Cihan v City Tobacconist Pty Ltd and Gebara

[2015] NSWCATCD 148

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Cihan v City Tobacconist Pty Ltd and Gebara [2015] NSWCATCD 148

Hearing dates:

25 August 2015

Decision date:

16 December 2015

Jurisdiction:

Consumer and Commercial Division

Before:

D Bluth, Senior Member

Decision:

The following orders are made:

(a)   That the first and second respondents jointly and severally pay the applicant the sum of $24,549.40 within 14 days of publication of these Reasons.

(b)   That the first and second respondents jointly and severally pay the applicant interest from 1 February 2014 at the rate of 15% per annum pursuant to clause 5.1.5 of the Lease totalling $5,775.80 and accruing at the daily rate of $10.09 from 25 August 2015 within 14 days of publication of these Reasons.

(c)   Costs are reserved. If either party wishes to make submission on costs it can do so within 28 days of the publication of these Reasons, by serving such submission on the other party and the Tribunal, and then either party can have a further 14 days to make a reply, whereupon the question of costs will be determined on the papers.

Catchwords:

Agreement to surrender lease, estoppel, mitigation of loss by a lessor, clause 12.6 of the Law Society Lease

Legislation Cited:

Civil and Administrative Tribunal Act, 2013
Evidence Act, 1995
Retail Leases Act, 1994

Cases Cited:

Blandino & Ors v Giardi & Ors (2008) ADTAP 55
Karacominakis v Big Country Developments Pty Limited (2000) NSWCA 313
Perpetual Limited v Gelato Ingredients Manufacturers of Australia Pty Ltd [2014] NSW CATCD 25
Pialba Commercial Gardas Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148
Yan Gu and Chunhua Tao v Nicole Panetta, Neil Hendry and John Panetta (201) NSWCATCD 247

Category:

Principal judgment

Parties:

Mehmet Cihan (applicant)
City Tobacconist Pty Ltd (first respondent)
Mohamed Gebara (second respondent)

Representation:

Counsel: P Folino-Gallo (applicant)
Solicitors: Andresakis Lawyers (applicant)
Agent:Retail Leases Doctor (first respondent)

File Number(s):

COM 15/09537

Publication restriction:

Nil

reasons for decision

Background

1. This dispute involves a lessor seeking damages from the tenant and guarantor for abandonment of retail premises. The tenant asserts that it accepted an offer from the lessor to be released from the lease and the lease was mutually abandoned. Alternatively, if mutual abandonment is not accepted then the tenant asserts that the lessor failed to mitigate its loss by refusing an offer from an alternate tenant that would have left the lessor in the same position as if the lease had continued in full force and effect.

2. The applicant is Mr Mehmet Cihan, who owns a property at 164 Campbell Parade, Bondi Beach comprising a number of shops including Shop 3, which was leased to City Tobacconist Pty Ltd, the first respondent (City) for three years from 1 November 2010 (Lease). The performance of City under the Lease was guaranteed by the second respondent, Mr Mohamed Gebara, a director of City.

3. The commencing rent under the Lease was $169,600.00 per annum plus GST. The rent reviews were annually at 6%. A bond by way of bank guarantee of $47,000.00 was paid. Interest at 15% per annum was payable by City on outstanding amounts under clause 5.15 of the Lease.

4. There is no dispute between the parties that from January 2011 onwards, City was continually late with payment of the rent. Mr Mehmet Cihan speaks very little English and apparently relied on his son, Mr Sam Cihan, to communicate with his tenants, in particular City. Mr Sam Cihan was in regular contact with the manager of City, Mr Mohamed Charkaoui (City’s Manager), requesting payment of the rent. There were also discussions between City’s Manager and Mr Sam Cihan regarding the continuing operation of City’s business at the premises.

5. On 7 September 2011, a telephone conversation took place between Mr Angelo Andresakis, the solicitor for Mr Mehmet Cihan, and Mr Nabil Ajaje, the solicitor for City. There are significant evidentiary differences regarding what was said in that conversation. However on the next day, being 8 September 2011, Mr Ajaje reported to Mr Gebara that he had received an offer from the lessor via his solicitor to release City from the Lease.

6. It is further alleged that Mr Sam Cihan spoke with City’s Manager on 15 September 2011 and said:

We do not want headaches.

If you can't pay the rent just leave and pay the rent until the day you leave. We will not sue you.

