Stonewall Hotel Pty Ltd v Papantoniou

Supreme Court of NSW|2017-08-29|Before: Darke J, Mr J

Introduction

These proceedings concern a dispute over a lease of the ground floor of premises at 177 Oxford Street, Darlinghurst. The plaintiff is the lessee under registered lease AC807481, and the defendants are the lessors and registered proprietors. The first and third defendants jointly hold a half share in the property as tenants in common with the second and fourth defendants who jointly hold the other half share.
The Court delivered judgment on 20 July 2017 (see Stonewall Hotel Pty Ltd v Papantoniou [2017] NSWSC 964). The Court held (at [37]-[39]) that the plaintiff had validly exercised an option in 2010 to renew the lease for a five year term, and (at [47]-[49]) that the plaintiff had validly exercised a second option in 2015 to renew the lease for a further five years. The Court noted at [51] that an issue about the plaintiff's entitlement to a current market rent review under the new lease had fallen away during the hearing, and that the parties agreed that no point would be taken that it was now too late for the plaintiff to seek that review.
The Court directed the parties to bring in a proposed form of orders and declarations within 14 days of the delivery of judgment. The parties are in agreement as to declarations that the plaintiff validly exercised options renew the lease in 2010 and 2015, and as to an order that the defendants prepare and register a lease for the period 4 November 2015 to 3 November 2020. The second and fourth defendants do not agree to certain orders proposed by the plaintiff and agreed to by the first and third defendants which set out a procedure for survey of the premises, rent review by a valuer, and preparation of the new lease. There is also disagreement concerning the appropriate order for costs.
Directions were made for the provision of written submissions on the appropriate form of orders, and on costs. Written submissions have been provided by all parties in accordance with those directions. The parties are content for the form of orders and the question of costs to be dealt with on the papers.

Submissions

The orders proposed by the plaintiff provide for the appointment of a surveyor and licensed valuer by the President of the Law Society of New South Wales, preparation of a survey of the premises, and determination of the current market rent based on that survey. The orders specify which clauses of the lease are to be applied in carrying out the rent review, and sets out the manner in which the defendants' solicitors are to prepare the new lease.
The plaintiff submits that such orders should be made because of the history of dispute between the parties. The plaintiff submits that the orders would minimise the prospect of further dispute between the parties and therefore prevent delay in a new lease being granted to the plaintiff. It further contends that, although there is no evidence before the Court, there is a dispute about the lettable area of the premises which will be resolved by the appointment of a surveyor. It submits that it is "inevitable" that a valuer will need to be appointed to determine the current market rent, and that such appointment should be confirmed by an order of the Court.
On the issue of costs, the orders proposed by the plaintiff provide for the second and fourth defendants to pay the plaintiff's costs as agreed or assessed. The plaintiff submits that it was entirely successful in the proceedings and that costs should follow the event pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 42.1. It submits that the first and third defendants did not contest the validity of the exercise of the options, which was the principal issue in dispute, and that in those circumstances its costs should be borne solely by the second and fourth defendants.
The first and third defendants submit that the second and fourth defendants should pay their costs of the second day of the hearing because the rent review issue had been resolved by that time. The only "live issue" on the second day was the validity of the exercise of the options, on which the second and fourth defendants were unsuccessful and in which the first and third defendants did not participate. It is said that the costs should be ordered in a fixed sum of $6,800.00 on the indemnity basis or $5,420.00 on the ordinary basis.
The second and fourth defendants submit that "the terms of the lease ought not be varied", and that the parties should be bound by the written terms of the lease. The second and fourth defendants point to the notation at [51] of the first judgment which refers to a rent review "in accordance with the provisions of the lease". They submit that a formal notation to that effect should be made rather than the lease being redrawn by means of the proposed orders.
On the question of costs, the second and fourth defendants accept that they are liable to pay the plaintiff's costs on the ordinary basis, but submit that the order to that effect should exclude the costs and expenses incurred by the plaintiff in respect of the rent review issue. It is said that this issue was only agitated by the first and third defendants, rendering it unjust for the second and fourth defendants to have to bear any of the plaintiff's costs related to it. The second and fourth defendants submit that there is "no juridical basis" on which they should be liable for the costs of the first and third defendants, including their costs of the second day of the hearing. They contend that once the rent review issue fell away, it was a matter for the first and third defendants if they sought to remain at the hearing on the second day.

