Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust v Orsay Holdings Pty Ltd
[2012] QCAT 208
•21 May 2012
| CITATION: | Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust and Anor v Orsay Holdings Pty Ltd [2012] QCAT 208 |
| PARTIES: | Chas Straker Pty Ltd as trustee for Dianne Crea Family Trust Nadmec Nominees Pty Ltd as trustee for the N & Z Mecanovic Family Trust t/as The Deck Restaurant |
| v | |
| Orsay Holdings Pty Ltd t/as Whale Bay Marina |
| APPLICATION NUMBER: | RSL049-11 |
| MATTER TYPE: | Retail shop leases matters |
| HEARING DATE: | 29 and 30 March 2012 |
| HEARD AT: | Hervey Bay |
| DECISION OF: | Mr David Lewis, Member Ms Sandra Kairl, Member Mr Don McBryde, Member |
| DELIVERED ON: | 21 May 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. That the applicants are entitled to the sum of $100,238 for damages or compensation for the respondent’s breach of its covenant for quiet enjoyment. 2. That the applicants are entitled to the sum of $57,073.19 for damages for conversion by the respondent of the applicants’ plant and equipment, that sum to be offset against the rent owing by the applicants to the respondent. 3. That the applicants are entitled to the sum of $1,539.30 from the respondent for goods supplied. 4. That the respondent is entitled to the sum of $57,073.19 from the applicants for arrears of rent and outgoings, such monies to be offset against the monies payable to the applicants under paragraph 2 above. 5. Accordingly it is ordered that the respondent pay the applicants the sum of $101,777.30 within 28 days of the date of this order. 6. It is further ordered that the respondent’s cross claim against the third parties (the guarantors) be dismissed. 7. There will be no order as to costs. |
| CATCHWORDS: | Retail shop lease – Claim for compensation for breach of covenant for quiet enjoyment – whether obstruction of view from harbourside restaurant amounts to breach – whether failure to pay rent denies tenant’s right to claim – basis of calculation of loss Landlord’s purported forfeiture of tenant’s plant – abolition of distress for rent – whether landlord has any basis for claim – offset against arrears of rent Claim of unconscionable conduct in negotiation of lease – reasonable commercial conduct Failure of landlord to provide estimates or audited statements of outgoings – whether this provides any basis for a claim for compensation Retail Shop Leases Act 1994, ss 37, 43 Hawksbury Nominees Pty Ltd v Battick Pty Ltd [2000] FCA 185 |
APPEARANCES and REPRESENTATION:
| APPLICANT: | Both applicants represented by Nada Mecanovic and Zvonka Mecanovic (directors of Nadmec Nominees) |
RESPONDENT: THIRD PARTIES: | Bobbie Hayter and Glen Dorn (directors) Nada Mecanovic and Zvonka Mecanovic represented themselves; Dianne Maree Crea and Dominic Crea represented by Nada Mecanovic and Zvonka Mecanovic |
REASONS FOR DECISION
This matter concerns a dispute between landlord and tenant in relation to a restaurant then called “The Deck”, situated on the water’s edge in Urangan Boat Harbour, Hervey Bay, a location which (as will be seen to be highly relevant to the dispute) is the hub of what the local tourism industry calls the “Whale Watch Capital of the World.”
Briefly stated, the dispute relates to a claim by the applicant tenants that various conduct of the respondent landlord caused significant damage and consequent loss to their business. While the claim was formulated under various heads (detailed below) the most significant amount to a claim for breach of the covenant for quiet enjoyment, and a claim for damages for plant and equipment appropriated by the landlord. The landlord claims for arrears of rent, a claim which is also brought against the third parties who were the guarantors under the lease.
Background
The restaurant is part of an attractive complex of shops which is in turn part of a much larger precinct of shops, accommodation and other facilities built around the boat harbour. The harbour, and the land surrounding it on which these various improvements are built is the property of the State of Queensland, and the landlord’s title derives from a head lease from the Department of Transport. The lease the subject of this dispute is therefore a sub-lease, although for convenience we will refer to it simply as the lease except where it is necessary to differentiate.
Physically, the building of which the restaurant forms part comprises two sets of tenancies, perhaps 10 in all, divided by an arcade. At the land side, there is a small car park between the street and the buildings, leading to the arcade which runs through to the water, at right angles to the water’s edge. At that end, it opens out to a wide deck. The restaurant is situated on the right as one walks towards the water, and is the tenancy nearest the water. The deck extends across the front of the restaurant, and is utilised as an outdoor section of the restaurant.
On the side opposite the restaurant, to the left of the arcade, the deck extends across the front of the left side tenancies (a dress shop and a café) forming in part a walkway which links to other complexes in the harbour. As the walkway is quite wide it also affords the sitting area for the café.
The deck is built out over the water. Abutting that is a berth or mooring for boats, which also forms part of the landlord’s head lease.
Historically, the restaurant had been operating for a number of years. However the applicants’ association with it appears to date from only about 2002 when the applicant Chas Straker Pty Ltd (then known as Bencrea Nominees Pty Ltd) began to operate it. At that time the lessor (the head lessee) was a company called Lawnbowl Pty Ltd.
Lawnbowl had had difficulties with a former tenant going into liquidation; it had then let to a short term tenant, before ultimately leasing the premises to Bencrea Nominees. While the material before the tribunal doesn’t make the position clear it appears that Bencrea ultimately entered into a 3 year lease from 1 July 2003, with two options for 3 years each[1].
[1] Respondent’s final submission, annexure 2.
It is relevant to note that Bencrea had negotiated an arrangement with Lawnbowl whereby certain of the outgoings payable under the lease were limited to only the increases over the amounts prevailing at commencement. Specifically this related to the rental payable by the landlord under the head lease, and insurance.[2]
[2] Respondent’s final submission, annexure 1.
Bencrea, under the control of Mr and Mrs Crea, had traded successfully, and when the term was nearing its end, it exercised its option for renewal. In negotiating the conditions for the new term, however, each party took the opportunity to obtain certain variations to the lease.
For its part, Bencrea, in addition to changing its name to Chas Straker, took Nadmec Nominees in as a partner in the business, and had Nadmec added as a lessee.
At about this time, Lawnbowl was negotiating to sell the complex, ie its head lease, to the respondent Orsay Holdings. There were two aspects of the existing lease which were not as Orsay wanted. One related to certain equipment which Lawnbowl owned and which was leased to Bencrea under the lease. Lawnbowl had acquired this plant when a previous tenant had got into difficulties, and subsequently let it as part of the lease. Orsay did not want to buy it from Lawnbowl. The second related to the favourable arrangement whereby the tenant was liable only for the increases in certain outgoings, ie head rent and insurance.
Lawnbowl needed to come to some arrangement with the tenant about these issues if it was to conclude satisfactorily its negotiations to sell the head lease to Orsay.
Ultimately, to resolve the first, Chas Straker and Nadmec agreed to buy the plant from Lawnbowl. They also agreed to an amendment to the new lease which effectively obliged the tenant to pay its proportionate share of the whole of the head rent and insurance rather than just the increases, thereby resolving Orsay’s second concern.
Chas Straker and Nadmec entered into a new lease with Lawnbowl for a term of 3 years from 1 July 2006, with an option for renewal for 3 years.
