City Executive Suites (Canberra) Pty Ltd v Ali Baba Lebanese Cuisine Pty Ltd
[2018] ACTMC 5
•1 May 2018
MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: Citation: | City Executive Suites (Canberra) Pty Ltd v Ali Baba Lebanese Cuisine Pty Ltd [2018] ACTMC 5 |
| Hearing Date(s): | 28 – 29 November 2016, 3 – 5 April 2017, 30 August 2017, 11 – 12 September 2017 |
| DecisionDate: | 1 May 2018 |
| Before: | Magistrate Morrison |
Decision: Catchwords: | See paragraphs [328] and [329] Leases (Commercial and Retail) Act 2001; claim by landlord for outstanding rent – basis for calculation; distinction between outstanding rent and damages for loss of bargain; make good obligations – whether provisions in lease void for uncertainty; construction of provision in lease for payment of “rent” after termination; whether landlord failed to mitigate loss; landlord’s works – whether landlord failed to comply with s79 of Act and obligations in lease; whether landlord breached duty of care to tenant in carrying out landlord’s works; whether tenant suffered any loss for which damages payable for breach of duty or compensation payable under Act; alleged rental representation as basis for claim for damages or compensation for misleading or deceptive conduct and/or unconscionable conduct under the Australian Consumer Law – whether rental representation had been made; GST – whether GST payable on several components of claim; costs of proceedings – whether legal costs of proceedings recoverable under lease despite ss19 and 154 of Act. |
Legislation Cited: | Competition and Consumer Act 2010 (Cth), schedule 2 (Australian Consumer Law), ss 18, 21, 236 |
| Cases Cited: | Australian Securities and Investments Commission v Hellicar [2012] HCA 17 British Westinghouse Electric Mfg Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 Bryan v Maloney (1995) 182 CLR 609 Dowse v Wynyard Holdings Ltd [1962] NSWR 252 Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413 Galafassi and Anor v Kelly [2014] NSWCA 190 Ginninderra Properties Pty Ltd v Gelonese [2017] ACTMC 25 Ginninderra Properties Pty Ltd v Gelonese [2017] ACTSC 362 Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711 John J Ebbage and Anor v McMahon’s Transport Pty Ltd [1996] QCA 332 Jones v Dunkel (1959) 101 CLR 298 Manshester, Sheffield and Lincolnshire Railway Co v Anderson [1898] 2 Ch 394 Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167 Moraghan v Cospak Pty Ltd [2007] VSC 483 National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252 Owen v Gadd [1956] 2 QB 99 Payne v Parker [1976] 1 NSWLR 191 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 |
Parties: | City Executive Suites (Canberra) Pty Ltd (Plaintiff / Defendant to Cross Claim) |
| Representation: | Counsel Solicitors |
| File Number: | CL 17 of 2015 |
MAGISTRATE MORRISON:
Introduction:
City Executive Suites (Canberra) Pty Ltd (“CES”) entered into a lease (the “Lease”) with Ali Baba Lebanese Cuisine Pty Ltd (“Ali Baba”) in respect of the premises situated at shop 2, 88-96 Bunda Street, Canberra City ACT 2501, being shop 2 of subleasing plan 5698 at Volume 1533 Folio 58 City District (the “Premises”), commencing 15 November 2004. The parties are referred to as Landlord and Tenant respectively in these reasons. The Lease was terminated by the Landlord. The dispute before me has been about the parties’ obligations to each other both before and after that termination.
It is convenient to start these reasons by recording what is not in contest.
a.The Lease was entered into between the Landlord and the Tenant. Subject to the comment at paragraph 2g below, the Lease is accepted to be enforceable according to its terms;
b.The Leases (Commercial and Retail) Act 2001 (the “Act”) applies to the Lease;
c.The expiry date of the Lease was 31 October 2014;
d.The Tenant was in default under the Lease because it failed to pay rent when due and the Lease was validly terminated by the Landlord on 18 August 2014;
e.The Landlord is entitled to recover from the Tenant the loss and damage which it has properly incurred as a result of the Tenant’s breach (subject to the Landlord’s obligation to mitigate loss);
f.The Lease included make good obligations;
g.The validity of the make good obligations is in dispute but it is not in contest that the Tenant did not undertake any make good works;
h.The Landlord subsequently carried out works to make good the premises;
i.Separately, the Landlord carried out works to and around the Premises during 2014;
j.The Landlord did not give to the Tenant, in relation to those works, the notice contemplated by clause 15.2(e) of the Lease;
k.The Lease was terminated by the Landlord on 18 August 2014;
l.The Landlord re-let the Premises to an entity described in the evidence as “Oliver Brown” – with that lease commencing on 15 November 2014.
The following questions arise for determination.
Rent and interest:
a.What is the Landlord’s entitlement to outstanding rent and interest?
b.What is the Landlord’s entitlement to damages for loss of bargain – i.e. for loss of the benefit of the balance of the term of the Lease?
Make good obligations:
a.What are the extent of the Tenant’s make good obligations under the Lease?
b.Are clauses 8.3 and 12 of the Lease void for uncertainty or otherwise unenforceable?
c.Has the Tenant breached its make good obligations?
d.If so, what is the extent of the Landlord’s loss as a result?
e.If the Landlord has incurred loss as a result of a breach by the Tenant, has the Tenant established that the Landlord has failed to mitigate that loss?
Grease trap cleaning:
a.What is the extent of the Tenant’s obligation to pay for grease trap cleaning?
Counterclaim – breach of Lease:
a.Has the Landlord breached its obligations under clause 15.1, 15.2(e) or 15.2(f) of the Lease in connection with the awning and related work carried out?
b.If so, what is the Tenant’s entitlement to compensation as a result?
Counterclaim – negligence:
a.Has the Landlord breached a duty to exercise care in relation to the awning and related work carried out?
b.If so, what is the Tenant’s entitlement to damages as a result?
Counterclaim – misleading and deceptive conduct:
a.Has the Landlord engaged in misleading or deceptive conduct (or conduct likely to mislead or deceive) in breach of section 18 of the Australian Consumer Law (the “ACL”)?
b.If so, what is the Tenant’s entitlement to damages under section 236 of the ACL?
Counterclaim – unconscionable conduct:
a.Has the Landlord engaged in unconscionable conduct in breach of section 21 of the ACL?
b.If so, what is the Tenant’s entitlement to damages under section 236 of the ACL?
Costs:
a.If the Landlord’s claim succeeds, is the Landlord entitled to recover the legal costs of the proceedings under clause 17 of the Lease despite the provisions of section 19 and 154 of the Act?
RENT & INTEREST
What is the Landlord’s entitlement to outstanding rent and interest?
The Tenant concedes that it owes some rent together with interest at the rate of 10% to the Landlord. It disputes the amount claimed by the Landlord saying that:
a.The Landlord is not entitled to rent as such following termination; and
b.The Landlord is not entitled to include GST in its claim for rent.
The Tenant’s first submission is a correct statement of the law. Following termination, the Landlord’s entitlement to receive rent comes to an end. It is replaced, assuming that an entitlement to substantial damages exists, by a claim for damages for loss of bargain – that is for the loss to the Landlord of the benefit of the balance of the term of the Lease.
There is no argument about termination for unpaid rent giving rise, in principle, to a claim for substantial damages.
I have treated the Landlord’s claim post-termination as being a claim for loss of bargain damages. That was not how the claim was pleaded but it is apparent from the Tenant’s submissions that the Tenant understood the distinction in legal principle. There is no suggestion that the Tenant is prejudiced in any way by treating that part of the claim as being a loss of bargain damages claim.
To the extent that clause 12.3 of the Lease purports to give the Tenant an entitlement to receive rent until completion of make good works despite termination, I deal with that at paragraph 35 of these reasons.
It follows that the Landlord is entitled to:
a.Unpaid rent for the period from 2 June 2014 to 18 August 2014 (the date of termination) together with interest at 10% on the amount owing; and
b.Loss of bargain damages for loss of the benefit of the balance of the term of the lease after 18 August 2014.
The Tenant’s second submission about GST must be rejected. My reasons for doing so are set out at paragraph 147 to 150 of these reasons. For the purposes of the interest calculation I have calculated the pre-GST monthly rental to be $11,861.00.
My calculations of rent and interest are as follows:
a. Pre-GST rent for period 1 June 2014 to 30 June 2014 $11,861.00
b. Interest on (a) at 10% for 3 years and 10 months $4,547.00
c. GST on rent at (a) $1,186.00
d. Rent for period 1 July 2014 to 31 July 2014 $11,861.00
e. Interest on (d) at 10% for 3 years and 9 months $4,448.00
f. GST on rent at (d) $1,186.00
g. Rent for period 1 August 2014 to 18 August 2014 (pro rata)
$7,019.00 h. Interest on (g) at 10% for 3 years and 8 months $2,574.00
i. GST on rent at (g) $702.00
Total amount owing for rent and interest to date of judgment including GST $45,384.00
My calculations of damages for loss of bargain appear at paragraph 153 of these reasons.
MAKE GOOD OBLIGATIONS
It is not in contest that the Lease imposed what can be described as “make good” obligations via clauses 8.3, 12 and 13, nor that the Tenant did not undertake any make good works.
Are clauses 8.3 and 12 of the Lease void for uncertainty of otherwise unenforceable?
The Tenant claims that the obligations imposed upon it by clauses 8.3 and 12 of the Lease are inconsistent or uncertain, and that, as a result, both clauses should be severed from the Lease as either void or unenforceable.
The Tenant’s submission misunderstands the respective obligations imposed.
Clause 8 is the general obligation imposed upon the Tenant to deliver up the premises “in good repair at the end of the Lease, having regard to the state of repair at the Commencement Date, fair wear and tear excepted.”
Premises is defined in the Lease to mean, by reference to the schedule appearing in the Lease, shop 2 on Plan number S698. I cannot see that the Lease contains any more precise description of the delineation of the premises the subject of the Lease or that the relevant plan was put into evidence. Nothing turns on that observation for present purposes.
Clause 12 deals more specifically with the removal of the Tenant’s fittings and advertisements, signs and notices. ‘Tenant’s fittings’ are defined as “all fixtures, fittings, structures, alterations or additions that the Tenant has affixed to or installed on the Premises.”
The obligation cast upon the Tenant by clause 12.2 is to remove Tenant’s fittings (and advertisements etcetera) and to make good and repair in a proper and workmanlike manner any damage caused by that removal.
The obligations are neither inconsistent nor uncertain and the Tenant’s submission to that effect must be rejected.
