TXU Electricity Ltd v Commonwealth Custodial Services Ltd

[2003] VSC 88

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 2012 of 2003
F5520

TXU ELECTRICITY LIMITED (ACN 064 651 118)	Plaintiff
v
COMMONWEALTH CUSTODIAL SERVICES LIMITED (ACN 000 485 487)	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	14 and 21 March 2003
DATE OF JUDGMENT:	11 April 2003
CASE MAY BE CITED AS:	TXU Electricity Ltd v Commonwealth Custodial Service Ltd
MEDIUM NEUTRAL CITATION:	[2003] VSC 88

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Landlord and Tenant – rent review clause – expert valuer to determine market rental – whether court should make declaration as to methodology of valuation.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P.J. Bick QC with Mr A. Hanak	Baker & McKenzie
For the Defendant	Mr R.L. Berglund QC with Ms My Anh Tran	Freehills

HIS HONOUR:

1. By lease entered into on or about 1 December 2000, the defendant, Commonwealth Custodial Services Ltd, as Landlord, granted to the plaintiff, TXU Electricity Ltd, as Tenant, a term of 10 years over premises being part of the building situate at and known as 385 Bourke Street, Melbourne.  The leased premises comprise an area of 6,109 m² being levels 31, 32, 33, 36 (part) and 41 of the building. The lease provided for a review of rental on 1 December in each of the years 2002, 2004, 2006 and 2008. This proceeding brought pursuant to s. 137 of the Property Law Act 1958 concerns the meaning and implementation of the rent review provision in the lease.

1. By a further lease dated 20 December 2001 the Landlord granted to the Tenant a term expiring on 30 November 2010 over level 38 of the building.  By variation of this further lease the Landlord as from 1 August 2002 extended the premises the subject of the further lease to include level 35 of the building.  The terms of this further lease and variation with respect to rent review are identical to those in the lease but, otherwise, I am not concerned with the further lease. 

1. The procedures for rent revision are found in the first schedule to the lease.  Broadly speaking, the Landlord is to specify the new rental which it proposes and, in default of agreement, a valuer acting as an expert is to determine the market rental of the premises.  The relevant provisions of the schedule are the following: 

“A4.    Valuer to Settle Dispute if no agreement

If there is no agreement between the Landlord and the Tenant within fifteen (15) Business Days of the Landlord’s notice under clause A1 as to the applicable rent for the relevant period then the market rent must be decided by a Valuer appointed by agreement between the parties or failing agreement by a Valuer appointed by the President at the request of either or both parties.

A5.    Manner of Determination of Rent

Any Valuer appointed under clause A4 must determine the current market rent of the Premises at the relevant Market Review Date, and in making the determination the Valuer must take no account of any increase in the value of the Premises as a result of:

(a)any goodwill attributable to the Premises by reason of the trade business or activity carried on by the Tenant;  or

(b)fixtures, fittings and internal partitions installed by the Tenant in the Premises,

but must have regard to current annual rents for similar premises.

The Valuer must act as an expert, not an arbitrator.

A7.    Cost of Valuer

The costs of determination of the Rent by any Valuer must be borne by both the Landlord and the Tenant in equal proportions.

A8.    Submissions

The Landlord and the Tenant may give written submissions to any Valuer appointed in relation to any matters which the Landlord or the Tenant (as the case may be) believes are relevant to the determination of the Rent.”

1. In August 2002, the Landlord specified a new rental in the sum of $2,226,855 per annum exclusive of GST for the period of two years commencing December 2002.  The Tenant did not agree with this and, in February 2003, a qualified valuer, Mr Les Brown, was appointed by the President of the Victorian Division of the Australian Property Institute as the valuer under the lease.  So much is not controversial. 

1. The dispute which the Tenant would have me resolve is concerned with the methodology to be adopted by the valuer in arriving at the market rental of the premises.  The Landlord has suggested to the valuer that he might approach this task by valuing the premises on a “floor by floor” basis and then aggregating the values, making an appropriate adjustment for the fact that premises are let as a whole.  The Tenant rejects this, emphasising that the task of the valuer is to value the whole premises.  The Tenant, therefore, seeks a declaration in the following terms:

“The Court Declares That:

1.The valuer appointed to determine the current market rent of the premises under clause A4 of the First Schedule of the lease referred to in exhibit CM1 to the Affidavit of Culver Montgomery sworn on 19 February 2003:

(a)is not permitted to determine the current market rent of the premises by determining the rent for each floor leased by the plaintiff on the basis that the said floor is a separate premises;  and

(b)is required to determine the current market rent of the premises by determining the rent for the total of all the floors leased by the plaintiff pursuant to the lease as one leased premises.”

1. When the matter came on before me for directions on 28 February 2003, counsel for the Landlord indicated that they wished to apply on summons for summary judgment or for a stay.  It was said that, where the parties had by agreement entrusted a question such as this to a valuer, the Court would not and ought not interfere.  Pursuant to my direction, this application was brought by summons filed on 7 March 2003 returnable before me on 14 March.  Having heard argument on that day it seemed to me that the issue might be finally resolved without very much more to be said and that the proper course was to dispose of the whole proceeding after giving the parties the opportunity to file further material and to present further submissions if they were so minded.  And so the summons was adjourned to 21 March on which date the originating motion was fixed for trial and heard. 

1. Although much was said and written by counsel about the point at issue, it really comes down to this:  the valuer must discharge the functions entrusted to him by the parties under the rent review schedule, cl. A5, that is, he must determine the current market rental of the premises at the relevant date.  In doing this, he is to take no account of the two specified matters but he must have regard to rents for similar premises.  Provided he performs this task, neither party can complain.  He is given no other direction.  It must be taken that, since he is a qualified valuer appointed to carry out the task, he is competent to do so and familiar with the methodology or methodologies accepted by valuers for the purpose and those which are not.  The subject matter of his determination is the current market rental of the premises.  The premises is defined in the reference schedule to the lease as those parts of the building identified by the floor description and attached plans.  He will therefore arrive at a single figure representing the market rental of those premises.  I do not understand there to be any controversy about all of this. 

1. Clause A8 contemplates that the parties will make submissions to the valuer on matters which they consider relevant to his task.  These may include submissions as to the methodology which he should adopt.  It may be that he will be pressed with the sort of submissions which were put to me as to the propriety of a “floor by floor” valuation.  As an expert he is well able to evaluate these submissions and to accept and reject so much of them as seems appropriate.  Providing he bears in mind his mandate under cl. A5 and conforms with it, this is what he is entitled to do.  In short, it is not the role of the Court to answer questions directed to telling the valuer how he should go about the task which has been entrusted to him as an expert.  I therefore express no view as to the correctness of the declarations since it seems to me that they are matters properly within the decision of an expert valuer. 

1. The application for declaratory relief will therefore be refused with costs including reserved costs and the costs of the defendant’s summons.

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