Dispute Trends in Retail and Commercial Leasing

John Robertson Senior Associate

Williams + Hughes

~galwise SEMINARS www.legalwrseseminars.com.au

DISPUTE rRENDS IN RETAIL AND COMMERCIAL LEASING

Presented by John Robertson, Williams+Hughes Commercial and Litigation Lawyers.

14 September 2011

INDEX

INTRODUCTION 1

1. Cases on Unconscionable Conduct and/or Misleading and Deceptive Conduct 2

1.1. Lease Terminationl Renewal Cases 2~ (a) Goldberg Enterprises Pty Ltd v Online IT Services Pty Ltd 4

(b) Davis v Sydney Harbour Foreshore Authority (No.2) 5

1.2. Unconscionability - Withholding Consent to an Assignment 6 (a) Duncan v Aljayar Pty Ltd 6

1.3. Unconscionability andl or Misleading and Deceptive Conduct

Cases Involving Market Rent Reviews 7

2. Recent Case Law Outcomes from Cases Involving Relocation and

Other Interference with Leased Premises 8

3. Make Good Obligations which Provide for Agreed Damages! Cash Settlements

on Lease Expiry 11

~ 4. Landlord Breaches and Remedies 13

5. Conclusion/ Close 16

BIBLIOGRAPHY 17

WIWAMS+HUGHES

DISPUTE TRENDS IN RETAIL AND COMMERCIAL LEASING

Presented by John Robertson, Williams+Hughes Commercial and Litigation Lawyers.

14 September 2011

INTRODUCTION

About the author

I was admitted to legal practice in 2004 after an approximately 15 year career in the banking

industry with Westpac Banking Corporation and its subsidiaries, where I held positions in

credit approval including a role of a manager in Westpac's property finance group which

contributed to an interest in financing commercial property investments. Since being

admitted to practice, I spent three years working on Bell Trial with the Honourable Justice

Owen which required me to travel the world with the Supreme Court in search of evidence

(taking evidence on commission). Upon commencing legal practice, I have focussed on

litigation and now combine approximately a 25% retail and commercial leasing! property law

practice with a 75% litigation practice. I can honestly say that being involved in leasing

disputes helps in drafting and negotiating leases because I am alive to where the

contentious issues lie and how they develop into disputes.

Outline of the Paper

The paper falls into the following four parts: J

1. cases on unconscionable conduct and! or misleading and deceptive conduct;

2. recent case law outcomes from cases involving relocation and other interference

with leased premises;

3. "make good" obligations which provide for agreed damagesl cash settlements on

lease expiry; and

4. landlord breaches and remedies.

The paper is not intended to recite digested cases, as in the authoritative loose leaf Langs

Commercial Leasing. The analysis of the cases that we will be looking at demonstrates that

disputes are alive and well in the above areas and that there are plenty of examples of legal

authorities where the same issues are continuing to arise and are adding to the development

1.1

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of the law. What I hope to do is point out some of the pitfalls and obstacles, bring attention to

the mistakes and how they can be avoided and then look at some other alternatives.

1. Cases on Unconscionable Conduct and/ or Misleading and Deceptive Conduct

There are some broad categories or trends within the unconscionability and misleading and

deceptive conduct cases that have been in the courts and tribunals recently. The categories

or trends with unconscionability and misleading and deceptive conduct are:

• lease termination! renewal cases;

• cases involving withholding consent to assignment; and

• cases involving market rent.

Lease Terminationl Renewal Cases

(a) Goldberg Enterprises Pty Ltd v Online IT Services Pty Ltd1

(i) Facts:

Goldberg was the landlord of a retail shop and Online was a retail tenant.

Online had been holding over on a monthly tenancy for approximately 4 years when

Goldberg issued a notice of termination to Online. After the termination notice was issued

but before it came into effect, Goldberg indicated to Online in writing that if Online complied

with some stipulations relating to landlord's fixtures, Goldberg would not enforce the

termination of the lease.

Online complied with the stipulations and is understood to have expended a small amount of

money carrying out the works to do so. Despite Online attending to the works that Goldberg

had told Online that may result in Goldberg not enforcing the termination notice, Goldberg

re-entered the leased premises and changed the locks.

Online brought a claim against Goldberg in the NSW Administrative Decisions Tribunal

(NSW ADT) claiming unconscionable conduct and seeking a declaration that the re-entry

was unlawful, damages and an order to disgorge some rent that Online had paid Goldberg.

Online succeeded on the issue of unconscionability and obtained a small award of damages.

One reason the damages award was small was because Online struggled to present

1 [2011] NSWADTAP 21.

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admissible evidence of its damage and to some extent left it to the NSW ADT to work it out,

which it did.

Goldberg appealed and the appeal was heard by the Deputy President of the NSW ADT.

Goldberg failed on the limited grounds of appeal against the decision of the NSW ADT. It

succeeded on the appeal on the issue of the NSW ADT doing the "best it can" to assess the

damages.

