| JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) CITATION : FLYER SERVICES PTY LTD and MARSHALL [2013] WASAT 188 MEMBER : MR T CAREY (MEMBER) HEARD : 18 OCTOBER 2013 DELIVERED : 20 NOVEMBER 2013 FILE NO/S : CC 774 of 2013 BETWEEN : FLYER SERVICES PTY LTD Applicant
AND
COLIN MARSHALL
MARY JEANETTE MARSHALL
COBALT NOMINEES PTY LTD
RUTH MARGARET BARRETT
GEORGE EDWARD BERNARD BARRETT
SANDRA MARJORY GATTI
WILLIAM KIMBERLEY ROUTLEDGE
PULLINGTON INVESTMENTS PTY LTD
GWENYTH BAILEY
DAVID VENTRESS WEDDERBURN
JOHN WESLEY BUTLER
NORA MAY McWHINNEY
JOHN WILLIAM CALDOW
RODD KENNETH BUDGE
CAROLYN JAN GUIDA
JACQUELYN KAYE BOYLE
Respondents
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Catchwords: Landlord and tenant Retail shop Determination of disagreement as to rent payable as result of rent review Whether rent review effective given lease permitted landlord only to initiate which did not occur Whether landlord obliged to initiate rent review Whether landlord estopped from denying rent review effective Legislation: Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 11, s 16 Result: Questions arising under lease answered
Matter adjourned for further directions
Summary of Tribunal's decision: In response to the applicant's referral of a disputed question as to the rent payable as a result of a market rent review, and some time into the proceedings, the respondents challenged the Tribunal's jurisdiction on the basis that no valid rent review was commenced. This was because the lease provided that only the respondents (landlord) could initiate the review, whereas the applicant (tenant) had done so.
This decision concerns two questions arising under the parties' lease, the answers to which would determine the jurisdictional question. The first question concerned whether the lease obliged the lessor to instigate the rent review process; the second, whether the respondents were estopped, in the circumstances of the case, from denying that an effective rent review process had been undertaken.
The Tribunal undertook the required lease construction exercise. It found that the lease did oblige the landlord to initiate a rent review during the period prescribed for doing so.
The Tribunal also found that the respondents' failure to inform the tenant of any invalidity of the rent review process arising from the applicant having initiated the review, and its engagement in that process, meant that the landlord
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was estopped from denying the assumption mutually adopted that the review would be effective.
In reaching its conclusion, the Tribunal identified the requirements for estoppel by convention, and dealt with, and rejected, the respondents' contentions that each of the following requirements was not met:
a) the applicant acted in reliance upon the assumption, as the respondents knew or intended;
b) the applicant would suffer detriment if the landlord were to resile from the assumption; and
c) in all the circumstances, it would be unconscionable to allow the respondents to resile.
The effect of the decision was that the applicant established its entitlement to have the Tribunal determine the disputed question of the market rent. The application was listed for directions in order to facilitate this.
Category: B
Representation: Counsel:
Applicant : M G Cobby
Respondents : Mr I Rogers
Solicitors:
Applicant : M 6:8 Legal
Respondents : Borrell Legal
Case(s) referred to in decision(s):
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Coghlan & Anor v S H Lock (Australia) Ltd (1985) 4 NSWLR 158
Commonwealth of Australia v Verwayen [1990] 170 CLR 394
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Commonwealth v GIO Compulsory Third Party Insurance Limited (Unreported, 22 July 1997)
ConStan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1985) 160 CLR 226
K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd, the 'August Leonhardt' [1985] 2 Lloyd's Rep 28(CA)
Moratic Pty Ltd v Lawrence James Gordon and Anor [2007] NSWSC 5
Myers & Ors v Pioneer Concrete (Vic) Pty Ltd [1997] ANZ CONVR 331
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REASONS FOR DECISION OF THE TRIBUNAL:
Introduction 1 On 17 June 2013, Flyer Services Pty Ltd (tenant) filed with the Tribunal an application under s 11(5) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CT(RS) Act) which sought a determination of the net market rent payable upon a rental review as at 1 July 2012 under the terms of the tenant's lease (lease) with Mr Colin Marshall and Ors (landlord) of commercial premises in central Perth. 2 On 4 July 2013, at a directions hearing before it, the Tribunal made orders programming the application to a final hearing. The orders included provision for the parties' respective valuers, both of whom had provided valuation reports on the market rent question, to confer and prepare a joint statement consistent with the Tribunal's standard procedures. 3 On 22 August 2013, the landlord wrote to the Tribunal to advise that, in its view, there existed a preliminary issue which required determination prior to the matter proceeding to hearing. That issue concerned the right, or lack thereof, of the tenant to initiate a market review, that being, in the landlord's view, a precondition of the tenant invoking s 11(5) of the CT(RS) Act. 4 Ultimately, the Tribunal acceded to the view expressed by the landlord, at least to the extent of requiring the tenant to amend the application by adding one or more questions it wished to refer to the Tribunal under s 16 of the CT(RS) Act, the answers to which would establish whether or not the s 11(5) application of the tenant is properly before the Tribunal. 5 On 4 September 2013, the tenant filed, in essence, an amended application which referred the following questions to the Tribunal: (Page 6)
6 Consideration of these questions (and other documents filed by the tenant) reveals that rather than relying upon any asserted right to itself initiate a market rent review, the tenant contends that the landlord is obliged by the terms of the lease to initiate the market rent review. The tenant also argues, having regard to certain facts and circumstances, that the landlord is unable (by an estoppel of two potential kinds) to deny that a review of rent as between the parties occurred, thereby establishing a basis for the s 11(5) of the CT(RS) Act application. The landlord rejects both contentions. 7 I will consider both the contentions referred to in the previous paragraph in turn.
