EDGAR ENTERPRISES PTY LTD and MINISTER FOR TRANSPORT

[2005] WASAT 260

EDGAR ENTERPRISES PTY LTD and MINISTER FOR TRANSPORT [2005] WASAT 260

Link to Appeal : [2006] WASC 27

Last Update :29/09/2005

Jurisdiction:	STATE ADMINISTRATIVE TRIBUNAL	Citation No:	[2005] WASAT 260
Published:
Act:	COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
Case No:	CT:1476/2004	Heard:	17 AUGUST 2005
Coram:	DR B DE VILLIERS (MEMBER)	Delivered:	27/09/2005
No Pages:	26	Judgment Part:	1 of 1
Result:	Questions answered
Category:	B

Parties & Catchwords


Judgment

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) CITATION : EDGAR ENTERPRISES PTY LTD and MINISTER FOR TRANSPORT [2005] WASAT 260 MEMBER : DR B DE VILLIERS (MEMBER) HEARD : 17 AUGUST 2005 DELIVERED : 27 SEPTEMBER 2005 FILE NO/S : CT 1476 of 2004 BETWEEN : EDGAR ENTERPRISES PTY LTD

Applicant

AND

MINISTER FOR TRANSPORT
Respondent

Catchwords:

Questions arising from a lease - Does the Forecourt Levy by proper construction imply a "sinking fund" under the Act - What is the purpose of the Forecourt Levy - Can the intention of parties to provide for a sinking fund be implied - Implication by law or fact - Remedies if sinking fund cannot be implied - Is applicant entitled to a refund of monies paid into the Forecourt Levy? - Implications if Forecourt Levy is void under the Act

Legislation:

State Administrative Tribunal Act (WA), s 167


(Page 2)

Commercial Tenancy (Retail Shop) Agreements Act 1985 (WA), s 6, s 6A, s 12, s 12A, s 12B, s 15, s 15(2), s 16, s 26(1)(a)

Result:

Questions answered

Category: B

Representation:

Counsel:

Applicant : Mr C O'Toole
Respondent : Mr S England

Solicitors:

Applicant : Conal O'Toole
Respondent : Lawton Gillon

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

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Hawkins v Clayton (1988) 164 CLR 539
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54
Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513
Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; 41 ALR 367
Herman v Charlesworth [1905] 2 KB 123
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
Re Comptoir Commercial Anversois v Power Son and Co [1920] 1 KB 868
Renard Constructions (ME) Pty Ltd v Minister of Public Works (1992) 26 NSWLR 234
Scanlan's New Neon Ltd v Tooheys Ltd; Caldwell v Neon Electric Signs Ltd (1943) 67 CLR 169


(Page 3)

Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206
South Australian Cold Stores Ltd v Electricity Trust of South Australia (1965) 115 CLR 247
The Moorock (1889) 14 PD 64
Wright v TNT Management Pty Ltd (1989) 85 ALR 442

Case(s) also cited:

Nil

(Page 4)

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of the Tribunal's decision

1 The question giving rise to the application is if the Forecourt Levy in the retail shop tenancy lease implies a "sinking fund" under s 12A of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (unless otherwise specified, all references to sections are references this Act).

2 The applicant filed an application with the Commercial Tribunal under s 6 on 1 December 2004. Section 16(1) enables "a party to a retail shop lease to refer to the Tribunal any question between the parties that the party believes to be a question arising under the lease …".

3 It was common cause between the parties that the questions arise from under the lease.

4 The application was originally lodged with the Commercial Registrar but it was transferred to the State Administrative Tribunal (the Tribunal) on 1 January 2005, pursuant to s 167 of the State Administrative Tribunal Act 2004 (WA) (the SAT Act). Prior to being transferred to the Tribunal, the application had been referred for mediation but without success.

5 The applicant listed five questions to be determined by the Tribunal.

6 The lease requires in cl 6.2 for the applicant to contribute to a Forecourt Levy. The applicant has been contributing to the Forecourt Levy since entering into the lease on 27 December 2000.

7 The lease does not specify what type of fund the Forecourt Levy is intended to be (for example; variable outgoing, sinking, marketing) or what the purpose of the Forecourt Levy is (for example; maintenance, upkeep, improvements, capital works, publicity).

8 The applicant contended that the clause is therefore void by the operation of s 15(2), due to it being vague and in non-compliance with the Act, and the applicant is consequently entitled to a refund of all monies paid.

9 The respondent contended the Forecourt Levy is intended to operate as a sinking fund under the Act. This can be implied on proper construction of the lease. The applicant is therefore not entitled to a refund as the Forecourt Levy is to be used in a manner consistent with a sinking fund.

(Page 5)

10 The respondent acknowledged that for the first four years since commencement of the lease, the Forecourt Levy had not been managed in accordance with the requirements of the Act for a sinking fund. However, since April 2005, corrective measures have been implemented and compliance with s 12A is now assured. The respondent therefore contended, that even if the Forecourt Levy had not been managed in accordance with the Act, there is no basis for any monies to be refunded to the applicant.

11 The Tribunal found that the Forecourt Levy does not comply with the requirements of s 12A as the lease does not specify its purpose and it also cannot be implied that the Forecourt Levy constitutes a sinking fund. Clause 6.2(2) is therefore void due to the operations of s 15(2) and the applicant is entitled to a refund of all monies paid into the Forecourt Levy.

12 Before turning to the specific questions raised by the applicant, the Tribunal will first deal with the nature and purpose of the Forecourt Levy.

