.A. that the starting point should be that Parliament has deliberately included within the general concept of "retail premises" premises on which are conducted a very diverse range of businesses, including not only shops but also businesses such as caravan parks, outdoor picture theatres, plant nurseries and car yards. So much is not now in doubt. At the same time Parliament has clearly enough proceeded upon the assumption, disclosed by paragraph (a), that such premises do "have a floor area". In the case of shops in suburban shopping precincts, the concept is more easily applied than to caravan parks and other outdoor premises. Nevertheless, Parliament requires the application of the concept to all and so what is relevant "floor area" in a given case will have to take its colour from the type of business which has called the opening part of definition into play. The argument that the expression "floor area" should be given a narrow meaning and then "retail premises" confined to premises occupied, wholly or predominantly, for businesses to which that narrow meaning may fairly be applied has been consistently rejected - and properly so. What now seems to me correct is in substance the opposite: to recognise that "floor area" is a concept to be applied across the board to premises involving a wide range of business activity and then to interpret and apply the concept in a given case appropriately, according to the nature of the business which in the particular instance has served to attract the definition in the first place. This is at least the thrust of the test proposed by Eames, J. in Joad at 205.

On this approach what is relevant floor area will vary from case to case, according to the nature of the business for the carrying on of which the premises "under the terms of the lease relating to them are used, or are to be used, wholly or predominantly". Thus, for the purposes of paragraph (a) the "floor area" of an indoor retail shop in a shopping mall will presumably be that which is constructed as floor in the narrowest sense, appropriate to a building. (If the shop is multi-storeyed, more than one level may have to be counted.) The relevant "floor area" of an outdoor car yard will be different, being the area of a type commonly dedicated to such an activity - perhaps constructed, perhaps not. It might even be equal to the area of the demised premises at ground level, provided only that all of that answered the description of "floor" as appropriate to an outdoor car yard - a pretty broad test. In the case of a caravan park the nature of the relevant "floor" will be different again. Obviously the floor space within any buildings will be included, but so will areas which are constructed only in small part, perhaps in rudimentary fashion, and areas which may not be constructed at all, being simply bare ground: very different from the type of floor to be found within a building. Given the context in which Parliament has pitched the inquiry, it seems to me appropriate, if not indeed necessary, that the inquiry should be of the type of "floor area" which is apt for a caravan park, not an indoor shopping mall. And if that is correct, Hall v. Joyworth was wrongly decided and should be overruled. It follows, too, in my opinion that although the decision in Robert v. Besford was correct (that the motel premises there in question fell within the exclusion), the reasoning should be taken to have been incorrect.

It will now be appreciated that in the case of a motel, relevant "floor area", on the approach just explained, may involve some areas which are constructed (as floor space within a building or as an apron to a building is constructed), some which are merely shaped or formed and some which may not be constructed in any sense at all; the areas comprising the "floor" of a motel are commonly very diverse in kind. In relation to guest rooms, "floor area" will include that which is constructed as "floor" in the narrowest sense; but the outdoor areas of beautification, which are just as much a part of any motel business, will be included too though they may be merely planted. As the carrying on of the business of a motel commonly includes not only the provision of guest rooms and parking bays for guests' cars, but also a manager's residence and outdoor activity areas such as an in-ground swimming pool, a barbecue area and so on, all these things will set the nature of the floor area which is to be measured for the purpose of applying or not the exclusion in paragraph (a). In that way the nature of the business calling the definition into play will determine the nature of the "floor" relevant to the expression "floor area" and that should avoid what tended to occur here, an attempt to distinguish between those parking bays which were concrete and those which were not, a distinction which in my opinion is simply not called for; contrast the approach taken in Shine and Nime, where to that extent the reasoning should, in my respectful view, no longer be taken to be correct.

In short, I would now adopt the view, to which some years ago I was first inclined, that "the nature and extent of the relevant floor area [will] depend upon the retail business being conducted on the premises", in order to give the word "floor" its proper context. On that approach, relevant "floor area" of the Paruna Motel included all of the area which was demised, the nature of the "floor" of a motel tending to be diverse. In another case, however, even that fluctuating concept of "floor area" in paragraph (a) might not be sufficient to include, for instance, a paddock which was fenced off at the side of the motel and which, though forming part of the demised premises, was left for pasture and perhaps sublet for the grazing of a horse by a local rider. The paddock would be excluded, not directly because the business was not being carried on there, but because the nature of the ground surface was such that it was foreign to what could reasonably be regarded as "floor area" even in the context of a motel business.

