CITATION: Freetel Communications Pty Ltd v In Eop Chung; In Eop Chung v Freetel Communications Pty Ltd [2003] NSWADT 169 DIVISION: Retail Leases Division APPLICANT 1 Frreetel Communications Pty Ltd APPLICANT 2 In Eop Chung PARTIES: RESPONDENT 1 In Eop Chung RESPONDENT 2 Freetel Communications Pty Ltd FILE NUMBER: 035005 ; 035030 HEARING DATES: 16/04/2003 SUBMISSIONS CLOSED: 04/16/2003 DATE OF DECISION: 04/22/2003 BEFORE: Donald BG - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money - Claim for surrender of possession of premises MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Manly Council v Malouf [2003 ] NSWADT AP 12 Conoid Pty Limited v International Theme Park Pty Limited [1999] NSW SC 1138 APPLICANT 1 B Morris, barrister APPLICANT 2 REPRESENTATION: In person RESPONDENT 1 In person RESPONDENT 2 B Morris, barrister ORDERS: 1. Declare that there is no continuing lease of premises by the Applicant Freetel and that the Respondent Ms Chung is entitled to possession of the space occupied by Freetel.; 2. Order that upon three weeks notice from Ms Chung to Freetel requiring vacant possession, Freetel vacate the shop 23 Railway Parade, Eastwood.; 3. Application by Freetel for compensation dismissed.; 4. Cross application by Ms Chung for unpaid rent and interest dismissed. ; 5. Each party to bear their own costs. 1 There are two matters before the Tribunal. Matter 035005 an application by Freetel Communications Pty Ltd against Ms Chung. That application in essence seeks a determination that there is a continuing sub-lease of premises between Ms Chung as lessor and Freetel as lessee and alternatively an order for the payment of a sum of money by way of compensation for relocation. 2 The cross-application, number 035030, brought by Ms Chung against Freetel is for unpaid rent and possession of the premises together with interest and costs. 3 This matter was expedited because Ms Chung informs the Tribunal she is in the process of selling her business so this decision has been given immediately on the conclusion of the hearing. 4 The dispute arises from an agreement entered into on or about 9 August 2000 between Ms Chung and Freetel, prepared by Ms Sohn the proprietor of Freetel, recorded in Korean and translated into English in a document dated 9 August 2000 and expressed to be a "sub-lease agreement". This agreement did not describe any specific premises other than to be headed "Location: Ground Floor, 23 Railway Parade, Eastwood" which is the shop in which Ms Chung carries on her business. There was no plan defining the subject matter of the agreement. There was provision for Ms Chung to "give half the space of the back side" to Freetel. 5 There was no term expressed in the agreement except for the statement in clause 8 that Freetel "needs to receive confirmation...(that it] can continue a long-term business". 6 The rent was expressed to be $350 per week. 7 There were provisions relating to confirmation of approval of Ms Chung's landlord and also provisions evidencing a concern as to a then current announcement by Ms Chung of her intention to sell her business. 8 Neither party sought any legal advice at the time and there was no attempt by either party to comply with or require the documentation applicable to retail leases under the Retail Leases Act 1994. 9 Freetel commenced business as a Vodafone dealership pursuant to the agreement occupying the front part of what is undoubtedly a retail shop at 23 Railway Parade, Eastwood. This shop at the time of the occupation of the front space by Freetel contained the business of Ms Chung as a hairdresser. Behind an archway dividing the shop at about the central point, a business was conducted in a small space by a Mr N am in an area which included the thoroughfare to the rear of the shop. Behind this there was a part partitioned 3.6m by 4.5m space through which was reached a rear facilities area 3m by 4.5m containing toilet facilities and other plumbing facilities, including facilities used for hair washing in Ms Chung's business. 10 The retail shop was relatively small being only 4.5 x 17 metres in all. As evidenced by photographs provided to the Tribunal, the space in the front of the shop, being an area appro x 3.3m by 3.6m, occupied by Freetel's Vodafone business was separated from the entrance passage to Ms Chung's area by the placement of furniture by Freetel together with a partition installed by Preetel approx 7 feet high, extending slightly less than halfway across the width of the shop and separating that business space from the space used for the hairdressing business. 11 Both businesses were advertised by signage on the front of the shop, both were readily seen from the door of the shop which was the access point for both. 12 The evidence established some uncertainty at commencement as to the level of the rent, with an assertion by Ms Chung that the agreed rent was $400 per week, and there was also disagreement as to the status of GST under the agreement. In any event from the commencement of occupation until about March 2001 Freetel paid and Ms Chung accepted rent at the rate of $400 per week apparently inclusive of GST. 13 The correspondence in evidence to the Tribunal reveals no discussion during the period from August 2000 to March 2001 concerning use of the so-called "half space of the back side" which would subsequently become an issue. 