Heng v Levison
[2006] WASCA 67
•26 APRIL 2006
HENG -v- LEVISON & ANOR [2006] WASCA 67
| (2006) 32 WAR 195 | |||
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASCA 67 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:119/2005 | 15 FEBRUARY 2006 | |
| Coram: | STEYTLER P MCLURE JA BUSS JA | 26/04/06 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| A | |||
| PDF Version |
| Parties: | LIM HING HENG CONEL ALLAN LEVISON CYNTHIA GAYE LEVISON |
Catchwords: | Retail lease Contribution by tenant to landlord's expenses Construction of Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) s 12(1)(a)(i) Meaning of "determine" Whether sufficient for retail lease to specify that whole of reasonably incurred fees paid by landlord to managing agent are recoverable |
Legislation: | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 12(1) Commercial Tribunal Act 1984 (WA), s 20 Retail Shop Leases Act 1984 (Qld), s 12 Retail Leases Act 1994 (NSW), s 22 |
Case References: | Heng v Levison [2005] WADC 157 Re CRJ Pty Ltd [1996] 2 Qd R 147 Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24 Ong v Tang, unreported; DCt of WA; Library No D980331; 1 December 1998 Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : HENG -v- LEVISON & ANOR [2006] WASCA 67 CORAM : STEYTLER P
- MCLURE JA
BUSS JA
- Appellant
AND
CONEL ALLAN LEVISON
CYNTHIA GAYE LEVISON
Respondents
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram : GROVES DCJ
Citation : HENG -v- CONEL ALLAN LEVISON AND CYNTHIA GAYE LEVISON [2005] WADC 157
File No : APP 90 of 2004
(Page 2)
Catchwords:
Retail lease - Contribution by tenant to landlord's expenses - Construction of Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) s 12(1)(a)(i) - Meaning of "determine" - Whether sufficient for retail lease to specify that whole of reasonably incurred fees paid by landlord to managing agent are recoverable
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 12(1)
Commercial Tribunal Act 1984 (WA), s 20
Retail Shop Leases Act 1984 (Qld), s 12
Retail Leases Act 1994 (NSW), s 22
Result:
Appeal allowed
Category: A
Representation:
Counsel:
Appellant : Mr C L Zelestis QC & Mr M N Solomon
Respondents : Mr S G Scott
Solicitors:
Appellant : Gadens Lawyers
Respondents : Stables Scott
Case(s) referred to in judgment(s):
Heng v Levison [2005] WADC 157
Re CRJ Pty Ltd [1996] 2 Qd R 147
Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24
(Page 3)
Case(s) also cited:
Ong v Tang, unreported; DCt of WA; Library No D980331; 1 December 1998
Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10
(Page 4)
1 STEYTLER P: This appeal raises a question of construction concerning the application of s 12(1)(a)(i) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ("Act") to a lease ("lease") of a retail shop in a building in Railway Road, Subiaco ("building").
2 The parties to the appeal agree that, for the purposes of the appeal, we are to assume that the Act, in its form as reprinted on 27 September 1991, applies to the lease, the original of which was dated 10 July 1996, notwithstanding that the appellant and the respondents became parties to it (as lessor and lessee respectively) pursuant to a deed of assignment entered into in July 2000 (the term of the lease was extended by agreement on 17 January 2001) and notwithstanding, also, that the leased premises occupy the whole of the building.
3 Only two clauses of the lease are material to the appeal. They are cl 8 and Item 12(b)(i) of the Schedule to the lease. Clause 8 reads as follows:
"(a) Lessee to Pay Variable Outgoings
In addition to the payment of rent and any other payments requiring to be made by the Lessee to the Lessor as herein provided, the Lessee shall be responsible for and shall pay to the Lessor monthly in advance on the date for payment of rent the Lessor's estimation of the Lessee's proportion of the Variable Outgoings incurred by the Lessor in the operation of the Building, the Lessee's proportion being the proportion of the lettable area of the Premises to the total lettable area of the Building.
