Accordent Pl v Plus Investments Pl & Ors No. DCCIV-00-1378

ACCORDENT PL v PLUS INVESTMENTS PL & ORS
[2003] SADC 102
Judge Herriman
Civil
THE ACTION

In this action, the plaintiff (“Accordent”), as lessor, claims damages from the first defendant (“Plus Investments”), as lessee, and the second defendant, Salvatore Barca (“Barca”), as a guarantor of Plus Investments, for breach of a lease (“the lease”) relating to the occupancy by Plus Investments of a hairdressing salon (“the salon”) within premises owned by Accordent and known as Windsor Gardens Shopping Centre (“the Centre”).
The defendants deny the alleged breach, contending:
(1)that a collateral agreement enabled them to terminate in the circumstances;
(2)that the plaintiff accepted the third parties as substitute lessees and are thereby estopped from pursuing the defendants; and
(3)that the plaintiff was in breach of its lease obligations and (as I infer it) they thus became entitled to terminate the lease, anyway.
Further, the defendants have, in turn, served third party proceedings on Robert Frankham (“Frankham”) and Kim Thi Le (“Le”) - they allegedly being business partners and persons licensed, by Plus Investments in November 1998, to operate the salon - seeking indemnity against the plaintiff’s claim on the basis of the third parties’ alleged breaches of the licensing contract. Finally, Frankham, for his part, has served a contribution notice on Le, but she has not responded to it, nor did she appear at trial.
It is common ground that the lease was for a term of five years commencing on 1 June 1998, that Plus Investments first operated the salon, but that Frankham and Le then operated it from December 1998. Further, it is not in dispute that all of Plus Investments, Frankham and Le vacated the salon on about 11 May 2000, and that no rental moneys have since then been paid to Accordent. Accordent thus sues for arrears of rental up to 11 May 2000, for property loss and for other relief arising from the early termination of the lease.
GENERAL INTRODUCTION
Accordent was at material times the registered proprietor of the Centre and its sole director was Sotirios Portellos (“Portellos”).
Plus Investments was an operator of various hairdressing salons around Adelaide and that which it commenced at the Centre traded under the name of “Hair Plus”. The second defendant, Barca, is the sole director and shareholder of Plus Investments.
In 1998, the Centre was being developed as a new and unconventional shopping precinct. It was unusual in that, whilst its principal tenant was to be a supermarket, other smaller tenancies would be created, which would carry on business in an open‑planned way under the supermarket roof, all of them to be effectively accessed by the supermarket door. The smaller tenancies were thus to be part of the general supermarket area, they could display on its floor and their stock could be checked out through its sales registers. Because of this cohesion, it was envisaged, said Portellos, that the Centre would be marketed as a “fun” place (p.34) and one providing a comprehensive range of retail outlets.
In about June 1998, the plaintiff and first defendant entered into the five‑year lease, (Ex. P1), which contained provisions whereby, inter alia:
(1)Accordent agreed it would, at its own expense, fit out the salon;
(2)Plus Investments agreed not to assign its interest thereunder without the consent of the lessor and, further, it undertook:
“2.3.4in respect of all cases of assignment transfer subletting or parting with possession by the Lessee the Lessee shall not be released from its covenants and obligations under this Lease for the balance of the Term (including without limitation any renewal if any right of renewal is exercised by any assignee or transferee as Lessee) and such assignment transfer subletting or parting with possession will not operate in any way to restrict mitigate or release the responsibility and obligations of any guarantor from its guarantee of the Lessee’s obligations;”
(3)By clause 9, Accordent undertook to procure the supermarket operator to ensure salon stock could be displayed and offered for sale within the supermarket and scanned through its registers;
(4) Barca personally guaranteed the performance by Plus Investments of its terms.
The operator of the supermarket itself was known as “Foodland Big N Fresh” (“Foodland”).
On 29 October 1998, the first defendant wrote to the plaintiff, saying it had “extreme cash flow problems ... due too (sic) the unfinished centre” and asking to introduce a new operator of the salon at an increased rental which could go to the plaintiff in order “to release Plus Investments from the head lease” (Ex. P4). The plaintiff did not consent to this proposal and on 16 November 1998, Plus Investments wrote again, saying it proposed to cease trading, that it had been misled by the plaintiff because the Centre had not been completed in time, there had been no proper marketing or signage, projected people and cash flows were down, and there were problems with supermarket scanning of its products. It again mentioned an available subtenant.
Portellos said, in evidence, that he orally conveyed Accordent’s response to these proposals to Barca by saying they would have to be formally put and they would then be considered by Accordent. In the meantime, he said that any persons moving into the salon in place of Plus Investments would be regarded by the plaintiff as “invisible” (p.30). Barca, in evidence, did not seek to dispute that account of things, but neither, it seems, was anything then done by either party about formally resolving the matter. Instead, in about December 1998, the business of Hair Plus came to be conducted, at least on a day‑to‑day basis, not by Barca or Plus Investments, but by the third parties.
On 17 December 1998, the plaintiff appeared to acknowledge this fact without necessarily approving it, and, by its solicitors, requested of Plus Investments the submission of a proposed underlease (Ex. P6). For reasons which never clearly emerged, no proposed underlease was ever tendered. From that time onwards, however, and without apparent dissent from the parties, all rental payments made by the third parties up to 11 May 2000 were received by Accordent.
I should then go back in time to February 2000, when the Franklins chain took over the management of the supermarket from Foodland. Between then and 11 May 2000 there were, according to the defendants and third parties, disputes between Franklins and the third parties as to the salon’s access to supermarket stocking and checking out.
The plaintiff claims that, notwithstanding any arrangements about occupancy of the salon made between Plus Investments and the third parties, Plus Investments has always remained liable for payment of rent under the lease, and it seeks recovery of arrears of rent it says were due as at 11 May 2000 and damages arising out of the failure of the first defendant, after that time, to complete the term of the lease. Further, it contends that the first defendant must account to it for items of plant and equipment allegedly removed wrongfully from the premises in or prior to May 2000.
By their Defence, the defendants say that there was an oral collateral agreement with Accordent whereby, notwithstanding the terms of the lease, Plus Investments would always have the right to vacate the premises and terminate the lease “if the concept did not work” (referring, as the evidence disclosed, to the new shopping concept). They say that, in abandoning the premises on 11 May 2000, whether directly or through the third parties, Plus Investments was properly exercising that right, as the concept had not worked. Further, they say that, in any event, the plaintiff acquiesced in Frankham’s and Le’s occupation of the salon, accepted increased rent from them and impliedly released Plus Investments from its covenants under the lease. Finally, they say that in breach of the terms of the lease:
(1)Accordent failed to account to the third parties as “subtenants” for stock scanned through the supermarket checkouts in late 1999;
(2)Accordent failed to procure Franklins’ compliance with its own leasing obligations to ensure the third parties could display stock within, and scan their products through, the supermarket; and
(3)Accordent failed to comply with the terms of a verbal agreement it had with Plus Investments whereby Accordent would account to Plus Investments for the additional rental payable and paid to Accordent by the third parties.
Further, Plus Investments plead that they rely on an alleged misrepresentation by Accordent as to the number and variety of other small tenancies in the Centre. This particular allegation was, however, only faintly pursued at trial.
In respect of these asserted breaches of the leases, the defendants’ pleading does not say so specifically, but I infer and, applying Rule 46.04(4), will regard this as a plea that by virtue of those breaches, Plus Investments became entitled to terminate the lease.
The defendants are also critical in their pleadings of Accordent’s marketing of the Centre, but those criticisms never matured into a formal counterclaim, nor were they supported by any cogent evidence.
By their third party claim, the defendants assert that Frankham and Le, as sublessees of the salon, failed to make all rental payments due to the plaintiff to 11 May 2000 and that they unlawfully abandoned the salon on that date and should thus indemnify Plus Investments for any liability it has to the plaintiff.
The third parties resist that claim, denying the existence of a lease or any valid contractual arrangement. If, indeed, there was one, they say its terms were breached by reason of the failure of Franklins to provide quiet enjoyment and the supermarket selling facilities promised to them.
I should say at this point that although the defendants had been previously represented in the action, they were unrepresented at trial. The third parties never had formal representation. I have thus had to make some allowances for their lack of understanding of procedural and substantive matters and, in particular, the respective levels of their adherence to pleadings.
I propose to deal with the evidence of the principal witnesses before making observations and findings.
SUMMARY OF THE EVIDENCE
THE PLAINTIFF’S CASE
Sotirios Portellos
Portellos is the sole director of Accordent, the company which owned the land on which the Centre was situated. He described its development in 1998 and how, prior to the middle of that year, he had discussions with Barca about establishing a hairdressing salon there.
In the event, those negotiations proceeded smoothly and led to an Offer to Lease and then an agreement (Ex. P1), both of which were duly executed in about June 1998.
Pursuant to that agreement, Accordent, at its own cost, then undertook the fit‑out and supply of equipment for the hairdressing tenancy. He produced invoices relating to those costs (Ex. P7).
Plus Investments moved in at about the time the lease commenced, i.e. 1 June 1998.
Portellos did not recall receiving the letter Exhibit P4, nor having any discussions, in October of that year, about the future of Plus Investments as a tenant, but he did recall discussions with Barca about borrowing money to keep the salon running. Barca told him he was in financial difficulty and he proposed that Plus Investments would repay any borrowing by increasing its rental payments over time and so that the loans would be repaid in full by the end of the lease period of five years. In the event, he said, Accordent loaned Plus Investments a total of $18,000, which sum comprised:
(1)a direct advance of $4,000;
(2)a temporary waiver of arrears of rental then accrued and totalling $4,000 to $5,000; and
(3)a balance of $9,000, being an amount refundable by Plus Investments to Accordent for equipment purchased and paid for by Accordent from Plus Investments for the salon, but never supplied. Those items, he said, included a roller shutter and two barber’s chairs.
It was at this time that Barca introduced him to the third parties, saying he had agreed to license the salon to them. Portellos informed Barca that any proposed arrangements with the third parties would have to be properly documented and submitted to the lessor, which would then consider its position. Until that was done, he would treat them as “invisible”, so that Accordent and Plus Investments would continue to be in “the same relationship” (p.30).
After that time, he became aware that the management of the salon appeared to be taken over by the third parties, but he was never aware of the precise arrangement concluded between them and Plus Investments, nor did the plaintiff receive any documentation from the defendants relating to any assignment of the lease or any subletting.
He instructed his solicitors to write to Barca, on 17 December 1998, in the following terms, inter alia:
“I understand that you have vacated the premises and that the underlessees are now in occupation. Would you please provide me with a copy of the proposed Underlease for consideration as soon as possible.
Once the Underlease documentation has been completed I will prepare a Deed to be entered into between Plus Investments and Accordent Pty Ltd in relation to Accordent’s entitlements to the additional rent payable pursuant to the Underlease.
I look forward to hearing from you.”
That letter was sent, but his solicitors never received a reply to it, nor any of the requested documentation.
Nevertheless, after that time, the monthly rental received by Accordent increased from $2,166 to $2,600 and that increment was, he said, appropriated by Accordent towards repayment of the $18,000 loan, it being calculated that that total would then be repaid over the balance of the lease term.
Thereafter, he observed that Frankham appeared to act as salon manager and paid all subsequent rental payments direct to Accordent.
He described how, in February 2000, the entity running the supermarket changed from Foodland to Franklins, and a new lease was then executed between Accordent and Franklins (Ex. P2).
