1 Retail tenancies first became an exclusive Tribunal jurisdiction in Victoria on 1 July 1998 with the establishment of this Tribunal. I was the head of the List then as I remain now. At that time I supposed that one of the earliest knotty matters in the law of landlord and tenant which would arise for consideration potentially in an application for interim or interlocutory injunctive relief by a tenant would be the purport of the words 'without deduction' in a rental covenant. As it is however it has gone almost eight years now before the issue has arisen directly and in a manner where it is necessary for me to give a determination on that point.

2 The applicant Wytell Pty Ltd executed or entered into a sale of business agreement with Omrank Pty Ltd dated 18 December 2003 whereby Wytell bought from Omrank a business known as Avenue House at 60 The Avenue, Windsor, for $155,000. The business entailed providing student accommodation. Settlement was scheduled for 1 January 2004. It seems that settlement actually took place on the 31st of that month, on which date Wytell, the applicant in this proceeding, entered into a lease for the premises at 60 The Avenue, Windsor, for a term of 10 years commencing on that date. The lease reserved an option to renew for a further five year term and provided for a commencing rent of $68,240 per annum.

3 The present application was filed with the Tribunal on 20 December last year. Wytell sought relief with respect to a notice under Section 146 of the Property Law Act 1958 which had been served on it on 14 December 2005. The notice in orthodox terms alleged a series of defaults and asserted that the lease would be terminated and the lessor would re-enter if those defaults were not remedied.

4 When the matter came on for hearing before me on 22 December last year, the issue of tax invoices in accordance with the Goods and Services Tax regime was at the forefront. Consent orders were made which maintained the status quo until an adjourned dated of 24 February this year. In the interim the applicant tenant was to pay $6,396.20 rental for each of December and January upon delivery to it of the relevant tax invoices. Both the tax invoices and the rent have been delivered and paid. As it was however, the respondent lessor Ms Glowinski who was represented by her attorney, Dr Glowinski had to threaten a renewal of proceedings to obtain the December rental and the January rental was only paid when an application for summary dismissal of the proceeding was lodged in the Tribunal on 7 February by the respondent. Once, the second rental instalment was paid that application was not pressed and the matter came on for hearing on the original adjourned date, namely 24 February.

5 On 24 February with the tax invoice issues having fallen away the applicant's case was based upon repair issues. The principal of Wytell, Ms Chan, had sworn an affidavit in December 2005 complaining of widespread roof leaks which damaged Wytell's business. There was mould in various places, the power board for the premises was insufficient so that not all of the appliances which the residents desired to operate, could be operated. She says that these problems first became evident to her the first winter of the tenancy. Her complaint therefore was that these premises were unfit from the very beginning of the lease. She complained that the lessor could have informed her of this fact but omitted to do so. It was not suggested so far as I can see that the problems which are complained of in the affidavit material and corroborated by the affidavit of a resident Mr Shane Byers (a student resident) entailed any suggestion that the premises had substantially deteriorated. The case was, the premises are unfit, the premises were unfit. The deterioration complained of is of long-standing corrosion in galvanised sheeting and the like.

6 The principal deponent Ms Chan referred to and relied upon Sections 52 and 57 of the Retail Leases Act 2003 and Clause 6.4 of the lease which in express terms imposed an obligation on the lessor, respondent, to keep the premises in repair. The effect of the affidavit material was that the business was continuing. It was constrained, limited and damaged but not stopped. This afternoon I have been handed a document which is a protest addressed 'To whom it may concern' as to the condition of the premises and signed by a number of residents.

7 Ms Chan says that she made repeated requests for these repair issues to be dealt with but to no avail. After April 2005 she said her company had no alternative but to stop paying the rent. There is a dispute between the parties as to precisely what rental has not been paid. Dr Glowinski the lessor's attorney swears that the arrears of rent are in a sum exceeding $92,000. Mr Guzzo, Counsel for Wytell, admits that there has been no rental paid since May 2005. This would be less than one year's rent.

