Christofi v Mohammady (RLD)

[2013] NSWADTAP 10

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:

Christofi v Mohammady (RLD) [2013] NSWADTAP 10

Hearing dates:

30 November 2012

Decision date:

26 February 2013

Jurisdiction:

Appeal Panel - Internal

Before:

M Chesterman, Deputy President
K Rickards, Judicial Member
J Schwager, Non-judicial Member

Decision:

1. The appeal is allowed in part.

2. In order 2 in the Tribunal's decision dated 22 June 2012, the amount ordered to be paid by the Respondents to the Applicant is reduced from $8,417.00 to $5,834.07.

3. The parties are to bear their own costs of the appeal.

Catchwords:

Retail lease - abatement of rent - diminished useability due to damage

Legislation Cited:

Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994

Cases Cited:

Lovecek v JV Idola Pty Ltd and ors [2011] NSWADT 18
Mohammady v Christofi [2012] NSWADT 122

Category:

Principal judgment

Parties:

George Christofi (First Appellant)
Elizabeth Christofi (Second Appellant)
Abdul Razul Mohammady (Respondent)

Representation:

George Xylas (Appellants)
Dehsabzi Lawyers (Respondent)

File Number(s):

129020

 Decision under appeal 

Citation:

Mohammady v Christofi [2012] NSWADT 122

Date of Decision:

2012-06-22 00:00:00

Before:

Retail Leases Division

File Number(s):

115012

reasons for decision

Background

1. This is an appeal against the decision of the Retail Leases Division in Mohammady v Christofi [2012] NSWADT 122. In that decision, delivered on 22 June 2012, the Tribunal held that Abdul Razul Mohammady, the lessee of retail shop premises in Granville (hereafter 'the Premises' or 'shop 5'), was entitled to recover the sum of $10,867.00 from the lessors, George and Elizabeth Christofi. The Tribunal also ordered the lessors to pay 50% of the lessee's costs.

1. The term of the lease between the parties ('the Lease') was from 1 April 2009 to 31 March 2012. The initial monthly rent was $1,906.66 including GST. The permitted use was the business of a tailor. It was common ground that the Lease was governed by the Retail Leases Act 1994 ('the RL Act').

1. The hearing by the Tribunal took place on 30 November and 22 December 2011. The only witnesses were the three parties: Mr Mohammady, the lessee, and Mr and Mrs Christofi, the lessors.

1. The sum ordered to be paid by the lessors to the lessee, $10,867.00, had two components: an award of $2,450.00 as compensation for 'loss of stock and garments', and an award of $8,417.00 by way of rent abatement. These awards were both based on findings that during the period from June 2009 through to mid-April 2011, rain had leaked through the ceiling, causing damage to the lessee's trading stock and diminishing the useability of the Premises.

1. The lessors filed a Notice of Appeal on 20 July 2012. The sole ground stated in it was that the Tribunal had erred in law through making a finding of fact for which there was no evidence. This finding related to the area of the ceiling of the Premises that had suffered from rain damage. It was claimed in the Notice that on account of this error the amount that the Tribunal awarded by way of abatement of rent was excessive.

1. The lessors also applied for a stay of the Tribunal's order pending the hearing of the appeal. The hearing of this stay application, set down for 6 August 2012, was vacated following an undertaking by the lessee's solicitor, given on 2 August, that the lessee would not enforce the Tribunal's order until the appeal had been determined.

1. On 27 August 2012, the lessors filed and served written submissions in support of their appeal. On 15 October, the Registry notified the parties that the hearing of the appeal was to take place on 30 November. Although in written directions dated 2 August it was stated that the lessee should file his submissions within 21 days after the lessors had served their submissions, it was not until 27 November that the lessee's submissions were received (by fax) in the Registry.

1. At the hearing of the appeal before us on 30 November 2012 (as also at the Tribunal hearing), Mr Xylas appeared for the lessors and Mr Dehsabzi for the lessee.

The Tribunal's award of compensation by way of rent abatement

1. The Tribunal's decision that the lessors were obliged to pay compensation to the lessee for damage caused by rainwater leaking through the roof of the Premises was based on a finding (stated at paragraph [80(f)] of the Tribunal's reasons) that their failure to prevent the leakage constituted a breach of a clause in the Lease (clause 2) 'incorporating' the covenant for quiet enjoyment. This finding was not challenged in the appeal.

