JASHAN TECHNOLOGY PTY LTD and PHOENIX PROPERTIES INTERNATIONAL PTY LTD
[2022] WASAT 61
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCIES (COVID-19 RESPONSE) ACT 2020 (WA)
CITATION: JASHAN TECHNOLOGY PTY LTD and PHOENIX PROPERTIES INTERNATIONAL PTY LTD [2022] WASAT 61
MEMBER: MS R PETRUCCI, MEMBER
HEARD: 5 MAY 2022
DELIVERED : 18 JULY 2022
PUBLISHED : 18 JULY 2022
FILE NO/S: CC 324 of 2021
BETWEEN: JASHAN TECHNOLOGY PTY LTD
Applicant
AND
PHOENIX PROPERTIES INTERNATIONAL PTY LTD
Respondent
Catchwords:
Commercial tenancies - Small commercial lease - Covid-19 - Emergency period - Code of Conduct dispute Application for rent relief - Principles applying to offering and negotiating rent relief - Waiver of rent - Whether failure of landlord to provide more than 50% of rent relief in form of a waiver would compromise the tenant's capacity to fulfil its ongoing obligations under small commercial lease - Proper construction of clause 7(7)(a) of Code - Principles applying to outgoings and other expenses Proper construction of clause 11 of Code Tribunal powers to make orders - Turns on own facts
Legislation:
Commercial Tenancies (Covid-19 Response) Act 2020 (WA), s 14, s 14(2), s 16(1), s 17, s 17(4)
Commercial Tenancies (Covid-19 Response) Regulations 2020 (WA), reg 3, Sch 1, Div 3, cl 2, cl 4(e), cl 5, cl 6, cl 7, cl 7(3), cl 7(6), cl 7(7), cl 7(7)(a), cl 7(7)(b), cl 11, cl 15
Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (WA), s 7
Interpretation Act 1984 (WA), s 19
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Applicant | : | In Person |
| Respondent | : | Mr S Sirett |
Solicitors:
| Applicant | : | N/A |
| Respondent | : | Thomson Geer - Perth |
Case(s) referred to in decision(s):
City of Fremantle v Imago Holdings Pty Ltd [2020] WASCA 61
Commissioner of State Revenue v Abbotts Exploration Pty Ltd (2014) 48 WAR 300
Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 50
Commissioner of the Australian Federal Police v Courtenay Investments Ltd (No 2) (2014) 283 FLR 59 at 14
Mohammadi v Bethune [2018] WASCA 98
Palmart Pty Ltd and Palina Holdings Pty Ltd [2022] WASAT 20
Pham and Bao [2021] WASAT 29
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Van Der Feltz and Rispoli [2021] WASAT 84
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
These proceedings concern commercial premises at 150B St Georges Terrace, Perth (premises) where the applicant, Jashan Technology Pty Ltd (Jashan or tenant) operated a café trading as 'The Deck' (Café) and a restaurant/bar trading as 'The Grand' (Restaurant).
According to Jashan, it had to close the Café on 30 January 2021 because 'it fell into the hands of covid'[1] following the Government's mandatory closure of businesses in the hospitality industry.
[1] ts 33-34, 5 May 2022.
Subsequently, on 10 March 2021, Jashan applied to the Tribunal under s 16(1) of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) (Covid Response Act) seeking a determination of its dispute with the respondent, Phoenix Properties International Pty Ltd as trustee of the CW Trust (Phoenix Properties or landlord) where the landlord refused to provide more than 50% of rent relief in the form of a waiver of rent with respect to each of the lease for the Café and the Restaurant during the emergency period.
The emergency period was from 30 March 2020 to 28 March 2021 (reg 3 of the Commercial Tenancies (Covid-19 Response) Regulations 2020 (WA) (Covid Regulations).
The relief sought by Jashan under the Covid Response Act during the emergency period was set out in its application to the Tribunal as follows:[2]
1.100% Rent waiver for the duration of the mandatory closure during pandemic 23rd March till 18 May 2020 and 1st Feb to 5th Feb 2021.
2.100% Outgoing waiver for the duration of mandatory closure during pandemic 23rd March till 18 May 2020 and 1st Feb to 5th Feb 2021.
3.Charge proportionate rent based on sales during the emergency period, providing 100% of the total rent relief in the form of waiver.
[2] Hearing Book (HB) at page 6.
However, on 13 August 2021, per its Statement of Issues, Facts and Contentions filed with the Tribunal, the following relief is sought by Jashan:[3]
[T]hat the [landlord] provide 50% rent relief entirely by way of rent waiver (and not 25% rent waiver and 25% rent deferral) for the entire 'emergency period' between 30 March 2020 and 28 March 2021.
That the [landlord] waive the outgoings in full for the period between 30 March 2020 to 18 May 2020 and 1 to 6 February 2021 when the [tenant's] Restaurant and Café were closed.
[3] HB at page 420.
Jashan contends that it is eligible for (further) rent relief of $124,344.30 (excluding GST) for the Restaurant and $75,097.91 (excluding GST) for the Café (being rent relief in the form of a 100% rent waiver).[4] In addition, Jashan seeks relief in the form of a waiver of all outgoings for the period 30 March 2020 to 18 May 2020 and from 1 February 2021 to 6 February 2021 when the Restaurant and Café were required to be closed by the Western Australian Government. At the hearing on 5 May 2022, Mr Vinod Parihar for Jashan clarified that Jashan is seeking rent relief in the form of 100% waiver of rent, and outgoings to be 100% waived for the mandatory closure periods, a period of about seven weeks.[5]
[4] ts 33, 5 May 2022.
[5] ts 31, 5 May 2022.
In closing submissions, Mr Parihar stated that the orders Jashan is seeking from the Tribunal is for the landlord to not pursue Jashan for the rent deferred amount for each of the Café and Restaurant which has not been paid by Jashan.[6]
[6] ts 92, 5 May 2022.
The landlord opposes Jashan's application for (any further) relief and instead urges the Tribunal to dismiss the application. This is on the basis that the landlord has provided rent relief (50% waived and 50% deferred) proportionate to the reduction in the turnover of the Café and the Restaurant for the whole of the emergency period as well as 100% relief (50% waived and 50% deferred) for the period prior to the emergency period from 23 March 2020 to 30 March 2020. In addition, the landlord provided relief (50% waiver and 50% deferred) proportionate to the reduction in turnover for the Café and the Restaurant cool room rent (licence fee), storage rent (licence fee) and outgoings for the whole of the emergency period as well as 100% relief (50% waiver and 50% deferred) for the period prior to the emergency period from 23 March 2020 to 30 March 2020.
The landlord opposes Jashan's application for (any further) relief and instead urges the Tribunal to dismiss the application.
This matter turns on the proper construction of Sch 1 Div 3 cl 7(7) of the Covid Regulations. I will refer to this provision as cl 7(7) of the Code of Conduct (Code) as Sch 1 is headed 'Code of Conduct'. It provides:
7.Principles applying to offering and negotiating rent relief
…
(7)An offer of rent relief must provide that more than 50% of the rent relief is to be in the form of a waiver of rent if —
(a)failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise the tenant's capacity to fulfil the tenant's ongoing obligations under the small commercial lease; and
(b)the landlord has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent[.]
The landlord does not contest cl 7(7)(b) of the Code.
In respect of cl 7(7)(a) of the Code, the landlord submits that cl 7(7)(a) of the Code requires the Tribunal to determine at what point in time is the landlord is required to consider a request from the tenant seeking more than 50% of the rent relief to be in the form of a waiver of rent.[7] Is it at the time the request is made by the tenant (Jashan)? Is it at any time during the emergency period? Is it at the date of the hearing before the Tribunal (which in this case is more than a year after the emergency period ended)? I set out the proper construction of cl 7(7)(a) of the Code below at [53] to [75].
[7] ts 33, 5 May 2022.
I heard the matter on 5 May 2022 following which I reserved my decision.
For the reasons that follow, Jashan’s application is unsuccessful. This means, in my view, no further relief is required to be given by the landlord to Jashan for the emergency period under the Covid Response Act.
