PPS Nominees Pty Limited v Summerland Entertainment Pty Ltd [115055] Summerland Entertainment Pty Ltd v PPS Nominees Pty Limited [115118]
[2012] NSWADT 171
•17 August 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: PPS Nominees Pty Limited v Summerland Entertainment Pty Ltd [115055] Summerland Entertainment Pty Ltd v PPS Nominees Pty Limited [115118] [2012] NSWADT 171 Hearing dates: 7 and 8 February 2012 Decision date: 17 August 2012 Jurisdiction: Retail Leases Division Before: D Bluth Judicial Member Decision: 1. The Outgoing statements and accompanying auditor's reports issued pursuant to s 28 by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
2. The Six Monthly Advertising and Promotion Expenditure Statements issued pursuant to s 54 of the RLA by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
3.The Marketing Plans for Advertising and Promotion pursuant to s 53 issued by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
4.The Annual Advertising and Promotion Expenditure Statements and accompanying auditor's reports issued pursuant to s 55 by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited during the term of the tenancy comply with the Retail Leases Act 1994.
5.Unless either party files and serves submissions within 14 days as to why a costs order should be made in favour of either party, there will be no order as to costs. If either party files and serves submissions within this period of 14 days, the other party shall file and serve any submissions in reply within a further 14 days of receipt of the initial submissions, the issue of costs will then be determined upon the basis of the written submissions filed and without any further hearing.
Catchwords: Marketing plan for advertising and promotion, s 53 the applicable Australian Accounting Standards referred to in ss28 and 55 for Outgoings statements and Annual advertising and promotion expenditure statements and ss, 28A,, 54, and 55A of the Retail Leases Act, 1994 Legislation Cited: Retails Leases Act, 1994 Category: Principal judgment Parties: PPS Nominees Pty Limited (Applicant in 115055) and (Respondent in 115118)
Summerland Entertainment Pty Limited (Applicant in 115118) and (Respondent in 115055)Representation: Counsel
M Ellicott (Applicant)
BD Legal (PPS Nominees Pty Limited)
N Adams (Agent for Summerland Entertainment Pty Limited)
File Number(s): 115118, 115055
REASONS FOR DECISION
Background
This hearing in Ballina is a combination of two cases with respect to a dispute between the owner of Ballina Fair Shopping Centre, PPS Nominees Pty Limited (PPS) and a lessee, Summerland Entertainment Pty Limited (Summerland) regarding the obligations of a lessor to provide annual marketing plans for advertising and expenditure, and Outgoing statements and Annual advertising and promotion expenditure statements and auditors reports which comply with the provisions of the Retail Leases Act 1994 (the RLA).
By Lease dated 1 November 2007 PPS leased to Summerland shop number 065A in Ballina Fair for five years commencing on 8 October 2007 and terminating on 7 October 2012 (the Lease).
Like many of the shopping centres today, Ballina Fair is owned by a trustee, PPS as trustee of a trust called the Private Property Syndicate and the day to day operations of Ballina Fair is managed on behalf of the Trust by its appointed agent Colonial First State Property Management Pty Limited (Colonial).
The directors of Summerland Neal Adams and his wife Jennie Louise Adams have guaranteed to PPS the performance of Summerland under the Lease.
Mr Neal Adams appeared for Summerland and Mr Michael Ellicott of Counsel appeared for PPS and Colonial.
Application for Original Decision by Summerland
Summerland filed an Application for Original Decision on 15 August 2011 seeking the following orders which I summarise as follows:
(1) That the promotions contribution for the period since commencement of the Lease in October 2007 is not due or owing by Summerland as PPS has failed to comply with the Lease, the RLA and Australian Accounting Standards that govern the uses and reporting requirements for these funds.
(2) That the outgoings for the period since commencement of the Lease in October 2007 are to be refunded to Summerland as PPS has failed to comply with the Lease, the RLA and Australian Accounting Standards that govern the uses and reporting requirements of these funds.
(3) That compensation be paid by PPS for misleading and deceptive conduct under Part 10 of the RLA, in that PPS:
(a) Failed to disclose in the Disclosure Statement that there existed an association between PPS and the insurance broker used by PPS,
(b) Failed to disclose in the Disclosure Statement that PPS would not comply with the requirements of the Lease, the RLA and The Australian Accounting Standards that form part of the Lease and RLA as to the PPS's compliance to the minimum reporting requirements for the usage of funds provided by Summerland for promotions contributions and outgoings.
In the Particulars to the Application for Original Decision, Summerland outlined the Australian Accounting Standards which it believes are applicable and relevant under the RLA. These are listed at paragraph 28.
PPS Application for Original Decision
PPS commenced proceedings in the Local Court against Summerland for recovery of rent, outgoings and GST for an amount of $13,022.63 on 20 September 2010. On 14 April 2011 the matter was transferred to this Tribunal and the Local Court proceedings forms the basis of the Application for Original Decision by PPS.
