Cotic v Cuscuna Nominees Pty Ltd - [1999] WADC 17

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: COTIC -v- CUSCUNA NOMINEES PTY LTD & ANOR [1999] WADC 17

CORAM: COMMISSIONER REYNOLDS

HEARD: 31 MAY 1999

DELIVERED : 30 JULY 1999

FILE NO/S: CIV 3557 of 1998

BETWEEN: NICOLA COTIC
Plaintiff (Respondent)
AND
CUSCUNA NOMINEES PTY LTD
SALVATORE ANTONIO CUSCUNA
Defendants (Appellants)

Catchwords:

Practice - Western Australia - applications to strike out statement of claim and for summary judgment -Renewal of a lease - "Key money" under the Commercial Tenancy (Retail Shops) Agreements Act 1985 - Reverse lifting of corporate veil.

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985

Result:

Appeals allowed

Representation:

Counsel:

Plaintiff (Respondent) : Mr S O Alteruthemeyer
Defendants (Appellants) : Mr J A Chaney

Solicitors:

Plaintiff (Respondent) : Summers Partners
Defendants (Appellants) : Karp & Steedman

Case(s) referred to in judgment(s):

A G Securities v Vaughan [1990] 1 AC 417
D & J Constructions v Head (1987) 9 NSWLR 118
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACL 222
Samrose Properties Ltd v Gibbard [1958] 1 All ER 502
Snook v London and West Riding Investments Ltd [1967] 2 QB 786
Street v Mountford [1985] AC 809
Thessaly Pty Ltd v Pelworth Pty Ltd & Anor (1991) 6 WAR 253

Case(s) also cited:

Adams v Cape Industries PLC [1990] 1 Ch 433
Baker v Dewey (1923) 1 B&C 704; 107 ER 259; Dabbs v Seaman (1925) 36 CLR 538
Elmdene Estates v White [1960] 1 All ER 306
Jones v Lipman [1962] 1 WLR 832
O F Gamble Pty Ltd v Whitemore Pty Ltd (1989-1990) 2 WAR 327
Peate v Commissioner of Taxation (Cth) 111 CLR 443
Whitemore v O F Gamble Pty Ltd (1991) 6 WAR 110

COMMISSIONER REYNOLDS:

Introduction

On 14 September 1998 the respondent filed a writ of summons seeking payment of the sum of $40,000 from the appellants. The respondent alleges that he made two payments totalling $40,000 which constituted "key money" paid by him to the appellants or at the direction of the appellants in terms of ss3 and 9 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 ("the Act"). The respondent claims that the sum of $40,000 constitutes a debt due and is recoverable by him pursuant to s9(3) of the Act.
On 23 October 1998 the appellants made an application by way of chamber summons pursuant to O20 r19 of the Rules of the Supreme Court 1971 ("the Rules") seeking an order that the entire statement of claim be struck out on the ground that it discloses no reasonable cause of action, further or alternatively on the ground that it is frivolous, further or alternatively on the ground that it may prejudice, embarrass or delay the fair trial of the action. On 9 November 1998 the appellants made an application by way of chamber summons pursuant to O16 of the Rules seeking orders that they have leave to make the application and that judgment be entered for them together with costs of the action.
The two applications by the appellants were heard on 4 February 1999 by a Deputy Registrar. On 19 February 1999 the Deputy Registrar ordered that each of these applications by the appellants be dismissed and that in each instance the appellants do pay the respondent's costs of the application in any event. On 24 February 1999 the appellants filed a notice of appeal pursuant to O6 r11 of the District Court Rules seeking orders that the orders of the Deputy Registrar be set aside and in lieu thereof orders be made in terms as sought by them in each of the applications.

