Council of the Law Society of New South Wales v Webb (No 2)
[2012] NSWADT 212
•20 August 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: 73 Union St Retail Pty Ltd v J&S Group Pty Ltd [2012] NSWADT 212 Hearing dates: 20 August 2012 Decision date: 20 August 2012 Jurisdiction: Retail Leases Division Before: S Montgomery, Judicial Member Decision: The application for urgent interim order is dismissed.
Catchwords: Retail Tenancy Claim - application for urgent interim order - third party affected Legislation Cited: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994Cases Cited: Evriparas Pty Ltd v ING Management Limited [2011] NSWADT 273
Beecham Group Pty Ltd v Bristol Laboratories Pty Ltd [1968] 118 CLR 618; [1968] HCA 1.
Perhauz & Anor v SAF Properties Pty Ltd & Ors [2007] NSWADT 122
Protogeros v Fouzas [2004] NSWADT 62
Randi Wixs Pty Limited -v- Pokana Pty Limited (No. 2) [2003] NSWADT 4
Spuds Surf Chatswood Pty Ltd v P T Limited [2007] NSWADT 130Category: Interlocutory applications Parties: 73 Union St Retail Pty Ltd (Applicant)
J&S Group Pty Ltd (Respondent)Representation: H Soltan (Agent for Applicant)
T Breene (Respondent)
File Number(s): 125117
REasons for decision
GENERAL DIVISION (S MONTGOMERY, (JUDICIAL MEMBER)): This is an application for an urgent interim order brought by 73 Union St Retail Pty Ltd ("the Applicant") under the Retail Leases Act 1994 ("the Act") in relation to premises known as lot 13 in Strata Plan 63800 ("the premises").
The Applicant seeks an order that J&S Group Pty Ltd ("the Respondent") give the Applicant possession of the premises immediately.
The Applicant contends that it was in possession of the premises from 12 November 2011 to 11 July 2012 under an agreement in which the Respondent granted to the Applicant the right to occupy the premises.
It further contends that a retail lease of the premises was created by virtue of section 8 of the Act and that by virtue of section 71 of the Act the Tribunal has jurisdiction with respect to disputes between the lessor and lessee of the retail lease.
The application for original decision brought by the Applicant seeks the following orders:
1. A declaration that a retail lease between the Applicant as lessee and the Respondent as lessor was created on 12 November 2011.
2. A declaration that the first term of that lease is five years, the annual rent for that lease is $150,000 gross plus GST, the leased premises is lot 13/SP63800 excluding the parking space.
3. Alternatively if the tribunal cannot make order 1 above, a declaration that a lease was created where the Respondent is a lessor and the Applicant is a co-lessee with a nominee of the Respondent with other terms as per the lease tended to the Applicant by the Respondent's solicitor on 28 June 2012.
4. The Respondent to pay the Applicant $150,000 plus interest at 12% from 6 December 2010.
5. The Respondent to pay the Applicant's professional costs of and incidental of the proceedings.
The application sets out the following background:
1. On 6 December 2010 the Applicant and the Respondent entered into a Loan Agreement and Call Option Agreement on the premises known as lot 13 in Strata Plan 63800 which is owned by the Respondent by which the Applicant leant $150,000 to the Respondent. The Applicant contends that this payment constitutes Key Money for the purposes of the Act.
2. Lot 13 in Strata Plan 63800 is a parking space as well as retail shop operated as a convenience store by 7 Eleven Stores with a lease to expire on 11 November 2011 with no option to renew.
3. The Call Option Agreement stipulates that the Applicant and Respondent - or its nominee - are to take possession of the premises after vacation by 7 Eleven Stores in order to establish a new business of convenience store where the Applicant contributes 30% and the Respondent contributes 70% of the cost of the set up capital of the business pursuant to clause 12.3 and 13.3 of the Call Option Agreement.
4. On or about 11 November 2011 the Respondent retook possession of the premises from 7 Eleven Stores pursuant to the terms of their expired lease.
5. On or about 12 November 2011 and pursuant to the Call Option Agreement the Applicant took possession of the premises in order to establish the business of convenience store in the premises. The Applicant's director Mr Haney Soltan took the key of the premises from the Respondent's staff/agent.
6. On or about 13 November 2011 the Applicant's director Mr Haney Soltan entered the premises - on behalf of the Applicant - using the key he has collected from the Respondent staff/agent the day before.
