Appeal Panel - Internal CITATION: Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24 APPELLANT PARTIES: Wanice Pty Ltd RESPONDENT Bocove Pty Ltd FILE NUMBER: 039010 HEARING DATES: 26/05/2003 SUBMISSIONS CLOSED: 05/26/2003 DATE OF DECISION: 07/07/2003 Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17 DECISION UNDER APPEAL: BEFORE: Chesterman M - ADCJ (Deputy President); Hole M - Judicial Member; Weule B - Member CATCHWORDS: statutory interpretation MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 025094 DATE OF DECISION UNDER APPEAL: 01/24/2003 LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Cronulla Newsagency Pty Ltd v Pizzata & Ors [2002] NSWADT 121 Codelfa Construction Pty Ltd v State Rail of New South Wales (1982) 149 CLR 337 APPELLANT REPRESENTATION: M G Scheib, barrister RESPONDENT R Olsen, agent ORDERS: 1 Appeal allowed; 2 Respondent to pay $13,516.02 to Appellant Introduction 1 This is an appeal by the Appellant Lessor, Wanice Pty Ltd, against an order of the Tribunal dismissing its claim for the payment of outgoings by the Respondent Lessee, Bocove Pty Ltd, under a Lease executed on 17 May 1999. The Lease was registered under the Retail Leases Act 1994 (hereafter "the Act"). It had an expressed commencement date of 8 April 1999 and was for a five-year term, with a five-year option. 2 Due to differences between the parties, the Respondent vacated the premises on 1 April 2001. The Appellant indicated that it considered the Respondent to remain liable for rent and outgoings. The lease came to an end on 3 August 2001 pursuant to a Deed of Surrender. 3 The Appellant's claim in the proceedings was for unpaid rent as well as outgoings. The Respondent lodged a cross application seeking a declaration that it was not liable for the outgoings. It also sought a declaration regarding an alleged breach of s 9 of the Act. 4 In the judgment of the Tribunal dated 24 January 2003, Mr Bruce Donald, Judicial Member, ordered that the Respondent pay to the Appellant the total sum of $12,488.08. This had two components: an amount of $10,970.54 (representing unpaid rent of $19,875.54 up to the date of surrender, less a security deposit of $8,905) and interest totalling $1,517.54. He dismissed the claim for unpaid outgoings and the Respondent's claim for a declaration that the Appellant had breached the requirements of s 9. 5 This appeal is brought against the Tribunal's dismissal of the Appellant's claim for unpaid outgoings. In the Notice of Appeal, the amount of these outgoings up to the date of surrender was stated as $11,516.83. Interest was also claimed under s 72A of the Act. 6 Item 13 of the Schedule to the Lease stated that the Respondent, as Lessee, was liable to pay 100% of the following outgoings: (a) local council rates and charges; water, sewage and drainage charges; (c) land tax; and (d) Strata Management Costs/Strata Levey (sic). This obligation was also set out in the Lessor's Disclosure Statement. 7 Although the Respondent testified that he had believed that he was not liable to pay these charges, and had relied on his lawyer to ensure that they were excluded from the Lease, Mr Donald stated in his judgment, at [12], that "there is no question that the finally agreed position between the parties included the outgoings". The grounds for rejection of the claim for outgoings 8 The Appellant's claim for unpaid outgoings was rejected on the ground of non-compliance with s 22 of the Act, read in conjunction with s 27 and s 28. 9 The terms of s 22 are as follows:- 22 Recovery of outgoings from lessee (1) The lessee under a retail shop lease is not liable to pay any amount to the lessor in respect of any outgoings except in accordance with provisions of the lease that specify: (a) the outgoings that are to be regarded as recoverable, and (b) how the amount of those outgoings will be determined and how they will be apportioned to the lessee, and (c) how those outgoings or any part of them may be recovered by the lessor from the lessee. (2) In this Part, the expression "outgoings to which the lessee contributes" refers to any outgoings in respect of which the lessee is liable under the lease to make any payment to the lessor. (3) Costs associated with the advertising or promotion of a retail shop or retail shopping centre, or of any business carried on there, are not outgoings for the purposes of this section. 10 Section 27 is as follows:- 27 Estimates and expenditure statement of outgoings to be provided by lessor A retail shop lease is taken to include provision to the following effect: (a) The lessor must give the lessee a written estimate of the outgoings to which the lessee contributes under the lease, itemising those outgoings under the item descriptions used in the list of outgoings in the form of lessor's disclosure statement set out in Part 1 of the form contained in Schedule 2. (b) The estimate of outgoings must be given to the lessee in respect of each accounting period of the lessor during the term of the lease and must be given before the lease is entered into and thereafter during the term of the lease at least 1 month before the commencement of the accounting period concerned. (c) The lessor must make a written expenditure statement available for examination by the lessee detailing all expenditure by the lessor on account of outgoings to which the lessee contributes, itemising those outgoings under the item descriptions used in the list of outgoings in the form of lessor's disclosure statement set out in Part 1 of the form contained in Schedule 2. (d) The expenditure statement must be made available at least twice in each of the lessor's accounting periods during the term of the lease (once in relation to expenditure during the first 6 months of each such accounting period and once in relation to expenditure during the second 6 months of each such accounting period), and in each case must be made available within 1 month after the end of the 6 month period to which it relates. 