Unsworth v Debsan Pty Ltd

[2014] WASC 46

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   UNSWORTH -v- DEBSAN PTY LTD [2014] WASC 46

CORAM:   LE MIERE J

HEARD:   20 MAY 2013

DELIVERED          :   25 FEBRUARY 2014

FILE NO/S:   GDA 18 of 2012

BETWEEN:   JILLIAN UNSWORTH

First Appellant

ANDREW DUAN HUI LOI
Second Appellant

AND

DEBSAN PTY LTD
Respondent

ON APPEAL FROM:

Jurisdiction              :  STATE ADMINISTRATIVE TRIBUNAL OF WESTERN AUSTRALIA

Coram  :MEMBER N OWEN-CONWAY

Citation  :DEBSAN PTY LTD and UNSWORTH [2012] WASAT 216

File No  :CC 1761 of 2011

Catchwords:

Appeal - Commercial Tenancy (Retail Shops) Agreement Act 1985 (WA) - Lease conferred right to occupy residential accommodation 'rent free' on original lessee only - Personal licence to occupy residential accommodation - Non-transferable - Deed of assignment of lease did not assign right to occupy the residential accommodation - No statutory right to assign the right to occupy the units

Legislation:

Commercial Tenancy (Retail Shops) Agreement Act 1985 (WA), s 3, s 10, s 11(5)(b)

Result:

Dismissed

Category:    B

Representation:

Counsel:

First Appellant              :     Mr M F Holler

Second Appellant          :     Mr M F Holler

Respondent:     Mr E M Heenan

Solicitors:

First Appellant              :     AustAsia Legal Pty Ltd

Second Appellant          :     AustAsia Legal Pty Ltd

Respondent:     Lawfield Legal Practice

Case(s) referred to in judgment(s):

AIB Group (UK) Ltd v Martin [2002] 1 WLR 94

City of Rockingham v PMR Quarries Pty Ltd [2001] WASCA 317

Lewis v Bell (1985) 1 NSWLR 731

Radaich v Smith (1959) 101 CLR 209

1. LE MIERE J:  Ms Unsworth was the original lessee of a retail shop owned by Debsan Pty Ltd in Derby, from which she carried on business as a sole trader under the name 'Boab Pharmacy & Photographics'.  The lease instrument (the Lease) entitled Ms Unsworth to occupy rent free two residential units at the rear of the shop for the term of the lease and any extensions of it, provided that only the lessee and not any assignee of the lessee shall be entitled to occupy the units.  Ms Unsworth sold an interest in the business to Mr Loi and with the consent of Debsan assigned the lease of the shop to herself jointly with Mr Loi.

2. Upon a review of the rent payable for the lease of the shop under the terms of the Lease a dispute arose between the parties as to whether Ms Unsworth's entitlement to occupy the residential units 'rent free' was a relevant factor in assessing the market rental value for the shop.  The State Administrative Tribunal granted Debsan leave to refer to the Tribunal for determination the question of the rent payable on review pursuant to s 11(5)(b) of the Commercial Tenancy (Retail Shops) Agreement Act 1985 (WA) (the Commercial Tenancy Act).  The Tribunal concluded that, as a matter of construction of the terms of the Lease, Ms Unsworth's entitlement to occupy the residential units 'rent free', or at all, came to an end upon the execution of the assignment of the lease of the shop by her to herself jointly with Mr Loi.  Further, the Tribunal concluded that that right came to an end at the time Ms Unsworth ceased as the sole trader of the pharmacy business.  As the right had come to an end, it was irrelevant to the determination of the market rental value of the shop.  The Tribunal concluded that the market rent for the shop at the date of the review was $60,960 plus GST.

3. Ms Unsworth and Mr Loi applied for leave to appeal against the decision of the Tribunal.  On 27 December 2012 McKechnie J granted the appellant's leave to appeal on the grounds specified in the notice of appeal.

Grounds of appeal

1. The principal order of the Tribunal which the appellants, Ms Unsworth and Mr Loi, appeal against is:

   The Tribunal declares that [Ms Unsworth and Mr Loi] do not have a right to occupy the residential units … on a 'rent free' basis, or at all, following the execution of the Assignment of the Lease on or about 22 June 2009.

