In my view, the relationship between the applicants and the respondent here under the lease constituted an ongoing relationship with the clear purpose, on the facts, that the applicants would conduct the business of an hotel from the Tavern for the duration of the lease term and that necessarily contemplated the performance of work, including as to the maintenance of the premises in good order and repair.
78 Finally, I refer to the most recent judgments of this Court upholding power on this jurisdictional question concerning leases, similar to and consistent in effect with that followed in Jennings v Auto Plaza and in Booth v Kritikos Developments , namely, Kostakis v New World Oil & Developments Pty Ltd (unreported, Schmidt J, CT96/1157, 25 July 1997) and Australian Institute of Music Ltd v L M Investment Management Pty Ltd [2000] NSWIRComm 201.
79 In the present case, and although strictly speaking the applicants were not parties to the lease, they were parties to the deed of consent to assignment of lease dated 1 May 1990, to which both the respondent and Sherwood Trading were parties, and cl 4(b) of which represented an agreement between the applicants and the respondent that the applicants "will hereinafter duly perform and observe all terms conditions and covenants expressed or implied in the Lease and on the part of the [applicants] to be performed in the same manner as if the [applicants] had been a party to the Lease". In my view, that sub-clause directly and effectively incorporates in that deed the whole of the terms of the lease originally made between Sherwood Trading and the respondent so that the deed takes on the purpose and character of the original lease. I am satisfied, on the terms of that lease according to the authorities, that it is a contract whereby work was performed in the hotel industry, and, hence, within the jurisdictional scope of s 106. Thus, the impugned contract here is the deed of consent to assignment of lease but as incorporating therein the original lease itself so that any avoidance or variation of such deed would, insofar as the applicants are concerned, effectively avoid or vary the terms of the original lease. The jurisdictional argument of the respondent must fail so that its notice of motion filed on 28 July 1999 should be dismissed, with costs.
80 There was some debate in the proceedings that Sherwood Trading should properly have been made a party as any order made might well affect the rights the respondent had against it under the terms of the original lease. The deed of consent to assignment of lease in cl 4(c) dealt with that situation by providing that Sherwood Trading "will remain liable to the [respondent] in respect of the performance by the [applicants] of all the covenants expressed in or implied by the Lease". There is no claim before the Court which sought to affect sub-cl 4(c) and, therefore, for present purposes as between the applicants and the respondent it is, in my view, unnecessary to consider further this aspect.
81 Having found the relevant grounds under s 106 established in respect of the deed of consent to assignment of lease, as incorporating the terms of the original lease, the remaining issues are whether the said contract should be the subject of remedial orders available under the section and, if so, the content of those orders. It is necessary to consider the discretions involved in the context of the degree of unfairness; that latter question will be assisted by an assessment of the expert evidence and the opinions therein expressed.
82 As to the exercise of such discretions once the finding of unfairness be established concerning a work contract in a commercial setting, the Commission in Court Session in Autobake v Budd said (19 IR at 29-30) :
What occurred between the parties in this case was an entrepreneurial exercise. The franchisor stood to make a profit from the "up-front" franchise payment, the rental payments for the Auto-Baker machine and the sale of the raw materials for the manufacture of biscuits. In a general sense, the success of the cross appellants' venture would be to its advantage. For their part, the cross appellants looked forward to operating a profitable business and also, perhaps, to its profitable sale to a purchaser in the future, as other franchisees had succeeded in doing. However, neither of these expectations materialised. Whereas no moral distinctions between the parties need be drawn when dealing with the initial question arising, namely, whether or not the contract offended against s 88F(1)(d), the discretions which then arise under the section require for their exercise more than a mere comparison between award rates and actual remuneration and the circumstance that a calculated business risk, advisedly taken, has proved unsuccessful. Where such a calculated risk is taken it is not intended by s 88F that the other party should become a guarantor, as it were, that the business will be successful, or that the party performing the work will receive at least the rates of pay he would have received had he been an employee. Each case has to be considered on its own merits and the discretion of the Commission exercised accordingly.
83 It will be clear that in exercising discretion the Court has to consider the circumstances of the particular case before it viewed on a reasonable and objective basis: see Pay v Canterbury-Bankstown Rugby League Club Ltd (1995) 72 IR 358 at 393 per Hill J and Port Macquarie Golf Club v Stead (64 IR at 60).
84 I view the facts of the instant case as quite distinguishable and far removed from those in Autobake v Budd as will be apparent from the extract cited above. True it is the applicants took a calculated business risk in May 1990 in commencing business at the Tavern, but they did so not in the expectation that the respondent would guarantee their success. The thrust of the evidence of Mr Starkey was that he acknowledged the rental debt accruing and would pay it on the eventual sale of the business; in the meantime, however, with the changed circumstances the respondent so conducted itself through Mr Mitchell that such a sale was not reasonably practicable and the applicants became locked in to continuing to operate the hotel; and then, when the opportunity arose for them to relieve their position with conditions having become more favourable, the respondent declined a further lease thereby appropriating to itself the applicants' business. Contrary to the understanding which the applicants always had, not only did they face loss of the goodwill in the business but also the ability to pay the deferred rent. And all of that occurred in a context where, on any reasonable view of the evidence, the rent payable under the lease became extraordinarily high compared to market levels and in light of the takings of the hotel.
