Bells Dry Cleaners Pty Ltd v Aapc Properties Pty Ltd [2005] ACTSC 47 (17 June 2005)

Last Updated: 26 July 2005

BELLS DRY CLEANERS PTY LIMITED v AAPC PROPERTIES PTY LIMITED

[2005] ACTSC 47 (17 June 2005)

APPEAL - Magistrates Court - procedural fairness - relief withheld on discretionary basis - unexplained delay - no opportunity to explain delay - reasonable explanation.

LEASES - Commercial and Retail Leases - obligation of valuer to report in accordance with statutory formula.

Leases (Commercial and Retail) Act 2001, ss 53, 58

House v R (1936) 55 CLR 499

ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. SCA 6 of 2005

Judge: Connolly J

Supreme Court of the ACT

Date: 17 June 2005

IN THE SUPREME COURT OF THE )

) No. SCA 6 of 2005

AUSTRALIAN CAPITAL TERRITORY )

ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN: BELLS DRY CLEANERS PTY LIMITED ACN 008 559 751

Appellant

AND: AAPC PROPERTIES PTY LIMITED ACN 065 560 885

Respondent

ORDER

Judge: Connolly J

Date: 17 June 2005

Place: Canberra

THE COURT ORDERS THAT:

1. The appeal be upheld.

2. The valuer Mr Morton be disqualified.

3. The matter be remitted to the Magistrates Court to appoint a new valuer.

4. Costs be reserved.

1. This is an appeal from a decision of a Magistrate exercising jurisdiction pursuant to the Leases (Commercial and Retail) Act 2001 (the Act) in relation to a dispute concerning the appropriate rent to be charged for a commercial retail property in Civic. The application before the learned Magistrate was to disqualify a valuer and to appoint a new valuer to determine the appropriate market rent on the basis that the valuer who had been appointed to undertake that task had produced a report that did not meet the requirements of the Act. The learned Magistrate held that the report was defective, but declined to exercise his discretion to appoint a new valuer, on the grounds that there was an eight month delay, which he described as unexplained, between the receipt by the appellant of the report and their application to have a new valuer appointed.

2. The appellant in this Court complains that it was not given notice in the proceedings below that this would be taken into account in the exercise of the discretion, and that it would have been able to explain the delay had the issue been raised, having successfully persuaded the Court that the original valuation report was flawed.

3. Relations between retail and commercial landlords and tenants in the Australian Capital Territory have for some years been subject to a legislative scheme designed to promote fair and efficient resolution of such disputes. A specialist tribunal had formerly been established within the Magistrates Court to deal with such matters, but since 1 July 2002 the jurisdiction has been exercised by the Court itself.

4. The appellant tenant is the lessee of premises in the Jolimont Centre in Civic. The respondent is the lessor. The learned Magistrate found that the lease was for a term of 10 years, commencing 17 July 1995, and subject to a review to market rent in July 2001. It is that review to market rent that is the subject of this dispute. As his Honour observed -

since 2001 there have been ongoing disputes between the parties concerning the appointment of a valuer to undertake the valuation and, now, the validity of the valuation.

5. The Act provides that if a relevant lease provides for a market rent review, and the parties fail to agree on a rate of rent, the Magistrates Court may, pursuant to s 53 of the Act, appoint a valuer to "work out market rent". The Act provides that a valuer so appointed must report to the Court within 28 days. The learned Magistrate in his reasons made the observation that this deadline "will, in many cases, be entirely unrealistic". In the present case a valuer, Mr John Morton, accepted appointment on 28 January 2003. He did not, however, proceed to commence his valuation for some months, for entirely proper reasons, firstly because the present appellant advised him that the parties were in negotiations to resolve the matter, and then due to a delay, again by the present appellant, in paying to the Magistrates Court the appropriate fee for the valuation. This latter point was not resolved until the Magistrates Court wrote to Mr Morton on 8 June 2003 advising him that the fees had been paid, and that he should commence his report. His report, comprising some 12 pages, was received by the Court on 22 September 2003, and the parties were provided with copies the next day. Section 53(3) of the Act provides that -

the market rent worked out by the valuer is the rent under the lease if the parties fail to agree on a different rent to be charged within 14 days after being given a copy of the valuers report.

6. Section 58 of the Act provides that a party may apply to the Magistrates Court for the appointment of a new valuer "if the party has reasonable grounds for believing that; (b) the valuer has failed to conduct a valuation in accordance with this Act." The section further provides a broad discretion in relation to relief, stating at s 58(2): -

On application under subs (1) the Magistrates Court may disqualify the valuer and appoint a new valuer.

7. Schedule 1 to the Act, entitled "Working out market rent" sets out a range of matters to be taken into account by a valuer, and provides at cl 9 that -

The valuation must give detailed reasons for the valuation and must include particulars of the matters that the valuer took into consideration in working out the valuation.

