Victorian Civil and Administrative Tribunal|2002-05-23

V & L Li Nominees Pty Ltd v Sandhurst Trustees Ltd [2002] VCAT 391 (23 May 2002)

Retail Tenancies List; Retail Tenancy of Pharmacy Including Right of First Refusal for Further Pharmacy or Chemist in Shopping Centre; Whether Landlord Complied with Right of First Refusal; Whether Landlord Obliged to Offer Premises Which Were Capable of Attracting an Approval for the Operating Pharmacist Under Section 90 of the National Health Act 1953; Whether Offer of Premises for Use as a Medical Suite and a Pharmacy are in Compliance with the Right of First Refusal

For the Applicant: Mr Neal of Counsel, instructed by Nevett Ford, Solicitors

For the Respondent: Mr Ridgeway of Counsel, instructed by McGrath Carey Katz Solicitors.

1. Mr & Mrs Li conduct a pharmacy business at Shops 29, 31 and 32 Brandon Park Shopping Centre, 608 Ferntree Gully Road, Mulgrave. These premises were initially leased from the State Electricity Commission of Victoria under a lease dated 26 October 1992 by Mr & Mrs Loveless. The lease granted them a tenancy of 10 years commencing 1 October 1991. By an instrument styled "Transfer of Lease" and dated 1 October 1997, V. & L. Li Nominees Pty Ltd took an assignment of the leasehold interest in the premises held by the Lovelesses. By then the reversion of the premises was held by Sandhurst Trustees Ltd, the respondent in this proceeding. According to Mr Li, V. & L. Li Nominees Pty Ltd, the applicant in this proceeding is "a service company" controlled by him and his wife. Mr & Mrs Li signed the Transfer of Lease as guarantors of their company's obligations as tenant. The lease which had been varied by Deed of Variation of Lease made 4 November 1994 between the Lovelesses and V.E.I. Super Pty Ltd, the then holder of the reversion, extended to 147.3 sq m in Shops 29 and 31 and 73.2 sq m in Shop 32. The variation in 1994, amongst other things added Shop 32 to the demised premises which had initially covered only Shops 29 and 31. In addition the variation deed extended the term of the 1991 lease from an initial 10 years to 15 years. The leasing arrangement also extended to some 43.8 sq m storage space on a mezzanine floor directly above Shops 29 and 31.

2. In it is original form the 1992 lease included the following as Clause 23:

"23. EXCLUSIVE PHARMACY AND FIRST RIGHT OF REFUSAL

The Lessor covenants with the Lessee that for the first five (5) years of the term of this Lease no other pharmacies or chemists shall be granted a lease in the Shopping Centre. However, at the expiration of the first five (5) years of the term of this Lease, if the Lessor at its sole discretion believes that a further pharmacy or chemist should be established in the Shopping Centre, the Lessor shall give a first right of refusal to the Lessee to enter into a lease for such further pharmacy or chemist. In the event that the Lessee does not agree to enter into a lease for such further pharmacy or chemist within 28 days of the Lessor notifying the Lessee of its intention to establish a further pharmacy or chemist, the Lessor shall be entitled to seek another tenant to establish a further pharmacy or chemist."

3. Item 12 headed "Use of Premises" was in the original lease "retail sale of pharmaceutical products and associated lines including cosmetics and health care products". This was amended by the 1994 lease variation so as to add the word "prescriptions" after the words "pharmaceutical products". This item was deleted by the instrument of Transfer of Lease and replaced with the following:

Pharmaceutical dispensary and retail sale of pharmaceutical products and associated lines including perfumes, cosmetics, hair care, health and baby products and associated gift items, films, cameras (being simple or disposable cameras only) and the provision of services usually sold or supplied by a pharmaceutical chemist including health insurance agency, surgical aids and a beauty room for the purpose of demonstrations of cosmetics and familiarising customers with the techniques of applying cosmetics."

4. Clause 23 was amended both by the 1994 variation and the Transfer of Lease. In its present form it reads as follows:

"The Lessor covenants with the Lessee that during the period from the 1st day of July 1994 to 30th day of June 2001 no other pharmacies or chemist shall be granted a lease in the Shopping Centre. However, after the expiration of the period 1st day of July 1994 to 30 June 2001 if the Lessor at its sole discretion believes that a further pharmacy or chemist should be established in the shopping centre, the Lessor shall give a first right of refusal to the Lessee to enter into a lease for such further pharmacy or chemist upon terms no less favourable than the Lessor is prepared to offer to a third party. In the event that the Lessee does not agree to enter into a lease for such further pharmacy or chemist within 28 days of the Lessor notifying the Lessee of its intention to establish a further pharmacy or chemist, the Lessor shall be entitled to seek another tenant to establish a further pharmacy or chemist ("the first right of refusal")."

