Laldy Pty Ltd v Archer& Ors[2016] QSC 257

SUPREME COURT OF QUEENSLAND

1. The applicant lessor has ended its shop leases with the two respondent lessees in order to carry out demolition works.  The parties are in dispute as to whether the respondent lessees are entitled to compensation under s 43 or s 46K, or both of those sections, of the Retail Shop Leases Act 1994 (Qld).
2. The applicant seeks declarations on the proper construction of the leases to quell the controversy.
3. The material terms of the leases in question are identical.  It is common ground they are retail shop leases and are subject to the application of the Retail Shop Leases Act 1994 (Qld) (“the Act”).
4. Each lease provides at clause 16 for its termination by the lessor if the building in which each leased shop is situated is to be demolished, requiring vacant possession:

“16.  Demolition

16.1Termination by Lessor

Subject to the operation of the Act, if the Lessor proposes to demolish the Centre, or to carry out any substantial repair, renovation or reconstruction of the Centre and that work cannot be carried out practicably without vacant possession of the Premises, the Lessor may give not less than six months’ notice (Demolition Notice) to the Lessee giving details of the proposed work and terminating this Lease at the end of that period.

16.2Termination by Lessee

At any time within six months before the expiry of the Demolition Notice, the Lessee may terminate this Lease by giving not less than seven days’ notice to the Lessor.”

5. The content of clause 16.1 and 16.2 is compliant with the terms of the Act’s s 46I, which provides how a lessor terminates the lease of a shop to be demolished by the giving of at least six months notice, and s 46J, which entitles the duly notified tenant to terminate earlier than the termination day given in the demolition notice.
6. The lessor served demolition notices on the lessees on 11 May 2016.  The notices were accompanied by covering letters and a copy of the agreement between the lessor and the demolition company engaged by it to carry out the demolition works, including the scope of works document and working plans.  It is common ground that the lessor’s proposal to demolish the building is genuine.  The notice stated, inter alia, that “the Lease will terminate on 18 November 2016”, thus giving the lessees at least six months’ notice as required by clause 16.1 of the lease and s 46I of the Act.
7. The lessor’s covering letter indicated the lessor considered it was required to pay reasonable compensation pursuant to s 46K of the Act.  The lessees responded to the effect that s 43 of the Act also entitled them to compensation.  The resolution of the dispute that ensued turns upon the applicability of ss 43 and 46K in this case.
8. Those sections are contained within the Act’s Part 6, “Minimum lease standards”.  Section 43 is contained within Division 7 “Implied provisions for compensation”.  Section 42 of that Division relevantly provides:

“42.  Compensation provisions implied in particular leases

1. A retail shop lease is taken to include ss 43, 43A and 44.

…” (emphasis added)

9. Section 43 relevantly provides:

“43.  When compensation is payable by Lessor

1. The lessor is liable to pay to the lessee reasonable compensation for loss or damage suffered by the lessee because the lessor, or a person acting under the lessor’s authority –
   1. substantially restricts the lessee’s access to the leased shop; or
   2. takes action (other than action under a lawful requirement) that substantially restricts, or alters –
      1. access by customers to the leased shop; or
      2. the flow of potential customers path to shop; or
   3. causes significant disruption to the lessee’s trading in the leased shop or does not take all reasonable steps to prevent or stop significant disruption within the lessor’s control; or
   4. does not have rectified as soon as is practicable –
      1. any breakdown of plant or equipment under the lessor’s care or maintenance; or
      2. any defect in the retail shopping centre or leased building containing the leased shop, other than a defect due to a condition that would have been reasonably apparent to the lessee when the lessee entered into the lease or, for a lessee by way of assignment of a lease, when the lessee accepted the assignment; or
   5. neglects to clean, maintain or repaint the retail shopping centre or leased building containing the leased shop or the part of the Centre or building that, under the lease, is the lessor’s responsibility; or
   6. causes the lessee to vacate the leased shop before the end of the lease or renewal of it because of the extension, refurbishment or demolition of the retail shopping centre or leased building containing the shop. …” (emphasis added)

10. Section 46K is found within Division 9, “General”, subdivision 2, “Demolishing building in which Lessee’s business is situated”.  At the outset of that subdivision s 46H provides:

“46H  Provisions implied in retail shop lease

A retail shop lease is taken to include ss 46I to 46K if the lease provides for its termination by the Lessor if the building in which the leased shop is situated is to be demolished, requiring vacant possession of the leased shop.” (emphasis added)

