LANDLORD AND TENANT – RENT – PROVISIONS AS TO RENT IN AGREEMENT
FOR LEASE OR LEASE – RENT REVIEW CLAUSES –
DETERMINATION BY THIRD
PARTY – where property leased for use as a service station – where
Source
Original judgment source is linked above.
Catchwords
LANDLORD AND TENANT – RENT – PROVISIONS AS TO RENT IN AGREEMENTFOR LEASE OR LEASE – RENT REVIEW CLAUSES –DETERMINATION BY THIRDPARTY – where property leased for use as a service station – wherelease amended to change lessee– where rent review clause provided foreach party to obtain a valuation of market rent – where clause providedfor appointmentof umpire in the event that the two valuations differed by morethan three per cent of their aggregate – where clause requiredvaluers todisregard “Lessee’s fittings” and any refurbishment or upgradecarried out by the lessee – wherevaluations differed substantially– where parties in dispute as to whether umpire’s determination isrequired to disregardlessee’s improvements – where umpire not yetappointed – where applicant sought declarations as to proper constructionof the lease in relation to the definition of lessee’s fittings andwhether “lessee” included the previous lessee
that carried out the
upgrade of premises – whether declaration should be made
– APPROPRIATE FORM OF RELIEF – DISCRETION OF COURT
– OTHER
CASES – where rent review clause in lease provided for valuation criteria
and for appointment of umpire to resolve
valuation dispute – where each
party disputes the other’s valuation on basis of wrongly applied criteria
– where
applicant seeks declarations as to proper construction of
valuation criteria in rent review clause – where umpire not yet appointed
– whether declaration would be of utility when umpire yet to be appointed
and will be required to address numerous issues in
making determination –
whether Court should intervene before the dispute resolution process under the
lease has been completed
Alcatel Australia Ltd v Scarcella [2001] NSWCA 401
cited
Bank of South Australia v South Australian Health Commission
(1996) 65 SASR 409 cited
British Airways PLC v Heathrow Airport
Ltd [1992] 1 EGLR 141 cited
Commonwealth v Wawbe Pty Ltd
(1999) ANZ Conv R 596
[1998] VSC 82 cited
Eureka Funds Management
Ltd v Freehills Services Pty Ltd (2007) V Conv R 54-732
[2006] VSC 461
cited
Fisons Pty Ltd v Rostinga Pty Ltd (1989) NSW Conv R
55-489 followed
Legal and General Life of Australia Ltd v A Hudson
Pty Ltd (1985) 1 NSWLR 314 cited
Nuttall v S4U Pty Ltd
[2010] QSC 191 followed
Programme Holdings Pty Ltd v Van Gogh
Holdings Pty Ltd [2009] WASC 79 cited
Ross Cook and Brett Cook
Pty Ltd v Australian Sugar Cane Feeds Pty Ltd [2009] QSC 178 followed
Judgment (29 paragraphs)
[1]
The applicant's submissions on the issue of discretion
[2]
[23] The applicant advances five submissions as to why the Court should exercise its wide discretion to grant declaratory relief in the present circumstances. The first is that there is plainly a dispute between the parties as to the proper construction of a lease. Secondly, it submits that the dispute is one which, if not decided now, will almost inevitably come back before the Court. This is because the umpire needs to decide, among other things, whether to include the Caltex Australia improvements in the assessment of the rent. The umpire is therefore likely either to:
[3]
(a) require the parties to obtain a declaration as to the proper construction of the lease before embarking upon his assessment; or
[4]
(b) adopt, as part of his determination, an assessment of the rent with which one party will disagree.
[5]
[24] The applicant's third submission is that if the issue was to come back before the Court in the latter situation, then it would carry with it an additional layer of argument and complexity in that a party to such an application would contend that the determination was final and binding and not open to challenge.[7] It submits that although there is reason to doubt the correctness of such an approach in the context of paragraphs 3 and 4 of the application, it is preferable to avoid the argument altogether.