11 Section 28 is as follows:- 28 Lessor to provide statement and report on outgoings A retail shop lease is taken to include provision to the following effect: (a) The lessor must give the lessee a written statement (an "outgoings statement") that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute. (b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates. (c) The outgoings statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time. (d) The outgoings statement is to be given to the lessee within 3 months after the end of the accounting period to which it relates. (e) The outgoings statement is to be accompanied by a report (an "auditor's report" ) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth). (f) The auditor's report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period. (g) The outgoings statement may be a composite statement (that is, it may relate to more than one lessee) so long as each lessee to which it relates is able to ascertain from the statement the information required by paragraph (a) that is relevant to that lessee. (h) The outgoings statement need not be accompanied by an auditor's report if the statement does not relate to any outgoings other than land tax, water, sewerage and drainage rates and charges, local council rates and charges and insurance, and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the lessor as referred to in paragraph (a). 12 The Appellant conceded that it did not comply with the requirements of s 27 and s 28. It claimed however that this should not preclude recovery of the outgoings because by the time of the Tribunal proceedings the Respondent had been given invoices which set out the full details of the outgoings claimed. 13 In rejecting this argument, the Tribunal's judgment observed (at [36]) that under s 22 a Lessor was under no liability to pay outgoings "except 'in accordance with the provisions of the lease' that specify certain matters". Since s 27 and s 28 stated that "a retail shop lease is taken to include provision to the following effect", it followed that "those provisions" – meaning the requirements set out in the two sections – were "applicable for the purposes of s.22". 14 At [38], the judgment stated that the Appellant's subsequent provision of invoices to the Respondent did not remedy its prior breaches of s 27 and s 28. It would in any event have been insufficient so far as the management fees and strata levies were concerned, because an auditor's report was required for these outgoings, and had not been provided. 15 The Tribunal's conclusion regarding the claim for outgoings (at [38]) was as follows: "In any event… s.22 read with ss. 27-28 is a complete answer to the claim that the Lessee has an obligation to pay any outgoings". The Appellant's arguments 16 In essence, the argument of Mr Scheib, counsel for the Appellant in this appeal, was that the Tribunal erred in its conclusion that a breach of s 27 or s 28 disentitled a lessor from claiming outgoings due under a lease. It was incorrect, he submitted, to reach this conclusion either from construing the terms of s 27 and s 28, standing alone, or from an interpretation of the Act that treated the requirements of these two sections as, in effect, incorporated into s 22. 17 Mr Scheib submitted that the effect of s 22 was solely to provide that, as a condition of a lessor recovering from a lessee any amount by way of outgoings, the lease must specify the matters listed in the section. These were (a) the outgoings that were to be regarded as recoverable; (b) how the amount of these was to be determined and how they were to be apportioned to the lessee; and (c) how these outgoings or any part of them were to be recovered from the lessee. Nothing in s 22, he said, implied that the requirements stipulated in s 27 and s 28 also had to be satisfied if a lessor was to be permitted to recover outgoings. 18 He argued that s 27 and s 28 similarly contained no provision that the obligations imposed by either section should be treated as obligations falling within s 22, with the result that a breach of any of them would debar a lessor from recovering outgoings. Nor, he pointed out, did either s 27 or s 28 contain any provision within its own terms to the effect that, quite apart from s 22, this result should follow. In contrast to s 22, s 27 and s 28 stated only that the requirements set out in them should be deemed to be provisions of the lease. 