(b) Description of Variable Outgoings
For the purpose of this Clause and of this Lease, 'the Variable Outgoings' means the total amount expended by the Lessor including provisions, annual increases and adjustments appropriate for each Lease year in respect of the whole of the Building including any additions thereto (and not otherwise the direct responsibility of the Lessee within the terms of this Lease or otherwise) on the following items:-
…
- (x) Cost of administration and management of the Building including fees paid to the Lessor's managing agents."
4 Item 12(b)(i) of the Schedule to the lease reads as follows:
"(b) Overriding Provisions
The following provisions shall apply to this Lease and shall override any other provisions contained or implied elsewhere in this Lease to the contrary:
- (i) Where in this Lease the Lessee is required to pay the Lessor or a third Party any costs, charges or similar expenses which would otherwise be borne by the Lessor, then the Lessee's responsibility and liability to pay shall be limited to such fees, costs, charges and the like which are reasonably and properly incurred in the circumstances."
"12. (1) Where provision is made in a retail shop lease for payment by the tenant, in addition to rent, of all or any of the expenses of the landlord in operating, repairing, or maintaining a building of which the retail shop the subject of the lease forms a part or where the retail shop is in a retail shopping centre, that building and the common area —
(a) the amount payable by the tenant thereunder is limited to the items of expense that the lease specifies are to be paid wholly or in part by the tenant and does not include an amount in respect of which the lease does not specify both —
(i) how the amount is to be determined and, where applicable, apportioned to the tenant; and
(ii) how and when the amount is to be paid by the tenant;
(b) the lease shall be taken to provide that —
- (i) the tenant is not required to make any payment of, and the landlord is not entitled to recover, any such expenses in respect of any year or part of a year until at least one month after the landlord has given to the tenant annual estimates of expenditure under each item of expense in respect of that year; and
(ii) the landlord is required to furnish to the tenant, within 3 months after the termination of the year to which the expenses relate, an annual statement of expenditure incurred under each item of expenses specified in accordance with paragraph (a) (i) audited by an accountant."
6 Relying on cl 8 of the lease, the appellant required the respondents to reimburse the fees, including charges for "postage and petties", paid by the appellant to managing agents in respect of their administration and management of the building. The respondents declined to reimburse the amount claimed. They said that the effect of s 12(1)(a)(i) of the Act was that they were not liable to do so because the lease did not specify how the amount payable in respect of the managing agent's fees was to be determined. The question whether or not the respondents were entitled to resist making payment upon that basis came before the Chairman of the Commercial Tribunal. He found that the respondents were right in their contention and said:
"The Tribunal considers that this provision in the lease does not comply with s. 12(1)(a)(i) of the … [Act], as it fails to specify how the amount of the managing agent's fees are to be determined. To comply with the provision of the Act, the lease should have specified that these fees were to be a fixed and specified amount, or a fixed and specified percentage of the rent and/or the outgoings, or based on some other specified basis or formula as to how the managing agent's fees are to be calculated."
- He also found that, because the respondents were not liable to pay any part of the managing agent's fees, they were not liable to pay any of the postage and petty expenses incurred by it in the course of administering the building.
(Page 7)
7 The appellant appealed, under the provisions of s 20 of the Commercial Tribunal Act 1984 (WA), to the District Court of Western Australia, contending that the Chairman of the Commercial Tribunal had misconstrued s 12(1)(a)(i) of the Act and misapplied that section to cl 8 of the lease. The appeal came on for hearing before the primary Judge, who dismissed it: Heng v Levison [2005] WADC 157.
8 The primary Judge considered that it was not enough, to comply with s 12(1)(a) of the Act, for a lease to say no more than that the tenant was required to pay the whole or part of an identified but unquantified expense (at [28] of his reasons). He could not accept (at [30] of his reasons) that it could have been the legislature's intention that this was all that was required in order to comply with that section. He said that, if s 12(1)(a) was given that construction, subs (i) thereof would be otiose. He referred to passages in the responsible Minister's second reading speech upon the introduction of the Commercial Tenancy (Retail Shops) Agreements Bill 1994 ("1994 Bill") to the effect that the Bill had been framed so as to ensure that problems created by a lack of awareness on the part of tenants were eliminated and that full disclosure of all variable outgoings and apportionment formulae would be a part of lease documentation: Western Australia Parliamentary Debates, Hansard, Legislative Assembly, 21 February 1985, pages 184 - 185. He said (at [31]) that there would not be full disclosure if all that the lease was required to say was that "the tenant will pay the whole of the managing agent's expenses, whatever they may be".
