Lauven Pty Ltd & Anor v Venus Adult Shops Pty Ltd & Ors [2006] NSWADT 359

CITATION: Lauven Pty Ltd & Anor v Venus Adult Shops Pty Ltd & Ors [2006] NSWADT 359

DIVISION: Retail Leases Division

FIRST APPLICANT Lauvan Pty Ltd SECOND APPLICANT R I Finances Pty Ltd PARTIES: FIRST RESPONDENT Venus Adult Shops Pty Ltd SECOND RESPONDENT Phillip de Prima THIRD RESPONDENT Jerry Gordon

FILE NUMBER: 065093

HEARING DATES: 26/10/06

SUBMISSIONS CLOSED: 11/16/2006

DATE OF DECISION: 12/18/2006

BEFORE: Higgins S - Judicial Member

CATCHWORDS: Jurisdiction

MATTER FOR DECISION: Preliminary matter

Interpretation Act 1987 LEGISLATION CITED : Retail Leases (Amendment) Act 2005 Retail Leases Act 1994

Manly Council v Malouf (2004) 61 NSWLR 394 CASES CITED: Moweno v Stratis [2002] NSWSC 1151 Randi Wixs Pty Ltd v Pokana Pty Ltd [2002] NSWADT 205 Wood & Wilson v Bergman [2003] NSWADT 82

APPLICANTS S. Lynch, Solicitor REPRESENTATION: RESPONDENTS J Lazarus, Barrister

ORDERS: 1. The Tribunal has jurisdiction to hear and determine the applicant's application; 2. The matter is to be set down for further directions on 1 February 2007 at 10:30 am.

