Queensland Investment Corporation and Canberra Centre Investments Pty Limited v Kingsley's Chicken Pty Limited - [2009] ACTCA 9

KINGSLEY’S CHICKEN PTY LIMITED v QUEENSLAND INVESTMENT CORPORATION AND CANBERRA CENTRE INVESTMENTS PTY LIMITED;
QUEENSLAND INVESTMENT CORPORATION AND CANBERRA CENTRE INVESTMENTS PTY LIMITED v KINGSLEY’S CHICKEN PTY LIMITED
[2009] ACTCA 9 (28 May 2009)

LANDLORD AND TENANT – lease governed in part by Leases (Commercial and Retail) Act 2001 (ACT) – operation of Act after expiration of term of lease – where parties negotiated over proposed renewal of lease – where parties in dispute as to market rent to be paid – whether Magistrates Court had jurisdiction to appoint valuer to work out market rent – whether offer and acceptance on facts of case within meaning of relevant provision of Act – whether Magistrates Court bound to determine tenant’s application that valuer failed to conduct valuation in accordance with Act – whether Magistrates Court had discretion to dismiss application where process considered to be futile – whether landlord (lessor) engaged in unconscionable conduct – whether lessor bound to enter into renewed lease – whether tenant engaged in unconscionable conduct – whether tenant’s conduct misleading and deceptive – whether tenant caused alleged loss suffered by lessor
Held: lessor’s appeal allowed in part and tenant’s appeal dismissed – Magistrates Court had jurisdiction to appoint valuer to work out market rent, Magistrates Court not bound to determine tenant’s application that valuer failed to conduct valuation in accordance with Act, lessor did not engage in unconscionable conduct and tenant did not engage in unconscionable conduct.

Leases (Commercial and Retail) Act 2001 (ACT), ss 6, 7, 12, 22, 28, 30, 36, 51, 52, 53, 55, 56, 57, 58, 106, 107, 108, 122, 162, 163
Tenancy Tribunal Act 1994 (ACT)
Trade Practices Act 1974 (Cth)

Commercial and Retail Leases Code of Practice

Pearce DC and Geddes RS, Statutory Interpretation in Australia (6^th ed, LexisNexis Butterworths, 2006)

Kingsley’s Chicken Pty Limited v Queensland Investment Corporation and Anor [2006] ACTCA 9
CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 All ER 1003
Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11, 173
Roberts v Church Commissioners for England [1972] 1 QB 278
Queensland Television Limited v Commissioner of Taxation of the Commonwealth of Australia (1969) 119 CLR 167
Bradshaw and Anor v Pawley [1980] 1 WLR 10; [1979] 3 All ER 273
Elrington v Judd [1964-65] NSWR 493
Masters v Cameron (1954) 91 CLR 353
Kingsley’s Chicken Pty Ltd v Queensland Investment Corporation [2005] ACTSC 117
Kingsley’s Chicken Pty Ltd v Queensland Investment Corporation (2007) 214 FLR 253
The Registrar of Titles of the State of Western Australia v Franzon (1975) 132 CLR 611
Taylor v Johnson (1983) 151 CLR 422
Smith v Hughes (1871) LR 6 QB 597
Bird v Baker (1858) 1 El & El 12; 120 ER 812
Cadogan (Earl) v Guinness [1936] Ch 515

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. ACTCA 39 of 2007
No. ACTCA 40 of 2007
No. SCA 12 of 2007

Judges: Refshauge, Penfold and Besanko JJ
Court of Appeal of the Australian Capital Territory
Date: 28 May 2009

IN THE SUPREME COURT OF THE       )          No. ACTCA 39 of 2007
             )          No. SCA 12 of 2007
AUSTRALIAN CAPITAL TERRITORY    )
  )
COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:KINGSLEY’S CHICKEN PTY LIMITED
Appellant

AND:QUEENSLAND INVESTMENT CORPORATION
AND:CANBERRA CENTRE INVESTMENTS PTY LIMITED
Respondents

Judges:  Refshauge, Penfold and Besanko JJ
Date:  28 May 2009
Place:  Canberra

ORDER

THE COURT ORDERS THAT:

The appeal be dismissed.
The parties to the appeal have leave to file and serve within 7 days of the date hereof written submissions on any other orders they wish to seek and on the question of costs.
The parties to the appeal have leave to file and serve within 14 days of the date hereof written submissions in reply to submissions received under the leave granted in order number 2 above.

IN THE SUPREME COURT OF THE       )          No. ACTCA 40 of 2007
  )          No. SCA 12 of 2007
AUSTRALIAN CAPITAL TERRITORY    )
  )

COURT OF APPEAL )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:QUEENSLAND INVESTMENT CORPORATION
AND:CANBERRA CENTRE INVESTMENTS PTY LIMITED

Appellants

AND:KINGSLEY’S CHICKEN PTY LIMITED

Respondent

Judges:  Refshauge, Penfold and Besanko JJ
Date:  28 May 2009
Place:  Canberra

ORDER

THE COURT ORDERS THAT:

The appeal be allowed in part.
With respect to the orders made by Higgins CJ on 26 September 2007:

(a) The order that the appeal be upheld be set aside;
(b)The order that the judgment and order on the cross-claim be set aside be confirmed; and
(c)The order that the application of the lessee to replace the valuer be remitted to the learned Magistrate to be heard and determined according to law be set aside.

The order of Magistrate Burns made on 2 February 2007 that proceedings in matter CL 04/21 are dismissed be reinstated.
The parties to the appeal have leave to file and serve within 7 days of the date hereof written submissions on any other orders they wish to seek and on the question of costs.
The parties to the appeal have leave to file and serve within 14 days of the date hereof written submissions in reply to submissions received under the leave granted in order number 4 above.

IN THE SUPREME COURT OF THE       )          No. ACTCA 39 of 2007
  )          No. ACTCA 40 of 2007
AUSTRALIAN CAPITAL TERRITORY    )          No. SCA 12 of 2007
  )

COURT OF APPEAL )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:KINGSLEY’S CHICKEN PTY LIMITED
Appellant

AND:QUEENSLAND INVESTMENT CORPORATION
AND:CANBERRA CENTRE INVESTMENTS PTY LIMITED
Respondents

Judges:  Refshauge, Penfold and Besanko JJ
Date:  28 May 2009
Place:  Canberra

REASONS FOR JUDGMENT

REFSHAUGE J:

I have had the advantage of reading the reasons for judgment of Besanko J. I agree with the disposition of the appeals as his Honour proposes. I also agree with the additional remarks made by Penfold J.

I am grateful for Besanko J’s account of the facts of these matters and the history of the proceedings between the parties, which I adopt. As a result I do not have to set them out in these reasons.

I have, however, the misfortune to disagree with one of the conclusions to which his Honour has come. I also wish to add some remarks of my own on issues that have arisen on this appeal.

The jurisdiction to appoint a valuer

Magistrate Burns, in addressing the application by Kingsley’s Chicken Pty Limited (the tenant) under s 58 of the Leases (Commercial and Retail) Act 2001 (ACT) (the Leases Act), originally considered that he had had no jurisdiction to hear and determine it because there was no offer by the Queensland Investment Corporation and Canberra Centre Investments Pty Limited (the lessor) nor acceptance by the tenant as these terms were known in the law of contract, which he held relevantly applied.

That view was rejected by the Court of Appeal in Kingsley’s Chicken Pty Limited v Queensland Investment Corporation and Anor [2006] ACTCA 9 (the 2006 Decision) which held (at [53]) that the terms “offer” and “accepts” in the Leases Act “are to be given their ordinary meaning rather than restricted to their technical contractual meaning”. With respect, the reasoning of the Court is compelling and the conclusion one that sits well with the purposes of the Leases Act.

The Court, however, did not elucidate the ordinary meaning of these terms and I find I am not clear on the consequences of this conclusion for this case. That is to say, it was by no means clear to me what was required to constitute an offer and acceptance within this ordinary meaning.

It seems clear enough that the lessor had made an offer in the sense of a proposal presented for acceptance or refusal or consideration (see the 2006 Decision at [39]), even though it was expressed to be subject to the lessor’s approval.

The tenant appeared to accept this offer; that is to say, unlike previous offers, where issues such as the cost of a fit out were rejected, there was no express rejection of any term of the offer. It became clear in the course of the challenge to the valuer under s 58 of the Leases Act, however, that an important term had not been or was no longer accepted by the tenant, though it was not clear whether it had never been accepted or whether the tenant had simply changed its mind about it. That is to say, the obligation which the lessor had included in the offered lease, that the rent was to commence to accrue at the expiry of the term of the former lease, was not accepted by the tenant, who submitted in the application that it was to start from the operative date of the valuer’s determination.

It may be that this was a result of a misunderstanding. The tenant may have considered that rent was what Lord Denning MR described in CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 All ER 1003 (at 1007) as “the medieval concept of rent” whereby to use the terms of Powell J in Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11, 173 (at 11, 175-6):

…rent is an incident of tenure, or, to put it another way, rent issues out of the estate.

Under this understanding, the rent could not commence to accrue until the demise was granted under the new lease. It has always been clear that the demise could only occur when the new lease was executed: Roberts v Church Commissioners for England [1972] 1 QB 278; Queensland Television Limited v Commissioner of Taxation of the Commonwealth of Australia (1969) 119 CLR 167 at 175.

This view of the nature of rent and when it might accrue was effectively rejected by Lord Denning MR in CH Bailey Ltd v Memorial Enterprises Ltd and clearly rejected by Sir Robert Megarry VC in Bradshaw and Anor v Pawley[1980] 1 WLR 10; [1979] 3 All ER 273. Sir Robert Megarry VC also held that rent under a new lease could be required to be paid (though only as to the difference in amount) for a period prior to the commencement of the new lease when the tenant was in occupation under another tenancy and paying rent at, for example, a lesser rate.

Accordingly, there was, as disclosed by the tenant’s application for the disqualification of the valuer, a fundamental difference between them about the terms of the lease which had been apparently offered and accepted. The tenant considered that the rent should be assessed to accrue and, therefore, to be valued, as at a date at least twelve months later than required under the lease offered by the lessor.

It seems to me that this is a disagreement about a fundamental issue in respect of the lease terms. It also would make a difference to the task of the valuer. Market conditions, for example, might be very different over a period of twelve months.