1. In awarding compensation by way of abatement of rent, the Tribunal relied on clause 15.1 of the Lease. It noted (at [44(i)]) a submission by Mr Xylas that clause 15 was 'couched in similar terms to' section 36 of the RL Act. A statement in its decision at [66] implied that it agreed with this submission

1. Clause 15 of the Lease, which the Tribunal quoted at [61], was in the following terms:-

15. ABATEMENT OF RENT AND RESTORATION IN THE EVENT OF DAMAGE

15.1 If the premises or the building of which they are part is destroyed or damaged (other than by any neglect or default by the Lessee or any employee or contractor of the Lessee) so that the use of the premises or access of the premises is prevented or reduced, then the Lessee's obligation to pay rent or other monies will cease or be reduced in proportion to the denial of the use or access in respect of the period during which use or access is affected.

15.2 If the Lessee's use or access to the premises is only reduced, then the extent to which the Lessee's obligations to pay rent or other monies is to be reduced must be agreed upon by the Lessor and Lessee failing agreement within one (1) month after the damage to the extent must be referred to arbitration in accordance with the law with regard to arbitration.

1. The reasoning whereby the Tribunal calculated the amount to be awarded as abatement of rent pursuant to clause 15 was set out in the following passages in paragraphs [67], [80] and [83]:-

67... the Tribunal is of the view that the photos speak for the situation, that the ceiling of the shop was particularly damaged and the area underneath the ceiling may not have been useable...

80...

(f) The water leakage caused damage to the ceiling which was unsightly from June 2009 to the end of the lease in that that part of the ceiling and the floor area under the ceiling could not be used satisfactorily or alternatively posed a risk to the Applicant if it were so used [eg. placing or storing... articles]...

(i) The area of the damaged ceiling and the floor under the ceiling was unable to be quantified by measurement by the Applicant but the Respondents agreed it was up to 15% of the ceiling area [ie. 15% of the area of shop 5]...

(l) The Applicant's use of the premises and access to the premises has been reduced by action or inaction of the Respondents in remedying the roof and not painting the ceiling and clause 15.2 of the lease is relevant for consideration with respect to abatement of rent...

(n) In all the circumstances the Applicant appears not to have been able to benefit from using 15% of the area of the premises from June 2009 to when the ceiling was repaired and painted by the Respondent in April 2011.

83 The Tribunal starts with the proposition that 15% of the ceiling was damaged and not repaired from June 2009 through to the end of April 2011. Rent is generally determined on a square metre basis in that the tenant occupies so many square metres and rent is calculated accordingly. Whilst a tenant does not occupy the ceiling, nevertheless that part of the ceiling damaged, in the Tribunal's view made the area under the ceiling generally unusable. Therefore, the Tribunal is of the view that an appropriate amount of compensation would be an abatement of rent under s36 of the RLA of 15% for the period from June 2009 through to mid-April 2011. Rent on an exclusive GST basis between June 2009 and 1 May 2010 is $1,733.33 per month of which 15% is $260.00 per month. For 10 months the amount is $2,600.00. Rent from 1 May 2010 through to mid April 2011 on a GST exclusive basis is $1,785.34 per month, and 15% is $267.80 per month. For ten and a half months the amount is $2,812.00. Total rent abatement is $5,412.00.

1. The finding challenged by the lessors in the Notice of Appeal was the finding stated in paragraph [80(i)] and repeated at the commencement of [83]: namely, that '15% of the ceiling was damaged and not repaired from June 2009 through to the end of April 2011'.

1. At [84], the Tribunal awarded a further amount of $3,035.00 by way of abatement of rent, on the ground that on the instructions of the lessors an nearby arcade owned by them had been the subject of building operations disturbing the lessee's quiet enjoyment of the Premises for a period of about two months. It calculated this amount as follows:-

84 In relation to the works being carried out on the Arcade disturbing the quiet enjoyment of the Applicant for the months of October and November 2010 the Tribunal believes that the full amount of rent for those two months should be abated (now 85% having taken into account the 15% abatement above). Again rent on a GST exclusive basis per month is $1,785.34 and for two months rounded out to $3,570.00, less 15% is $3,035.00.

