Caballero International Pty Ltd v Rihani & Anor

[2007] NSWDC 149

CITATION:	Caballero International Pty Ltd v Rihani & Anor [2007] NSWDC 149
HEARING DATE(S):	15 May 2007, 16 May 2007, 17 May 2007, 18 May 2007, 21 May 2007, 22 May 2007, 23 May 2007 and 24 May 2007
JUDGMENT DATE:	23 July 2007
JURISDICTION:	Civil
JUDGMENT OF:	Hungerford ADCJ
CATCHWORDS:	LANDLORD AND TENANT - Lease - Purported rescission by lessee for lessors' failure to provide premises reasonably fit for occupation as a licensed restaurant - Whether a repudiation - Breach of covenant to pay rent and outgoings - Rights of termination - Re-entry by lessor - Lessors' loss of benefits - Damages for loss
LEGISLATION CITED:	Fair Trading Act 1987, ss 42 and 68 Retail Leases Act 1994, s 9
CASES CITED:	Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 Foran v Wight (1989) 168 CLR 385 Kennedy v Vercoe (1960) 105 CLR 521 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 57 ALR 609 Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 Trimis v Mina [1999] NSWCA 140
PARTIES:	Caballero International Pty Limited - Plaintiff/Cross-Defendant Suleiman Rihani - First Defendnat/First Cross-Claimant Nadia Rihani - Second Defendant/Second Cross-Claimant
FILE NUMBER(S):	Matter No 1575 of 2006
COUNSEL:	Mr M Rollinson (Plaintiff/Cross-Defendant) Mr A F Fernon (Defendants/Cross-Claimants)
SOLICITORS:	Ramrakha Jenkins (Plaintiff/Cross-Defendant) Gibara & Soubris Lawyers (Defendants/Cross-Claimants)

JUDGMENT

1 The sale of a licensed restaurant business as a “going concern” and the lease of the premises in which it was conducted by the purchaser/tenant to operate its own business brought almost immediate complaint by it. The basis of the complaint was that the subject premises were unfit for occupation for the intended purpose so that the purchaser/tenant was prevented from entering and exercising control of the business it planned and obtaining the benefits it had purchased. Eventually, with the complaints and resultant dispute unable to be resolved, the lease was terminated by the tenant because of the vendor/landlords’ alleged breaches; the landlord said the lease was repudiated by the tenant and the repudiation was accepted.

2 The parties were agreed that the lease had indeed come to an end by reason of what occurred and the issue in the proceedings was which of the parties was at fault. They each claimed against the other damages for the alleged respective wrongful conduct.

The parties and the premises

3 The plaintiff, Caballero International Pty Limited, was incorporated on 11 March 2005. Jean Caballero was the sole shareholder and company secretary and her son, Dean Caballero, was the director. It seems that Ms Caballero and her son had been from around late-2004 inspecting properties in the Sydney central business district and Paddington areas for the purpose of operating a business together; they were interested in cafes. Ms Caballero had been in business 20 years ago when she ran a sandwich shop for three and a half years in leased premises opposite Sutherland Hospital; later she conducted a carpentry business. Mr Caballero did not have any previous experience in business and had been a porter/concierge in “five star” hotels in the hospitality industry. They were looking to buy an existing business, such as a licensed Latin-American restaurant, and for that purpose approached Gustave Fonteijn, a licensed real estate agent trading as “Gus Fonteijn Real Estate”, in February 2005 who showed them two or three properties.

4 Suleiman Rihani and his wife Nadia Rihani, the defendants, had owned the subject premises at 147 Oxford Street at Darlinghurst since about 1987. The premises, in excess of 100 years old, were on two levels with a mezzanine floor between the levels furnished with cushions for seating about 20 persons; the upper level comprised dining facilities in two larger rooms, a smaller room at the rear and a bathroom; and the ground level was an open dining area with a commercial kitchen at the rear, two toilets and at the front there was a cooking area servicing a take-away shop. The entrance to the property for customers was from Oxford Street, although it had a rear service entrance, but the front street windows were darkened so that the front door had to be opened to see inside.

Usage of premises

5 On purchasing the premises, the defendants permitted the continuation of the then existing lease to a clothes retailer for about three years. In 1990 the usage of the premises was then as a licensed restaurant and it had been used since for that purpose. For 13 years until July 2003, Michael Borchan as lessee to the defendants traded as a Lebanese restaurant called “Habibi Michael Lebanese Restaurant.” From 2 July 2003 to 1 July 2006 Mahmoud Alqazah leased the premises from the defendants to use a a licensed restaurant but, seemingly due to his failure to pay all the rent and outgoings, agreement was reached between them to terminate the lease as from 1 January 2005 and the defendants re-entered into possession. Thereafter, the defendants commenced to trade from the premises by conducting a licensed restaurant known as “Habibi’s Lebanese Restaurant” according to a business name registered by the Office of Fair Trading, Department of Commerce issued on 1 February 2005.

6 The defendants together worked in the restaurant, Mrs Rihani and an employee acting as the chef, and Mr Rihani and occasionally his son-in-law performing duties as waiters; casual staff were employed from time-to-time on washing and cleaning work. The restaurant at this time operated on average for five days each week but usually for three to five days a week and rarely on Sundays; when open, the hours of trading were from about 4.00 or 5.00 p.m. to 10.00 p.m.

7 While operating as a restaurant, a liquor licence was in force. On 11 April 2005, the Licensing Court of New South Wales provided a licence information search of the subject premises which showed Mr Borchan was the licensee from 27 March 1991 to 16 July 2003, Mr Alqazah from 16 July 2003 to 6 December 2004 and again Mr Borchan from 6 December 2004 to the date of the search. Included in the special conditions attached to the licence was a limitation in the seating capacity of the restaurant to 50 persons.

8 Shortly after re-entering the premises and operating Habibi’s Lebanese Restaurant, the defendants retained Mr Fonteijn to find a purchaser for the business as they did not wish to continue conducting it. An agency agreement dated 31 January 2005 between the defendants and Mr Fonteijn was made for that purpose. It may be noted that, in his unchallenged affidavit evidence not subject to any cross-examination or any evidence in reply, Mr Fonteijn said as to the state of the property that “it was functioning but the equipment and fit out was old and in [his] opinion it could be modernized”. As it happened, he said Jean and Dean Caballero approached him about buying a business, either a restaurant or a coffee shop, in late-2004. Mr Fonteijn had other potential purchasers of the defendants’ business and he showed the premises to a couple of those interested persons.

