Michael John Parsons v Saville Hotel Group Pty Ltd T/as Mantra on Northbourne (Civil Disputes) - [2009] ACAT 18

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

Michael John Parsons v Saville Hotel Group Pty Ltd t/as Mantra on Northbourne (Civil Disputes) [2009] ACAT 18

XD 82701 of 2008
Catchwords: LESSOR AND LESSEE – Rent – provisions as to rent in lease – rent review clause – action to recover rent

CONTRACT – Lease - serviced apartments – rental review – rental apportionment – identical treatment for equivalent apartments – percentage increase in rent from different rent base – unconscionable conduct in business transactions – s51AC Trade Practices Act
Trade Practices Act 1974 (Cth), ss 51AC, 82, 86(2)
ACT Civil and Administrative Tribunal Act 2008 (ACT), ss 15, 16, 17, 22
Magistrates Court Act 1930 (ACT), s258
ACT Civil and Administrative Tribunal (Transitional Provisions) Regulations 2009 (ACT), s50

Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 169 ALR 324
Legione v Hateley (1983) 152 CLR 406

Tribunal:Professor P. Spender, Presidential Member

Date of Order: 7 May 2009

Date of Reasons
for Decision: 30 June 2009

AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 82701 of 2008

MICHAEL JOHN PARSONS
Applicant

AND

SAVILLE HOTEL GROUP PTY LTD T/AS MANTRA ON NORTHBOURNE

Respondent

Tribunal: Professor P. Spender, Presidential Member

Date of Order: 7 May 2009

ORDER

The Tribunal awards the applicant the sum of $975 plus costs plus interest.

…………………………

Presidential Member

AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 82701 of 2008

MICHAEL JOHN PARSONS
Applicant

AND

SAVILLE HOTEL GROUP PTY LTD T/AS MANTRA ON NORTHBOURNE

Respondent

REASONS FOR DECISION

This is a claim by Michael John Parsons (the applicant) against Saville Hotel Group Pty Ltd trading as Mantra on Northbourne (the respondent). The applicant has claimed further rent for the premises at Apartment 513, Mantra on Northbourne, 84 Northbourne Ave Braddon (‘Mantra on Northbourne’). Mantra on Northbourne is a 9 storey concrete building plus two basement levels which is comprised of 123 self-contained serviced apartments. The apartments are owned by individuals but the Mantra on Northbourne complex is managed under lease by the respondent. The owners of individual apartments lease their apartments in Mantra on Northbourne to the respondent.
The applicant’s claim asserts that the premises attract 65 entitlement points under the Unit Entitlement Schedule which is contained within the Units Subdivisional Plan No.1704 pertaining to Mantra on Northbourne and that he should receive additional rent of $975 per annum due to a comparison with units in the complex with identical entitlement points. The claim was for the period 19 October 2007 to 30 November 2008 inclusive. The applicant claimed this sum as a debt due from the respondent.
The lease of the premises between the previous owner of the premises, Scott Brothers Pty Ltd and the respondent commenced on 19 October 1998, initially expiring on 18 October 2008 but with 3 further terms of 5 years each. The lease was executed on 15 October 1998. As a subsequent owner of the premises, the applicant became lessor of the premises and the respondent was the lessee.
Clause 3 of the lease stated that the rent is payable in accordance with the schedule to the lease (the schedule). Clause 5.4 of the schedule set out the basis upon which the rent will be reviewed on the rent review dates. The rent review dates were the 3^rd, 6^th and 9^th anniversaries of the date of commencement of the lease; being 18 October 2001, 18 October 2004 and 18 October 2007 respectively. Clause 5.4 of the schedule set out a procedure for review of the rent on the rent review dates. This procedure, inter alia, allowed for the review of the rent by an appointed valuer in certain circumstances.
On 15 July 2004 Mr Paul English, the General Manager of Mantra on Northbourne, on behalf of the respondent, wrote to all the lessors of the apartments in Mantra on Northbourne indicating that a rent review pursuant to the schedule was to take place for the 6^th anniversary of the lease. In that letter Mr English provided all lessors with a Lessee’s Notice of Reviewed Rent for each apartment pursuant to Clause 5.4(b) of the schedule (‘2004 Lessee’s Notice of Reviewed Rent’). The offer made by Mr English in the letter was that the reviewed rent applicable to each of the apartments in Mantra on Northbourne from 19 October 2004 would remain the same as the rent that applied in the preceding period, that is from 19 October 2001 to 18 October 2004.
The applicant objected to the 2004 Lessee’s Notice of Reviewed Rent and CB Richard Ellis (V) Pty Ltd (Richard Ellis) was appointed by the respondent to make a rental determination pursuant to Clause 5.4 of the schedule. Mr Peter Grieve of Richard Ellis wrote to the applicant on 25 October 2004 advising him of the appointment.
Page 4 of the letter dated 25 October 2004 made the following comment:

We also note that a Serviced Apartment business does not operate on a singular apartment basis, a competent operator requires an economic quantity of apartments. In our opinion the appropriate rental assessment methodology is one which determines the market rental for all apartments, this total rental thereby apportioned to individual apartments.

On 6 December 2004 Richard Ellis provided a rental valuation to Mr English. Page 7 of that valuation makes the following comment:

It is also a fact that like apartments are, in accordance with the Unit Plan Entitlement Schedule, to be treated the same, regardless of the occupancy of any singular apartment compared with the average for the whole. In this sense therefore the structure of the investment is via a pooling of resources from which the Entitlement Schedule is the reference for apportioning the rental to the individual apartments.

A similar approach was adopted by Richard Ellis in its letter to the applicant dated 3 December 2004 when discussing the rental valuation of entire property at Manta on Northbourne. This letter was tendered into evidence by the applicant during the hearing and marked Exhibit A. On page 5 of the letter the following is stated:

Rental Apportionment
It is an important consideration in this rental determination to recognize that the tenancy of the premises is undertaken by the lessee on the basis of tenancy over all the apartments as opposed to piecemeal agreements with the various lessor’s [sic] of the apartments. Accordingly, the assessment of current market rental has been completed on a single holding basis and apportioned to those apartments falling within the ambit of this rental determination. This apportionment is undertaken on the basis of the Unit Entitlement Schedule which is contained within the Units Subdivisional Plan No.1704 pertaining to this property.

