Re Commercial Arbitration Act 1990

[1995] QSC 36

IN THE SUPREME COURT

OF QUEENSLAND

MOT No. 219 of 1995

Before the Hon. Mr Justice Thomas

[Re Commercial Arbitration Act 1990]

IN THE MATTER of the Commercial Arbitration Act 1990

- and -

IN THE MATTER of an appeal by CRJ PTY LTD (ACN 053 868 278)

REASONS FOR JUDGMENT - THOMAS J.

Judgment delivered  15 March 1995

CATCHWORDS:     LANDLORD AND TENANT - Retail shop lease - "Additional rental" - Construction.

RETAIL SHOP LEASES ACT 1984 as amended, ss. 5(3A), 5(5), 12 - Prospective effect of amendments - Distinction between provisions that prescribe the content of leases and provisions that grant special rights and remedies to lessors or lessees - ss 6, 7, 9, 10, 12 in first category, and ss. 8, 11, 13, 14 and 15 in latter - Re Malsons Pty Ltd [1991] 2 Qd.R.61 distinguished.

Counsel:H. Fraser QC for the Applicant

M. Daubney for the Respondent

Solicitors:Hopgood & Ganim for the Applicant

Deacon & Milani for the Respondent

Hearing date:               6 March 1995.

IN THE SUPREME COURT

OF QUEENSLAND

MOT No. 219 of 1995
Before the Hon. Mr Justice Thomas

[Re Commercial Arbitration Act 1990]

IN THE MATTER of the Commercial Arbitration Act 1990

- and -

IN THE MATTER of an appeal by CRJ PTY LTD (ACN 053 868 278)

REASONS FOR JUDGMENT - THOMAS J.

Judgment delivered 15 March 1995
This is an appeal from an award of Mr P. Duell, an arbitrator, made on 13 December 1994. It lies pursuant to s.38 of the Commercial Arbitration Act 1990. The necessary leave to enable it to be brought was granted by White J on 13 February 1995. Pursuant to that leave, it is limited to the following two grounds:

"1.The arbitrator erred in law in finding that the appellant is obliged pursuant to clause 1.2 of the lease to pay 75% of the outgoings with respect to the property based on the whole of the land area;

2.The arbitrator erred in law in finding that clause 1.2 of the lease complies with section 12 of the Retail Shop Leases Act 1984."

The appellant is the major lessee in the shopping centre known as The Clayfield Markets.  The shopping centre comprises five shops and includes a carpark and gardens.  The original lease (for a ten-year term) with options for renewal was granted in July 1987.  The appellant obtained its interest by assignment from the original lessee in November 1991.  It took possession at that time and has paid rent and other payments under the lease thereafter.
           The area of the land which contains the shopping centre is 3304 square metres.  The area of the building (which is a single storey) is 1101.8 square metres.  The area of the demised premises (which is the major shop) is 665 square metres.
           The relevant dispute relates to the outgoings that the lessor was entitled to require the appellant to pay.
The front page of the lease, in summary form, contains a description of the land (item 6) and the description of land being leased (item 7) by reference to hatched areas on an attached sketch-plan. On the following page there is a demise in terms that "the lessor hereby leases to the lessee the above-described land ..". That must be taken as a reference to item 7. The basic rent is dealt with in cl.1.1 of the lessee's covenants. The matter of "additional rental" is dealt with in cl.1.2. This is the clause under which the dispute arises and it is necessary to recite the major part of it.