Provision in lease for Forecourt Levy

13 The parties entered into the lease on 27 December 2000 for a business to operate on a part of Barrack Square in the City of Perth. The applicant operates a boat/ticket office on the premises.

14 The lease provides in cl 6.2(a) for the applicant to pay a proportion of a "Forecourt Levy". Provision is made in cl 6.2(b) for the quantum to be contributed to the Forecourt Levy to be reviewed annually.

15 The Forecourt Levy is defined as a "Forecourt Levy payable by occupiers of the Pavilions in respect of the Forecourt to Barrack Square, specified in item 11 of Schedule A as varied from time to time under this Document;" (cl 1, Definitions). Item 11 of Schedule A reads as follows:

"Until varied the Forecourt Levy is FIFTEEN THOUSAND DOLLARS ($15 000)."

16 No other mention is made in the lease to the Forecourt Levy, its nature, or its purpose. The lease does not make any reference to a "sinking fund".

Questions to be determined

17 The applicant referred the following questions to the Tribunal in regard to the Forecourt Levy:

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1. Is the landlord obliged to account for all items of expenditure covered by the Forecourt Levy?

2. Can the landlord demand payment of the levy before giving the estimate of expenditure?

3. Are payments made to date by the applicant in respect of the Forecourt Levy refundable to him?

4. Must the landlord account for all payments made to date and have such account audited?

5. If items of expenditure do not equate with or exceed the amount collected by way of the Forecourt Levy, is the landlord obliged to refund any surplus to the applicant?

18 Before responding to the questions, the Tribunal will consider the evidence and submissions made by the parties in regard to the nature and purpose of the Forecourt Levy.

Nature and purpose of the Forecourt Levy

19 The parties disagree on the nature and purpose of the Forecourt Levy.

20 It is common cause that there is no reference in the lease, or the disclosure statement to the Forecourt Levy being a "sinking fund". It is also common cause that since negotiations for the lease commenced in 2000, until the current proceedings in the Tribunal, no mention had been made by the respondent to the Forecourt Levy being a "sinking fund".

Applicant submissions

21 The applicant did not call witnesses, but the submissions made by counsel for the applicant are summarised in the following paragraphs:

22 The applicant contends that the Forecourt Levy is unclear as to its nature and purpose. It is not clear what type of fund the Forecourt Levy seeks to establish, or what the purpose of the fund is. The fact that the applicant interpreted the Forecourt Levy as a fund for variable outgoing purposes, while the respondent interprets it as a sinking fund, demonstrates the vagueness thereof, and the absence of agreement between the parties as to its nature and purpose as required by s 12A(2). The Forecourt Levy therefore, does not comply with s 15(2), and cl 6.2 must be held to be void and therefore unenforceable.

(Page 7)

23 If the Forecourt Levy were to be regarded as a contribution towards the respondent's variable outgoing expenses, the provisions of s 12 would apply. If it is to be regarded as a contribution towards a sinking fund the provisions of would s 12A would apply.

24 Contributions made pursuant to s 12, are generally referred to as "operational expenses". Operational expenses mean expenses of the respondent in operating, repairing or maintaining the Forecourt (s 12(3)).

25 The applicant contends that none of the following requirements for contribution to variable outgoing expenses set out in s 12 have been complied with:

(i) The items of operating expenses are not specified as required by s 12(1)(a).

(ii) Annual estimates of each item of operating expenses in respect of each year, have not been provided by the landlord as required by s 12(1)(d).

(iii) A written statement (operating expenses statement) that details all expenditure in accordance with the estimated expenses, has not been provided to the applicant as required by s 12(1)(d)(ii).

26 The applicant contends that if the Forecourt Levy is for operating expenses, he is not obliged to pay and the landlord not entitled to recover any operating expenses until the respondent complies with those requirements (s 12(1d)). The applicant further claims that funds that were not utilised by the respondent for variable outgoing purposes in any given year, must be refunded to the applicant. The applicant is therefore entitled to a complete refund as no funds from the Forecourt Levy have been expended up to date. The Tribunal notes that the respondent emphasised in evidence and submissions, that they do not regard the Forecourt Levy as a variable outgoing fund and that s 12 is therefore not relevant to the Forecourt Levy.

27 Contributions made pursuant to s 12A are generally referred to as a "sinking fund", although counsel for the applicant concedes there is no statutory requirement for a fund to be referred to explicitly as a "sinking fund". However, he contends that in light of the Forecourt Levy not explicitly being called a "sinking fund", it must be clear from the purpose and construction of the lease that the parties had agreed to establish a sinking fund, and that the Forecourt Levy was such a fund. A sinking fund is generally used for repair or maintenance or any similar purpose (s 12A(1)).

(Page 8)

28 The Act is clear in regard to the option available to parties to provide for a sinking fund in a lease, namely "if" provision is made for a sinking fund, the "purpose" of the fund "is to be specified" in the lease (s 12(2)).

29 It is not an essential requirement for a retail shopping lease to provide for a sinking fund.

30 Counsel for the applicant submitted that neither the nature of the Forecourt Levy, nor the purpose of the Forecourt Levy (or rather the absence of a clear purpose) supports the contention that the levy is to be regarded as a "sinking fund" (s 12A(2)).

31 The confusion as to the nature and purpose of the Forecourt Levy is evident in the actions of the parties prior to signing the lease and since the parties had entered into the lease. At no stage during negotiations, was mention made of the Forecourt Levy as a sinking fund. Neither the disclosure statement nor the lease mentions a "sinking fund", and the respondent failed to manage the Forecourt Levy as a sinking fund until after the application had been made. The absence of a clear purpose of the Forecourt Levy, compounds the confusion.