Leave to apply for summary judgment

Pursuant to O16 r1 of the Rules any defendant to an action may within 21 days after appearance or at any later time by leave of the court, apply to the court for summary judgment, and the court, if satisfied that the action is frivolous or vexatious, the defendant has a good defence on the merits, or that the action should be disposed of summarily may order that judgment be entered for the defendant with or without costs. The appellants(defendants) entered an appearance on 24 September 1998. The time within which they may have applied for summary judgment without leave expired on 15 October 1998. The application was filed on 9 November 1998. It was therefore filed 25 days after 15 October 1998.
The circumstances in which the appellants' present solicitors assumed the conduct of this matter and made the two applications on behalf of the appellants are set out in the affidavit of James Devon Steedman sworn and filed on 9 November 1998. The solicitors who filed the appearance for the appellants acted for them in the transaction which is the subject of this action. Such solicitors appreciated the potential for a conflict of interest and therefore referred the appellants to their present solicitors and did so on 5 October 1998. Shortly thereafter on 8 October 1998 the appellants' present solicitors filed an application by way of chamber summons pursuant to O20 r19 of the Rules for an order that certain paragraphs of the statement of claim be struck out. Counsel's advice was received on 22 October 1998 and as a consequence thereof the application made on 8 October 1998 was amended by way of an amended chamber summons filed on 23 October 1998 to which I have previously referred. As a result of further enquiries undertaken by the appellants' solicitors on 22 October 1998 further advice was sought from counsel. By 9 November 1998 counsel had given further advice and settled the appellants' application for summary judgment.
I am satisfied that the appellants' application for summary judgment was made as soon as practicable in the circumstances and that the delay of 25 days has caused no prejudice at all to the respondent. There is a significant degree of overlap in the issues raised by the appellants' two applications and it has been convenient to hear them both at the same time.
I grant the appellants leave to pursue their application for summary judgment filed on 9 November 1998.

How to approach each of the two applications

Thessaly Pty Ltd v Pelworth Pty Ltd & Anor (1991) 6 WAR 253 was an appeal from a decision of an Acting Master upon an application pursuant to O20 r19 of the Rules by the respondents therein seeking orders that nominated paragraphs of the appellant's statement of claim therein be struck out on the basis that they disclosed no reasonable cause of action. An order was also sought that the action be dismissed.
The appellant therein, Thessaly Pty Ltd ("Thessaly"), had leased a tavern and bottle shop at a shopping centre from the second respondent therein, Chantenay Pty Ltd ("Chantenay"). The lease was due to expire on 30 April 1990. On 9 December 1988 Thessaly approached Chantenay to negotiate a new lease from 1 May 1990. Thessaly pleaded that on 16 March 1989 it was agreed by it with Chantenay and the first respondent therein, Pelworth Pty Ltd ("Pelworth") that if Thessaly would pay a premium of $300,000 a new lease would be entered into. Thessaly pleaded that it was agreed that to avoid the provisions of the Act, the agreement would be implemented by Chantenay granting a lease for 10 years to a then undisclosed third party which in turn would assign the new lease to Thessaly for a price of $300,000 which Thessaly would pay to the assignor. It was pleaded that the agreement was put into effect by Chantenay granting a lease to Pelworth and Pelworth purporting to sell the business of the tavern, which as a matter of fact it did not own, to Thessaly for the consideration of the payment of the sum of $300,000. Pelworth assigned the lease which had been executed in its favour to Thessaly. Thessaly claimed that the amount of $300,000 it paid was an illegal premium by reason of the provisions of the Act and it sought to recover such sum pursuant to the Act.
The learned Acting Master struck out the nominated paragraphs of the statement of claim but declined to dismiss the action and granted Thessaly leave to amend its statement of claim.
His Honour Murray J commented with approval on the approach taken by the Acting Master in resolving the application at first instance. At p258 he said:
"In so concluding, it is clear that the learned Acting Master correctly directed himself as to the care which he should take to so act only in a clear case, where it was established that the paragraphs of the statement of claim challenged mounted a case which was in truth not arguable, so that it might be concluded that there was no real question to be tried: see Southern Resources Ltd v Technomin Australia NL [1990] WAR 72 at 83. The learned Acting Master considered, and in my respectful opinion he was correct to do so, that he should only so act when, proceeding upon the basis that the facts alleged in the statement of claim were true, nonetheless the plaintiff's case was so clearly untenable that it could not succeed, care being taken always to ensure that the plaintiff was not improperly deprived of the opportunity for the trial of his case: see Florida Investments Pty Ltd v Milstern (Holdings) Pty Ltd [1972] War 148, applying General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. As those decisions, establish the learned master correctly observed that it was no impediment, however, that the clear conclusion that there was no reasonably arguable cause of action could only be reached after extensive argument."
In this case before me counsel for the appellants have submitted that the facts pleaded in the respondent's statement of claim to support each of the ultimate alternative conclusions upon which the respondent wholly bases his claim are simply not capable of supporting such conclusions as a matter of law. In other words even if the respondent is successful in establishing each of the allegations of material fact in the statement of claim he could not succeed in obtaining the remedy claimed.
I have already mentioned that there is a significant degree of overlap in both applications and the issues that arise in each of them. The appellants could only succeed on their application for summary judgment if I was satisfied on the evidence presented and on the other material facts not in issue on the pleadings that it is very clear indeed that there is no real issue to be tried whether it be a question of fact or law. See also Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 89, Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373.

