Ekera Medical Pty Ltd v Revesby Workers Club Ltd

[2016] NSWSC 527

Supreme Court

New South Wales

Medium Neutral Citation:	Ekera Medical Pty Ltd v Revesby Workers Club Ltd [2016] NSWSC 527
Hearing dates:	26 April 2016
Decision date:	26 April 2016
Jurisdiction:	Equity - Commercial List
Before:	Stevenson J
Decision:	Statement of claim dismissed with costs
Catchwords:	CONTRACTS – commercial lease – lessee liable to pay outgoings – provision in lease for lessor to estimate outgoings and for lessee to make payments on account of its obligation to pay outgoings in accordance with that estimate - whether lessor made estimate of outgoings for current year – whether lessee obliged to make payments on account of outgoings in accordance with that estimate
Legislation Cited:	Competition and Consumer Act 2010 (Cth)
Category:	Principal judgment
Parties:	Ekera Medical Pty Ltd (Plaintiff) Revesby Workers Club Limited (Defendant)
Representation:	Counsel: T Davie (Plaintiff) I M Jackman SC with J A C Potts (Defendant)   Solicitors: Hassett Lee & Co Lawyers (Plaintiff) Thomson Geer (Defendant)
File Number(s):	SC 2015/2971074

Ex TEMPORE Judgment (REVISED)

1. Revesby Workers Club Ltd, the defendant, is the registered proprietor of the Revesby Village Centre.

2. By a lease having the "commencing date" 16 June 2015, Ekera Medical Ltd, the defendant, is the lessee of part of that Centre.

3. In its statement of claim in these proceedings, which were commenced in the Real Property List on 6 October 2015, and have since been transferred to the Commercial List, Ekera made a number of claims, including that the Club had engaged in misleading or deceptive conduct and that Ekera was entitled to damages under s 236 of the Competition and Consumer Act 2010 (Cth), Sch 2, Australian Consumer Law. As finally developed in written and oral submissions, the claim for damages was abandoned.

4. Before me, Ekera's case was confined to the proposition that (to use the language in the statement of claim):

"[The Club] has sought to levy and has levied upon [Ekera] a Tenant's Outgoing Contribution that is not properly calculated by reference to the Outgoings as defined by [the relevant clause of the Lease]".

5. That claim is particularised in the statement of claim as follows (relevantly to the case as finally put):

“The Tenant's Outgoings Contribution is calculated by reference to Centre Supervision [and] Management Fees...and the [Club] is not incurring and will not incur, or is not entitled to charge [such fees].”

6. As developed in his oral submissions, Mr Davie, who appeared for Ekera, put the matter slightly differently, as I set out below.

7. In any event, I do not accept that Ekera has made out any case against the Club. I propose to dismiss the proceedings.

8. Under the lease, Ekera is obliged to pay the "Tenant's Outgoings Contribution" referable to it.

9. "Tenant's Outgoings Contribution" is defined by reference to an arithmetical calculation that is complex and not necessary for me to set out. For present purposes, the key element in the calculation is "Outgoings".

10. "Outgoings" is defined in the lease at cl 1.1(gg) as follows -

“Outgoings means the total of the costs and expenses relating to the whole of the Centre and the Centre Land, including:

(i)   Statutory Outgoings;

(ii)   each charge for Services which are not separately metered to an occupier of the Centre; and

(iii)   each cost and expense for:

(A)   repairs, maintenance and painting of and to the exterior of the Centre;

(B)   repairs, maintenance, running, servicing and upgrading of all Centre Plant and Equipment and Services;

(C)   the detection, prevention and eradication of pests;

(D)   cleaning the exterior of the Centre;

(E)   cleaning, maintaining, repairing and operating the Common Areas and the Basement Car Park;

(F)   garbage removal or compacting service that is charged on account of the Centre;

(G)   the management, control and administration of the Centre;

(H)   caretaking and security relating to the Centre;

(I)   water treatment, legionella tests and cleaning of the air-conditioning system servicing the whole of the Centre; and

(J)   safety and environmental audits of the Centre,

but does not include the cost of any works of a capital or structure nature carried out on the Centre by the Landlord.”

11. The definition is thus very broadly expressed and comprises all "costs and expenses relating to the whole of the Centre" including the particular costs and expenses identified in cl (gg)(iii).

12. Mr Jackman SC, who appeared with Mr Potts for the Club, accepted that to be "Outgoings" for the purpose of the definition, the costs and expenses in question must incurred by the Club.

