Cozens v Coffs Harbour Yacht Club Limited [2006] NSWADT 362

CITATION: Cozens v Coffs Harbour Yacht Club Limited [2006] NSWADT 362

DIVISION: Retail Leases Division

APPLICANT PARTIES: Michelle Mary Cozens RESPONDENT Coffs Harbour Yacht Club Limited

FILE NUMBER: 065115

HEARING DATES: 07/12/06

SUBMISSIONS CLOSED: 12/14/2006

DATE OF DECISION: 12/22/2006

BEFORE: O'Connor K - DCJ (President); Fairweather R - Non Judicial Member ; Harrison B - Non Judicial Member

CATCHWORDS: Retail Tenancy Claim and Unconscionable Conduct Claim

MATTER FOR DECISION: Preliminary matter

Retail Leases Act 1994 LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Crown Lands Act 1989

CASES CITED: Clasic International Pty Ltd v Lagos and Ors (2002) 60 NSWLR 241; [2002] NSWSC 1155

APPLICANT G Abbott, solicitor, G L Abbott & Co. REPRESENTATION: RESPONDENT S Campbell, solicitor, Fishburn Watson O'Brien

ORDERS: 1. Applications to be re-listed for further directions at the request of either party, any such request to be made not later than 2 February 2007; 2. Otherwise, the proceedings will be listed for dismissal.