What are the extent of the Tenant’s make good obligations under the lease?
The combined effect of the two clauses is that the Premises must be delivered up at the end of the term in accordance with the clause 8 obligation, but to the extent that the removal of any Tenant’s fittings (or advertisements etcetera) has caused any damage then that damage must be made good and repaired in a proper and workmanlike manner in accordance with the clause 12.2 obligation.
Has the Tenant breached its make good obligations?
In its written submissions the Tenant raises arguments to the following effect:
a.The premises were the subject of an earlier in time lease between the parties which came to an end on 31 October 2004 (the “Prior Lease”).
b.Under the Prior Lease, property in the fittings in the premises passed to the Landlord when the Prior Lease came to an end.
c.The premises were refurbished in 2007. It is not in dispute that fittings affixed at that time were the Tenant’s fittings.
d.It follows that the Tenant was obliged to remove only “those fittings affixed in or after 2007”.
e.Further, the premises were dated and dilapidated at the commencement date in 2004, such that any obligation on the Tenant is limited to returning the premises to an equivalent state of repair.
The arguments just referred to had been raised in the course of the hearing on 29 November 2016 (from (170)) and 3 April 2017 (from (222)). They came to light as a result of an objection to a question asked of Mr Newham in cross-examination. In the exchange which followed Ms Glover for the Landlord submitted that the Tenant had not pleaded what it sought to argue and that the Landlord was caught by surprise.
I was persuaded that the Tenant ought to have expressly pleaded what it sought to raise. In reaching that conclusion I was influenced by the fact that what was sought to be raised had also not been expressly referred to in the statements of evidence exchanged pre-hearing. I refused an application by the Tenant to amend its pleadings and limited the evidence which the Tenant could adduce. In doing so I said this:
The conclusion I reach is that on any sensible approach to the pleadings, assertions that fixtures, or fixtures and fittings, were not owned by the tenant, or that work done by the landlord went beyond the style and standard of finish required by the lease should have been expressly pleaded, and in the absence of such an express pleading, a plaintiff is entitled to proceed on the basis that the facts now sought to be put in issue were in fact not in contest. I am reinforced in that conclusion by what I have been told about the two points raised not appearing in the evidence disclosed pursuant to the directions that were given in the lead-up to the hearing.
In the end result, the ruling I make is that the defendant is not permitted to adduce evidence going to his ownership of the fixtures and fittings, or the style and standard of the finish of the premises as at the commencement of the lease.
(3 April 2017 (234) [1] – [14])
The written submissions to which I have just referred are contrary to that ruling and I disregard them.
It is not in contest that the Tenant did not undertake any make good works.
Can the make good claim include rent after termination?
Clause 12.3 of the Lease also gave rise to a preliminary issue which was not argued before me but which I must address for reasons to which I refer later.
Clause 12.3 follows clause 12.2 which sets out the Tenant’s obligation to remove the Tenant’s fittings as defined and to repair damage. That obligation is triggered “at the expiry date or any earlier termination date”.
Clause 12.3 goes on to say:
The Tenant will be responsible for the payment of rent and all other charges properly payable under this Lease until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor.
It is not in contest that the Lease was terminated by the Landlord by notice with effect from 18 August 2014 and that the Tenant delivered up possession on 29 August 2014. It is also not in contest that:
a.The Tenant did not comply with the obligations to remove and make good as they are expressed in clause 12.2(c);
b.That work was done by the Landlord to achieve that result; and
c.That the cost of that work is part of the Landlord’s claim for damages.
The Landlord’s claim under the heading of make good includes an amount by way of rent said to be payable by the Tenant under clause 12.3 of the Lease referred to above.
That aspect of the claim gives rise to an issue of legal principle, namely, what is the basis for an entitlement to claim rent beyond the termination of the Lease under which rent is payable?
The parties did not address the point in submissions. It is of more than merely academic interest. One possible construction of clause 12.3 is that it takes effect as a liquidated damages provision – that is providing for payment of a liquidated amount by way of damages following a breach. The point has potential impact on the mitigation argument. If clause 12.3 is, in effect, a liquidated damages provision the common law duty to mitigate loss does not apply to such a claim – see Galafassi and Anor v Kelly [2014] NSWCA 190.
In the end result the conclusion I have reached is influenced by the inferences to be drawn from the language used in clause 12.2. It obliges the Tenant to remove all Tenant’s fittings and to make good and repair any damage at the expiry or any earlier termination date (emphasis added).
The clause does not, in its terms, require the Tenant to have completed removal of its fittings and to have completed making good and repairing any damage by the expiry or termination date.
In those circumstances, the proper construction of clause 12.2 is that the Tenant was obliged to remove fittings and to make good and repair damage within a reasonable period after termination. Such a construction is consistent with the approach taken in decisions such as John J Ebbage and Anor v McMahon’s Transport Pty Ltd [1996] QCA 332.
To give practical effect to that construction it is necessary for a Tenant to have some right of ongoing access to the premises after termination to permit it to meet its removal and make good and repair obligations.
It is against that background that the requirement for the Tenant to “be responsible for the payment of rent and all other charges properly payable under this Lease until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor” is to be construed.
In the circumstances the Tenant’s obligation under that clause is properly construed as one to make a payment in the nature of a licence fee (fixed in an amount equal to the rent) for the right to access the premises following termination for the purposes of meeting the removal and make good and repair obligations.
It is not in dispute that the Tenant took no steps to make good. The reference in clause 12.3 to the Tenant being responsible for rent until such time as any work required pursuant to this clause 12 has been completed in a proper and workmanlike manner to the reasonable satisfaction of the Lessor can only be a reference to the work required of the Tenant under the clause. It cannot be a reference to work subsequently undertaken by the Landlord as a result of the Tenant’s breach of the clause. I reach that conclusion for two reasons.
Firstly, the entitlement to access by the Tenant to do the work (in return for which I have concluded that the amount is payable) of necessity comes to an end when the Landlord undertakes the work because of the Tenant’s failure to do so. Secondly, the clause requires payment to continue until work has been completed to “the reasonable satisfaction of the Lessor”. Such a requirement is incongruous if it was intended to apply where it was in fact the Landlord doing the work.
It follows that the Landlord’s claim for “rent” for the period after termination and while the works were being undertaken must fail because it was the Landlord and not the Tenant which undertook the works. What would otherwise comprise the Landlord’s claim for “rent” for the relevant period becomes part of its claim for loss of bargain damages following termination.
The extent of the duty to mitigate
The last of the preliminary issues arises from a submission on behalf of the Tenant about the extent of the Landlord’s duty to mitigate its loss.
The point of principle raised is relevant to both the Landlord’s make good claim, and its claim for damages for loss of the benefit of the balance of the term of the Lease.
In its submissions the Tenant accepts that it bears the onus of establishing that the Landlord failed in its duty to mitigate its loss. A more comprehensive statement of principle is that the Landlord bears the onus of proving that the loss suffered resulted from the breach, after which the onus shifts to the Tenant to show that some or all of the loss could have been avoided by reasonable action by the Landlord: see Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711.
The Tenant’s submission refers to the common law position as being that:
… a plaintiff cannot recover for loss consequent upon a defendant’s breach of contract where he could have avoided such loss by taking reasonable steps. A defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable man, to have taken certain steps. The Plaintiff is not under any obligation to do anything other than in the ordinary course of business: Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 at 9.
The Tenant’s submission goes on to draw attention to clause 17.3 of the Lease which is in the following terms:
The Lessor must take all reasonable steps to reduce the damages that the Tenant may be required to pay and to endeavour to lease the Premises at a reasonable rent and on reasonable terms.
The Tenant’s submission is, in effect, that the obligation to mitigate as expressed in clause 17.3 is a higher duty than that imposed at common law. The submission is expressed in these terms:
[T]he Plaintiff was not simply required to take reasonable steps but all reasonable steps and was, therefore, under an obligation to do more than what the ordinary course of business would require.
The submission goes on to assert that the Landlord’s duty to mitigate required it:
(i) To take all reasonable steps to endeavour to find a new tenant and to enter a new lease (at a reasonable rent and on reasonable terms) from 3 March 2014.
(ii) In the alternative, following the termination of the lease on 18 August 2014, to take all reasonable steps to endeavour to find a new tenant and to enter a new lease (at a reasonable rent and on reasonable terms) commencing 1 October 2014;
(iii) To take all reasonable steps to undertake the make good in a reasonable time to reduce the rent payable by the Defendant pursuant to clause 12.3 (subject to the Court determining that the Defendant was required to undertake the make good pursuant to the lease).
The first submission above is based upon the exchanges which took place leading up to and around 3 March 2014. It is not in dispute however that the Lease was not terminated on 3 March 2014 and that it remained on foot until termination on 18 August 2014. The submission must be rejected. There is no obligation to mitigate until termination of the Lease. While it remains on foot no need to mitigate arises: see Thomson Reuters, The Laws of Australia, (at 15 July 2012) 7 Contract, ‘The time to mitigate is at acceptance of the breach or repudiation of the contract’ [7.9.610], citing British Westinghouse Electric Mfg Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, especially Viscount Haldane LC at 689.
As to the significance of the use of the expression “all reasonable steps” where it appears in clause 17.3 of the Lease, I reject the submission that it imposes upon the Landlord the more extensive obligation argued for by the Tenant. The common law statement of principle is to be found in the decision of the House of Lords in British Westinghouse Electric Mfg Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. Viscount Haldane L.C., with whom Lords Ashbourne, MacNaghten and Atkinson agreed, expressed himself in these terms:
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. [emphasis added]
In the circumstances, insofar as is relevant for present purposes, the expression used in the Lease imposes no higher obligation upon the Landlord than the common law. Such a conclusion accords with a common sense approach to the obligation – if a step is reasonable there is a duty to take it – the use of the word “all” adds nothing to the extent of the duty.
Having dealt with the preliminary matters arising under this head of the claim, I turn to what is in contest.
I have concluded that the make good obligations in the Lease are not void or unenforceable. It is not in contest that the Tenant did not carry out any work directed to meeting make good obligations under the Lease. Against that background it has not been difficult to reach a conclusion that the Tenant has breached its obligations under the Lease.
The questions for determination have been, firstly, what is the extent of the Landlord’s loss flowing from the Tenant’s breach, and, secondly, has the Landlord taken reasonable steps to mitigate that loss?