7. City’s Manager then reported this conversation to Mr Gebara who instructed him to liaise with Mr Ajaje, the solicitor for City, to accept the offer.

8. Mr Ajaje sent a letter dated 18 November 2011 addressed to Andresakis & Associates with the words 'without prejudice' in italics at the beginning of the letter. The letter states as follows:

We refer to the above matter and the telephone conversation on 7 September 2011 between Angelo Andresakis and the writer in relation to purported delays in the payment of rental by our client.

In the conversation, Mr Andresakis stated to the writer:

My client does not want "a headache" and I am instructed he will release your client from the lease of the premises operating unprofitably.

We are instructed that the premises are (and have been) operating unprofitably. We are further instructed that our client accepts your client's above offer to "release" it from the Lease.

Our client proposes a date of 28 February 2012 as the date of release and surrender, however, if this date is not suitable for your client, our client will be pleased to consider an early lease surrender date as suggested by your client.

We await your early reply and the receipt of the lease surrender documents in due course.

9. Mr Andresakis responded denying that an offer had been made. He stated in his letter of 19 December 2011 the following:

We refer to your letter dated 18 November 2011 and dispute that your client was offered a release from the lease.

We submit that Mr Andresakis advised that the lessor was getting tired of the lessee being in constant default under the lease in respect to payment of rent and outgoings and the lessor was prepared to look for another lessee if your clients' business was not going well.

We are instructed that our client will now look for a new prospective tenant, however, our client will still require your client to continue to pay rent and stay in occupation pending formal Deed of Surrender of Lease once our client is able to find a new tenant.

Our client anticipates it will not be able to commence looking for a new tenant until February 2012.

10. Subsequently, on or about 1 March 2012, City vacated the premises. City sought alternate tenants for the premises and purportedly found an interested tenant, Ben & Jerry, an American ice cream chain, through the services of Ms Renee Robertshaw of City Commercial Property. City says that Mr Mehmet Cihan failed to give proper consideration to the proposal. The premises were subsequently re‑leased to EziMart Leasing Pty Ltd from 17 December 2012.

11. On 1 December 2014, Mr Mehmet Cihan commenced proceedings in the District Court, against both respondents, for damages for breach of the Lease for rent from 1 March 2012 through to 17 December 2012 amounting to $182,204.97 plus outgoings for water, council rates, land tax and strata levies amounting to $15,571.07 and interest on the outstanding amount at 15% per annum. On 3 February 2015, by consent of the District Court, proceedings were transferred to the Tribunal.

12. Mr Mehmet Cihan seeks damages for breach of the Lease by City, being the loss of rent between 1 March 2012 to 17 December 2012, some 9 ½ months, less the bond of $47,000 which has been forfeited to him.

Hearing

13. The matter came before the Tribunal for hearing on 25 August 2015. Mr P Folino‑Gallo of Counsel appeared for Mr Mehmet Cihan instructed by Andresakis Lawyers. Mr Haney Soltan, lay advocate from the Retail Leases Doctor, appeared for City. Mr Mohamed Gebara did not appear. Mr Mehmet Cihan provided an affidavit dated 24 July 2015 and gave evidence. Mr Angelo Andresakis also gave evidence particularly about the oral communication on 7 September 2011 with City's solicitor, Mr Ajaje. City’s Manager provided two witness statements dated 17 and 22 August 2015 and gave evidence on behalf of City. Neither party called Mr Sam Cihan and City did not call Mr Ajaje nor Ms Robertshaw.

14. Mr Mehmet Cihan gave evidence through an interpreter. He appeared to be a man firmly in control and conversant with his tenancies. Both Mr Andresakis and City’s Manager were also strong witnesses, and were solid in their evidence under cross-examination.

15. The spectre of a Jones & Dunkel submission was raised by both sides on the basis that neither Mr Nabil Ajaje nor Mr Sam Cihan was called. Notwithstanding that this Tribunal is not necessarily bound by the rules of evidence (see s 38(2) of the Civil and Administrative Tribunal Act 2013) the Tribunal is of the view that the issues between the parties can be resolved without hearing from those persons not called.

16. At the conclusion of the hearing, the Tribunal ordered that submissions be filed and the decision was reserved.

17. I will deal with the submissions made on behalf of the first respondent, as these submissions attempt to establish a number of defences to the applicants' claim for breach of the Lease and damages.

