Gadd v New Wave Aerospace Pty Ltd
[2020] SADC 7
•31 January 2020
District Court of South Australia
(Civil)
GADD & ORS v NEW WAVE AEROSPACE PTY LTD
[2020] SADC 7
Reasons of His Honour Judge O'Sullivan
31 January 2020
LANDLORD AND TENANT - COVENANTS - AS TO RATES, TAXES AND OTHER OUTGOINGS - OTHER OUTGOINGS
LANDLORD AND TENANT - COVENANTS - AS TO REPAIR - OBLIGATION ON LESSOR
LANDLORD AND TENANT - AGREEMENTS FOR LEASE - GENERALLY
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - CONSTRUCTION AND INTERPRETATION
The Plaintiffs are 75 Underlessees of Marina berths at the Marina St Vincent (“the Marina”), situated at Wirrina Cove, South Australia.
The Defendant, New Wave Aerospace Pty Ltd is the current lessee of the Marina, pursuant to a Headlease with the then Minister for Transport for the Government of South Australia, and is the Underlessor of the Marina berth Underleases.
The plaintiffs allege that the defendant has breached various terms of the Underlease. The plaintiffs further allege that the defendant has failed its obligations under the Underlease, in relation to the calculation and collection of payments from the plaintiffs of what are referred to in the Underlease as “Outgoings” and the use to which Outgoings have been put. The plaintiffs further claim for money had and received.
Some issues between the parties were referred to arbitration. Not all of the arbitrator’s determinations have been adopted by the Court at this stage.
Held:
1. The Defendant has breached the terms of the Underleases;
2. I will hear the parties as to any orders they may seek as a result of my findings;
3. I will hear the parties as to the further hearing required to resolve outstanding issues.
Finchbourne Ltd v Rodgrigues [1976] 3 All ER 581, CA; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-3; Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR; Byrne v Australian Airlines (1995) 185 CLR 410, considered.
GADD & ORS v NEW WAVE AEROSPACE PTY LTD
[2020] SADC 7Introduction
Master Agreement
Master Agreement Terms
The Head Lease
Head Lease Terms
Marina St Vincent Business Name and Lease Holders
Underleases
Underlease Terms
Pleadings
Defendant’s Business
Breaches of Underlease
Outgoings to be reasonable and necessary
Particulars of Expenses claimed which are not reasonable or necessary
Management Expenses
Salaries and Wages
Repairs and maintenance
Other expenses
Money due
Summary
Procedural history
Defendant’s representation
Interlocutory injunctions
Financial information
List of Issues and referral to an Arbitrator
Categories of Dispute
First Category
Second Category
Third Category
Fourth Category
Fifth Category
Sixth Category
Plaintiff’s Witnesses
Trevor Wesley Gadd
Terminology and Marina Construction
Photographs
Marina berths
Outgoings
Dredging
Cross-examination
Gregory John Schulz
Christopher James Carter
Gary Keith Manning
Mr Fred Centofanti – C&W Building Services Pty Ltd
Report 16 March 2018
Report 3 May 2019
Consideration of Mr Centofanti’s evidence
Defendant’s Opening
Defendant’s witnesses
Stephen Lindsay Gordon Marks
Cross-examination
New Wave Group Pty Ltd
New Wave Constructions (SA) and Newwave Constructions (SA) – Business Name
The North Adelaide Property Trust
Krause Motors
Incospec Pty Ltd and Incospec & Associates Australia Pty Ltd
Dredging Sinking Fund
Inter-Trust Loans
Incospec Pty Ltd
Krause Motors
Bank Statements
Bank SA:
ANZ Bank
Andrew Lincoln Chapman
Repairs and Maintenance required
Outgoings
2014/2015
Item 442 – Contract Marina Manager $101,250
Item 444 – Leased equipment $33,804.96
Item 446 – Legal and debt recovery $25,046.70
Item 447 – Licenses and permits
Item 448 – Major works and repairs $126,304.21
Item 453 Marina grounds / road and landscape $29,517.49.
Item 520 – Wages and salaries $124,538.19
2015/2016
Item 442 – Contract Manager $122,750
Item 448 – Major Works and Repairs $125,831.69
Item 515 – Vehicle repairs
Item 520 – Wages and Salaries $183,185.99
2016/2017
Item 442 – Contract Marina Manager $123,750
Item 493 – Repairs and Maintenance General $126,476.09
Item 515 – Vehicle repairs $1,204.67
Item 520 – Wages and Salaries $138,150.97
2017/2018
Item 433 – Freight $2000
Item 441 – Insurance expenses $47,219.47
Item 442 – Contract Marina Manager $123,750
Item 446 – Legal and debt recovery $145,478.50
Item 447 – Licences and permits $3,226.50
Item 448 – Major works and repairs $20,209
Item 515 – Vehicle repairs $332.50
Categories of Dispute and Issues for Determination
First Category of Dispute - Whether money charged for repairs and maintenance at the Marina relate to work that has actually been done and if so, at what cost?
Issue 42 - Has the Underlessor complied with its obligations under the Head Lease to maintain the Premises in good, sound, safe and serviceable operating repair and condition?
Issue 43 - In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for major works and repairs of $162,974 or for some other and if so, what amount?
Issue 44 - In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for Marina grounds/road and landscape of $29,517 or for some other and if so, what amount?
Issue 45 - In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for website updates of $11,200 or for some other and if so, what amount?
Issue 46 - In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing expenses for major works and repairs of $219,421 or for some other and if so, what amount?
Issue 47 - In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing insurance expenses of $34,590.82?
Second Category – Construction of Underlease Clauses dealing with Outgoings and expenditure on Outgoings
Issue 1 – Has a dispute arisen between the plaintiffs and the defendant as defined in clause 4.16 of the Type A Underlease and clause 4.21 of the Type B Underlease?
Issue 2 – Are the plaintiffs entitled to have the dispute resolved by the Court?
Issue 3 – What is the meaning of the term “the Marina” in registered lease number 8441283 (the Head Lease)?
Issue 4 – Is the meaning of "the Marina" the same as the meaning of "the Premises" under the Head Lease?
Issue 5 – What are the "Facilities for Public Use" as defined in the Head Lease and are the Facilities for Public Use part of the Marina?
Issue 6 – Is the meaning of “the Marina” the same in the: 1. Head Lease; 2. The type A Underlease; and 3. The type B Underlease?
Issue 7 – If no to Issue 6, what is the difference in the meaning of the term as used in those documents?
Issue 8 - If yes to Issue 6, what are the “associated facilities … ancillary to the operation of the marina” on the Land?
Issue 9 - Does the Type A Underlease only relate to “facilities” that were in existence at the time of the lease or does it include facilities that were constructed after the date of the lease?
Issue 10 - Does the type B Underlease only relate to “facilities” that were in existence at the time of the type A Underlease, or does it include facilities that were constructed between the time of the type A Underlease and the type B Underlease or does it include facilities that were constructed after the date of the lease?
Issue 11 - Do the facilities ancillary to the operation of the Marina include: 1. Boat storage yard; 2. The business of operating a boat storage yard; 3. Car and trailer parking for members of the public; 4. Public boat ramp; 5. The business of operating the public boat ramp; 6. Office facilities;7. Retail shop facilities; 8. The business of operating a retail shop; 9. Licensed cafe facilities; 10. The business of operating a licensed cafe; 11. A refuelling facility; 12. The business of selling fuel; 13. Pump out facilities; 14. Public toilets; 15. Toilet facilities for Underlessees; 16. Car parking facilities for Underlessees; 17. A storage shed for the Underlessor; 18. Internal roadways; 19. Gardens and landscaping in the office/retail/cafe facility; 20. Storage containers for the Underlessor; 21. Berths and moorings; 22. Breakwaters; 23. Navigational aids; and 24. Facilities for Public Use?
Issue 48 - In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina of $159,113 or for some other and if so, what amount?
Issue 49 - In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing accounting expenses of $19,093.30?
Issue 50 - In the financial year ended 30 June 2018, did the Underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina of $200,200 or for some other and if so, what amount?
Issue 51 - If the Underlessor derives income from the operation of the Marina, is the Underlessor required to account to the Underlessees for that income?
Issue 52 - If the Underlessor derives income from the facilities referred to in Issue 11 is the Underlessor required to account to the Underlessee for that income?
Issue 53 - What income did the Underlessor derive from each of the facilities referred to in Item 11 in each of the years 30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018?
Issue 54 - Is the Underlessor required to account to the Underlessees in respect of Outgoings paid for the businesses operated by the Underlessor?
Issue 55 - What do the words "but excluding any such costs and charges which may otherwise be recoverable from any other person" mean in respect of Outgoings for operating the Marina and all associated facilities thereto?
Issue 56 - Does the Underlessor recover from any other person costs in respect of the operation of the Marina and associated facilities?
Issue 57 - If so, what costs are recovered by the Underlessor?
Issue 58 - Has the Underlessor incurred any costs of a capital nature in respect of the Land, Demised Premises or the operation of the Marina?
Issue 59 - If so, what costs of a capital nature have been incurred?
Issue 59A - What is the total amount paid from Marina St Vincent bank account to related entities from September 2014 to 30 June 2018.
Issue 61 - What moneys have been paid by the plaintiffs in respect of Outgoings in the years ended 30 June 2015, 2016, 2017, 2018 and 2019?
Issue 62 - Have the plaintiffs overpaid Outgoings in any of the years ended 30 June 2015, 2016, 2017 and 2018?
Third Category - the extent to which Outgoings must be properly incurred and reasonable in amount.
Issue 12 – does the word “properly” in the definition of “Outgoings” in the type A Underlease refer to all outgoings?
Issue 13 – What is the meaning of “properly” and in particular does it mean “reasonable and necessary”?
Issue 14 – If no to Issue 13, should the words "reasonable and necessary" be implied into the definition of "Outgoings"?
Issue 15 – Does the word “properly” in the definition of “Outgoings” in the type B Underlease have the same meaning as in the type A Underlease?
Issue 16 – How should Outgoings that are partly attributable to the Marina and partly attributable to the facilities or businesses which are not part of the Marina be charged to Underlessees for example: Telephone; Utilities; Insurance; Rates and Taxes.
Issue 17 – Is all or any part of the expense for leased equipment claimable as an Outgoing attributable to the Marina?
Issue 18 - Depending on the determination of Issue 11how should the expenses relating to the facilities referred to in Issue 11 be allocated between Outgoings and the defendant?
Issue 19 – Does the definition of "Outgoings" include wages other than wages of staff incurred in the maintenance and upkeep of gardens, landscaped areas and common areas within the Marina.
Issue 20 – Do the wages for the operation of the Marina need to be reasonable and necessary?
Issue 21 – In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for wages of $140,639 or for some other and if so, what amount?
Issue 22 – In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing expenses for wages of $183,186 or for some other and if so, what amount?
Issue 23 – In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing expenses for wages of $138,150 or for some other and if so, what amount?
Issue 24 – In the financial year ended 30 June 2018, did the Underlessor incur as an Outgoing expenses for wages of $140,000 or for some other and if so, what amount?
Issue 27 – Is the Underlessor entitled to charge a management fee in respect of the operation of the Marina?
Issue 28 - If yes to Issue 27, and depending on the answers to 8 and 9 above, is the management fee required to be reasonable.
Issue 29 - If yes to Issue 28, is the management fee charged by the Underlessor reasonable?
Issue 30 - If no to Issue 29, what is a reasonable management fee?
Fourth Category - dredging expenses and the contributions to the sinking fund.
Issue 25 – Has the Underlessor established a sinking fund for dredging expenses?
Issue 26 – If yes, what contribution is the Underlessor entitled to claim for the sinking fund?
Issue 26A – How much was paid by the plaintiffs towards the sinking fund?
Issue 26B – What happened to those payments?
Issue 26C – Into which account were they paid and for what were they used?
Fifth Category - legal expenses of the defendant
Issue 60 – Are legal expenses incurred by the defendant recoverable as an Outgoing, and if so, on what basis?
Sixth Category – accounting issues
Issue 17 – Is all or any part of the expense for leased equipment claimable as an Outgoing attributable to the Marina?
Issue 31 - In clause 4.8.4 of the type A Underlease, and clause 4.20 of the type B Underlease what do the words "acceptable accounting standards" mean in connection with the Audited Statements?
Issue 32 - How should expenses that are claimed to have been incurred by the defendant with a related party be treated in accordance with acceptable accounting standards?
Issue 33 – If a transaction has not been brought to account as an expense, can the transaction be claimed as an Outgoing?
Issue 34 - Was the Audited Statement prepared in respect of the 2014/2015 Outgoings prepared in accordance with acceptable accounting standards?
Issue 35 - If no, what should the Audited Statement for the 2014/2015 Outgoings have shown?
Issue 36 - Was the Audited Statement prepared in respect of the 2015/2016 Outgoings prepared in accordance with acceptable accounting standards?
Issue 37 - If no, what should the Audited Statement for the 2015/2016 Outgoings have shown?
