Newland International (Vic) Pty Ltd v Maunder
[2019] VSC 33
•15 February 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2018 02595
| NEWLAND INTERNATIONAL (VIC) PTY LTD (ACN 097 032 767) | Applicant |
| v | |
| KAREN ANNE MAUNDER | Respondent |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 January 2019 |
DATE OF JUDGMENT: | 15 February 2019 |
CASE MAY BE CITED AS: | Newland International (Vic) Pty Ltd v Maunder |
MEDIUM NEUTRAL CITATION: | [2019] VSC 33 |
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LANDLORD AND TENANT – Retail leases – Rent review – Whether lease provisions permit retrospective rent review – Whether time of the essence – United Scientific Holdings v Burnley Borough Council [1978] AC 904 – Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 – GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 – Tyco Fire and Security v Norfolk Mechanical [2007] NSWSC 585 – Construction of commercial contracts – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Ribbands | TF Grundy Solicitors |
| For the Respondent | Mr K R Hickie | Keelins Lawyers |
HIS HONOUR:
Introduction
This proceeding has been brought pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”). The Applicant, Newland International (Vic) Pty Ltd (ACN 097 032 767) (“Newland International”), is seeking to appeal the orders of the Victorian Civil and Administrative Tribunal (“the Tribunal” or “VCAT”) constituted by Deputy President Lulham dated 23 November 2018 in proceeding number C49/2018.[1]
[1]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843.
Newland International is the registered proprietor of the “Dromana Lifestyle Village” (“the Village”), situated at 131 Nepean Highway, Victoria, being the land in Certificate of Title Volume 09562 Folio 088 (“Title”).
The Respondent, Karen Anne Maunder (“Maunder”), is the lessee of lot 177 Dromana Village under a 99 year lease which commenced on 1 August 2005 and expires on 31 July 2104 (“the Lease”). The Lease is registered on the Title under the provisions of the Transfer of Land Act 1958.
The dispute between Newland International and Maunder the subject of the VCAT proceedings concerns the proper interpretation of clauses 5.2 and 5.3 of the Lease. These clauses contain provisions relating to the process and machinery by which the “Lessor’s Total Cost of Ownership” (“LTCO”) is to be determined, apportioned and charged to tenants of the Village. These provisions have been the subject of previous litigation and determination by the Tribunal.[2]
[2]Woollard v Newland International (Vic) Pty Ltd (Civil Claims) [2016] VCAT 1519; Woollard v Newland International (Vic ) Pty Ltd (Civil Claims) [2017] VCAT 163.
In the course of the VCAT proceedings, the parties agreed to refer a number of questions to the Tribunal for preliminary determination.
The content of the preliminary questions referred to the Tribunal and the Tribunal’s answers to those questions are set out in the Tribunal’s orders, as follows:
1In answer to the questions set out in the Order made 23 May 2018, namely:
Under the proper construction of Clauses 5.2 and 5.3 of the parties’ lease:
(a)Is the Respondent permitted to make LTCO determinations for financial years ending 30 June 2014, 30 June 2015 and 30 June 2016 retrospectively on or about 26 January 2017 or at all?
(b)Can the Respondent retrospectively rely on LTCO determinations for the financial years ending 30 June 2014, 30 June 2015 and 30 June 2016, issued on 26 January 2017 so as to increase the rent payable by a tenant for the said financial years if it did not issue a written notice to the tenant on or before:
(i)30 April 2013 (prior to the commencement of the financial year commencing 1 July 2013 – 30 June 2014);
(ii)30 April 2014 (prior to the commencement of the financial year commencing 1 July 2014 – 30 June 2015);
(iii)30 April 2015 (prior to the commencement of the financial year commencing 1 July 2015 – 30 June 2016)?
(c)If the answer to (b) is no, is the amount of rent payable by a tenant the same rent that was payable by them in the immediately preceding financial year?
The Tribunal answers:
(a) No.
(b) No.
(c) Yes.
…
Principles applicable with respect to appeals
Section 148(1) of the VCAT Act provides:
A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding—
(a)if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or
…
(b)in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.
It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal.”[3] It follows that “[t]his Court is not entitled to enter into the fact finding exercise which the legislature has deliberately entrusted to a specialist tribunal”.[4]
[3]Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6 and Myers v Medical Practitioners’ Board (Vic) (2007) 18 VR 48 at 55–6 [28].
[4]Boucher v Dandenong Ranges Steiner School Inc (2005) 145 LGERA 21 at 26 [15] citing Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 and Whitehorse City Council v Golden Ridge Investments Pty Ltd (2005) 13 VR 275.
The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[5]
The requirement for leave under s 148(1) of the [VCAT Act] “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the court do found the subject matter of the appeal”.[6] It also confers a discretion about whether to grant leave[7] which an applicant must persuade the Court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[8] It will ordinarily be necessary (in addition to a clearly articulated question of law)[9] for an applicant to make out a prima facie case[10] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[11]
[5](2011) 83 ATR 832 at 833–4 [3].