8 As it is for present purposes I do not think it is necessary for me to reach a view or make a finding as to precisely how much rent is outstanding. The lease in fairly orthodox terms provides that where rental is in arrears for 14 days or more, and has been demanded and remains unpaid, the landlord is entitled to take action to terminate and forfeit the lease. This is what the lessor, Ms Glowinski through her attorney wishes to do. The present proceeding is aimed at stopping her from doing so.

9 The Section 146 notice aside from complaining about arrears of rent and alleged interest and costs also complains that outgoings have not been paid. Again, it is common ground that the applicant has, in light of the grievances which it complains of, stopped paying outgoings.

10 Clause 2.1.1 of the lease which is in the current Law Institute standard, revision May 2003, obliges the tenant to pay the rent without any deduction. Wytell through its Counsel, Mr Guzzo, says that in the circumstances described, Wytell is entitled to an equitable set-off because of breach of the landlord's repairing covenant in Clause 6.4.

11 Ms Glowinski through her Counsel, Mr Cordiner, however, submits that no set-off can be allowed because of the presence in the covenant to pay rent of the phrase 'without any deduction'. Mr Cordiner relies upon a judgment of Beach J. in Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd [1993] VicRp 66; [1993] 2 VR 168, 175 where His Honour considered a rental covenant for retail premises in similar terms, the relevant phrase being 'without any deduction whatsoever' and concluded that it excluded the possibility of the tenant effectively relying on an equitable set-off. Mr Cordiner submits that this authority is binding on this Tribunal.

12 Mr Guzzo submits that the set-off is in truth available and to hold otherwise would be offensive to the principles of equity and common law. The rules as to the availability of equitable set-offs against rent are conveniently summarised by Byrne J in an unreported decision Mirvac Hotels Pty Ltd v 333 Collins Street Pty Ltd delivered 20 December 1994 in the Butterworths unreported series it is BC9401396. At page 4 of 5 in the computer print His Honour says:

The question whether the cross-claim sounding in damages may be set off against the landlord's claim for rent has been the subject of extensive judicial consideration over many centuries. I do not propose to contribute to that discussion. For present purposes, I take the position to be this: a cross-claim sounding in damages may be set off in equity against a common law claim for rent where it is so directly connected with the rent claimed that it would be manifestly unjust to permit the claimant to recover without taking into account the cross-claim: British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 at 151 per Forbes J. And again, the cross-claim will be effective as an equitable defence where the equity impeaches "the title to the legal demand or in other words goes to the very foundation of the landlord's claim": British Anzani case at 152. See also Aries Tanker Corporation v Total Transport Ltd (1977) 1 All ER 398 at 404-7. This statement of principle has been approved in this court in MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd v ConvR 54-468; in the Federal Court in Re Just Juice Corporation Pty Ltd, James v Commonwealth Bank of Australia [1992] FCA 420; (1992) 109 ALR 334; and in the New South Wales Court of Appeal in Lord v Direct Acceptance Corporation Ltd (1993) 32 NSWLR 362. I am content to adopt it for present purposes.

13 Therefore, says Mr Guzzo conformably with those principles there is subject to any argument with regard to quantum and to the operation of the phrase 'without any deduction' at least a serious question to be tried as to the availability of the set-off based upon lack of repair and breach of Clause 6.4 and therefore a serious question to be tried as to the validity of the notice under Section 146 which proceeds upon the footing that certain rental is payable. This premise may of course be invalidated by an effective set-off. In Connaught Restaurants Limited v Indoor Leisure Limited [1994] 1 WLR 501 a tenancy which was subject to periodic flooding in circumstances for which the landlord was regarded as having responsibility was held to have an available set-off for that breach of the right of quiet enjoyment despite the conclusion of words similar to the ones which appear in the present lease and also to those considered by Beach J in the Simon Frederick case.

14 The English Court of Appeal, Neil LJ, Simon, Brown and Wait reached this conclusion based principally upon a dictum of Lord Diplock in Modern Engineering v Gilbert-Ash Limited [1974] AC 689, 717. At the foot of that page His Lordship said:

But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law and clear express words must be used in order to rebut this presumption.

