Citadin Pty Ltd v Eddie Azzi Australia Pty Ltd & General Pants Co Pty Ltd (RLD)

[2001] NSWADTAP 30

Appeal Panel

CITATION:

Citadin Pty Ltd -v- Eddie Azzi Australia Pty Ltd & General Pants Co Pty Ltd (RLD) [2001] NSWADTAP 30

PARTIES:

APPELLANT
Citadin Pty Ltd

FIRST RESPONDENT
Eddie Azzi Australia Pty Ltd

SECOND RESPONDENT
General Pants Co Pty Ltd

FILE NUMBER:

019024; 019025

HEARING DATES:

03/08/2001

SUBMISSIONS CLOSED:

08/03/2001

DATE OF DECISION:

08/03/2001

DECISION UNDER APPEAL:

Eddie Azzi Australia Pty Ltd -v- Citadin Pty Ltd; Citadin Pty Ltd -v- General Pants Co Pty Ltd [2001] NSWADT 79

BEFORE:

O'Connor K - DCJ (President); Hole M - Judicial Member; O'Neill A - Member

CATCHWORDS:

no question of law identified

MATTER FOR DECISION:

Principal matter

FILE NUMBER UNDER APPEAL:

015010, 015016

DATE OF DECISION UNDER APPEAL:

05/18/2001

LEGISLATION CITED:

Retail Leases Act 1994

CASES CITED:

Eddie Azzi Australia Pty Ltd -v- Citadin Pty Ltd; Citadin Pty Ltd -v- General Pants Co Pty Ltd [2001] NSWADT 79
Collector of Customs -v- Pozzolanic Enterprises P/L (1993) 43 FCR 280
Collector of Customs -v- Agfa-Gevaert Limited (1996) 186 CLR
Mayhew -v- A [1999] NSWADTAP 1
House -v- The King (1936) 55 CLR 499
Blackler -v- Felpure Pty Ltd [1999] NSWSC 958
Alcatel Australia Ltd -v- Scarcella (1998) 44 NSWLR 349

REPRESENTATION:

APPELLANT
C Birch SC with J-J Loofs, barristers
FIRST RESPONDENT
P Callaghan with D Robertson, barristers

SECOND RESPONDENT
D Raphael with A Diethelm, barristers

ORDERS:

Appeal dismissed.

DELIVERED EX TEMPORE

1 This is the Appeal Panel’s decision in relation to the question of whether the notice of appeal in these proceedings raises any question of law.

2 This is a revised version of the reasons delivered orally on the day of the hearing, 3 August 2001.

3 The decision under appeal was delivered by the Retail Leases Division of the Tribunal on 18 May 2001 after hearing evidence and submissions over 4 days in relation to the purported termination of the lessees’ retail shop leases by the lessor prior to expiry of their term pursuant to a notice of demolition: Eddie Azzi Australia Pty Ltd -v- Citadin Pty Ltd; Citadin Pty Ltd -v- General Pants Co Pty Ltd [2001] NSWADT 79. The lessees, both occupants in the retail shopping centre forming part of the Skygarden complex running between the Pitt Street Mall and Castlereagh Street in the central shopping area of the City of Sydney, were successful in obtaining orders from the Tribunal declaring that the lessor was not entitled to terminate their leases pursuant to the notice of demolition.

4 The statutory provision most relevant to these proceedings is s 35 of the Retail Leases Act 1994 (the Act) which provides:
‘35. Demolition

(1) If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:
(a) The lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated.
(b) The lease cannot be terminated by the lessor on that ground without at least 6 months written notice of termination.
(c) If notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than 7 days written notice of termination at any time within 6 months before the termination date notified by the lessor.
(2) If the lease is for a term of 12 months or less, the period of 6 months in subsection (1) (b) and (c) is shortened in each case to 3 months.
(3) If a retail shop lease is terminated on such a ground and demolition of the building is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish the premises within that time.
(3A) If a retail shop lease is terminated on such a ground, the lessor is liable to pay the lessee compensation for the fitout of the retail shop if the lessee is required under the lease to fit out the retail shop, whether or not the demolition of the building is carried out.
(4) For the purposes of this section, "demolition" of the building of which a retail shop forms part includes any substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop.’
5 The leases contained a demolition clause, cl 24, which for the most part was in similar terms to s 35, though in some important respects the Tribunal considered that it imposed a higher standard than was found in s 35. The terms of cl 24 are set out in the reasons for decision, and will not be repeated here (see [12]) as is the entirety of the notice of demolition dated 28 November 2000 (see [42]).