Issue 38 - Was the Audited Statement prepared in respect of the 2016/2017 Outgoings prepared in accordance with acceptable accounting standards?
Issue 39 - If no, what should the Audited Statement for the 2016/2017 Outgoings have shown?
Issue 40 - Was the Audited Statement prepared in respect of the 2017/2018 Outgoings prepared in accordance with acceptable accounting standards?
Issue 41 - If no to Issue 40, what should the Audited Statement for the 2017/2018 Outgoings have shown?
Issues 48-53 (inclusive), 57, 59, 61, 62
Issue 58 - Has the Underlessor incurred any costs of a capital nature in respect of the Land, Demised Premises or the operation of the Marina?
Issue 63 – Is the defendant entitled to adjust the aggregate length in metres of all wet berths leased out by the Underlessor or available to be leased out by the Underlessor on a long or short-term basis if some of the berths are unavailable to be leased as a result of build-up of silt for the purpose of calculating the Underlessees’ proportion of Outgoings payable under the Underlease.
Conclusion
Annexure A - Schedule of Berths and Plaintiffs
Annexure B – Schedule identifying issues for Determination
Annexure C – Summary of Arbitrators determinations
Annexure D – Not reproduced.
Introduction
Marina St Vincent (“Marina” or “Marina St Vincent”) is owned by the State of South Australia and is situated at Wirrina Cove, on the Fleurieu Peninsula of South Australia, approximately 85kms South of Adelaide.
The 75 plaintiffs are Underlessees of marina berths at the Marina. The defendant, New Wave Aerospace Pty Ltd is the Underlessor. In general terms this matter concerns the alleged breach by the defendant of the terms of the Underlease, the calculation and collection of payments from the plaintiffs of what are referred to in the Underlease as “Outgoings”, the use to which Outgoings have been put and a claim by the plaintiffs for money had and received.
Master Agreement
On 16 September 1996 the Minister for Tourism and the Minister for Transport for the Government of South Australia entered into a memorandum of agreement with MBfI Resorts Pty Ltd (“MBfI”) (“Master Agreement”).
Master Agreement Terms
The recitals to the Master Agreement record in part that:
A. MBfI owns and operates Wirrina Cove.
B. MBfI is undertaking major development and refurbishment works at Wirrina Cove.
C. MBfI is developing a high standard marina and associated facilities at the Marina Site as part of the major development and refurbishment works being undertaken at Wirrina Cove.
D. To enable MBfI to develop the marina and associated facilities referred to in Recital C it is proposed that the Existing Harbour Lease and Licence be surrendered and that the Transport Minister grant the New Harbour Lease to MBfI.
E. The Minister has at the request of MBfI agreed to contribute an amount not exceeding the Minister’s Budget to the capital cost of the design and construction of the Marina Infrastructure.
F. This Agreement records the contractual provisions agreed between the parties in relation to the tenure of the Marina Site, the development of the Marina and the Minister’s contribution to the Marina Infrastructure.
The Master Agreement contained a number of terms which are defined:
“The Marina” means the marina to be developed and constructed by MBfI on the Marina Site in accordance with the Concept Plan and includes the Marina Infrastructure, the Essential Facilities and all other associated facilities (both onshore and offshore) to be developed for the purpose of operating a marina on the Marina Site;
“The Marina Infrastructure” means that part of the works for the construction of the Marina comprising the construction of breakwaters and the excavation of the Marina Basin;
“The Marina Basin” means that part of the Marina Infrastructure as is identified as “Marina Basin” on the Concept Plan;
“The Marina Site” means the area at Wirrina Cove identified as 1, 2, 3 and 5 on the Plan comprising Schedule 2;
“The Essential Facilities” means those facilities to be incorporated into the design of the Marina and identified on the Concept Plan as:
·navigational aids,
·safety aids and equipment,
·boat ramp (minimum 2 lanes),
·car and trailer park for a minimum of 20 cars and 60 car/trailers,
·toilets,
·washdown areas,
·waste disposal and pump-out station,
·refuelling depot,
·minimum of 200 serviced berths comprising
·170 private berths
·30 berths for public use
·fire services facility
…
“The New Harbour Lease” means a lease to be granted by the Transport Minister to MBfI over the Marina Site for the purpose of enabling MBfI to develop and construct the Marina thereon pursuant to the terms of this Agreement;
Clause 5 of the Master Agreement required MBfI to develop and construct the Marina at the Marina site. Under clause 5.3 MBfI was responsible for amongst other things undertaking the design of the Marina[1] and ensuring that the Marina is developed and constructed.[2]
[1] Clause 5.3.1.
[2] Clause 5.3.5.
A Concept Plan was attached to the Master Agreement. Note 3 to that Concept Plan provides that the Marina Basin would be excavated to RL -4.3 metres Australian Height Datum (AHD) so as to provide at least 3 metres depth of water.
The Head Lease
On 29 January 1998, the Minister for Transport for the Government of South Australia and MBfI entered into a Lease (“Head Lease”) for a 52-year term commencing 1 July 1996.[3] The Head Lease had an escalating rent clause culminating in an annual rent as from 1 July 2000 of $74,000 per annum, subject to any variation pursuant to the terms of the Head Lease.
Head Lease Terms
[3] Exhibit P1, pp 47-67.
The following were defined terms in the Head Lease:
“The Marina” means the marina to be developed and constructed by the Lessee on the Premises in accordance with the Concept Plan and includes the Marina Infrastructure, the Essential Facilities (both as defined in the Master Agreement) and all other associated facilities (both onshore and offshore) to be developed for the purpose of operating a marina on the Premises;
“The Outgoings” means all costs, charges, expenses, fees, rates and outgoings of any kind whatsoever (and whether of a capital or recurrent nature) now or hereafter properly assessed, charged or chargeable, paid or payable or otherwise incurred upon or in respect of the Premises or any part thereof by either the Lessor or the Lessee in relation to the Premises or in the conduct, management, security, maintenance, repair and operation of the Marina and all other facilities relating thereto including, but not limited to:
(i)all rates and taxes rated taxed assessed or imposed upon the Premises including Council rates, Water and Sewer rates and charges (including charges for water consumption) and State Land Tax,
(ii)all Financial Institution Duty and any other tax or duty for the time being payable in respect of this lease, the Premises or any business conducted on the Premises,
(iii)all insurance premiums and other amounts payable either by the Lessor or the Lessee to an insurer (other than any premium or amount otherwise recoverable from any person) in respect of insurance effected either by the Lessor or the Lessee relating to the design, development and operation of the Marina on the Premises,
(iv)all costs and charges incurred (whether by the Lessor or the Lessee) in operating the Marina and all associated facilities thereto including the cost of routine servicing, preventative maintenance and repairs (whether of a capital or non-capital nature) to facilities and services at the Marina and the costs and charges incurred pursuant to any Service and Maintenance Agreements in respect thereof but excluding any such costs and charges which may otherwise be recoverable from any other person,
(v)all costs and charges incurred by the Lessor in respect of repairs and maintenance of the Marina including but without limiting the generality of the foregoing painting and repairs to and maintenance of the electrical and plumbing services and work of a structural or capital nature,
(vi)all costs and charges incurred by the Lessor of operating repairing and on a regular basis testing and maintaining all fire fighting and fire protection systems and equipment serving the Marina (including sprinklers and fire alarm systems),
(vii)all costs and charges incurred in removing and disposing of or for providing a service for the removal and disposal of garbage and trade waste from the Marina,
(viii)all costs and charges (including wages or gardening staff (if any)) incurred in the maintenance and upkeep of gardens and landscaped areas within the Marina,
(ix)all licence and inspection fees and charges incurred in respect of the Marina, and plant, equipment and facilities in the Marina,
(x)all costs and charges incurred in providing security at the Marina,
(xi)all fees and expenses payable to any managing agent engaged whether by the Lessor or the Lessee for managing the Marina and associated facilities and/ or the Public Facilities and all costs and charges incurred in respect of care-taking and marina superintendence services to the Marina,
(xii)all costs and charges incurred in keeping the Marina clean and tidy,
(xiii)all costs and expenses incurred by the Lessee in observing and carrying out its covenants and obligations pursuant to this lease.
“The Premises” means the land more particularly described on page 1 hereof in the panel entitled “Certificates of Title being leased” together with the buildings and other fixed improvements (if any) for the time being thereon,
…
“Facilities for Public Use” means those facilities within the Marina which must be maintained by the Lessee and made available to the public at times and under conditions (including a scale of fees or charges) determined by the Lessee with the prior written approval of the Lessor and include (but are not limited to):
· toilets,
· car and trailer parking,
· boat ramp,
· berths and moorings,
· pump-out facilities,
· refuelling and service points,
· reasonable access to and between facilities available to the public by foot, vehicle or vessel,
· reasonable access by water from the boat ramp, berths and moorings, pump-out facilities and service points to the waters of the Gulf of St Vincent beyond the Premises,
· navigation aids and other safety aids and equipment,
· the breakwaters,
· any other facilities which by mutual agreement between the Lessor and the Lessee may be provided or designated from time to time as being facilities for public use;
“The Public Use Berths” means the thirty (30) serviced berths comprised within the Essential Facilities[4] which shall at all times during the Term be set aside for use by the public, such serviced berths to be those designated by the Lessor for the use by the public from time to time during the Term;
[4] The definition of “Essential Facilities” in the Master Agreement includes a minimum of 170 private berths and 30 berths for public use.
Under clause 1.8, words and expressions defined in the Master Agreement have the same respective meanings in the Head Lease.
Clause 2 of the Head Lease sets out MBfI’s obligations.
Clause 2.3 provides that MBfI will pay the Outgoings.
Clause 2.4 provides for the development of the Marina by MBfI at MBfI’s cost and expense according to the Concept Plan with practical completion of the Marina Infrastructure and the Essential Facilities to be achieved no later than 24 months after the commencement date of the Head Lease.
Pursuant to clause 2.4.4, the Marina will not be considered as operational nor the Essential Facilities be accepted as practically complete until the water depth is at the “Declared Depth”. In the Head Lease, the “Declared Depth” is defined as the depth of the water within the Marina and the approaches to the Marina specified in the working drawings and specifications for the Marina. Those drawings and specifications are required to be substantially in accordance with the Concept Plan. As I have noted, the Concept Plan is attached to the Master Agreement and provides for a design depth of RL -4.3AHD.
Clause 2.6 sets out MBfI’s obligations to maintain the Marina and is in the following terms:
2.6 Maintain
The Lessee will from time to time and at all times during the continuance of this lease at the cost and expense of the Lessee in all things keep the Premises together with the fixtures and improvements thereon (including but not limited to the Marina Infrastructure) in good, sound, safe and serviceable operating repair and condition according to such Australian standards as may from time to time be applicable to marinas of the kind, construction and size referred to in the Concept Plan. Without limiting the generality of the provisions of this subclause, the Lessee shall:
2.6.1 ensure that the depth of the water in the Marina and in the approaches to the Marina is maintained to the Declared Depth as a minimum at all times during the Term,
2.6.2 ensure that the quality of the water within the Marina is maintained to such quality as is from time to time required by the relevant statutory or regulatory authority having jurisdiction over water quality within marinas,
2.6.3 ensure that all navigational aids, and all safety aids and equipment installed or provided for the purposes of the Marina are maintained at all times during the Term in good working and operational condition, and in accordance with such standards as the Lessor may from time to time specify to the Lessee in writing, and
2.6.4 will as and when reasonably required during the Term carry out all necessary repairs (including structural repairs and repairs of a capital nature) to the Premises.
Other obligations of a maintenance nature are set out in clauses 2.7 (painting); 2.10 (maintain drains and pump-out facility); 2.11 (keep neat and tidy).
Clause 2.23 requires MBfI to provide facilities for public use at all times during the period from the date of practical completion until the expiry of the lease in 2048.
Marina St Vincent Business Name and Lease Holders
In 2002, ICA Australia Pty Ltd (“ICA”) took an assignment of lease from MBfI. During the period 12 March 2003 - 13 April 2011 a controller and then administrators were appointed. Between 3 April 2014 - 23 December 2015 a liquidator was appointed. During the period 24 October 2011 - 1 May 2015 a receiver was appointed, from 25 October 2016 - 12 June 2016 a controller was appointed and from 28 October 2011 – 14 March 2014 a Receiver Manager was appointed.
The name “Marina St Vincent” has been a registered business name at various points in time. During the period 2001-2004 the business name was owned by ICA (South Australia) Pty Ltd. Between 20 July 2007 and 21 May 2010, the business name was owned by ICA (Wirrina Assets) Pty Ltd. Between 18 December 2013 and 20 December 2015 the business was owned by a Wirrina Corporation Pty Ltd. The defendant is currently using the business name and continues to do so. It is an agreed fact that since 2001 the Marina has been known as Marina St Vincent on a continual basis.[5]
[5] T27.12-29.8.
The defendant is the current lessee of the Marina and became the lessee pursuant to a Memorandum of Transfer by Mortgagee exercising power of sale on 30 September 2014.[6]
[6] Exhibit P1, p 141.
