Atma Investments Pty Ltd v The Astor Pty Ltd (RLD) (No.2)

[2004] NSWADTAP 11

Appeal Panel - Internal

CITATION:	Atma Investments Pty Ltd v The Astor Pty Ltd (RLD) (No.2) [2004] NSWADTAP 11
PARTIES:	APPELLANT Atma Investments Pty Ltd RESPONDENT The Astor Pty Ltd
FILE NUMBER:	039038
HEARING DATES:	8/03/2004
SUBMISSIONS CLOSED:	03/08/2004
DATE OF DECISION:	04/15/2004
DECISION UNDER APPEAL:	Atma Investments Pty Ltd v The Astor [2003] NSWADT 102
BEFORE:	Chesterman M - ADCJ (Deputy President); Montgomery S - Judicial Member; Weule B - Member
CATCHWORDS:	Claim for assignment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights - Claim for declaration of rights,obligations and liabilities under a lease
MATTER FOR DECISION:	Merits
FILE NUMBER UNDER APPEAL:	015016
DATE OF DECISION UNDER APPEAL:	05/16/2003
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Atma Investments Pty Limited v The Astor [2003] NSWADT 102 Atma Investments Pty Limited v The Astor Pty Ltd [2003] NSWADTAP 53 Butt v McDonald (1896) 7 QLJ 68 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 65
REPRESENTATION:	APPELLANT A Fernon, barrister RESPONDENT G Burton, barrister
ORDERS:	1. The Respondent is ordered to pay damages to the Appellant totalling $202,743.75, comprising a principal amount of $165,000 and interest in the amount of $37,743.75.; 2. The Respondent is also ordered to pay to the Applicant the amount of the security bond under the Lease less the amount of any rent not paid by the Lessee up to 18 August 2002. In addition, it must pay interest at 9% on this net amount for the period from 18 August 2002 to the date of this judgment.; 3. Each party has 28 days from the date of this judgment to file a submission on costs. In the event that either party does so, the other party has a further 21 days to file a submission in reply. In the absence of any objection from either party, the matter of costs will be determined ‘on the papers’, under s 76 of the Administrative Decisions Tribunal Act 1997.

1 In this appeal by Atma Investments Pty Ltd (‘the Lessee’), we gave an initial judgment (Atma Investments Pty Ltd v The Astor Pty Ltd [2003] NSWADTAP 53 – hereafter ‘Atma Appeal’) in which we set aside the decision of the Tribunal at first instance (Atma Investments Pty Ltd v The Astor [2003] NSWADT 102) dismissing the Lessee’s claim against The Astor Pty Ltd (‘the Lessor’). The reason why we set aside this decision was that, in our judgment, it contained three errors of law.

2 The detailed facts of the case are outlined in our earlier judgment at [6 – 51]. We will not repeat them here. It is sufficient to say that the application by the Lessee was for an award of damages, interest and costs against the Lessor on account of the Lessor’s conduct in unlawfully resisting the execution of an assignment of a lease between these two parties (‘the Lease’) to a company described in our judgment as ‘the Prospective Purchaser’.

3 The Lease was of premises known as ‘The Astor Coffee Lounge’ at 123 Macquarie Street, Sydney (‘the premises’). Its term was for four years, with an option to renew, from 19 August 1998 to 18 August 2002. It was subject to the provisions of the Retail Leases Act 1994 (‘the Act’). The business conducted by the Lessee was initially that of a coffee lounge, but in February 2000 it obtained a liquor licence and it began to serve meals (this being a condition of the licence).

4 The basis of the Lessee’s claim that the Lessor had no right to obstruct the assignment was that under s 41(d) of the Act the Lessor was deemed to have consented to it. The Lessee requested consent on 15 August 2001. On 26 September 2001, that is, on the expiry of the statutory period of six weeks specified in s 41(d), the Lessor’s consent was deemed to have been given. The Lessee alleged that, in consequence of subsequent obstructive conduct by the Lessor, indicating that it was determined to resist execution of the assignment to the fullest extent possible, the Prospective Purchaser withdrew from the proposed transaction. The Lessee sustained thereby the loss of an opportunity to sell its business for the proposed sale price of $165,000. This amount was significantly larger than any price that it might otherwise have obtained on a sale.

5 We held also in Atma Appeal that, on account of the errors of law contained in the judgment at first instance, it was appropriate for us to grant leave under s 113(2)(b) of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’) for the appeal to extend to the merits. In its Notice of Appeal, the Lessee had applied for such leave to be granted.

6 In our judgment at [120 – 121], we formulated as follows (a) what we saw to be the errors of law by the Tribunal and (b) the matters that should be determined in our review of the merits:-

120 The combined effect of our rulings can be summarised as follows. The Tribunal did not give sufficient consideration to a contention by the Lessee that, once the deemed consent by the Lessor was operative pursuant to s 41(d) of the Act, the Lessor was in breach of contract through failing to co-operate with the Lessee and the Prospective Purchaser in effecting the assignment of the Lease. The Tribunal also did not sufficiently deal with the argument that, although the Lessee never had a binding contract with the Prospective Purchaser, it could put forward its loss of the expectation that such a contract would materialise as a head of damages for the alleged breach of contract by the Lessor. Finally, the Tribunal did not make a sufficiently clear finding, supported by sufficient reasons, regarding the factors causing the Prospective Purchaser to withdraw from its proposed acceptance of the assignment of the lease.