Parties’ contractual relationship

9 Inspections of the premises: During the first week of March 2005, Mr Fonteijn took Jean and Dean Caballero to inspect the premises concerned in the middle of the day so that it was not then open to trade until a few hours later – the restaurant was empty and in darkness but Mr Fonteijn, contrary to the evidence of Ms Caballero who said he was unable to do so, turned on the inside lights to enable the facilities to be seen. Apart from the rear vacant room on the second level for which Mr Fonteijn did not have a key, the remainder of the premises was inspected. However, Ms Caballero said the “cushion room” on the mezzanine level was not seen. Arrangements were made for Jean and Dean Caballero to further inspect the premises and to meet Mr Rihani.

10 On 10 March 2005, that further inspection occurred and, after introducing the parties, Mr Fonteijn departed. The overall impression Ms Caballero obtained during this inspection was, as she said, “it was still very dark inside despite the fact Sam [Rihani] switched some lights on”. On the street level, she noted “the ceiling lights were covered with Arabian type brass light shades” and “the walls were hung with Arabic carpets and paintings of various sizes.” Moving to the upper section of the restaurant, Ms Caballero referred again to seeing carpets and paintings on the walls and that “the light shades were painted over making the premises very dark;” she said “the window was covered with curtains and/or painted over making the place even darker.” In the upper level “cushion room”, she said “it was still very dark in this section” as a “Bedouin type tent….covered most of the ceiling and some 70 per cent of the wall…also rugs on the walls…no windows were visible”.

11 Ms Caballero deposed to certain conversations with Mr Rihani as they walked around the premises to the effect that he thought a hole could be knocked in the cushion room to open the upper level sections and constructing a new shop front. She made comments that she and her son would put in a new shop front with folding doors and tables and chairs outside; she added:

We do not intend to change the inside with the exception of replacing the worn carpet on the upper level, and tiling the street level. We would also repaint the place. We do not want the place to look like a stainless steel type café/restaurant.

12 Despite the darkness of the premises, Ms Caballero agreed that on the inspection she was able to view the whole of the property and formed the opinion that she wanted to lease it because she was attracted to older style buildings. She said it was unnecessary to obtain a report from a building inspector about the state of the premises because “the restaurant had been running for 12 to 13 years and we assumed that it would be okay.” She assumed also the property complied with whatever regulations were in place at the time, although she was unaware of any relevant regulations and did not seriously consider this aspect. Significantly, Ms Caballero knew the local government authority would have to approve a development application for the works to the premises she wished to do but she made no enquiries in that respect.

13 Ms Caballero had determined by the time of this inspection that she proposed to operate a Latin-American restaurant on the lower level with an internet café upstairs.

14 The same intention as to what type of business was proposed to be operated was shared by Mr Caballero. He too was attracted to the premises being in an older style building, as he said, “I liked the charm of it…I liked it because it gives an old worldly feel.” It was acknowledged by Mr Caballero that changes to the premises would be necessary to make them suitable for the type of restaurant and internet café in mind, but, somewhat surprisingly, he was unaware a development application was required to do the conversion until a week or two after the plaintiff agreed in principle to purchase the business and to lease the premises; he became aware of that requirement before formal contracts were exchanged. Like Ms Caballero, Mr Caballero said the plaintiff did not get anybody to inspect the premises for fitness because “you wouldn’t really need to …a trading restaurant…operating for thirty years.” Nevertheless, from his two inspections Mr Caballero admitted that on assuming occupation the plaintiff would have to upgrade the facilities. He explained – “There’s no way that kitchen would have passed the health inspection laws…replace some of those benches and reseal a lot of those benches, but that was something that we were prepared to do…replace the rugs, and the tiling at the front had a lot of cracks in it…..The carpet was in a shocking state, so we were prepared to fix the carpet and do the re-tiling….obviously had to repaint the place.”

15 The existence of a liquor licence for the restaurant became a major issue in the proceedings. However, it was common ground that at the 10 March 2005 meeting between the parties it was not mentioned. As earlier mentioned, Mr Borchan, a former tenant, was still the licensee.

16 At the conclusion of the inspection of the premises on 10 March 2005 agreement was reached in principle between Jean and Dean Caballero with Mr Rihani that the restaurant business would be purchased and the premises leased. The purchase price was $28,000 for which Jean Caballero that day forwarded a cheque for $5,000 as deposit to Mr Fonteijn who later released $2,000 to the defendant after deducting his commission of $3,000. The rent and outgoings were discussed on the basis of a three year lease, with two extension options each of three years at a rental of $1,800 per week and annual rental increases of 4 per cent; there was to be a rent-free period of eight weeks to enable the premises to be made ready for the new business.

17 On 11 March 2005, the plaintiff was incorporated and it assumed in place of Jean and Dean Caballero the role of purchaser of the business and as lessee of the premises.

18 Contract for sale of business: On 16 March 2005 the defendants’ solicitors forwarded proposed contracts for the sale of the restaurant business and for the lease of the premises to the plaintiff’s solicitors. Either sent with those documents or shortly thereafter, most probably on 19 May 2005, was an application, known as a Form B, signed by Mr Borchan as the existing licensee of the liquor licence to transfer it to another person. Most of the questions on the form were answered, other than whether Mr Borchan was still exercising regular supervision and management of the licensed premises and the name and address of the proposed licence holder who was intended to be the plaintiff. Ms Caballero said she spoke to her solicitor about the Form B and was advised to seek advice about it from solicitors, Steve Walker & Associates, who practised in that area; she did so.

19 On 29 April 2005 the contract for the sale of the business was exchanged between the plaintiff and the defendants. It was due for completion on 23 May 2005 and attached was a proposed lease of the premises. On 29 April 2005, the plaintiff registered the business names of “El Bueno Café” and “El Bueno Internet Café.” The presently relevant terms of the contract in significant respect may be summarised as follows -

(a) The type of business sold was a “Restaurant business.”

(b) The price was $28,000 with a deposit of $5,000.

(c) There was no apportionment as between goodwill and equipment.

(d) An inventory of equipment was attached, comprising various items of kitchen equipment, cleaning equipment, cutlery and crockery, office equipment, stereo system, seat cushions, 40 tables and 36 chairs.

(e) A licence (liquor) affected the business.

(f) A business name registration certificate for “Habibi’s Lebanese Restaurant” was attached.

(g) The sale of the business was a “going concern.”

(h) An express warning referred to the need to take account of the time taken to obtain necessary consents, such as from the relevant Council and the Liquor Administration Board in negotiating the completion date of the contract; a warning was issued that the purchaser should arrange insurance.

(i) Requirements were imposed on the defendant as the vendors as to how they must conduct the business until completion, including to maintain the goodwill of the business and carry it on in a proper and businesslike way (cl 9.1.1); to ensure the business was run as a going concern (cl 9.1.2); and to maintain the equipment in the same state of repair, except for any fair wear and tear, as at the contract date (cl 9.1.3).

(j) The vendors promised, to the best of their knowledge and other than as disclosed in the contract, that the equipment was in proper working order (cl 10.1.4); and that they had complied with all requirements under legislation relating to the business (cl 10.1.7).

(k) The purchaser could not make a claim or requisition (an objection or question) or rescind or terminate the contract in respect of a promise, representation or statement about the contract or the business, not set out or referred to in the contract (cl 12.1); or anything the substance of which was disclosed in the contract (cl 12.2).

(l) On completion the vendor must give the purchaser any document that related only to the business (cl 20.1.5).

(m) Special condition 2 – No reliance by Purchaser of the contract provided:

The Purchaser acknowledges and agrees that in entering this contract:

(a) he has relied only on the warranties and representations of the Vendor set out herein;

(b) he has relied entirely on his own enquiries and inspections of the business;

(c) he accepts the business in its present condition with its existing defects latent and patent;

(d) he is not permitted to make any objections, requisition or claim for compensation regarding any of the foregoing;

(e) the Purchaser specifically acknowledges and agrees that for the purpose of clause 10 the substance of a mater shall be deemed to have been disclosed in this contract if that matter appears in any documents or writing attached to this contract.

(n) Special condition 6 – Fixtures and Fittings of the contract provided:

(a) Regardless of any other clause in this contract, the fixtures included in this sale are sold with all faults and defects that exist at the date of this contract and no warranty is given about their condition nor their fitness, merchantability or suitability.

(o) Special condition 7 – Liquor Licence of the contract provided:

Completion is conditional upon the purchaser being granted a licence for the premises such that it may be used for the service of alcohol in the context of a café/restaurant.

Lease agreement

20 The contract for sale of the subject business was completed on 23 May 2005 and the Form B as to the transfer of the liquor licence was formally released to the plaintiff. On the same day the lease agreement for the premises was executed by the plaintiff and the defendants. Its main provisions of relevance were –

(a) the term of the lease was for 3 years commencing on 23 May 2005 and terminating on 22 May 2008 with two options to renew each of 3 years (Item 11 of Schedule and cl 4).

(b) The initial rent until the first review date was $93,600 per annum payable by monthly instalments of $7,800; annual increases in rent of 4 per cent per annum were to apply (Item 12 of Schedule and cl 5).

(c) No rent was payable by the lessee for the first eight weeks of the term and during the first 12 months of the term the rental was reduced to $1,000 per week for a two month period, with such shortfall to be repaid to the lessor within 12 months of such reduction (Annexure A, special conditions 1 and 2).

(d) The lessee was due to pay the full amount of outgoings for the premises in respect of local council rates and charges, water sewerage and drainage charges and land tax (Item 13 of Schedule and cl 5).

(e) The interest rate on moneys overdue under the lease was 12 per cent per annum (Item 14 of Schedule and cl 5.1.5).

(f) The permitted use of the premises by the lessee was as a restaurant (Item 16 of Schedule and cl 6.1).

(g) The amount of public liability insurance to be kept current by the lessee was $10.0 million with a rental bond of $7,800 (Item 17 of Schedule and cl 8.1.1).

(h) The lessee agreed with the lessors to keep the fittings, plant and chattels in the premises in a proper state of repair, working order and condition and to replace the same as shall become broken, worn out, destroyed, damaged or obsolete (Annexure A, cl A.2.1).

(i) The lessee agreed with the lessors to procure the appointed liquor licensee of the premises to make application for and to obtain all such licences as may be necessary for keeping open the premises as duly licensed for the sale and consumption of liquors (Annexure A, cl A. 2.2).

(j) The lessee was not prevented from abandoning the liquor licence (Annexure A, cl A.3).

(k) As to the condition of the premises and repairs, the lessors were to be responsible for maintaining the roof, the ceiling, the external walls and the floors of the property and to fix structural defects; maintain the property in a structurally sound condition; and maintain essential services (Annexure B, cl 7.1).

(l) The lessee was otherwise to maintain the property in its condition at the lease commencement date and promptly do repairs needed to keep it in that condition (Annexure B, cl 7.2).

(m) If an authority requires work to be done on the property and it is structural work or work needed to make the property safe, then the lessors must do the work unless it is required only because of the way the tenant uses the property; other work is the responsibility of the lessee (Annexure B, cl 7.4).

(n) If the property is damaged then express terms are provided concerning rental relief in whole or in part and termination of the lease without compensation (Annexure B, cl 8.2).

(o) he lease contained express provisions for forfeiture and the end of the lease in Annexure B, cl12, including by the lessors –

. if the tenant repudiates the lease (cl 12.2.1);

. rent or other moneys due under the lease remain unpaid for 14 days (cl 12.2.2);

. essential terms of the lease, including the obligation to pay rent and outgoings, use of the premises within the permitted use and making of repairs are not met (cl 12.5); and . the lessors can recover damages (cl 12.7).

(p) The lessee’s disclosure statement did not specify any statements or representations made by the lessors or their agents which were relied on in entering into the lease. The statement provided:

…no other promises, representations, warranties or undertakings (other than those contained in the lease) have been made by the lessor to the lessee in respect of the premises or the business to be carried out on the premises.

Occupation of the premises

21 The plaintiff assumed occupation of the premises on the commencement of the lease on 23 May 2005 by which time, according to Mr Caballero, it had resolved to conduct an internet café upstairs and a restaurant on the ground level; this involved knocking a hole in the wall upstairs and joining the two upstairs rooms. Mr Rihani agreed to this and the plaintiff engaged Ignite Commercial Design Solutions to inspect the premises for the purpose of preparing drawings for a development application to the Council of the City of Sydney. Despite some problems with keys to gain access, Ignite eventually prepared the plans and the application was submitted to Council on 3 June 2005 on behalf of the plaintiff. Shortly thereafter, at Mr Rihani’s request and agreed to by Mr Caballero, Mr Borchan attended the premises and removed the Arabic decorations, including carpets, paintings, smoking pots and other sundry items (low tables and cushions).

22 Significantly, and regardless of special condition 7 in the contract for the sale of the business as to the liquor licence which was not enforced by the plaintiff, Mr Caballero said that at settlement on 23 May 2005 he gave instructions to the plaintiff’s solicitors to settle without a completed Form B and expected Mr Borchan to complete the form after settlement so as to enable the transfer of the licence from him to the plaintiff. Nevertheless, and although Mr Caballero saw Mr Borchan at the premises on at least two occasions in June 2005, he did not raise the issue of Form B because, as he said, Mr Rihani was to do so. Mr Rihani denied this. In the result, it seems no action was taken by the plaintiff in relation to having the liquor licence transferred into its name despite cl A.2.2 in the lease agreement for the plaintiff as lessee to procure the licensee, Mr Borchan, to apply for the transfer. The solicitor engaged to advise and assist with the preparation and filing of all necessary documents in this respect as early as 19 April 2005, Mr Steve Walker, eventually on 18 May 2006 due to being unable to contact Mr Caballero for a considerable time ceased to act.