[6]
[25] The applicant's fourth submission is that the declarations sought in paragraphs
[7]
3 and 4 of the application concern a pure issue of law that falls within the province of a lawyer, rather than an expert valuer. They do not presume to tell the expert how to do his or her job but are said to facilitate the expert in doing his or her job by seeking an authoritative determination as to what the lease means. Finally, the applicant submits that the issues in question are of importance to the parties, as reflected in the difference in the rental assessed by the parties' respective valuers, and the fact that Mr Crawford's assessment would have been $43,000 higher if he had taken into account the improvements made by Caltex Australia.
[8]
[26] The applicant submits that this case is distinguishable from others in which there has been a discretionary dismissal of an application for declaratory relief. This case is said to involve a pure question of law, and particular reliance is placed upon the statement of Olsson J in Bank of South Australia v South Australian Health Commission[8] that:
[9]
"there is a very clear distinction to be made between an attempt to have a court dictate to an independent expert as to technical and factual aspects going to the professional valuation process, on the one hand, and to ask it to determine fundamental questions of law as to the proper construction of the relevant contract, on the other."
[10]
In summary, the applicant submits that while it is valid to consider whether a declaration would inappropriately intrude into an expert determination process, one should not assume that an application for declaratory relief in the context of a rent review process should prima facie be dismissed on discretionary grounds. It submits that the discretion to give or withhold such relief is wide and that it should be exercised in the circumstances of this case.
[11]
Conclusion on the exercise of the discretion to grant declaratory relief
[12]
[27] I accept the applicant's submission that the issues about which declarations are sought are essentially questions of law. They do not trespass into the territory of the valuer by giving directions as to the factors that should be taken into account and the weight that should be attached to those factors in arriving at a determination of the market rent.[9] I also accept that it is probable that the issue of construction will come back before the Court. The issue of construction, however, is only one of many questions that will be addressed by the umpire, once appointed. The umpire will need to consider factual issues concerning the items that constitute the "Lessee's Fittings" and their value. He or she will be required to consider whatever evidence is submitted by the valuers and the parties as to their assessments of the current market rent, and in arriving at his or her determination of the current market rent to disregard, or not have regard to, the fact that the business operated from the premises is a Woolworths Redemption Site. The manner in which the umpire goes about these and other tasks in the process of determining the current market rent is not a matter in respect of which the Court should lightly intervene, particularly in a piecemeal fashion. This would only serve to delay the umpire completing his or her task. This is not a case in which the umpire seeks assistance from the Court or one in which the parties join in seeking a declaration as to the proper construction of the rent review clause.[10]
[13]
[28] The issue of construction that divides the parties may not present the same "maze of problems" that Bryson J considered in Fisons Pty Ltd. Yet, the point of principle stated by his Honour in that case explains why a court should be cautious in intruding into agreed valuation procedures. His Honour referred to the fact that the parties, in their wisdom, chose "a means for resolving differences which kept them in the hands of an expert who was to do nothing but make a determination as an expert, and kept them out of the judicial system with its lengthy hearings, long statements of reasons and chain of appeals".[11]
[14]
[29] In this case the parties agreed to be bound by the umpire's determination of the current market rent, and this entailed the umpire's determination of the proper construction of the lease, questions of fact and the weight that should be attached to relevant factors in arriving at an expert determination of the current market rent. I acknowledge that the parties, in agreeing to be bound by the mechanism for expert determination of the current market rent, also must be taken to have agreed that the process might include intervention by the Court to give proper directions on the law. However, I do not consider that it is an appropriate exercise of my discretion to determine the issues of construction at this stage. Such a course will not necessarily resolve the dispute between the parties. It may delay and complicate the determination which the parties agreed should be entrusted to an expert. The preferred course, at least at this stage, is to allow the agreed mechanism for determination of the current market rent to proceed and to permit any appointed umpire to decide all questions entrusted by the parties to his or her determination.