The questions are posed in the manner just indicated for convenience only. It is the Landlord which bears the onus of proving that the loss suffered resulted from the breach, after which the onus shifts to the Tenant to show that some or all of the loss suffered could have been avoided by reasonable action on the part of the Landlord: see Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711, Sweeney and Ryan JJ at 714 - 717.
There was no submission on the part of the Tenant that, as a matter of principle, the cost of the work undertaken by the Landlord was not the proper measure of damages for breach of the make good obligation. Rather the argument has been that the costs are excessive.
As to the duty to mitigate, I accept the Tenant’s submission that the obligation extends to a duty to mitigate both the loss incurred by the Landlord by way of the cost of the make good works, and the loss incurred by the Landlord by way of damages for loss of the benefit of the balance of the term of the Lease. The first directs attention to the cost of the make good work commissioned by the Landlord. The second directs attention to the time taken to complete the work so that the premises were available to be re-let.
I turn to the evidence as to the make good costs incurred by the Landlord. The evidence of Mr Newham was that he had arranged for the make good work to be carried out by Rosedale Homes Canberra Pty Ltd (“Rosedale”). Evidence at hearing was given by Mr Newham and a director of Rosedale, a Mr Nick Andric.
Mr Newham’s evidence can be summarised in the following way:
a.Mr Newham and representatives of the Tenant had various exchanges about removal of the Tenant’s fittings.
b.On 28 July 2014, as part of a letter dealing with arrears of rental payments and making a demand for payment, the Landlord’s solicitors wrote to the Tenant notifying it that it will be required to make good either on termination or at the end of the Lease if it runs its term, in the following terms:
Please also be aware that irrespective of whether the lease is terminated due to non-payment of the rental arrears, or whether your office brings the rental arrears up to date and is permitted to continue to occupy the premises until the end date of the lease (31 October 2014), your office is required in any event to make good the premises pursuant to the terms of the lease. Should your office fail to comply with its make good obligations, our client will of course undertake the make good and will be seeking reimbursement of its costs from your office, pursuant to the terms of the lease.
(Affidavit of David Newham 18 April 2016, DN6)
c.The Tenant responded by email dated 29 July 2014. The response referred to a rental payment having been made. It went on to include the following:
We offer to leave the cool room, freezer, fixtures & fittings in situ as enticement to any incoming tenant should this be satisfactory. We view this as a means of mitigating the on-going rental obligations after August as this could allow an interested party to take over much more quickly than if a complete new fitout was required. Would you please see if the Landlord is willing to work with us in this regard.
(Affidavit of David Newham 18 April 2016, DN7)
d.The Landlord’s lawyer’s response was by email dated 4 August 2014. Relevantly, it declined the Tenant’s offer just referred to, adding:
[The Landlord] does not hold the view that having half a fit-out in place will assist in finding a satisfactory new tenant, or in finding one more quickly. My client requires a clean shell from the make good of the premises. Please contact my client directly to discuss the make good and provide details of your builder.
(Affidavit of David Newham 18 April 2016, DN8)
e.By email dated 8 August 2014 the Tenant responded to that part of the Landlord’s solicitor’s letter in these terms:
Does your client have another party to take on the lease? We are trying to talk to a suitable replacement who is known to your client. If he is interested he may some of our existing equipment. If this occurred then the downtime would be kept to a minimum.
(Affidavit of David Newham 18 April 2016, DN9)
f.By email dated 11 August the Landlord’s solicitor’s replied:
My client is in discussions with a number of suitable prospective tenants, none of whom want the fittings to remain. As such my client declines your proposal as to a replacement tenant.
My client asks that you please contact him directly to discuss the make good and to provide details of your builder.
(Affidavit of David Newham 18 April 2016, DN10)
g.On 13 August 2014 the Tenant replied with:
We are seeking to find a shop fitter to do the works required. As soon as we have someone we will be in contact with your client.
(Affidavit of David Newham 18 April 2016, DN11)
h.On 18 August 2014 the Landlord’s solicitor’s wrote to the Tenant. The letter was expressed as constituting a termination notice pursuant to section 122 of the Leases (Commercial and Retail) Act 2001. The letter included:
My client will contact you in due course to discuss make good and vacation of the premises.
(Affidavit of David Newham 18 April 2016, DN13)
i.On 29 August 2014 the Tenant sent an email to Mr Newham advising that the Tenant had:
…today closed the store and locked the premises removing any loose equipment items.” That email goes on to say, “We trust that you have a replacement tenant and expect they will be able to utilise the fixtures.
(Affidavit of David Newham 18 April 2016, DN14)
j.Later that same day the Landlord’s solicitors replied to the Tenant by email (Affidavit of David Newham 18 April 2016, DN15). That communication pointed out the Tenant’s obligation to “reinstate the premises” and that “[y]ou cannot simply close the doors and walk away.” It pointed out that the Landlord was unable to re-let the premises until the make good was completed and said that as a result rental “will continue to be payable until the end of the lease or until make good is complete.” It went on to request that the Tenant “provide as a matter of urgency, your make good schedule”.
k.By email dated 10 September 2014 the Landlord’s solicitors again communicated with the Tenant. That letter included the following:
My client is willing to extend the time for your (licensed) builder to provide a satisfactory schedule of make good works by an extra week from today – and no later than close of business Wednesday 17 September 2014. No further extension will be provided. If this deadline is not met, our client will be making good the premises and seeking recovery of its make good costs from your office, pursuant to its rights under the lease.
…
Please advise immediately if you are not willing to make good in the circumstances so that our client does not have to wait a further week.
(Affidavit of David Newham 18 April 2016, DN16)
l.By email dated 18 September 2014 Mr Newham advised the Tenant that the make good had commenced (Affidavit of David Newham 18 April 2016, DN17). That email went on to say that Mr Newham had not found any persons interested in buying the cool rooms and stainless steel cabinets and benches. It invited the Tenant to “deal with and arrange with any parties who may want to pay you for the stainless goods” and that “[y]ou need to advise me prior to Friday afternoon if you have a person to take away these items as otherwise I will arrange for the scrap metal people to take them.”
Mr Newham’s evidence by way of his statement and oral testimony was that he subsequently engaged Rosedale to carry out the make good work which the Landlord says should have been done by the Tenant. The cost of that work was initially given as $31,676.00. In his testimony on 29 November 2016, Mr Newham acknowledged, at (208), an arithmetic error and conceded that the correct amount was $29,190.00.
Under cross examination Mr Newham said that no written quote was given by Rosedale before the make good work was commenced and no fixed price agreed upon. He said that the arrangement was that the Landlord would be charged for what work was required on what was described as a “do and charge” basis.
He said, at (188), that arrangement had been agreed upon, in lieu of a fixed price contract, because of what Mr Newham described as “unknowns” including such things as the extent of plumbing work required, how hard it would be to remove multiple layers of tiles, and the extent of work required to remove air-conditioning units.
He said that he could not recall what hourly rates had been given to him by Mr Andric but he recalled that they seemed to be in line with his (Mr Newham’s) building industry experience.
He said at (190) that the make good work had commenced by 18 September 2014 and that his discussion with Mr Andric about the basis for charging for the work took place a week or 10 days before that.
He said at (191) [31] – [32] that he didn’t ask Mr Andric to commit to a particular time frame for the work but that the “discussion was we want to do it as quickly as possible once it commenced”. He said that he wanted to have fixtures and fittings out as soon as possible so that potential new Tenants could look at the site.
Mr Newham was cross examined about his choice of Rosedale to do the work. He said that no quote for the work had been sought from any builder other than Rosedale. He said that he knew Mr Andric and that he was available at the time to do the work. He explained what he meant in saying that in these terms:
…particularly at this time of the year approaching the “silly season” for shopfitters and the like, building people, this is not a particularly attractive job to take on night work, dirty dangerous work. I’ve observed the list of – in somebody’s affidavit - the list of companies that were put forward as alternatives - and in Canberra - a city like Canberra the building industry, I knew it would be very difficult to find someone to take on this sort of work in a short timeframe. They were keen to get moving.
(29 November 2017 (193) [25] – [32])
Mr Newham was asked under cross-examination (at (199)) how he understood the work undertaken by Rosedale would be charged for. He explained that he understood the Landlord would be charged for actual costs incurred by Rosedale by way of subcontractors, hire costs and the like, plus a labour charge for the time spent by a foreman plus some component for the builder’s profit and overheads.
He said that the make good works were extensive – including the need for a crane to remove air-conditioning plant including compressors from the roof of the building, the de-gassing of that air-conditioning plant, the capping of services and the removal of floor tiles.
He said, when his evidence recommenced on 3 April 2017 (at (276)), that the make good works were completed on or about 14 November 2014.
Mr Andric also gave sworn evidence. He had signed a written statement which was then adopted by him as part of his oral testimony.
He said that he was a licensed builder and a director of Rosedale.
Under cross examination he accepted that shop fitting work was not work which the company pursued in Canberra.
He said that he could not remember the precise dates upon which he discussed the work with Mr Newham or what discussion took place about the timing for the work. He did say that he did not think that he could give Mr Newham an exact date because he would need to speak to tradesmen.
He said that he did not give a fixed quote because there were “too many unknowns in the building itself” (4 April 2017 (338) [37]) and that the agreement was to do the work on what he described as a “cost plus” basis (4 April 2017 (339) [11]).
Mr Andric’s evidence under cross about the timing of the work was vague. He said he believed that he would have given Mr Newham an estimate of time for the job. He said he believed that Mr Newham would have asked for one. He said that he could not recall exactly what estimate he gave but he believed “I would have said approximately maybe two weeks, three weeks” (4 April 2017 (339) [32]). He said he thought Mr Newham accepted the estimate.
When asked whether he had been told there was any urgency about the work he replied – “Yes I think he mentioned that he would like to get a new tenant in there maybe”. (4 April 2017 (339) [42] – [43]).
I asked some questions about how the final figures shown in the Rosedale invoices which were in evidence had been calculated. Mr Andric’s answers were again somewhat vague. In response to a question about how what was described as the project management component of his charges was arrived at he said this:
Yes, I think it was 20 per cent of the labour, the hire, skips, electrician, the plumber which comes out to I think – well, it was around 3000 and then I charged myself out as well on top of that at about $120 an hour and I can’t remember how many hours we put down on that.
(4 April 2017 (345) [37] – [42])
And in response to a subsequent question about what was described as the insurance management and labour component the following exchange took place:
And how is that calculated in this case? --- I’m just trying to think was it a 20 per cent. Again I’m not sure about that.
Sorry, you’re not certain how it was calculated? --- No, not exactly. I would have sent something to the bookkeeper.