23 On 5 August 2005, the Council gave deferred commencement approval for the plaintiff’s development proposals which were noted at a cost of $30,000. Conditions to be satisfied prior to consent becoming effective included the need within three months to submit a Plan of Management covering the number of staff employed, security measures/surveillance to be undertaken, hours of operation and fire safety/emergency procedures. On compliance with the management plan, other conditions to be satisfied prior to the issue of a Construction Certificate and later an Occupation Certificate were specified as to Building Code of Australia requirements, awning signs, digital video surveillance cameras, health aspects and various matters during the construction phase. The plaintiff submitted the Plan of Management on 26 September 2005. However, in view of other events concerning the premises, the plaintiff did not proceed with the development.

24 In the meantime, Jean and Dean Caballero looked at the premises in more detail, aided by the defendants’ removal of many of the furnishings, and noticed what they considered to be certain defects concerning electrical and plumbing issues. Either one or other of them raised these problems with Mr Rihani who made arrangements for them to be rectified. The issues related to a leak in the upstairs ceiling, the gas meter in the kitchen, roof repairs, lighting and electric pump. Ms Caballero then engaged Mr Craig Nisbett of Sydney Building Reports on 21 June 2005 to inspect the premises. In a report dated 22 June 2005, Mr Nisbett identified thirteen matters which he said were defects which should be addressed by the lessor defendants prior to the plaintiff occupying the building. I interpose that this was just on one month after the sale of the business and commencement of the lease. Be that as it may, the defects related to electrical wiring to lights, general purpose outlets and appliances, drainage system on the rear ground floor, water penetration through the first floor ceiling and ductwork, rear first floor windows deteriorated beyond repair with no glass in window frames, carpet requires replacement, sanitary facilities below required standard, fire safety measures non-compliant with building standards, rear exit doors non-compliant with building standards, air conditioning system needs servicing, front signage service panels need replacing and gas service and appliances require testing. Mr Nisbett concluded that “the condition of the premises is very run down due to a lack of maintenance and does not comply with the current Building Code of Australia for the purpose of a restaurant/café.” He estimated the expense of renovations would be “extremely high.”

25 The plaintiff, on 27 June 2005, sent a copy of Mr Nisbett’s report to Mr Rihani with the request that “the building be made safe and usable as soon as possible so that we can commence our operations. The current situation has brought us to a complete standstill, and we would expect the rent to abate until our workmen can attend in a normal safe manner.” Apparently, Mr Rihani met with Jean and Dean Caballero at the premises on 30 June 2005 and Mr Rihani was amenable to making further repairs. On 6 July 2005, Ms Caballero sent another letter to Mr Rihani again claiming rent abatement, including outgoings, “until the building is made safe and usable to enable us to start our renovations and commence trading.”

26 Mr Walker, on the plaintiff’s behalf, wrote to the defendants’ solicitors on 4 August 2005 by reference to the report from Mr Nisbett and relied on cl 7 of the lease to oblige them as the lessors to make good the specified defects. Clause 7, of course, required the defendants to maintain in a state of good condition and serviceable repair the roof, ceiling, external walls and floors, maintain the structurally sound condition of the property and maintain essential services. It will be apparent that many of the alleged defects fell within cl 7, although some clearly did not and were the plaintiff’s responsibility, such as the carpet, air conditioning system, front signage and testing of appliances: see cl 7.2.

27 It ought be mentioned that a complicating factor in the situation which developed, and thus a problem for both parties, was the development application submitted somewhat late in the day after the sale contract and lease agreement were made and even as at 26 October 2005 the Council had not approved the Plan of Management as a condition to enable fitout, change of use of the premises and alterations to be commenced. Council advised the plaintiff on 4 November 2005 of final development consent. Also, of course, the changes proposed by the plaintiff would impact on those areas it complained the defendants should remedy. One cannot help but comment that after two inspections of the premises, Mr Caballero apparently made a couple of visits himself separately from Ms Caballero, the plaintiff determined on only the second inspection to proceed to purchase the business and to lease the premises but absent any building inspection. It was that position which obtained on settlement and commencement of the lease on 23 May 2005. Special Condition 2 in the sale contract, to which was attached the lease agreement, is significant in this respect in that it deals with reliance by the plaintiff/purchaser/lessee on its own enquiries and inspections and acceptance of the business in its then condition and with its then defects latent and patent with no avenue for any objection, requisition or claim for compensation. Special Condition 6 provides that the fixtures are sold with all existing faults and defects and no warranty was given about them. Clause 7 of the lease is to be viewed in that context and, reasonably, with the scope of works proposed by the plaintiff’s development application.

28 The plaintiff acknowledged that the defendants caused certain electrical and plumbing work to be done at the premises in the June – July 2005 period, but Ms Caballero did not consider the work to be adequate to rectify the faults and she continued her complaints to Mr Rihani. For instance, Ms Caballero’s concerns about fire safety were referred by her to the New South Wales Fire Brigades, Risk Management Directorate, but on 10 August 2005 that authority referred the complaints to the Council for determination as the regulatory authority for the development application.

29 On 24 August 2005, the defendants appointed Michelangelo Melani, a licensed real estate agent, auctioneer, and valuer with The Professionals Manly, as the new managing agent of the premises and to canvass the possibility of resolving the outstanding issue in dispute with the plaintiff. Mr Melani arranged with Mr Caballero to meet at the premises on 26 August 2005 to discuss the issues. However, Ms Caballero attended in his stead; Mr Melani and Mr Rihani were both present. Unfortunately, the meeting quickly became quite acrimonious as between Ms Caballero and Mr Melani with personal insults exchanged, no doubt fuelled by the absence of a building inspector thought by Ms Caballero to be attending. It is unnecessary to further that situation, other than to say that both Mr Melani and Mr Rihani considered agreement was reached for an amicable way forward to resolve the dispute but with Ms Caballero asserting that “we made no progress that day.” Even so, on 27 August 2005 Mr Melani forwarded a letter to the plaintiff setting out items discussed and negotiated between the parties at the meeting in coming to an agreement to solve the then outstanding building issues. Ms Caballero denied any such agreement.

30 The specified items which the defendants agreed to fix concerned the top floor ceiling, ground floor dining area ceiling, exit lighting signs and smoke detectors, certain plumbing items, certain doors and locking devices and glass panels on the second floor level. The letter confirmed an agreement for rent to commence on 1 October 2005 (instead of from 8 weeks after 23 May 2005) and outgoings on 1 September (instead of from 23 May 2005). The defendants were to have the works attended to by 17 September 2005 with commencement on 31 August 2005 by locksmiths, plumbers and electricians.