The transfer by mortgagee was for the whole of the Land in Certificate of Title Register Book Volume 6098 Folio 809. That Certificate of Title subsequently became Volume 6152 Folio 505 and Volume 6155 Folio 853 and then Volume 6156 Folio 218.[7]
[7] Exhibit P1, p 141.
The Underleases were transferred either on that date or within a short time thereafter.
Stephen Lindsay Gordon Marks is the sole Director, Secretary and sole shareholder of the defendant.
Underleases
There are a number of privately leased berths at the Marina. The leases fall into one of two types – type A or type B. The first and second plaintiffs, Trevor Wesley Gadd (“Mr Gadd”) and Sally Ann Wiadrowski (“Ms Wiadrowski”) entered into a type A Underlease with MBfI Resorts Pty Ltd on 3 May 2000.[8] The Underlease commenced on 12 October 2000[9] at an annual rental of $1.00 with the term expiring on 29 June 2048.
[8] Exhibit P1, p 77.
[9] Exhibit P1, p 77.
The type B Underlease was not used until in or about 2013. A type B Underlease was entered into between the Receiver and Manager of ICA and the third plaintiff, Keith Raymond Finch (“Mr Finch”), on 10 April 2013.[10] The Underlease commenced on 30 May 2013 at an annual rental of $1.00 and as with the type A Underlease, expires on 29 June 2018.
[10] Exhibit P1, p 104.
A schedule of the berths which each plaintiff underleases and the type of Underlease is set out in Annexure A to these reasons.
Underlease Terms
I set out the relevant terms of both types of Underlease below. Where there is a difference between the clauses in the type A Underlease and the type B Underlease, I identify that difference unless it is of no consequence. The primary Underlease to which I refer is the type A Underlease.
Relevant definitions are set out in clause 1:
1.1 “Demised premises” means the Land comprised in allotment C21 as delineated on GRO Plan No 562/97;[11]
1.2 “Land” means the whole of the land comprised in Certificates of Title Register Book Volume 5454 Folios 718 and 719;[12]
[11] Exhibit P1, p 15.
[12] Exhibit P1, volume 1, p 81.
The title reference is found in the GRO Plan.[13] The title reference subsequently changed but there is no issue about that.
[13] Exhibit P1, p 15.
In GRO Plan No 562/97, Berth C21 is the berth leased by Mr Gadd and Ms Wiadrowski. In the type B Underlease, there is no definition of “Demised Premises” but there is a definition of “Premises” which although different in terms, is to the same effect. In Mr Finch’s case, the “Premises” is defined as that portion of the Land described in the first page of the Underlease.[14] The description is found in Item 2 on the first page as Berths B27 and B29 in GRO Plan 562/97. [15]
[14] Exhibit P1, volume 1, p 130.
[15] Exhibit P1, p 135.
In the type B Underlease, “Land” is defined as follows:[16]
(k)Land means the whole of the land comprised in Certificates of Title Volume 6098 Folio 809 and Volume 5874 Folio 248;
[16] Exhibit P1, volume 1, p 131.
There are some differences between the type A and type B definition of the “Head Lease” but they are not material. The type A definition of Head Lease is:
1.3“Headlease” means the lease between the Minister for Transport and Urban Planning and MBfI Resorts Pty Ltd dated the 29th day of January 1998;
The type B Underlease identifies a different lessor which reflects the assignment of the Head Lease from MBfI to ICA (Australia) Pty Ltd in or about 2002.
Outgoings and Underlessee’s Proportion of Outgoings are defined as:[17]
1.5 Underlessee’s Proportion of Outgoings” shall be that proportion that the length in metres of the Berth constituting the Demised Premises bears to the aggregate length in metres of all wet Berths leased out by the Underlessor or available to be leased out by the Underlessor whether on a long term or a short term basis (including those available on a daily basis) and consequently, in the event that there is a variation, modification or other change in the layout of the Marina or an increase or decrease in the number of Berths, then the Underlessee’s percentage shall be varied or modified from the date on which such change is effected;
[17] Exhibit P1, volume 1, p 81.
There is a slight difference between the two definitions which reflect the different associated definitions used in the leases, for example in type A Underlease “Demised Premises” is used whereas the type B Underleases “Premises” is used.
1.7“Outgoings” means all costs charges expenses fees rates and outgoings of any kind whatsoever (and whether or a capital or recurrent nature) now or hereafter properly assessed, charged or chargeable, paid or payable or otherwise incurred upon or in respect of the Demised Premises or the Land or any part of either the Demised Premises or the Land by either the Underlessor or the Underlessee in relation to the Land or to the Demised Premises or in the conduct management security maintenance repair and operation of the Marina and all other facilities relating thereto including, but not limited to:
1.7.1All rates and taxes rated taxed assessed or imposed upon the Land including Council rates water and sewer rates and charges (including charges for water consumption) and state land tax;
1.7.2All financial institutions duty and any other tax or duty for the time being payable with respect to this Underlease or the Demised Premises;
1.7.3All insurance premiums and other amounts payable either by the Underlessor or the Underlessee to an insurer (other than any premium or amount otherwise recoverable from any person) in respect of insurance effected either by the Underlessor or the Underlessee relating to the development and operation of the Marina on the Land;
1.7.4All costs and charges incurred (whether by the Underlessor or by the Underlessee) in operating the Marina and all associated facilities thereto including the cost of routine servicing, preventative maintenance and repairs (whether of a capital or non-capital nature) to facilities and services at the Marina and the costs and charges incurred pursuant to any Service or Maintenance Agreement in respect thereof but excluding any such costs and charges which may otherwise be recoverable from any other person;
1.7.5All costs and charges incurred by the Underlessor in respect of repairs and maintenance of the Marina including but without limiting the generality of the foregoing painting and repairs and maintenance of the electrical and plumbing services and work of a structural or capital nature;
1.7.6All costs and charges incurred by the Lessor of operating repairing and on a regular basis testing and maintaining all fire fighting and fire protection systems and equipment serving the Marina (including sprinklers and fire alarm systems);
1.7.7All costs and charges incurred in removing and disposing of or for providing as service for the removal and disposal of garbage sewage and trade waste from the Marina;
1.7.8All costs and charges including wages of staff incurred in the maintenance and upkeep of gardens landscaped areas and common areas within the Marina;
1.7.9All licence and inspection fees and charges incurred in respect of the Marina and plan, equipment and facilities in the Marina;
1.7.10All costs and charges incurred in providing security at the Marina;
1.7.11All fees and expenses payable to any managing agent engaged whether by the Underlessor or the Underlessee for managing the Marina and associated facilities and/or any public facilities and all costs and charges incurred in respect of caretaking and marina superintendent services to the Marina;
1.7.12All costs and charges incurred in keeping the Marina clean and tidy;
1.7.13Any amount nominated by the Underlessor as appropriate contributions to the Sinking Fund established pursuant to clause 4.15.
1.7.14All costs and expenses incurred by the Underlessor in observing and carrying out its covenants and obligations pursuant to this Underlease.
1.7.15All amounts paid or payable by the Underlessor to the Minister of Transport pursuant to the terms of the Head Lease whether such amounts are in the nature of rental or otherwise.
There is no material difference between the type A and type B Underlease definition of “Outgoings”.
1.10“Marina” means the marina developed and constructed by the Underlessor on the Land and including all breakwaters, the marina basin and all associated facilities (both onshore and offshore) ancillary to the operation of the marina on the Land;
1.11“Common Areas” means those areas identified on GRO Plan No. 562/97 as gangways, the Navigation Channel, the Berth Pontoons, and the Access Channels to which the Underlessee is hereby granted access, together with any other facilities and areas to which the Underlessee in common with other Underlessees is granted access from time to time by the Underlessor;
The definition of “Common Areas” is different in the type B Underlease. The definition is as follows:
(c)Common Areas means those areas identified on GRO Plan no 562/1997 as:
(i) piers, walks, gangways and ramps (except those designated for private use by other berth holders);
(ii) the navigation channel;
(iii) the berth pontoons; and
(iv) the access channels,
to which the Underlessee is hereby granted access, together with any other facilities and areas to which the Underlessee, in common with other underlessees, is granted access from time to time by the Underlessor;
Clause 2 sets out the Underlessee’s Covenants.
Clause 2.2.2 provides:
2.2.2To pay to the Underlessor the Underlessee’s Proportion of Outgoings as estimated by the Underlessor (see clause 4.8) for each Accounting Period by one single payment which payment shall fall due on the first day of each Accounting Period and shall be payable thirty (30) days after the commencement of each Accounting Period.
The maintenance and repair obligation on the Underlessee is in clause 2.5 as follows:
2.5Maintenance and Repair
To advise the Underlessor of the need for any repairs to the Demised Premises so as to ensure that the Demised Premises are and remain in good and substantial repair order and condition in all respects, fair wear and tear only excepted, regardless of the reasons or cause of any damage or deterioration and to advise the Underlessor of any damage or deterioration and to ensure that any maintenance or repairs that are to be carried out, are carried out by persons approved by the Underlessor;
The maintenance and repair obligation on the Underlessee in the type B Underlease reads:
2.5Maintenance and Repair
(a) to maintain repair clean and keep the Premises in good and substantial repair, order and condition, fair wear and tear only excepted, regardless of the reasons or cause of any damage or deterioration;
(b) to advise the Underlessor of the need for any repairs to the Premises or the Common Areas;
(c) to advise the Underlessor of any damage or deterioration; and
(d) to ensure that any maintenance or repairs that are to be carried out, are carried out by persons approved by the Underlessor.
In both types of Underlease, the Underlessee is to advise the Underlessor of the need for any repairs to the Demised Premises ie: the leased berth.
Both types of Underlease impose on the Underlessee an obligation to maintain the leased area. So much is evident from the last part of both clauses which requires the Underlessee to ensure that any maintenance or repairs that are to be carried out, are carried out by persons approved by the Underlessor.
In practical terms, nothing turns on the obligation to maintain and repair the Demised Premises/ Premises because when the definition of “Demised Premises” or the “Premises” as the case may be are considered, the Underlease is over the sea bed. The typical leased area is shown in GRO Plan 562/1997 in Exhibit P1, volume 1, p 15. That shows that the typical leased area is bounded by the outside face of the mooring arm (“Pontoon” in the GRO Plan), the outside face of the finger (“Pontoon” on the GRO Plan), an imaginary line (“Straight line”) which divides two berths and another imaginary line (“Straight line”) which represents the opening of the berth to the Navigation Channel. That construction is consistent with the definition of “Common Areas” in both types of Underlease.[18]
[18] Type A clause 1.11; Type B clause 1(c); Exhibit P1, volume 1, p 83, p 132 respectively.
The obligation to pay Outgoings is found in clause 2.2.[19]
[19] Clause 2.2 in type B, Exhibit P1, volume 1, p 129.
2.2Rates, Taxes and Outgoings
(a) to pay as and when the same fall due for payment:
(i) all council rates;
(ii) emergency services levies;
(iii) water and sewerage rates and charges; and
(iv) land tax and any other rates taxes assessment fees or other charges,
which are referable only to the Premises;
(b) to pay to the Mortgagee (or its assignee or transferee) the Underlessee’s Proportion of Outgoings as estimated by the Underlessor (pursuant to clause 4.12) for each Accounting Period by one single payment which payment shall fall due on the first day of each Accounting Period and shall be payable thirty (30) days after the commencement of each Accounting Period.
(c) to pay to the Mortgagee (or its assignee or transferee) any adjustment to the Underlessee’s Proportion of Outgoings (pursuant to clause 4.12) for each Accounting Period which shall be payable immediately after each audited statement is provided to the Underlessee.
(d) Notwithstanding clause 2.2(b) and 2.2(c) if the Mortgagee (or its assignee or transferee) does not hold an interest in the Land all moneys payable under clauses 2.2(b) and 2.2(c) shall be paid direct to the Underlessor (or its assignee or transferee).
Clause 2.18 deals with costs in the following terms:
2.18 Costs
To pay forthwith on demand:
2.18.1All stamp duty and all of the Underlessor’s reasonable costs incurred in connection with the stamping of this Underlease; and
2.18.2All of the reasonable legal costs (determined on a solicitor and client basis) incurred by the Underlessor in connection with the preparation of this Underlease, negotiating, revising and engrossing this Underlease (including all attendances on the Underlessee and its legal and other advisers and all advices provided to the Underlessor) and attending to the execution of this Underlease; and
2.18.3All legal and other costs and expenses incurred by the Underlessor in consequence of any actual or threatened breach or default on the part of the Underlessee in performing or observing any covenant condition or agreement on the part of the Underlessee herein contained or contained in the Rules or in exercising or enforcing (or attempting to do so) any rights or remedies of the Underlessor hereunder or at law or otherwise arising in consequence of any actual or threatened breach or default of the Underlessee under this Underlease or the Rules.