6 The reasons for decision are extensive (131 paragraphs) and deal with, one, the circumstances during 1997 connected with the entry into leases in the complex by the two lessees for terms of five years, including representations made by the lessor’s managing agent as to security of tenure; two, the lessor’s steps in 2000 to alter its strategy for conducting the complex, in particular with a view to introducing a new major lessee, Borders Books, and altering the internal lay-out of the complex so as to achieve that end; and, three, further communications with the lessees in relation to the impact of this strategy on their continued occupancy and the nature of the proposed works. As the proposals ultimately emerged prior to and at hearing, it is intended to hollow out a central core area over 4 floors to provide a location for Borders Books. Borders Books is to make a $500,000 contribution to the cost of these works. There were findings in relation to the detailed evidence given as to the nature of the works proposed. At [70] the Tribunal said:
‘At the heart of adjudicating this dispute, it falls to the Tribunal to determine the proper application of cl 24, read together with s 35, as the lease provision intended between the parties to provide the right of the lessor in stated circumstances to serve a notice terminating the lease on six months notice without an obligation to compensate the lessee to any extent. (As noted above, s 35(3A) post-dates the lease and does not apply in this case to entitle the lessees to compensation.)’

7 The Tribunal was satisfied that there was nothing in the details as to proposed works given subsequent to the notice and prior to these proceedings being commenced that provided a basis for (what it said was) the necessary evaluation a lessee is entitled to make on the question of whether the notice gave ‘sufficient details … to indicate a genuine proposal to carry [the proposed works] out within a reasonable practicable time after the Lease is terminated’ (cl 24.1.1 of the lease): [85]. The Tribunal was also satisfied that the notice did not validly specify the proposed work (though it did not rely on this factor alone as rendering the notice invalid). It was satisfied that the lessees did not have the full range of information around the time of receiving the notice establishing on its face a complete compliance with s 35: [91].

8 The Tribunal rejected submissions of Citadin that an approach to the interpretation of the statute and the lease should be adopted which would enable commercial decisions to be taken in relation to shopping complexes which were for the overall benefit of the continued profitability of the complex.

9 The Tribunal considered it central to its interpretation of the circumstances what the position was in relation to the general condition and state of repair of the complex and whether the works could properly be described as involving ‘substantial repair’, ‘substantial renovation’ or ‘substantial reconstruction’ (see definition of demolition in s 35(4)). In approaching the question of construction the Tribunal took account of the hierarchy of interferences with exclusive occupation that are provided for in the Act. In particular it contrasted s 34, dealing with relocation within the centre, as distinct from removal from the centre, s 35. (Section 34 provides that the lessee's business cannot be required to be relocated unless and until the lessor has provided the lessee with details of a proposed refurbishment, redevelopment or extension sufficient to indicate a genuine proposal that is to be carried out within a reasonably practicable time after relocation of the lessee's business and that cannot be carried out practicably without vacant possession of the lessee's shop.)

10 The Tribunal found:

‘125 In my opinion, while the commercial desire of Citadin is to bring about the commercial rejuvenation of its building, the preferred description on all of the evidence of what it seeks to achieve is a refurbishment and re-fit of the parts of the building which Borders wishes to occupy, being about one-quarter of the shopping complex, including making the necessary alterations to shop fronts, floor slabs and internal walls to enable the tenant to complete that refurbishment and re-fit. The designer Mr Williamson titled his drawings "Schematic Drawing for Refurbishment and Redevelopment" until asked to change to "Renovation' in the November version included in the Notice.
126 I do not think this is a substantial reconstruction of the building. While the works, even allowing the inclusion of the Attic and Roof level works which may be said to [be] outside the scope of this case, may involve some renovation, they are not in my view considered in the context of the whole process a substantial renovation of the building. I find difficulty describing the works to the areas of proposed Borders lease as a renovation as opposed to a refurbishment and re-fit.
127 I am unable to conclude that these facts are appropriately described as "substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop". In my opinion while these facts may give rise to a right of relocation, they do not give rise to a right of termination.’
11 At the outset of proceedings the President on behalf of the Panel drew attention to the primary objection of the first respondent to the appeal, Eddie Azzi Australia Pty Ltd, represented by Mr Callaghan SC that the appeal did not identify any appellable errors on the part of the Judicial Member. Submissions were invited from Dr Birch for the appellant, Citadin, and submissions in reply were made by Mr Callaghan and Mr Raphael for the second respondent, General Pants Co Pty Ltd.