REASONS FOR DECISION 1 Since 18 April 1992 the applicant has conducted the business of a restaurant on part of the premises of the Coffs Harbour Yacht Club Limited ACN 001471763 (the respondent). The restaurant trades under the name 'Sails at Yachtie' and occupies exclusively part of the upper floor of the club building including a balcony area. It has the usual fit out of a restaurant including a kitchen. At different times the applicant has had other business partners but presently she is the sole operator. She has a staff of a chef, a kitchen hand and a waiter. 2 On 14 March 2006 the solicitors for the respondent, by letter, gave her notice of termination of her occupation, effective in 3 months. No breach was alleged. The respondent relied on an alleged term of the occupancy agreement: 'Termination of the agreement will require notice of 3 months by either party.' 3 This notice followed a letter of 27 February 2006 from the respondent to the applicant in which she was advised that 'in keeping with the rules and regulations of the Registered Clubs Act and the own by laws (sic) the entire restaurant option will be put out to tender for finalisation 30th June 2006'. 4 The applicant contests the respondent's action. On 24 July 2006 she lodged under the Retail Leases Act 1994 (the Act or Retail Leases Act) a retail tenancy claim and an unconscionable conduct claim (as to this distinction see ss 70 to 72AA of the Act). The claims were accompanied by an application for an urgent interim order (see s 72(4) and s 72AA(4)). At a hearing on 28 July 2006, as permitted by s 68, the Tribunal dispensed with the usual requirement that there first be an attempt at mediation by the Registrar, Retail Tenancy Disputes. The Tribunal granted the applicant interim relief staying any action to terminate the lease, and referred the dispute to the Retail Tenancy Unit for mediation. Attempts at mediation were unsuccessful. 5 In line with directions given on 28 July 2006 and 7 September 2006 the Tribunal convened at Coffs Harbour on 7 December 2006 to deal with the following questions: (a) The term, if any, of the present lease, assuming there is a lease; and (b) What the notice period is for termination without default. 6 The Tribunal was constituted in the manner required for the hearing of unconscionable conduct claims ( Administrative Decisions Tribunal Act 1997 , Schedule 2, Part 3B cl 4). The two non-judicial members sit in an advisory capacity only. This decision is the decision of the presiding member only. 7 At hearing the Tribunal had before it the following written evidence: affidavit of applicant sworn 21 July 2006; further affidavit of applicant sworn 14 November 2006; affidavit of Mr Paul Jolly, Manager of the respondent, sworn 20 October 2006; affidavit of Mr Ray Benson, Board member, sworn 20 October 2006; the Lease between the Coffs Jetty Foreshore Reserve Trust (a corporation constituted by s 92, Crown Lands Act 1989) and the respondent in respect of the land occupied by the respondent, executed 27 August 1997 for a term of 20 years commencing 1 July 1997 (the Crown Lease). 8 The applicant, Mr Jolly and Mr Benson gave oral evidence and were cross-examined. Mr Jolly was, before taking up the position of manager, for many years a member of the Board of the respondent, and this included periods in the two principal positions known as 'Commodore' and 'Vice-Commodore'. Mr Benson has been a member of the Board for 21 years, and also had stints as Commodore and Vice-Commodore. 9 The solicitors for the parties presented written and oral submissions. They were given the opportunity at the close of the proceedings to file and serve any further written submissions within 7 days. The applicant's solicitor filed further written submissions on 13 December 2006. No further submissions were filed on behalf of the respondent. 10 Throughout the period since 1992 the belief of the respondent, as judged by the evidence of Mr Jolly and Mr Benson, has been that it does not have power to give a lease of the premises. It believes it is prohibited from doing so, by the terms of the Crown Lease. Mr Jolly and Mr Benson both frequently referred in their evidence to cl 5.1 of the Crown Lease, which provides relevantly: '5.1(a) The Lessee shall not without the prior written consent of the Lessor and the Minister assign transfer lease sub-let or part with the possession of the premises. The Lessee shall not by any act or deed procure the premises or any part of the premises to be assigned transferred leased sub-let or place into the possession of any person or persons. The Minister's and the Lessor's consent shall not be refused in the case of a proposed respectable and responsible assignee, tenant or occupier. (b) Any consent granted pursuant to paragraph (a) of this clause may be granted subject to a requirement that the rent payable under this lease shall be re-assessed and that all or any conditions of the lease may be varied. Such re-assessment of the rental shall be carried out as if the date of assignment were a rent review date but this clause shall not affect the operation of any other provision in this lease for re-assessment of the rental.' 11 The Tribunal accepts the evidence of Mr Jolly and Mr Benson as to the respondent's belief. The term 'licence' is used in a number of the documents tendered in the proceedings. On the other hand the Tribunal also accepts the evidence of the applicant that it is her recollection that often in informal conversations all concerned spoke of the arrangement as a 'lease'. 