D & D Ventures Pty Ltd v Evans & Anor

[2004] NSWADT 130

CITATION:	D & D Ventures Pty Ltd v Evans & Anor [2004] NSWADT 130 [2004] NSWADT 130
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT D & D Ventures Pty Ltd RESPONDENTS Barry George Evans and Cherolyn Anne Evans
FILE NUMBER:	035040
HEARING DATES:	17/12/2003 - 19/12/2003
SUBMISSIONS CLOSED:	04/08/2004
DATE OF DECISION:	07/06/2004
BEFORE:	Chesterman M - ADCJ (Deputy President); Fairweather R - Non Judicial Member; Ward R - Non Judicial Member
APPLICATION:	Claim for payment of money - Unconscionability
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Fair Trading Act 1987 Retail Leases Act 1994 Trade Practices Act 1974 (Cth)
CASES CITED:	ACCC v C G Berbatis Holdings Pty Ltd (2003) 77 ALJR 926 Golden Harvest (Aust) Pty Ltd v Paing [2004] NSWCA 85 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Kollias v Monzo Pty Ltd [2003] NSWADT 275 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94 Taylor Farms (Australia) Pty Ltd v A Calkos Pty Ltd and Ors [1999] NSWSC 186 Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 Young v Lamb (No 2) [2001] NSWSC 1014
REPRESENTATION:	APPLICANT A Davis, barrister RESPONDENT S Reuben, barrister
ORDERS:	1. The Application is dismissed; 2. The Cross Claim is allowed; 3. The Applicant must pay to the Respondents the sum of $158,379.61, comprising a principal sum of $152,731.86 and $5,647.75 for interest; 4. Each party has 28 days from the date of this decision to file a written submission seeking an order for costs. If no submission is filed within that period, there will be no order for costs. If a submission is filed, any submission in reply is to be filed within a further 28 days. The Tribunal’s decision on costs will be reached on the basis of the written submissions, unless it determines, having considered reasons advanced in either or both of these submissions, that an oral hearing should be conducted.

Introduction

1 In this matter, the Applicant Lessee’s claim against the Respondent Lessors was based on alleged defects in premises (‘the premises’) which were the subject of a lease between them (‘the Lease’). The Lessee carried on a restaurant business at the premises, which were situated at 1-7 Napier Street, North Sydney.

2 The most important complaint by the Lessee was that on account of the alleged defects a covered area of significant size at the rear of the main building in the premises (‘the outdoor area’) could not be used to serve restaurant customers when it was raining or windy. This was because (a) during rain there were leaks through gaps at the edges of sheets of fibreglass roofing covering parts of this area and (b) in windy conditions dust and leaves were blown through these gaps into the area. In addition, there were, according to the Lessee, leaks during rainy weather into two further sections of the premises, over which a timber framed glass roof had been constructed. In one of these (‘the kitchen passageway’), food prepared inside the restaurant kitchen was handed to waiters to be taken to customers in the outdoor area. There was also a stairway down to the toilets at basement level. The other (‘the bar passageway’) was adjacent to a bar. The Lessee also alleged that water leaked into and flooded the basement, where there were toilets, an office, storage space and a freezer.

3 A further complaint by the Lessee, that the Lessors had failed to repair the restaurant’s hot water system, was abandoned at the hearing.

4 On the ground that the Lessor refused to take steps to repair these alleged defects, the Lessee vacated the premises and purported to terminate the Lease while it still had some fourteen months to run. The Lessors regained possession. They neither relet nor sold the premises.

5 In a cross claim, the Lessors claimed damages from the Lessee for unpaid rent and outgoings, the cost of repairs, replacement and restoration of the premises, rent during the unexpired portion of the Lease and costs associated with attempting to relet the premises.

6 Evidence in the case was put before us on 17, 18 and 19 December 2003. Subsequently, counsel provided us with written submissions.

Outline of the evidence

7 Before either the Lessors or the Lessee had any involvement with the premises, they were owned by companies controlled by Mark and Lorinda Armstrong. Mr and Ms Armstrong established a restaurant, called ‘Armstrongs’, in the late 1980s. In April 1987, they lodged a Development Application for the restaurant business with North Sydney Council.

8 The plans accompanying the Application (‘the restaurant plans’) labelled the central segment of the outdoor area as ‘outdoor dining’ and did not show it as roofed or provide for it to be roofed. The sections of the plans representing the two passageways and two segments of the outdoor area adjacent to these passageways were hatched and bore notations as follows: ‘new timber framed glass roof over’. The glass roof over these segments was, it seems, already in place when the plans were lodged. The sections of the plans representing two further segments of the outdoor area, one at each end, were neither hatched nor accompanied by any notations. In a letter dated 11 June 1987 granting approval, the Council appeared (though the terminology is not wholly clear) to stipulate that the area labelled ‘outdoor dining’ was ‘not to be enclosed’.

9 At some time between June 1987 and June 1998, it would appear that the owners, without obtaining Council approval, erected fibreglass roofing over the central segment of the outdoor area and over the two segments at either end of this area. In consequence, all of the outdoor area had some sort of roof over it. The segments adjacent to the passageways had a timber framed glass roof. The central segment and the segments at each end were covered by fibreglass sheets.

10 On 1 June 1998, their companies sold the premises to the Lessors, who leased them back to Armstrongs Brasserie Pty Ltd (a company also controlled by Mr and Ms Armstrong) by a registered lease (i.e., ‘the Lease’) bearing the same date. The Lease, which was governed by the Retail Leases Act 1994 (‘the Act’), was for an initial term of six years terminating on 31 May 2004, with two options of renewal for a six-year term in each case. The stipulated rent was $14,333.33 per month plus outgoings, with a provision for an annual rental increase of 5%. The permitted use was shown as ‘restaurant’.

11 Mr Evans agreed during cross examination that he realised that installation of the fibreglass roofing over the relevant parts of the outdoor area had probably not been authorised by the Council. He was then and still is a licensed builder and an architect.

12 Mr Evans testified that between June 1998 and September 2001 he attended the premises on two occasions after Mr Armstrong had notified him that the roof was leaking on account of wet weather.

13 On the first occasion, the leak was into the bar passageway. Mr Evans noticed that an air-conditioning unit that was supported in a box gutter over this area had distorted the gutter so as to let water enter between the gutter and the adjoining roof. He screw-fixed the gutter so as to rectify the problem and told Mr Armstrong that the supports for the unit should be removed from the gutter.

14 On the second occasion, the leak was into the outdoor area. Mr Evans inspected the roof, but could find no problem. Shortly after, Mr Armstrong informed him that the gutter on the adjacent building had blocked and was overflowing into the restaurant. On each occasions that Mr Evans inspected the premises, he told Mr Armstrong that the gutters had to be regularly cleared of leaves and debris.

15 Evidence was given by Mr Damian Wrigley, who was employed by Mr Armstrong at the premises between December 1999 and October 2001 and thereafter by the Lessee until, it would seem, the time when the Lessee vacated the premises. He said that on several occasions during this period there were leaks during rainy weather into the outdoor area and the two passageways and from the kitchen passageway down the stairs into a basement below, where the toilets were situated. In the basement, it would also flood the office. Water, he said, ‘gushed through the holes quite heavily’, particularly in the outdoor area. It was therefore necessary to relocate customers from this area into the main dining room of the restaurant. If rain threatened, customers would not be seated in the outdoor area.