REASONS FOR DECISION Introduction 1 This is an application by Lauvan Pty Ltd ('Lauvan'), the applicant lessee of Shop 1 at 256 Crown Street, Darlinghurst, seeking a payment of money from the respondent sub-lessee of these premises, Venus Adult Shops Pty Ltd ('Venus Adult Shop'). The proceedings were initiated in the Local Court on 20 March 2006 and Lauvan's claim is for the payment of $43,563.75 for arrears of rent and outgoings and interest thereon. 2 By consent, in May 2006, the matter was transferred from the Local Court to the Tribunal. Following that transfer the applicant instructed new solicitors. On the advice of the new solicitors, the applicant raised a preliminary issue as to the Tribunal's jurisdiction to hear and determine the application. That application was based on an assertion that the use of the premises did not come within the terms of s. 3 and Schedule 1 of the Retail Leases Act 1994 ("RL Act"). By consent the Tribunal directed that this preliminary issue be determined first and foremost. For the purposes of such a determination, the parties filed an agreed Statement of Facts. That Statement of Agreed Facts was in the following terms: 1. These proceedings relate to a sublease between Lauvan Pty Ltd and RI Finances Pty Ltd as sub-lessors and Venus Adult Shops Pty Ltd as sub-lessees ("the sublease"). 2. The sublease relates to premises located at Shop 1, 256 Crown Street, Darlinghurst, NSW, including one car space ("the premises"). 3. The sub-lease is dated 27 May 2004. 4. The commencement date of the sublease was 1 February 2004 5. Gerry Gordon and Phillip de Prima are the guarantors named in the sublease. 6. The permitted use for the premises pursuant to the sublease is as an Adult Shop. 7. At all material times until vacation of the premises, the sub-lessee used the premises in accordance with the abovementioned permitted use. 8. The premises were not located in a retail shopping centre, as that term is defined in the Retail Leases Act 1994. 9. The premises were used by the sub-lessee to sell books, toys, DVDs, videos, magazines, and sexually explicit lingerie of an adult or pornographic nature. 3 On 15 November 2006, the respondent provided the Tribunal with a schedule that identified, for 12 months during 2004 and 2005, the sales and volume of sales of DVD/Video, books/magazine and lingerie, toys and other items sold from the premises. The applicant did not raise any objection to the figures contained in the schedule or the summary thereof as provided by the solicitor acting for the respondent. That summary was as follows: By sales: DVD/video 53.41% Books/magazines 4.19% Lingerie 3.64% Total 61.24% By volume: DVD/video 47.50% Books/magazines 8.38% Lingerie 3.06% Total 58.94% Issue 4 As mentioned above, the only issue in regard to the question of jurisdiction of the Tribunal, is whether the premises are a 'retail shop' as defined in s.3 of the RL Act, in particular para (a) of that definition. It is conceded that the premises would fall within the terms of that definition, from 1 January 2006, when the RL Act was amended by the Retail Leases (Amendment) Act 2005. It is also conceded that by reason of the transitional provision in s.84B of the Retail Leases (Amendment) Act 2005, the question of whether the premises in this particular application was a 'retail shop' is to be determined in accordance with the RL Act as it was in force at the time the lease was entered into, which was 1 February 2004. Relevant legislation 5 S.72 of the RL Act gives the Tribunal jurisdiction to hear and determine "retail tenancy claims". A "retail tenancy claim" is defined in s.70 of the RL Act to include a claim in connection with a "retail tenancy dispute": see s.70(a). The term "retail tenancy dispute" is defined in s.63 of the RL Act to mean a dispute concerning the liabilities and obligations of a party or former party to a "retail shop lease or former lease". The term "retail shop lease" is defined in s.3 of the RL Act. That definition, as it applied on 1 February 2004, was in the following terms: "Retail Shop" means premises that: (a) are used wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1 (whether or not in a retail shopping centre); or (b) (are used for the carrying on of any business (whether or not a business specified in Schedule 1) in a retail shopping centre. 6 Schedule 1 lists numerous retail shop businesses, including business such as antique shops, art galleries, bicycle shops, book shops etc. Since 1 January 2006, that list has included 'adult books and toy shops'. However, no such business was listed in the Schedule prior thereto. 7 The essence of the applicant's submissions was that Schedule 1, as it applied when the lease was entered into, did not expressly include 'adult books and toy shops', it was therefore not a business included in the Schedule and hence premises used for such a business were not a retail shop as defined in s.3. It went on to say that other businesses listed in the Schedule such as book shops, electrical appliance shops, electronic equipment and supplies shops, gift shops, lingerie shops, toy shops, underwear shops and video tape and pre-recorded music libraries did not include an 'adult books and toy shop' business as this business differed significantly from all the businesses that were listed as they only sold products that were specifically designed for adults and were of a pornographic nature. In support of this construction, the applicant relied on the explanatory note to the Retail Leases Amendment Bill 2005 which stated the following: Retail shop businesses – Schedule 1[4], [6], [82], [90] and [93] The list of retail shop businesses in Schedule 1 to the Principle Act is replaced, so as to add new retail shop categories and remove others no longer needed as a result of being included in new categories. Provision is made for the listed businesses in Schedule 1 to be amended by regulations and eventually moved into the regulations…. 8 On the basis of this explanation, the applicant argued that Parliament did not intend to insert into the Schedule new and narrower categories of businesses that were already captured by the wider categories of businesses already included in Schedule 1. On the contrary it argued that Parliament's intention was to insert businesses that were not captured previously in the Schedule. 9 The applicant went on to assert that even if the Tribunal were to consider that the use of the leased premises was a use that came within one or more of the businesses listed in Schedule 1, as it applied on 1 February 2004, it could not be satisfied that they were predominant. Respondent's Submissions 10 The Respondent contended that the proper approach to the issue was to first construe the words as they appear within the Schedule and only where an ambiguity arose should the Tribunal have regard to the explanatory note to the Retail Leases (Amendment) Bill 2005: see s.34(b) of the Interpretation Act 1987. It also contended, on the basis of Manly Council v Malouf (2004) 61 NSWLR 394 at [49] and [74], that the provisions of the RL Act should not be interpreted narrowly as it is beneficial legislation. It went on to argue that in this application the business of sale of adult books and magazines, adult toys, DVDs/videos and lingerie all came within the ordinary meaning of businesses that were listed in the Schedule; namely, businesses of book shops, electrical appliance shops, gift shops, lingerie shops, toy shops and video and pre-recorded music libraries. That is, the ordinary meaning of these business were neither ambiguous or obscure, nor did their ordinary meaning lead to a result that was manifestly absurd of unreasonable. 