Trimat Holdings Pty Ltd v Investment Club Pty Ltd
[2020] WASCA 63
•28 APRIL 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: TRIMAT HOLDINGS PTY LTD -v- INVESTMENT CLUB PTY LTD [2020] WASCA 63
CORAM: QUINLAN CJ
MITCHELL JA
VAUGHAN JA
HEARD: 19 MARCH 2020
DELIVERED : 28 APRIL 2020
FILE NO/S: CACV 77 of 2019
BETWEEN: TRIMAT HOLDINGS PTY LTD (ACN 142 879 007)
Appellant
AND
INVESTMENT CLUB PTY LTD (ACN 078 127 536)
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram: GOETZE DCJ
Citation: TRIMAT HOLDINGS PTY LTD -v- INVESTMENT CLUB PTY LTD [2019] WADC 81
File Number : CIV 2167 of 2018
Catchwords:
Retail shop tenancies - Appeal from orders determining preliminary issue on the assumption that leased premises were a retail shop - Where lease required tenant to pay landlord's operating expenses in addition to rent - Where conditions of lease implied by statute required landlord to give estimates of operating expenses and an operating expenses statement - Where estimates and statement not provided - Where legislation provides that tenant is not obliged to make payment of, and landlord is not entitled to recover, operating expenses while landlord is in default - Where tenant seeks restitution of money paid for operating expenses on basis that the tenant mistakenly thought it was under a legal obligation to make the payments - Whether landlord can retrospectively comply with the conditions
Legislation:
Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA), s 12
Result:
Appeal allowed
Category: B
Representation:
Counsel:
| Appellant | : | DH Solomon |
| Respondent | : | GR Donaldson SC and AJ Aristei |
Solicitors:
| Appellant | : | Solomon Brothers |
| Respondent | : | Irwin Legal |
Case(s) referred to in decision(s):
Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Director of Public Prosecutions (Cth) v JM [2013] HCA 30; (2013) 250 CLR 135
In re Judiciary and Navigation Acts (1921) 29 CLR 257
JUDGMENT OF THE COURT:
Introduction
The appellant leased a retail shop located in O'Connor from the respondent for a term of 10 years from 1 November 2010 (Lease). The appellant made payments totalling $253,276.98 to the respondent in respect of the respondent's operating expenses in periods beginning on 1 July 2011 and ending on 31 August 2017.
In June 2018, the appellant commenced proceedings in the District Court of Western Australia seeking to recover the operating expenses payments. In summary, the appellant pleaded that:
(1)The Lease was a retail shop lease for the purposes of the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA) (Act);[1]
(2)Section 12 of the Act applied to the Lease, and had the effect of requiring the respondent to give to the appellant estimates of operating expenses and operating expenses statements;[2]
(3)The respondent never provided any estimates of operating expenses or operating expenses statements that complied with s 12 of the Act;[3]
(4)As a consequence, the appellant was not obliged to pay, and the respondent was not entitled to recover from the appellant, operating expenses.[4]
(5)The appellant paid the operating expenses mistakenly thinking that it was under a legal obligation to do so and, by reason of that matter, the respondent was unjustly enriched.[5]
[1] Statement of Claim, par 3 - 6.
[2] Statement of Claim, par 7 - 9 and 13.
[3] Statement of Claim, par 11 and 13.
[4] Statement of Claim, par 12 and 14.
[5] Statement of Claim, par 19 - 20.
The appellant claimed restitution of the payments on the basis that they were paid in the mistaken belief that it was under a legal obligation to pay them and that the respondent was legally entitled to the payment.[6]
[6] David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 378 - 379.
The respondent denied that the Lease was a retail shop lease within the meaning of the Act.[7] However, on the assumption that it was a retail shop lease, the respondent admitted that:
(1)Section 12 of the Act would apply;[8]
(2)The respondent had never provided the appellant with any estimates of operating expenses or operating expenses statements that complied with s 12 of the Act;[9] and
(3)The appellant had paid the operating expenses claimed.[10]
[7] Defendant's Defence, Set-off and Counterclaim (Defence), par 4.
[8] Defence, par 8 - 9.
[9] Defence, par 12.
[10] Defence, par 17.
The respondent denied that the appellant was not obliged to pay, and the respondent was not entitled to recover from the appellant, operating expenses, on the basis that the Lease was not a retail shop lease within the purview of the Act.[11] The respondent further pleaded:[12]
(b) Assuming that the Act applied to the Lease, the [respondent] says that (as a matter of proper construction) it can still (belatedly) comply with the matters alleged therein; and
(c) Prior to trial, it intends to provide annual estimates of expenditure and also operating expense statements for the financial years during the Relevant Period which comply with the substance of the matters referred to therein.
[11] Defence, par 19(a).
[12] Defence, par 12.
The respondent went on to plead a variety of defences to the restitutionary claim,[13] and made a counterclaim in respect of operating expenses in the event that the court found that its right to payment of operating expenses was unenforceable.[14]
[13] Defence, par 13 - 16 and 19(b).
