Cotic v Cuscuna Nominees Pty Ltd

[2000] WASCA 92

COTIC -v- CUSCUNA NOMINEES PTY LTD & ANOR [2000] WASCA 92

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASCA 92
Court:	THE FULL COURT (WA)
Case No:	FUL:122/1999	Heard:	13 MARCH 2000
Coram:	KENNEDY J IPP J WALLWORK J	Delivered:	12/04/00
No of pages:	12	Judgment Part:	1 of 1
Result:	Appeal dismissed
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Parties:	NICOLA COTIC CUSCUNA NOMINEES PTY LTD (ACN 008 861 550) SALVATORE ANTONIO CUSCUNA
Catchwords:	Landlord and tenant Commercial tenancy Retail shop lease Offer by landlord to tenant on expiration of existing lease to grant a five year lease to a limited company nominated by tenant Term of offer that one-off payment of $40,000 be made to landlord No arrangement that money was to be paid by or at the request or direction of the tenant Sum of $40,000 not key money
Legislation:	Commercial Tenancy (Retail Shops) Agreement Act 1985, s 3(1) (definitions of "key money", "lease" and "retail shop lease"), s 3(2), s 9(1), s 9(3)
Case References:	Gogos v Christopoulos (1994) 62 SASR 184 Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253 Adams v Cape Industries Plc [1990] Ch 433 AG Securities v Vaughan [1990] 1 AC 417 Baker v Dewey (1823) 1 B&C 704; 107 ER 259 D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 Dabbs v Seaman (1925) 36 CLR 538 Forsayth NL v Northern Gold NL, unreported; FCt SCt of WA; Library No 940012; 20 January 1994 Gilford Motor Co Ltd v Horne [1933] 1 Ch 935 Jones v Lipman (1962) 1 WLR 832 Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACLC 222 Newton v Commissioner of Taxation (Cth) (1958) 98 CLR 1 O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327 Peate v Commissioner of Taxation (Cth) (1964) 111 CLR 443; (1966) 116 CLR 38 Samrose Properties Ltd v Gibbard [1958] 1 All ER 502 Tate Access Floors Inc v Boswell [1991] Ch 512 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1979) 40 FLR 83 Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : COTIC -v- CUSCUNA NOMINEES PTY LTD & ANOR [2000] WASCA 92 CORAM : KENNEDY J

IPP J
WALLWORK J

HEARD : 13 MARCH 2000 DELIVERED : 12 APRIL 2000 FILE NO/S : FUL 122 of 1999 BETWEEN : NICOLA COTIC

Appellant (Plaintiff)

AND

CUSCUNA NOMINEES PTY LTD (ACN 008 861 550)
SALVATORE ANTONIO CUSCUNA
Respondents (Defendants)

Catchwords:

Landlord and tenant - Commercial tenancy - Retail shop lease - Offer by landlord to tenant on expiration of existing lease to grant a five year lease to a limited company nominated by tenant - Term of offer that one-off payment of $40,000 be made to landlord - No arrangement that money was to be paid by or at the request or direction of the tenant - Sum of $40,000 not key money

Legislation:

Commercial Tenancy (Retail Shops) Agreement Act 1985, s 3(1) (definitions of "key money", "lease" and "retail shop lease"), s 3(2), s 9(1), s 9(3)

(Page 2)

Result:

Appeal dismissed

Representation:

Counsel:

Appellant (Plaintiff) : Mr G M Abbott
Respondents (Defendants) : Mr J A Chaney

Solicitors:

Appellant (Plaintiff) : Summers Partners Lawyers
Respondents (Defendants) : Karp & Steedman

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

Gogos v Christopoulos (1994) 62 SASR 184
Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253

Case(s) also cited:

Adams v Cape Industries Plc [1990] Ch 433
AG Securities v Vaughan [1990] 1 AC 417
Baker v Dewey (1823) 1 B&C 704; 107 ER 259
D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118
Dabbs v Seaman (1925) 36 CLR 538
Forsayth NL v Northern Gold NL, unreported; FCt SCt of WA; Library No 940012; 20 January 1994
Gilford Motor Co Ltd v Horne [1933] 1 Ch 935
Jones v Lipman (1962) 1 WLR 832
Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACLC 222
Newton v Commissioner of Taxation (Cth) (1958) 98 CLR 1
O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327
Peate v Commissioner of Taxation (Cth) (1964) 111 CLR 443; (1966) 116 CLR 38
Samrose Properties Ltd v Gibbard [1958] 1 All ER 502
Tate Access Floors Inc v Boswell [1991] Ch 512


(Page 3)

Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1979) 40 FLR 83
Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110

(Page 4)

1 KENNEDY J: I have had the benefit of reading in draft the reasons to be published by Ipp J, with which I am entirely in agreement. I would therefore dismiss this appeal.