9 In [33] of his judgment, the primary Judge expressed the opinion that the lease "must disclose a process by which the amount payable is to be arrived at". He said that the word "determined" in s 12(1)(a)(i) meant "more than simply specifying that the whole amount payable for the item of expenditure is to be passed on to the tenant". He said that that word "must be understood as referring to the manner of calculation, not merely the source of the liability sought to be passed on". While he said that this was not integral to his reasoning, he referred, in this respect, to what had been said by the responsible Minister in his second reading speech on the introduction of the Commercial Tenancy (Retail Shops) Agreements Amendment Bill 1997 (Western Australia Parliamentary Debates, Hansard, Legislative Assembly, 27 November 1997, pages 8881 - 8884). The Minister said of that Bill, which repealed s 12 and substituted for it a new provision which was relevantly in similar terms:
"With regard to contribution to landlord expenses, the Bill requires that a retail lease seeking the recovery of operating
(Page 8)
- expenses from retail tenants will specify how the amount claimed has been calculated, apportioned and is to be paid by the tenants." (emphasis added by the primary Judge)
10 In the appeal to this Court the appellant contends that the primary Judge erred in his construction of s 12(1)(a)(i) and, in effect, that he should have found that it was sufficient for the lease to provide that the lessee was to pay the amount actually incurred by the lessor in respect of management fees, so long as it was reasonably and properly incurred.
11 Before considering the issue raised by the appeal, there is a matter I should mention. After the conclusion of oral argument on the appeal, the respondents sought leave to lodge a submission in writing supplementing their counsel's answer to a question which had been put to him during the course of his oral submissions. The appellant opposed a grant of leave. Having considered a written submission lodged on behalf of the appellant in support of the objection, we gave leave to the respondents to lodge their supplementary submission and directed that the appellant should lodge a written submission in response. Not without some reservations, we were prepared to allow the supplementary submission, only because it arose out of a question asked by the bench, which counsel for the respondents considered that he had not adequately answered. We have consequently taken the respondents' submission, and the appellant's answer to it, into account.
12 That brings me to the construction issue. The evident purpose of s 12(1) of the Act seems to me to have been that of ensuring that full disclosure is made, in a retail shop lease, of expenses which are to be recouped from the tenant, including the manner of their determination and apportionment. So much appears from the language of the section itself and also from what was said by the responsible minister at the time of the introduction into Parliament of the 1994 Bill. There are other features of s 12(1) which are material to the disposition of the appeal. These are that:
(a) the legislature expressly contemplated that the landlord would be entitled to recover from a tenant or tenants expenses incurred by it in operating, repairing or maintaining a building incorporating the leased premises – so much is plain from the opening words of s 12(1);
(b) the amount recoverable from the tenant is limited to items of expense specified in the lease as being wholly or partly payable by the tenant: s 12(1)(a);
(Page 9)
- (c) an amount will not be recoverable, even if falling within (a) and (b) above, unless the lease specifies:
(i) how the amount is to be determined and, where applicable, apportioned to the tenant: s 12(1)(a)(i); and
(ii) how and when the amount is to be paid by the tenant: s 12(1)(a)(ii);
(d) a tenant does not have to pay an expense satisfying criteria (a), (b) and (c) above in respect of any year or part of a year until at least one month after the landlord has given to the tenant an annual estimate of expenditure in respect of that item: s 12(1)(b)(i); and
(e) within three months of the end of the year to which the expenses relate, the landlord must give the tenant an audited annual statement of expenditure incurred under each item of expense specified in accordance with par (c)(i) above: s 12(1)(b)(ii).