The relevant sections of the RLA
The main dispute between the parties is a very technical dispute relating to compliance by a Lessor in issuing annual statements for outgoings and advertising promotions expenditure and in particular what are the appropriate Australian Accounting Standards that are imported by the RLA to these statements. The relevant sections of the RLA are the following:
Section 28 - Outgoings statements
(1) A retail shop lease is taken to include provision to the following effect:
(a) The lessor must give the lessee a written statement (an outgoings statement) that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute,
(b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates.
(b1) If the shop is in a retail shopping centre, the outgoings statement is to include:
(i) a statement of total management fees paid in respect of the centre, broken down into the fees paid towards the administration costs of running the centre and other fees paid to the management company, and
(ii) a statement of total cleaning costs paid by the lessor, broken down into the costs of consumables and other costs, and
(iii) any other particulars prescribed by the regulations.
(c) The outgoings statement is to be prepared in accordance with the relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time.
(d) The outgoings statement is to be given to the lessee within three months after the end of the accounting period to which it relates.
(e) The outgoings statement is to be accompanied by a report (an auditor's report) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth).
(f) The auditor's report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period.
(g) ...
(h) ...
(2) An auditor preparing a report under subsection (1) (e) or the lessor must ensure that the lessee is given a reasonable opportunity to make a written submission to the auditor on the accuracy of the lessor's proposed outgoings statement. The auditor need not contact the lessee for the purposes of this subsection if the lessor advises the auditor that the lessor has informed the lessee of the lessee's opportunity under the subsection.
(3) The auditor must consider any written submissions made pursuant to subsection (2).
Section 28A - Non-provision of outgoings estimate or statement
(1) A lessee is entitled to withhold payment of contributions or outgoings if:
(a) the lessor has failed to give the lessee a written estimate of outgoings required under section 27 or an outgoings statement required under section 28, and
(b) the lessee has, at or after the expiry of the time when the estimate or statement was required to be given to the lessee, requested that the lessor in writing to furnish the estimate or statement to the lessee, and
(c) the lessor's failure has continued for 10 business days after the request was made.
(2) The lessee must pay the withheld contributions within 28 days after the lessor furnishes the estimate or statement.
(3) The lessor is not entitled to recover interest or late payment charges in respect of contributions withheld in accordance with this section.
(4) The lessee is not in breach of the retail shop lease for acting in accordance with this section.
(5) This section does not affect any other rights that the lessee has in connection with the lessor's failure to provide the estimate or statement.
Section 53 - Marketing plan for advertising and promotion
If a retail shop lease requires the lessee to pay any amount to the lessor in respect of advertising and promotion costs, the lease is taken to include provision to the following effect:
(a) The lessor must at least 1 month before the start of each accounting period of the lessor, make available to the lessee a marketing plan that gives details of the lessor's proposed expenditure on advertising and promotion during that accounting period.
(b) ...
Section 54 - Six-monthly advertising and promotion expenditure statement to be made available to lessees.
(1) A retail shop lease is taken to include provision to the following effect:
(a) The lessor must make a written statement available for examination by a lessee detailing all expenditure relating exclusively to the building or centre in which the retail shop is located by the lessor on account of advertising and promotion costs to which the lessee is required to contribute under the lease.
(b) The lessor must make a statement available at least twice in each of the lessor's accounting periods during the term of the lease (once in relation to expenditure during the first 6 months of each such accounting period and once in relation to expenditure during the second 6 months of each such accounting period).
(c) The statement must be made available within 1 month after the end of the 6 month period to which it relates.
(2) The details to be provided in the statement made available under this section in relation to an accounting period must include:
(a) in respect of expenditure by the lessor on account of advertising and promotion costs of the lessor:
(i) a statement of the amount contributed by the lessor in respect of expenditure relating exclusively to the building or centre, and
(ii) a statement of the total of the amounts contributed by the lessees, and
(b) in respect of contributions by the lessor on account of advertising and promotion costs of the lessor relating exclusively to the building or centre and in respect of contributions by the lessees on account of advertising and promotion costs of the lessor.
(i) a statement of the total unspent amount carried forward for that period, and
(ii) a statement of the total unspent amount to be carried forward to the next period, and
(c) any other statements prescribed by the regulations.
Section 55 - Annual advertising and promotion expenditure statement to be given to lessees
(1) A retail shop lease is taken to include provision to the following effect:
(a) The lessor must give the lessee a written statement, (an advertising statement) that details all expenditure relating exclusively to the building or centre in which the retail shop is located by the lessor in each accounting period of the lessor during the term of the lease on account of advertising or promotion costs to which the lessee is required to contribute under the lease.
(b) The advertising statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time.
(c) The advertising statement is to be given to the lessee within three months after the end of the accounting period to which it relates.
(d) The advertising statement is to be accompanied by a report (an auditor's report) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth).
(e) The auditor's report is to include a statement by the auditor as to whether or not the advertising statement correctly states the expenditure by the lessor during the accounting period concerned in respect of advertising or promotion costs to which the lessee is required to contribute.
(2) ...
(3) An auditor preparing a report under subsection (1)(d) or the lessor must ensure that the lessee is given a reasonable opportunity to make a written submission to the auditor on the accuracy of the lessor's proposed outgoings statement. The auditor need not contact the lessee for the purposes of this subsection if the lessor advises the auditor that the lessor has informed the lessee of the lessee's opportunity under the subsection.
