Reported Decision : (2003) NSW ConvR 56-050 New South Wales Supreme Court CITATION : Moweno v Stratis [2002] NSWSC 1151 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4685/01 HEARING DATE(S) : 21/11/02 JUDGMENT DATE : 2 December 2002 PARTIES : Moweno Pty Limited - Plaintiff Stratis Promotions Pty Limited - Defendant JUDGMENT OF : Barrett J COUNSEL : Mr A M Colefax - Plaintiff Mr C M Harris - Defendant SOLICITORS : Colin Biggers & Paisley - Plaintiff Clinch Neville Long - Defendant CATCHWORDS : LANDLORD AND TENANT - retail tenancies legislation - whether variation of existing lease may itself be "retail shop lease" - determining purpose of right of occupation - whether actual use as distinct from agreed use relevant - construction of user covenant LEGISLATION CITED : Retail Leases Act 1994 CAC Pty Ltd v Diamond Hill International Pty Ltd (1996) 7 BPR 14,754 CASES CITED : Kanittha Ninubon v GAG Pty Ltd [1998] NSWSC 298 Randi Wixs Pty Ltd v Pokana Pty Ltd [2002] NSWADT 205 Thompson v Easterbrook (1951) 83 CLR 467 DECISION : See paragraph 33 - 3 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J MONDAY, 2 DECEMBER 2002 4685/01 – MOWENO PTY LIMITED v STRATIS PROMOTIONS PTY LTD JUDGMENT Background 1 The plaintiff is the owner of premises at 588-590 Princes Highway, Rockdale. On or about 24 August 1998, the plaintiff granted to the defendant a lease of the first floor of those premises for a term of ten years commencing on 1 February 1999. In January 1999, the lease was varied. By its amended summons filed on 31 January 2002, the plaintiff claims a declaration that, upon its proper construction, the lease "is not a retail shop lease within the meaning of the Retail Leases Act 1994". At this stage of the proceedings, that is the only issue the court is called upon to determine. 2 Both the plaintiff and the defendant led evidence. I shall turn to it in due course. First, it is appropriate to examine the Retail Leases Act 1994 to discover the processes that must be engaged in to determine whether a particular agreement is a "retail shop lease" within the meaning of that Act. The Retail Leases Act 3 Section 3 of the Act contains the following definition: " 'retail shop lease' or 'lease' means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop: (a) whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and (c) whether the agreement is oral or in writing, or partly oral and partly in writing. Note. Section 6 limits the retail shop leases to which this Act applies. " 4 Several features of this definition may be noted. First, any "agreement" of the relevant description is within the "retail shop lease" concept, whether or not it is (or contemplates) a lease in the strict sense: see CAC Pty Ltd v Diamond Hill International Pty Ltd (1996) 7 BPR 14,754. Second, a "right of occupation of premises" granted (or agreed to be granted) by one party to another must be produced by the "agreement". Third, the grant of that right must be "for value". Fourth, the "right of occupation of premises" must have a "purpose" definable by reference to "the use of the premises". Fifth, that "use of the premises" must be "as a retail shop". Sixth, the factors in paragraphs (a) to (c) are to be left out of account in deciding whether a particular agreement is a "retail shop lease". 5 In the present case, no issue or difficulty arises in relation to most of these matters. The controversy centres upon the elements encapsulated in the words "a right of occupation of premises for the purpose of the use of the premises as", plus the element delineated by the words "as a retail shop". 6 The term "retail shop" is also defined by s.3: "'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. Note. Section 5 limits the retail shops to which this Act applies. " 7 In the present case, para (b) of this definition (as well as the part of para (a) referring to a "retail shopping centre") may be ignored. When the relevant part of the definition of "retail shop" is inserted into the relevant part of the definition of "retail shop lease", the words become: "any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as premises that are used wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1". A paraphrase is: "any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1." 8 The focus is thus upon two things: the content of the right of occupation granted or agreed to be granted "under" the parties' agreement; and the question whether the occupation the subject of the right is "for the purpose of" the use of the premises in the way described. Determining the purpose 9 This raises the question of how one is to determine the purpose (as regards use) for which one person grants to another a right of occupation. The matter must, of necessity, be approached by reference to the terms of the parties' agreement. The relevant grant of a right of occupation is a grant sourced in the parties' agreement. This is the force of the words "under which". The purpose for which the right of occupation is granted must therefore be sought in the terms of the grant as embodied in the agreement. One's immediate reaction to the definition of "retail shop lease" is that expressed by Young J in passing in Kanittha Ninubon v GAG Pty Ltd [1998] NSWSC 298: "In any event, it was a lease made after 1 August 1994. It referred to premises being used as a restaurant and, accordingly, was a lease to which the Retail Leases Act 1994 applied." 