Actionco Pty Ltd v Pioneer Plasterboard Pty Ltd [2002] ACTSC 92 (13 September 2002)

Last Updated: 16 September 2002

ACTIONCO PTY LIMITED (ACN 071 604 969) v PIONEER PLASTERBOARD PTY LIMITED (ACN 003 621 010) [2002] ACTSC 92 (13 September 2002)

CATCHWORDS

REAL PROPERTY - lease of commercial premises - whether premises predominantly used for carrying on a business involving retail sales - whether the Commercial and Retail Leases Code of Practice applies - whether grounds for rectification - whether tenant estopped from reliance upon clauses purporting to incorporate the provisions of the Commercial and Retail Leases Code of Practice - whether clause providing for rent to be determined upon review a multiple rent review clause within the meaning of the Commercial and Retail Leases Code of Practice.

Commercial and Retail Leases Code of Practice

Tenancy Tribunal Act 1994, ss 3, 5, 75

Building Act 1972, s 53

222 Pty Ltd v St George Bank Ltd (unreported, ACT Tenancy Tribunal, President Somes, 20 September 1995)

Turpin v Assessment Committee for Middlesbrough Assessment Area [1933] UKHL 1; [1931] AC 470

536 Swanston Street Pty Ltd v Harbrut Pty Ltd (1988) Vic Conv Rep 54-323

Collector of Customs v Chemark Services Pty Ltd [1993] FCA 291; (1993) 114 ALR 531

Sorbara & Ors v DJ and AJ McCallum Pty Ltd [1998] VSCA 71; (1999) 2 VR 1

Grey v Pearson (1857) 6 HLC 61 at 106; 10 ER 1216 at 1234

Australian Boot Trade Employees Federation v Whybrow & Co [1910] HCA 53; (1910) 11 CLR 311

Bacchus Marsh Concentrated Milk Co Ltd (in Liquidation) v Joseph Nathan & Co [1919] HCA 18; (1919) 26 CLR 410

Redfern, M, "The Retail Tenancies Act - An Update", Law Institute Journal, October 1990, 943

No. SC 647 of 1999

Judge: Crispin J

Supreme Court of the ACT

Date: 13 September 2002

IN THE SUPREME COURT OF THE )

) No. SC 647 of 1999

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ACTIONCO PTY LIMITED

ACN 071 604 969

Plaintiff

AND: PIONEER PLASTERBOARD PTY LIMITED

ACN 003 621 010

Defendant

ORDER

Judge: Crispin J

Date: 13 September 2002

Place: Canberra

THE COURT ORDERS THAT:

1. the plaintiff's claim be dismissed;

2. it be declared that the lease between the parties of the land described at Section 13, Block 4, Plan 40, Vol 56, Folio 5503, Fyshwick ACT for a period of 10 years from 1 April 1996 is a lease to which the Tenancy Tribunal Act 1994 applies;

3. it be declared that item 8 of Annexure A and covenant 10.2 of Annexure B of the lease constitute multiple rent review clauses within the meaning of the Commercial and Retail Leases Code of Practice made under s 75 of the Tenancy Tribunal Act 1994 and are accordingly void; and

4. the parties have liberty to bring into Court short minutes of any further orders that may be required including orders as to costs or, in default of agreement, to apply for further further orders on seven days notice.

1. This is an action for rectification of a lease, declaratory relief as to its terms and/or damages for failure to pay rent as required by its covenants.

2. The lease provided for the defendant to lease land described as Section 13, Block 4, Plan 40, Volume 56, Folio 5503, Fyshwick, ACT ("the land") from the plaintiff for a term of 10 years from 1 April 1996.

3. It was a term of the lease that the defendant would use the land only for the purpose set out in item 11 of the Schedule comprising Annexure A. That contained the description "Permitted use: In accordance with the purposes clause in the Crown Lease*". However, a further description was added by a marginal note in the following terms:

*And in particular while the tenant or any Franchisee or Sub-Lessee of the Tenant is in occupation, for use as a Pioneer Plastamasta Centre including using parts of the premises as an office showroom and warehouse for the sale of plasterboard and other associated products.

4. The relevant clause in the Crown Lease ("the purpose clause") provided that the land should be used "only for the purpose of an industry or industries (other than a noxious trade) and for any purpose subsidiary to such industry or industries provided that not more than any one residence shall be enacted on the lands".

5. It was not disputed that the demised property was used for the conduct of a business consistent with that described in the marginal note quoted. Nor was it disputed that the sale of plasterboard and associated products could properly be regarded as subsidiary to an industry as required by the purpose clause.

6. The real issue between the parties was whether the lease was subject to the Commercial and Retail Leases Code of Practice ("the Code") approved under s 75 of the Tenancy Tribunal Act 1994 and whether, as a consequence, the provisions relating to reviews of rent were ineffective.