14 Freetel in about October complained about failure to meet the landlord, this plainly relating to its concern to ensure no problem in that regard. 15 All communications on behalf of Freetel were by Ms Sohn. On 9 January 2001 Freetel advised Ms Chung that its business was in difficulties and asked for consideration. On 8 February 2001 Freetel stated there may be a delay in paying the rent and then 15 on 21 February 2001 Freetel sent a letter repeating the difficulties the business was facing, acknowledging the difficulty in meeting rent payments and advising: "...I have decided to run the business until 25 March and close the shop. r know that r should tell you in advance of one month, so r am informing you now. r wanted to complete the one year contract but in order to do that it will cost me further $30,000 and this is impossible to cope with. 16 Subsequent correspondence in March then discussed the level of the rent and the possibility of a replacement occupant. There was also discussion between the parties of changing the layout of the premises. 17 Freetel did not in fact cease its operation there and on 11 May 2001 Freetel advised that it would pay by way of rent $330 per week. While that letter indicates that Ms Chung was disputing the level of rent, payments were thereafter paid and received at that level without further comment from Ms Chung. 18 Nothing of substance transpired between the parties until October to December 2001 when Ms Chung passed to Freetel a copy of a rent increase notice from the managing agent as a result of which in December 2001 Freetel agreed to a 5 per cent increase in the rent to $346 per week. This was subsequently paid and received right up until September 2002 when the present dispute commenced. 19 On 11 September 2002 Ms Chung gave a notice asking for delayed amount of rent and asking Freetel to move out of the premises. This was followed by further letters of demand for payment and termination and subsequently resulted in a solicitor's letter to that effect on 22 October 2002. In response Freetel's solicitors denied liability and Ms Chung's solicitors responded that the current lease had expired and giving notice to vacate. 20 Freetel then commenced proceedings in the Consumer Trade and Tenancy Tribunal which were removed by order of that tribunal into this Tribunal. 21 At the time of entering into the agreement on 9 August 2000 Ms Chung occupied the whole of the shop 23 Railway Parade under a lease from Mr and Mrs John. The only evidence of that lease before the Tribunal is an incomplete attachment of the first two pages with her solicitor's letter of demand of 8 November 2002 which states that the lease was from 21 September 1999 to 20 September 2002 with no option to renew. 22 Further evidence relating to the tenure of Ms Chung is a lease entered into by her with the same lessors for the same premises commencing 21 September 2002 for a three plus three. There is no evidence that there was any option to renew the lease current at the time of the occupancy agreement between the parties but given that the new lease entered into from 2002 was for three plus three and that the extract from the alleged prior lease with the solicitor's letter did not include an option, I consider it is reasonable to infer that there was as at August 2000 no express right of Ms Chung to renew the then current lease. 23 That is an issue in the matter because Freetel's lawyers submitted that for relevant purposes, as will become clear, the onus for establishing the status of that lease was on Ms Chung. However, given that the new lease includes an option itself, in my opinion the clear commercial likelihood is that the prior lease was not renewed pursuant to an option. 24 The parties having entered a dispute as to their respective rights it is now asserted on behalf of Freetel that, notwithstanding the silence in the original agreement as to its period of occupancy, the relationship between the parties constitutes a retail shop lease within the provisions of, and entitled to the protection of, the Retail Leases Act 1994, in particular that by virtue of section 16( 1) thereof, Freetel is now entitled to a five year term for its occupation of the space. 25 I am satisfied that it was the intention of the parties at the time they entered into their occupancy agreement, quite separate from the legal effect of the Retail Leases Act, that the arrangement was not for a term of that order, namely, five years, but was contemplated and intended to be for a period of initially one year. The best evidence of that is Freetel's own acknowledgment to that effect in its letter to Ms Chung of 21 February. While Freetel's manager Ms Sohn who was a witness in the case and the author of that letter on behalf of Freetel said that she will have been mistaken in making that reference to a one year contract, it accords with the conduct of the parties around that time that they had perceived the occupancy arrangement to be for a period of that nature, terminable on one month's notice. 26 Nevertheless, if the occupancy agreement does constitute a retail shop lease within the meaning of the Act then, subject to other subsections of section 16, there may arise an implied term of five years. 27 Accordingly the essential legal questions in the matter are first whether the agreement between the parties evidenced by the agreement of 9 August 2000 and other subsequent and relevant communications constitutes a retail shop lease. Secondly, whether by virtue of section 16(1), the term of that lease not being specified to be five years, is by operation of that subsection extended to five years. 