(4) The auditor must consider any written submissions made pursuant to subsection (3).
Section 55A - Non-provision of marketing plan or advertising and promotion statement.
(1) A lessee is entitled to withhold payment of contributions in respect of advertising or promotion costs of the lessor if:
(a) the lessor has failed:
(i) to make available to the lessee a marketing plan required under section 53(a), or
(ii) to make available to the lessee details of proposed expenditure on an opening promotion as required under section 53(b), or
(iii) to make available to the lessee a written statement of expenditure required under section 54, or
(iv) to give the lessee an advertising statement required under section 55, and
(b) the lessee has, at or after the expiry of the time when the plan, details or statement was required to be made available to or given to the lessee, requested the lessor in writing to furnish the plan, details or statement to the lessee, and
(c) the lessor's failure has continued for 10 business days after the request was made.
(2) The lessee must pay the withheld contributions within 28 days after the lessor furnishes the plan, details or statement.
(3) The lessor is not entitled to recover interest or late payment charges in respect of contributions withheld in accordance with this section.
(4) The lessee is not in breach of the retail shop lease for acting in accordance with this section.
(5) This section does not affect any other rights that the lessee has in connection with the lessor's failure to provide the plan, details or statement.
The relevant clauses in the Lease are clauses 4.3 and 5.5 which state as follows:
4.3 Landlord to provide statement
Within 3 months after the end of each Financial Year (other than a Financial Year that ends because this lease ends or is assigned), the Landlord must give the Tenant a statement containing reasonable details of the Outgoings for that Financial Year which statement must have been audited by a company auditor and will be final and binding on the parties (subject to manifest error).
and
5.5 Promotion contribution if the Act applies
If the Act applies:
(a) the landlord will comply with the provisions of the Act regarding the Promotion Contribution and the management and use of the marketing fund; and
(b) the tenant acknowledges that the landlord has informed it of the tenant's entitlement to be given a reasonable opportunity to make a written submission to the landlord's auditor on the accuracy of the landlord's proposed advertising statement.
I now wish to turn to the actual documents provided by PPS/Colonial to Summerland with respect to the Ballina Fair Promotions Fund and the outgoings for Ballina Fair called by PPS/Colonial financial reports. I have taken the relevant documents from the appendix to the affidavit of Vincent Sheehan of Ernst & Young dated 20 January 2012 which was tendered by Mr Ellicott on behalf of PPS/Colonial and marked Exhibit "A" by me without objection from Mr Adams. Mr Sheehan was called as an expert by PPS/Colonial and I will deal with his evidence later but for the purposes of ascertaining what documentation is to be critically examined, as I have mentioned I will take the documentation annexed to the affidavit as the documentation served on Summerland by PPS/Colonial and it was this documentation that was the subject of the Report by Mr Sheehan.
As mentioned, Ballina Fair is owned by PPS and managed by Colonial. I will treat the documentation being the financial reports issued pursuant to the RLA and the Lease prepared and issued by Colonial on behalf of PPS as Colonial acted as the appointed agent of PPS to be in fact issued by PPS. Mr Adams raised a point on this matter which is dealt with later in these Reasons.
Ballina Fair Promotions Fund
For each of the years from 2008 through to 2011 PPS/Colonial issued to each tenant in Ballina Fair including Summerland in relation to the Ballina Fair Promotions Fund, the following:
For the Year 2008
(a) An Agent's Declaration signed by Paul Vause, the Financial Controller for Colonial in which he states that in his opinion:
(i) the Statement of Income and Expenditure is drawn up so as to give a true and fair view of the Fund for the financial year;
(ii) the Balance Sheet is drawn up so as to give a true and fair view of the state of affairs of the Fund as at the end of the financial year;
(iii) as at the date of this statement there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they fall due; and
(iv) the financial report is drawn up in accordance with applicable Accounting Standards as referred to in Note 1.
(b) A Balance Sheet as at 30 June 2008 headed "Ballina Fair Promotions Fund" which shows total current assets against total current liabilities.
(c) Ballina Fair Promotions Fund Statement of Income and Expenditure and Notes for the year ended 30 June 2008 which shows income being tenant's fees and levies, plus landlord's contribution plus development marketing contribution less expenditure being three items listed, employment costs, advertising and promotion and administration and other.
(d) Ballina Fair Promotions Fund Notes to and forming part of the financial statements representing Notes 2, 3 and 4 (Note 1 is missing).
(e) A letter from PricewaterhouseCoopers headed Independent auditor's report to the members of Ballina Fair Promotions Fund signed by Jim Power, Partner, PricewaterhouseCoopers, Melbourne, dated 8 December 2008.
The same documentation was issued for the year ended 30 June 2009, subject to a change to the Statement of Income and Expenditure, which was more expansive than the 2008 statement. The statement in 2008 only had three items listed, the 2009 statement is far more comprehensive as it has 20 items broken up into the following expenditure items:
majors; mini majors;community/sponsorship, apparel, jewellery, food-category, food-retail, mobile phones, retailer support, retail services, non-retail, brand positioning, strategy development, research, multi category promotions, leisure, general, national promotions, administration, development expense.
