Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Hardcore Gym Pty Ltd v Police Citizens Youth Club Ltd [2014] NSWCATCD 249 Hearing dates: 25 November 2014 Decision date: 30 December 2014 Jurisdiction: Consumer and Commercial Division Before: D Bluth, Senior Member Decision: Whether the Activity Licence is a retail lease is a triable issue. The Application for Original Decision is to be listed for directions not before 24 January 2015. Catchwords: Jurisdiction whether premises as gym/fitness is a retail shop lease Section 78 of the Retail Leases Act 1974 Legislation Cited: Retail Leases Act 1994 Cases Cited: Car City Minchinbury Pty Ltd v Lifestyle Vehicles Pty Limited [2008] NSWADT 176 Lauven Pty Limited v Venus Adult Shops Pty Limited (2006) NSWADT 359 Moweno v Stratis [2002] NSWSC 1151 Thompson v Easterbrook (1951) 83 CLR 467 Wood & Anor v Bergman (2003) NSWADT 82 Category: Principal judgment Parties: Hardcore Gym Pty Ltd (applicant) Police Citizens Youth Club Ltd (respondent) Representation: Solicitors: One Legal Group (applicant) Thomson Geer (respondent) File Number(s): COM 14/53869 and 14/53870 Publication restriction: Nil Reasons for Decision 1. In this matter the applicant Hardcore Gym Pty Ltd applied for relief seeking an order that pending the hearing of the issues the respondent, the Police Citizens Youth Clubs NSW Ltd (PCYC) be restrained from taking any measures to retake possession of the top floor area, PCYC Rockdale, 9 Ador Avenue, Rockdale (the premises). 2. This application was first listed before me on 11 November 2014 and I listed the application for hearing on 25 November 2014 on a preliminary question as to whether there is a triable issue regarding jurisdiction. 3. The applicant operates a gymnasium and occupies the premises under an Activity Licence dated 1 January 2014 for a period of 12 months (Activity Licence). Mr Darren Black, CEO of the PCYC wrote to the applicant on 20 August 2014 indicating that the PCYC would not be renewing the Activity Licence which meant that the applicant had to cease operating on 31 December 2014. Reasons for the non-renewal were provided in the letter. Mr Black also said in the last sentence of the letter 'I'd like to thank you for being a part of our Club for the last 17 years and wish you the best for the future'. 4. The applicant's lawyers, One Legal Group wrote to Mr Black on 5 September 2014 asserting that the Activity Licence was regulated by the Retail Leases, 1974 (RL Act) and consequently as there was no certificate provided under s16(2) of the RL Act, the occupancy by the applicant does not expire until 31 December 2018. The certificate under s16(2) is a waiver of a 5 year term. 5. The PCYC rejected this contention on the basis that the occupancy of the premises did not come under the provisions of the Act. This was communicated to the applicant and consequently the applicant filed with this Tribunal an application for Original Decision. The question whether there was a triable issue on the jurisdiction of the Tribunal came before the Tribunal on 25 November 2014. Mr M Ayache of One Legal Group represented the applicant, Mr Robert Lawson of Thomson Geer represented PCYC. 6. As noted earlier the occupancy of the premises by the applicant was pursuant to an Activity Licence. The area the subject of the Activity Licence is noted as 'Gym upstairs, one internal and one external storage areas'. The Tribunal was advised by the parties that the total area of the premises was less than 1,000 square metres. The permitted use stated in the Activity Licence is 'Gym/Fitness'. There were also special conditions attached to the Activity Licence requiring all attendees at the gym to become members of the PCYC. 7. Mr Hicham Hammoud, a Director of the applicant gave evidence. He said that he had established a gym at the premises in 1998 and incorporated a company Hardcore Gym Pty Limited on 12 February 2012. He and his brother, Ali Hammoud are directors and shareholders of the company. The Activity Licence had been renewed annually from 1998 originally in his name and then in the name of the applicant in 2013 and again in 2014. He said that he had never received any breach notice from PCYC and had never had a valid complaint about his occupancy made. The first time that an issue had arisen about the occupancy was in the letter from Mr Black of 24 August 2014. 8. Mr Hammoud was asked about the setting up of the business and advised that over a period of time the retail sales in the gym had grown. Mr Ayache showed Mr Hammoud a number of photos of the gym taken recently by an employee of One Legal and Mr Hammoud described the photos. The first photo showed entry to the building where gym members would pass the front desk for the PCYC on the ground floor and then climb the stairs to the first floor to enter the gym. There were then produced a number of photos showing a counter and a retail outlet selling clothes, caps, sporting apparel, bags, accessories some showing the logo of Hardcore, weight training equipment, vitamins, supplements, drinks and refreshments. The photos were tendered. 