High Court refuses special leave to appeal, “ultimate consumer” test confirmed (for now)

By Kate Davey (Senior Associate) and Paul Welling (Principal Solicitor)

On Friday the High Court refused an application for special leave to appeal the Victorian Court of Appeal decision of IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 (Appeal Decision).  The Appeal Decision was significant for all landlords and tenants because it confirms that the “ultimate consumer” test is part of the test of whether a premises is a retail premises under the Retail Leases Act 2003 (Vic) (RLA). The application of this test means that many leases in Victoria may be classified as retail without the parties realising.

Background

IMCC Group (Australia) Pty Ltd (the Landlord) leased a property at Laverton to CB Cold Storage Pty Ltd (the Tenant). The use of the premises as specified in the lease was “Cold and cool storage warehouse and transport facility”.

The Tenant’s customers were generally companies involved in the food industry who paid the Tenant fees to store their food products such as dairy products, small goods and seafood. Customers included producers, manufacturers, distributors, importers and exporters. Additional services provided by the Tenant included loading/unloading pallets into and arranging transportation of products to/from the warehouses.

The Tenant brought a claim in the Victorian Civil and Administrative Tribunal (VCAT) seeking to recover money that it had paid to the Landlord. It submitted that the moneys were not payable because the premises were “retail premises” under the RLA.

In considering whether the premises were “retail premises”, the relevant question was whether the premises were used for the “retail provision of services”. That phrase is not defined in the RLA but had been considered in a number of cases.

VCAT held that the services provided were not retail and that, therefore, the premises were not retail premises.

The Tenant appealed to the Supreme Court of Victoria.

Croft J allowed the appeal, finding that the premises were used for the retail provision of services and reaffirming the “ultimate consumer” test as set out in Wellington Union Life Insurance Society Limited [1991] 1 VR 333.

Recap of the Court of Appeal decision

The Landlord sought leave to appeal the decision of Croft J.

The Landlord submitted that:

• the Tenant conducted a commercial operation from the premises and that the lease was therefore a commercial lease;
• the use of the premises for business purposes was inconsistent with retail use – there was no “consumer” involved;
• part of Croft J’s reasoning was that the nature of the services and the circumstances of their supply were irrelevant to the proper characterisation of the services supplied by the Tenant. If an “ultimate consumer” test alone sufficed, the Landlord contended that all services would be “retail” services because by their nature services cannot be re-supplied;
• Croft J failed to take into account all of the relevant facts including: the size of the premises, the significant rental under the lease, that the number of people who could use the services was limited because a large truck was required to transport goods to and from the warehouse, the nature of the goods stored at the warehouse and that there were large quantities of them;
• storage of the goods was part of the supply chain. After the goods left the premises they would be thawed, then cooked and eaten by someone other than the tenant’s customers. In summary, the services were not for personal use.

In July the appeal was dismissed.

The Court of Appeal held that the phrase “retail provision of services” had been interpreted by reference, at least in part, to an “ultimate consumer” test. That is – are the services used by the person to whom they are sold or are they passed on by the purchaser in an unaltered state to some third person? In answering this question, no distinction had historically been made between commercial and non-commercial users of the service.

The Court of Appeal held that what could be seen from the authorities was that the concept of “retail provision of services” will involve close consideration of:

• the service that is offered;
• whether a fee is paid;
• whether it is a service generally available to anyone willing to pay the fee; and
• whether those who use the service are the “ultimate consumer”.

The Court of Appeal also noted that various amendments had been made to the RLA but not to the phrase “retail provision of services”, thus raising a presumption that the legislature adopted the interpretation consistently given to the phrase by the Courts in the past.

The following factors led to the Court of Appeal’s conclusion that the premises in question constituted a retail premises:

• the services were used by the Tenant’s customers who paid a fee;
• any person could purchase the services if the fee was paid;
• the Tenant’s business was open during normal business hours;
• the Tenant’s customers did not pass on the services to anyone else – they were the ultimate consumer of the Tenant’s services.

The Court of Appeal made it clear, however, that it will depend on the facts and circumstances of each case: “In isolation, none of these features would suffice to constitute the premises as retail premises. Conversely, the absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises. However, in the circumstances of this case, when all of the features are taken together, the conclusion must be that the premises are retail premises”.

Key takeaways

1. The “ultimate consumer” test is confirmed as part of the test in Victoria for assessing whether premises are “retail premises” under the RLA (unless changes are made to the RLA by Parliament).
2. The RLA can apply to premises from which goods or services are supplied from one business to another, if the business which receives those goods or services is the ultimate consumer of those services.
3. Premises which most lay persons would not characterise as “retail” (such as warehouse and logistics businesses) may therefore be characterised as retail under the RLA in the absence of some other statutory exclusion.
4. It is likely that a significant number of existing leases are regulated by the RLA without the parties being aware of this.
5. The consequences of the application of the RLA to a lease can be significant, with perhaps the most important being that landlords are prohibited from recovering land tax as an outgoing from tenants of a retail premises lease.

If you require advice in relation to this issue please do not hesitate to contact our Litigation & Dispute Resolution team or our Commercial Property team for assistance.