Summary of events from the pleadings and the evidence

The appellants were and are the registered proprietors of premises situate at 77 Walter Road, Bassendean ("the premises"). The respondent conducted the business of a tavern and bottle shop known as The Ambassador Tavern and Ambassador Cellars ("the business") on the premises. The appellants leased the premises to Jensa Pty Ltd by a lease dated 20 October 1986. The respondent took an assignment of the lease on the premises by an assignment of lease dated 27 July 1987. On or about 24 April 1990 the appellants and the respondent renewed the lease for a period of four years from 1 March 1989, ie until 28 February 1993.
In March 1992 and as the end of the term of the lease was approaching the respondent sought an indication from the appellants on whether they were prepared to offer a further renewal of the lease to the respondent and if so the terms and conditions proposed. On 7 July 1992 the appellants informed the respondent that they were prepared to consider offers from the respondent or his nominee for a fresh lease on the basis that such offer must include a lump sum cash payment to the appellants that did not fall foul of the Act.
A lease entered into by a public company as lessee is expressly excluded from the definition of a retail shop lease under the Act and as a consequence thereof the provisions in the Act for the recovery of key money would not apply. By letter dated 17 March 1992 the appellants' solicitors advised the respondent's solicitors that at the expiration of the lease the appellants proposed to retake possession of the premises and required the respondent to vacate the premises in the terms of the lease. The respondent's solicitors were also advised that the appellants would also be agreeable to acquiring the plant and equipment within the premises when the lease expired at fair market value together with the stock if it was at a reasonable level. On or about 8 June 1992 there were further communications between the appellants' solicitors and the respondent's solicitors the detail of which I do not know.
On 7 July 1992 the appellants' solicitors wrote to the respondent's solicitors setting out inter alia:
"We confirm our client is prepared to consider offers from your client or his nominee for a fresh lease of the Ambassador Tavern after the expiry of the present lease. We confirm that the offer must include a lump sum cash payment to our client that does not fall foul of the Commercial Tenancy (Retail Shops) Agreements Act, 1985."
On 21 October 1992 the appellants expressed their preparedness to lease the premises for a term of five years from the expiry of the term of the existing lease to a public company nominated by the respondent in return for a one off payment of $40,000 in addition to rent and other payments under the lease. The respondent agreed to this proposal. A public company named Spectrum Ltd ("Spectrum") was acquired and the directors of it were the respondent, his wife and son and its shareholders were the respondent, his wife and three other family members. The sum of $40,000 was paid to the appellants by two instalments, one of $5,000 and the other of $35,000. In September 1993 the appellants and Spectrum entered into a five year lease in respect of the premises.
The respondent has pleaded in his statement of claim that in substance the lease was an agreement between the appellants and the respondent or alternatively by lifting the corporate veil the tenant under the lease was in fact the respondent, who had made the two payments totalling $40,000 to the appellants. I have already mentioned that the respondent has pleaded that such payments constituted key money paid by the respondent to the appellants or at the direction of the appellants in terms of s9 of the Act and are recoverable by the respondent pursuant to s9(3) of the Act.

