Retail Shop Tenancies: When Outgoing Can Be Withheld or Recovered by Tenants

The recent case of Trimat Holdings Pty Ltd v Investment Club Pty Ltd [2020] WASCA 63, has clarified the situation where a Landlord of a Retail Shop fails to either, or both, provide:

• an estimate of operating expenses for a particular year (Outgoings Estimates); and/or
• a written statement of operating expenses actually incurred (Outgoings Statements).

However, it also left some questions unanswered.

1. Summary:
   • For the purposes of collecting operating expenses, a landlord cannot comply with the requirements of section 12 of the Commercial Tenancies (Retail Shops) Agreements Act 1985 (Act) by providing estimates and operating expenses after the prescribed period has expired.
2. Facts:
   • Trimat Holdings Pty Ltd (Trimat) leased a retail shop (for the purpose of the hearing) from Investment Club Pty Ltd (IC), for a term of 10 years from 1 November 2010.
   • Prior to the action, IC provided no Outgoings Estimates and no Outgoings Statements.
   • Trimat paid outgoings totalling over $250,000 for over 6 years, which it sought to recover in this action.
   • IC argued that it could provide the Outgoings Estimates and Outgoings Statements retrospectively.
3. Relevant Law:
   • Paragraph 12(1)(d) of the Act implies two terms into a retail shop lease:
     • sub-paragraph (i) provides that a tenant is not required to pay, and the landlord is not entitled to recover, operating expenses for that year until 1 month after the landlord gives the tenant an Outgoings Estimate for that year; and
     • sub-paragraph (ii) requires a landlord to give a tenant an Outgoings Statement within 3 months of the end of the relevant period.
   • Paragraph 12(1d) states that the tenant is not obliged to pay and the landlord is not entitled to recover operating expenses, from the date of non-compliance until the landlord does comply with sub-paragraph 12(1)(d)(ii).
4. Decision
   • The question for determination was:  If the [Act] does apply to the [Lease], can a landlord comply with the requirements of section 12 of the Act by providing estimates and operating expense statements, which have not been provided to the tenant within the prescribed periods, after those prescribed periods have expired?
   • In relation to Outgoings Estimates, the Court found that:
     • if the landlord does not give an estimate until some months into the year, the tenant is not obliged to pay any outgoings until one month after the estimate is given;
     • once the landlord gives the estimates, the tenant is liable for all outgoings of that year, not just those incurred in the months after the estimate is given;
     • the obligation is not extinguished, it is merely suspended, until the landlord complies with the Act;
     • if the landlord does not give an estimate at all during the relevant year, then:
       • it is no longer possible for the landlord to give an estimate; and
       • the landlord can never recover those operating expenses under the Act, and might have to repay any that were paid,
     • … however, the Court noted that IC may have other defences to Trimat’s restitutionary claim;
   • In relation to Outgoings Statements, the Court held that, unhelpfully, an answer to the preliminary question in relation to the Statement Provision would be hypothetical and so no firm answer was given, however, some observations were made:
     • an Outgoings Statement can be given more than 3 months after the relevant period;
     • the obligation to pay is not extinguished, just suspended until the landlord complies;
     • all the suspended outgoings are payable once the Outgoings Statement is provided; but
     • if no estimate was given for the year in question, the Court suggested that it is would be not possible to provide an Outgoings Statement that complies with the Act in some circumstances.
   • That last point might have the unintended result that no outgoings could be recovered for the following year of the shop lease either, because it would not be until the following year that a compliant Outgoings Statement could be provided.  While not suggested in the case, arguably, some sort of Outgoings Statement might nevertheless be able to be provided, which states that no outgoings were payable by the tenant for the previous year, so that the obligation to pay outgoing in that next year can commence.
5. Summary
   • In relation to a retail shop lease:
     • landlords are required to provide Outgoings Estimates and Outgoings Statements;
     • there are adverse consequences if:
       • Outgoings Estimates are not provided before the end of the year; and
       • Outgoings Statements are not provided within 3 months of the end of the previous year;
     • no outgoings are payable until one month after a landlord gives an Outgoings Estimate for that year and until that one month period expires, outgoings are not payable by the tenant;
     • if no Outgoings Estimate is given during a particular year:
       • if they were never paid by the tenant – those outgoings are never recoverable from the tenant by the landlord; but
       • if the tenant had already made payments – those outgoings may be recoverable by the tenant, but the landlord may have other defences to the tenant’s claim for restitution;
     • if an Outgoings Estimate is given during a particular year:
       • an Outgoings Statement can be given at any time after the end of the year;
       • if an Outgoings Statement is not provided within 3 months of the end of the year, the landlord will be in breach of the Act, and the obligation to pay outgoings will be suspended until the landlord complies; but
       • all outgoings are payable once the landlord provides a compliant Outgoings Statement.
   • and
     • if an Outgoings Estimate is not given during a particular year:
       • it may not be possible to provide a compliant Outgoings Statement in the following year, which my postpone the obligation to pay outgoings once the 3 month period ends; and
       • outgoings may not be recoverable for the balance of the year;
       • it might be possible to overcome the problem by providing:
         • an Outgoings Estimate for the current year; and
         • Outgoings Statements for the previous year, confirming that the no outgoings were payable for the previous year, so at least outgoings can be recovered for the current year.