121 As we view the matter, these errors precluded the Tribunal from giving proper consideration to a line of reasoning which, if accepted, would warrant judgment for the Lessee. This is as follows: (a) that the Lessor’s conduct in resisting the assignment after it had been deemed by law to have given its consent to this transaction constituted a breach of its contractual duty of co-operation to the Lessee; (b) that this breach of duty was in fact the cause of the Prospective Purchaser’s decision to withdraw from the assignment; and (c) that in consequence the Lessee suffered damages, capable of assessment, for its loss of expectation of a sale of its business for $165,000 to the Prospective Purchaser.

7 We indicated at [122 – 124] that, subject to any objections by the parties, we would receive written and oral submissions on these three matters in order to determine whether the Lessee had made out its case for damages along these or similar lines. There being no objections to this procedure, we received the parties’ submissions. In these reasons, we set out our conclusions on them and our decision on the Lessee’s claim.

Breach of duty of ‘co-operation and good faith’

8 The first question that we must deal with is whether the Lessor breached what has variously been described to us as its implied contractual duty of ‘co-operation’ or ‘good faith’. This falls to us for determination because, as we said in Atma Appeal at [89], the Tribunal at first instance failed to give consideration to this important element of the Lessee’s case.

9 According to Mr Fernon, counsel for the Lessee, the Lessor breached this duty. In the hearing relating to the merits of this appeal, he formulated it principally as a duty to do all that is reasonably necessary to secure performance of the relevant contract. He emphasised the following statement of Griffith CJ, quoted by us in Atma Appeal at [82], in Butt v McDonald (1896) 7 QLJ 68 at 70-71:-

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.

10 Mr Fernon described the right to assign a commercial lease as a fundamental benefit to any lessee, providing the opportunity to develop a business and sell it at a profit. He noted that it is protected by legislative provisions, such as s 41(d) of the Act. The implied contractual duty therefore required the Lessor, he said, to co-operate with the Lessee to the extent necessary to enable it to enjoy this benefit. Yet the evidence showed that the Lessor did everything that it could to prevent the Lessee giving effect to the assignment.

11 It did so, he said, initially by strongly contesting the right of the Prospective Purchaser, once it taken an assignment of the Lease, to install a pizza oven and sell pizzas on the basis that these were operations within the permitted use. The principal ground on which it purported to do so, as communicated to the Lessee in a letter by its Chairman dated 5 October 2001, was that this would involve a change of use from the permitted use of ‘coffee shop’. But such an assertion, in Mr Fernon’s submission, was wholly disingenuous, because it had already acknowledged a change of use to ‘café/restaurant’ or ‘restaurant/coffee lounge’ in at least three ways. It had consented to the grant of a liquor licence, in which the supply of food was an essential requirement; it had issued a draft lease to the Prospective Purchaser describing the use in this way; and it had consented to a development application containing the same description.

12 Mr Fernon relied also on what he described as the ‘incorrect’ statement in the letter of 5 October that it was not till 19 September 2001 that the Lessee expressly indicated that the Prospective Purchaser proposed to use the premises to sell pizzas.

13 Finally, he said, the Lessor’s attitude of stringent opposition to the assignment was exemplified further by the Lessor’s opposition to the Lessee’s application of November 2001 to the Tribunal, seeking an order that the Lessor consent to the assignment, and by the Lessor’s conduct in lodging an appeal against the Tribunal’s decision in the Lessee’s favour.

14 For these reasons, Mr Fernon claimed that, far from fulfilling its duty of ‘co-operating’, in the sense of doing what was necessary to enable the Lessee to reap the benefit of its right of assignment, the Lessor unreasonably manifested strong opposition to the execution of the assignment and the accompanying sale of the Lessee’s business.

15 He offered a response to the proposition that the Lessor was merely maintaining, as it legitimately could, that the proposed use of the premises for the sale of pizzas involved a change of use and therefore relieved it of any obligation to consent. His response was that the Lessor had to accept the consequences of the finding by the Tribunal that its position on this matter was incorrect. It could not invoke an argument of this nature to escape the legal consequences of its breach of contract.

16 Mr Burton, counsel for the Lessor, put forward the proposition that we have just stated. He argued that the Lessor’s conduct did not amount to a breach of any alleged duty of co-operation. This was because it simply adopted the reasonable standpoint, as it was entitled to do, that the current permitted use did not include the selling of pizzas. It did no more than to take a reasoned position in the course of a legitimate debate as to the scope of the permitted use.