Also for the 2009 year the first page of the notes to and forming part of the financial statement which is Note 1, is now included, which states:-
The significant accounting policies are set out below:
BASIS OF PREPARATION OF THE FINANCIAL REPORT.
This financial report has been prepared specifically for the benefit of the members of the Ballina Fair Promotions Fund and as such is regarded as a special purpose financial report. The financial report is prepared primarily on the basis of historical costs and does not take into account changing money values or current valuations of non current assets.
The financial report is drawn up in accordance with the accuals basis of accounting and with the accounting principles and methods prescribed by applicable Accounting Standards, and comply with all the requirements of those standards except for:
AASB101 - Presentation or Financial Statements
AASB124 - Related Party Disclosure
AASB107 - Cashflow Statements
AASB7 - Financial Instruments: Disclosures
because, in the opinion of the Promotions Fund, to do so would have placed an unreasonable burden upon the members for little benefit.
The same documentation as provided for year ended 30 June 2009 was issued for the year ended 30 June 2010.
In relation to the 2011 year the following documentation was provided for the Ballina Fair Promotions Fund:
(a) An Agent's Declaration signed by Paul Vause, Financial Controller for Colonial in which he states that in his opinion:
(i) the financial report is in accordance with the accrual basis of accounting and presents fairly the financial position of the Fund as at 30 June 2011 and of its performance where the financial year ended on that date;
(ii) at the date of this declaration, there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they fall due; and
(iii) the financial report is drawn up in accordance with applicable Accounting Standards as referred to in Note 1.
(b) The Ballina Fair Promotion Fund Statement of Comprehensive Income and Expenditure for year ended 30 June 2011 and Notes.
(c) The Notes to the financial statement have a change so that Note 1 now states as follows:
"STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OR PREPARATION OF THE FINANCIAL REPORT
The financial report is prepared to provide information to the contributors of the Ballina Fair Promotions Fund (the Fund) "
Accordingly, the financial report is a special purpose financial report prepared in accordance with the accounting policies listed below and also in accordance with Section 55 of the Retail Leases Act 1994.
The accounting policies used in the preparation of this report, as described below, is consistent and is, in the opinion of Colonial First State Property Management Pty Ltd (the Property Agent) to meet the needs of the users.
The financial report has been prepared on an accruals basis of accounting, including the historic cost convention and the going concern assumption.
Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.
(d) A letter from PricewaterhouseCoopers headed Independent auditor's report to Colonial as agent of Ballina Fair Promotions Fund signed by Peter Van Dongen, Partner, PricewaterhouseCoopers, Melbourne, dated 26 September 2011.
Outgoings
In relation to the Outgoings Statements issued pursuant to s28, the following documentation was provided for year ended 30 June 2008:-
(a) An estimated outgoing statement for the year ended 30 June 2008;
(b) on 15 September 2008 a statement regarding actual outgoings for year end 30 June 2008 providing an actual outgoings rate per square metre;
(c) a letter from PricewaterhouseCoopers headed Independent audit report on the schedule of recoverable outgoings signed by Jim Power, Partner, PricewaterhouseCoopers, Melbourne, dated 20 August 2008.; and
(d) a statement regarding actual outgoings for the year 2007/2008.
There is a consistent approach right up to 2011 without change to the formatting and procedure for the preparation and issuing of Outgoings statements.
Mr Adams' contention on behalf of Summerland is that PPS/Colonial has not complied with their obligations under the RLA with respect to providing a compliant Outgoings Statement under 28(1)(c) in that the Outgoings Statements provided do not accord with the "relevant principles and disclosure requirements of applicable accounting standards" made by the AASB and the accompanying auditor's report does not accord with s 28(1)(e) because it is not an auditor's report as required by the RLA and as understood pursuant to the Corporations Act 2001. The consequence is according to Mr Adams that Summerland is entitled to withhold the payment of outgoings pursuant to s 28 A(1)(a).
A similar contention was made in connection with the Annual advertising and promotion expenditure statement and accompanying auditor's report under s 55(a), (b) and (d) in that the Statement did not accord with the "relevant principles and disclosure requirements of applicable accounting standards" made by the AASB and that the auditor's report was non compliant for the same reasons as the auditor's report issued with the Outgoings Statement. Consequently, Mr Adams contended that Summerland is entitled to withhold payment of the promotions contributions pursuant to s 55A(1)(iv).
During the hearing Mr Adams argued that the statements provided by PPS/Colonial annually being the document entitled "Ballina Fair Shopping Centre Promotions Fund, Budget Income and Expenditure" in fact not "marketing plans under s 53(a)". Pursuant to s 55A(1)(a)(i) if "the lessor failed to make available to the lessee a marketing plan required under s 53(a)" after request from the lessee to do so, the lessee is entitled to withhold the promotion contribution claimed. This query raised by Mr Adams is not in Summerland's Application for Original Decision. I propose to discuss this issue after discussing the main thrust of Summerland's contention being the debate concerning the applicable and appropriate accounting standards made by AASB to be adopted with respect to the Outgoing statements and the Advertising statements and secondly, the claim by Summerland that the accompanying auditors reports were non-compliant.
