Retail leasing post-C.B. Cold Storage Part 1: Koga Nominees Pty Ltd v Loscam Australia Pty Ltd & Ors [2018] VSC 455

Noman Mermelstein of the firm Law Ink Pty Ltd has recently published an article in the Law Institute Journal that asks whether, in light of a string of recent decisions, there is really a need for retail tenancies legislation in our community. A copy of Norman’s article is available here. The article is excellent and I recommend it to all of my readers.

One of the issues discussed in the article is, of course, the application, of the application of the “ultimate consumer” test that I have discussed at length on this blog. Since the High Court declined special leave to appeal the C. B. Cold Storage case, there have been a number of cases that have applied the law and tested the boundaries of the application of the Retail Leases Act 2003 (Vic) (RLA 2003).

In order to contribute to the debate, I have prepared a series of posts that discuss the application of the RLA 2003 and the test for retailing under that Act the since the C.B. Cold Storage case that have not otherwise made their way onto this blg. This is the first post in that series.

For background reading, see hereherehere and here.

In Koga Nominees Pty Ltd v Loscam Australia Pty Ltd & Ors [2018] VSC 455, Croft J was asked to determine the application of the RLA 2003 in the following circumstances:

  1. the landlord granted a lease to a tenant who used the premises for the storage of pallets. The permitted use in the lease was:

Warehouse (and ancillary or associated office use) and repair, storage, hiring and dehiring of pallets and related equipment but expressly excluding the use by the Tenant for any retail purpose.

  1. a sub-lease was later granted to a metal recycling business and the permitted use in the sub-lease (to which the landlord consented) was:

Warehouse (and ancillary or associated office use) and repair, storage, hiring and dehiring of pallets and related equipment, commercial and industrial metal recycling which includes the storage, warehousing and transportation of scrap metal material, but expressly excluding the use by the Tenant for any retail purpose.

  1. the landlord made a claim for significant make good at the end of the head lease. The head tenant joined the sub-tenant, which responded with an argument that the sub-lease was a lease of retail premises under the RLA 2003 and that a substantial amount of the make good was the head tenant’s responsibility under s 52 of the RLA 2003; and
  2. the head tenant argued that:
    • the permitted use in the sub-lease prohibited retailing, so the lease could not be retail, relying on the decision in Sofas v Cobum (1992) V ConvR 54-439; and
    • in the alternative if the sub-lease was a retail premises lease, then so too must the head lease have become a retail premises lease when the sub-lease was granted.

Unfortunately, the evidence presented at the preliminary hearing meant that Croft J was unable to determine those questions. However, his Honour did make the following remarks.

First, his Honour made the following remarks about the effect of a sub-lease being retail:

[22]     Loscam submits the effect of a finding that the Sub-Lease is a lease of “retail premises” under the Act would be to produce a surrender and re-grant of the Head Lease.[1] The Defendant says there would be a substantive change that would be effected in obligations of the parties under the Sub-Lease and thereby, as I understand the submissions, under the Head-Lease—in the latter case, particularly with respect to the permitted use.[2] Loscam also contends that it follows that if the Sub-Lease is found to be a lease of “retail premises”, then it must follow that the Head-Lease is also a lease of “retail premises” under the Act.[3] Having regard to the provisions of the Sub-Lease which are set out in the preceding paragraph, my preliminary view is that this position is not as clear as contended by Loscam. In any event, both these issues are, for the reasons which follow, matters for trial.

Secondly, on the question of the effect of the prohibition on retailing in the permitted use, his Honour provided guidance on the appropriate analysis when tackling this issue:

[30]     As I have indicated, Loscam would have it that the preliminary questions are to be answered simply and solely on the basis of the proper construction of the permitted use provisions contained in the Sub-Lease. In this respect, reliance is placed upon decisions such as Sofos v Coburn[4] and Cambridge Co-ordinates Pty Ltd v Viking Press Pty Ltd,[5] and extrinsic Parliamentary[6] and also Small Business Commission Guidelines[7] as to the critical and decisive effect of the words “under the terms of the lease” in the “retail premises” definitional provisions of s 34(1) of the Act. Turning to the Sub-Lease permitted use provisions themselves, Loscam says that, on this basis, the words “… but expressly excluding the use by the Tenant for any retail purpose” is therefore decisive against the position of the Third Parties.[8]

[31]     The Third Parties, on the other hand, do not dissent from this position but rather contend that proper construction of these permitted use provisions involves more than simply having regard to the words themselves in isolation from the permissible consideration of their factual matrix.[9] Thus they focus on the actual use of the Premises in the context of the permission provisions, rather than the (retail use) exclusionary provision of the permitted use provisions under the Sub-Lease.[10] In so doing, reliance is placed on the decision of the Court of Appeal in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd (“CB Cold Storage”),[11] the passage where the Court said:[12]

23        What can be seen from the authorities is that the concept of the ‘retail provision of services’ in the Retail Leases Act and its predecessor legislation is that it involves close consideration of the service that is offered, whether a fee is paid, whether it is a service that is generally available to anyone who is willing to pay the fee and whether the persons who use the service are the ‘ultimate consumer’. On one view, to talk of an ultimate consumer of services may appear strained. Most services that are purchased are not susceptible to being passed on to a third person. This may be contrasted with a sale of goods where the difference between wholesale and retail is easily discernible. Nevertheless, the authorities that apply an ultimate consumer test as one indicia of the retail provision of services, are of long standing.