Lawnbowl subsequently sold its head lease to Orsay. The date of that contract wasn’t made clear, but does not appear to be of any relevance. It is common ground that Orsay took possession as head lessee, and therefore became lessor under the subject (new) lease, from 2 October 2006.
It is also undisputed that at both 1 July 2006, and at 2 October 2006 (and at all relevant times prior) the restaurant enjoyed a view across the harbour uninterrupted by the boats moored at the pontoon adjacent to the deck. At that time, the mooring was configured with a pontoon parallel to the deck, and finger berths at right angles which provided accommodation for a number of small charter fishing or private vessels. These were not of a size to impede the view which patrons of the restaurant could enjoy across the harbour. While evidence of the size of the harbour was not given, it was obvious from the view which the tribunal conducted that it was approximately 250 metres across in front of the restaurant, and perhaps 800 metres in the other direction, housing in all possibly 500 vessels.
The matters in dispute
During the course of the 2006 lease a number of issues arose between the parties, leading ultimately to these proceedings. It is convenient to set these out under their separate heads.
The amended lease and outgoings
As mentioned, the respondent had input into the terms and conditions of the 2006 lease, as it was then negotiating to buy the complex from Lawnbowl. As a result, the new lease changed the tenants’ liability for outgoings from a proportion of the increase from a base year, to its proportion of the whole of those outgoings. It is not clear from the evidence what this change amounted to in dollar terms, but it was presumably significant.
Of more significance the Department of Transport imposed large increases in the head rent during the course of the term. According to figures produced by Lawnbowl at the time of the lease negotiations[3] the head lease charges had increased by a total of $26,905 per annum presumably during the term of the 2003 lease. At a proportion of 31.47%, the restaurant’s share of this figure was $8,467 per annum or $705.58 monthly.
[3] Applicants’ final submissions, annexure E.
In December 2008 the respondent received notice of further head lease increases. It says[4] that the figure rose from $42,681.65 to $75,875.25 per half year. This increased figure would translate to a charge to the restaurant of $47,755 per annum or $3,979 per month.
[4] Respondent’s submission June 2011, page 2.
The applicants say that they did not comprehend that the changes to the lease would translate to such a severe increase in their liability, and that they were never given an itemised account or shown how these figures were calculated. While their claim in this regard is not clearly formulated, they appear to be suggesting that the position was misrepresented to them, that the respondent acted unconscionably in the formation of the lease, and that the failure to provide the appropriate estimates of outgoings, or tax invoices, caused them loss.
The respondent says that its involvement in the lease negotiations was part of a normal commercial transaction, that the honeymoon arrangement that the tenants had with Lawnbowl was unreasonable and should come to an end, and that the tenants had in any event had their own legal advice at the time of the lease formation and fully understood the position.
Under this head then, the issues could be summarised as:
1. Did any conduct of the landlord amount to misrepresentation, or unconscionable conduct, or any other conduct giving the tenant a right to redress?
2. If so what loss flowed from this?
3. Was the failure of the landlord to provide details of outgoings and tax invoices resultant in any loss to the tenant, and if so what?
The boat issue
A major dispute between the parties concerned the action of the respondent in berthing its large whale watch vessels in front of the restaurant.
At the time of commencement of the lease, the respondent owned and operated a commercial tourist vessel called Spirit of Hervey Bay. (For convenience we will refer to this boat as Spirit I.)This vessel was 24 metres long, and as such was one of the larger vessels in the Hervey Bay whale watching fleet. It was then berthed elsewhere in the harbour. However as mentioned above, the respondent’s head lease included a small set of floating marina berths.
As also previously noted, at July 2006 this small marina was occupied by a collection of small boats on the finger berths.[5] It was the respondent’s intention to remove these smaller boats and use the space to berth Spirit I, and to load his passengers in front of the restaurant. Whether he formed this intention at the outset was not made clear, but in our view that is in the event of no consequence. It is clear that Spirit I was moved to this berth somewhere between January and May 2007 – the actual date was a matter of some contention. The finger berths were removed to facilitate this.
[5] These are depicted at annexures B and C in the applicants’ final submission.
It is common ground that this vessel remained berthed there until November 2007, when it was sold and removed.
It appears that the vessel was high enough to block the views of the patrons at the restaurant, except perhaps at low tides. However from the tenants’ point of view, worse was to come. The respondent had taken a decision to have an even bigger boat built, and this boat was moored in front of the restaurant once completed. The actual date it was moved to this berth was also the subject of some diverse evidence, but it was about the middle of 2008. It has remained based there since then.
The second boat, technically the Grant Dorn but more commonly known as Spirit also, was, at 24 metres, the same length, but it was a much bigger boat in height, probably 3 metres higher, and high enough (in our view) to obstruct the view from the restaurant at any tide. In addition, at some point the respondent changed the walkway arrangement, and caused the passengers to queue outside the entrance to the restaurant, in the arcade. The boat is licensed for about 250 passengers.
The applicants claimed that these boats, especially the second, caused significant interference to their business. The bases for the interference included:
·The vessel obstructed the view of diners from the restaurant and deck, thereby making it less likely they would patronise the business, especially for functions;
·The vessel prevented potential patrons seeing the restaurant or its signs;
·Queuing passengers obstructed the restaurant entry;
·Various boat related activities caused intermittent nuisance, including noise, fumes and vibrations when the boats were docking, maintenance carried on at the berth, work on reconfiguring the moorings themselves, glare from the sun on the boat and so on;
·Other tour operators were reluctant to refer their passengers to the restaurant when they would be confronted with the view of a competitor’s boat.
As a result, the applicants say their business suffered a substantial loss of custom, with resultant loss of income and capital value, for which they say the landlord is liable.
The respondent denies that its vessels have caused any interference or loss to the applicants. It says that it is entitled to berth its vessel there, it was under no obligation to disclose to the tenant where it proposed to moor its vessel, and that there is no provision in the lease restricting it in this regard. Further, that being a whale watching centre, the tenants should expect to have whale watching boats moored there. In any event it denies that the vessel constitutes a significant obstruction to the view, and that it is in itself an attraction.
It says that the signage matter is not an issue as the signs obstructed are on the water side of the restaurant, and the locals who have their boats in the harbour are already familiar with the restaurant.
As for the queuing passengers, it does not accept that there is any significant disruption, and says that there may be a positive effect for the restaurant. It argues that any maintenance was minimal, and not relevant; and that any action of other tour boat operators is petty and again not relevant.
Further the respondent submits that other factors are the cause of any loss of business for the applicants. It points to a general decline in the economy, and in particular the tourist economy of Hervey Bay. It also argues that the restaurant was not operated well.
In short it denies any action it took with respect to the boat had any effect on the tenants’ trade; and says even if it did, it was entitled to act as it did.
In its legal submission it further submits that the tenant is not entitled, as a matter of law, to any redress for breach of a covenant for quiet enjoyment as the tenant was in breach of its covenant to pay rent.
One further matter relevant to this question is the period for which the tenants might be entitled to claim damages for loss of income. The lease was to expire on 30 June, 2009, but there was an option for renewal for 3 years. The option was not exercised, but Mrs Macanovic says they would have exercised it but for the problem of the boat. As it happened, they continued on as a tenant from month to month. However the lease contained a provision (clause 16.8(4)) that if on any holding over no consent was obtained from Department of Transport, then the tenancy terminated three months after the expiration of the term. No one sought consent. The landlord took the view that the tenant then held as a tenant at will. The tenant was finally locked out on 30 May 2011.