"1.2     Additional rental.  To pay to the Lessor on demand by way of additional rental 75% of the aggregate of all amounts paid by the Lessor or for the payment of which the Lessor may be or become liable in any one year in respect of the building of which the demised premises form part on account of:

1.2.1Rates charges and other levies payable to the local authority in whose area the demised premises are located other than such of those charges as are payable by the Lessee in terms of this Lease or by any other Lessee of the building as a condition of its tenancy;

1.2.2Rates and charges payable to any local authority responsible for the provision or reticulation of water and/or sewerage and/or drainage services;

1.2.3All rates taxes (other than land tax) charges assessments, fire services levy, outgoings and impositions whatsoever (whether parliamentary municipal or otherwise and whether assessed charged or imposed by or under Federal or State law or by Federal State or local authorities and whether on a capital or revenue value or any other basis and even though of a novel character) which may at any time after the date of commencement be assessed charged or imposed in respect of the demised premises or any part thereof other than any such rates taxes charges assessments outgoings and impositions which may be assessed directly in respect of the demised premises or directly in respect of any other premises which are separately leased;

1.2.4Land taxes or taxes of the nature of a tax on land calculated as if the demised land was the only land owned by the Lessor;

1.2.5Insurance premiums and other charges including stamp duties thereon for insurances on structures public risk insurances, loss of gross rents insurances and any other insurances effected by the Lessor in relation to any risk relating to the Lessor's ownership of or interest in the demised premises but exclusive of any excess or penalty rates recoverable from any Lessee of the demised premises;

1.2.6The cost of operating maintaining, servicing and supplying all services from time to time provided by the Lessor for the Lessee and occupiers of the demised premises other than those costs payable by a particular tenant or occupier of the building;

1.2.7The cost of repairs to and maintenance of the building and equipment other than expenditure incurred by way of rebuilding or additions to the demised premises and other than structural repairs and maintenance of the building;

1.2.8Garbage and trade waste disposal other than garbage and trade waste disposal the responsibility of a particular tenant or occupier of the building;

1.2.9Gardening and landscaping expenses in relation to the common areas;

1.2.10Electricity consumed by any air conditioning equipment in the common areas of the said building;

1.2.11The provision of security and/or caretaking services;

1.2.12Any other expenses properly and reasonably incurred in the conduct of the building;

1.2.13. . .

1.2.14For the purposes of this clause 1.2:-

The expression 'common areas' means those parts of the building and land provided by the Lessor from time to time for common use by the occupants of the building including the entrances, lobbies, corridors, stairways, driveways, arcades and other common amenities and conveniences thereof.

The expression 'building' means the building or buildings from time to time situated on the land and known as 'Clayfield Markets'.

. . . "

The arbitrator held that the lessee would be obliged to pay seventy-five percent of the outgoings with respect to the property "based on the whole of the land area and not just the area of the building or buildings occupied by the lessee under the terms of this lease". The appellant's contention is that the obligation is restricted to the stated percentage of outgoings with respect to the building, and that in some of the sub-clauses this is subject to still further limitation. The first question to address is whether the arbitrator was correct in holding that cl.1.2 refers to outgoings with respect to the property based on the whole land area.
The introductory part of cl.1.2 governs the following sub-clauses. It obliges the lessor to pay a specified percentage (seventy-five percent) of "all amounts paid by the lessor . . in respect of the building of which the demised premises form part . . on account of . ." various kinds of payment. (my underlining).  Plainly the underlined words refer to something larger than the demised premises, and something less than the whole of the land.  These are perfectly plain words of limitation.  They do not say or mean "in respect of the land".  These governing words refer to the specified percentage of amounts paid in respect of the building.  The definition of "building" later in the same clause only underlines the obvious. 

There is then a further specification - "on account of".  This refers to the following twelve items which limit the subject matter with respect to which such amounts may be charged.  The sub-paragraphs refer variously to rates, taxes, charges, land tax, insurance premiums, maintenance and service charges, some repairs and maintenance, some garbage and trade waste disposal expenses, some gardening and landscaping expenses, some electricity costs, security and caretaking services and "other expenses". 