On the basis of the foregoing there can be no doubt in this case that the demised premises, which otherwise constitute "retail premises", had a floor area that exceeded 1,000 square metres and accordingly the arbitrator had no jurisdiction to embark upon a determination of the dispute which had been notified under s.21 of the Retail Tenancies Act. If this result means that fewer premises will now be regarded as subjected to the provisions of this type of legislation (and I express no opinion on the operation of the new Act which was not before us), that is a matter for Parliament, not us.

D.J. & A.J. McCallum Pty. Ltd. ("the lessee") is the lessee under a lease dated 14 December 1994 from Michele, Francesca, Joseph and Gail Isabel Sorbara ("the lessors") for a term of four years commencing on 18 October 1994. The subject of the lease is the Paruna Motel in Swan Hill. It was a term of the lease that the lessee would maintain the business of the motel in accordance with the standards required by the Royal Automobile Club of Victoria for a "three diamond" rating and, in advertising for custom, the lessee relied on the fact that the motel had a swimming pool, a children's playground, a barbecue and car wash facilities.

On or about 17 July 1996 the lessee filed a notice of dispute, pursuant to s.21 of the Retail Tenancies Act 1986 ("the RTA"), with the Secretary-General of the Australian Centre for International Commercial Arbitration. The dispute concerned a review of rent payable under the lease. The Secretary-General appointed Professor Michael Pryles as arbitrator on 15 August 1996. The lessors objected to the arbitrator's jurisdiction to hear and determine the dispute: they submitted that the Paruna Motel was not "retail premises" within the meaning of s.3(1) of the RTA, because it had a floor area which exceeded 1,000 square metres. On 20 December 1996, after hearing evidence and submissions, the arbitrator published an interim award dated 4 December 1996, rejecting the lessors' submissions.

As its name indicates, the RTA is concerned with tenancies of retail premises: the Act applies to a retail premises lease. If it applies, it regulates certain matters relating to the lease, including matters relating to entry into the lease, rent review, the determination of rent, the duration of the lease and option to renew. For present purposes, it suffices to say that, by virtue of s.4(2) of the RTA, a dispute arising under a retail premises lease is governed by Part 3 of the Act.

Nothing turns in this case on the definition of "lease" set out in s.3(1). It is accepted that a retail premises lease is a lease of "retail premises" and that, under the terms of the lease relating to the Paruna Motel, the motel was to be used, wholly or predominantly, for the carrying on of a business involving the provision of goods and services by retail. Everything in this case turns on the definition of "retail premises". Section 3(1) relevantly defines that expression in the following way:

"'retail premises' means any premises that under the terms of the lease relating to them are used, or are to be used, wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services, but does not include -

(a) premises that have a floor area that exceeds 1000 square metres; ...

The arbitrator was called upon to determine the "floor area" of the Paruna Motel for the purposes of that definition.

The arbitrator determined that the calculation of floor area should include the motel's residential accommodation units (together with their eaves), parking bays, laundry, store-room, kitchen and office (with its canopy) and, probably, the manager's residence. He excluded, as being "at best incidental to the provision of motel services", the motel's lawns and garden beds. He also excluded a swimming pool with concrete surrounds and pump shed (70.5 square metres), paved area and barbecue (27 square metres), a concrete car wash area (16.5 square metres), a concrete path and concrete driveway (72 square metres), a loose-stones (turning) area, a shed and three areas apparently outside the motel area proper (but still on the leased land) made up of loose earth and trees. The arbitrator concluded that, if the manager's residence were included in the calculation, the relevant floor area would amount to 974 square metres and, if omitted, to 838 square metres. Either way, the dispute did not lie beyond his jurisdiction.

With the consent of the lessee, the lessors appealed to the Supreme Court pursuant to s.38(4)(a) of the Commercial Arbitration Act 1984. On 16 June 1997, a judge of the Court dismissed the appeal with costs. This is an appeal from that decision. A question was raised on the recent hearing as to whether an appeal lay to the Court of Appeal without leave. Counsel for the appellants submitted that no leave was necessary because the decision of the judge below finally determined whether the arbitrator had jurisdiction with respect to the dispute. It is unnecessary to decide whether or not that submission is correct, because I would grant leave if leave were necessary.