[6]Commissioner of State Revenue (Vic) v STIC Australia Pty Ltd (2010) 2010 ATC 20-232 at 11,839 [10];
81 ATR 682 at 687 [10] per Davies J.
[7]Department of Premier and Cabinet v Hulls [1999] 3 VR 331; Al-Hakim v Monash University (unreported, Court of Appeal, Vic, No 3707 of 2003, 28 March 2003); Myers v Medical Practitioners Board (Vic) (2007) 18 VR 48.
[8]See Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J.
[9]Osland v Secretary to the Department of Justice [No 2] (2010) 241 CLR 320 at 333 [21]; 84 ALJR 528 at 536 [21]; 267 ALR 231 at 240 [21] per French CJ, Gummow and Bell JJ.
[10]Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J; Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335 [10]; 15 VAR 360 at 366 [10].
[11]Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335-336 [11]; 15 VAR 360 at 366 [11] per Phillips JA; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65 at 69 [20] and 77 [65] per Hollingworth J.
An additional safeguard has since been imposed. Effective from 1 May 2018, the VCAT Act was amended to include s 148(2A).[12] The section provides:
The Trial Division of the Supreme Court may grant an application for leave to appeal under this section only if it is satisfied that the appeal has a real prospect of success.
[12] Justice Legislation Amendment (Court Security, Juries and Other Matters) Act 2017, s 31(3).
This amendment sees the replacement of the requirement that an applicant seeking leave to appeal from VCAT to the trial division of the Supreme Court must show that there is a real or significant argument to be put that an error below exists,[13] sometimes referred to as the Hulls test.[14] Instead, all applicants under s 148 are now subject to the same and more burdensome requirement: they must demonstrate that the appeal has a real prospect of success.[15] With respect to applications subject to the same test,[16] the Court of Appeal has said:[17]
the test under s 63 of the Civil Procedure Act should be construed as one of whether the respondent to the application for summary judgment has a “real“ as opposed to a “fanciful“ chance of success; that the “real chance of success“ test is to some degree a more liberal test than the “hopeless“ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not “hopeless“ or “bound to fail“, it does not have a real prospect of succeeding.
[13]Myers v Medical Practitioners’ Board of Victoria (2007) 18 VR 48 at 55 [28], citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335.
[14]See Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 6th ed, 2017) 871.
[15]The same requirement is imposed upon applicants for leave to appeal a VCAT decision before the Court of Appeal under s 148(1)(a) of the VCAT, with the additional requirement to such an application set out at s 14C of the Supreme Court Act 1986; see Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 6th ed, 2017) 874–7.
[16]Section 63(1) of the Civil Procedure Act 2010 empowers a court to give summary judgment in a civil proceeding if the defence, inter alia, has “no real prospect of success”.
[17]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 at 39 [29]. See also Kennedy v Shire of Campaspe [2005] VSCA 47, [3]–[14].
The new requirement of s 148(2A) makes express the restraint this Court ought exercise when reviewing decisions of VCAT, a restraint long and more generally recognised in case authority. In considering applications of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[18]
[18](2005) 222 CLR 115 at 136 [64].
Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[19] The focus of attention is on the substance of the decision and whether it has addressed the “real issue” presented by the contest between the parties.
Similarly, in Vegas Nominees Pty Ltd v Werribee Sports & Community Club Inc, Ashley J said:[20]
This Court has said more than once that it should not examine briefly stated reasons by an expert Tribunal in an over-legalistic manner or by the over-zealous drawing of inferences in order to disclose some supposed error; although where unambiguous language is used, the user should be taken to mean what the words say. I should add that the Court is not entitled to interfere with the Tribunal’s decision unless it is satisfied that there was in fact a vitiating error of law. It is not enough for the appellant to show that the Tribunal’s reasons for its decision are so expressed as to suggest the possibility that it proceeded upon a wrong view of the law. In support of the several propositions that I have just stated I refer to Portland Properties Pty Ltd v Melbourne & Metropolitan Board of Works,[21] Michaelis Bayley (Vic) Pty Ltd v Melbourne & Metropolitan Board of Works[22] and Teston Investments Pty Ltd v Melbourne & Metropolitan Board of Works.[23]
Additionally, “[o]n appeal this Court must recognise the forensic realities of the way in which the case was put to the Tribunal. It is these realities to which a Tribunal must respond in its reasons”.[24]
[19]Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575, 597; cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at 348 [74].
[20](Supreme Court of Victoria, Ashley J, 21 December 1994) at 13.
[21](1971) 38 LGRA 6 at 18.
[22](1980) 44 LGRA 65 at 67–8.
[23](1985) 62 LGRA 346 at 349–50.
[24]The Gombac Group Pty Ltd v Vero Insurance Ltd [2005] VSC 442, [59].