Determination

The first issue for determination is whether it is appropriate to make orders in accordance with those proposed by the plaintiff. In my opinion, it would not be appropriate to do so.
The lease contains detailed provisions as to the process by which current market rent review is to occur (see cll 5.12 to 5.21). Clause 5.12 sets out the matters to be considered in determining the current market rent. Clauses 5.13 to 5.15 provide for the landlord and tenant to agree on the new rent. Failing such agreement, cl 5.16 provides that the landlord and tenant can either agree upon a valuer or "can ask the President of the Law Society of New South Wales to nominate a person who is a licensed valuer to decide the current market rent". Clauses 5.17 and 5.18 provide for submissions to be made to the valuer, whose decision is final and binding. Clause 5.20 requires the landlord and tenant to each pay half of the valuer's costs.
Clause 4.6 of the lease provides that a new lease entered into after exercise of an option is to be the same as the existing lease except for a number of specified matters, one of which is the new rent.
In my view, it would not be appropriate for the Court to make orders which would vary or elaborate upon the terms of the lease. Whilst the desire of the plaintiff to avoid further disputes is understandable, the parties are bound by those terms as a result of the valid exercise of the options. The provisions of the lease dealing with rent review and the preparation of a new lease are comprehensive, and the orders sought by the plaintiff would amount to an impermissible re-writing of the lease. That is particularly so in respect of the appointment of a surveyor. As the plaintiff accepted in its submissions, there was no evidence before the Court in respect of the alleged dispute over the lettable area of the premises. No relief was sought by the plaintiff on that issue. In those circumstances, there is plainly no basis for the Court to order that a surveyor be appointed.
The defendants' acknowledgement of the plaintiff's entitlement to a rent review is based upon the rent being reviewed "in accordance with the provisions of the lease" (see the first judgment at [51]). To make orders as sought by the plaintiff would not be consistent with the carrying out of a rent review in that fashion.
In my view, the appropriate course is simply to make a notation that the plaintiff may invoke the rent review procedure in accordance with the lease. Because the rent review date under the lease has passed, the time period for the parties to agree on the rent prior to that date has elapsed (cll 5.13 to 5.15). The parties are bound by cl 5.16 which provides that if they cannot agree on a valuer, they may ask the President of the Law Society to nominate a valuer. If the plaintiff now seeks to trigger a rent review, it is open to it to invoke that clause. The time limit imposed by cl 5.21 will not operate as the defendants have agreed not to rely upon it.
The second issue is costs. Almost all of the hearing time was occupied with the validity of the exercise of the options, an issue contested only by the second and fourth defendants. As I have already noted, the rent review issue was contested solely by the first and third defendants, and fell away at the commencement of the second day of the hearing when those defendants conceded the plaintiff's entitlement to a review. To my mind, the option issue and the rent review issue are clearly discrete and separate, both factually and in terms of the parties disputing them (see Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6]).
In my opinion, the second and fourth defendants should pay the plaintiff's costs of the proceedings on the ordinary basis, except for any costs referable to the rent review issue. The second and fourth defendants were wholly unsuccessful on the option issue and it is appropriate for costs to follow the event: UCPR, r 42.1. The second and fourth defendants expressly stated that they did not wish to be heard on the rent review issue and made it clear that they would not take any point about the rent review being out of time. An order for the second and fourth defendants to pay the plaintiff's costs that did not exclude costs referable to the rent review issue would require those defendants to bear costs for which they were not responsible.