13. Mr Davie submitted that, in order to be "Outgoings" the costs and expenses in question must have been paid or be payable by the Club to a third party.

14. I do not accept that submission. What is required is that the costs and expenses "relate" to the Centre.

15. Such costs and expenses may well be incurred by the Club otherwise than by payment out to a third party.

16. If, for example, the Club incurs a cost or expense because it diverts members of its staff to tasks "relating" to the Centre (so that they are then unable to devote themselves to the Club's other activities) then the Club will, or at least may thereby incur a cost or expense.

17. Clause 6.1 governs the manner in which Ekera must pay Outgoings and is in the following terms:

“6.1   Outgoings

(a)   Subject to clauses 6.2(b), 6.2(c) and 6.2(d), the Tenant must pay the Tenant’s Outgoings Contribution for each Outgoings Year within 10 Business Days after notice is given under clause 6.2(e).

(b)   At any time prior to the commencement of an Outgoings Year, the Landlord may give the Tenant a notice stating the Landlord’s estimate of the Outgoings for the following Outgoings Year and the Tenant’s Outgoings Contribution for that Outgoings Year. The Landlord may revise the estimate at any time.

(c)   If the Landlord gives the notice referred to in clause 6.1(b), the Tenant must pay the Tenant’s Outgoings Contribution for the relevant Outgoings Year in instalments in advance on each Rent Day, with each instalment being equal to the Landlord’s estimate of the Tenant’s Outgoings Contribution for the Outgoings Year divided by the number of Rent Days (excluding the Commencement Date) in that Outgoings Year.

(d)   In each Outgoings Year after the first, until the Landlord gives the Tenant a notice of the Landlord’s estimate for the relevant Outgoings Year, the Tenant must pay on each Rent Day, on account of the Tenant’s Outgoings Contribution, an instalment equal to that payable in the immediately preceding Outgoings Year.

(e)   Within 1 month after the end of each Outgoings Year, the Landlord must give the Tenant a notice which:

(i)   specifies the actual amount of the Tenant’s Outgoings Contribution for the Outgoings Year just ended; and

(ii)   sets out in reasonable detail the amounts of each of the Outgoings for the Outgoings Year just ended.

(f)   If the Tenant’s Outgoings Contribution have been paid in instalments in accordance with clause 6.2(c), on the next Rent Day after the Landlord gives the Tenant the notice referred to in clause 6.2(e):

(i)   if the amount of the Tenant’s Outgoings Contribution specified in that notice is greater than the amount of Tenant’s Outgoings Contribution that the Tenant has paid for the Outgoings Year to which the notice relates, the Tenant must pay to the Landlord the difference between those two amounts; or

(ii)   if the actual amount of the Tenant’s Outgoings Contribution specified in that notice is less than the amount of Tenant’s Outgoings Contribution that the Tenant has paid for the Outgoings Year to which the notice relates, the Landlord must pay to the Tenant the difference between those two amounts.”

18. The relevant "Outgoings Year" is that ended 31 August 2016 - i.e. the current year.

19. Ekera's obligation to pay Tenant's Outgoings Contribution is found in cll 6.1(a) and (e). At the end of each Outgoings Year, Ekera must pay “the actual amount of the Tenant’s Outgoings Contribution” for that year; that is, its proportion of the actual Outgoings for that year.

20. The effect of cll 6.1(b) and (c) (and, perhaps cl 6.1(d)) is that, during the relevant year, the Club can require Ekera to make payments on account of its obligation to pay the Tenant’s Outgoings Contribution.

21. Thus, cl 6.1(b) provides that the Club "may" give Ekera its "estimate" of Outgoings, and Ekera's contribution to those Outgoings for the coming year.

22. In that event, Ekera "must pay" what is described, perhaps confusingly, as "the Tenant's Outgoings Contribution", but what is really a payment on account of that obligation. That is made clear by the requirement in cl 6.1(c) that the monthly payments referred to be calculated by reference to the Club's "estimate" and by the provision in cl 6.1(f) for an end of year adjustment, to accommodate the possibility (indeed, the probability) that the estimated outgoings will not exactly match the actual outgoings.

23. The clause does not require the Club to give any particulars of its "estimate" or indeed to do any more than give one, global (or "bottom line" as Mr Jackman put it) figure as its estimate of the Outgoings for the relevant period.