[15]
[30] If I was to determine the issues of construction raised in paragraphs 3 and 4 of the Amended Originating Application there is a high probability that the unsuccessful party would appeal my decision. The completion of the rent review process would be delayed. Depending upon the matters that are submitted to the umpire, further issues may arise in which either the umpire or the parties seek declarations. A multiplicity of proceedings and appeals should be avoided, if possible. The agreed process for an umpire to determine the current market rent should proceed. The umpire will have the benefit of the submissions made in this application concerning issues of construction and might seek legal advice in relation to them. If the umpire seeks direction from the Court on the issue of construction then at that stage the Court can consider the appropriate exercise of its discretion to intervene in relation to that issue, and any other issues that may be ripe for judicial determination. However, in the absence of the consent of the parties, or a request from the umpire for the assistance of the Court as to the proper construction of relevant provisions of the lease, the agreed procedure should run its course.
[16]
[31] The course that it runs depends upon the yet-to-be appointed umpire, the submissions of the parties to the umpire and the terms of the lease insofar as they control the process. One possibility is that the umpire's determination will disclose what his or her assessment of market rent would be if the applicant's construction of the relevant terms of the lease was adopted, and what it would be if Caltex's construction was adopted, followed by the umpire's actual determination, based upon the construction adopted by the umpire and findings of fact about a variety of matters including what constitutes the "Lessee's Fittings", their value, the "refurbishment or upgrade of the premises" and the "Lessor's Works". The precise form in which the umpire provides the determination is a matter for the umpire, subject to the terms of the lease. There is an attraction in having the umpire decide all questions of fact and law entrusted to him or her as soon as possible, subject to a request by the umpire and the parties for the court to intervene. One possibility is that the umpire's determination will disclose the difference between acceptance of the applicant's contentions and acceptance of Caltex's contentions on the disputed issue of construction. Whether it does so, and the form in which it does so, is a matter for the umpire.
[17]
[32] If, after the umpire has made a determination, a party seeks to challenge it, then it will be necessary for the Court to consider whether the determination is final and binding, or whether an alleged error by the umpire in the construction of the lease leaves the determination open to challenge. The applicant says that this prospect carries an additional layer or argument and complexity. However, any such additional layer of argument or complexity is a function of the fact that the parties, by their agreement, decided that the umpire's determination would be final and binding on them. I should not assume that the umpire will fall into error in some serious way in making the determination, or that one of the parties will wish to challenge the umpire's determination on the grounds that it is invalid. If, however, a party wishes to challenge the determination of the umpire then any challenge should include all permissible grounds of challenge so that there is one proceeding which addresses alleged errors that are of a kind that justify judicial intervention. In circumstances in which the umpire will be required to decide a number of issues, I am not persuaded that it is an appropriate exercise of discretion to decide the questions of law raised in paragraphs 3 and 4 of the Amended Originating Application. Such a course is unlikely to resolve the dispute between the parties. It is apt to delay its resolution and the determination of the current market rent by the process agreed by the parties.
[18]
[33] I decline to decide the issues raised in paragraphs 3 and 4 of the Amended Originating Application at this stage. The possibility exists that the umpire or the parties together will seek a judicial determination of those issues. If that occurs, it would be wasteful of costs to require new proceedings to be filed. Caltex offered to consent to an order that the proceedings be adjourned to a date to be fixed, pending the appointment of an umpire and a request by the umpire. The offer was declined. Rather than dismiss the application for relief sought in paragraphs 3 and 4 of the Amended Originating Application, I will adjourn that part of the application to a date to be fixed. The reason I adjourn that part of the application, rather than dismiss it, is to avoid the costs that would be occasioned by filing a new application and fresh affidavits in the event that the umpire, once appointed, requests the assistance of the Court, or the parties agree at some later date that the issues are appropriate for judicial determination.
[19]
[34] In addition to the orders made by me on 6 June 2011 I order that paragraphs 3 and 4 of the Amended Originating Application be adjourned to a date to be fixed. I will hear the parties in relation to the issue of costs.
[9]British Airways PLC v Heathrow Airport Ltd[1992] 1 EGLR 141 at 144, cited with approval in Alcatel Australia Ltd v Scarcella[2001] NSWCA 401 at [42]- [45] and by the Chief Justice in Ross Cook and Brett Cook Pty Ltd v Australian Sugar Cane Feeds Pty Ltd[2009] QSC 178 at [16].