The next matter is the costs of the rent review issue as between the plaintiff and the first and third defendants. In my opinion, each party should bear its own costs of this issue. The issue was discrete and separate and was not determined on the merits. It cannot be said that either party acted unreasonably in commencing or defending the issue. Nor can it be said that the issue was almost certain to be determined in either party's favour. In those circumstances, it is my view that the plaintiff and the first and third defendants should bear their own costs of this issue (see Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625). Although there are circumstances in which a party may be entitled to its costs where there has been no determination on the merits, including where it has enjoyed a substantial victory or the other party has effectively surrendered, I do not think this is such a case (see Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 at [5]). The plaintiff did not have an extremely strong case to which the first and third defendants capitulated at the last moment. Indeed, the plaintiff would have had to overcome the difficulty that it was apparently too late to invoke the market rent review procedure under the terms of the lease. In those circumstances, the first and third defendants' position cannot be regarded as a capitulation, or a substantial victory for the plaintiff, that calls for a costs order in the plaintiff's favour. Moreover, I think that an order that the plaintiff receive its costs of this issue would not promote sensible settlement in the manner that occurred in this case.
The final matter is the first and third defendant's costs of the second day of the hearing. They seek an order that the second and fourth defendants pay those costs in a fixed sum. I do not think such an order would be appropriate. Whilst it is true that the second day was taken up by the option issue, and that the second and fourth defendants were unsuccessful, it does not follow that they should pay the first and third defendants' costs of that day. The first and third defendants were not contesting the option issue, and had settled the rent review issue by the start of the second day of the hearing. In those circumstances, they took no active part and their attendance was not necessary. I accept the second and fourth defendants' submission that it was a matter for the first and third defendants to decide whether to remain at the hearing. Having decided that they would, there is no reason for the second and fourth defendants to bear the costs thereby incurred.
The Court will make the following orders: 1. Declare that that on or about 30 July 2010 the Plaintiff validly exercised its option to renew its lease (registered AC807481E) as varied by Variation of Lease registered AD112882J and transferred by Transfer of Lease registered AD112883G ("the Lease") of the premises situated at 177 Oxford Street, Darlinghurst New South Wales, being the whole of the land in Folio Identifier 1/59870 of which the Defendants are the registered proprietors ("the Premises") so as to extend the term of the Lease from 4 November 2010 to 3 November 2015. 2. Declare that on or about 17 July 2015 the Plaintiff validly exercised its option to renew the Lease to extend the term of the Lease for a further period from 4 November 2015 to 3 November 2020. 3. Order that the Defendants, as soon as practicable and at their own expense and cost, prepare and grant in favour of the Plaintiff and register with the Registrar of the NSW Land and Property Information (within 30 days of execution by the Plaintiff) a lease in the same terms as the Lease for the period from 4 November 2015 to 3 November 2020 with two further options to renew the Lease for period of five years and four years from 4 November 2010 to 3 November 2025 and 4 November 2025 to 3 November 2029 ("the Renewed Lease"). 4. Direct that the form and content of the Renewed Lease, including the amount of rent to be inserted into Item 13 of the Renewed Lease as the rent applicable for the period from 4 November 2015 (being the commencement date of such new lease) to 3 November 2016 (being the first review date of such new lease), shall be determined in accordance with cl 4.6 and cll 5.12 and 5.16-5.21 of the Lease. 5. Note that the defendants accept that the plaintiff is entitled to have the rent reviewed in accordance with provisions of the lease (to current market rent on 4 November 2015, with annual CPI adjustments thereafter), and will not object to such review being out of time, notwithstanding cl 5.21 of the Lease. 6. Order the second and fourth defendants to pay the plaintiff's costs of the proceedings on the ordinary basis, except for any costs referable to the rent review issue. 7. Order that the plaintiff and the first and third defendants are to bear their own costs of the rent review issue. 8. Order that the first and third defendants are to bear their own costs of the second day of the hearing. 9. Grant the parties liberty to apply on 7 days' written notice with respect to the operation of these orders.

Amendments 31 August 2017 - Formatting amended DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2017

At a glance

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Judgment (4 paragraphs)

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Legislation Cited (1)

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Cited By (2)