Was the landlord obliged to initiate a market rent review? 8 The parties are at odds regarding the operation of, in particular, clauses 7.1 and 7.2 of the lease, which are in the following terms: 7.1 Rent Review On each Rent Review Date, the Rent, calculated on an annual basis, with effect from that Rent Review Date will be reviewed so that: (a) on each Fixed Percentage Rent Review Date it is the Rent payable for the month immediately preceding that Rent Review Date multiplied by twelve (12) and multiplied by a factor of 1.04; (b) on each CMR Review Date it is the Current Market Rent. 7.2 Rent Review Notice (a) The Lessor may between the period of three (3) months prior to and six (6) months after each CMR Review Date, by notice in writing to the Lessee, review and fix the Rent calculated on an annual basis at an amount which in the opinion of the Lessor is the Current Market Rent but failure to give a Rent Review Notice in respect of a CMR Review Date will not affect the right of the Lessor to give a Rent Review Notice at any time in respect of that CMR Review Date. (b) Unless a Rent Dispute Notice is given under clause 7.3, the amount of the Rent stated in the Rent Review Notice is payable from the applicable CMR Review Date. 9 'Rent Review Date' is defined to mean the dates specified in item 7 of the schedule to the lease. Those dates are divided between seven (Page 7)
'Fixed Percentage Rent Review Dates' and two 'CMR Review Dates', one of which is 1 July 2012. 10 'Current Market Rent' is defined by the lease as follows: 'Current Market Rent' means the current market rent on an annual basis of the Premises, assuming that: (a) the Lessee and the Lessor have observed all the terms of this Deed; (b) the Lessee will occupy the Premises on the terms of this Deed; and (c) if any part of the Building has been damaged or destroyed, that part of the Building has been reinstated; taking into consideration: (d) current rent values in respect of new tenancies of vacant premises similar to the Premises; (e) current rent values in respect of rent reviews during current tenancies of premises similar to the Premises; (f) current rent values in respect of renewals of existing tenancies of comparable premises; and (g) the value of permanent structural improvements erected or installed at the Lessee's expense and which the Lessee may not remove at Termination; but ignoring: (h) any value attaching to goodwill created by the Lessee's occupation of the Premises; (i) any value attaching to the Lessee's trade fixtures and fittings on the Premises; (j) any value attaching to any licence or permit in respect of the business carried on by the Lessee at the Premises; (k) the fact that part of the Term has elapsed at the Rent Review Date; (l) any rent free period, financial contribution, allowance or inducement whether in cash or kind, or other concession customarily or likely to be offered to tenants or prospective tenants; and (m) any temporary disturbance resulting from maintenance of any part of the Land, the Building or the Plant and Equipment at any time carried out by the Lessor. (Page 8)
11 Essentially, the tenant submits that the language of clause 7.1 compels a market rent review on each CMR Review Date. The review is to be commenced, in accordance with clause 7.2 of the lease, by the landlord giving the tenant a 'Rent Review Notice' (RR Notice) within the period nominated. Although clause 7.2 makes reference to the landlord being permitted to give an RR Notice at any time, the tenant argues that the words of the clause should be disregarded as repugnant. 12 The landlord, on the other hand, contends that clause 7.1 of the lease imposes no compulsion that a market rent review occur on each CMR Review Date. Rather, whether such a review occurs depends upon initiation of the review process by the landlord giving an RR Notice, which is within its 'unfettered discretion to choose to give, or not to give'. 13 The landlord relies upon a number of matters in support of its primary contentions, which I will summarise here:
a) The words used in clause 7.1 of the lease do not carry the same degree of compulsion as other words, for example, those which were employed in the Federal Court decision in Myers & Ors v Pioneer Concrete (Vic) Pty Ltd [1997] ANZ CONVR 331 (Myers) upon which the tenant relies.
b) Clause 7.2 and other clauses of the lease support the landlord's position.
c) The lease definition of 'Current Market Rent' refers to an assumption that the parties have observed all the terms of the lease. Those terms include the stipulation for any rent review to market being initiated by the landlord by the giving of an RR Notice.
d) Other support for the landlord's construction is derived from the CT(RS) Act.
