Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Sean Lytton v North Bondi RSL Club Limited [2011] NSWADT 86 Hearing dates: 21 February 2011 Decision date: 29 April 2011 Before: K Rickards, Judicial Member Decision: 1. The deed of licence between the Applicant and the Respondent dated 1 November 2009 is declared to be for a term commencing 1 November 2009 and expiring 7 August 2014. 2. The Respondent is not itself, or by its officers or agents, to interfere with the occupation by the Applicant of that part of the premises at North Bondi RSL Club known as the kitchen and servery, or with access to North Bondi RSL Club by the Applicant or its employees or agents or patrons for the purpose of conduct of the Applicant's business. 3. During the term as set out in Order 1 above, the Respondent is not to take any steps by itself, its officers and/or agents to remove or destroy any fixtures and/or fittings in the kitchen and servery area. 4. The Respondent is to pay to the Applicant the sum of $9,470.72 in reimbursement of payment by the Applicant toward the capital cost of the garbage compound at North Bondi RSL Club. Catchwords: Jurisdiction; Costs Legislation Cited: Retail Leases Act 1994; Administrative Decisions Tribunal Act 1997 Cases Cited: Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC 1151; Constantinos Trembelas v Cyprus Community of NSW NSWSC [unreported, 2 June 1998]; Thompson v Easterbrook [1951] 83 CLR 467; Manly Council v Malouf [2004] 61 NSWLR 394; Sydney Markets Ltd v Wilson [2010] NSW ADTAP 45; Ragi Pty Ltd v Kiwi Munchies Pty Ltd [2007] NSWADT 108 Texts Cited: Nil Category: Principal judgment Parties: Sean Lytton (Applicant) North Bondi RSL Club Limited (Respondent) Representation: D Muir SC (Applicant); H Stowe (Respondent) Carroll & O'Dea (Applicant); David Beattie (Respondent) File Number(s): 105171 Judgment 1These proceedings require a decision as to whether or not a retail lease agreement has been entered into between the parties, relating to a business known as the "Blue Wave Bistro" conducted by the Applicant at the Respondent's premises North Bondi RSL Club. 2The relevant written agreement between the parties is a document entitled "Deed of Licence" dated 1 November 2009 ("the Licence Agreement"). 3The Licence Agreement is expressed to be for a period of one year from 1 November 2009, unless terminated earlier. 4The Licence Agreement provides for payment to the Respondent of a weekly amount of $1,600 plus GST by the Applicant. Clause 5 of the Licence Agreement requires the Applicant to provide a "Food Service" from the kitchen which is located within the club premises. 5The Licence Agreement defines the term "Food Service" to mean "the provision of regular and reasonably priced meals to ... its members"; there seems to be no issue between the parties that provision of meals was also contemplated by the parties to include guests at the club premises. 6In addition to payment of the weekly "licence fee", clause 4 of the Licence Agreement requires the Applicant to also pay outgoings, which are expressed to include operating costs of providing the Food Service, relevant electricity gas and water usage, half the cost of cleaning of windows of the club premises, one half of the Respondent's annual advertising expenses up to a maximum of $10,000 and contribution of one quarter of the capital cost of the garbage compound built at the Respondent's premises. 7There are also a number of specific obligations set out for the Applicant within the Licence Agreement, including minimum levels of lunch and dinner services and opening hours at various times. 8The nature and extent of the Applicant's agreed use of the overall club premises is set out within the Licence Agreement as follows: "7.1 The Club shall ensure that the Operator has exclusive use of the Kitchen and access to the restaurant and other areas of the Club for the purpose of fulfilling the Operator's obligations under this Deed. 7.2 The Club shall permit patrons of the restaurant to sit anywhere within the Club (except for the gaming room) and shall allow the provision of the Food Service throughout the entire Club Premises and shall arrange appropriate signage to that effect. 7.3 The Club shall not permit any other caterers to supply food and non-alcohol beverages at the Club Premises without the prior written approval of the Operator." 9 The belief or intention of the parties as to whether or not the provisions of the Licence Agreement might constitute a retail lease is irrelevant to determination of such issue. 10 The provisions of section 3 of the Retail Leases Act 1994 (the " RL Act ") contain the following definitions: " Retail shop ... means premises that: (a) are used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph ..." and " Retail shop 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." 11 The appropriate use of these definitions to determine whether a "retail shop lease" exists was described by His Honour Barrett J in Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC1151: "(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'." 12 The important questions which arise for determination in these proceedings are whether the Applicant has been given a right of occupation of premises pursuant to the Licence Agreement, exactly what those "premises" are, and whether the agreed use of those premises is as a "retail shop". 13 It is contended on behalf of the Respondent that the Licence Agreement gives the Applicant a non exclusive right of occupation over the entire club premises. Accordingly, it is argued that the provisions of the RL Act do not apply because the use of the premises for the carrying on of what is described as the Applicant's "restaurant business" is neither the whole nor the predominant use of those premises. It is also contended that the club premises exceed 1,000 square metres in size which thereby invokes the operation of section 5(a) of the RL Act in excluding the Act's application to the agreement between the parties. 