Skiwing Pty Ltd v Trust Company of Australia Limited - [2010] NSWADT 64

No judgment structure available for this case.

CITATION: Skiwing Pty Ltd v Trust Company of Australia Limited [2010] NSWADT 64

DIVISION: Retail Leases Division

PARTIES:
APPLICANT
Skiwing Pty Ltd
RESPONDENT
Trust Company of Australia Ltd

FILE NUMBER: 075002 (formerly 045078)

HEARING DATES: 16, 17 and 18 March 200922 May 2009

SUBMISSIONS CLOSED: 27 July 2009

DATE OF DECISION:
9 March 2010

BEFORE: Higgins S - Judicial Member

CATCHWORDS: Claim for payment of money – refund of outgoings paid – whether outgoings were ‘properly and reasonably’ incurred – proper procedure where outgoing statement and audited statement.

LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994
Retail Leases Amendment Act 2005

CASES CITED: Davies v Lyndhurst Developments Pty Ltd [2001] NSWADT 9
Finchbourne Ltd v Rodrigues [1976] 3All ER 581
Havenridge Ltd v Boston Dyers Ltd [1994] 49 EG 111; [1994] 2 EGLR 73
Skiwing Pty Ltd v Trust Co of Australia Ltd (No3) [2004] NSWADT 94
Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADT 188
Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10
Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169
Trust Company of Australia Ltd v Skiwing Pty Ltd (2006) 68 NSWLR 366 and [2006] NSWCA 387
Trust Company of Australia Limited v Skiwing Pty Ltd (No2)(RLD) [2005] NSWADTAP 71

REPRESENTATION:
APPLICANT
Z Stojanoski, director
RESPONDENT
M Allars, barrister

ORDERS: 1. The application is dismissed
2. There will be no order as to costs in this application unless,(a) the respondent files and serves written submissions on costs on within 21 days;(b) in the event the respondent does file such written submissions, the applicant is given a further 21 days to file and serve written submissions in response; and(c) the question of costs is to be determined ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Tribunal decides that a further hearing is required.

REASONS FOR DECISION

1 Skiwing Pty Ltd (‘Skiwing’) is a former lessee of premises at the Stockland Imperial Arcade, a retail shopping centre in the central business district of Sydney. Skiwing operated a café, known as Café Tiffany’s, from the leased premises (‘the Arcade’). The Trust Company of Australia Ltd (‘Trust Company’) was the lessor of the premises at that time.

2 The lease that is the subject of this application is the seven year lease between Skiwing and Trust Company that commenced on 1 May 2000.

3 In 2004 Skiwing commenced proceedings in the Tribunal seeking numerous remedies, including a declaration to the effect that under the terms of the lease it was not liable to pay contributions to the outgoings of the Trust Company. In the event it was found liable to pay contributions to outgoings, Skiwing claimed that they were excessive and it sought a refund of what it had paid since the commencement of the lease. Its claim was based on the lease having an implied term that the costs claimed by the Trust Company as outgoings are to be ‘fair and reasonable’: see Finchbourne Ltd v Rodrigues [1976] 3All ER 581, at 586.

4 The Trust Company filed a cross application claiming unpaid contribution to outgoings.

5 The lease was terminated some time in 2005, however, Skiwing continued to seek a refund of amounts it had paid in outgoings during 2000, 2001, 2002, 2003, 2004 and 2005. The basis of its claim remained the same. At the same time, the Trust Company continued with its claim for unpaid contributions to outgoings.

6 Both applications were originally determined by the Tribunal in 2004: see Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169 (‘the first decision of the Tribunal’). In the first Tribunal decision, the Tribunal made orders, including an order dismissing Skiwing’s application and an order that Skiwing pay the outstanding unpaid outgoings and promotional levy. Skiwing appealed this decision of the Tribunal to the Appeal Panel: see Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10 (‘the first decision of the Appeal Panel’). Skiwing was successful in part as the Appeal Panel made orders setting aside the decision of the First Tribunal in regard to Skiwing’s claim for a refund. The Appeal Panel also set aside the Tribunal’s order that Skiwing pay the outstanding unpaid outgoings and promotional levy. The basis on which the Appeal Panel set aside the orders of the Tribunal centred on the construction of the word ‘outgoings’ in section 3 of the Retail Leases Act 1994 (‘the RLA’): see the first decision of the Appeal Panel at [59] to [67]. The Appeal Panel found at [61] and [62] that an ‘outgoing’ as defined in the RLA did not include the cost for ‘services’ that the lessor itself provided. The cost of these ‘services’, the Appeal Panel held fell within section 12 of the RLA and was not an ‘outgoing’ as defined. On the basis this construction of the word ‘outgoings’ the Appeal Panel ordered that:

‘The extent of any liability of the Appellant [Skiwing] to contribute to outgoings under the Lease between the parties and the amount of any payment to be made by either party to the other party is to be reconsidered by the Tribunal.’