Accordent’s intention was, he said, to ensure that all tenants, including Plus Investments, had the same relationship with Franklins as they had had with Foodland. In so far as the salon was concerned, this meant its continued access to supermarket shelving, display and checkout facilities. Clause 35.1 of P2 was drafted with that in mind. Notably within that clause, are provisions requiring Franklins to provide the salon tenant with reasonable shelf space for its stock within the Franklins area, to take reasonable steps to ensure that its checkout facilities will scan salon stock and to account and to permit the salon’s visitors and employees access through the supermarket.
Some few months later, on 12 April 2000, the Centre manager, Bill Chadwick, wrote a letter to the first defendant (Ex. P8), making demand for arrears of rental totalling $15,166.66, allegedly due from October 1999 until the date of the notice, 12 April 2000.
Portellos said that one month after that letter of demand, the salon ceased to operate, the premises were vacated and no further rental was received for them. Accordent then tried, unsuccessfully, to secure another tenant. Eventually, the Coles supermarket chain took over the entire premises, including the salon space, on 6 August 2002. Just prior to then, Accordent had ceased looking for a replacement tenant for the salon.
Portellos then sought to speak of the results of a stock-take of plant and equipment in the salon undertaken by Chadwick after the salon was vacated. He had not participated in it, however, and I did not permit him to do so.
He returned to the arrangements concerning the Coles tenancy and said that as the salon was still vacant at the beginning of 2002, work was then commenced upon it in preparation for the Coles takeover later that year. He conceded that the salon was not available for another tenancy from February 2002 onwards. I should say, here, that the plaintiff did not purport to seek damages in respect of any period beyond 31 January 2002.
In cross‑examination, Portellos said that Mr Steve Papas was his partner at the time negotiations took place with Barca, at Frewville Foodland, relating to the salon tenancy.
He said that the Centre was to be based on a new concept of bringing fun into shopping, with a “Disneyland effect” and with a lot of attention being paid to fresh food. There was to be one entrance for the supermarket and all associated shops, which would otherwise be individually run. He went on to describe some of the fabled characters and animation that had been installed there. He and Papas had ultimately gone their separate ways and the Centre had become his as a result of a marriage property settlement.
He was questioned on the risks involved in attempting such a shopping concept. He said it had been tested successfully in other parts of Australia and overseas, but he acknowledged it was then new in South Australia and there had been a commercial risk involved in the development.
It was put to him that, in discussions with Barca, it had been agreed that if the concept did not work, Plus Investments could leave and Accordent would find another tenant for the salon. He denied that.
He was asked what promotions had been undertaken for the salon and for other tenants and said there were documents relating to that. He was asked to produce them and, somewhat surprisingly (in view of the defendants’ pleading), was unable to do so there and then. He was pressed on the matter and seemed quite unsure about whether they existed any longer. He had seen them in the past, but he did not know whether he any longer had them. Later in his evidence, however, he did produce a bundle of flyers and the like (Ex. D4).
He said that Accordent had paid for the fit‑out of the salon, albeit that it had mostly been first paid by an outfitter, Davids Limited, which had then recouped its expenditure from Accordent.
He was asked for receipts relating to expenditures on the entire fit‑out of the premises and relating to his company’s reimbursement of Davids, but he was only able to produce receipts relating to the items claimed in paragraph 13. Having regard to the pleadings, I did not consider that to be particularly surprising, but later he did produce some of that material (Ex. D11).
He was tested on the roller shutters and said that they had been ordered by Barca, who was supervising the fit‑out of the salon, and had been paid for by Accordent, but ultimately had never been supplied by Barca. That was why they had formed part of his claim in paragraph 13.9 of the Statement of Claim. It was put to him that Barca would say they had been supplied and were stored in the Foodland storeroom. His response was that he had never known that. He wanted to know why it had occurred. He did not remember ever seeing them. At all events, he said, their purchase had been unnecessary and they had never been installed.
He was tested on his assertion that Barca had been the project manager for the fit‑out of the salon. He said it was to be inferred from their agreement and pointed to paragraph 10.1 of Exhibit P1, where it was provided that the lessor disclaims responsibility for design or other consultant fees, which costs will remain with the lessee.
He was then asked whether he had ever previously complained to Barca about Accordent paying for goods that had been ordered by Plus Investments, but never supplied. He said he had done so at a meeting with Barca at the Centre, but he could not remember which specific items were then mentioned, although they included some of the items in paragraph 13 of the Statement of Claim. Barca had then told him that he would attend to the matter and would deliver the missing goods. He said he had even made a complaint to Davids Limited about unsupplied goods, but he was not able to produce any written evidence of it.

He was challenged as to his pleading in paragraph 13, which implied that particular items had been removed at the end of the tenancy, when in fact he was now saying some of them had never been there at all. He was of very little assistance on this topic and said he did not know whether items were never delivered or had been delivered and gone missing. He had not been there when the goods had been delivered and all he knew was that they had been paid for and had not been recovered at the end of the tenancy.
Foodland had been the supermarket tenant at the Centre. He had himself been interested in, and a director of, a company known as “Big N Fresh Pty Ltd” and there had been a relationship between Foodland, Big N Fresh and the plaintiff.
He was then asked about proof of his claim of having, in 1998, loaned $4,000 in cash to the first defendant (that being part of the $18,000 advance of which he had spoken). It had been paid, he said, by cheque, but he was not able to produce the butt there and then. Later, however, he did produce one, dated 10 September 1998, recording: “Hairplus Sales not processed through Hair Plus Key On Register? LOAN $4000-00”.
He was then asked to produce evidence of arrears of rental between June 1998 and November 1998. He said he had no documentation relating to that, but I keep in mind that the plaintiff’s claim related not to this period, but to arrears allegedly arising after that time.
He was then shown the document D1, titled “Sale of License” between the first defendant and the third parties. He said he had never been aware of it before, nor had he been aware of any agreement about somebody else occupying the salon in place of Plus Investments. That response seemed odd to me, but on being pressed, at length, he said that he had been aware of some arrangement between Plus Investments and the third parties, whereby the latter would occupy the salon on behalf of Barca, but he did not know what it was about and he had told the third parties that “if there was going to be an arrangement there had to be proper documentation acknowledged by the lessor or the landlord and get their consent or otherwise they would be invisible to the landlord and they would be working on behalf of Mr Barca regardless of any possible arrangements amongst themselves” (p.113).
The letter Exhibit P6 was then shown to him. He said he was aware of there being some communication between his solicitors and Barca, which had not resolved anything, but he did not know the details of it. He had never regarded the third parties as “sub‑tenants” (p.114).
He was then asked who had paid the rent to the plaintiff after November 1998 and he said “the lessee” (p.115). He was asked whether he could produce receipts relating to such payments, but he did not know whether he could. They were called for, but never produced. He was aware that some money was coming direct from the salon to pay the rent, but he was not aware that “every single payment came” from the third parties (p.117). He thought some were coming from Barca’s company, Mondo Hair, and some from Barca himself. He was aware that rent was being paid (from whatever source it came) up to a certain time, but he was not able to say when that time was. He was shown the third parties’ bank statements and said he did not challenge that various payments in them might have recorded rental paid for the premises (Ex. D5).
He thought all rental payments had stopped in November 1999.
He was shown the letter Exhibit D6, agreed it had been written to him and said that the suggestion in it that Accordent had agreed to account to Plus Investments for the extra $100 weekly, then surprised him.
He was asked whether it had been planned that there would be any change in the supermarket stocking and scanning arrangements, previously concluded with the first defendant, once Franklins took over the premises from Foodland and he said no. He was tested about when the notice was given to the first defendant of Franklins’ takeover of the supermarket. He did not know and said he would have expected the manager of the Centre to do that, but he did not know himself whether it had been done. He thought some form of notice had gone out to tenants and he had seen one, but he did not have it at Court with him.
He said that Franklins had agreed to permit the defendants to display their goods in the supermarket and to have them scanned through its checkouts. He was then shown a letter from Franklins to Hair Plus dated 25 May 2000 (Ex. D7), in which Franklins say that they are unable to scan Hair Plus products through their registers, that this had been pointed out to the salon when they (Franklins) first moved in and that it had then been agreed that the salon would not be merchandising its products on Franklins’ shelf space, anyway. That letter went on to say that Franklins would remove their stock if the tenant wished to reuse the space. He had not seen that letter previously.
It was put to him that when Franklins moved in, certain of the specialty shops or other tenants were acquired by it, but he denied that.
It was put to him that when Franklins were renovating the premises for their own use, they closed them for some days, thus obliging the salon to close. Somewhat surprisingly, he did not know about that.
There was then put to him a letter of 24 February 2000 (Ex. D8) written by Barca for Plus Investments and addressed to a representative of Franklins. It asserted that the terms of the lease permitting stocking and scanning of Plus Investments’ products were not being adhered to and “(T)he tenant is having extreme problems with this business because ...” of that.
Plainly, there is a conflict between what that letter says and what is asserted in Exhibit D7, but there is other evidence on the matter which I will discuss later.
Portellos was then challenged as to the promotional activities of Accordent between June 1998 and May 2000. He described in a general way what had been undertaken and said that the salon featured in the Centre’s catalogues produced as part of it. The salon was routinely given the opportunity to market its special prices through these catalogues. He said the salon was part of every advertisement they did and he produced a bundle of documents relating to that. They were the only ones he had found.
He was also aware that the salon had produced some “special cards, catalogues or something” (p.134) of its own, but he had none of these.
Barca wished to pursue further this issue of the level of promotional activity undertaken, but as it was not a matter pleaded, I limited him in that respect.
Portellos was then asked whether, in January 2000, he offered a rent reduction of $300 a week to the third parties. He responded: “I did (sic) not remember, cannot recall” (p.135). He said there was a day when Barca and the third parties called him on his mobile, complaining about Franklins and saying that, in effect, it would not allow them to carry on the business. He then suggested they take up the matter directly with Franklins. He went on to say:
“At that point in time the rent reduction issue came into the conversation and I said that ‘As you owe me a lot of money in arrears, a reduction is not going to fix the situation. I’m prepared to allow – to be flexible, provided that there is some seriousness as to whether you conduct the business’.” (p.136)
He was asked for further detail of that conversation and he said that Frankham and Barca had complained to him that the store manager of Franklins was denying them access to shelving in the supermarket and would not let them operate as previously. For reasons best known to himself, he had thought, and had told them, that that was a problem between them and Franklins, and not his responsibility. In any event, he commented, he did not believe what they were telling him and thought the situation “was the other way around; they didn’t have any stock to put on the shelving” (p.137).
He was then shown a letter from the defendants’ solicitors to his solicitors dated 4 May 2000 (Ex. D9), in which there was mention of a rent reduction of $300 a week and the difficulties the tenants were having with Franklins. He did not dispute that such a letter had been sent and did not attempt to say that he had caused his solicitors to respond to it.
He was asked whether he could produce evidence of arrears owing between January and May of 2000. He said he thought so because he had an accounts department, but he was not himself able to produce them.
In fact, such accounts, whether as to that or any other part of the lease, were never produced by him and no other oral or documentary evidence was called as to rental paid or unpaid. On his account, records had proved impossible to find because the plaintiff’s storage places had changed several times.
He was then tested on his claim that certain computer equipment had been removed from the salon at the end of the tenancy and he said that he relied on the account of Arthur Panagis, who had supplied it, who had come to the Centre after 11 May 2000 and had told him that the computer there was not the one he had originally supplied, but an older replacement. He said that he did not personally know which parts of the computer were left at the premises at the end of the tenancy, but those remaining had been passed on to the newsagent and subsequently stolen from there. There had been an insurance claim over that.