2. The grounds of appeal are that the Tribunal erred in law in:

   1.Holding at reasons [35] that the right of occupancy of the residential units behind the pharmacy in Derby conferred by item 16 of the Schedule to the Deed of Lease of the pharmacy was not a transferable right (and should have held it was) and was lost on the Assignment of Lease agreed to by the Lessor from the original Lessee to herself and her incoming business partner and should have held that the right of occupancy was transferable with the agreement of the Lessor;

   2.In construing at reasons [41] the tripartite Deed of Assignment of Lease between the original Lessee as Assignor and herself and incoming business partner jointly as Assignee and the Lessor as not being an agreement by the Lessor to the assignment or transfer of the right to occupy the residential units.  The Tribunal should have held that, properly construed, the Deed of Assignment of Lease was an agreement by the Lessor to the assignment or transfer of the right to occupy the units from the original Lessee to herself and her incoming business partner in the pharmacy in Derby; and

   3.Failing to apply the statutory right of assignment under s 10(1) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 and the definition in s 3 thereof of 'lease' as including a licence or agreement for the occupation of premises.

Cross-appeal

1. The second order made by the Tribunal is:

   The rent payable by [Ms Unsworth and Mr Loi] to [Debsan] pursuant to the Deed of Lease, upon review as at 1 August 2011 is the sum of $60,960, plus GST, per annum.

2. If the appellant's appeal succeeds, then Debsan applies for leave to cross‑appeal on the ground that:

   The Tribunal erred in law at reasons [43] ‑ [44] in construing the provisions of item 16 of the Deed of Lease as prohibiting a valuer performing a valuation pursuant to items 7.5 and 7.6 of the Schedule to the Deed of Lease from taking into account the value of the right to occupy the two residential units at the rear of the premises.

The Lease

1. Before considering the grounds of appeal it is necessary to outline the relevant terms of the Lease.  The Lessor is Debsan.  The Lessee is Ms Unsworth.  The leasing clause, cl 2, relevantly provides that:

   The Lessor HEREBY LEASES to the Lessee who hereby takes on lease from the Lessor all the Leased Premises … TO BE HELD by the Lessee at the rental and for the Term and on and subject to the covenants conditions and stipulations contained herein.

   The interpretation clause, cl 1, provides that unless inconsistent with the context or subject matter:

   'Lessee' means and includes the Lessee and in the case of a natural person his or her personal representatives and permitted assigns and in the case of a body corporate its successors and permitted assigns.

   'Leased Premises' means all those premises more particularly described in Item 2 of the Schedule hereto.

   The premises described in Item 2 is the shop and does not include the residential units.  Clause 4 and Items 6 and 7 of the Schedule deal with rent and rent review.  It is not necessary to say anything more about those provisions.

2. Clause 5.3 deals with use of the Leased Premises.  Clause 5.3.4 provides that the Lessee shall use the Leased Premises only for the Business specified in Item 10 of the Schedule.  The business described in Item 10 is the business of retail pharmacy and photographics.

3. Clause 5.4 deals with assignment or sublease.  By cl 5.4.1 the Lessee agreed that:

   The Lessee shall not without the prior written consent of the Lessor assign, sub‑let or part with possession or occupation of the Leased Premises or any part thereof or this Lease or any estate or interest therein and it is HEREBY AGREED that the provisions of section 80 and section 82 of the Property Law Act shall not apply to this Lease and are expressly excluded but in the event of the Lessee wishing to assign or sub‑let the whole of the Leased Premises the Lessor shall not unreasonably withhold its consent to such assignment or subletting if: …

   Five conditions for the Lessor's consent are then set out.

4. By cl 7.6 of the Lease it was agreed that the special provisions specified in Item 16 of the Schedule shall form part of the Lease and shall be observed and complied with by the party therein set forth to do so.  The special provisions in Item 16 deal with the Lessee's right to occupy the residential units.  Item 16 is:

   The Lessor agrees that the Lessee shall be entitled to occupy rent free the two units (the 'units') which are demarcated on the Plan annexed hereto and marked 'B' for the term of the Lease and any extensions thereof provided that:

   16.1only the Lessee and not any Assignee of the Lessee shall be entitled to occupy the units.  The Lessee shall nonetheless be obliged at its own cost to carry out any repairs and maintenance to the units during the term of this lease or any extensions thereof.