e) Still further support is derived from the contents of the statutory disclosure statement and tenant guide. 14 The main difficulty I have with the landlord's submissions is that, in my view, they fail to pay proper regard to the ordinary meaning of, in particular, clause 7.1 of the lease. 15 Compressing clause 7.1 so as to limit it to the impact upon the rent current immediately prior to the CMR Review Date, the clause provides: (Page 9)
On each Rent Review Date, the Rent, calculated on an annual basis, with effect from that Rent Review Date, will be reviewed so that … on each CMR Review Date it is the Current Market Rent. 16 Generally speaking, and as conceded by the landlord, a document is to be read from the beginning to the end. Thus, in construing clause 7 of the lease, subject to a good reason to the contrary, clause 7.1 should be read first, and then clause 7.2. Clause 7.1, on its face, stipulates when rent reviews (fixed percentage and market) are to occur, and clause 7.2 (and following clauses) are concerned with the process involved in determining the rent payable arising from a market rent review. This ordering, exhibiting, as it does, the logical progression from the entire set of two types of rent review to the sub-set of market rent reviews strongly suggests the general rule should be adhered to. This is despite the lack of any words linking the two clauses. 17 Focusing on the compressed form of the clause to which I have referred, the clause, on its ordinary meaning as I apprehend it, requires there to be a review of the rent 'on each CMR Review Date', resulting in the rent being altered so that it becomes the 'Current Market Rent' as of that date. This flows, in my view, from the express requirement that the rent 'will be reviewed so that … on each CMR Review Date it is the Current Market Rent' (my emphasis). 18 This clause is notable for its lack of any qualification or equivocation. It is not made subject to compliance with any other requirement, whether within or outside the lease. It is also definitive of the outcome, post the review, that (the rent) is the 'Current Market Rent'. 19 I struggle with the landlord's suggestion that the expression 'the rent will be reviewed' is any less imperative than 'the rent shall be reviewed' or 'the rent must be reviewed'. The Macquarie Concise Dictionary (Revised Third Edition 2004) defines the relevant sense of 'will' to include 'indicating future likelihood' but also as 'expressing resolve'. The same dictionary contains identical definitions for 'shall'. Regarding 'must', the dictionary has definitions which include 'indicating obligation or necessity' and 'indicating inevitability'. In the context of a lease, on their ordinary and natural meaning, I would have thought that any of these words conveys an obligation for the rent to be reviewed. 20 The landlord's submission that the wording of clause 7.1 is less compulsive that than in Myers appears to draw heavily upon the use of 'shall' in preference to 'will' in the clauses 'the rent shall be reviewed' and 'the rental shall be the current open market rental'. Interestingly, the (Page 10)
primary rent review clause in Myers, immediately after providing that the rent shall be reviewed, and the regularity of reviews, states: The first of such reviews will take place 18 months from the commencing date. (my emphasis) 21 The Full Federal Court made no distinction about the degree of compulsion attaching to 'will' and 'shall' as those words appeared in the clause of the lease before it. Lockhart J said in relation to that clause: Special condition 3 imposes upon the parties a compulsory regime of review of rent at the end of each 18 months of the 15 year term granted by the lease. This is made clear by use of the imperative 'shall' in the first line, 'will' in the fifth line, and 'shall' in the eighth line of special condition 3. 22 The landlord relies, in support of the construction it advances, on the decision of a single judge of the Supreme Court of Western Australia in Commonwealth v GIO Compulsory Third Party Insurance Limited (Unreported, 22 July 1997) (GIO). 23 GIO was concerned with the effect of a letter constituting an agreement to lease which, subject to the letter's contents, incorporated the terms of an existing lease for different floors in the same building as the floors to be leased. The existing lease, by its terms, provided that 'the Lessor may by notice in writing to the Lessee fix the Rent'. The letter stated that '[t]he first rent review for the Premises will occur …' followed by an initial date and a statement of the intervals applying thereafter. It also provided that in the event of inconsistency between the letter and the existing lease, the terms of the letter prevailed. 24 The lessor not having given notice, the Court was required to determine whether, in light of the contents of the letter, the review of rent was mandatory. White J found that the letter did not have the effect of making rent reviews mandatory, and hence was not inconsistent with the existing lease. 25 Although White J's conclusion appears to fly in the face of the meaning of 'will' which I have posited, it needs to be considered within its proper context. That context is explained in His Honour's reasoning in the following passage (at 8-9): (Page 11)
intervals is to be understood, in my opinion, as defining the specific dates of the rent reviews and not as making a rent review mandatory on each such date. The rent review procedures are specifically to accord with the provisions of the ASC Lease and are identical to the terms of cl 33 of the lease under consideration. The only difference between the dates referred to in cl 8 of the Letter and the rent review dates in the ASC Lease is that the latter refers to a commencing date of 1 September 1993. For the reasons already expressed above, I do not consider that there is any relevant inconsistency between the Lease and the Letter, which would require that the terms of the Letter prevail over those of the Lease. If it had been the intention of the parties that the lessee would be entitled to insist upon a review of the rent if the lessor did not give the notice under subcl 33(a) of the Lease, it would have been simple to make express provision to that effect[.] 26 What this passage makes clear is that White J was strongly influenced by the explicit reference in the letter to the rent reviews being in accordance with 'the rent review procedures set out in the ASC Lease' and the close correlation between the rent review dates referred to in the letter and the existing lease, leading His Honour to observe that if the parties to the agreement to lease had intended to effect the serious departure from the existing lease that rent reviews were to be compulsory, this would (and should) have been expressly provided for. 27 In my respectful opinion, His Honour's caution in relation to a suggested significant change to the rights of the parties regarding a rent review relying upon and alleged inconsistency between the letter and the lease terms is perfectly understandable. The nuances involved in construing two separate documents, agreed upon at different times by different parties, are absent in the present case, which is simply concerned with how all the terms of the lease document are to be read together. 28 As already mentioned, clause 7.1 of the lease stipulates the outcome of the rent review that '(the rent) is the Current Market Rent'. It is hard to envisage any more definitive statement of the required outcome of a rent review. The tenant favours the drafting technique employed on the facts in Myers expressly linking the requirement of mandatory rent reviews with the methodology and outcome of the review. However, once it is accepted that the lease contains the mandatory provision for market rent review, the fact that the machinery provisions regulating how the review is to proceed are not expressly linked as in this case (leaving aside their immediate physical proximity) cannot detract from the compulsive nature of the term. (Page 12)