10 The inquiry here, as I see it, is essentially the same as an inquiry as to the purpose (as regards use) for which premises are let, that being a concept that has long played a part in landlord and tenant legislation. It is therefore pertinent to have regard to the following principles enunciated in the joint judgment of Dixon, Williams, Webb, Fullagar and Kitto JJ in Thompson v Easterbrook (1951) 83 CLR 467: "The purposes for which premises are leased at the date of the notice to quit are the purposes which 'may reasonably be held to have been contemplated by both parties, having due regard to the terms of the lease, the character of the subject let, and other similar circumstances' (cf. Westropp v. Elligott , at p. 831). In that case Lord Watson said, in relation to provisions of an Imperial Act relating to a 'holding let to be used wholly or mainly for the purpose of pasture', that 'where the particular purpose for which the holding is to be used is not defined by contract, the legislature must have intended that the purpose should be ascertained by reference to the use or uses which the contracting parties must as intelligent and reasonable men be held to have had in their contemplation when they entered into the lease'. This proposition may be accepted as applicable to a case arising under the Act now in question, unless, after the granting of the lease, a change has occurred in the mutual rights and duties of the parties in relation to the user of the premises. It is in line with the view which the English courts have adopted in construing the words 'let as a separate dwelling' in the Increase of Rent and Mortgage Interest (Restrictions) Act , 1920 (Imp.) (10 & 11 Geo. 5 c. 17). They have held that what must be ascertained is the contemplation to be attributed to the parties at the date of the letting, according to the terms and circumstances of the letting ( Wolfe v. Hogan , per Evershed L.J.). Denning L.J. said in that case, 'If the lease contains an express provision as to the purpose of the letting, it is not necessary to look further. But, if there is no express provision, it is open to the court to look at the circumstances of the letting. If the house is constructed for use as a dwelling-house, it is reasonable to infer the purpose was to let it as a dwelling. But if, on the other hand, it is constructed for the purpose of being used as a lock-up shop, the reasonable inference is that it was let for business purposes. If the position were neutral, then it would be proper to look at the actual user. It is not a question of implied terms. It is a question of the purpose for which the premises were let'." 11 The members of the High Court thus placed strong emphasis upon the parties' agreement (if any) as to user as the determinant of the purpose for which premises are let, this being the prime indicator of their intention. It must follow that where the agreement expressly defines the scope of use, that statement will be conclusive unless there is compelling evidence that the parties did not mean what they said. It is, of course, possible that the parties' original contemplation will change, in the sense that they adopt some new and different mutual intention. The members of the High Court dealt with that possibility as follows: "But, though the time of the letting is initially the time as at which the purposes must be ascertained, it is apparent that the parties may afterwards change the nature of the purposes. They may do this by a contract express or implied, or by conduct giving rise to an estoppel or a general waiver. Passages in the judgments in Wolfe v. Hogan and Court v. Robinson support the view that where premises are initially let for business purposes and the tenant converts them into a dwelling, then, even though the lease contained a prohibition against use as a dwelling, the premises should be held to be leased for the purposes of a dwelling if a contract varying the lease to permit of the new mode of user is to be inferred. But, though we think that the same conclusion should be reached if the conduct of the parties, while not justifying the inference of a contract, effects an estoppel or a waiver as to the use of the premises as a dwelling, we do not think that a change of the purposes for which the letting was originally made can be brought about by an alteration in the mode of actual user, if that alteration is unaccompanied by anything constituting a variation of the legal relations of the parties upon the subject of the purposes for which the premises are in lease. Denning L.J. in Wolfe v. Hogan expressed the view that a house originally let for business purposes does not become let for dwelling purposes unless it can be inferred from the acceptance of rent that the landlord has affirmatively consented to the change of user. We would not adopt, as applying to the Act we have to consider, the qualification contained in this proposition. In our opinion even an affirmative consent by the landlord will not suffice unless it is given by a contract between the parties, express or implied, or the circumstances lead to the conclusion that the landlord has waived any provisions of the lease inconsistent with the change of user or is estopped from objecting to the change." 