Watermark Restaurant Pty Ltd v Hunters Beach Investments Pty Ltd

[2004] NSWADT 97

CITATION:	Watermark Restaurant Pty Ltd v Hunters Beach Investments Pty Ltd [2004] NSWADT 97
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Watermark Restaurant Pty Ltd RESPONDENT Hunters Beach Investments Pty Ltd
FILE NUMBER:	035083
HEARING DATES:	21/11/2003
SUBMISSIONS CLOSED:	11/28/2003
DATE OF DECISION:	05/24/2004
BEFORE:	Hole M - Judicial Member
APPLICATION:	Claim for declaration of rights, obligations and liabilities under a lease
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Currie v Glen [1935-36] 54 CLR 453 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Huddart Parker Ltd v Ship “Mill Hill” [1950] 81 CLR 502 at 508-9 Sportsvision Australia Pty Ltd v Tallglen Pty Ltd [1998] 44 NSWLR 103 at 114-6
REPRESENTATION:	APPLICANT M Southwick, barrister RESPONDENT G Parker
ORDERS:	1. The Counter Signatory cannot refuse to sign cheques in respect of the 3% fee referred to in clause 12.7A provided that the amount is no more than 3% of the Gross Income payable each to Wilson and Leung; 2. The turnover remuneration referred to in clause 12.7A does not fall within the categories referred to in clause 12.4A(4)(a)-(d); 3. 3% of Gross Income is a consulting fee not tied to Wilson and Leung being present. The only requirement which is related to presence is where a replacement is required – which it tied to equal standing and ability; 4. Wilson and Leung to each receive a consulting fee of 3% of Gross Income. The replacement(s) to be paid from this amount. This is an accounting process which may be made either directly by the company or by Wilson and Leung. Wilson and Leung may direct the company to deduct the replacement(s) pay from the 3%, pay the replacement(s) and account to Wilson and Leung for the balance.

Introduction

1 The applicant corporation is the lessee of the Watermark Restaurant at Balmoral. The applicant leases the premises pursuant to a sub-lease from Hunters Beach Investments Pty Ltd, the respondent.

2 The dispute between the applicant and the respondent concerns the terms on which the respondent’s directors Mark Wilson and Ken Leung are entitled to receive a consulting fee equivalent to 3% of gross income in respect of the demised premises each week and the interpretation of various clauses of the sub-lease particularly clause 12.7A and 12.4A.

3 Clause 12.7A states:

“The Lessor agrees that Wilson and Leung shall each receive a consulting fee equivalent to 3% of Gross Income in respect of the Demised Premises each week. Wilson and Leung will not be entitled to any other remuneration or benefit in respect of the Restaurant on the Demised Premises but does not limit any rights that they may have as shareholders of the Sub-Lessee or as beneficiaries of any trust declared by the Sub-Lessees. If after one (1) year from the opening of the restaurant to the public either Wilson or Leung is not present for 40 hours per week then a suitable replacement or replacements shall be found but shall be paid from the 3% payable to each of Wilson and Leung. Any replacements must be of equal standing and ability and approved in advance by the Lessor such approval shall not be unreasonably withheld.”

4 Relevant sub-clauses of clause 12.4A (which have been reproduced accurately from the Lease) state:

“12.4A(1)(v)(a)(2) Any remuneration package for Wilson and Leung shall only be within the definition of Expenses to the extent that it is an amount no greater than the amount permitted pursuant to clause 12.7A of this Lease.

12.4A(4) The Lessor agrees that it shall procure that the Counter-Signatory does not interfere in the smooth running of the restaurant (whether by refusing to counter-sign cheques or otherwise) unless such interference is reasonable and unavoidable. For the avoidance of doubt, the Lessor acknowledges and agrees that it will only be reasonable for the Counter-Signatory to refuse to counter-sign a cheque where:

(a) The expense for which the cheque is required is an expense not in the ordinary course of business; or

(b) The expense for which the cheque is required is higher than is reasonable for the goods or services that are to be acquired. For the avoidance of doubt the expense will be higher than will be reasonable where the same quality goods or services could be obtained on the same terms at a lower price.

(c) The goods or services in question have not been supplied.

(d) The expenses does not prima facie fall with clause 12.4(1)(v)(a).

5 The applicant sought:

2. A declaration that the Counter Signatory under the sublease is not entitled to refuse to sign cheques other than cheques that fall within categories defined in clause 12.4A(4)(a)–(d).

3. A declaration that the turnover remuneration referred to in clause 12.7A does not fall within those categories and therefore the Counter Signatory is not entitled to refuse to countersign cheques in respect of turnover remuneration.

3A. A declaration that the proper construction of clause 12.7A is that the turnover remuneration is payable unless both Wilson and Leung are not present for forty (40) hours per week at the restaurant.

3B. A declaration that clause 12.8 of the sublease should be amended by deleting the words “granted pursuant to the option contained in clause 12.9” where it appears in the third line of that clause.

3C. A declaration that clause 12.7A on its proper construction means that the turnover remuneration remains payable to Wilson and Leung (or as they direct) and any replacement for Wilson and Leung is paid by Wilson and Leung respectively, from the turnover remuneration they receive.

The other orders originally sought were withdrawn. No 3B has been agreed and was not subject of the proceedings.

6 The applicant submitted that: -

• in view of clause 12.4A(1)(v)(a)(2) the Counter Signatory has no discretion to refuse to sign the turnover remuneration cheques for Wilson and Leung provided they are no greater than the amount permitted pursuant to clause 12.7A of the sublease

• a declaration should also be made that the payment of turnover remuneration does not require evidence of attendance to be provided by Wilson and Leung.

• in relation to clause 12.7A and the part concerning the absence of Wilson or Leung, the meaning of the clause is that turnover remuneration remains payable to each of Wilson and Leung and any replacement is to be paid from that turnover remuneration.

7 The respondent submitted that:-

• as there is no current dispute before the Tribunal and the relief sought by the applicant is purely declaratory in nature the Tribunal should not intervene at this point. This is because declaratory relief should not be given unless it will quell some actual dispute between the parties or there is otherwise some good reason for granting it;

• the Sub-Lease contains a detailed mechanism for the resolution of disputes about specific items of expenses by a Referee;

• if a concrete dispute were to arise the appropriate course would be to permit it to be determined by a referee in accordance with the mechanism agreed to by the parties;

• if the Tribunal is prepared to entertain the applicant’s submissions then the respondent has made submissions in response.

8 The applicant’s submission that “the Counter Signatory has no discretion to refuse to sign the turnover remuneration cheques for Wilson and Leung provided they are not greater than the amount permitted by clause 12.7A of the Sub-Lease” does not resolve the question of what amount is permitted by clause 12.7A. The respondent submits that it is clear from the terms of clause 12.7A that the entitlement of each of Wilson and Leung to his 3% fee is conditional upon his being present for “40 hours per week”. That is, the entitlement depends upon actual presence in fact. If in fact Wilson or Leung is not present for the required period the Counter Signatory must be entitled NOT to sign a cheque in his favour.

9 The respondent submits that if a replacement person is brought in pursuant to clause 12.7A and the payment to that person is less than the 3% fee, then there is no further payment to Wilson or Leung. The Sub-Lease does not give Wilson and Leung an unqualified right to be paid. The right to payment is created by clause 12.4A(1) and depends upon the outgoing in question being an “Expense”; sub-clause 12.4A(1)(v)(a)(2) then limits payments to Wilson and Leung to the amount specified in clause 12.7A. If a replacement is hired then the payment he or she receives must still satisfy the definition of “Expense” and in the event of dispute that question would be determined by a Referee. It would be contrary to this scheme if the actual “Expense” for the replacement was less than the 3% fee and Wilson or Leung could keep the difference: they would in effect be paid for doing nothing.

Jurisdiction

10 Section 37 of the Administrative Decisions Tribunal Act 1997 provides that the Tribunal may make original decisions provided that the original Act allows decisions to be made in the Tribunal. Section 72 of the Retail Leases Act 1994 sets out the powers of the Tribunal and in this instance section 72(1)(f)(iii) permits the Tribunal to declare rights and liabilities of the parties to a lease. I therefore decline to accept the submissions made by the respondent that the Tribunal should not intervene in this matter. The decision in this matter is one requiring interpretation of the abovementioned clauses of the sub-lease which affect the rights and liabilities of the parties to the lease.

11 The respondent drew attention to the following cases which were considered:-

Huddart Parker Ltd v Ship “Mill Hill” [1950] 81 CLR 502

FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343

Sportsvision Australia Pty Ltd v Tallglen Pty Ltd [1998] 44 NSWLR 103

12 The difficult drafting style adopted in the Deed of Sub-Lease has not assisted in the interpretation of the terms of the Sub-Lease. The deed provides that where certain disputes or differences of opinion arise as to whether “any disbursements” should be included as an expense then that issue shall be referred to a Referee. The Referee to be appointed shall be an accountant with particular experience (clauses 124A(1)(w) and 12.4A(5)). That Referee then determines the matter having regard to (i.a.) 12.4A(v)(1) and (2). The issue to hand is whether the remuneration, referred to in clause 12.7A, is capable of being a disbursement that may require referral pursuant to clause 12.4A(1)(iv).

13 Clause 12.7A describes “a consulting fee equivalent to 3% of Gross Income ….”. This amount is protected by clause 12.4A(1)(v)(a)(2) and is specifically limited to the amount permitted pursuant to clause 12.7A. Thus the Counter-Signatory cannot refuse to sign under the provisions of clause 12.4A(4).