13 There is no doubt that fees paid by a landlord to a managing agent (including postage and petty expenses incurred by the managing agent in the course of managing the leased premises) are expenses incurred by that landlord in operating a building. Nor is there any doubt that a fee of that kind is an item of expense that the lease, in this case, specifies is to be paid by the tenant: see cl 8(a), cl 8(b) and cl 9(a) of the lease. Both parties have accepted that the lease sufficiently specifies how and when the amount payable in respect of these fees is payable. They also accept that, because the leased premises occupy the whole of the building, no question of apportionment of this expense arises. Consequently, the critical issue upon which the appeal turns is that of whether or not the lease specifies how the amount payable in respect of the managing agent's fees is to be determined. If it does, the appellant is entitled to recover that amount from the respondents. If it does not, the appellant has no right of recovery.
14 In my opinion, the lease does specify how the amount payable in respect of the managing agent's fees is to be determined. It informs the tenants, by cl 8(b)(x), that the whole of the fees paid by the lessor to the managing agent is to be recoverable, subject to the requirement in Item 12(b) of the Schedule that those fees have been reasonably and properly incurred. That seems to me to be a sufficient specification for the purposes of s 12(1)(a)(i). While cl 8(b)(x) does not alert the tenants to the amount that they will have to pay in that respect, the scheme of s 12 is
(Page 10)
- such that this information must later be provided to them by means of the estimate which the landlord is required to provide pursuant to s 12(1)(b)(i).
15 Counsel for the respondents, in the course of supporting the judgment of the District Court, disputed that it can be a sufficient specification, for the purposes of s 12(1)(a)(i), merely to say that the whole of a particular expense incurred by the landlord will be recoverable from the tenant, without specifying how that expense is to be calculated (he reads the word "determined" as meaning "calculated"). He submitted that the primary Judge was right to conclude that a construction which permitted this would leave the words "how the amount is to be determined" with nothing to do and that the legislature should not be taken to have included those words for no useful purpose. He suggested that what is required, if a managing agent's fee is to be recoverable, is a statement of the hourly rate at which the fee will be charged to the landlord or a statement of some other objective means of calculating the fee, as, for example, by reference to a scale of fees or even by reference to a percentage of the rent to be charged to the tenant.
16 I do not accept these contentions. The construction that I favour (being that which was advanced on behalf of the appellant) does not leave s 12(1)(a)(i) with nothing to do. The word "determined" seems to me to have its normal meaning. What it requires is that the tenant be told how the amount in question will be fixed. That will be achieved if the tenants are told (as they are, by the lease) that they will have to pay the whole of what is required to be paid by the landlord to the managing agent, so long as the management fee was reasonably and properly incurred. There is no justification for giving the word "determined" some other meaning, whether "calculated" or otherwise. I cannot accept the proposition that, because the opening words of s 12(1)(a) require that recoverable items of expense must be specified in the lease, the legislature must, by s 12(1)(a)(i), have contemplated something more than a mere statement that the whole of a particular fee reasonably and properly charged to the landlord will be recovered from the tenant as otherwise there would be no purpose in requiring the amount of the expense to be determined. There might be many ways of determining an expense. It might, as in this case, be the actual expense, to the extent that it was reasonably and properly incurred. Alternatively, a landlord who, for example, uses his or her own staff to effect repairs or carry out maintenance or even to manage the building might charge for those services by reference to some hourly rate or scale, or by reference to a percentage of the cost of wages or even by reference to a percentage of the rental to be paid. Consequently, the fact
(Page 11)
- that in some cases no further determination will be required than by identifying an as yet unquantified expense which is to be reasonably and properly incurred by engaging a third party does not mean that the first requirement of s 12(1)(a)(i) has no function to perform.