15 Their Lordships in the Connaught Restaurants case concluded that the expression 'deduction' was insufficiently clear to comprehend and therefore exclude reliance upon an equitable set-off. Their Lordships referred to other English authorities consistent with this and a decision of the New Zealand Court of Appeal.

16 The Connaught Restaurants case was referred to, relied upon and applied by Williams J sitting it the Supreme Court of Queensland in Re Partnership Pacific Securities Limited [1994] 1 Qd R 410. Once again, Williams J. said that the expression 'deduction' was not appropriate to comprehend the concept of an equitable set-off and therefore to exclude deductions was not to exclude equitable set-offs.

17 Dr Derham in his work on set-offs, (Second Edition) at pages 113-20 refers with approval to the line of authority exemplified in the Connaught Restaurants case. By contrast Bryson J in the Equity Division of the Supreme Court of New South Wales in Batiste v Lenin [2002] NSWSC 233 adopted the same line as Beach J in the Simon Frederick's case and held that the phrase excluded reliance upon equitable set-offs. Similarly, Anderson J. in Webster v Banning Holdings Pty Ltd [2001] WASC 11 and perhaps more pertinently the same line, that is the Beach line, was taken by Byrne J in the Mirvac case to which I made reference earlier, though the full terms of the clause are not quoted by His Honour and the clause may well have included the word 'set-off'. His Honour referred to the Simon Frederick's case and also to the Connaught Restaurants case without observing any apparent inconsistency between the two. His reference to Re Partnership Pacific Securities Limited is prefaced with the word 'cf' indicating the perception that this was inconsistent with one or the other or both of the earlier authorities and not supportive of the line which he has taken.

18 In MEK Nominees v Secure Parking [2000] VSC 406 Gillard J accepted that the word 'deduction' included an equitable set-off in the lease. There His Honour had to consider whether to amend an originating motion so as to allow a cross-claim by the tenant to be brought in the same proceeding. His Honour declined to do so on the basis that a clause in the lease requiring rent to be paid without deduction precluded reliance on set-offs.

19 In Novawest Constructions Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 2005 Gillard J once again accepted that the word 'deduction' in a clause excluding deductions was apt to exclude a right of set-off.

20 The question for me then is in these circumstances is there a serious question to be tried? Ashley J (as he then was) in VK & RM Leong Nominees v Batur [2003] VSC 17 faced with the conflict of authority to which I have made reference concluded that the proper approach in hearing an interlocutory injunction application was to conclude that the very existence of the conflict of authority showed that there was a serious question to be tried. It is tempting that if that course is available to me, to follow it; however Mr Cordiner submitted that it was not. Upon consideration I believe he is correct. In considering whether there is a serious question to be tried, I have to consider what matters can seriously be open to argument in a hearing finally to determine this matter in this Tribunal. This Tribunal is bound by decisions of the Supreme Court. A trial judge in the Leong Nominees' case would be a Judge of the Supreme Court and at liberty to follow or not follow a decision of one of his or her brethren depending upon the view which the trial judge took of the correctness of the Simon Fredericks case for instance. This Tribunal however would be as bound or not bound by the Simon Fredericks case for instance at the final hearing as it is today. In Simon Fredericks, Beach J was considering a claim by a mortgagee. He excluded set-offs and he did so for two reasons.

21 The first reason was that the claim which was being sought to be set-off against the mortgagee was in His Honour's view a purely personal claim and not one that ran with the land. His reliance on the covenant to pay rent without deduction was a second ground for his decision. According to orthodox precedent analysis however both reasons are binding as part of the decision's ratio decidendi . The matter was analysed by Viscount Simonds in Jacobs v London County Council [1950] AC 361. His Lordship said that to take any different view would entail the conclusion that any decision of no matter what high authority which is based on two separate grounds would have no precedent value. An attempt to press the one ground or the other could always be met with the contention, 'ah yes, but that case, really went off on the other ground'. The conclusion therefore is that both grounds are part of the ratio.