The type B Underlease is in slightly different terms for part of the clause however those differences are not presently relevant. Importantly, clause 2.18.3 of type A and clause 2.20(f) of type B are identical.[20]
[20] Clause 2.20, Exhibit P1, p 120.
Clause 4 of both types of Underlease sets out the mutual covenants.
Clause 4.8 deals with estimates and adjustments:
4.8Estimates and Adjustments
4.8.1 For the purpose of estimating, paying and adjusting Outgoings, the term “accounting period” is used in this Underlease. Accounting period means:
4.8.1.1the initial period from the Commencement Date up to and including 30 June next following (which, unless this Underlease commences on 1 July, will be a period of less than twelve (12) months);
4.8.1.2each consecutive period of twelve (12) months commencing on 1 July in any year and expiry on 30 June in the next following year; and
4.8.1.3a final period commencing on 1 July and expiring on the 29th day of June 2048.
4.8.2 Before the commencement of each accounting period the Underlessor will provide to the Underlessee a written estimate of Outgoings for that particular accounting period and the amount which the Underlessee will be required to contribute towards those Outgoings.
4.8.3 At the request of the Underlessee the Underlessor will give the Underlessee information and explanations that the Underlessee reasonably requires about expenditure on Outgoings to which the Underlessee is required to contribute under this Underlease and the basis upon which the Underlessee’s contribution to those Outgoings is determined.
4.8.4 Not later than six (6) months after the end of each accounting period, the Underlessor must provide to the Underlessee an Audited Statement in relation to Outgoings. The Audited Statement must:
4.8.4.1be prepared in accordance with acceptable accounting standards;
4.8.4.2be in a form that allows the Underlessee to compare actual expenditure and the Underlessee’s share of actual expenditure with the estimates given by the Underlessor.
4.8.5 There shall be an adjustment between the Underlessor and the Underlessee to take account of any underpayment or overpayment by the Underlessee in respect of Outgoings. This adjustment (if any is due) will be made immediately after each Audited Statement is provided to the Underlessee.[21]
[21] Exhibit P1, p 92.
A similar provision is found in clause 4.12 of type B, although the definition of “Accounting Period” is found in clause 1(a) of type B. The two definitions of “accounting period” are slightly different however, the effect is the same.
Clause 4.8.3 is in different terms to clause 4.12(b). In the case of clause 4.8.3, the Underlessor is obliged to give the Underlessee information that the Underlessee reasonably requires. In the case of clause 4.12(b), it is for the Underlessor to provide such information and explanation as it considers reasonable about expenditure on Outgoings.
Clause 4.8.4 and clause 4.12(c) both deal with an audit statement in relation to Outgoings and are in identical terms. Clause 4.8.4 provides:
4.8.4 Not later than six (6) months after the end of each accounting period, the underlessor must provide to the Underlessee an Audited Statement in relation to Outgoings. The Audited Statement must:
4.8.4.1be prepared in accordance with acceptable accounting standards;
4.8.4.2be in a form that allows the Underlessee to compare actual expenditure and the Underlessee’s share of actual expenditure with the estimates given by the Underlessor.
Clause 4.8.5 and clause 4.12(d) are in virtually identical terms, with the only difference between the two clauses being the use of the word “actual” before the word “Outgoings” in the type B Underlease. Both clauses speak of an “…adjustment (if any is due)…”.
Clauses 4.15 of type A and 4.20 of type B respectively deal with Sinking Funds and are in identical terms. Clause 4.15 is in the following:
4.15Sinking Fund
4.15.1The Underlessor may establish a Sinking Fund to fund provision for major items of repair or maintenance to the Marina.
4.15.2The Underlessor must advise the Underlessee in writing of the establishment of any such Sinking Fund and of the contribution to be made by the Underlessee.
4.15.3The following provisions apply to any Sinking Fund established under this clause:
4.15.3.1the Underlessor will establish a separate fund for such monies and all monies paid by the Underlessee in this regard will be paid into that fund;
4.15.3.2that fund or so much of the balance standing to the credit of that fund as remains unexpended from time to time for a purpose for which the fund was established will be held by the Underlessor in a separate interest bearing account; and
4.15.3.3any amounts paid by the Underlessor for credit of that fund, and the net interest earned by the Underlessor on that fund, will not be applied by the Underlessor for any purpose other than payment of outgoings for which the fund was established.
Clauses 4.16 and 4.21 respectively are the Dispute Resolution clauses and with the exception of a minor difference which is of no consequence, are identical. Clause 4.16 reads as follows:
4.16if a dispute shall arise between the Underlessor and the Underlessee during the continuance of this lease in respect of any matter arising out of or affecting the performance by either the Underlessor or the Underlessee of their respective obligations hereunder THEN the matter may, unless either the Underlessor or the Underlessee determine to exercise their right to have such dispute adjudicated by a court, be referred by either the Underlessor or the Underlessee for determination by a relevant expert agreed upon by the Underlessor and the Underlessee and failing agreement either the Underlessor or the Underlessee may request the President or Acting President for the time being of the Law Society of South Australia Incorporated to nominate a relevant expert whose findings shall be final and binding on both the Underlessor and the Underlessee and whose fees and expenses shall in any event be borne and paid by the Underlessor and the Underlessee in equal shares.”
Pleadings
The plaintiffs claim the defendant is in breach of the terms of the Head Lease and the Underleases. The plaintiffs refer to the terms of the Head Lease and in particular[22] clauses 2.6 (maintaining the Premises in good, sound, safe and serviceable operation, repair and condition)[23], 2.7 (painting), 2.8 (maintaining drains), 2.10 (keep Premises in a sanitary and hygienic condition), 2.11 (keep Premises clean, neat, tidy, free of rubbish etc), 2.22 (maintain Insurances) and 2.23 (provide, maintain and operation facilities for public use in a safe and responsible manner to the reasonable satisfaction of the lessor and make those facilities available for public use).[24]
[22] Third Statement of Claim (“SoC”) [11.1-11.5].
[23] That obligation includes (without limitation) maintaining the Declared Depth in the Marina; Carrying out when reasonably required, all necessary repairs (including structural repairs and repairs of a Capital nature).
[24] Third SoC [11.6-11.12].
The plaintiffs also plead the terms of the Underleases, in particular clause 2.2.2,[25] pursuant to which the Underlesee is to pay to the Underlessor the Underlesee’s proportion of Outgoings for each accounting period.[26]
[25] Exhibit P1, volume 1, p 84, clause 4.8; Exhibit P1, volume 1, p 92.
[26] Type B clause 2.2(b), Exhibit P1, volume 1, p 129.
Defendant’s Business
At paragraph 12A of the third SoC, the plaintiffs plead that the defendant operates a business (“Business”) on the Land (as defined in the Underlease) using the name “Marina St Vincent”.
The plaintiffs plead, that the Business includes the sale of food and drinks, merchandise (including fishing equipment and bait), liquor, fuel the operation of the boat ramp on the Land and the operation of the hard stand and boat lift. [27] The plaintiffs allege the operation of the Business is not part of the operation of the Marina and that the expenses charged to the Underlessees as “Outgoings” have included expenses incurred by the defendant solely in relation to the Business, including expenses relating to wages and salaries, electricity and gas, leased equipment, telephone, insurance and maintenance. [28]
[27] Third SoC [12A-12E] inclusive.
[28] Third SoC [12B].
The plaintiffs continue,[29] that those expenses are not properly payable as Outgoings in that they are not expenses that relate to the Premises or the Land or in respect of the operation of the Marina and that the defendant has not disclosed to the Underlessees that the Outgoings include expenses which relate to the Business. The plaintiffs further plead that the defendant has not allowed a credit to the Underlessees for the proportion of the Outgoings that comprise expenses which relate to the Business.[30] The plaintiffs conclude their pleading with respect to the Business by alleging that if the operation of the Business is part of the Marina, the defendant is liable to account to the Underlessees for the income of the Business but has failed to do so.[31]
[29] Third SoC [12C].
[30] Third SoC [12D].
[31] Third SoC [12E].
In its Second Defence, the defendant admits it conducts a ‘marina business’ from the Marina which activities include “the provision of ablution facilities, the Marina management office, accounting and daily business transactions, care and upkeep of the berths, shop front to provide to Underlessees with bait, ice and other amenities, fuel, sales and boat ramp”.[32]
[32] Second Defence [13c].
The defendant continues that the business conducted by it includes the provision of “Facilities for Public Use” referred to in clause 1.1 and 2.2.3.1 of the Head Lease. [33] It identifies those facilities as including, without limitation:
[33] Second Defence [13d].
i.Toilets;
ii.Car and trailer parking;
iii.Boat ramp;
iv.Berths and moorings;
v.Pump-out facilities;
vi.Refuelling and service points;
vii.Reasonable access to and between facilities available to the public by foot, vehicle or vessel;
viii.Reasonable access by water from the boat ramp, berths and moorings, pump-out facilities and service points to the waters of the Gulf of St Vincent beyond the Premises;
ix.Navigation aids and other safety aids and equipment;
x.The breakwaters;
xi.Any other facilities which by mutual agreement between the Lessor and Lessee,[34] may be provided or designated from time to time as being facilities for public use.
[34] In the context of this matter that is the Minister and the defendant respectively.
The defendant continues by pleading at paragraph 13e of the defence that pursuant to clause 2.1.17 of the Head Lease, the defendant is not entitled, without the prior consent in writing of the Lessor, to use the Premises (as defined in the Head Lease) other than for purposes involving or incidental to the developing and operating a Marina and associated facilities. It concludes that the only Business activities conducted by the defendant on the Land are of that nature.
The defendant admits the Outgoings have included expenses relating to the Business and as provided for in the Underleases,[35] but pleads that the Outgoings charged to the Underlessees are a proportion of the Outgoings within the meaning in both type A and type B Underleases, including expenses relating to the categories of expenditure listed in clause 1.7 of type A and clause 1(n) of type B Underlease.[36]
[35] Second Defence [14].
[36] Second Defence [10].
The defendant denies it is obliged to account to the Underlessees for the income of the business.
Breaches of Underlease
Quite apart from the allegations concerning the Business, the plaintiffs also allege the defendant has breached the terms of the Underleases.
Outgoings to be reasonable and necessary
They do so first by alleging that the expenses relating to the operation of the Marina are only properly paid or payable as Outgoings if the expenses are reasonable and necessary.[37] That is not pleaded as an express term and I proceed on the basis that the pleading is put forward as a proper construction of the terms of the Underlease.
[37] Third SoC [13].
The plaintiffs then plead in the alternative that it is an implied term of the Underleases that the expenses payable in respect of the operation of the Marina and other Outgoings must be reasonable and necessary.[38]
[38] Third SoC [13A].
The plaintiffs allege that in breach of the terms of the Underleases, the expenses which the defendant has claimed as Outgoings in respect of the financial years: 2014/2015, 2015/2016, 2016/2017, 2017/2018, have included expenses which have not been properly incurred in respect of the operation of the Marina and/or have not been reasonable or necessary.[39] The particulars of this allegation identify seven categories of expenses as follows:[40]
i.Contract Marina Manager;
ii.Wages and salaries;
iii.Major works and repairs;
iv.Repairs and maintenance major work;
v.Electrical and gas;
vi.Leased equipment; and
vii.Insurance.
[39] Third SoC [14].
[40] Third SoC [14.5].
Further or in the alternative, the plaintiffs plead the defendant has claimed expenses which are not properly Outgoings but expenses incurred by the defendant in the conduct of the Business.[41]
[41] Third SoC [14.6].
As a yet further alternative, the plaintiffs allege the defendant has claimed expenses as Outgoings when those expenses have not in fact been incurred by the defendant, as the defendant has not carried out the work to which the expenses claimed relate nor procured the work to be carried out.[42]
[42] Third SoC [14.7].
Particulars of Expenses claimed which are not reasonable or necessary
Paragraphs 14A-14D of the Third SoC set out particulars of the expenses alleged as not being reasonable and necessary.
Management Expenses
In terms of the management expenses, the plaintiffs allege the defendant has claimed as an expense Marina Manager fees paid to the North Adelaide Property Trust, an entity related to the defendant and controlled by the defendant as sole Director.
The plaintiffs plead that the audits of the Outgoings for the 2014/ 2015 – 2016/ 2017 financial years show the actual fees incurred in the 2014/ 2015 financial year for a contract Marina Manager was $101,250,[43] for the 2015/ 2016 year $123,750[44] and for the 2016/ 2017 year $123,750.[45]
[43] Exhibit P2, p 2.
[44] Exhibit P4, p 2.
[45] Exhibit P6, p 2.
The plaintiffs allege that according to the defendant’s financial statements contract Marina Management expenses for that period were:
i.1 July 2014 – 30 June 2015 Nil;
ii.1 July 2015 – 30 June 2016 $123,750.
Financial statements for the year ended 30 June 2017 have not been prepared.
The plaintiffs conclude their pleading concerning a contract Marina Manager, by alleging an arrangement on a “proper commercial basis” would not exceed $60,000 per annum.[46]
[46] Third SoC [14A.1], [14F.2].