Doing the best I can, it seems to me that in fact the tenant had either not accepted the lessor’s offer, notwithstanding that such acceptance could be, in technical contractual terms, incomplete, or had changed its mind and, as appears from its application, now had a different view of the lease offered. That the lease offered was subject to the determination of market rent and subject to the lessor’s approval would, in the circumstances, appear not to have prevented acceptance within the ordinary meaning of that term. After all, there was a clear, indeed statutory, process for the acceptance to be subject to the determination of market rent (s 52(3) of the Leases Act). In addition, the fact that it was subject to the lessor’s approval simply meant that the lessor could decide not to proceed at all, that is to say the offer was more like an invitation to treat (see [39] of the 2006 Decision), which is clearly within the concept of the ordinary meaning of “offer”.

On the other hand, the date of commencement of the lease and the date when rent starts to accrue seem to me to be such fundamental terms of the lease that a disagreement about them undermines the apparent acceptance of the offer by the tenant, even in accordance with the ordinary meaning of that term.

In that event, it seems to me that ss 52(3) and 52(6) of the Leases Act had probably not been engaged or the circumstances under which they had been engaged had been revoked. Those provisions read:

(3)The lessor or tenant may also ask the Magistrates Court to refer a dispute about the rent to be paid under a renewal to mediation if—
(a) the lessor—
(i)proposes to renew the lease and makes an offer to renew the lease in response to a request under section 107 (Lessor’s intentions about renewal); or
(ii)gives the tenant preference under section 108 (Rules of conduct at end of lease term for shopping centre leases) by making an offer to the tenant to renew the lease; or
(iii)otherwise makes a renewal offer to the tenant before the end of 12 months after the end of the existing lease; and

(b)the tenant accepts the lessor’s offer to renew the lease subject to the rent for the lease being market rent.

…
(6)If the mediator reports to the Magistrates Court that the parties to the lease cannot agree on the market rent, the court must, after consultation with the parties, appoint a valuer to work out the market rent.

The pre-conditions in s 52(3), namely that the tenant has accepted the lessor’s offer, had either not been met or had been revoked: the tenant had here not (or no longer) accepted that the terms relating to the start of the rent was 13 October 2003.

As a result, the Learned Magistrate may have been required to set aside the appointment of the valuer.

While the Learned Magistrate may, therefore, have made a different order (especially depending on when the decision of the tenant was made), it seems to me that this is not required to be considered in this appeal, for the lessor has clearly withdrawn the offer of a lease and so there would be no utility or necessity in the Magistrates Court setting aside the order appointing the valuer. Accordingly, all that was required was the order made by Magistrate Burns, namely to dismiss the tenant’s application.

This does not, however, seem to me to lead to a different result on the question of the lessor’s counter-claim in the unconscionable conduct proceedings for the reasons set out in the reasons of Besanko J (at [143]).

In any event, I am not convinced that, in these circumstances, there was, by the tenant’s acceptance, a relevant representation which was misleading or deceptive.

Other matters

I was initially troubled by the question of whether the facts of the case engaged s 108 of the Leases Act. That section has been set out in the reasons for judgment of Besanko J (at [52]).

In certain circumstances, it would appear that a holding over could be seen as a new tenancy, though on the terms set out in the original lease. This could amount to no more than incorporation of these terms by reference to the original lease.

The relevant term of the original lease is clause 16. This clause permits a holding over where the tenant ‘continues to occupy the Premises”. It is certainly not expressed in terms such as those in Elrington v Judd [1964-65] NSWR 493 where (at 494) Herron CJ held that a new tenancy had not been created. Indeed, the terms of clause 16 could well be regarded as providing for the creation of a new tenancy, applying the approach of his Honour in that case.

Nevertheless, the matter is not free from doubt. Neither party agitated the matter on appeal and it is not appropriate, in the absence of such submissions, to make any finding on the issue. I would prefer to leave that as an open issue. For the reasons set out below, it would not have affected the outcome of the appeal.

Finally, the tenant made much, in its submissions, of an alleged obligation of the lessor to negotiate in good faith, which it submitted arose from the terms of the Leases Act.

That may be required under s 108 of the Leases Act, but I confess that I cannot divine a legislative intention to impose such an obligation under s 107 or Pt 8 of the Leases Act.

The relevant content of the obligation asserted by the tenant was that if market rent was to be worked out, then the lessor could not withdraw the offer of a new lease before 14 days after the valuer has reported, as referred to in s 53(3) of the Leases Act.

This is a difficult question which I would prefer not to answer definitively in this case as it is not necessary to do so. On the one hand, the reference to an interim agreement, which the tenant can create by acting under s 53(6) of the Leases Act, implies that otherwise the lessor is not bound to maintain the offer until the conclusion of the working out of the market rent and makes the tenant’s submission an unconvincing one.

Further, the primary thrust of the regime of the Leases Act is to require much greater disclosure and timely notice than the common law requires, rather than to mandate that legal relations be created where the common law would not do so. Even s 108 of the Leases Act has exceptions and it certainly does not mandate, for example, that the lessor must offer the tenant the same or even a similar lease to that under which it formerly occupied the premises.

On the other hand, it does seem at least curious to provide for a detailed regime for the working out of market rent if the lessor can withdraw the offer of a lease even part way through that process.

It is attractive to suggest that the lessor is more likely to know what the market rent is likely to be, such that it is not unfair to put some restrictions on the lessor’s right to withdraw an offer of a new lease. That is more likely to apply, however, under s 108 of the Leases Act than where that section does not apply.

In any event, it seems to me that what happened here means that no final view has to be taken of this argument. Whether the tenant was never going to accept a lease that commenced on 13 October 2003 with rent accruing from that date or subsequently changed its mind to that position, either of those decisions of the tenant must mean that the lessor was no longer bound to maintain its offer. A withdrawal of the offer in those circumstances could not breach any obligation to negotiate in good faith.

Accordingly, the question does not need to be determined on this appeal and I prefer not to do so, either to assert that there is such an obligation or to reject it.

Conclusion

Other than as above, I agree with the reasons for judgment of Besanko J and the additional remarks of Penfold J and, as I have earlier noted, agree with the disposition of the appeal that Besanko J proposes.

I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of His Honour Justice Refshauge.
Associate:
Date: 26 May 2009

IN THE SUPREME COURT OF THE       )          No. ACTCA 39 of 2007
  )          No. ACTCA 40 of 2007
AUSTRALIAN CAPITAL TERRITORY    )          No. SCA 12 of 2007
  )

COURT OF APPEAL )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:KINGSLEY’S CHICKEN PTY LIMITED
Appellant

AND:QUEENSLAND INVESTMENT CORPORATION
AND:CANBERRA CENTRE INVESTMENTS PTY LIMITED
Respondents

Judges:  Refshauge, Penfold and Besanko JJ
Date:  28 May 2009
Place:  Canberra

REASONS FOR JUDGMENT

PENFOLD J:

This matter involves an appeal by Queensland Investment Corporation and Canberra Centre Investments Pty Ltd against orders made by Higgins CJ on appeal from decisions of Magistrate Burns. There is a cross-appeal by Kingsley's Chicken Pty Ltd against Higgins CJ’s refusal to make further orders on the appeal from Magistrate Burns.

The background to this matter is set out in the reasons of Besanko J. I agree with the conclusions of Besanko J, and with his reasons for reaching those conclusions.

In particular, I adopt Besanko J’s conclusion that the Magistrate’s discretion to refuse to disqualify the valuer and appoint a new valuer was properly exercised on the basis that “further consideration of the application had become futile”. It seems to me that the complexity of this matter results largely from attempts by both parties to make the legislative scheme carry a far greater load than it was ever designed to do, and a far greater load than a facilitative legislative scheme could ever do.

The objects of the relevant provisions of the Leases (Commercial and Retail) Act 2001 (ACT), set out in s 106 (2), are:

to achieve an appropriate balance between reasonable but conflicting expectations and to ensure fair dealing, as far as practicable, between lessor and tenant in relation to the renewal or extension of premises.

The provisions of Division 12.2 establish a scheme, described in detail in Besanko J’s reasons, which provides a framework for renewal or extension of leases of relevant premises. It provides certain protections for tenants while at the same time recognising commercial realities and the commercial needs of lessors. The scheme imposes obligations on lessors and on tenants at different stages of the process, provides timeframes within which certain actions may or must be taken, and provides some dispute resolution methods.

However, the scheme relies on the processes being followed as laid down by the legislation. As each stage of the process is completed in accordance with the legislation, the legislation then identifies the next steps in the process. The scheme does not purport to resolve, or even to contemplate, every complication arising from a failure to comply with the preceding steps in the process, and nor could it. At each point in the process, there are an infinite number of ways in which the parties could fail to act within the framework, and an infinite number of reasons why they might do so.

Legislation is reasonably well adapted to establishing a process consisting of a sequence of steps that follow from one to another in a logical progression. It can even, reasonably effectively if not always simply, provide a range of available processes depending on which options are chosen at appropriate points in the sequence. However, legislation is not at all adapted to establishing a process consisting of an infinite number of different sequences, each of which starts with a departure from one of the steps in the intended process.

Once it is clear that there has been a departure from the framework created, and the options offered, by the legislation, further attempts at statutory interpretation are unlikely to be productive; in particular, attempts amounting to reading the legislation as somehow covering circumstances that were clearly not contemplated in the design of the scheme, such as were implicit in some of the submissions made to the Court on the appeal, can create far more problems than they solve.

The fact that, in a case such as this, the legislation does not provide a solution to a problem created by a series of failures to comply with its provisions does not mean that there is a flaw in the legislation. It means only that the parties have taken themselves outside the area within which the legislation can, or is intended to, help them resolve difficulties in their relationship, and that any further attempt to force their ongoing dispute back into the framework of the legislative scheme will be futile.

I agree with the orders proposed by Besanko J.
I certify that the preceding paragraphs numbered thirty-six (36) to forty-five (45) are a true copy of the Reasons for Judgment herein of her Honour, Justice Penfold.
Associate:
Date: 26 May 2009

IN THE SUPREME COURT OF THE       )          No. ACTCA 39 of 2007
  )          No. ACTCA 40 of 2007
AUSTRALIAN CAPITAL TERRITORY    )          No. SCA 12 of 2007
  )

COURT OF APPEAL )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:KINGSLEY’S CHICKEN PTY LIMITED
Appellant

AND:QUEENSLAND INVESTMENT CORPORATION
AND:CANBERRA CENTRE INVESTMENTS PTY LIMITED
Respondents

Judges:  Refshauge, Penfold and Besanko JJ
Date:  28 May 2009
Place:  Canberra

REASONS FOR JUDGMENT

BESANKO J:
Introduction

Two appeals from orders made by Higgins CJ on 26 September 2007 are before the Court. The Chief Justice heard and determined an appeal from the Magistrates Court. I will refer to the Chief Justice as the primary appeal judge.