Relevant procedural history and evidence
At the final hearing, the Tribunal marked the following documents, which the parties identified as the documents that they intended to rely on, and to which I have had regard for the purpose of my determination in these proceedings, as an exhibit:
Exhibit 1: Hearing Book dated 10 March 2022 (pages 1 to 978) (HB); and[8]
Exhibit 2: Witness Statement of Vinod Parihar dated 4 May 2022 (pages 1 to 3).[9]
[8] Although forming part of 'Exhibit 1', the parties' contentions and submissions are taken to be submissions, rather than evidence.
[9] Although forming part of 'Exhibit 2', Vinod Parihar's contentions and submissions are taken to be submissions, rather than evidence.
I had the benefit of the affirmed oral evidence of the following two witnesses for Jashan:
a)Vinod Parihar, the sole director of Jashan. Mr Parihar gave evidence about various communications between Jashan and the landlord's managing agent, Knight Frank Australia Pty Ltd (Knight Frank) during the pandemic; and
b)Gary Hammond, of GM Hammond Pty Ltd, an accountant. Mr Hammond gave evidence on the accuracy of financial documents filed by Jashan, the current financial position of Jashan and the financial impact of the pandemic on Jashan's business.[10]
[10] HB at pages 508-509.
I also had the benefit of the affirmed oral evidence of the following witness for the landlord:
a)Alexander Sinclair Meneghello of Knight Frank, a senior property manager. Mr Meneghello gave evidence about the exchange of emails concerning requests made by Jashan for relief and offers made by the landlord for relief by way of waiver and deferral.[11]
[11] HB at pages 8-7 and 811.
The parties agree that all of the events between them during the emergency period were documented and that there were no oral discussions between them.[12] Because of this, Mr Meneghello stated that he did not telephone or visit the premises to discuss Jashan's request for rent relief and only provided written responses to Jashan, or sought further information from Jashan when instructed to do so by the landlord.[13]
[12] ts 71-72, 5 May 2022.
[13] ts 80-81, 5 May 2022.
I will now turn to set out the key issues to be determined by me in these proceedings, followed by the legal framework relevant to these proceedings by reference to the relevant regulatory framework, and I will then make relevant findings of fact. Finally, I will address each of the issues for determination in turn.
Issues
In this case, on 11 March 2021, Jashan sought relief under the Covid Response Act from the landlord in respect of rent and outgoings payable under the lease for the Café and the lease for the Restaurant. It is common ground that Jashan made the request before the end of the emergency period and before each lease was due to expire.
Jashan identifies the following issues requiring determination by the Tribunal:[14]
[14] HB at pages 409-410.
1)Is the tenant (Jashan) an 'eligible tenant' under cl 2 of the Code as set out in Sch 1 of the Covid Regulations in respect of the 'relevant periods'?
2)Did the tenant (Jashan) request rent relief in accordance with, and within the period provided by cl 5 of the Code?
3)Did the landlord offer and negotiate rent relief in accordance with cl 6 and cl 7 of the Code? If 'no' should the landlord have offered and negotiated rent relief by way of a 100% waiver of rent (and not 50% waiver of rent and 50% deferral of rent) during the relevant periods constituting the 'emergency period' on the basis that:
i)the failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise the tenant's capacity to fulfil its obligations under the leases; and
ii)the landlord has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent?
4)Should the landlord have waived recovery of any outgoing or other expense payable by the tenant for part of the 'emergency period' that the tenant was not able to conduct its business at the premises, in accordance with cl 11 of the Code?
The landlord agreed with the wording of issues 1 and 2 as expressed by the tenant.[15]
[15] HB at page 812.
In regards to issues 3 and 4, the landlord rephrased the issues as set out by the tenant in the following terms:[16]
3)Whether the offer by the landlord as to rent relief:
i)is consistent with the requirements of cl 6 of the Code; and
ii)is in accordance with the principles applying to rent relief as set out in cl 7 of the Code?
4)Whether, in any event, the Tribunal ought to make the orders sought by Jashan?
[16] HB at pages 409-410.
In my view, the rephrasing of issues 3 and 4 by the landlord captures the essence of the issues as raised by the tenant. In the reasons which follow, I will adopt the wording of issues 1 and 2 as expressed by the tenant and issues 3 and 4 as expressed by the landlord.
It is first necessary to set out the regulatory framework and factual background against which the consideration of the above issues must be made.
Regulatory framework
Covid Response Act
Details of the Covid19 pandemic and the relevant State (Western Australia) and Federal Government responses which led to enactment of the Covid Response Act were set out in detail by the Tribunal in Pham and Bao [2021] WASAT 29 (Pham) at [6] to [40].
The jurisdiction of the Tribunal to determine matters under the Covid Response Act was also set out in Pham at [5].
Onus and standard of proof
The applicant (in this case Jashan) bears the onus of proving that it is entitled to rent relief. The standard of proof required is the civil standard, that is, proof on the balance of probabilities. The onus and standard of proof are set out in Van Der Feltz and Rispoli [2021] WASAT 84 at [13].
Principles of statutory construction
The modern approach to statutory construction in Western Australia is purposive: Commissioner of State Revenue v Abbotts Exploration Pty Ltd (2014) 48 WAR 300 (Abbotts) at [160]. This approach was summarised by Edelman J in Commissioner of the Australian Federal Police v Courtenay Investments Ltd (No 2) (2014) 283 FLR 59 at [14] as follows:
The key integers in the exercise of determining the effect of Parliament's intention in [the relevant statutory provision] are statutory text, context and purpose. The starting point, and the end point, is the text. But, although the statutory text is the 'surest guide' to Parliament's intention, the text must be read in the widest sense of context, including the general purpose and policy of the provision.
The Tribunal may have regard to extrinsic materials and legislative history without having to invoke the provisions of s 19 of the Interpretation Act 1984 (WA) (Abbotts at [91]), but legislative history and extrinsic materials cannot be relied upon to displace the clear meaning of the statutory text: Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 50 at [39].
Relevant findings of fact
Many of the relevant material facts were agreed by the parties and are uncontroversial.[17]
[17] ts 15, 5 May 2022.
I make the following findings of fact which are relevant to determining the issues before me:
a)Jashan was registered by the Australian Investment and Securities Commission as a proprietary limited company on 28 March 2014.
b)Mr Vinod Parihar is the sole director of Jashan.
c)Jashan remains a registered proprietary limited company.
d)Jashan operated two hospitality/food and beverage businesses, being the Café and the Restaurant at the premises.
e)Jashan leased the premises from the landlord pursuant to the following two leases:
i)the lease dated 4 August 2011 as varied for the premises situated at 150B St Georges Terrace, Perth and being more particularly described as that part of the Building on Lot 26 on Diagram 75498 as shown on the plans annexed to the lease in Schedule 5, being part of the land comprised in Certificate of Title Volume 1957 Folio 824. Schedule 1 to the lease describes the Café as:
Café, 150 St Georges Terrace, Perth, Western Australia and being the area set out on the plan annexed in Schedule 5 of this Lease and having an area of 54m² plus an alfresco area of 116m² (in total 170m²); and
ii)the lease dated 20 November 2011 as varied for the premises situated at 150B St George's Terrace, Perth, and being more particularly described as that part of the Building on Lot 26 on Diagram 75498 as shown on the plans annexed to the ease in Schedule 5, being part of the land comprised in Certificate of Title Volume 1957 Folio 824. Schedule 1 to the lease describes the Restaurant as:
Restaurant/Bar, 150 St Georges Terrace, Perth, Western Australia and being the area set out on the plan annexed in Schedule 5 of this Lease and having an area of 455m² (subject to measurement).
g)Jashan has not operated the Café since 30 January 2021.
f)The lease for the Café expired on 30 June 2021.
h)Jashan has not operated the Restaurant since 23 January 2022.
i)Knight Frank is the landlord's managing agent for the premises and with whom Jashan dealt with in relation to the premises.
j)The Restaurant reported reductions in sales of $588,642 for the period April 2020 to March 2021 as compared to the previous 12 months as set out in the following table.