7 On remittal from the Appeal Panel, the Tribunal made interlocutory orders, including an order that the Trust Company prepare a Schedule of Lessees’ Contributions to outgoings for the financial years 2000 to 2005: see Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADT 188 (‘the second decision of the Tribunal’). The terms of the order specified the items that were to be included in the Schedule (i.e. municipal rates, water rates, land tax, insurances, toilet requisites and waste removal). The Trust Company appealed this decision of the Tribunal to the Appeal Panel. Again, the appeal centred on the proper construction of the concept of ‘services’ and ‘outgoings’. The Appeal Panel dismissed the appeal: see Trust Company of Australia Limited v Skiwing Pty Ltd (No2)(RLD) [2005] NSWADTAP 71 (‘the second decision of the Appeal Panel’). The Trust Company appealed this decision to the Court of Appeal and Skiwing cross appealed.

8 The Court of Appeal allowed the appeal of the Trust Company: see Trust Company of Australia Ltd v Skiwing Pty Ltd (2006) 68 NSWLR 366 and [2006] NSWCA 387 (‘the Court of Appeal decision’). The orders it made included the following:

‘(4) Allow the appeal and set aside the order of the Appeal Panel.

Retail Leases Act

9 In its judgment the Court of Appeal concluded that ‘services’ in section 12 of the RLA is to be understood in terms of fit-out of the retail shop: see at [24]. Outgoings on the other hand had the character of expenses relating to the building as a whole and which were ongoing expenses. As a result of the findings of the Court of Appeal there is no longer any issue about the items of outgoings for which the Trust Company can seek contribution from Skiwing. Every outgoing item for which contribution had been sought was found to be a recoverable outgoing under the RLA.

10 While the Court of Appeal did not allow Skiwing’s cross appeal, in its judgment at [65] and [72], it found that Skiwing had ‘established that there was a legal error’ in the first decision of the Tribunal: see also at [61] and [62] where the Court of Appeal cites the Tribunal’s conclusions in its first decision. That legal error being the Tribunal’s finding that ‘there is no qualification in the lease that outgoings must be reasonable.’ At [66], the Court of Appeal found that the Appeal Panel, in failing to recognise this error in its first decision, had also erred. In its conclusions, at [75], the Court of Appeal noted that the outcome of the appeal by the Trust Company may allow Skiwing to ‘ensure that its arguments are properly considered and determined by the Tribunal when the matter is remitted to it.’

11 On 22 May 2009, at the adjourned hearing of the applications on remittal, the Trust Company withdrew its application(s). In an affidavit sworn on 21 May 2009, Mr Steven Dransfield, General Manager – Finance of Stockland Trust Management Limited, said that he had examined the accounts of Stockland and ascertained that ‘no amount of outgoings was payable by Skiwing under the Lease remained outstanding.’ Stockland was the entity responsible for the management of the Imperial Arcade, on behalf of the Trust Company, at the relevant time.

12 By consent, the application of the Trust Company was dismissed and hence there is no need to consider its claim any further.

13 These are the Tribunal’s reasons for decision in regard to Skiwing’s claim for a refund of contributions it made, during 2000 through to 2005, to outgoings incurred by the Trust Company which Skiwing claims were not ‘properly and reasonably incurred.’

Issues

14 The primary issue for determination by the Tribunal in Skiwing’s claim is whether items of expenditure in the relevant annual outgoings statement were expenses that were ‘properly and reasonably incurred’ by the Trust Company in payment of the ‘outgoings’ for the relevant year.

15 Related to the above is the appropriate procedure for determining whether an outgoing expense has been the ‘properly and reasonably incurred’.

16 Another issue is the assertion by Mr Stojanoski, on behalf of Skiwing, that in light of the Trust Company having entered leases that did not require the tenant to contribute to the outgoings, Skiwing was in fact contributing more to outgoings than it was obliged to.

Relevant Legislation

17 Section 22 of the RLA provides that a lessee is not liable to pay any amount to the lessor in respect of any outgoings except in accordance with the lease that specifies (a) the outgoings that are recoverable, (b) how these will be determined and how they will be apportioned to the lessee and (c) how they are to be recovered by the lessor from the lessee. In this application the relevant provisions were contained in clauses 1.16 and 3.04 of the lease. However, these provisions must be read together with sections 27, 28, 29, 30 and other sections relevant to outgoings in the RLA: see section 7 of the RLA which provides that ‘a provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act.’

18 For the purposes of this application the relevant provisions of the RLA are those which applied prior to the amendments, contained in the Retail Leases Amendment Act 2005, came into force. Although these amendments have made some changes the mechanism by which a lessor could and can seek contribution from lessees for its outgoings, has remained the same. That mechanism involves:

a)at least one month before the commencement of the lease and then every six months (now every year) during the terms of the lease, the lessor is required to provide the lessee with an itemised written estimate of outgoings in the form set out in Part 1 of Schedule 2 of the RLA: see section 27 of the RLA;

b)a lessee’s contribution to the outgoings are limited by the ratio of the lettable area of the lessee’s shop to the total lettable areas of all the retail shops to which the outgoings relate: see section 30 of the RLA;

c)three months after the end of each accounting period (e.g. at the end of each calendar or financial year), the lessor is required to provide the lessee with an ‘outgoings statement’ that details actual expenditure by the lessor in the accounting period just ended. The outgoing statement can be an audited statement or an unaudited statement. In the case of the latter the lessor is required to also provide the lessee with a copy of the invoices etc. that underlay the statement of outgoings: see section 28 of the RLA

19 Skiwing does not raise any dispute in regard to the Trust Company having complied with (a) and (b) above. Nor does it dispute that adjustments were made pursuant to (d) above. Its complaint is that the actual outgoing expenditure was excessive and not reasonable as required under the RLA and an implied term in the lease.