19 It must follow from this, Mr Scheib argued, that the only legal consequence of a breach of any of the requirements of either s 27 or s 28 was that the lessor would be in breach of contract. The lessee was limited to whatever remedies might flow from this. 20 Mr Scheib pointed to a number of sections of the Act which, like s 22 and in contrast to s 27 and s 28, contained provisions expressly indicating the consequences of a failure to comply with a requirement imposed by the section. In three of the instances to which he referred – s 9 (copy of lease to be provided at negotiation stage), s 11 (lessee to be given disclosure statement) and s 14 (key money prohibited) – non-compliance is a criminal offence. Subject to a relieving provision in s 11(3), a breach of s 11 also confers on the lessee a right to terminate the lease (under s 11(2)) within six months after the lease was entered into. Under s 14, and also under s 12 (lessee not required to pay undisclosed contributions) and s 13(1) (lease preparation costs), any provision requiring a payment by the lessee in circumstances where the lessor has not complied with the section is void. Under s 10, the remedy granted to a party to a lease who is injured by a pre-lease misrepresentation is reasonable compensation. 21 Mr Scheib also drew attention to the fact that, if the approach taken by the Tribunal in the judgment under appeal were correct, the consequences for a lessor of non-compliance with s 27 or s 28 could well be distinctly more serious than the consequences of not complying with the lessor's obligation under s 11 to provide a disclosure statement. The effect of any breach of s 27 or s 28, as interpreted by the Tribunal, would be that the lessor could recover no outgoings for the accounting period to which the breach related, or possibly no outgoings at all. Under s 11(2), as just mentioned, a breach of s 11 may entitle the lessee to terminate the lease within six months. Under s 11(5), however, any accrued rights or obligations arising before the termination are not affected. Mr Scheib argued that it could not be correct to interpret a provision for which no consequence of breach was stipulated in such a way that persons in breach might suffer more seriously than if they had failed to comply with a provision which clearly spelled out the consequences of breach. 22 Finally, Mr Scheib maintained that the Tribunal's interpretation of s 22, s 27 and s 28 necessarily entailed the introduction of additional words into one or more of these sections. This, he said, was impermissible, since the natural meaning of the words was readily discernible. Furthermore, he argued, there was no way of determining what consequences of a breach of s 27 or s 28, other than a breach of the lease agreement by the lessor, might have been intended by the legislature. The Respondent's arguments 23 The Tribunal considered it to be unfortunate that the arguments put by Mr Olsen, agent for the Respondent, did not address specifically the issues of statutory interpretation raised by the appeal. Except in so far as he indicated that the Respondent claimed not be liable to pay the outgoings and would be unfairly treated if the appeal were allowed, his observations concerned different aspects of the case, on which the Tribunal at first instance had made findings. These findings were not open to review by the Appeal Panel. Relevant authorities 24 Both at first instance and on appeal, neither Mr Scheib nor Mr Olsen cited any cases bearing directly on the interpretation of s 22, s 27 or s 28. Nor did they cite authorities dealing directly with any of the other provisions of the Act (for example, s 15) which impose obligations on a party to the lease but do not specify the consequences of breach. In support of his more general proposition that in the process of interpretation words must not be added to a statutory provision, Mr Scheib relied principally on the judgment of Spigelman CJ in R v Young (1999) 46 NSWLR 681 at 685-691. 25 Since the hearing of the appeal, the Appeal Panel has however located a decision of the Tribunal in which the consequences of breach of s 27 are specifically considered. In Cronulla Newsagency Pty Ltd v Pizzata & Ors [2002] NSWADT 121, the lessee under a registered lease was obliged to pay the land tax due on the property. On 31 October 1997, the lessor gave the lessee a disclosure statement in which the land tax to be paid was estimated at $5,700 per annum. In respect of two subsequent accounting periods, commencing November 1998, no further estimates as required by s 27 were provided. In February 2001, the lessor, having received a notice of arrears of land tax in the sum of $31,615.18, required the lessee to pay this sum. The lessee denied liability, on the ground that s 27 had not been complied with in relation to the two accounting periods commencing in November 1998. 26 In his judgment, Mr S Montgomery, Judicial Member, rejected this argument by the lessee. He held, at [85 – 93], that the lessee's remedies in respect of the non-compliance with s 27 were confined to damages for breach of the contractual terms which by virtue of s 27 were implied into the lease agreement. He considered that s 27 was not intended to have the same "onerous" effect as other provisions of the Act, such as s 11, which sought to ensure that all relevant aspects of an intended lease were disclosed to the lessee before it was entered into. 27 Mr Montgomery derived support for this ruling from a passage in the second reading speech of Mr Chappell, then Minister for Small Business and Minister for Regional Development, on the introduction of the Retail Leases Bill 1994 into Parliament (New South Wales Parliamentary Debates, Hansard, Legislative Assembly, 20 April 1994, pp 1547-8). Mr Chappell indicated that the Government did not wish to "interfere in commercial agreements". Instead, it sought to ensure that "retail leasing agreements are explicit as to the requirements of both parties and that they are entered into from a position of reasonably equal negotiating strength". Accordingly, he said, failure of a lessor to provide an adequate disclosure statement before the lease commenced might incur a penalty and a claim for compensation. But the general approach of the bill, rather than establishing "external compliance procedures", was to allow leases themselves to impose "internal compliance mechanisms". 