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Supreme Court of the ACT |
Last Updated: 30 September 2008
KINGSLEY’S CHICKEN PTY LIMITED v QUEENSLAND
INVESTMENT CORPORATION and CANBERRA CENTRE INVESTMENTS PTY
LIMITED
[2007] ACTSC 77 (26 September 2007)
LESSOR AND TENANT – Retail and commercial leases – lease renewed “subject to market rent” – tenant exercised statutory right to challenge valuer – market rent not determined before nominal expiry of prior lease – consequence of Leases (Commercial and Retail) Act 2001 (ACT) on commencement date of renewal – commencement date not necessarily the nominal expiry date of prior lease
TRADE PRACTICES – whether the assertion, reservation or exercise of legal rights can be “misleading or deceptive conduct”
Leases (Commercial and Retail) Act 2001 (ACT), ss 6, 22, 28, 31, 36,
37, 51, 52, 53, 55, 56, 57, 58, 106, 107, 108, 109, 122, Pt 6, Div 12.5
Tenancy Tribunal Act 1994 (ACT),
Commercial and Retail Leases
Code of Practice
Trade Practices Act 1974 (Cth)
Limitation Act 1985 (ACT)
Kingsley’s Chicken Pty Limited v Queensland Investment Corporation
and Anor [2006] ACTCA 9
Kingsley’s Chicken Pty Limited v
Queensland Investment Corporation and Anor [2005] ACTSC 117 (25 November
2005)
Bradshaw v Pawley [1980] 1 WLR 10
Coal Cliff Collieries
Pty Ltd v Sijehama (1991) 24 NSWLR 1
Renard Constructions (ME) Pty Ltd
v Minister for Public Works (1992) 26 NSWLR 234, 268
Hughes Aircraft
Systems International v Airservices Australia (1997) 76 FCR
151
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Anderson v Bowles
[1951] HCA 61; (1951) 84 CLR 310
ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. SCA 12 of 2007
Judge: Higgins CJ
Supreme Court of the ACT
Date: 26 September 2007
IN THE SUPREME COURT OF THE )
) No. SCA 12 of
2007
AUSTRALIAN CAPITAL TERRITORY )
ON APPEAL FROM THE MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN: KINGSLEY’S CHICKEN PTY LIMITED ACN 008 597 877
Appellant
AND: QUEENSLAND INVESTMENT CORPORATION and CANBERRA CENTRE INVESTMENTS PTY LIMITED ACN 067 682 893
Respondents
ORDER
Judge: Higgins CJ
Date: 26 September 2007
Place: Canberra
THE COURT ORDERS THAT:
1. The appeal be upheld.
2. The judgment and order on the cross-claim be
set aside.
3. The application of the lessee to replace the valuer be
remitted to the learned Magistrate to be heard and determined according
to
law.
1. The appellant (Kingsley’s) has appealed from a decision of a
magistrate, dismissing an application by Kingsley’s to
disqualify a valuer
purportedly appointed pursuant to s 52 Leases (Commercial and Retail) Act 2001
(ACT) (the Act).
2. Kingsley’s had, for a number of years, leased
premises in the Canberra Centre (the Centre), a large retail shopping mall
in
Canberra City. The respondents, owners of the Centre, are the lessors of Shop
CL15B, of which Kingsley’s is the lessee.
3. Kingsley’s had, on
13 October 1998, entered into a lease of those premises, for a period of five
years, expiring 12 October
2003.
4. Towards the end of the lease, the
parties commenced negotiations concerning the renewal of that lease.
5. In
2001, the Act came into force. It commenced 1 July 2002. It replaced both the
Tenancy Tribunal Act 1994 (ACT) and the Commercial and
Retail Leases Code of
Practice.
6. In the context of providing for tenants’ expectations of
security of tenure, the Act makes provision for new leases of premises
to the
previous lessee for the same or similar uses. It is, of course, a new lease,
applicable to a situation where there is no
option contained in the existing
lease which might otherwise bind a lessor to renew the lease or to be bound by
any particular terms
upon which that might be done.
7. The Act defines such a
lease at s 6(1) of the Act:
(1) A new lease is taken to be a renewal of another lease (the existing lease) for this Act if the new lease is between the same parties as the existing lease and relates to the same premises and the premises are to be put to the same or similar use.
8. The objectives of the Act, in respect of renewals are set out in s 106 of the Act:
(1) The Legislative Assembly recognises that conflicts sometimes happen between a lessor’s expectation that the lessor will be able to deal with the leased premises subject only to the terms of the lease and a tenant’s expectations of reasonable security of tenure.
(2) The objects of this division are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure fair dealing, as far as practicable, between lessor and tenant in relation to the renewal or extension of premises.
9. The further provisions of the Act must be interpreted with those objectives
in mind.
10. It is relevant to go first to s 107 of the Act:
(1) This section applies to all leases.
(2) The tenant may, in writing, ask the lessor to tell the tenant whether the lessor intends to renew the lease if—
(a) for a lease for longer than 1 year—the lease is due to end in not less than 6 months and not longer than 1 year; or
(b) in any other case—the lease is due to end in not less than 3 months and not longer than 6 months.
(3) If the lessor receives a request under subsection (2) on a day (the request day), the lessor must tell the tenant, in writing within 1 month after the request day, either that—
(a) the lessor proposes to renew the lease; or
(b) the lessor does not propose to renew the lease.
(4) If the lessor fails to notify the tenant under subsection (3), the lease is extended by a period equal to the period starting 1 month after the request day and ending when the lessor gives the tenant a notice that, apart from being late, complies with subsection (3).
11. That section clearly does not oblige a tenant to accept any particular form
of new lease save that if the lessor proposes to
renew the lease, the proposed
lease must be a lease that relates not only to the same premises but also
requires the premises to
be for the same or similar uses as the existing lease.