The question, what constitutes "floor area" for the purpose of the definition of "retail premises" in s.3(1) of the RTA, does not admit of ready answer. Judges of the Court have given different answers: compare and contrast Robert v. Besford [1991] VicRp 32; [1991] 1 V.R. 606, Hall v. Joyworth Pty. Ltd. (1993) V Conv R 54-461, F.P. Shine (Vic.) Pty. Ltd. v. Gothic Lodge Pty. Ltd. [1994] VicRp 11; [1994] 1 V.R. 194, Nime Pty. Ltd. v. Seventh Storey Pty. Ltd. (1994) V Conv R 54-491 and Joad Pty. Ltd. v. Ospies Hotels Pty. Ltd. [1995] VicRp 13; [1995] 1 V.R. 198. Broadly speaking, there have been two approaches - the functional (or purposive) and the structural (or architectural). The former appears to result in a comparatively greater "floor area" than the latter and, accordingly, the former is given more than the latter to taking a tenancy outside the ambit of the Act.

Counsel for the appellants submitted that the expression "floor area" meant the whole of the horizontal surface of (a) the demised land; or (b) areas used for the purpose of the motel business; or (c) areas used for an integral part of the motel business. Whatever the correct approach, the appellants' counsel submitted that the floor area of the Paruna Motel exceeded 1,000 square metres. Counsel for the respondent submitted that, on the contrary, the motel's floor area lay within the 1,000 square metre mark and relied primarily on what had been said by Eames, J. in Joad's Case, discussed below, as to what was meant by "floor area". Before one can begin to address the apparently intractable nature of the problem presented by this case, it is, I think, necessary to examine the earlier decisions on paragraph (a) of the definition of "retail premises".

In Robert v. Besford [1991] VicRp 32; [1991] 1 V.R. 606, a case which, like the present, concerned the floor area of a motel, Nathan, J. not only rejected the notion that the floor area might be equated to the area of the demised premises, but also held that a functional (or purposive) approach was not definitive. His Honour stated, at 608:

"... it might, superficially, be thought that any area dedicated to the provision of a retail service could be considered part of the floor area of the premises. In my view, this purposive test considered alone is inadequate. The motel consists of open garden areas as well as the structural areas I have already defined. The open garden areas add to the amenity of the building and provide recreational space. However, on any view, they would not be considered part of the floor area of the premises, and it cannot be that the entire area of a demise is its floor area. For example, some motels have children's playgrounds, swimming pools, barbecue areas, which accompany the provision of a retail service. In my opinion, the areas allocated for such use cannot also be considered as part of the floor area. The area within the curtilage of a demise is not its floor area."

With this in mind, his Honour decided to adopt a largely "structural" approach, qualified by a consideration of function. Accordingly, Nathan, J. held, at 609, that:

"Floor areas are those surfaces of a durable and cleansable nature covered overhead and used to provide the retail services for which the premises are dedicated."

It followed that his Honour did not include in the range of the expression "floor area" open garden areas, children's playgrounds, swimming pools or barbecue areas. Plainly enough, the appellant would fail if this approach were adopted.

In Hall v. Joyworth Pty. Ltd. (1993) V Conv R 54-461 Phillips, J. was called upon to decide whether the floor area of a caravan park which included a milk bar was the area of the demised premises (in that case the whole of the caravan park) or the area actually occupied by buildings, specific covered areas and (maybe) the concrete bases set aside for parking caravans, cars and other vehicles. Whilst the leased land comprised more than 11,000 square metres, the buildings, etcetera had a total area of less than 500 square metres. His Honour declined to hold that the relevant floor area was the whole of the demised premises. It was unnecessary to decide which of the other structures in the park had floor area, the 1,000 square metre limit not being capable of being reached in any event. In coming to this result, Phillips, J. also rejected what might be termed the "functional" approach. Given the terms and structure of the definition of "retail premises", it was not, his Honour thought, open to say "the nature and extent of the relevant floor area would depend upon the retail business being conducted on the premises". His Honour observed, at 65,405:

"It would be easier to adopt [this concept] if in paragraph (a) the word 'premises' were confined to such part of the demised area as was used for the carrying on of the retail business in question: see and compare the definition of 'shop' and 'floor area' in B.P. Australia Ltd. v. State of South Australia (1982) 31 S.A.S.R. 178. But it seems to me to be not so confined in this case. In the main portion of the definition it is enough that under the terms of the relevant lease the premises are used or to be used 'wholly or predominantly for' the carrying on of the retail business, so that there is no warrant there for confining the relevant 'premises' to such part of the demised area as may be in use for the retail business and not, say, for some associated residential purpose or the like. ... To my mind, if the word 'premises' in paragraph (a) is a reference to the very premises which are described in the primary portion of the definition, the expression 'floor area' serves to direct attention to what may in some cases be more or less than simply the area - commonly the area at ground level - occupied by those premises."

It was, Phillips, J. said, appropriate to give some effect to the word "floor", unless other considerations compelled the contrary conclusion. His Honour said at 65,405-6:

"Had it been intended by the draftsman to refer only to the area occupied by the premises as shown on some plan or map and as if seen from the air, the word 'floor' could have been simply omitted, but the word was not omitted and therefore, unless otherwise compelled, a conclusion should be rejected that would give the word 'floor' no work to do. Thus, in the case of a building having more than one storey, and which constitutes premises which are used or to be used wholly or predominantly for the carrying on of a relevant business, the surface area at every level which is in use by the tenant under the lease will surely be relevant. The area available under the lease at all levels will fall to be aggregated in order to arrive at the total 'floor area' for the purpose of paragraph (a). In that way, the relevant floor area might exceed the area of the demised premises as shown, for instance, on a certificate of title showing ownership of the land on which the building stands."

In the end, at 65,406, his Honour identified floor area by reference to "the ordinary meaning of the word 'floor', as the lower surface of an enclosed area": the open area of the caravan park had thus to be excluded from the calculation. His Honour went on to say, at 65-406:

" to adopt a concept of floor area which includes the open area in use in a caravan park could produce untoward results in other cases. Take, for instance, the milk bar in the country occupying a relatively small building but located on a large area of ground which is not otherwise in use. Should that retail business, if operating under a lease of the whole block, be excluded from the operation of the Act notwithstanding that the floor area actually in use is relatively small? Perhaps the solution is to alter the wording of paragraph (a) in order to exclude, not premises having a floor area exceeding 1,000 square metres, but premises where the area dedicated to the carrying on of the business has an area exceeding 1,000 square metres."

The example of the country milkbar was raised more than once on the hearing of the present appeal: a solution is proffered below.

In F.P. Shine (Vic.) Pty. Ltd. v. Gothic Lodge Pty. Ltd. [1994] VicRp 11; [1994] 1 V.R. 194, another caravan park case, Ashley, J. was required to consider, amongst other things, whether the concrete pads upon which caravans could be sited were part of the "floor area" of the premises. Only if they were, would the floor area exceed 1,000 square metres. In considering the expression "floor area", Ashley, J. declined to follow the approach in Robert v. Besford or in Hall v. Joyworth, although his Honour agreed with Phillips, J. that the "premises" mentioned in paragraph (a) of the definition of "retail premises" was a reference to the same "premises" as first mentioned in that definition. As Ashley, J. pointed out at 201, the difficulty in attributing a workable operation to the expression "floor area" arose, at least in part, "because the concept of 'floor area' as it applies to shops and buildings does not sit comfortably with 'retail premises' such as caravan parks, motels, used car yards, petrol stations, drive-in theatres, carparks and plant nurseries". His Honour said, at 201, that:

"To treat the 'floor area' of demised premises as comprising only so much of them as has a surface that is roofed over or enclosed could lead to very strange results. The floor area of an outdoor nursery of large proportions might be nil; or perhaps only a potting shed or office. The floor area of a drive-in theatre might be only its ticket office and kiosk. An outdoor car yard with a small office would have a floor area only of the office; and so on. In each case not only would the area at the heart of the operation undertaken at the premises be ignored when determining floor area, it follows that all or much of the premises whereon the money-making potential of the business was carried out would be ignored."