7. Covenant 10 of Annexure B of the lease was in the following terms:

Rent Review Dates

10.1 The rent is to be reviewed during the initial period of this lease on the dates set out in Item 8 of the Schedule and during any further lease period on the dates set out in Item 10 of the Schedule.

Rent Review Method

10.2 The method for fixing the new rent on a rent review date during the initial period of this lease is stated in Item 8 of the Schedule and during any further lease period of the dates stated in Item 10 of the Schedule.

Fixed amount or percentage Rent Review

10.3 If this method of rent review is stated in Items 8 or 10 of the Schedule, the rent from the rent review date will be the fixed amount or will be increased by the percentage.

Consumer Price Index ("CPI") Rent Review

10.4 If CPI adjustment dates are stated in Items 8 or 10 of the Schedule, then the rent from and including each of the rent review dates is the rent payable immediately before the date multiplied by the Consumer Price Index (Canberra All Groups) number for the last quarter before that date divided by that index number for the same quarter ending 12 months before that date.

Market Rent Review

10.5 If market review dates are set out in Items 8 or 10 of the Schedule either you or we, not more than 4 months before the rent review date, may give the other a notice stating the amount which is the current market rent for the property. If agreement is reached, that amount will be the new rent from the rent review date.

10.6 If agreement is not reached within 28 days after the notice is given, then either we or you may refer the matter to the Registrar of the Tenancy Tribunal for mediation.

10.7 If mediation does not achieve agreement, then the market rent is to be determined by a valuer agreed upon by us and you in accordance with the principles contained in Schedule 3 of the Code, or, failing agreement, appointed by the Registrar of the Tenancy Tribunal in consultation with the President of the ACT Division of the Australian Institute of Valuers and Land Economists.

10.8 Whatever amount the valuer decides on is the rent from and including the relevant market review date.

10.9 Until the new rent is determined, you must continue to pay to us the amount of rent payable immediately before the rent review date.

10.10 On the next rent day after the new rent is determined, you must pay us, or we must credit you with, the difference between what you have paid as rent and what you should have paid as rent from and including the rent review date.

8. Item 8 of Annexure A of the lease stated that:

Rent review dates and Method of rent review:

Rent review date: Method of rent review:

1 April 1999 Market or 2%, whichever is the greater and thereafter every three years.

9. Item 10 of Annexure A stated that:

Rent review dates and Method of Review of new lease/s:

Rent review date: Method of rent review:

Every three years Market or 2%, whichever is the greater

10. Mr Thomas, who appeared for the plaintiff, conceded that there might be some measure of inconsistency in these provisions but maintained that, no matter what their overall effect, the provisions nonetheless governed the rights and obligations of the parties in relation to any variation of the rent payable under the lease. On the other hand, Mr Erskine, who appeared for the defendant, submitted that the code applied.

11. As Mr Erskine pointed out, s 75 of the Tenancy Tribunal Act provides that the Code applies to the lease of "retail premises".

12. The term "retail premises" is defined both by s 3 of that Act and by cl 2 of the Code to mean:

[P]remises that are used, or are intended to be used, wholly or predominantly for carrying on a business involving -

(a) the sale or hire of goods by retail; or

(b) the provision of services by retail.

13. It was common ground that the business carried on from the premises consisted mostly of the sale of plasterboard and related products to tradespeople, and that sales to other "non-tradespeople" amounted to only 2%-10% of the total value of sales. It was also common ground that this volume of sales to people other than tradespeople could neither be described as predominant nor dismissed as de minimis.

14. Mr Thomas argued that the definition in s 3 of the Tenancy Tribunal Act should be construed so that the term "retail premises" applied only to premises used by businesses trading in such a manner that the predominant value of sales were retail sales. He also argued that sales to tradespeople could not be so described.

15. In support of these contentions Mr Thomas relied upon a number of authorities including 222 Pty Ltd v St George Bank Ltd (unreported, ACT Tenancy Tribunal, President Somes, 20 September 1995). In that case, however, the Tribunal cited the decision of the House of Lords in Turpin v Assessment Committee for Middlesbrough Assessment Area [1933] UKHL 1; [1931] AC 470 and adopted the formulation suggested by Viscount Dunedin at 144 that retail premises were premises "to which the public can resort for the purposes of having particular wants supplied and services rendered therein". This formulation was also adopted by Kaye J in 536 Swanston Street Pty Ltd v Harbrut Pty Ltd (1988) Vic Conv Rep 54-323. See also Redfern, M, "The Retail Tenancies Act - An Update", Law Institute Journal, October 1990, 943. The Tribunal also referred to the decision of the Full Court of the Federal Court of Australia in Collector of Customs v Chemark Services Pty Ltd [1993] FCA 291; (1993) 114 ALR 531 in which Spender, Einfield and Lee JJ stated that:

The weight of authorities seems to us to support a conclusion that the words "retail sale" have generally acquired a specialised meaning of a sale to an ultimate consumer. We do not think that the usage of the term limits such consumers to ordinary members of the public. The fact that in the present case almost all of the goods imported by the respondent were directly sold to professional horticulturalists and not ordinary gardeners as ultimate consumers is in our opinion irrelevant.