Relevant provisions of the Act

Key-money, a retail shop and a retail shop lease are defined in s3(1) of the Act as follows:
" 'key-money' means –
(a)money that is to be paid to, or at the direction of, a landlord or his agent, by way of a premium, non‑repayable bond or otherwise; or
(b)any benefit that is to be conferred on, or at the direction of, a landlord or his agent,
in connection with the granting, renewal or assignment of a lease or the sub‑leasing of the premises the subject of a lease;
'retail shop' means –
(a)any premises situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a business; and
(b)any premises not situated in a retail shopping centre that are used wholly or predominantly for the carrying on of –
(i)a business involving the sale of goods by retail; or
(ii)a specified business,
but does not include premises used wholly or partly for the carrying on of a business involving the retail sale of petroleum products as defined in section 47G of the Transport Co‑ordination Act 1966 for use in road vehicles as so defined, other than premises used for that purpose by a tenant under a lease from a landlord who is not a party to a franchise agreement within the meaning of that expression in the Petroleum Retail Marketing Franchise Act 1980 of the Parliament of the Commonwealth;
'retail shop lease' means a lease that provides for the occupation of a retail shop other than where –
(a)the retail shop has a floor area that exceeds 1000 square metres; or
(b)the lease is held by a corporation within the meaning of the Companies (Western Australia) Code that would not be eligible to be incorporated in Western Australia as a proprietary company, or that is held by a subsidiary of such a corporation;"
Pursuant to paragraph (b) of the definition of a retail shop lease if the tenant under the lease is a public company then the provisions of the Act do not apply to the lease notwithstanding that the premises come within the definition of a retail shop.
Section 3(2) of the Act provides as follows:
"(2) Where the parties to a retail shop lease enter into, either before or after entering into the retail shop lease, a written or oral agreement or arrangement that contains a provision which if contained in the retail shop lease would be void, that provision is for the purposes of this Act deemed to be contained in the retail shop lease and this Act applies to and in relation to that provision as if it were so contained."
Section 9 of the Act provides as follows:
" Key money and goodwill
9.     (1)      Subject to subsection (2), a provision in a retail shop lease to the effect that the landlord or a person claiming through him is entitled to, or may require from the tenant –
(a)key money; or
(b)any consideration in respect of the goodwill of the business,
is void.
(1a)     Without limiting subsection (1), where a retail shop lease provides to the effect that the landlord or a person claiming through him is entitled to or may require from the tenant money or any other benefit in consideration of –
(a)a rent under the lease which is lower than the rent which would otherwise be payable; or
(b)a future reduction in rent payable under the lease,
that money or other benefit is to be taken to be key money for the purposes of subsection (1) unless the landlord or person claiming through him proves otherwise.
(2)      Subsection (1) or (1a) shall not be construed so as to make void a provision in a retail shop lease for the landlord to receive or recover from the tenant –
(a)any sum that the tenant has agreed to pay to the landlord in respect of the goodwill of a business carried on by the landlord in the retail shop concerned immediately before the lease was entered into;
(b)expenses reasonably incurred by the landlord in investigating a proposed assignee of the tenant or sub‑lessee of the premises; or
(c)      fair and reasonable expenses of the landlord in respect of the drawing up of or the obtaining of necessary consents to the least, an assignment of the lease or a sub‑lease of the premises.
(3)      Any amount paid or the value of any benefit conferred by a person under a provision of a lease that is void by reason of subsection (1) or (1a) may be recovered by that person from the person to whom the amount was paid or on whom the benefit was conferred in the Tribunal or a court of competent jurisdiction as a debt due."

The statement of claim

Paragraph 1 of the statement of claim provides that the respondent has conducted the business on the premises, that the premises were and are owned by the appellants, that the premises subject to the lease are a retail shop as defined in the Act and that the respondent was a tenant of the premises by way of an assignment and renewal as previously mentioned herein until 28 February 1993.
Paragraphs 2-9 inclusive provide as follows:
"2.On 7 July 1992 the defendants intimated to the plaintiff that any offer to renew the lease or to lease the premises 'must include a lump sum cash payment which does not fall foul' of the Act.
3.(a)      On 21 October 1992, the defendants offered to grant a lease for a 5 year period between them and a corporation which would not be eligible for incorporation in Western Australia as a proprietary company (i.e. a limited company) in return for a one-off payment (in addition to payments under the Lease) of $40,000.
(b)The sum of $40,000 would be payable by way of a deposit of $5,000 on acceptance of that offer, and the balance of $35,000 at the signing of the lease document on or before the end of January 1993 ("the arrangement").
4.On 16 November 1992, the plaintiff accepted the arrangement and indicated its preparedness to enter into a new lease with the defendants on the basis of the payment to be made pursuant to the arrangement.
5.On or about 2 February 1993 the plaintiff made payment of the sum of $5,000 to the second named defendant, in partial payment under the arrangement.
6.(a)      Acting pursuant and in compliance with the arrangement, and after the payment of $5,000 had been made, the plaintiff acquired Spectrum Ltd a shelf, limited company, on 22 February 1993;
(b)The directors of Spectrum Ltd were the plaintiff, his wife and son while the shareholders were the plaintiff, his wife and three other family members.
7.(a)      On or about 20 September 1993, the defendants and Spectrum Ltd represented by the plaintiff entered into a 5 year lease in respect of the premises;
(b)The plaintiff and his wife signed the lease on behalf of Spectrum Ltd and as guarantors for the due performance of its obligations thereunder.
8.On or after September 1993, the plaintiff paid to the defendants the sum of $35,000 being the balance of the amount in terms of the arrangement.
9.(a) The interposition of Spectrum Ltd as the lessee in terms of the lease dated 20 September 1993 was a device or sham intended to evade the provisions of section 9 of the Act.
(b)At all times, the intention of the parties was that the plaintiff would be liable for the obligations under the lease.
(c)      In substance, the lease was an agreement between the parties hereto.
(d)Alternatively to (c) hereof, by lifting the corporate veil, the tenant under the lease was in fact the plaintiff, who made the payments to the defendants pursuant to the arrangement."