A letter from Mr Grieve to Mr English dated 6 December 2004 provided the rent valuation conducted on the premises and a number of the other units at Mantra on Northbourne. On page 8 of this letter Richard Ellis placed a rental value of $12,157.00 per annum on the premises.
Other lessors of the apartments at Mantra on Northbourne had accepted the rent proposed by the respondent in the 2004 Lessee’s Notice of Reviewed Rent. Had the applicant accepted the offer in the 2004 Lessee’s Notice of Reviewed Rent the rent that would have applied to the premises for the period 19 October 2004 to 18 October 2007 would have been $13,052.00. Therefore the rental value placed on the premises by Richard Ellis was $895.00 per annum less than the amount offered by the respondent in its 2004 Lessee’s Notice of Reviewed Rent. The applicant was paid rent at the rate of $12,157.00 per annum for 3 years
The respondent sent a Lessee’s Notice of Reviewed Rent dated 30 June 2007 to all the lessors of apartments at Mantra on Northbourne pertaining to the 9^th anniversary of the date of the commencement of the lease, operative from 18 October 2007 (‘2007 Lessee’s Notice of Reviewed Rent’). In this notice the respondent offered to the lessors an increase of 18.5% over the current rent level. By this stage many of the lessors with an equivalent unit entitlement to that of the applicant were paid a higher rent that the applicant due to their reliance upon the 2004 Lessee’s Notice of Reviewed Rent.
As the 2007 Lessee’s Notice of Reviewed Rent was linked to the base amount of the rent that was payable on the 2004 rental determinations, the lessors with equivalent unit entitlements who had accepted the 2004 Lessee’s Notice of Reviewed Rent would receive a higher rent than the applicant for the 3 years following 18 October 2007.
Although the applicant formally accepted the offer by the respondent in the 2007 Lessee’s Notice of Reviewed Rent, he subsequently queried the rent that he was to receive for the premises when he learned that that the lessors of equivalent apartments were receiving a higher amount. The applicant wrote to the Manager at Mantra on Northbourne raising this query on 28 Feburary 2008. On 21 April 2008 Mr English wrote to the applicant rejecting the suggestion that there had been an error in the calculation of rent payable to some apartment owners as a result of the rental review in 2007 and confirming that an increase of 18.5% was made to all unit owners and that the applicant had accepted this offer in respect of his particular apartment.
In his claim lodged with the Small Claims Court on 2 December 2008, the applicant claimed additional rent for the premises on the basis that the premises attracted 65 entitlement points under the Unit Entitlement Schedule and he was entitled to receive a further $975 per annum because this additional amount was being paid to lessors with identical unit entitlement points during the period 19 October 2007 to 30 November 2008.
By virtue of section 50 of the ACT Civil and Administrative Tribunal (Transitional Provisions) Regulations 2009 (ACT) and because a hearing of the claim had not commenced prior to 14 February 2009, it is deemed to be a civil dispute application lodged with the ACT Administrative and Civil Tribunal (‘the Tribunal’) under section 17 of the ACT Civil and Administrative Tribunal Act 2008 (ACT) (‘the ACAT Act’).
The respondent argued that the applicant had accepted its offer in the letter of 30 June 2007 and this was purely a question of contract. It submitted that because the applicant had accepted its offer of an 18.5% increase on the 2004 valuation, that was the end of the matter: a contract had been formed for the sum represented by an 18.5% increase on $12,157 per annum as opposed to the higher figure of $13,052.00 that would have been payable had the applicant accepted the respondent’s original offer in the 2004 Lessee’s Notice of Reviewed Rent.
However, the documents provided by the applicant in Exhibit A and a bundle of documents, which included the lease and correspondence between the respondent, applicant and Richard Ellis, that was tendered by the respondent (marked Exhibit B) indicates that the premises were valued as part of a pooling arrangement for all the apartments in Mantra on Northbourne. The comments by Richard Ellis above illustrate clearly the methodology that was to apply to the payment of rent on the apartments.
In submissions during the hearing, the respondent argued that the applicant was treated on an identical basis to other lessors, that is, he received an 18.5% increase on the 2004 rent.
This proposition is inaccurate as it cannot be said that a percentage increase from a lower base gives rise to the same rental return. The respondent did not contest that the amount claimed by the applicant, that is $975, would have been payable to the applicant for relevant period pursuant to the unit entitlement on the premises had the applicant accepted respondent’s original offer in the 2004 Lessee’s Notice of Reviewed Rent.
The respondent seeks to rely upon alleged contractual rights which flow the applicant’s acceptance of the terms of the 2007 Lessee’s Notice of Reviewed Rent. However, the applicant erroneously assumed that all lessors at Mantra on Northbourne were receiving the same rental pursuant to the understanding that the rental of apartments at Mantra on Northbourne is assessed collectively and apportioned identically between the lessors based on their unit entitlement.
The respondent has statutory obligations which operate over and above these alleged contractual rights. In particular it has statutory obligations not to engage in unconscionable conduct in business transactions pursuant to s51AC of the Trade Practices Act 1974 (Cth) (‘Trade Practices Act’). That provision imposes certain obligations upon the respondent, as supplier, to the applicant as a business consumer in the supply or possible supply of services. Such supply or possible supply of services includes services provided by the respondent under the lease and pursuant to the management of Mantra on Northbourne.
Section 51AC relevantly states as follows:

Unconscionable conduct in business transactions
1. A corporation must not, in trade or commerce, in connection with:
a)the supply or possible supply of goods or services to a person

…
engage in conduct that is, in all the circumstances, unconscionable.
…
3. Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation or a person (the supplier) has contravened subsection (1) or (2) in connection with the supply…of goods or service to a person or a corporation (the business consumer), the court may have regard to:
f)the extent to which the supplier’s conduct towards the business consumer was consistent with the supplier’s conduct in similar transactions between the supplier and other like business consumers

[Emphasis added]

The court or tribunal may also take into account the extent to which the supplier unreasonably failed to disclose to the business consumer any intended conduct of the supplier that might effect the interests of the business consumer and any risks to the business consumer arising from the supplier’s intended conduct and, pursuant to section 51AC(3)(k):

k)the extent to which the supplier and the business consumer acted in good faith.