5. The effect of Clause 23 was that until 30 June 2001 the landlord was precluded from permitting any other pharmacy to operate in the centre.

6. Less than a fortnight after the expiry of this exclusivity period, Mr & Mrs Li received a letter from C.B. Richard Ellis (V) Pty Ltd, the landlord's managing agent, in the following terms:

Pursuant to Clause 23 of your current lease with reference to the above premises; please find enclosed a letter of offer detailing the terms of lease we are prepared to offer you:

7. The letter of offer to lease was prepared for execution by the applicant company and related to Shop 116 at the Brandon Park Shopping Centre. It was headed "Subject to vacant possession and lessor's approval". The lessor was shown as the respondent, the lessee the applicant, "area of demise" was as follows:

"approximately 500 sq m consisting of approximately 300 sq m of retail space and 200 sq m of medical suite"

The commencing semi-gross rental was "$222,000 per annum payable monthly in advance ". The lease provided for a term of six years with two further three year terms. The use of premises was shown as follows:

"A medical centre with consulting rooms and retail space, which may be used for the purposes of trade, hire or affiliated retail trades associated with the medical centre such as retail pharmacy, vitamins, hire of equipment, beauty clinic, photo processing services but not a development lab on site."

8. The offer letter included the following as one of its "special conditions":

"iii. The terms of the agreement include the lessee's ability to obtain a National Health Scheme Approval Number for the pharmacy site."

9. By letter dated 6 August 2001 the applicant's solicitors Nevett Ford, responded on the applicant's behalf stating inter alia:

"In principle, our client wishes to proceed with this lease offer to establish a second pharmacy but having regard to the nature of the proposed use and the size of the area offered, there are a number of issues that require clarification or agreement."

10. The first matter raised was the ability to obtain approval for a second pharmacy from the Australian Community Pharmacy Authority in accordance with the National Health Act 1953. I will have more to say as to the detailed requirements of this procedure later. The second point raised by Nevett Ford was that

"The primary use is that of medical consulting rooms, it would seem preferable that there be separate leases for the two uses. If you have had some discussions with a medical group with an interest in taking space in the centre, I suggest a meeting should be arranged with our client to establish the basis upon which our client could proceed with establishing a second pharmacy in association with the medical consulting use. The precise area of any pharmacy must be ascertained before an approval from the [Australian Community Pharmacy] Authority."

11. By letter dated 9 August the landlord's solicitors McGrath Carey Katz said that "any agreement for lease must be unconditional" [cf the heading on the proforma offer prepared by the landlord's agent]. The solicitors continued that only one lease would be offered and the area of the leased property must be 500 sq m. The landlord's solicitors refused a request for a contribution of six months rent as a contribution to "the total fit-out costs". The proposed letter of offer had stipulated for the use of the landlord's standard lease for the centre. Meanwhile, a copy of the letter of offer was sent to Mr Hose, the managing agent's representative, purporting to accept the offer of lease but adding the following words in manuscript "on the basis of the letter from our solicitors, Nevett Ford, a copy of which is attached". This referred to a letter of 10 August 2001 from Nevett Ford to McGrath Carey Katz which asserted that:

"The offer that has been submitted does not accord with the right of refusal held by our client and the proposed commencement date [which was 1 September 2001 (subject to vacant possession) or a date to be advised] is unrealistic given the outstanding matters to be resolved before fitting out works could commence."

12. The letter stated that the applicant would proceed upon the following conditions:

"Your client will provide material acceptable to the Authority that adequately demonstrates that the centre meets the required criteria for a second pharmacy;

Your client will co-operate with any proposal for inclusion of medical rooms or such other use contemplated in the offer."

13. In September 2001 the Lis and their solicitor Mr Lumb received advice from a health industry consultant "that she has been unable to obtain material in respect of Brandon Park which would satisfy the criteria of the approving authority namely the Australian Community Pharmacies Authority acting under the National Health Act 1953". Later advice from the consultant Ms Mihulka was that it was "unlikely Brandon Park would fulfil the criteria of the ACPA in the immediate future". Nevett Ford then wrote to the landlord's solicitors proposing "that the offer be held in abeyance until such time as Brandon Park would meet the criteria of the approving authority".