Sorry, say that again? --- I would have sent something to my bookkeeper or said something to her.
(4 April 2017 (347) [7] – [14])
I was surprised that, knowing he would be asked questions about the work, the invoices and the basis upon which the work was charged Mr Andric was not better prepared to answer questions. In particular he could not explain how the difference between the at-cost items such as labour and equipment and the invoice totals had been arrived at, beyond saying that he would have “charged myself out on top of that at about $120 an hour but I can’t remember how many hours we put down on that.” (4 April 2017 (345) [39] – [41]).
Mr Andric went on to say that work on site was affected by “council” work being undertaken at the time by way of the construction of a new street crossing and streetscape works. He said that work involved blocking off the street at the front of the premises. He said that because of that work, and the surrounding tenancies being open for business during the day, the make good work could only be done in the evening and early morning, with most of it being done from 5:30pm or 7:00pm to midnight.
In addition he said that the street works affected access to the premises. He referred in particular to extra work required of him around the delivery of equipment by Kennards and the delivery and removal of rubbish skips. He said the latter required the barrier fence erected for the street works to be taken apart and re-assembled and for the skips to be taken through what was in effect an ACT government worksite. He spoke of delays around finding a foreman on the street works site and having that person arrange for machinery to be moved to permit the site to be traversed.
It was put to Mr Andric that it was not necessary for the work to be undertaken outside normal hours. He replied by saying that he had been told by Mr Newham that the work needed to be done after hours because of the other business operations in the vicinity.
Under cross Mr Andric was also questioned about a decision to stop work in the second week on the site. He agreed that had occurred and said that it was because work needed to be done on gas lines or a gas meter. His testimony was in these terms:
[Ms Fisher:] And why did you stop in the second week?--- We had - there were some gas lines on the premises and a gas meter I think or two. I engaged my gasfitter to come out and have a look at it and he informed me that the gas meter was probably illegal now in the way it is situated inside the building because they need to be vented which I think I spoke to David about and then from – there was a period there where we couldn’t finish off the work because it was a little bit too dangerous because of the gas pipes that were there going through the building and feeding the neighbouring commercial premises as well so we stopped and I just stopped and waited until David got that cleared.
(4 April 2017 (356) [29] – [37])
He went on to say that he thought the break in the work at that time was “two or three weeks, something like that” and that the job was then completed with a couple more days of work (4 April 2017 (357) [32]).
In re-examination Mr Andric was asked a series of questions about the costs and hire and charge rates referred to in Rosedale’s invoices. I was surprised that the questions had not been asked during his evidence in chief but I permitted the questions as arising from what was asked of him about costs under cross examination.
In the re-examination Mr Andric said, in effect, that the costs, hire and charge rates were the going rate at the time and/or reasonable and appropriate.
No application was made for Mr Newham to be recalled to give further evidence about anything arising from the testimony of Mr Andric. In particular no further evidence was received about the work stopping after two weeks while Mr Newham sorted out an issue with the gas meter.
I permitted the Defendant’s general manager Mr Malovany to give what was in effect expert evidence about make good costs for other premises on the basis that he qualified as an expert under section 79 of the Evidence Act 2011 because of his experience.
The submissions on the make good claim were directed to the reasonableness of the cost of the make good and the time taken for the works.
The Tenant points (at paragraphs 114 to 117 of its written submission dated 17 October 2017) to a range of factors which it says are established by the evidence including that the Landlord engaged Rosedale when it was a company not regularly carrying out make good work, that there was a social relationship between Mr Newham and Mr Andric, that the Landlord did not obtain quotes from other builders, and that the arrangement was for the work to be done on an open-ended ‘cost plus’ basis. The Tenant says that the evidence establishes that the Landlord “did not take all reasonable steps to get the make good work done at a reasonable cost.”
Mr Newham’s evidence on his choice of Rosedale was that based upon his experience with the building industry in Canberra, the make good work “was not a particularly attractive job to take on” (29 November 2016 (193) [26] – [27]), that he knew it would be very difficult to find someone to do it, and that he knew Rosedale was available, having asked Mr Andric. His testimony just referred to was largely unchallenged and I accept it.
I also accept the evidence about the considerations which led to Rosedale being engaged to carry out the work on a ‘cost plus’ basis. It is a common sense proposition that it would be very difficult, if not impossible, to arrive at a fixed price quotation for works the precise scope of which cannot be determined in advance.
In the circumstances I am not persuaded that the engagement of Rosedale to perform the make good work, or the ‘cost plus’ basis of that engagement, constitutes a breach of the Landlord’s duty to mitigate.
That conclusion does not dispose of all of the Tenant’s submissions under this heading.
The Tenant also submits that the Court “should be troubled” by evidence of the $6,000.00 management fee charged in the Rosedale invoice of 4 November 2014, and a further amount of $2,600.00 for “insurance, management and labour” charged in an invoice dated 5 December 2014. The Tenant says also that the time taken was unreasonable. The Tenant says that the testimony of Mr Malovany as to what the make good should have cost and the time it should have taken should be preferred.
I deal with each of these submissions in turn, but it is convenient to start with the testimony of Mr Malovany.
In his oral testimony Mr Malovany said that his estimate of the cost of the make good works to the Premises was “somewhere between 15 and 17 thousand dollars” and that the time taken to do the work should have been between three and five days.
There was no evidence before the Court of the Tenant having obtained any quote or estimate for the cost of the make good works on the Premises from any builder, shopfitter or the like.
Mr Malovany did agree under cross examination that there were many factors which influenced the cost of completing make good works. The list which was put to him, and with which he generally agreed, included the nature of the trades required, the availability of those trades, the services that needed to be capped, disconnected or re-routed, the extent of the damage caused in removal of fixtures and fittings, including such things as multiple layers of floor tiles, access to the site, co-ordination of multiple trades, the manner in which extracted items are disposed of, the proximity of neighbouring businesses and what were described as “unknowns” – that is, what might be discovered during the work.
He was asked a couple of questions in re-examination about jackhammering multiple layers of tiles from a floor and how many gas meters were on the premises.
Mr Malovany had said in his evidence in chief that he had visited the store once or twice a year since 2008. He had not been asked any questions about whether any visit had involved any special inspection of the state of the building or of the fixtures, fittings or services with a view to being in a position to giving an informed opinion about make good costs.
Mr Malovany did not say in his evidence on what basis he had formed the opinion that the cost should have been between $15,000.00 and $17,000.00 beyond some general reference to the make good work at other premises. In particular there is no evidence from Mr Malovany about whether and if so how he took into account the various factors which he acknowledged influenced the cost of carrying out the make good works in forming his opinion.
To the extent that, inferentially, the Court is asked to conclude that his opinion is based upon his experience of the cost of make good works performed at other premises there is no evidence before the Court as to the similarity or difference between any such other premises and the subject premises, or as to existence or not, in any such other premises, of the various factors which Mr Malovany acknowledged influenced the cost of make good works.
In the circumstances Mr Malovany’s bald statement of opinion, even as an expert, that the make good cost should have been between $15,000.00 and $17,000.00 carries very little weight.
As I have already said, I am not persuaded that the agreed method of charging (the ‘cost plus’ basis) of itself amounts to a breach of the Landlord’s duty to mitigate its loss. Nevertheless the amounts actually charged in the invoices are to be considered in light of the Tenant’s submissions.
Two Rosedale invoices are in evidence. They are at annexure D18 to Mr Newham’s statement of 18 April 2016. Each contains a table with a description of work or of a cost item and a corresponding amount.
It is convenient to bring the two together which produces the following result:
4 November 2014 invoice: Labour $9,710.00 Hire (Kennards) $2,300.00 Skips (Kartaway) $2,720.00 Electrician $1,500.00 Plumber $470.00 Project Management $6,000.00 Total 4 November 2014 Invoice:
$22,700.00
5 December 2014 invoice: Electrical work to be completed, removal of switchboard, diversion of power and removal of fixtures $1300.00 Final works on party walls between units
Cap penetrations
Remove and remaining pipes
Waste removal and disposal
Plumbing repairs (new stopcock) and drainage repaired and capped$1500.00
Labour to disconnect AC units from units and roof plus 2 compressors (bleed gas from units) $1200.00 Crane hire for removal of AC units from roof $1060.00 Clean and cap exhaust duct $500.00 Insurance management and labour $2,600.00 Total 5 December 2014 Invoice Inc. GST $8,976.00 TOTAL OF BOTH INVOICES: $31,676.00
From the above it can be seen that the total of the items listed comes to $31,676.00. (It is accepted that an error appears in the invoices and that the figure claimed should be $29,190.00 but nothing turns on that for present purposes.) Of that total an amount of $8,600.00 is attributed to “Project Management” and “Insurance management and labour”. The total of the other items is $22,260.00.
My understanding of the evidence about the agreed ‘cost plus’ arrangement between the Landlord and Rosedale is this:
a.Hire charges and subcontracted tradesmen and labour would be charged at cost;
b.Mr Andric’s time in his supervisory role would be charged for – at the rate of $120.00 per hour;
c.An additional charge would be made to cover Rosedale’s overheads, profit margin and to cover insurance cover and the like – at a rate of 20% of the aggregate of the items already referred to; and
d.The amounts claimed under “Project Management” and “Insurance management and labour” represent the charges under items b. and c. just referred to.
I have already remarked that I was surprised that Mr Andric could not give more precise evidence about how the figures for “Project Management” and “Insurance management and labour” were arrived at or “how much time was put down”.
Doing some rough arithmetic of my own it appears that Mr Andric has charged for between 20 and 25 hours of supervisory time on site at $120 per hour. That would come to a figure of between $2,400.00 and $3,000.00 for supervision time. Adding that range of figures to the costs of $22,260 produces a sum of between $24,260.00 and $25,260.00. Adding 20% per cent of those figures produces a hypothetical total cost of about between $29,592.00 and $30,312.00.
I have undertaken that exercise to work out (against the background of Mr Andric’s inability to explain) how much on-site supervision time Mr Andric must have charged for (at $120.00 per hour) to come up with the total amount invoiced.
Given the evidence about the extent of the work involved and the uncertainty around the scoping of it in advance some 20 to 25 hours spent in supervision does not appear excessive. In reaching this conclusion I have taken into account that there was a substantial break in the works and that, whilst a period of about 8 weeks elapsed from start to finish, the actual works took only some 2 weeks or a little more.