[14] Defence, par 22 - 39.
On 17 April 2019, a registrar made an order, on the appellant's application, that there be a trial of a preliminary issue on the following question:[15]
If the [Act] does apply to the [Lease], can a landlord comply with the requirements of section 12 of the Act by providing estimates and operating expense statements, which have not been provided to the tenant within the prescribed periods, after those prescribed periods have expired?
[15] Blue AB 13 - 14.
The primary judge published written reasons answering this question in the affirmative. Having received this answer, the appellant accepted that it could not ultimately succeed in the action and consented to judgment being entered for the respondent.
The appellant now appeals against the order determining the preliminary question in the respondent's favour, and the judgment for the respondent that was entered as a consequence. For the following reasons, that appeal should be allowed.
Statutory provisions
The Act contains a number of provisions designed to protect the tenants of leases of certain retail shops. Subject to exclusion of premises by regulation, the term 'retail shop' is defined to mean:[16]
(a)any premises situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a business; or
(b)any premises not situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a retail business,
[16] Section 3(1) of the Act (definition of 'retail shop').
Again subject to exclusion by regulation, a 'retail shop lease' is relevantly defined to mean a lease that provides for the occupation of a retail shop, unless the retail shop has a lettable area that exceeds 1,000 square metres.[17]
[17] Section 3(1) of the Act (par (a) of the definition of 'retail shop lease').
The appellant pleaded that the premises the subject of the Lease were a retail shop under both limbs of the definition of that term, and that the Lease was a retail shop lease for the purposes of the Act.[18] The respondent denied both allegations, however it appears that it did so on the basis that the leased premises had a lettable area that exceeded 1,000 square metres.[19] In substance, there does not appear to be any dispute that the leased premises are a 'retail shop' for the purposes of the Act. However, there is a dispute as to whether the Lease is a retail shop lease for the purposes of the Act.
[18] Statement of Claim, par 4 - 6.
[19] Defence, par 4 - 7.
Section 12 of the Act applies where provision is made in a retail shop lease for payment by the tenant, in addition to rent, of all or any of the operating expenses of the landlord. 'Operating expenses' are defined as follows:[20]
operating expenses, in relation to a landlord, means expenses of the landlord in operating, repairing or maintaining —
(a)a building of which a retail shop the subject of a retail shop lease to which the landlord is a party forms the whole or a part; or
(b)if that retail shop is in a retail shopping centre, the building or buildings of which a retail shop the subject of a retail shop lease to which the landlord is a party forms the whole or a part and the common area,
and includes, if a strata titles levy is imposed on the landlord, that part of the levy which relates to expenses of the landlord in operating, repairing or maintaining the building or buildings of which the retail shop forms part or that building or those buildings and the common area, as the case requires;
[20] Section 12(3) of the Act (definition of 'operating expenses').
It is common ground that s 12 of the Act applies to the Lease if it is a retail shop lease.[21]
[21] Statement of Claim, par 8; Defence, par 9.
Section 12(1)(a) and (b) of the Act limit the amount and proportion of operating expenses which are 'payable' by a tenant under a retail shop lease to which s 12 applies. Under s 12(1)(b), the proportion of operating expenses payable by the tenant shall not be greater than the 'relevant proportion' without the approval of the State Administrative Tribunal. The 'relevant proportion' is defined to mean, in relation to a retail shop that is part of a group of premises:[22]
the proportion that the lettable area of the retail shop bears to the total lettable area of the group of premises at the commencement of the accounting year
[22] Section 12(3) of the Act (definition of 'relevant proportion').
Section 12(1)(c) of the Act applies where the leased premises are part of a group of premises, and:
any part of the operating expenses is expenditure incurred as a result of some only of the premises in the group being open outside the standard trading hours
In such a case, the lease 'shall be taken to provide' that a tenant whose retail shop was not so open 'is not required to make any payment of, and the landlord is not entitled to recover', that expenditure.
Section 12(1)(d) is of central importance in this appeal. It provides:
(d)the retail shop lease shall be taken to provide that —
(i)the tenant is not required to make any payment of, and the landlord is not entitled to recover, any such operating expenses in respect of a year or part of a year until at least one month after the landlord has given to the tenant annual estimates of expenditure under each item of operating expenses in respect of the year; and
(ii)the landlord is required to give to the tenant a written statement in accordance with subsection (1a) (an operating expenses statement) that details all expenditure by the landlord in each accounting period of the landlord during the term of the lease on account of operating expenses to which the tenant is required to contribute.
In the above terms, s 12(1)(d)(i) implies a statutory term in a retail shop lease to which s 12 applies in relation to the provision of estimates of operating expenses. It will be convenient to refer to this provision as the 'Estimates Provision'. Section 12(1)(d)(ii) implies a statutory term in a retail shop lease to which s 12 applies in relation to the provision of an operating expenses statement. It will be convenient to refer to this provision as the 'Statement Provision'.
