Coopes Pty Ltd v Claitrack Pty Ltd

[2007] NSWADT 157

CITATION:	Coopes Pty Ltd v Claitrack Pty Ltd & ors [2007] NSWADT 157
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Coopes Pty Ltd FIRST RESPONDENT Claitrack Pty Ltd SECOND RESPONDENTS Igal Makler & Michelle Anne Makler
FILE NUMBER:	065042
HEARING DATES:	19-20 December 2006
SUBMISSIONS CLOSED:	20 December 2006
DATE OF DECISION:	25 July 2007
BEFORE:	Fox R - Judicial Member
CATCHWORDS:	Claim for payment of money
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Cripps & Anor v G & M Dawson Pty Limited [2006] NSWCA 81
REPRESENTATION:	APPLICANT T Bors, barrister FIRST & SECOND RESPONDENTS J Lloyd, solicitor
ORDERS:	1. Applicant to pay First Respondent, by way of damages $21,271.57.; 2. No order against Second Respondents.; 3. Any application for costs to be made within 21 days. If an application is made, the applicant for costs is to file and serve submissions within 14 days and the respondent to that application is to file and serve submissions in reply within a further 14 days. Application to be determined on the papers. Otherwise no order for costs.

Background Facts

1 The Applicant is the landlord of lock-up shop premises identified as Shop 2, 3 Knox Street, Double Bay. The First Respondent is the tenant of the shop. It was used as a shoe sale shop. The Second Respondents, Igal Makler and Michelle Anna Makler are the directors of the First Respondent and are its guarantors. The Lease was for two (2) years with a two (2) year option and commenced 29 June 2003. The rental manager was Laing & Simmons, Double Bay.

2 The circumstances which gave rise to these proceedings were the tenant’s failure to pay the rent due 20 December 2004. This resulted in the agent, at 4.00pm on 24 January 2005 hand delivering a Notice requiring the payment by 4.00pm 25 January 2005, or if not so paid, the premises would then and there be “repossessed”.

3 As a matter of strict technicality, the Notice incorrectly identified the arrears as $11,400.00, being the rent due on 20 December 2004 and the rent due 20 January 2005. In fact the January rent was not overdue until 5.00pm 28 January, because the Lease provides that there is no default if the rent is paid within five (5) business days of the due date. The Lease defines business days as any day other than Saturday, Sunday, or public holidays. Be that as it may, the rent due 20 December 2004 had not been paid and the tenant was $5,720.00 in arrears when the Notice issued, and had been so for the better part of a month. The Lease provides that the payment of rent is an essential term, and that the breach of an essential term entitled the Lessor “By Notice to the tenant to terminate the Lease from the date of that Notice”.

4 The rent arrears were not disputed, and it is clear that the Applicant landlord was entitled to terminate the Lease, and successfully did so by service of the Notice and taking possession. However, the right of the Applicant to claim damages was in dispute.

Repudiation Accepted?

5 The Lease made the usual provisions to entitle damages for breach of an essential term. Mr Lloyd, on behalf of the tenant, argued that there had been a prior repudiation by the tenant, which the landlord had accepted. That brought the Lease to an end at the time of acceptance, and left the tenant holding over as a monthly tenant at will, and so, not liable for any rent or damages for non-payment of the balance of the term.

6 The facts which led to this proposition need to be considered in some detail.

7 The tenant had fitted the shop out at the commencement of the tenancy in June 2003. It had traded successfully until July 2004, when there was a business downturn in Double Bay. The tenant asked for a rent reduction of 50% which, I am satisfied from the evidence of both the principal of Laing & Simmons, Mrs Reid, and the actual rental manager, Ms Weaver, was referred to the landlord. It was refused on the ground that the rent being paid was still at the lower end of the market rental for that affluent area.

8 The next monthly rent, due 20 August 2004 was not paid, and Mr Makler then held discussions with Ms Weaver to the effect that Claitrack wished to surrender its tenancy. The agent placed a “For Lease sign” in the window. Mr Makler’s evidence was that, in this conversation, he said to Ms Weaver that he wished to vacate, but she had asked him to stay. This was because it would be easier to relet the premises if they were fitted and functioning instead of presenting as an empty shell. Although she denied it in her Affidavit, in cross-examination Ms Weaver acknowledged that she could have used such words, not as a request to the tenant, but more as advice to him, because he remained liable for the rent until a reletting was effected.