85 I have already found that the deed of consent to assignment of lease in applying to the applicants the terms of the original lease offended s 106 as being unfair, harsh and unconscionable. In all the circumstances here, I consider discretion should be exercised in favour of the applicants to afford them appropriate orders to remedy their position. That requires attention to the details of the expert evidence.
86 I might interpose and deal first with an appropriate order relating to the finding that the rent deferral arrangement was not a breach or non-observance by the applicants of the lease terms but a waiver by the respondent of the applicants' obligations. As such, the respondent could not properly decline to grant the applicants a new lease term on the exercise by them of the option. The further amended summons claimed a declaration in this respect, in terms that the applicants validly exercised their option under the lease to have the respondent grant to them a lease of the subject premises for a further period of 10 years commencing on 10 July 1999; a further declaration was sought for that purpose that the current market rental be $169,520 per annum. Section 154 of the Industrial Relations Act enables the Court to make binding declarations of right in relation to a matter in which it has jurisdiction and it may do so whether or not any consequential relief is or could be claimed: see Ford v SAS Trustee Corporation [2000] NSWIRComm 92 at par 76. The matter here in which the Court has jurisdiction is the unfair contract under s 106. In my view, the declarations sought are in relation to that matter and so power exists to make them. I propose to do so, subject to considering later the amount of the current market rental.
87 The reports of Mr Robertson admitted into evidence were, I find, compelling and cogent in their detail and reasoning. They were, to the extent covered, supported by the opinion of Mr Cooper as to the high level of rent under the lease and the market value of the rental as at July 1999. Indeed, Mr Williams' evidence for the respondent was that he had no doubt the applicants were paying too much rent, although he suggested a range of 12 to 18 per cent of turnover as an average rental for hotels compared to Mr Robertson's assessment of about 10 per cent. However, Mr Williams' opinion was not, unlike that of Mr Robertson, supported by checked data. The opinion of Mr McKensey, I think, may be discounted as it was based on an accounting approach to the capital value of the respondent's investment as distinct from rental values according to the market. In the result, I accept the evidence of Mr Robertson and Mr Cooper in preference to that of Mr Williams and Mr McKensey where there be conflict.
88 In formulating the terms of appropriate relief, I rely upon the detail and figures contained in Mr Robertson's reports and, specifically, that contained in his report dated 23 March 2000 as to fair market rentals for each year the hotel was operated by the applicants, the amount of annual increase in the rental under the lease, the absence of a rent review clause and comparable hotel leases in the area. That material and Mr Robertson's conclusions thereon were summarised earlier and it is unnecessary to repeat them.
89 Mr Robertson relevantly concluded as to two major aspects arising for determination - first, an appropriate rental level at the commencement of the applicants' occupancy of the premises from 1 May 1990 and its adjustment during the remaining term of the 10-year lease; and, second, an appropriate market rental at the commencement of a new 10-year term on 10 July 1999 and its annual adjustment for the balance of that term. As to the former, Mr Robertson considered an appropriate commencing rental to be $108,000 from 10 July 1990 ($100,000 as at 10 July 1989) adjusted by 8 per cent per annum as reflecting what the annual rental should have been over the period of the lease. As to the latter, he considered the commencing rental for the further 10-year lease from 10 July 1999 should be $195,000 per annum adjusted by a fixed increase of 4 per cent per annum over the term of the lease. Subject to a modification which I would propose in relation to the first 10-year term, I would otherwise accept Mr Robertson's approach as being reasonable and the subject contract should be so varied to reflect it.
90 The modification I have in mind is based upon the fact that at the time the applicants entered into the lease they did so on terms which were considered fair, although the rent was considered to be a bit high, and it was not until the year commencing on 10 July 1992 that rent was deferred by agreement with the respondent. Up to that point of time, I think the respondent is entitled to have the applicants observe the full terms of the lease and the rent provided by it. However, from that date I think a variation should be made to the rental level to provide an amount based upon 10 per cent of the takings or turnover of the hotel for the lease year 1991-92 of $1,143,968 giving an amount of $114,396 rent per annum plus an amount of $9,834 in respect of the residential flat accommodation - the resultant total rent, therefore, for the year commencing on 10 July 1992 is an amount of $124,230. I would then adjust on each anniversary date of 10 July during the balance of the lease term that amount by 8 per cent per annum. The resultant rental figures are thus -
Year Annual Rental
$
1990-91 176,995
1991-92 191,150
1992-93 124,230
1993-94 134,168
1994-95 144,902
1995-96 156,494
1996-97 169,014
1997-98 182,535
1998-99 197,138
91 For the further lease term of 10 years commencing on 10 July 1999, I determine that the commencing rental should be $195,000 per annum adjusted by a fixed increase of 4 per cent per annum to give the following rental figures -