29 The landlord contends, not unexpectedly, that the word 'may' in clause 7.2(a) of the lease is facultative and confers upon the landlord a discretion whether to give an RR Notice or not. However, in light of my conclusions regarding clause 7.1, clause 7.2(a) must be construed, to the extent that it provides that the landlord 'may' review the rent by giving an RR Notice during a particular period, consistently with Myers, so that the landlord must give an RR Notice, at any time during the given period. 30 This leaves the concluding lines of the clause which, on their face, allow the landlord to give a valid RR Notice outside of the specified period, at any time. According to the landlord, this militates in favour of the landlord's unfettered discretion to give or not give an RR Notice. 31 In light of the interpretation of the first part of clause 7.2(a) which I have accepted, I also accept the tenant's submission that the reservation of a right in the landlord to give an RR Notice at any time is inconsistent with the requirement that the notice be given during the specified period. This might lead to either or both of the consequences that the concluding lines of the clause be disregarded as repugnant (see Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352); and that, in construing the lease, the extrinsic evidence of the contents of the disclosure statement dated 29 June 2001 indicating that market rent reviews were to be scheduled for the third and seventh anniversaries of the commencement of the lease can be relied upon to undermine the notion that the landlord retained a discretion whether or not to initiate a review to market. 32 The landlord submits that the definition of 'Current Market Rent', which assumes that the parties have observed all the terms of the lease, compels the conclusion that a review to market can only occur if and when the landlord decides to give an RR Notice. In my view, this misconstrues the operation of the assumption in the definitions. The matters to be assumed, including observance of the lease, are deemed to exist, whether or not they do in fact, for the purposes of the market rent valuation exercise. They are not directed to the question of the circumstances in which the rent review is to occur, but to the parameters against which the rent upon review is to be assessed. 33 The landlord further submits that giving clause 7.1 of the lease a mandatory operation would render clauses 7.2 to 7.10 of the lease superfluous. This was said to flow from the provisions of s 11 of the CT(RS) Act, and s 11(3) in particular. (Page 13)
34 The scheme of the rent review provisions in clause 7 of the lease is: • Under clause 7.2, the landlord gives an RR Notice (step 1). • Under clause 7.3, the tenant wishing to challenge the rent in the RR Notice gives a Rent Dispute Notice (RD Notice), which requires a determination by licensed valuers and nominates the tenant's valuer (step 2). • Under clause 7.4, the landlord, by notice, nominates the lessor's valuer. Provision is made for when the lessor fails to do so, after further notice or at all (step 3). • Under clause 7.5, provision is made for the appointment of an alternative licensed valuer (step 4). • Under clause 7.6, in the event of disagreement between the respective valuers, any disputed matter is referred to another valuer. Failing agreement as to that valuer, further provision is made for appointment of the valuer (step 5). 35 Section 11(3) of the CT(RS) Act, which clearly applies to the lease, has the effect of implying into the lease provisions to determine a disputed question about the rent payable upon a review 'where the parties do not agree on the rent payable as a result of the review'. 36 Having regard to the clause 7 scheme set out above, it appears that the point at which the s 11(3) provisions will be invoked would be step 2, on the giving of the tenant's RD Notice. If this is correct, the statutory provisions would then take precedence over clauses 7.4, 7.5 and 7.6. 37 However, any such redundancy of terms of the lease would arise regardless of whether the lease terms for conduct of a market rent review are compulsory or at the landlord's discretion. This was accepted by counsel for the landlord at the hearing. 38 Further clauses of the lease, and clause 7.9 in particular, are, in my view, entirely neutral as to the correct construction of clauses 7.1 and 7.2. 39 Clause 7.9 of the lease states: Obligations of payment of Rent on issue of Rent Dispute Notice (Page 14)
40 Clause 7.9(a) governs the amount of rent payable pending a review where an RD Notice is given. It is to be contrasted with the situation where no RD Notice is given. In the latter case, the rent stated in the RR Notice is payable from the applicable CMR Review Date by reason of clause 7.2(b) of the lease. 41 Clause 7.9(b) deals with adjustments required according to the ultimate outcome of the Current Market Rent, whether by resolution or determination. 42 Although it is true that clause 7.9 is conditional on the landlord giving an RR Notice, in light of my finding that the giving of such a notice is mandatory, clause 7.9 can be expected to operate in the normal course. The same comment applies to clauses 7.7, 7.8 and 7.10 of the lease. 43 The landlord's submissions drawing upon alleged indicators in the CT(RS) Act said to favour the landlord's construction of the lease are tenuous. They seem more concerned with the hypothesis that it is necessary for the tenant to establish its own right to initiate a market rent review in order for the current application to be dealt with by the (Page 15)
