Mos Burger Australia Pty Ltd v Telado Pty and G &J Drivas Pty Ltd
[2023] QCAT 192
QUEENSLAND CIVIL AND
ADMINISTRATIVE TRIBUNAL
CITATION:
Mos Burger Australia Pty Ltd v Telado Pty and G &J Drivas Pty Ltd [2023] QCAT 192
PARTIES:
MOS BURGER AUSTRALIA PTY LTD (applicant)
v
TELADO PTY LTD
G & J DRIVAS PTY LTD(respondent)
APPLICATION NO/S:
RSL134-20
MATTER TYPE:
Retail shop leases matter
DELIVERED ON:
26 May 2023
HEARING DATE:
20 May 2022
HEARD AT:
Brisbane
DECISION OF:
Member Allen
Member McBryde
Member JudgeORDERS:
1. The Tribunal declares that the lease between Telado Pty Ltd and G & J Drivas Pty Ltd as Landlord and Mos Burger Australia Pty Ltd as tenant is an affected lease for the purposes of s 5 of the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020.
2. The Tribunal orders that the total amount of rent payable by Mos Burger Australia Pty Ltd to Telado Pty Ltd and G & J Drivas Pty Ltd for the response period of April to September 2020 is $185,953 payable on a monthly basis in accordance with Mos Burger Australia Pty Ltd’s rent concession calculation. With the rent payable for each month to be reduced by the applicable amount of 50% rent relief for that month.
3. Mos Burger Australia Pty Ltd must file four copies in the Tribunal and give one copy to each of Telado Pty Ltd and G & J Drivas Pty Ltd of submission in regard to costs with copies of all tax invoices in respect of costs incurred in regard to this application within 14 days of the date of this order.
4. Telado Pty Ltd and G & J Drivas Pty Ltd must file four copies in the Tribunal and give one copy to Mos Burger Australia Pty Ltd of their submissions in reply in regard to costs within 14 days of the date they receive Mos Burger Australia’s submissions as to costs.
5. The Tribunal will consider any application for costs on the papers following the filing of all submissions
CATCHWORDS:
LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENT – RETAIL AND COMMERCIAL TENACIES LEGISLATION – OTHER MATTERS – where tenant sought to obtain rent relief during Covid – whether lease was an affected lease – whether tenant was a SME entity for the purpose of the Retail Shop Leases and Other Commercial Leases (COVID- 19 Emergency Response) Regulation 2020
Retail Shop Leases and Other Commercial Leases (COVID- 19 Emergency Response) Regulation 2020 (Qld), s 5, s 9, s 12, s 14, s 15, s 44
APPEARANCES & REPRESENTATION:
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld)
Applicant:
Self-represented
Respondent:
Corrs Chambers Westgarth, solicitors
REASONS FOR DECISION
Introduction
Mos Burger Australia Pty Ltd (Mos Burger) is the tenant of Telado Pty Ltd and
G & J Drivas Pty Ltd (Telado and Drivas) in respect of a fast food outlet in the Brisbane CBD (the CBD Store). Their tenancy is governed by the Retail Shop Leases Act 1994 (Qld) and the Tribunal has jurisdiction in regard to certain disputes between the parties to tenancy. The parties are in dispute due to Mos Burger asserting that Telado and Drivas should have complied with the Covid-19 National Cabinet Mandatory Code of Conduct and offered it rent abatement and deferment according to the percentage decline in sales revenue from April to September 2020. Mos Burger claimed $113,921 in rent waiver and a similar amount in rent deferral.
Mos Burger considered that it should be entitled to the claim because the sales of the CBD store had been significantly impacted by Covid-19 from April to September 2019 and that Mos Burger, as an SME, is eligible for and receiving JobKeeper payments from the ATO since April 2021. Mos Burger provided a copy of its JobKeeper enrolment Mos Burger provided a comparative table of sales at the Brisbane CBD Store for the periods April to September for 2019 and 2020 as follows:
January
February
March
April
May
June
July
August
September
2020
$94,316
$89,645
$69,271
$12,091
$0
$10,217
$62,959
$48,088
$52,000
2019
$123,222
$122,915
$151,411
$148,278
$148,292
$137,246
$148,607
$138,028
$133,256
%
23.5%
27.1%
54.3%
91.8%
100%
92.6%
57.6%
65.2%
61%
SALES V
% LOST
$44,698
$48,666
$45,043
$28,048
$31,711
$29,675
Legislation
The National Cabinet produced a Mandatory Code of Conduct titled SME Commercial Leasing Principles During Covid-19 (The Code). The Code came into effect in all states and territories from a date following 3 April 2020 to be defined by each jurisdiction. The purpose of the Code was said to be to impose a set of good faith leasing principles for application to commercial tenancies where the tenant is an eligible business for the purpose of the Commonwealth’s Governments JobKeeper programme. The code applied to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the JobKeeper programme, with an annual turnover of up to $50 million (SME Tenants). The $50 million annual turnover threshold will be applied in respect of franchises at the franchise level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).