2 IPP J: This appeal arises out of proceedings brought in the District Court by the appellant (to whom I shall refer as "Cotic") against the respondents (to whom I shall refer, collectively, as "Cuscuna"). In those proceedings Cotic sought to recover from Cuscuna the sum of $40,000 which was allegedly key-money under the Commercial Tenancy (Retail Shops) Agreement Act 1985.

3 Cotic was the tenant and Cuscuna the landlord of the Ambassador Tavern, premises which constituted a retail shop within the meaning of the Act. According to the statement of claim, Cotic paid Cuscuna $40,000 (made up of $5,000 paid on or about 2 February 1993 and $35,000 paid some seven months later) as key-money, as defined by s 3 of the Act. Cotic alleged that the $40,000 was a premium for the grant of a new lease to a third party, a public company known as Spectrum Pty Ltd and claimed that, by virtue of s 9(3) of the Act, Cuscuna was obliged to repay the sum of $40,000 to him.

4 Cuscuna applied for an order striking out Cotic's statement of claim on the ground that it disclosed no reasonable cause of action and also applied for summary judgment against him. The Deputy Registrar dismissed both these applications. Cuscuna appealed and the appeal was heard by a Commissioner of the District Court. The learned Commissioner upheld the appeal, struck out the statement of claim and granted summary judgment against Cotic. Cotic now appeals to this Court and seeks orders setting aside those made by the learned Commissioner.

5 It is necessary to examine the cause of action on which Cotic relied. The first link in the argument was s 3(2) of the Act, which provides:

"3(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."

(Page 5)

Cotic submitted that after he had leased the Ambassador Tavern from Cuscuna (pursuant to what was admittedly a retail shop lease), he entered into an "arrangement" with Cuscuna, in terms of s 3(2), that contained a provision which, if contained in the retail shop lease, would have been void. Therefore, so the argument went, by s 3(2) that provision was deemed to be contained in the retail shop lease.

6 The arrangement in question was pleaded in Cotic's statement of claim as follows:

"3. (a) On 21 October 1992, [Cuscuna] 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, [Cotic] accepted the arrangement and indicated its [sic - his] preparedness to enter into a new lease with [Cuscuna] on the basis of the payment to be made pursuant to the arrangement."

Cotic submitted that the arrangement provided for the payment of key-money as defined by s 3(1) of the Act.

7 Section 3(1) provides that key-money means, relevantly:

"(a) money that is to be paid by, or at the request or direction of, a tenant; or

(b) …

by way of a premium or something of a like nature in consideration of the granting of, or agreeing to grant, a lease … "

8 Cotic contended that upon proof of the provision that key-money was to be paid by him to Cuscuna, and the consequent deeming of that

(Page 6)

provision to be a provision in the retail shop lease relating to the Ambassador Tavern between himself and Cuscuna, it followed - by s 9(1) of the Act - that that provision was void. Section 9(1) of the Act provides:

"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."

Accordingly, Cotic submitted, he was entitled - by s 9(3) of the Act - to recover the $40,000. That section provides:

"9(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) … may be recovered by that person from the person to whom the amount was paid or on whom the benefit was conferred … as a debt due."

9 Counsel for Cuscuna submitted that the fallacy in Cotic's argument was that key-money, properly construed, is money that is to be paid by, or at the request or direction of, a tenant by way of a premium in consideration of the landlord granting or agreeing to grant or renew a retail shop lease (and not a lease) to the tenant, himself (and not to a third party). Counsel referred to the definition in s 3(1) of a retail shop lease and relied on the fact that it excluded, in effect, a lease to a public company. He drew attention to the statement of claim which alleged:

"6. (a) Acting pursuant and in compliance with the arrangement, and after the payment of $5,000 had been made, [Cotic] acquired Spectrum Ltd a shelf, limited company, on 22 February 1993;

(b) The directors of Spectrum Ltd were [Cotic], his wife and son while the shareholders were [Cotic], his wife and three other family members.

(Page 7)

7. (a) On or about 20 September 1993, [Cuscuna] and Spectrum Ltd represented by [Cotic] entered into a 5 year lease in respect of the premises;

(b) [Cotic] and his wife signed the lease on behalf of Spectrum Ltd and as guarantors for the due performance of its obligations thereunder."