In terms of the parties submissions, it is clear from the authorities to which reference has been made that a specialist tribunal, such as VCAT, is not to be usurped by the Court and that a decision of such a tribunal is not to be interfered with absent a vitiating error of law.
For the reasons which follow, I am not satisfied that the Applicant has established a question of law which shows a real prospect of determination in the Applicant’s favour, warranting the grant of leave to appeal. Moreover, in the event that leave to appeal were granted, I am, for the reasons which follow, of the opinion that any such appeal would fail.
Nature of the appeal
The Notice of Appeal filed on 5 December 2018 identifies the orders sought by the Applicant in the following terms:
1The Applicant have leave to appeal and the appeal be allowed.
2The orders of the Victorian Civil and Administrative Tribunal be set aside, and in lieu thereof, the Court order that:
a)The answer to question 1(a) is yes;
b)The answer to question 1(b) is yes.
3The Respondents pay the Applicant’s costs:
a)Of this appeal; and
b)Of and incidental to the hearing in the Victorian Civil and Administrative Tribunal on 16 November 2018.
4Such further or other orders as the Court deems appropriate
The Notice of Appeal which, strictly having regard to the VCAT appeals procedure, must be regarded as a proposed Notice of Appeal having regard to the leave requirement, identifies the questions of law in the following general terms:
THE QUESTIONS OF LAW UPON WHICH THE APPEAL IS BROUGHT:
GROUNDS OF APPEAL:
1The learned Deputy President erred in determining that the answer to question 1(a) as contained in the orders of 23 November 2018 was “no” when the question ought correctly have been answered in the affirmative.
2The learned Deputy President erred in determining that the answer to question 1(b) as contained in the orders of 23 November 2018 was “no” when the question ought correctly have been answered in the affirmative.
Unfortunately, the Applicant does not, in this Notice of Appeal or its written or oral submissions or other material, explain why or how the Tribunal fell into error. Rather, the approach of the Applicant appears to be to treat this proceeding as, in effect, a de novo appeal and to seek to re-run the arguments advanced before the Tribunal unsuccessfully.
Factual matters
For the purposes of the preliminary questions to be determined by VCAT, the parties filed an “Agreed Summary of Facts” in the Tribunal proceeding. The agreed summary sets out facts relating to the history of the development of the Village, the relevant provisions of the Lease, and the fact that no valid LTCO determinations were made for the 2014 to 2016 financial years.
In order to understand the context of the present dispute and appeal, it is helpful to set out the summary of the agreed facts contained in the Tribunal’s reasons:[25]
[25]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [3].
3Without derogating from the Agreed Summary of Facts it is appropriate that I set out the most relevant facts taken from that summary:
(a)When the land, the Dromana Lifestyle Village in Dromana which is laid out like a gated community, was developed in 2005 an Owners Corporation was not established. Instead, in respect of each of the 210 lots in the Village an identical 99 year lease was entered into. Over time, the leases were sold to individuals.
(b)Most of the lots contain a permanent dwelling, but some are vacant and can be used for caravans. The Village has common areas that comprise roads and facilities such as a park, barbecues and swimming pools.
(c)The developer retained ownership of the reversionary interests in the 210 lots, and also the common areas. In broad terms the Respondent purchased the reversionary interests and the common areas from the successors of the developer, and in the course of that the successors disclaimed the leases on some lots. Thus the Respondent is the lessor/landlord of the Applicant and other lot owners, is the owner of the common areas, and is a lessee/tenant itself in respect of some lots. The Respondent has appointed a park manager to operate the Village as its agent, for reward.
(d)The parties were not the original parties to the relevant lease, of lot 177 in the Village. Both have taken their interests by assignment from others. The Applicant became the lessee of lot 177 in 2007 and the Respondent became the lessor/landlord in 2013. It follows that the parties themselves did not negotiate the lease of lot 177.
(e)The lease is registered on title as a Memorandum of Common Provisions. (I take the text of the relevant clauses of the lease from that document).
(f)Clauses 5.2 and 5.3 of the lease provide a mechanism for the Respondent to determine the Lessor’s Total Cost of Ownership (“LTCO”) being the amount reasonably determined as being the Respondent’s total cost of owning and operating the Village. The LTCO is divided between each lessee, and each lessee’s proportion of LTCO is in practical terms the rent which is paid by each lot holder to the Respondent on account of owning and operating the Village. The rent is to be paid on an annual basis. The LTCO is calculated by reference to a formula contained in Clause 5.3 of the lease.
(g)The rent may be reviewed each year, by the Respondent. Clause 5.2 of the lease contains the mechanism which enables the Respondent to increase or decrease rent for the forthcoming financial year. Clause 5.2 provides that the Respondent may increase or decrease by written notice to the Applicant the rent payable on or before 30 April each year, and says that any such variation takes effect from the payment due on the first day of July in that year.
