Thai Star Video Pty Limited v Walpole

[2007] NSWADT 193

CITATION:	Thai Star Video Pty Limited v Walpole [2007] NSWADT 193
DIVISION:	Retail Leases Division
PARTIES:	FIRST APPLICANT Thai Star Video Pty Limited FIRST RESPONDENTS Thaensa Walpole & Ari Walpole SECOND APPLICANT Ari Walpole SECOND RESPONDENT Thai Star Video Pty Limited
FILE NUMBER:	065156, 065184
HEARING DATES:	16 March 2007, 28 March 2007
SUBMISSIONS CLOSED:	28 March 2007
DATE OF DECISION:	27 August 2007
BEFORE:	Fox R - Judicial Member
CATCHWORDS:	Claim for declaration of rights, obligations and liabilities under a lease
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Conveyancing Act 1919 Real Property Act 1900 Retail Leases Act 1994
CASES CITED:	Aspromonte Pty Limited v Zagari [1999] NSWSC Duncan’s Catering Pty Limited v Bankstown City Council [2005] NSW ADT 158 Four Seasons International Agricultural Pty Limited v Iacullo [2002] NSW ADT 91 Freetell Communications Pty Limited v In Eop Chung [2003] NSW ADT 169 Jarre Pty Limited v Vumbaca [1998] NSW Conv R 55-832 at 56,515-56,520 Protogeros v Fouzas [2004] NSW ADT 62 Randi Wixs Pty Limited v Pokana Pty Limited (No.2) [2003] NSW ADT 4 Rolet v Baron [2002] NSW ADT 316 Tribunal in Perhauz v SAF Properties Pty Limited [2007] NSW ADT 122 Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Limited [1998] NSW SC 52
REPRESENTATION:	FIRST APPLICANT & SECOND RESPONDENT R Bellamy, barrister FIRST RESPONDENT & SECOND APPLICANT In person
ORDERS:	1. Pursuant to s72(f)(iii) I declare that there exists between Thai Star Video Pty Limited as sub-lessee and Ari Walpole as sub-lessor a retail shop lease for a term to end of 15 July 2013, but which must come to an end of 15 July 2009 if Ari Walpole does not exercise his four year option for the head lease. However, if Ari Walpole remains in possession of the premises as tenant holding over under the lease now registered on title, or under the lease which results from exercise of the option, then the sublease continues until the end of the holding over under the head lease. ; 2. Any application for costs to be made within 21 days. If an application is made, the applicant for costs is to file and serve submissions within 14 days and the respondent to that application is to file and serve submissions in reply within a further 14 days. Application to be determined on the papers. Otherwise no order for costs.

1 The facts in this matter are relatively simple, the legal result is far from that.

2 Ari Walpole is the Lessee of premises at 16 Campbell Street, Sydney [Haymarket], from which he conducts a greengrocery business. Thai Star Video is a company owned and conducted by Wirul Eungpongpan and his wife Mary. Since October 2003 it has conducted a video hire business from an eight or nine square metre area at the front of Ari Walpole’s shop. The area is defined by a long counter from the front of the shop down one side, leaving the other side of the entry for the display of fruit and vegetables, which are sold from a wider area at the rear of the shop. It is this sublet occupancy which is in dispute.

3 Ari Walpole’s occupancy is based on a registered lease which dates from July 2003 and expired on 31 August 2006 and noted options of renewal, the first for three years, and the second for four years. The lease is registered on title as number AA45813 but shows the lessee to be “Walpole Thaensa”. Ari’s evidence was that, because he was such a young man starting out in business, the Lessor required a person of more business experience to be co-Lessee with him, and that was his Aunt, Jaowalak Thaensa. That support was not required for the lease which resulted from the exercise of the first option, and the lease now registered on title under registration number AC63050 is in favour of Ari Georg Walpole, to expire 15 July 2009 with an option of renewal for four years.

4 No point arising out of this discrepancy in identifying the lessor was taken during the hearing or in submissions. The whole matter was dealt with on the basis that Ari Walpole was the only lessee and owner of the business. As best I am able to work it out, Yaowalak Thaensa was a guarantor only.

5 I had Affidavit evidence from Wirul Eungpongpan, Mary Eungpongpan, Ari Walpole and Pontip Walpole. All were cross examined.