12 The reservation expressed towards the end of this passage about the approach of Denning LJ in relation to the English statutory provision is also applicable to the present context. The definition of "retail shop lease" is expressed in such a way that there must be found a right of occupation for the relevant purpose that is the subject matter of a grant by agreement. Agreement must be the source of the grant, although the agreement need not be express. I regard as applicable to cases of the present kind the last sentence of the above passage. Significance of any subsequent agreement 13 It is, I think, important to recognise that a particular tenancy arrangement may, from the perspective of the Act, change its character as a result of subsequent events. 14 The definition in s.3 makes it clear that the question whether a "retail shop lease" exists at a particular time will depend on the scope and content of the parties' agreement as it exists at that time. If, in the course of a particular tenancy relationship defined by reference to a particular use the parties choose to make some fresh agreement by which the landlord grants to the tenant a right of occupation for the purpose of a new and different use, the terms of the fresh agreement will fall to be examined against the Act's criteria. It may be that an agreement that was at inception a "retail shop lease" is replaced or supplemented in such a way that there is a new agreement that is not a "retail shop lease"; or conversely that an agreement that was originally not within the definition is replaced or supplemented in such a way that there is a new agreement that is within it. 15 It was submitted on behalf of the plaintiff that certain provisions of the Act may indicate some contrary intention, that is to say an intention that a particular tenancy is permanently branded one way or the other at its inception. It is true that the Act specifies certain things that are to be done before a "retail shop lease" is entered into (see s.9 and following). But those provisions do not seem to me to be inconsistent with the idea that a new or supplementary agreement between parties to an existing relationship of landlord and tenant may be a "retail shop lease". The provisions are capable of being complied with, in such a situation, in relation to the new or supplementary agreement. 16 It was also submitted for the plaintiff that s.8 is at odds with the approach I have outlined. That section is as follows: "8. When the lease is entered into (1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first). (2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease. Note. Therefore, if the lessee starts to pay rent as lessee or enters into possession as lessee, the lease is considered to have been entered into even if neither party has executed the lease at that time. Money paid in advance (purportedly as rent) as a deposit to secure premises for a proposed lease does not constitute rent paid as lessee under the lease ." 17 Again, I do not think that this section indicates a statutory intention that a tenancy arrangement is to be taken to be permanently branded at its inception. If premises are already occupied under an arrangement not entailing a "retail shop lease" and a new or supplementary agreement within the definition of that term is made by the parties to the existing arrangement (one of whom is already in possession), s.8 will have the effect that, for the purposes of the Act, the "retail shop lease" represented by the new or supplementary agreement is taken to be entered into at the time of execution of that agreement. The section can thus operate sensibly in such a case. The parties' agreements 18 I turn now to the evidence and, in particular, the documents defining the parties' agreements. The first document is, of course, the lease itself. As originally entered into on or about 24 August 1998, the lease contained a covenant by the defendant as lessee as follows: "The Lessee shall not use or permit to be used the Premises or any part thereof for any purpose other than as indicated in Item 3 of the Reference Schedule." Item 3 of the Reference Schedule was as follows: "The Lessee shall not without the written authority of the Lessors use or occupy the premises otherwise than as a Reception Lounge/Function Centre (Licensed)." 