Tigers thump their retail landlord and Port Adelaide on the same day

Featured

Dusty Martin’s reaction to the Court of Appeal’s judgment

Richmond Football Club had two big wins on Friday – one over Port Adelaide in the preliminary final and the other over a retail landlord in Victoria’s Court of Appeal.

One result gets the Tiges into the 2020 Grand Final; the other should win them lots of new fans among Victoria’s retail tenants.

The Court of Appeal’s decision is Verraty Pty Ltd v Richmond Football Club Ltd [2020] VSCA 267.

In short, it allows Richmond to rely on the Retail Leases Act (‘the Act’) to save a mountain of land tax and prune back some rent increases (the precise monetary consequences are not set out).

The decision confirms that a ‘retail premises lease’ once entered or renewed will not change its legal character during its term by reason of extraneous circumstances (such as rent increases). This is important because the Act gives various protections to tenants of ‘retail premises’ including (at s. 50) voiding any requirement in a lease that the tenant effectively pay its landlord’s land tax. These protections commonly make the question of whether a particular lease relates to ‘retail premises’ within the meaning of s. 4 of the Act financially significant for tenants and landlords.

The Act’s definition of ‘retail premises’ focuses on the retail supply of goods and services but it has several carve-outs. One of the exclusions is that premises with ‘occupancy costs’ of over $1 million per year are not ‘retail premises’. But what happens if the proper categorization of premises as ‘retail premises’ changes during the life of a lease?

This was the issue that arose between Richmond and its landlord, Verraty.

Since (at least) 2004, Richmond had leased a Wantirna pokies venue from Verraty. In 2004 the venue constituted ‘retail premises’ within the meaning of the Act.The written lease included a requirement that the tenant reimburse the landlord its annual land tax but, because the lease was a ‘retail premises lease,’ that requirement was unenforceable by reason of s. 50 of the Retail Leases Act.

Over time the property’s rent and outgoings increased. By May 2016 the tenant’s annual occupancy costs ticked over the $1 million mark. Did the fact that the occupancy costs now exceeded $1 million mean that the premises ceased to be ‘retail premises’ within the meaning of the Act and that the hitherto-void land tax clause hence suddenly became enforceable against Richmond?

The landlord took that argument to VCAT and won – see Verraty v Richmond Football Club [2019] VCAT 1073.

Richmond then appealed to the Supreme Court (Croft J in his final case before retirement from the bench) and won – see Richmond Football Club v Verraty [2019] VSC 597.

Verraty then appealed to the Court of Appeal. There Justices Kyrou, Kaye and Sifris dismissed Varraty’s appeal in a joint judgment. The nub of it is in para 8:

“… if a lease is a ‘retail premises’ lease at the commencement of the lease, it remains subject to the Act even if the premises cease to be retail premises. In short, the text, context and purpose of the Act strongly support the view that it is not possible [for a lease] to jump in and out of the Act from time to time depending on whether the premises continue to fall within the definition of ‘retail premises’.

The judgment is a ringing vindication of Croft J’s final Supreme Court judgment but it is silent on the question of whether leasing relationships can ‘jump’ in or out of the Act when leases are renewed (cf during a lease term). This question did not squarely arise in the Richmond v Verraty matter but Croft J nevertheless ventured an opinion on it in his judgment. He suggested (at paras 74 – 78) that whether premises could change their ‘retail premises’ characterization upon renewal of a lease depended upon the lease provisions regarding such renewals.

The Court of Appeal does not look at this question but it certainly approved of Croft J’s analysis generally.

Conclusions? Three occur to me.

  1. It is now settled that whether a lease is or is not a ‘retail premises lease’ is established on a ‘once and for all’ basis upon its entry or renewal. Its character won’t change during its term.
  2. It is less clear whether a lease can ‘jump’ upon renewal of a lease. For example, ‘retail premises’ under the Act exclude premises whose tenants are listed on the ASX. Despite this, Verraty suggests that the retail premises lease for a ‘Mum and Dad’ business will continue to be a retail premises lease even where the tenants sell their business and assign their lease to an ASX-listed company during the life of that lease. So if that ASX-listed assignee then exercises an option to renew the lease, what is the status of the resulting further term? Croft J implies the answer depends on the terms of the lease involved. The Court of Appeal does not express a view.
  3. Richmond is going into Grand Final Week on a winning streak on and off the field. This might be a bad omen for Geelong.

Tripping up on the slip rule

“Since the abolition of capital punishment there is now no mistake by a lawyer in Australia that cannot be effectively reversed.”

Or so I was told long ago after a bad day in the office as an articled clerk.

My supervising partner had in mind the slip rule.

The slip rule is the rule that allows courts to correct minor glitches in their own judgments and orders without the trouble and expense of an appellate court’s intervention.

The slip rule is within courts’ inherent jurisdiction but it is also succinctly expressed in most courts’ own rules — see for example Federal Court rule 39.05 and, in Victoria, Supreme Court rule 36.07; Magistrates’ Court rule 36.08 and VCAT Act s 119.

But the slip rule has its limits.

I was reminded of this over the Christmas break by a Retail Tenancies List decision – Versus (Aus) Pty Ltd v ANH Nominees Pty Ltd [2012] VCAT 1908.

In late 2011 the tenant-applicant won an order totalling almost $245,000 against its landlord – see Versus (Aus) Pty Ltd v ANH Nominees Pty Ltd [2011] VCAT 2273. In that case, after a 10-day hearing and a 62-page judgment, VCAT Vice-President Judge Lacava found that the landlord had failed to take reasonable steps to stop or prevent disruption to the tenant’s trading caused by, inter alia, a neighbour’s renovations.