32 Counsel for the applicant explained that the applicant assumed the Forecourt Levy was designed as a type of variable outgoing fund. Hence the letter by the applicant on 4 February 2002 to the respondent, in which the former enquired about the "dispersal of the Forecourt Levy" and in particular, detail in regard to the "actual expenditure for the past twelve months", and the "proposed expenditure/budget for the coming year". Mr Jenkins responded on behalf of the respondent on 8 February 2002, that "nil" expenditure had occurred in the past twelve months and that "it is not planned to expend Forecourt Levy funds on improvements" in the coming year. Mr Jenkins did not specify what "improvements" the respondent had in mind.

33 Counsel for the applicant contends that the respondent was clearly in two minds as to the nature and purpose of the Forecourt Levy. The respondent collected the funds in a manner associated with a variable outgoing fund, but after it became apparent that the Forecourt Levy did not comply with the requirements of a fund for operating expenses, the respondent opted for it to be treated as a sinking fund.

34 However, according to counsel for the applicant, it is implausible for the Forecourt Levy to be treated as a "sinking fund" as there are several deficiencies is the provisions of the lease and the subsequent management

(Page 9)

of the Forecourt Levy that indicate it was never intended to be a sinking fund. For example –

(i) No mention was made during negotiations of the lease, in the disclosure statement, in the lease itself or in communications since entering into the lease that the Forecourt Levy were to be treated as a "sinking fund". In fact, the first time the Forecourt Levy was described as a "sinking fund" is in the witness statement of Mr Duffield, dated 12 August 2005, prepared for this proceeding.

(ii) The purpose of the Forecourt Levy is not specified as required by s 12A(2). The Tenant Guide that accompanied the lease provides the following assurance to the applicant: "if your retail shop is in a shopping centre and you have agreed to a fund for major repair and maintenance works, your contributions are protected under the Act. These monies are subject to accounting and auditing provisions with no funds being able to be expended on capital works." The Tenant Guide further guarantees that the respondent had to provide the applicant with a disclosure statement that contains "all oral and written agreements" including, but not limited to, "any additional charges payable by the Lessee such as shop fit-out or contributions to marketing and sinking funds". Any agreement by parties to establish a sinking fund, or for a fund to be regarded as a sinking fund, must be clear, unambiguous and unequivocal as to its purpose in order to comply with the Act.

(iii) The monies contributed to the Forecourt Levy had not been paid into an interest bearing account, as required by s 12(3)(a), until after the applicant had made the application.

(iv) Due to the purpose of the Forecourt Levy not being specified, the responded would not be able to comply with s 12A(b)(i) that requires the fund to be applied for the purpose set out in the lease. The lease merely states that the Forecourt Levy is "in respect of the Forecourt". That is meaningless and without any clear purpose as it merely refers to an area of common property.

(v) The respondent did not comply with the auditing requirements set out in s 12A(c) until after the application had been referred to the Tribunal.

35 Counsel for the applicant therefore contends that the provisions of the Act in general, and the parts dealing with funds in particular, must be read against the framework of attempts by Parliament to protect lessees against unfair treatment by landlords. Prior to the amendments to the Act, lessees had been virtually unprotected against landlords who were
(Page 10)

essentially unaccountable for levying and expenditure of funds. Hence the very detailed and specific requirements in s 12 and s 12A for operating and sinking funds to comply with.

36 The conclusion by counsel for the applicant is that neither the existence, nor the purpose of the Forecourt Levy can be implied or assumed. The lease must be clear as to the nature and purpose of the Forecourt Levy. There was no agreement between the parties for the Forecourt Levy to operate as a sinking fund. The definition of the Forecourt Levy is vague and ambiguous. In light of the lease being so vague and ambiguous, the parties would not be able to determine how the Forecourt Levy is to be managed, how reporting would occur, or for what purpose the monies can be used. The mere reference to a "levy" cannot be held to mean "sinking fund". And even if it was intended to be a sinking fund, the absence of a purpose renders the Forecourt Levy inoperable, in breach of the Act and therefore void.

37 The Forecourt Levy does not comply with the statutory requirements of a sinking fund and in light of the evidence and submissions on behalf of the respondent, it also does not constitute a variable outgoing fund. In the absence of agreement between the parties for the Forecourt Levy to imply a sinking fund, there are no grounds for the Tribunal to imply the term into the lease. Following Renard Constructions (ME) Pty Ltd v Minister of Public Works (1992) 26 NSWLR 234 at 235, the Tribunal must be "slow to imply" a term that was not agreed to between parties.

38 Counsel for the applicant concludes that pursuant to s 15(2), the inclusion of a clause in the lease that is inconsistent with the Act renders the clause to be void. Clause 6.2 is therefore void, and any monies (approximately $1443, excluding interest) paid by the applicant into the levy must be refunded, and no further contributions to the Forecourt Levy can be recovered from the applicant.

Respondent evidence and submissions

39 The respondent called one witness Mr Peter Duffield. Mr Duffield negotiated the lease on behalf of the respondent and continues to be responsible to manage the Forecourt Levy on behalf of the respondent.

40 Mr Duffield explained that the Forecourt Levy was designed to maintain the Forecourt common area, as it presents that "face" of the retail complex to the public. He admitted that at no stage prior to the signing of his witness statement on 12 August 2005, had the Forecourt Levy been referred to as a "Forecourt Sinking Fund". However, the Forecourt Levy

(Page 11)

was always intended as a sinking fund, and the applicant did not raise any query during negotiations or after entering into the lease in regard to the provision or definition of "Forecourt Levy".