Tribunal. As I have explained, this is not the tenant's case, and the hypothesis has in any event been exposed as false. 44 The landlord attempted to deflect the tenant's argument based on the contents of the disclosure statement dealing with rent reviews by observing that the prescribed form of the disclosure statement required disclosure of the frequency and the basis of rent reviews. There is no requirement, it was said, to disclose whether reviews are discretionary or mandatory. Further, the landlord pointed to warnings in the disclosure statement to prospective tenants, including to ensure it fully understands the form of the lease and to take independent advice before signing any document. Similar warnings appear in the statutory tenant guide, as does a specific alert in relation to rent reviews, although the alert is limited to the requirement of the CT(RS) Act of a single basis of rent review in relation to each review event, and that the type of review may vary over the life of the lease. 45 It is unnecessary for me to make definitive findings about the sufficiency of a disclosure statement which omits to mention that market rent reviews to which it refers are to be at the sole discretion of the landlord. Given my finding regarding the mandatory nature of the market rent review in the lease, this is not something that arises in the present case. I would however be surprised if a landlord would be fulfilling his disclosure obligation in relation to a market rent review which was to be at the sole discretion of the landlord, by omitting to mention that matter. The requirement that a disclosure statement not be incomplete, and not contain false or misleading information, is a serious one, notwithstanding the warnings to the prospective tenant, evidenced by the fact that non compliance may result in termination of any resulting lease or a compensation claim. 46 As I have said, the reliance the tenant places on the disclosure statement's contents here is limited to resolving what it says in an ambiguity in the terms of the lease, and its argument in that regard has been accepted, at least in the alternative to the tenant's repugnancy submission. I need say nothing more on that subject. 47 My finding that the landlord is obliged to initiate a rent review to market by giving the tenant an RR Notice carries the consequence that, one way or another, the tenant is entitled to a market rent review in respect of the CMR Review Date of 1 July 2013. (Page 16)
48 The same finding also means that the tenant's claims based on estoppel largely fall away. However, it is necessary that I deal with the referred question relating to those claims, in case my finding mistaken, and also because of the effect a proven estoppel may have on the way forward between the parties.
Is the landlord estopped from denying a rent review has occurred? 49 According to the tenant (applicant's outline of submissions paragraph 29): In any event, the Tribunal should find that the respondents are estopped from denying that a rent review has taken place under the lease in respect of the CMR Review Date of 1 July 2012. 50 It may be more accurate to refer, as the matter which the landlord is allegedly estopped from denying, to an assumption by the parties that their negotiations in relation to the Current Market Rent as at 1 July 2012, and any determination where the parties are unable to agree, would be effective, notwithstanding non compliance with the requirements of clause 7 of the lease. The expression 'rent review' applies to the whole of the process, including initial exchanges between the parties, the involvement of expert valuers and any determination of the Tribunal. That said, reference to 'review of the rent' or 'rent review' has the significant benefit of brevity, and on that basis I am happy to adopt it. 51 The basis of the alleged estoppel is that subsequent to the provision by the tenant to the landlord of a valuation report commissioned by the tenant, and the tenant's 'request' that the rent be reviewed to market, the landlord failed to assert that it had an exclusive discretion to initiate a review. Rather, it participated in a process which broadly (thought not entirely) corresponded with that set out in clause 7, albeit with a reversal of the roles, as between the landlord and the tenant, of initiating and responding party. 52 Some aspects of the agreed factual circumstances warrant highlighting. The landlord, in its 'Dispute Notice', disputed the rent proposed by the tenant based upon its valuation, indicated that it had appointed its own valuer, and stated that its valuer would contact the tenant's valuer to try to agree on the market rent. About one month later, the tenant advised the landlord that unless it provided a valuation report within 14 days, it would refer the matter to the Tribunal for determination. The landlord's report was provided within the 14 days, and a meeting of the valuers occurred about one month later. However, no agreement (Page 17)
having been reached, the Tribunal application was issued a further two months after the valuers' meeting. The proceedings, initially limited to an application to resolve the disputed question of market rent, progressed on the basis that this was the sole issue until midAugust 2012, when the landlord's solicitors informed the tenant of their view that the Tribunal lacked jurisdiction. 53 The question is whether the landlord is estopped from renouncing what appears from the factual circumstances to have been the mutual assumption of the parties that a valid rent review was in train. I consider that it is, for the following reasons. 54 It is incontrovertible that both parties proceeded from, at the latest, 22 January 2013 (when the landlord served the 'Dispute Notice') until 16 August 2013 on the basis that a rent review was in progress. During this period, the landlord informed the tenant that the latter's proposed figure for rent was disputed; arranged for its own valuer to produce a valuation; and arranged for valuers to meet to discuss their respective valuation reports. There was no suggestion during this period of any contractual obstacle to the review proceeding. 55 The assumption by the conduct of the parties that a rent review was in progress represented a change from the legal position that market rent reviews be initiated by the landlord giving an RR Notice. As such, it presents as a candidate for estoppel by convention. 56 The doctrine of estoppel by convention was recognised by the High Court in ConStan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1985) 160 CLR 226 at [2445] in the following terms: … Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. … . 57 In Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119, (Alpha Wealth) Buss JA, with whom Steytler P agreed, said (at [164]): I respectfully agree with Finn J's statement in GEC Marconi Systems [426] that, subject to one qualification, the elements of the doctrine of estoppel by convention are as summarised by the Court of Appeal of New Zealand (Page 18)