9. Mr Hammoud was then shown a letter addressed to him from Ayache Accountants & Advisors dated 18 November 2014 (Accountant's Letter) reporting on the sales mix as percentages of the turnover. In 2013 membership represented 30.60% and in 2014 33.31% of the total revenue. In 2013 clothing and merchandise and drinks and supplements (being the retail component of the business) was 51.73% and in 2014 66.69%. In 2013 equipment sales was noted at 17.67% but for some reason, not explained, no equipment sales took place in 2014. An analysis of transactions by volume shows in 2013 the retail component in volume was 86.36% and in 2014 89.28%. The Accountant's Letter was tendered. The conclusion was that From the two matrices above, it is evident that Hardcore Gym Pty Limited's revenue is derived principally from the sale of clothing, merchandise, drinks and supplements. 10. Mr Lawson also tendered photos. These were taken from the website of the applicant. There were 53 photos in total. Under the heading 'Hardcore Gym Facility' only six of the 53 photos showed elements of any retail activity, the balance of 47 photos showed the gym facilities spread out in the premises. Relevant Legislation 1. The long title of the RL Act is: an Act to make provision with respect to the leasing of certain retail shops and the rights and obligations of lessors and of lessees of those shops, and for other purposes. 2. Section 3 contains the following definitions: Retail Shop means premises that: 1. are used wholly or predominantly for the carrying on of one or the businesses specified in Schedule 1 (whether or not in a retail shopping centre), or 2. are used for the carrying on of any business (whether or not a business specified in Schedule 1) in a retail shopping centre. 1. Schedule 1 of the RL Act is headed 'Schedule 1 - Retail Shop Businesses'. A reference to section 3 appears immediately under the heading. The rest of the schedule comprises a list of 165 categories of business, of which the last is 'any other business as from time to time may be prescribed by the Regulations'. 2. The following are examples of categories in the Schedule, where short descriptive phrases are used as follows: Barbers, batteries shop (other than motor vehicle batteries), bicycle accessories shops, building suppliers shops, chandler shops, convenience food shops, equipment hire shops, general stores, hardware shops, mixed business shops. Shops selling or engaged in providing any one or more of the following goods or services in relation to any person; accessories, baby wear, bags, caps, clothing, clothing alterations, underwear or sun shades, soft drink shops, sporting goods shops. Submission by the applicant 1. The applicant contends that the Activity Licence is regulated by the RL Act. For this to be the case, the use under the Activity Licence must be found within Schedule 1 of the RL Act as noted in section 3. It is common ground between the parties that gym/fitness it not found as a listed Schedule 1 retail shop business. The applicant has directed the attention of the Tribunal to the decision in Lauven Pty Limited v Venus Adult Shops Pty Limited (2006) NSWADT 359 and says that the approach taken by the judicial member in that case presents the correct approach resulting in a finding that the use of the premises, being predominantly retail means that the Activity Licence would be regulated under the RL Act. In that case at the particular time that the lease was entered into adult books and toy shops was not a retail business in Schedule 1 although the Act was subsequently amended from 1 January 2006 to include such a category. Notwithstanding the fact that the designated use under the lease was as adult shop and not so listed, the Tribunal held that by breaking the retail activities into its component parts the premises were a retail shop business and that the Tribunal had jurisdiction to hear and determine the application in that case. Submission on behalf of PCYC 1. Mr Lawson makes a strong submission that the premises are not regulated. He says as follows The permitted use of the premises is listed in Item 6 of the Reference Schedule of the Activity Licence at page 2 as gym/fitness. There is no mention of any retail use of the premises and a retail use of the premises by the applicant is not permitted under the Activity Licence. The list of retail shop businesses set out in Schedule 1 of the Act is exhaustive (see Car City Minchinbury Pty Ltd v Lifestyle Vehicles Pty Limited [2008] 76 at (76). 1. As noted by Mr Lawson the position of PCYC at the hearing was that as gym/fitness was not a prescribed use there was no case to answer. Mr Lawson submits that in Moweno v Stratis (2002) NSWSC 1151 Barret J stated at [8] that in deciding whether a lease falls within the ambit of the Act, one of the key matters to be determined is whether the right of occupancy granted is for the purpose of the alleged use of the premises. He emphasised at [26] that this should not be done by proceeding directly to an examination of actual use and regarding that as the primary matter to be determined. 2. However, as apparent from the photos and the evidence from Mr Hammoud a substantial business of retail sales had been undertaken by the applicant for a considerable time. Further, whilst the use specified under the Activity Licence did not refer to any retail component it must have been apparent to the PCYC over some considerable time that such activity was being undertaken. 