Professionals can still be described as ultimate consumers . . . Likewise, although more often than not a retail sale will be both a sale to the ultimate consumer and a sale of goods in a quantity not larger than necessary to satisfy the ordinary non-professional purchaser, some sales in larger quantities will also be retail.

16. More support for the first of Mr Thomas' contention can be found in the judgment of Phillips JA in Sorbara & Ors v DJ and AJ McCallum Pty Ltd [1998] VSCA 71; (1999) 2 VR 1 at 6 where, in the context of a definition of "retail premises" which was substantially identical to that contained in s 3 of the Tenancy Tribunal Act, his Honour said that "the test remains whether, `under the terms of the lease', the premises `are used, or are to be used, wholly or predominantly for the carrying on of' a retail business". After some discussion about the possibility of mixed use or discrete use in some physically separate portion of the premises, his Honour continued "it is the whole of the premises which are demised and which ex hypothesi . . . are used, or to be used, `wholly or predominantly for the carrying on of' a retail business". However, the issues raised in that case do not appear to have required the resolution of any question as to whether the concept of "a business involving the sale or hire of goods by retail or the retail provision of services" could be regarded as being co-extensive with the concept of a "retail business" and even if his Honour's remarks should be taken to reflect such an opinion they were obiter.

17. In any event, I am unable to accept that the phrases can be conflated in the manner Mr Thomas suggested. As the Full Court of the Federal Court of Australia confirmed in Collector of Customs v Chemark Services Pty Ltd, words in a statute should be given their ordinary and natural meaning unless that meaning leads to an absurdity or some repugnance or inconsistency with the rest of the Act. That principle has long been recognised. See also Grey v Pearson (1857) 6 HLC 61 at 106; 10 ER 1216 at 1234 per Lord Wensleydale and Australian Boot Trade Employees Federation v Whybrow & Co [1910] HCA 53; (1910) 11 CLR 311 at 341-2 per Higgins J. Despite Mr Thomas' argument that the Code was obviously directed only to businesses with a predominantly retail trade, I am unable to accept that the definition contained in the Tenancy Tribunal Act and the Code should be so interpreted. As Mr Erskine pointed out, the adverb "predominantly" relates to the use of the premises and the word "involving" is not similarly qualified. Hence, while the premises must be used predominantly for carrying on a business and the business must involve the sale or hire or goods by retail or the provision of services by retail, it is unnecessary for the business to be predominantly retail in nature. Furthermore, to return to the formulation adopted by the House of Lords in Turpin v Assessment Committee for Middlesborough Assessment Area, even if the bulk of the trade consisted of sales to plasterers, the premises were clearly "premises to which the public could resort for the purposes of having particular wants supplied and services rendered therein".

18. Mr Erskine also argued that sales to tradespeople might well fall within the concept of retail sales. He submitted that the fact that goods were sold to professional plasterers was of no more significance than the fact that the imported goods with which the Full Court of the Federal Court of Australia had been concerned in Collector of Customs v Chemark Services Pty Ltd had been sold to professional horticulturalists. Mr Thomas demurred, arguing that the principle recognised in that case was inapplicable because plasterers usually buy plasterboard products for subsequent resale to their customers. However, I do not think that I can safely act upon such an assumption. The question of whether a tradesperson is an ultimate consumer of particular goods may depend upon the nature of the article, the purpose for which it is acquired and, perhaps, the nature of the transaction with the customer. There is insufficient evidence to enable me to adequately explore any of these issues and I do not accept that the relevant trade custom and practice is so generally known that it may be the subject of judicial notice. In any event, since I have concluded that the definition contained in s 3 of the Tenancy Tribunal Act and cl 2 of the Code do not require that the sales of the business be predominantly retail, it is unnecessary for me to resolve this issue.

19. Since it is common ground that the retail sales made from demised premises even to non-tradespeople could not be dismissed as de minimus, it is in my opinion inescapable that the premises were used, and were intended to be used, wholly or predominantly for carrying on a business involving the sale of goods by retail. Accordingly, the Code applies to the lease.