6 The video shop subletting was effected as a result of a bargain struck between Ari’s mother, Pontip and Wirul in late September 2003.

a) The background to the Dispute

7 The background appears to be that there had been at least a passing acquaintance between Wirul and Mary on the one hand and Pontip and Ari on the other, because they had traded in much the same locality for some years previously, and the redevelopment of that area of the city had led to them all needing to relocate as aging buildings faced demolition. It is clear that there were discussions between Pontip and Wirul, although they disagree about who actually initiated the discussions and where they happened. Whatever may be the fact of that, there was a further and apparently quite long discussion between Pontip, Wirul and Mary, sometime late in September 2003 in the shop at 16 Campbell Street, but again they have strongly opposing views of that event.

8 I accept that Pontip’s involvement in the matter arose from the fact that the business now conducted by Ari “grew” out of a similar business conducted for more than 20 years by Pontip. She still helps out in the shop, although she is now of quite mature years. I am satisfied that the business conducted from 16 Campbell Street in late 2003 was Ari’s business, but I am also satisfied that Wirul was entitled to assume and did in fact assume that Pontip was Ari’s authorised agent during the discussions which took place in September 2003.

9 I am further satisfied that Ari knew absolutely nothing about these late September negotiations.

10 However, none of this is relevant because Ari’s evidence was:-

“I met Michael [Wirul] the next day as he came back to take some measurements and we discussed and concurred as to the rent of $500.00 per week for the time being and the area marked out in blue chalk by him and mother the previous day”.

11 On considering all of the evidence, I am satisfied that 11 October 2003 is the date of commencement of the very informal sub-letting occupancy which resulted. Ari’s evidence was that there was never any disclosure statement either given or asked for and that there was, in fact, no formality at all, although it is clear from both Wirul’s and Ari’s Affidavit evidence that Wirul regularly requested that there be a formal written sub-lease which was never brought into effect.

12 Ari’s Affidavit evidence is:-

“On numerous occasions throughout the remainder of that year [2003] and the first few months of the next and intermittently since Michael has requested to me in person that we draw up a formal sub lease. I replied on each occasion that I wasn’t wiling to do that. I would mention that in my opinion his cheap rent was a result of him having no security of tenure and that to enter into a formal sub lease I would have to increase the rent to a more commensurate return say over $1,000.00 and the discussion would normally fall apart after that”.

13 There have been several (more or less) annual increases in rent which were only agreed after substantial negotiations. The rent presently being paid is $750.00 plus GST, and that appears to have been paid since 9 August 2005.

14 The matter came to a head in August of 2006 when, over the signature of Pontip Walpole, a notice was delivered bearing the following text:

“I am very sorry to let you know that the shop is going to be renovated very soon please vacate the video shop by 17 September 2006”.

15 Thai Star made application to this Tribunal for urgent interim relief, and that was eventually resolved by consent. Thai Star continues to trade from the premises.

b) The Application

16 The matters now before me are Thai Star’s application (065156) which was initially for compensation for termination, in the sum of $60,000.00, but at the hearing that became an application for declaration establishing the sublease for the term of Thai Star’s lease from October 2003 till 15 August 2006 and then for another three years, with a further four years after that. Ari Walpole’s separate application (065184) seeks a declaration that there is no lease.

c) The Argument

17 It is fair to say that Ari essentially only argued two propositions before me:

1. That there was no jurisdiction because the space occupied was temporary only, and so was not “premises”, in terms of the definition of retail shop s3 of the Retail Leases Act 1994 . This was based on the decision of Donald JM in the matter of Freetell Communications Pty Limited v In Eop Chung [2003] NSW ADT 169, I will refer to this as the Freetell argument.

2. That there was never an agreement at all, because Ari’s mother Pontip was not authorised to enter into it, with the sub-note, that there was never an intention for there to be a written long term lease.

18 Dealing with the Freetell argument first, I have to say that the similarities between that case and this are superficial only in that both dealt with an occupancy within another shop. Freetell dealt with a small space shared between two businesses, which were separated by moveable furniture and a temporary partition. That is entirely different from the situation which faces me, where there has been an installation of counters and roller shutters which, although they did not become part of the fabric of that part of the building which comprises the shop, certainly are fixed in position and in that sense quite permanent. The space achieved by Thai Star is no different, in effect, than that achieved by the installation of partition walls fixed between a floor and ceiling.