8. The appellant, by their solicitors, wrote to the Magistrates Court on 30 September 2003 objecting that the valuation did not comply with certain provisions of the former Commercial and Retail Code of Practice, in particular objecting that the valuation did not provide adequate details of comparable market rents, and seeking the appointment of a new valuer. The Court replied to the appellant on 2 October 2003, advising that to have a new valuer appointed a formal application to the Court was required. The application, the subject of this appeal, was lodged on 15 June 2004, some eight months later.

9. The basis of the appellant's complaint about the report was that the valuer did not give particulars of the properties and rental rates said to constitute prevailing market rentals for comparable purposes. The valuer in his report said -

The comparable market evidence has been collected from within the Jolimont Centre and the western side of Civic. Both landlord and tenant have submitted rental evidence through their respective agents. When combined these rentals are seen to be beneficial but notably insufficient for rental determination purposes. Therefore, the Writer has independently collected additional comparables that combine to offer a more comprehensive understanding of the local retail market leading up to 17 July 2001. The landlord has made available all of the ground floor leases and confirmation has been sourced from a couple of the tenants. Lease details from outside the Jolimont Centre have been sourced from tenants and managing agents. All the lease details have been collected under confidence and accordingly it is not the Writers prerogative to disclose those details here.

10. The appellant argued that this absence of detail was contrary to the requirement in cl 9 of the schedule to set out particulars of comparable rents.

11. The Magistrate found that the report was flawed, stating, in passages that were not challenged in these proceedings, that:

I am satisfied that the lessee's complaints about the report are well founded. The provisions of clause 9 to Schedule 1 to the Act were enacted for a purpose, that being to ensure fairness and transparency in the valuation process.

Mr Arthur, on behalf of the lessee, referred me to the decision of Gray J in Liangis Investments Pty Ltd v National Australia Bank Ltd [2002] ACTSC 17, an appeal from the then Tenancy Tribunal, in which his Honour quoted with approval the following passage by Bryson J from Orti-Tulbo &Anr v Sadek & Anr [2001] NSWSC 855 as to why the valuation in that case was not a "speaking valuation".

The determination does not expose on its face the underlying facts such as comparable agreements for leases or other material on which the valuer relied, and does not state any analysis or reasoning showing how the rental as determined was derived.

It would be wrong to say that Mr Morton's report is entirely devoid of exposition of underlying facts and analysis. However, I have reached the conclusion that in failing to identify the premises used as comparable premises in his report, failing to provide particulars of the evidence he collected concerning those premises and failing to articulate the reasoning process by which he reached his conclusion as to market rent, Mr Morton has not complied with the obligation cast upon him by cl 9 of Schedule 1 to the Act. I have some sympathy for the position Mr Morton found himself in. Much of the material he collected was provided to him in confidence. However, Mr Morton's obligation to seek that confidence is no answer to a complaint that the valuation process is not demonstrably transparent. Means may be available to maintain confidentiality of the material whilst at the same time fulfilling the requirement of the Act. For example, a confidential addendum report could be prepared and only released to the parties upon their giving an undertaking to the Court to maintain the confidentiality of the material. Any refusal to provide such an undertaking would be a circumstance relevant to the exercise of the Court's discretion under s 58 to appoint a new valuer should the withholding of the confidential material result in the remaining part of the report not complying with the requirements of the Act.

12. I would with respect endorse fully the learned Magistrates remarks and make the observation that his suggestion would provide an appropriate guide to assist future valuers to comply with the requirement of the Act, and to enable valuations to be transparent while maintaining appropriate commercial confidentiality.

13. The learned Magistrate, having concluded that the valuer had failed to conduct a valuation in accordance with the provisions of the Act, observed that the Act does not require the court to disqualify a valuer if such an error is established, but that it vests in the Court a broad discretion not to disqualify a valuer even where the provisions of s 58 apply. This is undoubtedly correct as a proposition of law.

14. The learned Magistrate concluded that -

There is one circumstance which I am satisfied is relevant to the proper exercise of the discretion under s 58 of the Act, and that is the lessee's delay in challenging the valuation of Mr Morton.

15. His Honour notes that the appellant raised the issue with the Court by letter of 30 September 2003, but then states -

There is no evidence of any further action on the part of the lessee until it filed the present application on 15 June 2004. The delay of more than 8 months from the lessee's receipt of the Morton report to the date of commencing these proceedings is unexplained. (AB 17)

16. The appellant's argument is that the learned Magistrate by failing to foreshadow that he might consider such matters as relevant failed to afford procedural fairness to the appellant, by failing to provide an opportunity to explain the delay in lodging the formal application. There was in fact an affidavit prepared for the proceedings below which went into this issue, but it was never read.