   16.2the Lessee shall immediately vacate the units in the event that the Lessor has terminated this lease in respect of the business premises leased to the Lessee herein.

   16.3such occupation of the units shall be upon and subject to the relevant Residential Tenancies Act or any other applicable legislation from time to time.

   …

Tribunal reasons

1. The Tribunal held that the terms of Item 16 of the Schedule to the Lease do not purport to give Ms Unsworth a legal right of exclusive possession to the units and render the right conferred on Ms Unsworth in respect of the units incapable of transfer or assignment.  The right conferred upon Ms Unsworth by Item 16 was held to be a personal right of occupancy and not a leasehold estate or interest in the units.  The Tribunal held that the right to occupy the units is granted only to the Lessee, that is the original Lessee Ms Unsworth, and not any assignee, whether a 'permitted' assignee under cl 5.4 or otherwise.  The Tribunal held that the right to occupy the units was conferred on Ms Unsworth whilst she traded as the 'Boab Pharmacy & Photographics' business and did not extend to her in her capacity as an assignee or joint and several assignee of the lease of the Leased Premises or as a joint trader under the name 'Boab Pharmacy & Photographics'.  The Tribunal concluded that the right to occupy the units rent free, or at all, conferred by Item 16 expired upon the execution of the instrument of assignment (the Assignment of Lease).

The parties' contentions

1. The appellants say that the right under Item 16 to occupy the units is a right of exclusive possession, is a leasehold interest and a right that is transferable with the agreement of the Lessor. The appellants further say that the Assignment of Lease by which Ms Unsworth assigned the Leased Premises and the benefit and burden of the terms and conditions comprised in the Lease transferred the right of Ms Unsworth to occupy the units to herself and Mr Loi. The appellants further say that the Commercial Tenancy Act s 10(1) confers on Ms Unsworth a statutory right to assign the right to occupy the units.

2. Debsan says that the Tribunal was right to find that the appellants do not have a right to occupy the units because:

   (a)the right under Item 16 to occupy the units is a personal right which was granted to Ms Unsworth alone;

   (b)under the terms of the Lease, Ms Unsworth was not permitted to assign the right to occupy the units; and

   (c)the Assignment of Lease did not assign Ms Unsworth's right to occupy the units to the appellants.

Transferability of right to occupy units

1. Whether or not the Tribunal was right to hold that the Lease conferred on Ms Unsworth a personal right to occupy the units that is not transferable is a question of construction of the Lease.  The starting point is the provision of the Lease which confers on Ms Unsworth the right to occupy the units, that is the special provisions in Item 16 which cl 7.6 makes part of the Lease.

2. The introductory paragraph of Item 16 provides that the Lessee shall be entitled to occupy the units for the term of the Lease and any extension, provided that the requirements of the following enumerated paragraphs are met.  Paragraph 16.1 of Item 16 provides that '[o]nly the Lessee and not any Assignee of the Lessee shall be entitled to occupy the units'.  The natural and ordinary meaning of Item 16 is that the Lessee cannot assign the right to occupy the units.  The appellants say that that meaning is displaced by the definition of 'Lessee' in the definition clause.  Lessee is defined to mean and include 'permitted assigns'.  'Permitted assigns' is not a defined term but would appear to be a reference to assignees under assignments to which the Lessor has consented under cl 5.4.1 of the Lease. 

3. Clause 5.4.1 provides that, amongst other things, the Lessee shall not, without the prior written consent of the Lessor, assign the Leased Premises or any part thereof or the Lease, but in the event of the Lessee wishing to assign the whole of the Leased Premises the Lessor shall not unreasonably withhold its consent.  The clause distinguishes between assignment of the Lease and assignment of the Leased Premises.  As I have said, the units are not part of the Leased Premises.