(h)For the limited purpose of the resolution of the preliminary questions, the parties accept that no valid determination of LTCO was made in accordance with Clause 5.2 and 5.3 of the lease on or before 30 April 2013, 30 April 2014, 30 April 2015, or 30 April 2016. However the ‘relevant years’, for the purpose of the preliminary questions, are the financial years ended 30 June on each of 2014, 2015 and 2016.
(i)By a report dated 26 January 2017 Pitcher Partners assessed the LTCO on behalf of the Respondent for the relevant years; and the Respondent gave written notice to the lessees (including the Applicant) on 26 January 2017. Whilst the Respondent sought by this means to determine the rent for the relevant years, the parties acknowledge that if the Tribunal decides that a determination notified to a lessee in 2017 can vary the rent payable in previous years, it will still be open to the Applicant to argue that the Pitcher Partners assessment was not a document having any effect under Clauses 5.2 and 5.3. However, that is not an issue for consideration in the determination of the preliminary questions.
Having regard to submissions put by the Applicant seeking to characterise the present leasing arrangements at the Village as akin to arrangements to be found in the more conventional Owners Corporation unit subdivision structure, it is also relevant to note some history from the Agreed Summary of Facts which casts light on the reason for the structure adopted:[26]
[26]Agreed Summary of Facts (26 July 2018), [3].
The Village was developed in 2004 by Dromana Tourist Park Holdings Pty Ltd … . At the time of the development, the land was located in a ‘green wedge’ area which prohibited a subdivision of the property into parcels of land, and consequently the creation of an owners corporation which would own and manage common property.
This brief reference to the history of the development is a matter which was considered in more detail by VCAT in other proceedings in relation to the Village to which reference has been made, namely, Woollard v Newland International (Vic) Pty Ltd (Civil Claims).[27] As reference was made to those proceedings and the commercial purpose arguments raised by the parties in the present proceedings raised issues already considered in VCAT, it is helpful, by way of general background, to set out the following parts of the reasons delivered by Deputy President Lulham in those proceedings:[28]
[27][2016] VCAT 1519.
[28]Woollard v Newland International (Vic) Pty Ltd (Civil Claims) [2016] VCAT 1519, [5], [7]–[13].
5Both Applicant and Respondent are assignees from the original parties to the lease. They have acquired the rights and obligations agreed in 2004 by two companies related to the developers of the Village. The developers made their money by granting the 99 year leases in return for sums similar to the price of a freehold title. It is possible that the developers made the on-going rent payable by tenants artificially low, as a means of increasing the ‘sales’ of the 99 year leases and, to be blunt, with the intention of not sticking around to bear the consequences. Be that as it may, the Applicant and Respondent are now the parties to the lease and the Applicant submitted that if the Respondent failed to carry out proper due diligence when deciding to purchase the land and become the landlord, it had to suffer the consequences.
…
7The Village could have been established by the developers by registration of a Plan of Subdivision with the Registrar of Titles, which would have created an Owners Corporation. Under that model, the Applicant would have purchased the title to Lot 109 and she would pay fees to the Owners Corporation which would maintain the common property. The Lot owners would have a say in how the Owners Corporation was managed. The Owners Corporation could retain a professional manager, and a portion of the Lot owners’ levies would pay the manager’s fees.
8An Owners Corporation has no commercial value. It has legal obligations to Lot owners, and can levy them according to their lot liability. One might aspire to be the manager of the Owners Corporation in order to earn management fees, however even if it were legally possible to do so nobody would buy the Owners Corporation.
9It was explained in the hearing that subdivision is forbidden in this area of Dromana because the land is within a “Green Wedge”. It seems the developers of the property used the structure of a lease to circumvent the planning restrictions which create the “Green Wedge”.
10The documents tendered in the hearing do not give the full history, but it seems that the land had been used as the “Dromana Caravan and Tourist Park”, and that in the early 2000s it was developed by Dromana Tourist Park Holdings Pty Ltd (“DTP Holdings”) into a property to accommodate permanent dwellings. DTP Holdings was ‘owned and controlled’ by a Mr Simms.
11As registered proprietor of the whole of the land, DTP Holdings entered into leases of each of the Lots with a related company, Dromana Tourist Park Developments Pty Ltd (“DTP Developments”) as tenant, and registered each lease with the Registrar of Titles. Annexed to each lease was a “leasing plan” which depicted the Common Areas (including roads) and the individual parcels of land (“Lots”), a Lot Liability Table, and Rules. The term of each lease was 99 years, with an option of a further 99 years. DTP Developments was both the initial tenant and the “manager” of the Village.
12Unusually for a lease, and apparently indicative of the developers’ desire to give the impression of subdividing the land whilst technically complying with the prohibition of subdivision, clause 6.1 provided that the tenant could assign its lease of a Lot without the consent of the landlord. This clause facilitated what was perceived as the “sale” of Lots by DPT Developments. Tenants could sell their tenancy in a Lot to others, just as if they held freehold title to their Lot.