14 The use of the term "restaurant" within clause 7 of the Licence Agreement is inappropriate. The system by which patrons at the club can obtain and consume meals from the Applicant was in place well prior to commencement of the subject agreement, and is described in paragraphs 63 an 64 of the Affidavit of the Respondent's secretary manager, Steven Lovat. In general terms, patrons order and pay for food and hot drinks at what is described by him as the "bistro servery" which is an open extension of the kitchen. Patrons pay for the food which has been ordered while they are at the servery and they are then given a buzzer which activates when the food is ready for collection. Once the buzzer is activated, the food is collected by the patron. The food can then be consumed throughout the entire ground floor of the club premises. 15 Clause 7.1 of the Licence Agreement gives the Applicant "exclusive use" of the kitchen in order to undertake the business of making and then selling meals and hot drinks. It is also clear from the evidence presented at the hearing that the servery forms part of the kitchen premises and that there is no "restaurant" as such within the overall club premises. The terms of the Licence Agreement give the Applicant general access to the kitchen and servery areas and other parts of the club premises. It appears to be common ground that the overall club premises are neither wholly nor predominantly used for the supply or consumption of meals. 16 Attention has been drawn to the unreported decision of His Honour Windeyer J of the NSW Supreme Court in Constantinos Trembelas v Cypress Community of NSW [unreported 2 June 1998] where the Court dealt with a somewhat similar situation. A licence agreement existed between a licensed club and the plaintiff who was described as "the bistro and auditorium caterer" for a term of one year. Control of the bistro kitchen was given to the plaintiff. The agreement was held not to constitute a retail lease under the RL Act. The Court found that there was a single business conducted in both the bistro and the auditorium, such business being conducted partly by the plaintiff and partly by the club, and that the licence did not give the plaintiff occupation of either of those two areas. The Court also considered that the conduct of the "auditorium business" involved use of an area which exceeded the threshold lettable area set by section 5 of the RL Act . 17 For the Applicant to have a "right of occupation" of premises there must be some degree of control over the premises, however slight, and a degree of "constant use" for relevant business purposes. The Respondent contends that the Applicant's "right of occupation" granted by the Licence Agreement extends beyond the kitchen and servery because the Applicant has the right to invite persons into the club premises, to invite customers of the bistro to sit anywhere in the club premises and the right to serve food throughout the entire club premises which include the right to offer a table service. 18 As stated previously, there is no designated or actual restaurant area within the club. Patrons can consume their food throughout the club, subject to some excluded areas. 19 The Respondent quite correctly cites Moweno (supra) as authority for the proposition that "the relevant grant of a right of occupation is a grant sourced in the parties' agreement". The Respondent argues that there is no basis for the contention that there has been any variation to the licence by virtue of which the parties have agreed to limit the Applicant's rights under the licence agreement to provide only "take away food". There is certainly no such express limitation within the licence agreement; however, consideration of the express terms of the agreement may be only one part of determining both the purpose for which the premises are let and what those premises consist of. 20 In determining the purpose for which premises were let under the RL Act , Barrett J in Moweno at paragraph 10 of his judgment quoted the principles enunciated by the High Court 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 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." 21 The photographic evidence in this matter shows that, apart from there being no designated restaurant space within the club premises, there are areas which could, if so utilised, have food delivered to them by staff employed by the Applicant. The licence agreement is silent as to the way in which food is to be served in the club premises. However, it is abundantly clear from the evidence that the system in place as at the date of commencement of the subject agreement was one where the business activity of the Applicant involved production and sale of food from within the kitchen and servery area and that patrons of the business then took the food away and were allowed to consume such food in most areas of the club premises. 22 Consideration of the terms of the Licence Agreement together with the context within which the agreement was made indicates that the Applicant was given a right of occupation of the kitchen and servery area of the club premises for the purpose of selling meals to patrons. As such, the licence agreement between the parties creates a right of occupation of those premises which constitutes a retail shop lease. Clause 7.1 also gives the Applicant access to the kitchen and servery area for himself and his employees and for persons delivering supplies to the kitchen and servery which gives commercial efficacy to the Applicant's right of occupation. Clause 7.2 also gives support to the conduct of the Applicant's business conducted at the kitchen and servery by permitting patrons to then consume meals throughout the club premises. There is no right of occupation of the club auditorium or other areas given to the Applicant. 