41 In regard to the contention by the applicant that the respondent did not comply for four years with the statutory requirements for the management of the Forecourt Levy as a "sinking fund", Mr Duffield admitted that he had "mistakenly believed" that no audit of the Forecourt Levy was required in light of the fact that no expenditure had been incurred. He also described, as a "mistaken belief", his failure to comply with other requirements of s 12A(3) in regard to the management of a sinking fund. However, that does not distract from the intention of the parties for the Forecourt Levy to operate as a sinking fund.

42 Mr Duffield confirmed that between the signing of the lease in December 2000 and early 2005, when the application was referred to the Tribunal, he had failed to comply with the following requirements of the Act in regard to the management of a sinking fund:

(i) The contributions by the applicant (and other tenants) were not paid into a designated interest bearing fund as required by s 12A(3)(a). However, he nevertheless kept proper records of the payments although the monies were held in a general trust account of his company;

(ii) The accounts were not audited at the end of each accounting year as required by s 12A(3)(c)(iii); and

(iii) A copy of the audit report was not delivered to the applicant after the end of each accounting year as required by s 12A(3)(c)(iv).

43 Mr Duffield confirmed that since April 2005, all requirements of the Act in regard to the management of a sinking fund have been complied with. The independent review report by Mr Graham D Anderson, dated 27 April 2005, accounts for all monies received into the Forecourt Levy. However, no interest had been earned for the period prior to April 2005. Mr Duffield noted in his statement that with the majority of capital works completed "it is anticipated that the Forecourt Sinking Fund will be applied for repairs and maintenance of the Forecourt …".

44 Counsel for the respondent contended that the Forecourt Levy is a sinking fund in accordance with the proper construction of the lease. There is no "entire agreement" clause in the lease, and this supports the respondent's explanation that the Forecourt Levy is, by implication, a sinking fund and its purpose is for the Forecourt area.

(Page 12)

45 The essence of counsel for the respondent's submission is that the construction of the lease is not guided by the form of the lease, but by the substance thereof. There could not have been any confusion in the mind of the applicant between the variable outgoing fund and the sinking fund, as the lease provides under a separate heading for a variable outgoing fund (cl 7). There is no reason to suggest that the Forecourt Levy was designed for the same or similar purpose as the variable outgoings fund.

46 The variable outgoing fund is set out in cl 7 of the lease and defined in cl 1 as:

"[T]he aggregate of all amounts paid or payable by the Lessor in respect of a Lease Year for: (a) Rates and Taxes; (b) Insurance Premiums; and (c) 50% of the cost of any audit of the Variable Outgoings required under the Commercial Tenancy Act."

47 The provision for Variable Outgoings complies in full with the information provided in the disclosure statement, the tenant guide and s 12 of the Act. The Disclosure Statement set out the detail of the variable outgoings (par 5), and under the heading "Additional Charges payable by the tenant" (par 6), the Forecourt Levy was mentioned. There is nothing in negotiations preceding the lease or correspondence since, to suggest that the Forecourt Levy were to be treated as a fund for variable outgoings.

48 Counsel for the respondent further contended there is no requirement in the Act to call the Forecourt Levy a "sinking fund", provided it is clear and unambiguous from the context of the lease that it were to operate as sinking fund under s 12A. A proper construction of the lease confirms that the parties intended for the Forecourt Levy to be a sinking fund for purposes of repair and maintenance of the Forecourt area.

49 Counsel for the respondent also pointed out that the purpose of the Forecourt Levy is "expressly" stated in the definitions (cl 1) to be "in respect of the Forecourt of Barrack Square." The respondent can therefore expend monies in the Forecourt Levy in respect of the Forecourt.

50 At no stage during negotiations, or thereafter, did the applicant query the nature or purpose of the Forecourt Levy. The applicant contributed to the fund for four years without raising a concern. He should therefore be estopped from denying his contractual obligations at this stage.

(Page 13)

51 Counsel noted that on the assumption that the Forecourt Levy is a sinking fund, there is no remedy for the applicant to claim a refund as s 12A(6) only provides that the obligation on the applicant to pay is suspended until the respondent complies with the requirements set out in s 12A(3)(c)(iv). The application can therefore be distinguished from the South Australian Cold StoresLtd v Electricity Trust of South Australia (1965) 115 CLR 247 in which the relevant statute expressly provided a remedy for the repayment of monies.

52 In summary, counsel for the respondent concluded that the Forecourt Levy has a clear purpose and the term "sinking fund" could be implied in law by the proper construction of the lease, as well as from the facts on the basis that it is reasonable and equitable, it is necessary to given business efficacy to the lease, it is obvious without saying, it is capable of clear expression and it does not contract any express terms of the lease. Regardless of the initial non-compliance by the respondent with certain financial management requirements of the Act, there has not been any prejudice to the applicant. All the monies are accounted for, no funds have been spent and the monies have, since April 2005, been transferred into a separate interest bearing account as required by the Act.

Consideration

53 In order for the Tribunal to answer the questions raised by the applicant, it must first consider the core issue in dispute, namely, the nature and purpose of the Forecourt Levy. The Tribunal will address the issue under the following headings:

(i) Areas of agreement between the parties;

(ii) Statutory requirements for a "sinking fund";

(iii) Characteristics of the Forecourt Levy;

(iv) Implications; and

(v) Response to questions.