Section 12(1a) of the Act sets out the requirements for an operating expenses statement in the following terms:
An operating expenses statement —
(a)is to be given to the tenant within 3 months after the end of the accounting period to which it relates; and
(b)if the relevant retail shop is in a retail shopping centre, must include a statement of the current total lettable area of the retail shopping centre and details of any material change in that total lettable area during the period to which the statement relates; and
(c)is to be prepared in accordance with relevant principles and disclosure requirements of the applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time; and
(d)may be a composite statement (that is, it may relate to more than one tenant) if each tenant to which it relates is able to ascertain from the statement the information required by subsection (1)(d)(ii) that is relevant to that tenant; and
(e)is to be accompanied by a report on the statement prepared by a registered company auditor within the meaning of the Corporations Act 2001 of the Commonwealth which includes a statement by the auditor as to whether or not the operating expenses statement correctly states expenditure by the landlord during the accounting period concerned in respect of operating expenses to which the tenant is required to contribute, and as to whether or not the total amount of estimated operating expenses for that period (as shown in the estimate of operating expenses given to the tenant) exceeded the total actual expenditure by the landlord in respect of those operating expenses during that period.
(emphasis added)
Section 12(1c) of the Act effectively provides for an exception to s 12(1a)(e). It provides that an operating expenses statement is not required to be accompanied by an auditor's report if the statement does not relate to any operating expenses other than:
land tax (unless subsection (1g) applies), water, sewerage and drainage charges, local government rates and charges or insurance premiums and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the landlord referred to in subsection (1)(d)(ii).
Section 12(1d) of the Act is another central provision in this appeal. It provides:
If a landlord does not comply with the requirement referred to in subsection (1)(d)(ii) [ie the Statement Provision], the tenant is not obliged to pay, and the landlord is not entitled to recover, operating expenses from the date of that noncompliance until the landlord complies with that requirement.
Section 12(1e) of the Act identifies certain operating expenses to which a tenant under a retail shop lease in respect of a retail shop in a group of premises 'is not liable to contribute'. Section 12(1e)(b) provides that, unless the State Administrative Tribunal otherwise approves, the tenant is not liable to contribute in excess of:
an amount calculated by multiplying the total amount of that operating expense by the proportion that the lettable area of the shop bears to the total lettable area of all of the premises in the group of premises to which the operating expense is referable
Section 12(1f) applies where there is a provision in a retail shop lease to the effect that the tenant is obliged to make a payment to or for the benefit of the landlord for management fees. In such a case, 'the landlord is not entitled to recover, and the tenant is not obliged to make, that payment'.
Section 12(1g) applies where a lease makes provision for the tenant to pay land tax or metropolitan region improvement tax. Section 12(1g) provides that it is a term of that retail shop lease that 'the tenant shall only be obliged to pay, and the landlord shall only be able to recover' the 'notional land tax imposed' and, where the premises do not cover the whole of the land, the 'relevant proportion' thereof. The 'relevant proportion' is defined in the manner described at [15] above.
Section 12(2) and s 12(3A) make 'void' certain provisions in a retail shop lease obliging the tenant to make certain payments to the landlord.
It is also relevant to note s 12A and s 12B of the Act, which adopt somewhat similar language.
Section 12A of the Act applies where a retail shop lease requires a tenant to make payments into a sinking fund for repairs or maintenance or any similar purpose. In such a case, s 12A(3) provides that the lease is taken to provide for certain terms. These include that the landlord must provide a report of an auditor of the accounts of the fund to be delivered to the tenant 'within 3 months after the end of each accounting year'. Section 12A(6) provides that, if the landlord does not comply with the latter requirement:
the tenant is not obliged to pay, and the landlord is not entitled to recover, payments to the sinking fund or reserve from the date of that noncompliance until the landlord complies with that requirement.
Section 12B applies where a retail shop lease requires a tenant to make payments into a marketing fund. In such a case, s 12B(3) provides that the lease is taken to provide for certain terms. These include that the landlord must provide a report of an auditor of the accounts of the fund to be delivered to the tenant 'within 3 months after the end of each accounting year'. Section 12B(6) provides that, if the landlord does not comply with the latter requirement:
the tenant is not obliged to pay, and the landlord is not entitled to recover, payments to the fund or reserve from the date of that noncompliance until the landlord complies with that requirement.
Primary judge's approach
The appellant's pleadings contended that, at the time it paid the operating expenses, it was not obliged to do so for two reasons.
First, the appellant contended that it was not obliged to make any payment in respect of any of the years by reason of the Estimates Provision, as no annual estimates of expenditure had ever been provided.