11. As already mentioned s 46I deals with how a lessor terminates the lease and s 46J allows the lessee given a notice pursuant to s 46I to terminate the lease earlier than the termination day.  Section 46K provides:

“46K  Compensation payable by Lessor

1. The lessor is liable to pay to the lessee reasonable compensation for loss or damage suffered by the lessee –

1. because of the early termination of the lease, if the demolition is not carried out, or is not carried out within a reasonably practicable time after the termination day; and

2. for the fit out of the retail shop to the extent the fit out was not provided by the lessor, whether or not the demolition is carried out.

2. However, subsection (1)(a) does not apply if the lessor proves that when the lessor’s termination notice was given there was a genuine proposal to demolish the building within a reasonably practicable time after the termination day.
3. The amount of the compensation payable is the amount –

1. agreed between the lessor and lessee; or

2. if there is no agreement, decided under dispute resolution process.

4. In this section –

fit out includes the provision or installation of finishes, fixtures, fittings, equipment and services.” (emphasis added)

12. The provision invoking the application of s 46K, s 46H, applies to the retail shop leases in question because, to adopt the terms of s 46H, each lease “provides for its termination by the lessor if the building in which the leased shop is situated is to be demolished, requiring vacant possession of the leased shop”.  Section 46K is therefore deemed to be included in the leases in question and in this case provides a right to reasonable compensation for fit out. 
13. As for whether 43 is also included in the retail shop leases in question, the terms of s 42(1) are unambiguous.  They provide a retail shop lease “is taken to include” s 43.  Section 43 is therefore also included in the leases in this case.
14. The real issue is not whether ss 43 and 46K are included in the leases in question.  They are.  Nor is it whether the circumstances of this case trigger the application of s 46K.  They do.  The real issue is whether the circumstances of this case trigger the application of s 43(1)(f). 
15. It bodes ill for the respondents’ position that on the plain meaning of the words of s 43(1)(f) its application is only triggered in circumstances where extension, refurbishment or demolition causes the lessee to vacate before the end or renewal of the lease.  Here, the demolition is to occur at a time after the leases and any rights of renewal have ended.  As much flows from the demolition notice and its effect of ending the leases by legitimately terminating them on 18 November 2016.  The fact the demolition will occur after that date, after the lessee no longer has any right of occupation under the lease, demonstrates it will not actually be the demolition but the early ending of the lease prior to the demolition occurring, which is the cause of the lessee vacating. 
16. Recourse to context and the broader content of s 43(1) does not assist the respondents. The circumstances listed in s 43(1)(a) to and including s 43(1)(e) are all instances of the lessor or the lessor’s agents restricting, disrupting or otherwise adversely affecting the lessee’s physical enjoyment and use of the leased shop.  Their focus is upon acts or omissions during the currency of the lease.  Put another way, they compensate for the consequence of acts or omissions interfering with the lessee’s use and enjoyment of the leased shop to which the lessee is entitled pursuant to the lease.  The common characteristic shared by the circumstances described in s 43(1)(a) through to and including s 43(1)(e) inform the interpretation of s 43(1)(f).  They confirm s 43(1)(f) ought be construed as referring to circumstances in which the causative “extension, refurbishment or demolition” spoken of is an event occurring during the era in which the lessee still has a right to occupation under the lease, not after it has ended.  
17. To comply with s 43(1)(f) the respondents’ complaint has to be that the demolition works, not merely the prospect of them, has or will cause them “to vacate the leased shop before the end of the lease”.  Such a complaint is at odds with the facts of the case.
18. It is quite plain from the content of the leases that their end date and the currency of the period in which the lessees are entitled to renew under the leases is variable, depending upon the circumstances contemplated by the lease.  Using the lease with the first respondents as an example, its commencement date was 1 September 2013.  Pursuant to clause 4.3 of the leases, the lessor granted the lessee an entitlement to a new lease on the same terms and conditions, excluding a further option for renewal, on the giving of notice within a prescribed period before the expiry date of the lease.  That date, also referred to as the terminating date in the lease, was initially 28 February 2015, but a single option to renew had apparently been exercised under the lease with the consequence that the new expiry or terminating date became 28 February 2018.^[1]  However the terms of the lease also contemplated the circumstances under which the lease might be determined earlier instead of later than the initial terminating date. 
19. Thus the “date of termination” was defined in the leases as meaning:

“(a) the date specified in item 8 [that is, the terminating date];

2. any earlier date on which this lease is determined;

3. the date of expiration or earlier termination of the Further Term or, if more than one, the last Further Term; or

4. the end of any period of holding over under clause 4.4 [that is, under a monthly tenancy],

as appropriate.” (emphasis added)

20. The leases’ clause 16, dealing with demolition, expressly contemplated that the leases would terminate at the end of the period of not less than six months’ notice contemplated under clause 16.1.  Its effect in this case is that, as the demolition notices indicated, the leases will terminate on 18 November 2016.  If the lessees vacate prior to that date it may very well be that the lessees have vacated or will vacate their leased shops before that “end” date, but if they do so it will not, as s 43(1)(f) requires, be “because of the extension, refurbishment or demolition” of their shops.  That is because, as they well know, the demolition works in this case will not be occurring until after the end of the leases on 18 November 2016.
21. The respondents complain the above construction and its application in this case is inconsistent with the Act’s object pursuant to s 3 which provides:

“The object of this Act is to promote efficiency and equity in the conduct of certain retail businesses in Queensland.”

Section 14A Acts Interpretation Act 1954 (Qld) requires that preference be given to an interpretation of an Act’s provision that will best achieve the purpose of the Act.   However the above level of generality with which this Act’s beneficial purpose is stated is of little use in construing particular parts of the legislative language^[2] and in any event is not at odds with the construction favoured in these reasons.  The respondents’ submission in effect is that the above discussed construction and its application in this case would inequitably deprive the respondents of compensation for loss occasioned by the early ending of the lease due to demolition works.  However the respondents made a commercial choice in entering into their leases to agree to a lease that could end earlier than otherwise contemplated in the event the lessor gave at least six months’ notice of proposed demolition work.  It was open to them to negotiate a longer period of such notice or refrain from entering into a lease containing such a clause.  In entering into a lease containing such a clause the lessees knew the lessor could quite legitimately end the leases early in the very circumstances which have come to pass.

22. In Project Blue Sky v ABA^[3] the majority emphasised the desirability of harmony in interpreting legislation:

“The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.  The meaning of the provision must be determined “by reference to the language of the instrument and viewed as a whole”. …

A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals.”  (footnotes omitted)

23. If the construction of s 43(1)(f) urged by the respondents is correct, so that it is of general application without being confined by the temporally causative constraint of its terms, then it is difficult to see why s 46K(1)(b), conferring a right to reasonable compensation for fit out, exists at all.  That is because the right to reasonable compensation for loss or damage suffered for the fit out would be subsumed within the general right of compensation contemplated by s 43(1)(f).  Conversely, the construction of s 43(1)(f) favoured above promotes harmony as between the compensation rights referred to in s 43 as compared to those referred to in s 46K.
24. The balance struck by the legislature was, in effect, that where demolition works are to occur after the early but lawful end of a lease, the lessee does not have a general right of compensation pursuant to s 43.  But the lessee does have the protection of at least six months’ notice and, through s 46K(1)(b), has a specific entitlement to reasonable compensation for fit out, the benefit of which fit out would otherwise be lost because the end of the lease will occur earlier than was expected when the cost of fit out was incurred.
25. The superficially more powerful of the respondents’ arguments derived not from the content of the Act as it presently is, but from what its content will become when, on 25 November 2016, provisions of the Retail Shop Leases Amendment Act 2016 (Qld) will come into force.  Section 40 of that Act inserts, inter alia, a new s 43AD:

“43AD  Lessor’s liability for relocation or demolition

1. This section applies if the lessor causes the lessee to vacate the leased shop in the circumstances mentioned in section 43(1)(f).
2. The lessor is not liable to pay compensation under section 43(1) to the extent the lessee is otherwise entitled to payment of the relocation costs under s 46G or reasonable compensation under section 46K.” (emphasis added)^[4]