Some of those sub-paragraphs refer to "the demised premises", and the appellant submits that in some instances this has the further limiting effect of including only expenses of the stated kind incurred with respect to the demised premises. There is a reference in cl. 1.2.4 to "the demised land" but that is for the specific purpose of enabling a relevant initial land tax figure to be calculated without the aggravating factor of ownership of other land by the lessor. There is however nothing in the remainder of cl.1.2 which could support a submission that widens the coverage of the opening words beyond relevant expenses in respect of the building.
           Counsel for the respondent submitted that a literal interpretation of the clause ignored the commercial realities of the lease in question.  He cited for example the incidence of rates, which are levied on rateable land, not on buildings.  He submitted that it was inappropriate that the appellant should pay the specified percentage of only an area-based proportion of the rates when no such proportional calculation was contemplated either in legislation or in the lease.  The plain fact however is that such a calculation seems to have been both contemplated and expressed in the lease.  There is no difficulty whatever in calculating it.  It was submitted that the appellant, as the major tenant, would derive the major use and benefit from the carpark and gardens which form most of the balance of land, and that it ought to be required to contribute to costs associated with the provision of that facility, whether by way of rates or by way of clearing garbage from the carpark.  However such matters are for the parties to negotiate in particular leases.  The parties did not for example negotiate a lease where a more precise formula, such as one based on the proportion that the area of the demised premises bears to the whole of the net lettable area.
           The other principal argument of the appellant is based upon the breadth of the connecting words "in respect of".  It is true that these words have a very wide meaning, but the words which they link are "amounts paid" and "the building".  I do consider that these words can convert the phrase into amounts paid in respect of a non-building or amounts paid in respect of the land.
           In my view the arbitrator erred in holding otherwise.
           This determination is enough to deal with ground one.  However room for further contention exists in relation to the proper application of the various sub-clauses, and Mr H. Fraser QC for the appellant has requested that I indicate my view as to a possible differential application of the sub-clauses.  I emphasise that it is not necessary to do so for the purposes of determining the limited appeal within the ambit of the leave granted.  However I do not understand Mr Daubney to urge against that particular course, and as it may assist in avoiding further contention and further legal determinations, I shall briefly indicate my views on these matters.

Clause 1.2.1     This requires the application of seventy-five percent of the proportion that the area of the building bears to the area of land upon which rates etc. are charged, to the relevant rates etc. payable.
Clause 1.2.2     Same.
Clause 1.2.3     This refers expressly to various charges (including fire services levies) charged "in respect of the demised premises".  It therefore narrows the subject of the charge to that extent.  It does not follow however that a formula such as the proportion that the area of the demised premises bears to the whole of the land or even the whole of the building will always apply.  It will depend upon the nature of the actual charge which the lessor pays, and the extent to which it can be shown to be in respect of the demised premises.  If the lessor paid a charge that was wholly in respect of the lessee's premises, then the whole of it would be recoverable.  Prima facie however, if the lessor made a payment of the kind in this sub-clause with respect to the building, this lessee would be liable to pay seventy-five percent of that payment, in the proportion that the area of the demised premises bears to the area of the building.
Clause 1.2.4     Same as 1.2.1.  Here the reference is to a formula which allows the appropriate land tax in respect of "the demised land" as distinct from the "demised premises" to be calculated.  The lease is poorly drawn and from its commencement the drafter shows an inclination to use such terms quite loosely.  I would not be prepared to construe "the demised land" in this sub-paragraph as being limited to the area of the demised premises.   Clause 1.2.4 sufficiently indicates an intention that the lessee should pay the prescribed percentage of the land tax payable upon the whole of the land.  It is however limited by the opening words of cl. 1.2 to the proportion which the building bears to that area.
Clause 1.2.5     Same as 1.2.3.
Clause 1.2.6     Here I think that the context requires that "demised premises" be given a different meaning, and be taken to refer to the building, that is to say to the collective demised premises.  The exception of costs "payable by a particular tenant or occupier of the building" would otherwise be inappropriate.  The words "the cost . . of supplying all services provided by the lessor for the lessee and occupiers of the demised premises" suggests that the demised premises there referred to are more than those of the lessee.  In my view, with some hesitation, the cost here referred to is the cost of maintaining and servicing etc. all the demised premises, that is to say the whole building.  There is however a limitation upon the nature of the expenses that can be charged under this clause.  This is discussed at pp. 14-15 below in the context of effect of the Retail Shop Leases Act.
Clauses 1.2.7 to 1.2.11  It was not submitted on behalf of the appellant that there should be any further reduction in relation to charges of these kinds.
Ground 2 The appellant submits that the whole of cl.1.2, or alternatively one or more of sub-clauses 1.2.1 to 1.2.12 of the lease is and always has been void and inoperative, by reason of the Retail Shop Leases Act 1984 as amended. It is common ground that the Act applies to the present lease, but it is not common ground that all the terms of the 1989 amendment to that Act apply to the present lease.
           The Retail Shop Leases Act 1984 received assent on 12 March 1984. Since then it has been the subject of frequent amendments. Some of these amendments contain transitional provisions with differing effect according to whether or not the lease in question was "entered into" before the date when the amendment was proclaimed to take effect. At various times there have been different definitions of the time when a retail shop lease is "entered into". Considerable difficulty almost invariably arises in cases where the original lease subsists, and where a new lessor-lessee relationship comes into existence through assignment of the rights under the original lease ( compare Re Malsons Pty Ltd [1991] 2 Qd.R. 61). The present case is no exception.
The first question is whether the validity of cl.1.2 is to be determined according to s.12 of the Retail Shop Leases Act 1984 ("the 1984 Act") or according to s.12 of that Act pursuant to the substitution effected by the Retail Shop Leases (Amendment) Act 1989 ("the 1989 Amending Act").
           The question is, I think, best approached by examining chronologically the legislative effect of the act and the various amendments upon the lease and the rights of the parties according to the facts that have happened.