13Under clause 2 of her Lease, the Applicant “takes (Lot 109) together with the right for the tenant and (her) invitees to use the common areas in common with other persons entitled for the permitted use and in accordance with the terms and conditions of this lease and subject to the landlord’s reservations for (99 years) and at the rental determined in accordance with clause 5”. As she is permitted to do under the lease, the Applicant has built a permanent dwelling on the Lot.
[Footnotes omitted.]
The lease
The relevant terms of the lease are contained in clause 5, provisions which are now set out:
5 Rental
…
5.2 Rental adjustment
(a)On or before 30 April in each year during the term of this lease, the Lessor may increase the rent payable by written notice to the Lessee. Any such variation will take effect from the payment due on the first day of July in that year. The first rental review will not take effect before 1 July 2005.
(b)The rental payable by the Lessee after any rental adjustment will be the Lessee’s proportion of the Lessor’s Total Cost of Ownership calculated in accordance with Clause 5.3(b) immediately before the adjustment was made.
5.3 Lessor’s Total Cost of Ownership
(a)The Lessor’s Total Cost of Ownership is an amount reasonably determined by or on behalf of the Lessor as being the Lessor’s total cost of owning and operating the Property and any improvements on the Property and any services being provided from the Property INCLUDING:
(1) Reasonable allowances for costs, liabilities and expenses that the Lessor reasonably expects to incur including but not limited to: [the items set out in (A) to (P) inclusive]
…
but EXCLUDING:
(2)Any interest or other finance costs incurred by the Lessor in relation to the purchase of the Property;
(3) Any outgoings or other expenses paid by or recovered from the Lessee in accordance with Clause 4.19; and
(4)The cost of capital works, including the construction on new facilities (other than works relating to existing facilities or as required by law).
(b)The Lessee’s proportion of the Lessor’s Total Cost of Ownership will be calculated in accordance with the following formula:
Lessee’s proportion of LTCO = LTCO x Lot Liability / Total Lot Liability
whereLTCO is the Lessor’s Total Cost of Ownership; and Total Lot Liability is the total of the Lot Liabilities for all the sites as stated in the Liability Schedule.
(c) The Lessor covenants that in determining the Lot Liability and the Lessee’s proportion of the Lessor’s Total Cost of Ownership, the Lessor will act reasonably.
[Respondent’s emphasis[29] added].
[29]Respondent’s Outline of Submissions (18 January 2019), [9].
Construction of the Lease provisions
The Applicant, in support of the construction of the provisions of clauses 5.2 and 5.3 of the Lease for which it contends, sought to emphasise what was said to be the commercial purpose of those provisions. In so doing, it emphasised and sought to rely upon the principles enunciated by the High Court in relation to the construction of contracts, with particular reference to Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.[30]
[30](2015) 256 CLR 104; and see the references to and discussion as to the application of those principles in the Mount Bruce Mining case in the High Court by Deputy President Lulham in Maunder v Newland International (Vic) Pty Ltd(Civil Claims) [2018] VCAT 1843, [62]–[64].
More particularly, in the present context, the Applicant submits that it is the function of Newland International, as the Lessor, to manage the Village for the benefit of all residents and that this management includes paying the liabilities such as utilities, rates and the like, as well as attending to maintenance, upkeep and repair of common areas. It is said that if Newland International were denied the opportunity to recover its costs for undertaking that role, then it would follow that there would be no commercial incentive for it, as Lessor, to fully implement those tasks. Thus, it is said, it would, in effect, be placed in the position of having to spend its own funds for the benefit of site residents, which would be a disincentive to the performance of those obligations. In this vein, and with reference to the rent review provisions of clauses 5.2 and 5.3, described by the Applicant as a rent review clause, it is said that the Lease operates for the benefit of both parties. In terms of benefit to the Lessee, it is said that in the absence of such a clause, a tenant would never get the long lease which was contemplated. Similarly, it is said that these provisions ensure that, for the duration of the long lease, the Lessor will recover the costs of delivering the maintenance and other services which are carried out for the Lessee.[31]
[31]Referring to United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 948.
On this basis, the Applicant contends that a mere literal reading of the rent review provisions does little, if anything, to elucidate the true objective commercial intention. It is said that there is no doubt that it is intended to provide a directive to the Lessor to provide the requisite notice by 30 April, but that the real question for consideration is whether that directive is absolute.