Counsel submitted that as the new lease was with a public company (that is, Spectrum) it was not a retail shop lease. Therefore, he argued, the $40,000 paid as a premium for the lease did not constitute key-money. Additionally, he submitted, as the tenant of the new lease was not Cotic (but was Spectrum) the $40,000 did not constitute key-money.

10 In my view, however, there is no warrant, either by reference to the language used in the section, or to policy considerations, for qualifying the meaning of key-money as submitted by counsel for Cuscuna.

11 As regards the language employed in the Act, the definition of key-money is couched in broad, general terms. There is no express mention of the qualifications for which counsel contended. The definition makes it plain that key-money is money paid as consideration for entering into a lease - not a retail shop lease. The definition of key-money does not require the payment of a premium to be for a retail shop lease. The inference to be drawn from the language used in the Act is that the omission to so qualify the definition of key-money is deliberate. It is indeed the case that, by s 9(1), a provision for key-money is only void if it is contained in a retail shop lease. But no words in the Act justify the construction that money (or a benefit) can only constitute key-money if it is paid (or conferred) as a premium for a new retail shop lease (and not, as in this case, for a new lease).

12 Similarly, the definition of key-money contains no qualification limiting it to a premium paid to enable the tenant under the existing retail shop lease to obtain a new lease or an extension of the old lease. The definition contains no reference to the identity of the parties to the lease to be granted or renewed, etc. The inference from the language used in the section is that the identity of the parties is immaterial.

13 As regards policy considerations, it is plain that the purpose of the Act is to improve the position of small business retail tenants and to "redress specific imbalances seen to exist": per Murray J in Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253 (at 261). The mischief at which it is aimed includes "the limitation of the circumstances in which an

(Page 8)

avaricious landlord can receive a premium from a tenant": per Matheson J in Gogos v Christopoulos (1994) 62 SASR 184 at 190.

14 Gogos v Christopoulos concerned legislation in South Australia similar to the Commercial Tenancy (Retail Shops) Agreement Act. Matheson J was of the view that, as a matter of policy, an interpretation of the statute having the result that the legislation did not apply to payments made by an existing tenant as an inducement for the landlord to agree to a third party entering into a new lease should be avoided, if possible. That would have the result that the landlord could keep the key-money simply because the existing tenant paid a premium for the grant of a lease to the incoming new tenant. His Honour agreed (at 189) with the submission:

"… that it is precisely in cases where there is an incoming and outgoing tenant that the potential for demanding and receiving a premium is at its highest."

Matheson J was in dissent in Gogos v Christopoulos but the majority did not disagree with this part of his reasons. I agree, with respect, with his Honour's views.

15 But that is not the end of the matter. It remains to consider whether the allegations in the statement of claim, and the evidence, support the submissions made on behalf of Cotic. That is, the question remains whether the allegations in the statement of claim, and the evidence adduced in the summary judgment application, support the submission that Cotic paid key-money as defined by the Act.

16 It was common cause that the relevant "tenant" in this case was Cotic (he being the tenant of the retail shop lease in which the offending "provision" was said to be deemed to be incorporated). The basic issue between the parties was whether the money in question was to be "paid by, or at the request or direction of, a tenant" (this being an essential element of the definition of key-money).

17 I turn, firstly, to the appeal against the order striking out the statement of claim. The "arrangement" on which Cotic relied was pleaded in par 3 and par 4 of his statement of claim and these paragraphs are set out above. Paragraph 3(b) contains the critical allegations and for the sake of convenience I shall repeat them. It was there alleged that part of the arrangement was as follows:

"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

(Page 9)

at the signing of the lease document on or before the end of January 1993 ('the arrangement')."

This is a carefully pleaded allegation, and significantly it omits any reference - as part of the arrangement - to any money that was to be "paid by, or at the request or direction of, the tenant". The inference is that it was no part of the arrangement that Cotic was to pay anything or to request or direct that any money be paid. As the pleading stands, under the arrangement it was understood merely that the money would be paid by some person not identified, and it was irrelevant to Cuscuna who paid it.

18 In my opinion, the omission to allege, either expressly or impliedly, that the $40,000 was to be paid by, or at the request or direction of, Cotic, is fatal. The pleading fails to allege the requisite element to which I have referred. In my view, the statement of claim was rightly struck out.

19 I turn now to the evidence of the arrangement. This is relevant to the appeal from the orders made upholding Cuscuna's summary judgment application. In this regard, the crucial issue is whether the evidence supports the allegation that an arrangement was made containing a void provision concerning key-money. What transpired subsequent to the making of the arrangement is only relevant to the extent that it may cast light on the arrangement that was made.