1. - The 1984 Act did not, in any material respect for present purposes, apply retrospectively. It generally had a prospective operation, applying to retail shop leases entered into or renewed after the Act came into force (s.5). The Act contains a number of provisions concerning matters that are prohibited from being included in such a lease (e.g. s.6) and others which require particular provisions to be included in certain events (e.g. s.12). Other sections confer rights upon one or other of the parties in certain events (e.g. ss.11, 13 and 14). Others create rights by implying provisions into such leases (e.g. rights to compensation - s.15).
   Relevantly for present purposes, s.12 (as it then was) required a degree of specificity in leases which require the tenant to pay certain operating, repairing or maintenance expenses:

   "12. Sharing of operating expenses.  If a retail shop lease provides for payment by the tenant, in addition to the payment of the rent payable under the lease, of all or part of the expenses of the landlord in operating, repairing or maintaining the building of which the retail shop in question forms a part -

(a)that lease shall specify -

(i)those items of expense which are to be included as operating expenses;

(ii)how those operating expenses will be determined and apportioned to the tenant;  and

(iii)how those operating expenses may be recovered by the landlord from the tenant;

(b)annual estimates of each of those expenses shall be furnished by the landlord to the tenant at least one month before the commencement of the period to which the estimate relates;  and

(c)annual statements of expenditure incurred on each of those expenses audited by a public accountant shall be furnished by the landlord to each tenant within three months after the termination of the annual period to which the expenditure is referable."

Section 16(3) provided as follows:

"(3)     Where a provision of this Act is inconsistent with a provision expressed in a retail shop lease the provision of this Act shall prevail and the other provision shall, to the extent of the inconsistency, be inoperative."

1985 -  The 1985 Amending Act inserted the following provision as s.5(5):

"(5)For the purposes of this Act a retail shop lease shall be deemed to be entered into on the date on which -

(a)the tenant enters into possession of the premises demised and commences payment of rent;  or

(b)the agreement for lease or the instrument of lease is signed by the party whose signature completes execution by all parties to the agreement for lease or instrument of lease as the case may be,

whichever first occurs."

1987 -  On 9 July 1987 the present lease was executed.  It follows that the existing legislation applied to it, and that it was deemed to have been entered into on 9 July 1987.