3. The Tribunal raised an issue of waiver and asked for submissions as to whether in effect PCYC had waived any objection to that use. Mr Lawson in his written submissions referred to the legal aspect of waiver on the basis that the Activity Licence stated in clauses 14.6 and 14.7 that any waiver would only be effective if expressly agreed in writing. Further reference was made to the often cited joint judgment of their Honours Dixon, Williams, Webb, Fullagar and Kitto JJ of the High Court in Thompson v Easterbrook (1951) 83 CLR 467 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 … in our opinion even an affirmative consent by the landlord will not suffice unless it is given by a contract between the parties. 1. In relation to the concept of waiver the Tribunal believes that Mr Lawson is on better ground when he says in his submission: In the present case, in terms of any potential waiver, the respondent (PCYC) may have been aware of the ancillary sale of goods such as sporting apparel and nutritional supplements in addition to the operation of the gym for Hardcore Gym (which is common industry practice in gyms, and s78 of the Act says that in the interpretation of the Act, regard is to be had to accepted practices and interpretations within the relevant industry) but the respondent (PCYC) disputes that retail sale of goods by the gym had become the predominant use of the premises. 1. Section 78 of RL Act states: Section 78 - Interpretation based on industry practice In the interpretation of this Act, a court (be tribunal) is to have regard to accepted practices interpretations within the industry concerning the leasing of retail shops. 1. The Tribunal agrees with this analysis of the issue. The Tribunal finds that by renewing the licence annually PCYC had accepted the business of the applicant as it currently was operating that is to say with a retail component and it is to that aspect of waiver that the Tribunal had sought to direct the attention of the parties. Not in the formal sense of any particular waiver but rather in the sense of having renewed the licence and the applicant acting no differently over the last few years, it would be nigh impossible for PCYC, in the opinion of the Tribunal, to assert that by undertaking these retail activities the applicant was in breach of the Activity Licence. The preliminary view of the Tribunal is that the decisions in Moweno and Easterbrook are not relevant. In those cases the change in use developed during the currency of the lease which raised significant issues, but here the retail use was present at the commencement on 1 January 2014. This means in the view of the Tribunal an acceptance of the use by the PCYC. 2. Accordingly this brings to fore an analysis of the word 'predominantly' in section 3. For the applicant to succeed the retail use must predominate. Such analysis was undertaken by the Tribunal in Wood & Anor v Bergman (2003) NSWADT 82. That case was reviewed by Judicial Member Higgins in Lauven Pty Ltd v Venus Adult Shops Pty Limited (2006) NSWADT 359. The approach taken in both cases formed the basis of submissions by Mr Ayache on behalf of the applicant in these proceedings. In Lauren, Judicial Member Higgins stated [15-17]: 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 Wix Pty Limited v Pokana Pty Ltd (2002) NSWADT 205 at (12) about the meaning of 'predominantly' in s3 of the RL Act. His Honour said the following in this regard: (16) In Randi Wix the 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 … the definition of 'predominate' 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 than 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 of 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. 1. Judicial Member Higgins then undertook a forensic analysis of the items sold within the shop comparing the sales figures for those items subject to being within the definition of a retail business in Schedule 1 to those items that were not subject and coming to the conclusion [20-21]: in my opinion, on balance, having regard to the percentages set out 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 a video and pre‑recorded music libraries combined with other uses a book shop and lingerie shop and… that the premises is a retail shop. 1. Before the Tribunal conducts the analysis for the Hardcore Gym premises the Tribunal is mindful of the decision of the Appeal Panel in Car City Minchinbury Pty Ltd v Lifestyle Vehicles Pty Limited [2008] NSWADTAP 76. Mr Ayache submitted that that case recognised the beneficial nature of the RL Act. There the applicant argued that because the RL Act was 'beneficial' legislation the phrases in Schedule 1 that define 'retail shop businesses' should be construed broadly based on the decision of Manly Council v Malouf (2004) 61 NSWLR 394. The Appeal Panel referred to the judgment of Tobias JA. [65] His Honour (the trial judge) then noted that the RL Act was 'beneficial legislation and that: [20] Although it encompasses the possibility of penalties, it should be given a broad construction by the Courts. [22] 'It seems to me that any ambiguity in the use of that term [premises] should be resolved in favour of giving a possibility of a remedy before a Tribunal rather than to deny it, and accordingly I would uphold the submission that the Tribunal does have appropriate jurisdiction to hear and determine on its merits the claim brought by Mr Malouf'. 