20 The relevant legislative provisions in regard to this dispute are sections 28 and 29 of the RLA. At the relevant time, they provided as follows:

28 Outgoings statements

(a) The lessor must give the lessee a written statement (an "outgoings statement") that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute.

(b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates.

(c) The outgoings statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time.

(d) ...

(e) The outgoings statement is to be accompanied by a report (an "auditor’s report") on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth).

(f) The auditor’s report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period.

(g) The outgoings statement may be a composite statement (that is, it may relate to more than one lessee) so long as each lessee to which it relates is able to ascertain from the statement the information required by paragraph (a) that is relevant to that lessee.

Section 29 – Adjustment of contributions to outgoings based on actual expenditure properly and reasonably incurred

A retail shop lease is taken to include provision to the following effect:

(a) There is to be an adjustment between the lessor and the lessee for each accounting period of the lessor to take account of any under-payment or over-payment by the lessee in respect of outgoings in the period. ....

(b) The adjustment is to be calculated on the basis of the difference between the total amount of outgoings in respect to which the lessee contributed (that is the estimated total expenditure by the lessor on outgoings during the period concerned) and the total amount actually expended by the lessor in respect of these outgoings during that period, but taking into account only expenditure properly and reasonably incurred by the lessor in payment of these outgoings .

(c) ...

The evidence

21 For the purpose of this hearing on remittal, Mr Stojanoski, director of Skiwing, relied on evidence filed in the proceedings before the first Tribunal (e.g. the lease, affidavit of Zoran Stojanoski (filed on 10 June 2004), the affidavits of Pauls Doherty, Centre Manager of the Imperial Arcade and Stuart J Marshall, Partner of KPMG (filed on 11 June 2004) and the transcript of the proceedings before the first Tribunal.

22 In her written submissions filed on 10 October 2008, Ms Allars, counsel for the Trust Company, said that the Trust Company relied on the lease, the outgoing statements for the relevant years and the statements of evidence of Gregory Preston, director of PRP Valuers and Consultants dated 20 August 2008 and Campbell Holmes a’ Court, General Manager of Retail Commercial Property for Stockland, dated 2 October 2008. Subsequently, an affidavit sworn by Mr Holmes a’ Court on 20 November 2008 was also filed and relied upon. Mr Preston and Mr Holmes a’ Court also gave oral evidence and were cross-examined by Mr Stojanoski at the hearing. A further statement of Mr Steven Dransfield (see paragraph [13] above) was filed on 22 May 2009 and relied upon by the Trust Company. Mr Stojanoski said he did not wish to cross-examine this witness.

23 During the hearing Mr Stojanoski tendered into evidence a number of documents, including extracts from the 2000 to 2005 ‘Australian Construction Handbook’ of Rawlingsons, Construction Cost Consultants and Quality Surveyors. The extracts were those relating to operating costs of buildings in each of the relevant years.

Procedure for determining whether expenditure by the lessor in outgoings has been ‘properly and reasonably’ incurred - s29(b) of the RLA

24 After both applications were remitted by the Court of Appeal, Mr Stojanoski, on behalf of Skiwing, approached the Tribunal for the issue of summonses. Summonses were issued as requested. However, limited, if any documents were produced by the persons to whom the summons were addressed.

25 Ms Allars, counsel for the Trust Company, contended that the onus was on Skiwing to establish its claim and that otherwise the Tribunal had sufficient material before it in order to make its determination and find that the amounts expended by the Trust Company in each of the years was ‘properly and reasonably incurred’. To this extent it was contended that it was not necessary to go behind the ‘outgoing statements’ and the accompanying independent auditor’s report for each year in question. For the reasons set out below, in my opinion, the approach contended for by the Trust Company is correct.

26 Whether the Tribunal had adopted the correct procedure in determining Skiwing’s claim for a refund was an issue before the Court of Appeal. At [52] the Court of Appeal said the following:

Retail Leases Act

Davies v Lyndhurst Developments

27 At [54] the Court of Appeal noted that the powers conferred by section 73 of the Administrative Decisions Tribunal Act 1997 were broad and discretionary and that they imposed ‘few constraints, although it should be inferred that the Tribunal must act in a procedurally fair way, as between the parties.’ These broad and discretionary powers, however, the Court of Appeal went on to say at [58]:

‘... [did] not impose on the Tribunal an obligation to put another party to the expense of obtaining evidence to support an applicant’s case, if not persuaded that there is a substantial basis for so doing. As the Tribunal recognised, there is a need to measure cost against likely benefit, in order to ensure that investigative powers are not used oppressively.’