7. Over the following days the Applicant invited a shop fitting company named Global Displays into the premises to carry out the fit out necessary to the establishment of the business and made substantial payments to set up the business.
8. Furthermore and over the following days the Applicant's director placed stock orders with various suppliers such as C-Stores, lntertrading, Smith Chips, Zahab Confectionary, Streets Ice cream etc in order to obtain the stock needed to establish the business in the premises. In that process he obtained trading credit which he personally guaranteed.
9. The Respondent provided a bank trading account with Eftpos facility where some part of the turn over of the business will automatically be banked and used to pay the rent of the premises as well as some other expenses of the business such as insurance, telephone, Internet costs, rubbish removal costs etc.
10. On 19 November 2011 the business started trading having been setup and stocked by the Applicant. The Applicant appointed all staff/agents necessary to run the 24 hours a day 7 days a week operation of the business.
11. On 7 December 2011 the Applicant reported to the Respondent the cash and credit setup cost of the business as well as sales figures. At that time the Respondent did not contribute any cost of capital in setting up the business. However the Respondent alleged that he has paid 7 Eleven Stores $8,250 for a cool room they left behind.
On 21 June 2012 the Respondent provided the Applicant with a copy of a proposed lease document in relation to the premises. Correspondence between the parties in relation to document followed. Some amendments sought by the Applicant were accepted whilst others were rejected.
The Applicant contends that the parties reached a consensus in regard to the terms of the lease in a form prepared by the Respondent's solicitor and tended to the Applicant on 28 June 2012.
On 12 July 2012 the Respondent demanded full possession of the premises from the Applicant's agent/staff Mr Ahmad Mustapha.
The Applicant's director was away on holidays at the time and Mr Mustapha was unable to contact him to obtain immediate instructions. Mr Mustapha gave full possession of the premises to the Respondent's agent/staff Mr Alghoul.
The Applicant's director subsequently advised Mr Mustapha that he would deal with the issue once he returned from his holidays.
On 3 August 2012 the Applicant's director, along with Mr Mustapha went to the premises but were denied access. They were asked to leave the premises immediately and not to attend it ever again.
The Applicant asserts that it is entitled to possession of the premises in the same manner as it was during the period from 12 November 2011 to 11 July 2012. The Applicant asserts that the Respondent has no legal basis to deny the Applicant access to the premises.
The hearing of the interim application
The matter came before me for urgent hearing on Thursday 20 August 2012. On that occasion I was satisfied that mediation was unlikely to succeed and that the matter should proceed in the Tribunal. As insufficient time was available to adequately deal with the issue I stood the matter down in the list to be heard later that morning. The matter was heard and determined and I gave brief reasons for my decision to refuse the application. The Applicant has sought written reasons for the decision and these are now provided.
The Respondent submitted that the application was not brought within the 28-day time period provided for by the Administrative Decisions Tribunal Act 1997. While I was not satisfied that it was necessary to do so, I nevertheless agree that if it were necessary, the time for lodging the application should be extended to 24 August 2012.
The Applicant's Case
Mr Soltan appeared on behalf of the Applicant. He relied on a bundle of documents filed with the application which he contends support the assertions set out above.
He submitted that in order to succeed on the application for interim order the Applicant needs to show the Tribunal that it has an arguable case in the application for original decision.
He submitted that there was an agreement between the Applicant and the Respondent by which the Applicant lent $150,000 to the Respondent. A condition of that loan was that the Respondent was to return that amount to the Applicant within six weeks. Failure to do so would trigger a call option agreement. That call option agreement would give the Applicant a right to purchase the property and the business.
Mr Soltan referred to the definition of Retail Shop Lease contained in section 3 of the Act which provides:
retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:
(a) whether or not the right is a right of exclusive occupation, and
(b) whether the agreement is express or implied, and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing.