In the end result I find that the Landlord suffered loss in an amount of $29,190.00 as a result of the Tenant’s breach of its make good obligations, that being the amount paid by it to have the works undertaken. The Tenant has not proved that any part of that loss could have been avoided by reasonable action on the part of the Landlord.
The Landlord claims interest on the whole of its claim at the rate of 10% on the basis of the obligation in clause 24.1 of the Lease. That obligation is expressed in these terms:
If any of the rental payments, outgoings or other payments due under this Lease are not paid on or by the due date, the Tenant must pay interest to the Landlord on the outstanding amount at the rate of 10%. The interest will accrue and be calculated on a daily basis until payment is received by the Lessor.
The Tenant submits that interest should be payable only at the rate provided for under the Court Procedures Rules 2006 (ACT) on the basis that what is described as the make good claim is a claim for damages flowing from the Tenant’s breach of the Lease and does not fall within the term “other payment due under the Lease”.
I accept the Tenant’s submission that, on its proper construction, the reference in clause 24.1 to “other payments due under this Lease” does not include amounts payable by way of damages for breach of the Lease.
Clause 24.1 firstly refers to particular types of payments by way of “rental payments” and “outgoings” – those being payments agreed to be made under clauses 4 and 5 of the Lease before going on to use the more general “other payments due under [the] Lease”. In the circumstances, the ejusdem generis rule properly applies, restricting the general words “other payments due under [the] Lease” to the genus of the preceding particular words. The genus of the preceding particular words (rental payments and outgoings) does not include damages for breach of the Lease.
The conclusion just reached also applies to other parts of the Landlord’s claim for damages for breach of the Lease, but not to the claim for rent up to the date of termination.
I allow damages for breach of the make good obligations in an amount of $29,190.00 and interest thereon from 2014 to date at the rates provided for in the Court Procedure Rules 2006 (ACT) in an amount of $6,586.00, making a total of $37,776.00.
Time taken to complete make good works
My findings so far do not dispose of the submission as to the time taken for the Landlord to complete the make good works.
I have already concluded that no duty to mitigate arises until the Lease was terminated – see paragraph 57 of these reasons.
I am not persuaded that the evidence establishes that the date on which the works commenced or the rate at which the work was performed, while it was being performed, establishes any breach of the duty to mitigate. It is the delay which occurred to interrupt the works – resulting in them not being completed for about eight weeks – which has required careful analysis.
It was put to Mr Newham that the make good works had taken something in the order of eight weeks and that the time taken was unreasonable. Mr Newham’s response to that, and various follow up questions, appears at (283) of the transcript of 3 April 2017. In his response Mr Newham acknowledges that the majority of the work happened in the first two weeks and there was then a break. In explanation of that break he referred to several things including that “a number of items sat not done pending decisions of incoming tenants and builders”, and time taken to resolve difficulties around a gas meter.
Mr Newham’s evidence was somewhat vague and did not go so far as to enable any dissection of what part of the break in the works was attributable to which of the factors referred to.
To the extent that the delay in the make good works was attributable to “pending decisions of incoming tenants and builders” I am satisfied that, without further explanation, it was not reasonable for the Landlord to delay the works for that reason.
No such explanation was forthcoming. No more detailed evidence was given about what the difficulties were around the gas meter, what steps were required to resolve them and what, if any, part of the delay could be attributed to taking those steps. The Plaintiff gave no evidence as to the extent to which delay attributable to the gas meter difficulties was separate from or may have overlapped with delay attributable to pending decisions of incoming Tenants and builders.
In the end result Mr Newham’s evidence indicates two causes for delay, one of which (the pending decisions) points to a breach of the Landlord’s duty to mitigate. In the absence of further evidence I am satisfied that the delay in completion of the works was a breach of the Landlord’s duty to mitigate its losses.
The conclusion just reached about the delay in completing the works does not affect the quantum of the Landlord’s make good claim. It is however relevant to my assessment of when the premises ought to have been ready to re-let and therefore to the Landlord’s claim for damages for the loss of the benefit of the balance of the term of the Lease.
It is necessary therefore for some conclusion about what would have been a reasonable time for completion of the make good works, disregarding any delay attributable to pending decisions of incoming Tenants and builders. Doing the best I can on the limited evidence available, I conclude that a reasonable time for completion of the make good works was a period of three weeks.
Accordingly I find that the Landlord failed to take reasonable steps to mitigate its loss by virtue of the delay in its completion of the make good works. I find that, had reasonable steps been taken the works would have been completed in three weeks. It is not in dispute that the make good works commenced on 18 September 2014 and were completed on 14 November 2014. I find that had reasonable steps been taken the works would have been completed by 9 October 2014.
It is appropriate to here deal with the consequences of that finding about when the works would have been completed had reasonable steps been taken.
It is not in dispute that the Landlord entered into a new lease of the premises with an entity referred to in the evidence as “Oliver Brown” on 15 November 2014. In the course of re-examination Mr Newham was asked why it was not practical for Oliver Brown to enter into a lease from 1 October 2014. He answered that question by saying – “Point one is that the make good was still occurring at that time” (4 April 2017 (326) [1] – [2]). He went on to refer to other things. They included that “we would have had to have the lease prepared in that time” and matters such as the Tenant’s lawyers checking the lease, and design approval (4 April 2017 (326)).
No more detailed evidence was given about the extent to which the time taken to enter into a new lease with Oliver Brown was affected by any one or more of the factors referred to in Mr Newham’s evidence, or the extent to which that time was separate from or overlapped with the time taken because of the outstanding make good works.
I have concluded that the works should have been completed by 9 October 2014. Any loss flowing from delay in entering into a new lease beyond that date which is attributable to outstanding make good works results from the Landlord’s failure to take reasonable steps to have the works completed within a reasonable time.
In the end result Mr Newham’s evidence indicates reasons for the time taken to enter into a new lease which include the time taken to complete the make good works. In the absence of further evidence I am satisfied that that the delay in entry into a new lease beyond 9 October 2014 is also a result of the breach of the Landlord’s duty to mitigate its losses.
The consequences of the conclusions just reached are dealt with later in these reasons under the heading of “Damages for Loss of Bargain”.
GREASE TRAP CLAIM
The Landlord’s claim includes a claim for $933.00 by way of unpaid outgoings being grease trap cleaning fees. The Tenant concedes that an amount is owing but says that the claim does not properly include GST and that it should be reduced accordingly.
The Tenant makes a similar submission in relation to GST in respect of the rent claimed to be owing.
The Tenant’s submission refers to the decisions in Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413 and Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167. Both are readily distinguishable from the claim relating to the grease trap because they involve claims for damages in tort.
The Australian Taxation Office released GST Ruling GSTR 2001/4 “Goods and services tax: GST consequences of court orders and out-of-court settlements” in 2001. The Ruling directs attention to the existence or otherwise of a relevant nexus between the payment under a judgment and a taxable supply. The supply in the present case, being the provision of the grease trap “services”, would constitute what is described in the Ruling as an “earlier supply”. The consideration for that earlier supply is the very subject of the proceedings insofar as the grease trap claim is concerned. It follows that GST is properly payable on that part of the claim, and therefore properly forms part of the claim insofar as the grease trap component of the overall claim is concerned. Such a conclusion is supported by decisions such as Moraghan v Cospak Pty Ltd [2007] VSC 483.
Similar reasoning applies, with the same result, in relation to the Landlord’s claim for outstanding rent to the date of termination. The supply there – being the supply of the Premises under the Lease for the period in respect of which the rent is claimed – is an earlier supply. It follows that GST is properly payable in respect of that component of the claim and therefore properly recoverable as part of the Landlord’s claim.
The judgment includes an amount of $933.00 (inclusive of GST) for the grease trap claim. For the purpose of calculating interest the pre-GST amount is $848.00. I allow interest at the 10% rate in the Lease which I calculate to be $311.00.
DAMAGES FOR LOSS OF BARGAIN
Against the background of the findings and conclusions referred to earlier in these reasons, it is convenient at this point to finalise the question of the Landlord’s claim for damages for loss of bargain.
I assess those damages in an amount of $19,513.00 calculated as being an amount equal to the rent which would have been paid by the Tenant had the Lease not been terminated for the period from the date of termination (18 August 2014) until 9 October 2014 – that being the date by which I have assessed the Landlord should reasonably have completed the make good works and re-let the Premises.
Unlike the component of the Landlord’s claim for rent and the grease trap expenses this component of the Landlord’s claim comprises post-termination damages and is not a claim in respect of an “earlier supply”. I have calculated the amount without reference to GST.
The claim is one for damages. Interest is properly dealt with under the Court Procedure Rules 2006 (ACT) and not clause 24 of the Lease.
I allow interest in an amount of $4,314.00 to date.
THE TENANT’S COUNTERCLAIM – BREACH OF LEASE BY LANDLORD
The Tenant’s counter-claim includes a claim that it has suffered loss and damage as a result of certain works carried out by the Landlord. The claim is pleaded as arising because the Landlord:
a.breached clause 15.1 of the Lease in that it did not allow the Tenant peaceable possession and use of the premises;
b.breached clause 15.2(e) of the Lease in that it failed to give the Tenant two months’ written notice of any alterations or building works to the Premises or building;
c.breached clause 15.2(f) in that it failed to compensate the Tenant for any disturbance either as a result of a breach of the Lease (in conjunction with obligations under the Act) or as a result of the Landlord’s breach of duty.
In the alternative the claim is pleaded as arising in tort as a result of the Landlord’s breach of a duty owed to the Tenant to ensure the works were carried out in a timely manner.
It is not in dispute that the Landlord carried out certain work to the solid “awning” over the footpath immediately outside the premises. The awning had been clad and the old cladding was removed and replaced with new. Work was also done to improve the drainage of rainwater along gutters and new lighting was installed. As I understood the evidence the new lighting was by way of downlights installed into the underside of the awning.
In preparation for that work the Landlord removed the Tenant’s signs which hung from the awning. They can be seen in Exhibit D2 (and annexure HM-41 at (78)). In addition there was a period of time (the length of which is in dispute) between when the old lighting was removed and the new lighting installed.
For convenience I refer to the work just described as the “awning works”.
It is convenient to deal first with the claim under clauses 15.2(e) and 15.2(f) of the Lease.
It is not in dispute that the Landlord communicated with the Tenant (and the other Tenants of the building) about what the Landlord intended to do in the terms set out in an email dated 24 February 2014 (forming part of Exhibit P2) in these terms:
Hello, as most of you are aware we have been planning to upgrade the cladding to the awning, lighting & CCTV for some time. This will greatly improve the street appeal of all the tenancies & the new uniform lighting will make the whole building stand out when the area is in darkness. The starting point will be to strip back what is there at present. To make this possible it will be necessary for our electrician to disconnect any power feeds form your switchboards to the awning. I will be on site with an elctrician in the morning to plan this aspect. Your assistance with this part will be necessary for this to happen smoothly.