in National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd [1996] 1 NZLR 548: The authorities show that for an estoppel by convention to arise the following points must be established by the party claiming the benefit of the estoppel (the proponent): (1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption). (2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction. (3) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them. (4) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding. (5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption. (6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption (550). The qualification is that, to the extent the proponent relies upon an assumption of law or an assumption of mixed fact and law, the assumption of law must relate to private legal rights. Relevantly, for present purposes, a common assumption as to 'private legal rights' includes a common assumption as to the effect of contracts or agreements. 58 There is disagreement between the parties regarding the sixth of the above requirements. The landlord submits that it is a discrete requirement, on top of the other five, whereas the tenant contends that any unconscionability derives from satisfaction of the remaining requirements. I will return to this. 59 No challenge is raised on the facts of the present case to the fulfilment of the first three requirements identified in Alpha Wealth. Without detracting from the importance of the other two, the significance of the third condition should not be underestimated. In the present context, it denotes the existence of a common intention that an effective rent review was under way, despite the precondition for the commencement of a review not having occurred. This requirement can be (Page 19)
seen as the fulcrum of the estoppel, and explains why, when all the requirements are satisfied, the parties may well be required to honour the assumption, in preference to the strict requirements of the contract. 60 The landlord does challenge the fourth requirement, and relies upon the following contentions: 61 Reading all of the requirements expressed in Alpha Wealth as a whole, that part of the fourth requirement signified by the words 'the proponent was entitled to act … in reliance upon the assumption being regarded as true and binding' seems to be met upon satisfaction of the first three requirements. The element which is new is the estopped party's knowledge or intention that the proponent act in reliance upon the assumption. 62 Where, as here, the assumption is precipitated by an act of the proponent for the estoppel other than in accordance with the contract, it remains possible that the assumption forms the basis of an estoppel, providing that the proponent can demonstrate that the estopped party is at least aware (if not intending) that it (the proponent) is likely to act in accordance with the assumption. This, in my view, distinguishes the current case as one of estoppel by convention, and not equitable or promissory estoppel, upon which the tenant also relied. With estoppel by convention, the necessary reliance is upon an assumption of a state of affairs, rather than a representation or promise by the other party. 63 I am persuaded that subsequent to the service by the tenant of its notice, the respondent became aware that the tenant had already acted in accordance with the assumption that a valid rent review had commenced. Although it could have informed the tenant that the giving of its notice was ineffective to instigate a rent review, it did not do so. Rather, by its conduct, it adopted the assumption itself. In doing so, it must have been aware that the tenant would continue to act upon the now mutual assumption. This is, in my view, sufficient for satisfaction of the fourth requirement. (Page 20)
64 The landlord referred to the observation of McHugh JA (as he then was) in Coghlan & Anor v S H Lock (Australia) Ltd (1985) 4 NSWLR 158 at 177 (Coghlan)that estoppel is not concerned with self-induced mistakes, even where both parties have made the same mistake, and submitted that the person alleged to be estopped must have contributed to or occasioned the other party's mistake. 65 Although this area of the law is prone to judicial remarks which, when read together, contain not the occasional inconsistency, there is strong support for the proposition that it is sufficient if a false assumption, not of the making of the party against whom the estoppel is alleged, comes to the notice of that party, and he does nothing about it. 66 In K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd, the 'August Leonhardt' [1985] 2 Lloyd's Rep 28(CA) (K Lokumal), the Court of Appeal held (at 3435): Similarly, in cases of socalled estoppel by convention, there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption. The alleged representor's participation in this conduct can then be relied upon by the representee as a basis for this form of estoppel … There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that across the line between the parties his action or inaction has produced some belief or expectation in the mind of the alleged representee, so that, depending on the circumstances, it would thereafter no longer be right to allow the alleged representee to resile by challenging the belief or expectation which he has engendered. 67 As was found to be the fact by McHugh JA in Coghlan (but noting that His Honour was in the minority in this respect), where a mistaken assumption is mutually adopted, but the adoption by the party sought to be estopped is not made manifest, there can be no estoppel. However, that is not the present case. The landlord, by its conduct, manifested his adoption of the same mistaken assumption as that under which the tenant was acting. 68 The landlord submits that it cannot, given the amount at stake, be seriously contended that anything it might have said would have deterred the tenant from embarking on the course it had set upon. 69 Whether or not the tenant would have 'changed course' is a matter of speculation. In any event, the response of the tenant to any attempt of the landlord to correct the false assumption is irrelevant to the fourth element of estoppel by convention. Were such an attempt made, and the tenant (Page 21)
continued to act on the basis of the assumed fact in the face of the landlord's resistance, then the requirements of manifest conduct on the part of the landlord and reliance by the tenant would be absent. The landlord might then indicate that he was content for the parties to continue to act on the basis of the assumed state of affairs, which would presumably generate a representation or promise which would ground an estoppel were the landlord to subsequently attempt to resile from the assumption. 70 I turn to the fifth requirement of estoppel by convention, that of detriment. 