IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd

[2017] HCATrans 268

[2017] HCATrans 268

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M104 of 2017

B e t w e e n -

IMCC GROUP (AUSTRALIA) PTY LTD (ACN 148 964 345)

Applicant

and

CB COLD STORAGE PTY LTD (ACN 005 031 265)

Respondent

Application for special leave to appeal

GAGELER J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 DECEMBER 2017, AT 9.52 AM

Copyright in the High Court of Australia

MR G.S. CLARKE, QC:   If the Court pleases, I appear with my learned friend, MR P.G. LITTLE, for the applicant.  (instructed by Sabelberg Morcos Lawyers)

MR R.S. HAY, QC:   If your Honours please, I appear with my learned junior, MS L. PAPAELIA for the defendant.  (instructed by Burke & Associates)

GAGELER J:   Yes, Mr Clarke.

MR CLARKE:   Thank you, your Honour.  I need leave for the extension of time.  I am not sure whether my learned friend, Mr Hay, opposes that.

MR HAY:   I do not, your Honour.

MR CLARKE:   We are a day late.

GAGELER J:   You have that leave.

MR CLARKE:   Thank you.  Your Honours, our client, the landlord, submits that the Court of Appeal erred in holding that under the lease the premises were used for the retail provision of services and hence the Act applied.  Rather the premises were used for the commercial provision of services and the Act does not apply.  The landlord submits that this Court should correct the error because the court’s decision and its reasoning has the wide‑ranging consequence that Victorian warehouse leases would become, under that decision, leases subject to the Act when it was not otherwise the position and that that would substantially change the contractual bargain that the landlord and tenant had entered into.

I propose, if the Court will permit it, drawn from the judgment of the Court of Appeal and as indicated by the papers filed by my client, to identify errors made by the Court of Appeal in a point‑form fashion - I do not think it is necessary that I take your Honours to the judgment because the extracts that I have referred to are short - and then very briefly to deal with consequences.

The first error we suggest is this.  The court stated at application book 60, judgment paragraph 3, that the phrase “retail provision of services” has long been interpreted by reference in part to an ultimate consumer test.  That is correct.  However, an ultimate consumer test has not previously been applied in cases in relation to a warehouse, such as that here.

GORDON J:   So this is fact specific, is it?

MR CLARKE:   Yes.  All cases are fact specific, your Honour, but the impact of the case affects all warehouses and, in my submission, not just my client’s warehouse.

GAGELER J:   Are you saying that the application of the test to a warehouse calls the test itself into question.  Is that the point?  It is an extreme application of the test.

MR CLARKE:   It is an extreme application of the test and, in particular, the ultimate consumer test does not apply in the circumstances here or in relation to warehouses.

EDELMAN J:   It is not just an ultimate consumer test, though, is it?

MR CLARKE:   No, that is correct, your Honour.  The court identified other factors, but it is the principal basis upon which the court made the decision.  The second point that I draw attention to is that the court cited at judgment paragraph 5: 

there is nothing in the nature of the services provided that would exclude them from being considered retail services.

In our submission that is the wrong approach.  The statutory question, rather, is whether the provision of services by the tenant to its customers was a retail provision of its services.  It is not a matter of “It’s to be assumed that the legislation applies but for some other circumstances”. 

The third point, if I may, the tenant’s customers were the ultimate consumers.  We make a number of points here but in this connection we submit that they were not in any sense consumers of the services and hence were not ultimate consumers.  A consumer is not any user of the provided services.  “Consumer” has a narrower and different connotation to “user”.  The services here were provided to businesses on a large scale, not to consumers on a small scale.

EDELMAN J:   How do you consume a service other than by using it?

MR CLARKE:   The test was an ultimate consumer test and, in our submission, the users of the tenant’s transport facilities and storage facilities were not consumers, they were just users.  They are different concepts we submit and “consumer” is a narrower concept.  What the Court of Appeal has done is taken an existing learning in relation to “ultimate consumer” and widened it substantially and made it into an ultimate user test without explanation and, we submit, without reason.

Fourthly, the ultimate consumer test as posited by the court is whether the services were used by the persons to whom they were sold or were the services passed on in an unaltered state to some third person.  Now, it is the case that the services here and, indeed, any services provided at the premises, or any leased premises, any warehouse premises, are not going to be passed on to a third party.  But that demonstrates, in our submission, that the ultimate consumer test as explained by the Court of Appeal does not apply here in a substantial way to determine the point.  All these premises where a tenant provides services to its customers there do not, by reason of that provision there, involve a retail provision of services - services certainly, but not a retail provision.

The fifth point, no distinction is to be drawn between commercial and non‑commercial users of the service - now, it is true that that is not a determinative matter because commercial organisations can be involved in the retail provision of services, but it is relevant to characterisation and all use is not retail use regardless, as the Court of Appeal suggests or holds, of whether the user is a commercial company or organisation or an individual.  It is wrong, in our submission, to treat all users as the same and that the nature of the use has no consequence in the application of the statutory test. 

The sixth point - Justice Edelman is correct, of course, that the court did not just rely upon the ultimate consumer test.  There were two other limbs in particular – the tenant’s customers paid a fee and the tenant’s business was open during normal business hours.  Those three things in combination, at paragraph 50 of the judgment, meant that the premises were retail premises.

We submit that those matters only demonstrate that there was a provision by the tenant of services, but that those matters do not demonstrate that there was a retail provision of services.  Why?  If any services were provided there at the premises there would always be a fee unless, of course, the tenant was running a charity, not a great discriminant.  If any service was provided at the premises, the premises would always be open to the tenant’s customers so they could be provided, otherwise they would not be provided.