As part of the exercise we will be standardising the sign boxes. Can everyone send me their artwork for their sign so I can arrange for the new inserts as well as to provide for temporary signage as required during this process.
Once the awning is stripped a timeline for works will be clearer & I will be in contact to pass on this information.
Regards
David Newham(Statement of David Newham 18 August 2016, DN19)
Mr Newham says that the work commenced in early March 2014 and was completed by 11 April 2014.
For his part, Mr Malovany says that following the email just referred to he expected some further communication from the Landlord about what was occurring and that he “did not know that anything was actually started or completed until Evdon Brentham sent me an email dated 12 September 2014”.
The Tenant goes on to submit that the work was not completed when the Lease came to an end because its signs had never been replaced, and that it suffered damage by way of loss of income from loss of trade as a result of various acts and omissions of the Landlord.
It is convenient to deal first with the Tenant’s claim under clause 15.2 of the Lease.
Clause 15.2(e) and (f) provide that the Landlord must:
(e) give the tenant at least 2 months’ written notice about any alterations or building work to the Premises or the Building if the Tenant is likely to be materially affected by those works and give details of measures that will be taken to minimise the effect on the Tenant; and
(f) compensate the Tenant for any disturbance where required by section 81 of the Leases Act.
Section 81(1) of the Act is in the terms set out below. Subsection (2) is irrelevant for present purposes.
Compensation for disturbance
(1) The lessor is liable to pay the tenant reasonable compensation for loss or damage (other than nominal loss or damage) suffered by the tenant if the lessor—
(a)materially inhibits access by the tenant to the premises; or
(b)takes action that would materially inhibit or alter the flow of customers to the premises; or
(c)fails to fix a breakdown of plant or equipment under the lessor's care and maintenance as soon as practicable; or
(d)for premises located in the retail area of a shopping centre—does not adequately clean, maintain or repair the shopping centre (including common areas); or
(e)otherwise adversely affects the trade of the tenant by the lessor's conduct without reasonable cause, whether by act or omission.
The submissions of both Landlord and Tenant appear to deal with the obligations under sub-clauses 15.2(e) and (f) of the Lease as if they are co-dependent. No reference is made to the notice obligations appearing in section 79 of the Leases Act.
The obligations imposed under subclauses 15.2(e) and (f) are, in fact, independent. The word “and” appears at the end of subclause 15.2(e) only because it is the second last of the six obligations set out in clause 15.2. The conclusion that the obligations are independent is hardly surprising – the compensation entitlement in section 81 of the Act is unconditional and, by virtue of section 19 of the Act, would prevail over anything in the Lease in any event.
I read sub-clause 15.2(f) as doing nothing other than incorporating as a term of the Lease what would be the statutory obligation in any event, using the word “disturbance” to compendiously describe what are the triggers for payment in section 81, via adoption of the heading to that section chosen by the legislative draftsman.
Two things follow from that conclusion. The first is that a breach of sub-clause 15.2(e) of the Lease does not necessarily mean that a Tenant is entitled to compensation under section 81 of the Act.
The second is that it is not necessary for a Tenant to prove a breach of sub-clause 15.2(e) of the Lease before it is entitled to compensation under sub-clause 15.2(f) of the Lease and section 81 of the Act.
In other words establishing a breach of sub-clause 15.2(e) is neither a sufficient nor necessary pre-condition to an entitlement to compensation under section 81 of the Act.
Part of the Landlord’s submission is that the awning does not form part of the premises as defined in the Lease. The Lease speaks in terms of works to the premises or the building. The Act looks to the effects of certain conduct without reference to location of any works as such. It is not suggested that the awning was not part of the building. It is not relevant for present purposes that it did not form part of the premises as described in the Lease.
The obligations in clause 15.2(e) of the Lease are triggered “if the Tenant is likely to be materially affected by [the proposed] works”. The Landlord argues that the Tenant was not likely to be materially affected such that the obligations are not triggered. The Tenant says that it was likely to be materially affected.
The Lease provides no guidance as to what is meant by the expression “materially affected”. I note that it is the potential effect on “the Tenant” which is to be assessed as opposed, for example, to the potential effect on the Tenant’s business operation or turnover or customers or the like. Expressed as it is the clause appears to call for broader considerations than what might be required in the case of the hypothetical examples just mentioned.
The submissions do not refer to any authorities on the meaning to be given to the expression “materially affected” and my own enquiries have not revealed any relevant authorities.
The word “materially” should be given its ordinary meaning. It is defined in The Shorter Oxford English Dictionary (William Little, H W Folwer and Jessie Coulson (Clarendon Press, 3rd revised ed, 1987)) as including:
“(i)n a material degree; substantially”
and in the Macquarie Dictionary (A Delbridge, JRL Bernard, D Blair, P Peters and S Butler (eds) (Macquarie Library, 2nd ed, 1992)) as including:
“to an important degree; considerably”
There are two other points to be made about construing the expression under consideration. The first is that it is the likely effect of the works on the Tenant which is to be assessed. The second is that context must be taken into account. In considering whether a Tenant is likely to be materially affected it is appropriate to recognise that the obligation on the Landlord which is triggered by that conclusion is limited to the giving of notice to the Tenant of what is proposed, along with “give details of measures that will be taken to minimise the effect on the Tenant”. The obvious intent of the clause is to protect the Tenant’s interests by giving the Tenant an entitlement to receive advance notice of future plans which are likely to materially affect the Tenant in some way. What constitutes the trigger for that entitlement should be construed accordingly.
There is an argument between the parties as to when any such assessment is to be made and what is to be taken into account.
It is tolerably clear that the assessment is to be made in advance of any works being carried out.
There is an argument that any implied obligation to assess the likely effect of works cannot logically be expressed in terms of an assessment two months in advance of the work because the decision to do the works may not have been made at that time. In other words if a Landlord makes a decision today to perform work in one month which is not likely to have a material effect he cannot be in breach of any implied obligation in clause 15.2(e) by not having considered, one month ago, whether that effect would be material. The outcome in this case does not require any further consideration of that point.
For present purposes I accept the Tenant’s submission that the assessment is not to be made retrospectively, that is, after the work is complete. That would defeat the purpose of protection for the Tenant which appears to be at the heart of the clause 15.2(e) obligation.
What comprised the Awning Works is summarised in paragraphs 159 and 160 earlier in these reasons.
I accept the Tenant’s submission that the likely effect on it is to be assessed objectively. That affect should be assessed having regard to all of the prevailing circumstances including the nature of the Tenant’s business operations.
There is a dispute as to the time taken to complete the works and the time during which the awning was not operational. I have not found it necessary to determine that dispute.
It is not in dispute that the Tenant’s business is what it describes as a ‘quick service’ restaurant and that it operates into the evening. Mr Malovany for the Tenant gave evidence of the extensive franchise operation of which the business operating from the Premises formed part and of the importance of brand recognition. To that evidence can be added the common sense observation that the likely natural inclination of potential customers of quick service restaurants is to prefer suppliers from premises without building works in progress over those with such works and to be influenced by the presence or absence of signs and external lighting.
The works to be undertaken by the Landlord were always going to have some potential effect on things which could reasonably be expected to be important to a Tenant in a quick service restaurant business operation.
In the circumstances I find that the Tenant was likely to be materially affected by the proposed works. It is not in contest that the obligations in clause 15.2(e) were not met. It follows that I find that the Landlord breached those obligations.
To succeed with its claim however, it is not enough for the Tenant to establish only that clause 15.2(e) was breached. The Tenant must also establish that what it claims as loss and damage in fact was caused by that breach – that is, was caused by the Landlord’s failure to give notice and to give details of minimising measures as required.
There is no evidence before me as to what steps the Tenant would have taken had formal notice under clause 15.2(e) been given. What is in evidence is limited to Mr Malovany’s email of 24 February 2014 saying “We will work with you on this” and his subsequent testimony that he expected some further communication.
It is also important at this point to recognise that the assessment made for the purposes of clause 15.2(e) – that is, a prediction that the Tenant was likely to be materially affected by the proposed works – does not amount to proof that the Tenant was, in fact, materially affected by the works as carried out.
The Tenant’s evidence is to the effect that business sales declined. Its evidence involves a comparison of the value of sales during the period relevant to the works with the value of sales in previous periods. Its submission is that the Court should infer that the decline in sales was caused by disturbance as a result of the Landlord carrying out the Awning Works.
The Tenant faces two difficulties with its submission.
The first is that, logically, its submission involves a conclusion that the number of customers visiting its premises declined because of the works. (The alternate conclusion, that the numbers remained the same but that the spend per customer dropped, does not warrant consideration in the circumstances.)
No evidence of any decline in customer numbers is before the Court. More importantly there is no evidence before the Court that any person made any complaint to the Landlord on behalf of the Tenant about the Awning Works or about any perceived decline in customer numbers as a result of those works.
The evidence establishes that the store was operated by persons referred to in the evidence as Dima and Hassan until 24 March 2014 and by Evan Mannan as a licensee thereafter. None of those persons was called as a witness in the Tenant’s case. The Landlord urges an inference that “the evidence if adduced from these witnesses would not have assisted Ali Baba’s case.”
In making that submission the Landlord relies upon the principle in Jones v Dunkel (1959) 101 CLR 298.
The pre-requisites for drawing such an inference (see Payne v Parker [1976] 1 NSWLR 191 (CA), Glass JA at 201) are met in this case – in particular:
a.at least one of the persons just referred to would have been expected to have been called by the Tenant (and not by the Landlord);
b.the evidence of that person would elucidate the matter of the effect, if any, of the Awning Works on the business operation; and
c.the absence of the witness is unexplained.
In making that last observation I note the submission of counsel for the Tenant in the following terms:
Further, in circumstances where the Defendant, unassisted by legal advice, determined the evidence it would adduce in the proceedings, it is explicable that none of Dima, Hassan or Evan Mannan were asked to provide witness statements (the Defendant unsurprisingly, being unaware of the rule in Jones v Dunkel.)
I do not regard that submission as a proper explanation of the absence of any of the witnesses referred to.
While on the subject of customer numbers I deal with the evidence about access to the premises.