Mr Adams submitted that pursuant to the RLA when reference is made in ss 28 and 55 to "the relevant principles and disclosure requirements of applicable accounting standards made by the AASB, as in force from time to time" the appropriate standards in force specifically are the following are:
"AASB 1031 Materiality, AASB SAC 1 Definition of a Reporting Entity, AASB 124 Related Party Disclosures, SAC 2 Objective of General Purpose Accounting, AASB 101 Presentation of Financial Statements, AASB 117 Leases, AASB 127 Consolidated and Separate Financial Accounts, AASB 7 Financial Instruments Disclosures, AASB 107 Statement of Cash Flows."
Mr Ellicott on behalf of PPS/Colonial submitted that the contention by Summerland that the statements produced by PPS/Colonial have to comply with the accounting standards referred to by Mr Adams is incorrect and that in fact the statements produced comply with the RLA with respect to the relevant standards set down by AASB as appropriate for the type of financial statements as required to be produced under the RLA. Mr Ellicott indicated that PPS/Colonial had obtained an expert's report.
The author of Note 1 to the Ballina Fair Promotions Fund Statement of Income Expenditure for years 2008-2012 discusses the appropriate accounting standards adopted for the financial reports and specifically states that AASB 101, AASB124, AASB107 and AASB7 are not applicable. These four standards are part of the list of standards that Mr Adams believes must be included within the contemplation of the preparer of the Statements as they are imported into the statements pursuant to ss28 and 55 being part of a number of the "applicable accounting standards" made by AASB. As mentioned Note 1 was not included in the financial statement for year ended 30 June 2008 for the Ballina Fair Promotions Fund.
New Outgoings, Six Monthly Advertising and Promotions Expenditure Statements and Marketing Plans produced by PPS/Colonial
At the commencement of the hearing Mr Ellicott on behalf of PPS/Colonial tendered two Affidavits from Ms Linda Lay dated 3 and 7 February 2012. They were accepted into evidence.
In the Affidavit of 3 February 2012 Ms Lay says that she is a regional finance manager of Colonial. She says in relation to the Outgoing Statements provided by PPS/Colonial each year as required by s 28 of the RLA, those statements comply with s 28(1)(b)(i) as they break down the management fees into fees paid towards the administration costs of running Ballina Fair, referred to as "centre management" costs, and other fees paid to the management company, referred to as "management fees".
She then says the following:
(7) The statements for the financial years ending 2008/2009 and 2010 did not comply with section 28(1)(b)(ii) of Act as they did not break the cleaning costs into the costs of consumables and other costs.
(8) We have re-issued those statements with cleaning costs broken down into the costs of consumables and other costs and provided them to our registered company auditors Price WaterhouseCoopers.
(9) PriceWaterhouseCoopers have reviewed those statements and provided new Auditor's reports as required by Section 28(1)(e).
Annexed to her affidavit are copies of the Outgoings Statements and auditor's reports for Ballina Fair for the financial years ending 2008, 2009 and 2010. Mr Adams on behalf of Summerland advised the Tribunal that the Outgoing Statements and auditor reports were delivered to the lessee Summerland on 7 February 2012.
In her Affidavit of 7 February 2012, Ms Lay says in answer to the allegation by Summerland that PPS/Colonial has failed to comply with the RLA in not providing marketing plans as required under s 53 and six monthly advertising and expenditure statements as required by s 54 that PPS/Colonial calls its marketing plan a "Budget Income and Expenditure" and calls its six monthly advertising and expenditure statements as "Half Yearly Income and Expenditure". Further she says that to the extent that these statements for the financial years 2008 through to 2011 have not been provided to Summerland, they are now so provided.
The Budget Income and Expenditure Statement is one sheet of paper indicating in table form the tenant fees and levies paid to the Fund and then the expenditure listing the amounts against line items such as majors, apparel, mobile phones, brand positioning, general and administration. Again, Mr Adams, on behalf of Summerland, confirmed that the statements were delivered to the lessee Summerland on 7 February 2012.
Expert Evidence of Mr Vincent Sheehan
As noted PPS/Colonial procured an expert's report from Vincent Sheehan of Ernst & Young. The Report was admitted into evidence without objections (the Report) and marked Exhibit "A". Mr Sheehan is a partner in Ernst & Young in financial accounting advisory services focussing on international financial reporting standards and has 19 years of experience in chartered accounting and five years experience as a partner in the retail property sector.
Mr Sheehan reported that his assignment on instructions from the Solicitors for PPS/Colonial was to provide expert services in relation to the dispute which was as he understood that Summerland alleged that PPS/Colonial has not complied with the RLA in that the outgoings and promotion fund statements have not been "prepared in accordance with the relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board (AASB) as required by the Act".
