Ekera Medical Pty Ltd v Revesby Workers Club Ltd [2016] NSWSC 527

Supreme Court New South Wales

Medium Neutral Citation: Ekera Medical Pty Ltd v Revesby Workers Club Ltd [2016] NSWSC 527 Hearing dates: 26 April 2016 Decision date: 26 April 2016 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Statement of claim dismissed with costs Catchwords: CONTRACTS – commercial lease – lessee liable to pay outgoings – provision in lease for lessor to estimate outgoings and for lessee to make payments on account of its obligation to pay outgoings in accordance with that estimate - whether lessor made estimate of outgoings for current year – whether lessee obliged to make payments on account of outgoings in accordance with that estimate Legislation Cited: Competition and Consumer Act 2010 (Cth) Category: Principal judgment Parties: Ekera Medical Pty Ltd (Plaintiff) Revesby Workers Club Limited (Defendant) Representation: Counsel: T Davie (Plaintiff) I M Jackman SC with J A C Potts (Defendant)

Solicitors: Hassett Lee & Co Lawyers (Plaintiff) Thomson Geer (Defendant) File Number(s): SC 2015/2971074

Ex TEMPORE Judgment (REVISED) 1. Revesby Workers Club Ltd, the defendant, is the registered proprietor of the Revesby Village Centre. 2. By a lease having the "commencing date" 16 June 2015, Ekera Medical Ltd, the defendant, is the lessee of part of that Centre. 3. In its statement of claim in these proceedings, which were commenced in the Real Property List on 6 October 2015, and have since been transferred to the Commercial List, Ekera made a number of claims, including that the Club had engaged in misleading or deceptive conduct and that Ekera was entitled to damages under s 236 of the Competition and Consumer Act 2010 (Cth), Sch 2, Australian Consumer Law. As finally developed in written and oral submissions, the claim for damages was abandoned. 4. Before me, Ekera's case was confined to the proposition that (to use the language in the statement of claim): "[The Club] has sought to levy and has levied upon [Ekera] a Tenant's Outgoing Contribution that is not properly calculated by reference to the Outgoings as defined by [the relevant clause of the Lease]". 1. That claim is particularised in the statement of claim as follows (relevantly to the case as finally put): "The Tenant's Outgoings Contribution is calculated by reference to Centre Supervision [and] Management Fees...and the [Club] is not incurring and will not incur, or is not entitled to charge [such fees]." 1. As developed in his oral submissions, Mr Davie, who appeared for Ekera, put the matter slightly differently, as I set out below. 2. In any event, I do not accept that Ekera has made out any case against the Club. I propose to dismiss the proceedings. 3. Under the lease, Ekera is obliged to pay the "Tenant's Outgoings Contribution" referable to it. 4. "Tenant's Outgoings Contribution" is defined by reference to an arithmetical calculation that is complex and not necessary for me to set out. For present purposes, the key element in the calculation is "Outgoings". 5. "Outgoings" is defined in the lease at cl 1.1(gg) as follows - "Outgoings means the total of the costs and expenses relating to the whole of the Centre and the Centre Land, including: (i) Statutory Outgoings; (ii) each charge for Services which are not separately metered to an occupier of the Centre; and (iii) each cost and expense for: (A) repairs, maintenance and painting of and to the exterior of the Centre; (B) repairs, maintenance, running, servicing and upgrading of all Centre Plant and Equipment and Services; (C) the detection, prevention and eradication of pests; (D) cleaning the exterior of the Centre; (E) cleaning, maintaining, repairing and operating the Common Areas and the Basement Car Park; (F) garbage removal or compacting service that is charged on account of the Centre; (G) the management, control and administration of the Centre; (H) caretaking and security relating to the Centre; (I) water treatment, legionella tests and cleaning of the air-conditioning system servicing the whole of the Centre; and (J) safety and environmental audits of the Centre, but does not include the cost of any works of a capital or structure nature carried out on the Centre by the Landlord." 1. The definition is thus very broadly expressed and comprises all "costs and expenses relating to the whole of the Centre" including the particular costs and expenses identified in cl (gg)(iii). 2. Mr Jackman SC, who appeared with Mr Potts for the Club, accepted that to be "Outgoings" for the purpose of the definition, the costs and expenses in question must incurred by the Club. 3. Mr Davie submitted that, in order to be "Outgoings" the costs and expenses in question must have been paid or be payable by the Club to a third party. 4. I do not accept that submission. What is required is that the costs and expenses "relate" to the Centre. 5. Such costs and expenses may well be incurred by the Club otherwise than by payment out to a third party. 6. If, for example, the Club incurs a cost or expense because it diverts members of its staff to tasks "relating" to the Centre (so that they are then unable to devote themselves to the Club's other activities) then the Club will, or at least may thereby incur a cost or expense. 