Clause 12.7A

14 Clause 12.7A covers several issues including:

- Agreement that Wilson and Leung shall each receive a consulting fee of 3% of Gross Income each week.

- Wilson and Leung will not be entitled to any other remuneration or benefit, this does not limit any rights they may have as shareholders etc.

- If, after 1 year of opening either Wilson or Leung is not present for 40 hours per week then:-

- a suitable replacement or replacements shall be found,

- the replacement or replacements shall be paid from the 3% payable to each of Wilson and Leung,

- any replacements must be of equal standing and ability (presumably that of Wilson or Leung). The requirement to be of equal standing and ability is directed to ensuring that the replacement(s) have the considerable abilities and skills of Wilson and Leung, as described in evidence, to operate the restaurant, and

- any replacement must be approved in advance by the Lessor (such approval shall not be unreasonably withheld).

15 I expressed a preliminary view on 21 November 2003 as shown in the transcript:

“It’s my preliminary view – and I’m not giving a decision now as I said I wouldn’t until the lease is stamped – that clause 12.7A anticipates that if either Wilson or Leung is not going to be there for 40 hours, then a suitable replacement shall be found, and that has to go through the provisions envisaged for having that person approved in advance by the lessor; that that person is paid from the 3 per cent consulting fee payable to the absent person; and that there is no reduction in the 3 per cent payable pursuant to clause 12.7A. So that if one or the other is to be absent, then there is to be a replacement or replacements and that there must be approval obtained in advance.”

16 The parties have advised the Tribunal that the document has been stamped.

17 With the benefit of the judicial interpretation referred to by the parties’ representatives and my preliminary view I find that clause 12.7A permits Wilson or Leung to be not present for 40 hours a week either separately or at the one time and that each of them may be replaced by more than one person. The replacement(s) to be approved by the Lessor in advance and to be of equal standing and ability. The 3% fee is payable, without deduction, to each of Wilson or Leung except that if a replacement(s) is to be paid then that payment is to be made to the replacement(s) from the 3% fees. There is no provision in the Sub-Lease as to any requirement for confirmation of hours that Wilson and Leung are present, this then becomes a matter of fact and will only become an issue if one or other or both of them are not going to “be present” at some anticipated time. The mechanics of this in any particular circumstance may become unworkable as, for example, in the event that there is a sudden injury to one of them which requires hospitalisation for a period of 5 days of 1 week.

18 Clause 12.7A anticipates that if either Wilson or Leung is not present for 40 hours a week then a suitable replacement shall be found who is approved by the lessor. Apart from the many issues that arise from this clause there are two issues that require consideration for the purposes of this matter:

Firstly - Should the replacement person to be paid from the 3% consulting fee payable to the absent party (Wilson or Leung) and if there is a balance of the 3% remaining should that to be then paid to the absent person (Wilson or Leung).

Secondly - Interpretation of the phrase “… if either Wilson or Leung is not present for 40 hours per week then a suitable replacement or replacements shall be found …”. Does it mean that only one of Wilson or Leung may be replaced at any one time or may Wilson and Leung both be replaced for a coincidental time. I interpret the meaning of “either” to mean “one or other” as per authority cited by the applicant. This has the effect that one or other of Wilson or Leung can be replaced by a suitable replacement(s) if they are to be absent, however they cannot both be absent at the same time. The wording “replacement or replacements” simply envisages the situation where more than one person was needed to replace the one director who is absent. For example where Leung is absent for two weeks and a different replacement is used for each of the weeks he is away.

19 The applicant and respondent made submissions as to the meaning of the words “either …or”. The applicant suggested that a possible reading of the words “…either Wilson or Leung is not present” could be that both Wilson and Leung could be absent at the same time to bring into operation of the provision for replacements. My initial indication was that this interpretation was not to be preferred.

20 The applicant has supplied written submissions in respect of the interpretation of the words “… either … or …” and having considered those submissions I consider that the ordinary prima facie meaning as per Dixon J – “either prima facie means “…. one or other” as referred to in Currie v Glen [1935 – 36] 54 CLR 445 is to be preferred.

21 I find that:

1.The Counter Signatory cannot refuse to sign cheques in respect of the 3% fee referred to in clause 12.7A provided that the amount is no more than 3% of the Gross Income payable each to Wilson and Leung.

2.The turnover remuneration referred to in clause 12.7A does not fall within the categories referred to in clause 12.4A(4)(a)-(d).

3.3% of Gross Income is a consulting fee not tied to Wilson and Leung being present. The only requirement which is related to presence is where a replacement is required – which it tied to equal standing and ability.

4.Wilson and Leung to each receive a consulting fee of 3% of Gross Income. The replacement(s) to be paid from this amount. This is an accounting process which may be made either directly by the company or by Wilson and Leung. Wilson and Leung may direct the company to deduct the replacement(s) pay from the 3%, pay the replacement(s) and account to Wilson and Leung for the balance.