Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Australian Credit & Finance Corporation Pty Ltd ATF SumoSalad, MLC Centre Trust v GPT RE Limited & QIC Limited [2011] NSWADT 234 Hearing dates: On the papers Decision date: 07 October 2011 Jurisdiction: Retail Leases Division Before: S Higgins, Deputy President Decision: 1.The application to join Mr Chalik as a party is refused. 2.The application is dismissed. 3.No order as to costs. Catchwords: Retail lease - joinder of covenantor as a party - futile joinder as no dispute between the lessor and lessee to the lease - licence agreement between lessee of the lease and a franchisee - franchisee pays licence fee and other payments due and payable under the lease to the lessor - whether a retail shop lease existed between franchisee and owner of the premises Legislation Cited: The Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Cases Cited: Jonamill Pty Ltd v Alramon Pty Ltd (No. 2) (RLD) [2010] NSWADTAP 3 Category: Interlocutory applications Parties: Australian Credit & Finance Corporation Pty Ltd ATF SumoSalad, MLC Centre Trust - Applicant GPT RE Limited & QIC Limited - Respondents Representation: Counsel M Allars (Respondents) I Chalik (Applicant agent) Raj Lawyers (Respondent) File Number(s): 115077 REasons for decision Introduction 1On 3 June 2011, the applicants, Australian Credit & Finance Corporation Pty Ltd ATF SumoSalad MLC Centre Trust (ACFC), filed a retail tenancy claim application with the Tribunal seeking: (a) a declaration that a retail shop lease existed between itself and the respondents, GPTE RE Limited and Queensland Investment Corporation (GPTE & QIC), for shop 6K5 (the premises) in the retail section of the MLC Centre at 19 Martin Place, Sydney; (b) such orders as the Tribunal deems fit. 2On the same day as filing its retail tenancy claim application, ACFC made an application for an urgent interim order as it had been locked out of the premises on 4 May 2011. ACFC alleged its fittings and fixtures were being damaged and removed and it sought an interim order that preventing any further damage or works being undertaken to the premises. 3ACFC operated a Sumo Salad business from the premises from 30 May 2007 to 4 May 2011. It operated that business as a franchisee. Mr Igor Chalik (Mr Chalik) is a director of ACFC. 4ACFC's interim order application was heard on 9 June 2011. Ms Allars, of counsel, who appeared for the respondents, opposed the stay. She also argued that the applicant, ACFC, did not have standing to bring this application as no retail shop lease existed between it and the respondents, GPTE & QIC. Written submissions and an affidavit of Melissa Chandler, Retail Manager of the MLC Centre, was tendered in support of these arguments. Ms Chandler is employed by Jones Lang LaSalle (NSW) Pty Ltd, the respondents' manager of the Centre. 5As Mr Chalik had not come prepared to argue the issue in regard to standing and he had not had an opportunity to fully consider the affidavit of Ms Chandler, on 9 June I only dealt with the interim order application. At the conclusion of hearing submissions, I made an order refusing the interim order application and gave brief reasons for decision in regard thereto. I then made orders, by consent, for the filing and serving of written submissions on the issue of the ACFC's standing to bring its application. By consent, I also made an order that this issue was to be determined on the papers, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997 (the ADT Act). Issues 6As a result of the written submissions filed and served by Mr Chalik, on behalf of ACFC, there are 2 issues for determination. These are: (a) whether Mr Chalik, should be joined as a party to the proceedings, and (b) whether ACFC has standing to bring this application against the respondent. 7For the reasons set out below, I have refused Mr Chalik's application to be joined as a party and I have also found that the applicant has no standing to bring this retail tenancy claim against the respondents, GPTE & QIC. The evidence in regard to the lease and the nature of ACFC's dispute 8In his written submission's Mr Chalik included reference to conversations he allegedly had, between 16 March and 30 May 2007, with representatives of ACFC's franchisor, SumoSalad Franchising Pty Ltd (SSF), and the then Retail Manager of the MLC Centre. It would appear that during this time ACFC was in the process of purchasing the Sumo Salad franchise. The essence of Mr Chalik's assertions is that ACFC became the lessee on acquiring the franchise and taking possession of the premises. I have dealt with these assertions in more detail below. 