12 There are 10 grounds of appeal set out in the notice of appeal amplified by detailed written submissions as well as the oral submissions made on 3 August 2001. There was also an application pursuant to s 113(2) of the Administrative Decisions Tribunal Act 1997 (the Tribunal Act) for leave to extend the appeal to the merits.

13 The notice of appeal is set out below.

‘ Appeal on a question of law
What are your reasons for appealing?
(1) The judicial member erred in finding that the demolition notice issued to the respondent and dated 28 November 2000 did not validly or sufficiently specify the proposed works (judgment paragraph 86).
(2) The judicial member erred in finding that the details of the proposed demolition included with the notice dated 28 November 2000 were not sufficient to satisfy Clause 24 of the lease and s.35(1)(a) of the Act.
(3) The judicial member erred in finding that it was necessary that the notice specify the works as opposed to finding that the appellant should have otherwise provided details in accordance with s.35(1)(a) of the Retail Leases Act (‘the Act’).
(4) Further or alternatively to grounds 1, 2 and 3, the judicial member erred in not finding that the additional details provided to the respondent in the affidavit of Lloyd James Collins dated 7 February 2001 satisfied the requirements of Clause 24 of the lease and s.35(1)(a) of the Act (judgment paragraphs 91 and 92).
(5) The judicial member erred by determining that a ground of invalidity of the notice, and/or details provided, was the absence of a statement of when the works would be carried out and why the time within which the works were to be carried out would be a reasonably practicable time after the lease is terminated, where:
(i) such a statement was not required by the lease or s.35 of the Act;
(ii) the notice indicated that the works would be done as soon as practicable after termination; and
(iii) the ground of determination was not raised by any party or the tribunal at the hearing and the appellant was therefore denied natural justice in regard to this determination.
(6) If and to the extent that the judicial member found the notice to be invalid on the ground that the work specified in the details provided with the notice differed in some particulars from the works actually proposed by the appellant at the date of the hearing, then the judicial member erred.
(7) The judicial member erred in finding that the entitlement of the appellant to issue a notice under Clause 24 of the lease was dependent upon the condition of the building including the condition of the leased premises (judgment paragraphs 96 and 102).
(8) The judicial member erred in finding that the works proposed by the appellant were not a substantial renovation or reconstruction of the building but were only a refurbishment and refit of the building.
(9) Further and/or alternatively the judicial member erred in finding that if the works proposed by the appellant could be described as a refurbishment and refit that they could not simultaneously constitute a substantial renovation or reconstruction for the purposes of Clause 24 of the lease (judgment paragraphs 125-127).
(10) Further and/or alternatively the judicial member erred in dismissing the application by Citadin on the ground that the appellant was not entitled to terminate the lease to the respondent pursuant to Clause 24 of the lease and s.35 of the Act.
(11) The appellant seeks to have the declaration made by the judicial member set aside and in lieu thereof orders made as claimed by the appellant in its application.’
(In response to the question, ‘Do you wish to apply for leave to extend the appeal to a review on the merits of the decisions?’ the appellant answered ‘No’. As noted above, the appellant subsequently made an application for leave to appeal on the merits.)
14 Section 113(2) of the Tribunal Act provides that an appeal may be made on any question of law.

15 In the opinion of the Appeal Panel, the appeal grounds as formulated in the notice of appeal do not clearly raise any possible errors on the part of the Judicial Member in his understanding of the law. They appear on first impression to seek to dispute the various findings of fact which led to a decision adverse to the shopping centre owner, Citadin. This Tribunal is not a court of pleadings. If arguable possible errors of law are identified in the subsequent written submissions or are identified in the oral submissions made by the appellant on the day, the Appeal Panel should not resort to technicality to avoid dealing with them simply because they may have been obscurely formulated in the first place.