28 Having cited this passage, Mr Montgomery stated as follows (at [92]):- In my opinion, the onerous provisions in the Act are consistent with the intentions of the legislature as set out above. These are intended to ensure that adequate information is supplied prior to entry into the lease. There is no stated intention to interfere with the rights of the parties to the same extent once the lease has commenced. The interpretation of section 27 of the Act urged by the Applicant [lessee] would add new external compliance procedures in contradiction to the stated intentions of the Minister. 29 Mr Montgomery referred also, at [87 – 90], to Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, where the High Court outlined the principles governing the implication of unexpressed terms into contracts. Having regard to these principles, he concluded that no term could be implied requiring the lessor to disclose the amount of land tax within a "reasonable" time, or stipulating that compliance with s 27 was a condition precedent to the recovery of outgoings by the lessor. The Panel's conclusions 30 As indicated above, the Panel considers it to be unfortunate that arguments directly addressing the issues raised in the appeal were not put to it on behalf of the Respondent. It has endeavoured for its own part to make up for this by subjecting the Appellant's arguments to close critical scrutiny. 31 Having done so, it is of the opinion that the Appellant's arguments are well founded and must be accepted. Unlike both the parties and the Tribunal at first instance, it has had the benefit of being able to study both the ruling on s 27 and the supporting reasons contained in the Cronulla Newsagency case. 32 The Panel considers that neither in s 22, nor in s 27 or s 28, can language be found requiring that the obligations imposed on a lessor by the latter two sections must be treated as obligations arising under s 22, so as to produce the result that non-compliance precludes recovery of the outgoings stipulated in the lease. Similarly, for the reasons advanced by the Appellant and, indeed, put forward in Cronulla Newsagency, s 27 and s 28 should not be interpreted as impliedly establishing conditions precedent to the recovery of outgoings. In this connection, the contrast between these two sections and other sections of the Act (including s 22) in which the consequences of non-compliance are clearly spelled out is, in the Panel's opinion, of compelling importance. 33 The Panel notes also that, in addition to an action for damages for breach of contract, a lessee may be able to rely on non-compliance by the lessor with s 27 or s 28 as an element of a claim that the lessor has engaged in unconscionable conduct within the meaning of Part 7A of the Act. Other matters considered by the Appeal Panel 34 The Panel raised with Mr Scheib the argument that the Lease in this case may not have contained sufficient material to satisfy all the requirements of s 22 of the Act, standing alone. He submitted in response that these requirements had in fact been fully satisfied. 35 Mr Scheib referred in this connection to Clause 5 and Item 13 of the Lease, which was substantially in the form then recommended by the Law Society. These provisions, he said, made it clear that the Respondent Lessee was obliged to pay 100% of the outgoings in each of the four categories mentioned earlier in this judgment (at [6]). They stipulated further (a) that a request to the Respondent for payment could be made by the Appellant after it had either paid an outgoing or received an assessment or an account for payment, and (b) that payment by the Respondent was required on the next rent day after the Appellant made a request for payment. They also contained further particulars relating to land tax. 36 The Panel agrees that these provisions sufficiently dealt with the matters set out in the three sub-paragraphs of s 22(1). The Respondent accordingly could not contend that this section, considered separately from s 27 and s 28, provided grounds to resist the Appellant's claim for outgoings. 37 The Notice of Appeal included a claim that the Tribunal should have ordered that the Appellant's costs at first instance be paid by the Respondent. This claim was not pressed, however, at the hearing of the appeal. The orders to be made on the appeal 38 For the foregoing reasons, the Panel's conclusion is that the appeal against the Tribunal's decision denying recovery of outgoings by the Appellant Lessor must be allowed. 39 The Tribunal's judgment contains no finding as to the amount of these outgoings. The amount claimed by the Appellant was $11,516.83, plus interest under s 72A of the Act from the date of surrender of the lease (3 August 2001) to the date of judgment. The calculation of this amount was not disputed at first instance. 40 In conformity with the Tribunal's judgment on the Appellant's claim for unpaid rent, the Panel considers a rate of 9% to be appropriate. The amount payable by the Respondent by way of outgoings must therefore include an amount of $1,999.19 as interest, in addition to the principal sum of $11,516.83. The total of these two amounts is $13516.02. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.