It provides a framework for negotiations which might lead to a new lease
and
“freezes” the existing lease until the landlord commences the
engagement process. There are then consequential obligations
until the
negotiation process is completed.
12. As noted in the decision of the Court
of Appeal in this matter, handed down 2 June 2006, Kingsley’s engaged the
process
contemplated by s 107 of the Act by, on 9 December 2002,
conformably with s 107(2)(a) of the Act, requesting the respondents
through
their retail manager to state their intention concerning
“renewal”.
13. On 20 December 2002, the respondents replied
indicating an intention, in conformity with s 107(3) of the Act, to propose
terms
for a new lease.
14. As the Court of Appeal stated (Kingsley’s
Chicken Pty Limited v Queensland Investment Corporation and Anor [2006] ACTCA 9,
[9]):
The purpose of s 107, it seems to us, is to provide a mechanism whereby a tenant may establish, well within the period of the lease, whether the lessor proposes to renew the lease and to allow the tenant time within which to make commercial arrangements accordingly, either with a view to proceeding into negotiations for a renewed lease or to find alternative premises from which to conduct its business.
15. That decision involved both an appeal from a decision of Gray J
(Kingsley’s Chicken Pty Limited v Queensland Investment
Corporation and
Anor [2005] ACTSC 117 (25 November 2005)) and a case stated by Crispin J in
relation to the legal consequences of the ensuing negotiations.
16. The
correspondence between the parties had resulted in the respondents proposing
detailed terms for a new lease whilst claiming
not to be in any way bound by
that proposal, even if it was acceptable to Kingsley’s. It was an
invitation to treat on the
proposed terms. On 10 June 2004 Kingsley’s
solicitors responded accepting all those terms other than those that related to
the rent for the premises. The tenant proposed that the rent should be
“market rent”.
17. That proposal engaged s 51 of the Act:
Rent on renewal
(1) This section applies if—
(a) either—
(i) the lessor proposes to renew the lease and makes an offer to the tenant to renew the lease in response to a request under section 107 (Lessor’s intentions about renewal); or
(ii) the lessor gives the tenant preference under section 108 (Rules of conduct at end of lease term for shopping centre leases) by making an offer to the tenant to renew the lease; or
(b) the lessor otherwise makes a renewal offer to the tenant within 12 months after the end of the existing lease.
(2) The lessor must not propose that the rent to be charged initially under the renewed lease exceed the market rent for the premises (other than under an option to renew contained in the lease).
18. There was no option to renew contained in the existing lease. The existing
lease continued pursuant to s 107(4) of the Act but
that particular extension
continued only up to the date the respondents complied, even if out of time,
with s 107 (3) of the Act.
19. Section 52(3) of the Act is engaged if the
tenant accepts the renewal proposal subject to the rent being market rent. That
provision
presently provides:
The lessor or tenant may also ask the Magistrates Court to refer a dispute about the rent to be paid under a renewal to mediation if—
(a) the lessor—
(i) proposes to renew the lease and makes an offer to renew the lease in response to a request under section 107 (Lessor’s intentions about renewal); or
(ii) [not relevant]; or
(iii) otherwise makes a renewal offer to the tenant before the end of 12 months after the end of the existing lease; and
(b) the tenant accepts the lessor’s offer to renew the lease subject to the rent for the lease being market rent.
20. If mediation is deemed unsuitable or fails, (see ss 52(4)(a) or 52(6) of the
Act) then the court “must, after consultation
with the parties, appoint a
valuer to work out the market rent”.
21. A valuer was appointed
pursuant to s 52(4)(a) of the Act. The valuer duly reported as required by s 53
of the Act. Kingsley’s
sought to challenge the valuation, applying to
have a new valuer appointed by virtue of s 58 of the Act. That section
provides:
Appointment of new valuer in other cases [that is, other than conflict of interest – s 57 of the Act]
(1) A party to a lease may apply to the Magistrates Court for the appointment of a new valuer if the party has reasonable grounds for believing that—
(a) [not relevant]; or
(b) the valuer has failed to conduct a valuation in accordance with this Act.
22. Kingsley’s contention before the Magistrates Court, back in 2005, was
that the valuer had chosen to value the market rent
as at the date the lease
would have been renewed had it commenced as from the original expiry date of the
existing lease rather than
as at the date of the valuation itself. It pointed
out that the original lease was deemed to continue until 14 days after the
proposed
market rent was notified to the parties. Thus the new lease would not
commence till then (see s 56 of the Act) absent an agreement
to the
contrary.
23. In any event, Kingsley’s wished to contend that, at the
point identified by s 56 of the Act, it had a choice whether to
accept or not a
new lease at the rental so determined.
24. Neither of these contentions came
to be determined by the Magistrates Court as the learned Magistrate held that,
as no binding
contract could have been made by acceptance of the
respondents’ “offer”, there was no jurisdiction to appoint a
valuer. It appeared that, having received the valuer’s report, the
respondents thereafter forwarded a lease for execution
by Kingsley’s.
Neither party had contended that the valuer could not be appointed but the
learned Magistrate, of course, could
not proceed to make such an appointment if
he considered that the court lacked jurisdiction to do so.
25. Gray J agreed
with the learned Magistrate and, accordingly, on 25 November 2005, dismissed
Kingsley’s appeal.
26. The appeals to the Court of Appeal led to a
decision, as referred to above, handed down on 2 June 2006.
27. That decision
resolved the question as to whether, to attract its provisions, there needed to
be an offer and acceptance of a
lease subject only to agreement as to rental.
As the Court of Appeal stated at [46] referring to the Parliamentary debates
concerning
the legislation:
It is clear ... that the Legislative Assembly intended that the term “offer” to be understood in the context of an opening of negotiations.