To comprehend this very technical area of applicable accounting standards, I believe that it is helpful to summarise Mr Sheehan's Report. Firstly, he identifies the issue of appropriateness of special purpose financial reporting. The AASB is the governing body that sets down the relevant accounting standards. In AASBSAC1 the AASB recognise the concept of differential reporting, meaning certain entities will not be identified as reporting entities and, therefore, would not be required to prepare general purpose financial reports. These entities may prepare special purpose financial reports or other statements containing financial information in accordance with the needs of the relevant user, that being the recipients of the actual statements Sections 28(1) and 55(1) of the RLA set out the requirements for the statements and identify the relevant users, which indicates that these reports are for limited distribution and intended for a specific purpose rather than general purpose financial statements prepared to meet the needs of a wide range of users.
Mr Sheehan also discussed the provision of audit reports under the RLA noting that the Auditing & Assurances Standards Board identifies audit reports on outgoing statements as reports on "other financial information" which do not constitute a financial report in that there is no statement of financial position or a statement of financial performances, further evidencing the outgoing statements are not intended to be general purpose financial reports.
Mr Sheehan states at paragraphs 31- 34 of his Report the following:
31 When preparing special purpose financial statements and other financial information the preparer is required to consider which accounting policies are relevant and useful to the users. This is based on both the requirements as set out in the Act, as well as any other accounting standard to ensure understandability, relevance, reliability and comparability of the financial information. These are the four principal qualitative characteristics that make financial information useful to the users as outlined in paragraph. 24 of the Framework for the Preparation and Presentation of Financial Statements as issued by the International Accounting Standards Board.
32 The purpose of the outgoing statements, as noted in section 28 to the Act, is to require the Landlord (to) provide the Tenant with a written statement of expenditure incurred by the Landlord during the term of the lease to which the Tenant is required to contribute. Section 4.3 of the lease agreement between the Tenant and the Landlord further expands on this purpose, requiring the outgoing statement provided to the Tenant (to) contain "reasonable details" of outgoings for that financial year. The preparer has determined what would be a reasonable level of detail based on the aggregation principle in AASB101 Presentation of Financial Statements, which is discussed in paragraph 34.
33(a) The purpose of the promotions fund statements as noted in section 55 to the Act, is to require the Landlord (to) provide the Tenant with a written statement detailing all advertising and promotion expenditure, as well as any unspent contributions made to the fund by the Landlord and Tenant.
(b) Section 5.4 of the lease agreement between the Tenant and the Landlord specifies the Landlord to provide the Tenant a statement containing "reasonable details" of the Landlord's expenditure on advertising and promotion for the financial year and also provide information on contributions in the form of receivables and payables at the end of the period. Similar to the outgoing statements, the preparer has determined what would be a reasonable level of detail based on the aggregation principle in AASB101 Presentation and Disclosure, which is discussed in paragraph 34.
(c) As the Act also requires that the statements be prepared in accordance with the relevant principles and disclosure requirements made by the AASB, the preparer is required to determine the relevance of the principles and disclosure requirements.
(d) Note 1 to the promotions fund statements states what the preparer has concluded as relevant and useful disclosures for the users of the promotions fund statements.
34 Transaction Level Detail and the Aggregation Principle
34(a) As noted above the entity has applied the aggregation principle when preparing the statement. The level of detail required to be presented in financial reports or statements on other financial information is outlined in paragraphs 29-30 of AASB101 Presentation and Disclosure as follows:
(i) Para 29. An entity shall present separately each material class of similar item. An entity shall present separately items of a dissimilar nature of function unless they are immaterial.
(ii) Para 30. Financial statements result from processing large numbers of transactions or other events that are aggregated into classes according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items in the financial statements. If a line item is not individually material, it is aggregated with other items either in those statements or in the notes. An item that is not sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the notes.
Mr Sheehan in his Report addressed a number of the issues raised by Summerland regarding the fact that according to Summerland the Outgoings and Promotion Fund statements are not in compliance with the disclosure requirements and standards of the AASB. In summary, he deals with each issue as follows:
(a) AASB101 Presentation of Financial Statements. His view is that the Outgoings statements are statements on "other financial information" and therefore many of the basic requirements of a financial report outlined in this Standard are not relevant (ie there is no statement of financial position, or financial performance or cash flow). Similarly, he finds that this Standard is not relevant in relation to the Promotion funds statements for the same reason. Further, he notes that the basic concept of aggregation and separately presenting each material class of similar items under AASB 101 has been applied.
(b) AASB124 Related party disclosures. Mr Sheehan believes that this Standard is not relevant with respect to the relationship between Colonial First State Property Management Limited, the property manager and PPS. He says at paragraph 38(c) of his report the following:
"It is typical with these types of arrangements between landlords and property managers that all transactions between the landlord and the property manager, in this case PPS Nominees Pty Limited and Colonial First State Property Management Pty Limited, are related party transactions. Therefore, the related party disclosure would be a restatement of information already contained on the face of the Statements and the related party note disclosure requirements made by the AASB are not relevant."
(c) AASB7 financial Instruments: Disclosures. In relation to statements on "other financial information" showing only the outgoings for a period, no statement of financial position or statement of comprehensive income is required. Similarly, in relation to the promotion funds statements, as the Fund does not engage in any investing or financing activities, a statement of cash flows would be redundant and not relevant.
(d) AASB107 Statement of Cash Flows: The Outgoings statement and the promotions funds statements are not financial instruments within the terms of this Standard and consequently the Standard is not relevant.