16 Mr Wrigley also stated that the water ‘did considerable damage to various surfaces in the restaurant’. He said, for instance, that the wooden counter at the bar service area was warped, that the walls in the outdoor area and the alleyways were stained with dirty water marks, that skirting boards and doors were swollen and their finishes damaged and that there was mould on the walls and a ‘musty smell’ in the outdoor area.

17 Mr Wrigley’s evidence included the statement that in December 1999, when he was first employed by Armstrongs Brasserie Pty Ltd, ‘the condition of the premises was generally worse’ than at the time when the Lessee vacated them. Amongst the items of damage that he attributed to leakage, he said that the following were evident in December 1999: the warping of the wooden counter, the damage to skirting boards and the mould on the walls in the outdoor area. He also listed a number of other defects in the condition of the premises at this time.

18 According to Mr Wrigley, Mr Evans inspected the premises several times in response to calls from Mr Armstrong, but did not effect any repairs.

19 Discussions and negotiations occurred during September and October 2001 between the Lessors, Mr Armstrong and Messrs Dino Mezzatesta and David Greenhill, representing the Lessee. On 3 October, the Lessee purchased the restaurant business from Armstrongs Brasserie Pty Ltd. On 10 October, Mr Mezzatesta became the current holder of a liquor licence relating to the restaurant business. On 24 October, the Lessee took an assignment of the Lease, with the Lessors’ consent.

20 According to Mr Evans, one or other of Mr Mezzatesta and Mr Greenhill indicated to him during these negotiations that the Lessee intended to make improvements to the premises, including making the ‘outdoor rear section’ more useable. Mr Mezzatesta denied that this was said.

21 Council records show that on 24 September and 26 October 2001 Mr Mezzatesta inquired at North Sydney Council regarding any existing development approvals relating to the premises. Mr Mezzatesta said that he made these inquiries at the suggestion of Kemp Strang Lawyers, who then acted for the Lessee, solely in order to check that in any such approvals the use of the premises for a restaurant was permitted. He said that on his earlier visit he was unable to get access to the approvals, which prompted him to ask Kemp Strang to institute inquiries instead.

22 Kemp Strang requested access to the approval documents on 8 and 11 October 2001. In the second of these requests, Kemp Strang asked to see any plans of the premises held by the Council.

23 Kemp Strang also indicated in two separate letters, dated 18 and 22 October 2001, to Michael Riley & Associates, who then acted for the Lessors, that the Lessee was considering making alterations to the premises. In the second of these letters, it stated that Mr Mezzatesta had attended North Sydney Council to confirm that there was an existing development approval with respect to the use of the premises by Armstrong Brasserie Pty Ltd. It asked whether Michael Riley & Associates could provide copies of the relevant approvals since Mr Mezzatesta had not been given copies by the Council. It added that ‘these will be relevant for any alterations that our client may wish to make to the premises (subject, of course, to your client’s consent)’.

24 The liquor licence granted to Mr Mezzatesta on 10 October 2001 relevantly distinguished between seating in the ‘Dining Area’ (i.e., within the main building) and in the ‘Terrace Dining Area’ (i.e., within what we have labelled the outdoor area).

25 Mr Mezzatesta said in evidence that his meetings with Mr Armstrong, of which there were between three and six, all took place inside the main building of the restaurant. Mr Evans attended one of these meetings, as did Mr Josie Feszt, a broker who had played a role in bringing together the parties to the proposed sale and assignment. Although Mr Mezzatesta and Mr Greenhill walked once around the rear area, they did not inspect the roofs covering the two passageways and the outdoor area and did not notice two drainage grates, some 12 to 15 centimetres wide, in the floor of the outdoor area. They did observe, however, that the outdoor area had windows, air-conditioning units on the walls, a tiled floor and indoor restaurant furniture. The reason why they did not carry out a detailed inspection of these parts of the premises was that Mr Armstrong indicated that he did not want his staff to suspect that a sale of the business was being negotiated. He said to Mr Mezzatesta and Mr Greenhill that he had told his staff that they were architects.

26 It was put to Mr Mezzatesta in cross examination that at this time a person standing in the outdoor area and looking upwards could see that gutters had been placed directly above the roof of this area, along the lines where it joined the walls of the main building. A photograph tendered to the Tribunal supported this contention. Mr Mezzatesta stated that these gutters could only be seen by someone standing directly underneath them, that he did not see them during this period of negotiations and that in any event they could have deteriorated after this period. Mr Wrigley agreed with the first of these statements.

27 In an affidavit sworn on 27 June 2003, Mr Mezzatesta stated that after the Lessee obtained possession, he became aware of the existence of ‘gaps’ in the roofing. Referring to the roofing over the two passageways, he stated that there were ‘gaps in the roof up to 2 centimetres in width, not only at the walls, but wherever the glass [over the passageways] and Perspex sheeting [i.e., the fibreglass covering of parts of the outdoor area] joined’. Referring to the outdoor area generally, he stated as follows:-

The roof had been constructed in such a way that there were large gaps adjacent to the external guttering. Through these gaps, the contents of the gutters blew into the restaurant whenever it was windy.

28 According to Mr Mezzatesta, neither Mr Armstrong nor Mr Evans said anything to Mr Mezzatesta or Mr Greenhill to indicate whether the outdoor area and the passageways were waterproof. There was no evidence in these proceedings from either Mr Greenhill or Mr Armstrong.

29 According to Mr Mezzatesta, on 20 November 2001, he telephoned Mr Evans and complained about water leaking into the outdoor area. This was, he said in evidence, the first time that it had rained since the Lessee had taken over the premises. He said that Mr Evans asserted in response that, as plans of the premises showed, this was an outdoor area, which was not intended to be waterproof. Mr Evans denied that this conversation occurred. The Lessee tendered a Telstra record of telephone calls made from the restaurant during November 2001. It showed that a twelve-minute call was made to Avoca Beach, where Mr Evans resided, on the afternoon of 20 November.

30 Late in November 2001, the Lessee engaged Michael McCann, a consultant architect, to prepare plans of alterations to the premises. It instructed Mr McCann to assist with preparation of a development application. According to Mr Mezzatesta, Mr McCann obtained a copy of the restaurant plans from North Sydney Council and showed them to him some time in January 2002. This was, he said, the first time that he saw the plans.

31 According to Mr Evans, the first time that the Lessors became aware of any concerns on the Lessee’s part about water leaks in the premises was on the receipt of a letter dated 24 January 2002 from the Lessee. Having stated that ‘we have spoken previously about the water leaks within the building in the area known as the dining area at the rear of the restaurant’, this letter went on to describe ‘several days of heavy and torrential rain’ during the past three months, causing ‘excessive water puddles in this part of the restaurant’. It alleged that in consequence one of the staff had slipped and fell, fortunately without serious injury. It claimed also that since the Lessee had been forced to close off this area to the public, it had suffered financial detriment. After referring to the Lessee’s plans to redesign the area, subject to the approval of the Lessors and the Council, the letter asserted that the Lessors had failed to fulfil their obligation under the Lease to maintain the roof in good condition and serviceable repair, and otherwise to maintain the property in a structurally sound condition. It claimed that the rent should for this reason be reduced, so long as the leaking continued, in proportion with the number of restaurant seats that were rendered unusable. It specified this number as 44, out of a total of 156 seats in the restaurant. It asked that Mr Evans respond as a matter of urgency.

32 Photographs taken by Mr Mezzatesta early in 2002 provide evidence of water having leaked into the kitchen passageway and into the central section of the outdoor area, notably down the wall below the edge of the fibreglass roof that ran adjacent to the external wall of the next-door building. Mr Wrigley’s evidence corroborated this.

33 Mr Evans testified that on 29 January 2002 he rang Mr Mezzatesta and ‘disputed all claims’. The copy of this letter that is annexed to his affidavit bears a notation to this effect. On 31 January, the Lessors added the following postscript to an invoice for rent sent to the Lessee:-

Dear Dino [Mezzatesta]

As advised by telephone 29.1.02, the Outdoor Dining area is just that, an “Outdoor Area”. It was never intended to be, never was and is not a weatherproof or waterproof area.

34 At or about the end of January 2002, Mr Evans visited the premises. He was accompanied by his son Peter, who was also a licensed builder. According to his account, he went up on the roof to inspect it. He then told Mr Mezzatesta that the leaking occurred because the gutters were blocked by leaves and because supports for two air conditioning units placed above the kitchen passageway were situated in the gutter, causing blockages to build up.

35 Mr Mezzatesta’s version was that Mr Evans’ son Peter went up on the roof and used a silicon gun to try to seal gaps between the sheets of fibreglass. Mr Evans said that the roof had been ‘done badly’, that the box guttering was ‘not up to the job’, that the bolting of the air-conditioning units created a problem, but that it was ‘supposed to be an outdoor area’. According to Mr Mezzatesta, this attempt at repair was ineffective and the roof continued to leak when it rained.

36 A photograph taken from above the premises and tendered by the Lessors depicted the various segments of roofing (glass and fibreglass). It also showed two air-conditioning units installed above the gutter and the adjoining edge of the roof above the kitchen passageway and a further two units similarly installed above the bar passageway.

37 On 31 January 2002, the Lessee sent a completed form of Development Application, including plans, to the Lessors, requesting their consent to the proposed alterations. The covering letter contained a statement that the proposed alterations included ‘replacing the “Outdoor/Terrace” roof area that currently is an issue’. On 4 February 2002, Mr Evans returned the form bearing the Lessors’ signatures. In a covering letter, he indicated that these signatures did not convey the Lessors’ approval to the alterations and suggested that a good deal more detail was required, notably in relation to the proposed ‘glazed roof structure’ for the outdoor area and the proposed roof drainage system.

38 On 12 February 2002, having amended the Development Application to take account of these suggestions, the Lessee lodged it with North Sydney Council. On 20 March, however, the Council indicated that it could not support the Application in its present form. The Lessee accordingly withdrew the Application on 18 April 2002, without (it seems) notifying the Lessors.

39 On 23 April 2002, Kemp Strang wrote to the Lessors, stating that it had been instructed by the Lessee to the following effect: (a) that ‘the area located between the bar and the kitchen and behind the bar and kitchen’ had been ‘leaking significantly during wet weather’; (b) that independent contractors had confirmed that this was due to ‘defects in the roofing structure’; (c) that quotations for repairs to the roof had been forwarded to the Lessors; (d) that the leaking had substantially and adversely affected the useability of that area, forcing the Lessee to close it to the public due to safety concerns and to cancel bookings; (e) that the Lessee had suffered significant financial loss; and (f) that despite a number of notifications of these problems, the Lessors had done nothing to rectify the problems except to send their son to look at the roof. The letter referred to sub-clause 3.1 of the Lease, where the leased property is defined, and to sub-clause 7.1, setting out the Lessors’ obligations in relation to repair and maintenance. These clauses are set out below. The letter then claimed that the Lessors were in breach of their obligations under sub-clause 7.1 and demanded that the roof be repaired immediately, failing which the Lessee would ‘take steps to enforce its rights’.

40 There was no evidence to corroborate the assertion in this letter that quotations for repairs of the roof had been forwarded to the Lessors.

41 In a reply dated 8 May 2002, the Lessors asserted as follows:-

The area referred to in your correspondence as leaking is an

OUTDOOR DINING AREA

Please note:

(a) Building plans

(b) Conditions of Building consent from North Sydney Council

(c) the stormwater grates in the floor/surface area of the

TERRACE/OUTDOOR DINING

The area never was waterproof or weatherproof but given a degree of protection by the previous tennant (sic) by installation of the fibreglass sheeting.

Your client may remove the fibreglass sheeting if they so wish.

We have been informed by your client that they have a Development Application in to North Sydney Council which involves variation and development in this area. We await determination of the DA by Council and advice from your client.

42 According to Mr Evans, he and his son Peter visited the premises during May 2002 and again cleaned the gutters. He said to Mr Mezzatesta that if the Lessee intended to relocate the air-conditioning units from within the box gutters, he would repair any damage done or renew the gutters if necessary. He said also that he would pay half of the cost of waterproofing and weatherproofing the rear section. According to Mr Mezzatesta, neither Mr Evans nor his son cleaned the gutters, and his offer was limited to paying $2,000 towards the cost of repairing the gutters if the air-conditioning units were removed.

43 On 31 May 2002, the Lessee sought the Lessors’ consent to a second Development Application. This was given and the Application was lodged at North Sydney Council on 20 June. The Council gave its approval on 24 October 2002.

44 Mr Mezzatesta testified that in the second half of 2002 and the early months of 2003, the Lessee’s business continued to suffer, in the ways already outlined, on account of the roofing problems. Mr Wrigley’s evidence corroborated this. Mr Mezzatesta said that on every occasion that he spoke to Mr Evans after November 2001 he raised the issue of water penetration. Mr Evans said, however, that at a meeting in October 2002, and again in a conversation on 20 March 2003, this issue was not mentioned.

45 The Lessors wrote to the Lessee in June and August 2002 and in February and March 2003 regarding arrears in the payment of the stipulated rent and outgoings. Arrangements were proposed by the Lessors for discharge of the arrears by instalments and, on one occasion, for a reduction of the rent by $2,000 per month over a period of six months. The last of these arrangements was set out in a payment schedule forming part of a letter dated 20 March 2003 from the Lessors to the Lessee.

46 During February 2003, the Registrar of Retail Tenancy Disputes attempted unsuccessfully to mediate the dispute between the parties.

47 Mr Evans alleged, but Mr Mezzatesta denied, that in July 2002 Mr Mezzatesta indicated that the reason why payments had fallen into arrears was that the Lessee was having ‘a cash flow problem’ at the restaurant. On 30 August 2002, however, Mr Mezzatesta stated in a fax to Mr Evans that he had recently met with his bank manager and accountant to try to find ‘a short term solution to the current situation we find ourselves in’, that the Lessee was trying to find an investor if it could show the potential of financial growth once the alterations proposed in the Development Application had been completed and that it was considering selling the business, as a less desirable alternative. He added that the Lessee’s options were ‘very limited’.

48 According to Mr Mezzatesta, the Lessee ceased paying rent in January 2003 on the basis of legal advice that it was entitled to so by virtue of the financial losses caused by water penetration. Business during December 2002 had, he said, been badly affected. He said also that the Lessee did not agree to the repayment schedule set out in the letter of 20 March 2003 because it had already decided to vacate the premises.

49 According to Mr Mezzatesta, on 26 March 2003 the Lessee had to terminate prematurely a 21st birthday party for which the entire restaurant had been booked, because it started to rain at about 8.30 p.m. and the resulting leakage into the outdoor area made it unsafe for a disc jockey to set up his equipment and for patrons to dance there. The Lessee tendered a video showing the state of the restaurant on that occasion. It confirmed Mr Mezzatesta’s description of significant leakage into the outdoor area and the passageways.