Accordingly, the plaintiffs claim that the defendant has overclaimed the amount for a contract Marina Manager as follows:
i.1 July 2014 – 30 June 2015 $101,250 (sic $41,250);
ii.1 July 2015 – 30 June 2016 $63,250 (sic $63,750);
iii.1 July 2016 – 30 June 2017 $63,250 (sic $63,750).
Salaries and Wages
The plaintiffs allege the defendant has claimed as an Outgoing expenses for salaries and wages:
i.1 July 2014 – 30 June 2015 $140,639.61;
ii.1 July 2015 – 30 June 2016 $183,185.99;
iii.1 July 2016 – 30 June 2017 $138,150;
iv.1 July 2017 – 30 June 2018 $140,000.
The plaintiffs allege that if the Marina was managed on a proper commercial basis, there should not be any expenses for salaries and wages in excess of the contract Marina Management Fee to which I have referred above[47] and as result, the defendant has overclaimed the amount properly payable as follows:[48]
i.1 July 2014 – 30 June 2015 $140,639.61;
ii.1 July 2015 – 30 June 2016 $183,185.99;
iii.1 July 2016 – 30 June 2017 $138,150;
iv.1 July 2017 – 30 June 2018 $140,000.
[47] Third SoC [14B.2].
[48] Third SoC [14B.4].
The plaintiffs refer to the defendant’s financial statements which they allege reveal that expenses in fact incurred for salaries and wages for the whole of its business were:[49]
i.1 July 2014 – 30 June 2015 $111,804;
ii.1 July 2015 – 30 June 2016 $123,766.39.
[49] Third SoC [14B.2].
The plaintiffs go onto plead that if the Marina was managed on a proper commercial basis there should not be any expense for wages and salaries in excess of the Marina Management fee.
The plaintiffs further allege the expenses for salaries and wages are in respect of employees employed in the defendant’s Business and not in relation to the operation of the Marina.[50]
[50] Third SoC [14B.4].
Consequently, the plaintiffs claim that the amount claimed by the defendant as Outgoings in respect of salaries and wages for the Marina in fact exceeded that which was actually incurred by the defendant in respect of the whole of its Business which by:
i.1 July 2014 – 30 June 2015 $28,835.61;
ii.1 July 2015 – 30 June 2016 $59,435.99[51] (sic $59,419.50).
Repairs and maintenance
[51] Third SoC [14B.5].
The plaintiffs plead that the defendant has claimed as an Outgoing expenses for repairs and maintenance:[52]
i.1 July 2014 – 30 June 2015 $156,235;
ii.1 July 2015 – 30 June 2016 $224,428;
iii.1 July 2016 – 30 June 2017 $159,113;
iv.1 July 2017 – 30 June 2018 $200,200.
[52] Third SoC [14C].
The plaintiffs allege that according to the defendant’s financial statements, the expenses in fact incurred by the defendant in respect of the whole of its business were:
i.1 July 2014 – 30 June 2015 $173,264;
ii.1 July 2015 – 30 June 2016 $283,680.87.
The defendant’s financial statements for the year ended 30 June 2017 have not been prepared.
The plaintiffs continue by pleading in relation to repairs and maintenance, that the expenses have been paid mainly to New Wave Constructions (SA), a business controlled by Mr Marks.[53] Accordingly, the plaintiffs complain that not only is the arrangement between the defendant and New Wave Constructions (SA) has not been on an arms’ length commercial basis but also that the expenses for repairs and maintenance were incurred by a related party and not on a proper commercial basis. In reality there is no distinction between these two pleas.[54]
[53] See p 80 below.
[54] Third SoC [14C.3], [14C.5].
The plaintiffs further plead that the defendant has failed to carry out the repairs and maintenance required to keep the Marina in the condition in which it is required to be kept under the Head Lease.
In the alternative, the plaintiffs allege that if the repairs and maintenance were carried out as required for the Marina on an arms’ length commercial basis, those expenses should not exceed approximately $60,000.[55]
[55] Third SoC [14C.7].
Finally, the plaintiffs allege that the amount claimed by the defendant for repairs and maintenance has not been incurred in repairs and maintenance relating to the Marina, and that the amount properly payable as an Outgoing has exceeded the amounts paid by the Underlessees as an Outgoing by:
i.1 July 2014 – 30 June 2015 $156,235;
ii.1 July 2015 – 30 June 2016 $224,428;
iii.1 July 2016 – 30 June 2017 $159,113;
iv.1 July 2017 – 30 June 2018 $200,200.[56]
[56] Third SoC [14C.8].
In its second defence, the defendant pleads that the Marina has been poorly designed but that it has been maintained to a high standard.[57]
[57] Second Defence [201].
The defendant further pleads that a major weather event in July 2016 devastated a large area of the Marina Infrastructure and that because the plaintiffs have not paid all their Outgoings, that has affected the defendant’s ability to carry out regular maintenance.[58]
[58] Second Defence [20m].
In relation to the pleading by the plaintiffs that annual maintenance and repairs should not exceed $60,000,[59] the defendant pleads that such an estimate is impossible to predict, particularly given the damage caused by weather events over the past three years.[60]
Other expenses
[59] Third SoC [14C.7].
[60] Second Defence [20n].
The plaintiffs allege there are amounts they have paid as Outgoings in respect of expenses relating to the operation of the Marina which have exceeded the expenses incurred by the defendant in respect of the whole of its Business as follows:
i.Electricity and gas;
ii.Insurance;
iii.Leasing Charges.
The plaintiffs do not identify that amount and plead that they seek a determination from the Court.
The defendant pleads a number of terms of the Head Lease in response to this pleading but does not relate them in any way to the plaintiff’s allegations.[61]
Money due
[61] Second Defence [20o].
In paragraphs 15-20 of the Third Statement of Claim the plaintiffs claim money due. The basis of that claim is that the plaintiffs allege they have paid per lineal metre of berth and net of GST the sum of:
i.2014/2015 - $226.98;
ii.2015/2016 - $243.22;
iii.2016/2017 - $220;
iv.2017/2018 - $239.75,
and that the difference in the payments made per linear metre of berth as claimed by the defendant and the amount properly payable, is money had and received by the defendant for its own use and benefit.[62]
Summary
[62] Third SoC [15]-[18].
The plaintiffs claim the amounts had and received by the defendant in respect of Outgoings in: [63]
i.Paragraph 14A.4 (Management Expenses) - $227,750;
ii.Paragraph 14B.4 (Salaries and Wages) - $278,150;
iii.Paragraph 14C.7 (Repairs and Maintenance) - $739,976; and
iv.Paragraph 14D (Other Expenses) - an amount to be determined by the Court.
[63] Third SoC [18], [19].
The defendant denies it has received money which is not properly due and payable.[64]
[64] Defence [21]-[25].
In the prayer for relief, the plaintiffs claim:
i.A declaration there is a dispute between the plaintiffs and the defendant;
ii.A declaration as to the expenses properly payable as Outgoings pursuant to the Underleases for the years:
(a)2014/ 2015;
(b)2015/ 2016;
(c)2016/ 2017; and
(d)2017/ 2018.
iii.An order that the defendant reimburse the Underlessees in respect of money paid by the Underlessees as Outgoings which were not expenses properly payable as Outgoings;
iv.An order that the defendant pay to the plaintiffs as money had and received, such amount as the Court may find has been paid to and wrongly received by the defendant as Outgoings;
v.Damages for breach of contract;
vi.Indemnity costs;
vii.An order the defendant is not able to receive as Outgoings any legal costs incurred by the defendant in respect of these proceedings.
Procedural history
This matter has been the subject of numerous interlocutory applications and I note there have been in excess of 130 separate documents filed.
Defendant’s representation
Initially the defendant was represented. An application by the defendant for permission to be represented by Mr Marks as the defendant’s sole director was refused by the Court on 28 September 2018.
Just prior to trial, the defendant’s solicitor sought, and was granted, leave to withdraw from the file. An application by the defendant for permission for Mr Marks to represent the defendant was granted by the Court on 3 May 2019.
Interlocutory injunctions
These proceedings were the subject of an initial application for an interlocutory injunction restraining the defendant from exercising any right of termination of various plaintiffs’ Underleases on the basis of non-payment of Outgoings.
On 13 April 2017 the Court made orders restraining the defendant from exercising any right of termination until the hearing of this action, provided each of the plaintiffs paid into the Suitors Fund amounts alleged to be due to the defendant for Outgoings.
On 20 September 2017 a further order was made in substantially the same terms as had been made previously, but this time referring to the estimated expenses notified by the defendant to the plaintiffs and the other Underlessees for the period 1 July 2017 – 30 June 2018. The major difference between this order and the previous order was that the plaintiffs and other Underlessees were to pay 80 per cent of the estimated expenses to the defendant, with the remaining 20 per cent of the estimated expenses to be paid into the Suitors Fund.
Similar orders were made in relation to subsequent financial years.
Financial information
A constant complaint by the plaintiffs is the lack of information and explanation about expenditure on Outgoings to which the Underlessees are required to contribute under the terms of the Underlease and the basis upon which the Underlessees contribution to the Outgoings is determined.
There are ongoing issues between the parties about the provision of financial information by the defendant.
On 7 September 2018 the Court ordered the defendant to disclose and produce to the plaintiffs by Friday 21 September 2018:
i.Financial statements relating to the defendant for the periods 1 July 2016 – 30 June 2018 inclusive;
ii.All documents relating to the operation and management of the Marina St Vincent including maintenance schedules for the period 1 July 2017 – 30 June 2018;
iii.Copies of all invoices related to Outgoings (as that expression is understood in the Head Lease and Underleases) of Marina St Vincent for the period 1 July 2017 – 30 June 2018;
iv.Management financial accounts, wage records and BAS statements relating to the business carried on by the defendant at Marina St Vincent for the period 1 July 2017 – 30 June 2018.
On 12 September 2018 the time for provision of these documents was extended to 10 December 2018. On 20 December 2018 that time was extended further to 31 January 2019 and on 1 February 2019 extended again to 21 February 2019.
Ultimately, no financial statements for the years ended 2016, 2017 or 2018 were produced by the defendant. The defendant contended at directions hearings at which these orders were made, that it could not afford for the financial statements to be prepared. I say more about that later in these reasons.
List of Issues and referral to an Arbitrator
Given the number of issues in this matter including both the calculation and use of funds collected Outgoings, as well as financial information generally, the Court ordered the parties to prepare a list of issues for determination.
A schedule identifying the issues is attached at Annexure B to these reasons.
On 7 March 2019, pursuant to s 33 of the District Court Act (“DCA”) and Rule 208 of the District Court Rules (“DCR”), the Court referred a number of issues to trial before Mr Hugh McPharlin, Chartered Accountant, as Arbitrator. The order identified the issues which Mr McPharlin was to determine noting that under DCA s 33, the arbitrator’s award is to be adopted by the Court as its judgment on the issues referred, unless good reason is shown to the contrary. The balance of the issues are to be determined by the Court.
As this matter progressed, the schedule of issues to be determined by Mr McPharlin and by the Court was amended from time to time.
The schedule at Annexure B identifies the issues for determination by the Court and those by the arbitrator.
The arbitrator’s award was to be delivered to the Court by 18 April 2019. Primarily because of difficulties with both the provision of, and quality of, financial information required from the defendant, the time for delivery of the arbitrator’s award was extended to 21 June 2019.
The trial had been listed on 6 May 2019 and commenced on that date notwithstanding the arbitrator’s award had not been received.
The arbitrator’s award was delivered to the Court on 21 June 2019. On 12 August 2019, the parties identified to the Court those parts of Mr McPharlin’s award which they submitted good reason existed for the Court not to adopt. Parts of Mr McPharlin’s award are heavily qualified. Further, some parts of Mr McPharlin’s award proceed on a different basis to the findings I have made. I mean no criticism of Mr McPharlin when I say that because he did not know what my findings would be.
The result is that a number of Mr McPharlin’s determinations will not be adopted by the Court at this stage and a further hearing will be required to determine if good reason exists not to adopt those determinations and if so, whether the matter is remitted to the arbitrator for further consideration or is to be dealt with by the Court.
The Court will adopt Mr McPharlin’s award as its judgment save for determinations 18, 21-24, 26, 34-41, 43, 44, 46-50, 58-59A, 61 and 62. A summary of the arbitrator’s determinations which will be adopted by the Court as its judgment on those matters is at Annexure C. Mr McPharlin’s award, save for the issues that have not been adopted by the Court, is attached as Annexure D.
Categories of Dispute
There are six broad categories of dispute.[65]
[65] T11-19.
First Category
Whether money charged for repairs and maintenance at the Marina relates to work that has actually been done and if so, at what cost? That is in part an accounting question for the arbitrator, but there is a factual question which is the current state of the repair of the Marina.
This first category is raised by the Third Statement of Claim at paragraph 14C.
The issues to be determined that relate to this category of dispute are issues number 42, 43, 44, 45, and 46 from Annexure B.