20. Mr Erskine also submitted that even if the lease had not fallen within these definitions, the Code would nonetheless have applied because it had been expressly adopted by the lease itself. Covenant 1.2 of Annexure B to the lease provided that "this lease is subject to the Commercial and Retail Leases Code of Practice approved under s 5 of the Tenancy Tribunal Act 1994 ("the Code")". Furthermore, covenant 28 begins with the heading, in capital letters and bold type, "Compliance with Commercial and Retail Leases Code of Practice" and provides a number of acknowledgements from the defendants as to matters relevant to the application of the Code. In view of these provisions I would have had little doubt that the provisions of the Code had been effectively incorporated into the lease. However, as I have mentioned, I am satisfied that the Code applies to the lease by operation of law and it is unnecessary for me to consider Mr Thomas' contentions that different consequences might have ensued had the Code been applicable to the lease only by incorporation in that manner.

21. Mr Thomas did not pursue the claim for rectification and in my opinion there was no evidence to support such a claim. Mr Hales, a director of the plaintiff company, gave evidence to the effect that he had understood that the terms of the lease ensured that the rent could not be reduced and that he would never have agreed to a provision permitting such a reduction. However, the lease had been drafted by the plaintiff's solicitors and the references to the Code had been included in the first draft. Mr Hales had suggested various changes but those references had been maintained throughout a lengthy course of negotiation. His evidence revealed, at most, that he may have failed to appreciate that the terms of the lease might not have precluded a reduction in rent in the event of a fall in prevailing market rents. As Higgins J said in Bacchus Marsh Concentrated Milk Co Ltd (in Liquidation) v Joseph Nathan & Co [1919] HCA 18; (1919) 26 CLR 410 at 451:

If some words have been put into the instrument which were not meant to be put in, or if some words have been left out of the instrument which were meant to be there, equity relieves; but according to the cases, it does not relieve where the mistake is as to the legal effect of certain words that the instrument contains.

22. Mr Thomas was also unable to pursue any claim based upon estoppel. There was no evidence to suggest that the defendant had taken advantage of the fact that the plaintiff had been acting under some mistaken view as to the effect of the contract or even that it had been aware of any such mistake.

23. In any event, the application of the Code is dependent upon the use or intended use of the premises and not upon the terms of the lease. Indeed, cl 11 of the Code provides that "except as otherwise provided in the Code, where there is an inconsistency between a provision of [the] Code and a provision of a lease or an agreement to a lease, the Code shall prevail". Clause 12 adds that "[n]otwithstanding that a lease may not include provisions required by the Code to be included in the lease, the lease shall be read as though those provisions were included in the lease". In these circumstances it is difficult to see how any rectification of the lease could have avoided the operation of the Code or how such a consequence could have been avoided by any application of the principles of estoppel.

24. I should, perhaps, mention that the Further Amended Defence and Counter Claim includes an allegation that the lease is void or, alternatively, unenforceable because at the commencement of the term a Certificate under s 53 of the Building Act 1972 was not in force in relation to the buildings on the premises and the lease, or alternatively, the occupation of the premises in accordance with the lease, was prohibited by s 54 of that Act. Perhaps understandably, Mr Erskine did not press this claim. The lease granted the defendant exclusive possession of the whole of the demised property. It did not purport to authorise or permit occupancy of the building or part of the building in the absence of a Certificate of Occupancy. Indeed, covenant 12.2 provided that the defendant "must prior to occupying the property, obtain from the proper authority a certificate of fitness for occupancy and use with respect to [the defendant's] fitout of the property and deliver this certificate to [the plaintiff]". Section 54 does not preclude leases of property prior to the issue of occupancy certificates for any buildings. In fact, virtually all houses in Canberra have been constructed on vacant land leased from the Crown and it would have been surprising if, in the face of that widespread practice, the legislature had intended to preclude the grant of any lease until buildings had been completed and occupancy certificates issued.

25. Mr Erskine did, however, seek declaratory relief in relation to the provisions of item 8 of Annexure A and covenant 10.2 of Annexure B of the lease. He relied upon cl 44 of the Code which provides that "[a] provision of a lease relating to a rent review which is a multiple rent review clause or a ratchet clause is void". The term "multiple rent review clause" is defined by cl 2 of the Code to mean a provision in a lease that:

(a) has the effect of reserving to a party a discretion as to which of 2 or more methods of calculating a change to rent is to apply; or

(b) provides for rent to change in accordance with whichever of 2 or more methods of calculating the change would result in the higher or highest rent;

whether generally, or on a particular occasion.

26. In my opinion the provisions contained in item 8 of Annexure A and covenant 10.2 of Annexure B clearly purport to have the effect referred to in paragraph (b) of this definition. Hence, they do constitute multiple review clauses and are accordingly void.

27. For these reasons the plaintiff's claim must be dismissed and the defendant is entitled to the relief sought in the counter-claim.

28. I will hear counsel as to costs.

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Associate:

Date: 13 September 2002

Counsel for the plaintiff: R Thomas with T Warwick

Solicitor for the plaintiff: D Lardner

Counsel for the defendant: C Erskine

Solicitor for the defendant: Meyer Clapham

Date of hearing: 15-17 April; 12-15 August 2002

Date of judgment: 13 September 2002