31 Ms Caballero’s response was to refer the issue to new solicitors, Ramrakha Jenkins, who wrote to Mr Melani on 1 September 2005 disputing any agreement and placing the obligation on the lessor defendants to correct the defects outlined in Mr Nisbett’s report plus later defects found. Payment of the rent was denied until the defects were corrected and an urgent response was sought. The defendants’ solicitors, Alex Mijovich & Associates, wrote to the plaintiff’s solicitors on 1 September 2005 detailing the work performed and still to be performed by the defendants and making an offer to fully and finally resolve the dispute with further corrective measures to be completed within 14-21 days so that rent would become payable from 1 October 2005.

32 A series of letters then commenced from the plaintiff’s solicitors to the defendants’ solicitors. The defendants changed solicitors twice during this period. It is unnecessary to trace in detail the correspondence which ensued. Suffice it to record that by letter dated 26 September 2005 the plaintiff’s solicitors advised “rescission” of the lease and contracts with the defendants. The defendants’ new solicitors sought time to obtain instructions and then on 30 September 2005 sought payment of all monies due under and pursuant to the lease agreement in default of which the defendants would re-enter the premises. The so-called rescission by the plaintiff was withdrawn on 4 October 2005 and the plaintiff put a resolution proposal on 11 October 2005 but no response was received; so, previous offers were withdrawn and advice given that the matter would be referred for resolution to this Court. On 21 November 2005, the plaintiff’s solicitors advised the defendants’ new solicitors, Gibra & Soubris, of formally rescinding the lease and sale of business agreement. On 25 November 2005, the solicitors for the defendants claimed the defendants’ actions amounted to repudiatory conduct, the repudiation was accepted, the lease was at an end, the defendants would re-enter the premises and damages would be sought from the plaintiff.

33 Apart from the $28,000 purchase price paid for the business and $7,800 bond under the lease, the plaintiff has not made to the defendants any payments of rent or outgoings under the lease.

The claim, cross-claim and defences

34 The plaintiff brought the action based on representations allegedly made to it by the defendants’ agents during the negotiations leading to the contract for the sale of the business and the lease but which were said to be false, namely:

(a) The defendants were the proprietors of a restaurant business trading at the shop under the name “Habibi’s Lebanese Restaurant” or “Habibi Michael Lebanese Restaurant.”

(b) The restaurant business was to be sold to the plaintiff as a going concern.

(c) The restaurant business had been trading in compliance with all legislative requirements applicable thereto.

(d) The shop was in a condition permitting the plaintiff to commence occupation immediately and commence trading the business after fit out of the shop for the plaintiff’s purposes.

(e) The defendants were proprietors of an On-Licence (Restaurant) under the Liquor Act applicable to the shop and the restaurant business therein and were able and willing to co-operate with the plaintiff in the transfer of such licence to the plaintiff.

35 Alternatively, the plaintiff claimed the said representations constituted express or implied terms of the sale contract and/or lease so that their falseness was a breach of contract. In the further alternative, in making the said representations the defendants were said to have engaged in misleading or deceptive conduct in trade or commerce contrary to s 42 of the Fair Trading Act 1987. Further, it was said the defendants as the lessors did not make proper disclosure under the requirements of s 9 of the Retail Leases Act 1994 and were therefore guilty of pre-lease misrepresentations. The plaintiff claimed damages in the sum of $64,185.91 being what it spent in reliance on the contractual premises and representations plus interest and costs. The defendants did not admit the representations as alleged and denied any misleading or deceptive conduct. The relief sought by the plaintiff was denied.

36 In response, the defendants cross-claimed against the plaintiff for breach of the lease by failing to pay any of the rent and outgoings due in respect of the premises by reason of which loss and damage was claimed during the three-year term of the lease in the sum of $223,627.56 plus interest and costs. The plaintiff resisted the cross-claim essentially relying upon the unfit condition of the premises as a breach by the defendants of the lease by reason of which it was unable to use the premises thus relieving any obligation to pay the rent and outgoings. The plaintiff claimed an entitlement to thereby terminate the lease, as it did, on 21 November 2005.

37 As the matter was argued, the plaintiff’s claim was under three heads: first, the liquor licence issue; second, the state of the premises; and, third, land tax. Essentially, the complaint was that the plaintiff did not get what it bargained for. On the other hand, the principal approach followed by the defendants was that the plaintiff was not entitled to repudiate the lease so that it was required to make payment of all rent and outgoings due under the lease; that it failed to do so enabled the defendants to terminate the lease for breach of essential terms and to recoup such amounts as damages.

Representations – general comments

38 In viewing the scope of the alleged representations, it is relevant at the outset to observe that the plaintiff purchased a business, being a licensed Lebanese restaurant (Habibi’s Lebanese Restaurant) as a “going concern” but which, on the evidence of both Jean and Dean Caballero, it had not intention of conducting. They proposed to operate a licensed Latin American style restaurant in the downstairs area (El Bueno Café) with an internet café upstairs (El Bueno Internet Café) and for which modifications to the premises had to be made requiring a development application to the Council. The premises were occupied by the plaintiff from 23 May 2005, the development application was lodged on 3 June 2005, Council gave Deferred Commencement Approval on 5 August 2005 subject to a Plan of Management being submitted within three months, the Plan of Management was provided on 11 September 2005 and on 4 November 2005 Council gave final development consent. However, on 21 November 2005 the plaintiff purported to terminate the lease. On the defendants’ acceptance on 25 November 2005 of the repudiation for non-payment of rent and outgoings it was common ground that the contractual relationship between the parties thereupon ceased.

39 The dispute between the parties developed as the complaints by the plaintiff about the condition of the premises being unfit mounted. One has got to ask the question – unfit for what purpose? The restaurant had been operating as a Lebanese restaurant for many years but the plaintiff needed to make alterations for its trading purposes. It is true that Sydney Building Reports in the report from Mr Nisbett dated 22 June 2005 identified certain defects but, one may be satisfied on the evidence, Mr Rihani agreed to and did in fact attend in a timely way to have rectified. Notwithstanding, the plaintiff raised dissatisfaction with what was done and raised other matters so that, as was claimed, the premises could be put in a safe and suitable condition to enable its modifications to be made. But its changes could not occur until approval of the development application on 4 November 2005.

40 In the meantime, Mr Rihani took steps to attempt a resolution with the plaintiff, including in August 2005 the appointment of Mr Melani as managing agent of the premises and the offering to the plaintiff of a range of proposals to address its concerns about the state of the premises so that rent would commence from the extended date of 1 October 2005 and outgoings from 1 September 2005. The response of Ms Caballero for the plaintiff was a rejection of the proposal by the claim that the defendants should provide a building inspector to assess the condition of the premises. I do not see any basis for the plaintiff’s demand in this respect and it became apparent to me in this long sequence of events, and I so find, that the plaintiff was using the complaints about the premises’ condition as a means to avoid the payment of rent and outgoings until it could carry out its fit-out of the premises under the pending development application and commence trading – that was contrary to its obligations under the lease and inconsistent with the contract for the purchase of the business as a “going concern.”