Submission regarding offer to release City communicated by Mr Andresakis

18. Firstly, Mr Soltan sought to rely on the conversation of 7 September 2011 between Mr Andresakis and Mr Ajaje to constitute an offer on behalf of Mr Mehmet Cihan to release City from its obligations under the Lease. As noted, Mr Andresakis gave evidence to the Tribunal that in his view the conversation that he had with Mr Ajaje was along the lines as set out in his letter of 19 December 2011. It is noted that Mr Ajaje was not called as a witness to substantiate what City alleges was stated in that conversation to constitute an offer to surrender the Lease. Mr Soltan relies on the letter from Mr Ajaje to constitute an acceptance of the alleged offer for surrender of lease.

19. Further, in relation to the letter from Mr Ajaje dated 18 November 2011, the Tribunal notes that it is headed "without prejudice". Mr P Folino-Gallo submitted that the letter was not admissible by operation of s131 of the Evidence Act 1995 and the words "without privilege" is a joint privilege that protects equally the maker and the recipient of the communication, in this case Mr Mehmet Cihan's solicitor Mr Andresakis. Mr P Folino-Gallo advised the Tribunal that Mr Mehmet Cihan did not waive that privilege.

20. Mr Soltan submitted that the Tribunal is not bound by the rules of evidence (s 38(2) of the Civil and Administrative Tribunal Act 2013) and that the letter is admissible notwithstanding these words as the privilege was waived by Mr Mehmet Cihan because a copy of the letter was annexed to his affidavit. There is no doubt that the letter is admissible - the words "without prejudice" do not prevent admissibility.

21. However, what the words suggest is that the letter did not constitute an open acceptance of an offer as allegedly made. If, as Mr Soltan wishes to argue, that during the conversation between Mr Andresakis and Mr Ajaje an offer was made to release City from its obligations under the Lease, then unfortunately any alleged acceptance of such an offer under cover of "without prejudice" may not constitute an open acceptance of the purported offer. The question has to be asked why was the letter framed by the words "without prejudice"? Unfortunately, Mr Ajaje was not called to give any evidence nor was any statement obtained from him to assist City's case and the Tribunal.

22. The Tribunal is of the opinion, however, that the question for the Tribunal to resolve is whether, even if the letter from Mr Ajaje can constitute an acceptance of an offer, was there in fact an offer made by Mr Mehmet Cihan through his solicitor Mr Andresakis to release City from its obligations under the Lease? In this regard the Tribunal notes the submission made by Mr Soltan as follows:

it is improbable that Cihan's solicitor can exactly recall the exact words of his conversation with Mr Ajaje on 8 September 2011, four years later. Cihan was the only one to blame for the unreliability of Mr Andresakis' oral evidence because it took him almost three years to instigate proceedings.

23. However, contrary to this submission of Mr Soltan, the Tribunal regards the letter of 19 December 2011 by Mr Andresakis as being a more reliable record of the words spoken as that letter was contemporaneous with the conversation. The Tribunal finds it more likely that Mr Andresakis in the conversation with Mr Ajaje indicated that given the constant unreliability of City in performing its obligations under the Lease, the Mr Mehmet Cihan was prepared to look for another lessee if City's business was not going well and City wanted to vacate. It is the preparedness by Mr Mehmet Cihan to look, as opposed to an actual offer, that is critical. Such a willingness does not of itself constitute any offer. A reasonable lawyer would not, in the Tribunal's view, have taken the words spoken by Mr Andresakis to mean that a formal offer to release the lessee was being made. Rather, a reasonable solicitor would have understood that Mr Mehmet Cihan was open to negotiations and a solicitor in the position of Mr Ajaje would have indicated such to his client and sought instructions to make an offer to get out of the Lease. Therefore, there is no basis for City to assume that an offer to mutually abandon the Lease was made and that Mr Mehmet Cihan would not pursue his rights under the Lease.

24. Mr Soltan's submission is that the words spoken by Mr Andresakis in the conversation constituted an offer which was accepted. However, such submission ignores the revocation of any purported offer by Mr Andresakis in his letter of 19 December 2011. In that letter Mr Andresakis makes it abundantly clear that there was no offer. This is consistent with his recollection of the conversation of 11 September 2011. The Tribunal takes the view that no such offer was made and consequently there could be no acceptance.