Floor area was not to be equated with the entire area of the demise, but his Honour said at 207:

"The word 'floor' has meanings in ordinary usage which do not require that it be the lower surface of an enclosed area, or a surface which is covered overhead. It has an accepted meaning which at least extends to embrace an artificially constructed surface upon which is carried on an industry. Dictionary meanings apart, the passages in the judgment of Lord Kissen in Sullivan to which I have referred sufficiently make the point. In my view the fact that the word 'floor' is used in combination with the word 'area' does not deprive it of the meaning to which I have referred; and the context in which the words 'floor area' appear seem to me to sensibly require that they be given an operation consistent therewith. I consider, for the purposes of the present case, that the floor area of the premises should be treated as being so much of the surface area of the demised premises as consists of an artificially constructed surface designed and available for use in carrying on the business described as the Hastings Caravan Park, such business involving the sale or hire of goods by retail or the retail provision of services."

In this way, Ashley, J. came to adopt a substantially functional approach to the determination of floor area. His Honour held that the floor area of the premises in the case of the caravan park exceeded 1,000 square metres by taking into account the concrete pads upon which the caravans were to be sited.

In Nime Pty. Ltd. v. Seventh Storey Pty. Ltd. (1994) V Conv R 54-491, McDonald, J. followed Ashley, J.'s broadly functional approach, stating (at 65,684) that the meaning ascribed to floor area in Robert v. Besford and in Hall v. Joyworth was "too restrictive". Adopting the same test as that formulated by Ashley, J., McDonald, J. held, at 65,685, that

" the surfaces comprising the mini golf course, the tennis court and the caravan site pads, having regard to the facts found as to their nature, construction, use and availability, each are able to be aptly considered as part of the floor area of a caravan park available for use in carrying on the business of the caravan park ".

McDonald, J. also agreed with Phillips, J. that the word "premises" in paragraph (a) of the definition referred to the same premises as mentioned earlier in the definition.

The quintet of cases is completed by Joad Pty. Ltd. v. Ospies Hotels Pty. Ltd. [1995] VicRp 13; [1995] 1 V.R. 198. In Joad's Case, Eames, J. was called upon to decide whether an old shed, a carpark, a drive-through area, a cellar, a basement and a streetside area constituted part of the floor area of a country hotel. After examining the earlier cases, his Honour said, at 204:

"The critical issue is, what is the interpretation of s.3(1) which best promotes the purpose of the Act? A purposive approach should be adopted: s.35 Interpretation of Legislation Act 1984; Cooper Brookes (Wollongong) Pty. Ltd. v. Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 C.L.R. 297 at 304, 320-1, 337 and 339."

"If the only guidance which may be gained from the Parliamentary debates is that we are concerned with small retail business leases then it seems to me that we are concerned to identify surfaces over which, and upon which, the trader conducts his or her daily business and which have relevance to the actual day to day operation of the business. ... Whilst I have reservations as to the need to import the consideration of the surface being necessarily 'designed' for a purpose of the business, the general concept of relating the floor surface to the nature of the business, and the use of the surface in that business, appears to me to be the appropriate approach. For the purposes of s.3(1) of the Retail Tenancies Act, the 'floor area' of the demised premises may be said to be the sum, taken over all its levels, of their lower boundary surface areas which are used, likely to be used or capable, without substantial alteration, of being used by the trader and/or his or her actual or potential employees, agents, suppliers, or customers in activity which enables or substantially facilitates the provision of goods and/or services, such provision constituting all, or a not incidental part, of the trader's commercial purpose in entering into the subject lease."

Applying this test, his Honour found that no error had been shown in the arbitrator's refusal to include each of the areas in question in the floor area of the hotel.

Counsel for the respondent submitted that Eames, J.'s approach was a workable way of dealing with the concept of floor area and contended that the distinction was properly drawn between surfaces used for purposes integral to the business and surfaces used for purposes incidental to the business. Counsel for the respondent submitted that, in applying Eames, J.'s approach, "the Arbitrator made correct value judgments insofar as he had to determine questions of fact", although he conceded in argument that if it turned out that the manager's residence and, for example, the concrete path and driveway were all to be included in the calculation of "floor area", then the 1,000 square metre limit would be exceeded, the present case being close to the jurisdictional limit in any event.