The appeals are part of a long-running dispute between a landlord and a tenant or, to adopt the terminology of the Leases (Commercial and Retail) Act 2001 (ACT) (“Leases Act”), between a lessor and a tenant. The lessor is Queensland Investment Corporation and Canberra Centre Investments Pty Limited, and the tenant is Kingsley’s Chicken Pty Limited. The lessor has appealed against the orders made by the primary appeal judge. The tenant has also appealed from the primary appeal judge’s decision; it does not complain of the orders made by the primary appeal judge but contends that there are other orders which he should have made.

The premises in question are shop premises within the Canberra Centre. The lessor leased the premises to the tenant between 1992 and 1998 and the tenant used the premises as a retail chicken shop. In March 1999 the lessor and tenant executed a written lease for the premises involving a term of five years commencing on 13 October 1998 and expiring on 12 October 2003. For the purposes of the Leases Act this lease is the original lease and I will refer to it in this way. The original lease does not contain an option to renew or extend the lease. There is a clause providing for holding over by the tenant. The tenant has remained in occupation of the premises since 12 October 2003, but the parties have not entered into a new lease.

In essence, the dispute between the parties concerns their rights and obligations with respect to a proposed renewal of the original lease and, for the most part, the resolution of the issues turns on the proper construction of certain sections in the Leases Act.

The dispute between the parties has given rise to a number of legal proceedings and it is necessary for me to set out the history of the dispute in some detail. In doing that, I will, at appropriate points, set out those sections of the Leases Act which are relevant to the issues in dispute.

The history of the dispute between the parties

Under the original lease the use of the premises was restricted to use as a retail chicken shop. The starting rent was $72,000 per annum and there was provision for annual reviews. As I have said, the original lease did not contain an option to renew or extend the lease. The clause providing for holding over by the tenant provided that if the tenant continued to occupy the premises with the lessor’s approval after the expiration of the original lease he did so as a monthly tenant. At the time the original lease was entered into, the Tenancy Tribunal Act 1994 (ACT) and the Commercial and Retail Leases Code of Practice were in force. During the term of the lease those instruments were superseded by the Leases Act, which came into operation on 1 July 2002. The Leases Act applied to the premises. Certain sections in the Act applied to existing leases, while other sections only applied to leases entered into after the Act’s commencement date of 1 July 2002. Section 107 is a section which applies to leases entered into before or after the commencement date (s 162). It appears in Div 12.2 of Pt 12 of the Leases Act, and s 106 contains a statement of the objects of that Division. Sections 106 and 107 are in the following terms:

106      Objects of div 12.2
(1)      The Legislative Assembly recognises that conflicts sometimes happen between a lessor’s expectation that the lessor will be able to deal with the leased premises subject only to the terms of the lease and a tenant’s expectations of reasonable security of tenure.
(2)     The objects of this division are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure fair dealing, as far as practicable, between lessor and tenant in relation to the renewal or extension of premises.

107      Lessor’s intentions about renewal
(1)      This section applies to all leases.
(2)      The tenant may, in writing, ask the lessor to tell the tenant whether the lessor intends to renew the lease if—
(a)for a lease for longer than 1 year—the lease is due to end in not less than 6 months and not longer than 1 year; or
(b)in any other case—the lease is due to end in not less than 3 months and not longer than 6 months.

(3)      If the lessor receives a request under subsection (2) on a day (the request day), the lessor must tell the tenant, in writing within 1 month after the request day, either that—
(a)       the lessor proposes to renew the lease; or
(b)       the lessor does not propose to renew the lease.
(4)      If the lessor fails to notify the tenant under subsection (3), the lease is extended by a period equal to the period starting 1 month after the request day and ending when the lessor gives the tenant a notice that, apart from being late, complies with subsection (3).

The scope of s 107 becomes clearer when s 108 is considered. Section 108 is a section which applies only to leases entered into after 1 July 2002 (s 163). It is in the following terms:
Rules of conduct at end of lease term for shopping centre leases
(1)      This section applies to a lease for premises in the retail area of a shopping centre if the lessor proposes to re-lease the premises and the tenant wants to renew or extend the lease.
(2)      The lessor must allow the tenant to renew or extend the lease in preference to allowing other possible tenants to lease the premises.
(3)      The lessor must assume that the tenant wants to renew or extend the lease unless the tenant has told the lessor, in writing within 12 months before the end of the lease, that the tenant does not want to renew or extend the lease.
(4)      The lessor may offer to lease the premises to someone other than the tenant only if it would be substantially more advantageous to the lessor to lease the premises to the other person rather than renew or extend the term of the lease.
(5)      However, the lessor is not obliged to prefer the tenant under this section if—
(a)the lessor reasonably wants to change the tenancy mix within the shopping centre; or
(b)the tenant has breached the lease substantially or persistently; or
(c)       the lessor—
(i)does not propose to re-lease the premises within a period of at least 6 months after the end of the term of the lease; and
(ii)needs vacant possession of the premises during that period for the lessor’s own purposes (but not to carry on a business of the same kind as the business carried on by the tenant at the premises).
(6)      Also, this section does not apply in relation to the lease if—
(a)       section 111 applies in relation to the lease; or
(b)if the lease is a sublease—the sublease is as long as the term of the head lease allows; or
(c)the lease arises when the tenant holds over after the end of an earlier lease with the consent of the lessor and the holding over is for 6 months or less; or
(d)the lease is excluded from this section by regulation.

Although the premises are in the retail area of a shopping centre within s 108 of the Leases Act, the original lease was entered into before 1 July 2002 and therefore s 108 was not engaged by the original lease.

It can be seen that s 107 does not place an obligation on the lessor to renew the lease. The section does place an obligation on the lessor to advise the tenant of whether it intends to renew the lease if it receives a request from the tenant to do so. Section 107 places no obligation on the tenant.

The concept of a renewal of a lease is defined in s 6 of the Leases Act in the following terms:
When is a lease taken to be renewed for this Act?
(1)A new lease is taken to be a renewal of another lease (the existing lease) for this Act if the new lease is between the same parties as the existing lease and relates to the same premises and the premises are to be put to the same or similar use.
(2)This section does not apply to a renewal mentioned in section 16 (Application of Act to pre-existing leases on registration of units plans).

The term “renewal” is defined in the Dictionary in the Act by reference to s 6. The term “extend” is defined in the Dictionary as:

extend, under an option, includes renew under the option.

In this case, the tenant sought advice from the lessor by way of a letter as to whether it intended to renew the original lease. The tenant’s agent wrote to the lessor on 11 December 2002. On 20 December 2002 the lessor wrote to the tenant and advised it that it intended to renew the lease. It did not put forward a particular proposal or offer at that time but, instead, said that it would do so in the new financial year.

On 7 April 2003 the lessor wrote to the tenant, enclosing with its letter a letter of offer containing the terms and conditions of a proposed lease, a disclosure statement under the Leases Act and a document referred to as the owner’s general form of lease. The letter and the letter of offer were marked “Subject to Lessor Approval”. The proposed lease was for a term of five years commencing on 13 October 2003 with a base rental for the first year of $108,000 and increases on that base rental for each of the second to fifth years inclusive. The offer contained a term requiring the tenant to carry out a refit of the premises. It also contained a statement that neither party was to be bound until the lease documentation had been executed by both parties.

It is appropriate to note at this point that, subject to one qualification, there is nothing in the Leases Act to prevent the lessor from making its proposed offer for a renewed lease subject to such terms and conditions as it considers appropriate. The one qualification is that, as this was a renewal within s 6 of the Leases Act, the lessor was required not to propose that the rent to be charged initially under the renewed lease exceed the market rent for the premises. That restriction on the lessor’s rights is contained in s 51 of the Leases Act, which is in the following terms:
Rent on renewal
(1) This section applies if—
(a) either—
(i)the lessor proposes to renew the lease and makes an offer to the tenant to renew the lease in response to a request under section 107 (Lessor’s intentions about renewal); or
(ii)the lessor gives the tenant preference under section 108 (Rules of conduct at end of lease term for shopping centre leases) by making an offer to the tenant to renew the lease; or
(b)the lessor otherwise makes a renewal offer to the tenant within 12 months after the end of the existing lease.
(2)The lessor must not propose that the rent to be charged initially under the renewed lease exceed the market rent for the premises (other than under an option to renew contained in the lease).
(3)In this section, a proposal or offer to renew the lease does not include an option to renew contained in the lease.

On 23 September 2003 the tenant wrote to the lessor stating that it accepted the offer to renew the lease, but that it did not accept “the rent basis proposed”. The tenant also raised a question about the proposed obligation to refit the premises. Shortly after that letter the tenant again wrote to the lessor stating that a “fair market base rent is $92,000 plus GST”.

On 2 October 2003, which was shortly before the expiration of the term under the original lease, the lessor withdrew its previous offer on the basis that the tenant did not accept the proposed obligation to refit the premises. The lessor made a second offer which was said to be subject to its approval and which was an offer for the premises and an additional area. The offer was for a six-year lease commencing on 13 October 2003. The offer was not accepted and thereafter appears to have lapsed.

The lessor made a further offer to the tenant by letter dated 24 February 2004. By this time the term under the original lease had expired, although, as I have said, the tenant continued to occupy the premises. The lessor’s letter to the tenant dated 24 February 2004 was marked “Subject to Lessor Approval” and again it enclosed a letter of offer (which was also marked “Subject to Lessor Approval”), a disclosure statement and the owner’s general form of lease. The offer referred to a five-year term but did not specify a commencement date. The base rental proposed for the first year was $96,000 with increases on the base rental for each of years two to five inclusive. After the lessor’s letter dated 24 February 2004, further correspondence passed between the lessor and tenant about the proposed base rental figure. The tenant said that it considered that the amount proposed by the lessor was too high.

The lessor wrote to the tenant on 10 May 2004 making an offer which was stated to be “Subject to Lessor Approval”. As had happened with previous proposals or offers the letter enclosed a letter of offer containing the terms and conditions of a lease (which was also marked “Subject to Lessor Approval”), a disclosure statement and the owner’s general form of lease. The proposed lease was for five years commencing on 13 October 2003 and the base rental for the first year was to be $96,000 with increases on the base rental for each of years two to five inclusive. The letter of offer also contained a statement that the parties were not to be bound until the lease documentation had been executed by both parties.