Commentary

The appellants accept that if it was found that the lease was between the appellants as lessors and the respondent as lessee then the sum of $40,000 would be key money and recoverable pursuant to s9 of the Act. However they say that the lease was not a sham and that Spectrum was the real tenant. It has not been suggested that Spectrum was not a public company as provided in para (b) of the definition of a Retail Shop Lease in s3(1) of the Act. It is not pleaded in the statement of claim that Spectrum was not such a company.
The respondent's claim is based on the propositions that the lease between Spectrum and the appellants dated 20 September 1993 was in substance a lease between the respondent and the appellants (para 9(c) of the statement of claim) or that there should be a lifting of the corporate veil so as to replace Spectrum with the respondent under the lease (para 9(d) of the statement of claim). The first of these two propositions is essentially that the lease dated 20 September 1993 is a sham and that the real tenant was the respondent. This begs the question, what is a sham?
In Snook v London and West Riding Investments Ltd [1967] 2 QB 786 Diplock LJ considered what, if any, legal concept is involved in the use of the word sham. At p802 he said:
"As regards the contention of the plaintiff that the transactions between himself, Auto finance and the defendants were a 'sham', it is, I think, necessary to consider that, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v Maclure and Stoneleigh Finance Ltd v Phillips), that for acts or documents to be a 'sham' with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."
In A G Securities v Vaughan [1990] 1 AC 417 Bingham LJ considered what constituted a sham. He noted that the accepted definition of a sham is that given by Diplock LJ in Snook's case. At p444 he said:
"The broad approach to be adopted in resolving a question of this kind is, I think, well settled:
(1)The court should be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts: Street v Mountford [1985] AC 809, 825H. The court has to be especially wary and especially careful to see that things like premiums are not being used to conceal payments of rent and so on: Aldrington Garages Ltd. V Fielder, 37 P. & C.R. 461, 469, per Geoffrey Lane L.J.
(2)A written agreement is a sham where it incorporates clauses by which neither party intends to be bound and which is obviously a smokescreen to cover the real intentions of both contracting parties: Hadjiloucas v Crean [1988] 1 WLR 1006, 1013, per Purchas LJ. The accepted definition of a sham is that given by Diplock L.J. in Snook v London and West Riding Investments Ltd. [1967] 2 Q.B. 786, 802:"
At p462 Templeman LJ referred to his decision in Street v Mountford [1985] AC 809, 825 where he said:
"Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts."
There is no question that at all material times Spectrum was a real company. Paragraphs 6(a) and 6(b) of the statement of claim support the conclusion that Spectrum was a real company. It is clear in my opinion that a lease held by a public company such as Spectrum is expressly excluded from the meaning of a retail shop lease as defined in the Act.
By para 2 of the statement of claim the appellants essentially intimated that unless they received a payment which did not breach the law then they would not grant a lease. A landlord is entitled to so arrange his affairs that the legal result will bring him outside the statutory provisions. See Samrose Properties Ltd v Gibbard [1958] 1 All ER 502 at 504.
On my reading of the whole of the statement of claim the words "the arrangement" as provided in para 3(b) relate to the contents of both paragraphs 3(a) and 3(b) and not just the contents of para 3(b). I say that because the reference in para 6(a) to the acquisition of Spectrum being pursuant to and in compliance with the arrangement must mean that the contents of para 3(a) was an integral part of the arrangement.
If it was found that Spectrum was a real company, that the arrangement was as pleaded in paras 3(a) and 3(b), that the respondent accepted the arrangement, that the respondent paid the sum of $40,000 to the appellants and that Spectrum entered into the lease for the premises as pleaded in paras 7(a) and 7(b) of the statement of claim then such findings could be consistent with the conclusion pleaded in para 9(c) of the statement of claim that the lease was in substance between the appellants and the respondent but they do not by themselves necessarily support such a conclusion.
In my opinion the statement of claim fails to plead sufficient material facts to support the conclusion pleaded in para 9(c). In other words there are no material facts pleaded which if established would together with all of the material facts already pleaded prove that the parties hereto intended the respondent and not Spectrum to be the real lessee. By reference to the definition of a sham as expressed by Diplock LJ in Snook's case, there are no material facts pleaded to show that the legal rights and obligations between the parties named in the lease and as they appeared in the lease were different from the actual legal rights and obligations which the appellants and the respondent intended to create.
If there was an agreement between the appellants and the respondent that the respondent would in fact be the lessee then that could support the conclusion pleaded in para 9(c). However no such agreement and material facts to ground such an agreement are pleaded. In my opinion there is no basis to infer such an agreement from the material facts pleaded in the statement of claim.
For these reasons I am of the opinion that the respondent's statement of claim does not plead sufficient material facts which if established would support the conclusion in para 9(c) that in substance the lease was an agreement between the appellants as lessors and the respondent as lessee. I now turn to the respondent's claim in para 9(d) that in the alternative that by lifting the corporate veil, the tenant under the lease was in fact the respondent who made the payments to the appellants pursuant to the arrangement pleaded in paras 3(a) and 3(b).