12 In 2002 the question of whether the arrangement should be renewed arose. There were two rounds of negotiations between the parties. The first occurred on or about May 2002. The parties, as had been customary, dealt with each other in a highly informal way. They did not turn their minds to the possibility that the Retail Leases Act might affect their relationship. Consequently the negotiations did not include any of the steps required of the lessor and the lessee under the Act. 13 At hearing, the respondent did not press its argument that the relationship was one of 'licence' and lay outside the Act. Mr Campbell, the solicitor for the respondent, indicated that the respondent now accepts that a 'retail shop lease' within the meaning of the Act existed between the parties (see, especially, definitions of 'retail shop' and 'retail shop lease' in s 3). The Tribunal agrees. The respondent had granted the applicant a right of occupation of its premises to conduct a business which falls within the meaning of a 'retail shop' and had done so for value (rent was set and is up to date); and none of the exclusions from the coverage of the Act (see, for example, s 6) are applicable. 14 The main negotiations occurred in April/May 2002. The applicant's previous business partnership had ended and she was in the course of bringing in Mr Jolly's wife, Mrs Virginia Jolly as a partner. (At the time Mrs Jolly was married amicably to Mr Jolly. They have since separated. On 30 April 2006 Mrs Jolly retired from her partnership with the applicant.) 15 At the time of the April/May negotiations there was some apprehension over whether Mrs Jolly, who was inexperienced in the restaurant business, would prove satisfactory. This led to the discussion of a 'trial period' of 3 months. 16 A document, cast as the grant of a 'licence', was prepared. It was signed by the applicant and Mrs Jolly of the one part and for the respondent by Mr Jolly in his then capacity as a member of the Board and by another director. 17 It commenced as follows: 'The Licence Agreement between Sails at the Yachtie Restaurant operated by Michelle Cozens and Virginia Jolly and the Coffs Harbour Yacht Club Limited. A Trial Period of 3 months from 1st May 2002 to 31st July 2002. If both parties are in agrrement [sic] the licence will take effect from 1st August 2002 for a period of 3 years with a further 3 year option. Termination of agreement will require notice of 3 months by either party.' 18 At the end of the trial period the evidence of the applicant and Mr Jolly is that there were further discussions. Mr Jolly has found on the respondent's files an unsigned copy of a document which he says records the agreement that was entered into in August. The applicant recollects that there was another document considered at that time. 19 The signed May document (above) and the unsigned August document are identical in several respects. For example all the written conditions, starting with the 'termination clause' and ending with cleaning costs, are the same. The conditions cover such matters as: certificates of currency in relation to workers compensation and public liability insurance; lawful practices in relation to payment of wages and the like; payment of outgoings involving restaurant; maintenance items; sharing of aspects of cost of new furniture; meetings with club representatives in relation to promotions; operating hours; payment facilities for patrons; standards of service; cleaning costs. Each document is just over one A4 page in length. 20 There are some differences of importance. The May document refers to the proposed term of the 'licence' (see above). The August document does not include a reference to the term. The May document has the 'trial period' clause. The August document, as would be expected, omits that. The May document does not refer to the vital subject of rent. The August document does. It sets the rent at $518 per week including GST, and there is a reference to a possible increase of $50 during the period 1 November to 31 January of any year. 21 The major dispute in the case is whether the 'termination clause' found in both documents formed a term of the agreement, and if so, whether it permitted the giving of the notice of 14 March 2006. 22 The applicant's evidence is that she believed that she was entitled, under the agreement to occupy the premises, if she did not commit a breach of significance, for 3 years and was entitled to renew for another 3 years. As to the latter matter (the 3 by 3 term), the absence of any reference to that in the unsigned August document is not of any significance. I am satisfied from the evidence that the parties dealt with each other on the basis that a long-term right of occupation was being given, and that the period contained in the May agreement remained the agreed period as at August 2002 (this understanding, so far as a first 3 year term at least is concerned, is reflected in the letter from Mr Jolly dated 2 September 2004, referred to later in these reasons). 23 The applicant claimed that the termination clause only related to the trial period. In my view, the evidence of Mr Jolly is to be preferred on this point. He says that the parties were seeking to construct an arrangement under which either could walk away on 3 months' notice. However, I am not satisfied that the applicant would have agreed to such a clause had she understood its implications. The negotiations were conducted without either party having any legal advice or assistance. I am unable confidently to conclude that the apparently unequivocal language of the termination clause represents the agreement of the parties on this matter. I am not satisfied that the applicant agreed to confer a unilateral right on the lessor to terminate the lease without any fault on her part. 24 The commercial relationship with the applicant over the years had been amicable. The applicant had a substantial investment in the enterprise. The parties intended that there be a long-term grant of exclusive occupancy of the premises. It is improbable, I think, that the applicant would have placed herself at the risk of short-term termination without cause. 