Archive for October, 2013

Section 32 statements should disclose leases

It has long been a vexed question whether a vendor of land needs to include details of a lease affecting the land in the vendor statement provided to a purchaser pursuant to s.32 of the Sale of Land Act 1962.  Section 32 requires the disclosure of, among other things,  mortgages and charges affecting the land but does not expressly require disclosure of a lease. The vendor is required to include in the statement  a “a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction”. See: s.32(2)(b). It is established that s.32 should not be given a “narrow, restrictive construction having regard to the evident reformatory object of the leglislation”. See: for example, Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [49].  In Krakowski v Eurolynx Properties Ltd (1992) V ConvR 54-436 ( BC9200732) O’Bryan J did not consider that s.32(2)(b) required a vendor to disclose the existence of a lease affecting the land. However, in IGA Distribution Pty Ltd v King [2002] VSC 440 at [252] Nettle J (as he then was) doubted that O’Bryan J was correct but did not specifically decide the issue. In Vouzas the vendor had disclosed the existence of the lease but had not disclosed that the tenant had entered into a conditional agreement to assign the lease. Macaulay J had to decide whether s.32(2)(b) required the vendor to disclose  that the tenant of the land being sold had entered into the conditional agreement to assign the lease.   The vendor knew about the conditional agreement to assign the lease. Macaulay J expressed the view that “the doubts expressed by Nettle J in the IGA case” concerning whether a lease need be disclosed were “well founded”. However,  his Honour held that the vendor had not breached s.32(2)(b)  because that section did not oblige a vendor to disclose a conditional agreement to assign a lease. His Honour also said that “he was not convinced that an assignment of lease would need to be disclosed under s.32(2)(b”).


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VCAT not bound to refer matters to arbitration

On 17 October 2013 I posted a note about Subway Systems Australia Pty Ltd v Ireland [2013] VSC 550 which concerned a dispute between a franchisor and a franchisee. The franchise agreement contained an arbitration clause.  VCAT refused to refer the dispute to arbitration pursuant to s.8 of the Commercial Arbitration Act 2011 which provides that:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when the submitting party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

Justice Croft held that VCAT was not a “court” within the meaning of s.8 and therefore the dispute could be heard and determined in VCAT.

The decision is significant because many agreements, particularly franchising agreements, contain arbitration clauses. The effect of the judgment is that if a proceeding is commenced in VCAT concerning an agreement that contains an arbitration clause a party to that agreement cannot request the Tribunal to refer the matter to arbitration pursuant to s.8.  If the same proceeding were commenced in the Magistrates’ Court, the County Court or the Supreme Court, the Court could refer the proceeding to arbitration. According to Justice Croft this did not produce an absurdity because VCAT was intended to be a forum for speedy and inexpensive resolution of disputes.

Justice Croft noted that a party to a proceeding in VCAT could still apply under s.77 of the VCAT Act to have the matter referred to the arbitral tribunal on the basis that it was a more appropriate forum.

In the earlier post about Subway  the Commercial Arbitration Act 2011 was erroneously referred to as a Commonwealth Act; the reference should have been to a Victorian Act.

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Management fees – Practice Note for LIV’s November 2012 lease revision

The Law Institute of Victoria is issuing a Practice Notice concerning the reference to the amount of, and the calculation of, management fees in item 10 of  the schedule in the November 2012 Revision. The Practice Note says:

“When using the LIV Commercial lease for a retail premises lease containing an option to renew and under which management fees will be payable, it is recommended that:

  • Item 10 of the Schedule be modified by deleting the paragraph beginning ‘If the Act applies’ and ending ‘section 49(4)’.
  • The information relating to the amount of the management fee and the method of calculating the amount payable by the tenant, for the first accounting period of the lease term, be specified in the disclosure statement rather than the lease.  This will satisfy section 49(1)(b) without creating potential issues where an option is exercised.  When an option is exercised, the disclosure statement for the new term should also specify the management fee and the method of calculating the amount payable by the tenant for the first accounting period of the new lease.”

The Practice Note was drafted by Derry Davine and Robert Hay.


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Arbitration clause ineffective to oust VCAT’s jurisdiction

In a fascinating decision given today the Supreme Court of Victoria held that an arbitration clause in a lease could not oust VCAT’s jurisdiction under the Retail Leases Act 2003 (2003 Act).  In Subway Systems Australia  Pty Ltd v Ireland [2013] VSC 550 Croft J held that VCAT was not a “court” within the meaning of the Commercial Arbitration Act 2011 (Cmlth).  The matter came before Croft J after a VCAT member declined to find that the Tribunal was bound to refer the dispute to arbitration under s.8 of the CAA. In broad terms s.8 of the CAA requires a court before which an action is brought in a matter which is the subject of an arbitration agreement to  refer the matter to arbitration if one of the parties  makes that request.  Croft J held that VCAT was not a “court” for the purpose of s.8(1) of the CAA and therefore VCAT was not bound to refer the dispute to arbitration.  His Honour also accepted that  by the time s.8 of the CAA might be said by a party to a lease to be engaged, s.94 of the 2003 Act  had already rendered void the clause requiring disputes under the lease to go to arbitration. Section 94(2) of the 2003 Act provides that a provision in a retail premises lease is void to the extent that it purport to exclude the application of a provision of the 2003 Act  or to limit the right of a party to a lease to seek resolution of a retail tenancy dispute under Part 10 of the 2003 Act.

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