Secondly, the appellant contended that it was not obliged to make any payment because the respondent had not complied with the Statement Provision. In this respect, the appellant contended that the respondent could not comply with the Statement Provision more than 3 months after the end of the relevant accounting period. This was because the Statement Provision requires the landlord to give to the tenant a written statement 'in accordance with' s 12(1a) of the Act. Section 12(1a)(a) of the Act requires that the operating expenses statement be given to the tenant within 3 months after the end of the accounting period to which it relates. The appellant submitted that a statement given more than 3 months after the end of the accounting period would not be given 'in accordance with' s 12(1a), and so would not comply with the requirement.
The appellant's written submissions before the primary judge were very much focussed on the second of these contentions. A transcript of the hearing before his Honour was not prepared, so the extent to which the first contention was the subject of oral submissions before the primary court is not apparent.
No doubt as a result of the focus of the written submissions, the primary judge did not deal with the appellant's first contention. However, the issue was raised by the preliminary question, and is the subject of a ground of appeal and submissions in this court.
The primary judge rejected the appellant's second contention. The primary judge found that s 12(1d) of the Act does permit a non‑complying landlord to comply with the Statement Provision in s 12(1)(d)(ii), even if that landlord had not provided a valid operating expenses statement within the required three months after the expiration of the accounting period to which it relates.[23] His Honour's reasons for reaching that conclusion were, in summary, that:[24]
(1)Section 12(1)(d)(ii) does not, of itself, specify the timing of the provision of the operating expenses statement. That timing is left to s 12(1a)(a) (which s 12(1d) does not refer to).
(2)There can only be non‑compliance with the Statement Provision after the expiration of three months from the end of an accounting period. The sole purpose of s 12(1d) is to operate as a bar to the recovery of operating expenses by a landlord who has not complied with the requirement referred to in s 12(1)(d)(ii) 'until the landlord complies with that requirement'. The appellant's submission would mean that the words 'until the landlord complies with the requirement' in s 12(1d) would not have any 'work' to do.
(3)Section 12(1a)(a) sets out the usual time requirement for the provision of an operating expenses statement. It is part of what is expected to be a business-like approach to better assist a retail shop tenant to manage the expenses of a retail shop by the receipt of operating expenses in a timely manner. Failure to comply with the requirement need not be fatal to a landlord's claim.
(4)The primary judge's interpretation was consistent with the remedial and/or beneficial purpose of the Act as determined by its own text and structure in order to protect and better serve the needs of retail shop tenants until compliance by landlords.
(5)On the appellant's construction, a minor technical breach of certain accounting standards, including a mathematical error in favour of the tenant, could only be cured within 3 months after the end of the relevant accounting period. Parliament could not have 'intended the Act to have such a severe result without some purposive wording'.
[23] Primary decision [18].
[24] Primary decision [19] - [24].
The primary judge therefore concluded that the preliminary question must be answered 'yes'.[25]
[25] Primary decision [25].
Grounds of appeal
The appellant appeals against the primary judge's decision on two grounds.
Ground 1 in effect contends that the primary judge erred in law in construing the Act in the manner summarised at [34] above.
Ground 2 contends that the primary judge erred in law in not holding that, by operation of the Estimates Provision in s 12(1)(d)(i) of the Act:
2.1. payments of outgoings in respect of a year or part of a year are not payable until at least 1 month after annual estimates are given in respect of each item of operating expenses in respect of the year; and
2.2. annual estimates cannot be given in respect of a year at a time later than 3 months after the end of that year.
Operation of the provisions
We turn to make some general observations about the provisions, before turning to deal with the answers to the preliminary question.
Legislative history and purpose of the provisions
As originally enacted in 1985, s 12 was confined to the substantive provisions now made in s 12(1)(a) and (d) of the Act. The time by which an annual statement of expenditure incurred was required, and the need for an audit, was specified within the equivalent of s 12(d)(ii) of the Act. There was no equivalent of s 12(1d) of the Act, providing a consequence for failure to furnish a statement of expenditure. Section 12 was enacted as part of a suite of measures designed to redress the uneven balance of power between commercial landlords, particularly those running large shopping centres, and small business tenants.
The purpose of requiring estimates of expenses and statements of expenditure incurred at this time was to provide information to tenants of retail shop leases. Estimates of expenditure would enable tenants to budget for their expenditure over the year, while an audited statement of expenditure incurred would enable them to check that operating costs had been properly charged.
Section 12 was relevantly amended, to essentially reflect its current terms, by s 8 of the Commercial Tenancy (Retail Shops) Agreements Amendment Act 1998 (WA). The amended s 12 included provisions, such as s 12(1)(b) and s 12(1e), which limited the operating expenses to the tenant's proportion of the net lettable area of a group of shops of which the retail shop lease forms part. The Minister's second reading speech explained the purposes of the amendments, and the related disclosure requirements, in the following terms:
The relevant proportion principle is introduced by the Bill to set an upper limit to the amount tenants can reasonably be asked to contribute to the landlord's operating expenses in running a shopping centre. Some industry practices have seen major tenants being given significant discounts by landlords on a shopping centre's operating expenses. In order to overcome any shortfall from these negotiations, in some instances landlords have then allocated these shortfalls to other tenants, generally the smaller specialty retailers, in the centre. In addition, some shopping centres ownerships with vacant shops have loaded up their tenants with the expenses which should have been allocated to the vacant shops. Practices of this nature are patently unfair. As these costs are unrecoverable, the landlord, in the absence of tenants in these vacant shops, should bear these costs.