The Code was to apply during the COVID-19 pandemic period which was defined as the period during which the Commonwealth JobKeeper program remains operational. The Code was to be given effect through relevant State legislation. The Code was not meant to supersede such legislation but aims to complement it during the COVID-19 crisis period. The objective of the Code was to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords. It was intended that landlords would agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis. There was a set of overarching principles of the Code which would apply in guiding such arrangements.
There was also a set of leasing principles in the Code including relevantly here that Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under definitions) of up to 100% of the amount ordinarily payable, on a case by case basis, based on the reduction of the tenants trade during the COVID-19 pandemic period and a subsequent reasonable recovery period. Rental waivers must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement. Payments of rental deferrals by the tenant must be amortised over the balance of the lease tern and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
Financial distress or hardship was defined in the Code to automatically include SME tenants which are eligible for the federal government’s JobKeeper payment. Waiver and deferral were defined as any reference to waiver and deferral may also be interpreted to include other forms of agreed variations to existing leases (such as deferral, pausing and/or hibernating the lease), or any such commercial outcome of agreements reached between the parties. Any amount of reduction provided by a waiver may not be recouped by the Landlord over the term of the lease.
The Code was given effect in Queensland by the Retail Shop Leases and Other Commercial Leases Emergency Response Regulation 2020 (the Regulation). The Regulation applied to affected leases as defined in s5 of the Regulation which required amongst other things in s5(1)(c) that the Lessee under the lease is an SME entity. SME entity had the meaning given under the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020 (Cth) (the Rules) s5. Section 5(1) of the Rules defined an entity as an SME entity at a time in a financial year (the current year) if:
(a)The entity carries on a business in the current year, or is non-profit body during the current year; and
(b)One or both of the following applies:
(i) The entity’s annual turnover for the current year is likely to be less than $50 million;
(ii) The entity carried on business in the financial year (the previous year) before the current year, or was a non-profit during the previous year, and its annual turnover for the previous year was less than $50 million.
Meaning of annual turnover is in s5(2)
In accordance with s5(3) of the Regulation for working out whether the lessee is an SME entity for s5(1)(c), the Lessee’s annual turnover is taken to be (a) if the lessee is an entity connected with, or an affiliate of, another entity – the aggregate annual turnover of the entities; or (b) otherwise – the annual turnover of the business carried on by the lessee at the leased premises. There is a note to s5(3) of the Regulation that an entity that is a franchisee is not connected with, or an affiliate of, the franchisor merely because the entity is a franchisee. In accordance s5(5) of the Regulation Affiliate, of an entity, means an affiliate of the entity under the Income Tax Assessment Act 1997 (Cth) 328-130 and connected with, an entity, means connected with the entity under the Income Tax Assessment Act 1997 (Cth) s328-125.
‘affiliate’ in accordance with s328-130 of the Income Tax assessment Act 1997 (Cth), an individual or company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your direction or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.
‘connected with’ in accordance s328-125(1) of the Income tax Assessment Act 1997 (Cth), an entity is connected with another entity if:
(a)Either entity controls the other entity in a way described in this section; or
(b)Both entities are controlled in a way described in this section by the same third entity.
In accordance with s328-125(2) An entity (the first entity) controls another entity if the first entity, its affiliates or the first entity together with its affiliates relevantly: (a) own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of: any distribution of income by the other entity; any distribution of capital; own, or have the right to acquire the ownership of, equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage) that is at least 40% of the voting power of the company.
In accordance with s328-125(6) if the control percentage referred to in subsection (2) is at least 40%, but less than 50% the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its affiliates.