71 The tenant relies upon the following incidents of detriment: a) The substantial delay in determination of the rent to market. b) The costs incurred by reason of the landlord's acceptance of the assumption that a market rent review was underway. c) The ongoing obligation of the tenant to pay rent at the rate prevailing immediately preceding the CMR Date when, on the evidence of its valuer's report, this is some $140,000 per annum in excess of the market rate as at that date. 72 Commonwealth of Australia v Verwayen [1990] 170 CLR 394 (Verwayen) concerned a negligence action in which the respondent sought damages for injuries allegedly sustained some 20 years previous to commencement of the proceedings. By reason of a change of policy by the appellant, the defence was amended late in the proceedings so as to raise defences based upon the statute of limitations and absence of a duty of care, contrary to earlier representations that it would not do so. 73 After referring to the costs incurred by the respondent as a result of the appellant's failure initially to plead the statute of limitations, which costs could be compensated by a costs order, Dawson J said (at 461): … But the real detriment to the respondent was that he was induced by the assumption that the appellant would not insist upon the statute to allow the litigation to proceed for more than a year without taking any steps to bring it to a conclusion by way of settlement or, if necessary, withdrawal. Furthermore, as Lord Griffiths observed in Ketteman v Hansel Properties …, 'justice cannot always be measured in terms of money' and (Page 22)
the strain of litigation, particularly where that litigation is between a natural person and a defendant with the resources of the Commonwealth, is not to be underestimated. By falsely raising his hopes, the appellant led the respondent to continue with the litigation and forgo any exploration of the possibility of settlement thereby subjecting himself to a prolonged period of stress in an action in which the damages claimed were for, amongst other things, a high level of anxiety and depression. I would hold that appellant was estopped from insisting upon the statute of limitations, and would observe that the equity raised by the appellant's conduct was such, in my view, that it could only be accounted for by the fulfilment of the assumption upon which the respondent's actions were based. … . 74 Dean J reflected upon the question of detriment along similar lines (at 448 449): … If the Commonwealth were now allowed to depart from the assumed state of affairs, the detriment which Mr Verwayen would sustain could not be measured in terms merely of wasted legal costs. The past stress, anxiety, inconvenience and effort which were involved in the pursuit of the proceedings would be rendered futile. More important, Mr Verwayen would be subjected to the potentially devastating effects of a lastminute denial of an expectation of just compensation for his injuries in circumstances where those injuries were sustained in the course of the service of the Commonwealth by reason of the negligence of another or others in that service and where that expectation of just compensation had been deliberately induced by the Commonwealth. … . 75 Although Verwayen is an extreme case, it indicates that the courts are prepared to bind parties to their conduct affirmatory of a departure from the true legal position on the basis that the affected party has adjusted its position accordingly. Relevantly to the present case, the adjustment arising from a failure to rely upon a position or defence which, if sustained, would mean that the affected party's claim is doomed to fail, might include such matters as stress, anxiety, effort and the foregoing of settlement opportunity. 76 In this case, although the tenant, acting of its own volition, purported to instigate the rent review by appointing its own valuer and inviting a response from the landlord or its valuer (see letter from Ms Melissa Stanton, legal counsel for the tenant to Burgess Rawson dated 21 December 2012 at the applicant's supplementary book of documents (ASBD) at 302), the landlord's initial response, headed 'Dispute Notice', was not to dispute the fact of initiation of the rent review, but to dispute the tenant's figure for the market rent and indicate its future engagement in the rent review process (see letter from Burgess Rawson to Ms Stanton (Page 23)
dated 22 January 2013, ASBD at 303). This is the position which enured from January 2013 until August 2013, during which: • the tenant threatened the landlord with an application to the Tribunal if it did not provide its valuation report; • the landlord did provide its valuation report; • the landlord suggested the respective valuers meet, and such a meeting occurred; • the tenant issued the present application; • the Tribunal made orders for the valuer to confirm and prepare a joint statement dealing with the matters upon which they agreed and disagreed, and listed this matter for final hearing. 77 These steps, together with the effort and stresses arising from the parties' negotiations on the market rent and the proceedings in the Tribunal when the negotiations failed to produce an agreed outcome, and the missed opportunities that the early expression by the landlord of the point it now seeks to rely upon would have opened up for the tenant, represent sufficient detriment, in my view, for the purposes of the fifth requirement. 78 The matters to which I have just alluded are the manifestations of the delay upon which the tenant relies as its first ground of detriment. Its other asserted grounds are more problematic. 79 The costs claimed to have been wasted if the assumed share of affairs is not to be adhered to have not been identified other than in general terms, including a reference to the costs of the tenant's valuer, Mr Vincent. However, as the landlord points out, Mr Vincent was appointed by the tenant, and prepared his valuation, before any negotiation with the landlord, and hence before it had the opportunity to correct the tenant's mistake. In isolation, it is doubtful, in my view, that such additional costs would be sufficient detriment to found the estoppel. 80 The tenant's argument based upon the fact that it continues to pay rent at what, on its valuation evidence, is an inflated figure, requires a consideration of an outcome, or range of outcomes, of the rent determination issue based not upon any considered view of the evidence, but on the best case scenario for the tenant. It is true that the tenant's (Page 24)
reliance on the potential excess payment of rent is limited to the interest on the premium, no doubt in light of the provisions of the lease concerning adjustment once the current market rent is determined. However, it still requires a determination, at some level, of the main question for the Tribunal under s 11(5) of the CT(RS) Act, which is, in my view, inappropriate for the purpose of determining the issue of detriment. 81 The final requirement for a finding of estoppel by convention, at least as expressed in the passage from Buss J in Alpha Wealth, is that, in all the circumstances, it would be unconscionable to allow the other party to resile or depart from the mistaken assumption. 82 Whether or not unconscionability is a separate, standalone requirement, or one which is satisfied where the remaining requirements are met, there can in my view be no denying that any unconscionability derives from the matters informing the conclusions reached on those requirements. 83 The role of unconscionability in estoppel by conduct, and the basis of the enquiry whether it exists, are neatly summarised by Dean J in Verwayen at 444 445 in two of eight numbered paragraphs setting out the His Honour's understanding of the 'conceptual foundation and essential operation' of the doctrine. I set out the relevant paragraphs: … 2. The central principle of the doctrine is that the law will not permit an unconscionable or, more accurately, unconscientious departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation. … 4. The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party: (a) has induced the assumption by express or implied representations; (b) has entered into contractual or other material relations with the other party on the (Page 25)