On 10 June 2004 the solicitors for the tenant wrote to the solicitors for the lessor in the following terms:

We refer to your letter to us of 7 June 2004 and QIC Real Estate’s letter of 4 June 2004 to our client Mr Varr of Kingsley’s Chicken Pty Limited.
Our client is a monthly tenant, and that lease commenced on 31 October 2003. That lease entitles it to a right of preference.
We are also instructed to respond to QIC Real Estate’s letter of 4 June 2004 which confirmed that the proposal for a lease renewal dated 10 May 2004 is available for acceptance on or before 5.00 pm on 11 June 2004. That proposal consists of a summary of the terms and conditions of an offer of a new lease.
We are instructed to advise you that our client accepts this offer of a new lease, subject to the rent being at market rent. Our client remains of the view that the rental does not represent market rent for the premises.
We enclose the signed letter of 10 May 2004 and the Disclosure Statement.

The lessor’s letter dated 10 May 2004 was signed by the tenant’s managing director who, it seems, made the following note on the letter:

To be understood in conjunction with my solicitor’s letter of 10 June 2004.

On 23 June 2004 the lessor’s solicitors responded to the letter from the tenant’s solicitors dated 10 June 2004. They wrote:

Thank you for your letters of 10 June 2004 and 16 June 2004.
We disagree with your contention that the tenant currently has a right of preference. The tenant is holding over under its existing pre Leases (Commercial and Retail) Act lease.
In any event we note your client’s acceptance of the lessor’s proposal of 10 May 2004, subject to resolution as to whether or not the initial rent under the lease is market rent.
The lessor’s proposal of 10 May 2004 was expressed to be subject to lessor approval. We are instructed that the lessor has approved the proposal, and have been instructed to prepare a lease on the terms of that proposal.
Given the disagreement as to whether or not the rent for year one of the lease constitutes the market rent for the premises we are instructed that the lessor will refer the dispute to the Magistrates Court in accordance with section 52(3) of the Act.

Section 52, which is referred to in the above letter, is an important section having regard to the issues in this case. It is in the following terms:
Market rent – rent reviews, options and renewals
(1)Subsection (2) applies in relation to a lease if—
(a)the lease states that market rent is to be charged for premises; or
(b)market rent is to be charged for the premises because of section 49 (Rent setting or review if lease method void).
(2)      The lessor or tenant may ask the Magistrates Court to refer a dispute about market rent for the lease for mediation if the lessor and tenant cannot agree on the market rent for the premises within 14 days after either tells the other that it disputes the proposed rent.
(3)The lessor or tenant may also ask the Magistrates Court to refer a dispute about the rent to be paid under a renewal to mediation if—
(a)       the lessor—
(i)proposes to renew the lease and makes an offer to renew the lease in response to a request under section 107 (Lessor’s intentions about renewal); or
(ii)gives the tenant preference under section 108 (Rules of conduct at end of lease term for shopping centre leases) by making an offer to the tenant to renew the lease; or
(iii)otherwise makes a renewal offer to the tenant before the end of 12 months after the end of the existing lease; and
(b)the tenant accepts the lessor’s offer to renew the lease subject to the rent for the lease being market rent.
(4)On request under subsection (2) or (3), the Magistrates Court must—
(a)if the court considers that mediation would not be productive or if the parties agree—after consultation with the parties, appoint a valuer to work out the market rent; or
(b)       refer the dispute to a mediator for mediation.
(5)If the Magistrates Court refers a dispute for mediation, the mediator must report the result of the mediation to the court not later than 28 days after the dispute was referred.
(6)If the mediator reports to the Magistrates Court that the parties to the lease cannot agree on the market rent, the court must, after consultation with the parties, appoint a valuer to work out the market rent.
(7)      In this section, a proposal or offer to renew the lease does not include an option to renew contained in the lease.

Application for appointment of valuer

On 6 July 2004 the lessor issued an application in the Magistrates Court under s 52(3) and (4) of the Leases Act. The application contained the following description of the nature of the action and the relief claimed by the lessor:

Nature of action: Setting of initial rent on renewal of lease of the Premises, pursuant to Item 10 of Section 17 of the Leases (Commercial and Retail) Act 2001.
Relief claimed: Appointment of independent valuer for determination of market rent.

The action number of the proceeding was CL 21 of 2004 and in its submissions the lessor referred to the proceedings as the “valuation proceedings”. It is convenient to use that description of the proceedings.

The tenant filed a response in the valuation proceedings which contained the following:

The Respondent intends to respond to these proceedings on the following grounds [sic]:
1.The initial rent proposed by the lessor to be charged under the renewed lease exceeds the market rent for the premises, taking into account the Fixed Increase Review amounts proposed for 13 October 2004, 13 October 2005, 13 October 2006, and 13 October 2007.

The Magistrates Court appointed a valuer in the valuation proceedings, Mr Steven Flannery of McCann Property and Planning, and he provided a report on or about 22 December 2004. He provided a valuation of the current market rental value of the premises as at 13 October 2003 and the figure he fixed was $96,000 per annum (excluding GST). Mr Flannery received submissions from each party before preparing his valuation. The tenant submitted that he should provide a value not only as at 13 October 2003, but also as at the date he signed his valuation. Mr Flannery rejected that submission.

The tenant was unhappy with the valuation and through its solicitors it wrote to the lessor’s solicitors on or about 24 December 2004 asserting that Mr Flannery had failed to conduct his valuation in accordance with the Leases Act. It referred to s 58 of the Act. It asserted that Mr Flannery should have fixed a value as at December 2004 “by reason of s 56(2)”, that he had not given reasons, or sufficient reasons, for calculating a rent based on $1250 per square metre and that he had not dealt with, or had not dealt adequately with, the tenant’s submissions.

Section 53 of the Leases Act deals with the time within which the valuer must report, the market rent payable under the lease and what is called in the Act an “interim agreement”. It is convenient to set it out at this point:
Valuation to work out market rent
(1)      A valuer appointed under section 52 to work out market rent must report to the Magistrates Court within 28 days after the appointment.
(2)      On receiving a report from the valuer, the Magistrates Court must give the parties to the lease a copy of the report.
(3)      The market rent worked out by the valuer is the rent under the lease if the parties fail to agree on a different rent to be charged within 14 days after being given a copy of the valuer’s report.
(4)      If the parties to a lease enter into an interim agreement about renewing or extending the lease—
(a)the lessor cannot withdraw the offer to renew or extend; and
(b)the tenant cannot withdraw the acceptance of the offer.
(5)      However, subsection (4) does not apply if the parties agree, after the interim agreement is entered into, that the offer or acceptance may be withdrawn.
(6)      For subsections (4) and (5), an interim agreement is entered into if the tenant has accepted the lessor’s offer to renew or extend the lease subject to the rent being market rent and, under section 52 (3), requested the Magistrates Court to refer a dispute about the rent for mediation.

It is common ground between the parties that there is no interim agreement between them. It is not entirely clear why each of the parties has taken that view; it may be because it suits their respective commercial purposes. Alternatively, they or one of them may think the conclusion follows from the fact that it was the lessor, and not the tenant, who “requested” the Magistrates Court to refer the dispute about the rent for mediation or to appoint a valuer within s 53(6).

Section 54 of the Leases Act provides that a valuer working out the market rent for premises must do so in accordance with Sch 1 to the Act. That Schedule contains a definition of market rent and the principles to be applied in working out market rent.

Section 55 of the Leases Act is in the following terms:

Rent pending valuation—rent reviews and options to extend
If the rent for premises is not worked out under section 52 (Market rent—rent reviews, options and renewals) or 53 (Valuation to work out market rent) before the extension of the lease is to commence or a rent review is due (the relevant date)—
(a)the rent continues at the rate charged immediately before the relevant date until the rent has been worked out; and
(b)once the rent has been worked out and set, the party who owes the other party the difference between the rent paid and the rent that should have been paid must pay the difference to the party owed within 30 days after the rent is set.

It was accepted in argument before this Court that this section is restricted to rent reviews and options to extend or renew a lease and does not include negotiated renewals within s 6 of the Leases Act.

Section 56, which was referred to in the tenant’s letter dated 24 December 2004, deals with the extension of an original lease which has expired while the rent is being worked out under the Leases Act. It is in the following terms:
Extension if rent on renewal to be worked out
(1) This section applies if—
(a)the rent to be charged under a renewed lease is being worked out under section 52 (Market rent—rent reviews, options and renewals); and
(b)the lease that is being renewed (the original lease) expires before the rent has been worked out.
(2) The original lease is taken to continue on the same terms until 14 days after the rent for the renewed lease is worked out and the parties are told about it.

There is no definition in the Leases Act of when the rent is being “worked out”. The reference in s 56(1) to s 52 suggests that it is the process identified in the latter section.

Section 57 deals with cases in which the valuer appointed by the Court has a conflict of interest and s 58 provides for the appointment of a new valuer “in other cases”. The latter section is in the following terms:
Appointment of new valuer in other cases
(1)A party to a lease may apply to the Magistrates Court for the appointment of a new valuer if the party has reasonable grounds for believing that—
(a)the valuer appointed to work out the market rent for the lease has failed to comply with section 57; or
(b)the valuer has failed to conduct a valuation in accordance with this Act.
(2)On application under subsection (1), the Magistrates Court may disqualify the valuer and appoint a new valuer.

On 12 January 2005 the lessor wrote a letter to the tenant stating: it would contest any claim by the tenant under s 58 of the Leases Act; there was an interim agreement under s 53(6) involving a commencement date of 13 October 2003; that it claimed “back” rent from 13 October 2003.

Motion to disqualify valuer

On 24 January 2005 the tenant issued a notice of motion in the valuation proceedings in which it sought the following orders:

1.Pursuant to section 58 of the Leases (Commercial and Retail) Act 2001 the valuer Steven Flannery appointed to work out the market rent for the lease the subject of these proceedings is disqualified.
2.The parties may advise the Court of a qualified valuer whom they wish appointed under section 58, and failing agreement either party may relist the matter on 3 days notice to have a new valuer appointed.