Submission regarding offer to release City communicated by Mr Sam Cihan

25. Mr Soltan's second submission is that in a conversation between Mr Sam Cihan and City’s Manager, an offer to release City from the Lease was made and was accepted by Mr Ajaje writing to Mr Andresakis in the letter of 18 November 2011.

26. There are a number of problems with this submission. Firstly, by what authority did Mr Sam Cihan possess to make such a binding offer? And further, even if Mr Sam Cihan had such authority and such an offer had in fact been made, the same problem regarding the acceptance of an offer by a "without prejudice" letter arises.

27. A further improbability for Mr Soltan is that he submits the one letter, namely the letter of 18 November 2011, purports to accept two separate and distinct offers. However the letter in fact only refers to the purported offer made by Mr Andresakis. It makes no mention of any offer by Mr Sam Cihan.

28. In cross examination by Mr Soltan, Mr Mehmet Cihan denied that his son Mr Sam Cihan had his authority to negotiate with the tenants. He stated that as his English was not good, he requests that his son converse with his tenants. Mr Sam Cihan was not called by either party.

29. In his witness statement of 17 August 2015, City’s Manager says:

prior to the store closing down for trading, I had been in contact with the landlords son via phone calls, who had always been my point of contact [as] regards to the premises as the father had spoken very limited English. I know this as I had spoken to him on one occasion. The son had presented himself at all times as the authorised person to contact on all matters [as] regards to this site.

30. City’s Manager was aware that Mr Mehmet Cihan spoke little English and used his son to contact the tenants. However, City’s Manager acknowledges that he spoke with Mr Mehmet Cihan once and infers, correctly, that the only reason that Mr Sam Cihan is involved is because of the poor command of English by Mr Mehmet Cihan. This by itself does not elevate Mr Sam Cihan to be an agent of Mr Mehmet Cihan to commit him to any contractual position. The Tribunal is not persuaded that Mr Sam Cihan had any actual authority or was cloaked with any ostensible authority to make such commitments.

31. In any event, the Tribunal finds that even if Mr Sam Cihan conveyed to City’s Manager a purported offer, such offer was made without the authority of his father, Mr Mehmet Cihan and in any event was not accepted by City as the letter of Mr Ajaje did not refer to that purported offer. In the absence of any other evidence, the Tribunal accepts that there was no express authority in Mr Sam Cihan to negotiate and make commitments on behalf of Mr Mehmet Cihan.

Mutual Abandonment and Estoppel

32. Mr Soltan submitted that, as Mr Mehmet Cihan appeared to accept the abandonment of the Lease by City, that his conduct subsequent, by not immediately instituting recovery proceedings for almost three years, constituted a mutual abandonment of the Lease which City relied on to its detriment.

33. Mr Soltan then submitted that Mr Mehmet Cihan is estopped from seeking damages under the Lease because:

1. he created an assumption in City that he would no longer rely on his rights under the Lease;

2. City relied on that assumption; and

3. City suffered detriment in that the rent demanded was subsequent to the formation of the assumption which Mr Mehmet Cihan now seeks to enforce.

34. Mr P Folino-Gallo makes the observation that these submissions on mutual abandonment/estoppel by Mr Soltan are fraught with difficulty. There is no basis for Mr Soltan to contend that the conduct of Mr Mehmet Cihan is consistent with an acceptance of abandonment of the Lease. In fact, Mr Andresakis on instructions from Mr Mehmet Cihan sent his letter of 19 December 2011 dissuading Mr Ajaje of any notion of acceptance of a surrender of the Lease and of any offer to forgo Mr Mehmet Cihan’s rights under the Lease. Furthermore, Mr Soltan has failed to demonstrate any detriment suffered by City which is a fundamental element for the establishment of an estoppel.

35. The leading cases and text enunciate that the fundamental purpose of the doctrine of estoppel is to provide protection against the detriment which would flow from a party's change of position if the assumption (or expectation) that led to the change of position were deserted or resiled from by the other party (Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and Commonwealth v Verwayer (1990) 170 CLR 398).

36. On the facts as I have found, there was no offer made and no reasonable understanding that the conversation of 11 September 2011 contained an offer to be accepted, nor even if the conversation between Mr Sam Cihan and City’s Manager contained an offer to accept a surrender of lease without compensation, Mr Sam Cihan was not authorised to make such an offer nor be seen to have ostensible authority to make such an offer. No question of estoppel arises as, even if City correctly assumed that Mr Mehmet Cihan would mutually accept an abandonment of the Lease, which it was not entitled to do, there is no evidence to indicate what detriment would flow to City from making that assumption. The only detriment that flows is a liability for damages which existed as a consequence of the abandonment of the premises in any event. City did nothing to alter its course of conduct in vacating the premises.