conventional basis of the assumption; (c) has exercised against the other party rights which would exist only if the assumption were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure of the assumed state of affairs were permitted. … 84 An apt characterisation of the unconscionability principle may be that it 'ties together' all of the elements of the claimed estoppel into a whole by reference to a particular degree of unfairness flowing from a party's withdrawal from the adopted assumption which would in all the circumstances be unacceptable. 85 The landlord considers that such a point has not been reached in the present case, and points to: a) The landlord's adoption of the false assumption arising from the conduct of the tenant. b) The 'insignificant' detriment suffered by the tenant, limited to work performed on the rent review, commencing with the conferral of the valuers, and the costs of the Tribunal proceedings until 16 December 2013. c) The potential for significant detriment to the landlord were the rent review to proceed. 86 Taking all the circumstances into account, in accordance with Dean J's exhortation in Verwayen, I have concluded that departure from the assumption by the landlord would be unconscionable, for the reasons which follow. 87 Given the failure of the landlord, towards the end of the period expressly permitted for it to do so, to give an RR Notice, it was not unreasonable for the tenant to take some step designed to achieve the outcome that, either formally (in the sense of being compliant with the lease), or informally, a rent review to market take place. This was (Page 26)
particularly so, given that the tenant's valuation advice was consistent with an outcome of such a review that the rent would be significantly reduced. 88 As I have discussed, the landlord adopted the same mistaken assumption as the tenant that the latter could initiate the rent review. As such, the case fits into category (b) of the categories of cases identified by Dean J in Verwayen where a departure from the assumption would be uncommon. Authorities such as K Lokumal,Moratic Pty Ltd v Lawrence James Gordon and Anor [2007] NSWSC 5, and the majority decision in Coghlan demonstrate that a mutual mistaken assumption, where neither party is alert to the mistake, and therefore not in a position to correct it, is a sufficient basis for an estoppel by convention.
89 The nature of the primary detriment found in this case will generally be sufficient for the estoppel to operate: see Verwayen per Dean J at 443 and Dawson J at 462. 90 The consequence of holding the parties to their assumption would appear, in light of their disagreement over the market rent figure, to be that the Tribunal ought now proceed to determine the question of the disputed rent under s 11A(5) of the CT(RS) Act. The landlord submits that such an outcome would be inappropriate, because it might result in an adjustment of market rent by (on the tenant's valuation) almost $140,000 per annum in favour of the tenant. Such an outcome, achieved through the relatively small outlay incurred by the tenant during the course of the landlord's involvement in the rent review, would, it was said, be a 'windfall' for the tenant, and inconsistent with the requirement to do justice between the parties. 91 The landlord referred in support of its submission to Dean J's judgment in Verwayen at 442: There is clear support in the cases and learned writings for the view that, in this as in other fields, equitable relief must be moulded to do justice between the parties and to prevent a doctrine based on good conscience from being made an instrument of injustice or oppression. That being so, it should be accepted that the prima facie entitlement to relief based on the assumed state of affairs must, under a doctrine which is of general application in a system where equity prevails, be qualified if it appears that that relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party… (Page 27)
92 There are two problems with this part of the landlord's estoppel case. The first, similar to that raised against the tenant's ground of detriment based on the amount of rent it continues to pay, is that it fixes upon a particular outcome of the rent determination issue consistent with the worst case scenario for the landlord. Presumably, when the Tribunal is called upon to make such a determination, the landlord will rely upon its own valuation, which, if accepted, would result in an increase in the rent. 93 The second, and more fundamental, difficulty I have with the landlord's approach is that it weighs only the financial consequences for the tenant of permitting a departure from the mutual assumption of the parties as against the potential 'windfall' to the tenant of which it speaks, while ignoring the primary detriment to the tenant as I have found it to be. 94 On the facts in Verwayen itself, the consequence of allowing the appellant to resile from the assumption that it would not take the limitation point was potentially that the respondent would fail completely in his claim by reason of it being statute-barred. Although that may have been the correct, 'legal', outcome, it was avoided by the majority judges' acceptance of the respondent's 'prima facie entitlement to relief based on the assumed state of affairs'. This was despite the inevitable result that the appellant would face a considerable exposure it would not otherwise have faced. 95 In my view, no proper basis has been established by the landlord of any overbearing injustice flowing to it to prevent the parties being bound by their mutual assumption.
Conclusion 96 For the above reasons, the answer to both questions referred to the Tribunal is in the affirmative. 97 Based upon the applicant's amended minute of proposed orders filed 4 September 2013, the claimed effect of the answer to the second question is that the tenant is, as of now, entitled to have the Tribunal exercise its jurisdiction as provided under s 11(5) of the CT(RS) Act to hear and determine the disputed question as to the current market rent. I will, at the directions hearing for listing, hear from the landlord as to that matter, and make such further directions as might be appropriate. (Page 28)
Order |