15. On 14 February 2002 Mr Lumb of Nevett Ford received a letter dated 13 February 2002 from McGrath Carey Katz, the landlord's solicitors. This letter covered what was described as "a letter of offer to lease premises within Brandon Park Shopping Centre, which premises will include a pharmacy". (my emphasis) McGrath Carey Katz said that the terms were "not open for negotiation". It stated "your client has 28 days within which to notify the lessor of its acceptance of the proposed terms of lease." The letter stated that any variation, amendment, addition or deletion of any of the terms would "constitute a rejection of the offer and our client will thereupon treat with a third party on terms and conditions no more favourable than those herein contained". The offer letter provided for a lease of Shop 116 for six years with the rent escalating from $228,000 for the first year to $252,787 for the sixth year. The proposal entailed two further options of three years each with the lease commencing on 1 May 2002. The use of premises was described as follows:

"A medical centre with consulting rooms and adjacent retail space part of which shall be used as a pharmacy, and any remaining area may be used for retail purposes limited to the sale or hire of medical aids and the sale of vitamins, beauty products, photo processing services and products associated with a pharmacy but not as to breach the exclusive use rights of any other occupant within the centre."

16. The stipulation for documentation was "the lessor's standard lease documentation is to apply".

17. Further contentious correspondence ensued. The applicant's solicitor says that the landlord and its legal advisors agreed to a 14 day extension. Mr Lumb said that on 22 March 2002 Mr Alex Pannunzio of GP Australia Pty Ltd contacted him and "informed [Mr Lumb] that [Mr Pannunzio] had become aware of active negotiations between the landlord and a third party with a proposed meeting to take place on Tuesday 26 March 2002 to finalise the lease for another pharmacy in Brandon Park." After further communications with representatives of the landlord which produced no concessions to the tenant, the tenant's solicitors commenced this proceeding on 26 March 2002 seeking the following relief:

"1. A declaration that the respondent [that is the landlord] has not validly complied with Clause 23 of the lease dated 26 October 1992 as varied by the Deed of Variation of Lease dated 4 November 1994 and the Transfer of Lease dated 1 October 1997.

2. An injunction interlocutory and permanent restraining the respondent from taking any step in furtherance of obtaining a tenant to establish a pharmacy or chemist at Shop 116 Brandon Park Shopping Centre Mulgrave."

18. Counsel representing the applicant tenant applied for interlocutory relief along the lines of the second paragraph of the application which I granted ex parte and without affidavit materials on the basis that the applicant tenant might suffer irreparable damage by the intervention of the rights of an innocent third party. The ex parte injunction was granted until 4 p.m. of 28 March. On that day the matter came on for hearing before Mr Davis. He extended the injunction until the hearing and determination of this proceeding, albeit on slightly different terms.

19. The Australian Community Pharmacy Authority is established under the National Health Act 1953 which provides for the payment of Commonwealth pharmaceutical benefits. These benefits (a subsidy for the cost of prescription medications) are available only through "approved pharmacists". The Australian Community Pharmacy Authority is established under Division 4B of the National Health Act. The objective of these provisions seems to be to limit the number of approved pharmacies. The Authority can only approve a new pharmacy according to the rules which were made by the Minister for Health and Aged Care and dated 11 July 2000 if the pharmacist proposes establishing his pharmacy "at least two kilometres measured door to door by the shortest lawful access route from the nearest other premises in respect of which a pharmacist is approved under Section 90 of the Act" and the Authority "is satisfied that there is a definite community need for pharmaceutical services in the area in which those premises are situated". The Authority could also approve a new pharmacist if his premises are "situated at least 10 kilometres measured door to door by the shortest lawful access route, from the nearest other premises in respect of which a pharmacist is approved under Section 90 of the Act" and the area is designated as being accessible or moderately accessible, remote or very remote under a study described as "Accessibility/Remoteness Index of Australia as Modified for Pharmacy". Clearly a second pharmacy for Brandon Park could not be established under these provisions which are to be found in Rule 5 of the Minister's Rules.