24. On 21 August 2015 the Club sent Ekera a "Notice of Estimated Outgoings" for the year ended 31 August 2016. The covering letter was in the following terms:

“NOTICE OF ESTIMATED OUTGOINGS

PERIOD: 1st September 2015 – 31 August 2016

Suite 1, Level 1, Revesby Village Centre – 20-30 Blamey Street, Revesby NSW

We refer to recent discussions and correspondence between our respective Legal representatives, and attach for your records the Outgoings Budget for the financial period 1st September 2015 to 31st August 2016.

Estimated Outgoings            $1,272,221.35

Less Insurance not applicable to Ekera   ($36,687.27)

$1,235,534.08

Your proportion calculated in accordance with the Lease will be;

29.49% x 366 x $1,235,534.08

366

$364,359.00 per Annum or

$30,363.25 per Month

All amounts quoted exclude GST

Explanatory Notes have been included with the budget to assist Ekera with their interpretation of the budget.”

25. There was attached a document called "Annexure A - Outgoings Budget and Explanatory Notes". Included in that document were the Club's "Estimated Outgoings" for various statutory charges and for some 19 "Operating Expenses". Only two are relevant. They are "Centre Supervision" and "Management fee". Those items, their stated budgeted amount and the relevant "Explanatory Note" are as follows:

Outgoings Budget	Budget	Rate/Sqm	Comments
Centre Supervision	148 800.00	12.20	The budget includes for Centre Management staff costs, associated overheads and relief staff
Management Fee	100 000.00	822	The budget includes a fee for RWC to manage RVC”.

26. Mr Davie eschewed, in terms, any suggestion that the stated estimates were not genuine. He said he did not challenge the proposition that someone at the Club genuinely thought that the figures stated for the Centre Supervision and Management Fee were as set out in the document. I take that to mean, or at least to include, that Ekera does not challenge the proposition that the Club's budget in fact includes the matters set out in the relevant Explanatory Note.

27. Mr Davie also made clear that it was no part of Ekera's case that, on the proper construction of the Lease, the estimates had to be reasonable; nor that in fact the estimates were unreasonable.

28. Rather, he submitted that, the stated estimates were not truly estimates at all.

29. As to Centre Supervision, Mr Davie submitted that the figure in question is not an estimate, but rather an "assumption".

30. I do not read it that way. It appears to be the Club's estimate of "staff costs" and "associated overheads" and "relief staff" for what is described as "Centre Management".

31. One element of the definition of "Outgoings" in the Lease is "(G) the management, control and administration of the Centre". That is, it seems to me, "Centre Management”.

32. It is true that another category of the estimated outgoings (that Ekera does not challenge) is $130,000 for "Salaries and Wages" for which the following particulars are provided:

“The budget includes a proportionate allocation of the following resources to assist with maintenance and up keep of the property, Duty Manager, Supervisors, Compliance Manager, Facilities Team, Accounting Team, Human Resources and includes associated overheads.”

33. But this appears to be the Club's estimate of different costs, namely those associated with the identified positions (Duty Manager and so on) who "assist with maintenance and up keep of the property" and who are not, I would infer, included in "Centre Management". It may be, as Mr Jackman submitted, that these positions are held by the persons who do not spend all of their working hours at the Centre. However that may be, I see no reason to conclude that the figure said to be referable to the costs of "Centre Supervision" is the same as that said to be referable to "Salaries and Wages".

34. As to the $100,000 stated as being the Club's estimate for a Management Fee, Mr Davie submitted that this could not be an "Outgoing" because it appeared to represent a "fee" that the Club proposed to charge for managing the Centre and thus represented revenue "incoming" to the Club.

35. The "Explanatory Note" for the Management Fee states that the budget for the relevant year "includes a fee for [the Club] to manage [the Centre].

36. Those words suggest that the Club proposes to make a charge (or render a "fee") for the "costs and expenses relating to the whole of the Centre" associated with "Management" of the Centre. That suggests that the Club anticipates that it will divert its own resources (perhaps the time of its management team) to the task of "managing" the Centre. In that event, the Club may well incur a cost or expense (for example, paying a staff member's salary at a time when the staff member is not attending to the club's business, but is, rather, performing tasks relating to management of the Centre) that can be said to "relate" to the Centre.

37. Whether the Club actually incurs such a cost or expense is a matter to be dealt with during the reconciliation process provided for by cl 6.1(f) of the Lease.

38. But as Ekera does not contend that the statement about the Management Fee (that is, that the budget includes such a fee) is not genuine, I cannot see how it could be said that the statement made about the Management Fee is not an "estimate" of the kind anticipated by cl 6.1(b).

39. For those reasons, my conclusion is that Ekera has failed to make out any case against the Club. The claim should be dismissed with costs.

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Decision last updated: 28 April 2016