1989 - The 1989 Amending Act, assented to on 31 October 1989, contained extensive amendments including the substitution of a new s.12 of considerably wider coverage than the earlier section. The new section contains several pages, but it is enough to quote the initial part of it dealing with what the lease is required to specify:

"12. Sharing of expenses.  (1) If a tenant under a retail shop lease is required to pay, in addition to rent, all or part of the landlord's outgoings on account of -

•the landlord's expenses of operating, repairing or maintaining the building in which the retail shop is, or, in the case of a retail shopping centre, of any building in the centre, or of areas used in association with any such building;

or

•rates, taxes, levies, premiums or charges payable by the landlord because he is owner or occupier of any such building or of the land on which it is erected,

(a)the lease shall specify -

(i)the outgoings that are to be regarded as operating expenses;

(ii)how the operating expenses will be determined and apportioned to the tenant;

(iii)how the operating expenses, or any part thereof, may be recovered by the landlord from the tenant;

. ."

There was however a significant protection and saving in favour of the rights and obligations of landlords and tenants under existing retail shop leases.  Section 5(3A) as inserted by the 1989 Amending Act states:

"(3A)    Except where it is expressly provided to the contrary in relation to an amendment of this Act, any amendment of this Act made by the Retail Shop Leases Act Amendment Act 1989, or before or after that Act, that purports to affect rights or obligations of a landlord or tenant under a retail shop lease shall be construed so as not to affect rights or obligations of a landlord or tenant provided for or deemed to be provided for by a retail shop lease entered into before the enactment of the amendment.

For the purposes of this subsection an amendment that merely prescribes the manner in which any act or thing is to be done shall be deemed not to purport to affect rights or obligations of a landlord or tenant."

There was also an amended definition of the time when a retail shop lease is entered into.  The new s.5(5) provides as follows:

"(5)For the purposes of this Act, a retail shop lease is entered into -

(a)on the date on which the agreement for lease, or instrument of lease becomes binding on the landlord and tenant thereunder;

or

(b)on the date on which the tenant thereunder enters into the demised premises as tenant,

whichever date is earlier."

It will be noted that this is capable of applying to a lessee who enters pursuant to an assignment of a pre-existing lease.