There was no order as to costs of the appeal because it was only partly successful and the

relatively small amount of the award of the damages of under $20,000 would be dwarfed by

the legal costs of the first hearing and the appeal.

It is trite law that the Retail Leases Act 1994 (NSW) (RLA) and all State and Territory retail

tenancy legislation codifies unconscionability at common law and extends it to retail leasing

using a carve out of the old s. 51AC of the Trade Practices Act 1974 (Cth) (TPA)

(Competition and Consumer Act 2010 (Cth) sch 2 (,Australian Consumer Law') s 22).

(ii) Analysis:

On the one hand it is hard to believe that a periodic tenant could get damages for loss of

profit when the time comes for moving the tenant along in circumstances where the tenant

has been periodic for approximately 4 years. For example, it would be difficult to argue that

you were entitled to lost profits in circumstances where the business could have been shut

down on a month's notice.

On the other hand, making equivocal statements about continuing the lease to induce a

tenant to perform works for the landlord's benefit in circumstances where the landlord had no

intention to offer a new lease, is not objectively reasonable by anyone's standards.

Goldberg could have done things better by engaging a lawyer to communicate the message

of termination more clearly and not inducing Online to do some minor remedial work with the

carrot of the possibility of a new lease. Even after Goldberg had overstepped, a sensible

compromise for reimbursing Online for the work it performed would have been a significantly

cheaper exercise than getting involved in a first instance decision and an appeal in the no

costs jurisdiction of the NSW ADT.

What we can take from Goldeberg's Case is that rights under leases need to be thoroughly

and competently extinguished (even where it appears objectively reasonable that the lease

can be brought to an end) to avoid flare-ups and unnecessary legal costs.

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When Online's damages are reduced to whatever the value of the small amount of the

remedial work that it performed (together with some consequential losses), Goldberg will

have incurred many thousands of dollars on unnecessary legal action which should have

been curtailed earlier.

(b) Davis v Sydney Harbour Foreshore Authority (No. 2)2

(i) Facts

Davis was a retail tenant of the Harbour Foreshore Authority (HFA) that was holding over

after having had 5 years tenure. He had not been offered a new lease because he and other

tenants were made aware of the HFA's intention to refurbish the historic building.

Davis claimed he had an agreement with the HFA to hold over for a period in excess of the 6

month period in NSW for the RLA to apply and thus he was entitled to a further 5 year tenure

and that it would be unconscionable for the HFA to deny this. Alternatively, Davis argued

that the periodic tenancy agreement and his continued possession and payment of rent

created a year to year periodic tenancy under the Conveyancing Act 1919 (NSW).

The final claim of Davis was that an officer of HFA had made a representation during an

interlocutory hearing that he had relied on relating to the proposed date of the refurbishment

. That date would have seen his aggregated tenancy extend beyond the 6 month period for

the tenancy to fall under the RLA. Davis claimed the representation was misleading or

deceptive conduct in breach of the RLA.

The HFA's evidence was to the effect that Davis was a terrible tenant (always behind on rent

and repeatedly failed to deliver sales figures for his turnover rent) and that he was always

aware that refurbishment works were planned and he failed to mitigate his own alleged

losses by seeking alternate premises.

(ii) Misleading and Deceptive Conduct

NSW has a misleading and deceptive carve out in the RLA that is based on s. 52 of the TPA

(Australian Consumer Law s 18). WA does not have the same legislation and relies on

unconscionability to fall within the jurisdiction of the Commercial Tenancy (Retail Shops)

Agreements Act 1985 (WA) (CTA). The NSW ADT held that the representations that were

said to have been relied upon by Davis were not misleading. They were in fact statements

2 [20091 NSWADT 276.

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that were consistent with the need of the HPA to carry out the refurbishment and the

consequences for the HPA if it could not (Le. all other tenants had vacated thus Davis could

well have been the only remaining tenant).

(iii) Unconscionable Conduct

Despite the RLA codifying and extending the common law of unconscionability it comes

down to whether or not there was a "high degree of moral obloquy,,3 and the NSW ADT held

that "the section [628] is not to be used as a panacea for adjusting any contract which

offends concepts of what is fair or juSt.,,4

With all respect to Davis, his claim was unlikely to succeed. It is trite law in WA that a

refusal to offer a new term of lease (when there is no option terms remaining) is not

unconscionable conduct. 5 The operative part of section 15C of the CTA provides that the

conduct that is thought to be unconscionable has to be assessed "in all the circumstances"

including the terrible record of Davis.