28 As I have already mentioned, in this application, Skiwing, was provided with audited outgoing statements that were accompanied with a report of the auditor. The procedure adopted by the Tribunal in its first decision was to call for the auditor, Mr Marshall a partner of KPMG, to attend the hearing and give oral evidence answering questions from both the Tribunal and the applicant, Skiwing. To go behind the audited statements and auditor’s reports and scrutinise all expenses, the Tribunal explained would be ‘out of all proportion given that Skiwing share is 2.3% such that even a 10% error in the total outgoings, which is not at all likely, would result in only a small increase to Skiwing’: see at [26] of the decision of the first Tribunal. The Court of Appeal cited this reasoning at [46] in its decision. Implicit in the abovementioned remarks of the Court is that this was an inappropriate procedure to adopt, depending on the circumstances of each case.

29 Another approach, as noted by the Court of Appeal at [46], and the Appeal Panel in its first decision at [34], was that referred to by the Tribunal in Davies v Lyndhurst Developments Pty Ltd [2001] NSWADT 9 at [31]. In that application the Tribunal ordered the respondent lessor ‘to make all dockets and records available’ to the lessee applicant.

30 At [39] in the first decision of the Appeal Panel, the Appeal Panel said it was open to the Tribunal to make orders as had been made in Davies. However, the Appeal Panel went on to say that this did not mean that access to every invoices etc. was to be granted in every case where a lessee alleged that the amount expended on outgoings was excessive.

31 The Appeal Panel also noted, at [40] and [41], the distinguishing features between of the circumstances in Davies to those in this application. Davies was a decision on an interlocutory strike-out application by the respondent lessor. There was an issue as to whether there had in fact been an audited outgoing statement and the lessee was the only lessee in the building. The application in Davies was arguably one that fell within the ambit of section 28(1)(h) of the RLA and if it did then the lessor was required to provide the lessee with all invoices etc. of outgoings for which it sought contribution.

32 . As noted by the Appeal Panel in its first decision, at [35], the lease in this application contained a provision in clause 3.04.03 requiring the lessor to provide the lessee with an audited outgoing statement at the end of each lease year. It also provided that ‘except in the case of manifest error’, notified by either party to the other within fourteen (14) days of service of each statement on the lessee, the statement was ‘prima facie’ evidence of the matters stated therein. This provision must of course be read subject to the provisions of the RLA.

33 In my opinion the legislative intent to be inferred from the requirements as set out in sections 27 and 28 of the RLA, is that where a lessor has complied with the requirements of section 27 and then provided the lessee with an audited outgoings statement, prepared by an independent auditor in accordance with paragraphs 28(1)(e) and (f) of the RLA, that audited statement should be presumed to be a correct statement of all outgoing expenses ‘properly and reasonably incurred’ by the lessor for the relevant year. It is of course a presumption that can be rebutted, but the onus is on the lessee to establish, on objective material, a reasonable basis for the Tribunal to go behind an audited outgoings statement in whole or in part. In this application, Skiwing bore that onus.

34 It is noted that in the amendments made to section 28 of the RLA in the Retail Leases Amendment Act 2005, a new subsection (2) and (3) were inserted. These subsections make provision for the lessee to be given a reasonable opportunity to make written submissions to the auditor, after being provided with the audited outgoings statement. The amendments also provide for the lessee to be notified of such a right and the auditor being required to consider any written submissions made by the lessee. However, as I have noted these amendments came into force after the audited outgoing statements in this application were prepared.

35 For the purpose of these proceedings, as I have mentioned, on application by Skiwing the Tribunal issued a number of summonses. These having failed to result in production of documents Skiwing had hoped would support its contentions the question remained whether the Tribunal should exercise its discretion and direct the Trust Company to produce all documents that underlay the outgoing statements for the relevant years: see subsection 73(3) and paragraph 73(5)(b) of the Administrative Decisions Tribunal Act 1997.

36 In my opinion, having regard to the legislative intent of the outgoing provisions in the RLA, in particular paragraphs 28(1)(e) and (f), and the requirements of section 73 of the Administrative Decisions Tribunal Act 1997 a direction of this nature was inappropriate. In the absence of Skiwing establishing, on reasonable grounds, a basis to go behind the audited outgoing statements, there was no justification in requiring the Trust Company to provide this documentation. As pointed out by the Tribunal in its first decision any scrutiny of the invoices etc that underlay the audited outgoing statements would be costly, time consuming and of limited benefit to the matters in issue.

37 However, in light of Skiwing’s assertion that a significant variance in particular items of expenditure were in themselves cause to question whether that expense was ‘properly and reasonably’ incurred’ I invited the Trust Company to respond to these asserted significant variations. This it did through the evidence of Mr Holmes a’ Court and Mr Dransfield.

Was the disputed expenditure ‘properly and reasonably incurred’?

38 The words ‘properly and reasonably’ are not defined in the RLA. Accordingly, they should be given their ordinary meaning within the context in which they appear in the RLA.

39 The Macquarie Dictionary (3rd edition) defines the words ‘properly’ and ‘reasonable’ as follows:

‘ properly ... 1. in a proper manner. 2. correctly. 3. appropriately. 4. decorously. 5. accurately. 6. justifiably. ...

reasonable

1.

2.

a reasonable choice.

3.

reasonable terms.