The tenant alleged that the valuer had failed to conduct a valuation in accordance with the Leases Act and one of the principal grounds of its application was that the valuer had erred in preparing his valuation as at 13 October 2003. The tenant alleged that market rent at 13 October 2003 was irrelevant. It alleged that the proper date for the valuation was 5 January 2005 being 14 days after the valuer prepared his valuation on or about 22 December 2004. The tenant claimed that that conclusion followed from the terms of s 56(2).

There was correspondence between the parties between late January and late March 2005 and in the course of that correspondence the solicitors for the tenant made it clear that the tenant did not agree to a commencement date for the lease of 13 October 2003 or the backdating of the rent to that date.

It seems that the tenant’s notice of motion came on for a hearing before the Magistrates Court on 24 March 2005. Magistrate Burns made some remarks to the parties in which he suggested that, in the absence of agreement between the parties as to the commencement date of the lease, there was no agreement between the parties, with the consequence that the Court had no jurisdiction to hear the application. The tenant’s notice of motion was listed for hearing on 14 April 2005.

Notice to quit and challenge to notice

On or about 11 April 2005 the lessor served a notice to quit on the tenant alleging that the premises were held under a “[m]onth to month holding over tenancy terminable by one month’s notice expiring on any day”. That led the tenant to issue an application under s 122(2) of the Leases Act dated 22 April 2005 contesting the lessor’s written notice of termination dated 11 April 2005. Section 122 contains a procedure whereby a tenant may contest a termination notice. The number of the proceeding was CL 11 of 2005. At about this time the lessor made various offers to the tenant in an attempt to resolve the matter.

Hearing of motion on valuation proceedings

The tenant’s notice of motion in the valuation proceedings came on for hearing before Magistrate Burns on 14 April 2005. Although both parties in fact submitted that the Court had jurisdiction to appoint a valuer, the magistrate considered that the tenant’s submissions raised a question as to the jurisdiction of the Court to entertain the lessor’s application to appoint a valuer in the first place and, it followed, the tenant’s application for an order under s 58 of the Leases Act. The tenant submitted that there was no offer and acceptance requiring the valuer to value the rental value of the premises as at 13 October 2003. It seems that the tenant’s submission was that although there was a sufficient offer and acceptance for the purposes of s 52(3) of the Leases Act there was not a sufficient offer and acceptance for the purposes of binding the parties, and therefore the valuer, to a valuation date of 13 October 2003.

Magistrate’s decision on valuation proceedings

In his reasons for judgment delivered on 27 May 2005 the magistrate held that the terms “offer” and “accepts” in s 52(3) of the Leases Act were to be interpreted as they are “understood in the law of contract”, that there was no offer and acceptance between the lessor and tenant in that sense and therefore the facts did not fall within s 52(3) of the Leases Act. It followed, said the magistrate, that the Court did not have jurisdiction to appoint a valuer in the first place and it also followed that the tenant’s notice of motion had to be dismissed for want of jurisdiction. On the question of the proper interpretation of s 52(3), the magistrate said that there were a number of reasons for concluding that the terms of “offer” and “accepts” in the subsection were to be understood in their “contractual sense”. It is not necessary for me to set out those reasons. The magistrate accepted that the Leases Act modified the common law principles of offer and acceptance to some extent because, in the circumstances set out in s 52, a tenant may accept an offer to renew a lease by the lessor, subject to the fact that although there is agreement that the rent at the commencement of the renewed lease is to be market rent, the parties are not agreed as to the amount. The magistrate found as a matter of fact that there was no offer and acceptance within s 52(3) because the parties had agreed not to be bound by the proposed agreement until such time as they had signed a written contract. He considered that that fact therefore brought the case within the third category of contracts identified in Masters v Cameron (1954) 91 CLR 353 at 361-362. The magistrate was satisfied that the Court’s jurisdiction to appoint a valuer did not arise until both parties had executed a written agreement, and that, because that had not occurred, the Court lacked jurisdiction to appoint a valuer and it followed “that the provisions of section 53 and 58 of the Act do not apply to the present case”.

Appeal from Magistrates Court

An appeal by the tenant from the magistrate’s orders was unsuccessful (Kingsley’s Chicken Pty Ltd v Queensland Investment Corporation [2005] ACTSC 117 per Gray J). There was then a further appeal by the tenant to the Court of Appeal.

With respect to the landlord’s notice to quit, the magistrate made an order granting possession of the premises to the lessor. That order was the subject of an appeal by the tenant and by order of Crispin J made on 1 February 2006 that appeal was joined with the appeal to the Court of Appeal from the orders of Gray J. For reasons which are not set out in the material before this Court, it appears that the matters were dealt with by the Court of Appeal by way of an appeal and case stated.

Court of Appeal’s consideration of case stated

The Court of Appeal found it necessary to answer only the first of the fourteen questions referred to in the case stated. The question asked and the answer of the Court of Appeal were as follows:

Q.Under subs 52(3)(a) of the Leases (Commercial and Retail) Act 2001 are the terms “offer” and “accepts … subject to market rent” to be interpreted according to their meaning at contract law?

A. No.

(Kingsley’s Chicken Pty Ltd v Queensland Investment Corporation [2006] ACTCA 9 at [60].)

The essence of the Court’s reasoning is contained in the following passages (at [53]-[56]):

We are far from satisfied that, in their ordinary usage, the terms “offer” and “accepts” as used in the Leases Act necessarily imply the technical contractual meaning of the terms. Even if it were to be accepted that, of the two possible interpretations, the technical legal approach would be favoured, the effect of s 139 of the Legislation Act, in our view, requires this Court to prefer an interpretation that best achieves the purpose of the legislation. It seems clear to us that this would favour the view that the terms in question are to be given their ordinary meaning rather than restricted to their technical contractual meaning. It follows that the learned Magistrate, and the learned primary appeal Judge, were in error in holding that the jurisdiction of the Magistrates Court was not enlivened because the parties had not yet reached a firm contractual agreement.
Counsel were of one mind that, should this be our view, the preferable order would be to remit the matter to the Magistrates Court to exercise the function conferred on that Court pursuant to s 58 of the Leases Act, as there was not sufficient evidence before us to enable us to determine this question. When the matter came before the Magistrates Court, the appellant and the respondents both submitted that the Court did have jurisdiction, and the argument was, in effect, as to whether sufficient grounds for disqualification of the valuer were capable of being made out. This may become relevant to the question of costs.
…
The stated case sought a range of answers to questions that would arise depending on the answer to the primary question as to whether or not the jurisdiction of the Magistrates Court was enlivened to appoint a valuer to determine market rent and to entertain an application pursuant to s 58 to appoint a new valuer. It seems to us that there is a danger in proceeding beyond this primary question in these proceedings.

The Court made two observations in the course of its reasons which are relevant to issues raised on the present appeals. First, it noted that the market rent was to be determined as at the date of the conclusion of the former lease and that, if appropriate, recovery of the difference between the rent under the original lease and the market rent could be effected under s 55 of the Leases Act. Secondly, the Court noted that it was common ground between the parties that there was no interim agreement within s 53(4) and that therefore the parties would be “free to decide whether or not to enter into a new five year lease from 13 October 2003”.

The orders made by the Court of Appeal were as follows:

1.In the matter of the appeal from the decision of Gray J of 25 November 2005 (ACTCA 54 of 2005), the appeal be allowed and the matter be remitted to the Magistrate to hear and determine the application to disqualify the valuer.
2.In relation to the case stated, the questions (using the paragraphs in the stated case) be answered as follows –
[54]Q. Under subs 52(3)(a) of the Leases (Commercial and Retail) Act 2001 are the terms “offer” and “accepts … subject to market rent” to be interpreted according to their meaning at contract law?
A. No.
[55]Q. If the answer to the question in par 54 is in the affirmative, does subs 52(3)(a) of the Leases (Commercial and Retail) Act 2001 require that there be binding agreement between the parties?

A. Unnecessary to answer.
[56]Q. If the answer to the question in par 54 is in the affirmative –
(a)Does the letter of 10 May 2004 from the respondent Queensland Investment Corporation amount to an offer in the contractual sense?
(b)If the answer to subpara (a) above is in the affirmative, given that by the appellant’s former solicitor’s letter of 10 June 2004 the respondents’ “offer” was accepted by the appellant subject to market rent, was this sufficient to cause the parties to fall within the scope of subs 52(3) such that the Magistrates Court had jurisdiction to determine market rent?
(c)If the answer to subpara (b) above is in the affirmative, did the Magistrates Court continue to have jurisdiction upon the appellant asserting that there was no binding agreement between the parties?

A. Unnecessary to answer.

3.In the matter of Appeal SCA 72 of 2005, the appeal be allowed and the order for possession dated 30 September 2005 be set aside.

The first two orders were made on the date the Court delivered its reasons for judgment, that is, 2 June 2006, and the third order was made on 7 February 2007.

Unconscionable conduct proceedings

On 8 September 2006 the tenant issued a further application against the lessor in the Magistrates Court. The action number of the proceeding was CL 31 of 2006 and in its submissions the lessor referred to the proceedings as the “unconscionable conduct proceedings”. It is convenient to use that description of the proceedings. The tenant alleged that the lessor had made various representations about its intentions with respect to the renewal of the lease. It alleged that an estoppel arose or, in the alternative, the lessor had engaged in unconscionable conduct contrary to s 22 of the Leases Act. I will not set out s 22. It is sufficient for me to say that it prohibits a party to a lease, or a party to negotiations for a proposed lease, from engaging in conduct that is unconscionable or harsh and oppressive in dealings with another party to the lease or negotiations. The section specifies matters a court may take into account in determining if a party has engaged in unconscionable conduct or conduct that is harsh and oppressive. The tenant also alleged that it had a right, by reason of s 107(3) and (4) of the Leases Act, to an extension of the lease, or that the holding over since 13 October 2003 created a new lease, which meant that the right of preference identified in s 108 arose in its favour. The tenant sought the following relief against the landlord:

(a)The Respondents must maintain the renewal offer until 14 days after rental determination; and
(b)if the renewal offer is accepted by the tenant as a matter of contract law the Respondents must:
(i)execute the renewed lease; or
(ii)consider in good faith executing the lease; or in the alternative

(c)that the Respondents:
(i)compensate the Applicant for the losses of and incidental to its detrimental reliance on the Respondents’ representations that the [sic] they intended to renew the lease;
(ii)extend the lease under Section 107(4) of the Leases Act; and

(d)the Respondents are bound to comply with Sections 108 and 109 of the Leases Act.