The Notice of Dispute did not specify if the claim was formulated as a breach of contract or a claim for compensation under section 43 of the Retail Shop Leases Act 1994, and no reference was made to this in the hearing. In the event we do not think that matters to the result and will treat it as a breach of covenant claim.
The issues for consideration are therefore:
1.Can and did the actions of the respondent with respect to its vessels constitute a breach of its covenant for quiet enjoyment?
2.If so, did this cause loss?
3.To what extent did other factors contribute to any loss?
4.What is the correct calculation of the tenants’ loss? This will include a determination of the period for which the tenants might be entitled to recover any amount for loss of income, and whether they are entitled to compensation for the capital value of the business.
5.Are the tenants disentitled to redress if they were in breach with respect to payment of rent?
Plant and equipment
The respondent’s solicitors issued a notice to remedy breach on 18 May 2011 requiring payment of outstanding rent within 7 days. While the applicants offered a negotiated settlement, that was not accepted and the outstanding claim for rent was not paid. The respondent’s solicitors therefore wrote again on 25 May 2011 advising that their client would retake possession. The respondent locked the doors overnight on the 25th, or early on the 26th.
The applicants again tried to negotiate, to no avail. On 26 May 2011 the respondent’s solicitors wrote again, rejecting the settlement offer and confirming “that the lease has been terminated and the plant and equipment forfeited.”[6] The applicants had not received the letter at that stage, and as not all of the locks had been changed they re-entered the premises.
[6] Respondent’s submission June 2011, annexure 5.
The applicants managed to trade over the weekend, but on the morning of Monday 30 May 2011 they found the locks comprehensively changed, and were refused entry. They were able to arrange access to the premises on the following Friday to remove their stock but were not permitted to remove plant and equipment.
The applicants therefore claim the value of the plant and equipment, or alternatively say that it was effectively kept in lieu of outstanding rent and that the rent claim by the respondent should therefore be offset against the plant and equipment.
The respondent says he was advised by his solicitor that he was entitled to forfeit the plant and equipment, and has not conceded that it should be offset against the rent.[7]
[7]However his solicitor did invite the applicants to refer that matter to the tribunal – see letter CSG Law to Nadmec 16 December 2011.
There is also a dispute as to the value of the plant.
The plant and equipment has subsequently been used by a new tenant of the premises. Accordingly the applicants have added a claim for hire of this plant.
Unpaid catering invoice
The applicants had supplied the respondent with catering at various times during its conduct of the restaurant. An account dated 11 October 2010 for $1,539.30 was claimed as unpaid. During the hearing the respondent admitted that this was owing. While it may be arguable whether this debt is properly claimable in these proceedings, all parties consented to our taking it into account in determining the final balance owing.
Unpaid rent
The respondent has claimed for unpaid rent and outgoings, which also forms the claim against the guarantors. During the hearing, the parties conferred and subject to 2 matters, were able to agree on the quantum of the amount owing.
The outstanding issues were first, the claim by the applicants that the rent should be offset against the value of the plant, and secondly that that part of the outgoings relating to a shared car park should not be included in the outgoings payable by them.
It should also be mentioned that the respondent seeks interest on the unpaid rent, and costs on the notices to remedy breach.
Evidence and Findings
Outgoings
With respect to the claim of misrepresentation or unconscionable conduct regarding outgoings at the commencement of the lease, the tribunal is unable to find anything to support the applicants’ contentions. There is indeed little evidence led by the applicants on this point.
In answer to the respondent’s argument that the applicants had the benefit of their own legal advice on the lease (a letter from their solicitors dealing with the provisions of the lease in detail is in the material before us) Mrs Mecanovic agreed that they understood what the revised terms meant, but that they did not appreciate the implications. However that may be, there is no suggestion that the respondent misled them in any way. Presumably the applicants were as able as anyone to examine the outgoings position in detail, and come to their own conclusions on what the cost may be.
Mr Dorn, as director of the respondent, was entitled to act as he did in becoming involved in the lease negotiations where he was at the time involved in his own negotiations to purchase the complex. This is clearly within normal commercial practice.
There is nothing to suggest that any party had any better knowledge than the next as to the possibility that the Department of Transport might significantly raise the head rent. In any event, it would seem that even under the original (2003) wording, they would still have had to bear their proportionate share of these increases.
The applicants allege that the lessor failed to provide annual estimates or audited statements of outgoings as required under the Retail Shop Leases Act 1994[8], and also failed to provide tax invoices as required by Federal tax laws. The respondent in effect admits that. However notwithstanding that the respondent may have been in breach of several legislative requirements, it does not follow that this caused any loss to the applicants. There was no evidence that any such loss flowed from the respondent’s breaches, and we find accordingly.
[8] Retail Shop Leases Act 1994, section 37.
It follows that we find against the applicants on this part of their claim.
The boat issue
The claim concerning the mooring of the boat is considerably more complex, and a large body of material was filed and evidence called on it.
The divergences in the respective cases start with the dates the two boats were moored in front of the restaurant. The initiating Notice of Dispute did not specify a date, apart from alleging a loss of trade since 2007. However the respondent in its response stated that the first boat was moved there in January 2007. This date was repeated in the respondent’s material filed in relation to the applicants’ application for an interim injunction. The applicants later adopted this date in their material.
Subsequently, the respondent has asserted that the date was actually at about the beginning of May 2007 (in its final statement of evidence) and has supported this by producing invoices it issued to the smaller boats previously moored there (annexure 7 to the statement of evidence). On examination, these are for the period 1 October 2006 to 1 April 2007, except for one invoice to the boat Silver Lady where the invoice was for the period 21 January 2007 to 10 March 2007.
In addition it has produced an invoice (annexure 8) for the mooring of Spirit I at another marina for the period 1 November 2006 to 1 May 2007.
While this material suggests that the boat was installed later than January, it does not establish any date conclusively. The tenant boats may have left early; and the berth for Spirit I at the other marina may have been taken for a 6 month period at a time when it wasn’t known how long it would be needed for. In any event it seems clear that there were no bookings for the respondent’s marina after 1 April 2007, and on balance that might be taken as the approximate date the boat arrived.
There appears to be no dispute that the Spirit I was there until November 2007.
With respect to the second Spirit, the respondent has produced invoices from a house removalist dated 17 July 2008 and a slipway dated 18 July 2008[9] which it says relates to the relocation of this vessel. The applicants assert that the boat first arrived in May 2008, was there for a period, and then went back to the slip for further work, and then returned again around June. They say that it was worked on for a month in front of the restaurant, and was ready for the whale watch season in July.[10]
[9] Respondent’s final submission, annexures 13 and 14.
[10] Applicants’ statement of evidence, page 2.
While the evidence is not entirely conclusive, there appears no reason to doubt that the larger Spirit arrived at the respondent’s mooring at about May or June, spent some time there before leaving for a time, and was finally berthed permanently from about the middle of July 2008. Again it is accepted that it has been based there since then.
It is fundamental to the applicants’ case that it establish that the mooring of the vessels in front of the restaurant, and the other related activities complained of, amounted to a substantial interference with their enjoyment, that is the use and benefit, of the premises. In their written submission they stated: “The vessel thus blocked the one thing apart from fresh seafood that diners wanted “Harbour/Marina views” and this action deterred customers and potential customers and also the restaurant lost it resale value”[11] (sic).