Month Sales Month Sales % decline $ decline TOTAL April 2020 $0 April 2019 $61,357 -100% $61,357 May $14,144 May $92,091 -84.64 $77,947 June $40,068 June $104,733 -61.74 $64,665 July $52,725 July $91,589 -42.43 $38,865 Aug $60,699 Aug $110,503 -45.07 $49,804 Sept $53,999 Sept $95,225 -43.29 $41,226 Oct $49,336 Oct $78,554 -37.19 $29,218 Nov $54,802 Nov $116,711 -53.04 $61,909 Dec $74,605 Dec $136,155 -45.21 $61,550 Jan 2021 $30,079 Jan 2020 $51,001 -41.02 $20,922 Feb $26,593 Feb $72,889 -63.52 $46,296 Mar
$51,850
Mar
$86,736
-40.22
$34,885
Total
-54.78
$588,642
k)The Café reported reductions in sales of $253,699 for the period April 2020 to March 2021 as compared to the previous 12 months as set out in the following table.
Month Sales Month Sales % decline $ decline TOTAL April 2020 $0 April 2019 $16,914 -100% $16,914 May $56 May $21,015 -99.73 $20,959 June $102 June $23,331 -99.56 $23,229 July $165 July $14,957 -98.90 $14,792 Aug $1,311 Aug $18,757 -93.01 $17,446 Sept $2,957 Sept $15,695 -81.16 $12,737 Oct $5,875 Oct $22,291 -73.64 $16,416 Nov $5,882 Nov $37,693 -84.40 $31,811 Dec $17,623 Dec $37,919 -53.52 $20,296 Jan 2021 $5,262 Jan 2020 $22,696 -76.82 $17,435 Feb $35 Feb $32,690 -99.89 $32,655 Mar $0 Mar $29,008 -100 $29,008 Total -88.39 $253,699
l)On 16 March 2020 Jashan requested 'rent relief/abatement' from the landlord on the basis that:
[W]e have lost all events/bookings for the next few weeks and [the] number of walk-ins' have declined by 80% in the last week and fears of losing more, as more and more businesses around Perth chose to let their employees work from home in an attempt to limit the spread of this virus.
Given the serious nature of the current situation would the landlord be willing to provide rent relief/abatement, we have to ensure we can continue to operate giving employment to causal and full time staff who will have limited or no hope of alternative source of income in this situation[n].
m)On 23 March 2020 the landlord wrote to Jashan offering 'rent abatement' equal to 25% of the rent for the months of April and May 2020 for each of the Café and the Restaurant.
n)On 30 March 2020 Jashan wrote to the landlord stating the offer was 'extremely disappointing' because the hospitality industry has been the hardest hit and the Café and Restaurant have lost 80% of its sales.[18]
[18] HB at page 582.
o)On 11 May 2020 Jashan wrote to the landlord noting it had to stand down all 14 staff members and that the Café and Restaurant have been closed since 23 March 2020 following the direction of the Federal Government. Jashan also stated that Jashan and the landlord will have to discuss how they can work together in these difficult times.
p)On 20 May 2020, Gary Wallace, a Dispute Resolution Case Manager at the Small Business Development Corporation (SBDC) emailed Mr Parihar and Mr Meneghello concerning their discussions on 19 May 2020 and noted that Mr Parihar would email the landlord via Mr Meneghello with a request for rent relief.
q)On 20 May 2020 Jashan requested rent relief for the Café and the Restaurant in the form of 100% rent waiver (no deferral) until after 'phase 3' and a return to full rent only when both tenancies 'are allowed to operate in [sic] full capacity'.
r)On 21 May 2020 in response to a query raised by the landlord, Jashan stated in part:
[W]e were asked to close[,] our cash flow has dried up to virtually no money. We are operating now but with strict 20 patrons limit we can hardly pay staff/goods cost, we anticipate once the next phase of restrictions are lifted we will have more room to move and we will be able to start clearing some of the overdue bills for all vendors/suppliers including that of the landlord.
s)On 3 June 2020 Jashan made a separate request for rent relief for both the Café and the Restaurant using a template provided by the SBDC.
t)On 10 June 2020 the landlord acknowledged that the lease for each of the Café and the Restaurant are 'small commercial leases' for the purposes of the Covid Response Act and that Jashan was an 'eligible tenant'. The landlord requested a statement of the Jashan's sales for each month from March 2018 in accordance with condition 2.2 of the Schedule 2 to each of the leases for the Café and the Restaurant.
u)By email on 10 and 16 June 2020 and 1 July 2020 the landlord offered Jashan rent relief by way of waiver and deferral for the months of April and May 2020 (50% waiver and 50% deferral) and asked Jashan for its June figures.
v)On 16 June 2020 Jashan wrote to the landlord asking for it to reconsider its offer for rent relief because Jashan was unable to pay any rent during periods it was forced to close by the Government and requested that the landlord offer rent relief in the form of 100% rent waiver and 100% outgoings waiver for the periods it was forced to close by the Government. Jashan stated to the landlord that it had provided information regarding its financial standing and was willing to provide any other information that would assist the landlord in reconsidering its position.[19]
[19] HB at page 603.
w)On 3 August 2020 Jashan wrote to the landlord providing details of its sales for June 2019 and June 2020.
x)On 12 August 2020 the landlord wrote to Jashan advising it had revised its offer of rent relief for the period March to September 2020.
y)On 20 August 2020 Jashan wrote to the landlord to note that with the exception of the period 23 March to 30 March 2020 (the period immediately before the emergency period), the landlord had not changed its position. Jashan reiterated that the Café and the Restaurant 'cannot pay any rent during closure period including outgoings and beyond that can only pay proportionate rents based on actual sales every month without any deferral loading'. Jashan again asked the landlord to reconsider its position and stated in part:[20]
[20] HB at page 610.
[W]e are committed to pay rent[.] [W]e will continue to pay proportionate rents based on actual sales.
z)On 25 August 2020 Jashan wrote to the landlord providing details of its sales for July 2019 and July 2020.
aa)Mr and Ms Parihar deposited in excess of $200,000 from their ANZ savings into Jashan from September 2020 to March 2021.
bb)On 23 November 2020 Jashan wrote to the landlord stating in part:
[W]e wish to exercise our rent renewal option for 150B St Georges Tce between Jashan Technology T/A Grand Bar and The Deck Café and Phoenix Properties.
The lease for The Deck ends June 2021 and Grand 2022 Jan, let me know what is the process going forward this is our official notice to exercise our option for both tenancies.
It will be in our common interest if we redraw parts of the lease as some might not be applicable anymore[.]
cc)On 24 November 2020 Jashan wrote to the landlord providing details of its sales for August, September and October 2019 and for August, September and October 2020.
dd)On 9 December 2020 Jashan wrote to the landlord providing details of its sales for November 2019 and November 2020.
ee)On 6 January 2021 Jashan wrote to the landlord following up on its email of 23 November 2020 (exercising rent renewal option).
ff)On 18 January 2021 Jashan wrote to the landlord stating that The Deck will struggle to pay rent per the lease and 'seeks directions on exiting the lease as there are only a few months before the lease is to expire'. On the same date, Jashan wrote to the landlord stating, 'we have decided to not exercise our option for [T]he [D]eck as the current rents are not feasible to operate' and that 'the gap between sales and rents is so illogical that we are forced to seek an earlier exit, earlier than June 2021'.
gg)On 19 January 2021 Mr Meneghello wrote to Jashan noting that he will advise the landlord that Jashan no longer wishes to exercise its option for The Deck (Café) and seeks and early exit from the lease.
hh)On 28 January 2021 Jashan wrote to the landlord providing details of its sales for December 2019 and December 2020.
ii)On 7 February 2021 Jashan wrote to the landlord to follow up its email of 18 January 2021.
jj)On 15 February 2021 the landlord wrote to Jashan confirming it was offering rent relief as set out in its email of 12 August 2020.
kk)Further, on 15 February 2021 the landlord wrote to Jashan to advise it agrees not to enforce another term for the Café, but it will not offer an early exit from the lease which is due to expire on 30 June 2021.
ll)On 15 February 2021 Jashan wrote to the landlord stating that the landlord had only offered rent relief in the form of the mandatory 50% waiver and 50% deferral yet Jashan has lost 100% of sales during the mandatory closure periods and ongoing sales have dropped significantly. Jashan stated in part:[21]
[21] HB at page 686.