The concept of unconscionability describes conduct which shows no regard for conscience, that is, conduct which is irreconcilable with what is right or reasonable (Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 169 ALR 324 (‘Berbatis’) at [13] per French J). French J (as he then was) cited Parkinson’s proposal in The Notion of Unconscionability Laws of Australia 35.5 at p 8 that there are three broad standards underlying the doctrines of unconscionability:

i)That those in positions of strength or influence should not take advantage of another's relative weakness.
ii)That people should not by appeal to strict legal rights cause hardship to others by violating their reasonable expectations.
iii)That those in fiduciary positions should act only in the interests of those to whom those fiduciary duties are owed

Insofar as s51AC is referable to earlier doctrines in equity, an important principle of equity is that a party having a legal right (in this case an alleged contractual right) should not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct: Legione v Hateley (1983) 152 CLR 406 at 444 (Mason and Deane JJ), cited by French J in Berbatis at [14].
The Tribunal finds that the respondent has breached section 51AC by failing to pay the applicant the same rent for the premises as that enjoyed by other lessors at Mantra on Northbourne with the same unit entitlement. Although the respondent alleges that the applicant has been treated identically to the other lessors at Mantra on Northbourne, it cannot be said that a percentage increase from a lower rental base is identical to a percentage increase from a higher rental base. Relying upon the alleged contractual rights is irreconcilable with what is right or reasonable, therefore breaches section 51AC of the Trade Practices Act.
Accordingly, the Tribunal awards the applicant damages pursuant to section 82 of the Trade Practices Act assessed as the value of the difference between the rent that he received for the period 19 October 2007 to 30 November 2008 and the rent he would have received for a unit with identical entitlement points where the owner accepted the respondent’s original offer in the 2004 Lessee’s Notice of Reviewed Rent. This amount represents the damage suffered by the applicant pursuant to the unconscionable conduct engaged in by the respondent and will place the applicant in the position he would occupy if the unconscionable conduct had not occurred.
Although the applicant claimed the sum of $975 as a debt, he was entitled to make a civil dispute application to the Tribunal for this claim pursuant to section 17 of the ACAT Act. The definition of ‘civil dispute application’ in section 16 of the ACAT Act includes a ‘contract application’. This claim falls within the definition of ‘contract application’ in section 15 of the ACAT Act which means an ‘application in relation to a contract’.
Should it be necessary to do so, I grant leave to the applicant to amend his claim to a contract application.
The Tribunal has power to award damages pursuant to section 82(2) of the Trade Practices Act. In relation to civil dispute applications, section 22 of the ACAT Act states that the Tribunal has the same jurisdiction and powers as the Magistrates Court under Part 4.2 of the Magistrates Court Act 1930 (ACT). Relevantly, section 258 of that Act grants the Magistrates Court (and by corollary the Tribunal) the same power to grant any relief, redress or remedy that the Supreme Court may grant in a similar action in that court. Section 86(2) of the Trade Practices Act confers jurisdiction upon the Supreme Court to hear matters arising under Part IVA of the Trade Practices Act which includes section 51AC. The Supreme Court has power to grant relief by way of damages pursuant to section 82(1) of the Trade Practices Act for breaches of Part IVA.
The Tribunal therefore awards the applicant the sum of $975 plus costs plus interest.

I certify that the preceding thirty two (32) numbered paragraphs are a true copy of the Reasons for Decision herein of the ACT Civil & Administrative Tribunal.

Associate:

Date: 30 June 2009

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A FILE NO: XD08/82701

APPLICANT: MICHAEL JOHN PARSONS
RESPONDENT: SAVILLE HOTEL GROUP PTY LTD T/AS MANTRA ON NORTHBOURNE

COUNSEL APPEARING: APPLICANT:

RESPONDENT:

SOLICITORS: APPLICANT:

RESPONDENT: LEDLIN PARTNERS

OTHER: APPLICANT: SELF

RESPONDENT:

TRIBUNAL MEMBER: PROFESSOR PETA SPENDER

DATE OF HEARING: 7 MAY 2009 PLACE: CANBERRA

DATE OF DECISION: 7 MAY 2009 PLACE: CANBERRA

PART B

RECOMMENDATION:

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )

COMMENTS: