WST Pty Ltd v GRE Pty Ltd - [2012] SASCFC 146

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
WST PTY LTD v GRE PTY LTD & ORS
[2012] SASCFC 146
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Anderson and The Honourable Justice Peek)
21 December 2012
TAXES AND DUTIES - LAND TAX - WHO ARE LIABLE AND IN RESPECT OF WHAT LANDS - LESSEES - VALIDITY AND CONSTRUCTION OF AGREEMENTS AS TO PAYMENT OF TAX
Questions arising under a retail shop lease referred to the Full Court - in 2006, the plaintiff, the lessor, agreed to lease property known as the Buffalo Motor Inn to the first defendant, the lessee - the lease was for a 10 year term with a right of renewal for a further 10 year term - whether the lessee is liable to pay to the lessor land tax assessed against the lessor - whether the lessee is liable to pay the land tax as assessed on the land from time to time from 22 May 2011 and for the remainder of the 10 year term of the lease and any renewal thereof - who should pay the costs of the action.
Held per Gray J (Anderson and Peek JJ concurring): Plaintiff's claim dismissed - the lessee is not liable to pay to the lessor land tax as claimed because, at all relevant times, the lease was and remained a retail shop lease to which the Retail and Commercial Leases Act 1995 (SA) applied - the answer to the second question depends on the amount of rent payable during any particular period and the relevant threshold as fixed by section 4(2)(a) of the Retail and Commercial Leases Act and any regulations thereunder - if, at any time, the annual rent payable exceeds the then applicable threshold, the lessee will be liable to pay land tax as assessed on the land - plaintiff to pay the defendants' costs of the proceedings to be taxed.
Retail and Commercial Leases Act 1995 (SA) s 4, s 5, s 30 and s 81; Retail and Commercial Leases Regulations 2010 (SA) reg 4 and reg 9, referred to.

WST PTY LTD v GRE PTY LTD & ORS
[2012] SASCFC 146
Full Court: Gray, Anderson and Peek JJ
GRAY J.

Questions arising under a retail shop lease have been referred to this Court to be resolved. The principal question is whether the lessee is liable to pay to the lessor land tax assessed against the lessor.
The plaintiff in the proceedings, the lessor, is WST Pty Ltd. The defendants are the lessee, GRE Pty Ltd, and the sole director of the lessee and his wife. WST, at material times, was the registered proprietor of a property at Glenelg known as the Buffalo Motor Inn. Following negotiations, WST agreed to lease the property to GRE and, as a consequence, the parties executed a memorandum of lease dated 18 May 2006. The lease was for a 10 year term with a right of renewal for a further 10 year term.
The annual rent for the property was agreed for the year commencing 21 May 2006 at the amount of $210,000.00. The lease provided for reviews of rent and, as a consequence, the rent for the year commencing 21 May 2007 was $215,000.00, for the year commencing 21 May 2008 was $224,675.04, for the year commencing 21 May 2009 was $229,842.36, for the year commencing 21 May 2010 was $235,818.24, for the year commencing 21 May 2011 was $250,415.39 and for the year commencing 21 May 2012 was $254,922.98.
Clause 2 of the lease included the following:
THE LESSEE HEREBY COVENTANTS AND AGREES WITH THE LESSOR that throughout the continuance of the said term and any extended or renewed term or any period during which the Lessee shall hold over or be or remain a tenant or be in occupation of the demised premises:-
(a)To pay the rent hereby reserved on the days and in the manner hereby stipulated free from any exchange deduction or abatement whatsoever.
(b)To pay all rates and taxes (including State Land Tax on the basis that the demised premises in the only land owned by the Lessor) assessments charges and all other like outgoings of every description whatsoever chargeable to imposed or assessed or payable in respect of the demised premises whether the same be payable by the owner or the occupier thereof and all charges for gas electricity oil telephone and all other like services supplied (either by the Lessor or any other person or authority) to or consumed in or on or in respect of the demised premises. All such rates taxes assessments charges and other outgoings shall be adjusted between the Lessor and the Lessee as at the dates of commencement and expiry or determination (as the case may be) of this Lease and the Lessor’s proportion thereof shall be deemed to be so much of such rate tax assessment and charge or other outgoing that is referrable to any period of time not included in the term of this Lease or any extension or renewal thereof PROVIDED HOWEVER that if this Lease is a “retail shop lease” to which the Retail and Commercial Leases Act 1995 applies the Lessee shall not be obliged to pay to the Lessor the amount of state land tax.