41 The representations, as cited earlier, were pleaded as forming the basis of the plaintiff’s claim in contract and under s 42 of the Fair Trading Act. The claim under s 9 of the Retail Leases Act was never pursued in argument and, therefore, I will not pursue it. However, the representations were pleaded as having been made by the defendants’ agent, and that must have been Mr Fonteijn, in the pre-contract negotiations. But there was no evidence any such representations were made. Indeed, Mr Fonteijn was not even required for cross-examination on his affidavit. Further and better particulars of the alleged representations were provided by the plaintiff’s solicitors in a letter dated 20 July 2006 in which it was said the representations were so made orally and confirmed by receipt of the $5,000 deposit for the sale of the business, the contract for sale, the lease, the disclosure statement, the licence information search and the business name search. Even so, that is not how the plaintiff’s case was finally argued by its counsel who conceded that the representations were limited to its three heads of claim – liquor licence, land tax and state of the premises – according to the contractual promises by the defendants contained in the contract for sale of the business and the lease agreement.

42 It may be accepted, as I do, that a contractual promise can amount to misleading and deceptive conduct. That is so, for instance, where the promisor never had any intention to carry out the promise: see Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 239 per Ormiston J. But, in my view, in the instant case there was simply no evidence to support the proposition that the defendants never had any intention of not complying with their contractual promises and where the evidence of Mr Rihani showed a willingness to try and meet the plaintiff’s complaints so that the lease could operate as intended. Whether they did in fact comply with their contractual promises is, of course, another question and is something which will fall for consideration as to the three heads of claim argued by the plaintiff in breach of contract. The claim based under the Fair Trading Act count, however, cannot be successfully advanced. It must fail.

Plaintiff’s heads of claim – consideration

43 The three heads of the plaintiff’s claim fall for determination in accordance with the relevant terms of the contract for sale and of the lease agreement. It is convenient to consider each in turn.

44 Land tax: The lessors’ disclosure statement in the lease showed annual land tax as an outgoing for payment by the lessee of $7,905. However, the land tax liability for the year ended 31 December 2005 was $17,901 as assessed by the Office of State Revenue, NSW Treasury. Counsel for the plaintiff submitted that because the land tax was different to what was disclosed then it was entitled, pursuant to s 68 of the Fair Trading Act for misleading or deceptive conduct under s 42 thereof, to an offset of $6,079.76 if the defendants’ cross-claim be successful in respect of that portion of the tax year from 23 May 2005. The plaintiff made no payment of land tax.

45 The defendants’ counsel denied the proper assessment of damages on the simple mathematical approach and put that the onus was on the plaintiff to establish any damages flowing from what it would have done if it had been told of the true situation. In any event, counsel pointed out that the amount of $17,901 was not the land tax for the subject premises but applied to those premises and to a second property owned by the defendants at Manly. A pro-rata calculation showed, in fact, that the relevant amount of land tax for the premises for the year concerned was $7,762.23. Of course, that was less than the amount in the disclosure statement. It was that lower amount claimed in the cross-claim so no question of misleading of deceptive conduct arose and there could be no offset.

46 On the evidence, I think the defendants successfully answered this head of claim which must, therefore, be refused. During argument, the plaintiff’s counsel essentially conceded this result.

47 Liquor licence: The plaintiff’s position was that the defendants promised to convey a licensed restaurant business which necessarily involved the transfer to it of the liquor licence. As the licence was in the name of Mr Borchan as licensee there was, therefore, an obligation on the defendants under cl 7 of the contract for the sale of the business to obtain from Mr Borchan the properly completed Form B but their failure to do so represented a breach of the contract under cll 9 and 10. It was conceded by the plaintiff’s counsel that the acceptance by it through Mr Caballero of the incomplete Form B on settlement on 23 May 2005 amounted to a waiver of special condition 7 in the contract so that completion was no longer conditional on acquisition of the licence. Even so, as counsel emphasised, the defendants remained obliged to provide a business and lease with a transferable licence but which they did not do. Damages flowed from this breach.

48 It was denied by the defendants’ counsel that the contract required the sale of a licensed business, only that the business of a restaurant was sold; there was a liquor licence in respect of the premises with the opportunity in the plaintiff to have that licence transferred to it from Mr Borchan on the approval of the Liquor Administration Board. There was nothing in the contract, said counsel, which obliged the defendants to effect the transfer so that there was no breach. Even so, there was an obligation on the plaintiff to mitigate any loss or damage and its failure to take any steps to have Form B completed, rather leaving it to the defendants, meant there was no loss to it.

49 It is plain from the contract, in my view of its terms, that what the defendants sold to the plaintiff was a “restaurant business”; there was a licence affecting the business, namely a liquor licence and the accompanying lease of the premises. However, that licence was in the name of Mr Borchan as licensee and, it follows, the defendants could have no title to such a licence as would enable them to sell it – indeed, I do not think, on the facts, that they ever purported to do so. The plaintiff was put on notice from the express “warning” contained in the contract to the effect that any time taken to obtain the necessary consent for a licence from the Liquor Administration Board as affecting the business should be taken into account in negotiating the completion date of the contract. No doubt special condition 7 in making completion conditional upon the plaintiff being granted a licence attended to that warning, but the plaintiff waived that option and completed the contract regardless.

50 I am satisfied that the contract otherwise imposed no obligation on the defendants to effect the transfer of the liquor licence. Any obligation was on the plaintiff and it may be noted that, during argument, counsel for the plaintiff acknowledged its ability to apply to have the licence transferred or to have a new licence granted. To put the matter beyond any doubt, Annexure A to the lease as to the liquor licence in cl A.2.2 contained a covenant by the plaintiff to the defendants “to procure the appointed licensee of the premises to make application for and use his best endeavours to obtain all such licences at their own expense as are or may be necessary for keeping open the said premises as duly licensed for the sale and consumption thereof of spiritous and fermented liquors.” The defendants did not commit any breach. This head of claim therefore fails.