9. By 15 November 2004 the tenant had caught up some of the arrears of rent, and the agent had located a prospective new tenant, Aereao Coffee Pty Limited. This company was a manufacturer of shoes which wished to use the premises for the display and sale of its products. It offered to enter into a new Lease for a term of years at $4,766.67 (including GST) per month for the shop fully fitted out. It was Mr Makler’s evidence that he was not prepared to just give the fit-out away, and asked the proposed tenants for an offer for the purchase of the fit-out. No offer was made.

10. Furthermore, Mr Makler said that he was not prepared to pay the difference between the lower rental which Aerao proposed to pay and that which he was paying, because that meant that the new tenant got a rental discount which was the very thing which he (Makler) had been asking for and had not received.

11. Yet another reason for refusal was the fact the Claitrack was expected to pay Laing & Simmons’ letting fee of $5,033.00 (reduced from its usual fee of $7,550.00). Mr Makler, not unreasonably in my view, refused to pay this because his Lease had only 7 months to run, after which time the landlord would face a similar letting fee in any event.

12. The balance of the outstanding rent was paid on 17 November, 2 days after the full offer made by Aereao had been emailed to Claitrack.

13. Mr Lloyd argued that the request for a reletting, coupled with the failure to pay the rent on time, was a repudiation of the Lease which the landlord accepted by introducing another tenant. Whilst the logic of this proposition is clear enough, and may have a sound basis in law, it never actually applied to these circumstances. It seems to me that Laurina Pty Limited v Capalaba Park Shopping Centre (63ALJR 372) and Progressive Mailing House v Tabali (1985, 59 ALJR 373) are authority for the proposition that there must be an unequivocal and persistent rejection of the tenant’s obligations to initiate a repudiation. A mere statement of intention to terminate the tenancy, coupled with a request to find a new tenant, is not, in my view, that kind of rejection, even if combined with a failure to pay that month’s rent in due time.

14. Even if that conduct (the request, coupled with the tenant’s representatives’ actions taken to find a new tenant and the non-payment of rent) could be regarded as sufficient to amount to a repudiation, it all changed when the outstanding rent was paid on 17 November and the landlord accepted it. At that time, both parties reaffirmed their commitment to the Lease and it was again soundly on foot.

Lease Terminated by Failure to Pay Rent

15. The position changed by end December 2004 when the monthly rent, again, was more than 5 ordinary business days in arrear, and again, in accordance with the terms of the Lease, there was a potential for the Lessor to accept that as an act of default sufficient to bring the Lease to an end by Notice.

16. It is clear from the evidence that the Notice was delivered late on the afternoon of Monday 24 January 2005, approximately half an hour before closing time, and demanding the payment of the rent in full, or the vacation of the premises by 4.00pm the following day.

The Issue to be Determined

17. The matter in issue before me in this matter was not, as may have appeared at first blush, the adequacy of the time given in the Notice. If nothing else, the failure to pay the rent on time where the rent payment is made an essential term, renders the tenancy liable to immediate termination by the Lessor re-entering. In this particular case clause 12.1 of the Lease enables the termination by Notice. The real issue between the parties is the landlord’s subsequent actions in refusing to allow the tenant further entry to the premises to remove some items of stock, and some tenant’s fixtures.

18. As it transpired, the Notice had the desired effect on Mr Makler. He took immediate steps to hire staff and a vehicle, and spent the whole of 25 January 2005 moving the stock of the shop to other premises in Bondi Junction, from which he also conducted a shoe store.

19. It is clear from all of the evidence that most of the stock (and presumably some of the fixtures) had been removed by 4.00 or 4.30 on the afternoon of 25 January 2005, when Ms Reid arrived with a locksmith to change the locks.

20. I was given nothing to indicate why there was such a rush to have the premises vacated. The following day after the termination was the Australia Day public holiday, which I assume to have been a day when nothing could have been done to the shop by tradesmen or others to ready it for future letting. I am satisfied that absolutely nothing would have been lost to the landlord if, instead of the Notice terminating the tenancy at 4.00pm on 25 January, it had terminated the tenancy at 9.00am on Wednesday 27 January. That would have given Claitrack, effectively, another day to conclude its clearance of the premises.

21. Considering all of the evidence, it is clear that, by the time the locksmith and the security guard arrived, almost all of the shoe stock of the premises (between 1,000 and 1,200 pairs of shoes) had been removed and that all that remained was the shop counter, a custom built bench for clients to sit on, the glass display shelves and fixed wall mirrors which made up most of the shop fittings, and some items of stock in the back storeroom. Mr Makler’s staff of two were still engaged in the clearance process while the locksmith was at work, and continued until the locks had actually been changed at 4.30pm. Ms Reid stayed and watched, and the staff continued the clearance. By 5.15pm they had carried out the custom-built bench, found that they could not fit it into their vehicle, and returned it to the shop. Ms Reid indicated that she wished to “Lock the door and go.”

22. It was Mr Makler’s evidence that he at that time asked for access to the premises the following day, and that Ms Reid agreed to that, and they shook hands upon it. Ms Reid denied that she indicated that for 26 January, but acknowledged in cross-examination that she probably agreed that Makler could enter on 27 January to pick up his shelving and other items. My notes of this aspect of the cross-examination are that she said to Mr Makler that he would have access, but that she was instructed to the contrary by the Lessor and indicated that she was in need of a cash bond before she let him in. Makler refused to pay such a bond and Mr Makler never did gain further entry to the premises, despite some attempts by he, and Mrs Makler, to establish contact with Ms Reid for that purpose.

The Fittings and Stock

23. It is common ground that the shelves, the mirrors, the counter and the bench were left within the premises. Some of the shelving, the counter, and all of the mirrors remain in the premises to this day. The remainder of the shelves (and their supports), the bench, and the shoes were removed by Laing & Simmons and stored elsewhere.

24. There is a dispute about the quantity of shoes left within the premises in the rear storeroom. The landlord admits to 10 boxed pairs; Claitrack claims that there were 100 boxed pairs.

25. The lease provides:

13.1 Tenant to yield up

Upon the expiration of the Term (unless the tenant has been granted a lease for the Further Term) the tenant must:

(a) surrender peaceably and yield up the Premises to the landlord;

(i) clean and free from rubbish; and

(ii) in a state of repair and condition consistent with full compliance with the tenant’s obligations under this lease including the requirements of clause 5.1;

(b) deliver to the landlord all keys and/or cards which enable access to the Building and/or the Premises;

(c) subject to sub-clause 6.3(c), if required by the landlord:

(i) remove from within and on the Premises:

A. all of the tenant’s Fittings and Fixtures and other property of the tenant; and

B. all lettering, signs, advertisements and notices erected, painted, displayed or affixed by the tenant; and

(ii) either reinstate all parts of the Premises which have been altered by or on behalf of, or at the request of, the tenant so that the Premises are in the state they were in at the Occupation Date or pay to the landlord if it so directs the landlord’s reasonable Costs of so doing; and

(d) repair any damage to the Building and/or the Premises resulting from the performance by the tenant of its obligations under this clause 13.1.

13.2 Landlord’s right to remove

If the tenant fails to remove the tenant’s Fittings and Fixtures and/or other property of the tenant as required by clause 13.1:

(a) the landlord may without notice to the tenant:

(i) cause the tenant’s Fittings and Fixtures and/or other property of the tenant to be removed and stored in a manner that the landlord in its absolute discretion thinks fit at the risk and at the Cost of the tenant; or

(ii) treat the tenant’s Fittings and Fixtures and/or other property of the tenant as if the tenant had abandoned its interest in them and they had become the property of the landlord and deal with them in a manner that the landlord in its absolute discretion thinks fit without being liable in any way to account to the tenant for them; and

(b) the tenant:
(i) indemnified the landlord in respect of:

(A) the removal and storage of the tenant’s Fittings and Fixtures and/or other property of the tenant; and

(B) all claims which the landlord may suffer or incur at the suit of any person (other than the tenant) claiming an interest in the tenant’s Fittings and Fixtures and/or other property of the tenant by reason of the landlord acting in any manner permitted under this clause 13.2; and

(ii) must pay on demand to the landlord all Costs incurred by the landlord in exercising its rights under this clause 13.2, including any excess of Costs over money received in the disposal of the tenant’s Fittings and Fixtures and/or other property of the tenant.”