17 Mr Burton referred us to the Court of Appeal’s discussion of the contractual duty of co-operation and good faith in its judgments in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349. The Court here held that there was no breach of this duty – which it held to be applicable to a commercial lease – on the particular facts of the case. It involved lessors who procured of their own accord a fire safety inspection of the leased premises by the local council, carried out the repairs required by a council order following the inspection and then claimed the amount expended from the lessee under a covenant to indemnify them for the cost of repairs lawfully required by any government authority. The Court addressed principally the question whether the lessor had acted reasonably (see, for example, the judgment of Sheller JA at 364B, 366D, 367E and 368C-D). It held that their conduct in obtaining the fire safety order (the terms of which had not been shown to be unreasonable) was in all the circumstances reasonable and therefore not in breach of their duty of co-operation and good faith.

18 Mr Burton claimed that the Lessor’s conduct in this case was likewise reasonable. It did no more than to exercise what it believed to be its legal rights in maintaining – incorrectly, as was ultimately made clear – that the proposed assignment of the Lease involved a change of permitted use.

19 We have reviewed the correspondence and other dealings between the Lessor and the Lessee in the period from 15 August 2001, the date of the application for consent, to 6 November 2001, the date of Mr Cowdrill’s letter to the Lessee withdrawing from the proposed assignment and sale. We have paid particular attention to the letter of 5 October from the Chairman of the Lessor to the Lessee.

20 We cannot accept Mr Burton’s characterisation of the position being taken by the Lessor in this correspondence. We agree with Mr Fernon that it took refuge in disingenuous assertions. We will give two examples.

21 First, the Chairman said in the letter of 5 October 2001 that the permitted use was solely that of coffee shop. This took no account of the prior development of Mr Taylor’s business into a licensed restaurant, in which, as emphasised by Mr Fernon, the Lessor acquiesced at all relevant times. The events leading to this change of use were in fact outlined out in a second fax of 15 August 2001 (following the formal request of the same date for consent to the assignment) from the Lessee to the Chairman (see Atma Appeal at [30]).

22 Secondly, the Chairman wrote in the letter of 5 October that the initial request for consent, dated 15 August 2001, did not identify the proposed use as a pizza restaurant. But this claim is sufficiently rebutted by the mere fact that the name of the proposed assignee was given as ‘Vera Pizza 153 Pty Ltd’. Furthermore, the Lessor was well aware that this use was intended by the Prospective Purchaser. For example, as we stated in Atma Appeal at [17], in June 2001 the Lessor had negotiated with the Prospective Purchaser regarding the adequacy of the existing exhaust system for a pizza oven.

23 In our judgment, what the Lessor during this period was to place every obstacle available to it in the path of the proposed assignment. Notably in the letter of 5 October 2001, it raised a number of unmeritorious arguments. When the Lessee took the dispute to this Tribunal, it resisted settlement of the dispute through mediation and opposed the Lessee’s application for declarations which would eliminate its grounds of opposition to the assignment.

24 Even if, as we doubt, its conduct could be described as merely taking a reasoned position in the course of a legitimate debate as to the scope of the permitted use, we consider that it was in breach of the implied contractual duty. Invoking the statement of principle, quoted above at [9], from Butt v McDonald (1896) 7 QLJ 68 at 70-71, we find that it failed to ‘do all such things as are necessary’ on its part ‘to enable the other party to have the benefit of the contract’.

25 We accept here Mr Fernon’s submission that a contracting party that fails in this respect cannot plead as a defence that, on account of misinterpreting the contract, it believed that the other party was not entitled to the benefit being claimed. We agree also that the issue of whether such a belief was reasonable is not relevant. This is because, in our judgment, the criterion of reasonableness applied by the Court of Appeal in Alcatel is not applicable to the present facts.

26 In that case, the question was whether the lessors, in exercising a power available to them, breached their contractual duties of co-operation and good faith by exercising the power in an unreasonable fashion. In the present case, the wholly distinct question is whether the Lessor, being bound by a statutory obligation to consent to an assignment for which provision was made in the Lease, was or was not also bound by an implied contractual obligation to permit the Lessee to have the benefit of the assignment.

27 On these grounds, our conclusion is that the Lessor’s conduct in the period between 30 September and 6 November 2001 amounted to a breach of its duty to do what was necessary to permit the Lessee to have the benefit of its contractual entitlements to assign the Lease.

The connection between the Lessor’s breach of duty and the Prospective Purchaser’s decision to withdraw

28 The next issue that we must consider is the reason or reasons why the Prospective Purchaser decided not to proceed with the assignment and the purchase of the Lessee’s business. This falls to us for determination because, as we said in Atma Appeal at [116 – 117], the Tribunal at first instance failed to provide adequate reasons in support of its conclusion on this matter and, indeed, did not state the conclusion itself with sufficient certainty.

29 In Mr Fernon’s submission, the evidence clearly showed that the Prospective Purchaser withdrew from the transaction because of (a) the delaying tactics of the Lessor in first approving, but then rejecting, its efforts to become the lessee of the premises and (b) the hostility that the Lessor displayed, notably at the Tribunal hearing of 5 November.

30 Mr Burton argued that the true reason for the withdrawal was, as the Tribunal appeared to find, that since as early as April 2001 Mr David Cowdrill, who was the director of the Prospective Purchaser, had not been prepared to accept the provisions of the Lease regarding trading hours, notably a statement in Clause 15.2.2 that the Lessor could vary them. The hearing of 6 November 2001 simply provided, in Mr Burton’s submission, a convenient opportunity for Mr Cowdrill to communicate his commercial decision to withdraw.