4.

the coat was reasonable but not cheap

40 The Concise Oxford Dictionary of Current English (3rd edition) defines the word ‘reasonable’ to mean:

‘ reasonable ... 1. Having sound judgment: moderate; ready to listen to reason. 2 in accordance with reason, not absurd. 3 a within the limits of reason; not greatly less or more than what might be expected. b inexpensive; not extortionate. c tolerable, fair .....’

41 The parties also pointed to two English authorities in which the Court considered the meaning of an implied term that the lessor was only entitled to seek recovery of outgoing that were ‘reasonable’. In Havenridge Ltd v Boston Dyers Ltd [1994] 49 EG 111; [1994] 2 EGLR 73 the English Court of Appeal found that the term was limiting in effect in that lessors were unable to seek contribution to expenditures that was ‘outlandish’. They were only entitled to seek contribution to those items of outgoings which the lessor had ‘paid and agreed to pay in the ordinary course of business’. In Finchbourne Ltd v Rodrigues [1976] 3All ER 581, at 586, the English Court of Appeal held that lessors were not entitled to be ‘as extravagant as they chose’ in maintaining the building and then seeking contribution from the lessees for these expenses. Mr Stojanoski also relied on a decision of the State Administrative Tribunal of Western Australia and a decision of the Retail Shop Registry of Queensland. The decisions concerned a retail lease that was governed by the relevant State legislative provisions. It is unnecessary to repeat these other than to state that the findings in those decisions are consistent with the findings of the English Court of Appeal.

42 Ultimately, as pointed out by Ms Allars, the test as to whether an item of outgoing fails to meet the requirement of ‘properly and reasonably’ incurred is a question of fact that must be objectively assessed.

43 It was the evidence of Mr Marshall that the audits of the Trust Company’s outgoings were conducted in accordance with the Australian Auditing Standards. In conducting the audit it was acknowledged that the auditor did not review 100% of all expenditure in carrying out the audit. His approach relied on the ‘testing of internal controls over the preparation of budgets, approval of expenditure and review of actual costs compared with budget’ and selecting a sample of transactions to ‘verify the effectiveness of the internal control procedure’: see attachment B to the affidavit of Mr Dransfield. In the absence of any objection I have assumed this to reflect what is required under the Australian Auditing Standards.

44 In this application each report of the auditor that accompanied the audited outgoing statement for the relevant year contained a statement as to the auditor’s opinion. That statement was to the following effect:

‘In our opinion the attached Schedule presents fairly the recoverable outgoings, amounting to $ [the total amount expended for the year], of Stockland Imperial Arcade Retail Centre for the year ended [year].’

45 I accept this stated opinion to be reflective of the auditor having formed the view, from the material he/she received and examined, that the amounts identified in the outgoings statement of that year, were all recoverable outings of the Trust Company and they were expenditures that were ‘properly and reasonably incurred’.

46 This does not mean that Skiwing is prevented from challenging these amounts in whole or in part. However, as I have said, the onus is on Skiwing to establish its claim and in doing so it must place material before the Tribunal which puts into question the conclusion reached by the auditor that an expense as itemised in the outgoings statement is properly and reasonably incurred. That material cannot be based on personal feelings – it must be material of an objective nature.

47 Mr Preston, on behalf of the Trust Company, gave evidence to the effect that the per-square metre amount of outgoings paid by Skiwing during the relevant years was at or below that paid for comparable leased premises as published in the Property Council of Australia’s (PCA’s) Benchmark Surveys of Operating Costs for NSW Shopping Centres.

48 Mr Stojanoski cross-examined Mr Preston at length and placed before him relevant pages on costs as set out in the Rawlingsons 2006 Australian Construction Handbook.

49 In my opinion, the PCA’s Benchmark Surveys and the Rawlingsons Handbook were of little assistance in determining the matters in issue in this application. What they do show is that benchmarks in themselves vary depending on the purpose for which they are prepared.

50 It is noted that the total amounts of outgoings for the relevant years ranged between $1.5 and $1.9 million. As I have mentioned, of these Skiwing was required to a proportion that equated with the ratio of the lettable are of its leased premises to that of the entire retail lettable area in the Arcade. In a handwritten document Mr Stojanoski tendered into evidence he stated that Skiwing’s contribution to outgoings was 2.29%. This was not disputed and there was no issue about Skiwing’s portion of contribution to the outgoings having been calculated incorrectly.

51 I will now deal with the particular expenditures on which Skiwing has based its claim. I have dealt with these in accordance with the written submissions filed by Mr Stojanoski, on behalf of Skiwing, on 27 July 2009.

Gardens and grounds

52 Clause 1.16.13 of the lease provided that the cost of maintaining gardens and landscape areas in the Arcade was a recoverable outgoing by the Trust Company.

53 Mr Stojanoski contended that on the basis of the percentage increase in expenditure for the item ‘gardens and grounds’ that this was not an expense that had been reasonably incurred and Skiwing should not be liable to pay it. He argued that in 2001 these expenses had increased by 22155% from $30 the previous year to $6,676.00 in 2001. He also pointed to other fluctuations in what was expended on gardens and grounds during the relevant years. For example, in 2005 it was nil, yet the previous year it was $13,307.54.

54 In his submissions Mr Stojanoski said that ‘I am suspicious and smell something fishy here because we always had some plants in the centre and the contractor engaged to clean the plants was still coming once a month to clean the plants.’