Where there is an affected lease, a party may, in writing, ask another party to the lease to negotiate any or all of the rent payable during the response period in accordance with s 14 of the Regulation. In accordance with s15 within 30 days after receiving sufficient information about a request the lessor must offer the lessee a reduction in the rent payable under the affected lease during the response period and to the extent that the request relates to the response period in accordance with s15(2)(b)provide for no less than 50% of the rent reduction offered to be in the form of a waiver of rent and have regard to the matters in s15(2)(c).
Submissions
Telado and Drivas considered that the shareholders of Mos Burger, Teco Australia Pty ltd and An-Shin Food Services Co. Ltd, own more than 40% of the issued capital in MBA and, by the nature of their businesses, ‘act in concert in relation to the affairs of the business’ and therefore their turnover would be grouped for the purposes of determining if MBA is an SME and able to claim the protections of the Regulations. An-Shin Food Services Ltd is listed on the Taiwanese stock exchange and operates its chain of restaurants under the brand name of Mos Burger. Teco Australia board members include the chairman of Teco Electric & Machinery Co Ltd, a company also listed on the Taiwanese stock exchange. It is the opinion of the Lessor that Mos Burger does not satisfy the test of “SME” under the Regulation and therefore, that its lease does not fall within the definition of an “affected lease”. It is open to Mos Burger to provide information which establishes that the affiliates of Mos Burger and entities connected with it have an aggregate turnover of less than $50 million annually. Mos Burger has elected to refuse to provide such information and therefore cannot establish that it satisfies the definition of SME. Telado and Drivas submitted that the application should be dismissed on the ground that there is no ‘eligible lease dispute’ as defined in s21 of the Regulation to include an affected lease dispute which is defined in Schedule 1 Dictionary to mean any dispute concerning the liabilities or obligations of the parties to an affected lease.
Telado and Drivas in support of their submission provided an ASIC Current Extract as at 22 December 2020 for Mos Burger which was later replaced by a company extract as at 1 September 2020. The extract of 1 September showed that of the 4,96,134 issued shares of Mos Burger, Teco Australia Pty Ltd held 2,013,295 shares (42.87%) and An-Shin Food Services Co. Ltd held 1,978,973 shares (42.14%). It was also noted that An-Shin Food Services Co provides 50% of the directors of Mos Burger. Delado and Drivas submitted that a Google search indicates that the revenue of An-Shin Food Services co Ltd for the December quarter 2019 was NT 1.36B, which converted to Australian dollars, that is revenue for the quarter in excess of $67 million. As the shares held in Mos Burger by the two other entities are ordinary shares it was submitted that Teco Australia Pty Ltd has 42.87% of the voting power in Mos Burger and An-Shin Food Services Co Ltd has 42.14% of the voting power of Mos Burger. On the basis of the shareholdings and voting power of Teco Australia and An-Shin it was submitted that these entities are ‘connected with’ Mos Burger. Telado and Drivas also filed an ASIC Current Extract as at 22 December 2020 for Teco Australia Pty Ltd, noting that it also holds in excess of 42% of the issued shares in Mos Burger. Teco was 99.99% owned by United View Global Investment according to the company extract. Which was submitted to mean that United View Global Investment indirectly controls Mos Burger and is also an entity connected with the applicant.
Telado and Drivas submitted that the lease is not an ‘affected lease’ because Mos Burger is not an SME entity (as required by the definition of affected lease. This was because An-Shin Food Services Co Ltd, Teco Australia Pty Ltd, and United View Global Investment are entities that are ‘connected with’ Mos Burger and the aggregate turnover of those entities is (very likely to be) in excess of $50 million.
Mos Burger responded that Mos Burger is an independent company holding all the accountability and responsibility with their profit and loss, balance sheet and day-to-day operations. Mos Burger understood the confusion as they do have some overseas and domestic investors, but explained they do not have not much to do with them as Mos Burger has their own board of directors making decisions. Mos Burger stated that the other companies hold less than 50% of our shares, we have separate profit and loss and balance sheet, and we have annual turnover definitely less than $50 million.
Mos Burger was directed to file and give copies of the 2019/2020 financial year (that show annual turnover ) for An-Shin Food Services; Teco Australia and United View Global Investment. When Mos Burger did not comply Telado and Drivas filed material including company financial documents showing the following:-
(a)For 2019, An-Shin had revenue of:
(i) USD 192.1 (which equates to approximately $257.136 million Australia dollars, based on the current exchange rate ;
(ii) TWD (Taiwan New Dollar) 5,484,492,000 which equates to approximately $261.84 million Australian dollars, based on the current exchange rate.