74 As the Primary Judge observed, the RL Act was 'beneficial legislation'. Accordingly it should not be construed narrowly. 1. The Appeal Panel [67] noted the observations of Tobias JA at [80] where he said: 'The definition of 'retail shop lease' is concerned with the occupation of premises for a particular purpose. The definition of 'retail shop' is also principally concerned with the use of the premises for the carrying on of one or more of the businesses described in Schedule 1. On one view, provided that the premises are occupied for the purpose of the relevant use and that use is wholly or predominantly for the carrying on of a Schedule 1 business, it matters not whether it is carried on within a building or other structure or upon a vacant parcel of land. When one considers the provisions of the RL Act, they are generally concerned with the conditions of the agreement constituting the retail shop lease by either deeming provisions to be included in the lease or rendering conditions void which contravene the relevant provisions of the Act.' 1. The Appeal Panel approached with caution the question of whether the RL Act extended to second hand car sales, as falling within the prescribed use of second hand goods, notwithstanding the beneficial nature of the RL Act. At [77] the Panel stated: Although the RL Act is "beneficial" legislation, in the sense that we have attempted to define, the words used in defining specific categories of 'retail shop business' in Schedule 1 must be interpreted according to principles that are appropriate to their particular nature and their statutory context, and without undue liberality of construction. 1. In Car City the Appeal Panel held that second hand car sales did not fall within retail shop businesses listed in schedule 1 in particular second hand goods, notwithstanding the beneficial nature of the legislation on interpretation of second hand goods. Second hand cars do not fall within second hand good shops because on the proper construction the general meaning understood in the community of second hand good shops was very different from the type of business understood as being second hand cars. The fact that the RL Act was beneficial legislation did not overcome the general meaning of the words. 2. 29 In paragraph 14 of these Reasons I referred to some of the retail shop businesses list in Schedule 1. I referred to an omnibus group of retail business found therein being: "Shops selling or engaged in providing any one or more of the following goods or services in relation to any person; accessories, baby wear, bags, caps, clothing, clothing alterations, underwear or sunshades, soft drink shops, sporting goods, sporting good shops". 1. There is no doubt that the applicant was engaged in many of these very activities. The question is whether the premises "are used … wholly or predominantly" for these retail components. The parties produced photos. The PCYC asserted that 47 of the photos of the 53 show gym facilities only and no doubt on an area basis, the gym facilities would predominate but not be wholly using the space. The submission from Mr Lawson is that there is no retail use that predominates, that is to be the stronger or preponderant element. On the other hand, the applicant has produced the Accountant's Letter which shows that the retail activities predominate in sales by volume and by quantrim of gross takings. However, the PCYC is entitled to test these figures and calculations. 1. The sale of clothing, merchandise, refreshments and supplements conducted by the applicant are core or basic retail activities. An analysis of sales figures between retail and non retail was undertaken by the Tribunal in Wood v Bergman, and in Lauven v Venus Adult. The Tribunal agrees with this approach. There is no liberality of construction required regarding these retail uses. They are fundamental to the general concepts of the RL Act. While use of area may be one measure, businesses exist to make a profit and membership of the gym is an opportunity to sell merchandise and products, which predominate the sales and revenue of the applicant The retail uses of the premises by the applicant did not put the applicant in breach of the Activity Licence. Given industry practice it may well be that in any event the use "gym/fitness" incorporates retail sales as a generally accepted use by gym operators. 2. The Tribunal finds that it is a triable issue that the Tribunal has jurisdiction for the reasons the Tribunal has expressed. However the PCYC should have the opportunity of examining the financials of the applicant to test the conclusion of the Accountant's Letter that the retail components predominate. The applicant should also have the opportunity to lead evidence of general industry practice of gym/fitness premises under s78 of the RL Act. D Bluth Senior Member Civil and Administrative Tribunal of New South Wales 30 December 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. 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: 12 February 2015