The premises with which the definition of "retail premises" is concerned are leased premises which under the lease are "used, or are to be used, wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services". Premises of this description have, so Parliament assumes, "floor area". The cases show, however, the nature of the difficulty in identifying "floor area" in premises such as motels, caravan parks, drive-in theatres and the like. The difficulty is ameliorated if "floor area" is understood to be a composite expression (cf. "floor manager") with an activity- related connotation.

Reference to the Oxford English Dictionary (2nd edition) shows that the words "floor" and "area" have a variety of meanings; and they may be used in relation to a space which is neither constructed nor enclosed. The meaning which either word in fact bears in any particular instance depends on the context in which the word is used. Generally speaking, the discussions of the word "floor" to be found in cases concerning the English Factories Act 1937 or town planning provisions are of little, if any, assistance in comprehending what is meant by the expression "floor area" in the RTA : cases such as Harrison v. Metropolitan-Vickers Electrical Co. Ld. [1954] 1 W.L.R. 324; Bath v. British Transport Commission [1954] 2 All E.R. 542; Sullivan v. Hall Russell & Co. Ltd. [1964] S.L.T. 192; Leichhardt Municipal Council v. Daniel Callaghan Pty. Ltd. (1981) 46 L.G.R.A. 29; Ian Turner Partners (N.S.W.) Pty. Ltd. v. Lane Cove Municipal Council (1985) 57 L.G.R.A. 224; and Golden Fleece Petroleum Ltd. v. Rockdale Municipal Council (1984) 52 L.G.R.A. 202 can therefore be put to one side for present purposes.

Consideration of like expressions in ordinary English usage, as for example, "to take the floor", "to get the floor" and "at shop floor level", shows that the word "floor" can connote, in an appropriate context, the place where activity of a kind occurs, as for example, dancing, speaking, or selling by retail. When the expression "floor area" is used with reference to a retail shop or a department store, it connotes more than the area of the lower surface (or floor) on which the retail shop or department store stands: it connotes so much of the floor of the shop or store that is used or designed to be used for the retail business carried on in the shop or store. The expression "floor area" in the definition of retail premises in s.3(1) of the RTA is, I think, used in this activity-related sense, to signify the lower surface of each level of the premises (first identified in the definition of retail premises) used, to be used, or designed and available for use in the retail business carried on on the premises.

In Monaco & Anor. v. Arnedo Pty. Ltd. (unreported, Full Court of the Supreme Court of Western Australia, 6 September 1994), Ipp, J. (with whom Malcolm, C.J. and Kennedy, J. agreed) attributed a similar meaning to the expression "floor area" as it is used in the Commercial Tenancy (Retail Shops) Agreements Act 1985 (W.A.), the Western Australian counterpart to the RTA. After reviewing a number of the cases decided in this Court, Ipp, J. said (at 19):

"... the phrase `floor area' is consistent with the view I have expressed, namely that the phrase means so much of the surface area of the demised premises that are designed and available for use in carrying on the lessee's business in the retail shop the subject of the lease."

The legislative history of the RTA supports the view that the expression "floor area" was intended to bear the same meaning as it does in the counterpart legislation of other States: see, for example, Victorian Legislative Council, Parliamentary Debates (Hansard) 12 November 1986, 995. This is so, even though the current and former legislation of other States refers and has referred to a retail "shop", not retail "premises": see now Retail and Commercial Leases Act 1995 (S.A.), Retail Shop Leases Act 1994 (Qld.), Retail Leases Act 1994 (N.S.W.), Commercial Tenancy (Retail Shops) Agreements Act 1985 (W.A.) and formerly Statutes Amendment (Commercial Tenancies) Act 1985 (S.A.) and Retail Shop Leases Act 1984 (Qld.). When used in connection with a shop, the expression "floor area" naturally signifies the lower surface area of the shop used or designed and available for use in carrying on the retail business of the shop. By using the expression "retail premises" and not "shop", the Victorian Parliament extended the coverage of the RTA beyond shops to motels, caravan parks, drive-in theatres and the like, but "floor area" continues to signify the lower surface areas, of each level of the premises, used, to be used, or designed and available for use in the retail business carried on on the premises.

The approach adopted by Nathan, J. in Robert v. Besford was, in my opinion, too narrow: his Honour placed too little weight on the fact that "floor area" is a composite expression with a specific connotation when used in relation to retailing. Subject to two matters discussed below, I am in substantial agreement with the approaches adopted in F.P. Shine (Vic.) Pty. Ltd. v. Gothic Lodge Pty. Ltd., Nime Pty. Ltd. v. Seventh Storey Pty. Ltd. and Joad Pty. Ltd. v. Ospies Hotels Pty. Ltd.