(b)For 2020, An-Shin had revenue of USD 187.112 million (which equates to approximately $250.37 million Australian dollars, based on the current exchange rate.
(c)For 2019, Teco Australia generated annual revenue of approximately $94.46 million;
(d)For 2020, Teco Australia generated annual revenue of USD74.07 million, which equates to $99.2 Australian dollars, based on the current exchange rate.
Mos Burger submitted relevantly in its response to direction dated 25 June 2020 that on 30 March 2011 Mos Burger (franchisee) entered a franchise agreement with MOS Food Services, INC (franchisor). The franchisor is the owner/controller of the trademarks, product and operation. All shareholder companies except MOS Food Services are only investor companies. Mos Burger provided An-Shin’s financial year figures (January to December) but was not able to provide figures for Teco Australia and United View Global Investment. An-Shin’s sales revenue was $5,404,205 in 2019 and $5,281,241 in 2020 (expressed in thousand New Taiwan Dollars) in 2019.
Mos Burger submitted in its response to directions dated 30 July 2021 that the National Code of Conduct applies relevantly where tenants are suffering financial loss or hardship have an annual turnover of up to $50 million and are an eligible business for the purpose of the Commonwealth’s government’s JobKeeper program. That the $50 million turnover threshold will be applied in respect of franchises at the franchisee level and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level) and that it was a franchisee as detailed above. MOS Burger received JobKeeper payments from ATP since April 2020 and its annual turnover is under $50 million.
Mos Burger further submitted that based on ASIC records at the end of 2019 none of the shareholders owns more 40% of the shareholdings. Mos Burger submitted about the submission by Telado and Drivas that based on the ASIC record provided, TECO Australia’s shareholding is only 38.5% (less than 40%) and in addition An-Shin Food Services is a foreign company (not subject to ITAA). The company statement for Mos Burger as at 24 November 2019 filed by Mos Burger showed total shares issued of 1,696,134 all fully paid. Teco Australia held 513,295 fully paid shares which represented 30.26% of the issued shares and An-Shin Food Services held 495,173 fully paid shares which represented 29.19% if the issued shares. Mos Burge sought rent concessions between the period of 1 April 2020 to 30 September 2020 in the amount of $106,043 and the waiver of late payment penalty in the amount of $8,941.14 to be waived. Mos Burger also sought its costs of and incidental to the preceding, to be assessed on the standard basis on the District Court scale of coasts, as agreed by the parties or failing agreement, as assessed.
Telado and Drivas in their response to the directions relevantly submitted that the company statement attached to Mos Burger’s submissions should be ignored because it was issued on 24 November 2019, which was prior to the period for which Mos Burger seeks a rent concession (i.e. 1 April 2020 to 30 September 2020) and the ASIC current extract relied on by Telado and Drivas as at 1 September 2020 contains information extracted during the relevant period and show that both Teco Australia and An-Shin Food Services owned in excess of 40% of the issued shares in Mos Burger. It was also submitted that whether An-Shin is a “foreign company” (not subject to the ITAA) is irrelevant. The ITAA is only relevant to the extent that for the purposes of the Regulation it sets out the test for determining whether an entity is ‘connected with’ another entity. After setting details of the turnover of An-Shin and Teco Australia for the 2019- and 2020-year Telado and Drivas submitted that the lease is not an affected lease because Mos Burger is not an SME entity, as required by the definition of ‘affected lease’ in the regulation. This is because AN-Shin and Teco Australia are entities that are connected with the applicant and the aggregate turnover of them was well in excess of $50 million for the 2019 and 2020 years. Telado and Drivas submitted in regard to Mos Burger being a franchisee that the only relevance was that the franchisor should not merely by being a franchisor be considered to be an affiliate of Mos Burger and that it has not treated it as such.
Telado and Drivas submitted that even if the Tribunal finds that the lease is an affected lease, it should not make a finding that Mos Burger is entitled to any ‘rent concession’ and consequently a waiver of any penalties because Mos Burger has not provided any primary evidence in support of or to substantiate what appears to be a one page “Rent Concession Calculation”, for example profit and loss statements. Mos Burger has also not provided any evidence in support of its (inferred) allegation that it was charged penalties for late payment. There were also submissions that Mos Burger pay Telado and Drivas’s costs.