26. The 10 boxed pairs admitted by the landlord’s witnesses were on the floor of the storeroom. However, the evidence of Claitrack’s store manager, Mr Alia, was that there were another 100 or so boxes of assorted shoes in a storage cupboard which formed part of one wall of the back storeroom or storage area. Mr Alia was one of the two people who assisted in clearing the store on 25 January 2005. My notes of this oral evidence are “As I was packing I estimated what was next as I worked, visual memory of these 90 to 100 boxes.” In re-examination “As I was packing – mental notes as to what was next – pressure to remove it quickly – still stock and other items 90 to 100 in storeroom in cupboard and on floor.” They had started packing from the front of the store and worked their way out to the back.

27. I accept Mr Alia as being a witness of truth.

28. Incidentally, Mr Alia’s evidence also confirmed the evidence of Mr Makler in relation to the conversation with Ms Reid, indicating that there would be access to the premises the following day.

29. It was Mr Makler’s evidence that out of the stock of approximately 1,500 pairs there were between 60 and 100 boxes of shoes left in the shop. These, wholesale, were worth between $10,000.00 and $12,500.00. It was his further evidence that he only became aware of the fact that the shoes were missing when he had an inspection of the retained items, by appointment with Laing & Simmons, in storage premises controlled by them, in October of last year, some 18 months after the lock-out.

30. Against this is the evidence of Tom Mott, leasing manager for Laing & Simmons who, at Mrs Reid’s request, attended at the premises some days after the closure, to take photographs. His evidence confirmed the evidence of the other of the Lessor’s witnesses at the closure:- that there were the counter, the bench and 10 boxes of assorted shoes on the floor of the storage area. He, however, was the only one who actually looked in the mirrored cupboard, and his evidence was that there was nothing in there. He took photographs of the relevant part of the store and the storage area, showing boxes of shoes, the counter and the bench, but did not photograph the inside of the cupboard, because there was nothing there.

31. On balance I accept the evidence of Mr Makler and Mr Alia, and am satisfied that there were approximately 100 pairs of shoes in the cupboard which are now not to hand, and I accept Mr Makler’s evidence that the wholesale value of these was a minimum $10,000.00.

32. As I understand the landlord’s position, it claimed that these items in dispute all fell within clauses 13.1 and 13.2 of the Lease. They had either been abandoned and so fell within 13.2(a)(ii) or had been stored at the Respondent’s expense by the Applicant, and so fell within 13.2(a)(i). Mr Lloyd’s assertion on behalf of Claitrack was that the goods had been converted by the Lessor, and sought damages.

33. It seems to me to be clear from Mr Makler’s evidence that he had, in fact, abandoned the mirrors and the counter, but had not abandoned the shoes, the bench and the shelving. In relation to the shelf supports, I take this evidence to mean that he had not yet made up his mind, and his inability to gain access to the shop never actually gave him the choice.

34. The counter and some of the glass shelving and supports are still being used by the present tenant, and these have been converted. The remainder of the items which are presently still in storage were not in fact offered to be returned to Mr Makler until during the present hearing, and these I find, as a matter of law, have also been converted to the landlord’s use, as were indeed all of the other items being shoes and shelving and metal supports which have, in the interim, simply disappeared.

35. There is no doubt in my mind that the tenant’s failure to pay rent in accordance with the lease entitled the landlord to do that which was done, which was to terminate the occupancy virtually forthwith. However that does not then entitle the landlord to deny the tenant a reasonable opportunity to remove the tenant’s stock and tenant’s fittings etc from the premises. The landlord gave the tenant no more than one (1) working day to remove all, and that clearly was not sufficient. I must say that I gained the impression from the evidence that none of the present dispute would have arisen if the Respondent had had access to the premises during Australia Day.

36. The landlord prevented the tenant from re-entering the premises to obtain the goods; it can cannot be said that the tenant abandoned them. The tenant did not breach whatever obligations it had under clause 13.1, and so the landlord cannot take advantage of whatever rights it had under clause 13.2.