19 It should be borne in mind that the “shopfront” occupied by Thai Star appears to previously have been a display window of the lock up shop which is 16 Campbell Street. This now presents as a separate roller shutter which, when raised, reveals a display case counter which faces straight to the open street, and allows service from behind the counter to customers standing in the street. Most of the side of the elongated space in question is inside and to the side of the lock up shop public entry door, and that is defined by two long counters which can be completely concealed by further roller shutters, mounted on and close to the ceiling, which when deployed, reach to the floor. I accept that the street frontage measures 2.4 metres, and that the internal depth of the whole arrangement is just over 6 metres. The two internal counters and their matching shutters are approximately two metres each. At rear of these two counters is a partition wall which is just over 1 metre in length and then perpendicular to that, to close it all off, is another partition wall of 1.85 metres in length. These two latter partition walls appear to be chipboard of similar, and do appear to be of a very temporary nature and may well not be affixed to either floor or ceiling at all, they may just be “standing” there, attached to some shelving which is accessed from inside the sub tenancy.

20 I am satisfied that the location in question is sufficiently defined to be “premises” in the relevant sense, despite the perhaps somewhat flimsy nature of the rear two walls which achieve the closure of the space.

21 It follows that the distinction drawn by Donald JM has no application here, the space in issue is clearly “premises”.

d) The Agency

22 The suggestion that Ari’s mother had no actual authority to bind him was a constant issue throughout the hearing. Much of the evidence was aimed at it. It seems to me that this issue, in the end, is simply irrelevant, made so by Ari’s conduct in conducting the negotiations on the day after the discussion between Pontip and Wirul had been concluded. I am satisfied that Ari’s action on that day fully adopted what his mother had done. Once that had happened, no matter what might have been the situation previously, he acknowledged the bargain struck by his mother as his own, and is bound by it. Even if that were not so, I cannot see how he could seek to deny the agreement before me, especially in view of its duration, and the fact that (almost) annual increases in rent have been negotiated.

e) The Statutory Lease

23 The context in which Ari Walpole proposed to me that the lease was always meant to be oral, I am satisfied, indicates a comment on the flexibility of the term of the lease, and not the fact of a lease. The arrangement reached was entirely within s3 of the Retail Leases Act 1994:-

“agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop”.

24 Sub-section (c) of the definition contemplates that the agreement may be oral, or in writing, or partly both. The agreement in question was oral.

25 Although the evidence makes it somewhat difficult to pinpoint a starting time, I am satisfied that by 11 October 2003 the circumstances set forth in s8 of the Retail Leases Act 1994 had been met because Thai Star had entered into possession as a lessee, pursuant to the agreement, although the first payment of rent may not have been made until two weeks later.

26 Section 8

“(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

27 I am satisfied that the purpose for which the relevant part of the premises was let was as video library, a purpose which was then a business described in Schedule 1 of the Act and so is carried froward by s84B. The fact that the business also appears to now sell some kind of take away food does not, it seems to me, change that in any way, because that use, too, is one of the uses described in the Schedule.

The Term of the Statutory Lease

28 The term of the oral lease is addressed by the evidence of Wirul in the words he attributed to Pontip. It was Wirul’s evidence that the words used were:-

“You stay as long as I stay”
with the potential for that to be a total of almost ten years. Pontip’s affidavit does not deny those words, although she asserts that she never offered a nine or ten year lease. I accept that the agreement was for the duration of the head lessor’s occupation. This is confirmed by my note of Ari’s evidence is that it would be:-
“For a long time, as long as it was beneficial to both parties”.

29 In the face of this imprecision, Mr Bellamy placed alternative reliance on s16 to establish a 5 year minimum. In view of the fact that the words between Wirul and Pontip were said in the background of a potential term of more that nine years, I am satisfied that s16 has no application at all, because the initial agreement was for a lease which, in the relevant sense, had the potential to be one of more than five years duration.

30 Section 16

“(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.

31 The 2006 amendments to the Act did not change the effect of s16 as it applied to these facts.

32 The end result is the imposition of a statutory lease (in the nature of a sub-lease) for an initial term of somewhat less than three years having commenced on 15 October 2003 having had the potential at that time to terminate on 31 August 2006, but, the option having (in effect) been exercised, now extended to 15 July 2009, with a further option, at that time, to extend for a further four years. There was never any discussion about Thai Star’s right to terminate the lease “early”. There are no other conditions or terms of the lease other than to identify the space and the rental, (which as at August 2005, has been agreed at $750.00 per week plus GST), and that the tenant was to pay own electricity. This is, obviously, from a commercial view point, a most unsatisfactory situation but follows inevitably from the width of the definition of retail shop lease.