In most cases concerning the lifting of a corporate veil it is a person who is not a member of the company or associated with the company that wants the corporate veil lifted. In an appropriate case a member or members of a company may succeed in having the corporate veil lifted. The lifting of the corporate veil at the request of one of its members is described as reverse lifting of the corporate veil. The only material fact pleaded in para 9(d) is that the respondent made the payments pursuant to the arrangement in paras 3(a) and 3(b). I should mention that I have considered this material fact together with all of the other material facts pleaded in the statement of claim in order to resolve the appellants' application.
For the purpose of resolving the appellants' application to strike out in so far as it relates to the issue of the lifting of the corporate veil I repeat all that I have already mentioned in relation to the respondent's claim that the lease was a sham. The material facts pleaded in paras 5 and 8 of the statement of claim that the respondent made the payments totalling $40,000 do not of themselves and together with all of the other material facts pleaded in the statement of claim necessarily support the conclusion that the lessee under the lease was in fact the respondent and not Spectrum.
Paragraph 3(a) provides that the appellants' offer was to grant a lease to a public company. Such a company did not come within the operation of the Act by virtue of the express exclusion in para (b) of the definition of a retail shop lease in s3(1) of the Act. I note that there is no suggestion in paras 3(a) and 3(b) that it was a requirement of the arrangement that the plaintiff should make the payments totalling $40,000 in his own right. Paragraphs 4, 5, 6, 7 and 8 all relate back to the arrangement in paras 3(a) and 3(b). It follows that all of the material facts pleaded in paras 4, 5, 6, 7 and 8 relate to an arrangement which included an offer to grant a lease to a public company and did not include any requirement that the payment of $40,000 be made by the respondent in his own right.
The drafting of para 4 of the statement of claim is unclear. Even so it does not by itself or together with the rest of the statement of claim lay any foundation for lifting the corporate veil. The word "its" in para 4 cannot be a reference to Spectrum because Spectrum had not been acquired by the respondent as at 16 November 1992 (see para 6(a)). The word "its" is used in connection with the words "the plaintiff". If the word "its" is read as "his" then para 4 could be read in two parts. The first part is that "on 16 November 1992, the plaintiff accepted the arrangement" and the second is that the plaintiff "indicated his preparedness to enter into a new lease with the appellants on the basis of the payment to be made pursuant to the arrangement". These two parts do not sit together comfortably. The first part contains an unequivocal acceptance of an arrangement and the second part contains a mere indication by one party to another which if accepted by the other would constitute a different arrangement. That is why I say para 4 is unclear.
For the purpose of completeness I will comment on the second part ie that the respondent indicated to the appellants that he, ie the respondent, was prepared to enter into a new lease with the appellants on the basis that he, ie the respondent, pay $40,000 to the appellants as provided in para 3(b). Even if this were found to be so it would not by itself or in combination with the rest of the statement of claim lay any foundation for lifting the corporate veil. There is no pleading following on from this second part of para 4 that the appellants ever responded to or acted upon this indication by the respondent. On the respondent's own pleadings the arrangement consisted of an offer by the appellants to lease to a public company and not an offer to lease to the respondent. This was the arrangement accepted by the respondent on 16 November 1992 and further, it was pursuant to this arrangement that the respondent acquired Spectrum on 22 February 1993. On 20 September 1993 the appellants entered into a lease with Spectrum.
For all these reasons I am of the opinion that the respondent's statement of claim discloses no reasonable cause of action and that it should be struck out. I now turn to the appellants' application for summary judgment.
An affidavit of Salvatore Antonio Cuscuna, the second named appellant, sworn on 9 November 1998 ("Cuscuna's affidavit") was filed in support of the appellants' application for summary judgment. No affidavit has been filed by or on behalf of the respondent. The contents of Cuscuna's affidavit gives rise to the following points of evidence:
1.The term of the lease by which the respondent was the lessee expired on 28 February 1993.
2.In March 1992, the respondent, through his solicitors, sought a statement of the lessors' intentions in relation to whether the lease to the respondent would be extended.
3.The second named appellant did not intend to grant a further lease to the respondent after 28 February 1993. On 17 March 1992 the appellants' solicitors advised the respondent's solicitors that the appellants proposed to retake possession of the premises and required the respondent to vacate the premises in the terms of the lease.
4.There were subsequent negotiations between the solicitors representing both parties in which the payment of a lump sum was discussed. The second named appellant instructed the appellants' solicitors that he was only prepared to grant a new lease upon receiving a lump sum payment in advance which did not contravene the provisions of the Act.
5.By letter dated 12 August 1992 the respondent's solicitors advised the appellants' solicitors that they were instructed to continue negotiations to attempt to determine the proper price for the granting of a new lease.
6.By letter dated 21 October 1992 by the second named appellant to the respondent the second named appellant stated inter alia:
"I am prepared to grant a lease of the Ambassador Tavern for a term of five years from the expiry of the term of the existing lease between us to a corporation within the meaning of the Companies (Western Australia) Code that will not be eligible to be incorporated in Western Australia as a proprietary company (ie a limited company) nominated by you in return for a one‑off payment (in addition to rent and other payments payable under the terms of the lease) of $40,000. The payment should be made by a deposit of $5,000 on acceptance and the remaining $35,000 at the signing of the lease document on or before the end of January 1993."