The HPA was put to the expense of defending a frivolous claim that should not have been

brought. This leads to the question of costs in the no costs jurisdiction of the tribunals. The

State of Administrative Tribunal of Western Australia (SAT), like all similar State and

Territory tribunals, has a discretion to make costs orders. The factors which enliven the

discretion to order costs include but are not limited to:6

(a) whether a party has conducted itself unreasonably, particularly where the

conduct leads to unnecessary costs to the other party;

(b) whether a party has conducted itself inappropriately, particularly where the

conduct leads to unnecessary costs to the other party;

(c) where credibility of evidence is at the heart of a matter;

(d) where the application undermines the integrity of proceedings under the

relevant Act; and

(e) the relative weakness of a case; it being incredible or implausible or

"obviously unmeritorious".

(f) If a party has to embark in proceedings to "vindicate its clear contractual

entitlements" .

3 Attorney General of NSW v World Best Holdings Ltd (2005) 63 NSWLR 557. 4 Davis v Sydney Harbour Foreshore Authority (No.2) [20091 NSWADT 276, 279 [34]. 5 Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 15E(b). 6 Pearce v Germain [20071 WASAT 291.

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In Davis Gase7, Davis was ordered to pay the HPA's costs. Cases of the nature of Davis

Gase8 relating to security of tenure is what unconscionability legislation under the CTA9 was

enacted to protect. However, before launching a claim all the circumstances need to be

examined including the rental history of Davis, the long period of notice of refurbishment and

the consistent treatment of all tenants.

1.2 Unconscionability - Withholding Consent to an Assignment

(a) Duncan v Aljayar pty Ltd10

This is an interesting case involving withholding consent to an assignment of lease where a

tenant (Duncan) was trying to sell the goodwill and plant of his business to L&T for $82,000.

~ The landlord (Aljayar) withheld consent in breach of the RLA and then terminated Duncan's

lease and proceeded to lease the premises directly to L& T.

Judge Fox of the NSW ADT determined a preliminary issue in favour of Duncan whether the

conduct of Alijayar could amount to unconscionable conduct under the RLA. Judge Fox ruled

in favour of Duncan on the preliminary issue and noted that Alijayar did not file any evidence

in opposition to the contention that it had acted unconscionably by withholding consent to an

assignment and then terminating the lease and re-Ietting the premises to the proposed

assignee.

This is a case of what not to do as a landlord faced with conSidering whether to consent to

an aSSignment. If the underlying motive was to obtain a collateral benefit for itself of the

$82,000 from the assignee, then it is submitted that such conduct will always be considered

~ to be unconscionable. If the motives to withholding consent to an assignment are reasonable

and based on seeking to ensure that the landlord will be no worse off following the

assignment, a landlord should be satisfied they have done everything that is reasonable to

investigate the proposed assignee by obtaining from that person the following information

and documentation:

(a) a formal request from the assignor to agree to a sale of the business/ assignment of

the Lease;

(b) a copy of the contract of sale or document evidencing the sale of the business;

7 Davis v Sydney Harbour Foreshore Authority (No.2) [20091 NSWADT 276. 8 Ibid. 9 Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA). 10 [2010] NSWADT 224.

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(c) the most recent and the prior two years' financial statements, tax returns and tax

assessments for the proposed assignee if they are a company, trust or partnership

(together with a statement of assets and liabilities for the directors, beneficiaries or

partners);

(d) a statement of assets/liabilities and income/ outgo for the proposed assignee if they

are an individual;

(e) details of the proposed assignee's relevant business experience including any

references; and

(f) any relevant business plan or cash flow of the proposed assignee.

Otherwise there is a risk that the landlord's motives for withholding consent could be for a

collateral purpose and it could be alleged to be unconscionable, particularly if the landlord's Jconduct leads to the tenant losing the sale of their business and opportunity to assign the

lease.

1.3 Unconscionability andl or Misleading and Deceptive Conduct Cases Involving

Market Rent Reviews

The next subcategory of unconscionability! misleading and deceptive conduct cases are

cases involving market rent reviews. In Australian Competition and Consumer Commission v

Dukemaster Pty Ltd11 , a landlord approached a market rent review by arbitrarily informing

the non English speaking tenants of the new market rent when a market rent review was due

and the landlord also gave very little notice of the implementation of the new market rent. In

fact the landlord represented that the market rent was "very reasonable and below market..."

without himself obtaining advice and knowing that the representations were baseless. J The tenants complained to the ACCC and the ACCC commenced a representative action

against the landlord on the tenants' behalf in the Federal Court.

Justice Gordon of the Federal Court held the landlord's conduct was unconscionable and in

breach of s. 51 AC of the TPA (Australian Consumer Law s 22).

In a very different market rent review case in the ACT, Kingsley's Chicken Pty Ltd v

Queensland Investment Corporation12 involving the system of appointing a licensed valuer

under the Leases (Commercial and Retail) Act 2001 (ACT) by which the ACT Magistrates'

Court is asked to appoint a licensed valuer to determine market rent where there is no

11 12009] FCA 682. 12 [2009] ACTCA 9.