37. In these circumstances, the abandonment of the premises by City on or about 1 March 2012 constituted a fundamental breach of the Lease for which it is liable to Mr Mehmet Cihan in damages.

Obligation by Mr Mehmet Cihan to mitigate

38. The submission from Mr Soltan is that Mr Mehmet Cihan is not entitled to damages because he acted unreasonably and failed to mitigate his loss. The submission refers to events post abandonment of the Lease in that City’s Manager states in his witness statement of 15 August 2015 that Mr Gebara had instructed Ms Renee Robertshaw from City Commercial Property to locate a new tenant to take an assignment of the lease.

38. Annexed to the witness statement of City’s Manager of 22 August 2015 is a copy of a letter/email from Ms Robertshaw addressed to a "Sam" purporting to be Mr Sam Cihan setting out a leasing proposal to Ben & Jerry, an American ice cream chain. City’s Manager says that Mr Mehmet Cihan refused to look at this option. Ms Robertshaw says in an email to Mr Ajaje on 19 April 2011:

"Dear Nabil, please see attached corresponds [sic] and offer for 164 Campbell Parade, Bondi Beach as you will see I have an interested tenant for the shop and before they finalise their offer they need access to confirm the size and cost of fit out. I have requested access for this Friday at 3pm and the owners will not allow me to go through the shop until they have an offer as they said it is wasting their time, my clients have only accessed the shop once and need to do there [sic] due diligence before making an offer, unbelievable frustrating I have never dealt with anything like this and if I was a landlord in this market with a blue chip tenant I would bend over backwards to get them in.

40. Mr Soltan makes the submission that Mr Mehmet Cihan refused to co-operate with City Commercial Property or consider this offer and insisted on finding a tenant for the premises himself. Had Mr Mehmet Cihan co-operated with City Commercial Property and City, his loss would have been minimal.

41. Mr Soltan argues that if Mr Mehmet Cihan had taken up the offer with Ben & Jerry, then the loss incurred would have been less than the amount of the bank guarantee that has been forfeited and therefore no further damages would be payable by City.

42. Under cross-examination, Mr Mehmet Cihan denied any knowledge of the proposed assignment/new lease to Ben & Jerry. Mr P Folino-Gallo submitted that the correspondence from Ms Robertshaw cannot be used as an adhoc opinion as to the calibre of a tenant and the reasonableness or unreasonableness of refusing an offer of lease to a prospective tenant. Further, even if Mr Mehmet Cihan was approached for consent for an assignment of the Lease, there was no basis put forward by Mr Soltan on behalf of City that any denial of consent by Mr Mehmet Cihan would be unreasonable. There was no evidence provided as to:

1. the financial viability of the incoming tenant;

2. whether the business was a franchisee; and

3. what the business experience of the incoming tenant was.

43. Ms Robertshaw was not called and provided no witness statement or affidavit. Other than the email to Mr Ajaje there is no confirmation that the leasing proposal was actually communicated to Mr Sam Cihan. Mr Sam Cihan provided no evidence either. There was no evidence that it was communicated to Mr Mehmet Cihan, who stated that he knew nothing of this lease proposal.

44. The claim by a lessor seeking compensation for loss of rent from the date of a tenant's default to the reletting of the shop, and the question of a lessor's duty to mitigate its loss is a very vexed issue. Mr P Folino-Gallo draws the attention of the Tribunal to the decision of Pialba Commercial Gardas Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148 where the Queensland Court of Appeal concisely reiterated the principle that a plaintiff has no obligation to mitigate its losses: it is just that it is not entitled to damages for losses which, had it taken steps to mitigate it would not have suffered. The Court said:

[97]   Although it is commonly said that an injured party has "a duty" to mitigate its loss, as Irvine CJ said in Driver Ware Services Homes Commission:

[42]"…This expression, I think, does not mean that he is under any duty to the ordinary sense, toward the party breaking the contract, but that he cannot be said to have really incurred any loss which might have been avoided by his taking such steps as a reasonably prudent man in his position would have taken to avoid further loss to himself; and the best test is, what would such a man do to avoid such a further loss to himself, supposing that, from insolvency of the other party, or from some other reason, he could not get any damages.