The proposed amendments therefore limit a tenant's contribution to all valid operating expenses such as rates and taxes, insurances, cleaning and the like by relating the amounts they contribute to the proportion which the floor area of the tenant's shop bears to the shopping centre's total lettable area. The clear intention is to ensure that small tenants do not contribute to expenses that are not applicable to their tenancy. The Government is not, however, precluding any negotiated agreement between the parties that provides for a contribution by the tenant of less than the relevant proportion.
With regard to disclosure and audit requirements for a shopping centre's operating expenses, the Bill's provisions have been expanded to allow greater scrutiny of the landlord's charges. …
These provisions also ensure that parties pay only their fair share by specifying that tenant contributions to landlord expenses will be limited to the tenant's proportion of the total lettable area of the shopping centre. To complement this disclosure between the parties to a lease, the Act will also require that the centre's total lettable area, and any changes in the year, be verified by a registered company auditor during the conduct of the audit. (emphasis added)
Time periods
Section 12 of the Act relevantly refers to three periods of time:
(1)The Estimates Provision refers to payments of operating expenses 'in respect of a year or part of a year'. The Act does not define the term 'year'. The definition of 'year' in the Interpretation Act 1984 (WA) is simply a period of 12 months.[26]
(2)The Statement Provision refers to all expenditure by the landlord 'in each accounting period of the landlord during the term of the lease'. The Act does not define the phrase 'accounting period of the landlord'.
(3)The definition of 'relevant period' in s 12(6), and ss 12A and 12B of the Act,[27] refer to 'the accounting year'. The phrase 'accounting year' is defined in the following terms:[28]
accounting year in relation to a lease, means the accounting year specified in the lease or, if not so specified, a financial year;
Operation of the Estimates Provision
[26] Section 5 of the Interpretation Act (definition of 'year').
[27] Section 12A(3)(c)(ii), and (iv); s 12B(3)(c)(iii) and (iv).
[28] Section 3(1) of the Act (definition of 'accounting year').
The Estimates Provision in s 12(1)(d)(i) of the Act introduces a statutory term into a retail shop lease that makes provision for payment by the tenant, in addition to rent, of all or any of the operating expenses of the landlord. It does this by providing a term for which the lease 'shall be taken to provide'.
The subject of the statutory term is the 'operating expenses in respect of a year or part of a year'. The term is that 'the tenant is not required to make any payment of, and the landlord is not entitled to recover' such operating expenses until a point in time. The point in time is 'at least one month after the landlord has given to the tenant annual estimates of expenditure under each item of operating expenses in respect of the year'.
The operation of the statutory term introduced by s 12(1)(d)(i) in respect of a year or part of a year is spent one month after the landlord gives the tenant the annual estimates of expenditure. After that time, operating expenses for the year or part of the year are required to be paid in accordance with the other terms of the lease. After that time, there is no bar to the landlord recovering those operating expenses.
In its terms, the Estimates Provision does not extinguish the tenant's liability to pay operating expenses. Rather, it suspends the requirement for the tenant to pay operating expenses in respect of a year or part of a year until at least one month after annual estimates of expenditure are given to the tenant. It operates in relation to all operating expenses in the year or part of the year, and not merely those which would otherwise be payable before the estimates are given to the tenant. Until at least one month after annual estimates of expenditure are given to the tenant, the tenant is not required to pay, and the landlord is not entitled to recover, any of the operating expenses in respect of the year or part of the year. Once that time passes, the tenant is required to pay, and the landlord is entitled to recover, 'all or any of the operating expenses of the landlord' as provided in the retail shop lease.
The manner in which the Estimates Provision operates can be illustrated by the following example. Suppose a landlord and tenant enter into a retail shop lease to which s 12 of the Act applies, which commences operation on 1 January 2020. The lease requires the tenant to make monthly payments of all of the landlord's invoiced operating expenses, by the 14th day of the next month. (The example thus presupposes that the landlord is recouping operating expenses actually incurred in arrears. However, the example applies equally to illustrate the operation of the statutory provisions were the lease obligation to provide for a monthly payment based on the landlord's projected operating expenses for a 12 month period.) The landlord's accounting period, and the accounting year in relation to the lease, is the July - June financial year. The landlord gives the tenant annual estimates of expenditure for the 1 July 2019 - 30 June 2020 financial year on 1 February 2020. The landlord gives the tenant annual estimates of expenditure for the 1 July 2020 - 30 June 2021 financial year on 1 August 2020.
In the above example, the Estimates Provision would, in our view, operate in the following manner.