19 At the time the lease was executed, there existed development consent issued by the local authority on 28 May 1998 approving "Change of Use of a Commercial Premises to a Restaurant" and imposing certain conditions. One of these limited to 150 the number of persons to be accommodated in the restaurant. 20 On 1 December 1998, the parties executed a document by which they agreed further terms, including a term that the lessor would use its best endeavours to obtain from the local authority in respect of the premises "development consent for a maximum seating capacity of three hundred (300) persons for a licensed restaurant/reception lounge". Certain other terms were agreed to apply in the event that this application was unsuccessful. The application was duly made and was successful. In varying the consent, however, the authority altered condition 9 (which dealt with hours of operation) and imposed an additional condition 19: "Any functions or receptions are to be limited in number such that they are ancillary to the restaurant use." 21 In January 1999, the parties executed a variation of lease by which Item 3 of the Reference Schedule was altered to read: "The Lessee shall not without the written authority of the lessor use or occupy the premises otherwise than as a licensed restaurant with ancillary Function and Reception facilities." The variation of lease executed in January 1999 also inserted a new clause (which, for convenience, I shall call "the development consent compliance clause") as follows: "The parties hereby agree that the use of the premises by the Lessee shall be in accordance with the development consent (as varied) issued by Rockdale City Council ('Council') under application number DA33/98 for the premises. The Lessee shall comply with all requirements of the Council as they pertain to the fitout and use of the premises and in particular but not limited to conditions 9 and 19 of the said Development consent and any related Building consent." As I have noted, condition 9 dealt with hours of operation and condition 19 stated that functions or receptions "are to be limited in number such that they are ancillary to the restaurant use". 22 Since the time at which this variation became effective, the parties' agreement has been the source of a right on the defendant's part to use the premises as a licensed restaurant with ancillary function and reception facilities, provided such use is in accordance with the particular local authority development consent including, but not limited to, its provision that any functions or receptions are to be limited in number such that they are ancillary to the restaurant use. The parties' agreement, in its written form, is thus both explicit and clear as to the content of the right to use created by it. Evidence of actual use 23 Evidence was given by Mr Vranas, the principal of the plaintiff, and Mr Houvardas, the director of the defendant, as well as Mr Vella of the managing agents, as to the activities actually conducted on the premises. There is no real dispute about that matter. 24 The defendant's business conducted at the premises consists very largely of catering for functions such as wedding receptions, birthday parties and Rotary meetings which are not open to the public, as well as providing staged entertainment for paying patrons on occasions arranged either by the defendant itself or by some independent entrepreneur who hires the venue for the occasion. The premises include a kitchen. They are set up with a number of round dining tables (with chairs) each accommodating perhaps eight or ten persons. There is also a stage and a dance floor. Without exception, the functions and occasions on which groups of persons attend the premises involve the consumption of food and drink by those persons. Although the defendant has advertised the venue as a restaurant in the local press and in handbills, it was conceded that the occasions on which persons attend unannounced or by appointment for a meal unrelated to a function or other gathering of the kind I have described are infrequent; also that such small, independent groups of diners cannot be accommodated when the premises are being used for a function such as a wedding reception (which, of its nature, is confined to a self-contained group of invited guests) or when they are being set up for such a function. Conclusion as to scope of agreement 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 parties was uncertain or there was some suggestion that the true terms of their bargain were to be gathered from their conduct, as distinct from the written word. There is not, as I understand it, any such suggestion in this case. Nor is the written agreement uncertain. The lease as originally executed and the variation of lease subsequently executed both dealt in clear and explicit terms with the issue of use. There was, in each case, an express and unequivocal covenant by the defendant as lessee not to use the premises (or to allow them to be used) otherwise than for stated purposes. This express covenant by the lessee must be taken to co-exist with an unequivocal assent by the plaintiff as lessor to the use of the premises for those stated purposes, so that there was, by virtue of the documents (and without any need for assistance from extrinsic sources), the grant of a right of occupation of the premises for the purpose of the use of the premises for the pursuit of the activities described in the lessee's express covenants. 