The “open to the public” point I should also state is not perhaps as important today as it was 30 years ago and before the internet.  The test of whether or not premises are open to the public has limited application today when all service‑based business with an internet website is open to the public.  Services provided at the premises can never be resupplied. 

So putting those three factors together it will always be the case in relation to the provision of services at premises that there will be a retail provision of those services and we submit that that is incorrect.  The mere combination of those three factors we submit is insufficient and, if that is correct, then it renders otiose the close examination of the nature of the services provided in all the circumstances of a lease when that is what the statutory test requires.

GAGELER J:   What do you say is required to constitute a retail provision of services - affirmatively what is your case?

MR CLARKE:   Retail provision of services is not our case.  Small quantities, provision at the premises - so I do not submit that the ultimate consumer test has no application to determine retail or not.  The manner in which the cases in other contexts are decided, we have no issue with any of that.  We only have an issue in relation to the manner in which the court purports to apply it when it does not apply in any substantial way in the circumstances of this case.  So we are not seeking to rewrite the law in other connections, but we draw attention to the proposition that there was no retail provision of services here.

EDELMAN J:   But in this context ultimate consumer should not be an important factor.

MR CLARKE:   No.

EDELMAN J:   But it would in all other contexts, or some other contexts?

MR CLARKE:   Some other contexts.  The context that we address is in relation to warehouses where commercial ‑ ‑ ‑

GORDON J:   You accept, though, the evidence was that here it was open to non‑commercial entities for use of the services.

MR CLARKE:   Yes.

GORDON J:   So we are now down to extent, are we?

MR CLARKE:   With respect, no.  The use has to be wholly or predominantly user - is the statutory language.  It is clear that the predominant use was by a commercial organisation – it is 20 in particular who arrive with large refrigerated trucks with foodstuffs in bulk which were then stacked into the premises.  So that the point about a gentleman with a turkey can come along - it is really hypothetical – it had nothing to do with wholly or predominantly – predominantly using the premises in that way.  That was the evidence.

GAGELER J:   You were going to tell us about the adverse consequences of this interpretation.

MR CLARKE:   Yes, thank you, your Honour.  We submit that there is a substantial public interest in the Court considering whether the errors – and there are others but they are referred to in our outline – ought be corrected.  Commercial warehouse leases in Victoria entered into on the basis the Act did not apply have, in effect, been converted into leases where the Act does apply.  The Court of Appeal, as we would seek to submit, wrongly made that change. 

Serious consequences for landlords, lease provisions are made for it by the operation of the provisions of the Retail Leases Act - made void.  Contracts are rewritten.  Landlords are exposed to claims by tenants that they have mistakenly made payments, particularly of outgoings because such payments are prohibited if the Act applies, but that is not the case if the Act does not apply.

That is what has happened in our case at VCAT.  It was the claim for mistaken overpayments on the assumption that the Act applied which started the process where we have ended up today.  There will be a flood of them.  It is the case that subject to questions of change of position current tenants of warehouses can make such a claim for mistaken payment and such payment of such claims can potentially be made in relation to leases that have expired. 

It does represent a fundamental change of the law.  Leased warehouse promised properties in Victoria have overnight diminished in value because the payments to be made by the tenant are reduced.  That affects the value, the value of the leased premises.  On renewals of the lease, the landlords of course will respond by seeking to put up the rentals to cover diminished payments by tenants of outgoings but in the real world they may struggle to do that.  Further, we submit, there are consequences in this judgment, the Court of Appeal’s judgment, in relation to leases where the goods – it is a sale of goods rather than a provision of services.

If on the reasoning of the Court of Appeal what happens after the goods leave the premises and the quantities of goods, those two matters are irrelevant to the question of characterisation in relation to the provision of services, then by parody of reasoning, wholesalers of goods will become retailers.  “Retail” must mean the same whether we are talking about goods or services because in relation to the distinction between wholesale and retail it is all about quantity and it is all about what happens to the goods after the goods have left the premises.  That is the basis of the distinction.

So that we submit that there will be consequences for wholesalers who store their goods in a warehouse and who resupply the goods in bulk by themselves or their agents – in bulk to retailers.  The premises there, the

lease in respect of the premises may well, if not is likely to be, converted from a wholesale lease, commercial lease into a retail lease.

GAGELER J:   I find it difficult to follow that submission.  If you apply by parody the ultimate consumer test, then the test at least in part becomes are the goods used by the person to whom they are sold or are the goods passed on by the purchaser in an unaltered state to some third person.

MR CLARKE:   Yes. 

GAGELER J:   The application of that test I do not think, at least obviously, means that the wholesaler becomes the ultimate consumer.

MR CLARKE:   This is an important footnote to my submission, as it were.  We foresee consequences.  It is wrong, we say, that the quantity of goods does not matter.  It is wrong, we say, that what happens to the goods or services after, if they get that far – move on, are irrelevant and this does open up real uncertainty, we submit, at the least uncertainty as to whether or not commercial leases where the premises are in the nature of a warehouse, whether a commercial lease not subject to the Act in effect is converted as here into a lease with respect to which the Act applies.  Unless there is anything further.

GAGELER J:   Thank you, Mr Clarke.  Mr Hay, we do not need to hear from you.

We are of the opinion that there are insufficient prospects of success on the question of statutory construction to warrant the grant of special leave to appeal.  Special leave to appeal is refused with costs.

MR CLARKE:   May it please the Court.

AT 10.12 AM THE MATTER WAS CONCLUDED