[W]e have maintained our transparency and tendered sufficient information but there has been no movement from the landlord in terms of extending any cooperative discussions or negotiation on going beyond the default position which was mandated by the [Covid Response] Act.
mm)The landlord refused the tenant's request that the rent relief be provided by way of 100% rent waiver rather than 50% waiver and 50% deferral of the rent relief for each of the Restaurant and the Café as provided in the following tables.
Restaurant[22]
[22] HB at pages 415-416.
Month Rent relief offered (total)[23] Rent waiver offered (50%) Deferral offered (50%) Rent waiver sought April 2020
$37,044
$18,533
$18,533
$37,044
May
$31,355.38
$15,677.69
$15,677.69
$31,355.38
June
$22,873.36
$11,436.68
$11,436.68
$22,873.36
July
$16,252
$8,126
$8,126
$16,252
Aug
$17,262.20
$8,613.10
$8,613.10
$17,262.20
Sept
$16,581.48
$8,290.74
$8,290.74
$16,581.48
Oct
$14,245.74
$7,122.87
$7,122.87
$14,245.74
Nov
$20,316.38
$10,158.19
$10,158.19
$20,316.38
Dec
$17,314
$8,657
$8,657
$17,314
Jan 2021
$15,711
$7,855
$7,855
$15,711
Feb
$24,326.88
$12,163.44
$12,163.44
$24,326.88
Mar
$15,405
$7,702.50
$7,702.50
$15,405
Total
$248,689
$124,344
$124,344
$248,689
[23] HB at page 825.
Cafe[24]
[24] HB at page 417.
Month Rent relief offered (total)[25] Rent waiver offered (50%) Deferral offered (50%) Rent waiver sought April 2020
$14,066.70
$7,033.35
$7,033.35
$14,066.70
May
$14,029.20
$7,014.60
$7,014.60
$14,029.20
June
$14,005.16
$7,002.58
$7,002.58
$14,005.16
July
$14,041
$7,020
$7,020
$14,041
Aug
$13,205.74
$6,602.87
$6,602.87
$13,205.74
Sept
$11,522.50
$5,761.25
$5,761.25
$11,522.50
Oct
$10,455.98
$5,227.99
$5,227.99
$10,455.98
Nov
$11,982.24
$5,991.12
$5,991.12
$11,982.24
Dec
$7,599
$3,799
$3,799
$7,599
Jan 2021
$10,906
$5,453
$5,453
$10,906
Feb
$14,183.25
$7,091.34
$7,091.34
$14,183.25
Mar
$14,197.82
$7,098.91
$7,098.91
$14,197.82
Total
$150,195
$75,097
$75,097
$150,195
[25] HB at page 825.
nn)Jashan's' Profit and Loss Statement for the period April to June 2020 (three months) reflected a net loss of $111,067.71 and for the period July 2020 to March 2021 (nine months) reflected a net loss of $352,445.72.[26]
oo)The Café and the Restaurant were in 'lockdown' (not open for business due to Government directive) from 30 March 2020 to 18 May 2020 and from 1 February 2021 to 6 February 2021 (lockdown periods).
[26] HB at pages 328-329.
The parties do not agree whether the option for the lease for the Restaurant was exercised by Jashan. Jashan's' position is that it did not exercise the option and therefore the lease came to an end on 23 January 2022. The landlord says the option for the lease of the Restaurant was exercised by Jashan on 23 November 2020 for a period of 10 years commencing from 22 January 2022.[27] Further, the parties also do not agree that stock totalling $11,139.41 went to waste.[28] It is not necessary for me to make findings on whether the option for the Restaurant was exercised by Jashan or whether the stock went to waste as my consideration of the issues before me (as set out above at [21] to [24]) do not hinge on them being facts in this matter.
[27] ts 17, 5 May 2022 and HB at page 820.
[28] ts 19, 5 May 2022 and HB at pages 412-413.
Finally, I turn now to address in turn each of the issues set out above at [21] to [24].
Consideration
Issue 1 - is Jashan an 'eligible tenant' under cl 2 of the Code in respect of the 'relevant periods'?
Issue 1 is not in contest.
I find that Jashan is an 'eligible tenant' under cl 2 of the Code in that during the relevant periods between 30 March 2020 and 29 May 2020 and between 30 May 2020 and 28 September 2020 and between 29 September 2020 and 3 January 2021 and between 4 January 2021 and 28 March 2021. I arrive at this conclusion on the agreed facts that:
a)Jashan had a turnover in the financial year ending 30 June 2019 and 30 June 2020 of less than $50 million for each of the Café and the Restaurant;
b)the Café and the Restaurant are subject to small commercial leases; and
c)Jashan qualified for the Jobkeeper scheme under s 7 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (WA) for the above periods set out above (that is, for the emergency period).
Issue 2 - Did Jashan request rent relief in accordance with, and within the period provided by cl 5 of the Code?
It is useful to first set out cl 5 of the Code. It provides:
5.Requesting rent relief
(1)A tenant under a small commercial lease who is an eligible tenant in relation to the small commercial lease may, no later than the 60th day after the day on which the emergency period ends, request rent relief from the landlord under the small commercial lease.
Notes for this subclause:
1.In accordance with the definition of eligible tenant in clause 2, a tenant under a small commercial lease cannot be an eligible tenant in relation to the small commercial lease after 28 March 2021.
2.However, this does not prevent the tenant from making a request under this clause after 28 March 2021, so long as the rent relief requested from the landlord under the small commercial lease relates to a period during which the tenant was an eligible tenant in relation to the small commercial lease. See the Commercial Tenancies (COVID‑19 Response) Regulations 2020 regulation 3(5).
(2)The request must be in writing and be accompanied by the following —
(a)a statement by the tenant that —
(i)the tenant's lease is a small commercial lease; and
(ii)the tenant is an eligible tenant in relation to the small commercial lease;
(b)sufficient and accurate information that evidences that the tenant is an eligible tenant in relation to the small commercial lease;
(c)sufficient and accurate information that evidences the reduction in the tenant's turnover that —
(i)is associated with the business conducted at the land or premises that are subject of the small commercial lease; and
(ii)the tenant has experienced during the emergency period or a relevant part of the emergency period.
The landlord accepts that Jashan made various written requests for rent relief within the emergency period.
While the landlord admits that when taken as a whole, Jashan's request for rent relief was in accordance with cl 5 of the Code, the landlord's position is that notwithstanding that Jashan made requests on 20 May 2020 and 3 June 2020, Jashan failed to provide sufficient and accurate information evidencing Jashan's reduction in turnover in relation to the period of time for which relief was sought.
The only financial information before the landlord, which is not contested by Jashan, is the printed monthly turnover figures. Those figures only show income for the relevant month.
Jashan has the burden of establishing an entitlement to rent relief and this necessarily requires Jashan to provide 'sufficient and accurate information' in order for the Tribunal to be satisfied of Jashan’s entitlement on the balance of probabilities. It would be unfair to the landlord if the position were otherwise.
What is 'sufficient and accurate information' will vary depending on the circumstances, although some noted examples are provided in the Code. Clause 4 of the Code provides that the parties 'must' 'cooperate', 'act reasonably and in good faith', be 'open', 'honest and transparent' in their conduct concerning the application of and compliance with the Code. Importantly cl 4(e) of the Code provides that the parties must not make onerous demands for information from each other. Examples given in the Code of onerous demands include demanding bank balance details or statements, demanding balance sheets or profits and loss statements or that financial information be verified or audited by a third party, such as an accountant. The failure by a tenant to provide sufficient and accurate information is a matter that could justify a reduction in relief to which the tenant may otherwise be entitled to.
The monthly turnover figures generated from an accounting system are sufficient, in my view, for the offering and negotiating of rent relief by the parties for the purposes of cl 5 of the Code.
Jashan made a request in writing to the landlord for rent relief during the emergency period. Indeed, Jashan followed up its request with the landlord many times. I am therefore satisfied that the requirements of cl 5 of the Code are satisfied.