[11] Applicants’ final submission para 2.
They allege that the customer numbers, functions and takings started to drop soon after the vessels began to be moored there. (We will deal with the evidence of the trading figures below.) They say as soon as the bigger boat arrived the restaurant lost its appeal, its natural light was blocked, and the view of the restaurant and of its signage was blocked from the nearby Sandy Straits Resort, and the rest of the marina.[12]
[12] Statement of evidence, p2.
In addition to their own evidence, the applicants tendered written statements from former staff members Kirsty McWilliam, Laura Davis, and Jeffrey Davis[13] and called oral evidence from the first two.
[13] Statement of evidence, annexures Z, Z1 and Z2.
Ms McWilliam worked as a waitress on and off from 2006 to 2009. She lived away from Hervey Bay from August 2007 until Easter 2008. She said that prior to leaving, the restaurant was a lively vibrant place. Just about everyone would want to book a table out on the deck to enjoy “the beautiful view of the marina while dining.” Enjoying the views while sitting on the deck was what the restaurant was known for.
When she returned to work there in about July 2008 the boat was moored there. She said it blocked any decent view, it made the restaurant feel smaller and caged in, the boat was unappealing, bright and parked directly in front of the main dining area. She said the place had a different “vibe” and was much quieter in numbers of customers.
She and her husband had their wedding at The Deck in November 2010, but she said they would not have done so if the proprietors had not been able to arrange for the boat to be moved for the day. They chose the location for the “magnificent views overlooking the harbour,” as well as the food, but would have gone elsewhere had they not had the “large unappealing yellow boat removed.”
Ms Davis worked there from August 2009. She said in her statement that customers would ask why the “big yellow boat” was parked in front of the restaurant and that the consensus was that it detracted from the restaurant and it was a shame it was there. She had several say they would not come back as they “didn’t want to stare at a yellow wall all the time.” She thought many potential customers went elsewhere.
Under cross examination she said she thought it was the town’s best seafood restaurant, but believed diners came for the view as well as the food. It was suggested that the boat didn’t block the view, but she said that it did to the extent of at least half.
The applicants filed a copy of a survey they had conducted of customers’ reactions to the positioning of the boat.[14] The survey, conducted over 2 weeks, contained over a hundred comments all of which were negative. While this survey may have contained an element of “push polling” it was nonetheless a significant indication of the views of the applicants’ clientele.
[14] Statement of evidence, annexure S.
The applicants’ also produced an email from a Steve O’Donnell, business manager of Bradnams stating that he no longer entertained his clients at The Deck because of the presence of the Spirit.[15]
[15] Applicants’ statement of evidence, annexure O.
The respondent does not accept that there is a causal connection between the mooring of the boats and the drop in the applicants’ trade. For the most part they rely on the suggestion that other factors were the cause, which we will deal with later, but on the issue of the presence of the boat, the position of Mr Dorn and Ms Hayter was that they did not believe the boat materially blocked the view, or if it did, that it was not relevant to any decline in custom. They say as well that where the applicants had located their refrigerators affected the view.
They drew the tribunal’s attention to another restaurant, the Café Balaena, which is on another harbourside deck nearby, and suggested that its view was also partially obscured by moored vessels but without apparent ill effect.
They filed statements from a Jahn Stone, who operates Chit Chat Café from the same complex and shares part of the deck, and from Mr Robert Burnett who operates a new restaurant from the subject premises.[16] Mr Burnett also gave oral evidence. Each testified that the presence of the boat was not adverse to their business.
[16] Respondent’s statement of evidence, annexure 30.
The tribunal conducted a view of the site in the company of the parties’ representatives. The vessel was at its mooring. It was apparent that the vessel extended from approximately level with the southern wall (or right hand side as one looked at the water) of the restaurant to well to the north of the alignment of the restaurant, the boat being about twice as long as the frontage of the premises. It was considerably higher than the floor of the restaurant/deck, as it comprised 3 deck levels as well as some superstructure. There was a view past the stern of the boat, towards the south, but this was only for a relatively small arc. The view was substantially obstructed. The extent of the obstruction varied depending on where one was in the restaurant, being almost total from deep inside the restaurant but to a lesser degree (but more than half) from the deck. The height of the vessel made it impossible to see over it even when standing.
Patrons seated on the southern part of the deck would have a reasonable view of part of the harbour, but even then their view was limited. Many of the seats would have given a view of little else but the high yellow topsides of the boat.
The tribunal also looked at the view from Café Balaena. While there was some impediment, the boat near it was considerably further away and to the side, and the obstruction was much less.
This inspection also gave the tribunal an opportunity to assess the impact of the boat on the visibility of the restaurant and its signage from the water. This confirmed the view that had been expressed on behalf of the applicants that the boat virtually entirely hid the restaurant and its signage from the view of any user of the harbour, or from the Sandy Straits Resort.
Turning to the other boat related complaints, the applicants assert that there was disruption caused by work on the marina for most of December 2006, prior to the arrival of the first boat, and again in late 2007 for the second boat. They say there was “more dredging, more drilling and a new huge ramp walkway was being installed adjacent to the restaurant thus deterring more customers.”[17]
[17] Statement of evidence, page 2.
Mr Dorn denied that the work had been disruptive of the restaurant. It is agreed that some work was carried out, including removal of the finger berths, some dredging and the installation of the new walkway. However he says the berths were simply unpinned and floated away, that there was only minimal dredging when other parts of the harbour were being dredged, and that the walkway was installed in a short time having been fabricated elsewhere.
The applicants also claim that other work had an impact, such as washing down the boat after daily use, and other maintenance such as painting. Mr Dorn said that they didn’t wash down if the breeze was such that spray would have affected the restaurant. He initially discounted the maintenance issue but on being presented with photographs of a workman painting the boat, he conceded that painting had occurred, taking about a week to complete.
Evidence was given on behalf of the applicants that when the boat docked or departed, the restaurant was subjected to noise and vibration. Ms Davis said she had seen patrons getting a fright from sudden vibrations, loud noise etc. Mr Jeff Davis, a chef at the restaurant, in his statement supported this and also spoke of fumes from painting.
The respondent says this is not a problem and quotes the new proprietor and the owner of the adjacent café who contradict the applicants’ concerns. They add that the boat’s coming and going is itself an attraction.
Each of Ms McWilliam and Mr Davis gave evidence that in the afternoon glare from the sun reflected off the boat and caused annoyance. The respondent suggested this was minimal.
The last of the complaints related to the queuing of passengers outside the door of the restaurant. The facts are not seriously in dispute. The afternoon whale watch trip departs at 1:30pm, and customers are asked to be there 15 minutes before. Consequently there are people arriving and queuing during the normal lunch period. The boat has a capacity of about 250, so the numbers are significant.
The difference between the parties on this issue is the impact. The respondent says that the queues do not disrupt the trade, but in fact by bringing so many people to the door of the restaurant they in effect provide a significant promotion of the applicants’ business.
Mention should also be made of Mr Dorn’s comment that the applicants did not complain about the boat until very late in the piece. This is inconsistent with Mr Mecanovic’s evidence that at the May 2009 meeting Mr Dorn had insisted that there be no more complaining about the boat; and with his evidence of the severe emotional effect the presence of the boat had on him.