50 On 1 April 2003, the Lessee removed a large quantity of restaurant equipment from the premises and vacated them. On that same day, Mr Mezzatesta rang Mr Evans to advise him of this. He also instructed the Lessee’s solicitors, Tillyard & Callanan, to send a formal notice of termination of the Lease to the Lessors. A notice was sent on 3 April, stating that the Lessee terminated the Lease as from 10 April. In Mr Mezzatesta’s conversation on 1 April with Mr Evans and in the notice of termination, the ground alleged was that the Lessors had failed, despite notifications, to repair structural defects in the roof and to maintain the premises in a structurally sound condition.

51 As shown in a series of photographs taken shortly afterwards for the Lessors, the premises were left in a distinctly less than perfect condition. By way of example, there was evident damage arising from the removal of items of equipment, the surfaces of walls and floors were damaged or discoloured and a good deal of debris was left behind.

52 There was disputed evidence as to when precisely the keys to the premises were handed to the Lessors and whether at any stage the Lessee, being ready and willing to return to the premises in order to effect repairs and cleaning, had in fact been denied access. The Lessee claimed that it returned all the keys on or about 1 April. According to Mr Evans, he received the final set from Mr Mezzatesta on 7 April and that in the intervening period the Lessee could readily have repaired and cleaned the premises.

53 According to the Lessors, the Lessee removed significant items of equipment that belonged to them: for example, light fittings, compressors, wine racks and shelving. The Lessee’s argument in response was that many of these items, having been listed in an inventory attached to its contract of purchase of the business from Armstrongs Brasserie Pty Ltd, did not belong to the Lessors.

54 The Lessors also claimed that the Lessee had left in the premises a few items of equipment that they were obliged to remove. In relation to one of them, a rotisserie, the Lessee’s response was that Mr Evans had asked that it be left behind.

55 Mr Evans testified that the premises were in generally good condition at the commencement of the Lease. He produced no documentary or other evidence in support of this claim. Mr Wrigley said that, as at December 1999 there were numerous defects. He referred, for instance, to cracked tiles, a door not shutting properly, cracks in the walls of the outdoor area, a tap and a drain that did not function properly and, as already indicated, some further items of damage that he attributed to leakage.

56 The Lessors tendered expert evidence regarding the cost of the specific tasks of repair and making good, and the specific purchases of equipment, that would be required to restore the premises to the state in which, according to Mr Evans, they were at the time of the commencement of the Lease. In an expert report tendered by the Lessee, an opinion was given as to which of the claimed items of damage would have been attributable to leakage. By agreement, there was no cross-examination of these expert witnesses.

57 In addition, a Scott Schedule prepared by both parties listed these individual claims for the cost of repairs and items of equipment. It summarised the contentions of each party in relation to them and indicating in relation to some of them that the Lessee admitted a liability to make some payment to the Lessors, though generally of less than the amount claimed.

58 The Lessors said that they endeavoured to lease the premises after they resumed possession. Mr Evans testified that they employed Mr Feszt and two real estate agents as from May 2003 to obtain a new tenant. The only person who showed interest offered only $104,000 per annum, less than one-half of what the Lessee had been paying when the Lease ended. This person withdrew from negotiations in June or July 2003.

59 In addition, copies of three newspaper advertisements for an auction sale of the premises on 30 September 2003 were annexed to an affidavit of Mr Evans. He said that other advertisements were placed, both in newspapers and on an agent’s website. At the auction, there was no bid from any prospective purchaser. An offer received two to three weeks later was for $2.2 million. The auction reserve price was $2.5 million and the Lessors had been told that they could expect $2.8 million if rent at the level that the Lessee had paid was still achievable.

Assessment of the evidence relating to the Lessee’s claim

60 In our opinion, the two principal witnesses, Mr Mezzatesta and Mr Evans, were both generally truthful and reliable. On various aspects of the meetings and conversations between them, their testimonies were in conflict, but for reasons that will emerge we do not consider it essential to determine which of the competing accounts should be believed.

61 The important findings that we make are these:-

· During the negotiations leading up to the assignment of the Lease on 24 October 2001, neither Mr Evans nor anyone else on the Lessors’ behalf advised Mr Mezzatesta or anyone else representing the Lessee that the roofing over the outdoor area and the passageways would sometimes let in water during rainy weather, even though Mr Evans was aware of this.

· Equally, during this period neither Mr Evans nor anyone else on the Lessors’ behalf said to Mr Mezzatesta or anyone else representing the Lessee that the roofing over the outdoor area and the passageways was waterproof or weatherproof.

· During this same period, the Lessee was not prevented by any action on the part of the Lessors or Armstrong Brasserie Pty Ltd from arranging for the premises to be inspected by a builder, engineer or architect, or indeed by Mr Mezzatesta or Mr Greenhill. In so finding, we take due account of Mr Mezzatesta’s evidence that Mr Armstrong did not want a physical inspection to be carried out while his staff were present on the premises. It was not suggested in the evidence that a request by the Lessee for permission to arrange an inspection while staff were not present would have been turned down.

· Similarly, representatives of the Lessee and its solicitors had a reasonable opportunity before the assignment was completed to inspect the restaurant plans and to note that the central part of the outdoor area was labelled ‘outdoor dining’. It may well be that such an inspection did take place, but it is not necessary for us to reach a conclusion on this issue. We do find, however, that the two letters sent by the Lessee’s solicitors to the Lessors’ solicitors a few days before the assignment was executed (see [23] above]) were sufficient to convey the impression – which may have been formed by the Lessors and/or their solicitors – that the Lessee and/or its solicitors had seen the plans and noted the labelling of the outdoor area.

· A reasonably careful visual inspection before the assignment would have been sufficient to indicate that water could leak through the gaps between the fibreglass covering of the central section of the outdoor area and the adjacent roofs or walls (including the wall of the property adjoining the premises at the rear). Mr Mezzatesta’s affidavit noted the existence of these gaps, implying that he became aware of them at or about 20 November 2001, when he first complained to Mr Evans. This was less than one month after the Lessee obtained possession of the premises.

· It should be inferred from the evidence of Mr Wrigley that at least some of the damage to the premises and equipment (for example, to skirting boards and to a bench counter) that was attributable to the leakage was visible at the time of the assignment.

The elements of the Lessee’s claim

62 The Lessee’s principal claim against the Lessors was for an award of damages. It alleged that there were five grounds of recovery: (a) breach of the Lessors’ covenants set out in sub-clauses 7.1.1, 7.1.2 and 11.3 of the Lease; (b) misrepresentation under s 10 of the Act; (c) unconscionable conduct under s 62B of the Act; (d) misleading or deceptive conduct under s 42 of the Fair Trading Act 1987; and (e) a false and misleading representation concerning the nature of an interest in land under s 45 of the Fair Trading Act.

63 In addition, the Lessee claimed (i) that by virtue of damage to the premises, its liability to pay rent and outgoings had been reduced pursuant to sub-clause 8.2.2 and (ii) that since the Lessors had failed to repair the damage within a reasonable time after being notified of it, the Lessee had become entitled under sub-clause 8.2.4 to terminate the Lease on not less than seven days’ notice.

64 In relation to the last two of the five grounds on which damages were claimed, our ruling is that these must fail because this Tribunal, in exercising its functions under the Retail Leases Act 1994, does not have jurisdiction to make award of damages under s 42 or s 45 of the Fair Trading Act. This was held in relation to this Tribunal’s predecessor, the Commercial Tribunal, in the Supreme Court case of Taylor Farms (Australia) Pty Ltd v A Calkos Pty Ltd and Ors [1999] NSWSC 186. In subsequent decisions of this Tribunal reaching the same conclusion as regards jurisdiction under comparable sections of the Trade Practices Act 1974 (Cth), it has been implicitly accepted that the Taylor Farms ruling applies to this Tribunal just as to its predecessor: see Kollias v Monzo Pty Ltd [2003] NSWADT 275 at [8], [9], [12]; Skiwing Pty Ltd v Trust Co of Australia Ltd (No 3) [2004] NSWADT 94 at [5], [15].