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agreement about market rent when an invitation for a new lease was made to replace an

expired lease. In this case, there was no agreement when the landlord notified the tenant

the market rent was $108,000 per annum for the proposed new lease. This offer was more

than $36,000 higher than the previous year. The Magistrates court-appointed valuer

determined the market rent at $96,000 per annum. The tenant was still dissatisfied and

challenged the valuer's determination, applied to have the valuer discharged and a new

valuer appointed. The landlord made it clear it would not enter into a new lease with this

tenant. The tenant then alleged unconscionable conduct against the landlord relating to the

landlord's decision to withdraw its offer of a new lease.

The Court held that because no commencement date of the new lease had been agreed, the

parties had not concluded a new lease and that the landlord was able to withdraw its

intention to offer a new lease to the tenant, which it did. The Court held that this was not

unconscionable on the part of the Landlord. The landlord was able to escape liability and not

entertain further negotiations with a tenant who would simply not accept the independent

determination of the market rent.

In WA, the mechanism for determining market rent under a CTA regulated lease is initially by

agreement or the procedure included in section 11 (3) of the CT A. Most commercial leases

have a version of the section 11 (3) CTA process to determine market rent. The most fruitful

course is by negotiation but if an agreement about the market rent cannot be achieved, then

the market rent can be considered by at least one valuer. It is submitted that a market rent

review is an opportunity for an expert determination based on valuation methodology and

any attempt to circumvent prudent practices of honest negotiation and expert determination

can lead to undesired consequences for both parties.

2. Recent Case Law Outcomes from cases involving Relocation and other

Interference with Leased Premises

The first case is a relocation! redevelopment case involving alleged unconscionable conduct

in FagerJund v PPS Nominees Pty Ltd13. Fagerlund and her partner acquired a pastry shop

business in a retail shopping centre in August 2005. The assigned lease that Fagerland took

had a refurbishment clause and about 3 years to run on the final option term of the lease.

Fagerland did the refurbishment in 2006 and following the refurbishment, management of

PPS approached Fagerland to relocate to new premises in the centre with a new lease.

Fagerland negotiated (with the assistance of a solicitor) and eventually signed a new lease

13 [2011] NSWADT 24.

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in October 2007 and traded poorly thereafter until the determination of the new lease in May

2008.

Fagerland accused management of the centre of making misleading representations about

location of the new premises, increased turnover in the new premises and landlord's

contribution to fitout. The applicants' (namely Fagerland and her partner) evidence was not

accepted and their claim was dismissed. They were ordered to pay PPS's costs. Despite

the perception of unfairness of carrying out a refurbishment in close proximity to when

Fagerland was required to relocate, because all proper disclosures had been given by the

landlord in circumstances where Fagerland was represented by a lawyer, the insistence on

relocating the refurbished business was not unconscionable. The applicants were not helped

by inconsistencies in their evidence. They could not make good the allegations because all

relevant details had been disclosed to Fagerland and her lawyer and she knew what she

was getting herself into by agreeing to the new lease and relocating.

The second case of HOIwood v Memocorp Australia Pty Ud14 was an interference case

involving a tenant that operated a real estate agency from a shopping centre that was to

undergo extensive redevelopment. In this case Memocorp was doing a substantial upgrade

to the shopping centre and Horwood was asked to sign a "works deed" to sign away some

rights relating to Memocorp undertaking the works.

During the negotiations for the works deed, the evidence confirmed Horwood had contended

for the deletion of clause 6 of the works deed as follows: "The Tenant releases and

indemnifies the Landlord, its employees and agents from liability, whether arising now or in

the future, in respect of any Claim relating to the Works or the carrying out of the Works by J Berem [the builder] or Berem's Associates". Horwood claimed damages for breach of the

covenant in the lease for the Landlord to provide the tenant with quiet enjoyment. By a

combination of the deletion of clause 6 of the Works Deed and the covenant in the lease for

Memocorp to provide Horwood with quiet enjoyment, Memocorp could not avoid paying

Horwood damages for breaching the quiet enjoyment covenant. Despite seeking

considerably more, Horwood was awarded $46,000 in damages.

Section 14 of the CTA provides a statutory right to compensation for interference by a

landlord with a tenant's premises subject to the tenant giving notice and for the payment by

the landlord of compensation. On a proper construction of section 14 of the CT A, it is

possible for the parties to a CTA regulated lease to "pay to the tenant such reasonable

14 [2010] NSWADT 69.

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compensation in respect thereof as is thereafter [the giving of notice] agreed in writing

between the parties .... ,,15 Horwood's Case16 is authority for the proposition that agreement

can be reached before the interruption or works start provided that the details of the

interruption and interference are disclosed.

The following clause has been used with some success to agree to pre-determined

compensation where renovations are contemplated before the commencement of the lease:

RENOVATION/REDEVELOPMENT

1.2 Renovation Clause

(a) The Lessor has obtained approval from the Local or Public Authority to

[Description of the renovation] (Renovation).