Plainly, Portellos could give no direct evidence of these matters.
He said no person had re‑opened the salon after the third parties had left in May 2000. He was asked about attempts made to relet the salon between May 2000 and the time when Coles took over in August 2002. He said (p.148):
“We tried, we spoke to a number of hairdressers, the shopping centre manager, Bill Chadwick at the time was doing the same, I personally was doing the same and a few other associates of our organisation were trying to get some hairdressers involved to tenant the hairdressing salon. Since January 2002, we ceased doing this because it was pointless to get a tenant from that point on ...”
(He was there referring to the impending Coles tenancy).
Frankham then cross‑examined Portellos and asked about the circumstances in which the third parties first entered the premises. Portellos said he was unclear about what arrangements had been made between the first defendant and the third parties, but he had himself been involved in discussions about how the rent would be paid, whether directly by the third parties or not, and it had been agreed that it was more convenient for it to be paid directly by the third parties to the plaintiff.
He was asked whether there was an agreement concluded for rent reduction in January 2000. He said there had been a telephone call with Barca about it and that a reduction of $300 had been proposed by Barca. He had been prepared to agree to that “provided that it would clear the arrears and the past history” (p.151).
He was then asked whether he had been concerned about allegations in 2000 that Franklins had been refusing to provide shelf space. He had been, he said, and he had taken it up with Franklins.
In re‑examination, he spoke about the arrangements for financing and directing the fit‑out that were concluded with Davids Limited. He had regarded Barca as a project manager because he had been the operator and was to liaise with Davids’ project manager over the fit‑out.
He said that after the phone call complaining about Franklins’ attitude to shelving space, he had gone to the store to look at the shelves previously available to the first defendant for stocking. He said they were empty and that was the reason he had not believed the complaint about Franklins’ refusal. In any event, he had spoken to Franklins’ about it and in consequence of that, had not thought there was any need to further pursue the matter because he did not believe Barca’s and Frankham’s complaints.
Sam Papafilopoulos
The plaintiff called Sam Papafilopoulos, an administration officer who was, in June of 1998, employed by it as floor operations manager of the shopping centre. His duties, not at first, but approximately six to seven months after it commenced operations, included the coordination of promotional activities at the Centre. He said that these activities had involved visiting all departments within the Centre (including the first defendant) each Monday and inviting them to submit their promotional lines for the following week, whereupon he would insert those in the catalogue. He recalled having dealings with each of the third parties, but generally with Frankham.
The material submitted by each of the parties would then be incorporated into a draft catalogue, which would be sent to the printer and then returned as a proof for correction. Ultimately, the final form would be printed and distributed by mail drop around those suburbs which had been selected for mailing in that particular week.
In addition to catalogues, the Centre advertised daily on a Greek radio station and, in addition, “there was a lot of spruiking throughout the store through the PA system” (p.160). He had a particular recollection of dealing with Frankham in respect of hourly or daily specials.
When Franklins took over the Centre, he remained for only a week before transferring employment. His evidence as to promotional works therefore related principally to the year 1999.
He also spoke of cross‑merchandising, whereby individual tenants would exchange special services with clients, for example, a free coffee for a haircut. He also recalled that Frankham issued a number of his own pamphlets, which the checkout operators would insert into customers’ bags. He said that there were signs on the pavement at the front of the Centre and that the third parties had a sign near the cash registers.
He spoke of the attempt to create a happy shopping atmosphere and of how they regularly had a band play inside the Centre on the balcony - at times, it would play down the aisles - and of the continued spruiking.
In cross‑examination, he said he was answerable to Portellos and he had other roles, including “a lot of the HR requirements in running the supermarket, making sure all the departments were making sales targets, all the departments were grossing, and the occupational, health and safety side of the business, health and hygiene” (p.163).
He did not have a portfolio of the marketing work he had done at the Centre, nor had he retained copies of the advertising material produced.
He was asked whether he was aware, in late 1999, of salon products not being stocked or “going missing” from supermarket shelves. He was not. He had heard of problems about scanning products, but thought it was that “occasionally there was a line that wouldn’t be scanned through the registers” (p.164). He was not aware of any scanning problems with salon products after Franklins took over the Centre. The most he could recall was that “... Rob had asked me, or had raised an issue with the occasional stock, he believed there might have been an item or two that hadn’t gone through the registers, hadn’t registered on the actual reports” (p.167).
He was presently working for a Portellos company.
THE DEFENDANTS’ CASE
Salvatore Barca
The second defendant gave evidence for the first defendant and himself.
He spoke of being approached in early 1998 by Steve Papas, Portellos’ partner at the time, and asking if he wanted to be involved in the new concept supermarket. The developers were going to pay for the total fit‑out, along with Davids Limited.
The shopping concept was then explained to him. He was told it was to be the first supermarket in Australia with individual shops under the main roof. People could purchase the stock of smaller tenanted shops from supermarket shelves and scan their purchases through the main checkouts. The tenants would then be reimbursed. The Centre was going to have entertainment and it would create a fun atmosphere.
These discussions with Papas took place at his own business premises at West Lakes Mall, but eventually Papas took him to Foodland Frewville and introduced him to Portellos, whom he then thought to be the owner of the proposed development.
He was then shown the plans of the Centre and, afterwards, there were numerous conversations between the three of them over the establishment of a salon there. He said that at first, discussions related to his assisting them in the process of doing it, but they then turned to the idea of his leasing the salon himself.
He said (p.183):
“I thought it was a good opportunity purely for the fact that they expressed that one, if the concept – and this came from Steve Papas – the concept did not work, they would fill the area with another tenant. Also that I personally did not have to pay for the fit-out. This impressed me as a business opportunity.”
He was then asked to organise the fit‑out of the salon and he arranged an architect to do that.
The original arrangement, he said, was that Davids Limited would be paying for the fit‑out, but that he would be paying for the designs, but he could not remember whether he had paid for them in the end.
At all events, he went out and ordered equipment for the salon and had it sent to the Centre. It was to be paid for, ultimately, by the plaintiff. He was also permitted to supply and bill for some second‑hand materials of his own, which Accordent had agreed to purchase.
He then liaised with the plaintiff’s solicitor over the terms of the lease and guarantee.
He agreed that he had executed the lease (P1). It was for a five‑year term and rental payments were to begin from 22 June 1998. He went on:
“I personally had all intentions to stay there for this new concept shopping centre. The issue of the concept was that - the main area of this business, which did interest myself, was that the products can be scanned through the supermarket check-outs. Retail is more profitable than actual hairdressing in terms, anyway, and that’s what interested myself, and I thought ‘This is great’. So that’s one reason why I was meant to believe that this is a great opportunity for retailing. I could use the supermarket shelving, which in the beginning Accordent did allow shelving in the supermarket aisles dedicated to Plus Investments or Hair Plus. They also organised signage so that particular aisle in the supermarket clearly separated itself from the supermarket products. So when the actual business opened, I was happy; I was happy how there was - we were allowed to put our stock there, all the signage was done, the concept was all in progress.” (p.187).
He had previously recommended to Portellos that he install in the salon a particular computer software application that was suitable for it. The plaintiff had gone along with that and had arranged for it to be purchased from Mr Panagis.
Trading began and each week they would receive a cheque for products scanned through the supermarket checkout.
Not long after then, he became concerned that the salon was not being well marketed or promoted, in the sense that it was reliant on the strength of the supermarket to attract people, so they would in turn use the salon. By August of 1998, he said, the salon was having some financial difficulties and it needed to improve its takings. They were not getting enough business. He then told the plaintiff the salon needed to be better promoted and that they wanted to be more involved in the preparation of advertising brochures.
In about August/September, he approached Portellos and told him that the salon would be more profitable if it were conducted by an owner/operator. It was not profitable for him because he, personally, was attending to his other salon businesses and had to employ a manager and two other people there. He said he wanted to try to find a subtenant.

On 11 September 1998, he went to the plaintiff’s office and there received a cheque for $4,000, which he put into the first defendant’s account:
“I can’t recall if it was for merchandising material, I can’t recall if it was for equipment that I supplied and he paid me, but I’ve got proof here that I’ve actually paid it back ... On 24 September, a cheque was paid into Portellos’s account of $6,500” (pp.189/190).
He had previously challenged Portellos in cross‑examination about this cheque and the Court pointed out to him that he had not put to Portellos the proposition that that was a loan which had been repaid. He said he disputed it was a loan. He later said he was “not certain what the $4,000” was (p.191). He suggested that there were two payments in his cheque book of $2,166.66 and $6,500 and that they were equivalent, almost exactly, to four months’ rent from June to August - so that they may have included a repayment of $4,000. None of this had been put by him to Portellos and I had some difficulty reconciling it with the documentation and other evidence. He repeated that it was unclear to him what the $4,000 payment was about and he then denied it was a loan. His evidence, generally, on this matter was unsatisfactory and tainted by obvious reconstruction.
He said that because of the then financial position of the salon, he engaged Dave Whan, of Whan Business Sales, to find him a subtenant and was thereby introduced to the third parties. He then believed that the Centre’s marketing concept would work if the salon were conducted by an owner/operator and he introduced Frankham to Portellos and Papas in November 1998. Later, he said (p.193):
“An agreement was made, call it an underlease, a sublease, a licence, I’m not familiar what the term of the agreement between Robert Frankham and Plus Investments, but I do know that Mr Portellos and Steve Papas knew about it.”
He knew such an agreement required the consent of the landlord and was aware that there were some discussions with lawyers to organise an underlease.
He said Portellos was aware that the third parties began operating the business and had agreed to pay an extra weekly rental of $100. He had discussed this matter with Portellos and it had been agreed between them that the increased rent would first be paid by the third parties to the plaintiff, but that the plaintiff would then remit the $100 extra to Barca.
He tendered a document described as “Sale of License” (D1), which he said had been prepared by Mr Whan and had been executed by the first defendant and the third parties.
I also received four cheque butts relating to the period between October and December 1998, which Barca said related to rental payments made to the plaintiff (Ex. D16), and an associated bank statement (Ex. D15). Barca pointed to one such cheque butt dated November 1998, where he said a rental payment less a $280.65 deduction had been made, leaving a net sum of $1,186.01.
After 4 December 1998, the third parties began paying rent.
None of those payments were disputed by the plaintiff.
Barca said the third parties began operating the salon in November or early December 1998, and he and his manager “would have assisted him (Frankham) with anything” (p.198). The third parties were to pay the rental directly to the plaintiff. After then and continuing through to the end of 1999, he received no notice from the plaintiff claiming that the salon rental was in arrears. He said there had been some business problems in the Centre in mid‑1999, because the supermarket was not trading very well and Papas had confirmed that with him, and there were then some discussions with the third parties about promotions. The third parties had continued to trade under the name of “Hair Plus”.
In late 1999, the third parties complained to him that they were not being reimbursed for checkout sales, so he spoke to Papas about that. By that time, Papas’ partnership with Portellos had ended, so Barca then contacted Portellos by telephone and also had personal discussions with him about rectifying that problem. He said (p.200):
“Nothing seemed to have been done, and Mr Frankham was constantly on my back about it.”
This was in the period October to December 1999.