1. The total award of $8,417.00 as compensation by way of abatement of rent would appear to have been reached by calculating, not entirely accurately, the sum of the two awards of $5,412.00 and $3,035.00 made in paragraphs [83] and [84] respectively.

The lessors' submissions

1. Mr Xylas put forward a ground of appeal additional to the ground stated in the Notice of Appeal. This was that the Tribunal erred in awarding any compensation at all by way of abatement of rent. This submission by Mr Xylas was based the following aspects of the proceedings: (a) in the Application for Original Decision by which the lessee commenced them, the orders sought did not include an order for compensation of this type; (b) the lessors therefore had no prior notice of such a claim and could not adduce evidence and argument in order to rebut it; and (c) the lessee gave no evidence as to the amount of rent payable under the Lease.

1. With reference to the ground stated in the Notice of Appeal, Mr Xylas argued that nothing in the evidence put before the Tribunal provided support to its finding that the proportion of the area of the ceiling that was damaged and not repaired was 15%. He based this argument on the following aspects of the evidence: (a) in his affidavit and in oral testimony, Mr Christofi estimated the damaged area as 4 square metres (2 x 2 metres); (b) Mrs Christofi's testimony on this matter during cross-examination was to the same effect; (c) Mr Christofi said in evidence in chief that he estimated the area of the whole ceiling to be about 60 square metres; (d) this estimate by him was not challenged in cross-examination; (e) when asked during cross-examination to estimate the area of the whole ceiling, Mrs Christofi said that she was unable to do this; and (f) the lessee did not testify at all on this specific matter.

1. According to Mr Xylas, this evidence showed that only 6.6%, not 15%, of the area of the ceiling had been damaged. He argued that on this footing the amount to be awarded as rent abatement on account of the leakage should have been $2,381.23, instead of $5,412.00. In his written submissions, he set out as follows the calculations leading to this result:-

Rent on an exclusive GST basis between June 2009 and 1 May 2010 is $1,733.33 per month of which 6.6% is $114.40 per month. For 10 months the amount is $1,143.99. Rent from 1 May 2010 through to mid April 2011 is $1,785.34 per month, and 6.6% is $117.83 per month. For ten and a half months the amount is $1,237.24. Total rent abatement is $2,381.25.

1. Mr Xylas then pointed out that if this sum of $2,381.25 was added to the unchallenged figure of $3,035.00 awarded by the Tribunal on account of the disturbance caused by the nearby building operations, the total awarded for rent abatement would be reduced from $8,417.00 to $5,416.25.

1. A further claim made by Mr Xylas in his written submissions was that the lessors should have their costs of the appeal because the Tribunal's error had left them with no choice but to appeal. In oral submissions, he added that there had been attempts to settle the matter through 'without prejudice' correspondence.

The lessee's submissions

1. In his written submissions, Mr Dehsabzi argued that it was 'abundantly clear' from the evidence put before the Tribunal that the water leakage was 'far greater' than the Tribunal had found it to be, that it had in fact caused water to flow over the whole of the ceiling and that the proportion of 15% determined by the Tribunal was therefore 'irrelevant'. It followed, he maintained, that the damage caused to the lessee should have been assessed on the footing that the entire ceiling suffered from leakage and that the proper measure of the damages payable to the lessee was the amount that he initially claimed, namely, $93,000.00.

1. At the same time, Mr Dehsabzi characterised the Tribunal's finding that '15% of the shop was affected by damage to the ceiling' was 'consistent with the extent of the damage caused' to the lessee's property and described the Tribunal's decision as 'fair, accurate and reasonable'.

1. In these submissions filed before the appeal hearing, Mr Dehsabzi referred to the written submissions that he had handed up to the Tribunal at the conclusion of its hearing. The submissions to the Tribunal included a claim that the lessee had 'produced evidence in the form of photographs that as a result of water leakage the ceiling has been affected' and that 'this area has been measured and determined to be 23.05% of the entire ceiling area'.