31 We have reviewed the evidence on this matter. The important components are the testimony of Mr Cowdrill, his correspondence with his solicitor during the period of negotiations for a new lease and his letter of 6 November 2001 to the Lessee. We have outlined the salient features of this evidence in Atma Appeal at [25 – 28, 41 – 43, 107 – 115].

32 In our opinion, this evidence compels a finding, contrary to that apparently reached by the Tribunal at first instance, that it was the conduct of the Lessor in resisting the assignment, before and at the Tribunal hearing of 6 November 2001 that prompted Mr Cowdrill to write the letter of 6 November 2001 announcing the decision of the Prospective Purchaser to withdraw. It was not his concerns regarding clause 15.2.2 of the Lease,

33 There are four significant reasons why we differ on this matter from the conclusion of the Tribunal at first instance. They are as follows.

34 First, it appears that the Tribunal took no account whatsoever of Mr Cowdrill’s letter of 6 November 2001 to the Lessee. It is not mentioned anywhere in the judgment. Yet the letter unequivocally states, with some elaboration of the reasons, that the ‘delaying tactics of the lessor’ are ‘entirely responsible for the collapse of the sale’. Mr Cowdrill gave testimony confirming this. He indicated that on 6 November, at the Tribunal, he realised for the first time the full extent of the Lessor’s hostility to his plans to install a pizza oven and sell pizzas.

35 Secondly, Mr Cowdrill’s evidence in cross-examination does not establish to us that the dissatisfaction about the terms of the proposed new lease that he expressed to his solicitor would have been enough of itself to bring about a breakdown of the proposed sale and assignment. In fact, we read his evidence as being to the contrary.

36 The contrast between the aspect of the judgment on which the Lessor chiefly relies and our own view can be conveniently illustrated as follows. At [93], the judgment of the Tribunal states: ‘The evidence of the Prospective Purchaser was that he would not have proceeded with an assignment on the basis of a straight assignment’. But our view of the overall tenor of the evidence is well exemplified by the following segment of the cross-examination of Mr Cowdrill (Transcript, 29.5.02, p 167, lines 1-5):-

Q. Mr Cowdrill, I suggest to you that if that clause [clause 15.2.2] had not been removed you would not have gone ahead with the purchase of this business, in any event, no matter what happened?

A. Not true.

37 Thirdly, Mr Cowdrill knew of the Lessee’s request for consent to the assignment on 15 August 2001 and indeed that consent was deemed to have been given on 30 August. He stated this in cross-examination (Transcript, 29.5.02, p 167, lines 7-16) and the Tribunal’s judgment, at [97], includes a finding to this effect. He realised that an assignment would retain for the Lessor all the rights and entitlements that were set out in the Lease and that he could not insist on any modification of these. Furthermore, he maintained until 6 November 2001 an expectation, if not also a desire, that the assignment would be effected. If, as Mr Burton asserted, he was not prepared to take the assignment unless clause 15.2.2 was deleted, it is difficult to understand why he did not withdraw at an earlier stage.

38 Fourthly, nothing in the judgment or in the transcript of Mr Cowdrill’s testimony provides any reason to believe that this testimony was untruthful or for any other reason unreliable. In its judgment at first instance, the Tribunal made no comment to this effect.

39 Both at first instance and on appeal, Mr Burton submitted that it was the Lessee’s failure to act immediately after 20 September in assigning the Lease to the Prospective Purchaser that led to the failure of the transaction. There was, he said, nothing to prevent the Lessee from concluding the assignment by preparing and executing the necessary documents.

40 Mr Fernon’s response was to point to evidence from Mr Taylor showing that he endeavoured for a time to negotiate a settlement of the dispute with the Lessor. After this attempt failed, he considered that he had little alternative but to apply to the Tribunal for a declaration that the Lessor was deemed by law to have consented to the assignment. The delay was therefore quite understandable and could not, in the absence of evidence to this effect from Mr Cowdrill, be said to have prompted the Prospective Purchaser to withdraw.

41 In our judgment, these considerations are sufficient to dispose of the argument that the Lessee’s losses were attributable to delay on its part.

42 For these reasons, we conclude that the Prospective Purchaser’s decision not to proceed with the assignment was caused by those aspects of the Lessor’s behaviour that we have identified as constituting a breach of its implied duty to permit the Lessee to have the benefit of its contractual entitlement to assign the Lease.

The amount of any loss caused to the Lessee

43 Under this heading, we will deal first with a preliminary argument advanced by Mr Burton.

44 The judgment of the Tribunal at first instance contained a statement, at [85], that the Lessee ‘ceased trading of its own volition’. At [99], the Tribunal stated that the Lessee’s loss of business occurred, not because of the Lessor’s ‘agreeing or not agreeing to assign the Lease’, but because the Lessee ‘chose to cease trading’. One of the grounds of the Lessee’s appeal to us was that the Tribunal erred in law in failing to provide adequate reasons for these findings, having regard to the requirements of s 89(5) of the ADT Act. But in Atma Appeal, at [104 – 106], we rejected this ground of appeal.