By late December 1999 or early 2000, Frankham was very concerned about this problem and it got to the stage where he removed most of his stock from the supermarket shelves because it was otherwise being taken by customers and he was not getting paid for it. He was not sure of dates, but it was about this time that Franklins took over. After they came in, Frankham complained to him that Franklins would not permit him to display his stock in the supermarket because they could not scan it. He also complained about the closure of the supermarket by Franklins when they first moved into the Centre, a development the defendants had received no notice about. He himself had observed this closure, which he thought was for some five days.
He then spoke of a meeting between Frankham, Portellos and himself in late December 1999 or in January 2000 about the salon’s problems. Frankham was threatening to leave and Portellos then offered a rent reduction to $300 weekly, to begin as of January 2000. He and Frankham accepted this, the shelves were restocked and the salon continued, albeit that Frankham expressed an intention to attempt to channel stock sales through the salon register. Retail sales were, he said, the “main area of the business” (p.204). (As other independent evidence showed, this meeting in fact predated the entry of Franklins into the supermarket.)
At all events, upon later being told by Frankham of the refusal of Franklins to permit shelf‑stocking, he attempted to speak to Portellos about it, but found he was not available. Later, in February, March or April, he got to speak to Portellos and complained that Accordent was in breach of the lease in not requiring Franklins to permit supermarket stocking and scanning. He told Portellos that Frankham was threatening to leave.
He referred then to the letter of 24 March 2000 from the third parties to him (Ex. D17), which I quote:
“After numerous attempts to get in contact with the landlord, Mr Portellos, we are sorry too (sic) say that we cannot trade any longer in this location, as you are aware that we had been having extreme financial problems late last year, we had a few meetings with Mr Portellos, who promised all these promotions and reductions but never did anything, we were not even aware of the new owners (franklins) (sic) in this centre, so all our agreements as per the lease has changed, we have been mislead (sic).
The reasons for leaving are as follows:-
1.....We cannot put our retail out in the isles (sic) of the supermarket as per the lease.
2.....The retail products cannot scan through the supermarket tills
3.....This was to be a Market place shopping centre, this has changed.
4.....Our Oct, Nov , Dec , reimbursement for stock was never paid to us.
5.....The supermarket will not do any promotions as per agreement
6....The toilets, cannot be used by our clients
7.....At no notice, when the centre changed hands we had to close our business for 3 days.
We had paid the rental of $2600, as per agreement, which was paid to landlord so the extra fee, which is owned to you, has been paid to the Accordant Group.
So once again we have tried to get in contact with the landlords, we feel that we have been MISLEAD (sic), we are moving out on the 11^th May 00.”
He said that at about that time, he was having frequent discussions with Frankham and Franklins, and it was in consequence of them that he received the letter dated 25 May 2000 (Ex. D7), in which Franklins said that they were “unable to scan your products through our front end registers”.
On his account, he and Frankham had a meeting with Portellos, in late April 2000, at which time he (Barca) “was threatening to leave” (p.208) because of what he claimed were breaches of the lease. He said Portellos wanted them to carry on, but ultimately he and Frankham had decided to just walk out, and they did that.
Frankham took his own stock and implements, and the rest of the fit‑out plant and equipment was left there, except for some basins, the hot water service, the spotlights and the children’s chairs, which Barca said were his own and which he removed. He said that all of the items referred to in subparagraphs 13.1 to 13.5, inclusive, of the Statement of Claim were present in the shop at the time he inspected it after Frankham vacated, except for the two barber’s chairs. He did not know what had happened to them. The computer was there.
Later in 2000, he returned to the supermarket and saw another hairdresser operating in the salon. He had not put that suggestion to Portellos in evidence. He did not know who that person was or how long that person had been there.
He then went back in time and referred to a discussion he had with Portellos at the Centre, prior to April 2000, when he had proposed that he walk away and the parties release each other. He said that proposal was not accepted by Portellos.
He turned to his counterclaim, saying that it comprised the total of all the $100 extra weekly payments made by the third parties directly to the plaintiff and the total of all sums due by the plaintiff for products scanned, but not accounted for to the third parties.
Barca then made a further call for production by the plaintiff of claim details relating to arrears of rental. Such were never produced, but I do not know that this took the matter very far, because ultimately it became plain, through the evidence of Frankham, that his was the only evidence as to what rental was paid after September 1998.
At that point, Barca introduced some documents relating to checkout sales in the year 1999, but he was unable to explain them and nor had they been put to Portellos for an explanation. He was seeking to rely upon them as indicating a pattern of accounting to the tenant which ceased once Franklins came into occupation, but in fact the documents did not themselves do that. They only appeared to stand for the proposition that that form of accounting had taken place up until February 2000 (the time that Franklins entered). They did not assist me.
Plaintiff’s counsel then embarked upon his cross‑examination of Barca.
Barca conceded that he had been in the hairdressing business for some 20 years, had taken out a number of leases and understood “the rules of leases” (p.225). He acknowledged that he caused the first defendant to enter into P1 and had later arranged the sublease to the third parties.
He acknowledged that the effect of the sublease had not been regarded by him as terminating the liability of Plus Investments under the principal lease.
Further, he acknowledged that he had received legal advice before entering into the principal lease, but not with respect to the guarantee. He nevertheless had understood what the guarantee was, when he had signed it.
He then spoke of the original concept for the Centre and agreed that his and the other tenancies became part of it. The idea of selling some of the salon’s products through the store checkouts was one of the things that made the lease attractive to him.
He became aware, in April 2000, that Portellos and the plaintiff were claiming, or threatening to claim, a large sum of money for unpaid rent on the salon. He agreed that the plaintiff had soon after presented a claim, seeking recovery of some $16,000 by way of arrears of rent. He was at about this time suggesting to Portellos that all claims be dropped and that the defendants and third parties walk away from the premises. He had suggested this previously, as well.
He was cross‑examined over the terms of the Defence to the original Statement of Claim. He said he had provided instructions to Mr Oks for the purposes of drawing that pleading and expected it would reflect those instructions.
He said that he understood that, under the terms of the lease (Ex. P1), if the first defendant were to vacate the premises early, it would potentially remain liable for unpaid rent after that time. In that context, he was asked why the Defence had not pleaded that the plaintiff’s loss had been or should have been mitigated by the rental received from the person who subsequently occupied the salon.
After some lengthy questioning, he conceded that that was “probably right”, but that he had not discussed it with Portellos, nor his own solicitor. He agreed he had never made any such suggestion to Portellos, nor to the third parties, but he was unable to offer any real explanation as to why it had not been raised, other than to say that he had been focussing upon other breaches. He now realised he should have raised it. (At a later stage of the matter, I granted him leave to amend his Defence in this respect.)
He spoke again of his return to the premises in late 2000 to check out the report of another person operating from the salon. It had come to his attention that that person was using the trading name of “Hair Plus”, a name which belonged to him. He had raised that issue with the person there and he had then ceased using it. At that time, he regarded the trading name as having some value and he had wanted to permit the third parties to trade under it at their new premises, anyway.
He was cross‑examined about his failure to put to Portellos, in cross‑examination, a number of questions, including that there had been a meeting between himself and Portellos in April 2000, where he suggested they each walk away from the lease. He agreed he had not put that.
He was cross-examined about his discussions with Franklins in early 2000. He had asked them why they refused to stock shelves with the third parties’ products. He could not remember their answer, except that he was told that they just could not do it. That conversation was also in the context of Franklins refusing to scan products. The manager of Franklins had told him (p.245):
“‘We cannot scan your products through the till, and the shelving won’t be able to be used.’”
The man had told him they could not accommodate it because of their till systems, and stock would be lost if it were displayed there. This was the subject of the several telephone discussions he had with a Mr Cloke of Franklins. He said that Cloke simply listened to his problem, but it was never fixed. He said it was a matter of significance and concern to both himself and in his discussions with Frankham.
He had never communicated his concerns about this in writing to Franklins, just to the plaintiff. He said he was not party to any conversation in early 2000 between Frankham and representatives of Franklins, but he was aware there had been such discussions, because Frankham had complained about it, saying that Franklins would not scan his stock through their checkouts and they had taken down his signs, as well. Frankham had reported to him that he was very unhappy about their taking over his space within the supermarket. These conversations with Frankham had preceded his own discussions with Cloke. In the discussions with Cloke, he had taken the position that Plus Investments was the tenant because the lease was in its name. Cloke had told him it was the landlord’s responsibility and, in consequence, he had taken it up with the plaintiff. There were letters dealing with this, but there were also other issues concerning stock that had not been accounted for.
He said that after Frankham vacated the premises, he was angry and telephoned Cloke. Following that call, Cloke wrote the letter which became Exhibit D7. He said he had intended to use that letter to justify his claim that there was a problem with scanning. He disagreed, however, with the letter’s claim that there had been an agreement between Franklins and Frankham over the stocking of goods, but he had not taken it up with Franklins by way of a response.
Going back in time, he was cross‑examined about the arrangements he had concluded with Mr Whan over finding a subtenant. He believed that Whan had advertised, but he did not have copies of the advertisements. He agreed that at the time this had occurred, he was “experiencing ... financial difficulties in operating the salon ...” (p.255). They were not because the Centre had not been completed. They “could have been” because marketing campaigns had not been carried out. He was concerned then that the plaintiff had not lived up to its promises about advertising and that too few people were coming to the Centre. He regarded the business (at the time of the agreement with Frankham) as at the stage of being built up and considered it would more likely have been profitable had it been an owner/operator business. He was not unhappy about its viability in September/October 1998, however, he was happy about the way it was building, and by late 1998 “things were moving along roughly in accordance with expectations” (p.257). He said that in his discussions with Frankham prior to the third parties taking over, he had conveyed that same sentiment, that the business was proceeding according to expectations.
He was then referred to Exhibit P5, where the first defendant was complaining, as of 16 November 1998, that it could not trade any more, that it had been misled and to continue would be to “‘trade insolvent’” (p.258). He did not think there was any inconsistency between that statement and what he had conveyed to Frankham. On being pressed, he said there was an inconsistency, but it could be explained on the basis that an owner/operator could successfully run the business. He agreed he did not then tell Frankham he considered the business was insolvent or that there was a potential that it would have to cease trading in November 1998.
As to his allegation in the letter about misleading conduct by the plaintiff, he did not tell Frankham that he believed he had been misled over when the Centre was to be complete, but he did tell him that promotions were not happening as expected. He did not recall telling him of his concerns about the absence of signage, but then he corrected himself and said he did recall saying that.
He was asked whether he had told Frankham that the expected customer numbers were not being attained. He said he did not tell him that, nor did he tell him that they were losing retail sales through the checkout system, nor that he was “experiencing extreme cash flow problems” (p.261).
It was put to him that there was a direct inconsistency between his claim that at the time he was negotiating with Frankham, the business was proceeding according to expectations, on the one hand, and his claim in the correspondence (P4) that it was experiencing “extreme cash flow problems” and might have to cease trading. He agreed and allowed that the amount of rent the first defendant was paying was a factor in those cash flow problems.
He was then tested about the $4,000 payment from the plaintiff to the first defendant in 1998. He said he could not recall what it was for, but said it could have been for stock supplied by him. However, he thought it must have been past rental. It was then put to him that it was a loan, but he disputed that, he just could not recall what it was. He had no invoice to suggest that it related to goods supplied.
It was then put to him (p.269):
“Q.Well, I’ll put it to you just bluntly: that in fact that $4,000 you received was a loan from Accordent to you to assist you with your business generally. Do you agree or disagree with that.
A.I agree, it could have been, yes.”