55 Mr Stojanoski’s suspicion is subjective, based on hindsight and not supported by any objective evidence. Overall the expenditure on these items was very small and Skiwing’s annual contribution towards this cost ranged from 72 cents to $305.37. Furthermore, no complaint was made that these costs exceeded that which had been estimated. It is also noted that the 2005 outgoings statement did not include a specific item for gardens and grounds. This does not mean that no expenditure was made on items such as maintaining the plants that were in the Arcade – it may have been accounted for under a different item.

56 Accordingly, I find that Skiwing has failed to establish its claim that the garden and grounds expenses were not properly and reasonably incurred.

Security

57 Clause 1.16.14 of the lease provided that the provision of security and/or caretaking at the Arcade was a recoverable outgoing by the Trust Company.

58 Again Mr Stojanoski points to the fluctuations in amounts expended for security during the relevant years. Of particular concern to him was the increase in 2002 and 2003. In 2001, the expenditure on security was $82,751.77 and this increased in 2002 to $109,025.63. In 2003 there was a further increase to $129.724.81 and in 2004 and 2005 it was around what it had been in 2001.

59 In his statement of evidence Mr Holmes a’ Court said that the Trust Company was required to have extra security staff for extra hours during 2002 and 2003. He said that this was due to a dramatic change in the tenancy mix of the Arcade at the Pitt Street level. This he said became the destination for youth and consequently youth security issues. Once these youth related issues had been addressed the Trust Company was able to resume its previous security levels. Mr Stojanoski contended that this did not explain the increase as there were many vacant shops at that time and even when renovations were being undertaken in 2000 the cost of security was significantly lower.

60 It is not disputed that there were vacant shops at the relevant time. This fact alone, in my opinion, might be reason for extra security staff to secure the Arcade as a whole. In any event, in my opinion Mr Holmes a’ Court gave truthful evidence based on his enquires within Stockland. He acknowledged that in some aspects he had no direct knowledge of or expertise in the matters he gave evidence about. This in my opinion resulted in some of his assertions being misplaced or misstated.

61 In any event, Mr Stojanoski did not question a change of tenancy mix at the time or that the Pitt Street entry to the Arcade had become a destination for youth. Accordingly, the need for extra security was a plausible explanation for the extra costs in the years in question.

62 Accordingly, I find that Skiwing has failed to establish its claim that the security expenses were not properly and reasonably incurred.

Wages

63 Clause 1.16.04 of the lease provided that a recoverable outgoing of the Trust Company is ‘wages and payroll taxes in respect of employees of the Lessor employed solely for the purpose of operating, cleaning, maintaining, promoting and/or administering the [Arcade]’.

64 Once again Mr Stojanoski has based his claim on the variations in the amounts said to have been expended during the relevant years. In 2000, 2001, 2002 and 2003 the amount expended on wages was $215,398.49, $230,865.01, $201,013.87 and $206,725.52 respectively. In 2004 the expenditure increased to $295,092 and it was slightly higher than this the following year.

65 It was Mr Stojanoski’s contention that the number of staff did not change during the relevant period. This of course does not mean that there was no turnover in staff or that their salary and entitlements remained the same over the years in question.

66 In any event, in my opinion, an increase of between $60,000 and $90,000 for wages having regard to a building the size of the Arcade is not a variation of such significance to look behind the audited outgoing statements. As noted below, in 2004 there were fewer vacancies within the Arcade and this alone would suggest that an increase in wages would occur. It is noted that the auditor’s report does not refer to the amount expended being in excess of that estimated in the written estimates of outgoings for 2004 and 2005.

67 Accordingly, I find that Skiwing has failed to establish its claim that the wages expenses were not properly and reasonably incurred.

Management expenses

68 Clause 1.16.15 of the lease provided that the cost of managing, controlling and administering the Arcade was a recoverable outgoing by the Trust Company.

69 Once again the management expenses varied from year to year. In 2000 they were $188,086.08 and in 2005 they were $289,247.00. The most significant rises were in 2003, 2004 and 2005. It was not disputed that the management fee was calculated on the basis of ‘3% of the turnover of the rental retail space’ in the Arcade: see at [20] in the first decision of the Tribunal. At [21] the Tribunal found that on the basis of the Rawlingsons cost estimates for 2000, provided to it by Skiwing, the % amount was not excessive.

70 However, Mr Stojanoski continued to argue that because there were vacancies in the Arcade, the expenditure should have gone down and not up. In support of his argument he referred to the decision of the Tribunal in Skiwing Pty Ltd v Trust Co of Australia Ltd (No3) [2004] NSWADT 94, in particular paragraphs [65], [66], [68], [69], [82], [83] and [86]. This decision related to another claim Skiwing had brought against the Trust Company.

71 In my opinion, the paragraphs to which Mr Stojanoski pointed did not support his contention – it supported the contrary. For example, in paragraph [66] the Tribunal lists in a table the shops in the Arcade which were vacant and the time they were vacant for. What it demonstrates is that the vacancies primarily occurred in 2001 and 2002. These are the years where the management expenses had only increased marginally. The table also identifies than many of the vacant shops were re-leased in 2002 and 2003. Accordingly, on the basis of the formula on which the management expenses were calculated, an increase in the management expenses would have occurred during those years and thereafter.