45 It followed, Mr Burton contended, that these findings by the Tribunal could not be challenged or canvassed in the present review of the merits. In consequence, he said, the Lessee’s case must fail, since it had not established the necessary causal link between the allegedly wrongful conduct by the Lessor and the financial loss for which it claimed damages.

46 The judgment of the Tribunal at first instance contained also, at [79 – 88], a review of the evidence of financial loss put forward by the Lessee. At [98], under the heading ‘Findings’, it summed up as follows the Tribunal’s conclusions on this matter:-

98 The financial information provided by the Applicant directed to:-

a) the income of the business; and

b) the value of the business,

did not provide the Respondent or the Tribunal with information that could be relied on for the purposes of either assessing any loss of business or the value of the business. The figure arrived at between the Applicant and the Prospective Purchaser was a commercial figure which reflected the opportunity provided to the Applicant where the Prospective Purchaser considered that he would be able to operate a commercially viable business on his terms. The evidence provided by the valuer on behalf of the Applicant was to the effect that the value was nil and the evidence provided by the valuer on behalf of the Respondent disclosed that he was unable to provide an accurate valuation.

47 The Lessee claimed in its appeal that here also the Tribunal erred in law, through failing to provide adequate reasons for a factual finding. Again, however, we rejected this ground of appeal in Atma Appeal, at [99 – 103].

48 Along similar lines, Mr Burton submitted that the first sentence of paragraph [98] of the Tribunal’s judgment could therefore not be challenged. It followed, he argued, that the Lessee must be held to have provided insufficient evidence to enable any finding to be made as to the value of its business at the time when the Prospective Purchaser withdrew from the proposed sale. This meant that no assessment of its net loss by virtue of the Prospective Purchaser’s withdrawal could now be made and, for this reason alone, its claim for damages must fail.

49 In reply to these contentions regarding the effect of our earlier rulings, Mr Fernon advanced what were in effect three propositions. The first was that our decision that the Tribunal gave adequate reasons for its conclusions on these two matters did not in any way imply that the conclusions had been found to us to be correct on their merits. Secondly, it could not be claimed that we were in any sense ‘bound’ by findings in the Tribunal’s judgment at first instance because in our decision in Atma Appeal we had set this judgment aside. Thirdly, the duty of an Appeal Panel in reviewing the merits of an appeal was to reach ‘the correct and preferable decision’ having regard to all the material, including factual material, before it. This followed from the terms of s 115(1) of the ADT Act:-

115 Appeals on the merits

(1) If an appeal under this Part extends to a review of the merits of an appealable decision, the Appeal Panel is to decide what the correct and preferable decision is having regard to the material then before it, including the following:

(a) any relevant factual material,

(b) any applicable written or unwritten law.

50 We agree with the arguments put by Mr Fernon, notably his third argument. It seems clear to us that s 115(1) (and possibly also s 115(2)) requires us to consider afresh the evidence on factual matters such as these, and to reach our own independent conclusions. We would observe also that our decision as to whether adequate reasons were given for the Tribunal’s findings did not in any way address the correctness of those findings.

51 We agree also, however, with a subsidiary argument put by Mr Burton. This was that we must give significant weight to the conclusions reached by the Tribunal at first instance, particularly to the extent that they were based on assessments of the credit of witnesses.

52 We turn now to consider the evidence regarding these two issues, namely (a) whether the financial loss claimed by the Lessee did in fact result from the Prospective Purchaser’s decision to withdraw and (b) what amount by way of damages, if any, had been sufficiently proved by the Lessee.

53 We can deal briefly with the first of these matters. At [99], the Tribunal stated two propositions: (1) that the Lessee’s loss of business was not caused by the Lessor’s ‘agreeing or not agreeing to assign the Lease’ and (2) that the Lessee ‘chose to cease trading’. It impliedly conveyed the further proposition that it was in fact this ‘choice’ of the Lessee to cease trading that caused its ‘loss of business’. On this reasoning, Mr Burton claimed that the necessary causal link to make good the Lessee’s case for damages was lacking.

54 As will appear below, however, this is not the basis on which the Lessee put its case. The principal component of the financial loss that it allegedly sustained was the difference between the price of the proposed sale of its business to the Prospective Purchaser and the value of this business in October 2001, which was when the sale and assignment should have been completed.

55 The fact that the Lessee chose for this reason to cease trading in December 2001 is therefore not relevant at all to the question whether it has established the necessary causal link. In Mr Fernon’s submission, this decision was in fact a sensible and appropriate one, taken in order to prevent any further financial loss.

56 To the extent, therefore, that the Tribunal at first instance implicitly denied the existence of a causal link between the Lessor’s conduct in resisting the assignment and the Lessee’s financial loss, on the ground that the true cause of this loss was the Lessee’s ‘choice’ to cease trading, we are bound to say that it did not take proper account of the precise reasoning on which the Lessee relied.