(b) The parties agree that during the Renovation, until Practical Completion

[Defined Term] of the Renovation is achieved, the Rent (but not the

Outgoings or any other monies payable under this Lease) will be reduced

by 15%[reduction by negotiation and agreement] (Renovation Rent

Reduction) and neither party will have any further claim against the other

in respect of disruption, access, flow of customers or loss of profits arising

from the Renovation, subject to the Lessor using its best endeavours to

minimise the effect of the Renovation on the Lessee in respect of

disruption, access and flow of customers caused by the Renovation.

(c) The Lessee agrees it owes a fiduciary obligation of confidentiality to the

Lessor in respect of the Renovation Rent Reduction.

Full disclosure and proper consideration of the effects on the tenant are relevant factors to

the effectiveness of agreeing to compensation before the commencement of the works.

'5 Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) s 14. '6 Ibid, n. 15.

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3. Make Good Obligations which Provide for Agreed Damages/ Cash Settlements on

Lease Expiry

This is an interesting subject that provides an opportunity to avoid disputes because of the

nature of the involvement of a professional or suitably qualified third party to assess the

damage and estimate the value of the remedial work that is required at or about the time

when a lease is coming to an end.

The key to the success of an agreed damages clause is its operation prior to the expiry or

determination of the lease. In some cases the charges of the expert or independent party (or

the agreed proportion of them) can (and should) be charged to the tenant whilst it is in

occupation as part of the variable outgoings.

This is a draft clause that has been used with success with a variety of tenants ranging from

national firms to local sole traders:

1.3 Make Good

[ ... standard make good clause with extensive list of make good obligations of

Lessee ... ].

Dilapidation Report

(a) During the last 4 months of the Term or at any earlier time mutually agreed

between the Lessor and the Lessee, the Lessor may (but is not obliged to)

provide to the Lessee a report detailing the works which the Lessor

reasonably considers must be undertaken by the Lessee to comply with its

make good obligations under clause 1.3 (Dilapidation Report). The

Dilapidation Report may also specify a sum which the Lessor estimates to

be the reasonable cost of undertaking those works (Make Good

Payment). The costs incurred by the Lessor in commissioning the

Dilapidation Report shall be borne equally by the Lessor and the Lessee.

(b) Within 14 days after the Dilapidation Report has been given to the Lessee

by the Lessor, the Lessee may give notice to the Lessor of any objection

which the Lessee has to any item within the Dilapidation Report.

(c) If the Lessee does not give any notice of objection to the Lessor within the

14 day period, the Lessee shall be taken to have agreed to the contents of

the Dilapidation Report.

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(d) If the Lessee gives notice of objection within the 14 day period, the parties

shall use their reasonable endeavours to negotiate agreement on the

Dilapidation Report but if they fail to negotiate an outcome within 14 days,

either party may refer the Dilapidation Report to an Umpire [Defined

Termt 7 for determination as to whether or not it constitutes a fair

assessment of the make good work to be undertaken by the Lessee.

(e) If the Dilapidation Report specifies a Make Good Payment the Lessee may

elect to pay the Make Good Payment to the Lessor in lieu of undertaking

the works required under the Dilapidation Report. If the Lessee pays the

Make Good Payment before expiry of the Term, the Lessee shall be

released from any obligation to undertake the works required in the

Dilapidation Report and the Lessee's obligations under clause 1.3 (Make

good Clause). If the Lessee does not elect to pay a Make Good Payment,

or if a Make Good Payment is not specified in a Dilapidation Report, the

Lessee must promptly undertake, and complete, at its cost, all of the works

referred to in the Dilapidation Report and meet al/ of its other obligations

under clause 1.3 (Make Good Clause).

At the time of commissioning the Dilapidation Report, the expert is instructed to identify the

cash value of the remedial work. The make good clause that precedes the dilapidation report

clause is also critical to identifying what the expert is assessing in the dilapidation report and

there are good grounds from the landlord's perspective to include a very extensive list of

make good obligations in the make good clause.

These clauses can actually assist in the negotiation of favourable cash settlements for

landlords and they can also give the tenants an opportunity to negotiate a cleaner settlement

(and exit) rather than having to be involved with engaging contractors after the tenancy has

ended. Given that the clauses are drafted as an alternative to carrying out the make good, a

cash settlement clause causes no prejudice and should be included in most commercial

leases.

The final word on agreed damages clause is that such clauses can be used to great effect

and offer significant advantages over traditional approaches.

17 (Defined Term of) Umpire means some independent person to be agreed upon in writing by the lessor and the lessee or otherwise appointed at the instance of either party by the President or other senior officer for the time being of the law Society of Western Australia.

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4. Landlord Breaches and Remedies

There was a recent case in the SAT that involved allegations of unconscionable conduct

between the landlord of the Fremantle Markets and a long term license holder at the

markets. The case is Murphy v Fremantle Markets Pty Ltd,18 and what is interesting about

Murphy's Case is that it brought attention to the wide powers of the SAT under the CTA to

consider the question of unconscionable conduct and give what can be described as an

advisory opinion about whether or not a landlord or a tenant has engaged in unconscionable

conduct.