The case was then remitted to the District Court to be determined according to law. Trimat Holding Pty Ltd v Investment Club Pty Ltd [No 2] [2021] WADC 26 has clarified the situation regarding whether terms implied by statute preclude any defence to a claim in restitution for payment under a mistake of law and consequently, whether it would be unconscionable to require the recipient to repay the money.

1. Summary:
   • While outgoing payments may be made under a mistake of law, if good consideration for all payments has been provided, then receipt and retention of these payments is not unjust.
2. Relevant Law:
   • Section 125(2) of the PLA provides that:  Where the Court makes an order for the repayment of any money paid under a mistake, the Court may in that order direct that the repayment shall be by periodic payments or by instalments, and may fix the amount or rate thereof, and may from time to time vary, suspend or discharge the order for cause shown, as the Court thinks fit.
3. Issues Arising for Determination
   • The court highlighted seven issues arising for determination:
     • Was there a mistake made by Trimat which gives rise to a prima facie entitlement to recover Outgoings Payments as payments made pursuant to a mistake of law?
     • Does IC have a defence to Trimat’s claim in restitution on the ground that it provided good consideration for the Outgoings Payments?
     • Does IC have a defence to Trimat’s claim in restitution on the ground of a good faith change of position?
     • Does IC have a defence to Trimat’s claim in restitution on the ground that it would be unconscionable or otherwise inequitable to require IC to repay the money?
     • Is any part of Trimat’s claim outside the limitation period?
     • If IC is liable to repay any of the Outgoing Payments, should any order be made pursuant to the Property Law Act 1969 (WA) (PLA) s 125(2)?
     • What final orders are appropriate?
4. Decision
   • The court made the following decisions in regard to each of the issues arising for determination:
     • The court was satisfied on the balance of probabilities that each of the Outgoings Payments was made mistake of law as the obligation to make the payment was suspended until such time as IC complied with section 12 of the Act. The court further stated that where a person pays money to another pursuant to a mistake, this gives rise to a prima facie obligation on the part of the recipient to make restitution. Therefore, the Outgoing Payments are prima facie recoverable by Trimat.
     • The court was satisfied that, due to the language used by the Court of Appeal in the Supreme Court case, in regard to the expiry of the prescribed periods of the Outgoings Payments, ‘the tenant would never be required to pay, and the landlord would never be entitled to recover, any of the operating expenses of the landlord’ for the relevant year. Therefore, IC cannot give good consideration for a ‘debt’ that does not exist.
     • The court was not satisfied on the balance of probabilities that the receipt of any Outgoings Payments caused IC to change its position as they were legally obligated to pay outgoings regardless of whether paid by Trimat. As there was no change in position, the court found no factual basis to assess whether the change in position was in good faith or to render it unjust. Therefore, the court found that it is not unjust to make an order for restitution on the basis of a change in position by IC in reliance on receipt of each Outgoings Payment.
     • The court questioned whether it would be inequitable in all the circumstances to require Trimat to make restitution, with particular regard to whether it would be unconscionable for a recipient who has changed its position on the faith of the receipt of money to be required to repay. However, as the court was not satisfied that there had in fact been a change in position, the court did not consider this application in the case.
     • Given the court’s finding on liability, the court expressed that the issue of whether any part of Trimat’s claim is outside the limitation period is not applicable. However, the court did further provide that should it have found IC liable to make restitution, the court would have excluded the amount falling outside the applicable limitation period from the claim.
     • The court again expressed that due to its finding on liability, the issue of whether a PLA s 125(2) order should be made is largely not applicable. However, the court further provided that in the case that its finding was wrong, it would still not be persuaded to make such an order due to the lack of evidence as to the financial position of the party who would otherwise be ordered to immediately repay the entire amount of money paid under a mistake.
     • Due to the reasons above, the court found that while each of the Outgoings Payments was made under a mistake of law, IC gave good consideration for all payments aside from the final payment for each relevant year, such that the receipt and retention of these payments is not unjust. Therefore, the court ultimately ruled that Trimat is entitled to judgment in the amount of the aggregate of the final payment for each relevant year.
5. Summary
   • In regard to whether terms implied by statute preclude any defence to a claim in restitution for payment under a mistake of law:
     • Terms implied by statute, specifically s 125(2) of the PLA in this case, are a discretion to be exercised in determining whether a remedy is sought. Such terms are to be exercised judicially, this being in accordance with established principles and factors directly connected with litigation and not arbitrarily, and must also be exercised so as to achieve what is fair Therefore, s 125(2) is not an express defence to a claim but to be assessed by the court on a case-by-case basis.
   • In regard to whether it would be unconscionable to require the recipient to repay the money:
     • The concept of unjust enrichment recognises a prima facie obligation to make restitution of a payment unless the circumstances, if proved by the defendant, would show that the receipt or retention of the payment is not unjust, and in which the law would recognise a defence.