20. Rule 6 provides for relocation of existing pharmacies but without going into the detail of its requirements, would not seem to be relevant or appropriate to the present circumstances. Rule 7 provides for the relocation of another authorised pharmacy to what is described as a "large shopping centre". To enable a second pharmacy to be established by relocation in a large shopping centre, it must be shown that the shopping centre "contains not less than 100 ... commercial establishments". "Large shopping centre" is a defined term under Rule 2 and it is common ground that the Brandon Park Shopping Centre meets those requirements. However the definition of "commercial establishment" is much narrower than what would ordinarily be regarded as a shop. For instance all sorts of professional offices, including legal offices, real estate agents etc. are excluded as are Council offices, libraries, kindergartens, etc.

21. According to the best enquiries that can be made, there are either 83 or 85 "commercial establishments" in Brandon Park Shopping Centre in its present configuration.

22. The result would seem to be that no second chemist or pharmacy could be established in the shopping centre as it now stands with authority under Section 90 of the National Health Act to dispense subsidised prescription medication under the Commonwealth scheme.

23. The present pharmacy at Brandon Park holds authority under the National Health Act as does the Lis' other pharmacy in Box Hill. Mr Ridgeway who appeared for the respondent landlord did not admit that it would not be commercially viable to establish a pharmacy without the pharmacist principal being an authorised pharmacist under Section 90 of the National Health Act. The premise of the correspondence from Nevett Ford to the detail of which I have not gone in the foregoing summary was that it was simply impracticable to operate a pharmacy without the authorisation provided for by Section 90 of the National Health Act. In Porter v Brimbank Council (1997) 18 AATR 128, 129-30 the Planning Division of the Administrative Appeals Tribunal speaking of the same provisions said:

"The Commonwealth does not have legislative authority directly to control the number of pharmacies which may trade in Australia, however, the most significant source of income for pharmacies is the filling of doctor's prescriptions. Those prescriptions are heavily subsidised under the Commonwealth's National Health Scheme. Unless these subsidies are available to a pharmacy it would not be economically viable. Accordingly, the Commonwealth may control the number of pharmacies trading by limiting the number of outlets at which its subsidised prescription service is available.

In accordance with this policy the Commonwealth has been seeking to cut the number of pharmacies in certain areas which it considers already overserviced and restrict the establishment of new pharmacies."

24. The power which I have under Section 98 of the Victorian Civil and Administrative Tribunal Act 1998 to inform myself in such manner as I see fit is at least as wide and probably wider than the power that a Judge has to take judicial notice of tutorious matters. Despite Mr Ridgeway's refusal to make any concession on the point on behalf of the respondent landlord, I believe it is reasonable for me to conclude that the absence of an authority under the National Health Act would be a very significant negative to the financial viability of any pharmacy.

25. When the matter was fixed for trial no order was made requiring the applicant to file a statement of claim or points of claim. Accordingly, the applicant's case must emerge from the affidavits filed on its behalf from Mr Li (three in number) and Mr Lumb its solicitor and from the submissions made by its Counsel Mr Neal at the hearing.

26. Mr Neal submitted that the orders sought in the application should be made because he submitted the landlord had acted in breach of the requirements of Clause 23 and unless restrained threatened to continue to do so. Mr Ridgeway candidly said that his client desired to sign a lease with a third party.

27. According to Mr Neal, the two offers which were made to his client were not in conformity with Clause 23 of the lease, first because in so far as the clause required the landlord to "give a first right of refusal to enter into a lease for such further pharmacy or chemist upon terms no less favourable than the lessor is prepared to offer it to a third party" the clause required the offer of a lease for a pharmacy or chemist which at least in so far as the site itself was concerned was one which in accordance with the existing rules could be the subject of an approval by the Australian Community Pharmacy Authority; Shop 116 could not be because of the number of "commercial establishments" (within the meaning of the relevant Rules) at the Brandon Park Shopping Centre. Secondly he said that what was offered for lease to his client was not a pharmacy but rather a larger set of premise whose primary purpose was a medical suite.

28. In his submission Clause 23 had to be given a commonsense commercial interpretation judged on an objective basis. He referred to Clause 10.33 of Cheshire and Fifoot's Law of Contract 7th Australian Edition (1997) where the Learned Editors state:

"The Court approaches the task of ascertaining the meaning of the parties' expressions from an objective point of view. So in the case of a disputed clause in a commercial agreement `the essential question is what would reasonable business people in the position of the parties have taken the clause to mean'."