The benefit of an "advisory opinion" is that it can be sought in the "no costs" jurisdiction of

the SAT in circumstances where the landlord and tenant relationship is continuing i.e. there

is no obligation for a party to claim the conduct amounted to an unlawful repudiation of the

lease and to make an election to terminate and sue for damages for unconscionable

conduct. This holds a significant advantage to both parties to in theory get a low cost and

possibly final determination about a dispute and then get back to normal landlord and tenant

relations.

As the relevant section of the CT A is not clear on how it is possible to seek an advisory

opinion, it is worth closer scrutiny of the relevant section of the CTA. The unconscionability

provisions of the CTA were introduced through the Retail Shops and Fair Trading Legislation

Amendment Bill 2005 (WA). Assent to the Bill was given on 4 October 2006, and the

amendment came into effect on 11 May 2007 (Government Gazette, 11 May 2007 p 2017).

The amendment introduced a new Part itA into the CT A - Unconscionable Conduct. Section

15C and s 150 of the CTA proscribe unconscionable conduct by landlords and tenants

respectively. Relevantly, s 15C(1) of the CTA provides that a landlord under a retail shop

lease shall not, in connection with the lease, engage in conduct that is, in all the

circumstances, unconscionable. Section 15C(2) of the CTA provides that without in any way

limiting the matters to which the SAT may have regard for the purposes of determining

whether a landlord has contravened s 15C(1) of the CTA, the Tribunal may have regard to a

range of factors as set out in subsections (a) to (n).

Section 15F(1) of the CTA provides that a landlord or tenant, or former landlord or tenant,

under a retail shop lease or former retail shop lease who suffers loss or damage because of

unconscionable conduct of another person that contravenes s 15C or s 150 of the CTA may

recover that loss or damage by applying in writing to the SAT.

18 [2009] WASAT 84.

14

On a literal reading of the various provisions referring to unconscionable conduct, it might be

considered that the only event triggering the grant of relief for unconscionable conduct is an

application under s 15F(1) of the CTA for loss or damage already suffered. If you compare,

for instance, the distinction in remedies available under s 82 and s 87(1A) of the old TPA

regime19. In Murphy's Case neither party contended for any remedy being conditioned by an

applicant first suffering loss and damage. This is similar to the regime under s. 87 of the TPA

where it was necessary for the applicant to be likely to suffer loss and damage.

But Murphy's Case went a step further than s. 87 of the TPA, where it is necessary to show

the applicant is likely to suffer loss. In Murphy's Case both parties submitted to the SAT that

it was open to an applicant to the SAT under the CT A to refer as a question arising under a , lease, under s 16 of the CTA, to determine whether or not a landlord, or tenant, had acted

unconscionably in breach of s 15C(1) or s 150(1) of the CTA. The SAT accepted the

submissions and went on to say a reference in the CTA to a question arising under a retail

shop lease has an expanded meaning which includes, under s 3(c)(ii) of the CTA, a question

arising in relation to the retail shop lease under a provision of the CT A. It is therefore

permissible to refer a question to the SAT relating to whether or not there has been a breach

of the prohibition in s 15C(1) or s 150 of the CTA that a landlord, or tenant, respectively,

shall not in connection with the lease, engage in conduct that is, in all the circumstances,

unconscionable.

The SAT also held that the referral of such a question does not fa" within the definition of an

unconscionable conduct application which is limited to an application under s 15F of the

CTA.

The SAT held that the ability to refer a question relating to unconscionable conduct to the

SAT under s 16 of the CT A was consistent with the obvious intent of the legislation and 7tE complies with the direction under s 18 of the Interpretation Act 1984 (WA) to prefer a

construction that would promote the purpose or object underlying the written law.

The SAT referred to the second reading speech before the Legislative Assembly (Hansard, 9

November 2008, p 7007 - 7009) of the Minister for Consumer and Employment Protection

where the minister stated that the amendments to the CT A to add Part IIA to the CTA was

intended to provide tenants and landlords with access to unconscionable conduct provisions

and that the proviSions were based on s 51AC of the TPA. The Minister also made reference

19 See discussion in Millers and Trade Practices Act, Thomson's Lawbook 2005, 26th Ed at [1.82). [1.82.21], [1.87] and [1.87.15].

WILLIAMS +HUGtES

15

to the purpose of ensuring the effective resolution of disputes by giving the SAT power to

make necessary orders and remedies in relation to unconscionable conduct disputes in the

context of retail tenancies.