4. The appellants say that [16.1] of Item 16, on its proper construction, means that the Lessee's 'permitted assigns' may occupy the units but not 'unpermitted assigns'.  I do not accept the appellants' construction.  Clause 1 provides that the definitions in cl 1.1 shall bear the meanings there set out 'unless inconsistent with the context or subject matter'.  The definition of Lessee to include 'permitted assigns' is inconsistent with the context and subject matter of [16.1] of Item 16 because [16.1] expressly states that any Assignee of the Lessee shall not be entitled to occupy the units.  The definition of 'Lessee' in cl 1 (Interpretation and Definitions) is a general provision which is inconsistent with the specific provision in [16.1].  One of the canons of construction discussed by Lewison and Hughes at [7.05] of The Interpretation of Contracts in Australia is that where a contract contains general provisions and specific provisions, the specific provisions will be given greater weight than the general provisions where the facts to which the contract is to be applied fall within the scope of the specific provisions.  The authors observe that that proposition is a loose rendering of the maxim 'generalia specialibus non derogant'.  The subject matter of the Lease is the lease by the Lessor to the Lessee of the Leased Premises, which does not include the units.  Item 16 is a special provision with a different subject matter, the right of the Lessee to occupy the units.  Paragraph 16.1 specifically deals with the right of the Lessee to assign the right to occupy the units and, as I have said, in its ordinary and natural meaning provides that the Lessee may not do so.

5. Item 16 must, of course, be considered in the context of the whole Lease.  Clause 1 is a definition clause.  In AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 Lord Millett said:

   The fact that the question concerns the application of an interpretation clause is also significant. The purpose of such a clause is twofold. It shortens the drafting and avoids unnecessary repetitions; and it enables the form to be used in a variety of different situations. It is not the purpose of such a clause to enlarge the parties' rights and obligations beyond those provided by the operative provisions by imposing, for example, a secondary liability as surety in addition to a primary liability as principal debtor. The application of such a clause is not merely a question of construction. If it is capable of being applied to the operative provisions in more than one way, it should be applied in a way which serves its purpose rather than in a way which extends the parties' obligations beyond those contemplated by the operative provisions. Of course, an interpretation clause may have this effect; but if so it should do so plainly and unambiguously [8].

   Paragraph 16.1 is the operative provision in relation to the right of the Lessee to occupy the units.  It expressly distinguishes between 'Lessee' and 'any Assignee of the Lessee' by conferring on the former and not the latter the right to occupy the units.  To apply the definition of 'Lessee' in cl 1 to [16.1] would defeat the apparent purpose of the paragraph – to confer the right to occupy the units on the Lessee and not any assignee of the Lessee.  That that is the purpose of [16.1] is also apparent from the second sentence of [16.1] which provides that the Lessee shall 'nonetheless' be obliged at her own cost to carry out any repairs and maintenance to the units during the term of the lease or any extensions thereof.  The word 'nonetheless' emphasises that the Lessee is obliged to carry out repairs and maintenance at her own cost, in spite of the fact that she has only a contractual right to occupy the units herself and does not have the right to assign the right to occupy the units which is a usual incident of a proprietary right.  If 'Lessee' in the phrase 'Assignee of Lessee' in Item 16 is to be given the meaning of 'Lessee' in the definition clause that would have the effect of conferring a substantive right on Ms Unsworth, and a corresponding liability on Debsan.  A definition clause should only be applied to have that effect where that intention appears unambiguously from the Lease.  In this case it does not.

6. The Tribunal was right to find that the right to occupy the units conferred on the Lessee by Item 16 was not a transferable right and was not capable of being assigned to Ms Unsworth and Mr Loi jointly.  Ground 1 of the appeal is not made out.

The Assignment of Lease

1. The appellants submit that, properly construed, the Assignment of Lease permits Ms Unsworth and Mr Loi to occupy the units.  They submit that the Assignment of Lease is an agreement by the Lessor to the assignment or transfer of the right to occupy the units from the original lessee to Ms Unsworth and Mr Loi.

2. Counsel for Debsan submitted that the Assignment of Lease did not assign the right to occupy the units to Mr Loi, but rather was an assignment only of Ms Unsworth's proprietary leasehold estate in the Leased Premises.  Before considering the terms of the Assignment of Lease it is convenient to consider the nature of the right to occupy the units conferred on the Lessee by the Deed of Lease.