57 The sole issue remaining for us to determine under this heading is what amount by way of damages, if any, was sufficiently proved by the Lessee. In this connection, the only matter in dispute was whether it was entitled to what we have just described as the principal component of its claim for financial loss. This was an amount of $165,000, being the difference between the price of the proposed sale of its business to the Prospective Purchaser ($165,000) and the value of this business in October 2001, when the sale and assignment should have occurred (zero).

58 Mr Fernon put forward two principal arguments in support of the Lessee’s claim for this amount. We will outline these in turn, setting out Mr Burton’s arguments in response and our conclusions.

59 The first of these arguments was that there should be no deduction from the sale price quoted in the draft agreement with the Prospective Purchaser to reflect the fact that, leaving out of account the resistance offered by the Lessor, the completion of this agreement was still an expectation only. Mr Fernon contended that on the facts disclosed by the evidence, it was actually a ‘near certainty’ that, but for this resistance, the Prospective Purchaser would have proceeded with the agreed sale.

60 In support of the proposition that in such a case there should be no discount from the expected sale price, Mr Fernon relied on the decision of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 65. In our judgment in Atma Appeal at [91 – 97], we have set out relevant aspects of this case.

61 Mr Fernon cited a passage in the headnote to the report of Amann Aviation, indicating that, on the facts of that case, there was such a strong prospect of the relevant contract being renewed that three members of the Court (Mason CJ, Brennan and Dawson JJ) held no deduction to be warranted. He referred further to a passage in the judgment of Mason CJ and Dawson CJ at 97-98. Here their Honours expressed agreement with the Full Federal Court’s conclusion that there was a 20% prospect of the relevant expectation not coming to fruition, but went on to say that they were ‘not persuaded that the Full Court was wrong in… its conclusion that the amount of damages to be awarded should not be discounted on account of an event which was unlikely to occur’.

62 Mr Burton disputed the proposition that the Prospective Purchaser’s completion of the agreement was a ‘near certainty’. He relied chiefly on the evidence, outlined in Atma Appeal at [25 – 28], that its director, Mr David Cowdrill, was dissatisfied with the provisions of the lease regarding trading hours. This dissatisfaction, he said, could ultimately have induced him to withdraw from the contract. As to the legal principles to be applied, he submitted that the rulings in Amann on which the Lessee relied could only be applicable to the facts of that case.

63 We have already given reasons (at [32 – 38] above) for believing that Mr Cowdrill’s concerns about trading hours were not the cause of his withdrawing from the proposed sale. Amongst them, the most compelling consideration for present purposes is that although (a) he first expressed dissatisfaction as early as April 2001, and (b) he knew that if he obtained a leasehold interest by virtue of an assignment from the Lessee he would have no power to change the terms relating to trading hours, he was still prepared to join with the Lessee in seeking an assignment. If the issue of trading hours really worried him, he would, we think, have withdrawn a good deal earlier than 6 November 2001, which was nearly three months after the attempt to obtain formal consent to an assignment was initiated.

64 We consider for these reasons that the completion of the sale and assignment to the Prospective Purchaser could fairly be described as a ‘near certainty’. Applying the principle stated by Mason CJ and Dawson J in Amann Aviation, we accordingly hold that, in assessing the value of the expectation that the Lessee lost as a result of the Lessor’s breach of contract, there should be no discount for the possibility that this transaction might otherwise have fallen through.

65 Mr Fernon’s second submission was that, on the strength of a valuation report, three supplementary statements and some oral testimony furnished for the Lessee by Mr Philip Edmonds, an appropriately qualified accountant and valuer, the value of the Lessee’s business in late 2001 should be taken to have been nil.

66 In the latest of his supplementary statements, dated 5 May 2002, Mr Edmonds concluded that while the Lessee’s business made a small trading profit ($5,363) for the six months ending 29 June 2001, thereafter it traded at a loss. He assessed these losses over two specified periods as follows: from 6 July to 3 August 2001, $3,998; from 10 August to 12 October 2001, $4,659. The gross takings in these periods were respectively $16,551 and $31,825. In an earlier statement, dated 20 March 2002, he assessed the trading loss over the period from 6 July 2001 to 21 December 2001 at $10,715. The gross takings in this period were $75,920.

67 In view of this evidence of continued trading at a loss, Mr Edmonds expressed the opinion that the business should be valued on the basis of the net realisable value of its plant and equipment less its liabilities, not by way of capitalisation of future earnings. Relying on a valuation of the specific items of plant and equipment provided by Mr Ian Arthy, a qualified auctioneer and valuer, he concluded that as at 15 October 2001, the liabilities of the business exceeded its assets by $19,023. This was the difference between $5,076, being the value of the plant and equipment, and $24,110, being the total amount of rent and licence fees payable until the Lease expired on 18 August 2002. Through this reasoning, Mr Edmonds reached the conclusion that the business had a market value of zero at 15 October 2001.

68 Mr Edmonds acknowledged that in calculating these figures he relied strongly on the accuracy of information given to him by Mr Stephen Taylor, the director of the Lessee. This information included a number of computer spreadsheets, covering the period from October 1999 to December 2001, which showed (a) daily amounts of gross takings and (b) weekly amounts paid or chargeable on account of fixed costs, costs of supplies and wages. Mr Edmonds was able to verify many of these figures from primary records, such as invoices and cash register slips, covering the period from 1 January to 21 December 2001. On the whole, he found that the figures in the spreadsheets were accurate.