He was tested over the additional $100 rental paid by Frankham and said that Frankham knew it was to be repaid by the plaintiff to him (Barca) and was to reflect his (Barca’s) management fee to the third parties, but said it was never in fact reimbursed to him by the plaintiff. He was asked whether he raised that failure with Portellos and he first seemed reluctant to answer this, but then said there were discussions about it. He agreed he had not put questions to Portellos in evidence about the matter. He could not think of a reason why Frankham had not been asked to pay him the $100 direct.

He was then asked a number of questions by the Court about the state of his business and he seemed to want to back away from the description of it being “insolvent” at the time of the Frankham negotiations: “It’s probably a harsh word or a strong word to use” (p.273). He went on to explain that although the subtenants were paying an extra $100 per week, they could still make the business work better as owner/operators.
He said that the sequence of events was that he was at first prepared for the plaintiff to have the benefit of the extra $100 per week rental, provided the first defendant could walk away from the lease, but when it was made clear that that was not going to be agreed (and that was after 29 October), he told Portellos he wanted the $100 returned to him. His first proposal had been rejected some time in November 1998. He was very reluctant at first to acknowledge that there was a later agreement whereby Portellos undertook to return the extra $100 to him. He was tested at length on this and eventually said Portellos informed him (in Papas’ presence) that they would pass on to him the additional $100 per week, and he agreed to that. He did not seek to call Papas as a witness. He did not know whether that proposal was made by Portellos and accepted by him prior to his letter to the plaintiff of 16 November 1998 (Ex. P5). He was then taken to that letter and he agreed that there was no reference in it to the alleged agreement about the $100. He was asked whether there was any other contemporaneous document referring to that agreement about the $100 and he conceded that there was not.
He was cross‑examined about Exhibit P6, a letter from Thomson Playford, solicitors, to the plaintiff in which the author said, inter alia:
“Once the Underlease documentation has been completed I will prepare a Deed to be entered into between Plus Investments and Accordent Pty Ltd in relation to Accordent’s entitlements to the additional rent payable pursuant to the Underlease.” (Emphasis is mine.)
He said had not read the latter part of that paragraph as inferring some agreement that Accordent was to receive the additional rent.
He was pressed as to when the agreement whereby Accordent said it would return the $100 to him was concluded, and he said it was before the subtenant entered the premises and the subtenant entered “in around about late October 1998” (p.295).
He was then asked this question (p.295):
“Q.Can I put it to you quite bluntly, you did not receive $100 from Accordent by way of remit of management fee in December 1999 or indeed for any of the 12 months for the whole of 1999. Would you agree with that.
A.Yes, that’s right.
Q.So did you protest to Mr Portellos in January 1999 when you hadn’t received you (sic) $100 remit.
A.I’m sorry, I think I might have some sort of documentation saying that there was one month paid of $400 for management fee.”
He was then given an opportunity to consider his documents and he subsequently said he was mistaken about that. He said, however, that he made “various phone calls” to Portellos about it in January 1999. He was asked whether he received any management fee in January 1999 and he said he could not recall.
The Court referred to an earlier question where he denied receiving any remits of the $100, and he said that was so, but he was getting himself “mixed up” (p.296).
He was pursued on that matter and his answers were less than satisfactory. Ultimately, he said he could not recall ever receiving a $100 management fee.
He had protested to Portellos again about the matter in mid‑1999, but his complaint was in the context of a number of other issues between them, including promotion, stock scanning and payments for stock.
He was asked whether, in response to his requests for the $100 sums, Portellos had ever replied by saying that he did not have to pay it and that it had never been agreed. He said Portellos had not said that, nor could he recall whether Portellos had conceded the money was owed to him, but for some reason was not being paid. He said he could not recall what was said on the issue.
By December 1999, he had raised the matter again, but there were other issues, as well, so he could not recall what Portellos’ response to the $100 remit was at that time, but Portellos did not deny any debt.
He summarised his position by saying that Portellos agreed to repay him that money “in effect to stay on as the head tenant” (p.300), but he never received it. He was asked whether he had made a demand for it in 1999. He agreed he had not, although, he said, “There were discussions” (p.300). He was pursued further on this matter and continued to prevaricate.
He was then tested on Exhibit D1, being the agreement he concluded with the third parties. He conceded it made no mention of the fact that $100 of the third parties’ weekly payment was payable to him as a management fee.
He was then taken to his previous evidence to the effect that in December 1999, he, Frankham and Portellos were discussing matters and Portellos offered a rent reduction on the tenancy, to begin in January 2000. He said there were several discussions over this and he did not participate in all of them. He was there, however, when the rent reduction offer was made by Portellos. That was at a meeting at the Centre. It could have been in January 2000. He was referred to paragraph 9.4 of the Defence and Counterclaim, where it is pleaded that the first defendant was not involved in any of the discussions between the plaintiff and the third parties over the rent reduction. He was asked to explain that pleading. He was unable to.
He went on to speak about some rental payments made in late 1999/early 2000, but it was plain that he was relying on hearsay and I took no account of that evidence; likewise, his evidence as to scanning procedures in late 1999.
He was asked (at p.312):
“Q.I think it’s your case that in early January 2000 the sub-tenant took its retail stock off the supermarket shelves.
A.Yes.”
He was then shown Exhibit D7, the letter from Franklins to him, where Franklins assert that there was an agreement with the third parties about removal of the stock from the supermarket shelves. He purported to offer an explanation for that, but, plainly, it was conjecture or hearsay.
He was cross‑examined by Frankham and said that he was not aware of any financial difficulties being experienced by Portellos at the time the agreement for the “sublease” had been negotiated. He went on to say that it was agreed between himself and Frankham that the $600‑a‑week payment would be paid directly to the plaintiff, but that the plaintiff would then reimburse Barca his management fee of $100. Frankham then asked him questions about his dealings with Portellos and he said he told Portellos of the purpose of the $100 remittance. Otherwise, he said, he became aware of the problems with Franklins when they happened, not before. After they did happen, he himself had discussions with Portellos about signage and scanning.
Given the opportunity to give some evidence by way of re‑examination, Barca said that the agreement between him and Frankham over the $100 management fee was a verbal one, reached at about the same time as their sale of licence agreement. Even prior to those agreements, he said, he had made the third parties well aware of the financial figures relating to the first defendant’s operation of the business up to that time. He then observed that he had not been provided by the plaintiff with any particulars of arrears of rental or any document relating to arrears of rental for the salon from November 1999 onwards.
Robert Frankham
Barca called Frankham as a witness in his case. Before he gave his evidence, I warned Frankham that, on the pleadings, his interests were in conflict with those of Barca.
Frankham was asked questions about the events leading to the agreement D1. He said he had been shown the head lease by Barca and had read it. He was asked about the management fee arrangement and he said it was agreed that the third parties would pay $600 weekly to the landlord, who would in turn reimburse $100 to Barca as a management fee for services provided by him to the third parties. This management fee was not a matter he had himself discussed with Portellos.
He said that neither of the third parties had ever received any statements or notices relating to arrears of rent due on the premises. He said they were never in arrears between October 1998 and 2000. In 2000, the rent was reduced and they continued to pay the reduced amount.
He was asked whether he had documents establishing his payment of rental and he then produced bank statements and a cheque book. It appeared that some of those bank statements had been tendered already, but in any event, the set was incomplete. Frankham said it was the only evidence he had as to payment of rent. He had received rent invoices from the landlord up to November, but then they had stopped. He had not retained the earlier ones, although he thought his former partner might have. He referred to the bank statements and identified payments of $2,600 by way of rental on 6 August, 3 September, 11 October and 3 November 1999.
He further identified a rental payment of $1,200 on 10 March 2000. He told the Court that the documents disclosed that no rental payment was made for December 1999 and that that was a fact.
He referred to a payment of $1,200 made on 10 November 1999 and was at first inclined to attribute it to a rental payment at a reduced rate, but later, under cross‑examination, conceded that it was not paid for that purpose. Plainly, he had reconstructed his evidence here, albeit, as I concluded, innocently.
He said that money had been owed to him by Accordent for stock scanned through the supermarket tills in October to December 1999 but, plainly, that debt was due not by the plaintiff but, rather, by Foodland. He had told Accordent of that problem when its manager, Mr Kemp, came in December to collect the rent, but the manager reacted angrily, saying the rent should be paid, that there was a problem with the supermarket computers and it would all be fixed. He conceded he had not put this evidence to Portellos in cross‑examination.
In January 2000, he saw Portellos and told him about the problem. Portellos said he would get onto it straight away, but nothing happened.
In the third week of January 2000, he and his partner had a conversation with Portellos (it did not emerge whether this was the conversation just mentioned), in the latter’s office at Foodland, about a reduction of rent. In that discussion, his partner told Portellos the reduction was being sought because of the problem with scanning products and because they could not be put on the shelves any more. The Court asked him why stock was not then on the shelves and he said “When Franklins took over, our shelving space was taken away by them” (p.340).
His evidence on this matter was confused as to timing because, plainly on other credible evidence, Franklins did not enter into possession of the premises until February 2000. Nevertheless, I am satisfied that in about February 2000, he discussed with Portellos the problems of shelf‑stocking and scanning caused by Franklins’ takeover of the supermarket.
In that conversation, he and his partner complained that their signs had been taken out of the supermarket and retail shelving was no longer available. Portellos had then offered to build some shelving in the salon, but they had replied that that would be no good, as it would not help the main source of their business.
Portellos then told him in the last discussions they had that Franklins would clean up and the Centre would “come good again” (p.344).
He said he first heard about Franklins’ takeover of the supermarket just before they moved in. Their entry and refusal to stock salon products dramatically changed his retail business, which constituted about 60 per cent of his takings.
He produced Exhibit D17, which was his letter to Barca of 24 March 2000 complaining of the problems they were having in operating the salon. Amongst other things, that letter describes them as “having extreme financial problems late last year” and goes on to complain about promotions, reductions, scanning and other issues. They advised Barca they could no longer trade there.
Frankham said they had no further discussions with Portellos after their “January” meeting, that they tried to contact him but he did not return their calls.
He was then asked why it was that they vacated the premises in May 2000. He said (p.348) that “the whole concept was a marketplace and shopping under one roof as there was other shops there as well, which all changed” when Franklins took over. They ceased promotions, they were not interested in the salon and “our retail was taken away” (p.348). Franklins did not “spruik us like we had before” (p.349).
He was referred to the items of plant in paragraphs 13.1 to 13.13 of the Statement of Claim and asked whether each of them was at the salon when he left. He said he had not owned any of the plant and equipment, so he had left everything there. There had never been a barber’s chair, nor a children’s cutting chair, but he was aware that there had been two barber’s chairs in the storeroom. The computer was left there, along with the beautician’s slate table. The roller shutters had never been there. The gas-lift‑operated stools were there when he left, along with the five‑kilogram trolleys and the hair dryers. There were no hairdressing implements there when he had started and he had brought and taken away his own.
He was aware that after he left, another person went in there operating as a sole hairdresser, but he did not know the detail of that.
In cross‑examination, Frankham acknowledged that he had entered into discussions about his present tenancy, being premises near the Centre, at some time in April 2000.
He was asked what he was told by Barca about the financial performance of the salon prior to his taking it over. He said he was told “Just verbally on how much supposedly he was doing” (p.354). He thought he might have been shown a week’s takings from the salon by Barca’s accountant. From reading those figures, he thought the business was proceeding satisfactorily and Barca did not tell him anything different from that. Barca never told him the business was close to insolvency and that he was thinking about shutting up shop. Had he been told that, he would not have entered into the agreement D1.