The first relevant period is the 'part of the year' from 1 January 2020 to 30 June 2020. The tenant would not be required to pay, and the landlord would not be entitled to recover, any of the landlord's operating expenses for that part of the 2019 - 2020 financial year until 1 March 2020 (being the date one month after the annual estimates for that financial year were given). However, from 1 March 2020, the tenant would be required to pay, and the landlord would be entitled to recover, all of the landlord's operating expenses in respect of that part of the year (including those incurred in January and February 2020) in accordance with the terms of the lease.
The second relevant period in the above example is the 2020 - 2021 financial year. The tenant would not be required to pay, and the landlord would not be entitled to recover, any of the landlord's operating expenses for the 2020 - 2021 financial year until 1 September 2020 (being the date one month after the annual estimates for that financial year were given). However, from 1 September 2020, the tenant would be required to pay, and the landlord would be entitled to recover, all of the landlord's operating expenses in respect of the 2020 - 2021 financial year (including those incurred in July and August 2020) in accordance with the terms of the lease.
If, in the above example, the landlord never gave the tenant annual estimates of expenditure for the 2019 - 2020 financial year, then the tenant would never be required to pay, and the landlord would never be entitled to recover, any of the operating expenses of the landlord in respect of the January - June 2020 part of that financial year. However, the tenant would still be required to pay, and the landlord would still be entitled to recover, all the landlord's operating expenses for the 2020 - 2021 financial year for which annual estimates of expenditure had been given to the tenant.
Operation of the Statement Provision
The Statement Provision in s 12(1)(d)(ii) of the Act also introduces a statutory term into a retail shop lease that makes provision for payment by the tenant, in addition to rent, of all or any of the operating expenses of the landlord. It also does this by providing a term for which the lease 'shall be taken to provide'.
The term introduced by the Statement Provision requires the landlord to give to the tenant a written statement called an operating expenses statement. The operating expenses statement which the landlord is required to give the tenant must be 'in accordance with' s 12(1a) of the Act. The operating expenses statement must detail:
all expenditure by the landlord in each accounting period of the landlord during the term of the lease on account of operating expenses to which the tenant is required to contribute.
Section 12(1a)(a) of the Act identifies the time by which a landlord is required to give an operating expenses statement to the tenant. The statement is to be given to the tenant within 3 months after the end of the accounting period to which it relates.
Section 12(1d) of the Act provides a statutory consequence of the failure to comply with the Statement Provision. It applies if a 'landlord does not comply with the requirement referred to in' s 12(1)(d)(ii) of the Act. The consequence is that 'the tenant is not obliged to pay, and the landlord is not entitled to recover, operating expenses' for a defined period of time.
The operating expenses referred to in s 12(1d) of the Act are not defined by reference to the period of time in which the landlord incurs the operating expenses. The time period referred to in s 12(1d) is the period during which the tenant is not obliged to pay, and the landlord is not entitled to recover, operating expenses. Therefore, during the period referred to in s 12(1d), the tenant is not obliged to pay, and the landlord is not entitled to recover, any operating expenses irrespective of when those operating expenses were incurred.
The period referred to in s 12(1d) begins 'from the date of that noncompliance'. It is therefore necessary to identify the time at which a landlord fails to comply with the Statement Provision. When s 12(1)(d)(ii) and s 12(1a)(a) of the Act are read together, the substance of the landlord's obligation is to give to the tenant an operating expenses statement within 3 months after the end of each accounting period. Because the landlord is not required to give the tenant an operating expenses statement until three months after the relevant accounting period, it will not have failed to comply with the Statement Provision before that time. Even if the landlord gives the tenant a written statement that is not in accordance with s 12(1a)(b) - (e), it will not have failed to comply with the Statement Provision unless and until three months passes after the end of the relevant accounting period and a written statement in accordance with s 12(1a) has not been provided. In that manner, s 12(1a)(a) operates to define the date of noncompliance, which is the point in time at which the period referred to in s 12(1d) begins.
The period referred to in s 12(1d) ends when 'the landlord complies with' the requirement in s 12(1)(d)(ii) of the Act. On the appellant's construction, a statement given more than 3 months after the end of the relevant accounting period will not be an operating expenses statement because it will not be in accordance with s 12(1a)(a) of the Act. While that argument is open on the literal meaning of the statutory language, the effect it produces is harsh and absurd. On the appellant's construction, the period referred to in s 12(1d), which begins 3 months after the end of the relevant accounting period, can never end because the landlord can never comply with the Statement Provision once 3 months have passed. The landlord would never be able to recover operating expenses from the tenant for any future period if no operating expenses statement was given to the tenant within 3 months of the end of an accounting period, or a statement was given but did not comply with other requirements in s 12 of the Act. That is not a sensible reading of the provision, considered as a whole.
The way in which the provisions operate can be illustrated by building on the example set out at [48] above. Suppose that, in that example, the landlord did not provide an operating expenses statement for the 2020 - 2021 financial year until the end of November 2021. The tenant pays operating expenses monthly, as required by the lease.