3. A lease gives its holder proprietary rights in the land, rather than simply personal rights pursuant to a contract.  This is the basic distinction between a lease and a licence.  A leasehold interest, being an interest in land, is of its nature transferable.  If the right granted is, of its nature, not transferable or is otherwise personal to the grantee, then this suggests that it is not a leasehold interest:  City of Rockingham v PMR Quarries Pty Ltd [2001] WASCA 317 [39] (Hasluck J). In distinguishing between a lease and a licence, a crucial test is whether the occupier has exclusive possession of the land or not. If the occupier was let into exclusive possession, he was said to be a tenant; whereas, if he had not exclusive possession, he was only a licensee:  Radaich v Smith (1959) 101 CLR 209, 218 (Taylor J).

4. In Lewis v Bell (1985) 1 NSWLR 731 the Court of Appeal in New South Wales applied the reasoning in Radaich and held that the test for determining whether the relationship created by a document is one of lessor and lessee is whether the grantee was given the right to exclusive possession of the premises. When construing such a document, regard should be had to the terms of the grant in context, the nature of the rights granted and the intention of the parties. Mahoney JA said (at 735) that if what is granted is not in terms exclusive possession then the court must, by the process of construction, determine whether what is granted is mere occupation or use, or is possession in the relevant sense. The nature of the rights which have been granted is important in determining whether what has been granted is the right to exclusive possession. Mahoney JA said (at 735) that the court may infer that the rights granted do not grant exclusive possession because the rights granted were inconsistent with the right to exclusive possession. Thus, a leasehold interest is an interest in land and, as such, is of its nature transferable. If the right granted is, of its nature, not transferable or is otherwise personal to the grantee then it will not be a leasehold interest. Mahoney JA went on to say (at 737) that once the nature of the rights granted is determined, the classification of the transaction as lease or licence will depend upon whether the rights are or are not those of exclusive possession. But it is for the parties to determine what rights they will grant and accordingly what is the nature of their transaction. Mahoney JA explained:

   The parties (or the party who effectively determines the form of the transaction) may desire, eg, that the transaction does not produce the incidents of a lease and they may, to achieve that result, grant or reserve rights which are inconsistent with the grant of exclusive possession.  For example, in circumstances in which it would ordinarily be expected that the rights granted would carry, by implication, the right to exclusive possession, the transaction may reserve to the grantor the right to possession or to do such things in relation to the premises as are inconsistent with the grantee having exclusive possession.  And that may be done in order that the transaction be one of licence rather than of lease.  If, upon its proper construction, that be the transaction into which the parties have entered, effect should, in my opinion, be given to it according to its terms (737).

1. As I have stated earlier in these reasons, the right to occupy the units granted to the Lessee by the Lease is not transferable.  The right is a contractual right personal to the Lessee.  The Lease did not grant to the Lessee any proprietary interest in the units.

2. The Lease confers on the Lessee a leasehold interest in the Leased Premises.  The leasing clause, cl 2, expressly leases to the Lessee the Leased Premises.  Clause 7.6 and Item 16 do not lease the units to the Lessee nor create any leasehold interest.  Clause 7.6 provides that the special provisions in Item 16 shall form part of the Lease and be observed and complied with by, relevantly, the Lessor.  Item 16 provides that the Lessor agrees that the Lessee shall be entitled to occupy the units.  Paragraph 16.1 provides that only the Lessee and not any Assignee of the Lessee shall be entitled to occupy the units, that is, the Lessee cannot transfer the right to occupy the units.  Paragraph 16.2 provides that the Lessee shall immediately vacate the units in the event that the Lessor has terminated the Lease in respect of the business premises, that is, the shop.  The effect of these provisions is that the Lease does not grant to the Lessee a leasehold interest in the units.  The Lessee is given a licence or right to occupy.  It is a personal right and cannot be transferred.

3. Clause 1 of the Assignment of Lease provides that the Assignor, Ms Unsworth, assigns to the Assignee, Ms Unsworth and Mr Loi, her estate and interest in the Lease and the Leased Premises and the benefit and burden of the terms and conditions of the Lease subject to, amongst other things, the performance and observance by the Assignee of each and every covenant, condition and stipulation in the Lease.  The assignment is to the Assignee to hold the Leased Premises for the unexpired residue of the Term.  The Assignee took what was assigned subject to the terms of the Lease.