28. The Court concluded at [53]:
We are far from satisfied that, in their ordinary usage, the terms “offer” and “accepts” as used in the Leases Act necessarily imply the technical contractual meaning of the terms. Even if it were to be accepted that, of the two possible interpretations, the technical legal approach would be favoured, the effect of s 139 of the Legislation Act, in our view, requires this Court to prefer an interpretation that best achieves the purpose of the legislation. It seems clear to us that this would favour the view that the terms in question are to be given their ordinary meaning rather than restricted to their technical contractual meaning. It follows that the learned Magistrate, and the learned primary appeal Judge, were in error in holding that the jurisdiction of the Magistrates Court was not enlivened because the parties had not yet reached a firm contractual agreement.
29. The matter was, accordingly, remitted to the Magistrates Court to enable the
application under s 58 of the Act to be determined
according to law.
30. The
Court of Appeal observed that s 55 of the Act had the effect that the market
rent worked out as a result of the valuation
process was the rent to apply as
from the end of the former lease (see [57]).
31. That decision did not
purport to resolve the question as to the manner in which, or the considerations
according to which, the
determination of “market rent” should
proceed. Nor did it determine the further question, reserved by
Kingsley’s,
as to whether, once market rent was determined it resolved the
issue as to whether a lease at that rent, in the terms otherwise accepted
by
Kingsley’s, was concluded so as to bind Kingsley’s until its expiry
five years from 13 October 2003. Nor was there
addressed an issue as to when
the original lease expired so that market rent could apply from its
termination.
32. On 2 February 2007, Magistrate Burns dismissed
Kingsley’s application and gave judgment for the respondents on their
counterclaim
for damages in the sum of $82,795.21.
33. His Honour’s
judgment referred to the history of the matter, including events following the
Court of Appeal decision.
34. Following that decision the respondents had
informed Kingsley’s they would not enter into any new lease with it
despite
the prior correspondence leading to the appointment of and report from
the valuer. Kingsley’s countered by claiming that the
respondents were
precluded by their conduct from departing from their representation that, in
effect, once the market rent was validly
determined, the offer to renew on the
terms it had offered, would remain open for acceptance by
Kingsley’s.
35. Further it claimed, such conduct would offend s 22 of
the Act:
22 Prohibited conduct in dealings
(1) A party to a lease, or a party to negotiations for a proposed lease, must not, in dealings with another party to the lease or negotiations, engage in conduct that is unconscionable or harsh and oppressive.
36. Section 22(2) of the Act sets out various factors to be considered in
determining whether s 22(1) has been contravened.
37. A dispute as to whether
there has been such a contravention is one the Magistrates Court is empowered to
resolve (see s 17, item
4 of the Act).
38. It should be noted that the
process of negotiating renewal of a lease, it being a new lease, is governed by
Pt 6 of the Act.
In particular s 28(1) of the Act is relevant.
(1) The lessor must give the tenant a copy of the proposed lease as early as practicable in negotiations for the lease.
39. A “proposed lease”, it seems to me, consistently with the Court
of Appeal decision in this matter, does not fall
outside that concept merely
because it is not a final contractual proposal or offer. Of course, to
discharge the obligation imposed
on a lessor under s 28(1) of the Act it must
contain all relevant terms. That is not to say that despite not being an
“offer”
such a proposal will not, for the purposes of the Act, be
without consequences. That issue requires consideration.
40. However, one of
the aspects of the disclosure required of a lessor by s 31 of the Act under a
proposed lease is that disclosure
must be made of any costs or outgoings to
which the tenant may be required to contribute. That is, clearly enough, to
enable the
tenant to make an informed commercial decision whether to accept the
proposed lease or not.
41. Section 36 of the Act, probably unnecessarily in
view of the Trade Practices Act 1974 (Cth) (the Trade Practices Act),
prohibits “false or misleading” representations in the course of
negotiations. Section 37 of the Act provides for
a right to compensation for
such prohibited conduct. That cause of action is not governed by the Trade
Practices Act limitation period but rather by the Limitation Act 1985 (ACT).
There does not seem to be any difference otherwise in the nature of the
prohibited conduct.
42. Kingsley’s also sought to engage ss 108 and 109
of the Act:
108 Rules of conduct at end of lease term for shopping centre leases
(1) This section applies to a lease for premises in the retail area of a shopping centre if the lessor proposes to re-lease the premises and the tenant wants to renew or extend the lease.
(2) The lessor must allow the tenant to renew or extend the lease in preference to allowing other possible tenants to lease the premises.
(3) The lessor must assume that the tenant wants to renew or extend the lease unless the tenant has told the lessor, in writing within 12 months before the end of the lease, that the tenant does not want to renew or extend the lease.
(4) The lessor may offer to lease the premises to someone other than the tenant only if it would be substantially more advantageous to the lessor to lease the premises to the other person rather than renew or extend the term of the lease.
(5) However, the lessor is not obliged to prefer the tenant under this section if—
(a) the lessor reasonably wants to change the tenancy mix within the shopping centre; or
(b) the tenant has breached the lease substantially or persistently; or
(c) the lessor—
(i) does not propose to re-lease the premises within a period of at least 6 months after the end of the term of the lease; and
(ii) needs vacant possession of the premises during that period for the lessor’s own purposes (but not to carry on a business of the same kind as the business carried on by the tenant at the premises).
(6) Also, this section does not apply in relation to the lease if—
(a) section 111 applies in relation to the lease; or
(b) if the lease is a sublease—the sublease is as long as the term of the head lease allows; or
(c) the lease arises when the tenant holds over after the end of an earlier lease with the consent of the lessor and the holding over is for 6 months or less; or
(d) the lease is excluded from this section under the regulations.