11 The Respondent also contended that on its proper application the definition of "retail shop" did not require the premises in question to be used to operate a single type of business activity or to sell a single type of goods or service. It went on to assert that on its proper construction it was the actual use of the premises as distinct from the intended use which was important in determining whether or not particular premises came within the definition of a "retail shop". Consideration 12 The approach to be applied in determining the purpose (as regards use) for which one person grants to another a right of occupation was set out by Barrett J in Moweno v Stratis [2002] NSWSC 1151 at [9]. In that decision His Honour held that it is to be approached by reference to the terms of the party's agreement. His Honour went on to say the following at [25] and [26]: 25. In view of what I have said about the approach to be taken to the definition of "retail shop lease" this evidence of actual use is, at best, of marginal relevance. As it seems to me, the evidence of actual use would be useful only if the written agreement of the premises was uncertain or there was some suggestion that the true terms of the bargain were to be gathered from the conduct, as distinct from the written word. There is not, as I understand it, any suggestion in this case. Nor is the written agreement uncertain. … 26. The question whether a retail shop lease exists in a particular case is not to be approached by proceeding direct to an examination of the actual use and regarding that as a primary matter to be investigated. I do not consider to be correct the approach taken, in that respect, by the Administrative Decisions Tribunal in Randi Wixs Pty Ltd v Pokana Pty Ltd [2002] NSWADT 205. 13 In Moweno the stated agreed use of the premises on the lease as originally entered was that of a "reception lounge, function centre (licensed)". This was not a business listed in Schedule 1. There was however, evidence of the use provision of the lease having been varied to include a right of use of the premises as "a licensed restaurant with ancillary Function and Reception facilities". It was the varied permitted use as a licensed restaurant, which was a business listed in Schedule 1 and on this basis Barrett J. held that the premises came within the terms of 'retail shop' as defined in s.3 of the RL Act. 14 This decision was followed by Deputy President Chesterman in Wood & Wilson v Bergman [2003] NSWADT 82: see at [12] to [15]. 15 In Wood, the issue before the Tribunal was whether the stated permitted use of the leased premises of "petrol station and shop for the sale of grocery items and automotive parts and accessories" were businesses that came within those listed in Schedule 1 of the RL Act. It was common ground that the permitted use of petrol station did not come within the terms of any of the businesses listed in that Schedule. However, the sale of grocery items and motor accessories did. Accordingly it was a question of whether these uses were predominant. 16 In Wood at [16] and [17], Deputy President Chesterman cited with approval the observations of Judicial Member Malloy, in Randi Wixs about the meaning of "predominantly" in s.3 of the RL Act. His Honour said the following in this regard: 16. In Randi Wixs Pty Ltd v Pokana Pty Ltd [2002] NSWADT 205 at [12], Mr Malloy, Judicial Member, made the following observations about the meaning of 'predominantly' in s.3 of the Act: "Predominantly" is defined in the Australian Oxford Dictionary (1999) as "being the strongest or main element". It is not helpful in my view to analyse that by way of some percentage, even if it was possible so to analyse. Obviously, it must be more than 50% but in order to predominate, it seems to me that the use must be "the most conspicuous or effective" portion of the use to which the premises are put. 17. I find these observations helpful, noting that nothing said by Barrett J. in Moweno detracts from their authority. In addition, the definition of "predominant" in the Macquarie Concise Dictionary was cited on behalf of the lessor. This includes the following phrases: 1. To be the stronger or leading element; preponderant; prevail… 4. To be more noticeable or imposing that something else. 17 As stated above, in this application the stated permitted use of the premises is that of an 'Adult Shop'. Although 'adult shop' is not a business listed in Schedule 1 as it applied at the relevant time, I am not persuaded by the applicant's contention that the mere fact that such a business is not listed in the Schedule, is sufficient to hold that in this application the business as described in the lease is excluded from the operation of the RL Act. In any event I find that the explanatory memorandum relied on by the applicant would in any event be of little assistance. Even if it were applied, as pointed out by the applicant there are other additions to the Schedule, such as 'golf equipment shops' which would have been included in the existing business of 'sporting goods shop'and which contradict that contained in the explanatory memorandum. 18 As explained above the proper approach is that set out by Barrett J. in Moweno. On the basis of this approach I find that in this application the stated description of use is not sufficiently clear as to the nature of the business the parties had agreed would be conducted from the leased premises. It could include many things. Accordingly, I have had regard to what the premises were in fact used for. The parties have agreed as to the actual use of the premises, which was to sell books, toys, DVDs, videos, magazines, novelties and lingerie of an adult or explicitly pornographic nature. I note that the schedule of uses provided by the respondent also includes the sale of lube, oils, lotion and condoms. Hence the question is whether the selling of one or more of the products identified by the respondent comes within the description of one or more businesses listed in Schedule 1 and if they do whether that portion of the use of the premises is the predominant one. 19 Having regard to their ordinary meanings I find that the following businesses listed in Schedule 1, as it applied on 1 February 2004, apply to the lease the subject of this application: 'bookshops', 'lingerie shops' and 'video and pre-recorded music libraries'. In my opinion the sale of adult books would come within the ordinary meaning of a bookshop. There are various types of bookshops such as children's book shops and it is difficult to see why a distinction should be made for adult shops other than the restrictions that are placed on sellers of such books where they have been classified for restricted access and sale. These restrictions do not alter the nature of the business. The same would apply to video and pre-recorded music libraries. And in the case of lingerie, this in the ordinary sense would only apply to adult lingerie, which in my opinion would include lingerie of an explicit sexual nature. However, the same could not be said for toys and electronic appliance shops or electronic equipment and supplies shop. These I do not think would be understood to ordinarily include adult items of an explicit sexual nature. 20 Hence the only question that remains is whether the use of the premises as a bookshop, lingerie shop and video and pre-recorded music libraries are the predominant purpose. When regard is had to the schedule prepared by the respondent the most items sold (47.50%) and which generate the most gross income (53.41%) is that of DVD/video sales. The next most significant is that relating to toys (14.35% of items sold and 21.61% of gross income generated). Had these been the only items sold then the sale of DVD/videos would undoubtedly be the predominant use. However there are other items sold, some of which come within business listed in Schedule 1 and others do not. In my opinion, on balance, having regard to the percentages set out paragraph [3] above for items that do come within the businesses listed in the Schedule and the fact that the sale of DVD/videos is the most dominant items sold overall, I find that the predominant use of the premises is that of video and pre-recorded music libraries combined with the other uses of bookshop and lingerie shop. 21 Accordingly I find that the premises the subject of this application is a 'retail shop' and that the Tribunal has jurisdiction to hear and determine the application. Orders 22 The Tribunal orders: 1. The Tribunal has jurisdiction to hear and determine the applicant's application. 2, The matter is to be set down for further directions on 1 February 2007 at 10:30 am.