I heard testimony from Mr Newham about how the carrying out of the works affected access. There was no evidence in the Tenant’s case of any direct observations by any person about any effect on access to the premises or customer flow.
In the end result I accept the testimony of Mr Newham (4 April 2017, (309) – (310)) to the effect that:
a.The mobile scaffolding required for the work was moved across the front of the premises as the work progressed over a period of two or three days;
b.There were times when the scaffolding prevented access to the premises but that never occurred during trading hours – the work being done from 6 or 6.30 am and ceasing before trading hours.
In the circumstances I am not persuaded that the physical presence of scaffolding or the like had any direct impact on customer access to the premises.
Mr Issa was referred to that part of his statement (paragraph 8) where he had said that Mr Malovany told him that “…David Newham was now saying he will not agree to the $125k but will keep the same rental and give 2 months’ rent free.” Mr Issa said his recollection was that the conversation with Mr Malovany just referred to took place the day after the Sydney meeting.
Mr Issa accepted that paragraph 7 of his statement did not say that Mr Newham agreed to rent of $125,000.00. By way of explanation he went on to say that there had been another telephone conversation with Mr Newham after the one referred to in his statement.
He said that the other conversation between him and Mr Newham also took place before the Sydney meeting.
As to the contents of that conversation the effect of his testimony is fairly summarised in the following exchange:
MS GLOVER: No, I’m grateful to your Honour. If I can just clarify Mr Issa, is it your evidence now that in this conversation you were asked how much rent do you expect. You said $100,000 as a joke. There was a laugh. Is it the case that you then said to him 125 would be suitable. Is that what you’re saying you said?---Yes.
And is it your evidence as you sit here today that Mr Newham said to you I can make it 125 plus give you two months’ free rent?---That’s what I understood at that time, yes.
Is that what was said to you or is that what you understood?---That’s what I understood from the conversation.
Okay. Are you able to recall what was actually said by Mr Newham?---I can’t remember exactly.
Mr Issa, you agree with me that that conversation that you’ve just told us about, that does not appear anywhere in your statement, does it?---Not the second conversation, no.
(12 September 2017 (9) [34] through to (10) [8])
The cross examination of Mr Issa went on to deal with the circumstances under which he had made his statement of 13 September 2016 and the circumstances under which he had sent the email of 28 October 2015 to Mr Malovany which is annex MM 31 to Mr Malovany’s statement.
This is a convenient point at which to refer to the evidence about the consequences of Mr Ziad’s stroke.
No evidence was given about any medical diagnosis or prognosis.
It was apparent that English was not Mr Issa’s first language. Some miscommunication between counsel and witnesses in such circumstances is not unusual and can often be attributed to genuine misunderstanding of the language used by either counsel or the witness.
Mr Issa did at one stage during cross examination ask to be allowed to take some tablets which he said were medication. He did not otherwise present in the witness box as a person who had suffered any of the more obvious debilitating consequences which sometimes result from a stroke.
He did however make reference to his memory and several exchanges took place about the effect of the stroke on his ability to recall events, including the following:
HIS HONOUR: I think what Mr Issa may be getting at and perhaps this needs to be explored, has the stroke had an effect on your memory?---Yeah.
Has the stroke had an effect on your memory of events which took place before you had the stroke?---It’s made me feel a bit hard to think and remember.
If you understand the question I’m asking, when did you have the stroke?
---Just October last year.So my question to you is has the fact that you’ve had a stroke had an effect on your memory of things which took place before October, before you had the stroke?---Yeah, yes.
….
HIS HONOUR: Perhaps we can get back, you might want to ask the question. I understand the point that Mr Issa’s making but I think you can probably re‑ask the question.MS GLOVER: Mr Issa, just focus on the question for a moment. Is it the case that because of your stroke or for whatever reason you do not have a clear recollection of the conversation that you had with Harry Malovany when he asked you to prepare a statement?---Yes.
Okay. Is it also the case that as a result of this stroke that you had or for whatever reason, you do not have a clear recollection of the conversations that you had with David Newham in February 2014?---Think so.
Sorry?---Yes.
(12 September 2017 (14) [38] through to (15) [33])
And later:
[HIS HONOUR:] What about looking back now on events that happened before you had your stroke all right, so before October of last year, do you have any feel or any sense of how good or bad your memory is of things that happened before October of last year?---Only the good things in my life still I remember but usually like business and conversation regarding that or even in my existing business I can’t remember everything of that. Whatever has been written or like letters or bills it’s easy for me to remember them because I can go back to it and read what’s in it.
They prompt your memory, do they?---Yes.
…
MS GLOVER: Thank you, your Honour. Mr Issa, what I understood through the exchange you just had with his Honour is that when it comes to recalling conversations that occurred before the stroke you have difficulty doing that. Is that correct?---Yes, I can’t remember what happened exactly in a conversation but I can remember the subject and the result of the conversation.Yes, okay. I think I understand. Just a couple of questions more about your statement. When you were preparing your statement you took the time, didn’t you, to make sure that you recorded in that statement all the conversations that you thought were important?---Yes.
Right. You agreed with me earlier that the conversation that you were telling us about today that you say occurred between yourself and David Newham after the conversation in paragraph 7 but before the meeting, you agreed with me that nowhere in your statement do you refer to that conversation, do you?---Sorry, repeat again?
Sorry, it was a convoluted question. You agree with me, you gave some evidence earlier today about a second conversation that you say you had with David Newham after the conversation that you refer to in paragraph 7 but before the face to face meeting you had in Sydney?---Yes.
You agreed with me that nowhere in your statement do you set out that conversation. That’s correct, isn’t it?---Just last part of the question again.
You’ve read your statement before today?---Yes.
In your statement you don’t refer anywhere to that conversation that you had with David Newham?---No.
Right. Mr Issa, I put it to you that at no time has David Newham said to you that he would agree to a rent of $125,000 for the term of a new lease at the Bunda street store?---Sorry, he didn’t? In that conversation yes, he said he happy.
I’m putting to you that that conversation never took place?---What you mean?
HIS HONOUR: The process that Ms Glover’s going through, Mr Issa, is something that she’s required to do. She’s putting to you a proposition and you’re required to respond to the proposition either saying yes I agree or no I don’t agree or maybe that was the case, I don’t remember, whatever. You need to respond to the proposition that’s being put to you?---This question, okay.
Perhaps you could put the proposition again.
MS GLOVER: Okay. Mr Issa, this is the proposition. I’m putting to you that at no time did David Newham tell you that he would accept an amount of $125,000 per annum for rent for the Bunda street store?---Disagree.
(12 September 2017 (21) [42] through to (23) [31])
The cross examination of Mr Issa about the circumstances under which he had made his statement of 13 September 2016 and the circumstances under which he had sent the email of 28 October 2015 to Mr Malovany which is annex MM 31 to Mr Malovany’s statement was somewhat excruciating.
Mr Issa prevaricated in his answers about both subjects. He was pursued doggedly (but not, I add, improperly) in cross examination.
The relevant part of the cross examination occupies some 20 pages of the transcript. I will not set it out in full. The following is in my opinion a fair summary of the testimony given by Mr Issa. The numerals appearing in brackets are references to the transcript of 12 September 2017.
a.Ms Karol Duric, an employee of Ali Baba, helped him with his statement (10);
b.He first became aware of the Court proceedings about 2 years ago (12);
c.The contact with him about preparing a statement came from by Mr Malovany (10);
d.He thought he needed help to prepare the statement because of his language (11);
e.When it was first put to him that Mr Malovany told him what he wanted addressed in the statement, Mr Issa said “no” (13);
f.When asked how he knew what the proceedings were about he said – “He (Mr Malovany) told me what was going on and where things were going” (13);
g.When asked what Mr Malovany told him at that time, Mr Issa said he could not remember exactly (14);
h.When asked whether Mr Malovany asked or told him what the statement was to cover Mr Issa said “Yeah, kind of like I need to talk about the conversation and kind of, where I’m working, what I’m doing now and after that I tried to call Karol” (14);
i.When asked whether Mr Malovany had asked him to include in the statement any conversations he’d had with Mr Newham in which rental negotiations were discussed he said “yes” (14);
j.He went on to say that he could not recall what was said in that conversation with Mr Malovany and referred to having had a stroke (14);
k.He went on to give the answers which are set out at paragraph 298 of these reasons about not having a clear recollection of the conversation with Mr Malovany when he was asked to prepare the statement of the conversations with Mr Newham in February 2014.
In response to questions about the process involved in preparation of his statement the following exchange took place:
[MS GLOVER:] Okay. So when it came to drafting or preparing your statement is it the case that Karol Duric would say to you something like “Okay, now you had a conversation with David Newham and he said to you that the rent was going to be $125,000” and then she’d ask you if that was correct?---Yeah.
Then if you said it was correct is it the case that she would then write a paragraph, I’m assuming she typed it?---She typed it.
Typing it and then is it the case that she’d then read to you what she typed?---Yes.
Okay?---Or sometimes I may have to check. She will email it to me to check if that right.
You said she worked through it paragraph by paragraph and particularly in relation to the conversations, I’m putting to you that she said to you “You had a conversation with David Newham. He said to you that he would
agree to a rent of 125”. She then wrote that down, showed it to you or read it to you. You said okay. Is that correct?---Yes.
And then you moved to the next paragraph?---Yes.
(12 September 2017 (16) [19] – [39])
and later:
Is it the case that before you prepared this statement with Karol you’d seen a copy of Ali Hamid’s statement and you’d seen a copy of Mr Newham’s statement?---Yes.
(12 September 2017 (17) [11] – [13])
and later:
[MS GLOVER:] So it’s the case, isn’t it, that before you signed your statement you had read the statement of Harry Malovany?---Yeah, I believe I should, yes.
It’s a simple yes or no answer. Is it yes you did?---Yes.
(12 September 2017 (19) [25] – [28])
When asked about his email to Mr Malovany of 28 October 2015 (annex HM 31 to statement by Mr Malovany of 20 May 2016) Mr Issa said the following:
a.His wife helped him write it (24);
b.At first he said that he heard that Mr Newham would not accept rent of $125,000 on the 25 February 2014 that being the day after the Sydney meeting of 24 February 2014 (25);
c.He was referred to that part of his email to Mr Malovany where he said:
In the meeting with Robert and yourself, we discussed everything and i understood the gross rental was going to be $125K. Shortly thereafter i had a call with David the Landlord and he also confirmed to me that the new rental would be $125K pa.
d.He at first said that the meeting referred to was the Sydney meeting (27). When his attention was directed to what was said in the email about the call with David the Landlord shortly thereafter, he changed his evidence to say that he could not recall whether he was referring to the Sydney meeting or some other meeting (27) – (28).
e.In response to a proposition that he had a discussion with Mr Malovany about what was to be put in the email Mr Issa said this:
[MS GLOVER:] Well, I put it to you that before you wrote this email, you had a discussion with Harry Malovany about what you were going to put in this email?---No. Well, tried to ask him at that time, and from when to where and what I need to explain, which is everything, or like, short sentence, or explain the day when Robert start calling me, and from - which is the beginning of March to the end to mid - sorry. Beginning of February to the mid of March, that's the type of question. Not, like, what you'd like me to write it.