Mr Soltan then referred to a number of decisions of the Tribunal that have considered these definitions. He referred to my decision in Protogeros v Fouzas [2004] NSWADT 62 in which I considered an earlier decision of Judicial Member Molloy in Randi Wixs Pty Limited -v- Pokana Pty Limited (No. 2) [2003] NSWADT 4 ("Randi Wixs v Pokana"). He submitted that the Tribunal has adopted the views expressed in Randi Wixs v Pokana in numerous decisions. In that regard to referred to the decision in Perhauz & Anor v SAF Properties Pty Ltd & Ors [2007] NSWADT 122 at paragraph [63] where the Tribunal stated:
63 In Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4, the Tribunal discussed the operation of s. 8 at some length, taking account also of the impact of the definition of 'retail shop lease' in s. 3. This discussion included the following passages:-
26 If [a paragraph quoted from Whiteway House] is relied upon to support the proposition that where there is no subsequently executed lease then Section 8 does not apply, then in my opinion that submission should be rejected.... In my opinion the submission goes against the definition of "lease" in Section 3 of the Act where it is defined as meaning:
"any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop ...."
27 It is important to realise that it is quite specifically provided that in those circumstances a lease is deemed to exist 'whether the agreement is express or implied, and whether the agreement is oral or in writing, or partly oral or partly in writing'. Once it is accepted that an "agreement" can be theoretically implied and oral and such will constitute a 'lease' within the meaning of the Act, then it cannot be a pre-condition that there be an executed lease to call in aid Section 8....
28 So, it seems to me, there is no requirement for the operation of Section 8 that there be at some stage or other after the lessee has entered into possession and paid rent the execution of a lease document. This must be the case because the definition of 'lease' means 'any agreement', whether express or implied, oral or in writing or partly oral and partly in writing. It is predicated on there being an "agreement" - once it is established that there is an agreement and otherwise the terms of Section 8(1) are satisfied then there is created a statutory lease for the minimum term under section 16. The real question is always:
"Is there an agreement; if so what are the terms of the agreement; and has the lessee entered into possession of the retail shop as lessee under the agreement or has the lessee began to pay rent as lessee under the agreement (whichever happens first)?"
29 Hodgson CJ in Eq in Aspromonte expressed the view that there must be "consensus as to the terms" of the lease. I am not entirely sure precisely what is meant by the use of the word "consensus". If it is intended to mean that there must be, as a pre-condition to the operation of Section 8, an agreement by the parties to each and every term of the lease, then I would respectfully differ from His Honour's view. The whole purpose of Section 8 is to create a statutory lease if the circumstances fall within the terms of the Section. After all, the terms of the Section are really quite simple and in my view there is a clear legislative intent that there will be created a statutory lease where a person enters into possession of a retail shop as lessee, or begins to pay rent as lessee, in circumstances where there is an agreement between that person and the person having the right to grant possession or receive rent whereby that person grants or agrees to grant to the other person for value a right of occupation of the premises for the purposes of the use of the premises as a retail shop.
30 There is nothing in the combination of Sections 3 and 8 that requires the person granting or agreeing to grant the right of occupation to agree with the occupier or proposed occupier to all the terms of the right of occupation. The definition of "lease" in Section 3 (set out in paragraph 26 above) is in very simple terms and the legislative intent of Section 8 is to create a statutory lease in the particular circumstances such that the occupant is protected by a statutory lease. Once that interpretation is accepted then there is no requirement for there to be "consensus" as to the terms of, or each and every term of, the right of occupancy simply because the statute creates the lease (Section 3). Once the statutory lease is created then the only question is: what are the terms of that lease? In order to answer that question one needs to look at the extrinsic evidence that is available in order to establish the other terms of the agreement between the parties.
31 It is not my understanding that the law requires there to be a concluded agreement between the parties before Section 8 applies. Mr Jacobs for the Respondent has strongly urged that proposition and for the reasons that I set out later in this Judgment I am of the view that the combination of Section 8 and the definition of "lease" in Section 3 is supportive of a different legislative regime designed to protect persons who enter into occupation or pay rent of defined premises such that the section "fills in the blanks" (so to speak) of contract law which would deny a concluded contract in circumstances where the evidence showed that there had not been agreement as to all the terms and in those circumstances would deny the occupant of retail shop premises the protection offered by Section 8. ...
38 There is perhaps an alternative argument available to the Applicant, although not agitated before me. In the definition of "lease" the legislature has seen fit to use the word "agreement" in contradistinction to the word "contract". Although not expressing a final view on this aspect, it may well be that the use of the word "agreement" imports something less than a full-blown contract but is rather directed to the parties reaching an agreement such that the Lessor permits the lessee into occupation of the lessor's premises (a rather dramatic event in reality) or accepts rent for those premises and in either case thereby creates a lease under Section 8.