The SAT went on to say that it was self-evident that conditioning all remedies under Part IIA

of the CTA to a requirement that a landlord or tenant first suffer loss or damage would

provide inadequate powers to resolve unconscionable conduct disputes effectively. The

circumstances of Murphy's Case were sufficient to demonstrate that in many instances, the

effective remedy is that which prevents the offending party from being able to rely on

conduct which is unconscionable, such as by answering a question referred to the SAT in

terms reflecting that a notice of termination is of no effect. The SAT held that relief in the

nature of an order to prevent forfeiture would preserve the tenancy and avoid loss being

suffered.

Murphy's Case also referred to another SAT authority in ITQ Pty Ltd v Hyde Park'* Management Ltd20, where Judge Chaney, as his Honour then was, dealt with a dispute

based on alleged unconscionable conduct which had been referred under s 16 of the CTA.

His Honour had no difficulty with the application being advanced on the basis of seeking a

determination of a question under s. 16 of the CT A.

Both Murphy's Case and the case before Judge Chaney make it clear that reference

questions about unconscionability are open. This would hold particular appeal to tenants in

relation to referring questions about unconscionability whilst the tenancy is on foot. The

lower costs of the SAT and its good record of negotiated settlements mean a reference

question is a powerful tool in a retail tenant's armoury for dealing with a landlord breach.

Unfortunately there is no such similar solution available to non retail tenants other than

where loss is likely to occur under the "other orders" provisions in the TPAI Competition and

Consumer Act. But there is no ability to have the "question" determined by the judiciary in a

similar manner to what is available under the CT A.

20 [2008] WASAT 66.

16

5. Conclusion/ Close

My research has confirmed that there is no shortage of cases that are developing the law in

the courts and tribunals relating to retail and commercial leasing disputes. There have been

some interesting developments but there have also been plenty of examples of fine old

chestnuts finding their way into the courts and tribunals.

Doing commercial leasing (drafting) work and being involved in commercial lease disputes

provides a good opportunity to see how documents could be drafted better to avoid or

minimise the possibility of disputes. It is strongly recommended that those working in the

area of drafting commercial leases spend some time looking at alerts and bulletins and

digested cases about commercial leasing dispute and continue to challenge and review their

own documents.

Copyright © These materials are subject to copyright which is retained by the author. No part may be reproduced, adapted or communicated without consent except as permitted under applicable copyright law.

Disclaimer This seminar paper is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. Readers should not act on the basis of any matter contained in this seminar paper without first obtaining their own professional advice.

WIU.IAMS +HUGHES

17

BIBLIOGRAPHY

A. Cases

Attorney General of NSW v World Best Holdings Ltd (2005) 63 NSWLR 557

Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682

Davis v Sydney Harbour Foreshore Authority (No.2) [2009] NSWADT 276

Duncan v Aljayar Pty Ltd [2010] NSWADT 224

Fagerlund v PPS Nominees Pty Ltd [20111 NSWADT 24

Goldberg Enterprises Pty Ltd v Online It Services Pty Ltd [20111 NSWADTAP 21

HOfwood v Memocorp Australia Pty Ltd [2010] NSWADT 69

Kingsley's Chicken Pty Ltd v Queensland Investment Corporation [2009] ACTCA 9

Murphy v Fremantle Markets pty Ltd [20091 WASAT 84

Pearce v Germain [2007] WASAT 291

B. Legislation

Competition and Consumer Act 2010 (Cth) sch 2 (,Australian Consumer Law')

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA)

Conveyancing Act 1919 (NSW)

Leases (Commercial and Retail) Act 2001 (ACT)

Retail Leases Act 1994 (NSW)

Trade Practices Act1974 (Cth)

A paper presented by John Robertson

of Williams+Hughes

Commercial and Litigation Lawyers.

Contents

1. Unconscionable Conduct and Misleading and Deceptive Conduct

1. Lease Terminationl Renewal Cases 1. Goldberg Enterprises pty Ltd v Online IT Services pty Ltd 2. Davis v Sydney Harbour Foreshore Authority (No.2)

2. Withholding Consent to an Assignment 1. Duncan v Aljayar pty Ltd

3. Market Rent Reviews 2. Relocation and other Interference With Leased Premises 3. Make Good Obligations 4. Landlord Breaches And Remedies 5. Conclusion

1. Unconscionable Conduct and Misleading and Deceptive Conduct

1.1 Lease Terminationl Renewal Cases 1.1.1 Goldberg Enterprises pty Ltd v Online IT Services Pty Ltd [2011] NSWADTAP 21 1 .1.2 Davis v Sydney Harbour Foreshore Authority (No 2) [2009] NSWADT 276.

1.2 Withholding Consent to an Assignment 1.2. 1Duncan v Aljayar Pty Ltd

1.3 Market Rent Reviews

• • Fei.··.. •

Goldberg Enterprises Pty Ltd v Online IT Services Pty Ltd

• To avoid repercussions, rights under leases need to be thoroughly and competently extinguished.

• This is an example of a case that could have resulted in better outcomes for both parties if court proceedings were avoided.