The plaintiff’s case is that between 1 July 2014 and 30 June 2018, Outgoings have been claimed from the Underlessees for repairs and maintenance in the sum of approximately $740,000, most of which relates to charges by New Wave Constructions (SA).
A second aspect of this category of dispute concerns what the plaintiffs describe as a lack of observable work being undertaken. The plaintiffs rely on, amongst other things, expert evidence from Mr Fred Centofanti of C&W Building Services Pty Ltd[66] as to the state of the Marina, his estimate of costs to rectify the Marina and also the expected annual cost to maintain the Marina.
[66] Exhibits P19, P20.
Second Category
The proper construction of the clauses in the Underleases which deal with Outgoings and expenditure on Outgoings. In particular, there is an issue concerning the extent to which the Outgoings must have a connection with the marina berths that are being leased to the plaintiffs or to the land itself, as opposed to extending to the costs and expenses of running the Business on the land by the defendant for its own profit.
These matters are dealt with in the Third Statement of Claim at paragraphs 12A-12E respectively.
The issues which fall into this category are numbers 1-11 inclusive, 47, 48-59 inclusive, 61, and 62.
Allied with this category are also parts of the sixth category which are primarily the accounting issues, specifically issues 47-53, 57-59, 61 and 62.
Third Category
The extent to which Outgoings must be properly incurred as well as be reasonable and necessary.
The Third Statement of Claim raises this issue at paragraphs 13, 13A, 14, 14A and 14B.
The issues to be determined under this category are numbers 12-24 inclusive, 27-30.
The plaintiffs submit this category includes transactions which relate to the Business and related activities. Management fees are an issue and the plaintiffs’ case is that what is being charged is out of proportion to that which would be charged by an arms-length third party.
Issues falling within category 6 that also apply to this category are numbers 17 and 18.
Fourth Category
Dredging expenses and contribution to the Sinking Fund.
There is no pleading by the plaintiffs concerning the Sinking Fund and I deal with these issues as matters going to credit.
The issues which fall into this category are numbers 25 and 26.
Fifth Category
The question of whether legal expenses form part of the Outgoings.
There is no specific pleading by the plaintiffs concerning costs but I deal with the issue as it is a matter which will arise in any event. This topic is the subject of issue 60.
The plaintiffs submit this issue arises in two ways. The first is that under the terms of the Underleases, if an Underlessee is in default then the Underlessor can recover the costs associated with that default from that particular Underlessee. The plaintiffs submit that if that is the case then there is no basis for recovery from all of the Underlessees collectively.
The second aspect to this category is that legal costs are the biggest line item in terms of expenditure actually incurred in recent years. The plaintiffs submit that if the plaintiffs succeed on their argument that there has been a lack of expenditure on repairs and maintenance notwithstanding it has been included in the Outgoings or if the Court finds that the charges have in some respects been unreasonable or that there has been a failure of proper accounting, they should not be paying significant sums in circumstances where they have been vindicated.
The defendant submits that legal expenses incurred by the defendant are recoverable as an Outgoing as defined in clause 1.1 of the Head Lease in the sense that those legal fees have been necessary to protect and preserve the Marina and its facilities which is required by clause 2.6 of the Head Lease.
Sixth Category
Accounting issues. Most of this category has been dealt with by the arbitrator but they relate to some of the other categories as well.
These issues arise out of paragraphs 12A-12E and 14-19 of the Third Statement of Claim.
The issues coming within this category are numbers 17, 18, 31-41 inclusive, 47, 53 inclusive, 57-59, 61, 62.
Plaintiff’s Witnesses
The plaintiffs called five witnesses:
i.the first plaintiff, Trevor Wesley Gadd;
ii.the twentieth plaintiff Mr Gregory John Schulz;
iii.Christopher James Carter, a Director of C Carter Pty and Carter Brothers Group. Mr Carter is a property valuer and property consultant who is a chairman of the Holdfast Quay Marina Association and has been so for approximately 17 years;
iv.Mr Garry Keith Manning, who is the body corporate Manager for Port Lincoln Marina; and
v.Mr Fred Centofanti, a builder who gave expert evidence concerning the cost to carry out the required repairs to the Marina so as to bring it to a satisfactory state and his opinion as to the ongoing annual costs to maintain the Marina in that state.
Trevor Wesley Gadd
As to the arbitrator’s observation that the meaning of “acceptable accounting standards” in the context of the Underlease is a question of law, I find that the arbitrator’s approach of giving the words “acceptable accounting standards” their ordinary meaning, having regard to the context in which the words are used, is the correct approach.
Issue 32 - How should expenses that are claimed to have been incurred by the defendant with a related party be treated in accordance with acceptable accounting standards?
The issue has been referred to the arbitrator.
The Court adopts that determination on this issue as set out in Annexure D as its judgment.
In summary, the arbitrator determined:
1.67. This issue is comprised of two elements:
1.67.1. What disclosures are required of related party transactions; and
1.67.2.Other than in relation to disclosures, are transactions with related parties treated any differently than transactions with non-related parties?
1.68.Disclosures of related party transactions are to be made pursuant to AASB 124 Related Party Disclosures
1.69.AASB 124 is dated 24 July 2015 and came into force with effect from 30 June 2016, replacing an earlier standard issued in December 2009, with earlier application permitted for reporting periods commencing after January 2014 [Aus 28.1]. Hence the standard may be applied to each of the relevant four financial years.
1.70.The Objective of AASB 124 is described as follows:
The objective of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties [1].
1.71.AASB 124 defines a related party to be:
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the ‘reporting entity’) [9].
1.72.A person is related to a reporting entity of (sic if) that person, inter alia, has control of the reporting entity [9(a)].
1.73.An entity is related to a reporting entity if, inter alia, the entity is controlled or jointly controlled by the person identified in (a) [9(b)].
1.74.The Trust is solely controlled by Mr Marks. Hence, other entities controlled by Mr Marks are related parties for the purpose of the standard.
In referring to “the Trust”, Mr McPharlin is referring to the Marina St Vincent Trust.[320]
Issue 33 – If a transaction has not been brought to account as an expense, can the transaction be claimed as an Outgoing?
[320] Award [1.3].
The issue has been referred to the arbitrator.
The Court adopts that determination on this issue as set out in Annexure D as its judgment.
In summary, the arbitrator determined that a transaction which has not been brought to account as an expense by the Underlessor can be claimed as an Outgoing.
Issue 34 - Was the Audited Statement prepared in respect of the 2014/2015 Outgoings prepared in accordance with acceptable accounting standards?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 35 - If no, what should the Audited Statement for the 2014/2015 Outgoings have shown?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 36 - Was the Audited Statement prepared in respect of the 2015/2016 Outgoings prepared in accordance with acceptable accounting standards?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 37 - If no, what should the Audited Statement for the 2015/2016 Outgoings have shown?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 38 - Was the Audited Statement prepared in respect of the 2016/2017 Outgoings prepared in accordance with acceptable accounting standards?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 39 - If no, what should the Audited Statement for the 2016/2017 Outgoings have shown?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 40 - Was the Audited Statement prepared in respect of the 2017/2018 Outgoings prepared in accordance with acceptable accounting standards?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 41 - If no to Issue 40, what should the Audited Statement for the 2017/2018 Outgoings have shown?
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issues 48-53 (inclusive), 57, 59, 61, 62
I have dealt with these issues above in the Second Category of disputes.[321]
Issue 58 - Has the Underlessor incurred any costs of a capital nature in respect of the Land, Demised Premises or the operation of the Marina?
[321] Issues 48-53, pp 91-93; Issue 57, p 95; Issue 59, p 95; Issues 61, p 96; Issue 62, p 96.
This issue has been referred to the arbitrator.
The plaintiffs submit there is good reason not to adopt the arbitrator’s determination on this issue. The question of whether good reason exists not to adopt the arbitrator’s determination and if so, whether the issue is remitted to the arbitrator or determined by the Court will be the subject of further hearing.
Issue 63 – Is the defendant entitled to adjust the aggregate length in metres of all wet berths leased out by the Underlessor or available to be leased out by the Underlessor on a long or short-term basis if some of the berths are unavailable to be leased as a result of build-up of silt for the purpose of calculating the Underlessees’ proportion of Outgoings payable under the Underlease.
The Underlessees’ proportion of Outgoings to be paid is defined in clause 1.5 of the type A Underlease (but see clause 4 in relation to the obligation of the Underlessees to comply with the terms of the type A Underleases) and clause 1(w) of type B:[322]
[322] Exhibit P1, volume 1, p 81, p 130 respectively.
The type A clause reads:
“Underlessees Proportion of Outgoings” means the proportion that the length in metres of the berth constituting the Demised Premises bears to the aggregate length in metres of all wet Berths leased out by the Underlessor or available to be leased out by the Underlessor whether on a long term or short term basis (including those available on a daily basis) and consequently, in the event that there is a variation, modification or other change in the layout of the Marina or any increase or decrease in number of berths, then the Underlessees percentage shall be varied or modified from the date on which such change is effective.
It is apparent that the Underlessees’ proportion of Outgoings is calculated by reference to the proportion of that length in metres of the berth which the Underlessee occupies, bears to the aggregate length in metres “… of all wet Berths leased out by the Underlessor or available to be leased out by the Underlessor …”.
There are some berths which are unavailable as a result of a lack of maintenance and/or dredging. It cannot be the case that because the defendant has failed to comply with its obligations to maintain the Marina, including maintaining the Marina basin to the declared depth, the overall berth length against which the proportion of Outgoings to which the Underlessees are required to contribute in calculated decreases with a consequent increase in Outgoings.
Accordingly, I find the defendant is not entitled to adjust the aggregate length in metres of all wet berths leased out by the defendant or available to be leased out by the defendant on a long or short-term basis if some of the berths are unavailable to be leased out as a result of the build-up of silt.
Conclusion
I will hear the parties as to any orders they may seek as a result of my findings in these reasons.
I will also hear the parties as to the further hearing required to resolve the identified outstanding issues, including whether those outstanding issues are to be determined by the Court or remitted to the arbitrator for further consideration.