7.The second named appellant did not offer to grant the respondent a further lease.
8.On 2 February 1993 the respondent's solicitors forwarded to the appellants' solicitors a trust cheque for $5,000 made out to the second named appellant.
9.The first named appellant received a cheque for the sum of $35,000, being the second instalment of $40,000, in or about August 1993 and deposited it on or about 25 August 1993. The cheque was drawn on an account titled "Ambassador Tavern".
10.On 20 September 1993 the lease of the premises for a five year period commencing on 1 March 1993 was entered into by the appellants as lessors and Spectrum as lessee. A copy of the deed of lease is annexed to Cuscuna's affidavit. It shows that the common seal of Spectrum was affixed with the respondent and Acnka Cotic signing as authorised persons and directors of Spectrum. Both the respondent and Acnka Cotic signed the deed twice, the second occasion as guarantors.
11.Spectrum paid rent under the lease.
12.During the term of the lease Spectrum became the licensee of the premises. Annexed to Cuscuna's affidavit is a copy of a tavern licence which provides Spectrum as the licensee of the Ambassador Tavern with the approved manager being Senka Cotic. The copy of the licence provides that the licence takes effect from 1 February 1996.
13.Spectrum sold the business conducted at the premises to Mitcham Enterprises Pty Ltd ("Mitcham Enterprises"). In or about November or December 1997 Spectrum's agent notified the second named appellant that Spectrum intended to sell the business. Spectrum sold the business with effect from 23 January 1998.
14.In order to enable Spectrum to sell the business to Mitcham Enterprises the appellants accepted a surrender of Spectrum's lease and granted a new lease to Mitcham Enterprises. A copy of the deed of surrender of the lease is annexed to Cuscuna's affidavit and it shows that the surrender document was executed by Spectrum as lessee by its representatives, the respondent and Acnka Cotic. Both the respondent and Acnka Cotic also signed as guarantors.
In my opinion the only conclusion open on the uncontradicted evidence in Cuscuna's affidavit to which I have just referred and the material facts not in issue on the pleadings is that the lease of the premises entered into by the appellants as lessors and Spectrum as lessee on 20 September 1993 truly reflected the intentions at the time of the parties to this action and the parties to the lease and that the lease was not a sham.
Counsel for the respondent has submitted that this is a case where the court should have regard to substance over form. In Thessaly's case, his Honour Murray J when examining the purpose behind the enactment of the Act said at pp261 and 262:
"As to the general approach, that may be seen to be quite different from the approach taken in the equivalent English legislation where, against the background of rent restriction legislation, the provision in the Landlord and Tenant (Rent Control) Act 1949, s2, which is directed to the prohibition of the payment of key money, is much more widely drawn than the provisions which I shall shortly examine in the WA Act: see Elmdene Estates Ltd v White [1960] AC 528. However, although the approach taken by the Western Australian legislation is of a more limited character, it is still appropriate that in construing its provisions, the substance and reality of a particular transaction rather than its form, should be the consideration which guides the court as to whether or not it falls within or outside the statutory scheme.
That was the approach taken in O F Gamble Pty Ltd v Whitemore Pty Ltd (1989) 2 WAR 327 by Commissioner Anderson QC as his Honour then was. Although that case was concerned with the key money provisions of the Act, upon its particular facts it provides no assistance I think, in the resolution of the issues thrown up in this case. The question there was whether a payment of $150,000 made in connection with the extension of the term of a lease, was key money in the sense that it was paid by way of a premium for the enlargement of the term by way of a deed of variation of the lease, or whether it was merely what was described as an 'option fee'. But the approach taken to the question of statutory construction, to look at the plain meaning of its provisions against the background of a consideration of the object and purpose of the Act, provides useful guidance as to the approach which should be taken by the court in this case. The decision of the learned Commissioner in that case was upheld, and the approach he took was approved, on appeal: see Whitmore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110. It is against this background that I turn to the relevant provisions of the Act upon which the alleged cause of action is based."
Counsel for the appellants accepts that I should have regard to substance over form and urges me to do so because the substance points to one conclusion namely that the lease with Spectrum was not a sham and accurately reflected the intentions of the parties at the time.
The facts in Thessaly's case are vastly different to the facts in this case and so the two cases can be readily distinguished. I should comment on whether s3(2) of the Act has any application in this case. His Honour Murray J was in no doubt that s3(2) is the key anti‑avoidance provision of the Act. At pp267 and 268 he said:
"In other words in my view, s3(2) operates so as to transport into the lease a provision in an agreement or arrangement which is made outside the lease but between the parties to the lease on opposite sides, no matter what other parties may also be involved in the agreement or arrangement."
The case as pleaded by the respondent does not allege any collateral agreement between the appellants and the respondent that the respondent should pay to the appellants the sum of $40,000. Even if such a collateral agreement was alleged the respondent would be confronted with the argument that both the appellants and the respondent being the parties to the collateral agreement were not also parties to the lease. The respondent would face a further difficulty if he approached his case in this way because s3(2) operates to incorporate a collateral agreement or arrangement into a retail shop lease and in this case the lease is not a retail shop lease as defined in the Act because the lessee, Spectrum, is a public company.