37. I suppose it to have been available to the landlord, on the evidence, to say that access to the premises was not denied, it having made a reasonable request for a cash bond to ensure that the premises were not damaged. That seems to me to be an attempt by the landlord to put itself in a stronger position than that which flows from clause 13.1 of the lease which envisages a removal and repair at the cost of the tenant. It seems to me to be clear from the words of the lease that the primary right and choice in these circumstances is that of the outgoing tenant (whether to remove and reinstate, or to abandon). Only after the tenant has exercised that right or clearly failed to exercise it, does the landlord’s right to remove and reinstate at the tenant’s cost arise.

38. It follows that the tenant’s counter-claim for damages is made out. There was, of course, regrettably little evidence of value, however that of Mr Makler, giving the figures listed below indicating that the shop had had a high quality fit-out, and it was only eighteen (18) months old, seems to me to be sufficient in the circumstances. It follows that the Respondent is entitled to claim, by way of damages for the conversion:-

(1) wholesale value of shoes $10,000.00

(2) value of counter $ 6,000.00

(3) value of bench $ 3,000.00

(4) value of 52 glass shelves at $200.00 per shelf $10,400.00

(5) value of 100 struts at $40.00 each $ 4,000.00

Total: $33,400.00

39. Of course I have to make some allowance for the fact that all of these items (other than the shoes) would have been subject to some kind of claim for depreciation, a 30% reduction seems appropriate in all the circumstances. I calculate the end result to be $26,380.00 (70% of $23,400.00 = $16,380.00 + $10,000.00).

40. I note that the Respondent would also appear to have had a good claim for loss of profit on the shoes, but none was made.

41. Set off against this, is of course, the landlord’s claim for the net rent of $8,048.55 together with interest pursuant to the lease, which is claimed at 10% and which by s72A(4)(b) of the Retail Leases Act is allowed, despite the lower prescribed limit to 9%. This is calculated at the full rate from the date when the lease would have ended (19 June 2005), and is calculated at half of that rate between 26 January 2005 and 19 June 2005 (in the same way as interest is calculated for past damages for periodic payments such as wages lost). I calculate the total amount of interest to the date of these reasons to be $1,801.43.

42. The Applicant also claimed a declaration that it was entitled to claim on the bank guarantee. As I have indicated in these reasons, the tenant was very clearly in arrears, and so the landlord was entitled to call upon the guarantee, and I will resolve that aspect of the matter by noting the Applicant’s total entitlement of rent (including interest) to be $25,449.98, of which $15,600.00 has already been paid.

43. The Applicant further claims the cost of security services at $876.00, the locksmith at $99.00, and the removalist at $77.00.

44. The claim for removalist expenses is rejected, if the Applicant had given the Respondent sufficient time to clear the premises, that need would not have arisen.

45. The claim for locksmith expenses seems to me to be justified.

46. The claim for the cost of security services caused me some concern, however, having considered Mr Makler’s demeanour in the witness box, considering the evidence of Ms Reid and Mr Makler generally, must say that I incline to the view that Ms Reid was entitled to take some steps to protect herself. However, on the other hand, had Mr Makler been given a more appropriate period of time in which to clear the shop, there would have been no need for “protection”. On balance, I disallow that aspect of the claim.

47. The total amount of the Applicant’s entitlement is $25,548.98 less $15,600.00, making a total of $9,948.98.

48. The Applicant’s claim for interest lies in contract, and it seems to me that I have a discretion under s72A to award the Respondent, in his claim for a set off, interest calculated at what I take to be the average rate claimed on the business overdrafts over the period, of 7 ½%. I calculate that to be $4,840.55, so the total is $31,220.55.

49. The end result is:

Balance payable by Respondent to Applicant $9,948.98

Amount payable by Applicant to Respondent

on counter claim $31,220.55

Amount actually payable by Applicant to

Respondent $21,171.57

50. Although the parties have claimed costs, the matter was not argued in any way, and I will grant them leave to make written submissions to me in my orders. However it does appear to me to be appropriate to make the preliminary comment that, apart from the costs thrown away by adjournment of 30 October at the request of the Respondent, subject always to further submissions, the Applicant’s behaviour may well fit within the description given by the Court of Appeal to the behaviour of the Lessor in Cripps & Anor v G & M Dawson Pty Limited [2006] NSWCA 81.