1991 - In November 1991 the original lessee assigned its interest to the appellant. It will be obvious that immediately before the assignment, neither the lessor nor the lessee could on any view be regarded as bound by the requirements of the new section 12. The question arises whether upon the assignment the Act engrafted new rights and obligations upon the original lessor and the assignee that did not then exist as between the original lessor and lessee.
           It would seem to be highly inconvenient if a lessor could in this way lose entitlements because of more stringent legislative requirements which were unknown at the time when the lease was drawn, and as to which the lessor had no power to renegotiate with an assignee of the balance of the term.  That of course does not determine the appropriate construction but it is a matter to be borne in mind if there is ambiguity or absurdity in the matrix of provisions.
           The Act and the Amending Act do not reveal any consistency of notion in relation to the parties to a retail shop lease, or even the lease itself.  Sometimes the legislation plainly has in mind the original lease as drawn, and at others it may have in mind the new lease that arises upon the landlord's acceptance of an assignment of the balance of the term.  The word "lease" is treated as a changeling which may sometimes be seen as one creature, sometimes another, and sometimes a combination of both.
           The submission for the appellant is that under s. 5(5) as inserted by the 1989 Amending Act, this retail shop lease must now be taken to have been "entered into" on the date when the lease became binding on the landlord and the new tenant rather than the date when it became binding on the landlord and the old tenant.  I am not sure that this is necessarily so.  Counsel referred to my decision in Re Malsons Pty Ltd above, p.64, but it was not necessary to consider this particular point in that case.
           How does one apply both s.5(3A) and s.5(5) to the present circumstances?  There is some ambiguity in the identity of the landlord and tenant referred to in s.5(5)(a).  Further, it is difficult to identify s.5(5) as a provision which "expressly provide(s) to the contrary" of s.5(3A).
           A distinction may be drawn between provisions in these Acts which prescribe the way in which leases must be drawn and those which create special rights and remedies in favour of lessors or lessees.
           Section 5(3A) is in my view better adapted to protect parties from the effect of provisions of the former kind than the latter, which might more readily be seen as a legislative gift to one or other class of persons.  Provisions in the former category are ss. 6, 7, 9, 10 and 12.  Provisions in the latter category are to be found in ss. 8, 11, 13 and 14.  Section 15 may be seen either way, but in substance the legislature has created a new right in favour of tenants and the fact that such rights are stated to be "implied" in every retail shop lease may be thought not to alter the essential nature of the right conferred.  This may also serve to indicate why different results may be achieved in a case such as Malsons, which was concerned with a right under s. 15, and a case such as the present which is concerned with the way in which parties are required to draw up their leases in the first place.
In my view the legislative provision which applies to the present 1987 lease is s.12 of the 1984 Act, not s.12 as inserted by the 1989 Amending Act.
I turn finally to the question whether any of sub-clauses 1.2.1 to 1.2.12 are inconsistent with the requirements of s.12 of the 1984 Act.
           Sub-clauses 1, 2, 3 and 4 apply to rates, local authority levies, land tax and some other governmental charges.  I do not consider that these are expenses "in operating, repairing or maintaining the building of which the retail shop in question forms a part".  I did not understand counsel for the appellant to submit otherwise.
However some of the remaining sub-clauses appear to constitute such expenses, and the question here is whether they contain sufficient specificity to satisfy s.12(a).
Clause 1.2.5 plainly specifies the relevant items of expense that are to be included. The submission is that the clause fails to specify "how the expenses will be determined and apportioned to the tenant". In my view this requirement is satisfied by the introductory words of cl.1.2 which specifies a percentage application and a formula for calculating the part thereof that is applicable to this particular tenant.
The submission with respect to cl.1.2.6 is that it is a "catch-all" clause with insufficient elaboration of the operating expenses that are to be included. However there is some elaboration beyond the words of s.12, in particular the cost of supplying services provided by the lessor for the lessee and occupiers.
Section 12 draws a distinction between landlord's expenses in operating, repairing and maintaining the building. It requires the specification only of those items that are to be included as "operating expenses". The assumption seems to be that repairing and maintenance expenses are already sufficiently clear, or at least that they do not require further specification. I do not think that the heading "Sharing of Operating Expenses" is sufficient to permit the words "operating expenses" in s.12(a)(i) to be taken as an elliptical reference to "expenses . . in operating, repairing or maintaining the building".
Insofar as cl.1.2.6 refers to "operating" expenses as distinct from maintaining, servicing and supplying services, I consider that there is no specificity whatever, and that the clause fails to specify those items of expense which are to be included as operating expenses. Accordingly, to that extent, it infringes the requirements of s.12(a)(i). This however does not invalidate the remainder of the clause to the extent that it deals with maintaining, servicing and supplying services in respect of the building.
           It will therefore be necessary for the arbitrator to isolate these particular expenses and allow only those which can be shown to constitute such expenses.  The respondent cannot rely upon any catch-all such as "operating expenses".  On this point there may be a very live question in relation to the so-called "management costs" claimed by the respondent.
           I do not understand there to be any challenge with respect to cll. 1.2.7, 1.2.8, 1.2.9, 1.2.10 or 1.2.11.
           It was conceded before the arbitrator and also before me that 1.2.12 is too wide and that it should be regarded as invalid.
           The appeal should be allowed.  The award should be varied in terms to be drafted by counsel consistently with these reasons.  The award should not formally be varied to incorporate the obiter dicta on pp. 6 and 7, but those reasons will no doubt be brought to the attention of the arbitrator.  There should be a further order that the award as varied be remitted to the arbitrator for reconsideration and that the respondent pay the appellant's costs of this appeal including reserved costs if any, to be taxed.