He was tested on the reduced rental payments made to Portellos in 2000. He was not sure if he had made any payments beyond March of that year.
It was in this context that he was again examined about the $1,200 payment in November and he then agreed that it was in fact a payment on his credit card - his earlier evidence was plainly reconstructed.
He was shown Exhibit D7, being a letter from Franklins to the defendants sent on 25 May 2000, in which Franklins refer to a meeting between the third parties and their Mr Greg Yates “at the time Franklins took over the Lease” at the Centre. Frankham said he had no recollection of such a meeting and the only meeting he could recall attending was one with the supermarket manager when they discussed the shelving problem. That person was not Mr Yates. He denied that at any time, at or around the time Franklins took over the tenancy, he had agreed that they could use the salon’s shelf space within the supermarket for their own stock and said that to the extent that D7 asserted there had been such a meeting and agreement involving the third parties, it was wrong.
The Court then asked about his contentions as to rental payments and he said that, after the rent reduction had been agreed in January 2000, the third parties had paid only one reduced amount to the plaintiff, that was in March 2000. They had not paid rent for December, January or February because they had not received payments from Foodland for scanned stock.
Prior to then and up to the end of November 1999, he would pay the rent monthly and, at the same time, collect the scanned takings from the Centre manager. There were, however, one or two weeks in October of 1999 in which those takings were not paid over.
It was suggested to him that he had already decided to move from the tenancy in mid‑March 2000. He was at first reluctant to agree with that, but when a copy of his letter to Barca of 24 March was shown to him (D17), he conceded it. He agreed that between late January and 24 March, there was not much time for Portellos to remedy the complaints made by him, but other things had happened as well. They included Franklins’ peremptory closure of the supermarket for two or three days, without notice, when they had first moved in, the removal by them of the salon’s signs adjacent to the salon’s shelving within the supermarket and otherwise around its aisles, their refusal to let the salon’s customers use their toilets and their failure to include the salon in their supermarket advertising.
It was then put to him (p.368):
“Q.It is the case, is it not, that at the end of the October, November, December 1999 period you made a unilateral decision to remove all of your stock from the Franklins shelves.
A.That’s correct. I remember the date too.”
He said it was made at the end of December 1999 and it resulted from their supermarket stock not being scanned or accounted for. After that time, he sold stock only from within the salon and sales were not as before. That question had incorrectly implied Franklins was in occupation of the supermarket by then, but plainly, other evidence showed and Frankham understood it to refer to the Foodland occupancy.
His attention was then drawn to the Third Party Defence filed in the action. He said it had been prepared by a solicitor on his instructions. He acknowledged it claimed that the third parties had paid all rental due to the plaintiff up to 11 May 2000, but conceded that that was “not entirely correct on the basis of the evidence” he had given (p.371). He did not, however, consider that they owed money to Accordent for rent, because, he said, Accordent owed them money for scanned products.
His attention was then drawn to the defendants’ counterclaim and he said he had not known that the defendants were pursuing claims for repayment of the $100 management fee and for recovery of retail stock scanned, but not paid for, in the amount of $3,200.
He was referred to his own documents and he said that the amount due in respect of scanned but unpaid stock was $2,200. He agreed that he had withheld the December rental of $2,600 to offset that amount. He agreed that the counterclaimed sum of $3,200 was not the correct sum for unpaid stock.
Stephen Papageorge
The defendants had previously interposed a witness, Stephen Papageorge, hairdresser. He said he had been employed by Plus Investments to manage the salon at the Centre from the day it first began there. He had understood the market shopping concept that had been developed for the Centre, but did not think that environment had been achieved for the salon. He described his work in setting up the salon. He said the products that they were able to sell through the Centre shelves were of a kind normally sold directly to and by salons, and were not generally of a type sold outside of the industry.
He was then asked about the roller shutters and said that they had been designed to close off the store, but had never been installed. He had been shown them in a stockroom at the back of the supermarket.
His understanding was that Portellos owned the plant and equipment in the salon.
He said there was a drop in turnover late in 1998, because no one was coming to the Centre. He said that at the start, when the Centre opened, there was a flyer or pamphlet and it was part of a “letter drop”, but he did not remember any other promotions.

I have thus discussed the evidence of the principal parties in this matter. There is little that need be said about the remaining witnesses. I thought I could generally rely upon what they told me.
DISCUSSION AND FINDINGS
1. The nature of the agreement between the plaintiff and first defendant
For reasons which I have already expressed, I find myself satisfied that the document P1 comprised the entire agreement between the plaintiff and first defendant and that there was no oral collateral agreement whereby the first defendant might vacate the premises at will, if the “concept did not work”.
2. The guarantee of the lease
I am also satisfied and find that by virtue of the document P3, the second defendant guaranteed the performance of the first defendant under the lease (P1).
3. The proposed transfer of the lease
I am satisfied that, in October/November 1998, the defendants sought the agreement of the plaintiff to the assignment of their obligations under the lease (P1), to the third parties, but that that request was refused. In light of that finding, it is strictly unnecessary for me to make any finding about whether that proposal was upon the basis of a release of the defendants from their lease and guarantee obligations - however, I will add that I am satisfied on all the evidence, including that of Barca himself, that no such release was sought or given.
Accordingly, at all relevant times, up to at least 11 May 2000, the defendants remained bound to the plaintiff in terms of the agreements P1 and P3.
4. The status of the third parties vis‑a‑vis the first defendant
I am satisfied and find, on the basis of Exhibit D1, that on 17 November 1998, the first defendant sold to the third parties the salon stock and a licence to operate the salon under the name of “Hair Plus”, and that in consequence, the third parties entered into occupation of the salon and traded from it. I have considerable reservations about representations made by Barca to Frankham in connection with that sale, but those matters are not before me.
The agreement D1 is not explicit as to the third parties’ entitlement to display and sell salon products through the supermarket, but clause 4 of D1 reads as follows:
“4.The Landlord of the premises being the present landlord of the vendor agreeing to Sublet the existing head lease on the premises to the purchaser. Existing head lease expires 31/5/2003.”
Although the first defendant took no or no proper steps to secure the landlord’s consent to a sublease, I am satisfied and find that by virtue of clause 4, the first defendant either directly or impliedly covenanted that the third parties would have the benefit of the plaintiff’s covenants as to supermarket access contained in clause 9 of P1.
5. The status of the third parties vis-à-vis the plaintiff
On the basis of those findings, there was never an assignment by the first defendant to the third parties of its interests and obligations under P1. I am satisfied, however, and find that in or about November 1998, the plaintiff became aware that the third parties were occupying the salon pursuant to what it perceived to be a subletting arrangement with the first defendant and that, apart from causing the letter P6 to be written seeking a copy of the relevant agreement “for consideration”, it did not pursue any further attempts to obtain details of that arrangement. Indeed, Portellos sought to characterise the third parties as “invisible”, a term which I found disingenuous in light of his preparedness to receive extra rent from them, to hear their complaints and take some steps to deal with them, and to negotiate with them a rent reduction.
Whether, in this context, the third parties should be regarded as underlessees or mere licensees of the first defendant is unimportant in one sense because, either way, the first defendant, as lessee, remained bound to the plaintiff. It is important in another sense, however, because I am persuaded, in all the circumstances, that:
(a)the first defendant allowed the third parties to present themselves as its agents for the purposes of those dealings with the plaintiff, i.e. the payment of rent, the making of complaints about shelving and scanning, and the reduction of rent;
(b)in the circumstances, the plaintiff was reasonably entitled to regard, and did regard, the third parties as agents of the first defendant for those purposes.
6. The first defendant’s dealings under the Deed (P1) during 1998
I am satisfied and find that, as of September 1998, the first defendant was indebted to the plaintiff for some arrears of rental for the salon, for a portion of fit‑out purchases paid for by the plaintiff but not provided by the first defendant, and also on a $4,000 loan made to it by the plaintiff at about that time. The evidence was unclear as to the precise total of that debt, but Portellos said it was about $18,000. Barca first denied the $4,000 loan, then prevaricated and eventually conceded that part of it. As to the overall debt, he said very little. It is unnecessary for me to make any findings as to the scale of that debt.
I am satisfied, too, on the evidence of Barca and the document P4, that the first defendant was, at about that same time, experiencing cash flow difficulties with the business of Hair Plus. The defendants sought to attribute these to various failures on the part of the plaintiff in terms of completion of the Centre, marketing, signage and the like, but for reasons already expressed, I was not persuaded that this was so.
The financial pressures facing the first defendant at that time were, however, not disputed and were, indeed, hardly surprising: it was a new business in a new shopping centre, employing a new selling concept, and it had been operating for barely four months. It is one thing to find that the first defendant was experiencing cash flow problems, however, and quite another to find it was insolvent (as Ex. P5 infers). No evidence was tendered at trial as to the true financial position of the defendant company at any relevant time. It may well have had other assets and a ready capacity to meet debts as they fell due, notwithstanding that the salon itself was not yet trading profitably.
7. Barca’s dealings with Frankham in 1998
Whatever else may be said about that matter, I am satisfied and find that Barca was, by that time, unhappy with the performance of the salon and was very ready to negotiate with a proposed owner/operator to take it over.
On his account, having been introduced to them, he gave the third parties access to all the business figures of the salon, albeit that he did not tell them that he felt he had been misled by the plaintiff, that the business was trading insolvent, that it had “extreme cash flow problems”, nor that there were checkout problems or low visitor numbers to the Centre.
For his part, Frankham said that he was shown only one week’s takings and, on the basis of what he was shown, opted to purchase the stock and trading name licence. He said that he was not told anything about the business being insolvent or in any serious financial difficulties and that, had he been, he would not have entered the contract.
Where the evidence of Barca and Frankham is in conflict over these matters, for the reasons adverted to I unhesitatingly prefer Frankham’s account of things. Notwithstanding his lack of business experience, I consider it extremely unlikely that, had Frankham been shown all the figures and had the business been described to him by Barca in the way Barca was then describing it to the plaintiff, he would have agreed to not only take it over, but pay an extra $100 a week in rent.
Whilst I have not found myself satisfied that the first defendant was insolvent at the relevant time, I am satisfied that, in providing Frankham with only one week’s performance figures, in negotiating the rental he did and in failing to disclose to Frankham his concerns, expressed elsewhere, about cash flow and the viability of the business generally, Barca actively misled Frankham so that, in consequence, Frankham and Le signed the contract D1.
8. Problems with respect to goods being checked out via Foodland
I am satisfied on all the evidence and find that, even from the beginning of the lease (P1), there were problems relating to the scanning of hair products between Foodland and the salon. These included failures to scan or delays in accounting for scanned items on the part of Foodland.
These problems were present during the period the first defendant was conducting the salon and they continued after the third parties occupied it.
I am further satisfied and find, on the evidence of Frankham, which I accept, that in October, November and December 1999, Foodland had failed to properly account to the third parties for recent checkout sales and that by the end of December 1999, the amount owing on that account was $2,158.14 (that figure being the total of the sums referred to in Ex. 3P1). Frankham asserted that that was the amount due and the plaintiff did not seek to say otherwise or call contrary evidence from any representative of Foodland.
I further satisfied and find that, because of their frustration and concern over these failures, the third parties decided, at the end of December 1999 or early in January 2000, to withhold their December rent and cease stocking their products on the supermarket shelves.
I am further satisfied and find, on the evidence of Frankham, that he had paid all rental amounts due to the end of November 1999, but that he deliberately failed to pay the December 1999 rental of $2,600 because the scanning debt owed by Foodland was then $2,158.14.