Annexure A - Schedule of Berths and Plaintiffs
Plaintiff
Berth No
Registered Underlease Number
Year of Lease
Type A
Type B
First Plaintiff
Second Plaintiff
Trevor Wesley Gadd
Sally Anne Wiadrowski
C21
8976814
2000
ü
Third Plaintiff
Keith Raymond Finch
B27, B29 & B30
11945722 & 11945723
2013
ü
Fourth Plaintiff
Fifth Plaintiff
Sixth Plaintiff
Maida Durieu Bloch
Suzanne Jennifer Bloch
Robyn Christina Bloch
C12
9530919
2003
ü
Seventh Plaintiff
Adam Wynn
B5
8450478
1997
ü
Eighth Plaintiff
Ninth Plaintiff
Angus Forbes
Sheilah James LeRose
D1
10543427
2006
ü
Tenth Plaintiff
Eleventh Plaintiff
Ian Baum
Marie Baum
C43 & C44
1197527
2013
ü
Twelfth Plaintiff
Thirteenth Plaintiff
Stuart Gaskin
Elizabeth Johnston
B37
11945726
2013
ü
Fourteenth Plaintiff
Fifteenth Plaintiff
Keith William Bates
Angela Marie Bates
D11, D12 & E13
12004218 & 9143459
2001 & 2013
ü
ü
Sixteenth Plaintiff
Gary Martin
C23
11947530
2013
ü
Seventeenth Plaintiff
Eighteenth Plaintiff
Robin John McLeay
Heather Jane McLeay
A5
8629352
1997
ü
Nineteenth Plaintiff
Salvatore Zucco
B17 & C30
11970777 & 11982170
2013
ü
Twentieth Plaintiff
Twenty First Plaintiff
Gregory John Schulz
Diana Margaret Schulz
C10
8976810
1999
ü
Twenty Second Plaintiff
David Binks Nominees Pty Ltd
ACN 007 796 634
B53
8551385
1998
ü
Twenty Third Plaintiff
Frances Elaine Baum
D30 & D31
11963414
2013
ü
Twenty Fourth Plaintiff
Darlington Plaza Pty Ltd
ACN 105 169 104
D2
11945728
2013
ü
Twenty Fifth Plaintiff
Denarius Pty Ltd
ACN 008 045 618
B40
9301207
2001
ü
Twenty Sixth Plaintiff
Wirrina Cove Holiday Park Pty Ltd
ACN 164 399 035
E32
12048053
2013
ü
Twenty Seventh Plaintiff
Amberfire Pty Ltd
ACN 008 194 796
B26
11945721
2013
ü
Twenty Eighth Plaintiff
John Joseph Convill
C13
8976812
2000
ü
Twenty Ninth Plaintiff
Moya Stevens
B25
11975519
2013
ü
Thirtieth Plaintiff
Thirty First Plaintiff
Christopher John Royans
Karen Anne Royans
B3
8976809
1999
ü
Thirty Second Plaintiff
Thirty Third Plaintiff
Colin Sibly
Deirdre Sibly
C16
11976784
2013
ü
Thirty Fourth Plaintiff
Coolana Pty Ltd
CAN 007 794 756
E33
8450489
1997
ü
Thirty Fifth Plaintiff
Philip Kidman Reid
C5
8707031
1999
ü
Thirty Sixth Plaintiff
Thirty Seventh Plaintiff
Thirty Eighth Plaintiff
Thirty Ninth Plaintiff
Vincent Paul King
Debra Magdalene King
Chad Vincent King
Ryan James King
B39
10070848
2004
ü
Fortieth Plaintiff
Geoffrey Stanley Vercoe
B35
11945725
2013
ü
Forty First Plaintiff
David Anthony Worthley
B1
8450477
1997
ü
Forty Second Plaintiff
Damien John Mader
B33 & B34
11957265
2013
ü
Forty Third Plaintiff
Ben Lumbers as executor of the estate of Warwick John Lumbers
E26 & E27
9138101 & 9134102
2001
ü
Forty Fourth Plaintiff
Keith Raymond Finch
B27, B29 & B30
11945722 & 11945723
2013
ü
Forty Fifth Plaintiff
David George Barnfield
B10
12015124
2013
ü
Forty Sixth Plaintiff
Marwal Investments Pty Ltd
CAN 091 337 307
B22
10070849
2004
ü
Forty Seventh Plaintiff
Forty Eighth Plaintiff
Carol Stonnill
David Leslie Stonnill
A7
9088416
2001
ü
Forty Ninth Plaintiff
Fiftieth Plaintiff
Peter Bell
Sally Bell
C26
8707032
1999
ü
Fifty First Plaintiff
Fifty Second Plaintiff
Rex George Gibbs
Julie Gaye Gibbs
B14 & B15
11945718
2013
ü
Fifty Third Plaintiff
Fifty Fourth Plaintiff
Anthony John Quick
Heather Quick
D50 & D51
12004069
2013
ü
Fifty Fifth Plaintiff
Thomas M Steele
B19
11945720
2013
ü
Fifty Sixth Plaintiff
Peter Russ
E17
11945729
2013
ü
Fifty Seventh Plaintiff
Alfred Engel
C25
11968335
2013
ü
Fifty Eighth Plaintiff
Benjamin Watkins
B28
11950230
2013
ü
Fifty Ninth Plaintiff
Sixtieth Plaintiff
Anthony Miers
Suzanne Miers
C1A
8450480
1997
ü
Sixty First Plaintiff
Andrew Pow
D46
12084949
2014
ü
Sixty Second Plaintiff
2000 Superannuation Pty Ltd
ACN 142 059 130
C18 & C19
9295749 & 9295750
2001
ü
Sixty Third Plaintiff
Keith Daglish
C48
9438794 & 9543768
2002
ü
Sixty Fourth Plaintiff
RE & DA Jones Investments Pty Ltd ACN
E31
10070850
2004
ü
Sixty Fifth Plaintiff
John Macdonald
C4
8450482
1997
ü
Sixty Sixth Plaintiff
Raymond John Tonglee
B13
11945716
2013
ü
Sixty Seventh Plaintiff
Sixty Eighth Plaintiff
Barry Leverington
Laurel Anne Leverington
B7
11947526
2013
ü
Sixty Ninth Plaintiff
Seventieth Plaintiff
Dawn Marion Treloar
Scott Alan Treloar
D9
12005933
2013
ü
Seventy First Plaintiff
Cook Nominees Pty Ltd
ACN 007 756 041
B2 & E7
9068453 & 9068452
2001
ü
Seventy Second Plaintiff
F.F. Seeley Nominees Pty Ltd
ACN 007 780 510
E30
11945731
2013
ü
Seventy Third Plaintiff
Gary Rolls
E20
11987324
2013
ü
Seventy Fourth Plaintiff
Seventy Fifth Plaintiff
Andrew Crilly
Simon Crilly
B9
12068549
2014
ü
Annexure B – Schedule identifying issues for Determination
Issue No Description of Issue Determination Judge Arbitrator 1. Has a dispute arisen between the plaintiffs and the defendant as defined in clause 4.16 of the Type A Underlease (ULA) and clause 4.21 of the Type B Underlease (ULB)? ✓ 2. Are the Plaintiffs entitled to have the dispute resolved by the Court? ✓ 3. What is the meaning of the term “the Marina” in registered lease number 8441284 (the Head Lease) ✓ 4. Is the meaning of “the Marina” the same as the meaning of “the Premises” under the Head Lease? ✓ 5. What are the “Facilities for Public Use” as defined in the Lease and are the Facilities for Public Use part of the Marina? ✓ 6. Is the meaning of “the Marina” the same in the:
1. Head Lease;
2. The type A Underlease; and
3. The type B Underlease?✓ 7. If no to Issue 6, what is the difference in the meaning of the term as used in those documents? ✓ 8. If yes to Issue 6, what are the “associated facilities…ancillary to the operation of the marina” on the Land? ✓ 9. Does the Type A Underlease only relate to “facilities” that were in existence at the time of the lease or does it include facilities that were constructed after the date of the lease? ✓ 10. Does the type B Underlease only relate to “facilities” that were in existence at the time of the type A Underlease, or does it include facilities that were constructed between the time of the type A Underlease and the type B Underlease or does it include facilities that were constructed after the date of the lease? ✓ 11. Do the facilities ancillary to the operation of the Marina include:
1. Boat storage;
2. The business of operating a boat storage yard;
3. Car and trailer parking for members of the public;
4. Public boat ramp;
5. The business of operating the public boat ramp;
6. Office facilities;
7. Retail shop facilities;
8. The business of operating a retail shop;
9. Licensed café facilities;
10. The business of operating a licensed café;
11. A refuelling facility;
12. The business of selling fuel;
13. Pump out facilities;
14. Public toilets;
15. Toilet facilities for Underlessees;
16. Car parking facilities for Underlessees;
17. A storage shed for the Underlessor;
18. Internal roadways;
19. Gardens and landscaping in the office/retail/café facility;
20. Storage containers for the Underlessor;
21. Berths and moorings;
22. Breakwaters;
23. Navigational aids; and
24. Facilities for Public Use?
✓ 12. Does the word “properly” in the definition of “Outgoings” in the type A Underlease refer to all outgoings? ✓ 13. What is the meaning of “properly” and in particular does it mean “reasonable and necessary”? ✓ 14. If no to Issue 13, should the words “reasonable and necessary” be implied into the definition of “Outgoings”? ✓ 15. Does the word “properly” in the definition of “Outgoings” in the type B Underlease have the same meaning as in the type A Underlease? ✓ 16. How should Outgoings that are partly attributable to the Marina and partly attributable to the facilities or businesses which are not part of the Marina be charged to Underlessees for example:
Telephone;
Utilities;
Insurance;
Rates and Taxes.✓ 17. Is all or any part of the expense for leased equipment claimable as an Outgoing attributable to the Marina? ✓ 18. Depending on the determination of Issue 11, how should the expenses relating to the facilities referred to in Issue 11 be allocated between Outgoings and the defendant? ✓ 19. Does the definition of “Outgoings” include wages other than wages of staff incurred in the maintenance and upkeep of gardens, landscaped areas and common areas within the Marina? ✓ 20. Do the wages for the operation of the Marina need to be reasonable and necessary? ✓ 21. In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for wages of $140,639 or for some other and if so, what amount? ✓ 22. In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing expenses for wages of $183,186 or for some other and if so, what amount? ✓ 23. In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing expenses for wages of $138,150 or for some other and if so, what amount? ✓ 24. In the financial year ended 30 June 2018, did the Underlessor incur as an Outgoing expenses for wages of $140,000 or for some other and if so, what amount? ✓ 25. Has the Underlessor established a sinking fund for dredging expenses? ✓ 26. If yes, what contribution is the Underlessor entitled to claim for the sinking fund? ✓ 26A. How much was paid by the plaintiffs towards the sinking fund? ✓ 26B. What happened to those payments? ✓ 26C. Into which account were they paid and for what were they used? ✓ 27. Is the Underlessor entitled to charge a management fee in respect of the operation of the Marina? ✓ 28. If yes to Issue 27, and depending on the answers to 8 and 9 above, is the management fee required to be reasonable? ✓ 29. If yes to Issue 28, is the management fee charged by the Underlessor reasonable? ✓ 30. If no to Issue 29, what is a reasonable management fee? ✓ 31. In clause 4.8.4 of the type A Underlease, and clause 4.20 of the type B Underlease what do the words “acceptable accounting standards” mean in connection with the Audited Statements? ✓ 32. How should expenses that are claimed to have been incurred by the defendant with a related party be treated in accordance with acceptable accounting standards? ✓ 33. If a transaction has not been brought to account as an expense, can the transaction be claimed as an Outgoing? ✓ 34. Was the Audited Statement prepared in respect of the 2014/2015 Outgoings prepared in accordance with acceptable accounting standards? ✓ 35. If no, what should the Audited Statement for the 2014/2015 Outgoings have shown? ✓ 36. Was the Audited Statement prepared in respect of the 2015/2016 Outgoings prepared in accordance with acceptable accounting standards? ✓ 37. If no, what should the Audited Statement for the 2015/2016 Outgoings have shown? ✓ 38. Was the Audited Statement prepared in respect of the 2016/2017 Outgoings prepared in accordance with acceptable accounting standards? ✓ 39. If no, what should the Audited Statement for the 2016/2017 Outgoings have shown? ✓ 40. Was the Audited Statement prepared in respect of the 2017/2018 Outgoings prepared in accordance with acceptable accounting standards? ✓ 41. If no to Issue 40, what should the Audited Statement for the 2017/2018 Outgoings have shown? ✓ 42. Has the underlessor complied with its obligations under the lease to maintain the Premises in good, sound, safe and serviceable operating repair and condition? ✓ 43. In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for major works and repairs of $162,974 or for some other and if so, what amount? ✓ 44. In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for Marina grounds/road and landscape of $29,517 or for some other and if so, what amount? ✓ 45. In the financial year ended 30 June 2015, did the Underlessor incur as an Outgoing expenses for website updates of $11,200 or for some other and if so, what amount? ✓ 46. In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing expenses for major works and repairs of $219,421 or for some other and if so, what amount?
✓ 47. In the financial year ended 30 June 2016, did the Underlessor incur as an Outgoing insurance expenses of $34,590.82? ✓ 48. In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina or $159,113 or for some other and if so, what amount? ✓ 49. In the financial year ended 30 June 2017, did the Underlessor incur as an Outgoing accounting expenses of $19,093.30? ✓ 50. In the financial year ended 30 June 2018, did the Underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina of $200,200 or for some other and if so, what amount? ✓ 51. If the Underlessor derives income from the operation of the Marina, is the Underlessor required to account to the Underlessees for that income? ✓ 52. If the Underlessor derives income from the facilities referred to in Issue 11 is the Underlessor required to account to the Underlessee for that income? ✓ 53. What income did the Underlessor derive from each of the facilities referred to in Item 11 in each of the years 30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018? ✓ 54. Is the Underlessor required to account to the Underlessees in respect of Outgoings paid for the businesses operated by the Underlessor? ✓ 55. What do the words “but excluding any such costs and charges which may otherwise be recoverable from any other person” mean in respect of Outgoings for operating the Marina and all associated facilities thereto? ✓ 56. Does the Underlessor recover from any other person costs in respect of the operation of the Marina and associated facilities? ✓ 57. If so, what costs are recovered by the Underlessor? ✓ 58. Has the Underlessor incurred any costs of a capital nature in respect of the Land, Demised Premises or the operation of the Marina? ✓ 59. If so, what costs of a capital nature have been incurred? ✓ 59A. What is the total amount paid from Marina St Vincent bank account to related entities from September 2014 to 30 June 2018? 60. Are legal expenses incurred by the defendant recoverable as an Outgoing, and if so, on what basis? ✓ 61. What moneys have been paid by the plaintiffs in respect of Outgoings in the years ended 30 June 2015, 2016, 2017, 2018 and 2019? ✓ 62. Have the plaintiffs overpaid Outgoings in any of the years ended 30 June 2015, 2016, 2017 and 2018? ✓ 63. Is the defendant entitled to adjust the aggregate length in metres of all wet berths leased out by the Underlessor or available to be leased out by the Underlessor on a long or short-term basis if some of the berths are unavailable to be leased as a result of build-up of silt for the purpose of calculating the Underlessees’ proportion of Outgoings payable under the Underlease? ✓
Annexure C – Summary of Arbitrators determinations
Description of Issue & Reference Response 17. Is all or any part of the expense for leased equipment claimable as an Outgoing attributable to the Marina?
(pp 49 – 52)The charges for Fleetwood Pty Ltd FY15 are overstated, as the month of July 2015 hire cost should be included in FY16. As such the amount for FY15 (Nov-14 to Jul 15) should be reduced by $2,226. Correspondingly, the charges for Fleetwood Pty Ltd FY18 is understated by the same amount of $2,226.