It seems to me that the legislature has deliberately used the general word "agreement" and avoided the more legal word "contract". There is good reason for this. The Retail Leases Act is, in many of its provisions, purposive and protective. It is directed, in this aspect, to the commercial reality of Lessors and Lessees "agreeing", as distinct from "contracting", such that upon "agreement" plus entry into possession or payment of rent the Act creates a statutory lease and a statutory regime for captured leased premises. It is protective because it creates a statutory minimum term and regime to protect the parties, in particular the lessee. ...
Persons in their ordinary activities can reach "agreement" about numerous matters without being contractually bound by that agreement. In simplistic terms (for example) a person can agree to take another to the theatre but will not be contractually bound to carry out that promise. However, what the Retail Leases Act does is effectively create (in my view) a statutory contract where the circumstances envisaged by Section 8 apply. Section 8 itself refers to "the lease" (twice) and "the lease" is the lease defined in Section 3. There is nothing (it seems to me) in the Section 3 definition that requires agreement to be reached between the parties on all terms. And, for the reasons set out in paragraph 27 above, the manner in which the parties actually reach agreement can be varied and the terms of the agreement can even be (theoretically) can be implied and oral and (in my view) it is not necessary for the terms to be all inclusive.
Mr Soltan submitted that the broad definition in section 3 of the Act contemplates that if a licence is in a place then it would automatically be converted into a statutory lease of a minium of five years term and would also trigger section 7 of the Act which void any agreement between the party which is inconsistent with that. He submitted that the circumstances in this particular case, along with the agreement, give rise to a statutory lease between the parties and therefore the Tribunal has the jurisdiction to make a declaration effecting that lease and all other orders sought. He contends that the Tribunal should be convinced that the Applicant's case is arguable, has a prima facie case to succeed and therefore the application for an interim order ought to be considered.
The Respondent's Case
Mr Breene appeared on behalf of the Respondent. In answer to the Applicant's submissions he also referred me to the documents that have been filed.
He submitted that the commencement point should be the call option agreement. This is an agreement between the Respondent and the Applicant in which is the Respondent granted an option to the Applicant to purchase a 30% interest in the real property. The call option could be exercised at any time during the call option period, defined as being the period commencing on 1 December 2011 and ending 30 November 2012.
If the call option were exercised, the land would be conveyed from 100% owned by the Respondent to 70% owned by the Respondent and 30% owned by the Applicant or the Applicant's nominee and those interests would be held as tenants in common.
The call option period has not yet expired and the option has not yet been exercised.
Under a loan agreement the Applicant advanced $150,000 to the Respondent. That advance of $150,000 was converted into the call option fee. If the option is exercised the applicant would acquire 30% of the business and 30% of the land, and the business would be established. The $150,000 call option fee would then be converted into a deposit.
If the option were not exercised, then all but $5,000 of that call option fee would be returned to the Applicant.
Mr Breene submitted that the Applicant's suggestion that it has an interest in the business and thereby an interest in the premises is misconceived because such interest would only come about upon settlement of the contract.
If the call option is not exercised to acquire 30% of the land for $900,000, the Applicant can acquire 30% of the business on terms including consideration of $150,000 and completion within 42 days.
There are two means by which the Applicant can acquire a 30% interest in the business. Firstly, by exercising the call option for 30% of the land for $900,000. Or secondly, rather than acquiring the land for $900,000, the Applicant can acquire 30% of the business for $150,000.
Mr Breene submitted that, as neither of those approaches has been taken, no interest in the business from the premises accrues to the Applicant.
Mr Breene also referred to clause 13.3 of the agreement, which requires that the Respondent lease the land to a related entity. Jamal Jabara is a director of the Respondent and is a related entity as defined in section 9 of the Corporations Act 2001.
Pursuant to clause 13.3 of the agreement, a lease was created between the Respondent and Jamal Jabara on 12 November 2011. It was not registered but it was executed. The lease grants exclusive possession to Jamal Jabara.
Mr Breene submitted that the Applicant's position is that it went into possession of the premises on the day after the lease between the Respondent and Mr Jabara came into existence. Further, one cannot imply a statutory lease in circumstances where there was already a lease for the premises. The Respondent's position is that you cannot have two leases.