Both parties sought to rely on the applicants’ trading figures to support their respective arguments on whether this interference was relevant to the applicants’ trade. The applicants produced an analysis from their accountants[18] showing a decline in gross sales from a high of $837,255 in the 2006 financial year. The gross dropped each subsequent year, although the figures go only to 2010. In that year the figure was $611,666, a drop of 27%.
[18] Annexure H.
Total customer numbers also declined steadily, from around 34,000 in calendar year 2006 to about 20,000 in 2010. Functions dropped from over 80 in 2006 to about 30 in 2008, improved to just under 40 in 2009 but then dropped again in 2010.
The applicants also produced Australian Bureau of Statistics figures showing an increase in Hervey Bay’s population from 50,000 to 60,000 in the same period. The tourism figures they produced, from the Fraser Coast Regional Council’s Economic Profile 2009[19] indicated an increase in visitors to the region of 8.9% in the year to September 2008 over the previous year, and a general increase in passenger movement at the local airport since December 2006.
[19] Annexure N.
The respondent counters that the drop in gross sales commenced in 2007, when the first boat was there for only (on its evidence) 1.5 months, with a further decline in 2008 when the boat was there for only 4.5 months. It says functions also declined in this period, and argues that this indicates factors other than the boat. It notes that the functions actually increased in calendar year 2009 when the second boat was there for the whole of the year.[20]
[20] Respondent’s statement of evidence.
The respondent produced an email from Tourism Fraser Coast[21] advising of a drop in whale watching passengers from 64,329 in 2007 to 50,795 in 2011, a decline of 21%. It also produced a bar graph from Hervey Bay Boat Club showing a general decline in revenue in the relevant period. It pointed to a number of other restaurants in the city which had closed in recent years (including one at the harbour also run by Chas Straker). The global financial crisis and general economic conditions, and the more specific local decline in tourism are pointed to as the likely cause of the drop in trade. They also point to the relocation of the Kingfisher Resort ferry service away from the harbour.
[21] Annexure 24.
Each party relied on their respective attempts to sell the restaurant. The applicants say that agents told them the presence of the vessel was a significant problem. The respondent attempted to sell after evicting the applicants, and while unable to attract a buyer the agents, according to Mr Dorn, blamed a general lack of money rather than any issue with the boat.
The respondent also says the applicants are partially to blame, saying they kept a dirty kitchen, and sold poorer quality Asian seafood, and that generally quality declined. They suggest the applicants did not operate the business as well as they should have. The applicants say they sold overseas prawns, but that they did a survey of customer satisfaction and they compared roughly equally with the local product. The former staff spoke highly of Mr and Mrs Macanovic and of how they conducted the business.
[100]The new operator of the restaurant, Mr Burnett gave evidence in addition to his statement. He is a friend of Mr Dorn, and when the respondent could not attract a buyer, Mr Dorn suggested he might commence a business there. (The terms offered to Mr Burnett are somewhat better than those the applicant had, but we do not think anything turns on that point.) Mr Burnett gave evidence that he had commenced trading on 10 October 2011, and that his turnover since then (to 29 March 2012) was around $250,000. He allowed the tribunal to peruse his day book and that confirmed the general accuracy of that figure. He is running a different type of restaurant, aiming to sell a cheaper product. His figures so far include the good trading months of December and January, but also the quiet February and March period, and do not include any of the whale season.
[101]Before setting out our findings, it is appropriate to make a comment on credibility. Those of the witnesses who were not parties were, in our view, entirely reliable, and we have no hesitation accepting their evidence, though not always of course agreeing with any conclusions they may have formed. With respect to the parties, generally we found each of them reliable and honest. To some degree some of them were prone to see the issues from their own perspective only, for example Ms Hayter seemed entirely unable to accept that the presence of the boat may have had some impact. Mr Dorn was on occasion initially unable to recall various things, but when reminded readily agreed, and was quite open in his approach. Mr Mecanovic suggested the state of the kitchen was because they were evicted without time to clean up. In the end we do not think anything turns on these minor shades of colour. While in the submissions there have been various suggestions that one party or the other was being deliberately false, we think this simply confuses falsehood with a different opinion, perspective or emphasis. We do not believe this case turns on credibility issues.
[102]After inspecting the site, the tribunal came to the conclusion that the presence of the boat berthed in front of the restaurant did materially impact on the views otherwise afforded to diners. To an extent the positioning of the refrigerators by the applicants did affect the view, but if the boat had not been there this would have been irrelevant. Certainly there were still some limited views to be had, but nothing like the panorama of the harbour the applicants had when the lease commenced. Given that the whole point of positioning a restaurant on the water is to attract custom because of the view, it would be surprising if the blocking of the view did not affect trade.
[103]The example of the success of Café Balaena notwithstanding the nearby boat mooring does not help the respondent. As we found, the impact on that restaurant is much less; and in any event its view issues would have been worse before the relocation of the Kingfisher ferries. We do not know enough about its trading to draw any conclusions beyond these. However it is worth noting that The Deck enjoyed a better view than Balaena, or the nearby Wheelhouse, and the landlord’s positioning of his vessel in front of it effectively neutered this advantage, or indeed turned it around.
[104]The evidence called by the applicants supports this conclusion. We note the evidence from the former staff members, the survey, the Bradnams manager, and of course the applicants themselves. All of this supports what one would naturally expect.
[105]We also find that the boat materially blocked the visibility of the restaurant and its signage from the harbour and from nearby resort accommodation. The respondent submitted that the visibility from the harbour did not matter as the local boating population knew of The Deck. This ignores both the considerable number of tourists passing daily on other boats who would not be able to see that there was a restaurant there, as well as the reinforcing nature of advertising generally.
[106]The respondent has attempted to draw conclusions from the timing of the boats’ presence, and the decline in customer and function numbers. There is some dispute as to the actual dates the boats were there, but in the end we do not think this is material. Nor do we think anything reliable can be concluded by attempting to compare boat dates with custom trends. Some customers will have come not knowing that the boat was there, function organisers may have booked before the boats became a known issue. The consequence may well be on later trade when they resolve to go elsewhere next time. The impact of the boats may be felt at an entirely different time. Further, the improvement in function numbers in 2009 cannot be said to prove anything, its being so slight and capable of any number of explanations.
[107]Similarly we are not persuaded that the drop in gross sales from 2006 to 2007 assists the respondent. While the impact of the boat may have been for only a brief part of 2007, there may be other factors in play (we note the applicants’ promotion expenditure was much greater in 2006 for example), and we do not see that this fact can avoid the conclusions that follow from the general trend.
[108]While Mr Burnett and Mr Stone are both happy with their results, we see these as not negating the applicants’ general assertions. The café is running a different trade and views may not be as important as for a restaurant, especially as the café is unlikely to be doing functions such as weddings, nor operating at night. Furthermore, its view did not appear to be as adversely affected. Mr Burnett’s figures ($250,000 for almost 6 months trading) may well produce a gross similar to or less than the applicants’ $611,666 in 2010, and notwithstanding Mr Burnett’s contentment with his position, this corroborates the applicants’ argument rather than negates it.
[109]The general decline in the restaurant’s trading figures is consistent with the conclusion that the positioning of the boat adversely affected the tenants’ trade and we so find. This is not to say that it was the only impact, to which we turn shortly.