16 For the lessee, Eddie Azzi Australia Pty Ltd, Mr Callaghan’s position was that the ten grounds did not disclose any possible appellable error except for ground 2 which he characterised as raising a ‘mixed question of fact and law’. For the lessee, General Pants, Mr Raphael’s position was not as negative, he only characterising questions 1, 2 and 8 as questions of fact.

17 But as we understand the submissions of counsel for the two tenants who have been successful in the original proceedings against Citadin Pty Ltd, these counsel were of the view that even if a question of law could be discerned from the grounds of appeal it was not of a kind which could, if error was shown, lead to a different outcome. We agree with that submission. As to what constituted a question of law reference was made to the Federal Court (Full Court) decision, Collector of Customs -v- Pozzolanic Enterprises P/L (1993) 43 FCR 280 at 287 and the High Court decision Collector of Customs -v- Agfa-Gevaert Limited (1996) 186 CLR at 389. (See also Mayhew -v- A [1999] NSWADTAP 1.) In addition, both counsel submitted that to the extent that any question of law was raised, they were not substantial ones which might materially affect the decision below, referring in this regard to the principles laid down in House -v- The King (1936) 55 CLR 499.

18 Dr Birch SC for the appellant/lessor grouped the ten grounds into two categories: grounds that related to the Judicial Member’s conclusions in respect of whether the notice of demolition was a sufficient notice for the purposes of compliance with s 35(1)(a) of the Act and for the purposes of cl 24 of the Lease (i.e. grounds 1 to 6); grounds that related to the Judicial Member’s conclusions as to whether the circumstances could be characterised as ones of ‘demolition’, as that term is defined in s 35(4) for the purposes of exercising the right to issue a notice of demolition (i.e. grounds 7 to 11) .

19 We are not persuaded by the submissions of Dr Birch that any of the matters raised as criticisms of the Judicial Member’s conclusions can be elevated to arguable errors in the interpretation of the law that he was called on to apply. Dr Birch drew our attention to a number of passages in the reasons for decision where he claimed a construction had been adopted of the statutory language (s 35 and other provisions) or of the terms of cl 24 of the Lease which involved errors amounting to errors of law.

20 In relation to the ‘sufficiency’ and ‘genuine proposal’ elements of s 35(1)(a) he drew our attention to passages in the reasons for decision which listed various matters that the Judicial Member had taken into account in reaching its conclusions that the notice was not ‘sufficient’ and did not contain a ‘genuine proposal’. He suggested that these factors had been elevated to requirements as to the proper meaning to be given to these terms in s 35(1)(a). In our view that characterisation can not be given to the reasoning of the Judicial Member. There is no express statement in the reasons to which he could point where the Judicial Member said that was what he was doing, and it can not reasonably, we consider, be inferred from the process that the member engaged in.

21 We should say in addition that we do, contrary to Dr Birch and in agreement with Mr Raphael, see a difference in legal content as between s 35 and the terms of cl 24 of the Lease. We do not see them as covering exactly the same ground and merely having slightly different words. There is in our view a higher standard as to the content of the Notice set by cl 24 and the Tribunal was correct in identifying that and assessing the evidence by reference to the higher standard set by cl 24.

22 As to the demolition grounds of appeal, we hold similar views. The test, it was agreed by all parties, was whether the notice in the circumstances of this case contemplated ‘substantial renovation’. Again we do not read the reasons as being able to be reasonably construed as involving any more than examining all the facts and circumstances to ascertain whether a ‘substantial renovation’ was proposed.

23 As was the case before the Tribunal, in submissions to the Appeal Panel Dr Birch placed reliance on the decision of the Supreme Court (Bryson J) in Blackler -v- Felpure Pty Ltd [1999] NSWSC 958; Butterworths Property Reports [977792]. He emphasised in particular the passage in Bryson J’s decision (at [32]) which referred to the lessor being entitled to ‘exercise its power to terminate the lease with a view to its own advantage’. This statement was made in the context of a discussion of the scope of the duty of good faith between parties to a contract. We agree with the Tribunal below (see [110]-[114]) that no principle of law can be derived from this observation. Bryson J indicated at [37] the mode of analysis that he considered appropriate to adopt in relation to ascertaining whether demolition notices were effective for the purposes of s 35 of the Act:

‘37 It is in my view significant to consider the purpose for which the provision which the lease is taken to include requires that details be provided. The requirement to provide details is not merely a formal step imposed in the lessor's path, but the details are to be provided so that the lessee can come to a conclusion about whether the termination will be effective, and whether the lessee should accept that it will be effective or dispute it. The sufficiency of details provided should be tested in relation to that purpose. The question is whether the details provided are sufficient to indicate a genuine proposal to demolish the building; if they are not the termination cannot take place and if they are it will be effective no matter what other details of the proposed demolition exist or could have been provided.’