20 On 4 March 1992, Cotic's solicitors wrote to Cuscuna and requested "a statement of your intentions as to the renewal of the Lease". Cuscuna's solicitors replied by letter dated 17 March 1992, stating:

"We confirm that the lease is due to expire on the 28th February 1993. At the expiration, our clients would propose to retake possession of the premises and would require your client to vacate the same in the terms of the lease."

Telephone discussions then took place between the parties' respective solicitors and on 7 July 1992 Cuscuna's solicitors wrote to Cotic's solicitors, stating:

"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.

(Page 10)

We are instructed, however, to make it clear to you and your client that our client will consider offers only and strictly on the basis that our client receives full value for the commercial opportunity being offered."

By letter dated 21 October 1992, Cuscuna wrote to Cotic, stating:

"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 (i.e. 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 $40,000.00. The payment should be made by a deposit of $5,000.00 on acceptance and the remaining $35,000.00 at the signing of the lease document on or before the end of January 1993."

By letter dated 2 February 1993, Cotic's solicitors sent Cuscuna's solicitor their trust cheque for $5,000. The letter did not record on whose behalf the payment was being made. The letter stated:

"As foreshadowed by yourselves we are having some difficulty finding a company structure which would not be eligible for incorporation as a proprietary limited company but we are proceeding with our research in that regard."

In August 1993, Cuscuna received a cheque for $35,000, being the second instalment of the $40,000. The cheque was drawn on an account entitled "Ambassador Tavern".

21 The new lease was entered into on 20 September 1993 between Cuscuna and Spectrum Ltd, a public company. Cotic, as a director of Spectrum, together with another member of his family (also a director) executed the lease on behalf of Spectrum. The directors of Spectrum were Cotic, his wife and son, and its shareholders were Cotic, his wife and three other family members. The lease made no reference to any payment by Spectrum of the premium of $40,000, although it purported to record payments made by Spectrum that were in addition to rent.

22 The letter dated 21 October 1992 written by Cuscuna to Cotic is the critical piece of evidence. Indeed, in Cotic's statement of claim he relies only on that letter and the acceptance of the proposed arrangement set out

(Page 11)

therein for his contention that an arrangement within the meaning of s 3(2) was made.

23 The letter of 21 October 1992 requires a "one-off payment" of $40,000. It states, "The payment should be made by a deposit of $5,000.00 on acceptance and the remaining $35,000.00 at the signing of the lease document on or before the end of January 1993." Nothing is said that could be construed as an arrangement that any money was to be "paid by, or at the request or direction of, the tenant". As with the statement of claim, the inference is that it was no part of the arrangement that Cotic, personally, was to pay anything or to request or direct that any money be paid. According to the letter, it was understood merely that the money would be paid, and it was irrelevant to Cuscuna who paid it. There was no requirement for Cotic to do anything. It was open to Cotic's nominee to pay if it wished, without Cotic requesting or directing that any payment be made. An examination of the evidence therefore explains the pleader's difficulty.

24 In my view, the parties' subsequent conduct takes the matter no further. I emphasise that it is the arrangement as to "money that is to be paid" that is relevant to whether a particular payment made pursuant thereto constitutes key-money. Thus, while the $40,000 may in fact have been paid by Cotic, that fact does not establish that under the arrangement the money was to be paid, or requested or directed by him. When regard is had to what is stated in the letter of 21 October 1992, the actual payment by Cotic takes the matter no further. Once nothing was said in the letter requiring Cotic to make any payment, the fact that he did pay is merely evidence that he took it upon himself to do so. It was clear from the letter that it was open to Cotic to pay, but, under the arrangement as recorded therein, the money was not "to be paid" by him. Critically, the identity of the person who was to pay was not "arranged", and Cotic was not required, by the arrangement, to request or direct any person to make a payment. The arrangement was silent as to these matters and it was open to any person to pay the money.

25 In the circumstances, the evidence falls short of giving rise to any possible inference that, under the arrangement, money was "to be paid by or at the request or direction of" Cotic. That being so, in my view, summary judgment was correctly granted in favour of Cuscuna.

26 For the sake of completeness, I note that Cotic also pleaded that:

(Page 12)

"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."

Central to this allegation was the contention that:

"At all times, the intention of the parties was that [Cotic] would be liable for the obligations under the lease."

The learned Commissioner rejected the argument that any sham was involved in the transaction whereby Spectrum became the lessee under the new lease. This conclusion was inescapable, and counsel for Cotic did not attempt to argue to the contrary.

27 I would dismiss the appeal.

28 WALLWORK J: I agree with the reasons for judgment of Ipp J and to the order proposed by his Honour.