[98]   The onus is on the defendant to show that the plaintiff has not fulfilled this duty, and the extent to which it has not.

45. The question of who bears the onus to prove that the lessor was not acting reasonably was discussed in Karacominakis v Big Country Developments Pty Limited (2000) NSWCA 313 at [187] (Giles JA with whom Handley JA and Stein JA agreed).

[187] A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130). Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did (Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452; Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5.

46. In addition to the common law principles of mitigation, Mr Soltan in a late submission points to a contractual obligation on Mr Mehmet Cihan in clause 12.6 of the Lease which states:

If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms.

47. Mr Soltan submits that notwithstanding the general position of a low onus on a lessor to satisfy as found in Karacominakis, Mr Mehmet Cihan does bear a higher onus of showing that he has complied with clause 12.6 and has done in fact 'every reasonable thing to mitigate (its) loss’.

48. Mr P Folino-Gallo submits that in accordance with Karacominakis the onus is on the tenant and not the lessor to show that in fact the lessor did no more or less other than what would be reasonably expected in a business sense in relation to reletting the premises. He refers to the decision of in Blandino & Ors v Giardi & Ors (2008) ADTAP 55.

49. The Appeal Panel in Blandino at [65] summarised the position regarding the question of the lessor acting reasonably to minimise loss as follows:-

1. where it is alleged that a lessor has acted unreasonably in failing to minimise his or her loss from the tenant's breach of contract, the onus lies on the tenant, who is a wrongdoer, to establish this;

2. a high standard of conduct is not required;

3. a lessor will not be held to have acted unreasonably simply because the tenant can suggest other and more beneficial conduct, so long as it was reasonable for the lessor to do what he or she did; and

4. where the assessment of damages relates to a commercial operation, the question to be determined is what a person in the lessor's situation would do 'in the ordinary course of business'.

50. In Blandino, the Appeal Panel held that notwithstanding that the onus lay with the defaulting tenant, the lessor failed to act reasonably by seeking to obtain for a long time an increase in rent over market conditions from any prospective tenant. The Appeal Panel granted the lessor in effect only 3 months’ rent to cover the turnover period between vacancy and a new tenant. The Appeal Panel significantly reduced the amount originally awarded by the Tribunal based on the finding that the lessor had not acted reasonably in holding out too long for much higher rent than the rent being paid by the defaulting tenant.

51. The question of the reasonableness of a lessor's actions was considered by the Tribunal recently in Perpetual Limited v Gelato Ingredients Manufacturers of Australia Pty Ltd [2014] NSW CATCD 25. Senior Member Patten held at [74, 75 and 76]:

74.   Failure to mitigate loss was relied upon by Gelato in this case. [He then set out the principles laid down in Karacominakis].

75.   The Lease as earlier stated was for a term of 5 years terminating 6 December 2014. At the hearing before me I was informed that the premises had not been relet and Perpetual’s claim is based upon loss of rent stipulated in the Lease up to 6 December 2014.

76.   It is to my mind a startling affront to common sense that a small shop in a shopping centre containing a Woolworths store cannot be relet for almost three years. Particularly when as I infer Perpetual has available to it staff and advisers extremely experienced and competent in the matter of leasing shopping centre premises.

52. The Tribunal accepts that clause 12.6 of the Lease places a positive obligation on Mr Mehmet Cihan to act reasonably and must be taken into account when reviewing the considerations raised by Karacominakis. In the opinion of the Tribunal, the existence of such a clause as clause 12.6 raises the standard that a lessor must meet from a low one to a standard equating to satisfying compliance with obligations to another party, the tenant. The clause was not under consideration in Blandino as it was not in the lease. Clause 12.5 of the Lease states that clause 12.6 is an essential term. Consequently, for Mr Mehmet Cihan to recover damages for losses over the entire period he must do every reasonable thing to mitigate those losses and try to find another tenant on reasonable terms. This is no longer a low threshold to meet. The question of who bears the onus in respect of the question of proving or disproving the reasonableness of the lessor's actions becomes less relevant as clause 12.6 requires a positive obligation on the lessor to mitigate, not the standard position as previously articulated by the Courts that a lessor does not have to demonstrate what actions it had taken after the vacation of the leased premises.