29. The learned Editors refer to a dictum to this effect by McGarvie J in Schenker and Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VicRp 74; [1990] VR 834, 840. Judged according to that principle he said a commonsense interpretation of Clause 23 would mean that the sort of pharmacy which it obliged the landlord to offer for lease to the tenant was one which enjoyed the customary approval from the Commonwealth Authority in the same way as the applicant's existing pharmacy at Brandon Park did.

30. In Mr Neal's submission Clause 23 was brought into operation in any circumstance where the landlord proposed offering a tenancy to a third party which would permit as between landlord and tenant the third party to conduct a chemist or pharmacy at the proposed demised premises. He conceded therefore that according to this reasoning the "first refusal" procedure in Clause 23 would have to be observed by the landlord if it offered a shop for lease with a permitted use extending for instance to "any retail use permitted by the relevant planning scheme".

31. Further, Mr Neal submitted that once an occasion arose for the Clause 23 procedure to be followed any offer of tenancy to the applicant which provided for a tenancy including another use other than chemist or pharmacy (at least if that other use was more than de minimis or ancillary) would not be in compliance with Clause 23. This said Mr Neal was one of the vices in the two offers which had been made to the applicant in 2001 and 2002.

32. Even although Mr Davis did not direct that there be pleadings and the applicant did not file a statement of claim or points of claim the respondent filed points of defence dated 16 April 2002. According to those points of defence there was no obligation on the landlord to give the offer of lease dated 13 July 2001 because that offer "was not limited to a `further pharmacy or chemist'". In any event, according to the points of defence, since Clause 23 did not "limit the terms, including, inter alia, any concurrent, simultaneous or ancillary use of the premises in respect of which the lessor was prepared to enter into a lease" the offer of 13 July was in conformity with Clause 23. The offer was on terms no less favourable than those offered to the third party. Next it is alleged that the applicant's response to the 13 July offer amounted to a counter offer and therefore a rejection of the offer. That response, it was said, amounted to an acknowledgement "that the respondent had fully discharged its obligations to the applicant pursuant to Clause 23 of the lease". Likewise, according to the points of defence, the second offer made in February 2002 was rejected by the applicant and was in compliance with the requirements of the lease on terms no less favourable than those upon which the landlord proposed dealing with the third party. In the circumstances the respondent contended that the second offer had been rejected and in any event "the applicant was never, at any material time, legally competent to accept any offer from the respondent for a lease of premises within the shopping centre for use as a pharmacy or chemist or as a further pharmacy or chemist on any terms and conditions whatsoever and whether pursuant to Clause 23 of the lease or otherwise". The particulars to this allegation refer to Section 21(1) of the Pharmacists Act 1974 of the State of Victoria which preclude corporations from having a proprietary or pecuniary interest in a pharmacy practice.

33. In his oral submissions Mr Ridgeway on behalf of the respondent landlord accepted that the proper construction of Clause 23 of the lease must be judged in a realistic and commercial manner. He said that his client as a shopping centre owner dealt in leases not in pharmacies or pharmaceuticals. It was reasonable therefore for his client to take the view that compliance with the requirements of the Commonwealth Authority as to any additional pharmacy at Brandon Park was a matter for the operator of the putative second pharmacy. It was reasonable and proper to conclude therefore that conformably in Clause 23 the landlord could first offer the applicant and then any third party the opportunity to conduct a second pharmacy or chemist at Brandon Park, leaving it to the applicant or the other party to accept responsibility for meeting all the requirements necessary to obtain approval from the Commonwealth authorities or if the applicant or third party desired to conduct a pharmacy without Commonwealth approval and therefore without the benefit of the Commonwealth's prescription subsidy.

34. Mr Ridgeway said that 500 sq m was by no means an excessive floor space for a pharmacy. The present applicant's pharmacy had relatively small floor space. The landlord was agreeable if the applicant desired, to the applicants using the whole of Shop 116 as a pharmacy without the provision for the other uses referred to in the two offers.

35. Mr Ridgeway reiterated the matter raised in the points of defence to the effect that the applicant was incapable legally of accepting an offer made to it under Clause 23. The provisions of the Pharmacists Act quoted in the points of defence also in his submission raised queries as to the degree to which the applicant was in compliance with the covenants in its present lease.