Areas of agreement

54 The parties agree on the following:

• The Act enables the possible establishment of various funds of which two types are of potential relevance to this application, namely, a fund for variable outgoings and a sinking fund;

(Page 14)

• a variable outgoing fund is regulated by the provisions of s 12, and a sinking fund is regulated by the provisions of s 12A;

• the Act does not require a "sinking fund" to be explicitly named as such, provided it is clear from the lease that the parties had agreed to establish such a fund;

• the purpose of a sinking fund must be agreed to and set out in the lease; and

• the lease, the subject of the application does not refer explicitly to the Forecourt Levy being a "sinking fund".

Statutory requirements for a "sinking fund"

55 Section 12A deals with the establishment of a sinking fund, the management thereof, and matters related thereto.

56 Section 12A(1) provides that "this section applies if provision is made … for payments to be made by the tenant into a sinking fund for repairs and maintenance or any similar purpose" (own emphasis).

57 Section 12A(2) requires that the "purpose of the sinking fund is to be specified in the retail shop lease" (own emphasis).

58 If a sinking fund is agreed to, s 12A(3) sets out the requirements in accordance to which a sinking fund has to be managed, controlled and accounted for. For purposes of this application, the obligations on the respondent can be summarised as follows: monies paid by the tenant must to be credited into a designated interest bearing account (s 12A(3)(a)); the landlord may only utilise the sinking fund for the purpose agreed to (s 12A(3)(b)(i)); the landlord is to keep full and accurate account of the sinking fund and submit it to annual audits (s 12A(3)(c)); and, if the landlord fails to comply with s 12A(3)(c)(iv) by not delivering a copy of the audit report to a tenant, the tenant is not obliged to pay and the landlord not obliged to recover any payments into the sinking fund until the landlord complies with the requirement (s 12A(6)).

59 Section 12B deals with contributions to others funds and reserves. In similar vein as with a sinking fund, the purpose of the fund or reserve must be specified in the lease (s 12B).

60 A "Tenant Guide" (s 6A) and "Disclosure Statement" (s 6) must accompany each lease in order to assist the tenant to understand the

(Page 15)

obligations that arise from under a lease. The disclosure statement is to contain "all oral and written agreements and representations made by the Lessor" including, but not limited to, contributions to the lessor's expenses and any additional charges payable by the tenant such as contributions to marketing and sinking funds.

61 The lease did contain a tenant guide and disclosure statement in accordance with the Act. I will return to the documents in due course.

62 The Act requires that parties set out, in detail, what they have agreed to when establishing a fund, be it an variable outgoing, sinking, marketing or some other fund and the purpose of such funds.

63 The rationale for being clear about what has been agreed, is to ensure that the monies are only spent on a purpose authorised by the lease, and for the landlord to manage the fund in accordance with the relevant provisions of the Act. It is obvious that if parties are not in agreement about the type of fund they wish to establish, or the purpose of the fund, the protective and regulatory mechanisms set out by the Act cannot be complied with or enforced.

64 The intention of Parliament was for the Act to "improve the parties' understanding of their rights and responsibilities involved when entering a retail leasing contract", (second reading of amendments, 30 June 1998). The following remarks were made at the second reading of the amendments by the then Minister for Finance, the Hon. Max Evans:

"The main elements in the amended Bill deal with reviews of a tenant's rent, valid occupancy cost contributions, and the disclosure of all pertinent information prior to the lease contract and protective audit provisions.

The area of sinking funds has also seen some conflict between landlords and tenants. Restrictions which limit the use of these funds to future repairs and maintenance and non-capital works will remain. The proposed amendments will require that any other sinking funds are used only for the specific purpose for which they are created …" (own emphasis).

65 It is apparent that for the Forecourt Levy fund to operate as a "sinking fund" under the Act, the following requirements must be met:

1. The parties must have agreed to establish a sinking fund;

(Page 16)

2. The fund need not be called or referred to as a "sinking fund", but it must be clear from the intent of the parties and the construction of the lease, that a sinking fund was intended to be established; and

3. The purpose of the sinking fund must be clear and precise.

Characteristics of the Forecourt Levy

66 The lease does not explicitly refer to a "sinking fund". However, it provides for the establishment of a Forecourt Levy (cl 6.2).

67 The following information is available from the lease in regard to the Forecourt Levy:

a. " 'Forecourt Levy' means the Forecourt Levy payable by the occupiers of the pavilions in respect of the Forecourt of Barrack Square, specified in Item 11 of Schedule A as varied from time to time under this Document …" (cl 1 Definitions)

b. "The Lessee must pay the Lessee's Proportion of the Forecourt Levy at the same time as the Rent …" (cl 6.2(a)).

c. "On each Review Date, the Forecourt Levy with effect from that date will be reviewed …" (cl 6.2(b)).

d. "Until varied the Forecourt Levy is FIFTEEN THOUSAND DOLLARS ($15 000)."

68 The onus is on the respondent to demonstrate that the parties had intended to establish a sinking fund, and that the Forecourt Levy is such fund.

69 At face value the lease is complete, detailed, and deals exhaustively with all matters agreed to between the parties. This is consistent with the Act that requires that the disclosure statement contain "all oral and written agreements and representations" the parties had agreed to. The Act and general law of construction therefore do not permit the Tribunal to readily "imply a term into a bargain between parties for the purpose of making the bargain an enforceable contract." (Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd[1989] VR 695 at 702 relying on Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 at 556 (PC)).

70 The courts, and the Tribunal, are reluctant to imply terms into a contract or to imply a term if it is not clear that the parties had indeed intended it. The courts "believe, quite rightly, that it is not their task to

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make the contract for the parties, only to interpret what they have actually agreed." (Graw, S "An introduction to the law of contract" 5th Ed Lawbook Co, Pyrmont, 2005, page 220.)