Having made the request for rent relief, the landlord accepted Jashan's request based on the monthly turnover figures and offered rent relief, adjusted monthly, at least proportionate to Jashan's reduction in turnover for each of the Café and the Restaurant. That offer for rent relief by the landlord to Jashan was by way of 50% of the rent relief in the form of waiver of rent and 50% in the form of rent deferral for the entire emergency period. This is in accordance with cl 7(3) and cl 7(6) of the Code. In addition, the landlord offered relief for the week 23 March 2020 to 30 March 2020 (the period immediately before the emergency period) and relief in the form of proportionate reduction in outgoings for the entire emergency period.[29].
[29] HB at page 825.
I turn next to consider the crux of this matter, which is whether the landlord's offer is consistent with the requirements of cl 6 and cl 7 of the Code, and in particular cl 7(7) of the Code.
Issue 3 - whether the offer by the landlord as to rent relief: (i) is consistent with the requirements of cl 6 of the Code; and (ii) is in accordance with the principles applying to rent relief as set out in cl 7 of the Code?
It is useful to start by setting out cl 6 and cl 7 of the Code. They provide:
6.Offering and negotiating rent relief
(1)On receipt of a request for rent relief from an eligible tenant that meets the requirements of clause 5(2), a landlord must offer rent relief to the eligible tenant within —
(a)14 days after receiving the request; or
(b)such other period that is agreed between the landlord and the tenant.
(2)A landlord's offer of rent relief under subclause (1) must be —
(a)in writing; and
(b)in accordance with the principles set out in clause 7.
(3)Following receipt of the landlord's offer of rent relief by the tenant, the landlord and the tenant must, in accordance with the principles set out in clause 7, negotiate with a view to agreeing on rent relief to apply during the emergency period.
7.Principles applying to offering and negotiating rent relief
(1)This clause sets out principles of proportionality that apply in relation to a landlord's obligation to provide rent relief and negotiations between a landlord and a tenant in relation to rent relief.
(2)An offer of rent relief must apply to the emergency period.
(3)Rent relief offered by the landlord must be at least proportionate to the reduction in the tenant's turnover that —
(a)is associated with the business conducted at the land or premises that are the subject of the small commercial lease; and
(b)the tenant has experienced during the emergency period.
Example for this subclause:
If the tenant has experienced a 60% reduction in turnover, the rent relief offered should be at least 60% of the rent payable.
(3A)Unless otherwise agreed by the landlord and the tenant, the rent relief provided by the landlord must be adjusted from time to time (but not more frequently than monthly) during the emergency period, in accordance with the principle set out in subclause (3), to take into account any variation in the reduction in the tenant's turnover that the tenant experiences during the emergency period.
Example for this subclause:
In accordance with the example for subclause (3), the tenant was offered rent relief of 60% of the rent payable. If the tenant's reduction in turnover has decreased to 40%, the rent relief should be adjusted downwards by reference to the 40% figure.
(4)For the purposes of subclauses (3) and (3A), unless otherwise agreed by the landlord and the tenant, the reduction in the tenant's turnover is to be calculated using, with such modifications as are appropriate to reflect subclauses (3)(a) and (b) and (3A), the principles, or any updated principles, of any relevant test relating to decline in turnover applicable to the jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Commonwealth).
(5)An offer of rent relief may relate to up to 100% of the rent payable under the small commercial lease.
(6)An offer of rent relief must provide that not less than 50% of the rent relief is to be in the form of a waiver of rent, unless the landlord and tenant otherwise agree in writing.
(7)An offer of rent relief must provide that more than 50% of the rent relief is to be in the form of a waiver of rent if —
(a)failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise the tenant's capacity to fulfil the tenant's ongoing obligations under the small commercial lease; and
(b)the landlord has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent.
(8)If the landlord is a tenant under a lease (the head lease) of the land or premises that are the subject of the small commercial lease and the landlord, as the tenant, is provided rent relief under the head lease, the landlord must pass on the benefit of the rent relief to the tenant under the small commercial lease.
It is common ground that the landlord offered rent relief in proportion to the monthly sales decline and that the offer of rent relief was in the form of 50% rent waiver and 50% rent deferral. This satisfies the requirements of cl 7(6) of the Code, or as what Jashan described as the 'minimum requirement'.
Jashan contends that the landlord failed to take into consideration the industry (hospitality) in which Jashan operates, the location (Perth Central Business District at a time when office employees were working from home) and the actual financial situation of Jashan.
The landlord acknowledges that there were several factors that impacted on the profitability of hospitality venues during the emergency period and that those factors played a role in the reduction in turnover suffered by the Café and the Restaurant.
The landlord says it made the offer for rent relief and then Jashan pleaded with the landlord to re-evaluate its position on the basis that Jashan 'would not survive the repayment of accumulated debt from deferred rent' and that 'the businesses have already accumulated debts from other unavoidable business closures and operational costs'.[30] What Jashan was, and continues to seek, is rent relief in the form of more than 50% by waiver of rent. This requires consideration of cl 7(7) of the Code.
Proper construction of cl 7(7) of the Code
[30] ts 45, 5 May 2022.
As already stated, the landlord does not contest cl 7(7)(b) of the Code. That is, the landlord is not challenging that it has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent.
This leaves cl 7(7)(a) of the Code which provides that an offer of rent relief by the landlord must provide that more than 50% of the rent relief is to be in the form of a waiver of rent if failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise Jashan's capacity to fulfil its ongoing obligations under the small commercial lease for each of the Café and the Restaurant.
At that time the landlord made the offer to Jashan (June 2020), Jashan stated that it had provided monthly sales decline figures to the landlord, which is what the SBDC told Jashan to do.[31]
[31] ts 67, 5 May 2022.
The monthly sales decline figures reflect the decline in income only. As already noted, the monthly sales figures do not reflect the outgoings, and therefore, in my view, it is not possible to know what the financial position was for either the Café or the Restaurant during the emergency period.[32]
[32] ts 67, 5 May 2022 and HB at page 137.
Importantly, besides the monthly sales decline figures, no other financial information was provided by Jashan to the landlord.[33] [34]
[33] ts 68, 5 May 2022.
[34] ts 86, 5 May 2022.
It is the evidence of Jashan that the landlord never asked it to produce any additional information, financial or otherwise relating to what Jashan described as its 'continual claim of financial hardship'.[35] Jashan's understanding was that it was asked by the landlord:[36]
[T]o provide a monthly sales in decline figures, and the landlord's agent would then apply the appropriate rent relief as they see fit and would generate credit note against the invoices[.]
[35] Ibid.
[36] ts 60, 5 May 2022.
Mr Meneghello confirmed that the only information the landlord requested from Jashan was the ongoing monthly income figures in order to raise the credit for rent relief.[37]
[37] ts 78, 5 May 2022.
Apart from two emails (one from SBDC and another email dated 16 June 2020 to follow up the landlord) which were not before the Tribunal, Mr Parihar confirmed that all the correspondence between the parties is set out in Exhibit 1.
Mr Meneghello conceded that he did not reply to every email received from Jashan. Rather, it is Mr Meneghello's evidence that he replied to Jashan when instructed to do so by the landlord. While Jashan took offence to the failure of Mr Meneghello not responding to some of the emails, in my view, nothing turns on this in this case.
In any event, I note that in Exhibit 1 there is a significant amount of correspondence between the parties from March 2020 to February 2021 which included about eight items of correspondence in the month of June 2020. I am satisfied that the landlord did not simply ignore Jashan but responded to correspondence sufficiently regularly and as necessary to address questions raised by Jashan.
Referring to Abbotts, Jashan's position is that the starting point in relation to the proper construction of cl 7(7)(a) of the Code, and specifically the meaning of the expression 'would compromise the tenant's capacity to fulfil its ongoing obligation' is to be considered in its context of the provision, in its statutory context, including the statute, purpose and objective.
Further, Jashan submits citing Mohammadi v Bethune [2018] WASCA 98 at [32], Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69] and the CityofFremantle v Imago Holdings Pty Ltd [2020] WASCA 61 at [66] that cl 7(7)(a) of the Code must be construed so that it is consistent with the language and purpose of all the provisions of the Covid Response Act and the Covid Regulations which were expressed as follows in Palmart Pty Ltd and Palina Holdings Pty Ltd [2022] WASAT 20 at [24]:
From the provisions of the COVID Response Act and the Code, the primary purpose of the COVID Response Act is to provide speedy relief for tenants under commercial leases experiencing a decline in turnover as a direct result of the COVID-19 pandemic and that Parliament intended that landlords and tenants would act in good faith in negotiating that relief, whether it be in the form of a waiver and/or deferral of rent.