7. Clause 6.1 governs the manner in which Ekera must pay Outgoings and is in the following terms: "6.1 Outgoings (a) Subject to clauses 6.2(b), 6.2(c) and 6.2(d), the Tenant must pay the Tenant's Outgoings Contribution for each Outgoings Year within 10 Business Days after notice is given under clause 6.2(e). (b) At any time prior to the commencement of an Outgoings Year, the Landlord may give the Tenant a notice stating the Landlord's estimate of the Outgoings for the following Outgoings Year and the Tenant's Outgoings Contribution for that Outgoings Year. The Landlord may revise the estimate at any time. (c) If the Landlord gives the notice referred to in clause 6.1(b), the Tenant must pay the Tenant's Outgoings Contribution for the relevant Outgoings Year in instalments in advance on each Rent Day, with each instalment being equal to the Landlord's estimate of the Tenant's Outgoings Contribution for the Outgoings Year divided by the number of Rent Days (excluding the Commencement Date) in that Outgoings Year. (d) In each Outgoings Year after the first, until the Landlord gives the Tenant a notice of the Landlord's estimate for the relevant Outgoings Year, the Tenant must pay on each Rent Day, on account of the Tenant's Outgoings Contribution, an instalment equal to that payable in the immediately preceding Outgoings Year. (e) Within 1 month after the end of each Outgoings Year, the Landlord must give the Tenant a notice which: (i) specifies the actual amount of the Tenant's Outgoings Contribution for the Outgoings Year just ended; and (ii) sets out in reasonable detail the amounts of each of the Outgoings for the Outgoings Year just ended. (f) If the Tenant's Outgoings Contribution have been paid in instalments in accordance with clause 6.2(c), on the next Rent Day after the Landlord gives the Tenant the notice referred to in clause 6.2(e): (i) if the amount of the Tenant's Outgoings Contribution specified in that notice is greater than the amount of Tenant's Outgoings Contribution that the Tenant has paid for the Outgoings Year to which the notice relates, the Tenant must pay to the Landlord the difference between those two amounts; or (ii) if the actual amount of the Tenant's Outgoings Contribution specified in that notice is less than the amount of Tenant's Outgoings Contribution that the Tenant has paid for the Outgoings Year to which the notice relates, the Landlord must pay to the Tenant the difference between those two amounts." 1. The relevant "Outgoings Year" is that ended 31 August 2016 - i.e. the current year. 2. Ekera's obligation to pay Tenant's Outgoings Contribution is found in cll 6.1(a) and (e). At the end of each Outgoings Year, Ekera must pay "the actual amount of the Tenant's Outgoings Contribution" for that year; that is, its proportion of the actual Outgoings for that year. 3. The effect of cll 6.1(b) and (c) (and, perhaps cl 6.1(d)) is that, during the relevant year, the Club can require Ekera to make payments on account of its obligation to pay the Tenant's Outgoings Contribution. 4. Thus, cl 6.1(b) provides that the Club "may" give Ekera its "estimate" of Outgoings, and Ekera's contribution to those Outgoings for the coming year. 5. In that event, Ekera "must pay" what is described, perhaps confusingly, as "the Tenant's Outgoings Contribution", but what is really a payment on account of that obligation. That is made clear by the requirement in cl 6.1(c) that the monthly payments referred to be calculated by reference to the Club's "estimate" and by the provision in cl 6.1(f) for an end of year adjustment, to accommodate the possibility (indeed, the probability) that the estimated outgoings will not exactly match the actual outgoings. 6. The clause does not require the Club to give any particulars of its "estimate" or indeed to do any more than give one, global (or "bottom line" as Mr Jackman put it) figure as its estimate of the Outgoings for the relevant period. 7. On 21 August 2015 the Club sent Ekera a "Notice of Estimated Outgoings" for the year ended 31 August 2016. The covering letter was in the following terms: "NOTICE OF ESTIMATED OUTGOINGS PERIOD: 1st September 2015 – 31 August 2016 Suite 1, Level 1, Revesby Village Centre – 20-30 Blamey Street, Revesby NSW We refer to recent discussions and correspondence between our respective Legal representatives, and attach for your records the Outgoings Budget for the financial period 1st September 2015 to 31st August 2016. Estimated Outgoings $1,272,221.35 Less Insurance not applicable to Ekera ($36,687.27) $1,235,534.08 Your proportion calculated in accordance with the Lease will be; 29.49% x 366 x $1,235,534.08 366 $364,359.00 per Annum or $30,363.25 per Month All amounts quoted exclude GST Explanatory Notes have been included with the budget to assist Ekera with their interpretation of the budget." 1. There was attached a document called "Annexure A - Outgoings Budget and Explanatory Notes". Included in that document were the Club's "Estimated Outgoings" for various statutory charges and for some 19 "Operating Expenses". Only two are relevant. They are "Centre Supervision" and "Management fee". Those items, their stated budgeted amount and the relevant "Explanatory Note" are as follows: Outgoings Budget Budget Rate/Sqm Comments Centre Supervision 148 800.00 12.20 The budget includes for Centre Management staff costs, associated overheads and relief staff Management Fee 100 000.00 822 The budget includes a fee for RWC to manage RVC".