Mr Marks provided that no costs were incurred for the Hovercraft because it was not required. Further, Mr Marks provided that the excavator was used to spread road base and the hire charged was reduced to $7,092.96.
The Arbitrator proceeded on the basis that Outgoings should not be excessive or a sham.
The Arbitrator determined:
1. The hovercraft hire fee was not incurred and is not claimable as an Outgoing attributable to the Marina, and should be excluded in full;
2. The excavator hire fee is an Outgoing claimable in full, but is to be reduced from $10,000 to $7,093;
3. Hire fees paid to Fleetwood Pty Ltd for the toilet, ablution and dining facilities are Outgoings claimable in full (with the aforementioned changes);
4. Interest and overdue fess payable to Fleetwood Pty Ltd are Outgoings claimable in full.
The table below sets out the expenses for leased equipment that are claimable as an Outgoing attributable to the Marina:
FY15 FY16 FY17 FY18 Krause Motors Trust – Excavator Hire $7093 Fleetwood Pty Ltd Oct-14 (Part) $1,171 Nov-14 to Jun 15 (8 months) $17,808 Jul-15 to Jun-16 (12 months) $26,712 Jul-16 to Jun-17 (12 months) $26,712 Jul-17 to Oct-17 (4 months) $8,904 Interest and Overdue fees (Dec-17 to Jun-18) $1,920 Total Outgoings $26,072 $26,712 $26,712 $10,824 Vs. Audited Outgoings (+/-) - $7,733 $0 $0 +$2,226 18. How should the expenses relating to the facilities referred to in Issue 11 be allocated between Outgoings and the defendant?
(pp 53 – 59)Not adopted as a determination of this Court.
21. In the financial year ended 30 June 2015, did the underlessor incur as an Outgoing expenses for wages of $140,639 or for some other or and if so, what amount?
(pp 60 – 71)Not adopted as a determination of this Court. 22. In the financial year ended 30 June 2016, did the underlessor incur as an Outgoing expenses for wages of $183,186 or for some other or and if so, what amount?
(pp 60 – 71)23. In the financial year ended 30 June 2017, did the underlessor incur as an Outgoing expenses for wages of $138, 150 or for some other or and if so, what amount?
(pp 60 – 71)24. In the financial year ended 30 June 2018, did the underlessor incur as an Outgoing expenses for wages of $140,000 or for some other or and if so, what amount?
(pp 60 – 71)[Issue 25.] Has the Underlessor established a sinking fund for dredging expenses? (issue for the Court)
26. If yes, what contribution is the underlessor entitled to claim for the sinking fund?
(pp 72 – 74)Not adopted as a determination of this Court. AI: 26A. How much was paid by the plaintiffs towards the sinking fund?
(p 75)The Plaintiffs have paid $45,541 towards the ‘sinking fund’ ($20,221 paid per MMS & $25,320 in DBH Dredging Receipts). AI: 26B. What happened to those payments?
(p 75)The $20,221 paid per MMS were paid directly into the defendant’s operating Bank SA Account, not a separate sinking fund bank account, and were intermingled with other monies and used for general business purposes.
From the $25,319.68 of DBH Dredging Receipts per the DBH Trust Statement of Account:· $13,200.00 was paid to the Arbitrators firm on 8 May 2019 in respect of ‘Payment of Defendant’s half of Arbitrator’s fees as ordered by Judge O’Sullivan;
· $10,040.00 was paid to the defendant on 15 May 2019. The DBH Trust Account Statements reports ‘New Wave Aerospace Pty Ltd atf Marina St Vincent Trust Payment of balance of dredging funds payable under order of Judge O’Sullivan. New Wave Aerospace Pty Ltd BSB 015010 Acc# 837047257’; and
o This is outside of the Arbitrators reporting date range – what the defendant has done with these monies has not been investigated.
· $2,079.68 remained in the DBH Trust Account.
AI: 26C. Into which account were they paid, and for what were they used?
(p 75)31. In clause 4.8.4 of the ULA [Type A underlease], and clause 4.20 of the ULB [Type B underlease] what do the words ‘acceptable accounting standards’ mean in connection with the Audited Statements?
(pp 76 – 84)The phrase ‘acceptable accounting standards’ is not a term defined by Australian Accounting Standards.
The meaning of the words ‘acceptable accounting standards’ in the context of the underleases is a question of law.
The Arbitrator proceeded on the basis that the words should have their ordinary meaning and be interpreted having regard to the context within which the words are used in the underleases.
The underleases do not require the Underlessor to prepare financial statements.
The two clauses (4.8.4 of the ULA & 4.20 of the ULB) are virtually identical. The words ‘acceptable accounting standards’ are used in the context of providing Underlessees with information concerning the amounts to which the Underlessees are contracted to contribute to all Outgoings incurred by the Underlessor.
Each clause obliges the Underlessor to provide the Underlessees with relevant information and explanations in relation to the expenditure to which the Underlessees are required to contribute.
The Arbitrator determined that the words ‘acceptable accounting standards’ as they are used in the underleases, mean that the Statement of Audited Outgoings should be prepared in accordance with accounting policies that, in accordance with AASB 108, are:
· Relevant to the economic decision-making needs of users (the Underlessor and Underlesses); and
· Reliable, in that the Statement of Audited Outgoings should:
o Represent faithfully the extent of Outgoings incurred;
o Reflect the economic substance of transactions and not merely the legal form;
o Be neutral, i.e. free from bias;
o Be prudent; and
o Be complete in all material respects.
Further, the accounting policies underlying the preparation of the Statement of Audited Outgoings should be prepared in accordance with the matters described in AASB 101 relating to:
· Going concern;
· An accruals basis of accounting;
· Materiality; and
· Offsetting.
32. How should expenses that are claimed to have been incurred by the defendant with a related party be treated in accordance with acceptable accounting standards?
(pp 85 – 87)Transactions with related parties are not treated any differently than transaction with non-related parties (other than in relation to disclosures), assuming that they are, in fact, incurred.
For this purpose, incurred means lawfully incurred (Example: a transaction would not be lawfully incurred if it was a sham).33. If a transaction has not been brought to account as an expense, can the transaction be claimed as an Outgoing?
(pp 88 – 89)Notwithstanding that a transaction has not been brought to account as an expense by the Underlessor, the transaction can be claimed as an Outgoing. With reference to the sublease, the definition of ‘Outgoings’ provides that an outgoing must be ‘properly assessed, charged or chargeable, paid or payable or otherwise incurred upon or in respect of the Premises or the Land or any part of either the Underlessor or the Underlessee…’.
Therefore, a relevant cost, etc. will be an Outgoing if it has been legally incurred.34. Was the Audited Statement prepared in respect of the 2014/2015 Outgoings prepared in accordance with acceptable accounting standards?
(pp 90 – 101)Not adopted as a determination of this Court. 35. If no, what should the Audited Statement for the 2014/2015 Outgoings have shown?
(pp 90 – 101)36. Was the Audited Statement prepared in respect of the 2015/2016 Outgoings prepared in accordance with acceptable accounting standards?
(pp 90 – 101)37. If no, what should the Audited Statement for the 2015/2016 Outgoings have shown?
(pp 90 – 101)38. Was the Audited Statement prepared in respect of the 2016/2017 Outgoings prepared in accordance with acceptable accounting standards?
(pp 90 – 101)39. If no, what should the Audited Statement for the 2016/2017 Outgoings have shown?
(pp 90 – 101)40. Was the Audited Statement prepared in respect of the 2017/2018 Outgoings prepared in accordance with acceptable accounting standards?
(pp 90 – 101)41. If no to Issue 40, what should the Audited Statement for the 2017/2018 Outgoings have shown?
(pp 90 – 101)43. In the financial year ended 30 June 2015, did the underlessor incur as an Outgoing expenses for major works and repairs of $162,974 or for some other or and if so, what amount?
(pp 102 – 107)Not adopted as a determination of this Court. 44. In the financial year ended 30 June 2015, did the underlessor incur as an Outgoing expenses for Marina grounds/road and landscape of $29,517 or for some other or and if so, what amount.
(pp 108-111)Not adopted as a determination of this Court. 45. In the financial year ended 30 June 2015, did the underlessor incur as an Outgoing expenses for website updates of $11,200 or for some other or and if so, what amount?
(pp 112 – 114)In the financial year ended 30 June 2015, the Underlessor incurred as an Outgoing expenses for website updates of $6,210, and other Outgoings of $1,190.
Therefore, the Audited Statement of Outgoings for FY15 in respect of website updates was overstated by $4,990.46. In the financial year ended 30 June 2016, did the underlessor incur as an Outgoing expenses for major works and repairs of $219,421 or for some other or and if so, what amount?
(pp 115 – 121)Not adopted as a determination of this Court. 47. In the financial year ended 30 June 2016, did the underlessor incur as an Outgoing insurance expenses of $34,590.82?
(pp 122 – 124)Not adopted as a determination of this Court. 48. In the financial year ended 30 June 2017, did the underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina of $159,113 or for some other or and if so, what amount?
(pp 125 – 131)Not adopted as a determination of this Court. 49. In the financial year ended 30 June 2017, did the underlessor incur as an Outgoing accounting expenses of $19,093.30?
(pp 132 – 133)Not adopted as a determination of this Court. 50. In the financial year ended 30 June 2018, did the underlessor incur as an Outgoing expenses for repairs and maintenance of the Marina of $200,200 or for some other or and if so, what amount?
(pp 134 – 138)Not adopted as a determination of this Court. 52. If the underlessor derives income from the facilities referred to in Issue 11 is the underlessor requires to account to the underlessee for that income?
(pp 139 – 140)The Underleases do not prescribe that the Underlessor is required to account to the Underlessees for such income or, in fact, any income, and are silent on such matters. Therefore, based on a strict interpretation of the underleases, the Arbitrators determination of Issue 52 is no.
Legal interpretation of the underleases is a matter for the court. However, the Arbitrator proceeds on a commercial basis/interpretation.
The structure of the Headlease and Underleases are indicative of a ‘for-profit’ business enterprise, consistent with the:· Intention behind the development of the Marina and the execution of the Headlease in circa 1998; and
· Purchase of, inter alia, the Headlease by the defendant pursuant to the contract for $160,000 which was settled on or about 1 October 2014.
If the Underlessor was required to account to the Underlessees for the gross profit derived from the Marina, excluding Audited Outgoings charged to Underlessees on the same basis as the Outgoings are charged, then the Underlessees would be beneficiaries of the for-profit business enterprise carried on by the Underlessor and would be subsidized by the Underlessor.
The Audited Outgoings, which exclude costs of goods sold, averaged approximately $620,000 in the period FY15-18. Therefore, the Underlessor would need to derive a gross profit of at least $620,000 to meet its share of the Audited Outgoings from the public berths.
The FY16 financial report of the Trust reports a gross profit of approximately $704,000 including the Outgoings charged. Therefore, It’s gross profit excluding the Outgoings charged would have been comparatively small.
On this basis, if required to account to Underlessees, the Headlease would likely be commercially unviable. Therefore, such an interpretation would be commercially unreasonable, both conceptually and in the context of the financial performance of the defendant. Therefore based on a commercial interpretation of the underleases and the marina business model, the Arbitrator’s determination to the issue is no – the Underlessor is not required to account to the Underlessees for that income.53. What income did the underlessor derive from each of the facilities referred to in Item 11 in each of the years 30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018?
(pp 141 – 142)
MMS Sales Report FY15 FY16 FY17 FY18 Marina Store Sales & Other Income $24,000 $24,000 $27,000 $32,000 Marina Fuel Sales $178,000 $157,000 $157,000 $170,000 Marina Wet Berth Rent $68,000 $73,000 $89,000 $91,000 Marina Dry Berth Rent $9,000 $19,000 $19,000 $24,000 Marina Public Ramp Fees $30,000 $36,000 $43,000 $42,000 Subtotal $308,000 $309,000 $335,000 $359,000 57. If so, what costs are recovered by the underlessor?
(p 143)To the Arbitrator’s knowledge, no such costs are recovered by the Underlessor from any other person in the ordinary course.
An exception, outside of the ordinary course, would be an insurance claim recovery. I am not aware of any exceptions.58. Has the underlessor incurred any costs of a capital nature in respect of the Land, Demised Premises or the operation of the Marina?
(pp 144 – 147)Not adopted as a determination of this Court. 59. If so, what costs of a capital nature have been incurred?
(pp 144-147)59A. What is the total amount paid from Marina St Vincent Bank account to related entities from September 2014 to 30 June 2018?
(pp 148-154)Not adopted as a determination of this Court. 61. What moneys have been paid by the plaintiffs in respect of Outgoings in the years ended 30 June 2015, 2016, 2017 and 2018? (pp 155-156) Not adopted as a determination of this Court. 62. Have the plaintiffs overpaid Outgoings in any of the years ended 30 June 2015, 2016, 2017 and 2018?
(pp 156)Not adopted as a determination of this Court. Annexure D – Not reproduced.
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