Turning to the first matter, I do not think there is anything in the concept of "floor area" to warrant drawing a distinction between surfaces used for purposes integral to the business carried on on the premises and surfaces used for purposes incidental to it. Any leased premises used wholly or predominantly for carrying on a retail business is a "retail premises" within the RTA, providing it does not fall within one or other of the exclusions mentioned in paragraphs (a) to (e) of the definition. Retail premises otherwise within the RTA will be excluded if they have "floor area" in excess of 1,000 square metres: this depends solely upon the lower surface area (of each level of the premises) used, to be used, or designed and available for use in the retail business carried on on the premises. As argument in this case has shown, it is virtually impossible to draw a distinction, on any reasonable and practicable basis, between what the respondent's counsel termed the core purposes of the business and those business purposes which are something less than core. Upon what reasonable and practicable basis can it be said that a path or driveway affording pedestrian or vehicular access to accommodation units and parking bays is not serving the purpose of the motel business just as much as the units and parking bays themselves? Upon what reasonable and practicable basis can it be said that a motel swimming pool is serving any lesser purpose in the motel's business than the path or driveway? The use of paths and driveways, swimming pool and garden forms part of a paying guest's entitlement: it is that availability for use which attracts the paying guest's custom.

By confining the calculation of floor area to that portion of the floor area used for the core purposes of the business, the 1,000 square metre limitation is less readily passed and this explains the attraction of the notion of core business purposes to some minds. The limitation may well work as intended in relation to shops and department stores where "floor area" is used largely for the storage, display and movement of goods, excluding the larger than usual retailer who conducts business over a larger than usual floor area as, for example, in a multi-level department store. When applied to motels, caravan parks and the like, the limitation does not, it appears, operate as effectively to discriminate between large and small retailers. But this is, it seems to me, largely a result of the fact that, in the case of a motel or caravan park, the relevant retail business involves the retailing of space or the use thereof together with the goods and services within it: for a price, the motelier provides a temporary home-away-from-home for motorists and their companions. The "floor area" of a motel or caravan park is necessarily greater than the "floor area" of a frock shop, even though the turnover of the motel or caravan park may be no greater than that of the frock shop. The tendency of the 1,000 square metre limitation to exclude motels and like premises, even though they are in truth small business operations, does not, however, provide any basis for drawing a distinction between core and incidental business purposes. I can find no justification for that distinction in the concept of floor area itself. Accordingly, the distinction cannot be relied upon as it was by the arbitrator in this case to prevent the limitation applying to exclude the motel premises from the RTA.

Turning now to the second of the two matters adverted to above, it also seems to me unfortunate that, in dealing with the 1,000 square metre limitation, parties to retail tenancy disputes have found it necessary to measure minutely, right down to the eaves and office canopy, the lower surface area said to represent floor area. Given that the focus of the RTA is upon tenancies affecting small retail businesses, such a comparatively costly undertaking which in some cases has led to even more costly disputes about the accuracy or application of the measurements thus derived is quite inappropriate. The question is whether, taken generally and as a whole, the lower surface areas of all levels of the premises are used or designed and available for use in the relevant retail business exceed 1,000 square metres.

It follows from what I have said thus far that I think Phillips, J. was correct in Hall v. Joyworth Pty. Ltd. in inclining to the view that "the nature and extent of the relevant floor area would depend upon the retail business being conducted on the premises". His Honour ultimately resiled from that approach upon the basis that it was excluded by the proper interpretation of the word "premises" in paragraph (a) of the definition of retail premises. Whilst I agree with his Honour that the word "premises" in paragraph (a) signifies the same premises first mentioned in the definition, with respect, it does not seem to me to follow that the "floor area" of the premises cannot, for that reason, be said to depend on the nature of the retail business carried on at the premises. In my view, in its ordinary and natural meaning the composite expression "floor area" when used in connection with retail business signifies that part of the lower surface area of the premises used, to be used, or designed and available for use in that business. Whilst I agree with his Honour that the area of the demise is not necessarily the same as the floor area of the premises, in some cases, it seems to me that the floor area may very well be the same or virtually the same as the area of the demise and that that is very likely to be so in the case of motels, caravan parks, drive-in theatres and like retail premises. In other cases, of course, the floor area may be more or less than the area of the demise, depending upon the premises, the nature of the business and the use to which the premises is put.