53. The Tribunal notes that the email from Ms Robertshaw relating to the Ben & Jerry offer to lease the subject premises at 164, Campbell Parade, Bondi Beach, addressed to Sam referred to at paragraph 39 of these Reasons, does not include an email trail to suggest it was sent to Sam Cihan but the Tribunal has presumed that it was sent to Sam Cihan. The other interesting facts from the leasing proposal are that the lessor is listed as City Convenience Store Pty Ltd, and the premises under item 3 is listed as 75 King Street, Sydney, not the subject premises of this dispute. More compelling, other than these minor errors, is that the leasing proposal is subject to Council approval and subject to approval of the board, presumably of Ben & Jerry. It is a very conditional offer, if an offer at all and there is considerable doubt that it was ever communicated to Mr Mehmet Cihan. It is the view of the Tribunal that it was an offer not properly formulated and very conditional. The Tribunal finds that even if the offer was communicated, it was not an offer that required a lessor to consider.

54. Mr P Folino-Gallo in response to the late submission from Mr Soltan that clause 12.6 of the Lease is determinative says that even if that is accepted then Mr Mehmet Cihan has plainly acted reasonably by finding a tenant. He led no evidence from Mr Mehmet Cihan of what he did to find a new tenant other than to produce a copy of the lease to EziMart Leasing Pty Limited. He says that it is plain that the reletting of the premises is prima facie evidence that Mr Mehmet Cihan complied with clause 12.6. The Tribunal believes that there should be some evidence of what a lessor actually did to relet the premises to satisfy a lessor's obligation pursuant to clause 12.6 of the Lease. It is not satisfactory just to say that the lessor relet the premises after some time and seek the whole of the rent for the intervening period. In these circumstances where no such evidence was led, the Tribunal is unable to be satisfied that Mr Mehmet Cihan did do everything reasonable to mitigate the loss and to try to lease the premises to another tenant on reasonable terms.

55. In the absence of evidence, the Tribunal must come to a view as to what damages Mr Mehmet Cihan is entitled to. It cannot be nil and it cannot be the whole 9 and 1/2 months. As the Tribunal has found in previous decisions such as Blandino, Yan Gu and Perpetual v Gelato, about four months, subject to any evidence, is a reasonable time to locate a new tenant. Accordingly, I find four months’ rent plus a proportional amount of outgoings as the loss suffered by Mr Mehmet Cihan for breach of the Lease by City.

Jones v Dunkel Inferences

56. The witnesses, Mr Nabil Ajaje, Mr Sam Cihan and Ms Renee Robertshaw, were not called nor provided any witness statements to assist either side or the Tribunal. Both sides sought to have the Tribunal draw inferences as result of the non-calling of these witnesses. In general terms, the so called rule in Jones v Dunkel (1959) 101 CLR 298 seeks to make an inference that the uncalled evidence would not have assisted that party's case in circumstances where there is an unexplained failure by a party to give evidence. As mentioned earlier, the Tribunal is not bound by the rules of evidence (s 38(2) of the Civil and Administrative Tribunal Act 2013). While in some aspects of this case having further evidence from these witnesses may have assisted the parties in their respective submissions and assisted the Tribunal, having reviewed all the material, the Tribunal can resolve the issues without hearing from these witnesses and will not draw any inference in relation to such witnesses not being called.

Guarantee by Mr Mohamed Gebara

57. The second respondent executed the Lease as guarantor. Clause 13.2 of the Lease states:

13.2   The guarantor guarantees to the lessor the performance by the lessee of all the lessee's obligations (including any obligations to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created.

58. As submitted by Mr P Folino-Gallo, the second respondent did not participate in any aspects of these proceedings. Accordingly, the second respondent is jointly liable with the first respondent, City, for damages for breach of the Lease.

Costs

59. Pursuant to section 72(2) of the Retail Leases Act 1994 and Rule 38(2)(b) of the Civil Administrative Tribunal Rules 2014, the applicant made an application for payment of legal costs incurred by it in respect of these proceedings.

60. In respect of the application of costs, Mr P Folino-Gallo submitted that having regard to the provisions of section 60 of the Civil & Administrative Tribunal Act 2013 it would be reasonable to order the respondents to pay the applicant's costs given:

1. The respondents failed to comply with the timetable for giving evidence. The respondents’ evidence was served as late as the afternoon prior to the hearing.