25 The next events of significance in relation to this dispute occurred in August 2004. Mr Jolly, now the general manager and no longer a director, expressed concern on behalf of the respondent to the applicant and Mrs Jolly over the desirability of upgrading the restaurant, and in particular the furniture. The date of completion of the negotiations is not clear, but (in light of the contents of the letter from Mr Jolly dated 2 September 2004, referred to below, I infer that it was sometime later that month). 26 Mr Jolly's evidence was that if the applicant left (subject to giving 3 months' notice) she would not be required to continue paying either the rent or the furniture payments. 27 I am satisfied that it was agreed between them that the respondent would purchase new tables and chairs; and that the applicant would meet half the cost, repaying the club by instalments while she remained in occupation. The repayment period was four years. They agreed that she would pay $715 per month to the cost of the furniture ($650 plus $65 GST). This was in addition to the $518 per week rent. The furniture was installed in October 2004. She has been, and continues to be, invoiced (separately from the rent) the amount of $715 per month. She is up-to-date in her payments. 28 I am satisfied that the applicant raised the question of whether her 'lease' would be extended to cover that period. I am satisfied that she did receive a promise that she would have a right of occupancy for the next four years. Contrary to the respondent's submissions, I do not regard the assertion in the letter to the applicant and Mrs Jolly from Mr Jolly dated 2 September 2004 in which he refers to the agreement of 1 August 2002 as being for a '3 year period' as affecting that conclusion. At this stage the offer of the 'proposed refurbishment' to be undertaken at the cost of the proprietors of the restaurant was still under negotiation. 29 In my view, these discussions were conducted on the basis that there would be certainty of occupancy (if she renewed) until the end of the furniture payment plan and, otherwise, the basic terms of the agreement of May/August 2002 remained applicable. Mr Jolly emphasised that this matter was never taken back to the Board of the respondent. He contended that accordingly the respondent could not be bound. In my view, once she altered her position on the basis of the promise, and commenced paying the furniture instalments, the Board became bound by the promise given by Mr Jolly, and the respondent estopped from denying it. The Term of the Lease 30 The Retail Leases Act prescribes a minimum term for retail shop leases of five years, and the original term and the option term may be counted for that purpose: see s 16(1); and (2). 31 Section 16(1) provides: '(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.' 32 Section 16(2) provides: '(2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section. Note. For example, if a lease is entered into for a term of 3 years, its term is extended by 2 years to 5 years. If a lease is entered into for a term of 2 years with an option for a further 1 year after that initial 2 years, the term of the lease is extended to 4 years (with the option for a further 1 year after that initial 4 years).' 33 The parties can agree to a lesser period than five years, but under the Act that can only be done, lawfully, in accordance with the 'certificate' procedure found in s 16(3). The Supreme Court has held that the terms of s 16(2) and s 16(3) are not mandatory. According to Palmer J in Clasic International Pty Ltd v Lagos and Ors (2002) 60 NSWLR 241; [2002] NSWSC 1155 at [45]: 'In my opinion, all that is intended by the words in s 16(2) 'the validity of the lease is not thereby affected' is that if a leases is entered into in contravention of s 16(1), a party to the lease cannot raise a defence that the lease is unenforceable for illegality.' 34 In this case a total number of years going beyond 5 years was agreed by the parties. Accordingly the lease may be construed as a 3 by 3 lease, and it is unnecessary to apply s 16(2). 35 The present expiry date therefore of the lease is, based on the original agreement, at least 31 July 2008. As explained above, I agree with the submissions for the applicant that the effect of the negotiations of August 2004 was to give the applicant a guarantee of continued occupancy going beyond 31 July 2008, and matching the expected term of the furniture repayment contract. According to her evidence, she made her first payment in October 2004 after the furniture was installed. On my calculation, therefore, the final payment would be due in September 2008; therefore, the expiry date under the lease has now become 30 September 2008. It is unnecessary to consider an alternative analysis put forward by the parties that a minimum term of five years was granted, and therefore the expiry date is 31 July 2007. Summary 36 My conclusions therefore are: 1. The applicant has a retail shop lease within the meaning of the Retail Leases Act 1994 . 2. The original term was 3 years, and it has been renewed. The current 3 year period has been extended to 30 September 2008 as a result of the negotiations in connection with installation of furniture. 3. The original agreement did not include a term allowing the lessor to terminate without cause on 3 months' notice. 4. The notice given by the respondent's solicitor dated 14 March 2006 is unlawful. 37 It may be that in light of these conclusions, the parties may be able to reach a settlement of their dispute. Order 1. Applications to be re-listed for further directions at the request of either party, any such request to be made not later than 2 February 2007. 2. Otherwise, the proceedings will be listed for dismissal.