On his own evidence, which I accept, Frankham sought to resolve the problem by approaching the supermarket manager and the Centre manager, the latter of whom he properly regarded as the plaintiff’s agent, but he received no real cooperation from them. In this respect, I note that the supermarket manager was not called by the plaintiff and the floor operations manager, Papafilopoulos, blandly asserted there were occasional scanning problems. To the extent that that evidence conflicted with Frankham’s account, I preferred Frankham’s evidence - it was consistent with his actions with respect to rental payments and with his removal of items from supermarket shelving in late 1999/early 2000. It was not contradicted by Portellos.
Under clause 9 of P1, the plaintiff was obliged to procure Foodland to ensure that the salon stock was able to be scanned through the supermarket checkouts. I am satisfied on the evidence of Frankham (and, for that matter, of Barca) that complaints were made at this time to the plaintiff, through the Centre manager and Portellos, about scanning and accounting problems, and I am further satisfied and find that the plaintiff, in breach of its obligations under P1, took no or no sufficient steps to remedy the situation. In consequence, I find that the third parties suffered a loss of $2,158.14.
I make no distinction here between complaints made by the first defendant or the third parties: as I have already found, the third parties were treated by the plaintiff as the first defendant’s agents for the purposes of dealings under P1.
9. The events of January 2000 - rent issues
I am satisfied and find that there was a discussion between Frankham and Portellos in January of 2000, in the course of which the third parties complained that they were not able to conduct the salon business profitably. It is unnecessary for me to make a finding about precisely where and how the agreement was reached and who was present; it is enough to observe, and I find, that there was an oral agreement reached between Portellos and Frankham whereby Portellos, on behalf of the plaintiff, agreed to reduce rental payments for the salon from $600 to $300 per week “for the time being”. Further, I am satisfied that Portellos treated Frankham and Le as agents of the first defendant for the purposes of those negotiations and the first defendant thus gained the benefit of that agreement.
Having found that, I note that in his evidence, Portellos appeared to hedge his position as to this, inferring that this was not a waiver of full rental and that the underpayment was to be made up later (p.151). I have already expressed my misgivings about his evidence generally and, to the extent that it conflicts with that of Frankham over this issue, I unhesitatingly prefer the evidence of Frankham. I am satisfied and find that in January 2000, Portellos agreed with the third parties, on their own behalf and as agents for the first defendant, for the weekly rental figure to be halved to $300, such reduction to remain in place for a period which I infer, in the circumstances, to have been determinable at the plaintiff’s option.
I am thus satisfied and find that in part‑performance of that agreement, on 10 March 2000, the third parties paid and the plaintiff accepted one reduced monthly rental figure of $1,200, but that no monthly payments for January, February and April were ever made.
10. The arrival of Franklins at the supermarket
I am satisfied and find that as of February 2000, Franklins took over the conduct of the supermarket in place of Foodland. I am further satisfied and find that no advance notice of that event was given, by or on behalf of the plaintiff, to either of the defendants or the third parties and, further, that whilst taking over the supermarket, Franklins peremptorily closed it for at least three days, thus depriving the salon of the opportunity to trade over that time.
I have already made findings as to the reasons for the third parties’ removal of stock from Foodland shelves in late 1999 or early 2000 and as to their interest in restocking once Franklins entered. I infer this not merely from Frankham’s evidence (which I have already noted was confused as to timing), but because I am satisfied it is likely that once a new supermarket operator was in place, he would have expected not to have to face, again, the checkout problems he had experienced with Foodland.
I then accept his evidence that Franklins would not in fact permit them to restock shelf space in the supermarket. In response to this assertion, the plaintiff contended that the third parties had agreed with Franklins not to stock the shelves, anyway, and, in saying this, Portellos sought to rely upon:
(1)what he had learned in discussions with Franklins - this was hearsay and I took no account of it. Franklins was never called.
(2)the letter D7 which I received in evidence. These things should be said about that letter, however:
(a)in the first place, I considered it was likely to be admissible as a business record of the first defendant under section 45A of the Evidence Act. Further, I considered it potentially relevant to explain the defendants’ actions, and/or those of the third parties, after that time;
(b)in the event, nothing emerged from their evidence to make it relevant for the latter purpose;
(c)to the extent it was otherwise received in evidence, I am not satisfied it has much probative weight. In the first place, its contents were not supported by any witness from Franklins. Secondly, they are equivocal, anyway. As against the plaintiff, they support the evidence of Barca and Frankham in confirming that Franklins could not and would not scan salon products, so there was no purpose in displaying them. As against the defendants and third parties, however, they suggest the third party conceded this position, a matter which Barca and Frankham deny;
(d)in the end, in the face of the oral evidence and other documentation (particularly Ex. D8), I have accorded the letter little weight.
I thus accept Frankham’s claim that as of February 2000, Franklins either refused or made it impossible or impractical for the third parties to display their goods within the supermarket premises or otherwise have them scanned through the supermarket checkouts. Even if it was only the latter, such would plainly be a sufficient reason for the third parties not to stock. I am further satisfied the third parties rightly felt aggrieved about this. Portellos could give no direct evidence about these matters himself, yet, even on his account, he agreed that a complaint had been made to him by the third parties about this problem. He said that in response to it, he spoke to Franklins, but accepted its claim that it was complying with paragraph 35 of its lease (P2), whereupon it would appear he blithely referred Frankham back to it.
I find Franklins was, in fact, then acting in breach of paragraph 35 and that a contractual obligation then fell upon Portellos to take steps to procure its compliance with it. Although the matter has not been pleaded in precisely that way in the Defence and Counterclaim (I refer to paragraphs 8.3 to 8.7), I consider it in the interests of justice that I exercise my powers under Rule 46.04(4) of District Court Rules and find that he took no or no proper steps to so insist, that the plaintiff thereby breached its contractual obligation owed to the first defendant under clause 9 of P1 and that that breach commenced as of Franklins’ entry into the supermarket on 13 February 2000.
It is clear on all the evidence that the plaintiff was given notice of that alleged breach orally and by letter of 24 February 2000 (D8) and that, apart from Portellos’ personal approach to Franklins, it appears that its only formal response was to forward a letter to the first defendant on 12 April (P8), demanding payment of arrears of rental going back to October 1999.
In response to that letter (P8), the solicitors for the defendants apparently wrote to the plaintiff’s solicitors on 14 April 2000 and again on 4 May complaining of Franklins’ conduct, the latter also pointing to the agreement about rent reduction and informing the plaintiff that the tenants were proposing to leave the premises. In addition, that letter complained that they had attempted to contact the plaintiff for five weeks “without any success”. I am satisfied on all the evidence that that occurred and, consistently with that same inaccessibility and indifference on the part of Portellos of which I have previously spoken, there appears to have been no pertinent response made to any of Frankham’s oral complaints or to the letter of 4 May 2000.
I am thus satisfied and find that the first defendant itself (and through the actions of the third parties, which it plainly supported) thereupon repudiated the lease agreement by vacating the salon on 11 May 2000.
The question which then arises is whether the first defendant was entitled to so repudiate on the basis of the plaintiff’s breaches of clause 9 of the lease and whether, in any event, that repudiation was accepted.
11.Was the first defendant entitled to so terminate the lease?
This matter involves the consideration of whether clause 9 of P1 was an essential term, or one going to the heart of the lease, such that any breach of it entitled the first defendant to terminate it. Again, I note that the Defence and Counterclaim do not specifically plead the breach of an essential term, but under Rule 46.06(4), I will treat such an assertion as the basis of their plea for a dismissal of the plaintiff’s claim.
11.1Essential Term - a term may be treated as essential because it is so agreed (and, indeed, clause 4.1.1 classifies a number of lessee’s covenants in that way), but that does not mean that the absence of anything in an agreement to that effect is determinative.
In Associated Newspapers Limited v Bancks (1951) 83 CLR 322, the High Court adopted the passage of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632 at 641:
“The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.”
Further to that, in Bowes v Chaleyer (1923) 32 CLR 159 at 196, Starke J commented upon the commercial significance of a particular contract as a matter relevant to the “importance” of a term within it, observing (pertinently to the facts in that case):
“The Court has no real means of estimating the value and importance of the stipulation; and it is far safer, in my opinion, to treat as conditions substantial and important provisions in a mercantile contract relating to the time, place or mode of shipment of goods the subject matter of the contract, unless the contrary intention is manifest.”
Here, there was some evidence given as to the value and importance to the lessee of clause 9 of P1 and I will come to it in a moment.
11.2Fundamental breach - in Seddon & Ellinghaus, Cheshire & Fifoot’s Law of Contract (7^th Aust. ed., 1997, at para 21.10), the learned authors speak of another category of breach justifying termination, namely, one going to the root of the contract (or a “fundamental” breach):
“Both the criteria stated above clearly look to the effect of the breach as determining whether termination is justified. If the effect of the breach is to make further commercial performance impossible, or to deprive the other party of the substantial benefit of the contract, a right to terminate arises, notwithstanding that the term which has been breached was not essential or that there was no repudiation of the contract.” (My emphasis.)
The authors go on to note, however, that the cases where a fundamental breach might be established most frequently also involve breach of an essential term.
11.3There can be no question that these general contractual principles apply to leases, c.f. The Progressive Mailing House Pty Ltd v Tibali Pty Ltd (1985) 157 CLR 17 and India Pty Ltd v Florlim Pty Ltd & Ors (Sup. Ct of SA, [2003] SASC 161).
11.4In considering whether the plaintiff’s covenant in clause 9 of P1 became an essential term of the contract or whether its breach went to the root of the contract, I have considered the following matters:
11.4.1there is no doubt that the plaintiff promoted and the defendants accepted the Centre development as a unique concept, involving as it did a marriage of supermarket floor space with specialty shops, including the salon;
11.4.2integral to that marriage was a common entrance, common facilities and the ability of the salon to display its products on supermarket shelving so that patrons could access them and have them scanned through supermarket checkouts;
11.4.3there was no dispute on the evidence that, at the outset, Portellos and Barca were aware retail sales would comprise the greater part of the salon’s income. I did not receive any comparable takings figures demonstrating exactly their proportion, but Frankham said they comprised 60 per cent of turnover, Barca said they were the “main area of the business” (p.204) and Portellos said retail sales “would make far more money than cutting hair” (p.457). No figures were provided at trial indicating what proportion of retail sales were in fact made through the supermarket checkouts as opposed to salon registers, but other evidence touched upon their significance:
(a)Barca said (and I accept his evidence as to this because it is consistent with what occurred in his dealings with Portellos) that the reason he went into the venture in the first place and executed the lease was precisely because he thought that the new concept enabled him to display and sell his hair products directly through the supermarket and have them scanned through its registers. He said (at p.187) that “the main area of this business, which did interest myself, was that the products can be scanned through the supermarket check‑outs. Retail is more profitable than actual hairdressing in terms, anyway, and that’s what interested myself”. It was a “great opportunity for retailing” (p.187). Again, at p.227, he said that he was attracted to the idea of being able to sell his products either through the supermarket or the salon.
He did not say directly in evidence that the first defendant would not have entered into the contract had it not been assured of a strict or substantial performance of the lessor’s covenant in clause 9, but I keep in mind that he was unrepresented and I am left to make what I can of the evidence generally on this topic.