In further support of its position, Jashan referred me to the Parliamentary debate of the Legislative Assembly dated 16 April 2020 at page 2273 where the Hon Minister JR Quigley, Minister for Commerce, stated in Parliament:
The purpose of the Covid Response Act is to support the continuity of commercial tenancy during what is likely to be a period of significant social and economical upheaval caused by changes in behaviour resulting from the spread or risk of spread of covid-19 in our state.
I respectfully agree with Jashan's position that cl 7(7)(a) of the Code including the meaning of the expression 'would compromise the tenant's capacity to fulfil its ongoing obligation' is to be considered in its context of the provision and in its statutory context, including the statute, purpose and objective. However, in my view, it is not necessary to refer to the Parliamentary debate (see above at [30]).
In setting out the proper construction of cl 7(7)(a) of the Code, I start by noting that cl 7(7) of the Code does not require the landlord to provide rent relief greater than the proportionate decline in turnover suffered by the tenant.
However, the landlord is obligated by cl 7(7)(a) of the Code, when it receives an application for rent relief from the tenant, to consider whether to offer rent relief in the form of more than 50% rent waiver. The time this consideration must be made by the landlord is, in my view, at the time the written request for rent relief is received from the tenant but by reference to the tenant's future state of financial affairs at an indeterminate time. In this case the initial request for rent relief was made by Jashan in March 2020. There were a number of subsequent requests made by Jashan to the landlord during the emergency period asking the landlord to reconsider its position. In my view, at the time each written request is received from the tenant, the landlord is required to assess what the tenant's future state of financial affairs will be at an indeterminate time when the tenant seeks rent relief in the form of more than 50% rent waiver. That indeterminate time would, in my view, be when the deferred rent becomes payable following the end of the emergency period. In other words, the landlord is required to, having considered and assessed the information before it, determine if Jashan's capacity would be compromised to meet its lease obligations when the deferred rent becomes payable following the end of the emergency period.
The phrase would compromise is used cl 7(7)(a) (as opposed to may compromise or is likely to compromise or could compromise). The phrase is not defined in cl 7(7)(a).
The word 'would' is the past tense of the word 'will'.[38] The term 'compromise' ordinarily means to make liable to danger or to involve unfavourably.[39] In my view, in the context of the Covid Response Act, the term 'would comprise' imports a degree of certainty (that being an unfavourable financial position for the tenant) regarding the consequences if the landlord failed to provide rent relief in the form of more than 50% rent wavier.
[38] Macquarie Online Dictionary.
[39] Ibid.
In my view, it will not be sufficient for the landlord to conclude that Jashan may compromise or is likely to compromise or could compromise its capacity to fulfil its ongoing obligations under the leases. The landlord must positively conclude on reasonable grounds with a degree of certainty that Jashan would compromise its capacity to fulfil its ongoing obligations under the leases if rent relief in the form of more than 50% waiver is not provided by the landlord in order for cl 7(7)(a) of the Code to apply.
Returning to the consideration or assessment by the landlord. In my view, the consideration or assessment would necessitate an informed consideration by the landlord, based on a range of financial factors likely to exist at some time in the future when the deferred rent would be payable following the end of the emergency period. This consideration or assessment by the landlord would be informed by the tenant's state of affairs existing at that time (that is when the landlord received the request for rent relief).
The type of matters that would, in my view, need to be taken into consideration by the landlord in undertaking its consideration and assessment of the tenant's state of affairs when deciding what rent relief offer to make to the tenant under cl 6 of the Code, would include (but are not limited to):
a)the tenant's' trading conditions and whether they are likely to get worse or improve;
b)the financial resources of the tenant at the time of the request and what the financial resources will likely be when the deferred rent would become payable;
c)the profit margin the tenant operates at and whether that is likely to get worse or improve;
d)the duration of the lease before expiry;
e)the financial obligations of the tenant at the time of the request for rent relief and what those obligations will likely be when the deferred rent would become payable; and
f)the net asset position of the tenant at the time of the request for rent relief and what the position will likely be when the deferred rent would become payable.
The parties have an overarching obligation in undertaking negotiations for the purposes of the Code to act cooperatively, reasonably and in good faith as well as in an open, honest and transparent manner (cl 4 of the Code). This requires, in my view, that the tenant provide sufficient information to the landlord in order for the landlord to undertake an informed consideration and assessment of the tenant's position in order for it to determine if rent relief in the form of more than 50% rent wavier is not given that would compromise Jashan's capacity to fulfil its ongoing obligations under the leases.
Finally, while it is clear that the intention of the Code, as submitted by Jashan, is to minimise the burden on the tenant with respect to producing detailed financial information as provided by cl 5(2)(c) of the Code, it is, in my view, incumbent on the tenant (Jashan in this case), who is the party that initiates the request for rent relief under cl 6 of the Code, to provide sufficient detailed financial information at the time it makes its request for relief to enable the landlord to undertake an informed consideration and assessment as to whether or not the rent relief offered must be in the form of more than 50% rent waiver because to not do so would compromise Jashan's capacity to fulfil its ongoing obligations under the leases.
Application of cl 7(7) of the Code
Jashan's contention that it provided sufficient and accurate information to the landlord for it to offer rent relief by waiver in excess of 50% cannot be accepted. There are two reasons for this. First the parties agree that the only correspondence between the parties is documented as set out in Exhibit 1 and the only information provided by Jashan to the landlord was the monthly turnover figures. As noted earlier the monthly turnover figures only show income but do not show expenses and whether a net profit or net loss was made for the month. For example, turnover (income) may have decreased however non-fixed expenses may have decreased correspondingly. Consequently, in my view, it would not be possible for the landlord to determine from the turnover figures, without any other information, whether Jashan would compromise its capacity to meet its ongoing obligations under the leases if rent relief in the form of more than 50% rent waiver was not offered.
Second, the Code is drafted to require the tenant (Jashan) and not the landlord to commence the request for rent relief. Clause 6(1) of the Code clearly provides that on receipt of a written request for rent relief from an eligible tenant that meets certain requirements, that the landlord must offer rent relief.
Therefore, in my view, if Jashan was seeking rent relief in the form of more than 50% rent waiver then it was incumbent on Jashan to provide information to the landlord to support its position that if more than 50% waiver was not offered then Jashan's would compromise its capacity to meet its ongoing obligations under the leases.
Jashan failed to provide any information apart from the turnover (income) figures. In my view, it is not acceptable, for Jashan to say that it asked the landlord repeatedly if the landlord wanted more information and if so, to ask for it and it would then provide it.
Further, bearing in mind cl 4(e) of the Code which provides that a party must not make onerous demands for information, it was entirely appropriate, in my view, for the landlord not to demand information. Rather, in my view, it was up to Jashan to provide the information it considered would support is position that if the rent relief offered was not in the form of more than 50% rent waiver that it would compromise its capacity to meet its ongoing obligations under the leases.
In my view, on the information before the landlord at the time of Jashan's requests for rent relief were made, being the monthly turnover (income) figures, the landlord would not have been able to reach the conclusion wanted by Jashan, that is if rent relief was not in the form of 50% or more rent waiver then Jashan would compromise its capacity to meet its ongoing obligations under the leases.
In conclusion, in my view, Jashan did not at the various times it requested rent relief provide sufficient information, such as details of its financial commitments, to the landlord in order for the landlord to undertake an informed assessment of the tenant's state of affairs to determine if more than 50% waiver of the rent relief offered was not given then Jashan would compromise its capacity to meet its ongoing obligations under the lease.
Finally, some information (such as the ANZ statements and the profit and loss statements) were provided to the Tribunal as part of Exhibit 1. However, they were not provided to the landlord when Jashan made its repeated requests for rent relief. In my view, the Code does not require the landlord (or the Tribunal) to now (at the date of the hearing) consider the information in Exhibit 1, which was not before the landlord at the relevant time, to determine if cl 7(7)(a) of the Code would apply in Jashan's case.