69 On some aspects of the accounts for 2001, Mr Edmonds was not however given primary records. He was compelled to use other means of verification. Because, for example, there were no primary records of wage payments between July and December 2001, he relied on (a) Mr Taylor’s account of the number of employees and (b) the industrial award rates for the relevant occupations at the time. He concluded that the figures on the spreadsheets were probably accurate.

70 Furthermore, Mr Edmonds was given no primary records for the years before 2001. This meant that his impression, gathered from the spreadsheets for 1999 and 2000, that the business was profitable in those years depended entirely on his assumption that, as appeared to be the case for 2001, the spreadsheets were reliable.

71 Other gaps in the records available to Mr Edmonds derived from the fact that the Lessee, a company, conducted other businesses in addition to its business at the premises. In consequence, the financial statements that it prepared in order to comply with corporations law, its income tax returns and indeed its bank statements provided no guidance as to the profitability of this particular business.

72 Mr Edmonds expressed the opinion that, while the primary and secondary financial records for the business were unsophisticated and far from complete, they were typical of numerous small businesses that he had encountered. On the assumption that the information supplied by Mr Taylor in order to fill in the gaps in the records was broadly accurate, he considered that his conclusion that the business should be valued at zero was sufficiently substantiated by the material provided to him.

73 In relation to the absence of any records of debts owed to the business, Mr Fernon relied on a statement by Mr Taylor in his evidence that with very few exceptions the business did not extend credit to any of its customers.

74 In challenging this opinion and seeking to support the conclusion reached by the Tribunal in its judgment at [98], Mr Burton relied principally on four affidavits and oral testimony provided for the Lessor by Mr Ross Mottershead, a chartered accountant with experience in valuation.

75 The main thrust of Mr Mottershead’s evidence was that the Lessee had failed to provide sufficient information to either himself or Mr Edmonds to enable them to estimate the value of the business. While agreeing that the records produced were similar to those maintained by many small businesses, he considered them to be clearly inadequate. Amongst the defects that he identified was the absence of financial statements, income tax returns, bank statements and depreciation schedules and the lack of any detailed information regarding debtors or unpaid creditors. He challenged also the reliability of the estimate provided for the value of the plant and equipment.

76 Mr Mottershead also maintained that because the profitability of businesses such as that of the Lessee was ‘cyclical’, the records, verified up to a point, for 2001 alone provided insufficient evidence to support the conclusion that it was, for all intents and purposes, unprofitable during the latter part of that year. Verification of the figures given in the computer spreadsheets for 1999 and 2000 was also needed if a true picture of its state at the relevant time was to be obtained.

77 Mr Mottershead did not himself check the spreadsheets for 2001 against the primary records that had been made available. He was not able to carry out his own inspection of the plant and equipment.

78 Mr Burton relied also on admissions by Mr Taylor himself, in the course of cross-examination, that (a) he entered some of the figures on the spreadsheets well after the period to which they related and (b) he was not at all expert with figures. He referred also to statements by Mr Taylor to the effect that there were ‘holes’ in the records and that one of two versions of what was apparently the spreadsheet for 1999 was a ‘mess’.

79 In his submissions to us, Mr Burton argued that, when all of Mr Edmonds’ testimony was taken into consideration, it became plain that he ultimately adopted the role of advocate for the Lessee, instead of maintaining the independence required of an expert witness.

80 We recognise, as did the Tribunal, that the material provided by the Lessee to Mr Edmonds and Mr Mottershead to enable them to value the business had numerous deficiencies. But we consider that on the key question – namely, whether the conclusion of Mr Edmonds that the business had a market value of zero in October 2001 could properly be drawn from this material – his expert opinion should be preferred to that of Mr Mottershead.

81 In reaching this conclusion, we have placed significant weight on four factors, which we will now outline.

82 First, the most important finding on which Mr Edmonds based his assessment was that from July 2001 onwards the business was trading at a loss. As the figures quoted above at [66] indicate, this loss, expressed as a proportion of the gross takings, was substantial. To illustrate this, the loss of $10,715 calculated by Mr Edmonds for the period from 6 July to 21 December 2001 represented 14.1% of the gross takings of $75,940. In our judgment, the inaccuracies, attributable to poor record-keeping, that in all probability underlie these figures prepared by Mr Edmonds would not be sufficient to account for a loss of this magnitude. His detailed calculations accordingly provide, in our judgment, a sufficient basis for his broad conclusion that the business was trading at a loss during this period and that the basis of valuation of the business should therefore be the net realisable value of its plant and equipment less its liabilities.

83 Secondly, any inaccuracy in the valuation of the plant and equipment could not be sufficient to undermine Mr Edmonds’ further conclusion that the net value, assessed on this basis, was zero. This follows simply from his calculation that the liabilities of the business exceeded its assets by a substantial sum ($19,023), having regard to the overall scale on which it operated.