His evidence as to this issue was hardly surprising, anyway, because such a commercial arrangement lay at the heart of Portellos’ concept of integrating disparate services under the same roof;
(b)Barca’s expectations were to some extent reflected in the evidence of Frankham, who said that he kept minimal stock in the salon, that the majority was scanned through the checkouts, that this was “the big part” of their business and that, as a result of the removal of stock from Franklins’ shelves, “sales weren’t much like they were before” (p.369);
(c)there is then the documentary evidence provided by Frankham of Foodland checkout figures for the salon (Ex. 3P1), which he said constituted the moneys not paid to him for the period from 1 November to 19 December 1999 and which totalled $2,158.14. Those figures alone (and whether or not they constituted the total of all checkout sales in the period) were substantial and came close to one month’s rental. Their significance can further be gauged by noting that in January 2000, a monthly rental reduction from $600 to $300 apparently meant, to Frankham, the difference between business survival and failure;
(d)I further observe that the non‑payment of these sums by Foodland, at first to the first defendant in late‑1998 and then, in late 1999, to Frankham, was a matter of considerable concern to both of them. Frankham was so concerned about it in late 1999 that he complained directly to Portellos and then felt obliged to remove his displayed stock from the supermarket and cease making rental payments further to that. Ultimately, Frankham left the salon because he received no income from this source from February 2000 and because, he said, “the whole concept” failed;
(e)Barcas’ letter to the plaintiff of 24 February 2000 (Ex. D8) complains that the third parties are “having extreme problems” with their business because of shelf‑stocking and scanning failures. Plainly, this matter was being treated by the third parties as important enough for Barca to contact the plaintiff about it.
The trading experiences of Frankham and Barca after June 1998 of course post‑date the execution of the lease, being the time at which one would ordinarily weigh the “essentiality” of a term, but they nevertheless corroborate Barca’s claims as to the importance the first defendant placed upon clause 9 of the lease at the outset.
11.5I am thus satisfied and find from “the general nature of the contract as a whole”, that the plaintiff’s covenant in clause 9 of P1 was “of such importance to (the defendants) that (they) would not have entered into the (lease and guarantee) unless (they) had been assured of a strict or a substantial performance” (supra) of the terms of that clause.
11.6Further, I am satisfied and find that that performance was one of “importance”, particularly because of its commercial significance, the supermarket sales being expected to comprise a large part of the salon’s income.
11.7All in all, I am persuaded that the first defendant would not have undertaken the venture and entered into the lease, but for the opportunities presented by the covenants in clause 9 of the lease. They lay at the heart of the new concept and were the inducements which led the first defendant to execute the lease.
11.8I am further satisfied that the first defendant brought that breach to the attention of the plaintiff by letter of 24 February 2000 (Ex. D8) and subsequently through oral representations, but the plaintiff failed to remedy it.
11.9I therefore find that the failure of the plaintiff to take reasonable steps to procure Franklins’ compliance with its lease so as to permit the first defendant (and through it, the third parties) to stock shelves in the supermarket and have their goods checked out through its registers, constituted both a breach of an essential term and a fundamental breach of the lease.
11.10 I thus conclude the first defendant became entitled to terminate, and did terminate, the lease by vacating the salon premises on 11 May 2000.
12.The consequences of my finding

It follows from this determination that the plaintiff’s claim for damages for the first defendant’s alleged breach of the lease in abandoning the premises on 11 May 2000 must fail.
There remain outstanding two claims, however, one for arrears of rental predating 11 May 2000 and the other for conversion of certain items of equipment.
13. Arrears predating 11 May 2000
The plaintiff contended that it was entitled to arrears from 15 December 1999 to 11 May 2000 and it calculated them at $9,320.89, based upon a monthly rental of $2,166.66 and allowing a $1,200 credit for one payment made in March 2000.
Portellos was quite unable to give any clear evidence about arrears and the only good evidence about them came from Frankham himself. Frankham effectively said these things:
(1)that he was entitled to offset the unpaid Foodland debt of $2,158.14 against the December rental of $2,600;
(2)any claim for rental due after January 2000 must be at the reduced rate of $300 per week - I have already accepted his evidence as to that.
How, then, does the first of these matters impact upon the first defendant’s primary liability for the December 1999 rent? I am not persuaded that it can purport to set off against the plaintiff a debt in reality owed by Foodland to the third parties. True it might be that the third party pleadings raise issues between it and the third parties, including unpaid rental, but I am not satisfied it can, on this basis, claim against the plaintiff the benefit of a loss and potential claim maintainable by the third parties against Foodland.
Accordingly, I am satisfied the first defendant is indebted to the plaintiff for the December 1999 rent. The proper amount of that rent was called into question at trial. Was it the $2,600 Frankham agreed to pay or the $2,166.66 Barca had agreed upon? I find it was the former. In doing so, I here prefer the evidence of Portellos over that of Barca and expressly reject Barca’s claim that Portellos agreed the additional $100 weekly would be refunded to the first defendant.
As to the second issue, I am persuaded that where Frankham negotiated with the plaintiff the agreement to reduce the rental to $300 per week from January 2000 onwards, he did so on behalf of the first defendant and the third parties and that it constituted an oral variation of the terms of the lease. Accordingly, I find the plaintiff has an entitlement to arrears of rental from January to 11 May 2000, which I calculate at 18 weeks five days. At $300 per week, this loss totals $5,614.29, but it is to be reduced by the sum of $1,200 paid in March 2000.
The net loss is thus $4,414.29 and I add to it the unpaid December rental of $2,600, to reach a total of arrears to 11 May 2000 of $7,014.29.
14. The claim for conversion
The plaintiff did not adduce any cogent evidence as to the loss or conversion of any of the items in paragraphs 13.6 to 13.10, inclusive, of the Statement of Claim. Frankham strongly denied removing any of the items from the salon and it is, indeed, apparent that some were in fact delivered to the Centre premises but never installed in the salon, e.g. the roller shutters and some chairs.
I had no hesitation in accepting Frankham’s evidence on this issue and the plaintiff did not prove any of these losses. This head of claim is dismissed.
15. Notional damages assessment
Notwithstanding my findings as to liability, it is appropriate that I should say how I would have assessed any damages recoverable had the plaintiff succeeded in its damages claim in paragraph 3 of the prayer for relief.
The plaintiff contended that its losses after 11 May 2000 should have extended to the end of January 2002, at which time Coles entered the Centre. I am not persuaded that they should have. It can reasonably be assumed that there was some form of agreement reached with Coles about that entry prior to January 2002, yet, once again, Portellos’ evidence as to this was vague and unsupported by any documentation. I am left to make what I consider the reasonable assumption that, from some particular time before then, the plaintiff had elected to abandon the idea of procuring a tenant for the salon in favour of the anticipated arrangement with Coles. On Portellos’ evidence, Coles had made an offer with respect to this matter a “few months” prior to January 2002 and it was accepted in about January.
In the lack of any firm evidence as to when precisely this was, I would have assessed the loss as running from 11 May 2000 to 30 November 2001.
The question then arises as to the basis on which that loss would have been calculated and inherent in this is whether the plaintiff took reasonable steps to mitigate it.
As to mitigation, late in the trial I permitted the defendants to amend the Defence to plead a failure on the part of the plaintiff to mitigate, and I did so because it was a matter about which Portellos had himself given some evidence at trial and because neither the defendants nor the third parties were represented, nor alive to the question.
In the event, I permitted the plaintiff to recall Portellos on the matter and he spoke of the steps taken by the plaintiff in attempting to secure a tenant for the salon after 11 May 2000. I have already described those attempts in general and, in conjunction with them, I heard evidence from Chadwick, the Centre manager at the time, who was given the task of attempting to procure another tenant.
This evidence was not seriously challenged and I find I am satisfied that the plaintiff took reasonable and proper steps to mitigate its loss after 11 May 2000.
That then calls into question the rate of that loss.
I am satisfied that had the first defendant, through the third parties, remained in occupation of the premises after 11 May 2000, it and they would have continued on there at the reduced rental rate of $300 per week. The period during which this reduced rental rate would likely have continued was, however, conjectural. As I have found, the length of the reduced rental period was at the plaintiff’s option and I would not be prepared to assume it would have continued on for an indefinite period. It was agreed upon as a temporary gesture to assist the salon with its financial problems. Doing the best I can, I would have allowed the plaintiff to recover a loss of $300 per week to the end of the 2000 year and thereafter a loss of $600 per week to 30 November 2001.
Having indicated the general approach I would have taken as to damages, I will not proceed to make any detailed calculations of damages or interest.
In proceeding this way, I am mindful of the provisions of paragraph 4.1.4 of the lease (P1).
16. Interest
I find that the plaintiff is entitled to interest on the arrears of rental accruing to 11 May 2000 (being the amount of $7,014.29) at the default rate set out in clause 4.4 of P1. The plaintiff has elected, however, to have the rate assessed according to the rate established in the District Court Rules. I am satisfied it is a rate less likely to be punitive to the defendants than that under clause 4.4 and I will proceed on that general basis, but I must recalculate the figures based on my own findings and will then round off so as to fix a figure in lieu of interest. That figure is an amount of $1,450.
I would not, however, have been satisfied that that default rate would have applied to any losses suffered by the plaintiff after 11 May (had such been assessed). They would not have been moneys due “pursuant to (...) the Lease” but would rather have constituted a sum payable in the nature of damages (see clause 4.1.4 of P1). Nevertheless, I would have been satisfied the plaintiff should have interest on that loss at the appropriate commercial rate, adjusted for the relevant times at which the moneys might otherwise have been received.
There will thus be judgment for the plaintiff against the defendants in the sum of $8,464.29, inclusive of interest.
17. The third party proceedings
I will dispose of this question shortly.
Wherever their evidence conflicted, I preferred that of Frankham over that of Barca and, indeed, as I have said, I had little confidence in Barca generally.
To the extent the defendants have been found liable to the plaintiff, I dismiss their claims for indemnity from the third parties, and for these reasons:
(1)they were based upon the agreement D1 and the failure of the third parties (relevantly) to pay all rent due to 11 May 2000;
(2)in answer, Frankham pointed to the failure of the first defendants to obtain the plaintiff’s consent to the third parties’ entry as a sublessee and to the various Franklins contractual breaches which I have found took place and which the defendants did not themselves rectify or cause to be rectified;
(3)I am satisfied that, if it was not expressed, it was implied in D1 that the third parties would have the benefits of the covenants of quiet enjoyment relating to supermarket display and selling enjoyed by the first defendant under the lease - even Portellos, by his conduct, seemed prepared to recognise this and, plainly, Barca did;
(4)in breach of those implied undertakings, the first defendant permitted Franklins to interfere with the third parties’ quiet enjoyment (by excluding them from the salon during their establishment) and failed to ensure they had the benefit of the supermarket selling covenants. It is not to the point that the ultimate responsibility for ensuring Franklins’ compliance resided with the plaintiff - the third parties had no contractual nexus with the plaintiff and the first defendant retained and failed to properly exercise its contractual remedies against it. Had it followed up the letter D8 with appropriate legal proceedings, the outcome would likely have been very different;
(5)I heard no evidence from the third parties as to the losses suffered by them in consequence of those breaches (and, indeed, it might have been difficult to extract figures), but I am satisfied, on all the evidence, that they would well exceed the sum for which the defendants are now found liable. Indeed, for what it is worth, had the third parties counterclaimed against the defendants for damages for misrepresentation in and about the formation of the contract D1, I would have had little trouble in finding for them. They were plainly misled by Barca.
The third party claim is dismissed.
I will hear from the parties as to costs.

[2003] SADC 102

28 July 2003