The Respondent disputes the Applicant's contention that clauses 12 and 13 of the call option agreement contain an obligation that there be a lease between the Respondent and the Applicant. It says that that's not what the agreement says and that's not what has in fact happened.
Mr Breene submitted that a key requirement of a lease is an entitlement to exclusive possession and that the Applicant can't have exclusive possession if, prior to the alleged lease or statutory lease, there is already a lease in place giving another party exclusive possession.
The lease grants exclusive possession to Jamal Jabara.
Mr Breene submitted that the call option agreement doesn't provide a lease. Further, he submitted that there was already a lease for the premises before the date of the alleged statutory lease.
Mr Breene also noted that the Applicant's filed material includes correspondence between the Applicant and Mr Breene in relation to a proposed new lease between the Respondent and Union City Convenience Pty Limited. This indicates that the Applicant and the Respondent were negotiating the terms of that further lease. He said that there is a lease to Union City Convenience Store and that lease has been executed. The commencement date by agreement was to be 22 March 2012.
The Respondent contends, therefore, that there was a lease already in existence before the date of the alleged statutory lease and secondly, that there is now a new lease in place to a third party whose interest would be prejudiced if the interim application were granted.
Mr Breene asserted that the lease to the third party was negotiated in consultation with Mr Soltan, and that Mr Soltan agreed the terms of that lease in the email exchange included in the filed material. That being the case, the Respondent submits that there is no statutory lease but even if there were a statutory lease, that lease came to an end by reason of the entry into the lease between the Respondent and Union City Convenience Pty Limited.
In response to that assertion, Mr Soltan stated that there was no agreement to that lease. He said that the Applicant required amendments to it and it was refused. He said that the Applicant holds a caveat against the title and the lease to Union Convenience Store could not be registered because of that caveat.
Mr Soltan also stated that Mr Jabara gave the Applicant the key to the premises and that Mr Jabara was well aware that the Applicant's business was being established. He conceded that it Mr Jabara is a lessee of the Respondent then the Applicant's statutory lease will be with Mr Jabara.
He submits that the Applicant was not previously aware of the lease to Mr Jabara. But says that the Applicant was in occupation of the premises from 12 November 2011 until 12 July 2012 and that by itself creates a lease and it shows that the Applicant's case is arguable.
Discussion
The Tribunal's power to make interim orders is found in section 72(4) of the Act 1994:
72 Powers of Tribunal relating to retail tenancy claims
...
(4) The Tribunal may make an interim order under this section pending final determination of a claim, if it appears to the Tribunal desirable to do so.
The authorities that have considered the nature of this power establish that the making of an interim order is discretionary. That discretion is to be exercised having regard to the following factors:
- That the Applicant has shown an arguable case for relief
- Causation of the Applicant's position
- Whether there is a suitable form of other remedy available
- Prejudice to the Applicant
- Prejudice to the Respondent
- The financial circumstances of the Applicant
- The economic impact of the orders sought.
For a discussion in regard to the various decisions see Evriparas Pty Ltd v ING Management Limited [2011] NSWADT 273. See also Spuds Surf Chatswood Pty Ltd v P T Limited [2007] NSWADT 130.
For the purposes of determining the application for urgent interim orders I should consider the Applicant's evidence, at its highest, in determining whether it has established a reasonably arguable case for the relief claimed. It is not necessary to "forecast the ultimate result of the case": Beecham Group Pty Ltd v Bristol Laboratories Pty Ltd [1968] 118 CLR 618; [1968] HCA 1.
On the material presented I am satisfied that the Applicant has shown that it has an arguable case for relief in the substantive proceedings, but perhaps not against the Respondent. Further, it seems to me that if the interim orders were made as sought, there would be significant impact on a third party who is not a party to these proceedings.
I am satisfied that the Applicant has shown that it has a prima facie case in relation to a sublease. However, that case is less apparent in relation to a head lease.
In my view it is not appropriate to make orders affecting a third party who has an executed lease in relation to the premises, without giving that third party the opportunity to be heard.
That being the case, it is my view that no urgent interim order should be made that does not take into account the Union City Convenience Store Pty Ltd lease that was entered in March 2012.
Order
The application for urgent interim orders is dismissed.
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Decision last updated: 17 October 2012
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