4. Clause 2.3 provides that the Assignor covenants with the Assignee that the Assignor has power to assign the Leased Premises unto the Assignee.  The Leased Premises is the shop and does not include the units.  Clause 2.4 provides that the Assignor covenants with the Assignee that the Leased Premises may be entered into and held and the profits thereof received by the Assignee without any lawful interruption by the Assignor.  The covenant did not extend to the units.  By cl 6 the Lessor consents to the assignment of the balance of the Term together with the benefit of each and every covenant contained in the Lease including the benefit of any option of renewal.

5. When the Assignment of Lease is considered as a whole in the context of the Lease, what is assigned by the Assignment of Lease is the leasehold interest of the Assignor in the Leased Premises.  The Assignment of Lease does not purport to assign to the Assignee the Assignor's personal, contractual right to occupy the units.  Ground 2 of the appeal is not made out.

Statutory right to assign

1. The appellants say that there is a statutory right to assign the right to occupy the units which arises from Commercial Tenancy Act s 10(1) read together with the definition of 'lease' in s 3 of that Act. Section 10(1) provides:

   Notwithstanding any other written law, a retail shop lease shall be taken to grant to the tenant a right to assign the lease, subject only to a right of the landlord to withhold consent to an assignment on reasonable grounds.

   The appellants say that the Lease is a retail shop lease as defined by s 3 of the Act.  Section 3 defines retail shop lease, subject to exceptions not relevant, to mean a lease that provides for the occupation of a retail shop.  Lease is defined relevantly by s 3 to mean 'any lease, licence, or agreement, whether in writing or not, that provides for the occupation of premises …'

2. Insofar as the Lease provides for the occupation of the units it may be a lease for the purposes of the Commercial Tenancy Act but it is not a retail shop lease.  That is because the units are not a retail shop.  The appellants seek to overcome that situation by submitting that the right to occupy the units is part of the Lease, the Lease is a retail shop lease and therefore the right to occupy the units is part of a retail shop lease and s 10 of the Act applies to the right to occupy the units.

3. In my opinion the Commercial Tenancy Act s 10(1) does not confer on the Lessee under the Lease a right to assign the right to occupy the units. The Lease was a single instrument which created a lease of the shop and a right to occupy the units. The Commercial Tenancy Act s 3 defines 'retail shop' to mean 'any premises situated in a retail shopping centre that are used wholly or predominately for the carrying on of a business', or 'any premises not situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a retail business'. A 'retail shop lease' is defined to mean 'a lease that provides for the occupation of a retail shop', that is a lease that provides for the occupation of any premises that are used wholly or predominantly for the carrying on of a retail business, or in the case of premises situated in a retail shopping centre, premises that are used wholly or predominantly for the carrying of the business. A retail shop lease does not include a lease of premises other than premises used wholly or predominantly for the carrying on of a business. The apparent purpose of the Commercial Tenancy Act s 10 is to enable the lessee of premises that are used wholly or predominantly for the carrying on of a business to assign the premises that are used for the carrying on of the business so that the lessee may sell or restructure the business. It is no part of the purpose of Commercial Tenancy Act s 10 to give to a tenant a right to assign a right to occupy residential premises even if the right to occupy those premises is conferred by the same instrument that grants a lease of a retail shop.

4. The 'right to assign the lease' in the Commercial Tenancy Act s 10 is a right to assign the lease, licence or agreement for the occupation of the premises that are used for the carrying on of a business.  The statutory assignment of the lease is an assignment on the terms and conditions, the benefits and burdens, of the lease.  In this case the Lease confers on the Lessee a personal right to occupy the units.  An assignment of the Lease does not transfer the personal right of the Lessee to occupy the units to the assignee.

5. The Commercial Tenancy Act s 10 does not apply to the licence of, or agreement for, the occupation of the units so as to entitle the Assignee under the Assignment of Lease to occupy the units.  Ground 3 of the appeal is not made out.

Cross-appeal

1. The parties expressly agreed that the respondent's cross‑appeal arises only if the appellants' appeal succeeds.  I have found that the appellants' appeal should be dismissed.  It is therefore unnecessary to consider the respondent's cross‑appeal.

Conclusion

1. The appeal must be dismissed.