51 State of the premises: This issue occupied the major attention in the proceedings and was the real aspect to found the plaintiff’s claim. The final position taken by the plaintiff was that as set out in the letter dated 11 October 2005 from its solicitors to the plaintiff’s solicitors, namely, “the lease can only commence from a point of time when the premises were or are ready for occupation ….not only safe but also legal for a tenant to occupy the premises.” Generally speaking, the defendants’ position was that to the extent the plaintiff complained about certain defects in the premises, as identified in Mr Nisbett’s report of 22 June 2005, those defects were readily and willingly attended to by Mr Rihani in the June-July 2005 period. For instance, in a letter dated 30 September 2005 to the plaintiff’s solicitors the defendants’ solicitors itemised the work which had been done, regardless of whether they were required as lessors to do the work, of a maintenance /rectification nature by Gold Card Plumbing, New Power Electronics, Frost Air-Conditioning, DK Building Certifiers, First Class Plastering, Peninsula Locksmith and South Side Electrical at a cost in excess of $23,000. Pointedly, the letter commented:

For some 13 continuous years prior to 23 May 2005 the business was traded from the premises by its original proprietors and their various successors. Notwithstanding its purchase of the business, your client ceased to trade the business on 23 May 2005. Your client then submitted a development application (‘DA’) for an alternate use of the premises, namely an internet café on level 1 and a restaurant/café, including new fit out, and did so it seems without regard to any compliance issues that might attach to the new DA.

….it seems to us that out clients have expended every reasonable endeavour to assist yours in preparing the premises for the proposed new use and fit out (whatever their obligation)….

…since taking possession of the premises and the business your client has not attempted to trade the business, nor has it paid any rent or outgoings….

52 The plaintiff’s solicitors engaged Hodgkins & Laverick Pty Ltd, Architect and Building Consultant, to inspect the premises on 5 October 2005. In a report dated 7 October 2005, Geoffrey Laverick made the general observation:

It is obvious that the restaurant has not been in use for some time. It has been abandoned and left in an untidy state. Thorough cleaning of all surfaces and especially in the kitchen and bar areas will be needed before the premises could be used as a commercial enterprise to meet health authority requirements. There are also a number of trip hazards that will need to be removed in the general clean up to make the kitchen safe.

53 Of course, the defendants ceased operating the restaurant when the plaintiff occupied it as from 23 May 2005 so that the premises had not been used for a period of about five months as at the time of Mr Laverick’s report. He continued in the report to comment on specific items and concluded that “usage of the building should not recommence until all fire and safety issues are addressed…but workplace safety and compliance with fire safety regulations are specialist fields and we strongly suggest that the building be certified by appropriate Fire and Safety consultants prior to opening the building to the public.”

54 Mr Laverick in oral evidence agreed as the correct position that any obligations on the building’s owners, the defendants, to comply with the building code (such as fire and workplace safety) would only arise from orders made by the Council but no such orders were in force. The lodging of a development application provided Council with the opportunity to require certain work to be performed to bring the premises up to current standards as a condition for approving the application; however, Mr Laverick was not familiar with the development application lodged by the plaintiff and the extent of the work it involved. He confirmed that he did a general report on the building and what the building code requires.

55 Mr Damian O’Shannassy of D K Building Certifiers, Building Regulations and Fire Safety Consultants, inspected the subject premises on 17 August 2005 at the request of the defendants and prepared a report dated 2 September 2005 and noted a number of issues, many of which were not related to the Building Code of Australia standards. In oral evidence he said that all of the defects identified in the report of Mr Laverick would be covered and wholly rectified by the plaintiff’s proposed fit out according to the development application. He added that “as an existing building… if it wasn’t to be the subject of a new DA… there wouldn’t be a requirement for – other than the health inspection (annually done by Council)… to require an upgrade or correction of some of those issues.”

56 Gavin Childs, a building consultant, of Childs Property Inspections Pty Ltd, inspected the premises on 20 October 2005 for the defendants’ solicitors. His report identified various items needing rectification which were generally items noted also by Mr Laverick and Mr O’Shannassy.

57 On 18 January 2006, Soliman Hanna, a consulting civil and structural engineer of Soliman Hanna & Associates Pty Ltd, inspected the property as to its present structural condition at the defendants’ request. In his report of 19 January 2006, Mr Hanna said “the shop was in a reasonable structural condition.”

58 Given that the building was structurally sound, on any view of the expert evidence the premises contained various defects but in respect of which there were no Council requirements for work to be performed to ensure compliance with building code standards for use of the premises as a restaurant. The exception would arise from the plaintiff’s intention to fit out the premises for use as a new style of restaurant and internet café according to its development application so that Council would be able to require certain work to be done to meet then current standards. To the extent maintenance and other remedial work was necessary, such as plumbing and electrical work, that was attended to by the defendants after the plaintiff’s complaints in June 2005. Later work needed as identified by Mr Childs after Mr Laverick’s report in October 2005 was largely met by Mr Rihani (such as broken glass in the shop front, gaps near the front stairs and a blocked toilet) and he was moving to obtain quotes for other work.

59 I am not satisfied it could be said, but as the plaintiff attempted to do, that the premises were not at all relevant times since the commencement of the lease on 23 May 2005 fit for use as a restaurant. The plaintiff inspected the premises through Jean and Dean Caballero and it was their decision to fit out the premises for a new style restaurant and internet café. Their complaints as to certain existing defects were attended to by the defendants in terms of the ordinary operation of the lease as to such matters. But they never at any time caused the plaintiff to pay any rent or outgoings.

60 In support of its position, the plaintiff relied on what its counsel said were the defendants’ obligations under cll 9.1.3, 10.1.7 and 16 of the contract for sale of the business. In my view, those clauses are plainly irrelevant to the present issues as relating respectively to equipment as at 29 April 2005, compliance with legislative requirements affecting the business and compliance with a work order made on or before 29 April 2005 by 23 May 2005. In any event, special condition 2 of the contract was an acknowledgement by the plaintiff that it relied entirely on its own enquiries and inspections of the business and accepted the business in its then present condition with latent and patent defects; the condition further operated so as not to permit the plaintiff to make any objection, requisition or claim for compensation regarding those matters.

61 The plaintiff relied also on the lease agreement in cll A.2.1, 7.1.1-3, 7.2, 7.4 and 8.2. Clause A.2.1 is irrelevant as imposing a duty on the plaintiff as lessee, not on the lessor defendants, in relation to fittings, plant and chattels being kept in a proper condition. Clause 8.2 concerned damage occurring to the property or building during the operation of the lease and, so, is irrelevant for present purposes. Therefore, the only provision in the lease relevant to the defendants’ obligations is cl 7.1 which requires them as landlords to maintain in a state of good condition and serviceable repair the roof, ceiling, external walls and floors of the property, to fix structural defects and to maintain essential services (eg water, gas and electricity). Otherwise, cl 7.2 required the plaintiff as tenant to maintain the property. Importantly also, cl 7.4 operated to require the defendants to do work on the property required by an authority unless the work was needed only because of the way the plaintiff used the property.