This leads me to the final issue for determination, whether in any event, the orders sought by Jashan should be made.
Issue 4 - whether, in any event, the Tribunal ought to make the orders sought by Jashan?
Jashan contends that, pursuant to cl 11 of the Code, the landlord should have waived recovery of any outgoings or other expenses payable by it under the leases for part of the emergency period that Jashan was not able to conduct its business at the premises during the lockdown periods of 30 March 2020 through to 18 May 2020 and from 1 February 2021 to 6 February 2021 (the lockdown periods).
According to Jashan, it has paid all outgoings for the Restaurant except for the period 1 April 2020 to 18 May 2020 in the amount of $5,991.83. Further, Jashan says it has paid all utility bills (gas and electricity) in respect of the Restaurant for the emergency period.[40]
[40] HB at page 415.
In respect of the Café, Jashan says it has paid all outgoings except for the period 1 April 2020 to 18 May 2020 in the amount of $2,797.95 and for the period 1 January 2021 to 28 March 2021 (amount not provided by Jashan). Further, Jashan says it has paid all utility bills (gas and electricity) in respect of the Café for the emergency period except for the period 1 January 2021 to 28 March 2021 (amount not provided by Jashan).[41]
[41] Ibid.
Clause 11 of the Code provides:
11. Recovery of outgoings and other expenses
(1)This clause applies if —
(a)the tenant under a small commercial lease is an eligible tenant in relation to the small commercial lease; and
(b)for any part of the emergency period, the tenant is not able to conduct their business at the land or premises that are the subject of the small commercial lease.
(2)The landlord under the small commercial lease must consider waiving recovery of any outgoing or other expense payable by the tenant to the landlord under the small commercial lease for the part of the emergency period that the tenant is not able to conduct their business at the land or premises.
(3)The landlord may cease to provide, or reduce provision of, any service at the land or premises —
(a)as is reasonable in the circumstances; or
(b)in accordance with any reasonable request of the tenant.
It is useful to start by considering s 17 of the Covid Response Act regarding the Tribunal's power to make orders. The section relevantly provides:
17.Tribunal's powers to make orders
…
(2)Without limiting any power to make an order that is conferred by the State Administrative Tribunal Act 2004 (WA) in proceedings under this Act the Tribunal may make any order that it considers appropriate to resolve the dispute or proceedings.
(3)Without limitation, the orders that can be made by the Tribunal include the following —
(a)an order that requires a party to the proceedings to pay money to a specified person;
(b)an order for a party to the proceedings to do, or refrain from doing, any specified thing;
(c)if the proceedings relate to a code of conduct dispute - any order that the Tribunal considers appropriate to give effect to the approved code of conduct including, without limitation, one or both of the following —
(i)an order that a specified amount of rent payable under the lease to which the dispute relates be waived for a specified period;
(ii)an order that a specified amount of rent payable under the lease to which the dispute relates be deferred and paid in a specified timeframe;
(d)if the proceedings relate to a financial hardship dispute - an order terminating the small commercial lease;
(e)an order dismissing the proceedings;
(f)any ancillary order that the Tribunal considers necessary for the purpose of enabling an order under this section to have full effect.
(4)In making an order in proceedings under this Act relating to a code of conduct dispute, the Tribunal must have regard to —
(a)the financial impact of the COVID-19 pandemic on the tenant's business and capacity to meet the tenant's obligations under the lease; and
(b)the landlord's financial capacity; and
(c)the principles of proportionality and fairness, and any other relevant principles, set out in the adopted code of conduct.
…
(7)An order of the Tribunal requiring anything to be done or discontinued may fix the time within which that thing is to be done or discontinued, as the case may be.
(8)In proceedings under this Act, the Tribunal may allow any equitable claim or defence, and give any equitable remedy, that the Supreme Court may allow or give.
The terms 'code of conduct dispute' and 'dispute' referred to in s 17 of the Covid Response Act are defined in s 14 of the Covid Response Act as follows:
code of conduct dispute means a dispute that arises out of, or in relation to, the application of the adopted code of conduct in relation to a lease (including, without limitation, a dispute about the waiver or deferral of rent payable under a lease);
…
dispute -
(a)means a dispute between the parties to a lease, or 1 or more parties to a lease and a person who has given a guarantee in respect of the lease, that arises out of, or in relation to, the operation of this Act; and
(b)includes —
(i)a code of conduct dispute; and
(ii)a financial hardship dispute;
It is common ground the dispute between the parties is a Code of Conduct dispute.[42] In such a case, s 17(3)(c) of the Covid Response Act empowers the Tribunal to make any order that it considers 'appropriate to give effect to the Code of Conduct including, an order that a 'specified amount of rent payable under the lease be waived for a specified period or deferred and paid in a specified timeframe'. Importantly, there is no specific power conferred upon the Tribunal to order that any outgoing be waived or deferred.
[42] Although Jashan suggested during the hearing that it was also a 'financial hardship dispute' that cannot be accepted as the landlord has granted waiver or deferral in respect of the unpaid rent (see s 14(2) of the Covid Response Act).
Clause 11 of the Code identifies the principles applicable to relief for outgoings payable under the leases. There is no requirement for the tenant, in this case Jashan, to request relief for outgoings. The landlord is obligated to consider waiving the recovery of outgoings payable by the tenant 'for the part of the emergency period that the tenant is not able to conduct their business at the … premises'.
In considering what order, if any, the Tribunal should make under s 17 of the Covid Response Act to resolve the Code of Conduct dispute, I will need to consider: the financial impact of the COVID-19 pandemic on Jashan's' business and capacity to meet Jashan's' obligations under the lease; the landlord's' financial capacity and the principles of proportionality and fairness; and any other relevant principles set out in the Code (s 17(4) of the Covid Response Act).
The landlord does not contend that it does not have financial capacity. I will therefore accept that the landlord has financial capacity in considering what order, if any, the Tribunal should make under s 17 of the Covid Response Act to resolve the Code of Conduct dispute.
Given the principles to be applied by s 17(4) of the Covid Response Act and clauses 7 and 11 of the Code, the Tribunal may exercise its discretion when waiving rent to waive a greater percentage of rent than is reflected by the reduction in the tenant’s turnover to balance the outgoings to be paid by the tenant.
Exercise of Tribunal's discretion to make orders
It is acknowledged by Jashan that it received invoices from the landlord showing rent payable under the leases. Having received the invoices, Jashan said it provided a statement of its actual turnover (income) for the period covered by the invoice and then the landlord gave a credit note against the rent payable.[43] In addition, it is common ground that Jashan received relief by way of a proportionate reduction in its outgoings under the leases for the entire emergency period.
[43] Ibid.
However, Jashan stresses that its application was for rent relief only and not for outgoings apart from the 'lockdown periods', or a combined period of about seven weeks. It is for this reason that Jashan stated that in its accounting records, it has not discounted the outgoings.[44]
[44] ts 61, 5 May 2022.
To repeat, Jashan's position is that it accepts it was given rent relief by the landlord. However, Jashan says it does not agree with the rent relief offered because the landlord has failed to offer rent relief in the form of more than 50% rent waiver.
Mr Parihar suggests that when the landlord changed its lawyer, the landlord started a 'campaign of engineered default by Jashan' under the leases which was for the purpose of escaping a market rent review in respect of the Restaurant which was due on 23 January 2022.[45]
[45] Ibid.
The landlord strongly refutes Jashan's allegation of the prosecution of a campaign by the landlord against Jashan.
No evidence was adduced about this alleged 'campaign' against Jashan. Further, Jashan did not question Mr Meneghello about this when it had the opportunity to do so at the hearing.
While I accept the landlord issued default notices following the emergency period, as it was entitled to do under the leases, and that there is much correspondence between the parties, Jashan's concern of a 'campaign' is, in my view, without substance and I will not consider it further.
Prior to March 2020, Jashan stated it was profitable.[46]
[46] ts 61, 5 May 2022.