33 The decisions of Hodgson CJinEq in Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Limited [1998] NSW SC 52 and Aspromonte Pty Limited v Zagari [1999] NSWSC have presented several judicial members of this Tribunal with difficulties in circumstances where the tenant was in possession pursuant to an oral agreement, the upshot of which may have been in conflict with the terms of a later written lease in respect of the same occupancy. See Randi Wixs Pty Limited v Pokana Pty Limited (No.2) [2003] NSW ADT 4 and Protogeros v Fouzas [2004] NSW ADT 62. Be that as it may, the decision is clear authority (if authority be required) for the proposition that the combination of the definition of retail shop lease in s3, and s8 together establish that the Act can bring about a statutory lease arising out oral agreement and the fact of occupation. The statutory lease here achieved is “bare” in the sense that there is agreement only on the area and location, the term, and the initial rent.

The Conveyancing Act 1919

34 Such a lease, being for a period of more than three years, inevitably (although it was not argued before me) raises the question of the Conveyancing Act 1919 and in particular s23B and D, which would appear to render such a lease terminable at will.

35 In accordance with the discussion of these matters by this Tribunal in Perhauz v SAF Properties Pty Limited [2007] NSW ADT 122 at Paragraph 56 – 59 and the cases there referred to, it is now clearly accepted law that the Retail Leases Act 1994 has the effect of overriding the apparently conflicting provisions of the Conveyancing Act 1919. The previous decisions of this Tribunal relating to oral leases or agreements for lease (Four Seasons International Agricultural Pty Limited v Lacullo [2002] NSW ADT 91, Rolet v Baron [2002] NSW ADT 316, Duncan’s Catering Pty Limited v Bankstown City Council [2005] NSW ADT 158 all dealt with agreements or leases which were outside the ambit of the Retail Leases Act 1994 as it then applied because they were for terms of less than six months. The decisions of Hodgson CJ in Eq referred to earlier are decisions where an oral lease was “overtaken” by subsequent writing. None actually dealt with a “pure” oral lease of the kind now under consideration.

36 However, the reasoning of Deputy President Davidson in the Commercial Tribunal of New South Wales (a predecessor of this Tribunal) in Jarre Pty Limited v Vumbaca [1998] NSW Conv R 55-832 at 56,515-56,520 (which also dealt with a written lease) considering the interaction of the Conveyancing Act 1919 and the Real Property Act 1900 and Retail Leases Act 1994 and specifically the operation of s23B, is compelling. He concluded (56-518) that the Retail Leases Act1994

“creates a statutory legal interest. That interest is created by the Act irrespective of s23B of the Conveyancing Act” .

37 That conclusion applies equally to s23D.

38 Section 23D of the Conveyancing Act 1919 has no operation once it has been found that there is a retail shop lease even if it be oral. To find otherwise would lead to the bizarre situation that an oral lease for a period of more than three years but less than five years would be rendered a valid five year lease by s16 of the Retail Leases Act 1994, whilst an oral lease for a period of more than five years (and so outside s16) would be rendered terminable at will (at any time) by s23B of the Conveyancing Act 1919.

39 The situation now to hand would not have been quite so conceptually difficult had the Legislature given s81(3) of the Retail Leases Act 1994 a wider ambit. Presently s81addresses the consequences of the term extension effected by s16, and appears to maintain the long established legislative thrust to seek to limit oral agreements to terms of no more than 3 years. The matter before me illustrates an oral lease with a potential to apply for almost 10 years.

40 A complimentary provision, along the lines of s81(3) might be appropriate for Legislative consideration.

41 The Retail Shop Lease currently in issue before me, is a sub lease for a term which is identical with the term established by the sub-lessor’s lease on the title registered as number AC63050, which is due to expire on 15 July 2009, with an option of renewal for four years.

42 I am satisfied that the agreement between the parties that Thai Star was to remain within the premises whilst ever Ari Walpole is the head lessor. I note that, in his final submissions, Mr Bellamy, on behalf of Thai Star acknowledged that the arrangement between the parties was such that Thai Star would have no complaint if Ari Walpole chose not to exercise the next option when it falls due.

Orders

1. Pursuant to s72(f)(iii) I declare that there exists between Thai Star Video Pty Limited as sub-lessee and Ari Walpole as sub-lessor a retail shop lease for a term to end of 15 July 2013, but which must come to an end of 15 July 2009 if Ari Walpole does not exercise his four year option for the head lease. However, if Ari Walpole remains in possession of the premises as tenant holding over under the lease now registered on title, or under the lease which results from exercise of the option, then the sublease continues until the end of the holding over under the head lease.

2. Any application for costs to be made within 21 days. If an application is made, the applicant for costs is to file and serve submissions within 14 days and the respondent to that application is to file and serve submissions in reply within a further 14 days. Application to be determined on the papers. Otherwise no order for costs.