65 Mr Davis, for the Lessee, submitted that the Taylor Farms decision was ‘not one based upon the Retail Leases Act as is the situation in this matter’ and that in that case, in contrast to the present, ‘it was not alleged that the obligations, which were the subject of the dispute, arose under the lease in question’. We see no basis for this submission. As we read Taylor Farms, it dealt expressly with the situation where, in a case brought under the Retail Leases Act in the statutory tribunal then possessing jurisdiction to hear claims under that Act, a party to the relevant lease (in fact, the lessee by assignment) sought to rely on s 42 of the Fair Trading Act as a basis for claiming damages against the other party to the lease (i.e., the lessor). That situation is replicated in the present proceedings.

66 We turn now to the other three grounds on which the Lessee claimed damages.

67 The first of them was based on sub-clauses 7.1.1, 7.1.2 and 11.3 of the Lease. The first two of these sub-clauses, together with their heading and sub-heading, were as follows:-

Clause 7 CONDITION AND REPAIRS

Who is to repair the property?

7.1 The landlord must –

7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls, and the floors of the property and must fix structural defects;

7.1.2 maintain the property in a structurally sound condition

68 Sub-clause 11.3 deals with the situation where the property leased is part of a building owned or controlled by the landlord. This was not the case in these proceedings, so the sub-clause, in our view, is irrelevant.

69 Sub-clause 3.1 of the Lease stated that ‘the property leased’ was ‘described on page 1’ of the Lease. The description on page 1 simply listed four ‘folio identifiers’.

70 In essence, the argument of Mr Davis, for the Lessee, based on sub-clauses 7.1.1 and 7.1.2 was that the fibreglass roofing over the outdoor areas and the two passageways both fell within the term ‘roof’ in sub-clause 7.1.1 and formed part of the structure of the property, with the consequence that the Lessors’ refusal to take steps to prevent it leaking amounted to a failure to ‘maintain’ it ‘in a state of good condition and serviceable repair’, to ‘fix structural defects’ and to ‘maintain the property in a structurally sound condition’. He also argued that because, ‘presumably’, the roof over the outdoor area would have been waterproof when it was erected before the sale of the premises to the Lessors, it must have deteriorated subsequently. In consequence, the leaking was attributable, he said, to damage, imposing on the Lessors an obligation to repair.

71 The first major submission made in response by Mr Reuben, counsel for the Lessors, was that the content of the Lessors’ obligations to maintain the roof ‘in a state of good condition and serviceable repair’ depended on ‘what constituted a state of good condition and serviceable repair’ of the particular fibreglass roofing that existed at the time of assignment of the Lease. He contended that by virtue of two factors in particular this phrase did not include any requirement that the roofing should be waterproof and weatherproof. The first of these was that a visual inspection would have been sufficient to indicate that water could leak through the gaps, to which Mr Mezzatesta had referred in his affidavit, between the fibreglass covering and the adjacent roofs or walls. The second was that the plans lodged with the Council, which the Lessee through its solicitors had sought to inspect before the assignment was completed, labelled the outdoor area as ‘outdoor dining’.

72 As support for this line of argument, Mr Reuben referred to cases establishing that, subject to one exception, at common law a lessor give no implied warranty to a lessee (including a lessee taking by assignment) that the property is physically fit for the purpose for which it is let, even if the lessor is aware of that purpose. It is instead for the lessee to make the necessary inspections, relying on relevant experts if necessary, to ensure that this requirement is fulfilled. The exception is that the lessor of furnished residential premises impliedly warrants that the premises are fit for human habitation. Mr Reuben quoted (without citing the source) a passage explaining these principles in Duncan, W D, Commercial Leases in Australia, 3rd edn, 1998, LBC, Sydney, 26-27. A similar explanation appears in Lang’s Commercial Leasing in Australia, CCH Australia, para 28-100.

73 In this context, Mr Reuben further argued (a) that the features of the roofing causing it to leak could not be described as ‘structural defects’ and (b) that, in so far as the Lessee’s case under sub-clauses 7.1.1 and 7.1.2 depended on an alleged failure to ‘repair’, there had been no evidence of any ‘damage’ that would give rise to an obligation to ‘repair’.

74 While we have not found the point to be an easy one, we have concluded that Mr Reuben’s arguments on this issue are compelling, so far as the central section of the outdoor area is concerned.

75 In reaching this conclusion, we place considerable importance on the nature, condition and mode of installation of the fibreglass roofing over this area at the time when the Lessee acquired possession. The evidence of Mr Mezzatesta and of Mr Wrigley indicates that the gaps between this roofing and the adjoining walls or roofs were visible. Mr Wrigley’s evidence suggests that some damage caused by leakage was also visible. The fact that this area of roofing was erected in such a way that leaks would occur during rain was ascertainable on a proper inspection. This problem was not a latent one.

76 In our judgment, it accordingly cannot be said that the Lessors failed, during the period following the assignment, to ‘maintain’ this roofing or to fix any ‘structural defects’ in it. The assumption by Mr Davis that the roof would ‘presumably’ have been waterproof when it was first installed is not one that we are prepared to make, so his argument that by the time of the assignment there was damage which the Lessors were obliged to repair must fail. Given that the Lessors were not bound by any implied warranty to the effect that the premises were fit for the purpose for which they were leased, it would, we believe, be wrong to interpret sub-clauses 7.1.1 and 7.1.2 so as, in effect, to incorporate such a warranty.

77 The tenor of our reaction to Mr Davis’s contentions on this issue can be illustrated as follows. A proposition advanced by him in his submissions in reply was that it was ‘not part of a tenant’s normal due diligence to obtain a building inspection before signing a lease’. But in Lang’s Commercial Leasing in Australia, CCH Australia, para 4-140, a suggested list of ‘Lessees’ solicitors searches and enquiries’ includes the following item:-

Technical and other inquiries relating to the physical and legal suitability and fitness for the purpose of the premises for the lessee’s intended use. That may involve, depending on the nature and size of the building and the premises and the size of the lessee’s investment –

· the physical condition and stability of the building and premises, no structural problems, state of repair, and condition of premises, fixtures, fittings, adequacy of support of floor for lessee’s intended use;…

78 In our judgment, the inclusion of this item amongst the tasks to be completed by prospective lessees and their legal advisers appropriately reflects the law’s denial of any implied warranty of fitness of the premises for a lessee’s intended use. This cannot be said of the proposition, akin to that put forward by Mr Davis, that a lessee is entitled to rely on disclosure by the lessor of any matter that, despite appearances, might prevent or inhibit such use and therefore need not conduct its own inspections and/or inquiries.

79 Our conclusion is strengthened by the consideration that the Lessee acquired its rights under the Lease by assignment, not as the original leaseholder. Before the assignment, as Mr Wrigley’s evidence showed, the existence of gaps between it and the adjoining roofs or walls resulted in leakage during wet weather and in the accumulation of dust and debris during windy weather. The fact that these problems persisted after the assignment could not, as we see it, form the basis of a finding of failure by the Lessors to fulfil their contractual obligations to the Lessee to ‘maintain’ it or to fix ‘structural defects’.

80 On the other hand, the leakage into the passageways resulting from the installation of the supports for the air-conditioning units within the box gutters overhead can, in our opinion, be appropriately described as a ‘structural defect’. In his evidence, Mr Evans effectively treated it as such. Even according to his own evidence, his attitude to the problem was to offer no more than a contribution to the cost of rectifying the problem. Under sub-clause 7.1.1, the obligation of the Lessors was however to make the necessary repairs. The units, even if originally installed by Armstrongs Brasserie Pty Ltd, were clearly landlord’s fixtures by the time of the assignment. To this extent, the Lessee has in our opinion made out its claim for breach of contract.

81 The Lessee advanced a claim under s 10 of the Act. The relevant provision, sub-section (1), is as follows:-

10 Right to compensation for pre-lease misrepresentations

(1) A party to a retail shop lease is liable to pay another party to the lease (the injured party) reasonable compensation for damage suffered by the injured party that is attributable to the injured party’s entering into the lease as a result of a false or misleading statement or representation made by the party, or any person acting under the party’s authority, with knowledge that it was false or misleading.

82 Our finding that neither the Lessors, nor any person on their behalf, represented to the Lessee that the roofing over the outside area was waterproof or weatherproof is however sufficient to dispose of this claim. We note also that the Lessee did not bring forward evidence to the effect that, if it had been aware of the leaks in the roof, it would not have entered into the Lease (though its may be, as Mr Davis argued, that this could be inferred from the circumstances at the time and the Lessee’s subsequent conduct). Both of these matters are listed as necessary ingredients of a claim under s 10 in the judgment of Bryson JA (with whom Beazley and Ipp JJA agreed) in Golden Harvest (Aust) Pty Ltd v Paing [2004] NSWCA 85 at [32].

83 In so concluding, we reject the submission by Mr Davis that misrepresentation within s 10 occurred by virtue of the following conduct of Mr Evans: not mentioning the leakage problems while also permitting Mr Mezzatesta and Mr Greenhill to see the premises in a state where (a) the outdoor area appeared to be covered by roofing and (b) it had windows, air-conditioning units on the walls, a tiled floor and indoor restaurant furniture so as to appear to be an enclosed area, or ‘tantamount to an indoor area’. In this connection, we make the following points: (i) Mr Evans was only present at one of the meetings at the restaurant at which the assignment was negotiated; (ii) the person whose conduct inhibited (up to a point) any detailed inspection of the premises was Mr Armstrong, not Mr Evans; (iii) it was Mr Armstrong who determined the location of the restaurant furniture at the time of these meetings; (iv) the Lessee’s solicitors had already signified their client’s intention to make alterations to the premises and were quite likely, as far as the Lessors knew, to have seen the restaurant plans and noted the label ‘outdoor dining’; and (v) most importantly, the significance of Mr Davis’s contention that the outdoor area appeared to be waterproof and weatherproof is undermined by Mr Mezzatesta’s own evidence that the gaps between the fibreglass covering and the adjoining roofs or walls were visible.

84 For similar reasons, we reject Mr Davis’s submission that the Lessors engaged in unconscionable conduct within the meaning of s 62B(1) of the Act. Mr Davis relied specifically on sub-paragraphs (i) and (k) of s 62B(3). These provisions are as follows:-

62B Unconscionable conduct in retail shop lease transactions

(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.

(3) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to: …

(i) the extent to which the lessor unreasonably failed to disclose to the lessee:

(i) any intended conduct of the lessor that might affect the interests of the lessee, and

(ii) any risks to the lessee arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and…

(k) the extent to which the lessor and the lessee acted in good faith.

85 The conduct of the Lessors on which Mr Davis relied was (a) their failure during negotiations for the assignment to disclose their knowledge of the leakage problems and (b) their apparent intention not to rectify these problems. As to the first of these matters, we repeat the observations that we made at [82 – 83], in dealing with the claim of misrepresentation. We add that there was no sharp practice by the Lessors in concealing latent defects because, as we stated earlier, the problems in the roofing were detectable on a careful inspection. It is significant also that (i) there was no evidence to suggest that the Lessee was in a weak bargaining position relative to that of the Lessor (see s 62B(3)(a)) and (ii) the Lessee had the benefit of legal advice (see s 62B(3)(c)). As to the second matter, we would observe that as far as the outdoor area was concerned, our decision, set out at [76] above, is that the Lessor was not in fact obliged by the Lease to rectify the leakage problems.

86 In opposing the claim of unconscionable conduct, Mr Reuben submitted that the Lessee was bound to satisfy the conditions set out by the High Court in ACCC v C G Berbatis Holdings Pty Ltd (2003) 77 ALJR 926. But this, as we understand the law, is not the case. The High Court was dealing there with the concept of ‘unconscionable conduct’ within the ‘unwritten law’, not with the statutory concept set out in s 62B. Mr Reuben’s general contention that the Lessee had failed to bring its case within s 62B was not, however, dependent upon his specific submission based on Berbatis.

87 Our conclusion as to the Lessee’s case for damages is that they can only be awarded for the Lessors’ failure to fix the leakage caused by the unsatisfactory positioning of the supports for the air-conditioning units in the box gutters above the two passageways.

88 The remaining elements of the Lessee’s application are its claims (i) that by virtue of damage to the premises, its liability to pay rent and outgoings were reduced pursuant to sub-clause 8.2.2 of the Lease and (ii) that since the Lessors had failed to repair the damage within a reasonable time after being notified of it, it became entitled under sub-clause 8.2.4 to terminate the Lease.

89 Sub-clauses 8.2.2 and 8.2.4, together with their heading and sub-heading, were as follows:-

Clause 8 INSURANCE AND DAMAGE

What happens if the property is damaged

8.2 If the property or the building of which it is part is damaged (a term which includes destroyed) …

8.2.2 if the property is still usable under this lease but its usability is diminished due to the damage, the tenant’s liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in usability caused by the damage;…

8.2.4 if the landlord fails to repair the damage within a reasonable time after the tenant requests the landlord to do so the tenant can terminate this lease by giving not less than 7 days notice in writing of termination to the landlord;…

90 In our judgment, neither of these sub-clauses is applicable to the case, for the following reasons.

91 Sub-clause 8.2.2 does not apply because the reason why the outdoor area was not ‘usable’ during wet or windy conditions was not that either the roofing or any other part of the premises had suffered damage. It was instead that the fibreglass roof had been constructed in such a way as to let in water, dust and debris, with the result that customers had to leave the outdoor area or could not be placed there on arrival. As we have already said, the assumption by Mr Davis that the roof would ‘presumably’ have been waterproof when it was first installed is not one that we are prepared to make, so his argument that by the time of the assignment there was ‘damage’ which the Lessors were obliged to repair must fail. The photographs and video tendered by the Lessee showed that the water had caused some damage to the paintwork and lining of the walls of the outdoor area. But it was not claimed that this of itself made the area unusable.

92 Sub-clause 8.2.4 does not apply because the damage that we have just described was not the subject of any request to the Lessors to effect repairs. What the Lessee required of the Lessors was that they should make, or at least pay for, sufficient alterations to the (undamaged) roofs and gutters to prevent them leaking. Principally, this involved sealing the joints between sheets of roofing and adjoining sheets or walls. It also involved relocating the air-conditioning units that had been placed over the passageways. None of these operations could be described as the effecting of repairs to ‘damage’.