1. In his oral submissions at the appeal hearing, Mr Dehsabzi reaffirmed his claim that the leakage had spread all over the ceiling and maintained that for this reason the damages awarded to the lessee should be substantially increased beyond the amount awarded by the Tribunal. He relied again on the photographs, amongst which he specifically identified six, that had been admitted at the hearing on the tender of the lessee.

Discussion and conclusions

1. We can dispose quickly of Mr Xylas's contention that the Tribunal should not have included any sum on account of rent abatement in its award of damages. Although, as he pointed out, compensation of this kind was not sought in the lessee's Application for Original Decision, it was sought in Mr Dehsabzi's submissions to the Tribunal and Mr Xylas, in his submissions, put forward arguments in rebuttal without making any claim that he was not in a position to deal with the matter.

1. We agree, however, with Mr Xylas's contention that there was no evidence on which the Tribunal could base its finding that the proportion of the ceiling that suffered from the leakage was 15%.

1. The evidence on this matter was limited to (a) the statements by Mr and Mrs Christofi that we have outlined above at [17] and (b) the photographs, taken by the lessee, on which Mr Dehsabzi relied. The statements support the finding for which Mr Xylas has argued: namely, that 6.6% (about one fifteenth) of the ceiling was damaged. The photographs, which we have examined carefully, do not provide any significant assistance. We reject Mr Dehsabzi's claim - which Mrs Christofi denied when he put it to her during cross-examination - that they show the damage to have extended to about 23% of the ceiling.

1. In so summarising the relevant evidence, we should point out that an observation by the Tribunal at [35] was not borne out by our examination of the transcript of the hearing before it. This was to the effect that Mr Christofi, on viewing the tendered photographs, was 'inclined to think that the area may be greater than 4 m² especially when the repair work to be done would be beyond the actual damage to the ceiling'.

1. In making its finding of damage to 15% of the area of the ceiling without any supporting evidence, the Tribunal erred in law. Accordingly, it is appropriate for us to grant leave under section 113(2)(b) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act) for this appeal to extend to the merits. In consequence, our task, as prescribed by section 115(1), is to arrive at 'the correct and preferable decision', having regard to the material currently before us.

1. In the circumstances that we have described, we consider ourselves to be bound to accept the proportion of the area of the ceiling - 6.6% - for which Mr Xylas contended. This was admitted in the lessors' evidence and not effectively contradicted by any other evidence in the case.

1. Clause 15 of the Lease, like section 36(1)(b) of the RL Act, provided for abatement of rent in proportion to the extent to which damage to the Premises caused their 'useability' to be 'diminished'. The Tribunal calculated this solely by reference to the proportion of the area of the ceiling that it found to have suffered damage. Mr Xylas argued that in recalculating this component of the damages to be awarded to the lessee, we should adopt the same approach.

1. Support for doing so is provided by the following passage in a recent decision of the Tribunal, Lovecek v JV Idola Pty Ltd and ors [2011] NSWADT 18, at [51 - 54]:-

51 Section 36(1)(b) of the RLA provides that the lessee's liability for rent for any period during which the usability of the premises has been diminished due to damage is to be reduced in proportion to the reduction of usability caused by the damage.

52 Consideration of the evidence given by the various lay and expert witnesses in these proceedings clearly establishes that the roof, gutter and ventilation at the premises were inadequate to prevent water ingress, dampness and mould that this situation caused a portion of the premises to be unfit for reasonable use as a bridal wear shop for the period from early July 2007 which is the time when further instances of water ingress began and a mouldy smell returned to the rear of the shop. Although Ms Medway asserts that this problem had occurred from the outset of the lease, I am satisfied that it was only when this problem recurred as and from July 2007 that part of the premises could reasonably be said to have become unusable for their intended purpose. There can be little doubt that storage of dresses, fabrics and footwear cannot safely occur in the presence of incoming dampness and mould, or that the presentation of stock and conduct of business with customers would be effected adversely by the apparent presence of damp and musty smells.