[110]It is necessary to mention briefly the other issues such as maintenance and other disturbances. The evidence on the queuing complaint is equivocal. We believe that it is more likely than not there was some impact on trade from the other matters raised, but doubt that these would have been significant if the boat had been moored elsewhere. Beyond this it is not necessary to go, as our findings on loss will cover the totality of the impact of the boat-related concerns.
[111]The most significant of the other impacts was undoubtedly the general and local economy. The improved tourist figures relied on by the applicants are not very helpful going as they do only to September or December 2008. The other evidence showing a slowdown in tourist numbers and in say the Boat Club’s trade are more persuasive. In a time when all the signs are of a drop in trade it would be unlikely that the applicants’ trade would not have dropped even if the boat issues did not exist.
[112]We are less persuaded that the tenants’ operation of the business was relevant. The state of the kitchen, whatever it might have been, was unlikely to be obvious to a customer, and presumably the council did regular inspections. If the operators cut corners with their product (on which the evidence is inconclusive) this might be explained by their worsening financial position. Their finances might also have increased their stress with adverse results for the operation. However to the extent that these were a result of the landlord’s breach, that cannot be relied on by the respondent to reduce his liability.
[113]There is of course no mathematical way we can assess the relative causes of the applicants’ drop in trade, and we do not have the assistance of any expert evidence. Nonetheless we must make some assessment and after considering all of the limited material before us we find that half of the applicants’ drop in trade should be attributed to the landlord’s conduct with the boat, and half to other factors for which the landlord is not liable.
[114]Before turning to a calculation of the quantum of the loss, we should mention the legal submissions made by the respondent.[22] The respondent submits, citing Hawksbury Nominees Pty Ltd v Battick Pty Ltd [2000] FCA 185, that the covenant for quiet enjoyment will be breached where the tenant’s lawful enjoyment is substantially interfered with, and that that is a question of fact. It submits that there is no causative link between the vessel and the applicants’ decline of trade. The submission claims that access was not interfered with, and that the view of the entire marina was not obstructed. We have already dealt with these issues.
[22] Legal submissions accompanying the respondent’s final statement of evidence.
[115]It further submits that the applicants knew or should have known that whale watch vessels operated from the harbour, and that many were moored at the end of the harbour where the restaurant was situated, and that the applicants cannot claim they were taken by surprise. This ignores the fact that there were no whale watch vessels moored immediately in front of the premises at the start of the lease. There was nothing in the existing state of affairs, nor in what they were told, to lead them to expect they would soon have a 24 metre tourist vessel almost entirely obstructing their view.
[116]In oral evidence Mr Dorn agreed that he had not consulted the applicants or any other of the tenants about his decision to berth his vessels in front of the restaurant. He was clearly of the view, no doubt honestly held, that this was entirely a matter for him. This would have been the case had he not had contractual obligations to his tenant.
[117]As the Hawksbury Nominees case (and others[23]) makes clear there will be a breach where the ordinary and lawful enjoyment of the premises is substantially interfered with, whether or not title or possession of the land is affected.[24] That case goes on to quote Halsbury’s Laws of England, 4th edition as giving the example of making the premises “materially less fit for the purpose.”[25] We find the taking away of the harbour views of a harbourside restaurant comfortably within the concept of substantial interference, or of making the premises materially less fit for the purpose.
[23] See generally W D Duncan: Commercial Leases in Australia, 6th ed, from page 225.
[24] At para 37.
[25] At para 39.
[118]In its submission on the tenants’ interim application for an injunction the respondent made the point that the lease did not contain any prohibition as to the size of the vessel that could be moored at the marina. That does not help the lessor. To avoid being in breach, it would have needed a clear reservation in the lease for the mooring of the vessel.[26]
[26] See Duncan, page 226.
[119]Finally on this point, the respondent quotes from Byrnes v Jokana Ltd [2002] FCA 41 that “it is an interference with a property right (possession or the grant) and not interference with the business activity that is the legal foundation of the right to complain about the breach…” The point which the respondent appears to be making is that to be a breach it needs an interference with the occupation right rather than merely an interference with the business activity. However on a careful reading of the case[27] it is clear that the point being made was that it does not matter if the business might have been unsuccessful in any event, the breach amounts to an interference with a property right. Just before the passage cited, the court said: “If the ordinary lawful use of the premises, the possession of the premises, for that known purpose, has been the subject of material derogation or interference, a breach has occurred. The question of … profitability… is a question of assessment of damages.”
[27] At para 68.
[120]The other legal issue raised is whether the tenant can claim for loss of quiet enjoyment when it is in breach of the covenant to pay rent. The respondent relies on Viclee Nominees Pty Ltd v Team Venture Pty Ltd (2009) Q ConvR 54-713, [2009] QSC 47. That was a decision of Justice White on an application to the Supreme Court by a lessor seeking an order for possession on the grounds that the tenant had failed to pay rent and certain outgoings. It was dealt with on an application for summary judgment.
[121]The tenant raised certain matters as a claimed breach of the covenant for quiet enjoyment. The lease contained a version of the usual clause providing that while the tenant complied with its financial obligations it could have the use and enjoyment of the premises. Her Honour found that the issues raised by the tenant did not amount to a breach of the quiet enjoyment covenant, and then added: “Finally, the tenant is entitled to quiet enjoyment only so long as it pays the rent. That it has not done.”[28]
[28] At paragraph 29.
[122]That is the extent of the reference to the issue in that case. There was no analysis of the relevant law, and her Honour did not cite any authority for that proposition, if indeed she can be taken as stating a proposition of law. It was not necessary for her decision, and in the context of the decision it seems more likely that it is no more than a reference back to the earlier quoted clause in the lease.
[123]If the comment was intended as a statement of the law, it is, with respect to her Honour, at odds with the authorities, for example the Full Court of the Federal Court of Australia in Hawksbury Nominees, where Justice Hill (with whom Gallop and Gyles JJ agreed) said: “It is incorrect as a matter of law to say that the obligation to give quiet enjoyment is dependent upon payment of rent and outgoings so that non-payment relieves the landlord thereafter of the obligation, even when the obligation is expressed to be subject to the lessee complying with the provisions of the lease.”[29]
[29] At paragraph 50.
[124]Professor Duncan likewise says that the covenant to pay rent and the covenant for quiet enjoyment are independent obligations.[30]
[30] Commercial Leases in Australia, 6th ed, page 225.
[125]We therefore find against the respondent on this issue. That being the case it is not necessary to decide which breach came first.
[126]It remains to calculate the loss for which the applicants are entitled to compensation. No expert evidence was produced on this issue, but they submitted that the tribunal should simply calculate the loss of profit on the basis of the profit made before the boat intruded. While there is some attraction in that approach, it does not address the fact that only part of the loss is attributable to the landlord, and may not take into account other differences in expenses that may have resulted given the lower turnover.
[127]On the other hand, it is not appropriate to adopt the simple calculation of net profit as a percentage of gross sales, as some costs are fixed and will not drop with a drop in gross, or more pertinently will not have risen if the business had been able to achieve the extra gross sales it should have. The last dollar of sales is considerably more profitable than the first, or the average.