71 There are three options to imply the Forecourt Levy is a "sinking fund", namely, if it is implied by custom (usage), by law (as per the construction of the lease) or by fact (where parties obviously intended the unexpressed term) (Graw supra 220 – 221).

72 Counsel for the respondent contended that the key to the proper construction of the lease is found in the reference to the Forecourt Levy in cl 6 that is entitled "Rent and Other Money Provisions". This separates the Forecourt Levy from the "Variable Outgoings" contained in cl 7. The Forecourt Levy can be expended on the Forecourt of Barrack Square. Counsel for the respondent therefore concludes that the intention of the parties to establish a sinking fund is to be implied from:

(a) the construction of the lease, or

(b) the circumstances surrounding the lease.

73 Counsel for the applicant resists both arguments on grounds that the lease, as required by the Act, provides for the complete agreement between the parties and there is no reason in law, or in fact, to imply that the Forecourt Levy is a sinking fund.

74 The Tribunal will deal with these contentions.

75 Whether a term is to be implied from the construction of the lease, is primarily an issue of law having regard to the nature of the lease, but the Tribunal can also take into account other evidence to support or refute the implication (Re Comptoir Commercial Anversois v Power Son & Co[1920] 1 KB 868). However, for the application to succeed, it "must be necessary to make the new implication" (Carter, JW and DJ Harland "Contract law in Australia" 4th Ed Butterworths, Chatswood, 2002, page 221).

76 According to Carter and Harland, a contract where a term is implied in law is usually a contract of a "very informal type, often with no written terms at all" (page 221). The onus of proof of an implication in law is reversed from the onus of proof of an implication per fact. The reason being that in case of a term being applied in law, it is so obviousthat the term should be implied in a certain type of contract, that the onus is on the party who opposes the implication to show why the term should not be implied.

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77 Counsel for the respondent contended that the Forecourt Levy can, in law, be implied to be a "sinking fund" by reason of the nature of a retail shopping lease. Counsel for the applicant contended that the term is not "obvious" for a retail shopping lease and therefore, it cannot be implied.

78 Having taken into account the relevant evidence and the submissions by the parties, the Tribunal finds for the following reasons that the Forecourt Levy does not by implication of law refer to a sinking fund:

(i) The lease is very detailed and specific, and cannot be classified as an "informal type" contract where there are no written terms or where written terms can be implied due to the nature of the contract. The Tribunal must therefore be guided by the terms as expressed in writing by the parties, and cannot assume in the face of such a detailed contract, that other terms have been implied. (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; 41 ALR 367.)

(ii) The Act and Tenant Guide require parties to set out the entirety of their agreement and representations, written and oral, in the disclosure statement and lease. This is for reasons of clarity, certainty, and public policy. The Tribunal must therefore be extremely cautious to imply a term of which the parties did not spell out a purpose in the lease or the disclosure statement – specifically if there is disagreement between the parties whether the term had been agreed to.

(iii) It is not a legal requirement that a retail shopping lease provide for a sinking fund. The following are examples of implied terms in regard to commercial tenancies: quiet enjoyment, payment of rent, keep and deliver premises in repair, and right of landlord to enter and view the state of repair (Bradbrook, AJ and Croft, CE "Commercial tenancy law in Australia", 2nd ed Butterworths, Sydney, 1997, page 166 – 167). Section 14 recognises certain implied terms, but none relate to a sinking fund being implied. Some retail shopping leases may provide for a sinking fund and some not. But it is not an essential or obvious requirement for a retail shopping lease to establish a sinking fund. Hence the provision in the Act that "if" parties agree to establish a sinking fund, certain requirements must be met.

(iv) The provision in cl 20.2 that enables the respondent to close parts of the common area for repairs, does not lend itself to imply the existence of a sinking fund. It merely states the right and obligation of the respondent to undertake works on the common

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area. There is no implication that such works must be funded from a sinking fund contributed to by the applicant.
(v) The reference to a "levy" cannot automatically be held to imply a "sinking fund". The parties could have had other intentions in mind for the Forecourt Levy, and it is not incumbent on the Tribunal to find an implied intention to establish a "sinking fund". There is no evidence before the Tribunal to suggest that the parties had agreed that the Forecourt Levy was a sinking fund and that this had not been spelt it out in detail due to bad drafting or inadvertence.

(vi) No reference is made in any part of the disclosure statement or the lease to a "sinking fund".

(vii) The reference to the Forecourt Levy as a levy in respect of the Forecourt, does not clarify the nature and purpose of the levy. It merely indicates an area where funds would be expended, but does not address the type of fund (for example: operational, variable outgoings, marketing, sinking), or the purpose of the fund (for example: repairs, maintenance, upkeep, improvements, capital works, marketing, advertising). Even if the Forecourt Levy was an implied sinking fund, it would be in non-compliance with s 12A(2) in respect to the absence of purpose.

(viii) The placing of the Forecourt Levy under the heading "Rent and other Money Provisions" is not in itself sufficient to conclude that it is a "sinking fund". The lease states that headings "in this Document do not affect its interpretation" (cl 2.1). The respondent can therefore not rely on the heading to support the contention that Forecourt Levy implies a sinking fund. Even if the applicant was misguided in his understanding that the Forecourt Levy was intended to be a variable outgoing fund, it does not flow that by default it should be implied to be a sinking fund.