For these reasons I am of the opinion that s3(2) has no application in this case. This brief analysis of s3(2) highlights the fact that the respondent's case is really based on the proposition that the lease was a sham and that the parties intended the respondent to be the real lessee. The respondent then seeks to rely on ss9(1) and 9(3) of the Act to recover the sum of $40,000 on the basis that he was the lessee and therefore the lease was a retail shop lease within the meaning of the Act.
In Thessaly's case his Honour Murray J was of the view that it was certainly arguable that the $300,000 in question was paid as a premium or price for Thessaly being able to take the assignment. An important consideration in Thessaly's case was that the sum of $300,000 paid by Thessaly to Pelworth purported to be consideration for the sale of the tavern business whereas in fact Pelworth did not conduct the tavern business. This case before me can be clearly distinguished from Thessaly's case on the basis that Spectrum paid the rent, Spectrum became the licensee of the premises and was thereby authorised to sell liquor at the premises, Spectrum as vendor sold the business and Spectrum as lessee surrendered the lease to facilitate the sale of the business.
Applying the tests to which I have previously referred I am of the view that the respondent's statement of claim should be struck out and that there be summary judgment in favour of the appellants. In my opinion this is one of those cases where commercial decisions were made, a corporate structure was created, a lawful transaction was entered into by the appellants and the corporate structure for the corporate structure to occupy premises owned by the appellants, and as a matter of reality the corporate structure occupied the premises and conducted the business on the premises. It is a case where the respondent being a director and shareholder of Spectrum is not free to treat the corporateness of Spectrum as "a genie in a bottle, to be summoned out at will and nunc pro tunc". When the corporate veil is opaque it is opaque both ways. See D & J Constructions v Head (1987) 9 NSWLR 118 per Bryson J. In my opinion this is also one of those cases where the words of Young J in Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACL 222 are apposite namely:
"So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health."

Result

The appellants' appeal should be allowed.