Mr Hammond explained that Mr Parihar and Ms Santosh Parihar made a 'significant investment' in the Café and the Restaurant between March 2020 and March 2021. Mr Parihar says these investments were made to demonstrate to the landlord their commitment to the Café and the Restaurant and to ensure they had a long-term future and that once the rents were reviewed, the Café and the Restaurant would be able to repay these investments to himself and Ms Parihar.[47]
[47] ts 46, 5 May 2022.
Jashan contends that even though the landlord was not aware that Mr and Ms Parihar had deposited in excess of $200,000 from their ANZ savings into Jashan from September 2020,[48] the landlord had Jashan’s 'financial numbers' from when COVID-19 started (March 2020) and that Jashan had asked the landlord to reconsider its position many times. It is on this basis that Jashan says that the landlord knew it was under 'financial stress' from March 2020 when it told the landlord that its sales were down 80% and reiterated this including on 16 June 2020 when Jashan stated in its email to the landlord in part:[49]
[S]o even before we come to June and think of rebuilding business, the business is in debt by $43,843.17 plus outgoings ($9,291.92), loss of stock and other debts, how does the landlord expect these businesses to survive? The total debt before a single day of trade in June will be close to 200% the total sale projected.
[48] ts 64, 5 May 2022.
[49] ts 65, 5 May 2022 and HB at pages 582 and 603.
While it was not contested that Jashan has taken steps to keep the Restaurant and Café operating during the emergency period whereby Jashan received Jobkeeper and Mr Parihar and Ms Parihar contributed amounts totalling in excess of $200,000 to Jashan, it is notable that ANZ deferred the interest and the principal repayments on Jashan’s business loan. That is, ANZ did not waive any of the interest or any of the principal repayments.
In regards to the entity, Jashan, Mr Hammond explained that Jashan only operated the Café and the Restaurant and in his view, Jashan was solvent prior to the emergency period in that it was able to pay its debts as and when due.
However, considering the net loss for the Café and the Restaurant, Mr Hammond said, in his view (as an accountant), the Café and the Restaurant were insolvent as they are not able to pay their debts as and when they fell due.[50] When asked whether Jashan became insolvent during the emergency period, Mr Hammond's response was a clear 'no'.[51]
[50] ts 38-39, 5 May 2022.
[51] ts 39, 5 May 2022.
Finally, Mr Hammond stated that Jashan had 'become insolvent' (but without specifying when) and that it is 'no longer trading but has not been wound up'.[52]
[52] Ibid.
I find that the entity, Jashan, was not insolvent during the emergency period (per the evidence of Mr Hammond), which means Jashan was able to pay its debts as and when due during the emergency period.
Jashan engaged in a series of communications with the landlord from November 2020 to January 2021 concerning the exercise of its option to extend the lease for a period of 10 years. The principal issue, according to Jashan, was to have a market rent review so that the rent would be reduced.[53] Mr Parihar stated that Jahan's 'only key to success or only key to recovery was that market rent valuation'.[54]
[53] ts 62, 5 May 2022.
[54] ts 87, 5 May 2022.
The landlord submits that the request by Jashan is a 'retrospective or post-active attempt to reduce Jashan's potential indebtedness under the leases'.[55]
[55] ts 85, 5 May 2022.
In November 2020 Jashan exercised its option to extend the lease for the Café but by 18 January 2021 Jashan sought to exit the same lease. The landlord agreed for Jashan to exit the lease for the Café. There is a dispute about whether Jashan exercised the option to extend the lease for the Restaurant.
In my view, until 18 January 2021 (about two months before the end of the emergency period) Jashan was optimistic about the future by wanting to exercise the option for a further 10 year term on each of the leases and wanted to have a market rent review. There is nothing in the communications from Jashan to the landlord regarding exercising the option for extending the leases where Jashan sought rent relief in the form of more than 50% rent waiver as a requirement in order for Jashan to be able to exercise its option.[56] Consequently, in my view, it is understandable that the landlord would have understood that there were no issues or difficulties with the state of Jashan's financial affairs up to at least late January 2021. In addition, there was no financial information put to the landlord by Jashan at the time it asked to exit from the lease.
[56] ts 62-63, 5 May 2022.
Notwithstanding cl 7(7)(a) of the Code, Jashan urged the Tribunal to exercise its discretion to grant (further) rent relief. Jashan reiterated that the landlord and its agent, Frank Knight, failed to engage with Jashan at any time concerning Jashan's request for rent relief.
Mr Parihar believes that he made every possible attempt to communicate with the landlord and to bring it to the table to discuss the financial issues with the Café and the Restaurant and that he worked very hard to keep the doors open as he wanted to operate a successful business coming out of the covid pandemic, but the approach of the landlord was hostile and non-negotiable. I do not accept that the landlord's approach to Jashan was hostile and non-negotiable. Exhibit 1 reflects the correspondence between the parties. Nothing in the correspondence suggests the landlord was hostile or was not willing to negotiate rent relief with Jashan.
The Code provides for a balance to be struck between the interests of the tenant (Jashan in this case) and the landlord. That balance is for rent to be reduced proportionately to reductions in turnover and for that reduction to be 50% waiver and 50% deferral, unless to not do so would cause, in effect, the tenant to breach its obligations under the lease.
The landlord has given Jashan rent relief whereby it has waived $124,344.30 (50% waiver) for the period April 2020 through to March 2021 for the Restaurant and $75,097.91 (50% waiver) for the Café. Similar amounts were deferred by the landlord, that is $124,344.30 for the Restaurant and $75,097.91 for the Café. In addition, the landlord provided proportionate reduction in outgoings for the whole of the emergency period (and not just for the lockdown periods). Further to that, the landlord provided relief for a short period (23 March 2020 to 29 March 2020) prior to the start of the emergency period.
Jashan has not made any payment towards the deferred rent amounts.[57]
[57] ts 92-93, 5 May 2022.
In its closing submissions, Jashan urged the Tribunal to make an order that the landlord not pursue it for the deferred rent amounts (see above at [7] for the deferred rent amounts).[58] In effect, what Jashan seeks is for the rent deferred amounts to be waived (that is, not recovered).
[58] Ibid.
The landlord has already issued default notices to Jashan for the outstanding deferred rent amounts.[59]
[59] Ibid.
Jashan provided a Profit and Loss Statement for the period April to June 2020 and from July 2020 March 2021. These statements were created on 12 August 2021 (in response to an order to file documents on which Jashan intended to reply in these proceedings) and shows a net loss.[60] Jashan's contention that it's 'only key to success or only key to recovery was that market rent valuation'[61] cannot be accepted. This is because the profit and loss statement shows that wages expense (including staff expense and other payroll expenses) far exceeds the amount incurred for rent and outgoings. In addition, the profit and loss statement reflects amounts for discretionary spending including for entertainment and donations.
[60] HB at pages 328-329.
[61] ts 87, 5 May 2022.
Finally, a balance sheet for Jashan as at 31 March 2021 (or any other date) was not provided to the Tribunal. Besides the ANZ loan, where the interest and the principal repayments have been deferred by ANZ, and that Jashan was solvent during the emergency period, the net asset position of Jashan is not known.
As noted earlier, the Code provides for a balance to be struck between the interests of tenants and landlords. That balance is for rent (but not for outgoings) to be reduced proportionately to reductions in turnover and for that reduction to be in the form of relief by 50% waiver and 50% deferral unless to not do so would effectively cause the tenant, in this case, Jashan, to breach its obligations under the leases.
Having considered cl 7, 11 and 17(4) of the Code, in my view, the relief offered by the landlord to Jashan under the Covid Response Act, by way of both waiver and deferral of outgoings for the whole of the emergency period that was proportionate to the downturn in Jashan’s turnover, was fair and proportionate. This means, in my view, that Jashan is not entitled under the Covid Response Act to any (further) relief for the emergency period other than that already provided by the landlord.
Conclusion
Having considered all the evidence before the Tribunal, I am not satisfied that I should exercise the Tribunal's discretion under s 17 of the Covid Response Act to make the orders sought by Jashan.
For the foregoing reasons, Jashan's application is unsuccessful.
Orders
The Tribunal orders:
1.The application is dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS R PETRUCCI, MEMBER
18 JULY 2022
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