84 Thirdly, while the correctness of Mr Edmonds’ valuation was undoubtedly vulnerable to the possibility that Mr Taylor, deliberately or negligently, provided him with misleading information, there was no finding by the Tribunal, and no reason for us to infer from the transcript, that Mr Taylor was an untruthful witness. He did acknowledge that his handling of figures was poor and that the records that he provided were therefore defective. Having regard, however, to the fact that Mr Edmonds, on checking the spreadsheet figures for 2001 against such primary records as were available, found these figures to be generally accurate, we believe that poor record-keeping by Mr Taylor could not have distorted the true financial position so drastically that Mr Edmonds’ broad conclusions could not be relied on.

85 Fourth and finally, we consider it relevant that the criticisms made by Mr Mottershead were not supplemented by any examination, on his part, of those primary records that were available.

86 In reaching our decision on this matter, we have taken due account of the fact that we differ from the decision reached by the Tribunal. We believe, however, that because the principal issue to be resolved was which of two conflicting expert opinions should be preferred, we are not at a material disadvantage through not having seen and heard the relevant witnesses. As indicated earlier at [50], our task in this review of the merits is to reach what we believe to be the correct and preferable decision having regard to all the material, including factual material, that has been put before us.

87 The outcome of our reasoning is that the amount of damages to be awarded for what we have called the principal component of the Lessee’s claim for financial loss should be assessed at $165,000. This is the price that would have been paid by the Prospective Purchaser on the proposed sale of the Lessee’s business if the Lessor, by resisting execution of the assignment of the Lease, had not deprived the Lessee of its opportunity to complete this sale. No deduction from this amount is warranted because the value of the business, after the withdrawal of the Prospective Purchaser, should be assessed at zero.

Assessment of damages

88 It remains for us to assess the total amount of damages to be awarded.

89 In its written submissions to the Tribunal at first instance, the Lessee claimed damages as follows:-

(a) The loss of sale to David Cowdrill $165,000

(b) The continuing loss of business (Sept – Dec 01) $ 6,206

(c) Rent paid (January – April 02 @ $2498.50) $ 9,994

(d) Security bond (per item 8 of the lease and remains

unpaid) $ 11,750

Total $192,950

90 The Lessee also claimed interest pursuant to s 72A of the Act and costs pursuant to s 77A.

91 We have already given reasons why an award to cover item (a), the principal component in this claim, should be made.

92 At first instance, the Tribunal made no award with respect to item (b) or (c). Neither of these items was pressed in the submissions made to us and no evidence in support of them was drawn to our attention.

93 With regard specifically to item (b), we would observe also that a claim for damages for loss of profits of the Lessee’s business between September and December 2001 appears to contradict an essential proposition underlying its claim for item (a), namely that during the second half of 2001 the business was manifestly unprofitable. This contradiction could only be resolved if it were shown that, in addition to frustrating the proposed sale of the business to the Prospective Purchaser, the Lessor’s conduct impeded in some way the due conduct of the business in its existing form as a licensed restaurant. There is no evidence to indicate how it might have had this effect.

94 Our further comment on item (c) is that it seems to presuppose that the Lessor’s conduct entitled the Lessee to treat the Lease as having been repudiated. But this was not expressly claimed in the proceedings before us.

95 For these reasons, we make no award under item (b) or item (c).

96 Item (d), the refund of the security bond, was the subject of an order in the Lessee’s favour at first instance. The Tribunal ordered that the Lessor should refund the amount of the bond – claimed to be $11,750 – after deducting the amount of any rent not paid by the Lessee up to 18 August 2002, the date of expiry of the Lease. It made no award of interest. This order was not specifically challenged on appeal.

97 As mentioned earlier, the Lessee claimed interest on any damages awarded to it. We see no reason why, pursuant to s 72A of the Act, we should not follow the normal practice of awarding interest at District Court rates.

98 In relation to item (a), we treat the Lessee’s cause of action as arising at or about 15 October 2001, being the time at which the assignment to the Prospective Purchaser should be taken to have occurred if the Lessor’s conduct had not obstructed it. Between that date and 28 February 2002, the District Court rate of interest was 10%. Between 1 March 2002 and 15 April 2004, the date of this judgment, it has been 9%. On the principal sum of $165,000, these rates produce amounts for interest as follows:-

15 October 2001 – 28 February 2002 $6,187.50

1 March 2002 – 15 April 2004 $31,556.25

Total amount for interest $37,743.75

99 The total amount awarded under item (a) is accordingly $202,743.75.

100 Our order in relation to item (d) will be that the Lessor must refund the amount of the security bond under the Lease less the amount of any rent not paid by the Lessee up to 18 August 2002, the date of expiry of the Lease. In addition, it must pay interest at 9% on this net amount for the period from 18 August 2002 to the date of this judgment.

101 We have heard no submissions on costs. We allow 28 days from the date of this judgment for either party to file a submission on costs. In the event that either party does so, the other party has a further 21 days to file a submission in reply. In the absence of any objection from either party, the matter of costs will be determined ‘on the papers’, under s 76 of the Administrative Decisions Tribunal Act 1997.