The landlord duly paid up.

Almost a year later the tenant decided to go back to the well. It applied to VCAT under the slip rule for a further order which would have upped the original award by almost $96,000.

The application had three prongs.

Two were swiftly dealt with. Judge Lacava found both to require a total recalculation of damages in circumstances where the errors complained of and their consequences were “not readily identifiable.”

The third limb of the application was starker.

The landlord conceded that a typographical error (yes – a humble typo) in the original reasons had effectively cost the tenant $16,235. But it would not concede the slip rule application.

Quite right too ruled Judge Lacava.

He cited L Shaddock & Associates v City of Parramatta [1983] 151 CLR 590 to the effect that courts have a discretion when dealing with slip rule applications.

In my view, if there was an error capable of being corrected under s. 119 [of the VCAT Act dealing with slip rule applications], it ought to have been identified by the applicant and its accountants by the end of February 2012 at the latest and an application then made. That was not done. In my judgment, the delay in bringing this application for correction is unexplained and is too long. It is important that litigation be brought to an end. In this case, the respondent having promptly paid the amount of damages, it would be both inexpedient and inequitable for me to make the orders sought by the applicant in its further application dated 20 September 2012.

For these reasons, the applicant’s further application is dismissed.

The lessons?

Three occur to me:

  • Try to get it right the first time;
  • Don’t hang about when you (or the judge’s typist) muck it up; and
  • Don’t believe everything supervising partners tell their underlings.

Is your enemy’s enemy your friend? Proportionate liability cases and the rule in Jones v Dunkel

The rule in Jones v Dunkel permits a court to draw an inference at trial from a party’s unexplained failure to call a witness logically within that party’s camp. The permissible inference is that the absent witness’s evidence, if led, would not have assisted that witness’s camp.

The rule is not new.  It actually predates the case from which it takes its name – Jones v Dunkel (1959) 101 CLR 298.

Particularly since the commencement in 2004 of Part IVAA of the Wrongs Act (Vic) and its federal equivalents, apportionable liability cases have become commonplace. This has complicated the application of the Jones v Dunkel rule.

Co-defendants in commerical litigation now typically pitch their case at two levels:

  • firstly, they will argue in unison that the plaintiff’s case should fail;
  • secondly, as a fallback, they will argue against each other that, if the plaintiff succeeds, the other co-defendant(s) should wear all, or most, of the resulting liability.

These issues arose (on the pleadings at least) in Goddard Elliott v Fritsch [2012] VSC 87 (see my post below of 29 March 2012 for a brief overview of the case’s facts and issues).

There a disgruntled client sued his solicitors, plus the silk and senior junior retained on his behalf.

He alleged, inter alia, negligence against each of them. Both barristers settled but the solicitors fought the case to verdict. The barristers remained as nominal parties in the trial for the purposes of the apportionment issues.

In defending the negligence claim the solicitors did not call evidence from the silk in support of their case. But neither did the client call evidence from that silk in support of his case.

The client then asked the court to draw an adverse inference against the solicitors in accordance with the rule in Jones v Dunkel.

‘But the silk is an independent party and not within our camp’, replied the solicitors.

Bell J disagreed. Here are some extracts taken from between para 32 and 49 of the 1136 paragraph judgment:

“In the negligence and other claims which have been made, and in the factual basis of what has been alleged, the nature of that case puts all of the defendants by counterclaim in the one camp….

“… It was within the power of [the solicitors] to call [the silk] as a witness in relation to important issues of fact in the case, particularly [the client’s] mental capacity and what occurred when the proceeding in the Family Court was settled…

“As [the silk) was in [the solicitors’ firm’s] camp, it was reasonably to be expected that it would call him to give evidence on its behalf. For reasons which were not explained, it failed to do so.

“The unexplained failure of [the solicitors] to call [the silk] gives rise to an inference that his evidence would not have assisted [the solicitors’] case.  That inference may be taken into account against [the solicitors] in evaluating the whole of the evidence of the case, including the evidence of [the client]. By reason of [the solicitors’] failure to call [the silk] I might more readily resolve any doubts I have about the reliability of [the client’s] evidence.

Conclusion

This ruling illustrates a conundrum likely to arise in many (perhaps even most?) multi-party cases where an apportionment of liability as between defendants (and/or joined parties) is sought.

For each co-defendant, the plaintiff will typically be the primary adversary but not the only adversary. Typically, each of the co-defendants will also be trying to shunt maximum liability on to each other’s plates. In that sense, every other ‘camp’ in the litigation will be an enemy camp.

But, for the purposes of the rule in Jones v Dunkell, your opposition’s opposition might be considered (by the Court at least) to be your friend.  The co-defendant trying to minimise his liability at your expense might very well be considered to have been within your ‘camp’ in the event of your unexplained failure to call evidence from that person.

But dare you call a hostile co-defendant to give evidence on your behalf?

Therein lies a post for another day…

Paul Duggan

Image

Paul Duggan is a commercial litigation barrister based in Melbourne, Australia.

Since 1996 he has advised and appeared in most types of business-to-business and business-to-customer disputes – commercial and domestic building matters, commercial and retail leasing disputes, insolvencies, franchises, partnerships, insurance, professional negligence, sales of land, Corporation Act matters and trade practices disputes to name a few. Although Paul has represented governments, major public companies, insurers, Lloyds syndicates and private individuals his clients are predominantly small and medium enterprises contemplating or engaged in litigation in the Victorian Supreme Court, County Court or VCAT.

Paul also practises in the federal jurisdictions and interstate.

Paul’s clerk is Gordon & Jackson.

Liability limited by a scheme approved under the Professional Standards Act 2003.