In this example, the tenant would be obliged to pay monthly operating expenses until the end of September 2021. On 1 October 2021 (after the expiry of 3 months from the end of the accounting period) the tenant would not be obliged to pay, and the landlord would not be entitled to recover, operating expenses. That would continue to be the position until 1 December 2021. If it had not already done so, the tenant would not be obliged to pay the operating expenses incurred for the month of September 2021 (ordinarily due on 14 October 2021) or October 2021 (ordinarily due on 14 November 2021) until 1 December 2021; but on provision of the operating expenses statement the operating expenses for September and October would be recoverable. The tenant would be obliged to pay invoiced operating expenses for November 2021 on the ordinary time of 14 December 2021.
Construed in that manner, s 12(1d) of the Act effects a suspension, rather than an extinguishment, of the tenant's obligation to pay operating expenses. It provides the tenant with a 'self-help' mechanism for enforcing the landlord's obligation to provide operating expense statements within 3 months of the end of each accounting period. If the landlord does not do so, the tenant may stop paying operating expenses until the landlord provides a complying operating expenses statement. Ordinarily, the operating expenses which the tenant is entitled to withhold will not be those incurred by the landlord in the accounting period to which the outstanding operating expenses statement relates. Under ordinary commercial terms, those will already have been paid by the tenant complying with its obligation under the lease before the default occurs 3 months after the end of the accounting period.
In this manner, the operation of s 12(1d) of the Act may be contrasted with s 12(1)(c) of the Act. The latter provision provides that a tenant whose shop is not open outside standard trading hours is not required to make any payment of, and the landlord is not entitled to recover, the expenditure associated with other shops trading outside standard trading hours. Section 12(1)(c) applies permanently, in contrast to s 12(1)(d)(i) and 12(1d) which expressly apply only for a limited time.
The preliminary question and the Estimates Provision
We turn to consider the preliminary question, so far as it asks whether the landlord can comply with the requirements of s 12 of the Act by providing estimates 'which have not been provided within the prescribed periods, after those prescribed periods have expired'.
There is a difficulty with the reference in this question to 'prescribed periods' in relation to the provision of annual estimates of expenditure. In contrast to the Statement Provision, the Estimates Provision does not prescribe any time by which the estimates must be provided. Rather, the Estimates Provision suspends the tenant's obligation to pay operating expenses in respect of a year or part of a year until at least one month after the landlord has given to the tenant annual estimates of expenditure for the year.
However, the question should be understood in the context of the pleadings which gave rise to it. On the admitted pleadings, the appellant paid $253,276.98 in operating expenses incurred by the respondent between 1 July 2011 and 31 August 2017. The respondent has not given annual estimates of expenditure to the appellant in respect of any of the years to which the payments related. Assuming that the Lease is a retail shop lease, the legal consequence of those facts is that, up to the point the primary proceedings were commenced, the appellant was never required to make, and the respondent was never entitled to recover, those payments.
The effect of par 12 of the defence is to assert a right of the respondent to now comply with the Estimates Provision and, by doing so, require the appellant to pay those (now paid) operating expenses. That is, the effect of the question, understood in the context of the pleadings, is whether the respondent can now provide estimates of expenditure, years after the expenditure was incurred and actually paid, so as to require the appellant to pay the operating expenses. The respondent presumably contends that it would not then be unjust for it to retain the payments made in respect of operating expenses, even if the appellant paid when not required to do so under the mistaken belief that it was required to make the payments when the payments were made. By accepting that the primary proceedings should be dismissed if the preliminary question is answered in the negative, the appellant apparently accepts that contention.
As noted above, the Estimates Provision suspends rather than extinguishes the requirement for the tenant to pay operating expenses. The suspension operates until at least one month after the respondent has given to the appellant 'annual estimates of expenditure under each item of operating expenses in respect of the year'.
However, it would be an entirely artificial exercise for the respondent, many years after the expenditure has been incurred and when the actual amounts involved are known and have been paid, to give an 'estimate' of expenditure. Further, to construe s 12 of the Act to permit that to occur would defeat the evident purpose of requiring annual estimates of expenditure, which must be to allow the tenant to budget for that expense.
In our view, a statement of expenditure for a year or part of a year in which all expenditure has been incurred and its amount is ascertained would not be an 'annual estimate of expenditure' for the purposes of the Act. The reference to an 'annual estimate of expenditure' is to an assessment of the annual expenditure prospectively anticipated to be incurred in a year but which has not, at least fully, been incurred. It is not a reference to a statement of expenditure in a year which has already been fully incurred and ascertained.
Therefore, contrary to the pleading in par 12 of the Defence, assuming that the Act applies, the respondent cannot neutralise the suspension, by s 12(1)(d)(i), of the requirement for the appellant to pay the $253,276.98 of operating expenses, incurred between 1 July 2011 and 1 August 2017, by now giving an annual estimate of expenditure for those years. That is because statements of expenditure in those years, which has now been fully incurred and ascertained, would not be 'annual estimates of expenditure' within the meaning of the Estimates Provision in s 12(1)(d)(i) of the Act. An answer to the preliminary question to that effect should be given.