Continuing, the Applicant contends that the Tribunal determined that, in effect, this was an absolute obligation because it required an estimate of costs to be incurred and one cannot, by definition, estimate future expenses when the expenses have already been incurred. For the reasons which follow, I am of the opinion that this is not an accurate statement as to the position reached by the Tribunal and the reasoning in support of that position. Rather, the Tribunal determined that time was not of the essence and that, as a matter of construction of the provisions of clauses 5.2 and 5.3 of the Lease, retrospective rent review is not open on those provisions. In other words, a notice somewhat later than 30 April in any particular year would not necessary be fatal to the rent review process provided the process was conducted on the basis of a determination of the LTCO and the Lessee’s proportion for the purpose of rent review on the basis of a reasonable expectation with respect to the future, rather than retrospective determination with the benefit of hindsight. Moreover, as I have observed in the reasons which follow, the Tribunal did carefully consider and, in my view, properly apply the authorities relied upon by the Applicant in support of its position, particularly the decision of the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council,[32] of the High Court in Gollin & Co Ltd v Karenlee Nominees Pty Ltd,[33] of the New South Wales Court of Appeal in GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd,[34] and of the New South Wales Supreme Court in Tyco Fire and Security v Norfolk Mechanical.[35]
[32][1978] AC 904.
[33](1983) 153 CLR 455.
[34](1991) 24 NSWLR 80.
[35][2007] NSWSC 585.
In arguing its position, the Applicant has failed to appreciate the dual elements in the reasoning of the Tribunal and has, rather, conflated those elements into a single issue in question, namely, whether or not time is of the essence for the purpose of triggering the rent review provisions of the Lease, the provisions of clauses 5.2 and 5.5. This is to completely overlook the analysis of the Tribunal with respect to the language used in those provisions, which indicate the requirement for reasonable determination with respect to costs liabilities and expenses which the lessor “reasonably expects to incur”. This language and the clear implication of futurity in the process of such determination is not answered by the Applicant’s arguments for an underlying commercial purpose or “sensible” commercial outcome contrary to such clear language.
The approach of the Applicant on appeal reflects its arguments before the Tribunal, which are conveniently summarised as follows:[36]
(a)The issue in the case was whether the requirement that a notice be given by 30 April notifying an increase in LTCO was mandatory, as opposed to directory.[37]
(b)A literal reading of the LTCO provisions does not elucidate the true objective commercial intention of the parties, because if the landlord is not entitled to recover its actual costs incurred in owning and operating the Village, such a result is uncommercial and unjust.[38]
(c)In the absence of any indication to the contrary, the time specified in a rent review clause for determining the rent is not of the essence of the contract, and therefore is not mandatory or inflexible.[39]
(d)The text in clause 5.3(a)(1), that the LTCO includes reasonable allowances for costs, liabilities and expenses that Newland International reasonably expects to incur (which are items different from profit) is concerned with the mechanism for determining LTCO, and not the time the determination is to take place.[40]
(e)The rental adjustment provisions in clauses 5.2 and 5.3 of the lease are not of the essence in the agreement, and because the lease does not expressly provide the consequences of not serving a notice by that date, a construction that would prevent Newland International from issuing a notice to recover its actual costs would lead to an uncommercial result that would further lead to making commercial nonsense or working commercial inconvenience.
[36]Respondent’s Outline of Submissions (18 January 2019), [11].
[37]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [23]; and Exhibit WLR-5 to the Affidavit of Wendy Lynne Ribbands (5 December 2018) (Respondent’s Outline of Submissions dated 1 August 2018, [7]).
[38]Exhibit WLR-5 to the Affidavit of Wendy Lynne Ribbands (5 December 2018) (Respondent’s Outline of Submissions dated 1 August 2018, [10]).
[39]Exhibit WLR-5 to the Affidavit of Wendy Lynne Ribbands (5 December 2018) (Respondent’s Outline of Submissions dated 1 August 2018, [11]–[15]), citing United Scientific Holdings v Burnley Borough Council [1978] AC 904; Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455; G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80; Tyco Fire and Security v Norfolk Mechanical [2007] NSWSC 585.
[40]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [24].
In my view, in determining the preliminary questions, the Tribunal correctly identified the “essential issue”, which is whether clause 5.2 of the Lease empowers Newland International to increase the rent for the “relevant years” ended 30 June 2014, 30 June 2015 and 30 June 2016 on the basis of a written notice given to Maunder on 26 January 2017.[41]
[41]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [7].
Moreover, the Tribunal correctly identified the starting point for the determination of these questions as being the text of the Lease, and the provisions of clauses 5.2 and 5.3.[42] As observed previously, the Tribunal correctly identified the principles set out by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting[43] as the relevant principles that apply to the construction of contracts, which includes leases.[44]
[42]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [33].
[43](2015) 256 CLR 104.
[44]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843 [58]–[59], citing Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556.
More particularly, the Tribunal considered the Applicant’s submissions extensively and each of the authorities which it relied upon.[45] In doing so, the Tribunal partly accepted and partly rejected a number of the Applicant’s arguments. The Tribunal’s reasoning and the position it reached is helpfully summarised in the Respondent’s submissions (findings which are not challenged by the Respondent in this appeal):[46]
[45]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [34]–[60].