23 The Applicant's business of preparation and sale of meals from the kitchen and servery area is not a business conducted jointly with the club. There are obligations set out within the Licence Agreement as to the manner in which the business is to operate and as to the Applicant's contribution to outgoings, but there is nothing within the agreement nor arising from the evidence in these proceedings to indicate that the business is jointly operated by the parties. As such, the factual situation is different to that which existed in Trembelas . 24 The kitchen and servery area is a designated and distinguishable area within the club premises. It is not an ill-defined area of open floor space such as was the case in Manly Council v Malouf [2004] 61 NSWLR 394. It is a clearer and more permanently defined area than that which the Appeal Panel considered in Sydney Markets Ltd v Wilson [2010] NSWADTAP 45 where, in dealing with a stand area at the market in Sydney known as "Paddy's Market", it was said: "21 In the opinion of the Appeal Panel the decision in Malouf may be distinguished from this case. This was not simply a licence to occupy vacant land. It was of an area within a building, an area more over, which was intended to become and did in fact become a venue for the sale of goods by retail. The erection by the Respondent, in the areas allotted to him, of display cases, counters and signage rendered the space indistinguishable from a retail shop, as that expression is commonly understood. It was plainly the intention of the parties that something like this would occur in order to give effect to the purpose of the licence agreement. We hold that the occupancy of the Respondent constituted a retail shop lease within the meaning of the RLA." 25 Clause 18 of the Licence Agreement provides that the term of the agreement is interdependent with continuation of the club's head lease from the North Bondi RSL sub-branch. That head lease is for a term of 7 years expiring on 8 August 2014. Given the findings above that the Applicant's right of occupation of the kitchen and servery area within the club premises does constitute a retail shop lease for the purposes of the RL Act , the term of such lease therefore runs until 7 August 2014. It is appropriate that there should be a declaration to such effect. It is also appropriate that an order should be made restraining the Respondent during this period of time from taking any steps or causing steps to be taken by any other persons to interfere with the Applicant's occupation of the kitchen and servery area and also permitting access by the Applicant, his employees and suppliers, and patrons of the Applicant's business to that area and to other areas of the club (other than the gaming room) for the purpose of operating the Applicant's business. Given the actions of the Respondent in surveying the kitchen and servery area with a view to undertaking renovations, it is also appropriate that an order be made restraining the Respondent from taking any steps to remove or destroy any fixture or fittings within the kitchen and servery area during the term of occupation by the Applicant. 26 The Respondent complied with the terms of the Licence Agreement in paying to the Applicant the sum of $9,470.72 toward the Respondent's capital costs for construction of a garbage compound. Section 23 of the RL Act provides that capital costs are not recoverable from the lessee of retail shop premises in respect of the building in which the retail shop is located or any areas used in association with any such building. Accordingly, it is appropriate that the Respondent repay the sum of $9,470.72 to the Applicant but, in these circumstances where the parties have agreed in good faith for such payment to be made and where the Applicant has derived benefit from the expenditure, it is inappropriate in the exercise of my discretion to award interest. 27 The Applicant seeks orders that he be repaid all outgoings paid by him to date pursuant to the Licence Agreement because, contrary to section 22 (i) of the RL Act , the Licence Agreement does not specify how the amount of outgoings is to be determined, how they are to be apportioned to the Applicant, and how those outgoings or only part of them may be recovered by the Respondent. The Applicant also seeks a declaration that he is not liable to pay any further outgoings for these same reasons. 28 Clause 4.4 of the Licence Agreement states that the Applicant is to contribute a one half share of the cost of cleaning of the windows of the club premises upon receipt of an invoice from the club, and clause 4.5 requires the Applicant to contribute one half of the cost of advertising the club in such form as is agreed from time to time by the parties, up to the maximum contribution of $10,000 per annum. These provisions do not breach section 22 (i) of the RL Act , and the advertising payment required by clause 4.5 is not to be considered as an outgoing, by reason of section 22(3). 29 Clause 4.1 of the agreement requires the Applicant to meet payment for maintenance of equipment and cleaning associated with provision of the operation of the food service, as well as cleaning and maintenance of the grease trap. These outgoings are apportioned totally to the Applicant. It is clear that the amount of such outgoings will be whatever the total cost is for such cleaning and maintenance, and that the total cost is to be borne by Applicant. There is no apparent breach of the provisions of Section 22(i) of the RL Act . 