72 Accordingly, I find that Skiwing has failed to establish its claim that the management expenses were not properly and reasonably incurred.

Repairs and Maintenance

73 Clause 1.16.08 of the lease provided that the cost of repairs maintenance renovations and replacement (other than costs of a capital nature) to the Arcade were a recoverable outgoing by the Trust Company.

74 In 2000, the expenditure on repairs and maintenance was $268,251.76. In 2001 it fell to $98,103.29 and in 2002 it increased to $133,245.52. It continued to increase and in 2005 it was $161,496.00.

75 Mr Stojanoski contended that the only explanation for the expenditure in 2000 was that it included capital items such as lighting. The lease and section 23 of the RLA, he pointed out, excluded capital expenditure, as a recoverable outgoing.

76 In his statement of evidence, Mr Holmes a’ Court said that it was his understanding on completion of substantial repairs and maintenance works the Arcade presented at an acceptable standard resulting in reduced costs in repairs and maintenance.

77 In the response Mr Dransfield received from KPMG in relation to his enquires about expenditures by the Trust Company on repairs and maintenance, air-conditioning and insurance, it is stated that during 2000 the Trust Company undertook a large project of repairs and maintenance in the Arcade: see annexure B at page 19 of the affidavit of Mr Dransfield. That project involved repairs to ceilings, escalators, lights, lifts etc. and the expenditure was consistent with ‘budget’. Again it is noted that this was the period of a number of vacancies within the Arcade.

78 In the absence of Skiwing providing any contrary material I find that the Trust Company has provided a sufficient explanation as to why the expenditure on repairs and maintenance was so high in 2000. It also provides an explanation as to why they were so low in the following year.

79 Accordingly, I find that Skiwing has failed to establish its claim that the management expenses were not properly and reasonably incurred.

Air-conditioning expenses

80 Clause 1.16.16 of the lease provided that the cost of air-conditioning the common areas of the Arcade was a recoverable outgoing by the Trust Company

81 Of concern to Mr Stojanoski were the air-conditioning expenses for 2000. These were $343,666.32. The previous year they were $95,152 and the years that followed they were about the same or less.

82 In his evidence Mr Holmes a’ Court said that substantial ‘capital expenditure’ was provided in the years 2000 to 2001 ‘to address the aging air-conditioning plant’. He went on to say that after the aging air-conditioning plant was replaced the preventative maintenance contract that had been in place was replaced by a ‘do and charge’ system that was considerably lower in overall maintenance costs.

83 The evidence of Mr Holmes a’ Court, if taken literally, would provide support for Mr Stojanoski’s contentions. However, in my opinion, given that Mr Holmes a’ Court is not an accountant and he had no direct knowledge of the work that was done I have not accepted his explanation other than his statement about the air-conditioning plant was old.

84 In the response Mr Dransfield received from KPMG in relation to his enquires about expenditures by the Trust Company on air-conditioning during 2000 it is stated that the Trust Company undertook a large project of repairs and maintenance to the air-conditioning pipes in the Arcade: see annexure B at page 18 of the affidavit of Mr Dransfield. The pipes it is stated were old and required repair. The working papers provided by KPMG show that an amount of $320,000 was budgeted for this work: see annexure B at page 25. It is noted that this work was undertaken at a time when other maintenance and repair work was being undertaken at the Arcade.

85 Once again, in the absence of Skiwing providing any contrary material to that which was provided by KPMG, I find that the Trust Company has provided a sufficient explanation as to why the expenditure on air-conditioning was so high in 2000.

86 Accordingly, I find that Skiwing has failed to establish its claim that the air-conditioning expenses were not properly and reasonably incurred.

Insurance

87 Clause 1.16.05 of the lease provided that the cost of insurances were a recoverable outgoing by the Trust Company

88 Of concern to Mr Stojanoski were the increases in expenses on insurance in 2004 and 2005. This expense increased from $48,485.75 in 2003 to $168,865.40 in 2004 and increased further by approximately $40,000 in 2005.

89 In his statement of evidence Mr Holmes a’ Court said that it was his understanding that in 2003 ‘there was a rise in insurance premiums due to increased public liability incidents and the impact of world terrorism on the insurance market.’ In his oral evidence Mr Holmes a’ Court made mention of the Trust Company having ‘self insured’ during this period. Mr Preston in his evidence when asked about a lessor having self-insured stated that this was in effect ‘no insurance’. Once again I have placed little weight on what Mr Holmes a’ Court said in his oral evidence. Insurance was not an area of which he had direct knowledge or expertise in.

90 In the response Mr Dransfield received from KPMG in relation to his enquires about expenditures by the Trust Company on insurance during 2003 and 2004 it is stated that in 2003, ‘increased insurance premiums were incurred for both ISR and Legal/Product Liability. This is a result of domestic market conditions and world events’: see annexure B at page 19 of the affidavit of Mr Dransfield. The response goes on to say that in regard to the insurance premiums for 2004 for the Arcade that ‘the actual insurance premiums for the property are below budgeted amounts.’ The inference I have drawn from this is that the written estimates of outgoings for 2003 that were provided to Skiwing contained an estimated expense for insurance that exceeded what was actually paid. Another inference to be drawn from the response of KPMG is that the amounts for which contribution was being sought were premiums paid by the Trust Company to commercial insurers.