[32]     Although CB Cold Storage was a case concerning “services”, the Third Parties submit that this statement is equally applicable to “goods” for the purposes of s 4(1) of the Act.[13] Reliance was also placed by the Third Parties on the statements in cases such as Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd[14] and Access Solutions International Pty Ltd v Gamet Pty Ltd (“Access Solutions”).[15] The position which, in essence, the Third Parties seek to put in this application is, as I understand it, that it is necessary first to analyse and properly construe the permitted use provisions of the Sub-Lease to determine whether they do, on a proper construction, permit the sale of goods by retail and then to consider whether, having thus permitted retail sales, the exclusionary provisions are rendered void by the operation of s 94 of the Act.[16]Thus, the process of determining that which is permitted “under the terms of the lease” is not as simple as Loscam would have it.

[33]     In relation to the appropriate analysis of considering the effect of the permitted use provisions of the Sub-Lease, I could no better than make reference to the analysis set out in the Access Solutions case by Judge Macnamara:[17]

142      In Victorian Frozen Food Distributors Pty Ltd v Anassis (Unreported, 16 July 2009) as a Deputy President of VCAT, I considered whether a lease of premises to the applicant company was governed by the Retail Leases Act. While there were some over-the-counter fish sales, presumably to ordinary consuming members of the public, more typically and predominantly the company’s sales were to other enterprises such as hotels, restaurants, vineyards, clubs and so forth. Counsel for the applicant tenant submitted that there was here no wholesale sale, that is, a sale to a person who intended to on-sell to an ‘ultimate consumer’. The fish were ‘consumed’ by the hotel, kitchen or vineyard or club and a different commodity was supplied by wholesale to the customer of the hotel, club, etc. I said:

“The question is whether … where for instance bulk fish items are delivered to the kitchen of an hotel, motel or club the kitchen can be regarded as the ultimate consumer. In my view this cannot be. It would lead to bizarre results if this were correct. On this view a factory which manufactures plastic and/or rubber items such as body trims or windscreen wiper blades for supply to a car manufacture such as Holden or Ford would be regarded as in the retail trade because Holden or Ford in the hypothetical example ‘consume’ the plastic and rubber items by incorporating them as trim or wiper blades in the final motor vehicle construction. An ordinary person would be astonished and bemused at the suggestion that such an enterprise was a retailer.

Again, on the same reasoning, BHP Steel would be regarded as a ‘retailer’ if it delivered raw sheets of metal to be pressed into car bodies by one of the major car manufacturers. Again, an astonishing proposition.” [75]-[76]

143      I reached this conclusion and adopted that reasoning without the benefit of the later authoritative statements from Croft J in Fitzroy Dental and the Court of Appeal in CB Cold Storage. I now turn to those authorities.

[after discussing these authorities, His Honour Judge Macnamara continued]

152      The court was unwilling to upset what it regarded as a judicially settled meaning of the phrase ‘retail provision of services’ [24].

153      These cases do, as Ms Marcus correctly submitted, deal with the phrase ‘retail provision of services’, not with the meaning of the phrase ‘the sale or hire of goods by retail’. Nevertheless, the analysis by Croft J in Fitzroy Dental extends to sales of goods as well as services. It remains possible, based on those authorities, to argue a narrower approach to the concept of retailing relative to goods. It might be, therefore, that my own decision in Anassis’ case, which seems to fit ill with these cases, could still be justified based upon its dealing with sales of goods rather than the retail provision of services.

It may assist that I indicate that, with respect, this is an analysis with which, on the basis of the matters presently before me, I agree and endorse. This does not, however, pre-empt any position ultimately reached in these proceedings.

In my view, these passages suggest:

  1. the Courts and Tribunal will need to look at the use to which the premises is, or is to be, put when determining the application of the RLA 2003, and cannot supply look to the permitted use in the lease in isolation; and
  2. the Courts and Tribunal may be willing to adopt a more narrow approach to the retail supply of goods than the decision in Fitzroy Dental might suggest.   However, we will need to wait for more decisions to see the impact of that indication.

[1] Defendant’s Outline of Submissions (6 August 2018), [99].

[2] Defendant’s Outline of Submissions (6 August 2018), [94]–[96].

[3] See Defendant’s Outline of Submissions (6 August 2018), [97]-[102].

[4] (1992) V Conv R 54-439.

[5] (2001) V ConvR 58-533.

[6] Retail Tenancies Bill 1986; Retail Tenancies Bill (No 2) 1986; Victoria, Parliamentary Debates, Legislative Assembly, 23 October 1986, 1511–2 (Robert Fordham, Minister for Industry, Technology and Resources).

[7] Victorian Small Business Commissioner, Guidelines to the Retail Leases Act 2003 – What are “Retail Premises” (2006).

[8] See Defendant’s Outline of Submissions (6 August 2018), [70] and following.

[9] Outline of Submissions Filed on Behalf of the Third Parties (7 August 2018), [13]–[16].

[10] See Transcript, 22–3; Outline of Submissions Filed on Behalf of the Third Parties(7 August 2018), [17]–[28].

[11] [2017] VSCA 178.

[12] [2017] VSCA 178, [23].

[13] Outline of Submissions Filed on Behalf of the Third Parties (7 August 2018), [15]–[16].

[14] [2013] VSC 344.

[15] [2017] VCC 1563.

[16] Cf Defendant’s Outline of Submissions (6 August 2018), [73]–[85].

[17] Access Solutions International Pty Ltd v Gamet Pty Ltd [2017] VCC 1463, [142]–[153].

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