93 In the result, we have accepted only one element in the Lessee’s case. We have endorsed only its claim that the Lessors were in breach of sub-clause 7.1.1 in failing to fix specific structural defects, namely, the unsatisfactory positioning of the supports for the air-conditioning units in the box gutters above the two passageways. These defects caused water to leak into the passageways and indeed into the basement of the premises. This leakage posed problems for staff, notably when they were in the servery, and for staff and customers going downstairs to the toilets. It caused inconvenience, if not damage, in the storage areas and office in the basement. But it was not shown to have been enough in itself to prevent the outdoor area being used during wet or windy weather.

94 Leaving aside some issues arising from the Lessors’ recourse to a bank guarantee given by the Lessee, the specific heads of financial loss claimed by the Lessee were, however, all dependent on the Lessors being held to be under some sort of obligation to ensure that the outdoor area was usable. The losses claimed were (a) a sum of $31,151.63, representing damages equal to the rent and outgoings paid by the Lessee in respect of the parts of the property that were unusable and (b) a sum of $22,151.00 comprising payments (amounting to $6,425.00) made by the Lessee in connection with its two development applications and payments (amounting to $15,726.00) made for tiling and painting within the premises. The loss claimed in (a) was based on rights allegedly accruing to the Lessee under sub-clause 8.2.2 of the Lease because the Lessors had failed to make the outdoor area usable. The loss claimed in (b) was based on its assertions that the Lessors were liable for misleading and deceptive conduct, misrepresentation and unconscionable conduct. Once again, these assertions had their basis in the contention that the Lessors should have made the outdoor area usable.

95 We have however rejected this primary contention. In consequence, the Lessee is in the unfortunate position of having established a breach of the Lease by the Lessors (relating specifically to the location of the air-conditioning units), but having failed to show that it suffered any damage as a resulted of this breach.

96 For this reason, we are bound to dismiss the Lessee’s application.

The cross claim by the Lessors

97 In their cross claim, as indicated above, the Lessors claimed damages from the Lessee for unpaid rent and outgoings, the cost of repairs, replacement and restoration of the premises, rent during the unexpired portion of the Lease and costs associated with attempting to relet the premises. We will deal with these various components in turn.

98 We have rejected the Lessee’s argument that under sub-clause 8.2.2 of the Lease it was bound to pay only a reduced proportion of the rent on account of the Lessors’ failure to rectify the problems caused by the leakage into the outdoor area. While we have held that the Lessors were in breach of contract in failing to fix the defects arising from the positioning of the air-conditioning units, we have no evidence that this of itself rendered any part of the premises unusable. It follows that, at least up to 10 April 2003, when the Lessee’s purported notice of termination of the Lease was expressed to take effect, the Lessee was liable to pay the full amount of rent and outgoings due.

99 As set out in the submissions for the Lessors, the total of the unpaid rent and outgoings due on 7 April 2003 (being the day on which, in the Lessors’ submission, the Lessee vacated the premises) was $30,564.20. This calculation was not disputed.

100 The Lessors’ claim for the cost of repairs, replacement and restoration of the premises amounted to $116,919.00. The basis of the claim was that the Lessee had breached its obligations under the Lease (a) to ‘maintain the property in its condition at the commencement date’, except so far as the Lessors had obligations to maintain them under sub-clause 7.1, and to ‘promptly do repairs needed to keep it in that condition’ (sub-clause 7.2); (b) to ‘decorate the inside of the property in the last 3 months of the lease period (however it ends)’ (sub-clause 7.3.3); and (c) to comply with obligations under sub-clause 12.3, relating to the ending of the Lease, as follows:-

12.3.1 [to] return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and

12.3.2 [to] have removed any goods any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal.

101 In reply, the principal point made by Mr Davis was that there was no evidence as to the specific state of the premises, or as to the items of equipment that belonged to the Lessors, at the time of commencement of the Lease. He elaborated on this argument as follows. With regard to the former issue, Mr Evans’s claim that the premises were in a generally good condition was wholly insufficient. Furthermore, it was contradicted by the evidence of Mr Wrigley. With regard to the latter issue, there was no inventory indicating which items of equipment within the premises at the time of commencement of the Lease belonged to the Lessors and which items to Armstrongs Brasserie Pty Ltd. Furthermore, the inventory attached to the contract of sale of the business from that company to the Lessee included a number of items (for example, light fittings and a beer dispensing system) of which the Lessors claimed ownership. Where the claim against the Lessee was that it should have removed an item of equipment (for example, the central heating system) which was not shown on this inventory, this lack of documentary evidence to support the Lessors’ claim meant that the possibility that the item was within the premises before the Lease began had not been eliminated.

102 Mr Davis argued that these deficiencies in the Lessors’ evidence wholly undermined their claim under these heads of alleged damage. It was not open to the Tribunal, he said, to assume in the Lessors’ favour that the premises were in good condition at the commencement of the Lease and that their assertions regarding the ownership of specific items of equipment were correct.

103 Mr Reuben did not, in our opinion, offer any convincing submission in response. He suggested that the Lessee did not offer any evidence to dispute Mr Evans’ assertion that the premises had been in good condition at the commencement of the Lease. In our opinion, this fails to take account of Mr Wrigley’s account of their condition in December 1999. While this was some 18 months after the Lease began, it constituted specific and independent evidence tending to contradict Mr Evans’s assertion. Mr Reuben also submitted, relying on the photographs taken in April 2003, that ‘most of the damage’ was caused by the Lessee’s removal of fixtures and that obviously ‘the premises were left in a very bad condition’. This is insufficient, in our opinion, to deal with the deficiencies of evidence identified by Mr Davis.

104 As indicated earlier, however, the Lessee, in its responses noted on the Scott Schedule that was jointly tendered, admitted that it should make some payment in respect of some of the items in the Lessors’ claim. The Lessors should, in our view, have the benefit of these admissions. The Lessee sought to avoid liability for GST in relation to those items that involved repair works, saying that it would prefer to carry out the repairs itself, pursuant to an appropriate order from the Tribunal. The Lessors’ answer to this was that repairs should be effected by appropriately qualified repairers and that there was nothing to indicate that the Lessee had relevant qualifications. On this particular issue, we agree with the Lessors.

105 In the result, we dismiss the Lessors’ claim for the cost of repairs, replacement and restoration of the premises, except in relation to (a) those payments which the Lessee admitted that it should make and (b) an additional amount to cover GST. The total amount admitted by the Lessee, exclusive of GST, was $14,140.78. With 10% added on for GST, the amount that we award is $15,554.85.

106 We turn now to the Lessors’ claim for unpaid rent during the unexpired period of the Lease. It is established that if a lease is terminated prematurely by conduct of the tenant amounting to repudiation (with the landlord accepting the repudiation) or abandonment of possession (with the landlord retaking possession on its own account), the landlord may sue for the balance of the unpaid rent, since the benefit of its bargain with the tenant has been lost: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373; Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105. Through one or other of these two means, the Lease in this case came to an end. The Lessors accordingly have a prima facie entitlement to the unpaid rent.

107 As indicated above at [58 – 59], the Lessors subsequently attempted without success to relet or sell the premises. Mr Davis submitted that the measures adopted by them were inadequate and that accordingly any award made under this head should be substantially reduced on account of their failure to mitigate damages. He argued that while there was evidence of ‘limited attempts at advertising over what is submitted is a short period of time’, there was ‘no evidence of any ongoing attempts’. Specifically in relation to the attempt at a sale, he submitted that because there was no evidence of an independent valuation by an appropriately qualified agent, the Tribunal was not in a position to determine whether the Lessors acted reasonably in rejecting the offer that they received after the auction sale. Mr Reuben’s submission did not address the issue of mitigation.