…
It was accepted before this Court by both parties that at the time of entry into the lease, the lease was a retail shop lease to which the Retail and Commercial Leases Act 1995 (SA) applied.
Section 4 of the Retail and Commercial Leases Act 1995 (SA) addresses its application and provides:
(1)This Act applies to a retail shop lease if the premises to which the lease applies consist of a retail shop or a retail shop together with an adjacent dwelling.
(2)     However, this Act does not apply to a retail shop lease if—
(a)     the rent payable under the lease exceeds $250 000 per annum or, if a greater amount is prescribed by regulation, that other amount; or
…
Regulation 4(1) of the Retail and Commercial Leases Regulations 2010 (SA) provides:[1]
For the purposes of section 4(2)(a) of the Act, the amount of $400 000 per annum is prescribed (and, consequently, the Act does not apply to a retail shop lease if the rent payable under the lease exceeds $400 000 per annum).
[1]    This version of regulation 4 of the Retail and Commercial Leases Regulations 2010 (SA) came into force on 4 April 2011.
Section 5 of the Retail and Commercial Leases Act provides for the Act to override the operation of the provisions of a lease and is in the following terms:
(1) This Act operates despite the provisions of a lease.
(2)A provision of a lease or a collateral agreement is void to the extent that the provision is inconsistent with this Act.
Section 30 is also of particular relevance as land tax is specifically addressed:
(1)A retail shop lease cannot require the lessee to pay land tax or to reimburse the lessor for the payment of land tax.
(2)However, the lessor's liability for land tax in respect of the premises may be taken into account in the assessment of rent.
(3)This section does not apply to a retail shop lease entered into before a date fixed by regulation for the purposes of this section.
Regulation 9 of the Retail and Commercial Leases Regulations fixes the date for the purposes of section 30(3) as 15 November 1990.
As a consequence of the foregoing, it is to be understood that the annual rent payable under the lease between the parties was at all times under the threshold fixed by section 4(2)(a) of the Act, recognising that that threshold was increased from $250,000.00 to $400,000.00 with effect from 4 April 2011. In particular, the annual rent did not exceed $250,000.00 until the year commencing 21 May 2011 and at the date of the hearing of this proceeding, the annual rent was $254,922.98. The rent has not yet exceeded $400,000.00.
Both parties agreed that the Retail and Commercial Leases Act should be characterised as consumer protection legislation directed to protecting the position of lessees of retail shop premises, paying rents below the specified threshold.
The Retail and Commercial Leases Act amended the Landlord and Tenant Act 1936 (SA) and in doing so, continued and extended protection to lessees.[2] Of relevance to the resolution of the present proceeding is section 30(3) which, when read with regulation 9, had the effect of applying section 30 to leases executed from 15 November 1990; that is, some five years prior to the coming into effect of the Retail and Commercial Leases Act.
[2] See, section 81 of the Retail and Commercial Leases Act 1995 (SA).
The provisions of the legislation operate to render void provisions of leases that are contrary to provisions of the Act. An example is section 30 which precludes a retail shop lease to which the Act applies from requiring a lessee to pay land tax or to reimburse the lessor the payment of land tax. At the same time, however, Parliament permitted the lessor’s liability for land tax to be taken into account when rent was being assessed.