[46]Respondent’s Outline of Submissions (18 January 2019), [14].
(a) On the basis that United Scientific is binding authority, time was not of the essence in the context of the words “on or before 30 April in each year” in clause 5.2(a) of the lease.[47]
[47]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [45], [61].
(b) The late service of a valid notice would not be ineffective merely because the document was served after 30 April.[48] Service after 30 April would not be a breach by Newland International entitling Ms Maunder to damages, because clause 5.2 provides that Newland International may serve a notice, rather than obliging Newland International to do so.[49]
[48] Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [61].
[49]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [61], citing G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80.
(c) While this finding diminishes the effect of the words ‘on or before 30 April in each year’ (in clause 5.2(a)), it does not deal with the effect of clause 5.3(a) of the lease, which says the LTCO is to include ‘reasonable allowances for costs, liabilities and expenses that Newland International expects to incur’ in the next financial year, which are estimates applicable to the future.[50]
[50]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [45].
(d) A finding that time is of the essence does not result in other text in the lease becoming [ineffective] or being interpreted away.[51] Clause 5.3(a)(1) cannot be ignored just because time was not of the essence in relation to Newland International’s service of a notice by 30 April.[52]
[51]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [52].
[52]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [52] and [58].
(e) There is no provision in the lease which expressly deems a state of affairs if Newland International does not serve a notice by 30 April in a given year.[53]
[53]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [58].
(f) Having regard to the principles of interpretation set out in Mount Bruce Mining v Wright Prospecting,[54] despite time not being of the essence in the lease, it is not possible to construe the lease as entitling Newland International to validly determine LTCO after the relevant financial year has expired (having regard to clause 5.3(1)(a) of the lease, which provides LTCO to be determined by reference to the reasonable allowances for costs, liabilities and expenses the lessor reasonably expects to incur).[55]
[54](2015) 256 CLR 104.
[55]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [64].
(g) One cannot estimate allowances for costs you can reasonably expect to incur after costs have been incurred. The estimate must be in relation to anticipated, future costs and expenses. Those words in clause 5.3(a)(1) relate to the future – the financial year after 30 April in a given year – and it is not possible to construe the clauses as entitling Newland International to determine LTCO after the relevant financial year has expired.[56]
(h) It is not a commercial inconvenience or commercial nonsense for Newland International to find itself in the position of having not reviewed the rent, because the lease gives Newland International a clear path of opportunity of reviewing the rent every year, and it is simply a matter of Newland International following the procedures set out in the clauses if it wishes to review the rent.[57]
[56]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [64].
[57]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [65].
The Respondent, Maunder, submits that there is no error of law in the Tribunal’s findings, conclusion and reasoning and that it correctly construed the relevant provisions of the Lease, applying the principles of contractual interpretation as stated by the High Court in Mount Bruce Mining. More particularly, the Respondent observes that the Tribunal, though finding that time was not of the essence in relation to the notice requirements under these provisions, did give proper weight to the language of the Lease provisions by reason of the following matters:[58]
[58]Respondent’s Outline of Submissions (18 January 2019), [16].
(a) Having regard to the express language of the lease, clauses 5.2 and 5.3 of the lease give the right to Newland International to increase or decrease the rent, if it follows the procedure under clause 5.2(a) and give a written notice on or before 30 April of a year.[59]
[59]Maunder v Newland International (Vic) Pty Ltd (Civil Claims) [2018] VCAT 1843, [10].
(b) The express language of the lease requires the notice under clause 5.2 to embody a calculation of the estimated future costs of owning and operating the Village by reference to ‘reasonable allowances for costs liabilities and expenses that the Lessor reasonably expects to incur’.
(c) It is not possible to make a reasonable allowance for costs liabilities and expenses that the Lessor reasonably expects to incur after those costs liabilities and expenses have actually been incurred and those amounts are actually known.
(d) The lease does not contain an express provision enabling Newland International to ascertain its actual expenses at the end of the financial year, and then to issue a retrospective notice in respect of that year. In the absence of a term expressly permitting Newland International to recover its actual costs determined after the conclusion of a financial year, such a term would be difficult to imply into the lease.[60]
(e) A variation brought about by the notice on 30 April takes effect from a future date, being the commencement of the forthcoming financial year on 1 July.
[60]Such a term is not so obvious that if ‘goes without saying’, is capable of clear expression, and does not contradict an express term of the lease. See Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
In my opinion, the Respondent’s summary of the approach of the Tribunal to the construction of clauses 5.2 and 5.3 of the Lease does correctly capture and summarise the reasoning applied. Moreover, in my view, the Tribunal’s approach to the construction of these provisions is in accordance with the relevant principles of contractual interpretation and does, for the reasons given by the Tribunal, give proper weight to the language used in those provisions. There is no basis, in my view, for the view that such a construction provides a commercial nonsense or a commercial working inconvenience, as the Applicant would have it. It was, for the reasons which follow, clearly open for the Tribunal to construe the Lease in the way it did, having regard to a number of matters.