[128]An alternative approach was adopted in the Retail Shop Leases Tribunal in Charlies (Broadbeach) Pty Ltd v Goldsea Pty Ltd [2007] RSLT 7. There the tribunal calculated the gross sales lost attributable to the landlord’s default (in that case 5% of assumed total sales). It then deducted from that dollar figure the cost of goods sold for that lost gross, on the basis of the average cost of goods sold as a percentage of gross sales, to arrive at a relevant loss of gross profit. It proposed to deduct as well the additional wage and like costs that would have been incurred by the tenant in achieving the extra percentage of sales. (In the particular case it found that no extra staff would have been required, as the lost gross was only 5%, so no deduction was made.) The calculation below essentially follows that model.
[129]We believe that it is more appropriate to adopt the 2007 figures as the base year, rather than 2006. As mentioned, 2006 had a significantly higher gross than 2007, though a lower net profit. As there was only a relatively small degree of boat interference in 2007, we consider it is a more reliable indicator of usual trading.
[130]As the figures provided by the accountants go only to 2010, we have assumed that the figures for 2011 would be the same, the patterns being then established.
[131]We also need to address the period for which loss should be compensated. The occupancy ended at the end of May 2011, and since June 2009 the tenancy had been either month to month or a tenancy at will. However the applicants gave evidence that but for the boat they would have exercised their option to extend to 30 June 2012. We find that credible, and therefore will calculate loss to that date. Again we will use 2010 figures for 2012.
[132]The gross sales for 2007 were $778,009. Had that figure been maintained for the 5 years 2008 to 2012, the aggregate gross would have been $3,890,045. In fact they were (on the above assumptions for 2011 and 2012) only $3,221,787. This is a total reduction of $668,258. Half of this is attributable to external factors, and therefore the loss of gross sales attributable to the respondent’s breach is $334,129.
[133]The cost of goods sold as a percentage of gross for the years 2007 through 2010 are 45%, 43%, 41% and 43% respectively. On average that is 43%.
[134]We find that in this case the reduction in trade is sufficient to result in some lowering of staff costs. Again, wages and superannuation for the known years amount to respectively 25.6%, 25.9%, 26.2% and 24.1% of gross sales. The average is about 25.5%.
[135]Certain other minor costs may also be affected, for example replacements, but these would add only a small proportion to the calculation. Other costs, especially rent and outgoings, are the same whatever the gross sales.
[136]On this basis, what we might term the variable costs amount to something like 68% of gross sales, or perhaps a little more. For the sake of the calculation we will adopt a figure of 70%. In other words, had the applicants been able to make the additional sales the landlord’s actions deprived them of, the profit margin would have been 30% of those sales. Taking the lost gross as $334,129, this calculates to a net loss of $100,238.
[137]However this figure is simply the loss attributable to the presence of the boat. The tenant also lost the opportunity to make what profit it might have made in any event for the 13 months to June 2012. This is so because without the landlord’s default the tenant would have continued for the balance of the option term. Until May 2011 the tenants’ figures show some slight profit, again using the 2010 figures a net of $18,258. This needs to be adjusted however, as the rent in those figures ($88,540) is less than should have been paid. The rent should have been $109,917 per annum.[31] If that is taken into account, there would have been no profit, indeed a slight loss before allowing for the boat. Accordingly no further adjustment is called for.
[31] Respondent’s submission, annexure 10.
[138]The applicants also seek compensation for a loss of the capital value of the business. We deal with the plant separately. As for goodwill, as we have calculated the loss to the end of the option period, we find that the tenants would not have had a saleable asset, unless they were able to negotiate a further lease. There is no evidence that they would have. In those circumstances we do not think it correct to allow anything for lost goodwill.
[139]We therefore find that the applicants are entitled to compensation of $100,238 under this head.
Plant and equipment
[140]Turning now to the issue of the plant and equipment, the facts on the dispossession of the tenant are not in dispute. The applicants say they were prohibited from removing their plant following the landlord’s re-taking of possession of the premises. This is not disputed by the respondent. In fact Mr Dorn said his solicitor told him he was entitled to it, and that is consistent with his solicitors’ correspondence.[32]
[32] Letters CSG Law to applicants, 26 May 2011, and 16 December 2011.
[141]Subsequently, the respondent attempted unsuccessfully to sell the plant as part of a marketing of the premises as a restaurant, and eventually leased it together with the premises to Mr Burnett.
[142]Ordinarily, the termination of a lease, however brought about, does not effect any change of ownership of the lessee’s chattels. That is perhaps too obvious to need any authority, but it is useful in the overall context to refer to the Queensland Court of Appeal decision of Curtain v Meadlow Holdings Pty Ltd [2001] QCA 145 where Justice Thomas, referring to a decision of Windeyer J in City West Media v Galaxy Media 1998 9 BPR 16 said: “His Honour also noted that at common law, chattels that a tenant brings onto leased premises can be removed at will by the tenant, and should be removed prior to the termination of the lease, but that failure to so remove the chattels prior to termination of the lease does not bring about any change of ownership. That of course might be altered by the specific terms of the lease, but forfeiture should not be lightly implied, and clear words would be necessary to achieve that effect.”[33]
[33] At paragraph 12.
[143]The common law doctrine of distress for rent was abolished by section 103 of the Property Law Act 1974.[34] The landlord therefore has no common law right to seize the chattels and appropriate them for arrears of rent. Accordingly any right of a lessor to seize or retain the lessee’s chattels must derive from the lease. The relevant clause is 19.4, although clauses 7.5, 19.2 and 19.3 may also have some relevance.
[34]That section was repealed subsequently, but that does not have the effect of reviving the doctrine. See Duncan and Vann, Property Law and Practice, para [8.85].
[144]Clause 19.4 is headed Stock and provides: “The Tenant will remove from the Leased Premises all its stock and other movable chattels before the expiration of this Lease except that if this Lease is determined before the due date of expiry by effluxion of time the Landlord will if requested so to do by the Tenant allow the Tenant … access to the Leased Premises during (then follow provisions about date and times) to remove its stock and movable chattels…” The clause also gives the landlord certain rights if the tenant fails to remove them.
[145]Since the respondent clearly prohibited the applicants from removing the plant, no question of needing a request from the tenant can arise, and of course the chattels cannot be said to have been abandoned. Nothing in clause 19.4 gives the respondent any right to claim the plant, whether to set off against a claim for rent or at all.
[146]Clause 7.5 deals with tenant’s fixtures. It provides: “If the Tenant has paid all rent and observed (all covenants) any fixtures and things which … have been installed by the Tenant may … be removed…” The clause goes on to deal with reinstatement and abandonment. This clause would apply to any fixtures, but the language clearly does not relate to chattels. (The abandonment provision includes “all other goods” but that is not relevant here.)
[147]Clause 19.2 permits the landlord to require the removal of fixtures etc, and 19.3 deals again with abandonment. Again the language does not include chattels.
[148]Neither the respondent’s written legal submissions, nor its oral submissions at the hearing (nor for that matter its solicitors’ letters to the applicants) outline any legal basis for the claimed entitlement to the chattels.
[149]We can therefore find no basis on which the respondent could claim that his appropriation of the plant and equipment, so far as it consisted of chattels, was lawful. In the not dissimilar facts of Curtain v Meadlow Holdings the court found the landlord liable for damages in conversion, and we find accordingly in this matter.
[150]For completeness we should address the position with respect to any fixtures. Unfortunately the material before the tribunal did not include a complete inventory, although some of the plant was that originally leased and is listed in the schedule to the lease. None of that is necessarily a fixture, although some may be. There was reference elsewhere to a cold room which might also be a fixture, although this appears to have been removed by Mr Burnett. There is little else of assistance in the evidence, so in practical terms the issue may not arise.