26. The respondents contend that the new section 43AD has the effect of avoiding a lessee being twice compensated for loss associated with shop fit out under s 43(1)(f) as well as under s 46K.  The respondents submit that by this provision the legislature are acknowledging there may be circumstances under which a lessor causes a lessee to vacate a leased shop in the circumstances mentioned in s 43(1)(f), to which s 46K may also apply.  The respondents’ argument assumes the legislative circumstances in which ss 43 and 46K apply will always be mutually exclusive.  However the construction favoured in these reasons above merely has the effect that on the facts of this particular case s 46K applies and s 43(1)(f) does not apply.
27. It is conceivable, consistently with the construction favoured in these reasons, that there may be a case in which both s 43(1)(f) and s 46K applies.  Take a case like the present, where the lease contains a demolition clause of the kind contemplated by s 46H of the Act.  Assume that on, say, 1 January this year the lessor gave proper notice terminating the lease seven months later on 1 August.  Assume that notice was lawful and stated, as required by s 46I(a), sufficient detail of the proposed demolition works to occur after the termination date.  Such circumstances would trigger the application of s 46K and entitle the lessee to reasonable compensation for loss and damage for the fit out of the shop.  Assume however that the lessee chose, as would be the lessee’s right, to remain in occupation, not wishing to leave until the end of the lease on 1 August.  What if the lessor became impatient to commence the demolition works and embarked upon them prematurely on, say, 1 May, thereby causing the lessee to have to vacate the leased shop three months before the end of the lease?  Those circumstances would enliven the application of s 43(1)(f) and the lessee would become entitled to reasonable compensation for loss or damage suffered by reason of the demolition works causing the lessee to vacate the shop before the end of the lease.  Such an example exemplifies how the lessee would become entitled to compensation generally for loss or damage pursuant to s 43(1)(f) as well as entitled to compensation specifically for loss or damage for the fit out of the shop pursuant to s 46K.
28. The effect of the new s 43AD appears to confirm that which might be thought to have already been obvious, namely that a lessor who compensates the lessee for fit out pursuant to s 46K need not include that amount of compensation in compensation otherwise payable by the lessor to the lessee pursuant to s 43(1)(f).  It is unnecessary to analyse whether it is appropriate in these circumstances to have regard to a provision yet to come into force, because, to the extent the new provision might inform the construction exercise with which I am presently concerned, it would not alter the conclusions reached above.
29. The applicant should succeed in the application. 
30. The application sought declarations “that on the proper construction of” the leases:
    1. the respondent’s entitlement to compensation, with respect to the demolition of such premises and the demolition notice is solely under s 46K of the Act; and
    2. the respondents have no entitlement to compensation with respect to such demolition and demolition notice pursuant to s 43(1)(f) of the Act.
31. Such declarations flow from these reasons, subject to one qualification. It will be necessary to make plain the declarations are premised on the applicant not causing or having caused the respondents to vacate by reason of any premature commencement of demolition work.
32. It will also be necessary to hear the parties as to costs.
33. My orders are:

1. It is declared on the proper construction of the registered lease number 715642743 (amended as number 716109100) between the applicant and the first respondents with respect to premises known as Shops 3 and 4, ‘Earl Court’, 21 Spence Street, Cairns Qld 4870, more particularly described as lease C and lease D on Lot 1 on RP 706479 Title Reference 21488247 and assuming any vacation of the premises by the first respondents prior to 18 November 2016 is not or has not been caused by the premature commencement of demolition works at the premises, that:

1. the first respondents’ entitlement to compensation under the Retail Shop Leases Act 1994 (Qld) (“the Act”) with respect to the demolition of such premises and the demolition notice dated 11 May 2016 is solely under s 46K of the Act; and
2. the first respondents have no entitlement to compensation with respect to such demolition and demolition notice pursuant to s 43(1)(f) of the Act.

2. It is declared on the proper construction of the registered lease number 716714912 between the applicant and the second respondent with respect to premises known as Shops 2A and 2B, ‘Earl Court’, 21 Spence Street, Cairns Qld 4870, more particularly described as lease A and lease B on Lot 1 on RP 706479 Title Reference 21488247 and assuming any vacation of the premises by the second respondent prior to 18 November 2016 is not or has not been caused by the premature commencement of demolition works at the premises, that:

1. the second respondent’s entitlement to compensation under the Retail Shop Leases Act 1994 (Qld) with respect to the demolition of such premises and the demolition notice dated 11 May 2016 is solely under s 46K of the Act; and
2. the second respondent has no entitlement to compensation with respect to such demolition and demolition notice pursuant to s 43(1)(f) of the Act.

3. Failing agreement between the parties as to costs I will hear the parties as to costs at 9.15 am on 30 November 2016 (with out-of-town parties having leave to appear by telephone or video link).