(ix) The absence of an "entire agreement"-clause does not assist in implying the term in law. The lease is very detailed and specific. For the Tribunal to imply a term for the mere reason that there is not an "entire agreement"-clause, would do an injustice to the right of the parties to settle terms of the lease in writing. The Act sets out the benchmarks parties must comply with to establish a sinking fund. The Act does not assume that each retail shopping lease would establish a sinking fund. Therefore, if the parties had intended to set up a sinking fund, the Act requires the lease to be

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unequivocal in order for the regulatory scheme of the Act to be applied.

79 The Tribunal therefore concludes that the Forecourt Levy cannot be held to imply, by operation of law, a sinking fund under s 12A.

80 The Tribunal will now turn to the second leg of the respondent's contentions, namely, that the term is implied in fact.

81 For a term to be implied in fact, the Tribunal must be satisfied that the parties "intended" the term to be included, "but for one reason or another, failed to include it in their express agreement" (Graw, supra page 223), and it is therefore "apparent that the parties have not attempted to spell out the full terms of their contract." (Byrne v Australian Airlines Ltd(1995) 185 CLR 410 at 422, and Hawkins v Clayton (1988) 164 CLR 539 at 573; 78 ALR 69). The Tribunal must first be satisfied that the contract is not complete on its face. The test to apply by the Tribunal is not what each party had subjectively intended, but rather, what the parties had objectively agreed to.

82 The Tribunal must therefore ascertain from the evidence at its disposal, if "in all probability" it was the intention of the parties to establish the Forecourt Levy as a "sinking fund" under the Act. However, the Tribunal cannot hold a term to be implied merely to remove an uncertainty, or to make the lease more effective. (Graw supra page 223)

83 The courts accept that each of the following requirements must be met before a term can be implied in a contract that is as detailed and complete as the lease:

"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." (Lord Simon on behalf of the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3; 16 ALR 363.)

84 These requirements are particularly "strict" (Wright v TNT Management Pty Ltd (1989) 85 ALR 442 at 459) as the courts are "slow to imply a term" on behalf of parties (Codelfa supra 41 ALR at 370).

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85 In determining if the parties had intended to include the term, the Tribunal may have regard to the circumstances surrounding the lease "in order to establish the 'factual matrix' against which the parties contracted" (Carter, JW Carter on contract[11 – 030] April 2005, available on-line at provided that the facts are considered to establish "the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting." (Codelfasupra 41 ALR at 375).

86 The applicant is not required to refute each of the five requirements referred to above, as they have to be shown cumulatively for the term to be implied. If the applicant succeeds to cast sufficient doubt on any one or more of the requirements, the respondent would not succeed to discharge the onus of proof.

87 The Tribunal will hence deal with each of the requirements in light of all the relevant evidence and submissions by the parties:

1. The term must be reasonable and equitable. The term must therefore operate fairly to both parties, and not impose an unnecessary burden on either (Scanlan's New Neon Ltd v Tooheys Ltd; Caldwell v Neon Electric Signs Ltd(1943) 67 CLR 169).
The applicant has no idea for what purpose the Forecourt Levy can be utilised. The respondent basically has carte blanche to utilise the Forecourt Levy for any purpose, provided it is related to the Forecourt area. The payment by the applicant of monies into the Forecourt Levy of which the purpose is not defined, cannot be held to be fair and equitable towards the applicant. This is not reasonable to the applicant.

The admission of Mr Duffield that due to a "mistaken belief", he had not managed the Forecourt Levy for approximately four years in the manner required by the Act in accordance with a sinking fund, and as a consequence, no interest was earned on the investment, places a serious question over the core contention of the respondent that the Forecourt Levy is an implied sinking fund. The respondent cannot be successful in a claim for equitable relief in the form of estoppel, if his hands are not clean.

For the Tribunal to imply that the Forecourt Levy is a sinking fund, would require an interpretation of the lease and the circumstances surrounding it that are unreasonable and unequitable to the applicant.

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2. The term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it (Hospital Products Ltd v United States Surgical Corp(1984) 156 CLR 41).
The general approach of the court is, that if the lease is "commercially effective without the term, the court will not imply it." (Carter and Harland supra 217).

The Tribunal cannot imply a term "to emancipate one side from all the chances of failure …" (Bowen LJ, The Moorock (1889) 14 PD 64 at 68, as quoted in Carter and Harland at 218.)

The Tribunal does not agree with the respondent that the term must be implied for reason of business efficacy. There is no legal necessity for a retail shopping lease to provide for a sinking fund. In the normal course of events, the landlord would be responsible for the type of maintenance and repair activities associated with a sinking fund unless the parties agree on the establishment of a sinking fund. It is therefore for the parties to negotiate and agree on the establishment of a sinking fund and its purpose. Hence the reference in s 12A to "if" the parties agree to establish a sinking fund, then the purpose must be defined.

The respondent has failed to discharge its onus of proof that it is necessary for business efficacy to conclude that the Forecourt Levy must be interpreted as agreement for an implied sinking fund under the Act.

3. The term must be so obvious that "it goes without saying". This equates the "officious bystander" test or the "oh of course" test set in Shirlaw v Southern Foundries(1926)Ltd [1939] 2 KB 206.
While there may be good reasons to establish a sinking fund in a retail shop lease, it does not mean that it "goes without saying" that such a fund is necessarily implied by parties. It is within the discretion of parties to put the establishment of a sinking fund forward in negotiations and to agree, or disagree, on its merits.

Mr Duffield, in evidence, referred to himself as the "author" of the Forecourt Levy, as he prepared the commercial terms of the lease. However, by his own admission, the first time reference was made to the Forecourt Levy as a "sinking fund" after proceedings had commenced when he referred to the "Forecourt Sinking Fund", in his witness statement dated 12 August 2005. Prior to that date, neither he, nor the applicant referred to the Forecourt Levy as a sinking fund Mr Duffield also admitted that he did not manage the

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levy as a "sinking fund" and he did not refer in any correspondence to the levy as a "sinking fund".