17 Nor is it right, in my respectful opinion, to say that the objective of full disclosure is not met by any construction other than that advanced on behalf of the respondents. I have said that a construction which gives to the word "determine" what I take to be its ordinary meaning sufficiently identifies the expenses to be recouped and that s 12(1)(b) satisfies the objective of alerting the tenants to the amount or amounts that they will be required to pay by requiring the landlord to provide the annual estimates there referred to. In my opinion it would be impractical to provide for any greater disclosure than that, given that there must be many expenses in the nature of operating, repair or maintenance costs which are difficult to quantify or even to predict, more especially so in circumstances in which a lease may operate for many years. Counsel for the respondents suggested, in their supplementary written submissions, that a lease could readily provide for a determination with respect to the cost of work which is to be outsourced by reference to the lowest of a specified number of competitive quotations from reputable contractors. Similarly, he suggested that the lease could provide for a determination with respect to the cost of work which is to be performed by in-house staff of the landlord by reference, for example, to materials at cost and to labour at hourly award rates commensurate with the nature of the work being undertaken. There are obvious difficulties in requiring a landlord to accept the lowest of a number of quotations with respect to a particular expense – for example, insurance – without regard to other terms of the quotation, or in requiring it to identify rates for every conceivable kind of work or service that might be required over a lengthy period of time. However, even assuming that it is possible for a retail shop lease sensibly to include provisions of this kind, I can see nothing in the legislation which should be read as requiring this and I very much doubt that the legislature could have thought that it was practicable for a lease to cater, in this kind of way, for all possible eventualities over what might be a very long period of time.
18 I should add, finally, that there is some limited support in the cases for the construction of s 12(1) that I favour.
19 In Re CRJ Pty Ltd [1996] 2 Qd R 147, Thomas J considered the provisions of s 12 of the Retail Shop Leases Act 1984 (Qld) which read as follows:
(Page 12)
- "12. Sharing of operating expenses. If a retail shop lease provides for payment by the tenant, in addition to the payment of the rent payable under the lease, of all or part of the expenses of the landlord in operating, repairing or maintaining the building of which the retail shop in question forms a part –
(a) that lease shall specify –
(i) those items of expense which are to be included as operating expenses;
(ii) how those operating expenses will be determined and apportioned to the tenant; and
(iii) how those operating expenses may be recovered by the landlord from the tenant;
… "
- The retail shop lease there being considered provided that the lessee was required to pay the lessor, by way of additional rental, 75 per cent of the aggregate of all amounts paid by the lessor, or for which it became liable, in any one year in respect of the building of which the demised premises formed a part on account of, inter alia, insurance premiums and other charges. The submission was made that that clause of the lease failed to specify how the expenses would be "determined and apportioned to the tenant". Thomas J considered that that requirement was satisfied by the introductory words of the relevant clause, which, he said, at 155, specified a percentage application and a formula for calculating the part thereof that was applicable to the particular tenant. It seems to me that there is, in this respect, no distinction between a lease which specifies a percentage of 75 per cent and one which specifies a percentage of 100 per cent.
20 In Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24, the Appeal Panel of the Administrative Decisions Tribunal in New South Wales was required to consider s 22 of the Retail Leases Act 1994 (NSW), which reads as follows:
"22. Recovery of outgoings from lessee
(1) The lessee under a retail shop lease is not liable to pay any amount to the lessor in respect of any
- outgoings except in accordance with provisions of the lease that specify:
(a) the outgoings that are to be regarded as recoverable, and
(b) how the amount of those outgoings will be determined and how they will be apportioned to the lessee, and
(c) how those outgoings or any part of them may be recovered by the lessor from the lessee."
- The lease there under consideration had provided that the lessee was obliged to pay 100 per cent of the outgoings in each of four specified categories. The Panel agreed (at [36]) that those provisions of the lease "sufficiently dealt with the matters set out in the three sub-paragraphs of s 22(1)".
21 It follows, from what I have said, that in my opinion the appeal should be allowed and the decision of the District Court affirming the determination of the Commercial Tribunal should be set aside. I would hear further from the parties as regards the orders which should be made as a consequence of the conclusions at which I have arrived.
22 MCLURE JA: I agree with Steytler P.
23 BUSS JA: I agree with the President.
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