28 The first issue then is whether this agreement related to a retail shop and whether it constituted a retail shop lease, both as defined in section 3 of the Act. 29 A retail shop as defined, means "premises" that are used for a business purpose specified in Schedule I of the Act. In this regard I am satisfied that a mobile phone shop, although not specifically included in the very detailed list within Schedule I, would fairly fall within the category of 'Electronic equipment and supplies shops'. So the initial question is whether what is occupied pursuant to the agreement constitutes premises. 30 Fortuitously, that matter received particular attention in a decision of the Appeal Panel of this Tribunal delivered this morning and access to which was obtained by the parties prior to recommencing proceedings today in order that they might consider the impact of any of its reasoning on this case. 31 That was a decision in the matter of Manly Council v Malouf [2003 ] NSWADT AP 12 and it related to whether or not external footpath space in the Manly Corso, subject to a licence from Manly Council, constituted a retail shop lease of premises. The case addressed a different situation from that presented here, namely, whether outdoor space could be premises and the appeal panel determined that it could not but, importantly, the case bears on the converse situation, namely, whether any space occupied for retail trading, albeit within a building, can constitute premises. 32 I should note that the Tribunal did cite and follow the decision of Simos J. in Conoid Pty Limited v International Theme Park Pty Limited [1999] NSW SC 1138 where he held that a permanently installed Kombi van in the theme park in which a relevant business was carried out could constitute premises. 33 The factors referred to by both Simos J and the Appeal Panel as relevant to whether or not a space constitutes premises include the importance of fixed structures forming enclosures with a roof and walls providing protection from the elements; accordingly buildings and rooms are clearly premises. Hence the Kombi van was held to be premises but conversely the open space albeit defined by movable structures in the Manly Council case was found not to be premises. 34 In the Manly Council case, the Appeal Panel at 30-31 emphasised that analysis of other uses of the word 'premises' 'rest on the assumption that 'premises' involve something more than mere land or space' and also said:- 'What the RLA is dealing with is 'retail shop' premises. We agree ...that the meaning of 'shop' must condition the approach to be taken to the meaning of 'premises'. This is the approach adopted by Simos J in Conoid, with which we agree.' 35 In this agreement there was no floor plan attached and there were no words identifying the space other than that they formed part of a location. In my opinion it is strongly arguable that this agreement was for the occupation of initially undefined space subsequently, as a practical matter, delineated by the placement of furniture and a temporary partition, all installed by the occupier, none provided by the grantor of the right of occupancy. Accordingly I find great difficulty in accepting that the subject matter of the agreement was 'premises'. What the parties set out to do here was to share a shop by way of a right to occupy space within premises but there was nothing in the agreement or in the rights granted by the grantor to constitute that space itself 'premises' within the meaning of the definition of 'retail shop'. 36 I find difficulty accepting that the intention of the legislature in the Retail Leases Act was to include the coverage of any space in which retail trade occurs albeit that it happens to be within a building, that building itself clearly constituting premises. 37 That would be the first reason why I would determine that the Retail Leases Act does not apply in this situation and that Freetel is not entitled to the protection of the Act. However, if I were to be incorrect in that regard I would acknowledge that the agreement itself would otherwise appear sufficient to fall within the definition of "lease" as defined in section 3 because it is a right of occupation and it need not be exclusive occupation as specified in the definition. 38 Further, if I were to be incorrect on whether or not this was an agreement relating to premises, granting a right to occupy premises, the next issue is whether its silence as to term is cured in favour of Freetel by section 16(1) extending the term to five years. Importantly, section 16(5) provides: This section does not apply to a lease to the extent that its application would be inconsistent with the terms of any head lease under which the lessor holds the retail shop. 39 As noted above I consider that on the evidence, it is established that Ms Chung's lease at the time the occupancy was entered into terminated as at 20 September 2002 with no right of renewal. There is some evidence that Freetel had knowledge generally as to this term but in any event that is not pertinent to whether or not subsection (5) applies in the circumstances. 