Mr Sheehan then deals with a number of other recommended standards by the AASB and finds that they are not relevant. His conclusions are as follows:
(a) The legislation (the RLA) dictates the basis of preparation and financial reporting requirements.
(b) The basis of preparation of the Ballina Fair Promotions Fund Statements as special purpose reports is appropriate as the reports are intended for a specific purpose and a limited number of users.
(c) The Ballina Fair Outgoing Statements are considered statements on "other financial information" which are also intended for a specific purpose and a limited number of users.
(d) Special purpose financial reports or reports on "other financial information" are considered to be outside the scope of general purpose reporting framework, however, the conceptual framework developed by the AASB for general purpose financial reports can still be applied to such financial reports where relevant.
(e) The statements contain all of the financial information prescribed by the Act. In addition, the Act requires the statements comply with relevant accounting standards made by the AASB.
(f) Each of the standards listed in the Application for Original Decision from Summerland have been considered and were found not to be relevant.
(g) In terms of the level of detail required in the financial report, AASB101 Presentation of Financial Statements indicates that transaction level detail is not required to be disclosed as transactions of a similar nature are aggregated and classified for the purposes of financial statement presentation.
Mr Sheehan gave evidence which supported his Report. He was cross examined by Mr Adams. Mr Adams asked Mr Sheehan about the responsibility of preparing and providing the financial reports to tenants and asked whether it should be the sole responsibility of the Lessor, namely PPS. Mr Sheehan confirmed that it was very common for the accounting work to be outsourced to a manager such as Colonial and that a landlord such as PPS could and in fact, and from his experience very often does completely delegate this task to a manager.
Mr Ellicott submits that the Tribunal should rely on the expert report of Mr Sheehan when assessing whether the statements issued by PPS/Colonial comply in all respects with the RLA, in particular rejecting the contention of Summerland regarding the appropriate accounting standards under AASB. It is evident from Note 1 relating to accounting standards that the preparer of the financial reports at Colonial has given due consideration to the relevant and appropriate accounting standards that are applicable for the statements and reports taking into account the user of the statements.
Note 1 even disclosed which standards were not adopted for the financial reports. Those standards not adopted were a number of the standards that Mr Adams submitted should be adopted. They were examined by the expert, Mr Sheehan and found not to be relevant. The Tribunal agrees and accepts the conclusions of Mr Sheehan that the statements are in accordance with the RLA with respect to the appropriate accounting standards to be applied.
Audit Reports
Mr Adams contended that the accompanying audit reports from PricewaterhouseCoopers do not comply with ss 28(1)(c) and 55(1)(b). Each of those sections requires a report (termed auditor's report) to express an opinion on the outgoing statement (s 28(1)(c)) and on the advertising statement (s 55(1)(d)) as to whether those statements correctly state the facts to which those statements are thought to reflect. The sections do not require for a full auditor's report in the context as is understood to be an auditor's report under the Corporations Act. It is the Tribunal's view that reference to the Corporations Act is in fact a reference to a registered auditor. The words used "by a registered company auditor (within the meaning of the Corporations Act" refers to a registered auditor and not an auditor's report under the Corporations Act.
The "auditor's report" is required pursuant to s 28(1)(f) "to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor ... in respect of outgoings".
In each financial report there is in the letter from PricewaterhouseCoopers an auditor's opinion which states in relation to outgoings:
"In our opinion the accompanying schedule presents fairly, in all material respects in accordance with various lease agreements with the Tenants the recoverable expenses" and
"We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In relation to the marketing statements the "auditor's report" is required pursuant to s 55(1)(e) "to include a statement by the auditor as to whether or not the advertising statement correctly states the expenditure by the lessor during the accounting period concerned in respect of advertising or promotion costs to which the lessee is required to contribute".
The Ballina Fair Promotions Fund State of Income and Expenditure for year ended 30 June 2008 shows advertising and promotion expenses of $149,673.00.
The following statement is found within the letter from PricewaterhouseCoopers:
"In our opinion, the financial report presents fairly in all material respects, the financial position of Ballina Fair Promotions Fund as at (end of the relevant financial year) and its financial performance for the year then ended in accordance with the accounting policies described in Note 1 to the financial statements."
Mr Adams in the Response to Applicant's Submissions filed 18 November 2011 at paragraph 42 argued that "the auditor does not claim to have carried out an audit of the compliance of the outgoings and promotions expenditures" and consequently he cannot, that is Mr Adams cannot rely on the audit as proof that the RLA has been complied with. It is clear that the auditor's reports are not an audit report of the actual outgoings but an audit of the financial report of the outgoings as expressed in the opinion provided. Section 28(1)(e) requires a report on the statement. The statement referred to is the statement in s28(1)(a) and a full audit of the outgoings expenditure by PPS is not required for the purposes of s 28. Similarly in relation to the Ballina Fair Promotion Fund, it is not an audit of the fund itself but an opinion on the financial report of the fund. It is the Tribunal's view that the auditor's reports provided by PPS/Colonial from its auditor PricewaterhouseCoopers comply with the RLA and the obligations by PPS under the Lease.