Counsel for the lessor submitted that the parties struck their bargain at the time they executed the lease on 18 May 2006, and at that time, the parties are to be taken to have agreed that the lessee’s liability in regard to land tax would take effect when the annual rent payable exceeded $250,000.00. It was contended that the lessor at 18 May 2006 obtained a right in this respect that was described as an accrued and vested right. It was contended that the legislative scheme should not be construed to in any way erode or take away that accrued or vested right. It was said that there was no unfairness in such an approach as both the lessor and lessee negotiated on this basis and, by reason of the provisions of clause 2(b), well understood their bargain. Counsel went so far as to characterise the lessee’s argument as giving the legislation a retroactive operation. It was contended that this was not intended and that the ordinary rules of statutory construction would militate against retroactivity. Reference in particular was made to the presumption that existing common law rights should not be affected or eroded without clear statutory language that such was the purpose.
This submission confronts a number of difficulties. Counsel’s characterisation of the lessor having accrued or vested rights under the lease is simplistic. The lease, by its terms, recognised the provisions of the Retail and Commercial Leases Act and, in particular, through clause 11(e) of the lease, recognised the paramountcy of the Act and that any provision of the lease which directly or indirectly defeats, evades or prevents the operation of the Act other than to the extent permitted by the Act, shall be of no effect. Further, clause 2(b) of the lease, through the proviso, recognised the paramountcy of the Act with respect to land tax.
Counsel for the lessor’s attention was drawn to the provisions of clause 2(c) of the lease which relevantly provides:
To pay the costs of and incidental to the preparation and engrossment of this Lease and any renewal thereof and all stamp duty thereon and the fees (if any) charged by a mortgagee of the demised premises for producing the relevant Certificate(s) of Title or consenting to this Lease and Lands Titles Office registration fees and insofar as such costs are Solicitors’ costs which costs shall be calculated on the scale laid down by the Supreme Court of South Australia on the basis of Solicitor and own client or on the other basis (if any) allowable or permitted by the Taxing Master of the Supreme Court of South Australia PROVIDED HOWEVER this if this Lease is a “retail shop lease” to which the Retail and Commercial Leases Act 1995 applies the Lessee shall be obliged to pay to the Lessor one half of the amount of such costs of preparation and engrossment of this Lease and any renewal thereof.
It is to be noted that the words of the proviso are relevantly to the same effect as those appearing in clause 2(b). Counsel accepted that to require the lessee to contribute to the costs associated with the preparation of the agreement many years after the event could be described as unconscionable. It was not a construction of clause 2(c) advanced by his client. Counsel suggested that the clause be read down and disagreed with the proposition that the proviso should be given the same interpretation wherever appearing.
A substantially similar proviso also appears in clauses 4(h), 4(i) and 4(j) of the lease. Clause 4(h) addresses the right of renewal for the second 10 year term and relevantly provides:
That on the written request of the Lessee made not less than three nor more than six months before the expiration of the said term and PROVIDED THAT there shall not at the time of such request be any existing breach or non-observance of any of the covenants and conditions herein contained and on the Lessee’s part to be observed and performed the Lessor will at the expense of the Lessee grant to the Lessee an extension of this Lease of the demised premises for a further term of ten (10) years subject to and upon the same terms and conditions as are herein contained save for the exclusion of this said sub-clause giving to the Lessee the right of renewal herein contained and for the first one (1) year period …
… AND FURTHER it is hereby expressly agreed that unless this lease is a “retail shop lease” to which the Retail and Commercial Leases Act 1995 applies any review of rental herein shall not be less than the rental current immediately prior to the renewal date.
Counsel for the lessor’s contention was that the relevant threshold at the date of renewal would be that fixed at the commencement of the lease. As a consequence, it was said, that if the rent was above $250,000.00 at the time of the renewal, land tax would be payable by the lessee.
Counsel for the lessee submitted that the determination of the questions put to the court did not involve an interference in accrued or vested rights. It was said that, at the time the parties entered into the lease, they were entering into a retail shop lease to which the Retail and Commercial Leases Act applied. It was contended that the lease would continue to be one to which the Act applied as long as the rent payable remained under the threshold as specified from time to time. If, at any time, the rent exceeded the then applicable threshold, at that point and during that period, the lease would be a retail shop lease to which the Act did not apply. It was further contended that such an interpretation was consistent with the scheme and the purpose of the Act. No tension arose in regard to the application of the provisions of the Act if such an interpretation were adopted. It was claimed that such an interpretation provided consistency in the interpretation of the provisions of the lease. Importantly, it was submitted that such an interpretation provided a consistent consumer protection to the circumstances in which Parliament considered that protection should be available.
At the time that the parties entered into the lease, they entered into a retail shop lease within the meaning of the Retail and Commercial Leases Act and a lease to which the Act applied as the rent was less than $250,000.00. The parties to the lease should be taken to have contemplated that the threshold of $250,000.00 may change and that the lease was entered into on that basis.
Many clauses of the lease expressly refer to the Retail and Commercial Leases Act. Clause 11 of the lease is of particular relevance as it recognises the overriding operation of the Act. The clause provides:
If:
(a)    any covenant provision or part of this Lease is not applicable to the premises;
(b)   any covenant provision or part of this Lease is repugnant to the general interpretation hereof;
(c)    any covenant provision or part of any covenant or provision is invalid unlawful void or unenforceable;
(d) any aspect covenant provision or part of this Lease is inconsistent with or fails to satisfy any requirement of or purports to exclude, modify or restrict the operation of the Retail and Commercial Leases Act 1995 (other than to the extent permitted thereby); or
(e) any aspect covenant provision or part of this Lease constitutes an agreement or arrangement which directly or indirectly defeats evades or prevents the operation of the Retail and Commercial Leases Act 1995 (other than to the extent permitted thereby); it shall be of no effect and shall be severable and shall not affect the continued operation of this Lease save as hereinafter provided.
If any aspect covenant provision or part of this Lease shall be severed by any Court or Tribunal or be severed by operation of the preceding sub-clause and such aspect covenant provision or part of this Lease shall relate to the payment of rent hereunder or the payment or reimbursement of any outgoings or any rates taxes charges assessments and impositions charged or levied on the premises or the payment of any such amount hereunder then notwithstanding the term of this Lease or any option or right of renewal or any other provision hereof the Lessor may at its option by one (1) calendar months notice in writing determine this Lease.
It follows that the parties agreed that the lease was subject to the Act and the Regulations made under the Act.
It is of particular relevance to again refer to section 30 of the Retail and Commercial Leases Act. Subsection 2, it is to be recalled, recognises and permits the parties to fix their agreement as to rent having regard to the lessor’s obligation as to land tax. In fixing the rent under the present lease, it may be understood that the parties and, in particular the lessor, had regard to this provision. It would follow that in assessing the rent, the landlord would contemplate the possibility, if not the probability, that over a 20 year term, the threshold under section 4(2)(a) would be increased by regulation.
Having regard to the foregoing, it is my view that the lessee was not obliged to pay to the lessor any amount in respect of land tax as, at all relevant times, the lease was and remained a retail shop lease to which the Retail and Commercial Leases Act applied. As a consequence, section 30(1) took effect. This position was then given effect by clause 2(b) of the lease.
To answer the first question referred to this Court, the lessee, GRE, is not liable to pay to the lessor, WST, land tax as claimed.[3]
[3] The claim was in respect of the period 22 May 2011 to 30 June 2011 and the period 1 July 2011 to 30 June 2012.
The second question concerns the liability of the lessee, GRE, to pay to the lessor, WST, land tax from time to time from 22 May 2011 and for the remainder of the 10 year term of the lease and any renewal. The answer to this question necessarily depends on the amount of rent payable during any particular period and the relevant threshold at that time. By the relevant threshold, I refer to the threshold as fixed by section 4(2)(a) of the Act and any regulations thereunder. If, at any time, the annual rent payable exceeds the then applicable threshold, the lessee will be liable to pay land tax as assessed on the land.
The parties agreed that the resolution of these questions would lead to the resolution of the proceedings and that final orders could be made. As a consequence, I would make an order dismissing the plaintiff’s claim and ordering the plaintiff to pay the defendants’ costs of the proceedings to be taxed.
ANDERSON J. I agree with the orders proposed by Gray J and I agree with his reasons.
PEEK J. I agree with the orders proposed by Gray J. I substantially agree with his Honour’s reasons.