40 As also noted, the then current lease was, some two years after the occupancy agreement, replaced by a new lease that commenced on 21 September 2002. However, in my opinion the time at which to apply subsection (5) is at the commencement of the agreement in question which has sought to obtain the protection of the Act as to term. At that time on the evidence, the head lease terminated on 20 September 2002 and, accordingly, in my opinion section 16( 1) could not apply to extend any retail lease of this space, assuming it to be premises, beyond that date. 41 The contention of Freetel was that the Tribunal should apply subsection (5) by reference to the legal relations at the time of the dispute and that in this case, as a new lease had been entered into by Ms Chung, there was no barrier to extending the term for the full five years. In my view that is not a correct application of the subsection because it speaks of the head lease under which the lessor holds the retail shop and the proper construction of that is at the time of examination of the term. 42 Subsequent head leases whether by way of exercise of option, if I were to be wrong in construing the evidence that there was no option to renew, or by way of replacement lease, would still be a new lease and would not be the head lease applying at the time of entering into the original retail shop lease. 43 The principal argument against the proposition I have just stated is that the section speaks of the application of section 16(1) being inconsistent "with the terms of any head lease" (emphasis added) and that it can, therefore, be applied at any time. I do not think that is the preferred construction of the section as a whole. 44 Accordingly, I am of the opinion that whatever the right of occupancy of Freetel, it terminated as at 20 September 2002, and hence Ms Chung is entitled, by appropriate notice, to recover the premises. In the circumstances, I consider that appropriate notice has been given although I will order further notice as a matter of fairly concluding the dispute between the parties. 45 The next question is whether Freetel is entitled to an order for compensation for business disruption and for relocation expenses. I am not satisfied on the evidence that there is any basis for that claim in circumstances where there has been adequate notice given to vacate the premises and in circumstances where the occupation right has, in my opinion, expired. 46 That then raises the issue of the cross-claim brought by Ms Chung for deficiency in rent and related claims. 47 Freetel contends that Ms Chung has simply led no evidence in 45 46 47 relation to that claim. 48 In my view, the relevant factors to determine that claim are the agreed rent from the commencement of the occupation right on 9 August 2000, the actual payments made, the subsequent payment record, and the response by the parties to the sums paid and received. 49 There were differences during the course of the relationship between the parties as to the level of rent agreed, the status of GST, the application of head lease rent increases and questions of access to the so called "half space of the back side". However I am satisfied that the amounts of rent that were in fact paid, were accepted right up until September 2002 without serious complaint by Ms Chung. In circumstances of both imprecision in the written agreement and lapse of time, I do not agree that there is a basis now for claiming amounts to be unpaid. I appreciate that a contention as to inaccurate payment has been maintained since this dispute began in September/October last year. However, as the dispute resolver, I am focusing on the period up to the commencement of the dispute and, in the circumstances, do not consider it appropriate to make any order for Freetel to pay amounts other than those at the rate currently being paid up to the date upon which the premises are, in fact, vacated. 50 In the circumstances, I consider it is fair and reasonable for Freetel to be entitled to a reasonable period of time to vacate the premises upon confirmation from Ms Chung that she does continue to require vacant possession, and I would declare that three weeks notice is fair and reasonable, in the circumstances. 51 It may be argued that, given that I have made a determination that, in my opinion, the Retail Leases Act does not apply by virtue of the meaning of the word 'premises', I do not have authority to go further and make these orders. However, I do not agree with that because I am satisfied this is a retail tenancy claim as defined, which in addition to requiring consideration of the meaning of 'premises' (on which my opinion may be contested), also requires me to determine whether the term of any lease that may exist has been duly determined by virtue of section 16(5). 52 Also the matter having been removed here from another jurisdiction, it is in the interests of the parties and the administration of justice that I make orders to bring finality to the dispute. ORDERS 53 Declare that there is no continuing lease of premises by the Applicant Freetel and that the Respondent Ms Chung is entitled to possession of the space occupied by Freetel. 54 Order that upon three weeks notice from Ms Chung to Freetel requiring vacant possession, Freetel vacate the shop 23 Railway Parade, Eastwood. 55 Application by Freetel for compensation dismissed. 56 Cross application by Ms Chung for unpaid rent and interest dismissed. 57 Each party to bear their own costs. 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.