36. I deal first with the "illegality" defence relied upon by the respondent by reason of the prohibition in the Pharmacists Act 1974 upon a corporation having a proprietary or pecuniary interest in a pharmacy practice.

37. I reject the respondent's submission on this point. According to Mr Li the applicant is a service company for the pharmacy practice conducted by him and his wife. The use of service companies by professional firms in law and medicine is very common. The evidence discloses that the applicant corporation is the tenant of the existing pharmacy. Mr Li's evidence that he and his wife conduct the pharmacy practice stands uncontradicted. Their precise relationship with their "service company" has not been explained. It might for instance be a relationship of licence or sub-tenancy. Whether in the result the applicant is therefore in default of its covenants with the landlord is not a matter that is before me or that I am required to determine. Moreover, it is not absolutely plain that there would be a default.. There might for instance be arguments to say that some additional term or terms ought be implied into the lease to give it business efficacy having regard to the structure of the pharmacy practice and its use of a service company. This is the very sort of term which the majority of the Judicial Committee of the Privy Council was prepared to imply in the celebrated case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20. Merely to be the sub-lessor or licensor of premises from which a pharmacy practice is conducted would not in itself give one a proprietary or pecuniary interest in the practice. If it did, the owner of the Brandon Park Shopping Centre would be in breach of the Pharmacists Act if it leased a shop directly to a partnership of pharmacists.

38. Next I reject the submission that in the circumstances the landlord was obliged to offer the applicant a tenancy of a pharmacy which in all respects other than those personal to the applicant and its principal was immediately capable of obtaining or the pharmacist conducting practice there, approval under Section 90 of the National Health Act from the Commonwealth authority. Halsbury's Laws of England Vol. 9(1) para 641 page 380 describes rights of first refusals as follows:

"Similar to the contract of option is the contract of `first refusal' or `pre-emption', whereby one person A enters into a contract with a second person B which provides that if A contemplates entering into a certain defined contract or type of contract with anyone, he will first offer to do so with B. That type of contract differs from the contract of option in that A has made no positive offer; his duty will usually be the purely negative one of not contracting with any third person in the defined respect unless or until he is first offered to do so with B, though that offer may be conditional or assignable ..."

39. What is implicit in that formulation of the right of first refusal is that the subject matter of the contract which the promisor must offer to enter into with the beneficiary of the right before he enters into it with any third person is the same. The assumption is that the beneficiary of the right and any third person are offered the same "deal" with respect to the same subject matter; but the beneficiary has the first opportunity to say "yes" or "no". Mr Neal's submission on this point is that before the landlord offers a non-approved pharmacy to X, he must offer an approved pharmacy to the applicant. A contract to that effect would not be an orthodox first right of refusal. I do not say that it would be impossible for parties to enter into such an arrangement, but the words of Clause 23 suggest that what is provided for is an orthodox first right of refusal. The words of the clause tend to reinforce this. The clause becomes operative "if the lessor at its sole discretion believes that a further pharmacy or chemist should be established in the shopping centre the lessor shall give a first right of refusal to the lessee to enter into a lease for such further pharmacy or chemist" (my emphasis). If the landlord offers a lease of a pharmacy which by reason of Brandon Park's commercial configuration is not at the moment capable of attracting an approval for the pharmacist operating it under the Commonwealth statute, the landlord performs its obligation under Clause 23 by offering the same pharmacy or chemist tenancy to the applicant, viz. such pharmacy or chemist.

40. I also accept Mr Ridgeway's submission that such a view accords with commercial reality. The applicant and its principal and any other putative pharmacy operators would be presumed, at least in comparison to the landlord company to be experts in the Commonwealth system in a way which the landlord is not. As the quotation from the Administrative Appeals Tribunal's decision in Porter's case earlier in these reasons demonstrates, the present Commonwealth scheme as to the establishment of pharmacies was in operation in 1997. The terms of Clause 23 were last re-visited by the present parties in 1997. Had they intended to impost the additional responsibilities relative to the Commonwealth scheme for which Mr Neal contends, it may be expected that they would have said so directly.

41. The final issue, which I find the most difficult, is the one upon which the applicant obtained its initial ex parte relief, that is, that the offers of July 2001 and February 2002 were not in compliance with Clause 23 because the offer related to a much larger area than the applicant's existing pharmacy premises and had rolled up with them provision for a medical suite and related uses.