The applicant acknowledges in the disclosure statement that he "has been an in situ tenant at Barrack Square for a number of years and is familiar with the Barrack Square Area and Jetties". However, no mention was made in evidence, or the disclosure statement, to a sinking fund having operated in the past and that the parties had intended it to continue in some form or another. For the respondent to contend "it goes without saying" that the Forecourt Levy is, per implication, a sinking fund, is therefore implausible. The objective facts do not support such an implication.

4. The term must be capable of clear expression. This requirement rests on two legs, namely, it must be clear what exactly the parties had agreed to, and the term must be capable of being formulated with a "sufficient degree of precision". (Refer to the discussion in Graw supra 225, as well as Shell UK Ltd v Lostock Garage Ltd[1976] 1 WLR 1187 and Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 at 62.)
It appears from the evidence, the disclosure statement and the lease, that there was no agreement between the parties as to the purpose of the Forecourt Levy, much less that it was to be regarded as a "sinking fund" as the Act requires. Without a clear purpose for the Forecourt Levy being agreed, and without any of the documentation, such as the lease or the disclosure statement referring to the purpose of the Forecourt Levy, it is not possible for the Tribunal to enunciate what the monies may be used for.

The Tribunal accepts that the respondent might have had the establishment of a sinking fund in mind but that does not translate into an "agreement" for the Forecourt Levy to be such a fund is for the purpose to be clear. Other possibilities are also open and it is not the role of the Tribunal to second-guess the intent of the parties. The Tribunal cannot imply one particular formulation if other terms "could be implied". (Carter and Harland supra page 220).

5. The term must not contradict any express term of the contract. The term sought to be implied must therefore be consistent with other terms of the lease and not be dealt with sufficiently by other parts of the lease (Carter and Harland supra page 220).

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Carter identifies three sub-elements of this test, namely, that the implied term must not be inconsistent with what the parties have agreed; where the contract contains an "entire" contract clause an implied clause may give rise to an estoppel; and, the matter is already dealt with sufficiently by the contract.

The lease does not contain an "entire lease" clause, but that in itself cannot be held to justify the implication sought by the respondent. The lease is detailed and extensive. There is no indication that the parties intended for the lease to be "open ended" by not including an "entire lease" clause.

The disclosure statement is required, by the Act (s 6), to contain all:

"[O]ral and written agreements and representations made by the Lessor or through his/her agent(s) in negotiations together with relevant information including but not limited to: … any additional charges payable by the lessee such as shop fitout or contributions to marketing and sinking funds."

Even in the absence of an entire lease clause, the requirements of the Act remain clear and binding – the lease and Disclosure Statement must set out the entire agreement between the parties.

88 The Tribunal therefore concludes that the respondent has failed to demonstrate that the Forecourt Levy can, on the facts, be implied to refer to a "sinking fund".

Finding and implications

89 The Tribunal finds that the Forecourt Levy is (1) not a sinking fund; and (2) its purpose is not clear.

90 In light of the Tribunal's foregoing finding that the Forecourt Levy cannot be held to imply a sinking fund, nor for that matter, can it be implied to be a variable outgoings fund, the question is, what are the implications in regard to payments that have been made, and ongoing payments under the Forecourt Levy?

91 Section 15(2) determines that "a provision of a retail shop lease, to the extent that it is contrary to or inconsistent with anything in this Act or with anything that by this Act the lease is taken to provide, is void".

92 The effect of s 15(2) is not for the entire lease to be void, but merely that cl 6.2 and any other provision related to the Forecourt Levy are void

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and therefore unenforceable (Graw ibid page 374). Section 26(1)(a) enables the Tribunal to make an order for a lease to be amended in an event where the landlord had "misled" the tenant. The facts in this application do not support a conclusion that the respondent misled the applicant, and therefore the Tribunal cannot make an order for the lease to be varied. Parties may continue to comply with the clause, but it cannot be enforced, or they may agree to amend it in order to accurately reflect their intentions.

93 Counsel for the respondent contends that s 12A does not provide for a refund from a sinking fund. However, following the finding of the Tribunal that no sinking fund had been established, and even if it had been established, no purpose was agreed to, s 12A is not applicable. The precedents referred to by counsel to sustain his argument that payments to the Forecourt Levy are merely suspended until the requirements of s 12A are complied with, are therefore not applicable.

94 In this matter the refund is not required under the terms of the lease or the provisions of the Act, but on the basis that there was never any ground for the money to be claimed by the respondent.

95 It therefore flows that monies paid by the applicant into the Forecourt Levy must be refunded as there was never any proper contractual entitlement for the funds to be levied (Herman v Charlesworth [1905] 2 KB 123, Carter and Hardland supra 922 – 923) and no further payments have to be made pursuant to cl 6.2.

Response to questions

96 It is ordered that the questions be respondedas follows:

1. The Forecourt Levy is not a sinking fund or a variable outgoings fund under the Act.

2. The respondent is obliged to account for all income and expenditure related to the Forecourt Levy.

3. The respondent cannot demand further payment by the applicant of a proportion of the Forecourt Levy, as cl6.2 of the lease is void.

4. Payments made by the applicant into the Forecourt Levy must be refunded.

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I certify that this and the preceding [96] paragraphs comprise the reasons for decision of the State Administrative Tribunal.







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DR B DE VILLIERS, MEMBER