The lessor lodged a response to the tenant’s claim and a counterclaim. In its counterclaim the lessor alleged that the tenant had engaged in conduct that was unconscionable or harsh and oppressive or had made a representation which was misleading in a material particular. In the further alternative, it was alleged that the tenant had engaged in conduct in trade and commerce which was misleading or deceptive.

The valuation proceedings remitted to the Magistrates Court by the Court of Appeal and the unconscionable conduct proceedings came on for hearing before Magistrate Burns. After hearing evidence and submissions he made the following orders on 2 February 2007:

1.Proceedings in matter CL 04/21 [the valuation proceedings] are dismissed.
2.In matter CL 06/31 [the unconscionable conduct proceedings] the lessee’s application is dismissed. There is judgement for the lessor in the sum of $82,795.21 on the counterclaim.

It seems that the sum referred to in the second order was amended to $50,000 on 15 June 2007 because of a jurisdictional limit applicable to the Magistrates Court.

The magistrate’s reasons

The magistrate said that, after the decision of the Court of Appeal, the lessor, relying on certain statements made by the Court, advised the tenant that it had decided that it would not enter into a new lease with the tenant irrespective of the outcome of the valuation process. It was that conduct by the lessor which caused the tenant to bring the unconscionable conduct proceedings.

The first question considered by the magistrate was whether there had been an offer and acceptance within s 52(3) of the Leases Act. He noted that by reason of the decision of the Court of Appeal he was required to consider the ordinary meaning of the terms “offer” and “acceptance”, and not the meaning those terms have in the law of contract. He accepted that distinction but said that, applying the ordinary meaning of those terms, the parties must at least be agreed or “ad idem” as to the proposal to be put to the valuer for valuation. He did not assay a definition beyond that. The magistrate also said that, because s 52(3) covered a stage before offer and acceptance as those terms are known in the law of contract, regard could be had to the subjective intention of each of the parties in determining whether there had been an offer and acceptance within the ordinary meaning of those terms.

The magistrate concluded that the lessor’s proposal or offer was for a five-year lease with a commencement date of 13 October 2003. The tenant, after initially not saying anything to the lessor to indicate that it did not agree to a commencement date of 13 October 2003, had made it clear that it would not accept a commencement date of 13 October 2003.

The magistrate held that s 56(2) of the Leases Act, which was relied on by the tenant to submit that the commencement date of a renewed lease must be 14 days after the valuation, did not prevent the parties from agreeing that the commencement date of a renewed lease would be 13 October 2003. He said:

All section 56 does is to place the parties in a holding pattern while negotiations take place.

The magistrate said that the general law did not prevent the parties from agreeing to “backdate contractual rights and obligations under a lease” and he referred to the reasons for judgment of Sir Robert Megarry V-C in Bradshaw v Pawley [1980] 1 WLR 10; [1979] 3 All ER 273.

After considering the scope and effect of s 55 and s 56 of the Leases Act, the magistrate said:

If I may briefly summarise at this point, I am satisfied that section 56 of the Leases Act does not operate to set the date for the commencement of a renewed lease in cases such as the present. I am satisfied that the Leases Act leaves it to the parties to negotiate an agreement on the commencement date for any renewed lease and the date from which the market rent, as determined by the valuer, is payable.

The magistrate found that the lessor always intended that its proposal or offer be for a five-year lease with a commencement date of 13 October 2003. The tenant’s intention, as revealed by its documents, was that it was accepting a commencement date of 13 October 2003, but its subsequent conduct showed that it did not agree to such a date. The magistrate said that, either the tenant never intended to accept a commencement date of 13 October 2003, or initially it did accept that date but later changed its mind. The magistrate preferred the first alternative and found that the parties were never “ad idem” as to the essential terms of the “proposal” to be put to the valuer and therefore “the process of offer and acceptance envisaged by section 52 failed”. That conclusion was sufficient to dispose of the valuation proceedings, but “for more abundant caution” the magistrate went on to consider whether the lessor could lawfully withdraw its proposal or offer.

The magistrate found that the lessor could effectively withdraw its offer and had done so. He said that there was nothing in the Leases Act which prevented the lessor from withdrawing its offer. He noted the fact that it was common ground between the parties that there was no interim agreement under s 53(4). The withdrawal of the offer by the lessor was not unconscionable because the tenant had no intention, and never had any intention, of accepting the offer of a five-year lease with a commencement date of 13 October 2003. Furthermore, the lessor had, not unreasonably, lost confidence in the tenant as a proposed tenant. After summarising his conclusions on the lessor’s right to withdraw its offer, the magistrate said:

As a consequence, even if I am wrong in my conclusion that the requirements for appointing a valuer were never satisfied, the valuation process has been brought to an end by the lessor’s effective withdrawal of its offer. Alternatively, even if the lessor has not withdrawn its offer and I were to find that the valuer did not conduct the valuation in accordance with the provisions of the Leases Act, there is no point in appointing a new valuer.

The magistrate then dealt with the tenant’s claim in its unconscionable conduct proceedings. First, he rejected the tenant’s claim that the lessor had engaged in conduct giving rise to an estoppel against it or unconscionable conduct. Secondly, he rejected the tenant’s claim that the tenant was entitled to an extension of lease under s 107(4). Thirdly, he rejected the tenant’s claim that the holding over of the lease engaged the right of preference in s 108 of the Leases Act.

The magistrate upheld the lessor’s counterclaim and gave judgment for the lessor against the tenant on the counterclaim in the sum of $82,795.21. He rejected the claim by the lessor that there was a representation which was misleading in a material particular. The magistrate said that the tenant’s representation was not that it would enter into a lease at market rent, but rather was that it was prepared to have the proposal valued for the purpose of determining whether it would be prepared to enter a lease on those terms.

The magistrate said that the lessor’s claim under the Trade Practices Act 1974 (Cth) (see [89]) could not be dismissed “so simply”. He considered that the lessor’s particulars for this claim were wider than those pleaded in the claim under the Leases Act. The tenant’s conduct involved a representation that the proposal put to the valuer was the proposal he wanted valued and that “he was prepared to consider entering into a lease on those terms once market rent is determined”. That representation involved among other things a representation of an existing fact, namely, the tenant’s present intention. The magistrate found that the tenant had made a misrepresentation as to his intention and that that had misled the lessor. He said:

By endorsing its acceptance of the lessor’s proposal of 10 May 2004 the lessee represented to the lessor that it was prepared to consider entering into a new lease in the terms of the proposal once market rent had been determined. The terms of the proposal included a commencement date of 13 October 2003 and for market rent to be payable from that date. In fact the lessee was never willing to contemplate entering into a lease on those terms. The fact that the lessee’s position was the result, at least in part, of a mistaken view of the operation of section 56 of the Leases Act is beside the point. In his letter of 10 June 2004 accompanying the acceptance of the lessor’s proposal Mr Lucas may have flagged the lessee’s contention that the lessee had a right of preference, which may have flagged the possible application of section 56, but no suggestion was made in this letter or in the lessee’s acceptance of the proposal that the lessee contended, wrongly I am satisfied, that section 56 applied to mandate a commencement date for the renewed [sic] other than 13 October 2003 or that the lessee would not, irrespective [sic] the operation of section 56, enter into a lease under those terms. Up to the point where the valuer was appointed the lessee’s communications with the lessor would lead any reasonable person to understand that the lessee was willing to enter a new lease with these terms. Not only was the lessee’s conduct capable of inducing error I am satisfied that it did induce error in the lessor. To be sure, the lessor also led itself into error by it’s [sic] assumption that the lessee had agreed to be legally bound to enter into a new lease at market rent as determined by the valuer but this does not assist the lessee. The lessor’s assumption arose because of the lessee’s representation that it accepted the proposal contained in the lessor’s letter of 10 May 2004. If the lessee had not engaged in misleading or deceptive conduct as identified the occasion for the lessor’s assumption would not have arisen. For the same reason the lessor’s assumption would not operate to break the chain of causation between the lessee’s misleading or deceptive conduct and any loss suffered by the lessor by virtue of its reliance upon the lessee’s representations.

The magistrate said that it followed that the tenant had engaged in misleading or deceptive conduct in trade or commerce.

The magistrate assessed the lessor’s damages in the sum of $82,795.21 comprising wasted valuation and legal fees totalling $17,396.49 and loss of market rent for the 2005 and 2006 calendar years of $65,398.72, being the difference between the rent paid by the tenant and the magistrate’s estimate of the rent otherwise “achievable”. As previously mentioned, on 15 June 2007 the amount of damages was amended to $50,000.

Reasons of the primary appeal judge

The tenant appealed from the orders made by the magistrate. On 26 September 2007 the primary appeal judge upheld the appeal (Kingsley’s Chicken Pty Ltd v Queensland Investment Corporation (2007) 214 FLR 253) and he made the following orders:

1. The appeal be upheld.
2. The judgment and order on the cross-claim be set aside.
3.The application of the lessee to replace the valuer be remitted to the learned Magistrate to be heard and determined according to law.

It is convenient to consider first the primary appeal judge’s reasons in relation to the issues in the valuation proceedings. The issues were, first, whether the valuation process in s 52 was engaged on the facts, and then, secondly, assuming the process was engaged, whether the lessor was free to withdraw from the process.

The primary appeal judge rejected the magistrate’s finding that s 52(3) was not engaged. His Honour said that whether there was a proposal for the valuer to value was to be ascertained objectively and that, on the facts, there was such a proposal. His Honour considered that it was not open, absent agreement between the parties, for one party to bring the valuation process to an end, because s 56(2) of the Leases Act extended the original lease for a period of 14 days after the rent for the renewed lease is worked out and the parties are told about it. The primary appeal judge said that at the end of that period the parties were free to agree to a proposal involving the payment of increased rent from 13 October 2003, or some other proposal, or to decide not to enter into a renewed lease. He said the parties were free to decide not to enter into a renewed lease because, as was common ground between them, there was no interim agreement within s 53(4). The primary appeal judge said (at 269 [119]):

On the matter being reheard in the Magistrates Court, the respondents had purported to withdraw their proposal to renew the lease. Whilst there is not an express prohibition on that course of conduct (cf s 53(4) of the Act), the original lease, extended by virtue of s 56(2) of the Act, was not thereby ended. The statute permits the expiry of the original lease only as there specified unless earlier termination was to be sought pursuant to s 122ff of the Act (Div 12.5). That could be for any reason which would give a lessor the right to terminate a lease but does not include the fact that the respondents had repented of their proposal to renew the original lease.