Note This Act does not apply to leases with a term of less than 6 months unless they are continuous occupation leases (see s 12 (2) (c)).
109 Implementation of preferential right
(1) If the tenant has a right of preference, the lessor must, at least 6 months (but not more than 12 months) before the end of the term of the lease, begin negotiations with the tenant for a renewal of the lease.
Note Renewal of a lease includes extension of the lease (see dict).
(2) In particular, before agreeing to enter into a lease with someone else, the lessor must—
(a) make a written offer, expressed to be made under this section, to renew the lease with the tenant on terms no less favourable to the tenant than those of the lease proposed to be entered into with the other person; and
(b) provide the tenant with a copy of the proposed lease (as renewed or extended) and the disclosure statement or proposed disclosure statement required in relation to it.
(3) If the lessor offers to renew the lease under this section—
(a) the offer remains open for the period stated in the offer (the acceptance period) or until its earlier acceptance; and
(b) the tenant must tell the lessor in writing within the acceptance period whether the tenant accepts the offer; and
(c) if the tenant does not tell the lessor in writing within the acceptance period that the tenant accepts the offer—the offer lapses.
(4) The acceptance period must be a reasonable period (at least 10 business days) after the offer is made.
(5) The negotiations must continue until—
(a) the tenant rejects an offer under this section (or the offer lapses); or
(b) the tenant tells the lessor in writing that the tenant does not want to continue negotiations for a renewal of the lease.
(6) The negotiations must be conducted honestly.
43. However, the correspondence indicates that the respondents did not propose
to let to another nor did they express their agreement
to Kingsley’s
request for renewal as being pursuant to s 109 of the Act.
44. There was a
further claim concerning the subsequent statement by the respondents in June and
July 2006 advising that they were
not prepared to lease the premises to
Kingsley’s. It was alleged that that constituted a statement under s
107(3)(b) of the
Act which gave rise to a deemed extension of the original lease
under s 107(4) of the Act. The consequence of that claim was not
entirely
clear. It is likely that the respondents believed, wrongly as it transpires,
that would terminate the extension of the
original lease.
45. The respondents
further contended that Kingsley’s had engaged in
“unconscionable” or “harsh and oppressive”
conduct so as
to disentitle it to relief. That was allegedly constituted by Kingsley’s
reserving the right to decline to enter
into a lease if the “market
rent” was more than it would agree to pay.
46. His Honour, in
approaching that issue, assumed that it was necessary that the parties be of one
mind (ad idem) as to the proposal
to be put to the valuer for assessment of
market rent.
47. I must say that I fail to see why that should be so. There
was a proposed lease. The premises were known. What the tenant and
lessor
assumed about the proposal seems to me to be irrelevant.
48. Clearly, the
lessor had produced a proposed lease, subject to the contractual reservation
that the lessor could withdraw or change
it, even if the tenant accepted it.
The tenant, Kingsley’s, had in fact accepted it subject to the rent being
“market
rent”. Nothing more was required to trigger the valuation
process.
49. The purported withdrawal by the respondents from their proposal
because of Kingsley’s unwillingness to effect a refit was
plainly
inappropriate. If the terms of the proposal included that, the cost thereof
affected the “market rent”. In
any event, Kingsley’s was not
bound to accept the proposal and the respondents were not justified in
withdrawing from the process
of negotiation on that ground.
50. Mr Lucas,
solicitor for Kingsley’s, responded to the final form of the proposal from
the respondents, which differed only
as to rental, on 10 June 2004 by accepting
it subject to the rent being market rental. There was, however, a reservation
as to the
proposed commencement date. That is an issue also relevant to the
assessment of “market rent”. Five years from the
expiration of the
prior lease is a different lease, as to its value, from a lease for one to five
years following the expiration
of the deemed extension of the previous
lease.
51. Nevertheless, as his Honour pointed out, the proposal was for a
lease commencing 13 October 2003 for five years thereafter.
How that
proposal related to a commencement date following the expiration of the original
lease as extended by the Act was not addressed.
Indeed, that issue did not seem
to have occurred to the respondents or his Honour though Kingsley’s had
clearly raised it.
52. Mr Lucas, on 24 December 2004, in response to the
valuer’s report, submitted that s 56(2) of the Act required a
valuation
for the proposed lease as at that date. That section, of course,
deemed the original lease to have continued until 14 days after
the valuation
report was communicated to the parties.
53. Kingsley’s contended, as an
assertion of fact, that it was notified of the valuation 14 days before 5
January 2005, so that
the original lease would continue from 12 October 2003
until that later date, assuming the valuation to have been validly done in
accordance with the Act so as to terminate the extension of the original
lease.
54. Obviously, the rental for the period 13 October 2003 to 5 January
2005 could not, by virtue of s 56(2) of the Act, be any different
from that
which would have applied under the original lease had it continued to that date.
That, of course, would have included any
rent review clauses in the original
lease so far as applicable. It may be necessary, in future, for solicitors
drawing leases to
consider that contingency.
55. His Honour considered that s
56 of the Act placed the parties in a “holding pattern” until
negotiations concluded.
I agree with that assessment of the purpose of s 56 of
the Act. Plainly, the parties could agree to terminate the negotiations
at any
time on any terms they chose. The question is as to the effect of the Act when
no proposal is put as an offer or accepted
as such in accord with the law of
contract so as to constitute a binding agreement for a lease even on terms as to
determination
of market rent.
56. As his Honour observed, citing Sir Robert
Megarry VC in Bradshaw v Pawley [1980] 1 WLR 10, such terms as commencement
date, expiry date and rental for a lease are entirely within the discretion of
the parties to a lease
if they choose to agree upon them.