91 Again in the absence of Skiwing providing any contrary material or an analysis of the material provided by KPMG which would lead to a contrary conclusion, I find that the Trust Company has provided a sufficient explanation about the increased expenditure on insurance from 2003 and onwards.

92 Accordingly, I find that Skiwing has failed to establish its claim that the insurance expenses were not properly and reasonably incurred.

Did Skiwing contribute more towards outgoings?

93 The argument put forward by Mr Stojanoski was that as there were leases of shops within the Arcade that made no provision for outgoings (i.e. provision was only made for rent) an adjustment had to be made to the amount of expended outgoings that were recoverable from those lessee who had, as did Skiwing, entered a lease which made provision for the payment of outgoings. As a demonstration of his argument Mr Stojanoski gave the following example:

‘2001 – Outgoings $1,510,569 x 2.29% or Skiwing’s lettable area is $34,540.

The outgoings for the tenants who do not contribute is say 10% of the lettable area then those amounts to $151,056. The maths are

2001-Outgoings 1,510,569
Minus 151,056
1,359,513

So Skiwing will have to pay its lettable area percentile of 2.29% on the $1,359,513 and that contribution is $31,132
34,540
- 31,135
3,408’

94 In my opinion, Mr Stojanoski’s argument is misconceived.

95 The fact that the Trust Company may have entered leases, which did not provide for contributions to outgoings was a matter entirely for the Trust Company. The amount that the Trust Company paid in outgoings nevertheless remained the same. Skiwing’s lease required it to contribute to these outgoings and section 30 of the RLA limited the proportion it was required to pay. If the Trust Company does not receive any contribution from those lessees who are not required to contribute to outgoings then, that portion of the costs these lessees would have paid (i.e. the lettable area percentage of these leased premises to use Mr Stojanoski’s word), will need to be met by the Trust Company.

96 During the course of argument there was some discussion about the management expenses being increased due to rents (hence turnover) being raised so as to accommodate outgoings. In my opinion even if this was the case, this does not mean that the management fees were not ‘properly and reasonably’ incurred. The fact is they were properly incurred and they were reasonably incurred as a 3% of rent turnover has been found to be a reasonable amount. I stress that there was no evidence before the Tribunal in regard to other leases.

Conclusions

97 For the reasons set out above, Skiwing has failed to establish its claim for a refund of the outgoings it paid, pursuant to its lease, during the years 2000 to 2005. In light of this the appropriate order is to dismiss Skiwing application and to make orders in regard to the filing an serving of written submissions on costs in the event either party wishes to pursue its application for costs.

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Citations

Skiwing Pty Ltd v Trust Company of Australia Limited [2010] NSWADT 64

Most Recent Citation

Skiwing Pty Ltd v Trust Company Ltd (RLD) [2010] NSWADTAP 73

Cases Citing This Decision

1

Skiwing Pty Ltd v Trust Company Ltd (RLD) [2010] NSWADTAP 73

Cases Cited

7

Statutory Material Cited

3

Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169

Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10

Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADT 188

CITATION:	Skiwing Pty Ltd v Trust Company of Australia Limited [2010] NSWADT 64
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Skiwing Pty Ltd RESPONDENT Trust Company of Australia Ltd
FILE NUMBER:	075002 (formerly 045078)
HEARING DATES:	16, 17 and 18 March 200922 May 2009
SUBMISSIONS CLOSED:	27 July 2009
DATE OF DECISION:	9 March 2010
BEFORE:	Higgins S - Judicial Member
CATCHWORDS:	Claim for payment of money – refund of outgoings paid – whether outgoings were ‘properly and reasonably’ incurred – proper procedure where outgoing statement and audited statement.
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Retail Leases Amendment Act 2005
CASES CITED:	Davies v Lyndhurst Developments Pty Ltd [2001] NSWADT 9 Finchbourne Ltd v Rodrigues [1976] 3All ER 581 Havenridge Ltd v Boston Dyers Ltd [1994] 49 EG 111; [1994] 2 EGLR 73 Skiwing Pty Ltd v Trust Co of Australia Ltd (No3) [2004] NSWADT 94 Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADT 188 Skiwing Pty Ltd v Trust Company of Australia Ltd [2005] NSWADTAP 10 Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169 Trust Company of Australia Ltd v Skiwing Pty Ltd (2006) 68 NSWLR 366 and [2006] NSWCA 387 Trust Company of Australia Limited v Skiwing Pty Ltd (No2)(RLD) [2005] NSWADTAP 71
REPRESENTATION:	APPLICANT Z Stojanoski, director RESPONDENT M Allars, barrister
ORDERS:	1. The application is dismissed 2. There will be no order as to costs in this application unless,(a) the respondent files and serves written submissions on costs on within 21 days;(b) in the event the respondent does file such written submissions, the applicant is given a further 21 days to file and serve written submissions in response; and(c) the question of costs is to be determined ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Tribunal decides that a further hearing is required.