As to the lessor’s claim in the unconscionable conduct proceedings, the primary appeal judge said (at 269 [123]-[124]):

The Trade Practices Act claim by the respondents was fundamentally misconceived. It relied on Kingsley’s assertion of, or, at least, reservation of its legal rights as a misrepresentation. Merely to state the proposition exposes its fundamental flaw. The learned Magistrate was right to reject the proposition that it was “prohibited conduct” but it also followed that it could not be misleading or deceptive conduct under the Trade Practices Act.
In any event, both parties, rather than entering into an interim agreement, adopted a “wait and see” attitude to the negotiations for a new lease. Neither party, therefore, can complain of the consequences of that decision.

Issues on the appeal

The questions on the appeal are as follows:

1. Did the Court have jurisdiction to appoint a valuer to work out market rent?

2. If yes to the first question, was the Court bound to determine the tenant’s application that the valuer had failed to conduct a valuation in accordance with the Leases Act within the terms of s 58, and, if appropriate, make an order disqualifying the valuer and appointing a new valuer?

3. Should the primary appeal judge have upheld the tenant’s claim in the unconscionable conduct proceedings?

4. Did the primary appeal judge err in setting aside the award of damages on the lessor’s counterclaim in the unconscionable conduct proceedings?

The first two questions raise issues as to the proper construction of the Leases Act and, in particular, certain sections in Pt 8 Div 8.1 of the Act. I have set out the relevant sections earlier in these reasons.

By way of a general observation it has to be said that the circumstances of this case are unusual, if not highly unusual. Ordinarily, parties who reach agreement that there ought to be a renewed lease, although not agreed as to the quantum of market rent, will progress their discussions and negotiations to a conclusion. That has not happened here. The reasons for that are not clearly established on the evidence. Furthermore, it is difficult on the information before this Court to know the precise position each party was taking at particular points in time during the long history of this dispute.

Before addressing the individual questions, it will assist if I state some general principles as to the proper construction and operation of the Leases Act and my conclusions as to whether the primary appeal judge fell into error.

The Leases Act confers rights and imposes obligations in relation to leases for certain types of premises (s 12) including retail premises and commercial premises as defined in the Act (s 7). The Leases Act confers greater rights and imposes greater obligations in relation to a class within that class, namely, shopping centre leases or, more precisely, leases within the retail area of a shopping centre.

In the case of a shopping centre lease, a lessor which is planning to relet the premises must give the existing tenant preference over other possible tenants (s 108). Outside this class of case the lessor must do no more than advise, if requested by the tenant, whether he intends to renew the lease (s 107).

The premises are in a shopping centre but, because of the transitional sections in the Leases Act, s 108 does not apply to the original lease because it was entered into before the commencement of the Act (s 163). Section 107 applies whether a lease was entered into before or after the commencement of the Act and therefore applies to the original lease (s 162). There appears to have been an unsuccessful attempt in the Courts below to argue that the holding over by the tenant after 12 October 2003 engaged s 108 of the Leases Act, but those arguments were not repeated before this Court. Nor was an unsuccessful argument that s 107(4) in some way extended the original lease repeated before this Court.

Clearly, it is one matter to propose to renew a lease and another to make an offer to renew a lease. The Leases Act contains no section which places an obligation on a lessor which has said it proposes to renew a lease to proceed to make an offer to renew the lease. I need do no more than make that observation, because there is no dispute in this case that the lessor not only proposed to renew the lease but it made an offer to renew the lease by its letter dated 10 May 2004.

As a matter of basic principle under the law of contract an agreement to lease subject to the determination of market rent will not, in the ordinary case, be binding. There may be cases where there is a binding agreement in such circumstances because the parties have agreed to abide the determination of market rent by a third party.

There may be an offer and acceptance within the terms of s 52(3) of the Leases Act even though there is no agreement as to market rent. That much is clear from the terms of the section itself. Furthermore, the effect of the earlier decision of the Court of Appeal, which was not challenged, is that there may be an offer and acceptance within s 52(3) even though the parties have agreed that there is to be no binding agreement between them until written documentation is executed.

At the same time, I am of the opinion that there needs to be agreement as to the essential terms of a proposed lease before there is an offer and acceptance within s 52(3). I have reached that conclusion for the following reasons.

(1) Neither party disputed the proposition that an offer to renew by a lessor engaged the obligation in s 28 of the Leases Act that the lessor give the tenant a copy of the proposed lease as early as practicable in negotiations for the lease and the obligation in s 30 in relation to the provision of a disclosure statement. The proposed lease given by the lessor to the tenant must contain the essential terms of the agreement.

(2) Ordinarily, the valuer will only be able to work out the market rent if he or she knows the essential terms of the lease.

(3) If the essential terms of a proposed renewed lease are not agreed the process under s 52 may well prove futile. It is difficult to envisage that the legislature would require the parties to engage in the process in such circumstances.

There may well be an additional reason for the conclusion I have reached but, for reasons I will give, I will refrain from expressing a concluded view. If the words “offer”, “accepts” and “acceptance” in Pt 8 Div 8.1 have the same meaning throughout, the essential terms of a proposed renewed lease must be agreed before s 52(3) is engaged; otherwise the concept of an interim agreement in s 53(4) will not work. I say that because there is no mechanism in the Leases Act for the Court to define an essential term not agreed between the parties. I am inclined to think that the words “offer”, “accepts” and “acceptance” do have a consistent meaning throughout Pt 8 Div 8.1 (The Registrar of Titles of the State of Western Australia v Franzon (1975) 132 CLR 611 at 618 per Mason J; Pearce DC and Geddes RS, Statutory Interpretation in Australia (6^th ed, LexisNexis Butterworths, 2006) at 117-120 [4.6]-[4.7]) but as the point was not argued in any detail, and is not essential to the decision in this case, I will not express a concluded view. For reasons given in the next paragraph, the question whether there is an offer and acceptance for the purposes of s 52(3) is to be determined objectively. Adopting that approach, and having regard to the correspondence that passed between them, it is clear in this case that the parties had agreed the essential terms of a proposed renewed lease.

The question whether there has been an offer and acceptance within s 52(3) is to be determined objectively. It seems to me that there is no reason why the legislature would require the Magistrates Court on an application under s 52(3) to examine the question of the parties’ true intentions or to allow of the possibility that, after the appointment of a valuer – perhaps well after – the Court would find that a party did not truly agree to a proposal or offer. Although the terms “offer” and “acceptance” are to be given their ordinary meaning rather than their meaning in the law of contract, there is no reason not to apply the well-established principle of contract law that, in determining whether there is a contract, what the parties say and do, rather than their subjective intentions, must be examined. In Taylor v Johnson (1983) 151 CLR 422 Mason ACJ, Murphy and Deane JJ, after referring to Smith v Hughes (1871) LR 6 QB 597, said (at 429):
While the sounds of conflict have not been completely stilled, the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field.
The parties can be “locked into” a proposed renewed lease before market rent is worked out if there is an interim agreement within s 53(4) of the Leases Act. It is the tenant’s conduct which gives rise to an interim agreement, in that it must be the tenant which requests the Magistrates Court to refer a dispute about the rent for mediation. There is a question as to what constitutes a request to the Magistrates Court by the tenant within s 53(6); whether that only occurs if the tenant initiates the proceedings in the Magistrates Court or whether it also occurs where, although the lessor brings the proceedings, the tenant joins in the request that the dispute about the rent be referred to mediation or working out by a valuer. That issue does not arise here because the parties are agreed that there is no interim agreement.

Section 22 prohibits conduct that is unconscionable or harsh and oppressive, and s 36 prohibits a representation that the representer knows, or should reasonably know, is false or misleading in a material particular. General law doctrines such as estoppel, unconscionable conduct and misleading or deceptive conduct may also be relevant in a particular case. These statutory and general law doctrines do not affect the interpretation of the sections in Pt 8 Div 8.1, although they may be relevant and provide relief to an innocent party in a particular case.

The parties may agree on a commencement date for a lease which is before, even well before, the lease is executed. The lease does not operate as a demise from the prior date, but obligations such as the payment of rent and the fixing of the term may operate, or be calculated, from that date: Bird v Baker (1858) 1 El & El 12; 120 ER 812; Cadogan (Earl) v Guinness [1936] Ch 515 at 518; Bradshaw v Pawley [1980] 1 WLR 10; [1979] 3 All ER 273.

The tenant seeks to uphold the primary appeal judge’s conclusion that, even though there was no interim agreement within s 53(4), the parties were bound by reason of s 56 to a process whereby market rent is worked out. In the unconscionable conduct proceedings the tenant put forward a broader proposition which, as a matter of logic, must be considered first.

The tenant submitted that the lessor was bound to maintain its offer, even after market rent had been worked out, and it was up to the tenant to accept or reject it. As part of an alternative submission, the tenant accepted that it was to act in good faith in deciding whether to accept or reject the lessor’s offer.

Plainly, such an obligation could not arise as a matter of contract law; there is no corresponding obligation on the tenant. It does not arise on the facts of this case by reason of one of the doctrines referred to in [88] above because there has been no conduct by the lessor which would engage one of those doctrines. There is no express obligation in the Leases Act which requires the lessor to maintain its offer in the manner advanced by the tenant. I do not think there is an implied statutory obligation on the lessor of the type advanced. The Leases Act is reasonably clear as to the respective obligations of the lessor and tenant, and the legislature, in the provisions dealing with interim agreements, has specifically addressed the circumstances in which the lessor (and the tenant) is bound to maintain its offer, even after the market rent for the premises has been worked out. My conclusion that there is no implied statutory obligation of the type advanced by the tenant was also the conclusion of the Court of Appeal in the earlier decision and of the primary appeal judge in the present proceedings.