From time to time, Parliament's attention has been drawn to the tendency of the 1,000 square metre limitation to exclude motels, caravan parks and car yards which are in the nature of small retail businesses: see, for example, M.J. Redfern, Review of the Retail Tenancies Act 1986: Report of the Working Party to the Minister for Small Business, 30 April 1993 ("the Redfern Report"), pp.9 and 31. The Redfern Report recommended, amongst other things, that the 1,000 square metre limitation should be amended to apply to the total area leased instead of to the floor area of the leased premises; that the RTA should continue to apply to motels and shopping centres; and that consideration should be given to extending the RTA's application to motels and similar businesses whose leased area exceeds the limitation: see pp.10-11, 32-3. None of these recommendations found their way into the Retail Tenancies (Amendment) Act 1995. The desirability for there to be a special provision in the RTA to cover small businesses conducted on comparatively large premises, such as motels, was raised in Parliament in the debate concerning the Bill for the Retail Tenancies (Amendment) Act 1995: see Victorian Legislative Assembly, Parliamentary Debates (Hansard) 10 May 1995, at pp.1426, 1438.

Interestingly enough, similar concerns were again noted in the Report of The Working Party into the Retail Tenancies Act 1986, delivered to the Minister for Small Business and Tourism on 31 August 1997, and in the Report of the Small Business Advisory Network on the Review of the Retail Tenancies Act 1986, apparently delivered to the Minister in May 1997. The former report recommended, at p.42, that "the [RTA] continue to apply to retail premises covered under the existing legislation that have a lettable area of under 1,000 square metres"; and that "the [RTA] adopts the Property Council's method of measuring `lettable area'". Difficulties occasioned by the 1,000 square metres limitation, especially in relation to motels, caravan parks, car yards and like businesses, were also raised in the Parliamentary debates on the Bill which became the Retail Tenancies Reform Act 1998: see Victorian Legislative Council, Parliamentary Debates (Hansard) 21 April 1998, pp.549-550. The new Act would not appear to have answered all concerns and difficulties, however: compare the definition of retail premises in s.3(1), s.3(5) and "Guidelines for the Measurement of Lettable Area", published in Victoria Government Gazette Special No. S 67, 1 July 1998, none of which is expressed to apply, directly at least, to motels, caravan parks and like premises.

Plainly enough, it is desirable that retail tenancies be subject to a workable, straightforward and efficient regime. It is undesirable that, as in this case, the parties to a tenancy dispute should be obliged to spend considerable time and effort in ascertaining, as a preliminary matter, whether their dispute is in fact governed by the RTA and capable of being arbitrated under it. It is, therefore, unfortunate that Parliament did not take the opportunity to remedy the matter in the recent Retail Tenancies Reform Act 1998. One solution would be to adopt the approach favoured in the Redfern Report with respect to motels, caravans and the like. Another would be to adopt something like the South Australian expedient: s.4(2)(a) of the Retail and Commercial Leases Act 1995 (S.A.) excludes "a retail shop lease" if "the rent payable under the lease exceeds $250,000 per annum" or such greater amount as is prescribed by regulations.

In my opinion, all of the surface areas excluded by the arbitrator save, perhaps, for the three areas apparently outside the motel area proper which were not relied on by the appellant, constituted the floor area of the Paruna Motel. On a proper analysis, the floor area of that premises exceeded 1,000 square metres; and so the premises were taken outside the definition of retail premises in s.3(1) of the RTA. As a consequence, the arbitrator had no jurisdiction under the RTA with respect to the dispute between the lessors and the lessee.

Accordingly, I would grant leave to appeal in case it is necessary, allow the appeal, set aside the order of the trial judge and the interim award of the arbitrator dated 4 December 1996 and, in lieu thereof, declare that the arbitrator had no jurisdiction to determine the dispute which was notified to the Secretary-General of the Australian Centre for International Commercial Arbitration by notice of dispute dated 17 July 1996.

Legislation Act 1984

At a glance

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Judgment (76 paragraphs)

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Legislation Cited (4)