9Attached to the affidavit of Ms Chandler is a copy of a written lease for the premises (the Lease). The parties to the Lease are the respondent as lessor and SumoSalad (Leasing) Pty Limited (SSL) as lessee. The Lease is dated 1 June 2007. The commencement date of the Lease is stated to be 18 May 2007 and the termination date is 17 May 2013. Item 19 of the Reference Schedule to the Lease provides that the use of the premises is for the retail sale of salads, soups, fruit salads and bottled drinks as per the attached menu, trading as 'Sumo Salads' (the Sumo Salad business). 10Item 21 of the Reference Schedule to the Lease names Mr Chalik as the covenantor of the Lease. His liability under the Lease is contained in clause 47. 11Also attached to the affidavit of Ms Chandler is a copy of a Sumo Salad Outlet licence agreement between SSL and ACFC (the Outlet licence agreement). SSL is named as the licensor and ACFC is named as the licensee. The agreement is dated 30 May 2007. Paragraph A of the introduction to the Outlet licence agreement states that ACFC 'operates a Sumo Salad Business at the Outlet, pursuant to the terms and conditions of the Franchise Agreement.' The 'Franchise Agreement' is defined in clause 1.1(5) as an agreement between ACFC and SSF under which ACFC is granted a right to operate a Sumo Salad business from the 'Outlet'. The 'Outlet' is defined in clause 1.1(12) to mean the premises the subject of this application (see Item 4 of the Schedule to the Outlet licence agreement). 12Paragraph B of the introduction of the Outlet licence agreement states that SSL has agreed to grant to ACFC 'a non-exclusive licence to occupy and use the Outlet'. 13The commencement date of the Outlet licence agreement is defined to mean the commencement date of the franchise agreement (see Item 4 of the Schedule to the Outlet licence agreement) and the term of the agreement is defined to mean from the commencement date until the earlier of (a) the expiration or early expiration of the franchise agreement, and (b) the expiration or early termination of the 'Lease'. The 'Lease' is defined in clause 1.1(10) to mean 'the lease of the Outlet, a copy of which is attached at Annexure A ...' The 'Lease' that is attached is the Lease of the premises between the respondents and SSL. 14Clause 2.1 of the Outlet licence agreement provides that the applicant has a non-exclusive licence and privilege to occupy and use the premises to carry on the Sumo Salad business for the term of the agreement and in accordance with the Outlet licence. 15Clause 3.1 of the Outlet licence agreement requires ACFC to pay to SSL an 'Outlet licence fee', which is defined in clause 1.1(14) to mean an amount equal to the aggregate of: (a) the rent under the Lease, turnover or percentage rent (if any); and (c) any other money payable by SSL under the Lease. 16Clause 3.1 requires ACFC to pay the 'Outlet licence fee' at least 7 days before the date on which the corresponding amount falls due under the Lease. The clause goes on to provide that SSL 'can direct' ACFC to pay this fee directly to the Landlord (i.e. the respondents), or such other appropriate person. 17Clause 4 of the Outlet licence agreement deals with the provisions of the Lease. Clause 4.2 requires ACFC to observe all SSL's obligations under the Lease and not breach the Lease. 18Mr Chalik is named as the guarantor of ACFC's performance and obligations under the Outlet licence agreement. 19Ms Chandler, in her affidavit said that the respondents, nor its agent had been responsible for locking out ACFC from the premises or removing its fixtures and fittings. This she explained were the actions of SSL and SSF in that they re-entered possession of the premises and erected their own hoarding and also de-fitted the premises. In support of her evidence Ms Chandler attached relevant correspondence from SSL in regard to its actions and that of SSF. 20Ms Chandler went on to say that the respondents, had not terminated their Lease with SSL. Joinder of Mr Chalik as a party to the proceedings 21Mr Chalik seeks to be joined as a party to the proceedings on the basis that he is a 'party' to the Lease. He relies on section 63(a) of the Retail Leases Act 1994 (RL Act). 