The major issues in the appeal turn upon the proper construction of s 56 of the Leases Act. It is convenient to retrace the steps (express or implied) in the reasoning of the primary appeal judge. First, it is implicit in his Honour’s reasoning that, when Mr Flannery was appointed, the process of working out the market rent commenced. That occurred in November 2004. Secondly, the fact that the process of working out the market rent did not commence before or at the time of the expiration of the original lease on 12 October 2003 did not mean that s 56 was not engaged when the valuer was appointed over a year later. In the interim, the tenant was presumably holding over under cl 16 of the original lease. Thirdly, an application under s 58 of the Leases Act was part of the process of working out the market rent. If Mr Flannery was disqualified and a new valuer appointed then he or she would be engaged in the process of working out the market rent. Fourthly, s 56 has a “once and for all operation” in the sense that, once it was engaged in November 2004, it only ceased to operate when 14 days had elapsed after the rent for the renewed lease was worked out and the parties were told about it. Fifthly, the extension of the original lease effected by s 56(2) could only be brought to an end on the working out of market rent. At that time a party may lawfully decline to enter into a renewed lease but he or she is bound to complete the process in order to bring the statutory extensions of the original lease to an end. A party may indicate now that he or she will not enter into a renewed lease, but the process of working out the market rent must be completed.

In my respectful opinion, the primary appeal judge erred in failing to hold that, under s 58 of the Leases Act, the Magistrates Court has a discretion to refuse the application to disqualify the valuer and appoint a new valuer and the Court may exercise that discretion on the ground that further consideration of the application will be futile. Of course, there are likely to be a number of matters to be taken into account before reaching such a conclusion, but, if a clear case of futility is made out, an application may be dismissed. I will explain later why, in this case, I think a clear case of futility is made out and the magistrate was right to say that this was an alternative ground upon which his orders could be made. The dismissal of the application brings the statutory extension of the original lease to an end.

In the circumstances, it is not strictly necessary for me to consider challenges to two particular steps in the primary appeal judge’s reasoning, namely, the second and fourth steps. Nevertheless, I will mention them briefly.

The lessor challenged the second step in the primary appeal judge’s reasoning. It submitted that the holding over clause applied on the expiration of the original lease and that s 56 could not apply if, as here, the market rent was not being worked out at that time. There is force in that argument, although s 56(1)(b) refers to the original lease expiring before the market rent has been worked out, not while the market rent is being worked out.

The lessor also challenged the fourth step in the primary appeal judge’s reasoning. It submitted that s 56 did not have a “once and for all operation” but only applied for so long as market rent was being worked out, and whether market rent was being worked out was to be determined without having regard to s 56. It seems to me that there is support for this submission in the use of the phrase “is being worked out” in s 56(1)(a) and in the fact that it is difficult to see why a party who is free to decide not to enter into a renewed lease should be bound to engage in a process in circumstances in which he has decided that he will not enter into a renewed lease. In this case, the lessor has decided it will not enter into a renewed lease because the tenant has indicated it will not accept the terms of its offer. It is not necessary for me to pursue these two challenges any further because the case may be decided by reference to the narrower principle I have identified.

Did the Court have jurisdiction to appoint a valuer to work out market rent?

With these matters in mind, I turn to consider the first question. In my opinion, the Magistrates Court had jurisdiction to appoint the valuer, Mr Flannery. The lessor’s offer of 10 May 2004 and the tenant’s acceptance of 10 June 2004 fell within the terms of an offer to renew or renewal offer and an acceptance within s 52(3). Even if the tenant never intended to accept a commencement date of 13 October 2003 (a finding of the magistrate which I will consider later), there was, on an objective approach to the question, an acceptance of the lessor’s offer subject to the rent for the lease being market rent. That was sufficient to engage s 52(3).

If yes to the first issue, was the Court bound to determine the tenant’s application that the valuer had failed to conduct a valuation in accordance with the Leases Act within the terms of s 58 and, if appropriate, make an order disqualifying the valuer and appointing a new valuer?

I have answered yes to the first issue.

For the reasons I have given, the Court was not bound to determine the tenant’s application in the manner indicated. The Court had a discretion and it could dismiss the application if it considered that it would be futile to proceed with the process. That was an alternative ground for the order made by the magistrate dismissing the valuation proceedings. The magistrate did not err in concluding that it would be futile to proceed with the process and that the tenant’s application should be dismissed.

The lessor’s offer involved a commencement date of 13 October 2003 and the payment of market rent from that date. It is entirely unsurprising that the lessor would put an offer in those terms. Such an offer was one capable of operating at law in the manner indicated in the authorities referred to in [122] above. Section 56 of the Leases Act does not prevent an offer being framed in such terms or operating in such terms. Even if the section did operate so that the lessor’s offer could not operate as intended by the lessor, that would not benefit the tenant. It would simply be another reason why the lessor no longer wished to proceed with its proposal for a renewed lease.

The finding made by the magistrate was that the tenant will not enter into a lease with a commencement date of 13 October 2003. That finding was based on the tenant’s allegations in its notice of motion in the valuation proceedings (see [75] above) and on the evidence of the tenant’s managing director given at the hearing before the magistrate on 28 November 2006. There is no reason to doubt the correctness of that finding. The lessor has not conducted itself in such a way as to infringe a section of the Leases Act or a general doctrine of law. It is plain that the parties will not enter into a renewed lease. In those circumstances, the correct order in relation to the valuation proceedings was to dismiss the proceedings.

Should the primary appeal judge have upheld the tenant’s claim in the unconscionable conduct proceedings?

The substance of the tenant’s claims in the unconscionable conduct proceedings has been dealt with earlier in these reasons.

Of the four grounds raised in the tenant’s pleaded claim only one, perhaps two, were pursued on the appeal to this Court. The tenant abandoned a submission that s 107(4) of the Leases Act had the effect of extending the original lease. It also abandoned a submission that the right of preference referred to in s 108 of the Leases Act was engaged by the tenant’s holding over of the premises after the original lease expired on 12 October 2003.

The submissions put to this Court by the tenant involved a mixture of the first two grounds in its pleaded claim in the unconscionable conduct proceedings. At its highest, the tenant’s submission was that the lessor was bound by the provisions of the Leases Act, or by the doctrine of estoppel, to maintain its offer to renew the lease even after the market rent had been worked out. By contrast, the tenant was not bound to enter into a renewed lease after the market rent had been worked out, although, as part of an alternative submission, the tenant accepted that it was bound to consider in good faith the lessor’s offer to renew the lease.

For the reasons given above (at [125]) there is nothing in the provisions of the Leases Act which binds the lessor to maintain its offer to renew the lease after the market rent has been worked out. Nor was there any conduct by the lessor which required it to maintain its offer. The lessor made an offer to renew the lease in its letter dated 10 May 2004 which was clear in its terms. The tenant has indicated that it will not accept an offer for a renewed lease in those terms. There has been no conduct by the lessor which engages the doctrine of estoppel, unconscionable conduct – whether within s 22 of the Leases Act or at general law – or misleading or deceptive conduct.

The tenant’s alternative submission that the lessor must maintain its offer to renew the lease until 14 days after the market rent has been worked out and the parties are told about it must also fail. For the reasons given above (at [127]), the lessor was entitled to indicate to the tenant that it would not renew the lease and the Court was entitled to dismiss the tenant’s application under s 58 on the ground that continuation of the process of working out market rent would be futile.

The tenant’s claim in the unconscionable conduct proceedings fails.

Did the primary appeal judge err in setting aside the award of damages on the lessor’s counterclaim in the unconscionable conduct proceedings?

Before the primary appeal judge, the lessor did not seek to maintain the claim which resulted in an award of damages in its favour, nor, as the Judge put it, “have they expressly resiled from it”. That was an unsatisfactory state of affairs in terms of a proper consideration of the claim. Before this Court, the lessor sought to have the award of damages reinstated and it made written submissions challenging the primary appeal judge’s decision to set aside the award. However, the lessor did not address the issue in the course of oral submissions. In the result, the Court did not receive detailed submissions on the issue.

In my opinion, this Court should not interfere with the decision of the primary appeal judge that the award of damages in favour of the lessor should be set aside. I will briefly state my reasons for so concluding. First, I am not satisfied that the tenant’s conduct in sending its letter dated 10 June 2004 was, at the time it was sent, misleading or deceptive. The magistrate’s conclusion to the contrary turned on the fact that he preferred a finding that the tenant never intended to accept a renewed lease with a commencement date of 13 October 2003, as against a finding that the tenant did so intend at the time it sent its letter dated 10 June 2004 but later changed its mind. To my mind, there was no reason to prefer one finding over the other and in fact no reason was identified by the magistrate. Secondly, there are real questions about the cause of the alleged loss suffered by the lessor. The tenant made its position clear in January 2005 or, at the latest, by April 2005. Thereafter, the parties were engaged in legal proceedings and it must be said that, in some respects, the tenant was successful in the submissions it made. Furthermore, or perhaps as part of the same point, it seems on the face of it that some of the delay in 2005 and 2006 was caused by the unsuccessful legal contentions advanced by the lessor.

The primary appeal judge’s decision setting aside the award of damages in favour of the lessor should be upheld.

Conclusion

For the reasons set out above, I propose the following orders:

1. In appeal number ACTCA 40 of 2007:

(1) The appeal be allowed in part.

(2) With respect to the orders made by Higgins CJ on 26 September 2007:

(a) The order that the appeal be upheld be set aside;

(b) The order that the judgment and order on the cross-claim be set aside be confirmed; and

(c) The order that the application of the lessee to replace the valuer be remitted to the learned Magistrate to be heard and determined according to law be set aside.

(3) The order of Magistrate Burns made on 2 February 2007 that proceedings in matter CL 04/21 are dismissed be re-instated.

2. In appeal number ACTCA 39 of 2007 the appeal be dismissed.

3. The parties to the respective appeals have leave to file and serve within 7 days of the date hereof written submissions on any other orders they wish to seek and on the question of costs.

4. The parties to the respective appeals have leave to file and serve within 14 days of the date hereof written submissions in reply to submissions received under the leave granted in order number 3 above.

I certify that the preceding paragraphs numbered forty-six (46) to one hundred and forty-five (145) are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.
Associate:
Date: 26 May 2009

Counsel for the Appellant (in ACTCA 39
of 2007) and Respondent (in ACTCA 40 of
2007): Mr C M Erskine

Solicitor for the Appellant (in ACTCA 39
of 2007) and Respondent (in ACTCA 40 of

2007):Bradley Allen Lawyers (at the dates of Hearing) and Meyer Vandenberg (at the date of Judgment)

Counsel for the First and Second
Respondents (in ACTCA 39 of 2007) and

Appellants (in ACTCA 40 of 2007): Mr F J Purnell SC

Solicitor for the First and Second
Respondents (in ACTCA 39 of 2007) and

Appellants (in ACTCA 40 of 2007): Mallesons Stephen Jaques

Dates of Hearing: 5, 6 May 2008

Date of Judgment: 28 May 2009