62 On the facts found here my view is that it follows that the defendants’ obligations under the lease are limited to its duties under cl 7.1 relating to the roof, ceiling, external walls, floors structural defects and essential services. To establish a breach by the defendants it must, in my view and as the defendants’ counsel put, be shown by the plaintiff that the relevant part of the premises was not in a state of good condition and serviceable repair and, of course, where the plaintiff has given the defendants notice of the need to attend to such matters: see Morgan v Liverpool Corporation [1927] 2 KB 131 at 149-150,153. As I have found earlier, the premises were not shown to be unfit for use as a restaurant and as defects were identified to the defendants they took steps to remedy them but where such defects were to be affected, in any event, by the proposed fit out of the premises by the plaintiff. That the plaintiff was itself dissatisfied with what was done cannot, in itself, lead to a conclusion that the defendants breached the lease agreement. Certainly, in my view, it was not established that the defendants breached the lease as to those items they were responsible for under cl 7.1. I find there was no breach by the defendants.

63 Therefore, the plaintiff’s head of claim relying on the state of the premises must fail.

64 Consequence for plaintiff’s claim: As all three heads of the plaintiff’s claim have not been made out, the defendants are entitled to a verdict.

65 Even if a breach by the defendants to some extent had been established on any of the bases argued for them, I do not consider the plaintiff would have been entitled to terminate (or, as it purported to do, rescind) the lease and contract for sale. At most, it would have been entitled to damages being those reasonably flowing from the breach but with a duty to mitigate. It is unnecessary to further any quantification of damages, except to comment that those claimed for the plaintiff were considerably overstated as most elements were, in my view, too remote from any breach. For instance, Ms Caballero’s personal accommodation expenses could not be recouped and neither could such items as mortgage fees, education fees for licensing course, car space rental, association membership, telephone costs, postage, stationery, bank charges and the like. Also, as the sale contract was completed, it must be seriously doubted that the purchase price of $28,000 could be retrieved having in mind the terms of special condition 2 as to no reliance by the plaintiff. At most, it seems to me, the plaintiff would have been able for breach of the lease to recover the bond of $7,800, stamp duty, legal fees incurred for the transactions, business name registration, expenses relating to the development application, advertising fees and electricity charges.

Termination of lease by the plaintiff

66 The letter dated 21 November 2005 from the plaintiff’s solicitors purported to rescind the lease. This was, correctly in my view, regarded by the parties here, in effect, as a notice of termination of the lease. However, in a situation where the landlord breaches a term of the lease, such as cl 7.1, there is nothing in the lease to entitle the tenant to so terminate. I think that to be able to do so lawfully the tenant must be able to show the landlord had breached an essential term of the lease or had otherwise repudiated the lease. The essential terms of the lease here are those specified in cl 12.5 and are restricted to those which are obligations of the tenant and not those of the landlord. Further, it is well settled that repudiation of a contract is a serious matter and is not to be lightly found or inferred: Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3All ER 60 at 71. As Mason J held in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 57 ALR 609 at 620:

…repudiation of a contract is a serious matter and is not to be lightly inferred and that neither a breach of a covenant to pay rent nor a breach of a covenant to repair, without more, constitutes a breach of a fundamental term, nor amounts to a repudiation of a lease…

What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way…

67 On the facts here, and even given (which I have found not to be the case) the state of the premises and liquor licence as argued for the plaintiff, I think it to be clear that the defendants never evinced an intention not to be bound by the lease. Indeed, all of the evidence of Mr Rihani was to the contrary as he endeavoured to meet the complaints stated by Jean and Dean Caballero for the plaintiff. I find there was no repudiation by the defendants.

68 It follows, in my view, that there was no entitlement in the plaintiff to terminate the lease so that its notice on 21 November 2005 purporting to do so was invalid and of no effect. A party unwilling or unable to perform a contract is not entitled to terminate it for breach by the other party: Foran v Wight (1989) 168 CLR 385 at 397-402, 423 and 451. Nevertheless, it has been long-held that an invalid notice of termination itself constitutes a repudiation entitling the aggrieved party to accept it and terminate the contract: see Kennedy v Vercoe (1960) 105 CLR 521 at 527-528; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 74; and Trinis V Mina [1999] NSWCA 140. That indeed was what the defendants did here by their solicitors’ letter dated 25 November 2005 to the plaintiff’s solicitors by relying, properly so in my view, on the combined operation of cll 12.1.2 (landlord entering and taking possession), 12.2.1 (repudiation by tenant) and 12.2.2 (rent or outgoings 14 days overdue for payment) of the lease. I would only add for completeness cl 12.7.1 which enables the landlord to recover damages even if the tenant’s repudiation is accepted and cl 12.7.2 similarly where the landlord ends the lease by taking possession of the property. Clause 12.6 entitles the landlord to recover damages over the entire period of the lease, here three years from 23 May 2005 to 22 May 2008, where there is a breach by the tenant of an essential term of the lease such as the obligation to pay rent and outgoings under cll 12.5.1 and 12.5.2

69 Clause 12.6 in such a situation imposes an obligation on the landlord to mitigate any losses. I accept that the defendants did so here by leasing the subject premises to Philomena Kwaykye, trading as “Jingles Beauty Parlour,” for a term of three years, with an option for a further three-year term, as from 15 September 2006 at an annual rent of $72,800 ($6,066.66 per month) for the initial 12 months, $78,000 ($6,500) for the second year and $83,200 ($6,933.33) for the third year; a bond of $20,020 applied.

Defendants’ cross-claim

70 The claim by the defendants for rent and outgoings due under the lease must succeed once it be found, as it has been, that the plaintiff was not entitled to terminate the lease. The monies due to the defendants are those for the three-year period of the lease from 23 May 2005 to 22 May 2008.

71 A schedule of the damages claimed in the defendants’ cross-claim set out the various heads of damage and amount calculated of $223,627.56, plus interest up to judgment. The schedule and its calculations were not the subject of challenge by the plaintiff’s counsel. However, I note that no allowance is made for the bond of $7,800 paid by the plaintiff even though an amount of $7,260 is included as an incurred expense to “make good” the premises on termination of the lease; I think a credit should be allowed for that $7,800 bond. Otherwise, I see no reason, as presently advised, why the defendants should not succeed on the cross-claim against the plaintiff in the amount of $215,827.56 plus interest up to the date of judgment.

Conclusion and orders

72 For the foregoing reasons, I conclude that the plaintiff’s claim must fail and the defendants be entitled to a verdict accordingly. As to the defendants’ cross-claim, it should succeed with a verdict in their favour against the plaintiff in the amount found in my decision.

73 However, and before final orders are made, I think the elements of the defendants’ damages should be reviewed and the mathematical calculations checked, including as to interest. For that purpose, the parties are directed to confer and to bring into court, on a date to be arranged, short minutes of order to give effect to my decision, including as to interest and costs.

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