42. On the face of it this argument is compelling. A right of pre-emption with respect to Blackacre cannot be regarded as properly performed if the beneficiary is not given the right to buy Blackacre, but only Blackacre together with Whiteacre and Redacre.

43. Mr Ridgeway submitted as previously recorded that the floor area of Shop 116 would not be excessive for a single use pharmacy. I was not taken to any evidence on this point. Given that the subject matter of the two offers was a single shop in the centre, and that for the purposes of the application of the Retail Tenancies Reform Act 1998 1,000 sq m has been taken as an upper parameter for the "small" retail establishments for which special protection is given, I will accept his contention. Nevertheless, both offers stated that the lease would have to be according to the lessor's standard lease. I was not presented with any document which purported to be that standard form. Mr Neal referred me to Clause 4.2 at page 17 of the applicant's present lease headed "Positive covenants" whereby the lessee covenanted inter alia to:

"(a) Use the demised premises and the storage area solely for the purpose of conducting the businesses committed under this lease under the trading name or names that may be specified in the First Schedule and shall at all times keep the demised premises and the storage area open for business and shall conduct its business in the demised premises and the storage area during the usual business hours of the centre as the lessor may from time to time lawfully prescribe. ..."

44. Mr Ridgeway said that the landlord would not so far as this applicant was concerned insist that the medical suite or related uses be taken up. This is not stated in either of the offers and the second offer in the most downright terms excluded the possibility of any variations, reservations or glosses. The point is reinforced by the fact that the permitted use as described refers to pharmacy only as the second and not the first of the permitted uses.

45. These considerations would lead one to conclude that the two offers were not in conformity with Clause 23; but does the considerations that I mentioned previously, namely that the subject matter to be offered to the third party and what is required to be offered first to the beneficiary under a right of pre-emption or first refusal would generally be expected to be the same preclude acceptance of this argument? To put it another way, does the proposition that offering the applicant a tenancy of a medical suite and a pharmacy is not offering the applicant a tenancy of a pharmacy, mean that the landlord's proposal to offer a tenancy of a medical suite and a pharmacy to the unnamed third party does not activate Clause 23 at all - because the third party is not being offered a pharmacy?

46. In my view this may not be quite the accurate analysis. Clause 23 as drafted is not brought into operation by the offer of a tenancy of a pharmacy to a third person or the contemplation of such a thing. The assumption made is that the landlord will not itself seek to conduct a pharmacy - a reasonable assumption in light of the terms of Section 21 of the Pharmacists Act 1974. What renders the clause operative is the landlord's decision "at its sole discretion" "that a further pharmacy or chemist should be established in the shopping centre". There is nothing in the clause which restricts the landlord to proposing a sole use pharmacy as distinct from one which is part of some larger complex of enterprises. In my view, so long as the same "deal" is offered to the applicant as is intended to be offered to the third party, or at any rate a deal "upon terms no less favourable than the lessor is prepared to offer to a third party" the requirements of the clause are met.

47. Mr Neal said that the commercial intent of the clause was that after the expiry of the first period exclusivity was to give his client the right of first refusal with respect to any competing pharmacy. The way that the landlord has chosen to move in this case indicates that the achievement of that commercial objective would have required a somewhat more elaborately drafted clause than the one which we here find.

48. I am fortified in all these views by the thought that if in my hesitation I had accepted the tenant's second argument, namely that Clause 23 was operative but that the landlord had to offer the tenant a sole use pharmacy tenancy the relief for the tenant would on the evidence which I heard be likely to be short-term only. Assuming the landlord continued to seek to achieve the commercial objectives which seem to underlie the offers of July 2001 and February 2002, it would have made a revised offer relating to the same premises but rendering the uses medical suite and related uses optional. The tenant would then have received an offer which would have been capable of achieving all that the landlord desired to achieve with the third party but which avoided any suggestion that it was not an offer of a sole use pharmacy.

49. In the circumstances I should refuse to make the orders sought by the tenant.

50. I have heard no argument as to costs and so I will reserve that issue.

Civil and Administrative Tribunal Act 1998

Tenancies Reform Act 1998

V & L Li Nominees Pty Ltd v Sandhurst Trustees Ltd [2002] VCAT 391

At a glance

Court

Decision date

Source

Judgment (76 paragraphs)

V & L Li Nominees Pty Ltd v Sandhurst Trustees Ltd [2002] VCAT 391 (23 May 2002)

Legislation Cited (3)

Cases Cited (1)