First, it was significant that Newland International was not “one day late” in giving notice under clause 5.2 of the Lease. It was, in fact, several years “late” in relation to some of the relevant years.
Secondly, the finding that the Lease requires Newland International to determine the LTCO by reference to the reasonable expected costs and expenses of owning and operating the Village on or before 1 July in effect permits Newland International to undertake the LTCO determination and issue the notice to tenants after 30 April but before 1 July. This construction avoids a commercial nonsense or commercial working inconvenience in circumstances where Newland International does not comply with the 30 April deadline for the issue of the notice increasing or decreasing rent for the forthcoming financial year. This, in itself, indicates that the question whether or not time was of the essence with respect to the giving of this notice is not the critical issue. The critical issue is the proper construction of the provisions of clauses 5.2 and 5.3 which provide the context for the giving and purpose of such a notice.
Thirdly, the construction adopted by the Tribunal enables Newland International to raise monies from tenants through quarterly rent payments to finance the payment of the costs, expenses and liabilities of Newland International operating the common areas in the Village, based on its reasonable assessment of those anticipated expenses. It enables Newland International to work within the LTCO determination as a “budget” during the financial year, tailoring the ambit of its services and treating the budget as a restraint.[61] Further, it allows tenants to know at the beginning of the financial year what rent will be payable.[62] It is in the interests of both parties to be bound by the estimate of the LTCO, and not to face a clawback or reverse at the end of the financial year, because that would cause uncertainty. It would clearly be detrimental to tenants if Newland International could obtain reimbursement of expenses which exceeded the budget and there would be no incentive for Newland International to set an appropriate budget.[63]
[61]Woollard v Newland International (Vic) Pty Ltd [2016] VCAT 1519, [56].
[62]Woollard v Newland International (Vic) Pty Ltd [2016] VCAT 1519, [56].
[63]Woollard v Newland International (Vic) Pty Ltd [2016] VCAT 1519, [56].
Fourthly, a construction of the Lease preferred by Newland International that goes beyond the express terms of the Lease — that permits Newland International to issue a notice after 1 July to effect a clawback of actual costs — said to be the “true intention of the rent review clause”[64] — is not contemplated by the Lease of which Newland International took an assignment. As indicated, the contention that the 30 April deadline is directory and not mandatory is, in effect, sought to be used by Newland International as the vehicle by which it can recover its actual costs retrospectively after the conclusion of a financial year, after which those costs become known. A provision of this nature was not agreed by the original parties to the Lease and has not been sought to be implied into the terms of the Lease.
[64]Appellant’s Written Submissions (21 December 2018), [9].
Fifthly, Newland International asserts that “the true intention of the rent review clause is to ensure fairness between the landlord and the tenant so as to ensure that costs properly incurred on the tenant’s behalf are paid”.[65] However, as contended by the Respondent, the competing interests of the Lessor and Lessee in a rent review clause of this nature mean that it is difficult to attempt to resolve their positions by reference to fairness. Courts have held that the nature and purpose of a rent review clause means that the consideration of whether a particular construction is unjust and unreasonable will often be little assistance.[66] Rather, the focus must be on the actual language and the meaning of the words used in the particular lease and in their particular context.[67]
[65]Appellant’s Written Submissions (21 December 2018), [9].
[66]Programme Holdings Pty Ltd v Van Gogh Holdings Pty Ltd [2009] WASC 79, [48], cited in Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79, [115].
[67]ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] NSWCA 224, [21]–[23].
Sixthly, and finally, Newland International refers to orders being made for the variation of the lease in Woollard. Orders were made under the statutory provisions of the Australian Consumer Law and Fair Trading Act 2012 consequent on a finding that the LTCO for the 2014 to 2016 financial years had not been properly determined, in contravention of the Australian Consumer Law. Remedies of this nature are not available to the Court or to the Tribunal in the present proceeding.
Conclusion
For the preceding reasons, there is no vitiating error of law in the findings of the Tribunal. The construction of the relevant provisions of the Lease was determined by the Tribunal properly, according to law and, in my opinion, without error.
It became clear in the course of the hearing of this appeal that the present arrangements with respect to the payment of expenses and the like for the maintenance of common areas in the Village could not be described as satisfactory, as is clear also from the decision of the Tribunal in Woollard v Newland International (Vic) Pty Ltd (Civil Claims).[68] As I indicated during the course of the hearing of the appeal, I am prepared, if the parties so agree, to order a mediation in this matter prior to pronouncing final orders so that some process might be agreed for resolution of matters for the future; particularly having regard to the long-term nature of the Village leases.
[68][2016] VCAT 1519.
Subject to any arrangements and results that flow from any mediation in this matter, the parties are to bring in orders to give effect to these reasons. I reserve the question of costs and will hear the parties further in this respect.
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