53 The plan of the premises admitted into evidence establishes that the actual area directly affected by dampness or mould was approximately 25% of the total floor space of the premises. This exact figure is not an absolute indicator of the decrease in usability of the premises, because some of the affected area may have been usable for some purposes while, on the other hand, the rest of the premises may still have been affected at different times by a musty smell; this is a reasonable inference arising from the evidence given by a number of witnesses. However, application of this proportional figure is the best available method to approach determination of the extent of any rent abatement or reduction which may be appropriate.

54 The lessee seeks an order for total abatement of rent for the premises from early 2007, such that no arrears of rent are payable. This claim is simply not supported by the evidence. Conversely, the lessor has not provided evidence as to exactly how the sum claimed for arrears of rent arises, except to state that it covers the period until the premises were re-let. Taking these factors into account, I determine that the fair and appropriate approach is to reduce the lessor's claim for rent by 25%, which results in the amount of $4,204.94 which I find to be payable by the lessee...

1. Like the Tribunal in Lovecek, we are inclined, in the absence of expert evidence or other forms of assistance, to follow this methodology.

1. According to the calculations made by Mr Xylas (see above at [18 - 19]), this would lead to an award of $2,381.25 for abatement attributable to the damage to the ceiling. He pointed out that if this is added to the unchallenged figure of $3,035.00 attributable to the disturbance caused by the nearby building operations, the total amount awarded for rent abatement becomes $5,416.25.

1. This calculation requires adjustment, however, for two separate reasons. The second of them, but not the first, was pointed out to the parties at the hearing of the appeal.

1. In the first place, both the Tribunal and Mr Xylas treated the period from 1 May 2010 to mid April 2011 as one of 10.5 months. It is in fact 11.5 months. For this reason, the abatement attributable to the water leakage in respect of this period should not be $1,237.24, as argued by Mr Xylas, but $1,355.07. The total award attributable to leakage should be $2,499.06.

1. Secondly, the Tribunal, when awarding $3,035.00 by virtue of the disturbance caused to the lessee by nearby building operations during October and November 2010, took account of the abatement attributable to the leakage. It did so to avoid double counting. It based its calculation on the latter abatement being at the rate of 15%. But because we have accepted Mr Xylas's submission that this rate should instead be 6.6%, the award relating to the building disturbance should be increased to $3,335.01.

1. On this footing, the 'correct and preferable decision' is that the total amount of damages to be awarded by way of abatement of rent is $5,834.07. Adapting relevant passages in Mr Xylas's submissions and the Tribunal's decision (at [84]), we explain this figure as follows:-

Abatement on account of the leakage. Rent on an exclusive GST basis between June 2009 and 1 May 2010 is $1,733.33 per month of which 6.6% is $114.40 per month. For 10 months the amount is $1,143.99. Rent from 1 May 2010 through to mid April 2011 is $1,785.34 per month, and 6.6% is $117.83 per month. For eleven and a half months the amount is $1,355.07. Total rent abatement is $2,499.06.

Abatement on account of the building works. The full amount of rent for the months of October and November 2010 should be abated. The additional abatement should be 93.4% of the stipulated rent, because an abatement of 6.6% has been awarded on account of the leakage. During this period, the rent on a GST exclusive basis per month is $1,785.34, which gives a figure of $3,570.68 over two months. When reduced by 6.6%, this figure becomes $3,335.01.

Total award on account of abatement: $5,834.07

1. Our response to Mr Deshabzi's submissions urging us to increase substantially the award made by the Tribunal is, as we made clear at the hearing, that it was not open to him to, in effect, lodge a cross-appeal and press for its acceptance by filing submissions only three days before the hearing of the appeal (as we indicated above at [7]) and endeavouring to support them in his oral addresses to us.

1. As mentioned above at [20], Mr Xylas argued that the lessors should have their costs of the appeal. It is not the case, however, that the mere fact that an appellant succeeds in an internal appeal under the ADT Act justifies a costs order under the applicable provision (section 88) of this Act. It is noteworthy that the lessors have not succeeded to the extent that they claimed to be appropriate, either in their Notice of Appeal or at the hearing. It is also relevant that only a small amount of money was at stake in this appeal.

1. For these reasons, the primary rule stated in section 88(1) - i.e., that the parties are to bear their own costs - should be applied.

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Decision last updated: 26 February 2013