(12 September 2017 (30) [17] – [23])
f.When asked about what was in the email about the discussion with Mr Malovany and Mr Robert Marjan, he said that he had a recollection of the events and was not “simply working on the basis of what was written” in the email (31).
He went on to agree at (31) that at the time of the conversation with Mr Newham referred to in that email he’d already been told that the Landlord had agreed to a rental of $125,000.00.
I have concluded that the testimony of Mr Issa cannot be relied upon as supporting the assertion that the Rental Representation was made on behalf of the Landlord.
My reasons for that conclusion are these:
a.Mr Issa’s original statement of 13 September 2016 made no mention of the Rental Representation as such – under circumstances where, if such a representation had been made, it is highly unlikely that it would not have been referred to in the statement.
b.In his testimony Mr Issa does not give any plausible explanation for his statement not including reference to the Rental Representation.
c.The overall tenor of Mr Issa’s testimony indicates that he does not have the independent recollection of events which he professed to have at least in relation to some aspects of his evidence.
d.The circumstances under which the email of 28 October 2015 came into existence undermine the reliability of it as an accurate record of the events to which it refers. Its admission was not objected to, despite it having been prepared apparently in contemplation of the subject proceedings. It was prepared at the request of the Tenant some 12 months after the events to which it refers. Mr Issa has suffered a stroke after it was prepared and, as I have said, I am persuaded that he does not now have a reliable independent recollection of the events referred to in it. In addition his testimony about his exchanges with Mr Malovany suggest a significant risk of reconstruction of what had taken place at the time of its preparation.
Having reached that conclusion about Mr Issa’s evidence in relation to the Rental Representation I turn to consider the other evidence about it.
Both Mr Malovany and Mr Marjan say that the Rental Representation was made.
There are some features of their evidence which tend to undermine its reliability.
I include in this category the following:
a.I infer, from the absence of any relevant evidence, that no steps were taken by the Tenant to record what Mr Malovany and Mr Marjan say was the Rental Representation made in the telephone conversation with Mr Newham – and in particular there was no communication with Mr Newham recording what is asserted to be that Rental Representation. That observation is made against the background that what is asserted to be the agreement reached would clearly have been important to the Tenant’s discussions with Mr Issa and that there were frequent other email communications passing between the parties. No questions were asked of Mr Malovany or Mr Marjan either in chief or by way of cross examination on this aspect of the circumstances.
b.The communication which the Tenant says was intended to record the Rental Representation is the email of 24 February 2014 referred to in paragraph 267 of these reasons. The Tenant accepts however that it does not accurately record what the Tenant says was the Rental Representation because it refers to a figure of $120,000 and not $125,000. That is a surprising error to have been made in the circumstances. In addition the language used in that email – in particular the reference to ”we are prepared to commence a new 5 yr lease (plus 5yr option) on a gross rental of $120k” and “we await your confirmation” suggests a communication more consistent with on-going negotiations than a confirmation of the terms of a Rental Representation previously made. The Tenant says that the email raised for the first time the prospect of an option not previously discussed. The email does do so but not in a way which unequivocally supports what the Tenant presses for as the explanation for the language used in that communication.
c.In the email from Mr Malovany to Mr Newham dated 25 February 2014 which follows Mr Malovany being told that Mr Newham has denied having made the Rental Representation, no mention of it is made by Mr Malovany – see paragraph 272 of these reasons. Ordinary experience suggests that, if the Rental Representation had been made and subsequently denied, the natural reaction of the Tenant would have been to point to the “agreement” which it said had been reached and make some complaint about, or request some explanation of, the subsequent denial of it.
d.I have set out at paragraph 272 of these reasons the contents of that email from Mr Malovany. It not only makes no reference to the Rental Representation having been made, but the language used – in particular the reference to “our earlier discussion” and “you… could entertain something around $120k-$125K” is a communication more consistent with on-going negotiations than a response to the denial of the Rental Representation having been made.
e.Mr Malovany’s testimony about why he made no reference to the Rental Representation in his email is set out in the exchange at paragraph 273 of these reasons. It is unconvincing.
f.It is not in contest that in an email of 28 February 2014 from Mr Malovany to Mr Newham he refers to “the $125 we agreed”, but that was some time after the exchanges just referred to in which some reference to the Rental Representation, if it had in fact been made, was to be expected.
g.The evidence strongly supports a conclusion that there were discussions and exchanges between Mr Malovany and Mr Marjan about the evidence they planned to give – either directly or indirectly via the employee Ms Karol Duric.
There is no documentary evidence directly supporting the Tenant’s assertion about the Rental Representation having been made. The email which are in evidence do not unequivocally support the Tenant’s assertions, and indeed on one view of them the language used is inconsistent with those assertions.
In the absence of persuasive documentary evidence the Tenant’s case on the Rental Representation relies materially upon acceptance of the testimony of Messrs Malovany and Marjan.
There are several aspects of Mr Malovany’s testimony (to which I have referred in these reasons) which have been criticized by the Plaintiff. Those criticisms are valid. Those aspects of the testimony relate to what are the central issues in the case and not mere minor or peripheral matters. They lead me to have serious concerns about the reliability of his evidence.
I have already referred to my conclusion that Mr Marjan was tailoring some of his testimony in a way which he believed best suited the Tenant’s prospects of success. That causes me to have concerns about the reliability of his other evidence also.
I have already recorded that I reject the evidence of Mr Issa and the reasons for doing so.
The Tenant bears the onus of proof in its claim based upon the Rental Representation. Having regard to the absence of any persuasive documentary evidence and the reservations I have about the testimony of both Mr Malovany and Mr Marjan, I cannot be satisfied that the Rental Representation was, in fact, made.
The conclusion just reached disposes of the Tenant’s counter-claim based upon misleading or deceptive conduct and based upon unconscionable conduct.
COSTS
The Landlord’s claim includes a claim for its legal costs, based upon the terms of clause 17.1(c) of the Lease.
In Ginninderra Properties Pty Ltd v Gelonese [2017] ACTMC 25 I dealt with an application by a Landlord for recovery of the legal costs of the Court proceedings based upon a clause in the lease.
In dismissing the claim I said this:
74 The Plaintiff’s claim for costs is not, in any event, expressed to be sought pursuant to the exercise of the Court's discretion to order costs. Rather, it is expressed in the written submissions as being “on an indemnity basis in accordance with clause 6.1.6 of the Lease". It was pleaded in the Amended Statement of Claim as a claim for costs pursuant to clause 8.7 of the Lease, but nothing turns on that for present purposes.
75 Framed as It is, the Plaintiff's claim for costs is one for an amount claimed to be owing by virtue of the express agreement by the Tenant to pay the costs as set out in the Lease, rather than pursuant to the Courts discretionary power to make an order for costs under s154. It is in effect a liquidated claim for monies asserted to be owing by the Tenant under the Lease.
76 A claim for costs made on that basis faces two difficulties.
77 The first is that, pleaded in that fashion, the claim requires evidence to be presented at hearing as to the amount of costs asserted to be payable so that an appropriate award can be made in satisfaction of the liquidated claim. No amount was specified for the claim for costs and no evidence was presented to support any amount in respect of the claim.
78 The second and more fundamental difficulty, insofar as what is claimed is asserted to represent costs of the proceedings, stems from the effect of section 19 of the Act which provides that, if a provision in a lease is inconsistent with the Act, then the provision is void to the extent of the inconsistency.
79 Against the background of section 154 requiring that each party to proceedings bear its own costs (absent an order otherwise), a provision in a lease which extends to obliging a tenant pay the costs of proceedings is inconsistent with the Act and therefore void to that extent.
80 In the circumstances I find against the Landlord on its claim for costs of the proceedings.
The Landlord’s claim in the present proceedings does not face the first of the difficulties referred to but the second remains.
My decision on costs in Ginninderra Properties was overturned on appeal (Ginninderra Properties Pty Ltd v Gelonese [2017] ACTSC 362) His Honour Robinson AJ concluding that, despite a claim for costs on ordinary discretionary grounds not having been pleaded, the Landlord ought to have been given an opportunity to make submissions seeking a costs order pursuant to section 154 of the Act.
The conclusion of His Honour Robinson AJ in relation to the costs claimed under the Lease was that “… the claim [being] formulated in this way, as an indemnity representing the costs of the proceedings, the trial judge was correct to dismiss it as being inconsistent with the Act”.
I see no material distinction between the claim for costs by the Landlord in these proceedings pursuant to clause 17.1 of the Lease and the claim for costs under the lease in Ginninderra Properties.
I dismiss the claim for costs on that basis.
I reserve any decision on a costs order under section 154 of the Act pending further submissions following delivery of these reasons for decision.
JUDGMENT
On the Landlord’s claim against the Tenant I give judgment for the Landlord against the Tenant in an amount of $106,231.00 made up as follows:
a. Rent (pre-GST) from 1 June 2014 to 18 August 2014
(Paragraph 19)$30,741.00 b. Interest on (a)
(Lease rate)$11,569.00 c. GST on (a)
$3,074.00 d. Damages for breach of make good obligations
(Paragraph 128)$29,190.00 e. Interest on (d)
(Rules rate)$6,586.00 f. Grease trap cleaning
(Paragraph 151)$848.00 g. Interest on (f)
(Lease rate)$311.00 h. GST on (f)
$85.00 i. Damages for loss of bargain
(Paragraph 153)$19,513.00 j. Interest on (i)
(Rules rate)$4,314.00 TOTAL
(Including interest to date of $22,780.00)$106,231.00
The Tenant’s counterclaim against the Landlord is dismissed.
I will hear the parties as to any claims for costs, outside the claim already dismissed under the terms of the Lease.
I certify that the preceding three hundred and thirty [330] paragraphs are a true copy of the Reasons for Decision of his Honour Magistrate P J Morrison.
Associate: Narika Wicks
Date: 1 May 2018
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