30 Clause 4.2 of the Licence Agreement does not comply with section 22 of the RL Act because it simply states that the outgoings payable by the Applicant shall "include the cost of electricity, gas and water usage". There is no description of how the amount of these outgoings, referable to the Applicant's use of the agreed portion of the club premises, is to be determined. In Ragi Pty Limited v Kiwi Munchies Pty Ltd [2007] NSWADT 108, the Tribunal found that the lessor had not complied with section 22 in circumstances where the lease did not fully specify the outgoings which were to be considered as recoverable and because the parties had agreed to a fixed amount for outgoings rather than being referable to the amount payable at the end of an accounting period. Nevertheless, the Tribunal held that the landlord should be reimbursed in respect of the unpaid outgoings, based upon a review of previous High Court and Victorian Supreme Court decisions. 31 Although the terms of clause 4.2 of the Licence Agreement do not define how the "cost of electricity gas and water usage" is to be determined, evidence has been provided by the Respondent's secretary manager Mr Lovat, which I accept, that there was a clear and transparent system in place prior to the commencement of the Licence Agreement by which the amount of electricity, gas and water used by the Applicant's business was measured and then communicated to the Applicant. There is a degree of factual dispute between the Applicant and Mr Lovat as to the existence of the appropriate water meter, and also as to the transparency of the process by which invoices were raised, but I prefer the evidence of Mr Lovat as being more reliable in relation to these issues. 32 Despite the lack of compliance with section 22 of the RL Act by the lessor in Ragi , the Tribunal in that case held that the lessor should nevertheless be reimbursed for unpaid outgoings. The reasons given by the Tribunal in that case are also relevant here: "145 In my view, the parties to the lease were both commercially experienced. They bargained in a usual way. For the reasons given, I am satisfied that there is no adequate proof of any misrepresentation by the agent in the course of those dealings going to the treatment of other tenants in respect of outgoings. Nor, for the reasons given, do I find any substantive breaches by Ragi of its obligations in such matters as the making of repairs and the like. 146 The present circumstances do not present, I accept, as radical a situation as that dealt with in the Victorian line of authority, where the non-compliant landlord faced loss of the entire rent. In my view, Ragi is entitled to fair compensation for the use and occupation of the premises by KM. KM received good consideration under the contract, void as it is so far as the outgoings covenant is concerned by reason of section 22. 147 As to what is "fair and reasonable" compensation, I am content, as the Victorian Court was in Ovidio , to be guided by the price agreed between the parties for occupation of the premises. I do not think it should, in effect, be reduced by depriving Ragi of the outgoings component." 33 The parties in these proceedings had a commercial relationship prior to commencement of the Licence Agreement, and had used a system for measuring and paying outgoings. Payment of applicable outgoings by the Applicant is fair compensation for its use and occupation of part of the club premises. Accordingly, payment of outgoings is not precluded by reason of any non compliance by the Respondent with the provisions of section 22 of the RL Act . The Applicant is not entitled to a refund of outgoings paid by him in the past to the Respondent and he should continue to pay outgoings in accordance with the Licence Agreement. 34 The final matter which should be dealt with is that of costs. 35 Within the Amended Application, the Applicant seeks payment of its costs upon an indemnity basis. Consideration as to whether a costs order should be made must be based upon the provisions of Section 88 of the Administrative Decisions Tribunal Act 1997, which provide that each party to proceedings is to bear their own costs unless the Tribunal considers that it is fair to award costs in favour of one party having regard to a number of stated factors as set out within section 88(1A). 36 The subject proceedings have required determination as to whether or not a retail shop lease has been created in circumstances where there are a number of competing facts and authorities which might lead to opposite conclusions. Although this issue has been determined in favour of the Applicant, the Respondent's contentions were tenable and required serious consideration. There has been no apparent unreasonable failure by either party to comply with directions and the Tribunal has been greatly assisted by both counsel in the manner by which relevant issues have been properly identified and addressed. Each party has been partly successful in the proceedings. In such circumstances, it is not considered fair that there should be any departure from the presumption that each party should bear their own costs of the proceedings. ORDERS 1The deed of licence between the Applicant and the Respondent dated 1 November 2009 is declared to be for a term commencing 1 November 2009 and expiring 7 August 2014. 2The Respondent is not itself, or by its officers or agents, to interfere with the occupation by the Applicant of that part of the premises at North Bondi RSL Club known as the kitchen and servery, or with access to North Bondi RSL Club by the Applicant or its employees or agents or patrons for the purpose of conduct of the Applicant's business. 3During the term as set out in Order 1 above, the Respondent is not to take any steps by itself, its officers and/or agents to remove or destroy any fixtures and/or fittings in the kitchen and servery area. 4The Respondent is to pay to the Applicant the sum of $9,470.72 in reimbursement of payment by the Applicant toward the capital cost of the garbage compound at North Bondi RSL Club. ********** 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. Decision last updated: 29 April 2011