2. The respondents failed to file any pleadings at all, leaving all of the facts in issue at large to be determined at hearing. The absence of pleadings resulted in an undue waste of the applicant's resources and incurred unnecessary costs in having to prepare to formally prove all facts in issue in the case.

3. The respondents’ defence has no merit, is frivolous and vexatious and finds no support in the objective evidence before the Tribunal.

4. The respondents alleged:

1. A waiver of the terms of the Lease by Mr Sam Cihan as agent of Mr Mehmet Cihan. This allegation was made in the absence of any evidence of such an agency existing. Even taking the respondents’ evidence at its highest, the respondents completely failed to establish any evidence sufficient to establish actual authority or ostensible authority on the part of Mr Sam Cihan. The words alleged to have been uttered do not amount to a contractual waiver of the terms of the Lease in any event.

2. A waiver of the Lease by Mr Andresakis on behalf of Mr Mehmet Cihan. This was argued without any direct evidence being led. Reliance was placed on remote hearsay contained in vague emails and a without prejudice letter.

3. That Mr Mehmet Cihan failed to mitigate the loss incurred by City's breach of the Lease. There was not a modicum of evidence proffered by the respondents to establish that the details of the proposed tenant had been communicated to the lessor or that any refusal to accept the proposed replacement tenant was unreasonable.

5. (d)   In short, the respondents’ defence is groundless and has resulted in significant legal expenses being incurred unnecessarily by Mr Mehmet Cihan.

61. In response, Mr Soltan made the following submissions:

1. The fact that City did not file a defence is of no significance because the Tribunal is not a court of pleadings. City filed evidence and made submissions in reply to the original Statement of Claim filed in the District Court. Moreover, he submits that the pleadings on behalf of Mr Mehmet Cihan itself are defective and will not withstand the scrutiny of a court of pleadings.

2. City's lateness in filing/serving its evidence resulted from the default by the applicant to directions of the Tribunal made on 5 June 2015 in serving his evidence late on City on 31 July 2015 instead of 17 July 2015 as directed.

62. The Tribunal notes the submissions made by Mr Soltan, regarding delays. However, subject to further considerations the Tribunal is not persuaded that these are sufficient reasons to deny the applicant costs. The defences raised by City were inadequate to establish the facts as constituting any legal principles of substance to counter the breach of lease claim by the applicant. There was clearly no offer for a surrender of lease made, and the conversations should not have created any misconceptions in the participants to warrant any expectation of an agreed surrender of the Lease. The applicant has been put to a lot of time and effort when this dispute could easily have been resolved in a shorter hearing, just on the question of mitigation of the loss incurred by Mr Mehmet Cihan.

63. However, the final submission of Mr Soltan is apposite. He says:

City wants a further opportunity to address the Tribunal on the issue of costs once the Tribunal has delivered its substantive decision. City wishes to rely on the Tribunal's reasons in its costs application or resisting any costs application against it. Moreover, both parties made offers of compromise to each other before the hearing. Naturally City wants to rely on those as to any costs application by any party.

64. The Tribunal agrees to this request and will reserve on the question of costs and take written submissions.

Calculations

65. The monthly rent claimed is $16,479.50 inclusive of GST (excluding the rent amount for March 2011). Four months equates to $65,918.00. Outgoings claims amount to $13,374.59. Land tax has been excluded because there does not appear to be any change in the unimproved value of the land over the base year of 2010. As only four months out of 9 ½ months claimed has been allowed, then the outgoings must be adjusted to $5,631.40. The total amount then is $71,549.40. The bond of $47,000 has been forfeited. So the amount due to Mr Mehmet Cihan is $24,549.40.

Orders

66. The following orders are made:

1. That the first and second respondents jointly and severally pay the applicant the sum of $24,549.40 within 14 days of publication of these Reasons.

2. That the first and second respondents jointly and severally pay the applicant interest from 1 February 2014 at the rate of 15% per annum pursuant to clause 5.1.5 of the Lease totalling $5,775.80 and accruing at the daily rate of $10.09 from 25 August 2015 within 14 days of publication of these Reasons.

1. Costs are reserved. If either party wishes to make submission on costs it can do so within 28 days of the publication of these Reasons, by serving such submission on the other party and the Tribunal, and then either party can have a further 14 days to make a reply, whereupon the question of costs will be determined on the papers.

D Bluth

Senior Member

Civil and Administrative Tribunal of New South Wales

16 December 2015

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 28 January 2016