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 actual use and regarding that as the 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. 27 When the lease involved in the present case was first entered into in August 1998, the activities identified in the parties' express covenants were defined by the words "Reception Lounge/Function Centre (Licensed)"; but by means of the variation of lease executed in January 1999, the parties acquiesced in a written agreement which was the source of a right to use delineated by a combination of the words "a licensed restaurant with ancillary Function and Reception facilities" and the development consent compliance clause. That represents the parties' present and ongoing agreement, there being no suggestion, as I have said, that they have by conduct or otherwise assented to a departure from the written agreement most recently adopted by them. By virtue of the variation of lease, there came into existence an agreement under which the plaintiff granted to the defendant for value a right of occupation of the premises for the purpose of the use defined by the variation, including the development consent compliance clause. Whether the agreed use is within the Act 28 With the parties' agreement thus identified, the question becomes whether the agreed use purpose of "a licensed restaurant with ancillary Function and Reception facilities", coupled with the parties' agreement by means of the development consent compliance clause that the lessee's use shall be in accordance with the local authority's consent (including condition 19), is, in terms of the definition of "retail shop lease", "the purpose of the use of the premises as a retail shop". That, in turn, poses the central question whether the use is, in terms of the definition of "retail shop", "wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1". 29 Schedule 1 to the Act is headed "Retail shop businesses". It contains more than 130 different descriptions in alphabetical order from "Antique shops" to "Writing materials shops" (plus a final item referring to any other businesses from time to time prescribed by regulations). One of the descriptions is: "Restaurants, cafeterias, coffee lounges and other eating places." 30 There can be no doubt, as I see it, that the agreed use defined by the combination of the description "a licensed restaurant with ancillary Function and Reception facilities" and the development consent compliance clause is a use "predominantly for the carrying on of" the business of a "restaurant". The fact that the aspect involving "Function and Reception facilities" is declared by the parties to be "ancillary" means, of necessity, that the "restaurant" aspect ("restaurant" being the word used in both Schedule 1 to the Act and the parties' document) is agreed by them to be "predominant". There is no reason to think that "restaurant" does not have the same meaning in both the variation of lease and Schedule 1 to the Act. It follows that, whatever may have been the status of the lease in its original form, the agreement between the parties as it now stands (that is, since the variation of January 1999 which evidenced the parties' new agreement as to use) is a "retail shop lease" as defined by the Act. 31 There was debate before me on the question whether a reception and function venue at which meals are served as part of the particular event attended by a self-contained group of guests is within the part of the Schedule 1 item covered by the words "and other eating places" or whether the eiusdem generis rule imports into that description some element of willingness to accommodate and serve anyone who chooses to come, either at short notice or without notice, in the way people come to a restaurant, coffee lounge or cafeteria. In the event, it is unnecessary to pursue that question since, for the reasons I have stated, the matter is, in this case, to be resolved by reference to the words the parties have used in their agreement where the term "restaurant" is itself employed to describe the predominant aspect of the right. 32 My conclusion in this case is that the agreement of the plaintiff and the defendant formed by the variation of lease executed by them in January 1999 is a "retail shop lease" as defined by the Retail Leases Act 1994. Disposition of proceedings 33 The plaintiff is not entitled to the declaration it seeks, namely, a declaration that the lease between the parties – that is to say, the lease as varied in January 1999 by which the parties are bound today – is not a retail shop lease within the meaning of the Retail Leases Act 1994. The summons must therefore be dismissed with costs. ********** Last Modified: 12/02/2002 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.