Discussion
Mos Burger has always relied on its own turnover to assert that is it is an SME entity as its turnover is clearly under $50 million in both the 2019 and 2020 year. Telado and Drivas relying on ASIC company extracts from September and December 2020 has submitted that for the purpose of determining Mos Burgers turnover the turnover of An-Shin and Teco Australia need to be included as they are entities which are connected with Mos Burger because they each owned more than 40% of the shares in Mos Burger and the combined turnover of all three entities was in excess of $50 million in both years. It was not until Mos Burger submitted an earlier company extract from 24 November 2019 that the position of Mos Burger was maintainable this company extract shows that as at that date neither of An-Shin or Teco Australia held 40% of the shares in Mos Burger. Having regard to the definition of connecte4d with above it is only where the 40% threshold is breached that an entity is considered to be connected with another entity. For that reason, s5(3) of the Regulation would not apply to aggregate the turnover of An-Shin and Teco Australia with Mos Burger when they weren’t connected with Mos Burger.
Telado and Drivas submitted that the shareholdings set out in the company extract of 24 November 2019 should be ignored as that was prior to the period Mos Burger is seeking the rent reduction. This ignores the definition of SME entity in the Rules which enables an entity whose annual turnover in the financial year before the current year was less than $50 million to be an SME entity. The current year for the purpose of the Rules was the 2019/20 financial year and the previous year was the 2018/19 financial year. In that year in accordance with the company extract of 24 November 2019 there was no entity connected with Mos Burger and its turnover for that year would have been under $50 million. Therefore, the Tribunal is satisfied that Mos Burger was an SME entity at the relevant time. The tribunals notes that the negotiations in regard to the waiver of rent commenced in May 2020 which is in the 2019/20 financial year.
For the Regulation to apply the lease must be an affected lease in accordance with s5. The Tribunal is satisfied that the lease is a retail shop lease, there is a lease binding on Mos Burger, a copy of the lease was filed and Mos Burger is eligible for the JobKeeper scheme, Mos Burger’s JobKeeper registration was filed and so the other requirements of section 5 are met and the lease between Mos Burger and Telado and Drivas is an affected lease. Mos Burger began the process of seeking to renegotiate the rent in accordance with s14 of the Regulation but was not able to satisfy Taledo and Drivas that it was a SME entity and therefore that the provisions of the Regulation applied. We note that Mos Burger was claiming rent relief of $106,043 for the period of April to September based on comparative sales for the 2019 and 2020 years. Further, that there had been an offer by Telado and Drivas to provide 4 months rent relief at 50% rent which equates to $97,332. While there was a submission that Mos Burger did not provide evidence in support of its rental concession calculation the Tribunal accepts it in particular noting that Telado and Drivas were prepared to make an offer of rent relief base upon it. The amounts are not dissimilar and clearly Mos Burger was entitled to rent relief for the whole period between April and September. The mechanism by which this scheme operated was complex and required consideration of several different pieces of state and federal legislation and reference to shareholdings at various points in time. It was only when all the material was finally before the Tribunal that the position could be clarified. The Tribunal is satisfied that the amount of $106,043 in rent payable during the response period should be waived and the total rent payable for the period is then $291,966, being 6 months at $48,666 less $106.043 which equals $185,953.
Mos Burger also raised issues about late payment penalty but did not provide any further details. As the lease is an affected lease then the provisions of s9 of the Regulation in regard to what constitutes a prescribed action including 9(h) the payment of interest on, or any fee or charge relating to unpaid rent or outgoings. A lessor under an affected lease must not take a prescribed action for failure to pay rent for a period wholly or partly during or after the response period for a failure to pay rent for a period occurring wholly or partly during the response period in accordance with s12(1)(a) of the Regulation. This issue will be dealt with by the Tribunal making a declaratory order that the lease between Mos Burger and Telado and Drivas is an affected lease.
The Tribunal may make a declaratory order in accordance with s44(1) of the regulation. The Tribunal declares that the lease between Telado and Drivas as landlord and Mos Burger as tenant is an affected lease for the purposes of s5 of the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020
The Tribunal may in accordance with s44(3)(c) of the Regulation make an order about the amount of rent payable for the response period. The Tribunal orders that the total amount of rent payable by Mos Burger to Toledo and Drivas for the response period is $185,953 payable on a monthly basis in accordance with Mos Burger’s rent concession calculation. With the rent payable for each month to be reduced by the applicable amount of 50% rent relief for that month.
Mos Burger has made a request for costs and directions will be made in that regard.
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