57. I agree with
his Honour that s 56 of the Act does not preclude such an agreement. The
question, however, is whether the default
position, absent such agreement, is
that for the period of the extended original lease, “market rent” is
payable even
if greater (or less) than the rent reserved by and notionally
continued under the original lease. As his Honour recognised, to allow
the
valuation process to carry on without a prompt end to it could unreasonably
advantage either the lessor or the tenant as the
case may be.
58. His Honour
referred also to s 55 of the Act, particularly s 55(b), as pointing to the
result if negotiations do lead to a renewal
of the lease:
Rent pending valuation—rent reviews and options to extend
If the rent for premises is not worked out under section 52 (Market rent—rent reviews, options and renewals) or 53 (Valuation to work out market rent) before the extension of the lease is to commence or a rent review is due (the relevant date)—
(a) the rent continues at the rate charged immediately before the relevant date until the rent has been worked out; and
(b) once the rent has been worked out and set, the party who owes the other party the difference between the rent paid and the rent that should have been paid must pay the difference to the party owed within 30 days after the rent is set.
59. However, as his Honour correctly noted, nothing in this section purports to
deal with the case of negotiated renewals under the
statutory regime
contemplated by s 56 of the Act. There remains undetermined by that provision a
question as to the default position
if the parties have not, as a matter of
contract law, come to a completed agreement otherwise.
60. That was not,
however, the reason for his Honour concluding that the valuation proposal had
failed. His Honour concluded that
the parties were not ad idem as to the
proposal of the lessors for renewal of the lease. That, of course, was
irrelevant. It was
“the proposal” to which the valuer had to assign
a “market rent”. It was objectively ascertained. What
the parties
thought it meant was irrelevant.
61. The question of the effect of the Act
upon the proposal was a matter of legal interpretation only, that is, as to
whether the
proposal required an increased market rent to apply as from 13
October 2003, leading to arrears of rent being payable as if it was
an interim
agreement, a conclusion eschewed by all the parties, or whether at the
termination of the lease as provided for by s 56,
the parties were free to
accept or reject the proposal as so completed by the ascertainment of market
rent.
62. The difficulty for the respondents was not, as his Honour believed
it to be, that Kingsley’s did not intend to accept any
offer less
advantageous than the existing lease. It was that, having proposed to renew the
existing lease, it could not terminate
it absent mutual agreement. The original
lease by virtue of s 56 of the Act continued until 14 days after the market rent
was assessed
according to the Act and notified to the parties. It is
irrelevant, so far as the Act is concerned, whether either or both parties
accept or not the proposal once market rent is ascertained.
63. It was open
to either party to declare that the proposal to renew would not be acceptable
whatever the market rent might be, but
that could not detract from the learned
magistrate’s duty to appoint the valuer in the first place (s 52(6) of the
Act) or
to determine whether the valuer had reported conformably with the Act (s
58 of the Act). The question of whether, if the valuation
was not in conformity
with the Act, the magistrate would exercise the power conferred by s 58(2) of
the Act would then need resolution
before the original lease could expire or be
found to have expired.
64. Kingsley’s contentions in respect of the
valuation suggested that the increased rental could only apply prospectively
relative
to the end of the deemed extension of the original lease. Absent a
contrary agreement, that is the effect of the Act.
65. His Honour noted that
the parties were in agreement that s 53(4) of the Act had not been enlivened.
This is a little surprising
as, subject to the lessor repeating its proposal in
an unambiguous form as to its character as a legal offer, the parties were
otherwise
agreed on every term of the proposed lease, including rental. It was
to be “market rent” ascertained according to the
Act. That,
initially, included the commencement date for the lease itself, that is, 13
October 2003. That was not necessarily the
same as the date for commencement of
an increased rental and, indeed, may, in context, merely reflect the
continuation of the lease
by virtue of s 56(2) of the
Act.
66. Nevertheless, that implies, as his Honour inferred, that each party
was reserving its (or their) right to decline to enter into
a binding lease if
the valuation was not to their liking. That position, in his Honour’s
view, and I agree with it, was not
precluded by the provisions of the Act. The
only express reference to that issue in the Act itself is s 53(4) of the
Act.
That provision is predicated on the assumption that the parties have
entered into an “interim agreement about renewing ...
the lease”.
Neither party embraced that contention as applicable to the present
case.
67. Next his Honour considered the argument, advanced to him by Mr
Erskine, that, having agreed to negotiate renewal of the lease
and having put a
draft lease to Kingsley’s as a basis for negotiation, it was
unconscionable for the respondents unilaterally
to withdraw from the process
whilst the valuation process to ascertain “market rent” remained to
be finalised. That
argument also engaged s 22(1) of the Act.
68. His Honour
rejected that argument on two grounds. First, Kingsley’s had not accepted
that market rent should be payable
as from the proposed renewal date of
13 October 2003. Hence it was not unconscionable for the respondents to
withdraw their
proposal. This was so whether or not Kingsley’s had
intended to mislead the respondents into believing that it accepted the
proposal
for market rent to apply as from 13 October 2003.
69. Second, it was not
unreasonable for the respondents to have concluded that Kingsley’s was
delaying the process of valuation
of the rental for the proposed lease so as to
extend further the original lease, at the original and, presumably, lesser
rental.
Kingsley’s could have, but declined to, put an offer as to what
the market rent should be.
70. As a result, it was contended, the respondents
could reasonably conclude that, even if market rent was worked out,
Kingsley’s
would still decline to agree to the proposed lease, even if the
respondents unconditionally offered it. Thus there was no useful
purpose to be
served in directing or replacing the court appointed valuer.
71. I note,
however, that neither s 52(4) nor s 52(6) of the Act reserves to the Magistrates
Court a discretion not to appoint a valuer
to report to the Court. Indeed, that
report, plus a communication of its finding, is necessary to terminate the
original lease which
is deemed to extend to that point (plus 14
days).
72. There was a clause in the original lease (cl 16) concerning
holding over:
16.1 If the Tenant continues to occupy the Premises after the Expiry Date with the Owner’s approval, it does so under a monthly tenancy:
(a) which either party may terminate on one month’s notice ending on any day; and
(b) at a rent which is one twelfth of the Rent.
73. That, his Honour considered, was an extension of the original lease, not a
new lease, and, hence, did not attract a right of
preference under s 108 of the
Act. That is, to my mind, plainly correct.
74. In any event, in my view,
there was a more fundamental answer to any claim by Kingsley’s that it was
holding over. To create
a monthly tenancy, the holding over had to be an
occupation “with the Owner’s approval”.
75. The
“Owner” had no choice once the valuation process was engaged. The
engagement of the process under s 107 of the
Act had the effect of extending the
original lease until the process of working out market rent had concluded (see
s 56(2)).
If it had concluded, as would be the case if Kingsley’s
challenge to the conduct of the valuation failed, the continuing occupation
by
the lessee of the premises would not be with the respondents’ approval.
They had, after all, given notice to quit and,
indeed, obtained an order for
possession from his Honour in earlier proceedings.
76. The respondents
counterclaimed that Kingsley’s had made a misleading representation, that
is, in effect, by asserting that
Kingsley’s was not bound to enter into a
renewed lease even after market rent was determined. His Honour accepted that
there
had been no misleading representation to that effect. The lessee’s
contention merely reflected the effect of the Act and could
not be
“misleading”.
77. However, his Honour did consider that
Kingsley’s had represented to the respondents that, subject to market rent
being determined
for the renewed lease, it was prepared to enter into a lease on
those terms.
78. His Honour considered that to be a false representation.
Hence the respondents were induced to enter into the negotiation process
under
the Act by reason of a false representation. He assessed damages at
$82,795.21.
79. As it happens, the respondents have not, on this appeal
sought to maintain that claim. Nor have they expressly resiled from
it.
80. This appeal was commenced on 2 March 2007.
81. It was heard by me
on 28 June 2007. Mr Erskine appeared for Kingsley’s. Mr Purnell SC
appeared for the respondents.
82. The Notice of Appeal agitated some 22
grounds.
83. Those relied upon by Mr Erskine’s written submissions
challenged the learned Magistrate’s assumption that the commencement
date
for the renewed lease had to be the day after the expiration date expressed in
the original lease rather than the date it was
deemed to expire once the
negotiation process was engaged.
84. Also challenged was the learned
Magistrate’s conclusion that s 56 of the Act established a “holding
pattern”.
Mr Erskine’s submission contended that the renewed lease
could only date from the expiration of the original lease, extended
as it was by
s 56 of the Act.
85. There is no provision for adjustment of past rent
in such a case as there is in the case of an interim agreement for a lease under
s 53 of the Act.
86. If there was delay in the process of obtaining the
relevant valuation then it was for the respondents to have expedited that
process.
They did not. Indeed, they sought to terminate the process
unilaterally thus precipitating further litigation.
87. Further, Mr Erskine
contended, the learned Magistrate should not have considered subjective
intention in identifying that which
was the proposal for a lease accepted
subject to the market rent being ascertained and applied. The proposal, even if
Kingsley’s
intention was relevant, was for a valuation of market rent
either at 13 October 2003 or at the expiration of the original lease
as
extended. The latter, unless otherwise agreed was the commencement date for the
new lease and, hence, the relevant date for the
valuation.
88. The submission
further contended that his Honour had erroneously decided that the respondents
were under no obligation to maintain
their intention to renew the lease. They
could not withdraw their proposal for a lease.
89. Of course, the
respondents, up until the institution of this appeal, had made no offer other
than to negotiate a renewal of the
lease. Their “offer” was
expressly on terms that it was not a final offer capable of acceptance. There
was nothing
to be withdrawn. There had been a proposal to renew the lease.
That proposal was accepted subject to market rent being worked out.
The
valuation process, ordered by the Magistrates Court, had to be concluded to end
the extension of the original lease.
90. Though the respondents might be
bound to honour their “offer”, so far as it went, Kingsley’s
was only bound
to consider it in good faith if, and only if, the rental
determined was acceptable. Otherwise it was at liberty to decline the offer
as
so worked out. The respondents had the right not to make the offer
unconditionally if they so chose.
91. In the alternative, it was contended,
the parties were bound to negotiate in good faith (see Coal Cliff Collieries Pty
Ltd v Sijehama
(1991) 24 NSWLR 1, 26-27; Renard Constructions (ME) Pty Ltd v
Minister for Public Works (1992) 26 NSWLR 234, 268) or, at least, not to
withdraw before the market rent was worked out (Hughes Aircraft Systems
International v Airservices Australia
(1997) 76 FCR
151).
92. Kingsley’s also challenged the learned Magistrate’s
conclusion that, though there was no misrepresentation under the
Act, the same
conduct could be relied upon as a misrepresentation under the Trade Practices
Act.
93. That is, of course, a logical contradiction. In any event,
Kingsley’s submitted that such an assumption, if there was one,
on the
part of the respondent, was not relevant to their loss, if any. In any event,
neither the respondents nor Kingsley’s
had represented that they would do
more than consider the proposed lease for acceptance once market rent was worked
out. Nor were
they obliged to do otherwise. Nor could one party unilaterally
bind the other or others without mutual agreement.
94. If there was a loss,
it was due to the failure of the respondents to expedite the valuation process
and thereafter, if at all,
due to Kingsley’s exercising its legal rights
under the Act.
95. It seems to me that this contention had considerable
merit.
96. On the other hand, Kingsley’s has, as Magistrate Burns
noted, displayed little enthusiasm for a negotiated outcome.
97. The claim
under the Trade Practices Act does, on the face of it, seem contradicted by the
rejection of a claim that Kingsley’s had engaged in false or misleading
conduct.
Nor is it apparent that, even if Kingsley’s had an intention not
to enter into a renewed lease if market rent exceeded the
existing rent, that
that is misleading or doing otherwise than asserting its lawful option not to
agree to the proposal for a lease
as finally formulated and if unconditionally
offered by the respondents. Nor could the respondents validly complain of that.
They
had sought to reserve the right to change the terms of their offer to renew
the lease at any time at least up until the valuation
process had been engaged.
Their change of position thereafter could not alter the rights of
Kingsley’s. In any event, the
remedy for the respondents was to do more
expeditiously that which they did, that is, to obtain a valid valuation report.
They cannot
complain of legal challenges to it by the lessee. Indeed the Act
itself, s 22(4), excludes from the categories of prohibited conduct
the taking
of proceedings under the Act in the Magistrates Court. Even apart from that
provision, a party’s decision to take
or defend proceedings, even
unsuccessfully, cannot be or support a view that it is false or misleading
conduct to do so. It was
the respondents who prevented the learned Magistrate
from getting to the real point by taking or creating points of no legal
substance
but which were accepted by his Honour.
98. The respondents further
submit, with some force, that the Court could not, absent agreement, order
specific performance of a proposal
for a lease that has not been agreed to.
That would, of course, be so unless the respondents have converted their
proposal to an
offer capable of acceptance.
99. Consistently with the
principle in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 parties may agree to a lease in
all its essential terms subject to market rent being ascertained by an objective
and independent
process. A party may, equally, not be willing to be bound until
the rent payable is known. That option is preserved by the process
engaged in
which was, after all, initiated by the respondents in agreeing to put a proposal
for renewal of the lease.
100. On the hearing of the appeal, Mr Purnell SC for the respondents made an “Open offer of Lease” in the following terms:
101. Mr Erskine, however, indicated that the offer was not acceptable as it did
not address the issue as to whether s 56 of
the Act required the
commencement date of the new lease to be 14 days after the valuation of market
rent was notified to the parties.
Nor did it address the Trade Practices issue.
102. It was Kingsley’s submission that the original lease did not
expire until 14 days after market rent was determined, by
virtue of s 56(2) of
the Act. At that point, presumably, the respondents and Kingsley’s might
have agreed to an offer to enter
into a new lease on those terms. Otherwise
Kingsley’s would be obliged to surrender possession of the premises to the
respondents.
Any remedy available to the respondents for holding over between
then and the time vacant possession was obtained would be available
(for
example, mesne profits).
103. The principal contention of Kingsley’s
was that, the respondents having offered to renew the lease, that proposal could
not be revoked until market rent was worked out. Indeed, purported revocation
was irrelevant. The proposal itself triggered the
extension of the existing
lease and the Act continued that lease until its termination under s 56(2) of
the Act. At that point either
party could accept or reject the resultant
determination and the lease would terminate as provided by s 56(2) of the
Act.
104. Mr Purnell SC drew attention also to a previous open offer of 19
May 2005. It included a release from all claims except for
“back
rent” of $19,894.53.
105. It was not accepted. It was, of course, less
favourable than the open offer made on the first day of hearing so far as rent
was concerned. Nevertheless, even that offer could not be said to be rejected
unreasonably unless the, even if questionable, award
of damages under the Trade
Practices Act was addressed.
106. Two issues must now be addressed. The
first is whether, absent contrary agreement between the parties, a new lease,
once market
rent is worked out, would commence on and from the expiration of the
original lease as extended in its duration by virtue of s 56
of the Act.
The second question is as to when, assuming that at that point each party was
contractually free to reject or not the
proposed lease, the original lease
expires and the consequence for the period between that point and the surrender
of possession
if no new lease was agreed upon.
107. Section 56 of the Act provides:
Extension if rent on renewal to be worked out
(1) This section applies if—
(a) the rent to be charged under a renewed lease is being worked out under section 52 (Market rent—rent reviews, options and renewals); and
(b) the lease that is being renewed (the original lease) expires before the rent has been worked out.
(2) The original lease is taken to continue on the same terms until 14 days after the rent for the renewed lease is worked out and the parties are told about it.
108. The words of this section are clear. The original lease is to continue
subject only to its expiry date being extended for the
period referred
to.
109. The valuer in the present case, though duly appointed, was subject
to an application by Kingsley’s to disqualify him.
This was on the basis
that the valuer had assessed “market rent” only as at the date of
the expiry of the original lease
without regard to its extension under s 56 of
the Act. In other words, a contention that, absent a contrary agreement,
“market
rent” was the rent applicable to the new lease which, given
the application of s 56 of the Act, could only commence when the
original lease
expired.
110. Unfortunately, that contention was not considered in the first
hearing before Magistrate Burns as his Honour found he lacked
jurisdiction to do
so. That decision was upheld by Gray J (on 25 November 2005) but reversed by
the Court of Appeal on 2 June 2006.
111. The valuer, Mr S J Flannery of
McCann Property and Planning, reported in December 2004 that the market rent was
$96,000 per annum
(excluding GST). It was lawfully open to either party to
challenge this valuation under s 58 of the Act. Instead of permitting
the
Magistrates Court to direct the valuer to correct any error found, s 57 empowers
the Magistrates Court to “disqualify the
valuer and appoint a new
valuer”. It is not apparent, however, that the Magistrates Court must
appoint another person as the
“new valuer”. It would thus be open
to correct any error the valuer had made and to re-appoint that person as valuer
to report anew.
112. Kingsley’s so applied on the basis that the valuer
had failed to conduct the valuation in accordance with the Act (see
s 58(1)).
That was because the valuer had failed to assume that the “proposed
lease” would commence at the expiration
of the original lease as extended
by s 56 of the Act.
113. The Court of Appeal decided that, for there to be an
engagement of s 51 of the Act, there did not need to be a contractual agreement
upon the terms of the proposed new lease save as to rent.
114. If there had
been such an agreement, then, of course, s 53(4) of the Act would be engaged to
“lock” both parties
in to that interim agreement. It is agreed by
the parties that there has been no such interim agreement in this
matter.
115. However, the appointment of a valuer is not predicated upon the
presence of an interim agreement.
116. It should be noted that s 53(1), (2)
and (3) of the Act also do not presuppose an “interim agreement” as
to a lease.
Those provisions set the rent “for the lease” whether
under an interim agreement or for the purpose of a proposal for
a lease. This
is confirmed by s 55 of the Act. That provides in the case of an interim
agreement:
Rent pending valuation—rent reviews and options to extend
If the rent for premises is not worked out under section 52 (Market rent—rent reviews, options and renewals) or 53 (Valuation to work out market rent) before the extension of the lease is to commence or a rent review is due (the relevant date)—
(a) the rent continues at the rate charged immediately before the relevant date until the rent has been worked out; and
(b) once the rent has been worked out and set, the party who owes the other party the difference between the rent paid and the rent that should have been paid must pay the difference to the party owed within 30 days after the rent is set.
117. It follows from this that the scheme of the Act is that, absent an interim
agreement, the previous lease at the previous rental
continues until 14 days
after the parties are told of the new “market rent”. Thereafter,
the original lease, if it provides
for holding over, continues as if the rent
reserved was the now market rent so long as the respondents agree to continued
occupation
by Kingsley’s until that occupation is terminated by notice to
quit or a new lease has been entered into. Until the new lease
is agreed to and
commences, the previous lease applies until its expiry. In this case, of
course, the respondents had already pre-empted
holding over by giving notice to
quit.
118. At that point, if Kingsley’s did not wish to renew the
lease, by reason of the changed rental (or otherwise), then s 108
of the Act
would not apply and the respondents would be entitled to gain possession in the
usual way.
119. On the matter being reheard in the Magistrates Court, the
respondents had purported to withdraw their proposal to renew the lease.
Whilst
there is not an express prohibition on that course of conduct (c.f. s 53(4) of
the Act), the original lease, extended by
virtue of s 56(2) of the Act, was not
thereby ended. The statute permits the expiry of the original lease only as
there specified
unless earlier termination was to be sought pursuant to s 122ff
of the Act (Div 12.5). That could be for any reason which would
give a lessor
the right to terminate a lease but does not include the fact that the
respondents had repented of their proposal to
renew the original
lease.
120. Unfortunately, the matter being diverted by the lessors’
purported withdrawal of their intention to negotiate renewal of
the lease, his
Honour was led into error and did not determine the question for decision which
was whether the valuer had made a
determination in accordance with the Act so as
to provide an end point to the statutory extension of the original
lease.
121. It is clear that, absent agreement to the contrary (including an
interim agreement), no new lease could commence before the end
of the original
lease as so extended. The “market rent”, therefore, unless
otherwise mutually agreed, had to be the
rent applicable as at that date. That
is, the rent is a current appraisal not a retrospective one. Of course, before
acceptance
of it so as to give rise to an interim agreement, the respondents
could have declined to confirm the “proposed lease”,
but that could
not alter the date on which the original lease would expire.
122. That,
regrettably, means that, absent agreement between the parties, the application
to replace the valuer must be heard and
determined. There is, of course, no
inevitability in the outcome. Even if the valuer has chosen a date for the
valuation open only
if the parties have agreed to that date rather than the
default date, that is, the date at which the original lease will expire,
it
would be open to the learned Magistrate to direct or advise the valuer to
provide a conforming valuation and reappoint him. It
is not mandatory for his
Honour to order that the valuer be replaced by another person. That valuation
report, when provided, would
trigger s 56(2) of the Act. If the parties are
thereafter unable to agree upon a new lease to renew Kingsley’s occupation
beyond the expiry of the original lease, the rent as determined will, by virtue
of the Act, be the rent applicable to the monthly
tenancy under Cl 16 of the
Lease for so long as the tenant holds over with the consent of the lessors.
Otherwise, it is open to
the respondents to re-enter and recover possession with
damages for the period of delay, if any (see Anderson v Bowles (1951) 84
CLR
310). To that assessment, the determination of ‘market rent’ would
be relevant.
123. The Trade Practices Act claim by the respondents was
fundamentally misconceived. It relied on Kingsley’s assertion of, or, at
least, reservation of
its legal rights as a misrepresentation. Merely to state
the proposition exposes its fundamental flaw. The learned Magistrate was
right
to reject the proposition that it was “prohibited conduct” but it
also followed that it could not be misleading
or deceptive conduct under the
Trade Practices Act.
124. In any event, both parties, rather than entering
into an interim agreement, adopted a “wait and see” attitude to
the
negotiations for a new lease. Neither party, therefore, can complain of the
consequences of that decision.
125. The appeal is upheld. The judgment and
order on the cross-claim is set aside. The application of the lessee to replace
the
valuer is remitted to the learned Magistrate to be heard and determined
according to law.
126. I will hear the parties as to costs.
I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.
Associate:
Date: 26 September 2007
Counsel for the appellant: Mr C Erskine
Solicitor for the
appellant: Bradley Allen Lawyers
Counsel for the respondents: Mr F J Purnell
SC
Solicitor for the respondents: Mallesons Stephen Jaques
Date of
hearing: 28 June 2007
Date of judgment: 26 September 2007
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