22 What I have said already indicates that whilst there is substantial authority outside Victoria including in the Courts of Appeal in England and in New Zealand, the Victorian authority is to the opposite effect. If it matters, my respectful opinion is that Beach J is correct. A suggestion that the word 'deduction' is not apt to deal with a concept of equitable set-off is in my view and with due respect to those who have held otherwise, difficult to sustain.

23 The English Court of Appeal in the Connaught Restaurants case rightly observed that words in a contract or a deed must be judged in context. In the context what other purpose would the phrase 'without deduction' have except to exclude equitable set offs. Moreover, judges of eminence such as Young CJ in Equity in writing a note on Batiste v Lenin (2002) 76 ALJ 357 seemed to have had no problem with the thought that the concept of deductions is apt to cover an equitable set-off. His Honour is of course the Chief Judge in Equity in New South Wales and might be expected to know something about the concepts of equity.

24 Moreover, the line of authority exemplified in Connaught Restaurants seems, with due respect, to have a rather uncertain basis. I have quoted the passage from Modern Engineering v Gilbert-Ash and Lord Diplock's speech which is relied upon in Connaught Restaurants and in other cases in the same line of authority. What authors and judges following this decision frequently omit to mention is that His Lordship was not referring there to equitable set-offs at all, rather he was referring to a substantive common law defence available to a proprietor under a building contract or for that matter a purchaser of goods in accordance with the principle of Mondel v Steel. Earlier at page 717 His Lordship describing this defence said:

It is independent of the doctrine of 'equitable set off' developed by the Court of Chancery to afford similar relief in appropriate cases to parties for other types of contracts, of which a masterly account is to be found in the judgement of my noble and learned friend, Lord Morris of Borth-y-Gest (then Morris L.J.) in Hanak v Green [1958] 2 QB 9. That it was no mere procedural rule designed to avoid circuity of action but a substantive defence at common law was the very point decided in Mondel v Steel, [1841] EngR 61; 8 M. & W. 858.

25 Williams J in the Partnership Pacific case does note that His Lordship was speaking of the Mondel v Steel defence and not of equitable set-off but concludes the two are of a piece. If they were of a piece I ask with due respect why was His Lordship at pains to distinguish them in the passage which I have just quoted.

26 Section 52 of the Retail Leases Act referred to in Ms Chan's affidavit is now irrelevant. The Retail Leases Amendment Act 2005 retrospectively amended the Retail Leases Act Section 52 such that the obligation of a lessor under that section is not to maintain premises and services in good repair but rather to maintain them in 'a condition consistent with the condition of the premises when the retail premises lease was entered into'. As I have noted the applicant's case here is that the premises were a wreck from the start, not that they had deteriorated since.

27 Section 57 of the Act deals as it seems to me with situations where the premises are wholly or substantially unusable. The evidence shows that these premises are still occupied and yielding income. It may have been a different thing if the amendment to Section 52 had not been made. It could be contended plausibly I think that an attempt to cut off an equitable set-off based upon a statutory obligation would be to create a situation that was inconsistent with the statutory regime. The attempt to cut-off relies on a set-off based on a statutory entitlement such as Section 52 may well be invalidated by Section 93 of the Retail Leases Act. As it is however the statutory obligation is beside the point in the present state of facts

28 I took Mr Guzzo's reference to exclusion of reliance on equitable set-off as being contrary to common law and equity as being an invocation of the concept of unconscionability. Section 77 of the Retail Leases Act prohibits unconscionable conduct by landlords. There are more general provisions but to similar effect in Section 8A of the Fair Trading Act 1999 which statute would in my view be applicable to this relationship as much as the Retail Leases Act would be. In the latter case Sections 158 and 159 of the Act would give me wide powers to amend, blue pencil and so forth.