The preliminary question and the Statement Provision
As discussed above, an operating expenses statement can be given to a tenant more than after 3 months after the end of the accounting period to which it relates. If such a statement in accordance with s 12(1a) of the Act is given to the tenant, the suspension of the requirement of the tenant to pay operating expenses which is effected by s 12(1d) of the Act would come to an end.
However, that would not assist the respondent in the present case. Even if the suspension of the requirement of the appellant to pay operating expenses under s 12(1d) of the Act were brought to an end, the suspension effected by the Estimates Provision in s 12(1)(d)(i) of the Act would remain. That is, where the respondent has not, and cannot now, give the appellant annual estimates of expenditure in respect of the relevant years, it cannot neutralise any suspension, by s 12(1)(d)(i), of the requirement for the tenant to pay operating expenses.
A further difficulty for the respondent concerns its capacity to give the appellant an operating expenses statement in accordance with s 12(1a) where there are no annual estimates of expenditure. Unless the statement relates only to the expenses referred to in s 12(1)(c) of the Act, for an operating expenses statement to accord with s 12(1a)(e) it must be accompanied by an auditor's report which:
includes a statement by the auditor as to … whether or not the total amount of estimated operating expenses for that period (as shown in the estimate of operating expenses given to the tenant) exceeded the total actual expenditure by the landlord in respect of those operating expenses during that period.
Such a statement could only be given if there was an estimate of operating expenses given to the appellant. The absence of an estimate means that an operating expenses statement which related to operating expenses other than those specified in s 12(1c) of the Act could not be given in accordance with s 12(1a)(e) of the Act.
There is no evidence or pleading before the court as to the type of expenditure incurred by the respondent which the Lease, subject to the Act, required the appellant to pay. In these circumstances, and where there are and can be no annual estimates of expenditure, an answer to the preliminary question in relation to the Statement Provision would be hypothetical.
Orders
Given its hypothetical nature, it would be inappropriate for this court to answer the preliminary question so far as it relates to the Statement Provision in s 12(1)(d)(ii) of the Act. To do so would involve this court determining the parties' rights by reference to facts which have not been agreed or determined by reference to evidence.[29]
[29] Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 [56].
However, the preliminary question can be answered, to the extent noted above, in relation to the Estimates Provision in s 12(1)(d)(i) of the Act. That question can be answered by reference to the admitted facts on the pleadings and the assumed fact that the Lease is a retail shop lease. As to the assumed fact, there is no departure from the judicial process in determining the rights of the parties by reference to facts which a party has pleaded and will seek to prove depending on how the court determines the rights.[30] Nor is that aspect of the preliminary question answered in a manner which is divorced from any attempt to administer the law.[31] The answer to the question resolves the controversy, raised by the pleadings, as to the existence of a right in the respondent to neutralise any suspension of the requirement for the appellant to pay operating expenses incurred in a past period by now giving the appellant an estimate of annual operating expenses. The existence of that right affects the capacity of the appellant to recover the payments.
[30] See Director of Public Prosecutions (Cth) v JM [2013] HCA 30; (2013) 250 CLR 135 [32] - [34].
[31] In re Judiciary and Navigation Acts (1921) 29 CLR 257, 266.
The answer to the preliminary question against the appellant's interests resolved the whole case, and led to the dismissal of the appellant's claim in the primary proceedings. The partial answer to the preliminary question in favour of the appellant means that the judgment entered for the respondent in the primary proceedings must be set aside. However, as the appellant accepted, that partial success does not necessarily mean that the appellant will ultimately succeed in its claim for restitution of money paid. It will remain necessary for the primary court to determine whether the Lease is actually a retail shop lease and the other defences to the appellant's restitutionary claim pleaded by the respondent. It is therefore appropriate that the matter be remitted to the District Court.
Therefore, in our view, the following orders should be made in the appeal:
(1)The appeal is allowed.
(2)The Judgment given after Decision of Preliminary Issue is set aside, and there is substituted an order answering the question to be tried as a preliminary issue as follows:
Question:If the Act does apply to the Lease, can a landlord comply with the requirements of section 12 of the Act by providing estimates and operating expense statements, which have not been provided to the tenant within the prescribed periods, after those prescribed periods have expired?
Answer:The respondent cannot neutralise any suspension, by s 12(1)(d)(i), of the requirement for the appellant to pay the $253,276.98 of operating expenses, incurred between 1 July 2011 and 1 August 2017, by now giving an annual estimate of expenditure for those years. The question is otherwise inappropriate to answer.
(3)The matter is otherwise remitted to the District Court of Western Australia to be determined according to law.
We would hear from the parties as to the precise form of the orders and any consequential orders such as costs and the disposition of money paid into court as security for costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ZMM
Associate to the Honourable Justice Mitchell28 APRIL 2020
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