J

. ••••i!!Yi •.

~;

Davis v Sydney Harbour Foreshore Authority (No 2)

Misleading and Deceptive Conduct: • In WA, unconscionability falls within the

jurisdiction of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CTA).

• The statements made by the HPA were consistent with the need of the HPA to carry out the refurbishment and the consequences for the HPA if it could not would have been adverse (Le. all other tenants had vacated thus Davis could we" have been the only remaining tenant).

- ....~ t.·­Davis v Sydney Harbour Foreshore Authority (No 2) cont. ..

Unconscionable Conduct: • Unconscionability at common law comes down

to whether or not there was a "high degree of moralobI oq u y:" AU"""" Gene",1 of NSW, World Best Hofd,ngs Ltd (2005) 63 NSWlR 557

• Refusal to offer a new term of lease (when there is no option terms remaining) is not unconscionable conduct.

• Section 15C of the CT A provides that the conduct thought to be unconscionable must be assessed "in all the circumstances."

I. J •

Davis v Sydney Harbour Foreshore Authority (No 2) cont. ..

• Factors relating to allocation of costs by the State Administrative Tribunal of Western Australia (SAT):

1. Unreasonable conduct by parties 2. Inappropriate conduct by parties 3. Credibility of evidence 4. Application undermines the integrity of the

proceedings 5. Relative weakness of a case 6. Vindication of clear contractual entitlements

I. ~..

Duncan v Aljayar

1. Duncan v Aljayar Pty Ltd [2010] NSWADT224

2. If the underlying motive is to obtain a collateral benefit for itself fronl the assignee, such conduct will always be considered unconscionable.

Imposing Conditions upon assignment

It is reasonable for the landlord to obtain from the assignee the • following information:

1. a formal request from the assignor to agree to a sale of the business! assignment of the Lease

2. a copy of the contract of sale or document evidencing the sale of the business

3. the most recent and the prior two years' financial statements, tax returns and tax assessments for the proposed assignee if they are a compan:v, trust or partnership (together with a statement of assets and liabilities for the directors, beneficiaries or partners)

4. a statement of assets/liabilities and income! outgo for the proposed assignee if they are an individual - could just be a term I'm unfamiliar with

5. details of the proposed assignee's relevant business experience including any references; and

6 any relevant business plan or cash flow of the proposed assignee

I. ~.

1.3 Market Rent Reviews

• In WA, the mechanism for determining market rent under a CTA regulated lease is initially by agreement or the procedure included in section 11 (3) of the CTA.

• By agreement or by expert determination ­anything less could be unconscionable

J-. 2. Relocation and Other Interference With Leased Premises

Fagerlund v PPS Nominees Pty Ltd • Because all proper disclosures had been

given by the landlord, the insistence on relocating the refurbished business was not unconscionable.

2. Relocation and Other Interference With Leased Premises cont. .. Horwood v Memocorp Australia Pty Ltd • Section 14 of the CTA provides a statutory right to compensation for

interference by a landlord with a tenant's premises subject to the tenant giving notice and for the payment by the landlord of compensation.

• On a proper construction of section 14 of the CT A, it is possible for the parties to aCTA re9ulated lease to "pay to the tenant such reasonable compensation in respect thereof as is thereafter [the giving of notice] agreed in writing between the parties .... "

• Horwood's Case is authority for the proposition that agreement can be reached before the interruption or works start provided that the details of the interruption and interference are disclosed.

3. Make Good Obligations

• Affords the opportunity to avoid disputes

• Dilapidation Report o Identify the cash value of the remedial work

o Make good clause's should be extensive because these clauses are the basis of the scope of works for the "Dilapidation Report"

,. 4. Landlord Breaches and Remedies Murphy v Fremantle Markets Pty Ltd • Broad powers of SAT under the CTA to consider

unconscionable conduct • Also, ability to give an advisory opinion on

unconscionable conduct • Part IIA of CTA: Unconscionable Conduct • Section 15F(1): can apply to the SAT to recover

loss or damage suffered due to unconscionable conduct.

~.'. 4. Landlord Breaches and Remedies cont. .. • Can refer questions to the SAT regarding

whether there has been a breach of the prohibition in s 15C(1) or s 150 of the CTA that a landlord, or tenant shall not engage in unconscionable conduct.

• This is not the same as applying under s 15F of the CTA.

• Preference for construing the CT A is a construction that promotes the purpose underlying the written law: Interpretation Act 1984 (WA) s 18.

I..~

4. Landlord Breaches and Remedies cont. ..

• Reference questions about unconscionability are open.

• There is no similar solution available to non retail tenants other than where loss is likely to occur under the "other orders" provisions in the TPA/ Competition and Consumer Act.

,

5. Conclusion

• The law in this area is continuing to develop

• Better drafting of documents could avoid or reduce the frequency of disputes

• Challenge your own documents and keep a watch on what is happening in the courts and tribunals

,

J