29 In Barbcraft v Geobel Pty Ltd [2003] VCAT 1700 I considered the operation of this new and wide concept of an unconscionability. Without repeating all that I have said there, it seemed to me it was impossible to lay down any exhaustive definition and lay down confident outer bound of the concept of unconscionability, at least until there were authoritative statements and body of case law from superior courts such as the Federal Court of Australia and the State Supreme Courts; however none of the matters specifically referred to in either the Retail Leases Act or the Fair Trading Act seems to me to be directly relevant in considering the concept of unconscionability so far as the present circumstances are concerned. These matters listed in the two statutes are merely examples. It is made clear that these are not an exhaustive list of relevant considerations. For the reasons which I gave in Barbcraft I believe that the question of unconscionability or no must be judged at the time that the allegedly unconscionable obligation was entered into and to invoke unconscionability in the present context would in my view entail the contention that the inclusion of the phrase 'without deduction' having the meaning which I believe it does in light of the Victorian authority was in itself unconscionable.

30 What considerations should inform a judgement as to whether that is correct? It is noteworthy I think that the relevant covenant is to be found in a Law Institute standard document. It is reasonable to conclude I think that in publishing standard documents the Law Institute is at least purporting to propound documents that are in a general sense fair and reasonable to the transactions which they purport to govern. Doubtless since it is the task of the landlord or lessor's solicitors to prepare the lease and not the task of the solicitor for the tenant or lessee, a draft lease is apt to see things from the landlord or lessor's point of view, however, I do not regard the form of lease that we are considering here as being an absolutely one sided document, for instance, it includes a covenant to repair on the part of the landlord, something that was included in the previous retail standard form published by the Law Institute and which would be an obligation not generally imposed by the common law upon landlords. I refer to the judgement of Balmford J in Carbure v Brile [2002] VSC 272; (2002) V Conv R 54-663.

31 Secondly the default clause, which is in one respect the centre of the present proceeding, is more tenant friendly than its predecessors. It states that the landlord may move for forfeiture for non-payment of rent not only as traditional leases customarily do when the rent is 14 days or more in arrears but also, and only also, after a notice demanding the rent has been served and not complied with. This represents a significant step away from the older forms of lease and is a tenant friendly provision. It would be a strong thing, I would have thought to say that a clause in a standard published in the circumstances that I have described and having the features which it does is unconscionable. In my view on the basis of what I know, it is not unconscionable and I am not satisfied that there is a serious question to be tried, that the lease is unconscionable.

32 Finally, I should make some more general observations upon the case brought by the applicant. Even if I did not feel constrained to take the view that I have as to the operation of the phrase 'without deduction' there would be significant problems with the case propounded by the applicant. As Mr Cordiner correctly observed there has been no attempt to identify any particular quantum of loss which the applicant tenant it has suffered. The basis of equitable set-off is that ultimately the set-off claim can be liquidated to a sum of money or damages and that such sum of money or damages will over top the claim. If for instance, there were more than 14 days in arrear after having properly valued this claim, even allowing the set-off, then there would cease to be a serious question to be tried even allowing for the set-off. Similarly there are amounts for outgoings as well which would have to be sopped up or topped by the total cross claim.

33 Secondly, the claim made here is a significantly weaker one than the Connaught Restaurants case or in the MEK v Billboard Advertising case. It will be recalled that in both those instances there were floods. In the MEK case it was a flood of sewage. Substantially the entire benefit of the tenant was therefore taken away from the tenant. Here, the evidence is that this tenant has continued to trade. I take leave to disagree with Ms Chan when she swears that her company had no alternative to going on a rent strike. There were alternatives and less dangerous courses, for instance, an immediate approach to this Tribunal. When I put this proposition to Mr Guzzo he said it is a hard thing to sue one's landlord. True it is but it is even more dangerous thing, I think, to go on a prolonged rent strike as this applicant tenant has done.

34 It follows based upon the matters that have been urged upon me to this point that no serious question to be tried is shown and that we do not therefore reach the point of considering where the balance of convenience lies. The balance of convenience in tenancy matters customarily lies in favour of the tenant who would be put out of business and lose all of its expenditure on the business which it bought or built up unless the injunctive relief is granted, however in the absence of a serious question to be tried, these issues do not arise for determination.