[151]If there were fixtures the position might be different for those, because of the qualification in clause 7.5 to the effect that the tenant’s right to remove was said to be subject to his having paid the rent etc. There are a number of difficulties for a landlord in the way of this argument however, any one of which is sufficient to place the tenant in the same position as for chattels. Arrears of rent may be no more relevant than it is for the quiet enjoyment issue; or the condition may amount to a forfeiture that is against the obvious intent of the legislature in abolishing distress for rent; or perhaps the tenants here would not have been in arrears but for the default of the respondent. We find that the applicants could rely on any one of those matters and therefore propose to treat any fixtures as for chattels.
[152]In assessing the appropriate amount for damages, we find that there is no basis to award the applicants any amount for notional hire of the plant. There was no agreement to that effect, and the normal basis for damages for conversion is the market value. We cannot see a reason to take any other course.
[153]The value is not a simple matter. As mentioned, no inventory was provided, nor any depreciation schedule. There was the list from the lease, which the applicants had bought from the previous lessor for $12,500, although Mrs Mecanovic said it was worth much more, the landlord being keen to dispose of it as he was selling the premises and had no use for it.
[154]Mrs Mecanovic said Mr Crea (Chas Straker) had purchased an additional $36,000 worth of plant, and she gave evidence that they had also bought a dishwasher for $5,000 as well as a glass washer, wok, and fryer. This list was not meant to be exhaustive.
[155]Mrs Macanovic said she believed it was worth in total $100,000. It was insured for that sum, on a replacement basis.[35]
[35] Applicants’ submission annexure Z6.
[156]The respondent did not put a value on it, but gave evidence that some of it was unserviceable and was scrapped, and Mr Dorn said he had had to add a number of other items including refrigerators.
[157]The applicants relied on Mr Dorn’s attempts to sell the restaurant after they were evicted. He had listed it with an agent at a price of $90,000. As it would have been contrary to the Act for the respondent to ask for key money, one could argue in theory that this must have been for plant. It is fair to say though that he got no takers, or apparently even offers, and it was likely to have been listed for more than Mr Dorn thought it was worth.
[158]Some reliance was placed on the correspondence when the parties attempted to settle the matter immediately after the termination.[36] The applicants offered a settlement where the rent was reduced to $1,000 per week and the landlord kept the plant at the end of the lease, in payment of the arrears of rent. It was not made clear what the term of the lease might have been but perhaps they had in mind until the end of the option period.
[36] See annexures 4 and 5 to the respondent’s statement, June 2011.
[159]The respondent’s solicitors countered with two alternatives. One was that the applicants pay $40,000 immediately, transfer ownership of the plant, and pay rent at $1,000 per week, for a 6 month lease. The second was that the landlord would release them from any further obligations under the lease, in exchange for which they accepted that the plant was forfeited to the landlord. On this basis the tenants would have no further lease.
[160]The landlord was claiming, in round figures, $60,000 in rent arrears. The current rent (including outgoings) was about $2,100 per week, so a reduction to $1,000 meant a concession of $1,100 per week or $28,600 for 6 months. The respondent’s first offer therefore meant taking the plant plus $40,000 in exchange for the equivalent of $88,600. That would value the plant at $48,600. The second alternative would obviously value the plant at the rent arrears, ie $60,000.
[161]The applicants’ offer, if we assume they had in mind the 13 months to the end of the option period, would have meant a saving of about $62,000 to be set off against the plant.
[162]Such analyses are obviously of limited value, given that they are in the course of negotiations. The landlord might be offering more than he thought the plant was worth to make the problem go away; or alternatively less that he thought the real value was, for the same reason, or to leave some negotiating room or simply because he didn’t feel he had to bargain. Nonetheless they are of some persuasive value, as they give an insight into the thinking of the parties at the time.
[163]We are also conscious of the large differences between the various bases for assessing value. The plant may well have been worth $100,000 on a replacement basis, as it was a reasonably large restaurant. It would have been worth somewhat less as part of the assets if the restaurant was to be sold as a going concern, but still more than it would fetch at a fire sale auction. Given that the plant was in a functioning restaurant, and that it continues to be so used, we feel the middle course is warranted.
[164]Taking that and the other evidence into account, including the settlement negotiations, we feel it is reasonable to assess the damages under this head at the equivalent of the arrears of rent.
Arrears of rent, interest and costs
[165]There were three other issues relating to rent. One concerned the fact that the outgoings included a component relating to the head rent payable on an adjoining car park. The respondent held a lease from Department of Transport of other land opposite the complex, which was used as a common car park for the complex and other harbourside establishments. The applicants submitted that this was not claimable against them.
[166]The lease definition of outgoings includes the head rent for this car park (clause 2.22 (17)) and the definition of Car Park includes this land (clause 2.6) and accordingly the proportion of head rent for this land is properly chargeable against the applicants.
[167]The respondent claimed interest on the outstanding rent. Under clause 13.5 of the lease, the lessor is entitled to rent on arrears of rent at “the Stipulated Rate” which in turn is defined as the Australian Merchant Bankers’ 90 day bill rate plus 5 per cent. No information was given as to what this might be, although the Notice to Remedy Breach sought an amount of $2,237.48.
[168]Ordinarily this would be properly payable by the tenants. However in this instance the tenants might argue that (in part at least) the arrears were attributable to the lessor’s breach of the covenant of quiet enjoyment. Further, the applicants might themselves have a claim for interest under section 47 of the Supreme Court Act 1995, albeit at perhaps a lower rate. In the event we consider that these claims would as nearly as practicable balance each other out, and accordingly we propose to make no order for interest on either the claim or the counter claim.
[169]The respondent also sought costs on the Notice to Remedy, which were claimed at $770.00 on that notice. Again we consider these costs would have been reasonable, but given the default of the respondent lessor, we do not consider it is appropriate to make an award for that item.
[170]The parties have agreed that, these issues aside, the arrears should be quantified at $57,073.19. We find that it is therefore reasonable to set this off against the applicants’ claim for loss of the plant and equipment.
Catering invoice
[171]As mentioned above, the parties have agreed that the outstanding invoice for catering should be included in the balance amount in these proceedings, and we will therefore add the sum of $1,539.30 to the amount payable to the applicants.
Claim against the guarantors
[172]It follows from the above that there will be no order in favour of the respondent against the third parties, the guarantors.
Summary of Findings and Orders
[173]Accordingly we make the following findings and orders:
1.That the applicants are entitled to the sum of $100,238 for damages or compensation for the respondent’s breach of its covenant for quiet enjoyment.
2.That the applicants are entitled to the sum of $57,073.19 for damages for conversion by the respondent of the applicants’ plant and equipment, that sum to be offset against the rent owing by the applicants to the respondent.
3.That the applicants are entitled to the sum of $1,539.30 from the respondent for goods supplied.
4.That the respondent is entitled to the sum of $57,073.19 from the applicants for arrears of rent and outgoings, such monies to be offset against the monies payable to the applicants under paragraph 2 above.
5.Accordingly it is ordered that the respondent pay the applicants the sum of $101,777.30 within 28 days of the date of this order.
6.It is further ordered that the respondent’s cross claim against the third parties (the guarantors) be dismissed.
7. There will be no order as to costs.
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