22The respondents do not dispute that Mr Chalik, as covenantor to the Lease between themselves and SSL, has standing to be joined as a party to a retail tenancy claim arising from that Lease. However, the respondents argue that as there is no dispute arising from that Lease, the joinder of Mr Chalik to this application would be futile. That is, there no retail tenancy dispute between the parties to the Lease of which Mr Chalik is a party. Hence no 'retail tenancy claim' could arise: see section 70 and 71 of the RL Act. 23I agree with the respondents. As pointed out by Ms Allars, clause 47.1 of the Lease makes Mr Chalik liable to the respondents where the lessee, SSL, breaches the Lease, or on the occurrence of any of the events referred to in clause 52.1(b) to (d) of the Lease (e.g. bankruptcy of a SSL or Mr Chalik, winding-up, administration, liquidation or receivership of the SSL or Mr Chalik). As none of these events have occurred, there is no retail tenancy dispute between the parties to the Lease. 24On the evidence of Ms Chandler, which has not been disputed by Mr Chalik, what has occurred is a dispute between ACFC and its franchisor, SSF, in that SSF has terminated ACFC's franchise agreement and as a consequence SSL's Outlet licence agreement has also been terminated, or expired. 25As there is no dispute arising from the Lease there can be no retail tenancy claim as defined in section 70 of the RL Act. Without such a claim, the joinder of Mr Chalik as a party would clearly be futile. Accordingly, the appropriate order is to refuse the joinder of Mr Chalik as a party to these proceedings on the basis of being a covenantor under the Lease. For the reasons set out below, there is also no other basis on which to join him as a party to these proceedings against the respondents. Does ACFC have standing to bring this application? 26It is not disputed that in order for ACFC to have standing to bring this application against the respondents it must show the existence of a 'retail shop lease' between itself and the respondents in regard to the premises: see subsection 71(1) of the RL Act which only gives parties or former parties to a 'retail shop lease' standing to bring a retail tenancy claim as defined in section 70 of that Act. 27Mr Chalik asserted that a retail shop lease existed between the parties as a result of representations made to him prior to ACFC taking possession, the fact that ACFC took possession of the premises prior the Lease executed between the respondents and SSL and the fact that ACFC, not SSL, made certain payments to the respondents as required under the written Lease. The payments referred to were: (a) the security bond and stamp duty at the time ACFC took possession of the premises and (b) rent for the entire period ACFC was in possession of the premises (i.e. 30 May 2007 to 4 May 2011). It was Mr Chalik's contention that as a consequence, pursuant to section 8 of the RLA and section 70A of the Conveyancing Act 1919, ACFC and not SSL was the lessee of the premises during the time ACFC occupied the premises. 28Ms Allars asserted that no retail shop lease existed between the respondents and ACFC and in support of that assertion she relied on the terms of the executed Lease between the respondents and SSL and the executed Outlet licence agreement between SSL and ACFC. 29In my view, for the reasons set out below, the assertions of Ms Allars are correct and those of Mr Chalik are misconceived, in that the matters he has raised do not evidence the existence of a lease between ACFC and the respondents. 30The term 'retail shop lease' or 'lease' is broadly defined in section 3 of the RL Act to mean the following: Retail shop lease or lease means in the agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of 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 expressed or implied, and (c) whether the agreement is oral or in writing, or partly oral and party in writing. 31As can be seen from this definition, a retail shop lease or lease is predicated on there being an agreement where one person grants to another a right to occupy premises for value and for the prescribed purpose. In my view the oral representations relied on by Mr Chalik cannot and do not evidence an agreement by the respondents to lease the premises to ACFC. Arguably they are no more than a passing comment, even if accepted as having been made. On the other hand, the written Lease evidences the agreement of the respondents to grant to SSL, for value, a right to occupy the premises for use as a Sumo Salad business (a retail shop). 32Mr Chalik's argument that ACFC took possession of the premises prior to the execution of the Lease does not mean that a lease existed between ACFC and the respondents by reason of section 8 of the RL Act. That section deals with the commencement of a lease (i.e. an agreement falling within section 3). Section 8 is in the following terms: 8 When the lease was entered into (1)For the purpose 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. 33In this application, the written Lease provided a commencement date of 18 May 2007. This is the date on which SSL in effect took possession of the premises in that this was the date from which SSL had an exclusive right to possession to the premises and the date from which its obligations to pay rent under the terms of the Lease arose. The fact that the written Lease agreement was not executed until 1 June 2007, does not alter the rights and obligations of the parties as agreed and set out in the terms of that Lease. The date of execution is merely the date on which the written agreement to lease was signed. Accordingly, on the basis of the express terms of the Lease agreement, SSL in fact took possession of the premises prior to ACFC. 34It is also clear from the terms of the Outlet licence agreement, that ACFC, as a franchisee of SSF, took possession of the premises pursuant to the provisions of this agreement. Mr Chalik seems to have conveniently overlooked this agreement in his argument. As noted below, the Lease agreement between the respondents and SSL expressly made provision for SSL to enter into a franchise or licence the premises to a franchisee: see clause 70 of the Lease (clause 70.1 provides that SSL must obtain the consent of the respondents where it enters into a franchise agreement or a licence or licences the premises to a franchisee. Clause 70.3 provides that SSL must still obey the Lease and still remain liable for all its obligations under the Lease where it enters a franchise agreement or licence the premises to a franchisee). Clause 70 is contained in Part W of the Lease, which deals with further variations in regard to a licence to a SSF franchisee. That Part commences with the words 'We, you and the covenantor (if any), agree that while the tenant SumoSalad (Leasing) Pty Limited 26 109 317 919 this lease is varied as follows:' That is, the provisions in this Part are provisions which Mr Chalik, as conenantor, expressly agreed to be bound by. 35Clause 70 of the Lease is consistent with paragraph 42(a) of the RL Act which provides that: 'A retail shop lease may contain a provision which allows the lessor to refuse in the lessor's absolute discretion: (a) consent to the grant of a sublease, licence or concession in respect of the whole or any part of the shop, ...' 36The Outlet Licence agreement, in so far as it contains provisions that are referrable to those in the Lease are also consistent with the respondents' rights as contained in paragraph 42(a) of the RL Act. For example, clause 6.4 of the Outlet licence agreement is an acknowledgement by ACFC that by granting the licence, SSL had not parted with possession of the premises as defined in the Lease: see also clauses 2.3 and 4.1 which provide that ACFC 'acknowledges that it does not have exclusive possession of the Outlet' and that SSL 'may at all times as a tenant under the Lease including without limitation its right to use, possess and enjoy the whole or any part of the Outlet subject only to the rights of' ACFC under the Outlet licence agreement' and ACFC' acknowledgement that it has reviewed the Lease and is fully aware of its terms and conditions. 37Clause 4.2 of the Outlet licence agreement provides that during the term of the Lease the licensee, ACFC, is required to observe all of SSL's obligations under the Lease and not breach any of these. As I have already mentioned clause 3.1 of the Outlet licence agreement required ACFC to pay an outlet licence fee in consideration for the grant of the licence. That fee was the amount payable in rent etc. by SSL under the Lease and clause 3.1 of the Outlet licence agreement enabled SSL to direct ACFC to pay the Outlet licence fee directly to the respondents. Accordingly, the payment of rent and the stamp duty by ACFC to the respondents were made in accordance with these provisions and not by reason of any agreement, implied or otherwise, between it and the respondent. Again, these provisions of the Outlet licence agreement are no inconsistent with paragraph 42(a) of the RL Act. 38In regard to the payment of the bank guarantee, clause 70.5, of the Lease, expressly provides that where SSL licences the premises in accordance with that clause, the respondents would accept a replacement unconditional bank grant guarantee from the franchisee on the same terms and conditions as the unconditional bank guarantee provided by SSL. Once again it is a payment that is made by ACFC to the respondents in accordance with the terms of the Lease. 