24 After reviewing the evidence in the case, he found at [60]:

‘60 My finding on the facts is that the work described is substantial renovation that cannot be carried out practicably without vacant possession of the shop. In my finding the defendant in the letter of 14 December 1998 provided the plaintiff with details of the proposed work sufficient to indicate a genuine proposal to carry out the works within a reasonably practicable time after termination.
61 It is not my view open to contention by the lessee whether the lessor's decision to demolish, repair, renovate or reconstruct the building is reasonable or appropriate; it is sufficient if there is a genuine proposal. Nor in my opinion is it open to debate whether the lessor could in some way modify the lessor's proposal so as to continue to accommodate the lessee after the premises have been demolished, repaired, renovated or reconstructed. The opportunity to break a lease, retake possession and take advantage of the demolition clause is a contractual opportunity made available to the lessor by the terms of the lease itself, including the provisions notionally incorporated by s 35, it is not injurious to the lessor's position whether the lessor has decided to take that advantage, and it is not relevant that the lessor has in view occupying the premises itself, or selling them after reconstruction, or leasing them again, even if the lease should be to business similar to the lessee's. The demolition clause is a reality of the party's relationship, and so is its potential operation to end the lease.
62 It was contended that the duty of good faith referred to Alcatel [ Alcatel Australia Ltd -v- Scarcella (1998) 44 NSWLR 349] and the Retail Leases Act operating together make it impermissible to use the break clause when the underlying purpose is to put another occupant into possession. In my view this lease includes the break clause and it is not possible to say that by exercising rights under it the lessor is stepping outside the contemplated relationship.’
25 In this case the Tribunal engaged in a similar fact-finding task, and was satisfied that the circumstances did not amount to a substantial renovation. Clearly there are some differences of perspective as between Bryson J and the Judicial Member (see, for example, para [95] of the decision below) as to the policy objectives within the workings of the contractual relationship that s 35 seeks to achieve. But we do not see these matters as having had any significant bearing on the analytical approach adopted by the Tribunal.

26 We are not satisfied that any arguable errors of law have been identified for further consideration.

27 As to the application for leave to appeal on the merits, we acknowledge Dr Birch’s submission that there is no express provision in s 113(2) of the Tribunal Act to the effect that an appeal on the merits may only be entertained if an error of law is shown. Section 113(2) provides:

‘ (2) An appeal:
(a) may be made on any question of law, and
(b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision.’
28 It is not necessary on this occasion to decide whether the leave discretion can only be exercised when an error of law is proven. In our view, the Judicial Member properly applied the applicable law. It is difficult to conceive of circumstances where it would be a proper exercise of the leave discretion to permit a reopening on the merits where no error of law has been identified in the decision below. One possibility that occurred to us was where a notice of appeal had been lodged, evidence that was not reasonably available at the time of hearing came to light, it disposed of the entirety of the matter and it was convenient and acceptable to the parties to the appeal to dispose of the matter entirely by way of an Appeal Panel order - that is a possibility that could be left open.

29 The Act seeks to introduce minimum standards for the conduct of parties to retail leases. It is open to the parties to raise the applicable standard by way of the terms of the Lease.

30 One feature of the Act is the minimum 5 year term. The Act deals with circumstances in which the lessor can intervene to disturb the lessee’s occupation, to the extent of actual removal from their premises, ahead of the expiry of the term. This case is one relating to the application of the relevant provisions of the Act and the Lease. It is a case of a conventional kind and in our view the Judicial Member adopted a conventional analytical process.

31 The application of the respondents to dismiss the appeal without further submissions is granted.

32 The appeal is dismissed.

33 Following the making of this order each respondent made an application for their costs of the appeal. Written submissions were invited, and the applications will be the subject of a separate decision.