17. The affidavit of the director of the appellant company, Mr Moufarrige, was attached to the application of 15 June 2004, and annexed to it were a report by another valuer, and two letters from that valuer. The purpose of obtaining another valuer's report was, it seems, to seek to persuade the Court that the appellant would suffer a disadvantage if the Morters report was allowed to stand and determine the rent. Mr Lunney, for the respondent below, objected that further valuers reports going to what was said to be the appropriate market rent, were not relevant to the question before the Court, namely did the Morters report comply with the requirements of the Act. The learned Magistrate, correctly it seems to me, ruled that the material was not relevant , saying (AB 58) -

It seems to me that it will be irrelevant to that because if a significant breach of the obligation of Mr Morton to conduct the valuation in accordance with the provisions of the Act is demonstrated, then there would be no need for you to demonstrate that a different result may attend a new valuation.

18. This ruling has the additional advantage that it reduces the need for additional expert material on a proceeding pursuant to s 58 of the Act.

19. That ruling having been made, Mr Arthur said that there was no need to proceed with the affidavit. He was not put on notice at any stage in the hearings below that the delay in lodging the application would be a factor relevant to the exercise of the discretion. If he had been, he would have no doubt sought to press, not the reports of the other valuer, but the material in Mr Moufarrige's affidavit that showed that, after initially raising the issue in his letter of 30 September, he engaged Mr Davies to advise him in relation to the valuation, and that Mr Davies encountered a number of delays in obtaining information to enable him to prepare his report. He would also have sought to press the passage in the affidavit in which Mr Moufarrige refers to back surgery in Sydney in August and November 2003, and his assertion that "Each of those events and the recovery from them caused delays in attending to business affairs."

20. Had this material been before the Court, the learned Magistrate would not have asserted that -

There is no evidence of any further action on the part of the lessee until it filed the present application on 15 June 2004."(AB 16)

21. In fact, the lessee was seeking to obtain additional valuation evidence to support its challenge. This evidence, it is true, was in the end regarded, properly it seems to me, as irrelevant, but it can not be said that the appellant was acting imprudently in seeking to bolster a case by obtaining such evidence, and it cannot be said that the appellant was sitting on its hands and creating what was described at a number of points in his Honours reasons as an "unexplained delay".

22. It seems to me that the exercise of the discretion has miscarried, in that, although the appellant satisfied the learned Magistrate that the valuers report was flawed, the Magistrate determined to exercise his discretion to not set it aside and order a new valuation on the basis, never put to the appellant, that the appellant was responsible for undue and unexplained delay. In fact, the appellant had material to explain the delay, but this was not pressed when the learned Magistrate ruled that the additional valuers report was not relevant to the question of whether Mr Mortorn had erred.

23. The principle governing the approach an appellate court should take in determining the exercise of a discretion in a judicial officer under appeal is well settled, and the guiding principle is that stated by the High Court in House v R (1936) 55 CLR 499 at 504-5 where it is said -

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for it if it has the materials for doing so.

24. It seems to me that, by basing his decision solely on the question of delay, and by failing to indicate this in order to permit the appellant to point to material that it had prepared for the hearing, the learned Magistrate fell into error. An unexplained delay may well have justified the exercise of the discretion, but the appellant had an explanation that could have been put before the court. On this appeal, and being appraised of that material, it seems to me that there has been a reasonable explanation for the delay, that is to say the combination of the obtaining of a report thought to be relevant to the proceedings, and the illness of the principal of the appellant. No prejudice has been pointed to, and the scheme of the Act is that, if the application was successful, a new valuer would be appointed, and that valuer would in due course provide a report that will establish market rent, to be adjusted from 17 July 2001.

25. It seems to me that the appellant must succeed, and that I should exercise my discretion to disqualify the valuer. I remit the matter to the Magistrates Court to appoint a new valuer pursuant to the Act.

26. In relation to costs, I am minded to reserve the costs of this appeal, to in effect await the outcome of the substantive matter. Mr Morton determined a value of market rent per square meter. Should, at the end of the day, the new valuer determine a similar, or indeed a higher rate, there would be a real question about the efficacy of this appeal. Moreover, there will be a question about the costs of Mr Morton's valuation pursuant to s 60 of the Act. I uphold the appeal, disqualify the valuer, remit the matter to the Magistrates Court to appoint a new valuer, and reserve the question of costs.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 17 June 2005

Counsel for the Appellant: Mr R Arthur

Solicitor for the Appellant: Worth & Co

Counsel for the Respondent: Mr G Lunney

Solicitor for the Respondent: Elrington Boardman Allport

Date of hearing: 10 June 2005

Date of judgment: 17 June 2005