39As pointed out by Ms Allars, in regard to the premises there are two agreements, a written Lease agreement between the respondents and SSL and a written licence agreement between ACFC and SSL. The written Lease is a retail shop lease falling within the provisions of the RL Act. ACFC's right to occupy the premises and its obligations to pay a licence fee and other costs do not arise from the written Lease, they arise from the Outlet licence agreement, to which the respondents are not a party. 40Accordingly, I find that no retail shop lease or lease existed between the respondents and ACFC. On this basis of this finding, ACFC cannot bring a 'retail tenancy claim' against the respondents under section 71 of the RL Act. In making my finding I have not made, nor am I required to make for the purpose of this application, a finding as to the legal effect of the agreement between ACFC and SSL in so far as it applies to the provisions of the RL Act. Costs 41The Tribunal's jurisdiction to grant costs arises under section 77 of the RL Act. How that jurisdiction is to be exercised is governed by section 88 of the ADT Act. Subsection 88(1) of the ADT Act provides that each party to the proceedings is to bear its own costs except as provided in that section. Subsection 88(1A) provides that the Tribunal may award costs in relation to the proceedings before it, but only if it is satisfied that it is fair to do so having regard to the matters set out in that subsection. Matters listed in that subsection include conduct of a party which has unnecessarily disadvantaged another party in the course of the proceedings and the relevant strengths of the claims made by each party, including whether a party has made a claim that has no tenable basis in fact or law. It is the contention of the respondents that a costs order should be made in its favour as the applicant's claim was not merely a weak claim but one which has no tenable basis in fact or law. In support of its contention the respondents relied on the decision of the Appeal Panel in Jonamill Pty Ltd v Alramon Pty Ltd (No. 2) (RLD) [2010] NSWADTAP 3 at (41) to (47). In my view the circumstances giving rise to a costs order in that decision is distinguishable to the circumstances of this application. Jonamill concerned an appeal, where the appellant had already had the opportunity to fully argue its case before the Tribunal at first instance, but persisted in pursuing an appeal when there were clearly no grounds for an appeal. The circumstance of this application is a first instance application. 42It is well accepted that a party being unsuccessful in its claim does not of itself give rise to a cost order under section 88. The issue is whether, ACFC's application had no tenable basis in fact or law. In this regard I note the correspondence of 12 May 2011 between respondents' solicitors and ACFC's solicitor that is attached to ACFC's interim order application. That correspondence is reflective of my findings above, however I do not believe it is such to find that ACFC's application had no tenable basis in fact or law. I note Mr Chalik, in his capacity as the director of ACFC, brought this application. There is no evidence that Mr Chalik is legally trained. 43There is also no suggestion of Mr Chalik having unnecessarily prolonged by the proceedings. On the contrary, they were brought expeditiously. Accordingly, I am not satisfied that it is fair to make a cost order in favour of the respondents. Conclusion and orders 44In summary I have found that no lease agreement existed between the respondents and applicant, ACFC. I also find that the dispute that has arisen as a result of ACFC's lockout from the premises is a dispute between ACFC and SSF and SSL alone. Accordingly the joinder of Mr Chalik as a party would be futile and should be refused. Furthermore, I have found that ACFC has no standing to bring this application against the respondents and on this basis, its application should be dismissed and orders made accordingly. Finally, I am not satisfied that that it is fair to make a cost order in these proceedings. I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal. Registrar 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: 07 October 2011