Is a "Budget Income and Expenditure Statement" a Marketing Plan?
Under s 55(1)(a)(i) if the lessor fails "to make available to the lessee a marketing plan required under s 53(a)" then subject to request from the lessee, the lessee can withhold the relevant marketing contributions. Certainly, s 53 is titled in the RLA "marketing plan for advertising and promotion" and under that section the lessor must make available "to the lessee a marketing plan that gives details of the lessor's proposed expenditure on advertising and promotion during the accounting period". Ms Lay in her Affidavit of 7 February 2012 states that in compliance with the requirements of the RLA PPS/Colonial provide a Budget Income and Expenditure Statement as the marketing plan under s 53. Mr Adams in his submissions complained that the document he received, being the Budget Income and Expenditure Statement, gave no indication whatsoever of the marketing strategy of PPS/Colonial for Ballina Fair Mall in that there was no information behind the proposed expenditure statement as to what marketing initiatives were to be undertaken by PPS/Colonial.
What Mr Adams says has some force because if that is all that the tenants of Ballina Mall receive from PPS/Colonial concerning the marketing plan and marketing strategy for Ballina Mall then the tenants are left with no relevant information as to what is proposed other than some accounting numbers next to general categories. Being informed that a certain amount of money out of the Fund will be spent on for example, mini majors or food, or multi category promotions for the forthcoming year is hardly very informative. In common usage of words "marketing plan" would suggest more than just numbers, a "marketing plan" would be expected to provide a strategy of targeted marketing. Within the Budget Income and Expenditure Statement there appears a line item 4 "strategy development" with an amount of expenditure against this item. Without the actual strategy being explained the tenants, in the view of this Tribunal, are not really informed with respect to a marketing plan for Ballina Fair.
However, in construing s 53 the Tribunal notes that the section requires the marketing plan to be at a minimum "marketing plan that gives details of the lessor's proposed expenditure on advertising and promotion during that accounting period". It is the Tribunal's view that the bland Budget Income and Expenditure Statement issued on behalf of PPS does that but no more. Whether it is a marketing plan for advertising and promotion as stated in the Heading to s 53 in the RLA is another matter, it is the Tribunal's view that the statement complies with the requirements of s 53(a) of the Act.
Summerland also raised an issue regarding the cost of air conditioning of the premises, but these issues were resolved between the parties during the hearing and Summerland withdrew this item from its application for original decision.
Summary
PPS/Colonial served on Summerland fresh Outgoings Statements pursuant to s 28 and fresh Six monthly advertising and promotion expenditure statements pursuant to s 54 and marketing statements pursuant to s 53(a) on 7 February 2012 at the hearing. Whatever imperfections existed in the previous statements issued, they were cured by the service of fresh statements PPS/Colonial acknowledged that 28 days grace period for payment of the Outgoings and the Promotion Fund payment followed. Then only outstanding issue was whether those fresh statements and the statements issued pursuant to s 55 and the accompanying auditor's reports complied with the RLA with respect to applicable accounting standards made by the Australian Accounting Standards Board. The Tribunal is satisfied that those financial statements and audit reports have been so prepared in compliance with the obligations of PPS/Colonial under the RLA.
Whilst the Budget Income and Expenditure Statements, called by Ms Lay as the marketing plan for Ballina Fair Shopping Centre falls short, in the opinion, of The Tribunal of what is generally considered to be a marketing plan, nevertheless they comply strictly with the terms of s 53(a) in that they provide details of the Lessor's proposed expenditure on advertising and promotion during the relevant accounting period.
Costs
Costs are reserved. I proposed to make the usual order regarding costs application but wish to indicate a note of caution to PPS/Colonial. It is evident that as a result of the objections of Summerland and the filing of the Application for Original Decision and consequently the necessary internal review by PPS/Colonial of all of the financial statements and reports that were provided to Summerland during its tenancy fresh Outgoing statements, Marketing plans (as such) and six monthly advertising and expenditure statements had to be provided afresh and served on Summerland at the hearing. In these circumstances, whilst PPS/Colonial was ultimately successful on the main issue as to the applicable accounting standards and compliant auditor's report under the RLA, the Tribunal is of the view that careful consideration would have to be given to awarding costs at all.
Orders:
1. The Outgoing statements and accompanying audit reports issued pursuant to s 28 by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
2. The Six Monthly Advertising and Promotion Expenditure Statement issued pursuant to s54 by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
3. The Marketing Plans for Advertising and Promotion pursuant to s53 issued by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited on 7 February 2012 comply with the Retail Leases Act 1994.
4. The Annual Advertising and Promotion Expenditure Statements and accompanying auditor's reports issued pursuant to s55 during the term of the tenancy by PPS Nominees Pty Limited to Summerland Entertainment Pty Limited comply with the Retail Leases Act 1994.
5. Unless either party files and serves submissions within 14 days as to why a costs order should be made in favour of either party, there will be no order as to costs. If either party files and serves submissions within this period of 14 days the other party shall file and serve any submissions in reply within a further 14 days of receipt of the initial submissions and the issue of costs will then be determined upon the basis of the written submissions filed and without any further hearing.
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Decision last updated: 17 August 2012
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