108 The principal problems confronting Mr Davis’s line of argument are however that according to recent Court of Appeal authority, (a) the onus lies on a tenant who is sued for unpaid rent in circumstances such as the present to establish that the landlord has failed to take reasonable steps to relet the premises and (b) the standard of conduct expected of the landlord is not high.

109 In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313, a case concerned amongst other things with a landlord’s duty to mitigate damage by endeavouring to relet the premises following acceptance of repudiation by the tenant, Giles JA, with whom Handley and Stein JJA agreed, stated the relevant principles as follows, at [187]:-

A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not… Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did.

110 In Young v Lamb (No 2) [2001] NSWSC 1014, a case dealing with a comparable situation, Austin J, having quoted this passage, added at [31] that ‘where the assessment of damages relates to a commercial operation, the question relates to what the plaintiff “would do in the ordinary course of business”’. He indicated that this quoted phrase was derived from Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9.

111 In so far as Mr Davis’s argument relied on the Lessors’ rejection of an offer to purchase the premises, it encounters a further potential obstacle, presented by the following passage in Austin J’s judgment in Young v Lamb (at [37]):-

In February 1999 he [an agent instructed by the plaintiff landlord] received instructions from the plaintiff to market the premises for sale at $375,000, subsequently reduced to $290,000. No sale was achieved, although the plaintiff was selling other, smaller units in the building. Attempts to sell the premises are relevant to the question of mitigation, although the requirement to mitigate loss does not require a plaintiff landlord to sacrifice the property itself by selling at a low price: McGregor on Damages para 317ff.

112 In our judgment, the Lessee has failed to discharge the onus of showing that the Lessors failed to take reasonable steps to mitigate their damage. Even allowing for the fact that the standard imposed on a landlord in this situation is not high, it is possible that the measures actually adopted by the Lessors were inadequate. But it was for the Lessee to supply such missing evidence as might show this – for example, estimates by qualified real estate agents as to the value of the premises or the rent that could they could expect to fetch. Instead the Lessee adduced no evidence at all on the issue of mitigation, and did no more than to allege that the measures outlined in the evidence adduced by the Lessors were insufficient.

113 Leaving aside the matter of interest, the amount claimed by the Lessors for unpaid rent and outgoings within the period of 13.75 months between 7 April 2003 (the date on which, according to them, they resumed possession of the premises) and 30 May 2004 (the date of expiry shown in the Lease) was $266,133.15. The various components of this claim were set out in a ‘Respondents’ Schedule of Damages’ appended to Mr Reuben’s written submission. The calculation of them was not disputed by the Lessee.

114 We have no evidence, however, as to whether the premises have been relet or sold since 19 December 2003, the date on which the hearing of evidence in this case concluded. In these circumstances, we do not consider it appropriate to assume, in the Lessors’ favour, that it has received nothing to make up for lost rent since 1 January 2004.

115 The Lessors’ claim under this head must accordingly be reduced by the amount sought for unpaid rent during the five months between 1 January and 31 May 2004. The monthly rent due under the Lease during that period was $18,293.36, so a deduction of $91,466.80 must be made. A further deduction must be made from the further amount of $15,777.83 ($11,088.50 for land tax and $4,689.33 for rates) shown in the Lessors’ schedule of damages. The appropriate amount to be deducted, representing five months out of the total period of 13.75 months, is $5,737.39. When these two deductions are made, the resulting figure is $169,928.96.

116 A document entitled ‘Points of Cross Claim’, filed by the Lessors on 16 August 2003, referred to a requirement in sub-clause 5.1.5 of the Lease and Item 14 of the Schedule to the Lease that the Lessee must pay interest at 10% per annum on any payment due for rent or outgoings when such payment was more than 14 days overdue. The ‘Particulars of Damage’ set out in this document included ‘interest under the Lease’. In paragraph 66 of an affidavit of Mr Evans sworn on 6 August 2003, various figures were set out under the heads of damage claimed, which were said to be exclusive of interest. In his written submission, Mr Reuben referred to this paragraph, indicating that, subject to some variations that he then set out, the Lessors relied on the calculation of damages contained in it. In the Respondents’ Schedule of Damages appended to this submission, no amount was claimed for interest.

117 The issue of how any entitlement to interest under the Lease might be determined is further complicated by the fact that on 10 April 2003 the Lessors drew down a sum of $46,478.85 upon a bank guarantee that the Lessee had provided at the time of the assignment. On 1 May 2003, it drew down a further amount of $22,203.00. The total of these payments – $68,682.15 – exceeded by some $10,000 the total of the amount due on 1 May 2003 for unpaid rent and outgoings (about $44,000) and the amount that we have awarded (based on concessions by the Lessee) for restoration of the premises (about $14,000). The Lessors effectively obtained an advance payment of $10,000.

118 In these circumstances, and relying in particular on the Lessors’ failure to quantify and substantiate in specific terms its initial claim for interest pursuant to the Lease, we do not propose to make any award under this head.

119 The final head under which the Lessors claimed damages was that of costs associated with attempting to relet the premises. Annexed to an affidavit of Mr Evans, sworn on 10 November 2003, was an invoice for $5,366.00 for the costs of advertising the sale of the premises. This is a recoverable item: see Young v Lamb (No 2) [2001] NSWSC 1014 at [28], citing McGregor on Damages, 15th edn, 1988 at paras 275ff.

120 The total of the various awards that we have made on the cross-claim is $221,414.01. This must be reduced by $68,682.15, being the total sum drawn down by the Lessors on the Lessee’s bank guarantee. The resulting amount is $152,731.86.

121 Under s 72A of the Act, the Tribunal is empowered to award interest at a specified rate (not exceeding the rate payable on a District Court judgment) on the whole or any part of an amount ordered to be paid on a retail tenancy claim or an unconscionable conduct claim. The interest may relate to the whole or any part of the period from when the cause of action arose to when the order takes effect.

122 In their Points of Cross Claim, the Lessors claimed interest on any damages awarded under the following three heads: cost of repair and restoration of the premises, unpaid rent and outgoings following the Lessee’s vacation of the premises and costs associated with attempts to relet and mitigate loss. This was in addition to the claim, already mentioned, for interest pursuant to the Lease.

123 When the total amount that we have awarded – $152,731.86 – is reduced by the amount of $30,564.20 that we have awarded for a head of damages not included in this claim for statutory interest – that is, rent up to the date of vacation of the premises – the amount remaining is $122,167.66. The Lessors’ entitlements that we have recognised under the relevant three heads arose at different times, the latest of which was 1 January 2004. For reasons set out above, we have made no award for unpaid rent and outgoings following that date.

124 In the circumstances, we consider it appropriate to award interest at 9% per annum on this amount of $122,167.66 from 1 January 2004 to 6 July 2004, the date of this decision. This produces a figure of $5,647.75. The total amount awarded is therefore $158,379.61, being the sum of this figure and the principal award of $152,731,86.

Orders made in this case

125 The application by the Applicant Lessee is dismissed.

126 The cross claim by the Respondent Lessors is allowed.

127 The Lessee must pay to the Lessors the sum of $158,379.61, comprising a principal sum of $152,731.86 and $5,647.75 for interest.

128 Each party has 28 days from the date of this decision to file a written submission seeking an order for costs. If no submission is filed within that period, there will be no order for costs. If a submission is filed, any submission in reply is to be filed within a further 28 days. The Tribunal’s decision on costs will be reached on the basis of the written submissions, under s 76 of the Administrative Decisions Tribunal Act 1997, unless it determines, having considered reasons advanced in either or both of these submissions, that an oral hearing should be conducted.